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Income Tax - Case Laws
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2014 (6) TMI 1077
Validity of order passed u/s 144C (13) - gross violation of the principle of natural justice - As per assessee order of DRP as passed in the absence of non appreciation of arguments, evidence in support of assessee’s claim as agitated before the Panel - HELD THAT:- According to us, the order of TPO may be upheld in case the arguments of AR before DRP are same as before the TPO. In case before us, the fact is otherwise as the assessee has raised further arguments, gave further evidence before the DRP.
In such a situation, upholding the order of TPO ignoring various contentions along with evidence to that effect is not justified. The reasoning is the soul of the order, which is missing in this case. Such an approach cannot be encouraged. The essence of principles of natural justice is to provide an opportunity of being heard to the assessee and after hearing, the same should be duly incorporated in the order of judicial authority. In the absence of reasoned finding on the contentions/evidence of the assessee, the order amounts to nonspeaking one which cannot be upheld. See Atotech India Ltd [2011 (1) TMI 112 - ITAT, DELHI] AND M/S SYMANTEC SOFTWARE SOLUTIONS PRIVATE LIMITED [2012 (8) TMI 590 - ITAT, MUMBAI] AND GEODIS OVERSEAS (P) LTD. [2011 (3) TMI 860 - ITAT, DELHI]
So following the same reasoning we set aside the order of DRP and restore the issue to the DRP with a direction to decide the same as per fact and law after providing due opportunity of being heard to the assessee. The assessee is directed to co-operate in the proceedings before the DRP. Appeal filed by the assessee is allowed for statistical purposes.
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2014 (6) TMI 1076
TP Adjustment - comparable selection - Functional dissimilarity - HELD THAT:- Deselection of companies as functionally dissimilar with that of assessee as engaged in rendering market research and related Information Technology Enabled Services (ITES) for domestic and international clients. Assessee’s Offshore Research Service Centre (ORSC) is registered with Software Technology Park of India and provides ITES to its group companies.
Consideration of management fees disallowed in computation of operating margin - We are of the view that when the TPO is disallowing the payment of management fees, it cannot be considered for the purpose of computation of operating margin, otherwise, it will amount to double addition. We, therefore, remit this issue back to the file of the AO/TPO to look into this aspect and decide the issue after affording reasonable opportunity of being heard to the assessee.
Computation of working capital adjustment - We are of the view that if the assessee has maintained separate records and can substantiate allocation of expenditure to the international transactions with AE and non-AE there is no reason why working capital adjustment should not be made accordingly. In that view of the matter, we remit the issue back to the file of the AO/TPO for deciding the same afresh after affording reasonable opportunity of being heard to the assessee. TPO must consider the submissions of the assessee in the context of the facts and materials placed before deciding the issue. Accordingly, we direct the AO/TPO to compute ALP in conformity with our directions hereinabove and work out adjustment if any to be made u/s 92CA of the Act.
Exemption u/s 10A of the Act on the profit relating to offshore research services centre (ORSC) unit of the assessee - AO while framing draft assessment order rejected exemption claimed u/s 10A of the Act in respect of ORSC unit by holding that the aforesaid unit having been set up by splitting up/reconstruction of the existing business exemption claimed cannot be granted - HELD THAT:- So far as the first contention of the assessee that ORSC is a new unit, we are unable to accept such contention in view of the specific finding of the AO, which has not been controverted by the assessee by bringing sufficient material to substantiate its claim.
Alternative contention of the assessee for allowing claim of deduction u/s 10A of the Act due to conversion from DTA unit to STPI unit, we find force in such contention of the learned AR. It is not in dispute that ORSC unit is recognized as a STPI unit. On perusal of the order passed by the DRP for the AY 2008-09, it is seen that in para 12 of the said order, the DRP has held that when ORSC unit is converted from domestic tariff area to STPI unit, it is eligible for deduction u/s 10A of the Act for the remaining period out of 10 consecutive assessment years starting from the year in which it was approved as STPI unit. In view of such finding of the DRP for the AY 2008-09, we direct the AO to allow deduction u/s 10A of the Act for the impugned assessment year also.
Levy of interest u/s 234B is consequential to the final determination of income.
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2014 (6) TMI 1073
Applicability of Section 28 (iv) - Assessee received payment by various cheques for assigning development rights, balance sum was not received in terms of the Memorandum of Understanding, but did not make any payment, it did not come forward to complete the transaction either - Assessee did not show this amount of as income - HELD THAT:- The circumstances in which the Memorandum of Understanding was executed, the sum received have been noted. The property in question was shown as reserved in the development plan by Kalyan Dombivali Municipal Corporation. There were several efforts made to have these properties released. Memorandum of Understanding was not withdrawn nor cancelled.
