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Income Tax - Case Laws
Showing 61 to 80 of 185 Records
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2006 (3) TMI 249 - ITAT JODHPUR
Allowability ... ... ... ... ..... , had accepted the similar incomes of the assessee-society as exempt from tax under s. 80P(2) of the Act. It is also a fact that the notice under s. 148 was issued after the expiry of period to issue notice under s. 143(2) of the Act. In these circumstances, on the decision of the Jodhpur Bench in the case of Biggawas Maheshwari Sewa Samiti (2005) 96 TTJ (Jd) 385, the plea of the assessee seems to be quite justified. Support can also be drawn from the decision of Garden Silk Mills (P) Ltd. vs. CIT (1999) 151 CTR (Guj) 533 and Jindal Photo Films Ltd. vs. Dy. CIT (1999) 154 CTR (Del) 355 (1998) 234 ITR 170 (Del). In the light of the above discussion, we quash the notices issued under s. 148 of the Act, in all these years. 32. The last ground relates to charging of interest under s. 234B. The charging of interest under above section is mandatory and consequential. Therefore, a consequential relief is allowed to the assessee. 33. In the result, all the appeals are partly allowed.
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2006 (3) TMI 248 - ITAT JODHPUR
Block Assessment - unexplained cash - whether or not the income as per the returns not furnished for the years prior to the date of search is liable to be included in the undisclosed income? - HELD THAT:- As per balance sheet and capital account furnished for AY 1989-90, we note that the closing capital balance has been taken at Rs. 71,118. It is further observed that the assessee had not filed his return of income for the first time in 1994. Rather he is an existing assessee since several years back. The copy of the income-tax assessment order of the assessee for the AY 1979-80 has been placed on record. This order was passed on 9th July, 1980 in which total income after deductions was assessed at Rs. 10,670. Thus, the age of the assessee and other necessary material we find that there is no reason to doubt the availability of this much capital. For all the subsequent years the assessee has made available capital accounts, balance sheets and cash flow statements, the particulars of which tally with the chart of incomes as per returns already filed contained in p. S-1 of the paper book.
Unexplained investment in gold ornaments - It is clear that the gold jewellery which should have been available with the assessee comes at 1030.886 grams, as against which gold ornaments weighing 939.800 grams were found during the course of search. In such circumstances there cannot be any addition on account of unexplained investment in the gold jewellery. The ground taken by the assessee is allowed and that of the Revenue is dismissed.
Estimation of income - We have given our separate finding in respect of the three calculations made by the AO. The undisclosed income is to be computed on the above basis after excluding the amount already shown by the assessee and considered by the AO in the block assessment order. The AO is directed to give effect to our finding and determine the amount of undisclosed income resulting from the business operations of the assessee. It is made clear that the amount which already stands offered for taxation should not be added once again as has been discussed in the preceding para. These grounds are allowed pro tanto.
Whether or not the income as per the returns not furnished for the years prior to the date of search is liable to be included in the undisclosed income? - Insofar as the income of the years which is below taxable limit and the returns were not furnished, the same are liable to be excluded by virtue of amendment to s. 158BB(1)(b) carried out with retrospective effect from 1st July, 1995. The Hon'ble Kerala High Court in the case of CIT vs. M.M. Thomas [2003 (3) TMI 37 - KERALA HIGH COURT] has held that the income below the taxable limit of previous years could not be included as undisclosed income of the block period. In view of these facts and the amendment carried out, it becomes apparent that the income for AY 1989-90 to 1992-93 and AY 1995-96 could not have been included in the block assessment as the income in these years is below the taxable limit. We find that for the AY 1997-98 the income has been declared and assessed at Rs. 62,484. The return for this year was filed on 31st Oct., 1998 which is within the time prescribed u/s 139 and 158BB provides for its exclusion. This ground is, therefore, accepted.
Unexplained investment in deposit with CRB - We observe that the gifts were received by the assessee along with his wife through account payee cheque and the evidence of having received the cheques was found during the course of search. The remaining amount of Rs. 37,500 has been rightly attributed by the learned CIT(A) to have come out of job receipts on the basis of various annexures. In our considered view, the learned CIT(A) was justified in deleting this addition.
Interest on deposit with CRB - AO was right in accepting the source of deposit but was unjustified in treating the interest income in the hands of the assessee for the reason that the house belonged to the HUF and to his father Shri Manohar Lal Soni. It is further found that Shri Anand Prakash Soni HUF was assessed to wealth-tax for the AY 1985-86 and this house was shown as HUF's house and was admitted by the AO while passing the order. Thus, there was no question of taxing the interest income in the hands of the present assessee. We uphold the impugned order on this score.
Unexplained investment in the property - It is noted that the main basis for making the addition is the difference in the value determined by the DVO and that shown by the assessee in the sale deed. Apart from the DVO's report no material was found in the search which could show that the assessee had made more investment than that declared in the sale deed.
