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Income Tax - Case Laws
Showing 341 to 360 of 503 Records
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2013 (1) TMI 397 - JHARKHAND HIGH COURT
Applicability of proviso to section 132(4) - whether Oath recorded on 24.9.87 will be governed by provision as it stood on 24.9.87 or as amended by insertion of the explanation therein w.e.f 1.4.89 - Held that:- Statement recorded under section 132(4) is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances.
Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) and when there is incriminating admission against himself, then it is required to be examined with due care and caution. As decided in Kailashben Manharlal Chokshi case (2008 (9) TMI 525 - GUJARAT HIGH COURT), that retracted statement recorded under section 132(4) cannot be the basis for assessing undisclosed income of the assessee and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee's contention by which the assessee has retracted from his admission - None of the authorities gave any reason as to why AO did not proceed further to enquire into the undisclosed income - wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs.20 lacs - no answering the question about retrospective operation of the proviso to section 134(4)required.
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2013 (1) TMI 396 - ITAT CHENNAI
Deduction u/s 10B - not entitled to the benefit in the assessment year 2004-05 as period of ten years has to be reckoned from the assessment year relevant to the previous year in which the assessee begins manufacturing process i.e. 1994-95 - Held that:- A perusal of sub-section (3) of section 10B prior to the amendment of Income Tax (Second Amendment) Act, 1998 shows that the assessee could have availed the benefit of section 10B in any of the five consecutive assessment years falling within a period of eight years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things.
It is an admitted fact that the assessee started manufacturing in May, 1993 & assessee was eligible for claiming deduction under section 10B for the period of 10 years beginning with the assessment year 1994-95. Accordingly, the assessee was entitled for benefit upto assessment year 2003-04. The Tribunal inadvertently calculated the period of 10 years starting from assessment year 1995-96 and ending with assessment year 2004-05. This is a mistake which has to be rectified. Assessee fairly conceded to the factual error in calculation of period of 10 years. Since the change of the year goes to the root of the order, it fit to recall the order dated 24.7.2012 and the Registry is directed to fix the hearing of appeal in due course after informing both the parties - Miscellaneous Petition filed by the Revenue allowed.
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2013 (1) TMI 395 - ITAT MUMBAI
Notional interest computed on account of a delay in realization of the dues from AE added back for the purposes of arriving at the arm's length pricing u/s 92CA(3) - DR stated that the "receivable from the AE" is an international transaction within the meaning of section 92B - Held that:- Not in dispute that the impugned addition was made prior to the amendment made u/s 92B of the Act by inserting Explanation by the Finance Act, 2012 w.r.e.f. 1-4-2002 and all the decisions of the Tribunal relied on by both the parties are prior to the said amendment. This being so and keeping in view that the assessee has taken certain new plea at the stage of rejoinder reiterating that sale value and interest cannot be regarded as a separate transaction, relied on the second part of the decision in Nimbus Communications Ltd.'s case (2010 (1) TMI 921 - ITAT, MUMBAI) thus in the interest of justice, the matter should go back to the file of the A.O. to decide the same afresh - grounds of assessee partly allowed for statistical purpose.
Setting off the past-unabsorbed losses prior to calculating exemption u/s 10A - Held that:- The issue stands covered in favour of the assessee by the recent decision of The Commissioner of Income Tax-10 Versus Black & Veatch Consulting Pvt.Ltd. [2012 (4) TMI 450 - BOMBAY HIGH COURT] Section 10A is a provision which is in the nature of a deduction and not an exemption - the deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business - Section 80B(5) defines for the purposes of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter - against revenue.
Disqualification of interest income, directly sprang from the business operations, from exemption u/s 10A - Held that:- Following the consistent view of the Tribunal as decided in Jewelex International (P.) Ltd.'s case (2010 (9) TMI 906 - ITAT MUMBAI), Greytrix (India) (P.) Ltd. case (2013 (1) TMI 381 - ITAT MUMBAI) & Tropicate Textiles (P.) Ltd. [2012 (7) TMI 57 - ITAT, MUMBAI] to hold that the assessee is entitled to deduction u/s 10A of the interest income of Rs. 25,002/- on the FD pledged with the bank on account of margin money. As regards the interest on NSC Rs. 248/- and interest on loan to employees Rs. 135,583/- there is no nexus between the interest income and the income derived by the undertaking of the assessee in terms of the provisions of section 10A, therefore, the A.O. was justified in treating the same as income from other sources not eligible for deduction u/s 10A - partly in favour of assessee.
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2013 (1) TMI 394 - ITAT MUMBAI
Penalty u/s. 271(1)(c) - interest income assessed by the AO as income from other sources and not as business income - non-indication per its return of income by the assessee that the said income stands imbedded in its (reduced) claim for interest expenditure on borrowings income for which is exigible to deduction u/ss. 10A & 10B - Held that:- With regard to the assessment of the impugned income as from other sources, as against from business, which is a prerequisite for it to be considered as exigible for deduction u/s. 10A(1) or s.10B(1), what is relevant and is to be seen is the assessee’s return of income, per which the claim stands made, and not its treatment by the AO, which though not disputed by the assessee, would yet not detract from the merits of the assessee’s explanation in having returned it only as business income and, further, as derived by its eligible undertaking, so as to be eligible for deduction u/s. 10A(1) or, as the case may be, s.10B(1), in view of ss. 10A(4) and 10B(4) respectively. The issue qua head of income under which the same is to assessed stands clarified by the hon’ble jurisdictional high court in the case of CIT vs. Indo Swiss Jewels Ltd. (2005 (9) TMI 47 - BOMBAY HIGH COURT ), since followed by the tribunal in Tropicate Textiles Pvt. Ltd. (2012 (7) TMI 57 - ITAT, MUMBAI) wherein held that the interest earned on the short-term deposits of the money kept apart for the purpose of business has to be treated as income earned on business and cannot be treated as income from other sources
Thus the impugned penalty is liable to be deleted also drawing support from the decisions in the case of ITO v. Jewelex International Pvt. Ltd. (2010 (9) TMI 906 - ITAT MUMBAI) and ITO v. Greytrix (I) Pvt. Ltd. (2013 (1) TMI 381 - ITAT MUMBAI) .