In such circumstances, the Assessee continues to acknowledge the sum received and stated that it was a liability towards M/s. Highland Realities Pvt Ltd from the time the Memorandum of Understanding executed. It was thus of the view that it was obliged to return it. In these circumstances, both the Commissioner as well as the Tribunal found that Section 28(iv) will have no application.
We do not find that a larger controversy or question needs to be gone into and based on the contentions raised by Mr. Malhotra. The correctness of the view taken in the case of Ahuja [2007 (5) TMI 257 - ITAT BOMBAY-I] need not be considered in the circumstances, which have been noted in paragraph no.9 of the order passed by the Tribunal and equally by the CIT (Appeals). Hence, we are of the opinion that the findings of fact cannot be termed as perverse.
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2014 (6) TMI 1071
Set off of business loss earned from F & O trading activity - Denial of benefit of loss or deduction merely on the ground that the assessee has not claimed the same in the return of income - HELD THAT:- As in an assessment, AO is to compute total income of the assessee as per the provisions of the Income Tax Act. If any loss actually suffered by the assessee or any deduction which is legally allowable to the assessee and in relation to which all the details are available before the AO at the time of the assessment, then such loss or deduction is to be allowed by the AO and in fact the AO is duty bound to compute the total income of the assessee as per provisions of law and it cannot be appreciated that the AO will not allow the benefit of loss or deduction to the assessee merely on the ground that the assessee has not claimed the same in the return of income.
Our above view finds support from an old circular of CBDT bearing no. No. 14(XL-35) of 1955, dated 11-4-1955 wherein it was opined that “Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him
As in view of the decision of the Hon’ble Supreme Court in D.P. Sandu Bros. Chembur (P) Ltd [2005 (1) TMI 13 - SUPREME COURT] the amount which has been deemed as income u/s. 69 is assessable as income from other sources and because of the same, it forms part of the total income of the assessee.
It is not in dispute that genuine business loss can be set off against the income which is assessable under the head ‘income from other sources’. We, therefore, do not find any error in the order of the Commissioner of Income Tax (Appeals). It is confirmed. The ground of appeal of Revenue is dismissed.
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2014 (6) TMI 1068
Exemption u/s 11 - whether interest free loan given to M/s. SPK MAC Charitable Trust is in violation of section 11(5) or 13(1)(d) or 13(1)(c) and held that there is no such violation and sustained the order of Commissioner of Income Tax (Appeals) in allowing the claim of the assessee u/s 11 ? - HELD THAT:- Perused orders of lower authorities and the decision of this Tribunal relied on and find that the issue in appeal has been decided in favour of the assessee in assessee’s own case for the assessment year 2008-09 [2013 (8) TMI 1166 - ITAT CHENNAI] by order wherein the co-ordinate Bench of this Tribunal sustained the order of the CIT (Appeals) in allowing the claim of exemption under section 11.
We direct the AO to allow exemption claimed by the assessee under section 11 - Appeal of the assessee is allowed.
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2014 (6) TMI 1067
Disallowing the Interest paid to bank on notional basis being the amount Used by one of the partners - nexus between the withdrawals by Partner and usage of borrowed funds - AO noted that Partner had used borrowed funds for his personal use by withdrawing capital from firm’s funds and interest on the said borrowed capital used for personal purpose by way of withdrawal by Shri Kanwal Khurana, partner was disallowed - case of the revenue was that the interest bearing funds were used by the assessee to advance interest free funds to one of the partners who in-turn had utilized the same for personal purposes - HELD THAT:- The cumulative capital balance of the partner is negative figure. Consequently, the precedent relied upon by the ld. AR for the assessee is not applicable to the facts of the present case where one of the partner has overdrawn his capital which is over and above the cumulative capital balance (credit) of the other partners and where the assessee had borrowed interest bearing funds, then it cannot be held that there was no diversion of funds for non-business purposes.
In view thereof, we hold that the interest relatable to such capital balances over drawn by the partner Shri Kanwal Khurana is to be considered for computing the disallowance of interest under section 36(1)(iii) of the Act.
Assessing Officer is directed to recompute the interest expenditure relatable to such amounts by taking the day to day balance of all the three partners and also by ignoring the profits credited to the partners’ capital account at the close of the year. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and recompute the disallowance in the hands of the assessee in accordance with our directions. The ground of appeal raised by the assessee is thus, allowed for statistical purposes.
