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Income Tax - Case Laws
Showing 221 to 240 of 771 Records
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2013 (11) TMI 1336 - ITAT MUMBAI
Validity of action of CIT u/s 263 of the Income Tax Act – Assessee was engaged in the business of production of films had shown two films i.e. "welcome" and "Full N Final" as being under production during the year and the one film i.e. "Phir Hera Pheri" had been released during the year - Examination the letter of intent of IDBI bank makes it clear that bank had advanced foreign currency loan specifically for the purpose of meeting the part of the cost of production of these two films and the loans were secured as first charge on the negatives of the proposed films and there were also some conditions prescribed which included a separate laboratory agreement for film processing with undertaking that no print of the film could be released to any firm or company unless authorized by the bank in writing and physical progress of production was to be intimated to the bank from time to time and work had to be carried out in accordance with the time schedule prescribed in the agreement – Held that:- Foreign currency loan had been taken specifically for the production of two films and could not be utilized for any other project - Order passed by AO was erroneous and prejudicial to the interest of revenue as he accepted the explanation of assessee that the loans were of general purpose loans without any examination and application of mind - The interest on borrowings which had been specifically taken for the production of two films has to be considered as part of cost of production in view of definition of cost of production given in the Explanation to Rule 9A. Therefore allowing the interest as deduction even though the films were not released during the year was erroneous and prejudicial to the interest of revenue – CIT has correctly applied section 263 of Income Tax Act – Decided against the Assessee.
Mandatory application of Rule 9A – Held that:- Rule 9A is the rule framed by the board for computation of income from exhibition of feature films - Such rules framed by the board are binding on the authorities below and therefore it could not be said that such rules are not to be followed mandatorily – As per Hon'ble Supreme Court in case of Joseph Valakuzhy [2008 (5) TMI 3 - Supreme court], it has been held that such rules framed by the board are binding on the authorities below and therefore it could not be said that such rules are not to be followed mandatorily.
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2013 (11) TMI 1335 - ITAT MUMBAI
TPA - Allowance of usance interest and BLC interest as expenditure to the assessee - Machines, accessories and parts thereof were imported by the assessee company from its holding company Ricoh, Japan during the course of its normal business - As per the relevant bills of lading, the assessee was liable to pay interest to Ricoh, Japan for the delay in payment up to a period of 180 days - The assessee company had availed BLC from Citi Bank and as per the terms of the said credit, the Citi Bank was making the payment to Ricoh, Japan on behalf of the assessee company after a period of 180 days in Dollar terms and the said credit was subsequently repaid by the assessee again in Dollars along with interest. The usance interest to Ricoh, Japan and interest from BLC to Citi Bank was agreed to be paid at international libor – Held that:- Expenditure on account of usance interest and BLC interest was incurred by the assessee wholly and exclusively for the purpose of business and it cannot be said by any stretch of imagination that it was a case of transfer of its profits by the assessee company to the parent company Ricoh, Japan in the guise of the said interest in order to avoid the tax liability as alleged by the A.O. especially when the relevant international transactions of the assessee company with Ricoh, Japan were accepted by the transfer Pricing Office in its order passed u/s 92(3) as made at ALP – Decided against the Revenue.
Treating the bank interest on deposits as ‘Business income’ instead of ‘Income from other sources’ – Held that:- Deposits with Bank were kept by the assessee as its business necessity to obtain the performance guarantee in favour of the clients and the ld. D.R has not been able to controvert/rebut this finding recorded by the ld. CIT(A) - Once it is found that the fixed deposits with Bank were kept by the assessee for the purpose of its business, the interest earned on the said deposits has to be treated as business income of the assessee – Decided against the Revenue.
Allowability of loss due to fluctuation in foreign exchange – Held that:- Claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in first ground above – Since the first ground is already decided in favor of assessee, allowed the consequential relief due to the assessee on account of foreign exchange fluctuation loss relating to the said interest – Decided against the Revenue.
Taxability of interest on advance made on accrual basis - Advance to M/s CEAT Tyres Ltd – Held that:- Income Tax is a levy on income and Income Tax Act takes into account points of time at which the liability to tax is attracted viz. the accrual of income or its receipt. If the right to receive a particular income is vested in the assessee as per the agreement or understanding, the same can be said to have accrued to the assessee in the relevant year unless such right is waived by him as a result of revised agreement or understanding - Nothing has been brought on record in the present case either before the authorities below or even before the ITAT to show that interest chargeable by it on the advance to M/s CEAT Tyres Ltd. as per the agreement was actually waived in the year under consideration - On the other hand, a civil suit was filed by the assessee against M/s CEAT Tyres Ltd. to recover the advance along with interest which was pending before the Hon'ble Bombay High Court - Having regard to all these facts of the case, income on account of interest receivable on advance paid by the assessee to M/s CEAT Tyres Ltd. had accrued to the assessee in the year under consideration and the same was taxable in the hands of the assessee as rightly held by the A.O. – Decided in favor of Revenue.