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2013 (1) TMI 393 - ITAT MUMBAI
Long Term Capital Gain on relinquishment from utilization of business know-how - CIT(A)deleted the addition - whether utilization of business know- how constitutes an asset within the meaning of Section 2(14)? - Held that:- The assessee has received a sum of ₹ 5.00 crores under an agreement dated 27th November 1998, in consideration of 10 years of restraint on right to carry on business or to carry on specified activities mentioned therein. The AO has treated the sum so received to be taxable under the head “Capital Gains” firstly, on the ground that the assessee has itself invested the sum of ₹ 3.00 crores out of the receipts of ₹ 5.00 crores in the securities specified under section 54EA and, secondly, the non–compete right is also a valuable right and is covered by section 55(2)(a). Thus finding no merit in such a conclusion drawn by the AO for the reason that section 55(2)(a) is for the purpose of determining the cost of acquisition in relation to a capital asset which also includes right to manufacture produce or process any article or thing or right to carry on any business. In the present case, the assessee has not received any right to carry such kind of activities. In fact, the amount has been given for not to carry out any such business activities or manufacturing. Regarding other aspect that the assessee has itself treated part of its receipt as capital gain by making the investment in specified securities for the purpose of exemption under section 54EA, will also not help the case of the Revenue as one has to see the nature of receipts and not the conduct of the assessee.
Thus as rightly pointed out assessee that if at all this sum can be treated to be as taxable income, the same can be taxed under the provisions of section 28(va) which has been brought in the statute w.e.f. 1st April 2003. Thus following the judgment in case of Guffic Chem Pvt. Ltd. (2011 (3) TMI 6 - SUPREME COURT) wherein held that prior to this period, such a payment is to be treated as capital receipt not liable for tax no merit in the grounds raised by the Revenue and, consequently, the findings given by the Commissioner (Appeals) are upheld that the sum of ₹ 5.00 crores is treated as a capital receipt and is not chargeable to tax in the year under appeal - in favour of assessee.
Addition of ₹ 6 Crores for computing book profit under Section 115JA as these amounts were not credited to P & L A/c. and directly brought to reserve account in the balance-sheet - CIT(A)deleted the addition relying on Appollo Tyres case [2002 (5) TMI 5 - SUPREME COURT] - Held that:- The Explanation is very clear that the book profit means the net profit as shown in the Profit & Loss Account which has been prepared in accordance with Parts-II and III of Schedule-VI to the Companies Act, 1956, and such net profit has to be increased and reduced in view of the provisions given in the Explanation. Thus, the Explanation pre-supposes that the amount received should be debited to the Profit & Loss Account and if the same has not been debited and has been directly taken to the capital reserve account in the balance sheet, the same cannot be tinkered with so as to include it in the Profit & Loss Account. Otherwise, it will enhance the scope of the AO to re-work the net profit arrived at by the company which has been certified by the prescribed authority and duly approved by the company in its general meeting and which has been filed before the Registrar of Companies who has a satisfactory obligation to examine and satisfy that the accounts have been maintained in accordance with the requirement of Companies Act, 1956. Thus, in view of the ratio laid down Malayala Manorama Co. Ltd. v/s CIT [2008 (4) TMI 20 - SUPREME COURT] wherein referred the decision of Kynetic Motors [2003 (1) TMI 47 - BOMBAY HIGH COURT] & Apollo Tyres [2002 (5) TMI 5 - SUPREME COURT] that AO cannot re-work the net profit prepared by the company in accordance with Companies Act no reason to deviate from the findings given by the Commissioner (Appeals) - against revenue.
Disallowance of set-off of unabsorbed depreciation against income chargeable under the head short term capital gains - Held that:- As issue now stands covered by DCIT v/s Times Guarantee Ltd [2010 (6) TMI 516 - ITAT, MUMBAI] insofar as the issue of brought forward unadjusted depreciation allowance up to assessment year 1996-97 is concerned, the same is to be treated as current depreciation and can be set-off against the income under any head. Also see General Motors Pvt. Ltd. v/s DCIT [2012 (8) TMI 714 - GUJARAT HIGH COURT]- in favour of assessee.
Disallowance of retirement compensation paid to workmen - the expenditure was incurred upon the closure of the business - Held that:- The issue now stands covered by the judgment of Jurisdictional High Court rendered in Bhor Industries Ltd. [2003 (2) TMI 20 - BOMBAY HIGH COURT] wherein held that the retirement compensation paid to the workmen is revenue expenditure and is to be allowed in this year - revenue expenditure, which is incurred wholly and exclusively for the purposes of business, must be allowed in its entirety in the year in which it is incurred and it cannot be spread over a number of years even though the assessee has written it off in its books over a period of years - in favour of assessee.