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2014 (6) TMI 1063
Deduction u/s 43B - disallowance of prior period interest expenses as payable to public financial institutions/ Governmental bodies - HELD THAT:- We are not in agreement with the Commissioner of Income Tax (Appeals) as prior period interest was paid by the assessee to the Government of Tamil Nadu and Government of Tamil Nadu is not a public financial institution / governmental body which comes under the provisions of section 43B of the Act. The co-ordinate Bench of this Tribunal in the case of The Kallakurichi Co-op. Sugar Mills Ltd. (supra) observed that any amount payable to a Government is not hit by section 43B of the Act. Thus, the observation of the Commissioner of Income Tax (Appeals) that these interest payments made to Government of Tamil Nadu are hit by the provisions of section 43B of the Act is not correct and reversed. However, we agree with the view of the Commissioner of Income Tax (Appeals) that prior period interest liability crystallized on 28.3.2008 when the payment was made to the Government of Tamil Nadu during the financial year 2007-08 relevant to the assessment year 2008- 09 and is allowable in the assessment year 2008-09.
Addition u/s 43B of the Act being interest paid to Government of Tamil Nadu - AO observing that the said amount was only a provision for payment and as per the provisions of section 43B of the Act any claim of interest payments has to be allowed only on actual payment even though the loan is from public sector financing bodies, therefore Assessing Officer disallowed the said interest and added back to the total income - HELD THAT:- As held that interest paid to Government of Tamil Nadu is not hit by the provisions of section 43B of the Act. In the circumstances, we are of the considered view that this matter should go back to the Assessing Officer to verify as to whether assessee paid the interest of ₹ 183.90 lakhs to Government of Tamil Nadu or to any other financial institution or it is only a provision made. Needless to say if this amount is paid to Government of Tamil Nadu, the provisions of section 43B of the Act have no application to such payments. The Assessing Officer shall examine the issue afresh in accordance with law after providing adequate opportunity to the assessee.
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2014 (6) TMI 1062
Addition u/s 43B - interest payable, which was not paid during the year - interest payable to the Government of Tamilnadu and M/s Infrastructure Leasing and Financial Services - stand taken by the Revenue is that the interest to be paid by the assessee had not been crystallized in the year under consideration - HELD THAT:- We find that the issue involved in this appeal has already been considered by the Tribunal in assessee’s own case for the assessment year 2008-09 [2012 (8) TMI 1202 - ITAT CHENNA] admittedly, neither the Government of Tamil Nadu nor Infrastructure Leasing & Financial Services Ltd. IL&FS fall within the definition of Public Financial Institution. Hence, the learned Commissioner of Income Tax (Appeals)’s premise that Explanation 3(c) of Section 43B(d) is applicable, is erroneous. As we have already held earlier that as per the reading of loan agreement, the interest amount has very much accrued and the liability has crystallized. In this view of the matter, we hold that order of the authorities below is liable to be set aside and assessee's claim be allowed
DR could not controvert the above findings of the Tribunal and he could not bring any material on record to show that the above order of the Tribunal was varied in appeal by any higher forum. We, therefore, respectfully following the above quoted order of the Tribunal, confirm the order of the CIT(A) and dismiss the grounds of appeal of the Revenue.
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2014 (6) TMI 1060
Deduction u/s. 80 IB(10) - approval of the local authority was obtained on 28.11.1992 i.e. much before 01.10.1998 - AO disallowed the deduction on the ground that the project was started by commencement certificated dated 28th November, 1992 issued to M/s. Gas Property Developers, therefore, the assessee does not fulfilled the conditions laid down in section 80IB(10) according to which for being eligible for deduction under section 80IB(10) the project must have to be started on or after 1st October, 1998 - HELD THAT:- Number of no objection certificates were obtained by the assessee after entering into the Development Agreement. Copies of all these no objection certificates, IOD and CC were submitted. No contrary evidence has been brought on record to controvert these findings recorded by the learned CIT(A). Simply on the basis of the IOD obtained by M/s. Gas Property Developers, the AO has drawn an inference that it was continuation of the earlier project. However, the project has to be seen vis-à-vis the approval obtained for it and commencement of the project. The project commenced and developed by the assessee is not as per the old project for which approval was obtained by M/s. Gas Property Developers on 28th November, 1992.
These expenses also cannot be connected with the project got approved by the assessee in the financial year 2003 and on the basis of those expenditure it cannot be said that the project developed by the assessee is continuation of the earlier project for which approval was obtained by M/s. Gas Property Developers on 28th November, 1992.
