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Income Tax - Case Laws
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2016 (6) TMI 1412
Stay petition - stay was granted by the Tribunal for a period of 180 days with a condition that the assessee should make payment of 50% of the total demand - HELD THAT:- We find that on earlier occasion stay was granted by the Tribunal subject to payment of 50% of the outstanding demand i.e ₹ 3.46 Crores and the assessee had made this payment. Appeal was fixed for hearing on 05- 01-2016 and that day hearing could not take place for some reasons not attributable to the assessee and therefore, we feel it proper to grant extension of stay for a further period of 180 days from the date of expiry of earlier stay order or till the disposal of the appeal whichever is earlier.
We want to make it clear that the assessee should not seek adjournment during the course of hearing of this appeal without any valid and compelling reasons and if the assessee seeks adjournment without any valid and compelling reasons then the stay should stand automatically vacated.
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2016 (6) TMI 1411
Addition u/s 68 - CIT(A) discussed each and every cash credit entry and found the advances by 13 creditors as genuine and accordingly restricted the addition made on account of unexplained cash credit - appeal preferred by the Revenue against the order passed by the CIT(A) stands dismissed by the ITAT - HELD THAT:- CIT(A) discussed the creditworthiness and genuineness of each and every individual transaction and found 13 creditors as genuine - ITAT has arrived at the finding that the assessee has established the creditworthiness of the creditors to the extent he is obliged under the law to do so.
ITAT found that the creditors have accepted that they had advanced their respective credits to the assessee and also given the details of the sources of the deposit. ITAT opined that the assessee cannot be burdened with proof of 'source of source' and the cash credit cannot be held to be ingenuine by stretching the ingredients of Section 68 too far. We are of the considered opinion that the findings arrived at by the CIT(A), affirmed by the ITAT regarding identity of the creditors and creditworthiness and genuineness of the transactions remain findings of facts, which do not give rise to any substantial question of law. - Decided against revenue.
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2016 (6) TMI 1410
Addition u/s 40A(3) for cash payments made exceeding ₹ 20,000/- per day - HELD THAT:- In the case of the assessee, it is apparent that each and every transporter delivers the raw materials from the supplier in the factory premises of the assessee and collects transport charges at the place of delivery by cash. Further, most of the expenses relate to transportation cost such as fuel expense, driver expense etc., which has to be settled then and there in cash. The lorry drivers will not be able to refuel the lorry if he accepts cheque which would take some time for withdrawal of cash.
Most of the lorry drivers would not be having bank account to en-cash cheque. In these circumstances, payment by cash is inevitable - there is nothing on record to establish that the transport charges are paid to a single person above ₹ 20,000/- in cash in the case of the assessee. The genuineness of the payment is also not in dispute. Based on these facts and the detailed observations made by the learned Commissioner of Income Tax (Appeals), he has deleted the additions made under section 40A(3).
Disallowance under section 14A r.w.r 8D - investments made for acquiring the shares of the assessee’s sister concerns - HELD THAT:- As relying on LAKSHMI RING TRAVELLERS, COIMBATORE [2012 (3) TMI 464 - ITAT CHENNAI] we remit the issue back to the file of the learned Assessing Officer to verify as to whether the assessee had invested out of its non-interest bearing funds in its sister concerns or associate concerns for strategic reasons and if found so delete the addition made on that regard, however if found otherwise, pass appropriate orders as per merit & law, after affording sufficient opportunity of being heard to the assessee. It is ordered accordingly for all the relevant assessment years.
Addition u/s. 68 being unexplained cash credits - HELD THAT:- The source of advances is established in the case of the assessee. The advances are made to petty land owners for purchase of land from them. Since the assessee was not agreeable to the price determined by the State Govt., for acquiring those lands, the project was dropped and the advances made were returned and the same was re-deposited in the assessee’s bank account. The names & address of the intermediaries are also furnished by the assessee. All these facts could have been easily verified by the Revenue by examining the coordinators and the land owners of that area. Revenue has miserably failed to make any enquiries even at the preliminary level. Revenue has failed to prove the onus caste upon it for rebutting the explanation made by the assessee. In this situation, we are of the considered view that CIT (Appeals) has rightly given relief to the assessee by directing the learned Assessing Officer to delete the addition.
Deduction under section 80IA had to be granted on the income derived from the undertaking after all disallowances made by invoking the provision of Section 40A(3), 14A & 68 - HELD THAT:- It is needless to mention that section 80IA of the Act is a provision with fiction by which the benefit of deduction is granted towards the income earned by the assessee. Hence, for the purpose of computing deduction under section 80IA of the Act, section 40A(3) and 14A cannot be given effect. Therefore, to that extent the deduction will not be available to the assessee. Further, section 68 provides that any sum which is credited to the books of the assessee against which no explanation is satisfactorily offered, such sum so credited, will be charged to income tax as the income of the assessee. Thus the statute clearly provides that irrespective of any other factors this amount will be brought into the ambit of tax as a distinct income which is not disclosed. Further Section 68 of the Act is also provision with legal fiction, wherein the unexplained credit in the books of accounts of the assessee is deemed to be the unexplained income of the assessee. Therefore, we do not find any merit in this ground raised by the learned Authorized Representative. Accordingly, this ground raised by the assessee is hereby dismissed.
