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Income Tax - Case Laws
Showing 61 to 80 of 687 Records
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2017 (2) TMI 1445 - ITAT MUMBAI
Condonation of the delay - inordinate delay of 3389 days - Sufficient cause of delay - HELD THAT:- In this case there has been inordinate delay of about 10 years in filing the appeal. Firstly, the assessee had submitted that it was an inadvertent error. In another affidavit assessee had tried to submit that appeal papers were prepared but were not filed without any reason by the Charted Accountant. The submission is not supported for its veracity or reasoning. Furthermore, there is no rationale in allowing a person to file an appeal after ten years simply because ten years ago also he had thought of filing the appeal. There can be many reasons why a person having thought of filing an appeal may decide not to pursue the matter. Hence the contents of the second submission cannot be treated but as an afterthought.
In our considered opinion the delay of 3389 days doesn't deserve to be condoned. Accordingly, we decline to condone the delay.
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2017 (2) TMI 1444 - BOMBAY HIGH COURT
Exemption u/s 11 - registration u/s 12A once granted could not be reviewed or withdrawn in the absence of stipulation to the effect in Section 12AA(3) - HELD THAT:- We have today by our order in Director of Income Tax (Exemption) Vs. North Indian Association - [2017 (3) TMI 37 - BOMBAY HIGH COURT] wherein held that Income is brought to tax to secure the Revenue's interest but it does not necessarily result in automatic cancellation of Registration. Therefore, the mere fact that in one particular year, the respondent assessee may have income receipts in excess of ₹ 10 lakhs or such other limit as provided in the proviso to Section 2(15) of the Act, that by itself would not warrant cancellation of the registration under Section 12AA(3) of the Act . No substantial question of law.
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2017 (2) TMI 1442 - ITAT MUMBAI
Disallowance of interest expenses - AO disallowed the entire interest expenditure stating that the related borrowings are not incurred for business purposes - AO invoked the provisions of section 36(1)(iii) and 57(iii) - HELD THAT:- CIT (A) granted relief to the assessee complying with the directions of the Tribunal in the assessee’s own case for the earlier AY 2011-12. CIT (A) gave finding and there is no change on the facts. Considering the above, the decision of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, solitary ground raised by the Revenue is dismissed.
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2017 (2) TMI 1441 - ITAT AMRITSAR
Application for registration u/s 12AA rejected - HELD THAT:- The assessee filed, inter alia, a copy of the Registration Certificate dated 11.07.2000, issued by the ld. CIT, granting registration to the assessee u/s 12A(a) of the Act, w.e.f. 01.04.1998. In the Synopsis filed before us, as well as in the arguments made, the assessee has stated that admittedly, this Certificate could not be filed before the ld. CIT(E).
In the interest of justice, we remit this matter to the ld. CIT(E), to re-decide the assessee’s application after taking into consideration the above Certificate. The assessee, no doubt, shall co-operate in the fresh proceedings before the ld. CIT(E) and all pleas available to the assessee under the law shall remain so available to it.
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2017 (2) TMI 1440 - ITAT CHENNAI
Revision u/s 263 - disallowance on account of diversion of interest bearing funds to group concerns - HELD THAT:- Admittedly the interest paid by the assessee on borrowings used for the purpose of the business to be allowed as deduction while computing the income of assessee. The interest received by the assessee cannot be set off against the interest paid by the assessee. The interest paid and claimed as a deduction in the computation of profits and gains of the business, cannot be set off against interest received under the head “income from other sources”. So that while computing the disallowance of interest on money advanced to group concern, the gross interest to be considered and proportionate interest disallowance to be worked out, being so, the CIT justified in giving the direction to the AO accordingly.
Before us, ld.A.R submitted that interest disallowance by the Ld. CIT was a subject matter of the appeal. In this connection, it is to be noted that the entire assessment order cannot be said to have merged with appellate order. In view of Explanation-C to Sec.263(1) of the Act whereas the assessee had preferred an appeal only on certain points; CIT can revise the assessment order on the other points. The reliance was placed on the judgements of CIT Vs. Farida Prime Tannery in [1998 (4) TMI 26 - MADRAS HIGH COURT] and Seshasayee Paper And Boards Limited [1998 (3) TMI 78 - MADRAS HIGH COURT] and in the case of Soft Beverages P. Ltd. [2000 (12) TMI 80 - MADRAS HIGH COURT] . Hence, in our opinion, the concept of merger with the appellate order cannot be applied; therefore, Ld. CIT is well within his power in exercising revisional jurisdiction on this issue. This ground of assessee is rejected.
Disallowance of claim of deduction towards electricity and power generation tax u/s.43B - HELD THAT:- On this issue, in our opinion, electrical tax and power generation tax is statutory liability which requires to be paid before the due date of filing of return of income and as such provisions of the section 43B is applicable and the Ld. CIT is justified in invoking the jurisdiction u/s.263 of the Act to disallow the same. Hence, this ground stands rejected.
