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Income Tax - Case Laws
Showing 81 to 100 of 185 Records
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2006 (3) TMI 221 - ITAT DELHI-E
Interest On Interest ... ... ... ... ..... io of the judgment of Supreme Court in the case of Sandvik Asia Ltd. vs. CIT and the judgments of various other High Courts referred to above is applicable to the facts of the present case also. Thus, the assessee is also entitled to simple interest on interest from the dates when the refund of interest became due till the date when such refund of interest was granted or yet to be granted at the rate applicable and specified in the Act. However, the assessee would not be entitled to compound rate of interest. We, therefore, set aside the orders of the CIT(A) and direct the AO to grant interest on amount of interest due to the assessee from the dates when the interest became due till the date of granting refund of interest as per rates specified in the Act and after allowing reasonable opportunity to the assessee. We order accordingly. The grounds of appeal of the assessee are allowed to the extent indicated above. 7. In the result, all the appeals of the assessee are allowed.
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2006 (3) TMI 220 - ITAT DELHI-E
Income attributable - liability to pay tax u/s 9(1) - business connection - whether "Permanent Establishment" ("PE") in India as understood by the DTAA between India and USA - Profits.
Business connection - HELD THAT:- The business of the assessee is to transfer monies across countries. There is thus a receiving aspect and a paying aspect to the transaction. They cannot be segregated; to do so would be artificial. There is a seamless integration between the two. The transaction, as has been rightly noticed by the income-tax authorities, is not complete unless the monies are paid in India to the claimant. Further, the agreements with the agents are initially for a term of 5 years, renewable for periods of one year at a time, but this could go on endlessly. The agents are bound to render services for the assessee as stipulated in the agreements. The agreement provides for security and confidentiality. The assessee has provided the software to the agents, though retaining the copyright in the same, to enable them to access the assessee's mainframes in the USA. All these are in our opinion sufficient to justify the conclusion that there is business connection within the meaning of section 9(1) of the Act. We uphold the conclusion of the income-tax authorities to this effect.
PE of the assessee in India? - whether there is a PE as alleged by the income-tax authorities under any of the four categories: (a) fixed place PE; (b) dependent agents PE; (c) software as PE or (d) LO as PE.
(a) Fixed place PE - The assessee before us has appointed different agents in India. These agents are the Department of Posts of the Government of India, commercial banks, non-banking financial companies and tour operators. These agents have their own or hired premises from which they operate. All that they have to show that they are agents of the assessee is a display board which shows that they are the agents of the assessee. This cannot by any stretch of imagination amount to projection of the assessee in India. It cannot be postulated that the post offices of the Department of Posts which functions under the concerned Ministry of the Government of India would permit themselves to be looked upon as projecting the presence of Western Union Financial Services Inc., in India! The same would be the case of commercial banks such as the Karnataka Bank Ltd., Bank of Punjab Ltd., etc. and others which have been appointed agents. They have their own presence and business with which they are perhaps more concerned and may be surprised to find themselves characterised as projecting the assessee in Indian soil. There is no evidence to show that the assessee can, as a matter of right, enter and make use of the premises of these agents for its business. We therefore hold that there is no fixed place PE of the assessee in India within the meaning of article 5.1 of the DTAA.
(b) Is LO the fixed place of business (and hence a PE)? - We are of the view that the LO cannot be considered to be the fixed place PE of the assessee as it carries out activities which are of a preparatory or auxiliary character. It has not carried on any trading activity for the assessee in India. It has only a small number of executives and a support staff. The LO has also filed status reports to the RBI listing out the activities which it actually carried on during the years. None of the activities can be described as anything other than of preparatory or auxiliary character.
(c) Is the software "VOYAGER" the PE of the assessee? - The software is the property of the assessee and it has not parted with its copyright therein in favour of the agents. The agents have only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the purpose from the premises of the agents cannot in our opinion lead to the decision that the premises-cum-software will be the PE of the assessee in India. Under article 5.2(j) and installation may amount to a PE provided it is used for the exploration of natural resources. Therefore, even if the software is to be considered as an installation, since it is not used for exploration or exploitation of natural resources it cannot per se be treated as a PE.
(d) Credit cards and PE - The existence of the assessee's own "outlets" in India has been stoutly denied. The observations of the Assessing Officer not being supported by any evidence and the CIT(A) not having specifically approved them, we hold that there can be no PE on account of the use of the credit cards.
The agents (in the present case) have the authority to appoint sub-agents does not mean that they (agents) have the authority to conclude contracts. The terms of appointment of sub-agents given at page 22 of the paper book as attachment to the contract of agency with Karnataka Bank Ltd. lists the duties and responsibilities of the sub-agents regarding money transfer service requirements, advertising and promotion, exclusivity, locations and hours of operations, payment for the service, delivery standards, maintenance of records, security and confidentiality, accounting, use of software, indemnity, conditions of termination etc. Nowhere in the sub-agency agreement has any authority to conclude contracts has been given to them. In fact, when the agents themselves have no such authority under their agreement, they cannot delegate the same to their sub-agents (delegates non potest delegare).