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2016 (6) TMI 1409
TDS u/s 194A - Co-operative Bank liability to deduct tax on the interest paid to its members - Non deduction of TDS - Whether the Tribunal is right in law in overlooking the established principle of ‘generalia specialibus non derogant’ vis-à-vis the specific provisions of Sec.194A(3)(viia)(b) and general provisions of Sec.194A(3)(v)? - HELD THAT:- We find that, the issues which arise for consideration in the present appeal are already covered by the decision of this Court in case of The Commissioner of Income Tax and others Vs. The National Co-operative Bank Limited [2016 (6) TMI 1118 - KARNATAKA HIGH COURT] we hold that the Assessee which is a co-operative society carrying on banking business when it pays interest income to a member both on time deposits and on deposits other than the deposits with such co-operative society need not deduct tax at source Under Section 194A by virtue of the exemption granted vide Clause (V) of Sub Section (3) of the said section.
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2016 (6) TMI 1408
Deduction u/s. 80IA(4)(i) - Assessee is engaged in the business of providing cargo facilities at Bangalore International Airport(BIAL) - whether the company ought to comply with the condition that it should be developing, operating and maintaining any “infrastructural facilities? - CIT(Appeals) accepted the contention of the assessee that BIAL is a statutory body for the purpose of section 80IA(4)(i)(b), being an entity established under the laws for the time being in force - HELD THAT:- As decided in assessee's own case [2015 (11) TMI 401 - ITAT BANGALORE] the appellant is entitled to the benefit of deduction u/s 80IA(4), since all the conditions set out by the section are fulfilled in the cargohandling operations under a BOT arrangement with BIAL being carried on by it. The addition made by the AO by rejecting the claim is cancelled, and the AO is directed to allow the deduction to the appellant u/s 80IA(4)(i).
As the very same grounds on which this Tribunal has held that BIAL is not a statutory body, have been considered by the Hon’ble High Court and have been accepted that it is a statutory body. Therefore, respectfully following the Hon’ble Hon'ble jurisdictional High Court Order, we do not see any reason to interfere with the order of the CIT(A).
Agreement entered with BIAL is for development, operation and maintenance of infrastructure facility u/s. 80IA(4) of the Income-tax Act. - Decided against revenue.
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2016 (6) TMI 1407
Deduction u/s 35(1)(iv) - expenditure incurred by the assessee for development of software products - Whether this expenditure pertains to the R & D activity of the assessee as per the provisions of section 35(1)(iv) r.w.s. 43(4)(ii)(a) of the Act wherein the definition of scientific research has been provided? - HELD THAT:- Since the proper record and other details are not available before us in respect of the actual nature of the expenditure in question therefore we cannot give a conclusive finding regarding the real nature of the expenditure incurred by the assessee whether it is incurred on R&D activity of the assessee or not.
In the facts and circumstances of the case, as well as in the interest of justice, we set aside this issue to the record of CIT (Appeals) for limited purpose of verifying the real nature of the expenditure incurred by the assessee whether it is for the R & D activity of the assessee. The CIT (Appeals) has to decide this issue after verification and examination of the relevant record and in the light of the decision of Hon'ble jurisdictional High Court in the case of Talisma Corporation Pvt. Ltd. [2013 (12) TMI 1419 - KARNATAKA HIGH COURT]. Needless to say the assessee shall be afforded an opportunity of hearing.
Nature of expenses - software application - revenue or capital expenditure - CIT- A allowed claim - HELD THAT:- There is no dispute that the assessee claimed the said expenditure was incurred for acquiring the application software to enable carrying on its business more efficiently and smoothly.The finding of the learned CIT (Appeals) is contrary to the claim of the assessee and further the learned CIT (Appeals) has not referred any specific evidence or record on the basis on which he has come to the conclusion that the application software in question is a stock in trade and was actually exported to the clients. In view of the above facts and circumstances, we set aside this issue to the record of the learned CIT (Appeals) for proper verification of the record and giving a specific finding on this issue. Needless to say the assessee be afforded an opportunity of hearing.
Deduction under Section 10A - DR submitted that when the assessee did not claim the deduction under Section 10A in the return of income then, after expiry of the limitation for making such declaration under Section 10A(8), the assessee is not eligible to claim the deduction - HELD THAT:- There is no dispute that initially the assessee did not claim the deduction under Section 10A as it has filed return of income by declaring loss. Subsequently when the Assessing Officer proposed to make certain addition, the assessee withdrew the declaration under Section 10A(8) and the claim of deduction under Section 10A on the positive income assessed by the Assessing Officer. The revenue is taking a technical objection that after the expiry of the time period provided under Section 10A(8) the assessee cannot withdraw the earlier declaration and make a claim of deduction under Section 10A - There are precedents on this issue and the Delhi Bench of the Tribunal in the case of Moser Baer India Ltd.[2006 (11) TMI 245 - ITAT DELHI-D]held that the time limit provided under Section 10A(8) is only directory if the claim made during the assessment proceedings is legally admissible then the same cannot be denied merely because it was not made in the return of income. The eligibility of the assessee in the case on hand to claim exemption under Section 10A of the Act is not denied otherwise being a software export unit registered with STPI. Therefore, we do not find any error or illegality in the order of the learned CIT (Appeals), the same is upheld.