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2013 (1) TMI 381 - ITAT MUMBAI
Quantification of relief u/s 10A - interest income with respect to FDs placed as margin money with banks for obtaining credit facilities - Income From Business or Income From Other Sources - Held that:- Following the decision of CIT vs. Indo Swiss Jewels Ltd. (2005 (9) TMI 47 - BOMBAY HIGH COURT) & Jewelex International P Ltd. [2010 (9) TMI 906 - ITAT MUMBAI] wherin held that the interest earned on the short-term deposits of the money kept apart for the purpose of business has to be treated as income earned on business and cannot be treated as income from other source.
As decided Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] the purposes of sub-ss (1) and (1A) of s. 10A, that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking - As decided in Mysodet (P) Ltd. v/s CIT [2008 (9) TMI 7 - SUPREME COURT] wherein held that if assessee is doing export business exclusively hence “export turnover & total turnover” would be identical, if the entire sale proceeds are brought into India in convertible foreign exchange within the prescribed time limit - against revenue .
Exclusion of expenditure incurred on account of insurance, internet charges, telephone charges, from the term “export turnover” for the purpose of computation of relief u/s 10A - Held that:- this ground is misconceived, as the Commissioner (Appeals) has directed that the expenditure in question are required to be reduced both from export turnover as well as from total turnover in line with the judgment of Gem Plus Jewellery India Ltd [2010 (6) TMI 65 - BOMBAY HIGH COURT] - appeal decided in favour of assessee.
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2013 (1) TMI 373 - KERALA HIGH COURT
Unaccounted investments - survey u/s 133A - statement of confession on additional income from the Managing Partner - Jurisdiction power u/s 263 by CIT(A) as felt that the additional income disclosed for each each year should have been taken into account separately while making the assessment - set aside the assessment and directed the AO to re-frame the assessment afresh - reopening of assessment - Held that:- There was a change of incumbent in the office of the Assistant Commissioner twice. The ACIT who conducted the survey, got transferred and the notice under Section 143(2) was issued by another Assistant Commissioner. He also got transferred out. The assessment was completed by his successor, the Deputy Commissioner of Income Tax. Moreover, it is stated that consequent to the survey, the assessee informed the ACIT of their willingness to offer additional income of Rs.1.5 Crores to cover up the unexplained investments and this offer was in addition of the projected income of Rs.1 Crore. There is no mention that it is subject to verification of accounts which is the case set up by the appellant now. The request was only that not to again tax the income in the hands of the partners and that the same should not result in complication in sales tax cases. Thereafter, a letter was issued by the appellant stating that the offer of additional income during the survey was mistaken and the correct investment would not exceed Rs.35 lakhs.
It is also stated that the income has escaped assessment, in that, the disclosure made was neither considered by the new incumbent assessing officer, nor disclosed by the assessee in the return filed and there was failure to declare the true and full facts.
The matter relates to the assessment year 2006-2007 where the assessment was completed on 22.12.2008. Ext.P6 impugned notice(reopening assessment) is dated 09.12.2011, i.e. issued after the expiry of four years from the end of the assessment year. As held in Sowdagar Ahmed Khan v. Income-Tax Officer, Nellore (1967 (11) TMI 10 - SUPREME COURT) the duty is not discharged by production of the books of account or other evidence and the assessee has a duty to bring to the notice of the officer the particular items in the books of account or the portions of the documents which are relevant.
Established fact of escaped income, is not the legal requirement at the initiation stage as held by the Apex Court above. It is in the realm of subjective satisfaction.Therefore, it may not be justified in this proceedings to hold that Ext.P6 notice is without jurisdiction because the learned Single Judge has permitted the appellant to file objections to Ext.P6 notice and it is for the assessing officer to take a decision after considering the objections. It is not open for this court to veto further action pursuant to Ext.P6 on the basis of the Writ Petition filed by the appellant.
This is a case where the appellant had not cared to file any objection to Ext.P6. It was in the exercise of discretionary jurisdiction that the Single Judge permitted the appellant to file objections. In fact, the stand of the the Revenue is that the objections will certainly be considered in such circumstances, we only observe that the objections which the appellant has filed must necessarily be considered and reasons must be given but do not deem it necessary that we should direct that a separate order must be passed.
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2013 (1) TMI 372 - ITAT MUMBAI
Long-term capital gain on transfer of leasehold rights - non consideration for transfer of building or reducing the said amount from sale consideration of rights in land - CIT (A) uphold invocation of Section 50C to the transaction of transfer of capital asset made by the appellant - assessee contested against non referring the valuation of the capital asset to the District Valuation Officer - stamp duty rate applicable on April, 2007 i.e. the date of the Memorandum of Understanding or stamp duty rate as on February 2008 - Assessee’s contented that since this plot of land was a leasehold right only, it was neither a land nor a building - Revenue stated that Assessee has substantial right in the property as can be seen from the MoU entered with M/s Unnati Technology (P) Ltd as clearly mentioned in agreement that under section 20 of the urban land (Ceiling & Regulation Act) 1976 (ULC) the competent authority has granted exemption to the Assignor to hold the excess vacant land admeasuring 10536.53 sq. meters on the terms and conditions therein -
Held that:- A complete conclusion whether assessee had complete rights over the land and to what extent the valuation has to be determined u/s 50C is not to be arrived in the absence of complete details like the application made to ULC, the copy of the ULC order and further the agreements entered by M/s Unnati Technology Pvt. Ltd subsequent to construction of building with third parties for sale or assignment of rights therein. Nothing was brought on record either by assessee or by the Revenue to examine whether the said M/s Unnati Technology Pvt. Ltd has only constructed the building for development or has transferred further rights to some other parties - direct AO to obtain the complete information and examine of facts and also to make further inquiries to establish assessee’s rights over the properties.