No expenditure, whatsoever, has been shown to be incurred on the housing project for which approval was obtained by the assessee after entering into Development Agreement, i.e. on 10th July, 2003. The expenditure incurred by M/s. Gas Property Developers were not on the housing project approved by the municipal corporation on the revised layout
The expenditure incurred by M/s. Gas Property Developers was on repair of the boundary wall. Therefore, on the basis of the earlier approval obtained by M/s. Gas Property Developers, which has already lapsed, and the expenses were on account of repair of boundary wall the project cannot be stated to have been commenced before 01.10.1998. Therefore, we find no infirmity In the findings recorded by the learned CIT(A) that the AO was wrong in holding that the housing project of the assessee had commenced before 01.10.1998. - Decided against revenue.
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2014 (6) TMI 1057
Deduction u/s 80P(2)(a)(i) - Assessee is a Cooperative Society - HELD THAT:- It is not in dispute that the assessee-The Karnataka State Co-Operative Housing Federation Limited is a co-operative society registered under the Act. It is a federal society, the membership of which is open to a co-operative society registered under the Act and not to individuals. However, the proviso makes it clear that if an individual is to be admitted as a member of a Federal Society it could be done as a nominal member. The definition of a Member contained under Section 2(f) includes a nominal and an associated member.
In order to attract the benefit of deduction in respect of income of a co-operative society, what is required is that the assessee claiming benefit should be carrying on the business of banking or providing credit facilities to its members. As an individual could be a nominal member both of a federal society and a co-operative society and if a federal society extends credit facilities to such nominal members, the income derived from such business falls within Sub-Section (2)(a)(i) of Section 80P of the Act. Therefore, the assessee would be entitled to the benefit of deduction. Therefore, the finding recorded by the Tribunal that the assessee is entitled to the said benefit is strictly in accordance with law and it cannot be found fault with. In that view of the matter, we do not see any merit in this appeal. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue.
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2014 (6) TMI 1056
Disallowance on account of extraction/rescreening charges - AO found that the explanation offered by the assessee in respect of substantially higher extraction/rescreening charges claimed during the year under consideration was not reliable - there was a substantial difference between the sales and purchases declared by the assessee for the year under consideration showing higher gross profit (GP) rate as compared to the GP rate declared by the assessee in the immediately preceding year - HELD THAT:- Extraction/rescreening charges were paid by the assessee @ ₹ 38 and ₹ 55 per m.t. in the A.Ys. 2008-09 & 2010-11 respectively and the AO already having allowed the claim of the assessee for such charges @ ₹ 200 per m.t. during the year under consideration, we are of the view that even if the various reasons advanced by the assessee in support of its claim for higher extraction/rescreening charges are assumed to be correct, the same are already covered and taken care of by the fact that the higher extraction/rescreening charges @ ₹ 200 per m.t. are allowed by the AO himself, as compared to ₹ 38 as claimed by the assessee himself in the immediately preceding year.
Most of the adverse findings recorded by the AO while disallowing the claim of the assessee on account of extraction/rescreening charges to the extent of about ₹ 45 lakhs were found to be correct by the ld. CIT(A), but she still restricted the disallowance made by the AO on this issue to ₹ 23 lakhs, giving a relief of about ₹ 22 lakhs to the assessee on this issue, without giving any cogent or convincing reasons and without appreciating the fact that the claim of the assessee for higher extraction/rescreening charges was allowed by the AO by adopting the rate of ₹ 200 per m.t., as compared to the rate of ₹ 38 per m.t. claimed by the assessee in the immediately preceding year.
We are of the view that the disallowance made by the AO on account of extraction/rescreening charges was fair and reasonable and the ld. CIT(Appeals) was not justified in restricting the same to ₹ 23 lakhs. We, therefore, modify the impugned order of the ld. CIT(Appeals) on this issue and confirm the disallowance of ₹ 45,05,867 made by the AO on account of extraction/rescreening charges. - Decided in favour of revenue.
Disallowance u/s 40(a)(ia) - labour charges paid by the assessee to at least 17 persons were exceeding ₹ 50,000 - HELD THAT:- As out of the total expenses of ₹ 1.09 crores claimed by the assessee on account of extraction charges, expenses to the extent of ₹ 45.05 lakhs are already disallowed and it is not possible to ascertain precisely as to whether the expenses of ₹ 9,76,185, which were again disallowed by the AO u/s. 40(a)(ia) of the Act, are forming part of the expenses allowed or disallowed.
We are of the view that the benefit of doubt should go to the assessee and since substantial portion of the expenses claimed by the assessee on extraction charges are already disallowed, it would not be fair and proper to make a disallowance on account of extraction charges again u/s. 40(a)(ia), which may result into double disallowance of the same expenses. We, therefore, uphold the impugned order of the ld. CIT(A), deleting the disallowance made by the AO on account of extraction charges by invoking the provisions of section 40(a)(ia) and dismiss grounds of the revenue’s appeal.