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2016 (6) TMI 1406
Assessee is not interested to prosecute the matter - addition u/s 68 - Addition notice sent to the assessee at the address mentioned in Form No. 36 as well as the impugned order was returned back by the Postal Authority with the remarks “left” - HELD THAT:- The law aids those who are vigilant, not those who sleep upon their rights. This principle is embodied in well known dictum, “VIGILANTIBUS ET NON DORMIENTIBUS JURA SUB VENIUNT’. Considering the facts and keeping in view the provisions of rule 19(2) of the Income-tax Appellate Tribunal Rules as were considered in the case of CIT vs. Multiplan India Ltd. [1991 (5) TMI 120 - ITAT DELHI-D] we treat this appeal as unadmitted.
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2016 (6) TMI 1405
Interest receivable by the assessee from its Associate Enterprises (AEs) - calculated at the rate of 18% on the credit period beyond 180 days - assessee did not charge any interest on Exports Payments received after 180 days (overdue) from AE - Assessee pleaded though the Tribunal in principle agreed that if the assessee has to make the payments of imports some party then, receiving delayed export realization cannot be said to be bearing interest as assessee is already owing much more amount to its AEs on account of import payments - also contended that when the assessee is adopting a uniform policy of neither to receive the interest nor to pay the interest to its AEs, then, not only the parties or the dates on which the payment was receivable by the assessee is to be considered but the matter should be considered as a whole and the netting off of the interest payable and receivable be made - HELD THAT:- We find force in the above contention of the Ld. A.R. The matter is to be examined by the AO as a whole and if bench mark of 180 days is to be taken as the credit period without levy of interest then the AO should adopt the same criteria also in relation to the payments payable by the assessee to its AEs. Thereafter, the AO should do netting off of the interest payable and receivable and to make adjustments of the resultant amount of interest, if any, found, receivable by the assessee. With the above modified directions, the matter is restored to the file of the AO to examine and verify the facts and adjudicate the same as per the directions given above. Assessee appeal allowed for statistical purposes.
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2016 (6) TMI 1404
Exemption u/s 11 - Charitable activity u/s 2(15) - Scope of amendment to section 2(15) basis for cancellation of registration granted earlier u/s 12AA - HELD THAT:- Trust was carrying out activities in accordance with the statute under which it was created the same could be still considered to be non charitable in nature as per section 2(15) - we find has remanded the issue to the Tribunal for fresh examination of this aspect and has further categorically stated that anything observed in the order shall not be taken to be an expression on the merits of the controversy.
At this juncture it is pertinent to point out that even the CBDT has vide its Circular No. 21/2016 dt. 27/05/2016 clarified that registration of a charitable institution granted u/s 12AA should not be cancelled merely on account of the proviso to section 2(15) coming into play.
Sections 11 and 12 exempt income of charitable trusts or institutions, if such income is applied for charitable purpose and such institution is registered under section 12AA of the Act.
An entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggregate value of receipts from commercial activities, The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f. 01-04-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20% of the total receipts instead of the fixed limit of ₹ 25,00,000/- as it existed earlier.
The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 1 of the Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1st April, 2009 and accordingly applies in relation to the assessment year 2009- 10 onwards.
It shall not be mandatory to cancel the registration already granted u/s 11 to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2(15) of the Act is exceeded in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut-off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act.
The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12 (3) and 12AA(4) after carefully examining the applicability of these provisions.
We hold that amendment to section 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under section 12AA of the Act. Thus we set aside the order under appeal and hold that CIT was not justified in canceling the registration in the present case. Appeal of assessee is allowed.
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2016 (6) TMI 1403
Exemption u/s 11 - charitable activity u/s 2(15) - HELD THAT:- We hold that the assessee trust is carrying out charitable activity of advancement of public utility and the business activity carried out by it are incidental to the attainment of its main object and thus the proviso to section 2(15) is not attracted in the assessee case. Assessee is entitled to claim exemption u/s. 11 and the surplus earned by the assessee cannot be subjected to tax as income of the assessee.
Following the decision in the case of Hoshiarpur Improvement Trust [2015 (9) TMI 902 - ITAT AMRITSAR] has allowed the appeal of the assessee and directed that assessee will be eligible to get exemption under section 11 of the Income Tax Act. - Decided against revenue.
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2016 (6) TMI 1402
Expenditure of foreign travel to subsidiary companies - HELD THAT:- We are not convinced with the indirect beneficiary contribution by the subsidiary company in the progress of the assessee company on global business activities - expenditure of foreign travel to subsidiary companies shall be separately allocated to cost of project of subsidiary company and holding company and upheld the order of the CIT (A) on this ground as the CIT (Appeals) discussed the issue and gave finding on subsidiary company and restricted the disallowance. As the balance amount was not adjudicated, we remit the issue to the file of Assessing Officer to verify the genuineness of transaction and allow the claim. The ground of the assessee is partly allowed.