Claim of deduction u/s.35(2AB) - HELD THAT:- CIT has not withdrawn the claim of assessee u/s.35(2AB) of the Act. He has only remitted the issue back to the file of AO to examine the issue in accordance with law after providing an opportunity to the assessee. Since the AO allowed the deduction without examining the issue in proper sense and he has not made any enquiry on this issue, the order of the AO is very cryptic and is bad in law as the AO what is required to be looked into was not gone through by him. Hence, it makes the assessment order erroneous and prejudicial to the interest of the Revenue. Being so, the CIT is justified in invoking the provisions of the section 263
Corporate Debt Restructuring Mechanism - HELD THAT:- On account of upward revision of interest, the total liability came down by an amount of ₹ 4413.09 lakhs over the period of borrowals. For the assessment year under consideration, there was a deduction of interest to the tune of ₹ 1567.60 lakhs. The interest liability claimed and allowed in the assessment years during the period of borrowings, therefore, the interest reverse in the assessment year under consideration to be considered as income of assessee. However, the AO not considering the issue in proper perspective, hence, the CIT remitted the issue to the file of ld. Assessing Officer to examine the issue afresh after giving an opportunity to the assessee to produce the necessary details before the AO.
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2017 (2) TMI 1439 - ITAT KOLKATA
Revision u/s 263 - MAT computation u/s 115JB - CIT was of the view that the aforesaid order of AO accepting the computation of book profits u/s.115JB as given by the assessee was erroneous and prejudicial to the interest of the revenue - plea of the assessee was that while computing the book profit u/s 115JB the assessee need not exclude the income that arises out of tea manufacturing from tea leaves that are purchased - Whether sec 263 cannot be initiated on the basis of audit objection? - HELD THAT:- As decided in SOHANA WOOLLEN MILLS. [2006 (9) TMI 157 - PUNJAB AND HARYANA HIGH COURT] no rigid rule can be laid down and that facts of each case will have to be seen to come to a conclusion whether audit objection was sufficient to come to a conclusion that the order of the AO that is sought to be revised in exercise of powers u/s.263 was erroneous and prejudicial to the interest of the revenue. On the facts of the present case, we are satisfied that the CIT applied his mind independently and that he had not proceeded purely on the basis of any audit objection. Therefore the preliminary objection raised by the Assessee in this regard is hereby rejected.
It is no doubt true that the assessee had income from growing, manufacturing and sale of tea as well as income from tea leaves purchased from third parties which were processed /manufactured and sold by the assessee. In so far as the first category of income is concerned, the same has to be regarded as part of the composite income for the purpose of applying Rule 8(1) of the Rules. In so far as the second category of income is concerned it cannot be regarded as part of the composite income under rule 8(1) of the Rules. This position has been accepted by the assessee itself in the computation of the total income under the normal provisions of the Act. We have referred to the computation of the total income by the assessee under the normal provisions of the Act in the earlier part of this order.
Whether the position will change when it comes to computation of book profit u/s 115JB ? - Section 115J of the Act, the CBDT in Circular No.495 dated 22.09.1987 has set out the manner of computation of book profits and composite income in the case of an Assessee to which Rule 8(1) of the Rules, for the purpose of Sec.115J of the Act. This tribunal in the case of M/s. Kanco Enterprises Ltd. [2015 (11) TMI 1135 - ITAT KOLKATA] has taken a view that the aforesaid circular would be applicable in the context of section 115JB of the Act also.
AO has to accept the profit as per the profit and loss account prepared in accordance with the companies Act and thereafter he can proceed to make the additions and deletions set out in the Explanation to Sec.115JB. He cannot make any adjustment which is not permitted under Explanation to Sec.115JB of the Act. The interpretation will equally apply to the provisions of Sec.115JB of the Act as well, as those provisions are identical to the provisions of Sec.115J of the Act with certain variations, which does not in any way alter the starting point of computation of book profit u/s.115J of the Act. If the CBDT Circular referred to above and the decision of Apollo Tyres [2002 (5) TMI 5 - SUPREME COURT] are read together, the only conclusion that can be reached that the computation of book profit as done by the Assessee is correct and cannot be termed as erroneous and prejudicial to the interest of the revenue.
Similar computation has been accepted by the revenue even in A.Y.2012-13 to 2014-15. Orders of assessment for A.Y.2013-14 and 2014-15 have been passed after order passed u/s 263 of the Act. We therefore are of the view that the CIT was not justified in invoking the provision u/s 263 of the Act, in so far as it relates to determination of book profit u/s 115JB of the Act.
Invoking Sec.263 on the ground that income from sale of DEPB license ought to have been reduced from the profits eligible for deduction u/s 80IB and 80IE - Counsel had pointed out that there will be no prejudicial to the revenue in as much as tax liability of the assessee is being determined u/s 115 JB of the Act on book profits and therefore the computation of total income under the normal provisions of the Act will have no effect on the tax payable by the assessee. This has been accepted by the CIT in the impugned order in para-8 but nevertheless he has directed the AO to examine as to whether DEPB receipts were received in the course of business eligible for deduction u/s 80IB and 80IE of the Act respectively. In our view such an exercise will be futile when the admitted position is that even if such exercise turns out against the assessee that might not have any impact on the tax liability of the Assessee. In that sense the order of the AO cannot be termed as prejudicial to the interest of the revenue. The law is well settled that for invoking the provision of section 263 of the Act, the order sought to be revised ought to be both erroneous as well as prejudicial to the interest of the revenue. Since the condition that the order should be prejudicial to the interest of the revenue is not satisfied, the order of CIT u/s 263 in so far as it is concerns computation of deduction u/s 80IB and 80IE of the Act, cannot be sustained and the same is hereby quashed.
