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Income Tax - Case Laws
Showing 161 to 180 of 401 Records
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2013 (2) TMI 602 - ITAT MUMBAI
Disallowance u/s 14A r.w.r. 8D - assessee-company engaged in the business of investment in shares and securities - assessee contested the disallowance exceeding the amount of income earned - Held that:- Finding force in the assessee's argument that 'share application money', to the extent it is actually so, so that it only represents amount/s paid by way of application for allotment of shares, the same cannot be regarded as an investment in shares, or an asset (or asset class) yielding tax-free income, and neither is it capable of yielding any tax-free income. The same would, therefore, have to be excluded in working out the disallowance u/r. 8D.
Thus the exclusion of 'share application money' is not in the least for the reason that it did not yield any tax-free income for the relevant year, but for the reason that it is incapable of any such income. The same is only in the nature of application (offer) money, which would though, on allotment, get adjusted against the cost of the said shares, and only whereupon any rights in the investee company inure to the allottee. No rights, not even inchoate, in the share capital of the issuing company arise on the payment of the share application money, irrespective of the time period for which it may outstand. The same may at best yield interest income (for which a special procedure though has to be followed by the company concerned), which is in any case taxable, so that there is no scope for application of sec. 14A thereon.
As such, upon verification of the assessee's claim with regard to the share application money as on 31.03.2007 and 31.03.2008, as appearing in its balance-sheet/books of account, so that no shares had actually been allotted in its respect as at the relevant dates, the same shall be excluded by the AO from the qualifying amount in reckoning the average investment in working out the disallowance under rules 8D (ii) and 8D(iii). The A.O. will decide the matter per a speaking order, allowing the assessee a reasonable opportunity to present its case before him.
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2013 (2) TMI 601 - ITAT MUMBAI
Proportionate interest attributable to the advances given to subsidiary/group companies at concessional interest rate or interest free - disallowance - Held that:- As decided in assessee's case in [2004 (6) TMI 589 - MUMBAI BENCH ‘B’ (THIRD MEMBER)] the relevant advances having been made by the assessee to its subsidiary company wholly and exclusively for the purpose of its business, the disallowance of interest attributable to the said advance was not justified - in favour of assessee.
Disallowance of interest on share application money - CIT (A) allowed the claim - Held that:- As decided in assessee's own case for previous years there being no diversion of interest bearing funds for non business purpose as alleged by the AO, there was no justification in making any disallowance on account of interest paid on the borrowed funds. It was also noted that the share application money was finally refunded to the assessee with interest at the rate of 19% and the interest so received was duly offered to tax by the assessee in the relevant year - in favour of assessee.
Addition on account of notional gain on conversion of foreign exchange deposit placed with its wholly owned subsidiary company relying on AS-11 - Held that:- As per the classification made in AS-11, monetary items mainly include amounts held on current account, such as, cash receivables, payables etc. while non-monetary items include amounts held on capital account, such as, fixed assets, investment in shares etc. In the present case, the shareholders’ deposit represented the amount held by the assessee on capital account inasmuch as it was convertible into equity shares within a period of 10 years and if not so converted, it was liable to be refunded to the assessee company only after a period of 10 years thus the said amount thus was in the nature of non-monetary item which was required to be reported/recognized at the exchange rate prevailing on the date of relevant transaction even as per AS-11 as rightly held by the CIT(Appeals) - no infirmity in the impugned orders of the CIT(Appeals) deleting the additions made by the AO on this issue and upholding the same -in favour of assessee.
Deduction u/s 80HHC with regard to meals supplied by its flight kitchen units to foreign airlines - Held that:- Claim of the assessee for deduction allowed holding that the same constituted export eligible for deduction u/s 80HHC relying on earlier year case.
Claim for deduction on account of expenditure incurred on replacement of carpets - Held that:- Decided in favour of assessee relying on CIT vs. Lake Palace Hotels and Motels [2002 (4) TMI 29 - RAJASTHAN HIGH COURT] - in favour of assessee.
Interest levied u/s 234D cancelled by CIT(A) - Held that:- As section 234D has been amended by the Finance Act, 2012 with retrospective effect from 01-06-2003 whereby Explanation 2 has been inserted declaring that the provisions of section 234D shall also apply to assessment year commencing before the first day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. In the present case, the assessment year involved in assessment year 2001-02 which is commencing before the first day of June, 2003 and since the assessment for the same has been completed on 22-03-2004 i.e. after 1st June, 2003, the provisions of section 234D are clearly applicable and the assessee is liable to pay interest u/s 234D as per the amendment made by the Finance Act, 2012 with retrospective effect from 01-06-2003 - set aside the impugned order of the CIT(Appeals) cancelling the interest levied by the AO u/s 234D and restore that of the AO charging such interest - against assessee.