Addition paid by the assessee to Bombay Stock Exchange in connection to the amalgamation of business - HELD THAT:- The assessee company incurred this expenditure to merge M/s. Elgi Industrial Products Ltd for the smooth conduct of business and prime face this fees is paid once in life time for amalgamation of the company with enduring benefits we are of the opinion the expenditure has to be apportioned and transferred to profit and loss account as per the provisions of Sec. 35DD and we direct the ld. AO to allow apportioned claim in the previous year being the first year and this ground of the assessee is partly allowed.
Disallowance of expenditure as legal and professional charges paid to overseas parties - HELD THAT:- The expenditure is in the nature of legal and professional fee paid for services of translation, documentation, corporate matters and associated filing and such expenditure is wholly and exclusively for the business purpose and expenditure is genuine and relied on the decision of Apex Court. Assessee company acquired of Shares of M/s. Belair SA at Paris is for conducting business in Europe region and activity does relate to investment for enduring value and the expenses on acquisition of shares of foreign company directly or indirectly takes the character of capital in nature and shall be part of Business acquisition. Therefore, considering the apparent facts, necessity of expenditure and overseas payment, we are of the opinion that the professional charges paid to M/s. Stehlin & Associates, Paris in connection with acquisition is capital expenditure and we upheld the order of CIT() on this ground and the ground of the assessee is dismissed.
Remand report as laid out under Rule 46A of Income Tax Rules, 1962 while adjudicating the issue of foreign travel expenses - HELD THAT:- CIT (Appeals) has elaborately discussed on breakup of expenditure and business activities and granted partial relief. Assessee has submitted information before CIT (Appeals) which the ld. AO could not verify and ld. CIT (Appeals) has not called for comments or remand report and not complied the provisions of Rule 46A. We therefore, set aside the disputed issue to the file of the ld. Assessing Officer for limited purpose to verify the genuineness of statements filed in the appellate proceedings and the ld. Assessing Officer shall provide adequate opportunity of being heard to the assessee before passing the orders and the ground of the Revenue is allowed for statistical purpose.
Holyroyd Machinery replaced comes under ''Repairs and Maintenance'' - allowable expenditure u/s.37 - whether it is clearly a new machinery installed? - HELD THAT:- As explained that the replacement of parts play a important role in machinery and can work independently and shall provide perpetual enduring benefit and increase the life of existing machine. AR substantiated his arguments with evidence of photographs of units and also upgrade proposal of the company and relied on judicial decision of Apex Court. Apparent facts, functional test, submissions and judicial decisions set aside the order of CIT (Appeals) and remit the entire disputed issue to the file of AO as the assessee has submitted photographs and material before us and which need to be examined with technical report and pass the order on merits after providing adequate opportunity of being heard to the assessee and the ground of the Revenue is partly allowed for statistical purpose.
Allowance of carry forward depreciation loss - Whether CIT (Appeals) erred in not deciding the issue and remitting it back to the ld. Assessing Officer in violation of the provisions of Sec. 251(1)(a)? - HELD THAT:- We considered the findings of the ld.CIT(A) on the judicial decisions of Hon'ble High Court and Supreme Court and ld. CIT (Appeals) has only directed the ld. AO to examine the claim and allow as per law. CIT (Appeals) has only directed the ld. AO with a condition to verify and the power of Commissioner of Income Tax (Appeals) are co-terminus with AO and we considering the facts are of the opinion that the action of Commissioner of Income Tax (Appeals) is justified and we dismiss the ground of the Revenue.
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2016 (6) TMI 1401
Disallowance of payment incurred for the transfer of land paid to the Bank of Baroda and payment of workmen compensation for settlement - Company is in the process of winding up - HELD THAT:- It cannot be disputed that the property in dispute was mortgaged with Bank of Baroda. They also taken the symbolic possession of the assets charged to them under the provisions of SARFAESI 2002 which is evidenced from the letter dated 7.7.2007 kept. Further, they have also given possession notice vide letter dated 7.7.2007 which is kept on record at page 3 of the paper book. Thus, it cannot be disputed that unless the assessee had settled the dispute with Bank of Baroda, the sale transaction with M/s. Alliance Mall Developers Co. Pvt. Ltd. vide sale deed dated 11th June, 2008 could not have materialized, there would perhaps have no question of capital gains.
The expression “in connection with such transfer” is, in our opinion, certainly wider than the expression “for the transfer”. Once again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if, without removing any encumbrance, sale or transfer could not be effected, the amount paid for removing that encumbrance will fall under clause (i). In this case, sale of transfer could not be effected and the amount paid for removing that encumbrance will fall under clause (i) of sec.48 of the Act.
We are of the opinion that the above two payments to be allowed. It is needless to say that had the assessee not paid to the workmen, who had taken the possession of factory premises of the assessee could not be allowed to transfer the said capital asset. However, if the assessee had claimed any amount out of this, in any assessment year , same to be reduced from this amount by AO while giving effect to this order. Accordingly, the grounds relating to these issues are allowed.