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2014 (6) TMI 1052
Disallowance of Provision for Bad & Doubtful Debts claimed to the extent eligible u/s 36(1) (vii a) - HELD THAT:- As decided in assessee's own case [2015 (4) TMI 727 - ITAT BANGALORE] Assessee’s method of computation of 10% of the Aggregate Average Advances made by its rural branches computed in the prescribed manner viz., as per Rule 6ABA of the IT Rules, 1962 had not been doubted by the AO and hence the additional grounds raised were held to be not admissible.
Tribunal held Sec.36(1)(viia)(a) of the Act, clearly lays down that deduction of 7.5% of the total income has to be allowed as deduction. The plea of the learned DR to restrict the allowance to 7.5% of the total income of the rural branches is contrary to the provisions of the Act. The said additional ground was therefore held to be unsustainable on merits and does not even require an admission for adjudication as it does not arise out of the order of the AO or CIT(A). Thus all the additional grounds sought to be raised by the Revenue were not admitted for adjudication.
We hold that the Assessee in the present AY 09-10 is not entitled to deduction u/s.36(1)(viia)(a) of the Act on an amount greater than the amount debited to the profit and loss account as provision as laid down by the Hon’ble Punjab and Haryana High Court in the case of State Bank of Patial[2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT]. The disallowance made by the AO in this regard is restored and order of CIT(A) reversed on this aspect. Gr.No.2 raised by the Revenue is accordingly allowed.
Interest on Securities on accrual basis - HELD THAT:- It is not in dispute before us that identical decision has also been rendered by the Hon’ble High Court of Kerala in the case of CIT v. Federal Bank, [2008 (1) TMI 195 - KERALA HIGH COURT] In the present case, the assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the revenue in the past. In view of the aforesaid decision, we are of the view that the order of the CIT(A) does not call for any interference. Consequently, ground No.3 raised by the revenue is dismissed.
Loss on Valuation of Investments - HELD THAT:- The facts and circumstances in the present year being identical to the earlier assessment year i.e., AY 06-07[2015 (4) TMI 727 - ITAT BANGALORE] we are of the view that the order of the CIT(A) is just and proper and calls for no interference. Respectfully following the decision of the Tribunal for AY 06-07 referred to above, we dismiss, Gr.No.4 raised by the Revenue
Disallowance of expenses made invoking the provisions of Sec.14A while computing income under the normal provisions of the Act and adding the sum so disallowed to the profits as per Profit & Loss Account for the purpose of computing book profits u/s.115JB - HELD THAT:- It is not in dispute before us that identical issue was considered by this Tribunal in assessee’s own case for the A.Y. 2006-07[2015 (4) TMI 727 - ITAT BANGALORE] and this Tribunal remanded the issue for fresh consideration by the AO in the light of the decision of the Hon’ble Bombay High court in the case of Godrej & Boyce Mfg. Co. Ltd.,[2015 (4) TMI 727 - ITAT BANGALORE] - Following the aforesaid decision, we remand the issue to the AO for fresh consideration to be decided on the lines indicated by the Tribunal.
Deduction on account of provision made for payment of wage arrears on the ground that the same was unascertained liability which was contingent upon the finality of the wage agreement between the management and the employees - HELD THAT:- In this year the provision for wage arrears made by the Assessee was at 8% of the wages prevailing while the ultimate settlement with the workers was at 12%. Thus the estimate made by the Assessee was conservative and well below the ultimate increase that the Assessee conceded to workers in the settlements.
As laid down in the case of BEML [2000 (8) TMI 4 - SUPREME COURT] the criteria for allowing deduction on account of a provision is that the liability to incur the expenditure which is claimed by way of a provision should be certain and secondly the quantification of such liability should be scientific/reasonable. In the present case, the assessee was legally bound to pay the ultimate revision of wages to be settled. In our view going by the past history, the basis on which the provision was made was reasonable. The liability of the assessee to pay increased wages is certain but what was pending was only quantification. The revenue has not disputed the basis of quantification of such liability. In such circumstances, we are of the view that in the light of the principles laid down by the Hon’ble Supreme Court in the case of BEML (supra), the claim for deduction should be allowed. We accordingly direct the AO to allow the claim of the assessee in this regard.
MAT applicability - HELD THAT:- Provisions of Sec.115JB of the Act are not applicable to the Assessee which is a banking company.
