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Income Tax - Case Laws
Showing 1 to 20 of 1021 Records
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2019 (4) TMI 2177
Disallowance u/s 40A(3)(a) and u/s 40A(3)(b) - abnormal gross profit and net profit rate - assessee is engaged in the cloth business - HELD THAT:- As books of accounts were not rejected by the AO as required under section 145(3) of the Act. Thus, after disallowance under section 40A (3) of the Act, the profit of the assessee exceeded by more than 8%. It has been claimed the gross profit margin in the case of the assessee is 7% and turnover is below Rs. 40 Lakh. The assessee shown income of Rs.1,49,160/- whereas after disallowance it comes to Rs.35,22,360/- which giving absurd result as held in the case of CIT v. S Mohammad Dhurabudeen [2007 (7) TMI 635 - MADRAS HIGH COURT] categorically held that when disallowance under section 40A (3) is made, the overall income should not exceed probable percentage of profit. The ratio of this decision is directly applicable to the case of the assessee.
We are of the opinion that it would be interest of natural justice, judicial pronouncements discussed and cited above by the learned counsel for the assessee 0and considering the turnover is below Rs. 40 lakhs, the disallowance of all payments be restricted to 8% of total turnover. The AO is directed to recalculate the disallowance in respect of disallowance of Rs.18,27,989/- made under section 40A(3)(a) and disallowance of Rs.15,45,212/- under section 40A(3)(b) of the Act totaling to Rs.33,73,201/-. These grounds of appeal are therefore, partly allowed.
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2019 (4) TMI 2172
Undisclosed profit on undisclosed sales of gold - Adopting the gross profit of suppressed sales as the income of the assessee, instead of the net profit on such suppressed sales - HELD THAT:- We direct the Assessing Officer to assess the income from undisclosed sales in question by applying the net profit rate in place of the “gross profit rate” as undisclosed sales. The net profit rate shall be that which the assessee had disclosed in its regular books of account for the said Assessment Year on recorded sales. In the result, this ground of the assessee is allowed in part.
Disallowance u/s 40A(3) of the Act and Section 40(a)(ia) made when profits have been estimated as a percentage of turnover - HELD THAT:- We delete the disallowance made u/s 40A(3) and 40(a)(ia) of the Act as in this case, as the income has been estimated by the Assessing Officer. Hence, we allow this ground of the assessee.
Taxation of excess stock found by the revenue during the course of survey - HELD THAT:- We direct the AO to tax only the gross profit embedded in the excess stock found for the Assessment Year. The balance addition is hereby deleted. In the result this ground of the assessee is allowed in part.
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2019 (4) TMI 2170
Addition u/s 68 - unexplained cash credit, following an increase in share capital due to a scheme of amalgamation approved by Hon'ble Calcutta high court - HELD THAT:- No share were issued during the year either by the assessee company or the companies amalgamated with it. The increase in share premium was nothing but the addition of share premium account of the amalgamating companies with the corresponding figure of the assessee company, therefore, there is no cash involved in this transaction, hence provisions of section 68 does not apply.
We note that CIT(A) erred in confirming the addition made U/s. 68 particularly when the initial onus were duly discharged by the assessee stating that it is only an adjustment entry during the amalgamation scheme.
Therefore, hold that the ld. AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares during amalgamation scheme, that is, the increase in share capital is only due to scheme of amalgamation approved by Hon'ble Calcutta high court, hence, addition under section 68 should not be made. Appeal filed by the Assessee is allowed.
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2019 (4) TMI 2166
Non prosecution of appeal by assessee - HELD THAT:- During the course of hearing nobody was present on behalf of the assessee neither any adjournment was sought. Earlier this case was fixed for hearing on 30.10.2018 but nobody was present on behalf of the assessee and the case was adjourned sine die. Later on, the case was fixed for today i.e. 30.04.2019. The notice of hearing was sent to the assessee at the address mentioned in Form No. 36/CIT(A)’s order which has not yet been returned back by the Postal Authority. It therefore, appears that the assessee is not interested to prosecute the matter.
The law aids those who are vigilant, not those who sleep upon their rights. This principle is embodied in well known dictum, “VIGILANTIBUS ET NON DORMIENTIBUS JURA SUB VENIUNT’. Considering the facts and keeping in view the provisions of rule 19(2) of the Income-tax Appellate Tribunal Rules as were considered in the case of CIT vs. Multiplan India Ltd., [1991 (5) TMI 120 - ITAT DELHI-D] we treat this appeal as unadmitted.
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2019 (4) TMI 2164
Validity of reopening of assessment - AO Ludhiana jurisdiction to issue notice or not? - addition of unexplained share capital u/s 68 - HELD THAT:- The issue of notice u/s 148 is a pre-requisite for completion of assessment under section 147. As per Section 148 the AO means the AO vested with jurisdiction over the assessee as stipulated under section 120 sub section 1 & 2. Thus, the notice u/s 148 is required to be issued by the AO who is vested with the jurisdiction over the assessee on the basis of the criteria of territorial or class of persons mentioned in sub section 3 of Section 120 of the Income Tax Act, 1961.
This is not the case of Revenue where the AO who issued the notice under section 148 was vested with the jurisdiction by the virtue of any order or direction issued under Sub Section 1 or 2 of the Section 120. Since the notice has been issued by ACIT, Circle 7 instead of ACIT, Circle-5, who is not vested with the jurisdiction, the notice issued under section 148 is treated as void ab initio and liable to be set aside. Consequently the reassessment made on such notice is not sustainable. Decided against revenue.