Disallowance of commission payment - contention of the ld. DR is that these payments are not properly vouched and doubted the services rendered by the recipient - HELD THAT:- CIT(Appeals) has given a finding that the assessee has not produced brokers to show that they have rendered services. The power of the CIT(Appeals) is coterminous that of the AO and he should have issued summons, once the assessee has furnished the names and addresses of the parties. This exercise has not been done by the revenue authorities. Hence, out rightly disallowing the entire commission payment is not appropriate. However, there is lapse on the assessee also as noticed by the AO as mentioned in earlier para. In our opinion, the payment of commission is very excessive. As per trade practice, when the transaction of such volumes took place, usually in real estate field, commission payment is at one percent of the sale value of the property would be paid. Accordingly, we direct the AO to allow one percent of the total sale value of the property as commission payment towards transfer of property. This ground is partly allowed.
Disallowance of claim of set off of business expenditure against long term capital gains - According to the revenue authorities, the assessee has stopped manufacturing of yarn since 1993 and the liabilities and expenditure relating to those earlier years have been claimed as expenditure in the assessment year 2009-10 - HELD THAT:- There is nothing on record to show that the assessee has completely closed the business of the assessee. However, the copy of the assessment order for the assessment year 2012-13 to show that wherein the AO taxed the cessation of liability u/s.41(1) of the Act. The ld. AR submitted that the expenditure claimed by the assessee was capitalized in the assessment year under consideration. Being so, in our opinion, this issue requires re-examination by the AO. Since the above evidence was brought on record, we suggest that the company only withhold the business activity due to strike and other factors and there was no intention to carry on the business activity, for the time being and it was not wound up the business. Therefore, issue is to be reexamined by the AO, whether it is reasonable or excessive. Accordingly, he is directed to disallow only that portion of the expenditure if he finds any amount excessive or unreasonable. Further, regarding the claim of bad debts, the same to be examined in terms of sec.36(1)(vii) r.w.sec. 36(2) of the Act. With regard to statutory liability like sales tax, ESI, PF etc., is to be allowed on actual payment basis in the assessment year under consideration in terms of sec.43B of the Act. Hence, we remit this issue to the file of the AO for fresh consideration.
Business income in the form of interest receipts - business loss arising out of the business activities should be set off against the capital gain on sale of business assets - HELD THAT:- The assessee deposited certain fund out of the amount received from sale of land and interest earned from that deposit as income from other sources and in view of the judgment in the case of Tuticorin Alkali Chemicals And Fertilizers Ltd. v. CIT [1997 (7) TMI 4 - SUPREME COURT] wherein it was held that interest earned by the assessee on short term deposit in bank out of term loan is income under the head ‘other sources’. Hence, this issue is dismissed.
Disallowance of the claim of expenditure towards payment of commission at 100% and site clearing charges at 75% while calculating long term capital gains - HELD THAT:- The assessee had to engage personnel specially skilled in doing such kind of jobs who were illiterate and working in an unorganized manner. These personnel did not normally come and work regularly but were coming and working erratically. Besides they had to be paid in cash only. However the CIT (A) has allowed only 25% of the expenditure for the cleaning charges. The CIT (A) ought to have allowed fully the expenditure. According to the ld. AR the CIT (A) wrongly allowed only 25% Learned Assessing Officer has grossly erred in disallowing all the claims of the Assessee on the commission payment made to facilitate conclusion of the sale of immovable property u/s 48(i) and site clearing charges also under sec. 48(i) of the Act, drawing untenable non-existent inference, purely based on suspicions, surmises, conjectures, presumption of bad faith etc., which runs contrary to the facts obtaining very much from the return of income and explanations offered.
Disallowance of expenses which was no nexus with manufacturing of yarn - HELD THAT:- This issue is remitted to the AO to disallow only the expenditure which he finds excessive or unreasonable.
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2016 (6) TMI 1399
Taxable income - interest income credited to Work-in- process (i.e. WIP) (on the ongoing phase) - as attributable to the WIP, and should be reduced from amount of WIP of the project undertaken by the assessee in its proprietorship unit namely M/s Silver Developers - HELD THAT:- Impugned interest is a period item. Under these circumstances, it can clearly be said that assessee had earned pre-decided amount of interest as the time passed. It is further noted by us that factually also GIPL had paid interest to the assessee as was stipulated in the agreement and that too after deducting tax at source. The said amount of TDS has been admittedly claimed by the assessee in its return of income.
As clearly establish that the impugned interest amount should be treated as income of the assessee for the period under consideration. It is also noted that with respect to interest amount received from M/s Industrial Finance Securities Pvt Ltd, Ld. Counsel fairly stated during the hearing that this company is an independent party unconnected with this project, and therefore this interest income is not relatable to WIP, but it was inadvertently reduced from WIP, but it should be separately taxed as business income. We uphold the order of the Ld. CIT(A) for treating the total interest income as taxable in the year under consideration and also uphold his action in treating same as ‘income from business’ in the given facts and circumstances of the case. Thus, this ground is dismissed.