Addition made on account of reversal of interest claimed in the earlier years by crediting the same in the books of account for the year under consideration - Held that:- The accounting entries passed by the assessee in its books of account reversing interest debited in the earlier year and including the same in the cost of relevant fixed asset did not result in any remission or cessation of any liability and it cannot be said that there was any such remission or cessation of any liability by universal act by the assessee so as to invoke Explanation 1 to section 41(1). It is just a case of capitalizing the interest expenditure to comply with the monetary requirements of AS-10 by passing the necessary entries in the books of account which has not resulted in any advantage or benefit to the assessee either by way of remission or cessation of any liability or in any other manner. The addition made by the AO and confirmed by the CIT(Appeals) on this issue thus is not sustainable and deleting the same, allow assessee’s appeal.
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2013 (2) TMI 600 - DELHI HIGH COURT
Sale of shares - ITAT affirmed the deletion of a sum by the CIT(Appeals) on account of long term capital gains assessed by the AO on sale of shares - survey u/s 133A - Jamil A. Khan had admitted that the additional income of Rs.10 cores surrendered by him included an income of Rs.6.29 crores being the amount paid by M/s Samiah International Builders Pvt. Ltd. for the purchase of the shares during the financial year 2005-06 - Held that:- Both the CIT (A) and also the Tribunal have founded their conclusion essentially on the premise that the respondent-assessee had requested for an opportunity of cross-examining Jamil A. Khan and that such an opportunity had not been provided by the assessing officer. However, from the record no finding that there was any such request made by the respondent-assessee for cross-examining Jamil A. Khan. In fact, found rather intriguing as to why would the respondent-assessee request for cross-examining Jamil A. Khan when the respondent-assessee himself had furnished affidavits to Jamil A. Khan in support of his case.
The observations of the CIT (Appeals) as also of the Tribunal that despite the request of the respondent-assessee, the assessing officer had not provided opportunity of cross-examining Jamil A. Khan, are contrary to the record.
The Tribunal had completely overlooked the fact that Jamil A.Khan had filed a revised return after he had made a surrender of Rs.10 crore during the survey operation. In that return an amount of Rs.6.29 crores has been shown as the cash component of the purchase of shares of R.S. Builtwell Pvt. Ltd. from the assessee and his relatives. That aspect of the matter has been ignored by the Tribunal. Consequently, having answered the question in favour of the revenue,the impugned order and remit the matter to the Tribunal for considering the same afresh on all grounds - against assessee.
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2013 (2) TMI 599 - DELHI HIGH COURT
Reopening of assessment - assessee filed written submission against it - Held that:- Going through the order of reassessment it is seen that it has been passed without any application of mind. To say the least, it is a cut-and-paste job. This is apparent from the fact that the paragraph 3 is merely a repetition of the provisions of section 147 and 148 of the said Act. The respondent has not even bothered to change the words such as “we”, “us”, etc. which the petitioner had used in its objections/ reply.
This shows that the respondent had not even applied his mind and not even bothered to correct the contents of paragraph 2 so as to put it into second person or third person in the grammatic sense. Thus such an order cannot be permitted to stand as it smacks of non-application of mind. The assessing officer has to apply his mind to the objections raised and has to deal with the objections in the order. The matter is remitted to the respondent to pass a fresh order after taking into account the objections filed by the petitioner as also after giving the petitioner an opportunity of hearing - in favour of assessee by way of remand.
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2013 (2) TMI 598 - ITAT KOLKATA
Penalty u/s 271D and 271E – Whether receipt of share application money and repayment thereof will violate the provisions of section 269SS and 269T – Assessee has accepted monies on account of shares/ debentures of Rs.20,000/- or more and also repaid monies otherwise than by account payee cheques or account payee Bank Drafts – Held that:- As decided in the case of Rugmini Ram Ragav Spinners Pvt. Ltd.[ 2007 (7) TMI 237 - MADRAS HIGH COURT] provisions of section 269SS and 269T have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan the provisions of sections 269SS and 269T have no application at all. The Court further held that even if there is repayment by cash, it could not be said to attract the levy of penalty automatically under section 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons.
In the present case also, the assessee was searched and these share application monies were never the subject matter of addition in the case of the assessee and accordingly the share application money and repayment of the same have not flowed from any undisclosed income of the assessee.
Further even the penalty under section 271D and 271E is not automatic there is bonafide belief to the effect that the receipt of advances against allotment of shares and repayment of share money would not be termed as loans or deposits, which would be sufficient to drop the penalty levied in the present case – In favour of assessee.
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2013 (2) TMI 597 - ITAT CHANDIGARH
Jurisdiction of CIT(A) – CIT(A), to confirm the order of AO, followed the judgement of High court and ignored the direction of Tribunal – Grievance of the assessee is that the CIT(A) was not justified in confirming the order of the AO and CIT(A) exceeded his jurisdiction in rejecting the claim of the assessee in respect of deduction u/s 80HHC on the value of DEPB - Held that:- Decision of the Tribunal was reversed by the Hon'ble Bombay High Court in the case of CIT v Kalpataru Colours and Chemicals[2010 (6) TMI 63 - BOMBAY HIGH COURT ] and thereafter even the Hon'ble Punjab & Haryana High Court in a number of cases which have been mentioned by the AO in its assessment order have held that the said decision of the Hon'ble Bombay High Court should be considered by the Hon'ble Chandigarh ITAT and its earlier decision has been set aside – Thus, under the circumstances, the action of the AO is justified.