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2019 (4) TMI 2163
Disallowance of deduction u/s 80IA (4) - assessee undertaken road development project, as entered into an agreement with Gujarat State Road Development Corporation which was incorporated by the Government for the special purpose - Assessee contended that the GSRDC was performing all the functions of the State Government and therefore the concession agreement executed by GSRDC should be treated to have been entered into by the State Government -
As decided by HC [2018 (5) TMI 1174 - GUJARAT HIGH COURT] Significant factors in the present case are that the road widening project was cleared by the Government, land for such purpose was alloted by the Government. The concession agreement which GSRDC executed was approved by the Government. It was under the Government Resolution that the assessee would collect toll upon completion of such project. Upon the completion of the project period, the entire infrastructure so developed would vest in the Government. Signatory to the applicant may be GSRDC for all practical purposes and in essence, it was the agreement between the assessee and the State Government.
Rigid interpretation of this provision as canvassed by the Revenue would only result into the assessees involved in genuine infrastructure development projects for and on behalf of the Government or local authorities would be denied the deduction merely on the ground that the State Government had created a nodal agency for working out the finer details and nittygritty of such infrastructure development.
HELD THAT:- Delay condoned. We see no reason to interfere in the matter. The special leave petition is dismissed.
Pending applications, if any, shall also stand disposed of.
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2019 (4) TMI 2162
Validity of reopening of assessment u/s 147 - Reasons to believe - non independent application of mind - as argued no independent application of mind by AO and AO had merely relied upon report of the Investigation Wing of the department - HELD THAT:- AO at the time of issuance of notice under section 148 had only considered the report of the investigation. It is incumbent upon the assessing officer to apply independently mind and examine the information came to him from the investigation Wing and after examining the correctness and reliability of the information independently the assessing officer was required to issue the noticed under section 148 to the assessee. In the present case needful was not done.
Therefore we have no other option but to hold that the notice issued under section 148 was not in accordance and law and hence proceeding based on this satisfaction are required to set aside. We also find that the verbatim of the satisfaction written in the case of Sarthak Securities Co. Pvt. Ltd. [2010 (10) TMI 92 - DELHI HIGH COURT], and in the case of the assessee are similar and de void of any iota of “satisfaction” derived by the Assessing Officer. Assessee appeal allowed.
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2019 (4) TMI 2158
Delay of employee's contribution to ESIC and labour welfare contribution - HELD THAT:- As undisputed position that the issue is squarely covered by the judgment of this Court in case of Ghatge Patil Transports Ltd [2014 (10) TMI 402 - BOMBAY HIGH COURT] holding that, "In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employees' Welfare Funds on the other. All this came up for consideration before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - The Tribunal in the case at hand relied upon the said judgment. There is no reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. (supra) applies to employees' contribution as well as employers' contribution. Question accordingly answered in favour of the assessee and against the revenue
Allowance of Foreign Exchange Loss - scope of instruction No. 3 of 2010 of the Central Board of Direct Taxes (CBDT) dated 23.3.2010- HELD THAT:- This issue is covered by a decision of this Court in D. Chetan & Co [2016 (10) TMI 629 - BOMBAY HIGH COURT] in which the Court held that the hedging transactions entered into by the assessee were to cover against the variation in foreign exchange rate and were not in the nature of speculative activity.
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2019 (4) TMI 2156
TP Adjustment - comparable selection - assessee was engaged in providing ITES services in the nature of analysis and research of price movement and recommendations of trends in future price movement of securities listed on New York Stock Exchange and Nasdaq, both situated in USA - HELD THAT:- Accentia Technologies Ltd. - The said issue now stands covered by the order in Pr.CIT Vs. BNY Mellon International Operations (India) (P) Ltd. [2018 (4) TMI 1536 - BOMBAY HIGH COURT] wherein while deciding the transfer pricing adjustment in the hands of assessee engaged in the Business Process Outsourcing i.e. BPO services, it has held that Accentia Technologies Ltd. is to be excluded being KPO company.
Also in Aptara Technologies Pvt. Ltd. [2018 (6) TMI 1707 - ITAT PUNE] also directed its exclusion. Following the same parity of reasoning, we hold that Accentia Technologies Ltd. is to be excluded from final set of comparables while benchmarking the international transactions of assessee. The ground of appeal No.8 raised by assessee is thus, allowed.
Computation of PLI in the hands of assessee - grievance of assessee is that TPO/AO/DRP have included items of revenue relating to DTA activity which were excluded while allowing 10A deduction AND including service tax refund as part of revenue item, despite same being operating income and also despite directions of DRP - HELD THAT:- From the PLI working of TPO/AO, it transpires that the TPO had recognized the sales and service and payout income as revenue items, against which it had debited expense items of personnel expenses, payout cost, administrative expenses, expenses relating to DTA, Forex loss, asset written off and depreciation. One of the grievances of assessee is inclusion of payout income but from the perusal of working of TPO, it transpires that he had debited payout cost of the same value as included on account of payout income and hence, it has no effect on the PLI income. Thus, we find no merit in the plea of assessee in this regard.
Item of expenses relating to DTA unit which have been included by the TPO as part of expenses item - We find merit in the plea of assessee that in case expenses are so included as operating cost, then the income arising from the same head should be included in operating revenue. Accordingly, we direct the TPO/Assessing Officer to include income of DTA unit as part of revenue item.