Reduction of value of the building and adjusting in the block of assets - Held that:- AO was not correct in excluding the value altogether. He has not examined the issue in its entirety. Since already observed that the building was also transferred, it is necessary for AO to examine how much property was transferred and whether the same has to be adjusted under the provisions of section 50 or under section 43(6) in the block of assets - restore the matter to the file of AO to examine this and do accordingly.
The contention of cost of acquisition is also restored to the file of AO. Just because assessee has not claimed at the time of filing the return, statutory obligation of deducting the cost of acquisition cannot be brushed aside. There is information on record that assessee did pay premium at the time of acquiring property by way of lease and assessee has filed a valuation report before the AO claiming the value as on 01.04.1981 and subsequent indexation as per the provisions of law. AO is directed to examine this claim and allow the cost of acquisition as per the facts and law. The other contention about date of adopting valuation (whether date of MOU or date of Registration) has become academic as the application of Section 50C itself was restored to AO in its entirety - in favour of assessee for statistical purposes.
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2013 (1) TMI 371 - ITAT DELHI
Rectification of mistake - assessee seeks to get the order of the Tribunal recalled - Held that:- The mistake to be rectified must be one apparent from the record. A decision on the debatable point of law or undisputed question of fact is not a mistake apparent from the record. The plain meaning of the word 'apparent' is that it must be something which appears to be so ex facie and it is in capable of argument or debate. Section 254(2) of the Income Tax Act, 1961, empowers the Tribunal to amend its order passed under section 254(1) to rectify any mistake apparent from the record either suo moto or on an application.
The assessee has not been able to point out any apparent mistake in the order passed by the Tribunal and in case application of the assessee is accepted, it would tantamount to review of the order of the Tribunal, as has rightly been pleaded by the DR which is not permissible under law as all the points raised in the appeal has duly been considered and decided while arriving at the conclusion as drawn. See CIT v. Gokul Chand Agarwal [1992 (4) TMI 19 - CALCUTTA HIGH COURT] & CIT v. I.T.A.T [1993 (3) TMI 25 - ANDHRA PRADESH HIGH COURT] - misc. application filed by the assessee gets dismissed.
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2013 (1) TMI 370 - ITAT AHMEDABAD
Jurisdiction power u/s 263 by CIT(A) - disallowing depreciation granted by the A.O. consequent to R&D expenses being assessed as being capital in nature - Held that:- The assessee had claimed this expenditure as revenue expenditure however, the A.O. added it being treated this expenditure as capital expenditure on which depreciation @ 25% was allowed. The appellant has carried this matter before the CIT(A), which is pending. Thus, the order of the A.O. had been merged with CIT(A). Therefore, CIT does not have any jurisdiction to consider this aspect.
The ld. A.O. has inquired and gone through the details of expenses which has been found by him as enduring nature on which even depreciation @ 25% has been allowed by him. Therefore, it is tantamount to change of opinion. The addition made in original order by A.O. had been disputed by the assessee before the CIT(A). The order of A.O. had been merged with CIT(A) on these issues. Thus, we set aside the order of CIT-III, Baroda. It is clarified that we have not expressed any view on nature of expenses whether it is capital or revenue and also whether depreciation is allowable or not. Therefore, the lower authorities are free to take decision as per law.
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2013 (1) TMI 369 - ITAT MUMBAI
Transfer pricing adjustment made by the TPO - operating margin to be taken at 11.96% or 9.47% as taken by assessee - assessee is a domestic company formed by a shareholding between Sitel Group & TATA group with 50% stake each - Assessee in the TP study used TNM method to benchmark its ALP for its transaction with AE - CIT (A) has not only shifted the method adopted by assessee and the TPO but also changed the "tested party" - Held that:- Assessee's TP study has not been considered by the TPO as vide Annexure-D to the TP study assessee has selected ten comparable companies and summary of net cost + margin varies from -6.04% to 19.06%. Mean arrived at assessee's TP study was at 9.47%. How this amount was rejected and why it is fixed at 11.96% could not be discerned from the order of the TPO, as it is very brief without any discussion. Further when assessee raised arguments on various issues and submitted that the total profits earned by the AEs and assessee put together and furnished the information how the profits are apportioned between the AE and assessee, the CIT (A) shifted tested party from assessee to AE and that too only two AEs were accepted in which there were profits, ignoring the AEs which incurred losses on various projects.
Even after considering the profit companies, the CIT (A) arbitrarily fixed the margin at 6% without there being any basis and arrived at the TP adjustment restricting to Rs. 54,56,479. Therefore, neither the TPO's order can be considered as appropriate nor the order of the CIT (A) on the given facts of the case - even though the method of TNM was accepted, the CIT (A) went by profit split method and further restricted to two AEs by shifting the tested party from assessee to AE, in view of this, the matter should be restored to AO for fresh consideration by the TPO.
Treatment of interest on term deposit receipts and miscellaneous income - Held that:- Undisputedly the assessee is not in regular business of lacing various deposits and therefore, the interest income has no direct or live connection with the business undertaking of the assessee and particularly, the export articles or things and computer software. Thus in view of the decision in the case of Liberty India (2009 (8) TMI 63 - SUPREME COURT) interest earned by the assessee on surplus funds deposit in the bank does not come under the first degree of source of profit derived from profit of business of undertaking. Accordingly, this issue is decided against assessee.
Deduction under section 10A - Held that:- As decided in Sak Soft Ltd's case [2009 (3) TMI 243 - ITAT MADRAS-D] & CIT v. Gem Plus Jewellery India Ltd.[2010 (6) TMI 65 - BOMBAY HIGH COURT] whatever is excluded from the export turnover has to be excluded from the total turnover also while computing the deduction under section 10A. In view of this, AO is directed to exclude the communication line charges from the total turnover as well.