The Hon'ble Bombay High Court in the case of CIT vs. Vinod Danchand Ghodawat [2000 (6) TMI 13 - BOMBAY HIGH COURT] has held that no addition of undisclosed income can be made only on the basis of DVO's report. We note from the assessment order that as per the AO, the assessee had admitted to surrender the amount for taxation on the basis of DVO's report. We have perused his statement, copy of which is available at the paper book. The assessee had stated in answer to question No. 2 that he was ready to pay tax as per rules. He has not surrendered the amount of Rs. 1,20,000 for taxation. Apart from that, we find that the house was purchased by three persons and the assessee was one of the co-owners. Thus, we find no justification in making addition of Rs. 1,20,000. We hold that the learned CIT(A) rightly proceeded to delete this addition.
The cross-objection filed by the assessee is simply in support of the reliefs allowed in the first appeal. As the Departmental appeal has been separately disposed of, the cross-objection becomes infructuous.
In the result, the appeal of the Revenue is dismissed, the C.O. of the assessee has become infructuous and the appeal of the assessee is partly allowed.
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2006 (3) TMI 247 - ITAT JODHPUR
Revision action u/s 263 by the CIT - lower net profit - MAT - Erroneous And Prejudicial Order - non-examination by the AO of the applicability of provisions of s. 40A(3) - HELD THAT:- We find that the consideration of expenses by the CIT for the purpose of making disallowance u/s 40A(3) is directed towards the direct expenses and odd, which were debited to the trading account. Obviously, when the GP rate of 5 per cent was applied by rejecting the books of account, the AO became powerless to again go through the books of account and make separate additions u/s 40A(3).
It is pertinent to note that the CIT gets revisional power u/s 263 where assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The twin conditions are required to be satisfied simultaneously. If an order is only erroneous and not prejudicial to the interest of the Revenue, that case does not fall within the sweep of s. 263. In the like manner, if the assessment order is not erroneous but prejudicial to the interest of the Revenue, the same also goes out of the ambit of the revisional power of the CIT u/s 263. Adverting to the facts of the instant case; we find that the view of the AO on all the three points, considered by the learned CIT for invoking the provisions of s. 263, is not erroneous. He has adopted a reasonable view, which cannot be disturbed by the CIT. As the very assessment order is held to be not erroneous, there can be no question of invoking the provisions of s. 263. We, therefore, set aside the impugned order on this count.
In the result, the appeal is allowed.
The nature of business of the present assessee is similar to that of its sister-concern and the order of the learned CIT u/s 263 also proceeds on the same basis. To be more particular, we find that this assessee had declared GP rate of 3.75 per cent as against 4.39 per cent of the preceding year. The AO while finalizing the assessment rejected the books of account and applied GP rate of 4.86 per cent, which resulted into an addition of Rs. 2,71,118. The other factors, which were considered by the learned CIT to brand the assessment order as erroneous and prejudicial to the interest of Revenue are non-consideration of the applicability of provisions of s. 40A(3) by the AO and improper examination of genuineness of outstanding liabilities. Both the sides, are in agreement that the basic facts of this assessee, mutatis mutandis are similar to that of M/s Hanuman Construction Company. By adopting the same reasons, as discussed supra, we hold that learned CIT was not justified in setting aside the assessment order passed by the AO u/s 143(3). We, therefore, overturn the impugned order.
In the result, the appeal is allowed.
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2006 (3) TMI 242 - ITAT JAIPUR-B
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... ... ..... see has relied upon various decisions which have been considered and mainly the learned counsel for the assessee has relied upon the decision of Hon ble jurisdictional High Court in the case of CIT vs. Gotan Lime Khanij Udyog (2001) 169 CTR (Raj) 318 (2002) 256 ITR 243 (Raj), where in it has been held that mere rejection or some shortcoming in books does not mean that addition is made. 9. In view of above discussion, we are of the view that AO has made the addition without any cogent material in hand and on surmises and conjectures. In such circumstances, the AO is not justified in invoking the provisions of s. 145 and the additions made by the AO amounting to Rs. 18,34,483 are not justified and also the learned CIT(A) is not justified in sustaining the addition of Rs. 1.50 lakhs. Thus, the appeal of the Revenue is dismissed and cross-objection of the assessee is allowed. 10. In the result, appeal of the Revenue is dismissed and the cross-objection of the assessee is allowed.
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2006 (3) TMI 240 - ITAT JAIPUR
Mistake Apparent ... ... ... ... ..... is of fresh materials in the course of assessment of next year. Such view has been taken by the Hon ble Supreme Court in the case of Ess Ess Kay Engg. Co. (P) Ltd. vs. CIT (2001) 166 CTR (SC) 396 (2002) 124 Taxman 491 (SC). Therefore, the learned CIT(A) has wrongly ignored the findings by AO during the assessment of following assessment year, i.e., 1995-96 vide order dt. 28th Feb., 2001. that the deposit of Rs. 4,00,000 and interest thereon are bogus. Therefore, the notice issued by the AO under s. 148 is well within time and we reverse the order of the learned CIT(A) dt. 26th March, 2002 and direct the learned CIT(A) to decide the case on merit. Hence, this appeal of the Revenue is allowed. 7. Hence, the mistake apparent from record is rectified under s. 254(2) of the Act but the substance of the decision remains unchanged, even after the said rectification, as discussed above. 8. In the result, the miscellaneous application filed by the assessee are disposed of accordingly.
