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Income Tax - Case Laws
Showing 321 to 340 of 421 Records
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2012 (4) TMI 248 - BOMBAY HIGH COURT
Validity of reopening of assessment framed after scrutiny beyond a period of four years from the end of the relevant A.Y. - A.O. purported to reopen assessment on ground that melting loss of 7.75% claimed by assessee is higher than what is found in a similar line of business - A.Y. 2005-06 – Held that:- No allegation has been made that that there was any failure on part of assessee to fully and truly disclose material facts necessary for assessment for that A.Y. This ex facie would amount merely to a change of opinion. Therefore, notice issued u/s 148 and impugned order of assessment is set aside. See Shriram Foundry Ltd. vs. DCIT, Circle 2 & Ors.(2012 (3) TMI 334 - BOMBAY HIGH COURT) – Decided in favor of assessee.
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2012 (4) TMI 247 - DELHI HIGH COURT
Dis-allowance of expenditure u/s 14A – Rule 8D of Income Tax rules – A.Y. 2006-07 - Tribunal remanded back file to A.O. holding that Rule 8D is perspective and hence will apply w.e.f. A.Y. 2008-09 – Held that:- In all cases where the Tribunal has remanded this aspect to the A.O. either before or after the decision in Maxopp Investment Ltd. (2011 -TMI - 208569 - Delhi High Court ) for a fresh consideration, the Assessing Officer is bound to comply with the direction and ratio expounded in Maxopp Investment Ltd.
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2012 (4) TMI 246 - ITAT MUMBAI
Denying exemption u/s 10B to the appellant and restricting benefit of deduction u/s 80HHE it to the extent of 10% of receipts from CIC Inc. USA, (excluding reimbursements for traveling) – assessee is a company and registered with the ministry of Industry as 100% Export Oriented Unit - AO stated that assessee has not developed any software programme but main activity of the assessee is to train engineers and other professionals in administration of computer software, especially SAP and export them out of India as per the requirements of CIC – assessee contested that the training of the personals is part and parcel of the whole process of job of customization of software through a pre-defined training curriculum – assessee further contended that once the claim of deduction u/s 80HHE has been allowed by the CIT(A), then the claim of exemption u/s 10B should also have been allowed - Held that:- the software developed was uploaded into the server of CIC through e-mail- no compact disctape, perforated media or other information storage device was ever exported physically out of India, had any meaningful software ever been produced, it could definitely have been exported via the medium of a compact disc or a computer cartridge. It is pertinent to note that the provisions of sec. 10B required the transmission of customized data of computer programme through electronic media and email is no doubt an electronic media and therefore, the objection raised by the Assessing Officer is unfounded - raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carryout the customization work of software and development of programme as per the specific requirement of CIC clients - direct the Assessing Officer to allow deduction u/s 10B of the Act. The relief under section 80HHE, in the facts and circumstances of the ease, as an alternative prayer, becomes academic - in favour of assesee.
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2012 (4) TMI 245 - ITAT HYDERABAD
Levy of Penalty - Search and seizure operation u/s. 132 - consequent to the search, the assessee filed returns of income – AO assessed that assessee not disclosed the income from bill discounting correctly for A.Ys. 2002-03 and 2003-04, thus made addition to income and levied penalty u/s. 271(1) (c) – Held that: - the penalty has been levied only on the basis of estimated income - there is no conclusive material to show that there is actual concealment of income - the assessee has accepted the addition only with the sole intention to avoid litigation and because the assessee has not gone in appeal against the quantum addition, it does not automatically qualify for levy of penalty and it does not entail the Department to levy penalty - when the Assessing Officer and the CIT(A) adopted figures of income on estimate basis and it is a case of difference of opinion between the assessee as well as the Department and that reason cannot be a basis for levy of penalty – in the favour of assessee.
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2012 (4) TMI 244 - ITAT PUNE
Modernization and replacement expenses - assessee claimed deduction under section 37(1) for expenditure incurred on replacement of machineries – AO treated it as a capital expenditure – assessee stated that replacement of ring frames and balancing machines was not done with a view to bring into existence a new asset and had been made only to restore the machinery to its original state of efficiency – Held that:- the issue stands fully covered by the judgment of the Hon'ble Supreme Court in the case of CIT v. Sri Mangayarkarasi Mills (P) Ltd. - 2009 - TMI - 34189 - SUPREME COURT - the expenditure of the assessee in this case is capital in nature as it amounts to an enduring advantage for the business - replacement, in this case, amounts to bringing into existence a new asset and also an enduring benefit for the assessee – against assessee.