There is also no material to hold that the agents have "habitually" exercised the authority to conclude contracts. As already noted, the authority must be to conclude contracts in the conduct of the business proper of the foreign enterprise. The fact that the agents conclude in India the commitment of the assessee made abroad cannot be considered as an authority to conclude contracts. The contract is between the remitter abroad and the assessee. It is entered into outside India. The agents are not party thereto. The agents merely carry out the concluding step in the arrangement embodied in the contract.
By executing the last leg of the contract which has already been concluded (outside India) he is not concluding the contract for the assessee, much less habitually. The appointment of sub-agents is merely to facilitate the work of the agent. That apart, what is considered to be a "duty'; cannot be considered to be an "authority". By making payment to the beneficiary, the agent in India is only performing his duty under the agreement of agency, for which he is remunerated; he is not exercising any "authority", certainly not an authority to conclude contracts on behalf of the assessee.
Thus, we are of the view that there is no agency PE of the assessee in India. In the absence of any PE in India, it follows that the profits, if any, attributable to the Indian operations cannot be assessed as business profits under article 7 of the treaty.
Since we have held that there is no PE in India, the question of attributing any income to the same for the purpose of article 7 of the DTAA does not arise. We therefore consider it unnecessary to examine the question whether the attribution of income is fair and reasonable.
In the result, we hold that (a) there is business connection and hence the assessee is liable to tax u/s 9(1) of the Income- tax Act; (b) but since there is no PE in India under article 5 of the DTAA between India and the USA, no profits can be attributed to the Indian operations of the assessee and taxed in India.
The appeal is accordingly allowed but with no order as to costs.
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2006 (3) TMI 219 - ITAT DELHI-E
Validity of Service of notice issued u/s 143(2) - HELD THAT:- In view of sub-rule (3) of rule 9 of Order V of the CPC, the summons may be sent through speed post or so, in view of the amendment introduced. In fact the mode of speed post is only a faster mode of registered mail and just another mode of dispatch through registered post.
In the present case, the notice was sent through speed post. The learned CIT (Appeals) has recorded the finding that the summons that was issued on 16-10-2002 was served upon the assessee on 20-10-2002. The assessee is a local resident of Delhi and therefore, it is quite reasonable to observe and infer that the notice sent through speed post must have been served upon the addressee (assessee) at least within 3-4 days. Otherwise also, the findings recorded by the learned CIT (Appeals) have not been rebutted or controverted by the assessee by making any positive statement regarding the notice sent on16-10-2002through speed post. Thus, in view of the amended provision of the CPC, firstly, the mode of sending notice through speed/registered post is recognized mode and secondly, a presumption can be drawn regarding service by speed post within 3-4 days in the present case, where the assessee was living in the city of Delhi. On this basis also we have to uphold the finding of the learned CIT (Appeals).
Thus, it is held that the learned CIT (Appeals) was justified in recording the finding that notice had been validly served. We, therefore, do not find any scope to interfere in the finding of learned CIT(A) on the issue in question. Ground Nos. 1 & 1.1 taken by the assessee are, therefore, rejected.
Disallowance of expenditure - carry forward the same to be set off in the succeeding assessment year - In the assessment order, the Assessing Officer has not examined the nature of expenses nor the aspect that the assessee was carrying on business activity in earlier and subsequent assessment years and expenditure claimed by it was allowed by the Department in earlier and subsequent years. The learned CIT(A) has also not examined these aspects. The order of the Tribunal for assessment year 1997-98, a copy of which has been placed on record was also not considered by the departmental authorities as no mention of this of order has been made. It appears that this order was not available at the time when these authorities passed orders.
We are of the considered opinion that the matter has not been properly examined and the evidence filed by the assessee has not been properly appreciated. In the interest of justice, therefore, we consider it proper to set aside the finding of learned CIT(A). We, therefore, set aside the order of CIT(A) on the issue in question and restore the matter back to him for considering the entire material afresh in the light of our observations made above including the nature of expenditure and the fact that the expenditure was allowed to the assessee in earlier and subsequent years. Hence, the matter shall be decided as per law, of course, after providing opportunity to the parties of being heard. We order accordingly.
In the result, assessee's appeal is partly allowed for statistical purposes only.
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2006 (3) TMI 218 - ITAT DELHI-E
Deduction u/s 80-I - set-off of the brought forward losses - pro rata expenses allocated to various units - no profit in Unit Nos. II and III - Whether the allocation of expenses by the assessee was proper or not - CIT(A) to allowed the deduction u/s 80-I in respect of assessee's Unit Nos. II and III. In assessment year 1993-94 - In assessment year 1993-94, CIT(A) allowed deduction u/s 80-I before set-off of the brought forward losses - Difference of opinion between ld members - Third Member Order - 1. Whether the ld. Accountant Member is right in upholding the order of ld. CIT(A) in the two assessment years under consideration?