Addition on account of interest expenses holding the same as business expenditure as against the capital expenses attributable to WIP - HELD THAT:- As already held in earlier part of our order that interest income is not part of WIP and it was assessable separately as business income of the period under consideration. Thus, drawing same analogy, we find that interest expense is also not part of WIP but business expense of the assessee for the period under consideration. The AO had also unfortunately followed double standards while passing the assessment order. When he had treated the ‘interest income’ as separate income and did not choose to reduce it from the cost of WIP, then there was no justification on his part to treat ‘interest expense’ as part of WIP and disallow the same. Thus, taking into totality of facts and circumstances of the case, we find that order of Ld. CIT(A) is well reasoned and thus Ld CIT(A) is justified in treating the interest expenses as having been incurred in the regular course of business and deductible in full as business expense of the period under consideration. We do not find any need to interfere in the findings of the Ld. CIT(A) and the same are upheld. This ground of revenue is dismissed.
Notional interest attributable to interest free deposits while computing the income under the head House Property of the assessee during the year - HELD THAT:- AO nowhere held that actual rent received by the assessee was not annual let out value and nowhere he had given any other comparables to determine the ALV. Actual rent received was required to be accepted as ALV. The law does not permit the addition of notional interest on the ground of interest-free deposits received from the tenant. The law in this regard has been clearly explained in the various judgments as has been relied upon by the CIT(A), as reproduced above. No contrary judgment was brought to our notice by the Ld. DR. Under these circumstances, we do not find any reason to interfere in the order of Ld. CIT(A) and therefore same is upheld ground no.2 of revenue’s appeal is dismissed.
Treatment to hire charges income received - “income from house property” or “income from other sources” - AO treated the rent receipts towards amenities from the tenant in the form of hire charges as income from other sources as the assessee had entered into separate agreements for the hiring amenities and therefore the amount received by the assessee was towards utilization of amenities and not for the utilization of house property - HELD THAT:- The perusal of particulars of items provided under the amenities, as has been discussed by the Ld. CIT(A) in his order, show that these amenities are of the nature that they constitute integral part of the house building e.g. Electrical Panels, AHU rooms and fire control system, water tanks, elevator, etc. In our considered view, all these items are nowadays considered as items of basic necessities. It has been contended before us that the impugned premises could not have been put to use without these amenities. In any case, the main intention of the assessee was stated to be for exploiting the property and not to render any service with the help of these amenities. We do not find anything indicating that services provided with the help of these amenities were in any manner distinct from letting out of the property. Under these circumstances, hire charges need not necessarily be separately assessed from rental income. Thus, both of these can be assessed under the head “income from house property” as part of total rental income. We find that the order of Ld. CIT(A) is justified on facts and law both.
Proportionate disallowance of expenses which would have been incurred towards the property which was either let out or gifted - AO made disallowance @ of 25% of the total expenses on the basis of area occupied by the let out properties - HELD THAT:- CIT(A) has made item wise analysis of all the expenses and found that none of these expenses were related to the let out properties or gifted properties. If any expenses were incurred on such type of properties then the same were recovered. It is further noted that Ld. CIT(A) has analysed other expenses also for example professional fee and various other expenses before giving the factual findings that none of these expenses related to let out properties.
Denial of natural justice - addition debited under the head purchases deleted by CIT-A - CIT(A) had considered additional evidences in violation of Rule 46A of Income Tax Rule 1962 - HELD THAT:- During the course of hearing, it was put to the Ld. DR by point out that what are those additional evidences which have been referred by the Ld. CIT(A) in his order. Ld. DR was not able to point out any additional evidences. Even on merits Ld. DR was not able to controvert or contradict the factual findings given by the Ld. CIT(A). It is seen that Ld. CIT(A) has analysed entire facts and similar expenses have been allowed in earlier year A.Y. 2008-09 in the order passed u/s 143(3) by the AO himself. It was further found by the Ld. CIT(A) that the impugned expenses were not related to the joint venture project and therefore there were no reasons for transferring these expenses to the WIP account. Under these facts, we find that Ld. CIT(A) has rightly deleted the disallowance made by the AO. We do not find any reasons to interfere in the findings recorded by the Ld. CIT(A) and therefore these are upheld and consequently ground no.1 of Revenue’s appeal is dismissed.
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2016 (6) TMI 1398
Levy of processing fees u/s 234E - intimation u/s 200A - HELD THAT:- As decided in Sibia Healthcare Private Limited vs. DCIT [2015 (6) TMI 437 - ITAT AMRITSAR] issue is whether such a levy could be effected in the course of intimation under section 200A. The answer is clearly in negative. No other provision enabling a demand in respect of this levy has been pointed out to us and it is thus an admitted position that in the absence of the enabling provision under section 200A, no such levy could be effected. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, as also bearing in mind entirety of the case, the impugned levy of fees under section 234 E is unsustainable in law. We, therefore, uphold the grievance of the assessee and delete the impugned levy of fee under section 234E - Decided in favour of assessee.