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2013 (11) TMI 1334 - ITAT BANGALORE
International transaction u/s 92 of the Income tax act - Assessee rendered services of looking after the customs clearance and handling insurance and installation of equipment imported from Tellabs Denmark - Part of the on-shore contract in so far as it relates to customs clearance and installation thereafter is claimed to have been assigned by Tellabs Denmark to the Assessee. The claim of the Assessee is that effect of such assignment is that the portion of the said contract is between the Assessee and PGCIL both of whom are residents and therefore one of the requirement of Sec. 92B(1) is not satisfied – Held that:- Requirement for application of Sec. 92-B (1) of the Act is that the international transaction should be between two associated persons – Further, the requirement of either or both the parties to the transaction being non-resident - PGCIL has consented to the assignment of the portion of Onshore Agreement by Tellabs Denmark to the assessee with a specific condition that the Assignment will not amount to Novation of contract between PGCIL and Tellabs Denmark. Section 62 in The Indian Contract Act, 1872 lays down the effect of novation, rescission, and alteration of contract. It lays down that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred. If one wants to transfer the burden of a contract as well as the benefits under it, one has to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well - Provisions of Sec. 92 were applicable to the assignment of the portion of the onshore contract by Tellabs Denmark to the Assessee
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2013 (11) TMI 1333 - ITAT DELHI
Allowance of deduction on commission paid to Managing Director u/s 36(ii) of the Income Tax Act – Held that:- Reliance has been placed upon the judgment in the case of AMD Metplast P.Ltd.[ 2011 (12) TMI 320 - Delhi High Court], wherein it has been held that in terms of the board resolution the Managing Director was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. MD was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof.
In the present case, Shri Raj Kumar Bardeja was the Managing Director of the assessee company who had been paid salary and commission in terms of Board’s Resolution - The assessee has deducted the tax at source under Section 192 of the Act treating the commission as part of salary. Shri Raj Kumar Bardeja has disclosed the income under the head ‘salary – Deduction of commission was allowed u/s 36(1)(ii) of the Income Tax Act.
Addition on account of remission/cessation of liability under Section 41(1) of the Income-tax Act - Assessee could not produce the confirmation from these three creditors – Held that:- Relying upon the judgment in the case of Uttam Air Products (P) Ltd [2004 (10) TMI 284 - ITAT DELHI-C], it was held that Revenue has no material or evidence to substantiate that the said supplier had given up its claim against the assessee. The onus to bring on record such material or evidence is on the Revenue - On the basis of the facts and material as found on record, it cannot be held that the liability had ceased to exist in the hands of the assessee in the absence of any material to the contrary – Decided in favor of Assessee.
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2013 (11) TMI 1332 - ITAT AHMEDABAD
Eligibility of exemption u/s 11(1) of the Income tax act - Activity of the assessee falls under the field of education – Held that:- It was observed by Hon'ble Apex Court in the case Sole Trustee, Loka Shikshana Trust [1975 (8) TMI 1 - SUPREME Court] that the word education has not been used in the wide and extended sense according to which every action of further knowledge constitute education. Hon'ble Apex Court observed that according to this wide and extended sense, traveling is education, because as a result of traveling you acquire fresh knowledge but this is not the sense in which the word education is used in clause 15 of Section 2 - Hon'ble Gujarat high court in the case of Gujarat State Cooperative Union[1992 (2) TMI 74 - GUJARAT High Court] observed that the observation of Hon'ble Apex Court was not intended to give a narrow or pedantic sense to the word education – The present case is not the objection of the revenue that the activity of the present assessee is like of an activity which are noted by Hon'ble Apex Court such as traveler gaining knowledge, victim of swindler and thieves becoming wiser and visitor of night club adding to the knowledge of hidden mysteries of life etc.
In the instant case, assessee is granting diploma also and as has been noted by the A.O. himself in the assessment order, more than 80% of the receipts are on account of continuing education, diploma and certificate programmes. All the four activities noted by the A.O. on this page of the assessment order are not like those activities which were noted by Hon'ble Apex Court to say that those activities cannot be covered by the term education in Section 2(15) - Issue involved in the present case is squarely covered in favour of the assessee by the judgement of Hon'ble Gujarat High court cited by the Ld. A.R. having been rendered in the case of Gujarat State Cooperative Union - Issue in dispute is decided in favour of the assessee and the activities of the assessee are in the field of education and the assessee is eligible for exemption u/s 11(1) – Decided in favor of assessee.
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2013 (11) TMI 1331 - ITAT AHMEDABAD
Interest as expenditure u/s 36(1)(iii) of the Income tax act – Money borrowed at higher rate and money lent at lower rate of interest – Allowability of interest – Held that:- Reliance has been placed upon the order of ITAT “D” Bench Ahmedabad in assessee’s own case titled as The Dy. CIT vs. Aditya Medisales Ltd [2013 (9) TMI 114 - ITAT AHMEDABAD ], which is decided in favor of assessee, wherein it was held that the assessee had its own substantial interest-free funds out of which advances have been made. An another noting has been made that the Revenue had not made out a case that interest bearing borrowed funds have been diverted to the group concerns by charging lower rate of interest – In the present case, for the years under consideration, in the absence of any contrary material placed on record from the side of the Revenue, there is no option but to follow the past precedent as held in assessee’s favour vide series of orders. Therefore, the result is that the ground as raised by the Revenue stood covered in assessee’s favour, hence dismissed – Decided against the Revenue.