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2006 (3) TMI 239 - ITAT JAIPUR
Educational Institution ... ... ... ... ..... ot be the basis to hold that the assessee institution is an institution for educational purposes not for the purposes of profit. 15. Thus seen from any angle, the donations received by the assessee are income from other sources and only the expenses incurred to earn such income could be allowable as deduction against such donations and nothing else and therefore the AO is justified in taxing the surplus of Rs. 10,07,650 and Rs. 17,01,080 for the asst. yrs. 2001-02 and 2002-03, respectively, as income of the assessee and the AO is justified in denying the exemption to the assessee under s. 10(23C)(iiiad) of the Act. Hence we sustain the order of learned CIT(A) who has rightly confirmed the orders of the AO for the said assessment years. Thus the grounds No. 1 raised by the assessee in both the appeals are dismissed. 16. Ground No. 2 raised by the assessee is general in nature and do not require any adjudication. 17. In the result both the appeals of the assessee are dismissed.
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2006 (3) TMI 236 - ITAT HYDERABAD-B
Deduction of Tax At Source - income deemed to accrue or arise in India on the contracts - non-resident - PE in India or not - contracts are simple sale contracts and or works contracts - Whether section 195 is applicable to the facts of the case in view of the complexity and multiplicity of agreements between various parties on terms of payment - HELD THAT:- The fact that the contract is arranged in accordance with the loan agreement between the Government of India and the Overseas Economic Co-operation Fund of Japan (OECF) dated 10th February, 1988 concerning the Yen credit ID-P 43 (Project Aid) for Srisailam Left Bank Power Station Project and that the fact that the payment to the contractor shall be made through an irrevocable letter to credit to be issued by the Bank of India, Tokyo or as otherwise prescribed under the loan agreement referred to above, does not detract from the fact that the primary liability of payment towards goods and services lie with the assessee-company and it is the assessee-company who has to process the claims and initiate the payment process in terms of the various agreements. The fact also remains that the payments have been made in this case for and on behalf of the assessee.
It is the executing agency which triggers the payment and while passing a bill direction for deduction of tax as per section 195 while making a payment could be made by the assessee. No payment could have been released without the officers of the assessee-company passing the bills consequent to claim made by the contractor. Delay in passing of the entries in the books of account for whatever reason does not erase the fact that the payments have been made in the impugned assessment years. Once the payment is made section 195 of the Act is attracted. Thus we uphold the finding of the first appellate authority and dismiss this ground of the assessee.
In our considered opinion the judgments relied on by the learned Standing Counsel for the revenue, to drive home the point that the intention of the parties as can be gathered from the agreements and other documents is that the property in the goods passed to the buyer only in India though it is a C.I.F. contract, does not advance the case of the Revenue. The mere fact that more than 80% of the contract value pertains to activities that have been undertaken in Japan clearly points out that the element of contract was most densely grouped in Japan and not in India. Just because equipment has been purchased and it is made operational by assembling the same at the buyer's place of work and supervising the erection of such machinery does not make a supply contract into a turnkey contract or work contract. We emphasize the fact that in all the documents the supplier was obliged to depute personnel to supervise the erection, commissioning and testing all these equipments. Thus in our considered opinion, this is a pure sale contract and not a work contract.
PE in India or not - The undisputed fact is that the non-resident Sumitomo Corporation has filed its return in India and has paid advance tax and assessments were made. While so, we do not understand as to how the learned counsel for the assessee argues stating that there was no permanent establishment in this country. A plain reading of the Double Taxation A voidance Agreement at any rate does not contemplate that each and every work has to have a separate and independent permanent establishment. 'Permanent Establishment' is an inclusive definition and under article 5(4) there is deeming provisions which in our view applies to this case. The deductee had a place of management as well as a building site for more than six months, and it suo motu filed its returns of income. Thus on this sole fact itself, we uphold the contention of the learned standing counsel. Thus the finding of the first appellate authority that the assessee has permanent establishment in India in terms of article 5 of the DTAA is upheld.
Whether any part of the transaction should be attributable to the permanent establishment in India - The supervisory personnel of the non-resident company have spent a number of years i.e., beyond the period of six months in this country and this factor goes against the claim made by the assessee. Thus we uphold the findings of the first appellate authority on this issue also. The argument of the assessee that no proof or evidence has been brought out by the Assessing Officer to prove that the permanent establishment has in fact income which is attributable to it in this transaction is devoid of merit. The correspondence filed by the learned Standing Counsel speaks otherwise.
This brings us to article 7 of DTAA. A plain reading of article 7 show that only that portion of income which is attributable to the permanent establishment in this country is taxable in this country. Definitely the entire contract cannot by any stretch of imagination be treated as income which is attributable to the permanent establishment. At best, the supervisory charges which formed less than 3 per cent of the total value of the contract can be said to be attributable to the permanent establishment. The profit arising out of these service contracts, if any, has to be considered as taxable income in the hands of the non-resident company.