2. Whether ld. Judicial Member is correct in restoring the file to the Assessing Officer for re-adjudication of the issue of deduction u/s 80-I in terms indicated in his proposed order?
HELD THAT:- In my considered view, there is no confusion on facts involved in the case. The assessee is carrying on printing work in Unit No. I. It has debited binding expenses in said unit also. It is nobody's case that after printing, binding work was not carried by Unit No. I. No investigations on above line were carried. The objection is why binding charges in Unit No. I when Unit No. II has e binding machines. However, objection is raised without any justification. Binding was done in Unit No. I and expenses claimed duly supported by audited books of account. The expenses claimed on binding in Unit No. I are not held to be fictitious. Likewise Unit No. III admittedly carried printing work without binding and without debiting binding expenses. The Assessing Officer placed no material on record to controvert the claim of the assessee. It is not clear as to on what material doubts has been raised in the proposed order by learned Judicial Member even on points accepted and not challenged by the Assessing Officer. Even the manner of carrying on of business is challenged. However, on doubts and surmises, it is not permissible to deny a claim and interfere with the impugned order. As already noted the question before the CIT(A) and before the Tribunal was whether the Assessing Officer had made out or shown that expenses in Unit No. I were inflated.
Whether there was any material to support the conclusion of the Assessing Officer to deny claim of deduction to the assessee. Having regard to the principle that he who alleges shall prove, the onus was clearly on the Assessing Officer to establish the case set up by him. The above and related question whether the said onus was discharged was required to be examined. The assessee had rendered explanation only to remove doubts raised by the Assessing Officer in the impugned order. The explanation was held to be reasonable and claim rational and justified on facts. That was the question required to be examined by the Appellate Tribunal in accordance with the law. I have however find that instead of examining above questions, order proposed totally different an d new questions based on suspicions and doubts. A good explanation duly accepted by the ld. CIT(A) has been treated as bad after wrongly placing onus on the assessee which under the law was on the Revenue.
It is clear from the assessment orders that income shown and expenses claimed by the assessee have been duly allowed in the assessment order. None of the expenditure has been treated as ingenuine or not connected or related to the business carried out by the assessee. In the above background and without any material, and without and justification on the part of the Assessing Officer some of the expenses claimed by the assessee were held to be inflated in Unit No. I and were deflated in Unit Nos. II and HI. Entire case of Assessing Officer in both the assessment years is based on surmises and conjectures. The ld. CIT(A) had passed a fair, rational and just order. There was no scope to interfere with the impugned orders as rightly held by the learned Accountant Member in his proposed order. On similar facts claim in earlier years was allowed to the assessee.
Before concluding I would like to refer to certain pertinent observations made by the Privy Counsel and by the Hon'ble Supreme Court in the case of State of Kerala v. C. Velukutty [1965 (12) TMI 32 - SUPREME COURT] relating to basis of assessment. In the case of CIT v. Laxminarain Badridas [1937 (2) TMI 1 - PRIVY COUNCIL], the Privy Council had observed that Assessing authority must make what he believes to be a fair estimate of proper figure of assessment and that assessment should not be dishonestly, vindictively or capriciously made. It should also not be arbitrary.
I see some parallel between the facts of the above cited case and case in hand, because profit was disclosed in Unit Nos. II and m on which deduction under section 80-I was claimed and no profit was disclosed in Unit No. I on which no such deduction was permissible and expenses in aforesaid Unit No. I were much higher than this in the other two units. It was probable that more expenses were claimed in Unit No. I and some of the expenses of Unit Nos. II and III were diverted and claimed in Unit No. I. But no presumption under the law could be raised that expenses were so diverted.
The assessee has produced accounts with details and, therefore, correct position "could have been ascertained from the material statement of relevant persons including management and staff of the assessee could have been examined." But without any investigation and without collecting any material an arbitrary assessment by holding that expenses in Unit No. I should be proportionate to those in Unit Nos. II and III was made. Assessment based on such inference has to be held as arbitrary.
Thus, I agree with the order proposed by ld AM, confirming the impugned orders of CIT(A). Let the matter be now placed before the regular Bench for disposal in accordance with law in both the assessment years.
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2006 (3) TMI 217 - ITAT DELHI-C
Search And Seizure ... ... ... ... ..... purchasing of shares is found to be not correct. In the circumstances, we are doubtful as to how the provisions of section 93 could be invoked by the Revenue. We do not wish to delve further on this issue for the reason that we have already held that this new plea should not be permitted to be raised by the Revenue for the first time before the Tribunal. For the reasons stated above, we are of the view that the CIT(A) was fully justified in deleting the addition made by the Assessing Officer and consequently his order is confirmed and this ground of appeal by the Revenue is dismissed. 183. The second ground of appeal by the Revenue does not call for any adjudication as the additions made by the Assessing Officer have been deleted. Consequently the question of levy of surcharge is academic calling for no adjudication. In the result the appeal by the Revenue is dismissed. 184. In the result, the appeal of the assessee is partly allowed whereas that of the Revenue is dismissed.
