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2018 (6) TMI 1710 - KERALA HIGH COURT
Advances made to rural branches u/s 36(1)(viia) - Deduction of provision for bad debts in terms of Section 36(1)(viia) - definition of “Rural branch” for the purpose of arriving at deduction u/s. 36(1)(viia) - HELD THAT:- The definition of non-scheduled bank as noticed from the Banking Regulation Act was “any bank which is not included in the second schedule to the Act”. Though there was a separate definition of co-operative banks in the Banking Regulation Act, the Division Bench held that the co-operative banks for the purpose of section 36(1)(viia) would be treated as included and entitled to such benefit.
A reading of clause (a) under section 36 (1)(viia) would dispel any doubts regarding such inclusion. The deduction in respect of any provision for bad and doubtful debts to the extent of 7½% of the total income is applicable to scheduled banks not being one incorporated outside India, a non scheduled bank or a co-operative bank other than those specified. Under the second limb the deduction is to the extent of 10% of the aggregate average advances by the rural branches of such bank. The rural branches of the category of banks referred to in the first limb would be entitled under the second limb. We agree with the decision and there is no reason for us to take a different view in the present case especially in an appeal instituted by another assessee.
The question raised is also as to the sustainability of the dictum in Kannur District Co-operative Bank [2014 (8) TMI 635 - KERALA HIGH COURT]that while identifying the 'rural branches', the co-operative banks are also to be brought under the rigour of the definition of a "Rural Branch".
The Division Bench found that the view was covered by the earlier judgment in Lord Krishna Bank Ltd.[2010 (10) TMI 860 - KERALA HIGH COURT]. - Also see MALAPPURAM DISTRICT CO-OP. BANK LTD VERSUS INCOME TAX OFFICER, WARD-2, TIRUR. [2014 (10) TMI 1023 - KERALA HIGH COURT] - Decided against assessee.
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2018 (6) TMI 1708 - ITAT DELHI
Exemption u/s 11 - specific services to member as well as non-members by charging fees - HELD THAT:- Rendering specific services to member as well as non-members by charging fees and applicability of exemption u/s 11 of the Act has already been decided by the Hon’ble Delhi High Court [2012 (11) TMI 429 - DELHI HIGH COURT] by holding that the assessee society is entitled to get benefit u/s 11.
DR also raised an issue that post amendment to the proviso to Section 2(15) of the Act , the situation has become altogether different from the AY 2009-10 onwards and the activities of the Assessee are liable to be treated as business activities, however, we realized that co-ordinate bench of ITAT at Delhi in the assessee’s own case for the AYs 2008-09 & 2009-10 duly considered and adjudicated the said issue and nothing is brought on record by Ld. DR, contrary to the said judgments and/or filing of any appeal against the same. - Decided against revenue.
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2018 (6) TMI 1707 - ITAT PUNE
TP Adjustment - comparable selection - HELD THAT:- Assessee was providing e-learning solutions i.e. IT enabled services like content technology services, desktop technology services, e-learning and conversion services to its associated enterprises.
Accentia Technologies Ltd to be excluded as being not functionally comparable to the activities carried on by the assessee
Not considering foreign exchange gain as operating income while calculating the PLI of assessee - The foreign exchange fluctuation is in respect of revenue earned from the associated enterprises vis-à-vis provision of ITES services and hence, the same forms part of the operating income / cost. The Assessing Officer / TPO is thus, directed to verify the claim of assessee in this regard and re- compute the PLI of assessee and the comparables. It may also be pointed out that the assessee had chosen filter of export sales exceeding 75% for comparables. Thus, the foreign exchange fluctuations arising with regard to exports cannot be treated as non-operating in nature even in the case of comparables. See B.C. MANAGEMENT SERVICES PVT. LTD. [2017 (12) TMI 255 - DELHI HIGH COURT]
Risk adjustment - As relying on STARENT NETWORKS (INDIA) PVT. LTD.[2018 (4) TMI 32 - ITAT PUNE] we direct the Assessing Officer to verify the above said claim of assessee and re-compute the margins of assessee and also the mean margins of comparables in line with our directions and determine transfer pricing adjustment, if any, is to be made. The grounds of appeal raised by the assessee are thus, partly allowed.