Invocation of section 14A read with Rule 8D with retrospective effect from 1.4.1962 - For AY 2005-06, 2006-07, assessee had received the Dividend Income of Rs.1,30,66,287/- (AY 05-06) and Rs.1,50,76,485/- (AY 06-07) stated to be on equity shares of Sun Pharmaceuticals Ltd. Dividend was claimed exempt u/s.10(34) r.w.s. 115-O of IT Act - expenses like interest on the funds borrowed for investment relating to the earning of exempt income be disallowed u/s.14A of IT Act – Held that:- Relying upon the decision in the case of M/s.Daga Capital Management Pvt.Ltd[2008 (10) TMI 383 - ITAT MUMBAI ], it was held that the provisions of section 14A(2)&(3) of the I.T.Act being clarificatory in nature will apply retrospectively even though they have been introduced by Finance Act, 2006 w.e.f. 1.4.2007. Section 14A has been inserted retrospectively by Finance Act, 2001, with effect from 1.4.1962 – As provisions of section 14A(2) & 14A(3) are also retrospective in nature and in result Rule 8D will also apply accordingly.
In the present case, the Comm.(A) has held that in the absence of “fundflow- statement” an amount @ 10% of the dividend received was to be disallowed towards interest incurred towards investment in exempt income. Resultant an amount for AY 05-06 was taxed. For AY 06-07, the AO had held that interest bearing funds was utilized in financing the cost of acquisition of shares. The provision of Rule 8D r.w.s. 14A were applied - In the instant case, in the appeal before ITAT, remanded the entire issue of disallowance of interest and other expenditure under section.14A back to the file of the Learned Assessing Officer for fresh adjudication in the light of the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income-tax [ 2010 (8) TMI 77 - BOMBAY HIGH COURT]- Decided in favor of Revenue.
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2013 (11) TMI 1330 - ITAT MUMBAI
Classification of head of income - ‘Capital gain’ or ‘Income from Business and Profession’ on purchase and sale of shares – The holding period for the shares is less than 365 days - Character of the shareholding by the assessee, i.e., whether as ‘investment’ or as ‘trading stock’, for resale at a profit, as soon as a profit opportunity arises on the horizon – Held that;- The ‘long term capital gain’, i.e., the profit on shares held for more than 365 days is, at Rs.6.66 lacs only, as against Rs. 50+ lacs declared as ‘short term capital gain’. Though not conclusive, this is again a strong indicator as to the shares being not intended to be held by way of ‘investments - What is the appropriate time for the sale of shares, and which, thus, determines its holding period, would be a business decision, guided, apart from the prevailing market price, an assessment of the risk and return factors attending their holding or exposure therein, including anticipated price movement of the relevant scrip. The holding period would not, thus, carry any additional significance under such circumstances - Profit returned as ‘short term capital gain’ by the assessee-company for the year stands rightly assessed by the Revenue as business income – Decided against the Assessee.
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2013 (11) TMI 1329 - ITAT COCHIN
Allowability of commission expense – Held that:- The assessee could not substantiate its claim of commission payments with any of the credible evidences - Assessee did not declare the claim of commission expense in the export documents filed before the Customs Department - In view of the foregoing discussions, the assessee has failed to substantiate its claim of payment of commission with adequate evidences - Even if the claim of payment is accepted for a moment, the same is liable to disallowed on technical grounds - It is stated that the payment was claimed to have been received by Mr. Ahmed Taha in India, in which case, the same is liable to be taxed in his hands in India as per the provisions of sec. 5(2) of the Act. In that case, the assessee is liable to deduct tax at source on such payments - It is the responsibility of the assessee to show that the said commission amount is not taxable in India in the hands of Mr. Ahmed Taha - The impugned commission payment is liable to be disallowed u/s. 40(a)(i) of the Act for non deduction of tax at source u/s. 195 of the Act - Commission amount has been claimed to have been paid by way of cash and hence provisions of sec. 40A(3) of the Act also get violated - Impugned commission expense is liable to be disallowed for more than one reason.