Additional Ground raised challenging the chargeability of interest under section 234B and 234C of the Act – Held that:- Since the ground was not before the lower authorities it is fit and proper to restore this issue back to the file of the Assessing Officer, who shall pass a speaking order with regard to chargeability of interest.
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2012 (4) TMI 243 - CHATTISGARH HIGH COURT
Whether I.T.A.T was justified in upholding CIT (A)'s order deleting the additions made u/s. 68 by AO, when the creditors have no creditworthiness to advance the loans - The CIT (A) observed that all the creditors appeared before the AO and their statements were recorded on oath and all of them have affirmed the fact of giving the said loans to the assessee.They had also indicated their source and financial capacity for making the impugned deposits with the assessee explaining the details of repayment of the deposits or interest to them by the assessee - CIT further held that the A.O. disbelieved the depositions made by the creditors and substituted his own personal presumptions to conclude that the creditors did not have adequate sources to make the said deposits - Held that:- AO without conducting local enquiries or collecting material evidence on record proved the statements of the creditors as false - thus, the finding of the CIT(A) that the observation of the A.O. with regard to dissatisfaction was on the basis of surmises and conjectures, is just and proper - the findings recorded by the CIT(A) and affirmed by the I.T.A.T. are based on proper appreciation of facts and are not perverse, being correlated with each and every transaction. Thus, the issue is purely question of facts – appeal dismissed.
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2012 (4) TMI 242 - ITAT MUMBAI
Expenses incurred for earning tax exempt dividend of – Rule 8D - Section 14A - Held that:- The elaborate formulae which has been adopted for making the disallowance is precisely what rule 8 D mandates- something directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd's case (2010 -TMI - 78448 - BOMBAY HIGH COURT) - The very approach adopted by the CIT(A) is unreasonable, contrary to legal position, and without regard to the specific facts of the case - there are no direct costs involved in funding the investments - The assessee has disallowance direct costs in earning the dividend, an as for indirect costs, the assessee has suo motu made a disallowance of by computing the at 0.5% of average investments - disalownace offered by the assessee is fair and reasonable and the CIT(A) ought to have accepted the same.
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2012 (4) TMI 241 - ITAT COCHIN
Assessment of the credits in respect of gifts claimed to be received by the assessees as undisclosed income for the block period - whether the credits could be considered as undisclosed income in terms of 158B(b)?; b) whether, even so, the assessee has to establish the genuineness of the gifts? - held that:- no material has been brought on record by the assessee and, in fact, before any authority, to exhibit the disclosure of the impugned credits. In fact, his argument that there is no requirement for furnishing either the capital account or the balance-sheet along with the return, i.e., as per law, with there being no specific column in the return for declaring the credits/gifts received, or that the credits stood reflected by way of capital balance of the assessee-partner per the return of income of the partnership firm/s (which is again, though not proved), is itself an admission of the non-disclosure of the gifts by the assessee.
Legal requirement of disclosure of the gifts - held that:- sub clause (i) of clause (d) of Explanation to s. 139(9) clearly requires the assessee to furnish his financial statements, including balance-sheet, along with the return of income. The assessee/s, thus, ought to have filed the income and expenditure account as well as the balance-sheet, along with his returns of income, and which have admittedly not been, with the AO going on to state that the capital account or the copy of the bank account bearing the said credits - the gifts being claimed to have been banked - had not been filed along with the returns.
As such, while the entries in the books of accounts or documents or transactions may be of relevance and consequence in assailing a search action u/s. 132, where that is the only information in possession of the Revenue, leading to a 'reason to believe' by it, the same would be adequate and/or sufficient to qualify it to be an undisclosed income u/s. 158B(b), where the same represents, wholly or partly, income for property.
Genuineness of gift - held that:- Gifts are generally also exchanged between close friends and relatives on important occasions, as new borns in the family; landmark birth anniversaries; weddings; etc. It is noteworthy that no gifts have been given by both the assessees to any of their 'close friends and relatives', including those from whom gifts are being regularly received over the years. - there were materials and information found as a result of search to discredit the gifts under reference, i.e., as not genuine. - Decided against the assessee.