Disallowance under Rule 8D(2)(ii) - Counsel fairly conceded that the action of CIT in the impugned order is justified. Hence the order of CIT to this extent is sustained. Appeal of the assessee is partly allowed.
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2017 (2) TMI 1438 - ITAT BANGALORE
TP Adjustment - comparable selection - HELD THAT:- Companies functionally dissimilar with that of assessee providing software development services to the AE need to be deselected from final list.
Risk adjustment - It is seen from the observations of the TPO that the TPO is not against risk adjustment but it was not allowed for the reason of absence of proper basis of quantification. Now, that the assessee has given the basis of such quantification, the TPO /AO is directed to consider them in the light of this Tribunal decisions.
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2017 (2) TMI 1436 - ITAT CUTTACK
Penalty u/s. 271E - assessee has repaid loan/deposit in cash in contravention of the provisions of section 269T - HELD THAT:- As assessee has relied on the decision of OMEC Engineers [2007 (9) TMI 27 - HIGH COURT , JHARKHAND] wherein, it has been held that there being no finding of the Assessing Officer, the CIT(A) or the Tribunal that the transaction made by the assessee in breach of provisions of section 269SS was not a genuine transaction, penalty u/s.271D is not leviable merely for technical mistake.
Similarly, in the present case also, we find that there is no finding of the Assessing Officer or the CIT(A) that the transactions in violation of section 269SS of the Act were not genuine. The assessee’s return has been accepted u/s.143(3) of the Act after scrutiny. There is no finding that the transactions were malafide aimed at disclosing concealed money. Therefore, we delete the levy of penalty u/s.271E - Decided in favour of assessee
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2017 (2) TMI 1432 - ITAT DELHI
Addition made u/s 40A(2)(b) - payment made to related party - HELD THAT:- As decided in KEC-Delco-Vraha (JV) [2016 (11) TMI 1642 - ITAT DELHI] disallowance under this section is made in respect of the expenses incurred or payments made which are not deductible. This section has no application to income aspect of the assessee. As the AO has made disallowance u/s 40A(2)(b) in respect of income which the assessee in his opinion ought to have earned rather than certain expenses incurred, the provisions of this section are not attracted. Uphold the impugned order on this score deleting the disallowance - Decided in favour of assessee.
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2017 (2) TMI 1430 - ITAT MUMBAI
Entitled to claim deduction u/s 10A on the additions/disallowances made u/s 40(a) (ia) - HELD THAT:- Appellant is entitled to claim of deduction u/s 10A on an enhanced income. The appellant had relied on various other decisions and contended that deduction u/s 10A should be allowed on the income which was assessed to tax by the A.O after considering the allowance/disallowance made during the course of assessment proceedings as per the provisions of the I.T.Act. Therefore, the action of A.O in not considering the disallowance made u/s 40 a (ia) while computing the deduction u/s 10A is not correct and hence, the addition made is deleted.
In CIT vs. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] one of the issues before the Hon’ble High Court was whether on the facts and in the circumstances of the case the Tribunal was justified in directing the A.O to exempt u/s 10A of the Act, on the assessed income which was enhanced due to disallowance of the employers as well as the employees contribution towards Provident Fund/ESIC. - Decided in favour of assessee.
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2017 (2) TMI 1429 - ITAT MUMBAI
Penalty u/s 221(1) - default in payment of tax / advance tax u/s 140A - HELD THAT:- Assessee despite being in financial doldrums and drained of funds, however made good its commitment with the A.O of depositing the outstanding dues alongwith interest within a period of 15 days, and after arranging borrowed funds with great difficulty, which we can realize by having a glance at its over availed OD A/c No. 003431909 with Bank of India, Yari Road branch, Mumbai, and other documents produced by him, which reveals beyond any scope of doubt his poor state of financial health on the relevant date, i.e 14.10.2010, had deposited the amount aggregating to ₹ 1,23,54,131/- (supra).
We thus keeping in view the aforesaid facts as well as not loosing sight of the fact that the assessee had never defaulted as regards depositing of the taxes in the past, are thus of the considered view that no penalty u/s 221(1) was liable to be levied on the assessee under Sec. 221(1). Thus we herein set aside the order of the CIT(A) and delete the penalty which had been imposed by the A.O u/s 221(1) and thereafter sustained by the CIT(A). - Decided in favour of assessee.