DEPB credit – As decided in Kalaptaru Colours & Chemicals, DEPB credit being an export incentive received by the assessee in proportion to the FOB value of its export has no face value and the amount received on its transfer is to be considered while computing the profits allowable for deduction under section 80HHC of the Act - Therefore no merit was found in the stand of the assessee that DEPB credit has a face value and while determining the profits eligible for deduction under section 80HHC of the Act, only the profits arising on the transfer of DEPB credit are to be excluded – However, the amount received by the assessee on the transfer of DEPB credit is includible as business profit in the hands of the assessee under section 28(iiid) of the Act – Appeal dismissed.
Charging of interest u/s 234D – Assessee submitted that interest is not chargeable in re-assessment proceedings as held in the case of Dredging Corporation of India Ltd[2011 (7) TMI 584 - ITAT VISAKHAPATNAM] – Also submitted that interest u/s 234D is also not chargeable in order u/s 143(3) read with sect ion 254 of the Act, which is an order only to give effect to the Tribunal’s directions.
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2013 (2) TMI 589 - ANDHRA PRADESH HIGH COURT
Taxability of indirect transfer of shares in an Indian company - India France DTAA - The shares of the Indian company were held by a French holding company (ShanH) with no other assets other than the shares in the Indian company. The Taxpayers (Merieux Alliance, France (MA) and Groupe Industriel Marcel Dassault (GIMD)) transferred the shares of ShanH to Sanofi Pasteur Holding (Sanofi), a French resident third-party buyer. The Taxpayers were companies resident in France. MA incorporated a wholly-owned subsidiary (ShanH) in France with a view to invest in India, MA entered into a share purchase agreement (SPA) in 2006 with shareholders of Shantha Biotechnics Ltd. (Shantha), an Indian company at Hyderabad. Nearly 80% of the shares of Shantha were purchased by ShanH, a subsidiary wholly owned by MA.
As in 2009, MA and GIMD transferred their shareholding in ShanH to Sanofi, another French company. The Taxpayers claimed that the subject matter of the transfer were the shares of ShanH (French Company) and not the shares of the Indian company.
AAR held that the transfer of shares of ShanH was a scheme for avoidance of Indian tax and that the capital gains arising from the Transaction was liable for tax in India, going by a purposive interpretation of the France DTAA – contention of the taxpayer that while transfer of shares in an Indian company is taxable in India under the ITL, an indirect transfer was generally not taxable in Indian in view of the law declared by the SC in the case of Vodafone International Holdings BV (2012 (1) TMI 52 - SUPREME COURT OF INDIA) - prior to the retrospective amendment to the Indian Tax Laws (ITL) on taxation of indirect transfers of Indian assets by Finance Act (FA), 2012 , the Authority for Advance Rulings (AAR) had held the sale to be taxable in India under the ITL as well as under the India-France Double Taxation Avoidance Agreement (France DTAA) - writ petition filed by Tax payers in the jurisdictional HC against the advance ruling – Whether ShanH has commercial substance as an entity? – Held that:- ShanH as a French resident corporate entity (initially a subsidiary of MA, thereafter a JV of MA/GIMD and eventually a JV comprising MA/GIMD/Georges Hibon) is a distinct entity of commercial substance, distinct from MA and/or GIMD and/or Georges Hibon, incorporated to serve as an investment vehicle, this being the commercial substance and business purpose, i.e., of foreign direct investment in India, by way of participation in SBL. It is not necessary that a corporate entity must involve itself, either in manufacture or marketing or trading of goods or services, to qualify for the ascription of being in business or commerce. Creation of a wholly-owned subsidiary or joint venture for domestic or overseas investment is a well-established business/commercial organizational protocol and investment is of itself a legitimate, established and globally well recognized business/commercial avocation.
Whether shares of Shantha were transferred to Sanofi under the SPA in 2009 – Held that:- There was no transfer of right, title and interest in or transfer of Shantha’s shares in the Transaction between the Taxpayers and Sanofi as per the SPA in 2009, as it was clearly only for transfer of ShanH shares as ShanH continues to hold the shares in Shantha even after the Transaction. Furthermore, ShanH received and continues to receive dividend on its shareholding in Shantha which is assessable to tax under the ITL. Transfer of Shantha’s shares in favour of Sanofi was neither the intent nor the effect of the Transaction.
Whether retrospective amendments could be read into the France DTAA – Held that:- Retrospective amendments under consideration do not impact interpretation in the context of a DTAA also the Finance Minister’s speech on 7 May 2012 wherein it was clarified that the amendments do not override the provisions of a DTAA which India has signed. It would impact cases where the transaction was routed through low or no tax countries with which India has no DTAA.