Inclusion of service tax refund as operating revenue - DRP in this regard has directed the TPO/AO to include service tax refund. Accordingly, we direct the TPO/AO to give effect to the order of DRP and include the same as part of operating revenue. Accordingly, the TPO is directed to re-compute the PLI of assessee, which as per the calculation of assessee works out to 5.20% and compare the same with mean margins of comparable companies after giving effect to our directions in respect of comparables and determine the arm's length price of international transactions, if any, in the hands of assessee.
Re-computation of PLI of Informed Technologies Ltd. and Jindal Intellicom Ltd. - DRP has already directed the AO / TPO to carry out re-working which has not been carried out by the AO/TPO. Hence, direction is issued to re-compute the PLI of Informed Technologies Ltd. and Jindal Intellicom Ltd. as per directions of DRP.
Allowance of working capital adjustment - assessee claims that it was in better financial position as it had received advances from associated enterprises and had no debtors - HELD THAT:- We find merit in the plea of assessee in this regard and accordingly, direct the AO / TPO to allow working capital adjustment and rework the margins of comparables. AO is thus, directed to work out arm's length price of international transactions, after affording reasonable opportunity of hearing to the assessee. The grounds of appeal raised by assessee are thus, partly allowed.
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2019 (4) TMI 2155
Reopening of assessment - unexplained investment in plot - ‘on-money’ on purchase of the plot - information received from Investigation Wing, Jaipur by the A.O as one Sh. Madan Mohan Gupta has accepted on money receipt on sale of Revenue Residency Scheme which is Rs. 2000/- per square yard. - whether no opportunity for the cross examination of the person on whose statement addition was made? - HELD THAT:- Under similar facts, the addition made on account of on money was deleted after following the observation made in the case of Dhirendra Singh [2019 (3) TMI 2029 - ITAT JAIPUR] wherein held addition made by AO merely on the basis of statement, when there is no corroborative material with AO suggesting the alleged addition, without allowing assessee an opportunity to cross examine the person on whose statement addition was made. Accordingly, AO is directed to delete the addition so made - Decided in favour of assessee.
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2019 (4) TMI 2153
Disallowance of bogus purchase - Maharashtra State Sales Tax / VAT department had found all the parties in issue to have been engaged in giving purchase entries to their respective suppliers - HELD THAT:- This tribunal’s co-ordinate bench’s decision in ITO vs. Paresh Arvind Gandhi [2015 (7) TMI 362 - ITAT MUMBAI] holds purchase made from most of the parties in issue as genuine in view of the corresponding details submitted at the concerned assessee’s behest. Case file(s) suggest that the department has also not furnished the relevant materials information as well as the alleged admissions if any of the party in issue to the assessee. We further notice that this assessee is engaged in iron and steel trade business.
As filed all the relevant evidence(s) in the nature of purchase bills, delivery challan, weigh bridge certificates, transportation details, cheque payments to suppliers as well as transporters, TDS deduction certificates, stock register, steel bills and bank statement in support of the impugned purchases claims right from assessment till the instant second appeal proceedings. All the said details have nowhere been rebutted at the AO’s end.
Revenue fails to dispute the clinching fact that the assessee’s corresponding sales have already been accepted as correct. We therefore see no reason to restore the impugned bogus purchase disallowance canvassed in Revenue’s former appeal.
10% ad hoc estimated disallowance by comparing the corresponding figures of the impugned assessment year vis-a-vis preceding assessment year - HELD THAT:- We afforded ample opportunities to the learned departmental representative for pin-pointing any specific defect; head-wise in the impugned claims comprising of clearing charges, computer repair, container rent, custom duty, CWC charge, DEPB premium, doc clearing charges, interest paid, service and testing charges and TDSC transportation charges alongwith other heads. There is no such discussion on the assessment order pointing out any such defect in all these specific heads. AO had not put even a single head to factual verification from recipient side as well. We conclude in these facts that the CIT(A) has rightly concluded that the impugned disallowance merely based on comparison of relevant figures in the two assessment years is not sustainable.
Addition of unexplained cash deposits addition - HELD THAT:- CIT(A)’s findings in his order under challenge hold that the assessee had filed its ledger account as well as cash flow statement indicating re-deposit of cash sums already withdrawn. AO’s remand report as well not disputing all these clinching supporting evidence. We therefore reject Revenue’s instant second substantive ground as well as the latter main appeal
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2019 (4) TMI 2149
Invalid revised return - Considering the income as per revised Return of Income - Revised return considered not the valid return as per section 139(5) [revised return was not filed against the return filed u/s 139(1) or in response to the notice issued u/s. 142(1)] - As per assessee as result of punching error, an amount was entered in the return of income - difference between the original return and revised return and reasons for filing the revised return of income on the next day of filing the original return.
HELD THAT:- In the instant case, the appellant filed its original return of income on 16.02.2015 declaring income at Rs. 1,28,42,730/-. Thereafter, on the very next day, it filed the revised return declaring the total income at Rs. ‘NIL’.
During the assessment proceeding before the AO, the appellant explained that there was a punching error while filing return in e-filing portal. Also, it was submitted by the appellant that the accountant dealing with it, has erroneously inserted figure of “12842725” in the column “amounts debited to the profit and loss account, to the extent disallowable u/s 40A in Row No. 16 in Schedule BP of the return form.