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2013 (1) TMI 368 - ITAT DELHI
De-recognized interest on accrual basis on Non-Performing assets (NPA) - assessee company has been regularly maintaining its accounts on mercantile system - Held that:- The assessee company is incorporated under the Companies Act, 1956 as a registered Non-Banking Finance Company secured a licence from the RBI u/s 45-I of the RBI Act, to carry on the business of non-banking finance, including micro-finance services.
It was in accordance with directives of the RBI & also in accordance with the Accounting Standards issued by the ICAI, that the assessee de-recognised the interest on NPAs. Apropos interest de-recognition of NPAs, in accordance with the RBI directions, once the NPAs are identified as such, interest recognition thereon is stopped. This is so, for when the principal is not likely to be recovered, where a default has occurred, the question of accounting interest is otiose. It is in accordance with this that the interest has been stopped. Then, as per the Accounting Standards, any income accruing on assets already matured, is to be stopped. Further, the RBI directions also state that income from NPAs will not be recognized merely on the basis of accrual and it should be recognized only when actually received, i.e., on cash basis.
Where no income has resulted, no income can be said to have accrued, just because the mercantile system of accounting is being followed. Following decision of CIT v. Motor Credit Co. (P.) Ltd. [1980 (4) TMI 64 - MADRAS HIGH COURT] & CBDT Circular No. 491 dated 30.06.1987 it has been held that interest income from NPAs should be recognised only on actual receipt. Interest on sticky advances is to be allowed if the assessee is following the mercantile system of accounting and has changed the method of accounting to cash basis for recognizing the interest on sticky loans. Though this Circular is applicable to State Finance Corporations, it applies equally to NBFCs too - issue in favour of the assessee.
Provision for doubtful debts - Held that:- This matter stands concluded against the assessee and in favour of the department as decided in Southern Technologies Ltd. v. Jt. CIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA] holding that provision for non-performing assets debited to the Profit & Loss Account by an NBFC, made under the RBI Prudential Norms, can be treated as income, and that it is not "expense" deductible u/s 36(1)(vii) or (viia)of the IT Act. No decision to the contrary has been relied on before us by the assessee - against assessee.
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2013 (1) TMI 367 - ITAT MUMBAI
Disallowance u/s 43B – Late deposit of employees contribution to PF – Held that:- As decided in case of P.I. Drugs & Pharmaceuticals Ltd.(2010 (8) TMI 768 - ITAT MUMBAI) that as long as even employees' contribution to PF and ESIC are paid by the assessee before the due date of filing the income tax return, the same are to be allowed as deduction in computation of income of the assessee. In favour of assessee
Disallowance u/s 43B - Octroi charges and interest accrued but not due to UTI – Held that:- The assessee had paid the octroi due in the shape of advance payment and there is no outstanding or default; the disallowance u/s 43B on this account is not justified. In favour of assessee
Disallowance u/s 43B - Interest accrued but not due to UTI – Held that:- As per the agreement between the parties, interest was not become due for payment, even till the due date of filing of the return of income, the provision of Section 43B would not be attracted. As decided in case of Gujarat Toll Road Investment Company Limited (2009 (5) TMI 582 - ITAT AHMEDABAD-C) decided in favour of assessee
Expenditure on scientific research u/s 35 – AO disallowed on ground that the project was not completed and not capitalized as on 31.3.2003, then the amount is not used for the purpose of scientific research – Held that:- Section 35 does not require that the assessee's excess assets should aloe be capitalized in the books of account or put to use. Further A.O. has allowed the claim u/s 35 in the subsequent year; but only on the balance cost because the claim for the AY under consideration is under dispute. In favour of assessee
Whether share in the loss of AOP can be set off against the other business income - Held that:- As decided in case of Ramanlal Madanlal (1978 (2) TMI 54 - CALCUTTA HIGH COURT) when the loss is eligible for carry forward and set off as per the provisions of Chapter VI of the I T Act in the hands of the AOP, then no such claim can be allowed in the hands of the member of the AOP. In favour of revenue
Deduction u/s 80IA(4) – work contract or not – Held that:- Status of the assessee can be determined from the terms and conditions of the contract whether it is a rate contract or even a labour contract or a lump-sum contract or the assessee is a developer. Nothing has been produced before us by the assessee to controvert the finding of the Commissioner of Income Tax (Appeals); even the assessee has not produced a single contract/agreement under which the project, which is the subject matter of the controversy are carried out by the assessee. In favour of revenue
Deduction u/s 80M – allocation of interest expenditure - Held that:- A.O. while allocating the pro-rata interest attributable to the dividend income has not disallowed the corresponding amount of interest expenditure from the business income of the assessee u/s 36. When the A.O. has accepted the entire expenditure as business expenditure u/s 36, then the apportionment of the interest without establishing the nexus between the borrowed funds and the investment is not justified. In favour of assessee
Computation of book profit u/s 115JB – MAT - Adjustment in respect of share of loss in the AOP – Held that:- There is no quarrel on the point that other than the adjustments as provided u/s 115JB, the A.O. cannot make any adjustment in the book profit arrived at as per the accounts prepared in accordance with Schedule VI. However, in the earlier years, the assessee itself has claimed that the shares in the AOP should be excluded while computing the book profit as per the provisions of sec. 115JB and on the similar analogy, the assessee itself has added back the amount of share in the loss of AOP for the year under consideration while computing the book profit u/s 115JB. In favour of assessee