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2017 (2) TMI 1428 - ITAT MUMBAI
Disallowance u/s 14A r/w rule 8D - HELD THAT:- Commissioner (Appeals) while deciding the issue of disallowance under section 14A has directed the Assessing Officer to compute it by applying rule 8D. However, as held in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010 (8) TMI 77 - BOMBAY HIGH COURT] the provisions of rule 8D is applicable prospectively from the assessment year 2008–09 onwards. The Hon'ble Jurisdictional High Court in the said decision has also observed that for prior assessment years disallowance under section 14A can be worked out on a reasonable basis. We have noted, identical issue arose in assessee’s own case for the assessment year 2004–05 [2016 (10) TMI 1271 - ITAT MUMBAI] restored the issue back to the file of the Assessing Officer as held the provisions of Rule 8D of the I.T. Rules, 1962 are applicable prospectively for and from A.Y. 2008-09 and would not operate for the assessment years prior thereto. In this view of the matter, the learned CIT(A)‟s directions to the AO to work out/compute the disallowance under section 14A applying Rule 8D of the Rules is erroneous and we therefore delete the same and in the fitness of things, we direct the AO to recompute the disallowance under section 14A of the Act afresh, in accordance with the law prevalent for the year under consideration.
Disallowance of non–compete fee paid to ex–directors - HELD THAT:- In the latest order in assessee’s own case [2016 (10) TMI 1271 - ITAT MUMBAI] for the assessment year 2004–05, the Tribunal while deciding the issue followed its decision in the earlier assessment year and upheld the disallowance.
Disallowance of deduction claimed on account of payment made towards employee’s contribution to PF/ESIC - sum not paid either within the due date or the grace period provided under the relevant statute - HELD THAT:- Undisputedly, the assessee has paid the aforesaid amount within the due date of filing of return of income as provided under section 139(1) of the Act. Therefore, keeping in view the provision under section 43B, the deduction claimed is allowable. In this context, it is necessary to observe, the second proviso to section 43B which was omitted by Finance Act, 2003 w.e.f. 1st January 2004, provided that unless the deduction claimed towards payment to PF/ESIC is actually paid on/or before the due date prescribed under Explanation below section 36(1)(va), no deduction shall be allowed. However, after omission of the said proviso the situation is different. The Hon'ble Jurisdictional High Court in CIT v/s Hindustan Organic Chemicals Ltd. . [2014 (7) TMI 477 - BOMBAY HIGH COURT] taking note of the aforesaid amendment made to section 43B, has held that if the employees contribution to PF is paid within the due date of filing of return of income under section 139(1), no disallowance can be made.
Disallowance of interest on advances to subsidiary companies - HELD THAT:- Assessee was having sufficient self–generated / interest free funds available with it to make interest free advance of ₹ 25,67,46,923. In fact, the learned Commissioner (Appeals) has also observed, advances have been made out of common funds available with the assessee which includes both self–generated funds and borrowed funds. As held by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] when mixed funds are available with the assessee, the presumption would be, the interest free advances have been made out of the interest free funds available with the assessee. Therefore, applying the ratio of the Hon'ble Jurisdictional High Court (supra), no notional disallowance / adding back of interest attributable to interest free advances can be made. The addition made is, therefore, deleted.
Nature of expenditure - disallowance of expenditure for software by treating it as capital expenditure - HELD THAT:- What is the nature of software for which the payments were made have not at all been examined by either of the Departmental Authorities. At least the nature of software purchased is not discernable from the discussion made either in the assessment order or in order of the learned Commissioner (Appeals). Before us also, neither of the parties have produced material to show the exact nature of software. Moreover, out of the total expenditure claimed what is the amount spent towards purchase of software and what is the amount incurred for monitors, printers, etc., have not been placed. It is further worth mentioning, as per depreciation schedule provided under the income rules computer including software is subject to depreciation. This aspect has also not been examined by the Departmental Authorities. In view of the aforesaid, we consider it appropriate to restore the issue to the file of the Assessing Officer for deciding afresh
Change of accounting method - assessee has changed the method of valuation of stores and spares from first in first out (FIFO) to weighted average method - HELD THAT:- As could be seen from the observations of the learned Commissioner (Appeals) in Para–13.2 of his order, he has not given any reasoning why assessee’s claim is not acceptable. He has disposed off the ground raised by the assessee without passing a speaking order. Therefore, we restore this issue back to the file of the Assessing Officer for considering afresh after providing reasonable opportunity of being heard to the assessee. The Assessing Officer while deciding the issue must keep in view the decisions which the assessee may rely upon. Ground allowed for statistical purposes.
Addition on account of unutilised MODVAT credit to closing stock - HELD THAT:- As decided in own case issue has been rightly decided by the learned CIT(A) and the valuation of closing stock is already in consonance with section 145A. His order is, therefore, confirmed on this issue.” Following the aforesaid decision of Coordinate Bench of this Tribunal in the assessee‟s own case for A.Y. 2001-02, we uphold the decision of the learned CIT(A) in directing the AO to delete the addition made in the closing stock towards unutilized Modvat credit
Addition made on account of claim of bad debt written–off - HELD THAT:- In terms of the principles laid down by the Hon'ble Supreme Court in TRF Ltd. v/s CIT, [2010 (2) TMI 211 - SUPREME COURT] , deduction claimed is allowable. As per the decision of the Hon'ble Supreme Court it is not necessary for the assessee to establish that the debt have actually become irrecoverable. We have also noted that the learned Commissioner (Appeals) in assessee’s own case for subsequent year also has allowed the claim of bad debt. In view of the aforesaid, we do not find any infirmity in the order of the learned Commissioner (Appeals). Accordingly, we uphold the same by dismissing the ground no.2, raised by the Revenue.