We find that in the instant case there was no income for the impugned assessment year and as a result of punching error, an amount of Rs. 1,28,42,730/- was entered in the return of income filed on 16.02.2015. The appellant realized the mistake and immediately corrected it by filing a revised of return of 17.02.2015. Also, revised computation income was filed in support of the revised return of income.
The above mistake, being a punching error, we uphold the order of the Ld. CIT(A). Decided against revenue.
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2019 (4) TMI 2144
Defect of filing the appeal manually instead of electronically - scope of new procedure of e-filing of appeal - As per rule 45(2)(a), a person who is required to file the return of income electronically, was to furnish appeal in Form No. 35 in electronic mode only - as argued appeal of the assessee dismissed without allowing the assessee an opportunity to rectify the defect in the appeal.
HELD THAT:- As DR agreed that no opportunity was allowed to the assessee to rectify the defect of filing the appeal manually instead of electronically.
We set aside the order of the CIT(A) and remand the matter back to his file to dispose of appeal of the assessee afresh after allowing opportunity to the assessee to rectify the defect in the appeal if any. Thus, the appeal of the assesse is allowed for statistical purposes.
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2019 (4) TMI 2142
Addition u/s 40A(9) v/s 37(1) - payment to Prasanna trust for the training of the employees - assessee claim it as revenue expenditure u/s 37(1) - as per assessee expenditure had been incurred on three to four days of the carrier training program conducted by Presanna trust for the development and growth of the employee. Hence the above-stated expenditure is allowable u/s 37(1) as expenditures were incurred wholly and exclusively for the business - AO rejected the contention of the assessee by observing that the above-stated payment has been made for setting up and formation of the trust other than the fund as covered under section 36(1)(iv) and section 36(1)(v) - HELD THAT:- There is no evidence brought on record by the AO that the assessee has made payment for setting up or formation of trust. Admittedly the assessee made the payment to the trust, but the payment to the trust does not mean that it is not a business expense. As such if the expenses are incurred in connection with the business, then it is eligible for deduction u/s 37(1) of the Act provided the same is not in the nature of capital and personal expenses.
In the case on hand the AO has not brought on record whether the expenditures are capital or personal nature. The AO has not doubted the genuineness of the transaction. AO did not call any information regarding the transaction from the trust by using his power given under section 133(6) of the Act. Thus this expenditure should be allowable as business expenditure u/s 37(1) of the Act. Accordingly, we dismiss the ground of appeal raised by the Revenue.
Nature of expenditure - expenditure made to associates enterprises for the use of technological know-how - Assessee has debited sum as fee for technical know-how in respect of its DTA units and claimed that such fee represents the royalty payment determined as a percentage of net sales under the terms of the collaboration agreement - as per AO said expenditure incurred in respect of technical know-how fees was capital in nature - HELD THAT:- At the outset we find that in the identical facts and circumstances in the own case of the assessee, the ITAT in the AY 2002-03 and 2003-04 has deleted the addition made by the AO after having reliance on the order of the ITAT in the AY 2001-02 [2011 (9) TMI 851 - ITAT AHMEDABAD] by holding that impugned expenditure as revenue in nature.
We also find that the Hon’ble supreme court case of Ambika Parsad Mishra Vs. State of U.P. and Others [1980 (5) TMI 100 - SUPREME COURT] has taken the similar view - Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed.
TP Addition on account of royalty payment and margin of DTA unit - TPO compared the PLI/margin of the assessee for its DTA segment with the PLI/margin of the comparables by observing that margin of DTA segment as calculated by the assessee is 6.97% only which is less than with industry margin 10.66% - HELD THAT:- As decided in own case [2014 (11) TMI 552 - ITAT AHMEDABAD] there is no fault can be found from the order of the ld.CIT(A) so far as restricting the addition on account of differential operating margin to the international transactions is concerned. However, the figure of Rs. 8,43,42,316/- as worked out by the ld.CIT(A) is not correct, therefore this issue is required to be restored to the file of ld.CIT(A) for recomputation of the international transactions - also CIT(A) and TPO were not justified in adopting the CUP method and, therefore, we direct the ld.CIT(A) to adopt the method of TNMM for determination of the ALP and recompute the ALP in respect of the royalty
In view of the above and the precedent in the own case of the assessee as discussed above, we restore both the issue, i.e., adjustment in the DTA segment and the royalty payment to the file of Ld.CIT (A) for fresh adjudication.
Addition for the allocation made by the AO towards the depreciation on data processing machine and advertisement expenses deleted and addition made by the AO regarding the depreciation on the car confirmed. The AO is directed accordingly to delete/ confirm the addition made by the AO.
Depreciation on residential quarters - As Revenue for AY 2003-04 [2017 (4) TMI 1633 - ITAT AHMEDABAD] has not raised any ground against the action of the Ld.CIT (A) for deletion of allocation of depreciation on residential quarters between DTA and EOU unit. Thus it is clear that once the Revenue has not challenged the action of the Ld.CIT (A), then the order of the Ld.CIT (A) reaches its finality. As such it is settled law that the Revenue cannot challenge the same in the subsequent year until & unless there was some change in the facts and circumstances. Admittedly there was no change in the facts and circumstances regarding the claim of the assessee for the depreciation in respect of residential quarters and its allocation thereof. Therefore we are of the view, that there cannot be any disallowance on account of allocation of the depreciation of the residential quarters. In this regard we find support and guidance from the judgment of Hon’ble supreme court in case of Radhasoami Satsang vs. CIT [1991 (11) TMI 2 - SUPREME COURT] - thus we hold that there cannot be any allocation of the depreciation claimed by the assessee in respect of its residential quarters towards the DTA unit.