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2012 (4) TMI 240 - ITAT MUMBAI
Provision gratuity u/s. 40A(9) - AO noticed that the assessee has made a provision for gratuity and debited the same to Income & Expenditure Fund – assessee stated that corporation contributes to the approved gratuity fund of RBI by way of contractual obligation for its employees all of whom are on deputation from RBI - gratuity liability for the staff deputed to the Corporation has to be reimbursed to the RBI - AO observed that reimbursement to RBI does not in any way change the character of provision for gratuity – Held that :- confirmed the deletion of disallowance on account of provision for gratuity.
Non deduction of TDS - disallowance u/s. 40(a)(ia) - assessee contended that since the person to whom the payment was made has already offered the same for taxation, hence provisions of sec.40(a)(ia) cannot be invoked. - applicability of decisions in the case of Hindustan Coca Cola (2007 -TMI - 1676 - SUPREME COURT OF INDIA ) and Mahindra & Mahindra (2009 -TMI - 59571 - ITAT BOMBAY-H ) held that:- the principles laid down in these two decisions cannot be adopted for the purpose of interpreting sec.40[a][ia]. Further, we find that sec.201 deals with the mode of recovery of taxes and once tax due has already been paid then the same demand cannot be enforced again. However, sec.40[a][ia] deals with the disallowance of expenditure itself. Therefore, merely by invoking the Heydon’s principle the statutory provisions cannot be rendered redundant. Therefore, we are of the opinion that once tax has not been deducted and even if such tax has been paid by the deductee, disallowance u/s.40[a][ia] can still be made.
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2012 (4) TMI 239 - DELHI HIGH COURT
Striking down the reassessment proceedings initiated u/s 147/148 - change of opinion - respondent filed return of income including capital gain - the assessee has debited a sum of ₹ 2,86,74,323/- under the head of royalty and ₹ 10,73,766/- under the head technicians fee in the P & L a/c ending 31.3.2000 - As per revenue 25% of the royalty expenses should be considered as capital expenditure in view of the Supreme Court judgment in Southern Switchgear Ltd. [1997 (12) TMI 105 - SUPREME Court ]- The assessee is also entitled for royalty fee right and license to use the trademarks within the territory. The acquisition of such a right may be treated partly towards capital and partly towards the revenue thus failure on the part of the assessee to disclose truly and fully all mat erial facts - Held that :- Respondent assessee has filed the profit and loss account wherein royalty has been specifically shown in Schedule 13 in a separate heading, “manufacturing and other sale expenses”. This fact is also admitted in the reasons to believe itself - reading of the assessment order along with profit and loss account indicates that the expense/question of payment of royalty was examined before the assessment order u/s 143(3) was passed - there was no failure or omission on the part of the respondent assessee to disclose the head and the quantum thereof - Even TDS certificates and other details were filed -the Revenue has not been able to indicate and state, the specific failure or omission on the part of the respondent assessee to disclose fully and truly the material facts - that the present case falls in the category of change of opinion as at the time of original proceedings the AO examined and gone into the question of royalty - Appeal or revenue dismissed.
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2012 (4) TMI 238 - ITAT JAIPUR
Motor accident claim - Taxability of interest - held that:- it has been clearly established and proved that the rate of interest awarded by the MACT is not final. The Insurance Company has filed appeal before Hon'ble Jurisdictional High Court and the appeal has been admitted and it may be possible that order of MACT may be approved or disapproved. But the order of MACT is not final. Therefore, in these circumstances and in view of various decisions, we are of the considered view that whether the interest awarded by MACT is revenue or compensation but it cannot be taxed in the year under consideration as the same has not reached its finality. Accordingly, we hold that the amount of interest awarded in the year under consideration or received by the legal heirs is not assessable in the year under consideration as the same will be considered in the year when the compensation plus interest awarded by MACT reached its finality.
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2012 (4) TMI 237 - GUJARAT HIGH COURT
Capital versus Revenue expenditure - AO noticed that assessee had claimed depreciation on such amount by treating it as capital expenditure in the books and still claimed it has revenue expenditure in the return of the income - the assessee contended that such payments were made to company who was engaged to take up project of profit improvement programme which helped the company in increasing sales, cost reduction and eventually would increase the profit and therefore, the expenditure was claimed as revenue expenditure – AO treated it as capital expenditure as auditors of the company had treated it - Held that :- Tribunal committed no error as no technical know-how for any new project was provided and thus the expenditure resulted only in improving income and efficiency of the business and hence to be treated as revenue expenditure - mere entries in account books would not decide the nature of expenditure.