Inviting lifting of the corporate veil - Held that:- The Transaction in the present case come under Article 14(5) of the France DTAA. The said article is clear, unambiguous and, in explicit terms, allocates the resultant capital gains to France. It is not legitimate to consider Article 14(5) permitting “see through” provision on a true, fair and good faith interpretation. Therefore, it cannot be said that the Transaction is taxable in India under the France DTAA on the basis that there was a deemed alienation of Shantha’s shares on an artificial and strained construction of the provision. Such a construction would provide taxation rights for India on deemed alienation basis and taxation rights to France on actual alienation basis.
Neither the text not context of Article 14(5) legitimizes such a strained construction, especially when the DTAA provisions are unambiguous and their legal meaning clearly discernible. Also, the expression “alienation”, used and not defined in the DTAA, cannot draw its meaning from a synonymous expression “transfer” used in the ITA. For this purpose, the expression in the ITA should be identical. Furthermore, if the Transaction involved a deemed alienation of control and underlying assets of Shantha covered under the ITL, taxation rights would be allocated to France under Article 14(6), as the Taxpayers are resident in France. In light of the above conclusions, the HC held that the order passed by the AAR cannot be sustained and allowed the writ petitions filed by the Taxpayers.
Thus as per this rulling the principle confirmed is that allocation of taxing rights under a DTAA are unaffected by the ITL amendment on indirect transfers. Where a French company indirectly transferrs its interest in Indian concern to another French company, the transferor was not liable to any tax in India as per India-France DTAA.
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2013 (2) TMI 581 - DELHI HIGH COURT
Penalty u/s 271(1)(c) - assessee sold stock options received as a part of employment declaring in his return as long term capital gains whereas revenue treated it as short term capital gains - Held that:- Question whether the sale of the stock options would result in long term capital gains or short term gains was not very clear at the time when the assessee filed his return for the assessment year 2002-03. In fact the view taken by the AO in the quantum proceedings had been reversed by the CIT (Appeals) in the appeal filed by the assessee. The view taken by the CIT(Appeals) was ultimately reversed by the Tribunal and the view of the assessing officer was upheld in the quantum proceedings. This, in itself, is indicative of the fact that the issue was not very clear-cut. That being the position, the case of the assessee cannot be brought within the provisions of section 271(1)(c) of the said Act.
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2013 (2) TMI 580 - ITAT MUMBAI
Condoning the delay - delay of 98 days in filing appeal - rectification of appeal submitted - The case of the assessee is that the assessee sent the copy of the order of the CIT(A) in the month of July 2011 to the same CAs and they have not acted upon - Held that:- Assessee does not have evidence to suggest that the CAs accepted the allegation of negligence as CAs have not filed an affidavit owning the responsibility of the stated negligence. Similarly, there is no evidence placed to suggest that the CAs have given advice to exhaust first the remedy available u/s 154 of the Act. The assessee is not transparent in this case as it is not known why the assessee continued to rely on the CAs, who are declared negligent as evident from the experience with the appeal before CIT (A). In the condonation petition before the CIT(A), the assessee alleged that M/s Anil Thakarar & Co and M/s. K. Bharat & Co are negligent. In that case, why the assessee continued to depend on such negligent CAs or why assessee failed to pursue with the same CAs to file the present appeal before the Tribunal in time. The assessee is himself responsible for the delay in filing appeal, thus the explanation given by the assessee is not substantiated and the assessee does not have adequate/sufficient ground for condonation of delay in filing appeal before us as CAs-centric reasons given are not substantiated - against assessee.
Penalty u/s 271(1)(c) - disallowed the claim bad debts stating that the assessee failed to fulfill the conditions envisaged u/s 36(1) - CIT(A) deleted the levy - Held that:- It is an undisputed fact that the assessee disclosed bad debts in the return filed before the Assessing Authority. The AO disallowed the claim hold that the said debts have not become bad and are not evidenced as irrecoverable debts. This line of argument is not sustainable in law in view of plethora of judgments in force as assessee is no longer under obligation to prove that the debts in question are bad and irrecoverable. Further, there is no bar on the assessee in writing off the bad debts of the year as allowable expenditure when the corresponding credits are showing in the accounts of the year. It is for the businessmen to manage his affairs and accounts in such a way which are suited to his business - the allegation of concealment does not have strength to stand - order of the CIT (A) deleing the penalty should not call any interference - in favour of assessee.
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2013 (2) TMI 579 - ITAT PUNE
Prohibition u/s.13 (1)(d)(iii) - Deposit of ₹ 55 lakhs with Bharati Vidyapeeth and there is investment of ₹ 5 lakhs in shares which is strictly prohibited u/s.13 (1)(d)(iii) - assessee was established through a deed of trust - Held that:- As decided in the case of Alarippu [2000 (5) TMI 30 - DELHI HIGH COURT] that a loan given by one charitable trust to another with similar object cannot be treated as an investment but an application of income. The words "investment", "deposit", and "loan" have different meanings. Also see Sarladevi Sarabhai Trust [1988 (3) TMI 53 - GUJARAT HIGH COURT] wherein held that if the trust makes an investment in the course of attaining its objectives, that investment is an application of income and it cannot be considered to be violative of section 11(5).