Cash credit u/s 68 of the Income Tax Act - Cross examination of the person on whose statement the loan has been added as income of the assessee – Held that:- Assessee company itself has offered the impugned cash credit of Rs.14.50 lakhs as its income after the statement given by Shri Prabhakaran, which means that the assessee company has accepted the statement given by Shri Prabhakaran. Hence, the plea raised about cross examination at the appellate stage is clearly an after though and lacks credence - It is well settled proposition that the assessee is required to prove the three main ingredients in respect of the cash credit viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transaction. In the instant case, the creditor is the Managing director of the assessee company. With regard to the sources for making a loan of Rs.14.50 lakhs to the assessee, the Managing director claimed that he had received a loan of identical amount from a person named Mr. Prabhakaran. However, before the AO, Mr. Prabhakaran denied the claim of giving of any loan to the managing director of the company - Thus one of the three ingredients viz., “credit worthiness of the creditor” was failed to be proved by the assessee company. In that case, it cannot be said that the assessee company has discharged the burden of proof placed upon it by sec. 68 of the Act and hence the impugned cash credit is assessable in the hands of the assessee company only – Decided against the Assessee.
Penalty levied u/s 271(1)(c) of the Act – Held that:- Assessee has failed to prove the payment of commission with adequate evidences - Amount of Rs.6,38,217/- represented not only the commission amount, but also the expenses incurred by the assessee company during his stay in India - Mr. Ahmed Taha has acknowledged the receipt of commission amount to the tune of Rs.5,70,000/- only and it was in variance to the amount booked by the assessee - Assessee has attempted to explain the difference between the two figures by stating that the difference between the two amounts represents expenses incurred by the assessee company on the visit of Mr. Ahmed Taha. It is noticed that the assessee has furnished the copy of Hotel Bill in support of its contentions that Mr. Ahmed Taha visited Cochin. The assessee has also shown the withdrawals made from a bank account - In the assessment proceedings, the said evidences were not found to be adequate and hence the addition was made.
It is well settled proposition of law that an addition made in the assessment proceeding would not automatically give rise to penalty and the scope of penalty has to be examined afresh during the course of penalty proceedings - It cannot be denied that the assessee did furnish all the documents that were available with it. Under these circumstances, the additions made for want of evidences would not give rise to penalty, since the explanations furnished in this regard were not found to be false – Decided in favor of Assessee.
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2013 (11) TMI 1328 - ITAT CHENNAI
Eligibility of interest expense u/s 36(1)(viii) of the Income Tax Act – Held that:- Unless and until all the ingredients specified in Explanation (e) to section 36(1)(viii) are satisfied, the transaction will not fall within the reach of long term finance. If the transactions are not considered as 'Longterm Finance', there is no question of any deduction being given under section 36(1)(viii) of the Act since the claim gets ousted at the threshold – Relying upon the judgment in the case of CCE v. Harichand Shrigopal[2010 (11) TMI 13 - SUPREME COURT OF INDIA ], wherein it has been held that a person who claimed exemption or concession, is required to establish clearly that he was covered by the provision concerned and in the case of doubt or ambiguity, benefit would go to the State - finding of the Assessing Officer that interest on short term deposits was not eligible for the deduction under section 36(1)(viii), which were confirmed by the CIT(A), is in accordance with law - Deposits can never be treated on par with loans or advances. Therefore, interest on deposits will never fall within the definition of long term finance given in Explanation (e) to section 36(1)(viii) of the Act – Decided against the Assessee.
Disallowance u/s 43D of the Income Tax Act - By virtue of Sec.43D, it was necessary to offer such interest income, only when interest was realized - Assessee had advanced a sum of Rs. 300 lakhs, as term loan to M/s. NEPC Micon Ltd., who had failed to repay the installments due from 01.04.1997. Assessee had classified the dues as Non-Performing Asset in its books based on Reserve Bank of India guidelines. Assessee had not shown any accrual of interest on such term loan in its accounts. Assessing Officer was of the opinion that since it was following mercantile system of accounting, it was mandatory to show the accrued interest. As per the Assessing Officer, RBI guidelines were only for the purpose of supervision, and management of non banking financial companies and was not relevant for ascertaining income under the Income Tax Act – Held that:- No doubt that assessee had not charged in its books of accounts any interest on the loans classified by it as non performing assets. It is not a case where assessee had credited such interest and then claimed write off. Assessee might have been following mercantile system of accounting. However, the prudential norms prescribed by RBI, for non banking financial Company under section 45 Q of the RBI Act, made it obligatory for the assessee to classify the loans on which interest was not received for a period exceeding six months, as non-performing assets. Once it was so classified, interest could not be charged in its accounts and taken as income – Assessee’s contention is also fortified by the decision in the case of CIT v. Elgi Finance Ltd [2007] [2007 (6) TMI 180 - MADRAS High Court] – Decided in favor of Assessee.