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2006 (3) TMI 216 - ITAT DELHI-B
Business Expenditure ... ... ... ... ..... he payments have been made to the Excise Commissioner on behalf of the suppliers and later adjusted against the purchases made from them due to compelling circumstances and on request of such parties as in the case of M/s Mahender Singh and Party in ITA No. 712/Del/2002. Since the assessee made payments due to business exigency and he did not maintain any bank account, the authorities below were not justified in making any disallowance under s. 40A(3) of the Act particularly when the assessee had led evidence of genuineness of payment and, evidence to make such payments in cash to a different authority had been brought on record. For parity of reasons in the appeal of Mahender Singh and Party and also respectfully following the principle cited by the jurisdictional High Court in the case of Ramaditya Investments vs. CIT, the disallowance so made under s. 40A(3) in this appeal under consideration is also directed to be deleted. 9. In the result, both the appeals stand allowed.
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2006 (3) TMI 215 - ITAT DELHI-A
TDS u/s 194C - Assessee In Default - limitation - taxability of citizen tax - HELD THAT:- Tribunal also found that even before the survey, the assessee was trying to resolve the dispute and they had prepared a letter which was handed over to the survey officials on the date of survey itself and had paid the tax and interest before the order under ss. 201(1) and 201(1A) was passed. It is not in dispute that the period under consideration was a particular period during which most of the foreign companies were in doubt about the taxability of the foreign component of the salary. It cannot be disputed that u/s 192, what the deductor is expected to do is to make a bona fide estimate of the salary and deduct tax therefrom. In the present case, the assessee has proved its bona fides to the hilt and thus, cannot be regarded as an assessee in default. The assessee's case is fully covered in its favour by several decisions of the Tribunal and hence we need not detain ourselves for long to discuss at length the issues before us. Thus, we hold the orders for financial years 1988-89 to 1994-95 to be invalid on grounds of limitation and for financial years 1995-96 to 1998-99, we hold the assessee not to be in default.
Since orders for seven years are held to be invalid and since the assessee is held to be not in default for the remaining years generally, we need not go into the issue of taxability of "housing norms".
It is found that it is a statutory levy in Japan which is required to be withheld by the employers from the salaries of their employees. Thus, following the decision of the Mumbai Bench of the Tribunal in the case of Gallotti Raoul vs. Asstt. CIT [1997 (1) TMI 539 - ITAT MUMBAI], it is held that the income is diverted at source by way of an overriding title and hence, not liable to be included in the total income of the assessee. We see no infirmity in the order of the CIT(A) who has relied on the aforementioned order of the Tribunal. Therefore, the ground raised by the Department stands rejected.
In the result, all the appeals by the assessee are allowed and those of the Department are dismissed.
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2006 (3) TMI 214 - ITAT DELHI-A
Mistake Apparent ... ... ... ... ..... ions may not be to the liking of the parties. But, that by itself does not make an order erroneous which can be rectified or recalled. As a matter of fact, as suggested by the Supreme Court in the case of Anil Rai, on which heavy reliance has been placed by the learned counsel. the assessee could have moved an application to the Hon ble President for the withdrawal of the case and to make it over to any other Bench for fresh argument when no order was pronounced within six months. The assessee chose not to do so and now having received the order which is not in its favour, it cannot plead for the recall of the order at such a late stage. 13. Arguments were also advanced by the parties on the determination of the quantum of the income to be taxed. However, in our view, the Tribunal has given proper directions in this regard over which we cannot sit in judgment. Therefore, we refrain from dealing with this aspect. 14. In the result, the application of the assessee is dismissed.
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2006 (3) TMI 213 - ITAT DELHI-A
Deduction u/s 37 - written of doubtful debts - trading loss incurred in carrying out the business and being incidental to the operations of the business is allowable u/s 37? - HELD THAT:- From the details furnished by the assessee in the paper book it is found that the assessee had given full details of each item. The amounts represented advances given to the parties. The advances were given during the course of business for supply of raw-material etc. Either the material was not supplied or defective material was supplied. The amount became irrecoverable from the parties to whom the advances were made. Thus, the advances were totally connected with the business activities of the assessee. The learned CIT (Appeals) was not justified in observing that the amount of advance was not a trading loss. After seeing the details of amounts, it is observed that the assessee was not required to take a lengthy litigation for recovering the small amounts. In our opinion, therefore, the approach of the learned CIT (Appeals) is not justified.