As per the settled legal position, which has been laid down in numerous decisions, it is clear that any amount which is laid out by the charitable trust or institution for achieving its charitable object constitutes an application of income to charitable purposes irrespective of whether the amount in question has been laid out irretrievably or whether the amount continued to belong to the charitable trust or the institution or it is recoverable by it.
Since in the instant case the assessee trust had advanced loan of ₹ 55 lakhs to Bharati Vidyapeeth, another charitable trust also engaged in educational activity, therefore, in view of the decisions cited above, granting of such loan by the assessee trust to another trust is neither a deposit nor an investment and therefore there is no violation of provisions of section 13(1)(d) of the I.T. Act - against revenue.
Denial of exemption u/s.11 on account of belated filing of Form No.10 by the assessee trust - Held that:- The assessee could not envisaged that application for registration under s.10(23C)(vi) would be delayed. Thus, the assessee was required to make alternate claim under ss.11 and 12 of the Act. As held in the case of Mayur Foundation (2004 (12) TMI 48 - GUJARAT HIGH COURT), assessment proceedings are complete when appeal against order of assessment is decided by the Tribunal. Various courts have time and again held that though filing of Form No.10 is mandatory to claim exemption under ss. 11 and 12 the same can be filed at any time during the pendency of assessment proceedings. If so filed the benefit of accumulation of income for charitable purpose cannot be denied. Do not agree with the findings of the CIT(A) that the assessee was not permitted to file Form No.10 in the reassessment proceedings and that the decision of Nagpur Hotel Owner’s Association [2000 (12) TMI 99 - SUPREME COURT] is not applicable in the facts of the present case wherein held that the assessee by filing Form No.10 along with revised return and before completion of assessment has duly complied with requirements of section 11(2) and was therefore entitled to benefit of section 11 - in favour of assessee.
Purchase of shares of 2 cooperative societies - violation of provisions of section 13(1)(d) r.w.s.11(5) and therefore the assessee trust is not entitled to exemption u/s.11 - Held that:- Since in the instant case the assessee, on being pointed out by the AO that there is violation of provisions of section 11(5), has liquidated the shares, therefore, respectfully following the decision of the Hon’ble Delhi High Court in the case of Agrim Charan Foundation (2001 (8) TMI 78 - DELHI HIGH COURT) wherein the assessee had kept deposits with two concerns in violation of section 11(5) however, the same were withdrawn when the A.O. had pointed out the default committed by the assessee & H.C. held that the assessee was entitled to exemption u/s.11 and upheld the order of Tribunal - the benefit of exemption u/s.11 cannot be denied to the assessee in the present case - in favour of assessee.
Violation of provisions of section 11(5) on account of loan given to Sonhira Sakhar Karkhana Ltd., a cooperative society - Held that:- As loan is neither an investment nor a deposit in the nature of an investment as held above therefore there is no violation of provisions of section 11(5) r.w.s.13(1)(d).
Treating the donations received through issue of coupons as income u/s.68 as against towards corpus of the trust as claimed by the assessee - Held that:- Since the coupon donation receipts do not contain the complete address of the donors, the name of the recipient on behalf of the Trust and there is no written direction by the donor to treat the donation towards corpus of the Trust, therefore, we are of the considered opinion that such donations cannot be considered as corpus donations. However, the alternate submission of the the assessee that the same should be considered as revenue receipts is acceptable. Since there is no violation of provisions of section 11(5) r.w.s. 13(1)(d) and also held that exemption u/s.11 cannot be denied for late filing of Form No.10, therefore, since the donations are treated as revenue receipts, it does not make any difference. Exemption u/s.11 is allowable on such donations. The grounds by the assessee are decided accordingly.
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2013 (2) TMI 578 - ITAT HYDERABAD
Addition u/s 50C - area is 13,500 sqy or 15,311 sqy - Held that:- Admittedly, in this case the assessee made a rectification deed correcting the area mentioned therein in the sale deed. The assessee also explained the reasons for delay in executing the rectification deed that the assessee is an old lady of 86 years old and she is not aware of the income-tax law. On behalf of the assessee, assessee’s son has been appearing before the Revenue authorities. The mistake mentioned in the area in the sale deed was found at a later stage and on this count rectification deed was executed on 11.12.2009 and registered on 16.12.2009. Thus seen from the contents of the Remand Report, AO confirmed that the area transferred is 13,500 sqy instead of 15,311 sqy. The only reason for not accepting the area transferred at 13,500 sqy by the CIT(A) is that the rectification deed was belatedly executed. Thus as the assessee explained the reasons for executing the Rectification Deed belatedly the area transferred is only 13500 sqy. Being so considering the area at 13,500 sqy as per Rectification Deed which is duly registered with the Sub-Registrar and in the circumstances the value mentioned by the assessee for transferring of 13500 sqy is not less as compared to the value adopted by the State authorities for stamp duty valuation, the addition cannot be sustained on this count. Accordingly, this addition is deleted.