Allocation of the depreciation on SAP R3 expenses and renovation of the building - SAP R3 expenses and renovation expenses on the building have been treated as revenue expenditure by us earlier in this order. Thus the question of allocating the depreciation thereon does not arise.
As important to note that the AO has not disputed allocation of the expenses of SAP R3 and renovation of the building expenses in his order. As such the AO treated such expenses as capital in nature and accordingly the same was disallowed. But the AO allowed the depreciation on such expenses which was allocated between DTA and EOU unit of the assessee. Thus the issue for the allocation of SAP R3 expenses remained untouched by the AO. Thus the question arises whether such expenses need to be allocated between DTA and EOU unit. For this limited purpose, we are of the view that the justice will be served to both the assessee and the Revenue if the matter is restored back to the file of AO for fresh adjudication.
Negating the exclusion of 90% of the income from writing back of credit balance and gain from foreign exchange fluctuation - HELD THAT:- Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC of the Act. ITAT Mumbai in case of Extrusion Process (P) Ltd. [2006 (6) TMI 261 - ITAT MUMBAI] has also held that the assessee is entitled to deduction under section 80HHC of the Act in respect of the impugned income - No reason to interfere in the order of the Ld.CIT-A. Hence the ground of appeal of the Revenue is dismissed.
Gain on forex - assessee submitted that the income from the foreign currency fluctuation is part of export turnover which represents the additional sale price - HELD THAT:- Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC of the Act. In holding so, we find support and guidance from the judgment of Hon’ble Bombay High Court in the case of Alfa Laval India Ltd. [2003 (9) TMI 43 - BOMBAY HIGH COURT].- In addition to the above, we also note that the Delhi ITAT in case of Smt. Sujata Grover [2001 (11) TMI 232 - ITAT DELHI-E] where in it was held that the assessee is entitled to deduction under section 80HHC of the Act in respect of the impugned income - Decided in against revenue.
Deduction under section 80HHC - Service income, scrap sales, handling charges, and GEB - HELD THAT:- The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest, i.e ., gross interest as reduced by expenditure incurred for earning such interest.
Where, as a result of the computation of profits and gains of business or profession, the Assessing Officer treats the interest receipt as business income, the deduction should be permissible in terms of Explanation (baa) of the net interest, i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle.
Sale of scrap and insurance claim and handling charges - Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC of the Act. In holding so, we find support and guidance from the judgment of Alfa Laval India Ltd [2003 (9) TMI 43 - BOMBAY HIGH COURT] wherein the issue was decided in favour of the assessee.
In addition to the above, we also note that the ITAT (Chennai Bench) in the case of JCIT v/s Kadri Mills (CBE) Ltd. [2002 (3) TMI 242 - ITAT MADRAS-A] has also held that the assessee is entitled to deduction under section 80HHC of the Act in respect of the impugned income.
Interest income from GEB and Income from investment and income from UTI - Deduction u/s 80HHC is available to the assessee in respect of export of the goods. The provisions of this section do not speak about the deduction in respect of interest income from GEB. Therefore in our considered view, the assessee is not entitled to the deduction under section 80HHC in respect of such income. However, the assessee is entitled to the deduction for the expenses incurred by it against such income. Therefore we direct the AO to reduce the expenses incurred by the assessee from the interest income as discussed above. Thus the AO will reduce 90% of the balanced interest income for working out the profit of the business eligible for deduction under section 80 HHC of the Act. As such the AO will consider only the net income of the assessee before reducing 90% of the interest income while working out the deduction under section 80HHC.
Freight recovered, Insurance claim/sale tax claim/CST refund - Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC.
DEPB income - Admittedly the impugned income is eligible for deduction under section 80HHC(3) of the Act. We also note that the issue involved in the instant case stands covered in favor of the assessee by the judgment of Hon’ble Apex court in the case of CIT Vs. Avani exports [2015 (4) TMI 193 - SUPREME COURT]. Accordingly, we direct the AO to consider the aforesaid amount for working out the deduction under section 80HHC of the Act.
Discount of early payment of suppliers bill - Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC of the Act. We direct the AO to consider the aforesaid amount for working out the deduction under section 80HHC of the Act.
Octroi refund, reversal of the provisions, for the excise duty and for the testing charge - Admittedly the impugned income is arising in the course of the business of the assessee. We also note that the AO in his assessment order has also not treated the impugned income as income from other sources. Therefore the same cannot be treated as income from other sources and accordingly the same is eligible for deduction under section 80HHC.
Small amount accruing during the normal course of the business - We note that the Ld. AR before us has not advanced any argument suggesting that income is arising in the course of the business. Thus in the absence of any information contrary to the finding of the Ld.CIT (A), we are inclined to uphold the same. Hence the ground of appeal of the assessee is dismissed.