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2018 (6) TMI 1706 - GUJARAT HIGH COURT
Unexplained cash credit - addition made towards unsecured loans / gifts - tribunal confirmed addition - HELD THAT:- Assessee failed to prove the capacity of the concerned persons who alleged to have given the unsecured loan and/or gift, it cannot be said that the learned Tribunal has committed any error in confirming the additions made by the AO and confirmed by the CIT (Appeals) as unsecured cash credit.
So far as submission on behalf of the assessee that all the concerned persons gave their confirmation, the aforesaid confirmations are neither here or there. These confirmations are required to be decided and/or considered along with the capacity / financial capacity of the concerned persons. Mere confirmation alone is not sufficient. In a given case, it may happen that a labourer may give a confirmation of ₹ 1 Crore, but ultimately the same is to be decided or considered, considering his paying capacity.
Thus it cannot be said that the Tribunal has committed any error. No substantial question of law
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2018 (6) TMI 1705 - ITAT PUNE
Additional income declared by the appellant in the course of survey u/s.133A - deemed income u/s.69A - claim of set off of brought forward losses against the additional income - disallowance of provision for warranty - HELD THAT:- Income offered on the basis of the impounded documents collected during the survey action conducted on 24-01-2007 on the assessee. These documents clearly reflect the unexplained expenditure and unexplained receipts relates to sale of flats to the parties. Assessee is a Builder and his business is to construct the flats and sell the same to the customers. All these details clearly indicate the business nexus of the receipts/expenditure to the core business activities of the assessee. It is not the case that there was any cash impounded or seized in this case to deny such claim of set off as the source of the same becomes very vague issue. The entries available on the impounded material suggest the business nexus of the additional income.
The income in question is derived from the business activities of the assessee although they are outside the books of account of the assessee. Having held so, the taxability of the same under the head ‘business’ or ‘income from other sources’ is the next issue for adjudication. Considering the existence of business nexus, we are of the opinion that there is no reason why such income is taxed as ‘income from other sources when the source for the same from the business activity, is already demonstrated by the assessee during the proceedings before the assessment/appellate authorities. Unaccounted receipts/expenditure constitutes business receipts/expenditure. As such, the judgment of jurisdictional High Court in the case of CIT Vs. Sheth Developers Pvt. Ltd. [2012 (8) TMI 159 - BOMBAY HIGH COURT] affirms that the income from business is required to be taxed as ‘business income’.
We have also examined the allowability of statutory deductions out of such additional income disclosed during search and seizure/survey actions. There are binding decisions to support the claim of deduction qua the deductions u/s.80IB, 40B of the Act etc. Therefore, in principle, granting statutory deductions out of such additional income arising out of business activities is sustainable.
Linking the additional income to the business activities OR income from other sources - HELD THAT:- Items of income that are chargeable to tax under the head ‘income from other sources’ as per the provisions of section 56 of the Act, are specified therein. The deemed income like the present case is certainly not specified in the said section. Further, it is not the case of the AO that the said unaccounted income of ₹ 53 lakhs and ₹ 78 lakhs cannot be classified to any other head of income. In fact, section 56(1) of the Act provides for bringing such items of income under the scope of section 56 of the Act. Therefore, the decision of the AO in treating the same as chargeable to tax under the head ‘income from other sources’ is not valid as the source for such additional income is clearly determinable as chargeable u/s.28 of the Act. Further, there is no law to automatically tax each and every ‘unaccounted income’ disclosed during search/survey actions as ‘income from other sources’.
In our view, such income needs to be treated as the ‘business income’ of the assessee and consequently, the benefit of set off/carry forward should be granted to the assessee against such additional business income of the assessee in both assessment years. Accordingly, the decision of CIT(A) stands reversed on this issue. - Decided in favour of assessee.
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2018 (6) TMI 1700 - ITAT DELHI
Undisclosed income - Unexplained deposits in bank account - as per the ITS information, AO came to know that the assessee has deposited in Kotak Mahindra Bank for acquiring bonds/debenture - CIT(A) was of the view that the assessment has to be made on substantive basis in the case of the assessee as the assessee is having his own business and has been filing regular return of income and convinced that the addition of ₹ 1 lakhs - HELD THAT:- Bench asked the ld. DR to furnish the details of substantive additions made in the hands of Shri Ajay Taneja or any other person. The ld. DR could not furnish such details. On the other hand, he pointed out that no substantive additions have been made in the hands of any other member of the Taneja Group.