Liability to deduct tax in terms of section 195 - Applying the ratio of the judgment of the jurisdictional High Court in the cases of Visakhapatnam Port Trust and Sundwiger EMFG & Co. [2003 (2) TMI 35 - ANDHRA PRADESH HIGH COURT], we have held that this is a contract of sale and that no portion of income is chargeable to tax in India. When no portion of the gross remittances is liable to charge under the Indian Income-tax Act, there is no liability for deduction of tax u/s 195 as per the Board Circular No. 786 dated 7-2-2000 and it is well-settled that the circulars are binding. Even otherwise for the reason that Sumitomo Corporation has filed its return of income and paid taxes thereon, it cannot be said that default, if any, that has occurred, still continues in the present case thus warranting levy of interest u/s 201(1A).
We follow the judgment of the Hon'ble Gujarat High Court in the case of Rishikesh Apartments Co-op. Housing Society Ltd.[2001 (6) TMI 17 - GUJARAT HIGH COURT]. Thus we hold that the plant and machinery purchased by the assessee were manufactured outside India and is exported to India and the supply of the material is a transaction involving trading with India and not trading in India and thus the profits if any arising in the manufacture and export of the material to India are not attributable to the permanent establishment of Sumitomo Corporation. It is an international transaction on principle to principle basis and therefore, the profits, if any, arising from manufacture and export of such material are not chargeable to tax under the Indian Income-tax Act. Hence there is no liability on the part of the assessee to deduct tax in terms of section 195. Thus, the appeals of the assessee are hereby allowed.
Payments made to BHEL as payments made as per section 194C of the Act - After hearing both parties on this issue, we find that the ratio of the judgment of the jurisdictional High Court in the case of Visakhapatnam Port Trust [1983 (6) TMI 31 - ANDHRA PRADESH HIGH COURT] is in favour of the assessee. Relevant extracts are already given above. In that case the jurisdictional High Court held that the agreement between the German Company and the Poona Company did not also amount to the German Company having permanent establishment in India as there was neither any identity of interest nor identity of character nor of personality nor was there any unit for profit making between the Poona Company and the German Company so that the former may be treated as the Indian agent of the latter. In any event BHEL is a public sector company and there is no allegation by the Revenue that it has not filed its returns of income or that it is an assessee in default for that particular assessment year. Thus we uphold the order of the first appellate authority though not only for reasons mentioned by him but also for the reasons given by us in our order above.
In the result, while the appeals of the assessee are allowed, the appeals filed by the Revenue are dismissed.
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2006 (3) TMI 235 - ITAT HYDERABAD-B
Business Expenditure ... ... ... ... ..... it cannot be treated as revenue expenditure. Since the Assessing Officer as well as the CIT(A) having not appreciated the issue in correct perspective, in the interests of substantial justice, I set aside the matter to the file of the Assessing Officer who is directed to reconsider the issue in accordance with law after giving the assessee a reasonable opportunity of being heard. Needless to observe that an expenditure which, in law, cannot be treated as a capital expenditure, merely on account of the fact that the assessee has treated it in its books as capital expenditure the right to make a correct claim in the return of income is not lost to the assessee. This view is in consonance with the decision of Apex Court in the case of Kedarnath Jute Mfg. Co. Ltd. With these observations, I set aside the matter to the file of the Assessing Officer for reconsideration of the matter in accordance with law. 8. In the result, the appeal is treated as allowed for statistical purposes.
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2006 (3) TMI 233 - ITAT HYDERABAD-A
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... ... ..... uts, the computations and statements that a computer brings out, are entirely different in content from the inputs fed into the computer and, therefore, the assessee-company can be said to be engaged in the production of mechanically prepared information, which is collected from the raw data being fed into the computer. In the case of Datamatics Financial Services Ltd. where the assessee is engaged in the business of data processing activities on a large scale, Bombay Bench A of the Tribunal, allowing miscellaneous petition filed by the assessee, followed the judgment of the Hon ble Bombay High Court in the case of Emirates Commercial Bank Ltd. and held that the assessee is entitled to get benefit of deduction under section 80-IA. 12. Respectfully following the judgments referred to above, we uphold the contention of the assessee and direct the revenue to grant deduction under section 80-IA of the Income-tax Act, 1961. 13. In the result, the appeal of the assessee is allowed.
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2006 (3) TMI 232 - ITAT HYDERABAD-A
Method Of Accounting - rejection of books of account - estimate of profit on execution of work - consideration of income from sub-contract works given to others separately - work-in-progress - HELD THAT:- The reason given by the Assessing Officer that the job work charges paid for some of the job works by the assessee are not convincingly supported by proper workings also does not entitle him to reject the books of account. These items of job works can be quantified separately and disallowance made, in case the assessing authority felt that proper justification was never made in these job works. The opinion of the Assessing Officer is not supported by proper analysis. Just making a statement that the job assigned by the assessee, was not convincingly supported by proper working without showing the basis for reasons and the data relied upon by the Assessing Officer to come to such conclusion, does not authorize rejection of books of account. All job works are small time jobs and the workers are employed on the spot at times to undertake the jobs and it is for the businessman, depending on the situation, to arrive at the cost, necessity, urgency etc. The Assessing Officer should view this expenditure from the businessman's point of view. We are of the considered view that the 1st appellate authority has committed an endorsing this view of the Assessing Officer.