Including the profit & export turnover of EOU units eligible for tax holiday u/s 10B of the Act in the computation of deduction u/s 80HHC - As decided in own case [2017 (4) TMI 1633 - ITAT AHMEDABAD] expression "such" before the expression export turnover only means that the export turnover referred to is the turnover of the goods manufactured whose profits are being computed under s. 80HHC(3)(a). Therefore, we find that while computing deduction under section 80HHC the profits of s. 10B unit will not enter the computation of total income at all. In view of above facts and legal findings, we reverse the decision of the CIT(A) and confirm the findings of the assessing officer and direct to compute the deduction u/s 80HHC accordingly as per the direction given in the judicial pronouncement of ITAT Mumbai in the case of TATA BP SOLAR INDIA limited. [2010 (9) TMI 1083 - ITAT MUMBAI]
Nature of expenses - repair expenses in the building carried out by the assessee - revenue or capital expenditure - HELD THAT:- There is no allegation of the revenue that any new asset has come into existence out of such expenditure. As such the repairing expenses were incurred to the existing building. Thus, we are of the view that such expenditure cannot be termed as capital in nature merely on the ground that it will generate enduring benefit to the assessee.
The case law relied upon by the AO i.e. Ballimal Naval Kishore & another [1997 (1) TMI 3 - SUPREME COURT] is distinguishable from the present facts of the case as observed that there was a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. However in the instant case before us, there was mere repair on the existing building. There was no change brought to our notice about the structural in the existing building out of such expenses. Accordingly we direct the AO to delete the addition made by him by treating the repairing expenses as capital in nature.
Disallowing the expenditure on scientific research claimed u/s 35(1) - HELD THAT:- As assessee has conducted the scientific research activity and therefore the assessee is eligible for deduction in respect of capital expenditure under section 35 of the Act. However, the onus lies on the assessee to prove on the basis of documentary evidence that it has carried out the scientific research activity. As such we note that, the Ld.AR for the assessee before us has not brought any iota of evidence suggesting that the assessee has carried out any scientific research activity. Thus in the absence of sufficient documentary evidence, we do not find any reason to disturb the finding of the Ld.CIT (A). Hence the ground of appeal of the assessee is dismissed.
Addition of the unutilized CENVAT Credit in the valuation of closing stock - As we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of closing stock without giving effect to the purchases.
Reimbursement of Insurance Expenses - As there is no ambiguity that the assessee cannot claim the deduction of the insurance expenses paid to the foreign insurance companies. Therefore we do not find any merit in the case of assessee. Hence the ground of appeal of the assessee is dismissed.
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2019 (4) TMI 2140
Penalty u/s 271(1)(c) - debatable issue - bonafide claim by disclosing income and particulars of such income - ITAT deleted addition as High Court has admitted the appeal on quantum addition by framing substantial question of law for consideration, ignoring all other material facts considered for levying the penalty - HELD THAT:- Firstly, it is undisputed that the assessee had made full disclosure of income and the particulars of income. The assessee had made bonafide claim of depreciation on lease assets. Whether such claim eventually stands legal requirement or not, what is important is that the assessee had raised such a bonafide claim by disclosing income and particulars of such income. As is held by the Supreme Court in its decision in the case of CIT, Ahmedabad Vs. Reliance Petroproducts Pvt Ltd [2010 (3) TMI 80 - SUPREME COURT] merely because a claim is not acceptable in law would not give rise to penalty proceedings. Decided in favour of assessee.
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2019 (4) TMI 2139
Addition u/s. 69A - unexplained jewellery - DR while relying upon the order of AO submitted before us that cut and polished diamonds were purchased on credit from M/s Raj International Ltd and were given for re-making of jewellery to Bani Kumar Mondal - HELD THAT:- We find that as far as diamond jewellery of Rs.44,40,906/- is concerned, the assessee had adduced all the relevant evidences before the AO in the form of valuation report of the assessee and Mrs. Kalawati Kothari (wife of the assessee) and the purchase bills of diamonds, remaking bills for conversion of diamonds into jewellery and payment details in support of its acquisition at the time of post search proceedings and even in the assessment proceedings.
Whereas the AO has not brought any cogent or convincing material to point out any discrepancies therein. However, it was mere presumption on the part of AO to the effect that as to why the purchases were made on credit just prior to search and paid after the date of search. According to us, the presumption howsoever strong may be cannot take place of proof. Thus, according to the facts of the present case, the assessee has not led any corroborative evidence in order to point out any discrepancies in the documents filed by the assessee.
We are also of the view that Section 69A cannot be invoked, just on the basis of presumptions, conjectures and surmises.
Even no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Resultantly, this ground raised by the revenue stands dismissed.
Addition u/s. 69A - unexplained money - assessee has accepted in his statement under oath u/s 132(4) that there was no evidence present at the time of search action - CIT(A) deleted addition - HELD THAT:- As considered the entire facts, documents and affidavit filed by Rakesh Kothari that the noting made in his diaries were his personal dealings and none of the family members was involved in his transactions.
Shri Rakesh Kothari has already considered all these alleged transactions in his Application filed before the Hon'ble Settlement Commission u/s. 245C(1) - as perused the report and the orders passed by the Settlement Commission, wherein the unaccounted transactions have already been owned up by the him and considered in the additions/offer made in his hands. Therefore in this way, the undisclosed transactions have already been brought to tax by the department. The decision of the Hon'ble Supreme Court in the case of Common Cause [2017 (1) TMI 1164 - SUPREME COURT] relied upon by the assessee is squarely applicable to the present facts and therefore we are also of the view that mere noting in diaries of a third person cannot be taken as admissible evidence u/s. 34 of the Indian Evidence Act.
No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed.