In our considered opinion, if no substantive additions have been made in any other hands, there is no room for addition to be made on protective basis in the hands of the assessee. In our considered view, there cannot be any protective assessment without there being a substantive assessment. We, therefore, decline to interfere with the finding of the ld. CIT(A). - Decided against revenue.
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2018 (6) TMI 1695 - ITAT KOLKATA
Addition u/s 37 r.w 40(a)(ia) - service charges paid to M/s Golden Trust Financial Services (GTFS) hereafter for having acted as its agent - CIT(A) examining assessee’s exclusive method of accounting in service tax receivable on output services as against inclusive method of service tax payments in respect of inputs services thereby holding the impugned expenditure to be eligible for deduction - assessee is a company engaged in corporate insurance business - HELD THAT:- We posed a specific query as to whether the said operating expenditure included any commission agency services or infrastructure usages or not. There is no such material on record to this effect. It emerges therefore that the assessee has been following its consistent practice wherein agency and infrastructural service are being availed from the payee GTFS as accepted by the AO himself in preceding succeeding assessment years as discussed in above extracted CIT(A)’s findings.
Taxpayers before us as has already filed all the relevant particulars of the agency and infrastructure utilized on secured as already discussed at length in the CIT(A)’s findings under challenge. Coupled with this is the clinching lower appellate authority’s conclusion that these two entities are not group concerns at all. The assessee’s directors’ names along with their respective stake holdings as well as payee firm’s partners’ details reproduced hereinabove do not show any group(s) relationship before these. The Revenue’s very fair in not involving section 40A(2)(b) of the Act even to prove the contrary. It is therefore a case of the assessee having availed both agency as well as infrastructure network of the payees GTFS carrying out in its corporate insurance agent business.
Assessing Officer had invoked only section 37 in doubting genuineness of the impugned payments. Mr. Usman at this stage submits that CIT(A) ought to have applied section 40(a)(ia) disallowance as well since the assessee had not deducted TDS at the prescribed rate as per tabulation chart extracted forming part of CIT(A)’s detailed discussion. We fail to agree with the Revenue’s instant technical plea. The fact remains that the assessee has filed its payee’s computation of income, income tax return as well as the corresponding assessment order sufficiently indicating that the impugned payment had been duly assessed as his case in its hands.
Section 40(a)(ia) 2nd proviso inserted in the Act by way of the Finance Act, 2012 with effect from 01.04.2013 prescribe non application of the impugned provision in case the assessee’s concerned is not an assessee in default as per section 201(1) 1st proviso. Hon'ble jurisdictional high court’s decision in TIRUPATI CONSTURCTION [2016 (8) TMI 1310 - CALCUTTA HIGH COURT] has concluded that the said proviso is a curative one having retrospective effect from 01.04.2005. We therefore decline the Revenue’s arguments seeking to invoke u/s 40(a)(ia) of the Act. We further hold that hon'ble jurisdictional high court’s land mark decision in CIT(A) vs. M/s S.K. Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] has further concluded that the section 40(a)(ia) does not apply in case of short deduction of TDS than the prescribed rate.
CIT DR next reiterates Revenue’s two remaining averments that the assessee has followed exclusive method of its inbound receivables as against inclusive method for impugned expenditure whilst claiming service tax component (supra). Learned counsel representing assessee clarifies that this assessee is not registered under the service tax regime. What it has done it is to claim the impugned expenditure after making the actual payment which is duly allowable under the Act. It has further not claimed any benefit arising out of its exclusive method as well. We therefore reject Revenue’s instant argument.
CIT-DR’s lastly contends that the argument that CIT(A) has erred in both law as well as on facts in adopting judicial consistency on the issue of the impugned payments of ₹66.18 crores despite the facts involved in the relevant previous year are altogether different than in preceding and succeeding assessment years. There is no material on record pin-pointing any such distinction on facts summarized in the lower authorities’ findings extracted in preceding foregoing discussion. We therefore do not find any substance in Revenue’s instant last argument as well. - Decided against revenue
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2018 (6) TMI 1692 - ITAT DELHI
Assessment u/s 153A - addition as the profit earned by the assessee based on the documents found during the course of search - HELD THAT:- In this case the documents were found from the assessee, wherein, the name of the assessee is also mentioned in short form, assessee failed to explain the contents of the documents including the paper showing the transaction as well as the contents of the MOU.