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2013 (11) TMI 1327 - ITAT KOLKATA
Deduction u/s 80IC of the Income Tax Act - Interpretation of the word "and" in item no.12 given in Schedule 14 - Assessee produces an article or things, prescribed in the Schedule 14, the assessee's claim is that his case falls in item 12 of Schedule 14, as the assessee is engaged in the business of processing of black tea - ." The contention of the assessee is that the word "and" between "processing" and "raising" should be read as "or" - Assessee basically relies on item nos. 1,2 and 4 of Schedule 14 – Held that:- In items no. 1,2 and 3 of schedule 14, the nomenclature of the article or things has been mentioned first and activity is given subsequently while in item no.12, it is the activity which has been mentioned first. An article and things has been mentioned subsequently to that - Activities in item no.1 between the activities, the word "or" has been used as is apparent in the case of "fruit" and "vegetable", "processing industries, manufacturing or producing". Similarly in item no.2 also, between the activities, the word "or" has been used, manufacturing or producing. Similarly, in item no.4 also, the word "or" has been used between the activities, while in item no.12, the word "and" has been used between activities. It clearly denotes that both the conditions, i.e., processing and raising of plantation crops must be specified by an undertaking eligible for deduction under section 80IC(2)(b).
This is the settled law that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language to be used or considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe the natural and ordinary meaning to the words used by the legislature and the Court ought not, under any circumstances, statute to its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions. The Hon'ble Supreme Court in the case of Orissa State Warehousing Corpn v. CIT [1999 (4) TMI 3 - SUPREME Court] has clearly held that an exemption is an exception to the general rule and since the same is opposed to the natural tenure of the statute, the entitlement for exemption, ought not to be read with any latitude to the taxpayer of even with a wider connotation to restrict its application to the specific language used depicting the intent of the Legislature. The decision of the Hon'ble Supreme Court is binding - This decision is delivered subsequent to the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. [1992 (4) TMI 4 - SUPREME Court] on which the ld. A.R. has vehemently relied on. This is the settled law in view of the decision of Bhika Ram v. Union of India [1998 (9) TMI 48 - DELHI High Court ] that even there is a conflict between the two decisions of the Supreme Court, the one decided by a Larger Bench is binding. If both decisions are rendered by the Bench consisting of equal number of Judges, the latter decision is binding - In view of our aforesaid discussions, until and unless complied with the conditions of engaging in processing and raising of the plantation of tea, the assessee cannot be allowed deduction under section 80IC(2)(b) – Decided in favor of Revenue.
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2013 (11) TMI 1326 - ITAT NAGPUR
Penalty u/s 271AAA of the Income Tax Act - Search and seizure operation under section 132 of the Act was carried out on 13-01-2009 - During the course of search certain incriminating documents, jewellery and cash were found and seized - Return of income was filed u/s 139(1) on 26-09-2009 - The assessment was completed u/s 143(3) on 21-12-2010 and penalty was also initiated u/s 271AAA. During the search cash of Rs. 67 lakhs was found and seized. The assessee could not explain the source of cash found at the time of search. A statement u/s 132(4) of Shri Nitish Chordia, partner of Concrete Developers was recorded by which the assessee has offered for taxation an amount of Rs. 67 lakhs as unexplained cash and additional income of Rs. 1.53 crores in the hands of M/s Concrete Developers to cover up other discrepancies - Notice of penalty requiring assessee to show cause why penalty u/s 271AAA should not be levied was issued on 13-05-2011 – Held that:- During the course of assessment proceeding also, the assessee has explained the nature of income which was not disclosed before the search. It was explained that the independent income is to be assessed under the head business income and the AO has accepted this contention of the assessee as the assessment has been completed by taking the disclosed income under the head business income - It cannot be said that the assessee has not specified the manner or could not substantiate the manner in which the income was derived as the assessee has explained that this is an unexplained income of the assessee relates to firm which was doing only business activities - Except Rs.67 lakhs, no asset or material was found, however, the assessee has disclosed a sum of Rs.1.53 crores further for the reason that certain loose papers, which were found during the course of search and discrepancies in those papers could not be explained by the assessee, therefore, the assessee came forward to disclosed the total amount of Rs.2.21 crore, subject to non levy of penalty - Assessee has requested to cover his case under the exception clause of sub-section (2) of Section 271AAA of the Act - Assessee has satisfied the conditions for not levying the penalty under Section 271AAA – Reliance has been placed upon the judgment in the case of DCIT Vs. Pioneer Marbles & Interiors (P) Ltd [2012 (5) TMI 6 - ITAT KOLKATA]– Decided in favor of Assessee.
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2013 (11) TMI 1325 - ITAT MUMBAI
Eligibility for claiming any advantage under Article 8 of the India-Singapore Treaty - Assessee is in the business of sea faring cargo business having base, and tax base at Singapore. The assessee operates its ships/vessels round the world - In so far as business of the assessee with India is concerned, it operates its vessels in Singapore Chennai Sector, which is known as Madras Service Route in maritime parlance – Held that:- When two treaties between India- Brazil and between India-Singapore are compared, it is seen that article 8 is worded differently and on comparison of clause (4) of Article 8, India Brazil Treaty talks of business as such but India Singapore Treaty talks of "profits from the operation". Another difference is that India Singapore DTAA Treaty extends its arms to embrace, "any other activity directly connected with such transportation", which is not extended in the India Brazil Treaty. Taking note of this major difference in the Treaty language and taking into consideration the ratio laid down in the case of UOI v. Azadi Bachao Andolan, [reported in [2003 (10) TMI 5 - SUPREME Court], wherein the Hon'ble Apex Court held that "the provisions of the Treaty have to be applied and interpreted in a liberal manner so that the benefit contemplated for avoiding double taxation of the same income can be appropriately granted to the party".