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2016 (6) TMI 1397
Maintainability of appeal - low tax effect - tax effect below prescribed monetary limit - HELD THAT:- Since, the tax effect is less than ₹ 10,00,000/- for filing the appeal before the Tribunal, as contained in CBDT instruction No.21 of 2015, dated 10/12/2015 (F No.279/Misc./142/2007IT(PT), applicable with retrospective effect, the appeal of the Revenue is not maintainable, therefore, dismissed.
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2016 (6) TMI 1396
Gain on sale of Land - LTCG or business income - whether hares held as investments in the books of the appellants and was never converted into stock-in-trade - HELD THAT:- As per Tribunal’s order for the assessment year 2005-06 [2010 (10) TMI 1205 - ITAT BANGALORE], all the shares which were held by the assessee as stock-in-trade up to that year were converted into investments and nothing has been brought on record by the revenue to establish that after this assessment year, any purchase of shares by the assessee was for the purpose of dealing in shares.
Under these facts, hold that the shares were held by the assessee as investments and therefore, the gain arising to the assessee in the present two years on sale of shares is liable to tax as capital gains and not as business income, but whether such capital gain is short term capital gains or long term capital gains, it depends upon the holding period of shares and for that, it is required to examine the date of purchase and date of sale of the shares. Since this aspect was never examined by the lower authorities and facts are not available before me on this aspect,feel it fit and proper to restore back this factual aspect to the file of the AO and accordingly, restore this matter back to the file of the AO for the limited purpose of examining the date of acquisition of shares and date of sale of shares to decide as to whether the gain arising on sale of such shares is short term capital gains or long terms capital gains - Appeals of the assessee are allowed for statistical purposes
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2016 (6) TMI 1395
Deduction u/s 36(1)(iii) - interest expenses relatable to interest free advances - ITAT allowed the deduction - HELD THAT:- In the judgment in CIT v. V.I.Baby and Co. [2001 (10) TMI 58 - KERALA HIGH COURT] a Division Bench of this court considered this provision and held that in a case where interest free advance was given by the assessee and deduction is claimed, the question to be considered is what is the benefit that is derived by the assessee by giving such interest free advance. It was also held that so long as the assessee is not the beneficiary of the investments made by the partners, their relatives and the sister concerns from out of the interest free advances, the Assessing Officer is perfectly justified in disallowing interest in proportion to the advances made.
Subsequently, the Honourable Supreme Court also had occasion to consider the provisions of Section 36(1)(iii) in the judgment in S.A.Builders Ltd. v. CIT (Appeals) [2006 (12) TMI 82 - SUPREME COURT]. In that case, after a detailed examination of the provisions, the Supreme Court held that when a claim for deduction under Section 36(1)(iii) is made, the authorities should enquire as to whether the interest free loan was given as a measure of commercial expediency and on facts if it is so found, deduction is liable to be allowed. The court also explained that the expression “commercial expediency” is an expression of wide import and includes such expenditure that a prudent businessman incurs for the purpose of business and that such expenditure may not have been incurred under any legal obligation.
We set aside the orders impugned and answering the questions of law in favour of the revenue, these appeals are disposed of remitting the matter to the AO who shall reconsider the cases of the assessee, after issuing notice to the parties.
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2016 (6) TMI 1394
TDS u/s 194A - Non deduction of TDS u/s 40(a)(ia) on bill discounting charges - According to the AO, this bill/discounting charges are interest expenses as per the provision of section 2(28A) of the Act and therefore the assessee was liable to deduct TDS - HELD THAT:- As decided in own case [2014 (1) TMI 1484 - ITAT KOLKATA] discounting charges of Bill of Exchange or. factoring charges of sale cannot be termed as interest. The assessee in the present case is acting as an agent. Now what is this is to be seen. According to us, a Del Credere is an agent, who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons for whom he can stand guarantee. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for is undertaking is a guarantee.
A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract, for example, if the buyer refuses to take delivery. In the present case before us the assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources. The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s. 194A of the Act. Accordingly, these discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges. - Decided in favour of assessee.
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2016 (6) TMI 1393
Unearned income as per sec. 145(2) - any class of income to be disclosed and notified in the Central Government by Official Gazette - HELD THAT:- Revenue earned by the assessee from software and consultancy services was recognized on delivery of goods / services, that as per the existing scheme, M/s. Satyam Education Services Limited was assigned the responsibility to 'sign off’ on completion of the project in the case of all customers, that the assessee-company was following the AS 9 prescribed by the Institute which was in conformity with the provisions of section 145(2) of the Act. The assessee was regularly following the 'project completion method, which is a recognized method. The completion of each project is determined by 'sign off’. There is nothing on record to show that there was any inconsistency in this regard. The CIT(A) found that the deferred income amounting to ₹ 39,68,208 was carried forward and was duly taken into account in the next assessment year. In the circumstances, therefore, we see no reason to interfere with the conclusions reached by the CIT(A)
There is no difference pointed out by the Revenue, we are of the opinion that the CIT(A) has rightly deleted the addition under the head "unearned income”. The mere submission on the part of Revenue that the same has not attained finality is no ground in itself for not placing reliance upon the same. Accordingly, the findings of the CIT(A) are upheld and the ground is decided against the Revenue.