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2019 (4) TMI 2138
Provision for non-moving/obsolescence stock disallowed - as argued provision for non-moving / obsolescence in stock was made as per the mandatory requirement under AS 2 (i.e. Valuation of inventories) prescribed by ICAI and Accountant Standard 1 prescribed by the Central Govt. u/s 145 of the Income-tax Act - HELD THAT:- The fact remains the ld. AR has not demonstrated the nature of the goods which became obsolescence and what is the cost and net realizable value. The decision relied upon by the AO is on the provision for warranty whereas in the present case the disallowance is for non-moving / obsolescence goods. The ld. AR contention that they are slow moving.
The fact remains that the assessee could not substantiate and the CIT(A) has referred in the observations that the assessee could not substantiate with the detailed working of provisions and no details of listed items of obsolete have been produced and the basis of value and comparables at cost or market value and also there is no policy decision in respect of such non-moving / obsolescence goods. We are of the substantiate opinion that since both the AO and the assessee could not substantiate with the information and CIT(A) also dealt on this issue, we restore the disputed issue to the file of the AO to verify and examine the method of accounting treatment of obsolescence goods and examine the statements filed in the course of hearing. Grounds of appeal of the assessee is allowed for statistical purposes.
Non-deduction of TDS on payments made to non-residents - AR submitted that the commission is paid outside the country and Agents only procure orders - HELD THAT:- When we read the clauses and findings of CIT(A), the fact remains that the non-resident should have the some technical expertise to check quality of products. We found section 9(1)(vii) deals with fee for technical services, in the present case. We are of the substantiate opinion that the submission of the Assessee cannot be accepted because the non-resident Agent has to check the quality of goods ordered by the customers with some expertise in international market and the ld. AR could not prove that there is no permanent establishment and supported the arguments with judicial decision and explains that the assessee has paid only commission and the works are in the nature of procurement of goods but it conflicts clauses of the agreement entered by the assessee with the non-residents. Further the assessee could not substantiate with reasons that how the quality of goods can be checked by the non-residents when they do not have any expertise in the international market. Therefore we are of the opinion that the CIT(A) after considering the provisions, facts and finding has taken a reasoned decision and we uphold the same and dismiss the ground of appeal of the assessee.
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2019 (4) TMI 2134
TP Adjustment - comparable selection - Exclusion of Alphageo (India) Ltd. - HELD THAT:- As there is a stark difference between employee cost to total cost ratio in the case of Alphageo of 7.55% as against 60.35% in case of the taxpayer. Further when we examine the show cause notice issued by the TPO, he has himself applied the export filter that the company having export turnover less than 25% is not to be taken as comparable. So, when Alphageo fails the export filter which is less than 25% as against 100% export of the taxpayer company, the same cannot be a valid comparable. So, we are of the considered view that Alphageo is not a suitable comparable vis-à-vis the taxpayer and as such has been rightly excluded by the ld. CIT (A).
Allowable deduction u/s 10B - exclusion of misc. income from the net profit of the business of the undertaking on the ground that the taxpayer has not fulfilled three conditions laid down u/s 10B - HELD THAT:- Undisputedly, the taxpayer has duly shown the misc. income in profit & loss account under the head “other income”, which represents amount recovered from its employees towards the notice pay in relation to the period of notice not served. It is also not in dispute that the salary of the employees is claimed as expenses of the undertaking of the taxpayer and that subsequent recovery on termination of the employee should also be credited to the respective undertaking.
Thus by applying the decision rendered in Birla Soft (India) Ltd. vs. DCIPT [2011 (12) TMI 385 - ITAT DELHI] CIT (A) has rightly allowed the notice period pay received as income while computing the deduction u/s 10B of the Act because amount received towards notice period pay was to be treated as income derived from the eligible undertaking.
The decision rendered by the Hon’ble Supreme Court in Liberty India [2009 (8) TMI 63 - SUPREME COURT] applies to DEPP/Duty Drawback benefits which do not form part of net profit for the purpose of computation of profits and do not fall within the expression “profits derived from industrial undertaking” for the purpose of section 80IB. So, ld. CIT (A) has rightly held that Liberty India (supra) is not applicable to the facts and circumstances of the case. - Decided against the Revenue.
Suitability of Stup Consultants Pvt. Ltd. as a comparable for benchmarking the international transactions undertaken by the taxpayer with its AE - Coordinate Bench of the Tribunal in case cited as Emerson Process Management Power & Water Solutions India (P.) Ltd. vs. ACIT [2016 (4) TMI 1176 - ITAT DELHI] examined the suitability of Stup vis-à-vis Emerson Process Management Power & Water Solutions India (P.) Ltd. which is engaged in providing “Application Engineering” software development and related services to its group company and found the same as not a suitable comparable for AY 2008-09 as having different functional profile compared to the assessee company.
Thus Stup is not a suitable comparable vis-à-vis taxpayer on ground of functional dissimilarity, non-availability of segmental information and on ground of failing the export filter, hence we order to exclude it from the final set of comparables.
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2019 (4) TMI 2133
Re-opening of assessment u/s. 147/148 - overlooking of Leave Travel Assistance (LTA) by the DCIT in the past years - HELD THAT:- From the Schedule 18 of the Balance Sheet, we note that, the information about LTA Provision, was there in the audited books of accounts. Hence, it is not a new tangible material to re-open assessment u/s. 147/148 of the Act. Therefore, reopening of assessment u/s. 147/148 is not valid and hence we allow the grounds raised by assessee.