Work-in-progress - The assessee based on facts and figures with cogent material has demonstrated before us that the works undertaken during the year 2000-01 are completed to the maximum possible extent and have been billed in the same year and thus it resulted in lesser closing work-in-progress as on 31-3-2001. The case laws relied on by the first appellate authority is not applicable to the facts of this case inasmuch as nothing is said on the material and data produced by the assessee before the Commissioner of Income-tax (Appeals). Each case law turns on its peculiar facts and circumstances. Unless the appellate authority rejects with cogent reasons the claims and data as well as material produced before it by the assessee a conclusion should not have been drawn by applying various case laws.
The assessing authority has to look into the substance of the situation and decide the matter in such a manner that neither is put to unreasonable liability nor the assessee is subjected to unreasonable hardship. No doubt it is not only the right but also the duty of the Assessing Officer to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom. But these right and duty have to be exercised in such a manner and have to be based on cogent reasons and sufficient material. The reasons given by the Assessing Officer in this case on the facts and circumstances is demonstrated, as erroneous by the assessee. Rejection of books of account should not be done light heartedly as held by the Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala [1970] 76 ITR 365 and by the Assam High Court in the case of Tolaram Daga v. CIT [1966] 59 ITR 632. Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable and incorrect. The Department has to prove satisfactorily that the account books are unreliable or incorrect or incomplete before it can reject the accounts and this can be done by showing that important transactions are omitted or if proper particulars and vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business.
When a return is furnished and accounts are put in support of that return, the accounts should be taken as the basis for assessment. They should not be rejected because they are complicated. The procedure of the Assessing Officer, is of judicial nature and in making the assessment should proceed on judicial principles. If evidence is produced by the assessee in support of his return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay.
Thus for all these reasons and as the assessee has produced sufficient material justifying its claim and as it has repelled the contentions advanced by both the Assessing Officer and the first appellate authority with cogent material and evidence, we have to necessarily uphold his contentions. We, therefore, direct the Assessing Officer to accept the book results shown by the assessee and complete the assessment based on these book results. Thus we allow the appeal filed by the assessee.
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2006 (3) TMI 231 - ITAT DELHI-H
Initiation of proceedings u/s 147 - Reason To Believe - deemed income - MAT - disallowance of depreciation - "findings" and "directions" made by the learned CIT(A) - Levy of interest under ss. 234B and 234C, 234D - HELD THAT:- Assessee has disputed the AO's 'reasons to believe' on merits of the case as made out by the learned AO in the reasons recorded by him. To accept these arguments of the learned counsel would amount to holding that if assessment of an income in the assessment order u/s 147 fails, such failure would invalidate the reasons as recorded by the AO. To put it differently the case of the assessee before us is that the AO should not only entertain belief that assessee's income chargeable to tax has escaped assessment, his reasons for such belief should stand the test of ultimate appeal as well.
In our humble opinion, that is not the correct legal position. At the stage of issue of notice u/s 148 the AO only initiates the proceedings for assessment and he does not make any assessment at all. After having recorded the reasons the hands of the AO are not tied and he has a discretion to examine the explanation of the assessee on merits and if convinced, not to assess the amount that he believed at the time of initiation of assessment proceedings as having been escaped assessment. To hold otherwise would render proceedings after service of notice u/s 148 on the assessee to be an empty formality.
It is not the case of the assessee that the inferences drawn by the AO are not based on facts and circumstances of the case. The assessee has also not been able to show that the reasons recorded by the learned AO are mere pretence and the view taken by him is such that no person reasonably instructed in law would take. On the contrary, we found animated debate on the contentions of the learned AO during the course of proceedings before us. We, therefore, hold that reasons to believe as recorded by the learned AO meet the requirements of provisions of s. 147. We, therefore, reject assessee's ground of appeal disputing initiation of proceedings u/s 147.
Disallowance of depreciation on turbines - According to the learned counsel for the assessee the return of income filed before the due date of furnishing the return u/s 139(1) for AY 1999-2000, made proper compliance to the requirements of the second proviso to r. 5(1A) of IT Rules. On consideration of the matter we accept this argument. As noticed earlier the provisions of IT Rules, 1962 have not laid down any particular procedure for exercise of option by the assessee. That being so the assessee could find the occasion to exercise his option while filing the return of income for AY 1999-2000. We do not appreciate the logic of the contention of the learned counsel CIT(A) that even after having claimed depreciation under the general provisions of Appen. I, the assessee had not exercised his option as contemplated in the second proviso. We, therefore, allow assessee's ground of appeal No. 2 and direct the learned AO to allow the assessee depreciation as admissible to the assessee under sub-r. (1) of r. 5 r/w Appen. I.
MAT - It is not the case of the AO that the assessee's P&L a/c has not been prepared in accordance with the provisions of Parts II and ill of Sch. VI to the Companies Act, 1956. We hold that for the purpose of adjustment as provided in Expln. (iv) to s. 115JA, the AO cannot substitute the amount of profit derived by an industrial undertaking from the business of generation or generation and distribution of power as certified by the auditors of the company to be in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. We, therefore, delete the addition made by the AO while computing the assessee's income chargeable to tax u/s 115JA in this behalf and restore the working of the assessee in relation to Expln. (iv) to s. 115JA.