Hon'ble Gujarat High Court also considered the issue relating to business loss in the case of Dinesh Mills Ltd. v. CIT [2001 (12) TMI 65 - GUJARAT HIGH COURT]. In that case, the assessee incurred a loss on account of embezzlement of its employee between 29-1-1974 and 26-4-1976. The loss was discovered in 1977-78. The Assessing Officer disallowed the claim on the ground that the loss remained indeterminate during the assessment year in question and it could be ascertained only in subsequent years. The ld. CIT(A) allowed part of the loss which approach was also maintained by the Tribunal. The Hon'ble Gujarat High Court, after reversing the view of the Tribunal, held that in view of the statement made on behalf of the assessee to the effect that no deduction had been allowed in any subsequent year, the assessee would be entitled to deduction of loss during the assessment year in question as this was the year in which loss on account of embezzlement was in fact discovered. On the basis of this authority, the submission of the ld. counsel that in the case of the assessee also, nothing has been recovered till now and, therefore, the claim of the assessee should be allowed, carries much force.
Thus, we are unable to sustain the approach of the learned CIT (Appeals) and set aside his findings. In our considered opinion, the claim of deduction is allowable as trading loss u/s 37. Grounds taken by the assessee are, therefore, allowed.
In the result, assessee's appeal is allowed.
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2006 (3) TMI 212 - ITAT DELHI-A
Income Escaping Assessment - initiation of proceedings u/s 147 - search operations - block assessment order u/s 158BC determining disclosed income - fair market value - valuation of the properties - limitation of time - HELD THAT:- In the instant case according to the revenue while the fair market value of the property on the material date was Rs. 19,45,300 and Rs. 28,38,500, the assessee claimed to have purchased these two properties for Rs. 1,50,000 and Rs. 4,50,000 only. It is not correct proposition in law that no matter what the fair market value of the property is, even the ridiculous consideration shown in the agreement between the parties is binding upon the department unless and until there is prima facie evidence in possession of the department of some thing over and above the disclosed consideration having exchanged hands between the parties. To hold such a view would be nothing short of rendering the task of laundering black money very simple and easy. For example, some one may purchase diamonds worth Rs. one crore entirely out of his black money and get away by saying that he purchased diamonds for Rs. 5,000 only. To say that difference between the market value and disclosed consideration is no evidence at all and the department must have primary evidence of on money having exchanged hands is to put a burden on the revenue obviously most unlikely to be discharged.
In the same vein the verdict of Hon'ble Supreme Court in the case of C.B. Gautam [1992 (11) TMI 1 - SUPREME COURT] is that where there is significant under-valuation of the property in the consideration as disclosed in the agreement between the parties and there is no plausible explanation for that under-valuation, the same would lead to the inference of evasion of tax or in other words the under-statement of consideration also. We are, therefore, unable to accept the contention of the learned counsel of the assessee that in the absence of direct evidence the valuation report made by the departmental valuer cannot lead to the assessment of any undisclosed investment within the meaning of sections 69, 69A, 69B and 69C of the Act. We may also state here that in our opinion the reference made by the learned Assessing Officer to the Departmental Valuation Cell cannot be held to be bad in law, in view of the provisions of section 142A of the Act inserted by the Finance (No. 2) Act, 2004 with retrospective effect from 15-11-1972.
We find the judgment of Hon'ble Delhi High Court in the case of K. M. Sharma v. ITO [1996 (5) TMI 68 - DELHI HIGH COURT] has been given in some what different context, i.e., enlargement of the scope of provisions of section 150 by including an order passed by a court in any proceedings under any other law. However, it is clear from the judgment of Hon'ble Delhi High Court relied upon by the learned DR that it is the consequence of the order specified in section 150(1) that is material. The consequence of the order of the Tribunal in the case of the assessee is that the assessment should be made under the provisions of regular assessment and not block assessment. We, therefore, agree with the contention of the revenue that provisions of section 150(1) having been attracted, no limitation of time applied.
Thus, we do not accept the contentions of the assessee challenging initiation of proceedings u/s 147 and accordingly, the assessee's grounds of appeal in this behalf are rejected.
On consideration of the matter we are of the view that this aspect of the matter requires reconsideration. The learned Assessing Officer has in the assessment order merely stated that the assessee's objections have been considered and instead given his reasons in support of the valuation as made by the Departmental Valuer. The learned Assessing Officer has not met point by point various objections of the assessee to the departmental valuation. In the impugned order of the learned CIT (Appeals) also while importance is attached to the fact that the Departmental Valuer was appointed by the Government, various objections of the assessee to the Departmental Valuer's report have not been considered point by point based on facts and circumstances of the case. We, therefore, restore this issue to the file of the learned Assessing Officer with the directions that he should forward various objections of the assessee, including the report of the assessee's valuer to the Departmental Valuation Officer and obtain a fresh valuation report from him after considering the objections of the assessee, report of the assessee's valuer and after giving opportunity of being heard to the assessee and/or his valuer. Thereafter he should give adequate opportunity to the assessee to have his submissions on the revised valuation as done by the Departmental Valuer. The learned Assessing Officer should determine the value of the properties afresh after passing a reasoned order and make assessment of undisclosed income only if there is significant under-valuation of the properties for which the satisfactory explanation is not given by the assessee.