Taking into consideration the decision of Hon'ble Bombay High Court in the case of Balaji Shipping [2012 (8) TMI 681 - BOMBAY HIGH COURT], it is found that slot charter have been held to be charter per se. Even if observation is diluted that slot charter is different from charter, then the ratio of Azadi Bacho Andolan [2003 (10) TMI 5 - SUPREME Court], i.e., "expressions should be construed in the manner in which the contracting partners understood at the time of execution of treaty", prompts to hold that slot charter is charter - This lends force to observation that the inclusion of sub clauses (b), (c) and (d) to Article 8.4 is profit specified, generated from the operation of ships, aircrafts in international traffic by owner, lessess a charter ... which is directly connected with such transportation - Difference of the use of expression "business" used in India Brazil Treaty and the use of expression "transportation" in India Singapore Treaty to be noted, because as observed, the business or economy of Singapore being contracting state is founded on tourism and cargo hub connecting the entire world.
Definition of the expression "operation of ship or aircraft in international traffic" in Article 3, i.e. "General Definitions", it is found that "international traffic" means "any transport by a ship or aircraft operated solely between places in the other contracting state". From the agreements, the two contracting states are India and Singapore - According to the agreements, cargo is lifted by the feeder vessel from Chennai (Madras) or an Indian port, to be taken to its mother feeder hub, either at Singapore or Srilanka, from where it is taken to its onward and final destination - On these basic facts, emerging from the agreements, the claim of the assessee comes within the precinct of Article 8 of India Singapore DTAA Treaty – Decided in favor of Assessee.
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2013 (11) TMI 1324 - ITAT AGRA
Reassessment u/s 147 - Issue of Notice u/s 143(2) - mandatory or not – Held that:- Before making assessment under section 147 of the Act the A.O. is to serve notice under section 148 of the Act requiring the assessee to furnish the return of income. On furnishing return of income in compliance to notice under section 148 of the Act then the provisions of this Act including issue of notice under section 143(2) of the Act shall apply accordingly - If we see the objects of issuing notice under section 143(2) after filing return of income, it is noticed that notice is required to be issued to examine and to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner. For this purpose opportunity is required to be given to the assessee to produce or to be produced any evidence on which the assessee may rely in support of the return. When the assessee has chosen not to file return, no notice under section 143(2) is required to be served - Since no valid return is filed under section 148, 139 or 142, therefore, period of issue of notice under section 143(2) as per proviso to section 143(2) cannot be counted which is to be reckoned from furnishing of return – Decided in favor of Revenue.
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2013 (11) TMI 1323 - ITAT KOLKATA
‘Reasons to believe’ under section 148 of the Income Tax Act – Held that:- Reliance has been placed upon the judgment in the case of Kelvinator of India Ltd[2010 (1) TMI 11 - SUPREME COURT OF INDIA] and also on the judgment in the case of Orient Craft Ltd [2013 (1) TMI 177 - DELHI HIGH COURT] – In the present case, entire details of interest paid to Binani Cement Ltd. was available with the AO at the time of original assessment and the present AO, reopening the assessment, has recorded the reasons from the perusal of assessment records and also found discrepancy and not escapement of income, which is the mandate of section 147 of the Act - There is no whisper in the reasons recorded of any tangible material which has come to the possession of AO subsequent to the assessment – Decided against the Revenue.
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2013 (11) TMI 1322 - ITAT AHMEDABAD
Allowability of labor expenses on self drawn vouchers of Assessee - The appellant had debited labour expenses amounting to Rs. 40,53,382/- and payment to the labourers were made in cash on self drawn vouchers, which are not verifiable. Besides this, the appellant had not maintained day-to-day records on consumption of raw materials – Held that:- The appellant made payment to the labour in cash but which has been signed by the recipients - The assessee had shown comparative chart not only with preceding year but site wise which shows that labour charges paid during A.Y. 06-07 were 14.74% of total expenses which has been reduced at 3.3% during the year under consideration. It reveals that more labours were used in A.Y. 06-07 and in A.Y. 07-08, this work has been executed either through sub-contractor or machine - A.O. had not pointed out any specific defect in the books of account, dis-respecting audit report before disallowing the labour expenses. There is no abnormal increase in the labour charges – Decided against the Revenue.
Expenses allowable u/s 43B of the Income Tax Act - Granting relief of Rs.25,12,296/- on account of disallowance u/s.43B of the Act and restricting the disallowance to Rs.52,054/- out of total liability of VAT u/s.43B of the Act – Held that:- The CIT(A) has verified all the accounts of the service tax as well as VAT account and finally he determined the total unpaid tax liability u/s. 43B Rs.41,643/- and other payments have already been made on or before due date of return filed by the assessee on the basis of service tax received by the appellant – Confirmed the order of Commissioner(A) – Decided against the Revenue.