"Findings" and "directions" made by the learned CIT(A) - In our opinion, it amounts to circumvent the effect of a binding judgment of jurisdictional High Court that cannot be permitted. To put it simply an assessment order or any of its part is either legally tenable or not legally tenable, it cannot be both. We, therefore, hold that the impugned order of the learned CIT(A) in this respect is self-contradictory. According to the learned CIT(A), following the judgment of the jurisdictional High Court in the case of Vipan Khanna [2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT], proceedings u/s 147 as initiated by the AO, could not be misused for making roving and fishing enquiries so as to explore further items of income having escaped assessment. He, therefore, deletes the additions in due deference to the judicial pronouncement of the jurisdictional High Court. How can the learned CIT(A) then issue any finding or direction to the AO to initiate proceedings u/s afresh for assessment of those very additions. In other words, according to the learned CIT(A) while the proceedings u/s 147 cannot be misused for the purpose of making fishing and roving enquiries, nonetheless proceedings u/s 147 can be misused for making fishing and roving enquiries for the purpose of initiating proceedings u/s 147 next time. To say the least, we cannot appreciate such convoluted logic of the learned CIT(A). We, therefore, allow the assessee's ground of appeal No. 4 and hold that the impugned order of the learned CIT(A) contains no finding or directions within the meaning of s. 150 in respect of the disputed additions in question.
Levy of interest under ss. 234B and 234C - In the case of CIT vs. B.C. Srinivasa Setty [1981 (2) TMI 1 - SUPREME COURT], Hon'ble Supreme Court have held that preponderance of judicial opinion should be respected. We, therefore, decide this ground of appeal in favour of Revenue and against the assessee.
Levy of interest u/s 234D - On consideration of the matter we do not see merit in the main contention of the assessee but we agree with the alternate contention of the assessee. Levy of interest to be computed with reference to period of time has to come into force immediately and it cannot be bound to any particular assessment year. At the same time it would be wholly unreasonable to charge interest for the period when the provisions of s. 234D were not on the statute book. We, therefore, allow the assessee's ground of appeal No. 12 partially and direct the AO to compute interest chargeable u/s 234D, if any, w.e.f. 1st June, 2003.
In the result, this appeal is partly allowed.
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2006 (3) TMI 230 - ITAT DELHI-H
Change Of Opinion ... ... ... ... ..... above, it is clear that learned CIT(A) has reduced the disallowance to 1/10th in respect of entire telephone expenses, i.e., both for office and residential phones. This matter was decided by the Tribunal vide order dt. 27th April, 2005 in the case of the assessee for the asst. yr. 1998-99. where the disallowance was restricted to 1I5th out of the residential telephone expenses alone. The facts of the case for the assessment year under reference are similar to the facts of the case for the asst. yr. 1998-99. Therefore, respectfully following the aforesaid order of the Tribunal, we set aside the order of CIT(A) and direct the AO to restrict the disallowance 115th out of residential telephone expenses of the partners alone. This ground of appeal is partly allowed. 22. In the result, the three appeals in ITA Nos. 678, 679 and 680/Del/2003 for the asst. yrs. 1994-95, 1995-96 and 1996-97 are dismissed and appeal in ITA No. 5016/Del/2004 for the asst. yr. 2001-02 is partly allowed.
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2006 (3) TMI 229 - ITAT DELHI-H
Deduction of interest paid on monies borrowed for purchase of shares - distributed profits of domestic companies - Penalty levied u/s 271(1)(c) - For Concealment Of Income - HELD THAT:- The crux of the findings is that there is a direct nexus established between the interest bearing loans taken by the assessee and the investment made in the equity shares. The only income arising from the holding of the shares is dividend income which is exempt u/s 10(33). The assessee incurred expenditure for earning exempted dividend income. Section 14A which has been inserted by the Finance Act, 2001 with effect from 1-4-1962 laying down that no deduction would be allowed in respect of the expenditure incurred by the assessee in relation to the income, which does not form part of the total income under this head. The assessee is, therefore, not entitled for the above deduction of interest u/s 36(1)(iii) of the Income-tax Act. The authorities below, therefore, rightly disallowed the amount against the assessee.
It is also established that the dividend income was earned by the assessee out of the investment in shares. Merely because the assessee did not earn dividend out of the investment in certain shares by itself would not prove that the provisions of section 14A are not applicable in this case. It is not a hard and fast rule that on each and every investment in shares, the assessee would earn dividend. The earning of the dividend is not certain, unless the concerned company declared and distributed the dividend because it depends on various factors. The established facts are that the entire borrowed unsecured loans have been invested in the shares for the purpose of earning dividend. Therefore, once the assessee claims exemptions on dividend income u/s 10(33) of the Income-tax Act then such dividend is directly related to the investment made in the entire shares. As such it is not possible to accept the alternative contention of the learned counsel for the assessee that part of the interest may be disallowed. This contention of the learned counsel for the assessee is also rejected. No other point is argued or pressed.
Thus, we do not find any merit in the appeal of the assessee. The same is, therefore, dismissed.