In view of this, we reject the contention of the ld AR, uphold the orders of the lower authorities confirming the addition as undisclosed income of the assessee, and dismiss ground of the appeal of the assessee.
Unaccounted Profit on Sale of Industrial plots at Village Jharsentli, Faridabad - first contention of the assessee is that above transaction has not happened and these are tentative or estimates - HELD THAT:- Argument of the assessee is that out of the 16 plots, four plots have not been sold and therefore they cannot be considered as the final sale price. This argument does not merit any consideration for the reason that AO has divided the profit based on the date of sale of the plots when they are registered. AO himself has stated that up to 31st October 2001 only 12 plots was sold and balance 4 plots were sold later on. Further the assessee has also borrowed jointly sum from somebody on interest and interest cost thereon as been reduced from the profit. With respect to the sale of 12 plots, the assessee has complete details about the name who bought the plot of land, the documented sale price etc. These facts are not disputed. Therefore based on all these facts, it cannot be said that the papers are merely an estimate or projection.
Assessee is merely a broker and whatever profit arises would squarely falls on the shoulders of the owner of the property and not on the broker - On the similar facts and circumstances in the case of the assessee for different years, we have already dealt with this argument. For the similar reasons we also reject this contention of the assessee. Furthermore we are of the opinion that documents shows emphatically and clearly that in the whole project the assessee was also partner along with the managing director of the company sold plot. These facts were not denied by the assessee further assessee did not produce on its own the managing director of the seller company before AO to show that the profit belongs to him. It was also not denied that the plot originally to be sold was subdivided into 16 plots and therefore there is bound to be expenditure for roads, electricity etc, no evidences were furnished that who incurred this expenditure. Contrary to this, the document shows that the assessee has maintained a detailed account where cash has been received and expenditure have been defrayed. It cannot be said that that assessee was merely a broker and has not earned profit on sale of the 16 plots.
Determination of profit - Assessing officer reduced the amount of lesser sale consideration received by cheque and added the same as a cash has been received of that amount by the assessee. We are not in agreement with the Ld. assessing officer on this issue. If there is a reduction in the sale price with respect to the 4 plots from the amount mentioned in the seized document, then the Ld. AO should have granted deduction of the same amount in the consideration paid by them by cheque however same should not have been added the cash receipt. In fact, he granted a sum of ₹ 1985000/- as deduction from the gross profit. To this extent the Ld. assessing officer is directed to reduce the overall profit of ₹ 2, 18, 46, 799/– and proportionate profit of the assessee.
Deduction of certain expenditure out of the profit of the profit - documents found during the course of search are required to be believed completely. When some additions are made based on those papers, there is no reason that information contained in those papers should not be believed. The amount of compensation is precisely mentioned in the seized papers. Therefore, such figure cannot be an estimate or projections. If the above amount of compensation is not included in to the total expenditure computed by the ld AO for working out the overall profit then, such sum must be granted to the assessee as deduction and then overall profit needs to be worked out - AO is directed to verify the computation of profit, if the amount of compensation is not included in the expenditure, then the profit amount deserves to be adjusted accordingly. Further, the amount of charges paid for EDC, the assessee has not given any evidence of payment of such charges - assessee does not have any evidence that assessee has incurred these expenditure. Therefore, there is no information available that assessee incurred this expenditure. Therefore, we do not find any infirmity in the order of the Ld. assessing officer in not granting deduction of this amount from the gross profit shown by the assessee.
We do not find any infirmity in the order of the lower authority in taxing the 50 % of the profit based on information contained in the loose papers found during the course of search. However, with respect to the determination of overall profit we direct the ld AO to reduce the sales consideration by ₹ 1985000/- because of difference in sale price and further adjustment because of compensation paid of ₹ 5.50 lakhs. Accordingly ground no three of the appeal is partly allowed with above direction.