Addition towards indexed cost of acquisition - AO took the SRO value as on 1.4.1981 at Rs. 25 per sqy and on the other hand, the assessee submitted that a valuation report from a private valuer stating that the cost of land as on 1.4.1981 was Rs. 300 per sqy - Held that:- The value is to be considered at Rs. 300 per sqy which is based on the Registered Valuer report which is very reasonable as compared to the value of the property as on the date of sale at Rs. 11,000 per sqy. Considering the Registered Valuer report and by applying the reverse indexation method, the value is to be considered at Rs. 300 per sqy as on 1.4.1981 is very reasonable, thus agreeing with the assessee.
Addition towards compensation paid with whom agreement for sale was entered into by the assessee in the year 1993 which was not honoured - Held that:- AO has no grievance for allowability of Rs. 1.72 crores and the only objection is with regard to Rs. 64 lakhs out of Rs. 2.36 crores. Accordingly this payment is genuine to the extent incurred by the assessee in relation to the transfer of property. Accordingly, this ground is partly allowed.
Addition towards compensation paid to Sri B. Rajendra Prasad - Held that:- AO accepted the payment of Rs. 15 lakhs as genuinely incurred for the purpose of transfer of property. However, he has not accepted payment of Rs. 13 lakhs. Thus when the AO himself accepted the payment of Rs. 15 lakhs as genuine, there is no reason to disallow the same and the same is accepted and allowed. This ground is partly allowed.
Municipal taxes paid by the assessee on yearly basis cannot be considered as a cost of acquisition or cost of improvement allowed while determining the capital gain. On the other hand, if it is incurred as a betterment/development charges which is a onetime payment, that is to be considered as part of cost of acquisition of the capital asset and the same has to be considered while computing the capital gain. This issue is remitted back to the file of the Assessing Officer to decide the same accordingly.
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2013 (2) TMI 577 - ITAT AMRITSAR
Registration granted u/s 12AA cancelled - assessee is earning huge profits by carrying various activities including the purchase of land at nominal cost, then level and clear it, cut into plots and sell the plots at much higher prices and earning huge profit and also charging fees and fines from the sale of forms, land enhancement fee, building plan fees, road cutting fees, transfer fee, fine and penalties and non construction charges - Held that:- The charitable purpose include relief to the poor, education, medical relief and advancement of any other object of general public utility.
As in the present case, the assessee-trust is carrying on various activities in the nature of trade, commerce or business and rendering its services for the purpose of trade, commerce and business, the assessee-trust is charging huge fees. No doubt, the assessee has given some explanation for charging fees for the afore-mentioned activities by stating that the assessee-trust is charging fees as per rules framed by the Punjab Local Bodies Govt. which is clearly the admission by the assessee-trust that the assessee-trust is doing activities not for charitable purpose but for business purpose only. No doubt, these penalties charged by the assessee-trust are in the nature of compensatory but that is not permissible for the charitable institution. FAA has rightly held that the land of the assessee trust is in the same category of other real estate products available in the market offered by the private colonizers and real estate agents.
It is a matter of record that the assessee-trust sells off all these plots by organizing a public auction, where through the bidding process and the competition generated in it, the prices of their land keep escalating and finally, the land is sold off to the highest bidder. The surplus income which is generated through the sale of land is again used for buying more land, developing it and selling it the same way, thereby generating more profit. On the facts and circumstances the assessee trust is not merely a mediator in buying and selling of land to the general public. Rather it operates in a business oriented way on the well known principles of profit generation. Therefore, the activities of the assessee trust clearly constitute activities in the nature of trade, commerce or business because no plots are reserved for any socio-economically lower society, there is no element of donation or support to any cause - CIT(A) has rightly cancelled the registration granted to the assessee-trust w.e.f. 12.06.2003 in view of the amended provision of section 12AA(3) on fully satisfied that the activities of the assessee-trust are not genuine and not being carried out in accordance with the objects of the assessee-trust - against assessee.
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2013 (2) TMI 576 - GUJARAT HIGH COURT
Addition on the basis of cheques and hundis found during search – Cheques and hundis were found in the residence of assessee in the name of one Shri Rakesh N.Patel – AO Considered that these were the cash advances given by assessee to Shri Rakesh Patel on the security of the cheques and addition were made – Held that:- Addition was made only on the basis of presumption on the ground that the cheques were received on cash loan advances to Shri Rakesh Patel - There was no corroborative material for sustaining such presumption. This issue is purely factual in nature – Against the revenue.
Addition made on account of interest on loan – cheque issued by one Shri Archit Shah was to the tune of Rs.13,50,000/- against the debit balance of Rs.12,14,072/- , difference was added by AO as the income of the assessee derived by way of interest on their loan advances – Held that:- department could not bring on record any material to show that the assessee actually received interest of Rs.1,35,928/- at any point of time – Against the revenue.
Addition on the basis of entries mentioned in the seized documents – AO observed that on the seized paper, two amount respectively Rs.30 lacs and Rs.11 lacs were indicated, and on this basis additions were made – Held that:- addition was made only on the basis of the noting on the piece of papers without there being any evidence – It is completely unjustifiable – Against the revenue.