For statistical purposes this appeal shall be treated as partly allowed.
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2006 (3) TMI 211 - ITAT DELHI
Business Of Exploration etc. Of Mineral Oils ... ... ... ... ..... e meaning of expression made available in that treaty, to the treaty under consideration, moreso, when the model of convention of both the countries is also altogether different. In view of this, it is emphatically clear that the meaning of fees for technical services has to be understood from Expln. 2 to s. 9(1)(vii) of the Act and accordingly the service rendered is found to be covered by the definition given under the Indian IT Act. Exception carved therein for mining or like project being not applicable to the nature of service rendered by the appellant, the consideration so received has to be treated as fee for technical services within the meaning of s. 9 of the Act and as such s. 44D of the Act is found to have rightly been applied for making assessment of income in this case. Finding no merit in the first ground in appeal, the same stands rejected. 17. Ground No. 2 being consequential, the AO shall give consequential effect. 18. In the result, the appeal is dismissed.
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2006 (3) TMI 210 - ITAT CHANDIGARH-A
Deductions u/s 80-IB - whether the breaking of boulders into stones i.e., 'gitty' is a industrial undertaking manufacturing and producing article or thing or not - Prayer to quash the assessment order passed u/s 143(3)/147 - change of opinion - HELD THAT:- In our considered view, the Assessing Officer while processing the return, is not supposed to express any opinion, but only an intimation is to be sent to the assessee specifying if any tax or interest is due on the basis of such return after adjustment of any tax deducted at source/advance tax paid/tax paid on self-assessment and any amount paid otherwise by way of tax or interest. In other words, the Assessing Officer initially process the return u/s 143(1)(a) and determine the amount payable or refundable on that basis and it is not necessary for him to frame an assessment in each and every case.
In the present case, the Assessing Officer was of the opinion that the deduction claimed by the assessee u/s 80-IB was excessive. The Assessing Officer, on the basis of judgment in the case of Gem India Mfg. Co.[2000 (12) TMI 7 - SUPREME COURT] recorded his satisfaction that the activity of the assessee in breaking the boulders into small stones was not manufacturing activity. Therefore, he has reasons to believe that the deduction claimed by the assessee was not correct. As such, a part of his income chargeable to income-tax has escaped assessment. In our opinion, in view of the ratio laid down by the Hon'ble jurisdictional High Court in the aforesaid referred to case i.e., the case of Swaraj Engine Ltd.[2002 (8) TMI 27 - PUNJAB AND HARYANA HIGH COURT], the Assessing Officer rightly started the reassessment proceedings. Thus, we set aside the order of the learned CIT (Appeals) and accordingly, this ground of the departmental appeal is allowed.
In the result, appeals of the department are allowed.
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2006 (3) TMI 209 - ITAT BOMBAY-T
... ...
... ... ..... per market value. Reliance was placed by the assessee in this regard on the Judgment of Hon ble Madras High Court rendered in the case of R.M. Meenakshi sundaram. We find that the issue involved in this case was whether the interest income in the case of the assessee who is carrying on business of money lending should be treated as business income or income from other sources and it was held that since, the assessee is carrying on business of money lending, interest received on this loan constituted business income. From this discussion, it is clear that this Judgment is not applicable in the present case because in the present case, there is no dispute regarding head of income but the dispute is regarding provision for bad and doubtful debts and its allowability as deduction. Accordingly, these alternative contentions of the assessee are also rejected and we uphold the order of the learned CIT(A) on this issue. 8. In the result, this appeal of the assessee stands dismissed.
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2006 (3) TMI 208 - ITAT BOMBAY-J
Mistake Apparent ... ... ... ... ..... ion that principal business of the assessee was that of granting loans and advances. The past history is not placed before us. The assessee has also tried to give figures of capital employed relating to asst. yrs. 1999-2000 and 2000-01 but the statement of accounts are not on record. Accordingly, we are of the view that interest of justice would be met if this aspect of the matter is examined afresh by the AO in the light of the decision of the Special Bench in the case of Venkateshwar Investment and Finance (P) Ltd. The order of the learned CIT(A) is, therefore, set aside and the matter is remitted to the file of AO for fresh adjudication of the issue whether the principal business of the assessee was that of granting loans and advances in terms of provisions of Explanation to s. 73 of the Act. The assessee shall be given reasonable opportunity for furnishing the necessary material or evidence in this regard. 4. In the result, the miscellaneous application is partly allowed.