Taxing unclaimed monies in NOSTRO Accounts as income of the Assessee taxable u/s.41 - whether similar sums which are credited to the Profit & Loss A/C. after due permission of RBI after conditions imposed by RBI similar to the one imposed in the case of the Assessee? - HELD THAT:- The Reserve Bank of India, while giving permission to close these accounts has clearly stipulated that the amount so transferred shall not be treated as available for distribution of dividends, meaning thereby the Reserve Bank of India has not permitted the bank to treat it as an income once and for all and it has always stipulated certain conditions and prescribed certain procedures and formalities to safeguard the interest of the bank as a whole but that does not take away the basic nature of the amounts. It cannot in any way convert the transactions of this nature as revenue transactions of the bank necessitating the same to be treated as income on the revenue account. At least, the Reserve Bank of India which was ceased of the issue when it was posed to it did not accept the claims of the assessee that this should be treated as miscellaneous income, meaning thereby, these amounts in question, even by efflux of time, cannot be treated as income for the obligations on the part of the bank is not extinguished and Reserve Bank of India has made it very clear that the assessee bank will be under obligation to discharge all the obligations arising therefrom.
In the light of the aforesaid decisions of the tribunal on identical facts as that of the case of the Assessee in the present appeal, we are of the view that the action of the revenue authorities in treating a sumbeing write back of credit balances in NOSTRO Accounts credited to profit and loss account cannot be treated as income of the Assessee and brought to tax.
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2014 (6) TMI 1050
Correct head of income - treatment of interest on FDR s during the construction period - capital receipt or income from other sources - HELD THAT:- We find that the facts of the present case are similar to the facts before the Hon 'ble Supreme Court in Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs. CIT[1997 (7) TMI 4 - SUPREME COURT] and applying the ratio laid down by the Hon 'ble Apex Court we hold that the interest earned by the assessee by parking its funds in short term deposits with the bank is assessable as income from other sources.
We find no merit in the reliance placed upon the decision in Indian Oil Panipal Consortium Ltd. [2009 (2) TMI 32 - DELHI HIGH COURT] as the facts of the said case were at variance. We also find no merit in the plea of the assessee that the interest earned by the assessee is to be infused as share capital and/or to be returned to the Principals who had had advanced the loans to the assessee as the assessee has failed to bring on record any evidence to establish its claim. Merely because the money in future would be utilized for capital expenditure does not make the receipts as capital receipts in the hands of the assessee. - Decided against assessee.
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2014 (6) TMI 1049
Estimation of income - A.O. completed the assessment under section 144 - CIT-A estimated the income at 3% of the gross receipts as against 5% estimated by the A.O. - Revenue argued that CIT(A) gave relief without calling for any remand report from the AO - HELD THAT:- Since the assessee has not furnished any additional evidence, re-appraising the existing fact on the basis of the submissions does not require any remand report. Ld. CIT(A) based his judgment on the basis of available facts on record and also considering the difficulties expressed by the assessee in not earning higher profit. Estimation of profit at 3% of turnover is reasonable. Therefore, grounds of the Revenue are rejected.
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2014 (6) TMI 1048
Exemption u/s 11 - application of the Assessee for registration u/s 12AA - As per CIT-A as per the objectives stated in the amended constitution, the prime object of the Assessee is to preach and practice, teach and educate the tenets of Christianity in the district of Mayurbhanj, neighbouring districts and states. Therefore, the Trust is basically a religious trust created for the benefit of particular religious community or caste - HELD THAT:- From the Income and Expenditure account which was filed before us, we noted that the Assessee has income from sale of literature as well as sale of agricultural product. These incomes clearly show that the activities of the Assessee are in the nature of trade, commerce or business. The words used in proviso to Sec. 2(15) are “any activity in the nature of trade, commerce or business”. This denotes that the Assessee need not actually be engaged in trade, commerce or business but the activities are such which can be in the nature of trade, commerce or business. The words “activity in the nature”, in our opinion, has been used by the legislature as the legislature is fully aware that for carrying out trade, commerce or business there should be a profit motive.
A trust or society which is created for charitable purposes does not have profit motive in carrying out its activities. Therefore, wherever the activities are of the nature of trade, commerce or business, it cannot be said that the trust/institution is engaged in charitable purposes. As the Assessee has income from sale of literature as well as sale of agricultural product, the aforesaid discussion proves that the activities of the trust/institution are not genuine. Even the Assessee could not prove the genuineness of the trust/institution. We, therefore, do not find any illegality or infirmity in the order of CIT as, in our opinion, any trust/institution seeking registration u/s 12AA has to be governed by the Indian Income Tax Act. We, accordingly, dismiss the appeal filed by the Assessee. - Decided against assessee.
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2014 (6) TMI 1045
Assessment passed on revised return - revised return was filed beyond time - As per order of assessment framed by the Assessing Authority on the basis of such invalid revised return is a nullity and the Tribunal also held that even if the order of assessment is held to be passed on the original return, it was barred by limitation as it is hit by Section 153 - HELD THAT:- Assessment order was passed not on the basis of the revised return but on the basis of the original return and therefore the amount claimed as exemption was also liable to be taxed.