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2013 (2) TMI 575 - GUJARAT HIGH COURT
Unexplained investment u/s 69 – Assessee purchased the properties through registered sale deeds - Additional stamp duty was imposed upon the assessee as per the rate prescribed by Jantri - Stamp Valuation Authority adopted such valuation as per the Jantri which is notional value for the purpose of determining the stamp duty payable – As per AO assessee had paid more consideration as against in sale deeds – Held that:- No material is brought on record to prove that the assessee had invested more than what had been shown in the sale deeds – The Stamp Valuation Authority, however, valued the lands higher than the sale consideration indicated in the sale-deeds – Assessee paid up additional stamp duty on such valuation. This by itself would not mean that the assessee made any unexplained investment - Additional stamp duty paid to avoid litigation and to get clear title of the property – Section 50C of the Act would cover the instances of capital gain upon sale of immovable property by the sellers - provisions of section 50C of the IT Act are not applicable in the hands of the purchaser – Against the revenue.
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2013 (2) TMI 574 - GUJARAT HIGH COURT
Addition on the basis of presumption – AO made addition on the ground that there was on-money transaction in the sale of plots of lands developed by the assessee – AO based his reasoning on statements of witnesses and Site Engineer, indicating booking of plots at a higher rate than reflected in books – Held that:- During search, nothing was found which revealed that the assessee had ever received 'on money' on sale of plots - The disclosure was not on account of profits from such projects specifically - The persons whose statements are recorded have no locus standi to confirm as to what is the rate charged by the assessee - The persons whose statements were recorded have merely visited the site but has not actually transacted with the assessee - The Site Engineer is not empowered either book the plots or to quote the rate – Since these persons are not competent to admit any undisclosed income, their statements cannot be admitted in evidence for taking a view against the assessee - Merely on presumption no amount can be added as undisclosed turnover or profit thereon - Addition not sustainable – Against the revenue.
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2013 (2) TMI 573 - ITAT KOLKATA
Penalty u/s 271D and 271E – Whether receipt of share application money and repayment thereof will violate the provisions of section 269SS and 269T – Assessee has accepted monies on account of shares/ debentures of Rs.20,000/- or more and also repaid monies otherwise than by account payee cheques or account payee Bank Drafts – Held that:- As decided in the case of Rugmini Ram Ragav Spinners Pvt. Ltd.[ 2007 (7) TMI 237 - MADRAS HIGH COURT] provisions of section 269SS and 269T have application only in a limited way in respect of deposits or loans. When it is neither deposit nor loan the provisions of sections 269SS and 269T have no application at all. The Court further held that even if there is repayment by cash, it could not be said to attract the levy of penalty automatically under section 271E of the Act. The advances of share application money or repayments of such advances have not flowed from any undisclosed income of the assessee or the concerned persons.
In the present case also, the assessee was searched and these share application monies were never the subject matter of addition in the case of the assessee and accordingly the share application money and repayment of the same have not flowed from any undisclosed income of the assessee.
Further even the penalty under section 271D and 271E is not automatic there is bonafide belief to the effect that the receipt of advances against allotment of shares and repayment of share money would not be termed as loans or deposits, which would be sufficient to drop the penalty levied in the present case – In favour of assessee.
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2013 (2) TMI 558 - ITAT HYDERABAD
Revenue recognition - Applicability of AS-9 - Accrual basis of accounting - held that:- profits for the purpose of taxation have to be determined as per commercial principles, subject to specific provisions of the Act. Accounting practices and standards, which are widely accepted and adopted, would be a good guide to the determination of commercial profits. However, though accounting standards and practices are relevant, they cannot override specific provisions of the Act. The Supreme Court in Challapali Sugars Ltd. V. CIT, [1974 (10) TMI 3 - SUPREME COURT] had laid down that pronouncements of accounting bodies are relevant in determining commercial profits. In Tuticorin Alkali Chemicals & Fertilizers Ld., V. CIT, [1997 (7) TMI 4 - SUPREME COURT], it was held that : ‘The argument based on accountancy practice has little merit if such practice cannot be justified by any provision of the Statute or is contrary to it’. CIT Vs. Bokaro Steel Ltd., [1998 (12) TMI 4 - SUPREME COURT] the subsequent decision in case of reiterated the same principle.
The case of Hindustan Housing and Land Development Trust Ltd. [1986 (7) TMI 10 - SUPREME COURT] has been distinguished by the Hon’ble AP High Court in the case of CIT Vs. KCP Ltd., [1994 (12) TMI 21 - ANDHRA PRADESH HIGH COURT] wherein it was held that the assessee’s collection was acceptable as a trading receipt in the relevant year. The Hon’ble Supreme Court at [ 2000 (8) TMI 3 - SUPREME COURT] affirmed the decision of the AP High Court [1994 (12) TMI 21 - ANDHRA PRADESH HIGH COURT]. Therefore, the amount of Rs. 95,40,000/- which is due from M/s Param Power Projects Pvt. Ltd. is to be treated as income of the assessee company. - Decided in favor of revenue.