Disallowance u/s 40A(3) of the Income Tax Act - Cash payment exceeding Rs.20,000/- to Abada Musabhai Ismailbhai, subcontractor and violated the provisions of 40A(3) of the IT Act on four payments mentioned in the assessment order – Held that:- It is found that TDS has already been deducted by the appellant u/s. 194C of the IT Act and no single payment is more than Rs.20,000/- for which the evidence placed – Assessee relied upon in case of CIT vs. S.S.P. (P.) Ltd. in [2010 (12) TMI 370 - PUNJAB AND HARYANA HIGH COURT] and decided the issue in favor of Assessee – Decided against the Revenue.
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2013 (11) TMI 1321 - ITAT KOLKATA
Nature of agreement between assessee and dumper owners, a contractual or not - Disallowance u/s 40(a)(ia) of the Income Tax Act - Assessee has paid Dumper hire charges amounting to Rs.36,37,815/- to ten different parties - No TDS has been deducted on these payments, though these were contractual/sub-contractual payment in nature under section 194C of the Act – Held that:- Reliance has been placed upon the decision of the Hon’ble Jurisdictional High court in the case of Pijush Kanti Chowdhury [2007 (5) TMI 559 - CALCUTTA HIGH COURT]. and also obedience has been placed to decision of the Hon’ble Supreme Court in the case of Shree Chamund Mopeds Ltd [1992 (4) TMI 183 - SUPREME COURT OF INDIA], the decision of the special bench of this tribunal in the case of Merilyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] still holds ground and accordingly, TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of financial year and not on the paid amounts - Directed the AO to recompute the disallowance accordingly – Decided in favor or Revenue, partly.
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2013 (11) TMI 1320 - ITAT KOLKATA
Selection of comparable for determining Arms Length Price in Tranfer Pricing Transaction - Whether MALCO is comparable to the assessee for the purpose of determining of arm's length adjustments, if any – Held that:- When comparing the aluminium coil MALCO itself recognizes that the Properzi wire rods has higher realization and MALCO is relatively small compared to other domestic majors. In the case of the assessee, substantial portion of its production is in aluminium coils and other items – On the above ground MALCO cannot be treated as comparable to the assessee - In the case of MALCO the identical product which is being used for comparing MALCO to the assessee being aluminium rolled product represents just about 8% of the total turnover of MALCO – In view of above, MALCO cannot be used as comparable for determining the arms length price in the case of the assessee.
MALCO has captive mines for extraction of its raw material whereas the assessee has to procure the raw material from the open market - A perusal of the costing of raw-material shows that in the case of MALCO the value of raw material consumed being bauxite is at 347563 MT is Rs.14.04 crores as against in the assessee's case the aluminium ingots and sheets are 25845 MT costing Rs.266 crores - This itself clearly shows that the very foundation of the manufacturing process being the raw materials are difference in the case of MALCO and the assessee - MALCO is manufacturing aluminium ingots and trading in aluminium ingots also whereas the assessee's primary raw material is aluminium ingots. Thus even on this ground MALCO cannot be treated as comparable to the case of the assessee.
MALCO is a debt free company, insofar as it has a debt of only Rs.21.77 crores as against Rs.184 crores in the case of the assessee - The interest cost in the case of MALCO being Rs.77 lakhs as against Rs.30 crores in the case of the assessee would make a substantial dent in the profit - Net result of the Transfer price adjustment is an amount of Rs.19.34 crores. If the adjustment in respect of annual financial charges are made then this differential would get completely wiped out as the differential in the interest burden is Rs.30 crores in the case of the assessee whereas it is only Rs.77 lakhs in the case of MALCO – Thus, decided in favor of Assessee.
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2013 (11) TMI 1319 - ITAT MUMBAI
Depreciation – Disallowance on account of depreciation claimed at Rs.1.07 Crores of factory building which had not been used for business – Held that:- Ownership of building is not an essential precondition for claiming/allowing depreciation, but carrying on of business or profession is a mandatory condition - For claiming depreciation for a building it should be ‘put to use for business or profession’. Burden of proof is on assessee to prove that buildings was put to use for the business or profession - There is no doubt that keeping plant or machinery ready for use has been considered passive use of the asset and depreciation has been allowed for such assets. But, in such cases condition of using the asset for the business or profession has never been waived – In the present case, it is found that the asset in question was vacant for part period and not put to use by the assessee company for the purpose of carrying on its business and earning profits there from. Further, after the said asset was leased out from 07.11.2003 onwards, the income derived from it was offered under the head “income from house property” and not business income. The case under consideration is not a case of a small trader or a retailer carrying on a business at base level. Asssessee company is part of a Group that is advised by well qualified professionals – Considering the facts, disallowance of depreciation is confirmed – Decided against the Assessee.