Tribunal committed a serious error in holding that the assessment order is passed on the basis of the invalid return filed beyond time. Therefore, it is a clear case of misreading. The order passed by the tribunal is ex-facie illegal and therefore the said order requires to be set aside and accordingly it is set aside.
The return was filed for the assessment year 2001-02. The previous year begins from 1-4-2000 to 31-3-2001 and end of the assessment year is 31-3-2002. In view of Section 153(1)(a), two years period is prescribed for passing of the assessment order which ends on 31-3-2004. The assessment order was passed on 31-3-2004 and therefore, the order passed by the Assessing Authority on the basis of the original return is in time. Unfortunately, the Tribunal had not applied its mind properly and erroneously came to the conclusion that even if the assessment order is to be held as the assessment order passed on the originalreturn, it is barred by time which again is ex-facie illegal and requires to be set aside.
Appeal is allowed. The impugned order passed by the Tribunal is hereby set aside and the order of the Assessing Authority is restored. - Decided against the assessee.
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2014 (6) TMI 1044
Exemption u/s 54EC - assessee has invested the sale consideration in REC bonds beyond the prescribed time limit of six months - assessee is 94 years old, a retired army officer AND chartered accountant appearing for the assessee, the assessee fell ill and could not attend the work of depositing the sale consideration in the bonds within the rigidity of the time frame - HELD THAT:- Assessee was prevented from investing his money within the period of six months because of his illness. The assessee was making efforts to locate a suitable house for him. The moment he came to know that it was not possible for him to find out a house immediately, he sought for the alternative remedy suggested by the statute to invest the funds in eligible bonds. Once he decided to invest in bonds, he fell ill and was prevented from purchasing the bonds within the stipulated period. As soon as he recovered from the illness, he purchased the bonds and complied with the provisions of sec.54EC even though by a normal gap of 59 days.
Assessee is excused by the Doctrine of supervening impossibility. It was not possible for the assessee to purchase the bonds on or before 3rd December, 2007 because of his illness. He purchased the bonds immediately after recovering from the illness. Nominal delay of 59 days is excused by Law. When the delay is excused on a principle of law, we have to see that the assessee is entitled for the exemption on the ground that the delay is to be ignored. Therefore, we find that it is necessary to construe that the assessee has purchased the bonds within due date and, therefore, entitled for exemption provided under sec.54EC. - Decided in favour of assessee.
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2014 (6) TMI 1043
Tax on capital gain - sale of a capital asset as held as a business asset and depreciation was claimed on it - charged at 20% OR at the normal tax rate - computation of capital gain u/s 50 r.w,s 50C - HELD THAT:- We are of the opinion that whenever depreciation is claimed on and assessed it has to be treated as STCG as per the provisions of the Act. But while calculating the tax liability of the assessee as per the provisions of section 112 of the Act the asset has to be taken as long term asset, if same is hold for more than three years by the assessee in the case of Smita Conductors Ltd. [2013 (9) TMI 1056 - ITAT MUMBAI] held that if the flat is held for more than three years the tax rate has to be applied as provided in section 112 of the IT Act applicable in respect of capital gain arising from transfer of long term capital asset.
We, therefore, held that, for the purpose of computation of capital gain, the flat has to be treated as short term capital gain u/s 50 of the IT Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years. - Decided in favour of assessee.
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2014 (6) TMI 1042
Seeking stay of recovery proceedings - garnishee proceedings initiated under s. 226(3) - recovery, which had been lying dormant from June, 2013 was revived just prior to the close of the financial year and recovery effected of the entire amounts demanded under the assessment order - intention of the 3rd respondent was to attach the amounts remaining in the account maintained by the petitioner with the additional 4th respondent-bank; without notice to the assessee - HELD THAT:- Act of withdrawal of the amount after having validly attached the amounts, without any real presumable cause for suspecting delay or impediment in such recovery, was a clear abuse, especially since there was no notice to the assessee, which is the mandate of due process of law. The Department acted without deliberation or due cause and the unavoidable consequence is a direction for the refund of amounts withdrawn under s. 226(3), after deducting ₹ 4 crores, as stipulated in the conditional order passed by this Court on 27th March, 2014.
The refund shall be made within a period of two weeks with interest from the date of withdrawal, to the date of repayment, at the rate applicable in the account of the petitioner; if the account is interest bearing. The refund shall be made without looking at the result of the appeal, which is said to have been heard on 20th March, 2014, since the same is only a first appeal and substantial amounts are already recovered and allowed to be retained with the Revenue as per the interim order of this Court.