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2013 (2) TMI 557 - ITAT MUMBAI
Head of Income - Whether subleasing of land is business activity of the assessee company - held that:- as the assessee company was not having any land of its own, therefore it could only sublease the land which has been made available to the assessee-company by MIDC on lease basis. - any income derived from such sublease of land can only be taxed under the head profit and gains of business or profession.
Decision of of the Hon’ble High Court of Andhra Pradesh in the case of Sponge Iron India Ltd. (1992 (10) TMI 67 - ANDHRA PRADESH HIGH COURT) distinguished.
It has been accepted by the Revenue that business was set up during financial year 2004-05 relevant to A.Y. 2005-06 in the assessment made u/s. 143(3) of the Act by the JCIT who allowed the benefit of carry forward of business loss and depreciation allowance to the next assessment year i.e. year under consideration. Therefore, on these facts, it can be safely concluded that the business of the assessee has been started in F.Y. 2004-05 relevant to A.Y. 2005-06. - Taxable as business income - Decided in favor of assessee.
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2013 (2) TMI 556 - ITAT MUMBAI
Income from transfer of tenancy rights - taxable as capital gain or income from other sources - held that:- the consideration paid by the new tenant is consent of the landlord for the transfer of tenancy rights between the new and old tenants. Thus, in our opinion, the amount of Rs 7.26 lakhs is the ‘consideration for consent’. Generally, in matters of the tenancy rights disputes, it is the tenant who gets the financial benefit and the same flows from the pockets of the Landlord in lieu of the surrender of the said tenancy rights by the tenant and certainly the land lords does not receive, which is the case in the instant appeal. Therefore the taxation principles relating to the tenancy rights should not apply in this case.
It cannot be inferred that the new tenant received merely rental rights and there is no transfer of any capital rights to the new tenant by the land lord. Therefore Rs 7.26 lakhs is neither a capital receipt nor a rental receipt. In that sense, the argument of the Ld Counsel that some of the capital rights, out of the bundle of rights relating to the immovable property, are transferred to the new tenant does not hold water.
There is no time gap between the vacation of the property by the old tenant and grant of rental rights to the new tenant. - there is no evidence to infer that the house is in vacant possession of the assessee even after the alleged end of the tenancy - Therefore, the views of the AO as well as the CIT(A) on this issue require to be sustained as the amount of Rs 7.26 lakhs, the consideration for consent, does not involve any transfer of capital rights attached to the property on the facts of this case and the amount constitutes a windfall gain to the assessee.
Amount is taxable as Income from other sources - decided against the assessee.
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2013 (2) TMI 555 - ITAT HYDERABAD
Deemed income u/s 41(1) - interest liability from the remission of loan liability - loan was taken from ING Vysya Bank in the year 2001 was for financing capital assets like buildings, plant and machinery, etc. - assessee submitted that the amount of Rs.8,41,00,728 waived by the bank under the OTS is also only principal component and there is no interest component therein, which could be disallowed u/s. 41(1) of the Act. - Revenue submitted that the facts are not clear as to whether the loan given by the bank was a term loan or working capital loan. - held that:- Mahindra & Mahindra Ltd. (2003 (1) TMI 71 - BOMBAY HIGH COURT), the Hon’ble Bombay High Court, while considering the loan agreement, which was for import of plant and machinery, held that since the loan was for purchase of capital asset, the amount waived cannot be treated as income of the assessee either under S.28(iv) or under S.41(1) of the Act. - merely relying upon the expression ‘principal’ used in the said letter, one cannot conclude that the amount of Rs.8,41,00,728 contains only the principal component of loan, and no element of interest is embedded therein. - AO to verify the facts.
Disallowance of expenses u/s 14A - Dividend income exempted u/s 10(34) - held that:- to warrant disallowance in terms S.14A of the Act, there has to be in the first place, certain ‘income which does not form part of the total income’ and certain expenditure should be found by the Revenue authorities, to have been incurred by the assessee in relation to such income. In the present case, what is disallowed by invoking the provisions of S.14A of the Act, is the interest attributable to the investments made in shares by the assessee in M/s. Nagarjuna Oil Corporation Ltd. and the reason for the disallowance of such interest is that the return in the form of dividend, earned if any, from such investments would be exempt from tax. The reasoning given for the impugned disallowance is not correct, since what is liable to be disallowed in terms of S.14A is only the expenditure, if any incurred, by the assessee in relation to the dividends, if any earned, by the assessee from such investments - Matter set aside and remanded back to AO for verification.
Disallowance towards interest free advances - held that:- when the assessee itself is having huge interest-bearing debt liability as at the end of the previous year, proportionate interest attributable to interest free advance made to the sister concern has to be disallowed. - The plea of the assessee that the advance was out of internal accruals and not from borrowed money is also not acceptable - Decided against the assessee.
Commercial expediency involved to justify the expenditure in question. It has to be borne in mind that if there is mutual benefit in a transaction or mutuality of transactions between the assessee and its sister concern, then only the expenditure can be allowed on grounds of commercial expediency. Then, again the mandate of commercial expediency has to be weighed, taking into account the financial well being of the assessee at the given time.
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