MAT - book profit under Section 115JB of the Act - Revenue vehemently contended that in view of provisions contained in Section 115JB of the Act and considering sub-section (7) of Section 94 of the Act inserted with effect from 1.4.2002, Tribunal erred in deleting disallowance of loss of 47.23 crores (rounded off) for the purpose of computation of book profit under Section 115JB of the Act. Counsel pointed out that such loss was suffered by the assessee on account of dividend stripping. To control which activities sub-section (7) of Section 94 of the Act was added. - held that:- Such provision cannot be applied while computing book profit for the purpose of Section 115JB of the Act. Book profit under Section 115JB of the Act has to be worked out as per the provisions made in the section, giving effect to explanation contained therein.
Appeal admitted.
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2012 (4) TMI 236 - DELHI HIGH COURT
Present petition challenging re-assessment proceedings u/s 147 and 148 of the Income Tax Act - “reasons to belief” recorded by the Assessing Officer that on perusal of P&L A/C payment towards software consultation was shown and was remitted to foreign company without deducting tax at source - such charges shall be disallowed and added back in the taxable income – assessee contented that payment made for Consultancy Services outside India are not chargeable under this Act as per Section 9(1)(vii) – Held that:- the AO during the course of the original assessment proceedings had gone into the question whether or not Section 9(1)(vii) of the Act was applicable to payment made by the petitioner and was satisfied with the reply furnished - the assessing officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment - the present case is of change of opinion as AO in the original assessment proceedings had gone into and examined the said question but accepted the stand of the petitioner- A wrong/incorrect opinion cannot be corrected in 147/148 proceedings but if the decision is erroneous and prejudicial to the interest of the Revenue, it can be corrected in proceedings under Section 263 of the Act - writ petition is allowed and the re-assessment notice is quashed.
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2012 (4) TMI 233 - DELHI HIGH COURT
Reduction of Written Down Value of block of assets by the amount of loan waived by the Central Government - Explanation 10 to Section 43(1) - depreciation on reduced written down value – Held that:- unable to accept the contention of the assessee that the case is not covered by the main provisions of Section 43(1) because of the treatment given by the assessee in its books of account. - in the books of account, the assessee had actually reduced the cost/WDV of the assets by the amount of the loans waived by the Government of India - It is true that the manner in which entries are made in the books of account is not conclusive of the question, which has to be resolved on a true interpretation of the provisions of law. However, the real nature of a transaction can be understood by reference to the contemporaneous act of the parties, which would throw considerable light on their true intention and their understanding of the transaction.
The assessee’s case is caught within the mischief of Section 43(1) itself and in this view of the matter it may not be necessary to examine the impact of Explanation 10 to the Section inserted with effect from 1.4.1999.
The judgment of Apex Court in the case of PJ Chemicals Ltd. (1994 (9) TMI 1 - SUPREME Court) distinguished.
The case of the assessee may not, therefore, fall under Explanation 10, but having regard to the facts as found which we have alluded to earlier, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1) of the Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed. - Decided against the assessee.
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2012 (4) TMI 230 - ITAT MUMBAI
Disallowance made u/s.40(a)(ia) for the failure to deduct TDS u/s.194C – assessee undertakes contract work of transportation of oils through oil tankers to various locations of BPCL - sub-contract – Held that:- the contract for carrying out the work was between the BPCL and the appellant the appellant alone had risk and responsibility for carrying out the contract work as per the agreement -there is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties - once the CIT (Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract - thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work - the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of ₹ 56,03,210/-.