Software expenditure – Revenue v/s capital nature – A.O. disallowed the claim of the assessee by treating the same as capital in nature and allowed 25% depreciation on the same - Held that:- As decided in case of Datacraft India Ltd. (2010 (7) TMI 642 - ITAT, MUMBAI) that the expenditure has been laid out for acquiring the intangible assets to be used by the assessee for a number of years and therefore, the same will have an enduring benefit. However, since this intangible asset is part and parcel of computation. In favour of assessee
Disallowance of general expenses – payment for pooja - donation for local festivals - benevolent activities – Held that:- As decided in case of Shahzada Nand And Sons (1977 (4) TMI 4 - SUPREME COURT) that the requirement of commercial expediency must be judged in the context of current socioeconomic thinking. It is an undisputed fact that no business can be conducted in hostile, socioeconomic environment. The expenses incurred on the activities which create a suitable environment and impression with reference to image and smooth functioning of the business activity of the assessee by gaining the trust of the employees as well as the local public in the affairs of the assessee company. In favour of assessee
Disallowance of relief u/s 91 – DTAA – Relief of double tax paid in the country outside India as well as in India - Tax paid in Bhutan – There is no agreement under section 90 for the relief or avoidance of double taxation - Held that:- Since the average rate of tax in India is higher than the Bhutan; therefore, the relief u/s 91 is allowable at the rate of average tax paid in Bhutan being lower rate of tax than in India. The computation of relief by the A.O. is contrary to the relevant provisions of the Act as provided u/s 91 of the act. The A.O. has computed the income from Bhutan operations at Rs. 68.63 Crores and included the same in the total income of the assessee, then the relief u/s 91 is allowable @ 8.53% on the said income, which is subjected to tax in both the countries. - Remand back to AO in favour of assessee
Interest u/s 234D - Interest on excess refund – Held that:- since the assessee has contended that the assessee has not received any amount of refund granted u/s 143(1); therefore, no interest is chargeable u/s 234D; even when the amount of refund is reduced at the time of assessment passed u/s 143(3). – Matter remitted back for fresh decision.
Disallowance of old debit balance written off - write offs pertain to old debit balances of closed projects which are not recoverable – Held that:- The assessee has not produced any records to show that this amount has already included in the income of the assessee in the earlier year. Therefore, in the absence of the relevant details to show the compliance of mandatory conditions as prescribed u/s 36(2) In favour of revenue
Computation book profit u/s 115JB - Adjustment in respect of the amount of disallowance u/s 14A – Held that:- There is no dispute that as per the clause (f) of Explanation I to sec. 115JB the expenditure debited to P&L Account incurred in relation to the income exempt u/s 10 is to be added for computation of book profit. As decided in case of GODREJ AND BOYCE MFG. CO. LTD. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that any expenditure which is disallowed u/s 14A and attained the finality has to be added back while computing the book profit. Remand back to AO
Fresh claim without filling revised return - Exemption u/s 10(35) has not been claimed in return of income – Held that:- Since the bar for entertain the fresh claim without filing the revised return is only with the jurisdiction of the A.O. and not the jurisdiction of the appellate authorities. The Tribunal as taken this view in series of decisions that such claim can be entertain by the appellate authority even without filling the revised return. Therefore, in the interest of justice, we remit this issue to the record of the A.O. to decide the same on merit. In favour of assessee
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2013 (1) TMI 366 - GUJARAT HIGH COURT
Validity of notice u/s 148 - Reopening of assessment u/s 147 – Escaped assessment – Change of opinion - Assessee was engaged in the business of development and construction of real estate – Reason of belief - Deduction u/s 80-IB(10) was wrongly claimed - Held that:- The assessee disclosed the factum of housing project, the construction of shops and the profit derived therefrom. These were the primary facts sufficient for the A.O. to proceed in its assessment process. He had undertaken such process and applied the facts to the provisions of law by applying his mind.
An error, a slip, an omission or a mistake on part of the assessing officer in that regard would not furnish a ground to reopen. For, the reopening proceedings are not rectification proceedings. Nor the concluded assessment can be reviewed under the garb.
Conditions of section 147 of the Act and in particular the First proviso thereto, which is applicable in the present case, having not been complied with on facts, the reopening of the assessment was not permissible. The assumption of jurisdiction by the respondent-Income Tax Officer seeking to reopen the assessment for the A.Y. 2005-2006 was, therefore, beyond his powers and, was illegal. As a result, the impugned notice dated 18.03.2011 under section 148 issued by the respondent is hereby set aside. In favour of assessee
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2013 (1) TMI 365 - ITAT BANGALORE
Validity of re-assessment u/s 147 – Notice u/s 148 - Re-opening of assessment - AO have specific and credible information from his counter-part - AO had reason to believe that the consideration received by assessee from the transfer of her property was liable to be taxed – Under the head “long term capital gains” - Escaped assessment in lieu of non-disclosure of LTCG in her return of income – Held that:- There was no trace of any objection worth the name for the reasons recorded for reopening of the assessment. Following the decision in case of Rajesh Jhaveri Stock Brokers P. Limited (2007 (5) TMI 197 - SUPREME COURT) that to confer jurisdiction u/s 147(a), two conditions were required to be satisfied,
firstly, the AO must have reason to believe that income profits or gain chargeable to income-tax have escaped assessment and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year
Hence, decides in favour of revenue
Capital Gain – Sale of Land – Bringing to tax by way of LTCG - Held that:- Following the decision on identical issue in case of the assessee’s husband Shri V. S. Balasubramanyam. The issue raised by the assessee is akin to the issue considered in the case of the assessee’s husband. Accordingly, this issue goes against the assessee.