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2018 (6) TMI 1691 - ITAT MUMBAI
Rectification of mistake u/s 254 - Fair Market Value (FMV) and its computation - Disallowance u/s 14A - HELD THAT:- No separate Ground was raised about the 14A disallowance under a separate head. It is found that Ground No.1 (c) remained unadjudicated as pointed out by the assessee. Therefore, we are recalling our order in that regard. As far as Grounds No.1(a) and 1(b) are considered we would like to observe that case laws relied upon by the assessee were not considered while passing the order [2016 (4) TMI 709 - ITAT MUMBAI]
We recall our order in that regard also. The registry is directed to fix the case before regular Bench so that appeal filed by the assessee can be heard afresh.
As a result, Miscellaneous Application filed by the assessee is allowed.
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2018 (6) TMI 1688 - ITAT BANGALORE
TP Adjustment - Comparable selection - negative working capital adjustment - HELD THAT:- Basis of the working capital adjustment is the existence of a difference in the cost of working capital and it is also stated that this is relevant because the cost is stated to affect the margin and in the assessee’s case, the assessee has demonstrated that it holds its working capital at no cost, completely out of its own funds without any borrowings at all. In our considered opinion, these factors are not relevant for working capital adjustment because in TP analysis, operating profit is considered which is profit before interest and therefore, the interest cost has no relevance for TP analysis and the working capital adjustment is for this reason that working capital position affects the pricing of any services or goods in the open market and not because the working capital cost increases or decreases the profit margin. Hence we find no merit in this claim of the assessee and accordingly this issue is decided against the assessee.
A categorical finding has been given by TPO that the assessee has not established the difference in risk level of the tested party and uncontrolled comparables and this is also not established that it is possible to convert the difference in risk level, if there is any, into numbers. He has also given a finding that there is no reliable method to convert the qualitative difference into quantitative difference to make adjustment on account of risk level. The TPO has also referred to Rule 10B (3) of IT Rules which says that if any adjustment should be made, it should be reasonably accurate to eliminate the material effects of such differences. Before us also, as per the synopsis reproduced above, the assessee has pointed out three options for risk adjustment but these are general in nature and the assessee has not established that there is any risk difference between the tested party and the comparables. In the absence of any working having been provided by the assessee showing difference in risk between the tested party and comparables and in the absence of any working regarding the assessee’s claim for risk adjustment, we find no reason to interfere in the order of DRP on this issue also. This issue is also decided against the assessee.
Inclusion of one comparable i.e. R Systems International Ltd. (segment) - HELD THAT:- In the present case, the assessee has submitted annual report of R Systems International for the year ending 31.12.2013 by way of additional evidence containing 1 to 188 pages and we find that the P&L account is available and although statement of P&L account is for year ended 31.12.2013 in the said additional evidence paper book but it is not shown to us that the figures for 31.03.2012 and 31.03.2013 are also available on any page of this additional evidence as has been noted by Punjab & Haryana High Court in M/S MERCER CONSULTING (INDIA) PVT. LTD. GURGAON [2016 (8) TMI 1163 - PUNJAB AND HARYANA HIGH COURT] . But still we feel it proper to restore this matter back to the file of AO/TPO for fresh decision and we order accordingly. The AO/TPO is directed that if the assessee can establish that the figures for Financial Year ending on 31.03.2013 can be worked out from audited accounts of that company then it should be adopted and this comparable should be included in the list of comparables. If the assessee is not in a position to do so, then the TPO may again exclude the same.
Hence on this issue, we restore the matter back to the file of TPO for fresh decision in the light of above discussion in the light of judgment of Hon’ble Punjab & Haryana High Court after providing reasonable opportunity of being heard to assessee.
PLI of CG-VAK Software and Exports Ltd - It has to be found out from the annual report of the concerned company as to whether provision for doubtful debts is in relation to sale of the present year or of an earlier year. As per the annual report of this company available on pages 559 to 608 of paper book, this cannot be ascertained as to whether the provision for doubtful debts is against the turnover of the present year or of an earlier year. Generally the provision for doubtful debts is created in a later year when it is felt that the debt has become bad or doubtful and therefore, in the absence of any categorical reporting in the annual report that the provision for doubtful debts is against the turnover of the present year, it should be considered as provision against the turnover of an earlier year and therefore, the same cannot be considered as operating expenses for the current year in TP analysis. In this view of the matter, we find no infirmity in the order of authorities below on this aspect. Therefore, we decline to interfere in the orders of lower authorities on this aspect and various judgments cited by ld. AR of assessee in the synopsis are not rendering any help to assessee because these judgments are only on this aspect that provision for doubtful debts is an operating expenditure but in our considered opinion, even after accepting this contention that provision for doubtful debts is operating expenditure, the same has to be excluded in TP analysis for the reasons discussed above.