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2012 (4) TMI 229 - BOMBAY HIGH COURT
Instruction No.3 of 2011 dated 9th February, 2011 - Appeal shall not be filed in the High Court under section 260A of the Income Tax Act where the tax effect does not exceed a sum of Rs.10 Lacs.– assessee submits that the appeal has been filed prior to the issuance of circular dated 9th February, 2011, therefore, the circular does not apply to the present case – Held that:- the circular has a retrospective operation and instructions contained in the circular would apply even to the pending cases as decided in Commisisoner of Income Tax V/s Smt. Vijaya V. Kavekar -2007 - TMI - 71366 - ITAT PUNE-A – held against assessee
the appeal has a cascading effect and should be entertained – Held that:- the matter was adjourned once to enable assessee to point out whether similar question is involved in any other appeal. Till today, the learned counsel was unable to point out a single other case in which similar question is involve - Appeal is accordingly dismissed.
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2012 (4) TMI 228 - ALLAHABAD HIGH COURT
Search & Seizure - Writ petitions prayed for directions of certiorari to quash the illegal search and seizure operation and also prayed for releasing the cash and jewelery found and provide copy of computer data containing medico legal records, and title deeds of property already disclosed in the income tax return - held that:- Director after visiting the clinic in 2005 on four occasions along with decoy patients, and having examined the income tax returns and balance sheets in which negligible income was returned, authorised the search. There was no illegality in recording the satisfaction note by the competent authorities based on relevant and credible evidence collected by the department. The satisfaction that the doctor couple was disclosing only the part of their income and that they had amassed huge wealth by receipts of crores of rupees every year, does not suffer from any error of law.
Notice under Section 131 (1A) confers power on the authorities as mentioned in Section 131 (1), if he has reason to suspect that any income has been concealed or is likely to be concealed. It is only an enabling power and does not in any way affect the search and seizure operations carried out under Section 132 of the Act. Section 132 is an independent code in itself. The exercise of powers under Section 131 (1A) is contemplated in a situation anterior to the exercise of power under Section 132. Before authorsing an officer, the officer referred to in Section 132 (1) would exercise power under Section 131 (A) of the Act. Section 131 (1A) operates in different field than Section 132. - writ petitions dismissed.
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2012 (4) TMI 227 - BOMBAY HIGH COURT
Challenge in these proceedings under Article 226 of the Constitution - application before the Settlement Commission seeking a settlement of a "case" including the grant of a waiver of penalty for Assessment Years 2008-2009 and 2009-2010 which was pending before the AO - The petitioner made a disclosure of income to the extent of ₹ 10 lacs each for the two Assessment Years in question - The Commission has come to the conclusion that a total amount of ₹ 6.18 Crores represents the additional income which is to be taxed in hands of the petitioner of which an amount of ₹ 4.26 crores relates to Assessment Year 2008-09 and ₹ 1.92 Crores for Assessment Year 2009-10 - assessee stated the Settlement Commission would have no jurisdiction to travel beyond the subject matter of the application - a penalty under Section 271(1)(c) is contrary to law since the Settlement Commission did not furnish a notice to show cause to the petitioner before the penalty was imposed – Held that:- The assessee had offered an amount of ₹ 10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available - Settlement Commission complyied with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty - Settlement Commission has imposed a penalty of ₹ 2.75 crores u/s Section 271(1)(c) where the assessee has mis-stated or concealed the particulars of his income - penalty shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded - total income tax demand in the present case, according to the petitioner, which has been arrived at on behalf of the Revenue works out to ₹ 1.96 crores for AY 2008-09 and ₹ 82.40 lacs for AY 2009-10. The total penalty of ₹ 2.75 crores has been clarified by a corrigendum issued by the Settlement Commission to be on a pro rata basis as an amount of ₹ 1.92 crores for AY 2008-09 and ₹ 82.50 lacs for AY 2009-10 - The penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c) – no merit in the challenge to the order on the aspect of penalty – against assessee.