Adjustment for provisions made while computing book profit under section 115JB - HELD THAT:- earned Authorised Representative has fairly submitted before us that by virtue of retrospective amendment to section 115JB, the deduction claimed is not allowable. He also submitted, the issue has been decided against the assessee by the Tribunal while deciding assessee’s appeal for assessment year 2003–04 and 2004–05. On a perusal of the Tribunal’s order date for the assessment year 2004–05, we have noticed that following its earlier order in assessee’s own case for assessment year 2003–04, the Tribunal has decided the issue against the assessee
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2017 (2) TMI 1427 - ITAT CHENNAI
Condonation of delay - delay of 1278 days in filing the appeal by the assessee - When queried with the Ld. AR, it was submitted that the trust had handed over the appeal papers to its auditor for filing the appeal, after a delay of 3 years and 6 months.
HELD THAT:- AR could not justify with any bonafide reasons for the delay in filing the appeal. Therefore, we are of the considered view that the assessee does not deserve for condoning the delay in filing the appeal. Hence, we hereby dismiss the appeal of the assessee by not condoning the delay in filing the appeal within the stipulated period under the Act. - Decided against assessee
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2017 (2) TMI 1423 - ITAT AHMEDABAD
Assessment u/s 153A - addition of unaccounted profit unearthed by department from Shree Balaji Mall - HELD THAT:- The assessee has made a disclosure of ₹ 3 crores in reply to question no.10 recorded under section 132(4) of the Act. Out of this ₹ 3n crores, ₹ 2 crores has been offered for taxation in this year. We have been informed that rest of ₹ 1 crore were offered in individual hands.
We have tried our best to persuade both the ld.representatives to show some nexus or reasonable conclusion from all the figures mentioned in these papers. By any scientific means they did not goad adjudicating authority to arrive at a conclusion that unaccounted profits have noticed in these papers. CIT(A) has appreciated these papers and arrived at a conclusion that these are rough work without any clear indication as to what the said numbers really lead to or relates to. On an analysis of complete material including statement of director recorded under section 132(4) and the explanation of the assessee extracted (supra) during the course of assessment proceedings, we are of the view that the ld.CIT(A) has appreciated the facts in right perspective way, and department is unable to goad us to arrive at any other logical conclusion. Therefore, we do not find any merit in this appeal of the Revenue.
Penalty u/s 271AAA - addition made on undisclosed income - amount was declared by the assessee in the statement under section 132(4) - HELD THAT:- No questions were put to the assessee. As far as assessment proceedings is concerned, the AO himself has treated this income of ₹ 2 crores as a business income and given set off against the alleged unaccounted profit computed by him. This action of the AO impliedly demonstrate that manner of earning of such income from development of Balaji Mall has not been doubted. Thus, the assessee has fulfilled all three conditions contemplated in sub-section 2 of section 271AAA and it could not be visited with penalty qua the alleged ₹ 2 crores disclosed during the course of search and offered them for tax in the return filed by the assessee. CIT(A) has rightly deleted the penalty. - Decided in favour of assessee.
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2017 (2) TMI 1422 - ITAT MUMBAI
Disallowance of provision towards liability arising on of wage revision payable to employees - as per assessee provision had been made based on a reasonable estimate of the imminent liability consequent on the bipartite settlement talks that were being-held between the Indian Banks Association (IBA) and various Employee Unions - whether CIT(A) failed to appreciate that once liability for an expenditure which is contractual in nature is foisted on appellant the same is allowable as deduction though the same could be quantified based on reasonable estimate only? - HELD THAT:- As decided in assessee's own case [2015 (12) TMI 1283 - ITAT MUMBAI] in case of salary/wage revision, what is important is not the date of signing the agreement nor the date of approval granted by the DRE, what is important is the effective date of commencement. The Tribunal, while relying upon the decision of the Hon'ble Supreme Court in the case of "Bharat Earth vs. CIT [2000 (8) TMI 4 - SUPREME COURT] held that in such a case the incurring of liability was certain and the same could also be estimated with reasonable certainty, although, the actual quantification may not be possible. In the case in hand also as per the agreement and the policy, the wage revision was certain and it could have been reasonably estimated also. Hence, the provision made by the assessee towards wage revision was allowable - Decided in favour of assessee
Disallowance u/s 14 A - HELD THAT:- As decided in assessee's own case we find that facts and circumstances of the case in the present year are similar except that learned counsel of the assessee has submitted that several more decisions have come which have upheld the view that disallowance under section 14 A is not required when the investment is held as stock in trade. In our considered opinion we should follow the doctrine of stare decisis. Accordingly following the same directions as above we remit this issue to the file of the assessing officer. Assessing officer is directed to consider the issue in light of the directions as above after giving the assessee adequate opportunity of being heard. Assessee is at liberty to canvas further case laws as it deems appropriate.
Exclusion of income of foreign branches situated in countries where there is a Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries - HELD THAT:- On this issue Ld. Counsel of the assessee fairly agreed that this issue is covered against is the assessee by Tribunal decision in assessee’s appeal.