Write off of technical know how expenses - allowance u/s. 37(1) or not? - HELD THAT:- This amount was required to be paid to operationalize the contract. After initialization of contract HEC could fetch order for supply of seven numbers of CNC Under Floor Wheel Lathe Machine type U2000-400 and not the CNC Surface Wheel Lathe Machine, type SWL 2000. Therefore the balance amount of Technology transfer fee towards CNC Surface Wheel Lathe Machine, type SWL 2000 was not paid and as a result, complete Technology transfer for this machine was not accomplished.
As the complete technology was not acquired for Surface Wheel Lathe Machine, type SWL 2000 and its technology transfer lost its usefulness due to non-availability of orders in the market, the appellant company had to write off the balance amount of the technology transfer fee so paid. This was an admissible business expenditure u/s. 37(1) - Hence we allow the appeal of the assessee.
Provision for warranty expenses - obligation of providing after sale service - HELD THAT:- The appellant company manufactures and sells capital goods/heavy equipment for customers. In compliance with its contractual obligation . Warranty' for replacement of spare parts and maintenance for certain specified period at free of cost are provided. Based on its past experience and technical estimate for warranty, expenses are provided in accounts. This is done while crediting Profit & Loss Account for it Sales Revenue and along with this manufacturing & other expenses and Warranty Expenses are charged in the accounts as expenses.
We note that providing after sale service is an obligation under any contract of sale for the appellant company. Incurring of the liability therefore is certain. Therefore, the appellant company provides for its' After Sale Service/Warranty' obligation on accrual basis in its Profit & Loss Account. The Company provides for 0.5% on Sale for liabilities under contractual obligations/warranties. This was stated at Clause 6 of the Statement of Accounting Policies of the Company forming part of the Balance Sheet and Profit & Loss Account.
The company has worked out the percentage on Sale on the basis of past factor of actual expenses incurred by it towards warranty liability. This provision of 'After Sale Service' is then reversed back by the Company on the expiration of the Guarantee/Warranty Period and the amount of such expiration is then offered for taxation as income. As relying on Haden International Group India (P) Ltd [2007 (12) TMI 305 - ITAT MUMBAI], SIEMENS PUBLIC COMMUNICATION NETWORKS LIMITED. [2009 (1) TMI 359 - ITAT BANGALORE] and LG ELECTRONICS (I) LTD. [2009 (1) TMI 525 - ITAT DELHI] - we dismiss the appeals of Revenue relating to warranty expenses.
Disallowance u/s 40(a) - non deduction of TDS on sales promotion expenses & Liquidated damages, Misc. Provision and Provision for LTA - HELD THAT:- We note that the appellant during the course of appellate proceedings has argued that the company has deducted TDS wherever applicable. The company has also added back the entire expenses in cases where non deduction of TDS was reported. Therefore, disallowance under this head resulted in addition of the same amount twice.
Assessee company incurred expenditure under the head sales promotion .Assessee company deducted TDS and wherever TDS was not deducted the company has added back the entire expenses which is evident from Tax Audit report in Form 3CD (clause 27(a)).
The details were available in the schedules to the Audit Report. It is also not correct to say that any and every expense for sales promotion would be of such nature as to require deduction of tax at source. No such enquiry has been conducted by the Ld. Assessing Officer.
Sales promotion expenses include 'freight and incidental charges' and 'warranty period expenses'. Exhibition and publicity expenses were Rs. 1.47 lakhs and Rs. 0.67 lakhs respectively. The disallowance is completely against the pronouncement in the case of Dhakeshawari Cotton Mills Ltd. V CIT [1954 (10) TMI 12 - SUPREME COURT] wherein it has ruled that "although ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under section 23 (3) he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all and there must be something more than bare suspicion to support the assessment under section 23 (3)."
The order has also ignored the fact that the sales promotion expenses so purported to be added back already includes Rs.127.60 lakh on account of warranty period expenses which has also been added back in the order. Therefore, it tantamounts to addition of the same amount twice and hence, addition made by the Ld. AO cannot sustained in appeal. Liquidated damages, misc. Provisions and Provisions for LTA are made as per basis of accounting practice followed by company, hence addition on these heads should not sustain. Therefore, we dismiss the appeals of Revenue.
Expenditure on horticulture - Whether not related to business expenditure? - HELD THAT:- The word 'wholly' refers to the quantum of expenditure, while the word 'exclusively' refers to the motive, objective and purpose of the expenditure. An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how the businessman himself treats a particular item of expenditure. It means everything that serves, to promote commerce and includes every means suitable to that end. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business; reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the revenue.
We note that in CIT V Malayam Plantations Ltd [1964 (4) TMI 9 - SUPREME COURT] has held that “The expression ‘for the purpose of the business’ is wider in scope than the expression ‘for the purpose of earning profits’. Its range is wide; it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business.”
In Madhav Prasad Jatia [1979 (4) TMI 2 - SUPREME COURT] as held that the expression ‘for the purpose of business’ occurring under the provision of section 36(1)(iii) is wider in scope than the expression’ for the purpose of earning income, ‘profits or gains’, and this has been the consistent view of the Supreme Court. - Decided against revenue.
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2019 (4) TMI 2131
Seeking permission to withdraw this IT Appeal with liberty to challenge the order of rejection of review by way of filing a writ petition - HELD THAT:- Permission is granted.
Accordingly, the Income Tax Appeal stands dismissed as withdrawn with liberty to the learned counsel for the appellant to challenge the order of rejection of review by way of filing a writ petition.
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