Penalty levied u/s 271(1)(c) - For Concealment Of Income - HELD THAT:- It is well-settled law that the quantum and penalty are independent proceedings. Section 271(1)(c) of the Act provides that if the Assessing Officer or the CIT(A) or the Commissioner in the course of any proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty. The bare reading of the aforesaid provisions would make it clear that the Assessing Officer has to form his own opinion and record his satisfaction before initiating penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the Assessing Authority. In the present case before us, the Assessing Officer has nowhere recorded his satisfaction with regard to the concealment of the particulars of income or furnishing inaccurate particulars of income in the assessment order or while dealing with the addition on account of disallowance of the interest paid on the borrowed funds by the assessee.
As is noted, the assessment order passed by the Assessing Officer clearly shows that the satisfaction for initiating the penalty proceedings u/s 271(1)(c) was not recorded by the Assessing Officer in the assessment order and, therefore, we hold that the initiation of the penalty proceedings was not in accordance with law as envisaged by Delhi High Court in the cases of Ram Commercial Enterprises Ltd.[1998 (10) TMI 13 - DELHI HIGH COURT], B.R. Sharma [2005 (2) TMI 50 - DELHI HIGH COURT] and Super Metal Re-Rollers (P.) Ltd [2003 (9) TMI 51 - DELHI HIGH COURT] and as such penalty imposed in pursuance of such invalid proceedings is liable to be cancelled on this ground alone.
The same is taken by the I.T.A.T., Delhi 'E' Bench in the case of Balka Services (P.) Ltd.[2005 (4) TMI 266 - ITAT DELHI-E]. Thus, the penalty is cancelled u/s 271(1)(c) of the Income-tax Act.
As a result, the appeal by the assessee is allowed.
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2006 (3) TMI 228 - ITAT DELHI-H
Block Assessment in search case ... ... ... ... ..... el for the assesses alternatively submitted that since the goods have been confiscated and illegally auctioned by the Forest Department without permission from Income-tax Department, the Assessing Officer may be directed to recover sale proceeds and adjust against demand of tax. 20. We find no merit in the submission. The seized goods were found to be connected with criminal case and forfeited as per order of Court, on conviction of truck drivers. As per criminal law the auctioned amount shall vest in State Government. Therefore, the assessees cannot ask for adjustment of tax out of auctioned amount. Moreso recovery part is matter of the Department cannot be agitated in appeal in this way. This contention is also rejected. 21. In view of the above findings and discussion, we confirm the order of the Assessing Officer and dismiss both the appeals of the assessees. 22. No other point or issue is argued or pressed. 23. As a result, both the appeals of the assesses are dismissed.
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2006 (3) TMI 227 - ITAT DELHI-G
Validity of assessment - whether after dissolution of a company and after the intimation of such dissolution with the RoC, an assessment can be made on a dissolved company - HELD THAT:- Following the decision of CIT VS. Express Newspapers Ltd.[1960 (3) TMI 48 - MADRAS HIGH COURT], it is clear that the assessment made in the present case in the name of M/s Calcutta Instalments Company (P) Ltd. after the date of its dissolution was not valid. The fact that this company filed a return of income is not of any consequence. The assessment is, therefore, held to be invalid and is cancelled.
Thus, the assessment is null and void, all the other issues raised in the assessee's appeal as well as its cross-objection and the grounds raised by Revenue in both its appeals do not call for any adjudication. They are, therefore, dismissed as infructuous.
In the result ITA No. 211/Del/2001 is allowed and all the other appeals and the cross-objection are dismissed.
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2006 (3) TMI 226 - ITAT DELHI-G
Disallowance u/s 14A - expenditure incurred by the assessee in relation to income - HELD THAT:- In our opinion, the said expenditure incurred on running the branches of the assessee-bank cannot be considered as incurred in relation to the tax-free income earned by it and it is only the expenditure directly attributable for making the corresponding investments that alone can be considered as in relation to the said income for the purpose of making a disallowance on pro rata basis for the purpose of s. 14A Before the authorities below as well as before us, the assessee has quantified such expenditure at Rs. 5.76 lakhs, which quantum, however, appears to have not been verified by the AO. We, therefore, direct the AO to verify the same and accordingly recompute the disallowance to be made u/s 14A of the Act.
In the result, the appeal of the assessee is treated as partly allowed.
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2006 (3) TMI 225 - ITAT DELHI-G
Deduction u/s 80-IA - Profits And Gains From Industrial Undertaking - HELD THAT:- As noted in the order of the AO as well as in the order of the learned CIT(A), the printing work was being done by unit 4 of the assessee-company for unit 1 at fixed rates and the claim of the assessee that the said rates were even lower than the market rates was not rebutted/refuted by the AO by bringing any material on record. As rightly contended by the learned counsel for the assessee before us, the expenditure on marketing and distribution of the publications was entirely required to be done for the business of publishing house i.e. unit No. 1 and the same was not connected with the printing business of unit 4. It appears that all these material and relevant aspects, however, (were) simply brushed aside by the AO and he proceeded to reject the book results of unit 4 shown by the assessee merely on the basis that the profit margin shown by the assessee in respect of the said unit was higher at 62 per cent as against profit margin of 10 per cent shown in respect of other units of the assessee.