Permissible RPT% Ffor selection of comparable - 25% RPT filter is proper and not 15%.
Companies functionally dissimilar with that of assessee need to be deselected from final list.
Exclusion of Larsen & Toubro Infotech Ltd. and Persistent Systems Ltd. - It is seen that our decision regarding these two comparables to restore back the matter to the file of TPO is fortified by this Tribunal order also in which, the tribunal has considered one more Tribunal order rendered in the case of Microsoft Research Lab India (P.) Ltd. vs. ACIT [2017 (8) TMI 1585 - ITAT BANGALORE].
Disallowance being payment of commission disallowed by the AO u/s. 40(a)(i) - HELD THAT:- We find that this was held in FAIZAN SHOES PVT. LIMITED [2014 (8) TMI 170 - MADRAS HIGH COURT] that where the assessee paid commission to non-resident agent for procuring orders for leather business from overseas buyers wholesalers or retailers, as the case may be, the non-resident agent is paid 2.5% commission on FOB basis. That appears to be a commission simpliciter and did not provide any technical services for purposes of running business in India. The assessee was not liable to deduct tax on such commission paid. As per the assessment order, this is not the case of the AO that the non-resident agent provided any technical services for the purposes of running business of the assessee in India we hold that the TDS was not required to be deducted from this payment of commission and therefore, disallowance made of this amount u/s. 40(a)(i) is not justified and hence we delete the same.
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2018 (6) TMI 1687 - ITAT MUMBAI
Depreciation of goodwill Resulting From Acquisition Of Business Unit - HELD THAT:- this issue is fully covered by Tribunal’s decision in assessee’s own case for AY 2009-10 in [2016 (7) TMI 1558 - ITAT MUMBAI] wherein Tribunal following the decision of Hon’ble Supreme Court in the case of CIT vs. Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] deleted the disallowance of depreciation. - Decided in favour of assessee.
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2018 (6) TMI 1686 - ITAT MUMBAI
Netting off interest received u/s 244A - Interest received on refund of taxes u/s 244A - taxable income as against an amount offered by the assessee which was after netting of the interest paid to the Department u/S 220(2) and 234B - HELD THAT:- As decided in case of Bank of America NT and SA [2014 (12) TMI 551 - BOMBAY HIGH COURT] The Assessee sought to set off the interest paid against the interest received and offered the net interest received to tax - in the case of the Assessee simply because the exercise carried out by it does not result in loss of revenue and there could not be any prohibition for the same, allowed it - assessee claimed that this was business expenditure and this should have been allowed - the Tribunal in permitting this exercise not violated any of the provisions of the Income Tax Act, 1961 - the Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well – thus, as such no substantial question of law. - Decided in favour of the assessee
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2018 (6) TMI 1683 - CALCUTTA HIGH COURT
Rectification of mistake u/s 154 - assessee did not show any long-term capital gains in the return of income for the relevant assessment year - HELD THAT:- The concurrent findings of the appellate authorities below appropriately recorded that a mistake apparent from the record had to be an obvious and patent mistake and not something which could be established by a long-drawn process of arguments or reasoning. The Supreme Court view on the relevant provision is also on similar lines.
Since both appellate authorities below found, as a matter of fact, that the Assessing Officer could not have reopened the matter on the basis that long-term capital gains had not been disclosed by the assessee, the order impugned herein does not call for any interference. The appellate authorities below were perfectly justified in holding that the issue as to capital gains was a matter of argument, reasoning and investigation which could not be regarded as a mistake apparent from the records.