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2006 (3) TMI 207 - ITAT BOMBAY-J
Depreciation ... ... ... ... ..... ment year 1998-99 has been provided only to take care of the erosion in the value of an asset and not for safeguarding any fluctuation in such value. We are also of the view that the stock exchange membership card is only an intangible asset which admits the holder to the membership of the stock exchange so that such member can trade in stocks on the floor of the stock exchange. It only confers the right on the holder and therefore even though it is an asset, it is an intangible asset. In our view, up to the assessment year 1998-99, depreciation is not allowable in respect of intangible assets. We, therefore, confirm the order of the ld. CIT(A) on this issue. 10. The only other ground of appeal pertains to charging of interest under sections 234A and 234B, which is admitted to be only consequential. The Assessing Officer is, therefore, directed to re-calculate the interest chargeable while giving effect to this order. 11. In the result, the assessee s appeal stands dismissed.
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2006 (3) TMI 206 - ITAT BOMBAY-I
Business Expenditure ... ... ... ... ..... f s. 145A of the Act after giving an adequate opportunity of being heard to the assessee. However, the AO shall ensure that no double deduction is allowed to the assessee in respect of notional adjustments made in the value of opening stock. Thus, this ground of the Revenue is allowed for statistical purposes. 20. Ground Nos. (ii) and (iii) deal with the issue of estimated profit on unrecorded sales. We have dealt with similar issue in ground Nos. (vi), (vii) and (viii) of ITA No. 7373/Mum/2002 and the facts being identical, therefore, there is no need to repeat again. Thus, in accordance with the decision in assessee s own case for asst. yr. 1998-99, we reject these grounds of the Revenue in this year also. 21. In the result, the appeal of the Revenue stands partly allowed for statistical purposes. 22. To sum up, the appeal filed by the Revenue for asst. yr. 1998-99 is partly allowed and the Revenue s appeal for asst. yr. 1999-2000 is partly allowed for statistical purposes.
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2006 (3) TMI 205 - ITAT BOMBAY-I
Interest paid on the borrowed funds - HELD THAT:- We find that according to section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act for the purpose of computing total income under this Chapter. Meaning thereby, if any expenditure is incurred on borrowed funds which do not earn any income, the said expenditure are not to be allowed as deduction in computing total income of the assessee. In the instant case, the assessee has borrowed funds to make an investment in the firm under its capital account. As per the partnership deed, the assessee is not entitled for any interest on its capital balance as there was no provision in the partnership deed to this effect. Whatever remuneration was earned by the assessee being a partner, it was on account of services rendered by him for the firm and not on account of investment made by him in the firm.
Unless and until the nexus is established between the borrowed funds and the income of the assessee, the deduction of the interest paid on the borrowed funds would not be allowed against the income. In the instant case, since no nexus was established between the borrowed funds and remuneration earned by the assessee, the Assessing Officer was justified in disallowing the interest paid on the borrowed funds. We, therefore, find no infirmity in the order of the CIT(A).
Unexplained investment u/s 69 - HELD THAT:- According to assessee, the gold ornaments were sold on 2-7-1997 and tax was deposited on 3-7-1997 much before the filing of the declaration i.e., on 5-9-1997. Under these circumstances, we find no force in the contention of the assessee that taxes were paid out of the sale proceeds of part of gold ornaments declared in the VDIS Scheme. We accordingly find ourselves in agreement with the observation of the lower authorities that the taxes determined on the VDIS on declared amount was paid out of undisclosed source by the assessee. We, therefore, find no infirmity in the order of the CIT(A), who has rightly adjudicated the issue in the light of the material available on record. Accordingly, the order of the CIT(A) is hereby confirmed.
In the result, the appeal of the assessee is dismissed.
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2006 (3) TMI 204 - ITAT BOMBAY-I
Cessation of liability - Chargeable to tax - earnest money or an advance - NCDs were issued in order to borrow the funds to raise the capital - capital nature or a revenue receipt - HELD THAT:- We have examined the judgment of the Hon'ble Gujarat High Court in the case of Chetan Chemicals (P.) Ltd.[2001 (10) TMI 12 - GUJARAT HIGH COURT] in which Their Lordships have held that on a reading of section 41(1) of the Income-tax Act, 1961, it is apparent that before the section can be invoked, an allowance or a deduction has been granted during the course of assessment for any year in respect of loss, expenditure or trading liability which is incurred by the assessee, and subsequently during any previous year the assessee obtains, whether in cash or in any other manner, any amount in respect of such trading liability by way of remission or cessation of such liability. In that case, either the amount obtained by the assessee or the value of the benefit accruing to the assessee can be deemed to be the profits and gains of business or profession and can be brought to tax as income of the previous year in which such amount or benefit is obtained.
We find that the NCDs were issued to raise a capital of the assessee before commencement of the business and whatever earnest money or advance was received on account of issuance of NCDs, was kept in separate account and was shown as loan liability upon the assessee and this liability was never debited to the profit and loss account nor was its deduction claimed in the relevant assessment year. Since, the NCDs were issued in order to borrow the funds to raise the capital, the amount received in lieu thereof has assumed the character of capital receipt if at all not treated to be a loan liability, inasmuch as issuance of NCDs was not a business of the assessee.