This Court does not intend to go into the conduct of the individual officer, since the learned standing counsel points out that she is new to office and had only acted in anxiety to protect Revenue. This Court cannot also discount the pressure brought upon subordinate officers; when, as referred to in UTI Mutual Fund [2012 (3) TMI 333 - BOMBAY HIGH COURT] the Chairman, CBDT, himself, has addressed the Chief CIT, Director Generals, etc., of the IT Department, requiring speedy recovery and consequent weightage in the normal incidence of service. This Court has to necessarily practise the judicial restrain, it preached at the beginning. Suffice it to observe that the zeal to serve the nation shall not cross the bounds of law and result in over-zealous actions infringing upon the rights of citizens, for whom the State exists.
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2014 (6) TMI 1041
Disallowance u/s 14A - as argued entire investment was made in the earlier years by erstwhile Gujarat Electricity Board (GEB) which got de-merged in the immediately preceding year. The assessee was one of the seven de-merged companies thereof - HELD THAT:- Respectfully following the precedent we restore this issue back to the file of the Assessing Officer for adjudication afresh with the same directions as given by the Tribunal in the Assessment Year 2006-07 [2013 (9) TMI 1071 - ITAT AHMEDABAD] as held that the investments were in the form of shares of subsidiary companies as part of the financial restructuring plan approved by the Government of Gujarat which was integral to the demerger - decision of Hon'ble Bombay High Court pronounced in the case of Godrej & Boyce Mfg. Co. Ltd. Muimbai vs. Dy.CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] - AO is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income - AO should provide a reasonable opportunity to the assessee of producing its accounts - Remanded back for statistical purpose.
Disallowance under the head assets written off on the ground that the same is not a revenue expenditure - HELD THAT:- Items in question are drills, tools and equipments which do not have life of more than a year has to be verified from the account books and documents of the assessee as they are not available on record. Therefore, we set aside the order of the Commissioner of Income Tax (Appeals) and restore the matter back to the file of the Assessing Officer for adjudication of the issue afresh in the line of the decision of ADI Artech Transducers (P) Limited [2013 (8) TMI 1105 - GUJARAT HIGH COURT] after allowing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal is allowed for statistical purpose.
Disallowance of prior paid expenses - HELD THAT:- Various claims in respect of transmission charges, tariff, additional capacity charges, building charges etc raised by National Thermal Power Corporation Limited, Power Grid Corporation of India Limited, Gandhar Power Station, Maharashtra State Electricity Board etc. were settled during the year and the liability to pay got crystallized only during the accounting year. The Departmental Representative has relied on the order of the Assessing Officer. He could not bring any material on record to show that the finding of the Commissioner of Income Tax (Appeals) that various expenses claimed by the assessee under the head prior paid expenses got crystallized during the year and therefore were claimed as deduction during the year under consideration was incorrect. Neither has it been shown by the Revenue that the expenses claimed by the assessee are not genuine. It is the claim of the Revenue that since the assessee is following mercantile system of accounting, therefore expenses relating to the year under consideration are only allowable to the assessee.
Even in the case where assessee is following mercantile system of accounting, expenses which are disputed and are finally settled and crystallized in a later year, they are allowable as deduction to the assessee in the year of crystallization of such expenses. Therefore, we do not find any good and justifiable reason to interfere with the order of the Commissioner of Income Tax (Appeals) which is confirmed and this ground of appeal of the Revenue is dismissed.
Disallowance of miscellaneous expenses and write-off - HELD THAT:- Assessing Officer should also get an opportunity to verify the documents which were filed before the Commissioner of Income Tax (Appeals) for the first time by the assessee. In view of the above submissions of the Departmental Representative, we set aside the order of the Commissioner of Income Tax (Appeals) and restore this matter back to the file of the Assessing Officer for adjudication of the issue afresh as per law after allowing reasonable and proper opportunity of hearing to the assessee. The assessee is also directed to file all the details and documents before the Assessing Officer as and when called upon to do so. Thus, this ground of appeal of Revenue is allowed for statistical purpose.
Addition u/s. 40(a)(ia) - legal and professional charges - failure to furnish the details with regard to payment and tax deducted thereon and credited the same to the Government - HELD THAT:- Assessing Officer should also get an opportunity to verify the evidences which were filed for the first time before the Commissioner of Income Tax (Appeals) by the assessee. Therefore, in view of the above submissions of the Departmental Representative, we set aside the order of the Commissioner of Income Tax (Appeals) and restore the matter back to the file of Assessing Officer for adjudication of the issue afresh after allowing reasonable and proper opportunity of hearing to the assessee. Thus, this ground of appeal is allowed for statistical purpose.
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