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2018 (6) TMI 1681 - ITAT JAIPUR
Penalty u/s 271(1) - search initiated u/s 132 - defective notice - Assessment Year involved is A.Y. 2008-09 and the due date of filing the return was 31-07-2008. The search operation was conducted on 13-10-2010 i.e. after the due date for filing the return 31-07-2008 - HELD THAT:- The facts are not denied that the assessee disclosed additional income in all the years in the return of income filed in response to notices issued u/s 153A of the Act. The ld. CIT(A) considered the case and held that Explanation 5A to Section 271(1)(c) is applicable in this case because the search was carried out after 1st of June 2007 i.e on dated 13.10.2010. However, simply because the assessee has agreed and offered the additional income during the course of the search and disclosed the same in the returns u/s 153A, does not obviate the necessity and is rather a precondition for the AO to make sure that the show cause notice u/s 274 r.w 271(1)(c), specifically state the grounds mentioned in S. 271(1)(c) i.e whether it is for concealment of income or furnishing of inaccurate particulars of income. Merely sending a printed performa without striking off the particular limb or specifying the particular ground or default would not satisfy the requirement of law. The assessee must know specifically the ground which he has to meet otherwise, no penalty can be imposed on the assessee.
AO has not specified which limb of the provision, the assessee was asked to reply. This does not meet with the requirement of law.
The Hon’ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors. [2013 (7) TMI 620 - KARNATAKA HIGH COURT] held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be could be imposed to the assessee. Notices issued u/s 274 r.w.s. 271(1)(c) of the Act dated 19.03.2013 are not valid and the same are quashed. - Decided in favour of assessee.
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2018 (6) TMI 1680 - ITAT MUMBAI
TP Adjustment - comparable selection - HELD THAT:- Assessee is engaged in the business of providing non-binding investment advisory services to its associated enterprises i.e., to Saffron Capital Securities Limited, Mauritius. Assessee has benchmarked its international transaction under transactional Net Margin Method, thus companies functionaly dissimilar with that of assessee need to be deselected.
Only if Motilal Oswal Investment Advisors Limited is rejected from the list of comparables selected by the TPO, the arithmetic name of PLI of the comparable will fall within +/- 5% range prescribed u/s. proviso to Section 92C of the Act, as applicable to A.Y.2010-11. Accordingly, there will be no transfer pricing adjustment.
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2018 (6) TMI 1678 - ITAT PUNE
Levy of penalty u/s 271(1)(c) - recording of satisfaction or not by the AO while initiating penalty proceedings - levy of penalty on the returned income, which includes additional income offered during the course of Survey - once the income returned has been assessed in the hands of assessee as such without making any addition, there is no merit in levying penalty under section 271(1)(c) - Revenue on the other hand, is that the additional income has been offered in the hands of assessee pursuant to Survey and in case no Survey was conducted, such additional income would not be offered, hence, it is a fit case for levy of penalty - HELD THAT:- We find that similar case of levy of penalty on the additional income, which was offered in the return of income and whether the same was liable for levy of penalty under section 271(1)(c) of the Act, arose before the Tribunal in the case of Nandkishor Tulsidas Katore Vs. ACIT [2016 (12) TMI 1077 - ITAT PUNE]
The assessee herein had also offered additional income during the course of Survey in the return of income filed pursuant to Survey, which admittedly, was a valid return of income under section 139(1) of the Act. Applying the ratio laid down by the Hon’ble High Court of Delhi in CIT Vs. SAS Pharmaceuticals [2011 (4) TMI 888 - DELHI HIGH COURT] we find no merit in levy of penalty on the additional income which was offered to tax in the revised return of income filed after Survey. Accordingly, penalty levied under section 271(1)(c) of the Act is hereby cancelled.
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2018 (6) TMI 1677 - ITAT DELHI
Assessment u/s 153C - Addition made u/s 68 - unexplained cash credit - HELD THAT:- When all the documents have already been brought on record by the assessee during assessment proceedings in the completed assessment, the addition made by the AO u/s 153C is outside the scope of proceedings. So, the ld. CIT (A) has rightly deleted the addition on legal ground.
Even, on merits, when the assessee has brought on record complete identity with PAN, confirmation, bank statements, memorandum of article and audited financials of BJ Buildwell Pvt. Ltd. to substantiate the genuineness of the transactions, the AO cannot make addition on the basis of surmises that funds received by the assessee from BJ Buildwell Pvt. Ltd. were in fact has been received from Jain Brothers.