Income accrued in India - income of the branches of assessee situated abroad - HELD THAT:- Income of the foreign branches of the assessee shall also be taxable in India that is it would be included in the return income filed by the assessee in India and whatever taxes have been paid by the branches in the other countries credit of such taxes shall be given. We find that the Tribunal as above has not held that it is only that income of the foreign branches which was taxed in that foreign country which is to be included in the return of income filed by the assessee. Hence, we are in agreement with the revenue plea that Ld. CIT-A has not properly followed the Tribunal decision as referred by him.
A reading of the notification canvassed by the Ld. Counsel by the assessee also does not help the case of assessee. The notification also does not support the direction of Ld. CIT-A. The doctrine of stare dicisis mandates that we follow the coordinate bench decision as above and hold that the income of the branches of assessee situated abroad shall also be taxable in India and whatever tax have been paid by the branches in the foreign country, credit of such taxed shall be given. Accordingly, we allow the ground raised by the revenue.
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2017 (2) TMI 1419 - ITAT AHMEDABAD
Addition u/s 68 - accommodation entries - HELD THAT:- A.O. was well aware of the fact that the impugned transactions were done by account payee cheques which means that the money has flown from one identified bank account to another identified bank account. Nothing prevented the A.O. to trace the beneficiary bank account but we find that the A.O. has not done any such exercise. No doubt, the burden is on the assessee but considering the nature of the transactions in the light of the statement of the assessee, the A.O. should have made enquiries in depth to trace out the real beneficiaries of the accommodation entries provided by the assessee.
The assessee is a man of small means, therefore, cannot be said to have earned such exorbitant unaccounted income. More so, the assessee is employed in China and his only source of income is the salary received by him in China.
Income Tax proceedings are civil proceedings and the degree of proof is by preponderance of probabilities. Considering the facts in totality in their true perspective, in our considered view, the balance of convenience, in the light of the preponderance of probabilities, is in favour of the assessee.
Commission on accommodation entries - considering the nature of transactions and the acceptance by the assessee being an entry provider, the impugned transactions have to be considered in the light of the acceptance of the assessee. “Don’t shoot the messenger”. The assessee is earning commission by providing such accommodation bills and in our considered view and the understanding of the facts, the only addition that can be made on the given facts is the commission earned by the assessee by providing such accommodation entries. Considering the peculiarity of the facts of the case in hand, addition of the commission @ 3% of the accommodation entries should meet the ends of justice. We, accordingly, direct the A.O. to treat 3% of the accommodation entry as the income of the assessee. Appeal filed by Assessee is allowed.
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2017 (2) TMI 1418 - ITAT MUMBAI
Disallowance u/s 14A - investment made by the assessee in tax free securities comprise substantial amount of investment made in the group companies for strategic reasons - limited prayer of the assessee is that for making disallowance u/s 14A, this strategic investment should be excluded and disallowance can be made only on the balance amount of investment placing reliance on KOTAK MAHINDRA CAPITAL COMPANY LIMITED [2015 (1) TMI 1289 - ITAT MUMBAI], JM FINANCIAL CONSULTANTS PVT. LTD. (NOW KNOWN AS JM FINANCIAL INSTITUTIONAL SECURITIES P. LTD.) [2015 (11) TMI 1061 - ITAT MUMBAI] and CHEMINVEST LIMITED [2015 (9) TMI 238 - DELHI HIGH COURT]
HELD THAT:- This issue has been decided in favour of the assessee in the judgements relied upon before us. Therefore, accepting the request of the assessee, we send this issue back to the file of AO for giving opportunity to the assessee to submit details of strategic investments. The Assessee shall place on record requisite details to satisfy the AO about the strategic investment. The AO shall exclude the amount of strategic investments and the disallowance u/s 14A shall be made on the balance amount of investment.
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2017 (2) TMI 1416 - TELANGANA & ANDHRA PRADESH HIGH COURT
TDS u/s 195 - commission payments made by way of demand drafts and sent through medium of couriers to a non-resident abroad, are remittances deemed to have been received in India, by virtue of Section 5(2)(a) - HELD THAT:- As decided in SRIRAM REFREGERATION INDUSTRIES VERSUS INCOME-TAX OFFICER [2014 (4) TMI 277 - ANDHRA PRADESH HIGH COURT] this Court held that in the absence of a contract between a foreign bank and a bank in India, the bank cannot be taken to be acting as an agent. Therefore, the first question of law has to be answered against the appellant/Revenue, since Section 195 itself is not applicable in such cases.
Income accrued in India - Commission payments were made in the books of accounts of the assessee maintained in India, the commission payments would be deemed to have been received in India - HELD THAT:- The decision of the Supreme Court in Commissioner of Income Tax, A.P. Vs. Toshoku Limited [1980 (8) TMI 2 - SUPREME COURT] . It was held therein that the making of entries in the books of accounts of the assessee cannot be taken to be the receipt, actual or constructive by non-resident sales agents, as the amounts so credited in their favour were not at their disposal or control. Therefore, the second question of law is also answered against the appellant/Revenue.