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2013 (1) TMI 364 - ITAT COCHIN
Lease rent received - business income OR income from house property - Held that:- The assessee has given only license to operate the hotel. However, on a specific query from the bench, whether the assessee herein is accounting for daily collections made from the guests occupying the rooms and also the expenses on running the hotel, the assessee fairly conceded that the assessee is receiving only the fixed licence fee mentioned in the agreement and the licensee is accounting for the daily collections and expenses in his books of account.
Intention of the assessee in leasing out the hotel building along with furniture, furnishings, equipments etc. - The assessee had been running the business of hotel, but incurred huge losses. Hence, it has decided to lease out the hotel building. Though in the agreement, it is mentioned that the operation of hotel is leased out, in substance, it is only leasing out of the hotel building along with the furniture, furnishings, equipments etc. The hotel is being operated by the licensee with his own funds and staffs, which is clear from the agreement, where it is stated that the licensee shall operate the hotel by appointing his own staff with the working capital funds brought in by him. The assessee has also fairly conceded that the assessee is receiving the monthly lease rent as determined in the agreement. It is a well settled proposition of law that the substance will prevail over the form. Accordingly, though the agreement entered by the assessee is titled as "Agreement of Licence", yet on reading the various clauses of the agreement, the impugned agreement has to be considered as lease agreement for letting out the hotel building with furniture, furnishings, equipments etc. The various conditions have been imposed upon the licensee only to ensure that the hotel premises should continue to be operated as only hotel.
It is not a case that the assessee had to let out the hotel building for a temporary period due to some adverse business conditions. The decision to lease out the hotel building has been taken, since the assessee was incurring of huge losses in the operation of the hotel. Under these circumstances, it cannot be held that the assessee has leased for a temporary period. In fact, the lease period is 7 years, which is quite a long period.As per clause III under Article XV of the agreement entered into between the assessee and the licensee, the lease period shall be automatically extended, if the licensee is constrained to pay the loan liabilities on behalf of the assessee herein and the extension shall be till such time the entire amount paid by the licensee is recovered. Thus, it cannot be categorically stated that the lease period is only seven years.
Clause numbered as 'Item-IV' under Article XV of the agreement states that this agreement is not an agreement for creation of a "managing agency", which falsifies the contention of the assessee that it has entered into this agreement only to give the operation of the hotel. Further, under this clause, it is made very clear that the intention of the parties is only to create a license, i.e., the intention is only to lease out the hotel building along with furniture, furnishings, equipments etc - thus applying the est suggested by the five judges' Bench in the case of Sultan Bros. (P.) Ltd. [1963 (12) TMI 4 - SUPREME COURT] the intention of the assessee was to let out the hotel building and hence it cannot be considered that the assessee was exploiting the property for its commercial business purposes and the lease rent is liable to be assessed under the head "Income from house property" - in favour of revenue.
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2013 (1) TMI 345 - SUPREME COURT
Undisclosed Income - no return of income had been filed till the date of search - action u/s 158BD requiring the assessee to file their return of income for the block period 1993-94 to 1995-96 (ten years preceding the previous year) - assessee contested that income for assessment year 1995-96 could not be deemed to be undisclosed as for a Advance Tax had already been paid therefore - Held that:- According to Section 210(1) every person who is liable to pay Advance Tax under Section 208 shall, of his own accord, pay Advance Tax on his “current income”, calculated in the manner laid down in section 209. Section 209(1)(a) states that the assessee shall first estimate his “current income” and thereafter pay income tax calculated on this estimated income on the rates in force in the relevant financial year. It is significant to note that this income is an estimation that is made by the assessee and may not be the exact income, which may ultimately be declared in the return under Section 139 and assessed under Section 143.
An estimate always has an element of guesswork. There could be various reasons due to which an estimate may be faulty and inaccurate which is why, there is a provision for payment of interest on deficient or excess payment of advance tax when there is variation between advance tax paid and actual liability to tax - See Commissioner of Income Tax Vs. Smt. Premlata Jalani [2003 (7) TMI 62 - RAJASTHAN HIGH COURT]
Since the Advance Tax payable by an assessee is an estimate of his “current income” for the relevant financial year, it is not the actual total income, to be disclosed in the return of income. It will be a misconstruction of the law to construe the undisclosed income for purposes of Chapter XIVB as an “estimate” of the total income, which is assessable and chargeable to tax. Therefore, unable to accept that payment of Advance Tax based on “current income” involves the disclosure of “total income”, as defined in Section 2(45) which has to be stated in the return of income. The same is evidenced in the scheme of Chapter XIVB, in particular.
As for the purposes of computation of undisclosed income under Chapter XIVB, an assessee can rebut the AO’s finding of undisclosed income by showing that such income was disclosed in the return of income filed by him before the commencement of search or the requisition. And on failure to file return of income by the due date under Section 139 payment of Advance Tax per se cannot indicate the intention of an assessee to disclose his income.
If the payment of Advance Tax reflects the intention of the assessee to disclose its income, it could result in a situation where the mandatory obligation of filing a return for disclosure of income under the provisions of the Act, would not be necessary. Such a proposition would be contrary to the very purpose of filing of return, which ultimately leads to assessment of total income for the relevant assessment year. Any anomaly in the return entails serious consequences, which may not otherwise be attracted on estimation of income for the purpose of payment of Advance Tax. It would thus, be difficult to accept the plea that payment of Advance Tax is tantamount to the disclosure of income or that it indicates the intention of the assessee to disclose income - Thus as the assessee had not filed its return of income by the due date, AO was correct in assuming that the assessee would not have disclosed its total income - in favour of the Revenue.