AO was not satisfied with the transactions explained by the assessee, the said amount is required to be assessed in the hands of BJ Buildwell Pvt. Ltd.. Even otherwise, for arguments sake, even if it is assumed that addition is to be made on the basis of satisfaction note, which is not recorded on the basis of any incriminating material nor it pertains to the year under assessment, qua amount received by virtue of the Agreement to Sell dated 05.05.2006, the addition on the basis of which can only be made in the relevant assessment year and not in the year under assessment. - Decided against revenue
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2018 (6) TMI 1676 - ITAT AHMEDABAD
Penalty levied u/s 271(1)(c) - non mentioning of specific charge - HELD THAT:- Specific charge as mandated u/s 271 (1)(c) of the Act. In such facts and circumstance the Hon'ble Jurisdictional High Court in the case of Snita Transport Pvt. Ltd. Vs. Assistant Commissioner of Income Tax [2012 (12) TMI 981 - HIGH COURT OF GUJARAT]. has held that penalty cannot be imposed without mentioning the specific charge.
AO has not mentioned the specific charge in its penalty orders whether it was levied for concealment of income or for furnishing inaccurate particulars of income. Therefore, in our considered view, the penalty levied by the AO and confirmed by the learned CIT (A) is not sustainable. Hence, the ground of appeal of the assessee is allowed.
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2018 (6) TMI 1674 - ITAT MUMBAI
Disallowance u/s.14A r.w.Rule 8D - HELD THAT:- The issue under consideration is squarely covered by the decision of the ITAT Special Bench in case of Vireet Investments [2017 (6) TMI 1124 - ITAT DELHI ] wherein it was held that only those investments should be considered for computing average value of investment which yielded exempt income during the year. Respectfully following the same, we direct the AO to recompute the disallowance by excluding the investment on which assessee did not yield any exempt income. We direct accordingly.
Addition u/s. 14A, while computing book profit u/s.115JB - This issue is also covered by the decision of Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI] wherein it was held that only the expenditure debited in the P & L account relating to exempt income should be considered and not the disallowance worked out by AO. It was held by Special Bench that computation under clause F of explanation 1 to Section 115JB(2) has to be made without resorting to the computation contemplated u/s.14A r.w.Rule 8D. Respectfully following the decision of the Special Bench, we do not find any merit in the action of the AO for adding the disallowance computed u/s.14A, while computing book profit u/s.115JB.
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2018 (6) TMI 1672 - ITAT MUMBAI
Interest on margin money kept for obtaining bank guarantee for credit for power business as business income - Characterization of income - HELD THAT:- We find that the assessee was setting up a thermal power plant that during the year under appeal the project of construction of the power plant was under progress and no commercial activities whatsoever had begun that all the major expenses incurred in relation to the project were capitalised under 'capital work in progress that during the year under appeal the assessee had earned interest income out of the funds augmented for issuing bank guarantee to various parties in connection with the construction of the power projects as well as for meeting the various expenses for purchase of various assets required in the construction of the power plant, that the same was treated as capital asset by the assessee that it was accordingly reduced from the capital work in progress and was claimed as business income.
In our opinion in case money is borrowed by a newly started company which is in the process of constructing and erecting its plant the interest incurred before the commencement of production on such borrowed money has to be capitalised and has to be added to the cost of the fixed assets created as a result of such expenditure. Similarly if the assessee receives any amount which is inextricably linked with the process of setting up its plant and machinery such receipts will go to reduce the cost of its assets. We also hold that treatment of the receipts depends on the purpose for which the funds are utilised. The use of funds decides the characterisation of the amount.
In the case under consideration that the interest receipt was directly linked to setting up of business apparatus of the assessee. It was not idle money that was invested or parked for earning interest. We have perused the clause 2.4 of Significant Accounting Policies as appearing in Schedule XI and are of the opinion that the interest income earned by the assessee had direct and intimate connection with its business. Setting of power plants takes time and the assessee has to make investment with banks for availing various facilities.
FAA had rightly held that in the case of interest receipts on margin deposits kept with the banks for the purpose of getting the Credit Facilities which were required for the construction of the plant it was to be allowed to be reduced from the cost of the plant and was to be held as not taxable. So confirming her order we hold that her order does not suffer from any factual or legal infirmity. Effective ground of appeal is decided against the AO.
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