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2017 (2) TMI 1415 - ITAT INDORE
TP Adjustment - transaction related to ‘’Contract revenue from projects - MAM selection - assessee adopted Cost Plus Method (CPM) as the most appropriate method with GP margin as the appropriate Profit Level Indicator (PLI) - whether the assessee has justified for considering the aggregation of all the projects with AE (the AEs are different) and compared the mean CPM of the projects of related party transactions? - HELD THAT:- Since the projects are operating in different life cycles with different level of completions, it would be more appropriate to compare the margin on an aggregate basis as project- wise one-on-one comparison is not possible and would give distorted results. We are also aware of the nature of business of the assessee. The overall profitability of the projects depends upon various factors such as nature of work, bidding process, location etc. Therefore, we are of the view the TPO/DRP was in error in comparing individual projects margins of transaction with AE with aggregate margins earned from transaction with Non AE’s which is improper as individual margins are being compared with aggregate margin which is impermissible under law.
We find that in the case of the assessee, there are long- term contracts for supply of commodities, and separate transactions are closely linked or continuous that they cannot be evaluated adequately on a separate basis as per examples given in the light of OECD Guidelines para 1.42 as quoted above, we are, therefore, of the view that the combined approach of transaction and aggregation of transaction is the most appropriate method.
Contracts of the assessee with AEs run over a period of 2 to 4 year and as such are long-term contracts justifying as a combined transaction approach as taken by the assessee. We also observe that the assessee had earned lower than mean gross margin in some individual unrelated party transactions also. Therefore, comparing margin of individual contracts with AE’s with margin calculated the average margins entered with Non AE’s does not appear to be as per the principal of transfer pricing.
The assessee is a risk bearing entity and is full of risk bearing manufactures and supply of all power generation equipment’s and as such the assessee is likely to earn low gross margins on international transactions based on the quotient of risk involved. The same is also evident from the fact that the assessee has earned lower than mean gross margins in unrelated party transactions also.
The margin using TNMM method for the assessee for transaction with AE was determined at 10.01% compared to 6.66% for transactions with Non AE’s. We also find that this contention of the assessee was also accepted by the Hon`ble ITAT in earlier years (i.e. A.Y. 2006-07 ,2007-08, and 2009-10) vide order dtd. 03.07.2004. Relying on the analysis undertaken by the assessee, the enter adjustment on account of contract revenue from AE projects was deleted as the transactions having been analyzed under TNMM were held to be at arm`s length. Considering the above facts and circumstances, we direct the Ld.AO to delete the adjustment made by the AO/ TPO. The above grounds of the assessee are, therefore, allowed.
Adjustment to transaction related to "payment for technical service” by determining the arm`s length price of such payments as NIL - TPO has applied CUP method - HELD THAT:- Deputation of the licensor personal in Article 4 and as such payments made in pursuance of the same are distinct from the royalty consideration as specified in the Article 7 and as such is allowable as deduction. We find that the learned that TPO/DRP has failed to appreciate the fact that the payment of royalty and technical services serve two different purposes. We also find that the TPO has accepted the use of TNNM method in A.Y. 2008-09 as most appropriate method for the purpose of benchmarking the impugned International, whereas the approach proposed by the TPO for the year under appeal is absolute contradiction of the approach adopted earlier in TP order for A.Y. 2008-09.
In the succeeding years i.e. A.Y. 2012- 13 and A.Y. 2013-14, the TPO has accepted this factual position by not making any adjustment for amounts paid for services covered under Article 2, Article 3, and Article 4 of the agreement in case of Manideep Unit and Article 4.2 in respect of agreement in the case of Prithla Unit. The additions made in A.Y. 2012-13 amounting pertained to sums, details of which were furnished by the assessee himself, which were covered under Royalty Agreements and that whose ALP was taken at Nil. The learned Counsel for the assessee, has furnished the details of adjustments vide Anx-A for A.Y. 10-11 and Anx-B for A.Y. 11-12, which are wrongly sustained by the DRP in connection with payments for technical services wrongly held to be already covered in Royalty agreement specifying the exact nature of the sum so paid along with the exclusion clauses relating to Royalty agreements to substantiate the claim of the assessee that amounts so adjusted by the TPO /DRP for A.Y. 2010-11 and A.Y. 2011-12. Since the TPO has accepted the fact that above nature of services does not fall under the clause of royalty as per TCA, we are of that view that no adjustment is called for in the case of the assessee. Therefore, the TPO was not justified in making adjustment as the same were on account of payments not covered under the Royalty Agreement.
We are of the considered view that the payments made in respect of Mandideep and Prithla Units as sustained by the DRP by holding as covered by royalty agreement are not sustainable in law as the same are not covered under the royalty clause of respective TCA dtd. 01.01.2006 in respect of Mandideep units and dtd. 26.04.2006 in respect of Prithla Unit for aforesaid units. Accordingly the TP adjustments of ₹ 1,17,23,967/- for A.Y. 2010-11 and ₹ 34,18,088/- for A.Y. 2011-12 are directed to be deleted.