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2012 (4) TMI 226 - ITAT AHMEDABAD
Dis-allowing deduction U/s. 80IB(3) of the I.T. Act - AO denied availment of such exemption as it is available to only those SSI unit as per Section 80(3)(ii) having investment in plant and machinery of less than Rs. 1 crore whereas the assessee company exceeds such limit – assessee contented investment in plant and machinery would be less than Rs. 1 crore if items such as tools jigs, dies, moulds, spare parts for maintenance and cost of consumable stores considered as per Notification No.857 dated 10-12-1999 issued u/s 11B of IDR Act are excluded – Held that:- vehicles have to be excluded while determining the value of plant and machinery for the purpose of determining the status of industrial undertaking as an SSI - following the ITAT order in assessee's own case A.Y 2003-04 moulds, dies, jigs, fixtures, patterns, tools, consumables, factory equipments AO shall recomputed the value of the plant and machinery installed in the industrial undertaking - the AO is directed to exclude the cost of equipments while determining value of plant and machinery in order to ascertain the status of industrial undertaking of the assessee. As regards computers software, we restore the matter to the file of AO with the direction to ascertain as to whether or not all the computers are installed in office – in favour of assessee. Not allowing Royalty payment of Rs. 74,63,975/- being computation of arms length price in relation to international transactions though explained – the TPO observed that no royalty was charged by other group entites and accordingly the Arms Length Price for royalty charges was inferred as nil – assessee contented that the technical know-how was provided to the assessee and the same was not comparable with other entities of the group. The assessee had not made the one-time payment but making the continuous payment to the know-how provider - Held that:- for a transaction to come u/s 92 of the Act, it is necessary to establish that the course of business between resident and non-resident is so arranged that the business transacted between them provides to the resident either no profits or less than ordinary profits which might be expected to arise in the business - the payment of royalty is not hit by the provisions of Section 92 and there is no reason to hold that the expenses should not be allowed u/s.37(1) of the Act, since the expenditure has been incurred by the assessee during the course of business and is having the nexus with the business of the assessee - in favour of assesee not allowing Royalty payment of Rs. 1,15,32,819/- being claimed as expenses U/s 40(a) for the year under consideration relates to A.Y. 2003-04 – assessee replied before the AO saying that the TDS could not be deposited within the prescribed time-limit and assessee deposited the same during the year relevant to A.Y. 2004 - Held that:- There is no finding in the relevant assessment year to what amount royalty payment pertains to which assessment year and whether TDS thereon was paid by the assessee during the relevant period i.e. A.Y. 2004-05. Accordingly, the issue is restored to file of AO with direction to decide the issue afresh in the light of decision.
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2012 (4) TMI 225 - ITAT MUMBAI
AO/DRP applied the provisions of Rule 8D of the Income Tax Rules - AO noticed that the assessee has received a dividend income - assessee submitted that as investments were made out of own funds, there were no interest costs involved - DRP directed the AO to recompute the disallowance by adopting average value of investments as also total assets - DRP has issued directions in tune with Godjrej & Boyce Mfg Co Ltd. (2010 -TMI - 78448 - BOMBAY HIGH COURT) that a reasonable disallowance can be made even for the earlier assessment years – Held that:- The AO applied rule 8 D for assessment prior to assessment years 2008-09 on the ground that this is the basis on which reasonable disallowance can be made, but then this approach is clearly directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. case (supra) - no finding about the expenses incurred directly or indirectly for the purpose of earning the tax exempt income – in favour of assessee. disallowing provision on special discount – assessee submitted that as per correct accounting principles, liabilities attached to the sales of the current year, which can be determined with a fair degree of reasonableness, are required to be provided for in the current year itself - in the event of provision not being allowed as a deduction, the same should be allowed on payment basis – Held that:- Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Officer, and is allowable in principle, its quantum can not be reduced solely on the ground that in the subsequent year the entire payment is not made – in favour of assessee and direction to AO to delete the impugned disallowance. disallowing the provision for sales return – AO was of the view that since sales returns have actually been made in the subsequent year, the same should have been accounted in the subsequent year itself - Held that:- there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year , thus the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer was not justified in rejecting the same – in favour of assessee. the assessee was remunerated on cost plus arm's length mark up price of 15% by the AEs of Rs. 83,75,217 on a cost of Rs. 5,58,34,783. - The assessee adopted certain comparables to demonstrate that mean margin is 13.86% and the margin of 15% adopted by the assessee is an ALP margin – DRP rejecting the mark up of 15% as not an arm's length price, an ALP adjustment is made of 54,27,141 – Assesee contented that Engineers India Ltd, a PSU dealing in engineering consultancy, is not at all engaged in low risk contract research work and it cannot be a valid comparable for this purpose and once EIL is excluded from the list of comparables, the arithmetic of mean of the remaining comparables will be within 5% range of the ALP margin – Held that:- the impugned ALP adjustment is deleted for the reason that EIL is not a valid comparable for contract research work and that once EIL is excluded, the mark up by the assessee is within 5% range of comparables finalized by the DRP – in favour of assessee.
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