Penalty under section 271(1)(c) of the Income Tax Act – Held that:- In view of Explanation1 to section 271(1) (c), penalty for concealment of income or furnishing inaccurate particulars can be imposed if an assessee offers an explanation which is found by the AO / FAA to be false, or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide. In such matters the onus is on the assessee to offer an explanation in respect of the claims made by him in the return of income - Enactment of Section 271(1)(c) read with the Explanations is to provide for a remedy for loss of revenue. In other words, Section 271(1)(c) has to be strictly applied in the larger interest of discipline in filing correct returns by the assessees. Secondly, as per the established principles of tax-jurisprudence assessee should file some positive evidences whenever he makes a claim for deductions u/s. 30-37 of the Act. Therefore, if any claim, resulting in loss to Revenue, is made by an assessee without supporting evidences, he exposes himself to penalty u/s. 271(1)(c) – In the present case, assessee company had claimed depreciation u/s. 32 of the Act that was not allowable under the provisions of the Act, proves that the assessee company had claimed excess depredation and thereby evaded payment of taxes to that extent – Penalty u/s 271(1)(c) imposable – Decided against the assessee.
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2013 (11) TMI 1318 - ITAT MUMBAI
Sale and Purchase of shares, not a bogus transactions – Income arising from purchase and sale of shares chargeable under head ‘Long term capital gains’ and not an undisclosed income - Shares were purchased as penny stocks at low price of 55 paise per share and the same were claimed to have been sold at Rs.40 per share and thereby the assessee has shown Long term capital gains of Rs.29,09,675 – Held that:- Examination has been done of the stock broker though which the assessee has purchased shares as well as from the stock broker to whom the assessee has sold the shares - Both the stock brokers have confirmed the transaction of purchase as well as sale - The assessee has also produced relevant documentary evidence in support of the transaction of purchase and sale - There is no finding or dispute on the point of prevailing price at the time of purchase or at the time of sale of shares - Shares of Blue Chip India Ltd. were duly shown in the balance sheet filed with the return of income for the A.Y. 2003-04 and, therefore, the assessee has discharged his onus to prove the holding of the shares and in the absence of any contrary evidence brought by the Assessing Officer on record, it cannot be said that the transaction of purchase shown by the assessee is not genuine – Reliance has been placed upon the case of CIT Vs. Jamnadevi Agarwal [2010 (9) TMI 81 - Bombay High Court].
From the documents produced, which were also in the possession of the Assessing Officer, shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions – Decided against the Revenue.
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2013 (11) TMI 1317 - ITAT DELHI
Classification of head of Income i.e. “income from house property” or “income from other sources” – Held that:- There was no letting of any machinery, plant or furniture belonging to the assessee. Once this finding of fact is not controverted, then there can be only one conclusion that letting of building which has certain amenities for which no separate charges are being recovered by the assessee would be liable to tax under the “income from house property” - A.O. in prior years has himself taxed the rental income of DLF Centre as “income from house property” and no changes in the facts and circumstances of the case are discernible in the year under review - Deduction of depreciation and annual repairs would be allowed to the assessee - CIT(Appeals) is correct in holding that the income from DLF Centre should be held under the head “Income from house property” – Decided against the Revenue.
Addition on account of enhanced compensation received on acquisition of land – Held that:- Judgment of the Hon’ble High Court has been followed in assessee’s own case[1981 (12) TMI 21 - DELHI High Court] - Compensation received by the assessee on acquisition of agricultural land was exempt - It is only the enhanced compensation received this year against the acquisition of same land - Its nature cannot be different than the original compensation received by the assessee – Exemption allowed on the enhanced compensation on land – Decided against the Revenue.
Recovery of Bad-Debts to be taxable u/s 41(1) of the Income Tax Act - Maintenance charges paid by the assessee on behalf of RPG Home Finance Pvt.Ltd. were debited to the account of RPG Home Finance Pvt.Ltd. in the earlier year. Since they defaulted in making the payment of even the purchase price of the property, the amount debited as maintenance charges to them was treated as bad debt in the year under consideration - Subsequently, a compromise took place and RPG Home Finance Pvt.Ltd. not only made the payment of outstanding purchase consideration but also of the outstanding maintenance charges – Held that:- Maintenance charges have been offered as income in AY 2005-06. Thus, at one hand, when the assessee has claimed the maintenance charges as bad debt, the same is disallowed and when it is recovered, it is treated as income. It would be double jeopardy because in AY 2005-06, the recovery of the maintenance charges can be taxed under Section 41(1) only if the deduction for the maintenance charges is allowed in the year under consideration – Decided against the Revenue.
Disallowance on account of writing off of balance due from a wholly owned subsidiary set up for the proposed hotel project at DLF City, Gurgaon, which was subsequently abandoned by the company - Expenditure written off was claimed as allowable expense u/s 36(1)(vii) of the Act – Held that:- The expenditure was not incurred by the assessee but by M/s DLF Infrastructure, a subsidiary company of the assessee. Further, the expenditure was in respect of an entirely new project, that too, incurred in the earlier year - Amount cannot be allowed as a bad debt also because it was never reflected as income in the profit & loss account.
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