Denial of relief to the Appellant in relation to international transaction of payment of technical services - HELD THAT:- This amount is appearing at Serial No. 11 of the details of payment which relates to payment made for support in respect of business development and not for design and drawing of contract products hence, same is covered by exclusion clause in 3.2 of the agreement relating to general technical assistance by active participation in establishing marketing, design, production, assembly, quality control testing application, installation, commissioning and servicing. Therefore, this amount is not covered by Ro agreement; hence, it is required to be deleted. Hence, this grounds of appeal is allowed.
Not allowing set-off of surplus revenue / profit exceeding the arm`s length price earned from other transaction while computing the transaction-by- transaction analysis approach - HELD THAT:- We are of the view that the decisions rendered in above ground would take care of this ground. However, even if there is any surplus of revenue /profits remains after giving appeal effect to this order, the AO may consider for allowing set-off if admissible under the law. These grounds are disposed-of accordingly.
Disallowance of payments made by the assessee to its overseas parent company for the purchase of technical drawings and designs that same in the nature of royalty on which tax was required to be deducted at source - HELD THAT:- we are of the considered opinion that the assessee has purchased copyrighted items in form of technical drawings and designs only and the amount paid on account of supply of technical drawings and designs is not in the nature of royalty, hence, no TDS was required to be deducted under section 195 of the Act. Therefore, disallowance made under section 40(a)(ia) of the Act by The AO/TPO and sustained by the DRP is not justified hence, directed to be deleted.
Disallowance of warranty provisions - HELD THAT:- Making a provision for all known liabilities is a fundamental principle of the mercantile system of accounting and the assessee by provisioning for the liability arising from warranty clauses of the long- term contracts has to abide by such accounting principles. It is seen that the assessee had debited the relevant expenses to the warranty provision account. For this purpose, the assessee has furnished project-wise details of the warranty expenses booked during the year and also explanation regarding the basis of claiming the same as business expenditure. As submitted to the AO that once the warranty period specified under the contract lapses, the surplus balance lying in the warranty provision account is transferred back to the profit and loss account.
As concluded that the provision for warranty is in the nature of an ascertained liability (with a reasonable estimate of the quantum) and not a “contingent liability”, hence, a deduction for the same should be allowed while computing the total income of the assessee for the relevant assessment years.
We find that the assessee has made provision for warranty for each project separately taking into consideration all the factors with regard to the scope of work, terms of warranty agreed with the customers and estimated cost of warranty based on earlier years’ experience. This method of warranty provisions was consistently followed over the years, which is also in accordance with the Accounting Standard under section 145(2). Thus, basis of provision was not an ad-hoc or contingent as alleged by the AO. With regard to the reasonableness of the warranty provision, we had verified from the warranty provision reversed on yearly basis and the same was found to be reasonable. DRP is justified in allowing the deduction on account of warranty provisions. In the result, grounds taken by the Revenue for the A.Ys. 2010-11 and 2011-12 with respect to provision of warranty are dismissed.
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2017 (2) TMI 1413 - ITAT CHENNAI
TP adjustment - disallowance of the Technical and Management costs - payment to parent company - payment relates to “Technical Development and Production Support’ and ‘Technical Marketing Support’ - HELD THAT:- As decided in assessee's own case [2015 (8) TMI 1473 - ITAT CHENNAI] entire matter has to be remitted back to the file of Ld. TPO for denovo consideration because both the assessee as well as the Revenue has not examined the issue with respect to the correct factual matrix. “Management services” and “Technical services” false under different field and the nature of work involved both these services are different.
When the assessee has made payments to its parent company it has to establish and justify the nature of payment and the nature of service received for the purpose of determining Arms length price in Transfer pricing matters. The onus is on the assessee to substantiate its claim.
Just because the operating cost incurred by the assessee company is less than the operating cost of the comparable companies, the claim of expenses incurred towards payment made to its parent company on an adhoc basis cannot be justified - case the entire confusion has arisen because the assessee company has not submitted the evidence for the service rendered by the parent company to the assessee company against which the payments are made to the parent company by the assessee company. With these observations we remit the matter back to the file of TPO for fresh considerations - Appeal of assessee is allowed for statistical purposes
Comparable selection - consideration of risk related adjustment fpr comparable selection - HELD THAT:- In two wheelers space the company’s major customers are TVS, Bajaj Auto and Hero Moto. In the Four wheeler segment, the company’s customers are Tata Motors, Mahindra and Mahindra, Hyundai, Ford and General Motors. The major exports customers are General Motors, Suzuki and Piaggio. Being so, the AO required to reexamine the claim of risk adjustment and replacement adjustment claimed by the assessee and suitable adjustments to be given after apprising the TP documents submitted by the assessee. With this observation, we remit the issue to the file of AO for the purpose of determination of risk adjustment to be granted to the assessee.
Inclusion of Loss on Forex fluctuation in Operating Expenditure - reinstatement of foreign currency as per accounting standards - HELD THAT:- As relying on M/S. PENTASOFT TECHNOLOGIES LTD. [2010 (7) TMI 75 - MADRAS HIGH COURT] we are inclined to decide the issue against the assessee holding that foreign exchange loss is a part of operating expenditure.
Non-consideration of advance tax payment - HELD THAT:- In our opinion, if it is duly paid, as an advance tax relevant to the assessment year due credit to be given and thereafter the interest u/s.234B & 234C of the Act to be computed.
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