TDS u/s 195 - expenditure incurred on networking - remittance towards overseas services - assessee explained the networking and communication cost and the category of expenditure incurred outside India and the said provisions shall not apply - AO relied on the legal provisions of Sec. 40(a) (i) of the Act and double taxation u/s.90(2) of the Act considered the provisions of TDS are mandatory in respect of networking, communication were services are outside India - HELD THAT:- As decided in own case [2012 (11) TMI 1151 - ITAT CHENNAI] payments made for connectivity for transmission of data would not fall into the category 'royalty' or 'fees for technical - there is no iota of doubt that the payments in question made by the assessee cannot be subjected to the applicability of TDS provisions contained in the “Act”. Therefore, in view of the same and in order to maintain consistency, we rely on the above said order of the ITAT and decide the grounds against the Revenue.
TDS u/s 195 - Overseas expenditure on recruitment - Departmental Representative explained that assessee has not proved the nature of expenditure incurred outside India and also no evidence was produced. AR explained that is expenditure in incurred for Branch Office at Australia which do not have permanent establishment in India and such payments are not in the nature of technical services or technical knowledge. We on perusal of the assessment order, found that the ld. Assessing Officer has not discussed on the permanent establishment or the type of expenditure incurred with complete details and the findings of assessment order that the assessee has failed to provide details of TDS and summary of expenditure incurred - matter has to be re-examined to verify to the expenditure and genuineness of permanent establishment and business connection of the assessee. Hence, we remit entire issue to the file of Assessing Officer to verify the claim and pass the order. This ground of the Revenue is allowed for statistical purpose.
Allowability of Employee Stock Option Cost (ESOP) - revenue or capital expenditure - only contention of the Department that the expenditure is in the nature of capital in nature and the decision relied by the CIT (Appeals) has not attained finality - HELD THAT:- We perused the order of CIT (Appeals) and the submissions of both counsels and found that ESOP are in the nature of business expenditure and it takes the characteristic of staff welfare and the shares are issued to the employees to work in the best interest of the assessee. These shares are allotted through SEBI guidelines and expenditure is in the nature of Revenue expenditure and claimed deduction and ld. Authorised Representative supported his arguments with decision of Jurisdictional High Court in the case of CIT vs. PVP Ventures Ltd [2012 (7) TMI 696 - MADRAS HIGH COURT] wherein it held that staff welfare expenditure incurred by the assessee in respect of Employees Staff Option Plan as per SEBI guidelines is an ascertained liability and is allowable as expenditure in computation of income. Considering the jurisdictional High Court decision, we uphold the order of Commissioner of Income Tax (Appeals) and allow the expenditure. The ground of the Revenue is dismissed.
Disallowance of depreciation on good will - assessee claimed depreciation on the goodwill @25% under the block of assets - HELD THAT:- The goodwill takes the characteristic of separate block and assessee has paid the money over and above the value of the assets to the seller and such excess amount is the goodwill classified and falls within the explanation of Sec. 32(1)(ii) of the Act. The Hon’ble Apex Court in the case of CIT vs. SMIFS Securities Ltd [2012 (8) TMI 713 - SUPREME COURT] has held that principle of ejusdem generis would strictly apply while interpreting said expression which finds place in Explanation 3(b). “Goodwill’’ is an asset under Explanation 3(b) to Sec. 32(1) of the Act and dismissed the appeal’’. We, respectfully following the Apex Court decision, upheld the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue.
Profit on IP/VPN Business sold to Sify Communications Ltd (SCL) - business income OR long term capital gains on slump sale - HELD THAT:- We on perusal of order of Commissioner of Income Tax (Appeals) found that the assessee has placed more reliance on the valuation report of Deloitte Haskins & Sells and sold the units to subsidiary company M/s. Sify Communications (SCL) and it was explained that sale consideration is based on future earning capacity and earning before interest and depreciation but not on individual value of assets. Under sec. 2(42C) of the Act, the slump sale is defined as ‘’sale for lumpsum consideration without assigning any value to he individual assets’’. At the time of hearing, the ld. Authorised Representative argued that even if some assets and liabilities are not transferred it will be a slump sale. Prime facie it is not clear whether sale is by a lock, stock and barrel or assigning the value of individual assets. Considering apparent facts, valuation report and decisions, we are of the opinion that the matter has to be reexamined. We remit the disputed issue to the file of the Assessing Officer to consider afresh the grounds of the Revenue and allow the ground for statistical purpose.
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2016 (6) TMI 1392
Set off losses (depreciation/business) pertaining to non-10A unit against profit of 10A unit - HELD THAT:- Question of law is covered by the judgment of this Court in the case of Commissioner of Income-Tax & Another vs. Yokogawa India Ltd. & Ors. [2011 (8) TMI 845 - KARNATAKA HIGH COURT]
When the question is already covered by the decision of this Court, we do not find any substantial question of law would arise for consideration. Hence, the present appeal is dismissed.
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