Thus, the earnest money or an advance amount received on account issuance of NCDs, if forfeited on account of nonpayment of call money, the loan liability would only convert into a capital receipt. It would not assume a character of revenue receipt or business receipt because NCDs were not issued in the course of regular business of the assessee as evident from the facts of the case. Assessee's main business is of cement and it was in the process of set up of cement manufacturing plant at Satna during the impugned assessment year. In these circumstances, we are constrained to hold that the amount received by the assessee in lieu of issuance of NCDs which were forfeited later on account of non-payment of call money assumes a character of capital receipt which earlier was shown as a loan liability in the books of account of the assessee. If we consider this receipt to be a business receipts even then it would not be taxable to tax under the provisions of section 41(1) of the Act, inasmuch as there was no allowance or deduction of this liability in the earlier years. We also do not find any provision in this Act according to which this type of receipts are chargeable to tax. We, therefore, are of the considered view that the revenue was not justified in treating this receipt as revenue receipt. We therefore, set aside the order of CIT(A) and delete the addition.
In the result, the appeal of the assessee is allowed.
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2006 (3) TMI 203 - ITAT BOMBAY-H
... ...
... ... ..... refund to be made under section 237. If that is the legal position, then refund under section 240 would also be refund under section 237. 9. In view of the above discussion, it is held that the claim of assessee for refund falls within the scope of section 237 and is not hit by the limitation period prescribed under section 239(2)(c) of the Act and consequently the order of the Assessing Officer denying the claim of refund was appealable order and the Learned CIT(A) was not justified in refusing to grant the refund to the assessee. The order of the Learned CIT(A) is set aside and the Assessing Officer is directed to allow the refund of the assessee after verification. However, it is clarified that there is no material before us whether demand for assessment year 1997-98 was deleted or not. The Assessing Officer shall verify this fact and then issue refund voucher to the assessee of the excess amount of tax paid by him. 10. In the result, the appeal of assessee stands allowed.
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2006 (3) TMI 202 - ITAT BOMBAY-H
Computation tax under the head 'capital gains' - Set Off - Losses - Setting off of short-term capital gains against long term capital losses is permissible? - HELD THAT:- We find that there is no basis in grouping short term capital assets as a separate source of income and long term capital assets as a separate source of income. Not only short term and long term assets are different sources of income, but even the different short term assets and different long term assets involved in the respective transactions are again different sources of income. When section 70 provides that a loss falling under a source of income can be set off against income from any other source under the same head, it means that the long term capital loss being a separate source can be set off against short term capital gains, which is another separate source of income. Within the provisions of law contained in section 70, there is no further identification of sources of income against which alone loss of a particular source can be set off.
Therefore, the contention of the assessee that irrespective of the identity of the source of income, it is possible for the assessee to set off the loss of a particular source against income from another source, both falling under the same head of income is tenable in law. Accordingly, the computation made by the assessee by setting off the long term capital loss against short term capital gains and in that way saving the differential tax benefit available to long term capital gains is supported by law.
The CBDT Circular No. 8 of 2002 issued as explanatory notes, is a speaking testimony to the arguments advanced by the learned senior counsel that there is no hitch in the law existed for the assessment years 1988-89 to 2002-03 in selling off long term capital loss against short term capital gain. When the statute provide such a freedom to the assessee, the Assessing Officer is not justified in making a further grouping of sources and to hold that long term capital loss must be set off first against long ten n capital gains. The Assessing Officer is in fact bringing out an order of priority of his own relating to the manner in which a loss has to be set off when the statute has not provided any such order of priority. The statute has not prescribed any order of precedence according to which the loss out of one source has to be set off against income from any other source. There is no provocation to visualize that the long term capital loss must first be set off against long term capital gains. That could only be an extreme case of logical argument. Such an argument cannot find support from the provisions of law contained in section 70 as it stood for the relevant time.
Thus, we find that the assessee had its right to set off the long term capital loss against short term capital gains for the reason that every transaction relating to the assets brought under the common head of income "capital gains" is to be treated as separate source of income. Every transaction is, for that matter, a source of income with reference to transfer of that asset. Further, during the relevant period, statute has not placed any distinction between long term asset and short term asset or for that matter long-term capital gains and short term capital gains. It was within the legitimate right of the assessee to choose the option which is more favourable to it so that it could avail the benefit of concessional rate of tax on the long term capital gains.
Therefore, the question is answered in favour of the assessee and against the Revenue. Therefore, we find that the orders of the CIT(A) are just and in accordance with law and the ground raised by the Revenue in both the appeals are liable to be dismissed.
In result, both the appeals filed by the Revenue are dismissed.
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