In our opinion, this action of the AO was not sustainable in law in the facts and circumstances of the present case including especially the fact that no material or specific defects were pointed out by him in the books of account maintained by the assessee in respect of unit 4 and there was nothing brought on record by him to show that the profit margin of 62 per cent shown in the said books was actually lower. On the other hand, such higher profit margin in respect of unit 4 was satisfactorily explained by the assessee-company and having satisfied with such explanation, the AO was directed by the learned CIT(A) to allow the deduction claimed by the assessee u/s 80-IA of the Act on the book results of unit 4.
Thus, we are of the view that the relief allowed by the learned CIT(A) on this issue to the assessee was fully justified and there being no infirmity in the impugned orders of the learned CIT(A) allowing such relief, we uphold the same.
In the result, the appeals of the Revenue for AY 1998-99 and 1999-2000 are dismissed.
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2006 (3) TMI 224 - ITAT DELHI-F
Validity of assessment - jurisdiction of the authority to act as the AO - Jt./Adl. CIT heading the Ranges - authorised officers u/s. 120(4)(b) - term "AO" defined under sub-s. (7A) of s. 2 - HELD THAT:- Section 2 of the Act which defines expression "AO" opens with the expression "In this Act, unless the context otherwise requires". While interpreting a definition, it therefore, has to be borne in mind that the interpretation placed on it should not only be not repugnant to the context, it should also be such as would add the achievement of the purpose which is sought to be served by the Act. The IT Act has been enacted with the object to charge income-tax on the total income of a person of the previous year in accordance with and subject to the provisions contained therein. Procedure for assessment of such total income is contained under Chapter XIV. The appointment and control of IT authorities is contained under Chapter XIII while the jurisdiction of such IT authorities is regulated by Chapter XIII-B. The machinery provision regulating procedure for assessment in various sections like, 142, 143, 144 or 148 has used the expression "AO to carry out these functions". For the purpose of this Act, an AO is not a class of IT authorities. This is only a designation given to certain IT authorities to exercise or perform all or any of the powers and functions conferred on or assigned to them.
There been the intention to include Addl. CIT to be an AO or that the powers of AO were to be delegated to the Addl. CIT, then, his name would have been included in s. 120(4)(b) itself or at least in the definition of AO contained under sub-s. (7A) of the s. 2 of the Act. If the Parliament in its wisdom did not include Addl. CIT in the definition of AO such authority would be barred to act as an AO even if the powers arepowers ed upon him, when the purpose can be achieved by delegation of authority to Jt. CIT or Jt. Director, and it shall not be mandatory that one should mechanically attribute the meaning assigned to Jt. CIT under sub-s. (28C) of s. 2 of the Act and import the same in the definition clause of "AO" given under sub-s. (7A) of s. 2 of the Act.
Thus, we are satisfied that in view of the definition contained under sub-s. (7A) of s. 2 of the Act, an Addl. CIT cannot be an authority to exercise or perform all or any of the powers and functions of an AO to make assessment of income and as such the assessment made on appellant by such Addl. CIT, Range-20, New Delhi, is liable to be quashed.
In the result, the appeal stands allowed.
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2006 (3) TMI 223 - ITAT DELHI-F
Disallowance on business development expenses - business activities in Delhi undertook the work of supply of uniform for the first time in J&K in this year- duly authorized agent - payments received from the Government through banking channel - HELD THAT:- In view of the documentary evidence filed on record, it is established that the volume of business of the assessee-company assumed big boost on account of supply of garments to the Government of J&K. In the immediately preceding year the assessee had shown net profit of Rs. 2,171 only whereas in the assessment year under consideration its net profit went up to Rs. 13,06,958. This boost was definitely on account of the contract for supply of school uniforms cloth by the assessee.
In any case, if the agent was not assessed to tax or if he did not appear before the learned CIT(A) despite request of the assessee, the assessee cannot be blamed for the same. So far as the rendering of service is concerned, there may not be a written agreement but the circumstances of the present matter strongly establish that without the services of the commission agent the assessee could not achieve such business result as has been achieved by him. The business development expenses are, therefore, fully justified as the rendering of service is proved from the circumstances of the present matter.
On going through the entire documentary evidence, filed on record and in particular on appreciating the circumstances of this matter we find force in the submissions of the learned counsel for the assessee and hold that the payment of commission by the assessee was for business purposes and the same was fully justified. We, therefore, set aside the finding of the learned CIT(A) and delete the disallowance of Rs. 12,54,388. Ground is allowed.
In the result, assessee's appeal is allowed for statistical purposes only.
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2006 (3) TMI 222 - ITAT DELHI-E
Rectification Under s. 254(2) ... ... ... ... ..... ich AO allowed the same, would stand reversed. It is a related and linked issue and may require adjudication depending upon the way main issue is decided............. The roll over charges of Rs. 2,30,67,615 allowed by the AO as the same was held to be paid in the course of earning taxable profit would also be required to be treated as capital expenditure and added to the cost of the asset. In our opinion, this issue relating to the deductibility of roll over charges is intimately connected with the question of taxability of the gains, as rightly held by the IT authorities. However, having regard to the fact that this aspect of the matter has not been specifically referred to the Special Bench, we leave it open to the Department to raise this plea before the Division Bench for considering and deciding the question in accordance with law and in the light of answer given by us to the question referred to us. 6. The rectification application is allowed in the terms stated above.
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