Whether tax deducted at source (and not payment of Advance Tax) amounts to the disclosure of income? - Held that:- Since the tax to be deducted at source is also computed on the estimated income of an assessee for the relevant financial year, such deduction cannot result in the disclosure of the total income for the relevant assessment year. Subject to the monetary limit of the total income, every person is obligated to file his return of income even after tax is deducted at source. Hence, for the reasons stated in the preceding paragraphs, mere deduction of tax at source, also, does not amount to disclosure of income, nor does it indicate the intention to disclose income most definitely when the same is not disclosed in the returns filed for the concerned assessment year - in favour of the Revenue.
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2013 (1) TMI 344 - SUPREME COURT
Depreciation u/s 32 - disallowance as assessee’s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase, leasing and real estate - High Court allowed the appeal of revenue - Held that:- As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [1998 (3) TMI 8 - SUPREME COURT]
As decided in CIT v. Castle Rock Fisheries (1997 (4) TMI 13 - SUPREME COURT) the plant and machinery was nevertheless being used by the assessee for its business purpose by treating the income derived by the assessee by such letting out as business income of the assessee, the development rebate must be considered as having been rightly granted. Therefore, where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purposes of its business.
Issue of ownership - if the assessee is the owner of the vehicles then only is entitled to the claim on depreciation - Held that:- It is true that a lease of goods or rental or hiring agreement is a contract under which one party for reward allows another the use of goods. A hiring agreement or lease unlike a hire purchase agreement is a contract of bailment, plain and simple with no element of sale inherent.
As in the present case it is clear that the transactions occurring in the business of the assessee are leases under agreement, but not hire purchase transactions. Even viewed from the angle of the author of ‘Lease Financing and Hire Purchase’, the transactions involved in the appellant business are nothing but lease transactions.
The general opening words of the Section 2(30) of the MV Act is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpose of the MV Act. It defines ownership for the subsequent provisions of the MV Act, not for the purpose of law in general. Therefore, if the MV Act at any point uses the term owner in any Section, it means the one in whose name the vehicle is registered and in the case of a lease agreement, the lessee. That is all. It is not a statement of law on ownership in general.Therefore, the MV Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The Section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee, thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle.
As the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out.
Claim of the assessee for a higher rate of depreciation - The CBDT vide Circular No. 652, dated 14-6-1993 has clarified that the higher rate of 40% in case of lorries etc. plying on hire shall not apply if the vehicle is used in a non- hiring business of the assessee. This circular cannot be read out of its context to deny higher appreciation in case of leased vehicles when the actual use is in hiring business - import of the same term “purposes of business”, used in the second proviso to Section 32(1) of the Act gains significance the assessee fulfills even the requirements for a claim of a higher rate of depreciation - appeal in favour of assessee.
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2013 (1) TMI 343 - SUPREME COURT
Exemption from payment of income tax on interest earned - fixed deposits kept with certain banks which were corporate members of the assessee club - claim of invoking doctrine of mutuality - appellant is an unincorporated Association of Persons (AOP) - claim rejected on lack of identity between the contributors and the participators to the fund - High Court allowed the appeal of revenue - Held that:- The arrangement lacks a complete identity between the contributors and participators. Till the stage of generation of surplus funds, the setup resembled that of a mutuality, the flow of money, to and fro, was maintained within the closed circuit formed by the banks and the club, and to that extent, nobody who was not privy to this mutuality, benefited from the arrangement. However, as soon as these funds were placed in fixed deposits with banks, the closed flow of funds between the banks and the club suffered from deflections due to exposure to commercial banking operations. During the course of their banking business, the member banks used such deposits to advance loans to their clients. Hence, in the present case, with the funds of the mutuality, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the ‘privity of mutuality’, and consequently, violating the one to one identity between the contributors and participators as mandated by the first condition. Thus, in the case before us the first condition for a claim of mutuality is not satisfied.
As the second condition demands that to claim an exemption from tax on the principle of mutuality, treatment of the excess funds must be in furtherance of the object of the club, which is not the case here. The surplus funds were not used for any specific service, infrastructure, maintenance or for any other direct benefit for the member of the club.
The facts at hand also fail to satisfy the third condition of the mutuality principle i.e. the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. As in the present case, the funds do return to the club. However, before that, they are expended on non- members i.e. the clients of the bank. Banks generate revenue by paying a lower rate of interest to club-assessee, that makes deposits with them, and then loan out the deposited amounts at a higher rate of interest to third parties. This loaning out of funds of the club by banks to outsiders for commercial reasons, snaps the link of mutuality and thus, breaches the third condition.
There is nothing on record which shows that the banks made separate and special provisions for the funds that came from the club, or that they did not loan them out. Therefore, clearly, the club did not give, or get, the treatment a club gets from its members, the interaction between them clearly reflected one between a bank and its client. This directly contravenes the third condition - the amount of interest earned by the assessee from the afore-noted four banks will not fall within the ambit of the mutuality principle and will therefore, be exigible to Income-Tax in the hands of the assessee-club.
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2013 (1) TMI 341 - KERALA HIGH COURT
Exemption from TDS on the interest income received - assessee claim to fall within the purview of the notification issued by GOI u/s 194 (A)(iii) (f) - petitioner is a society registered under Travancore-Kochi Literary Scientific and Charitable Societies Registration Act, 1955 - Held that:- Reading of the provision of the notification shows that in so far as Societies are concerned, only such of those Societies which are registered under the Societies Registration Act 1860 are exempted. The terms of the notification itself show that a society like the petitioner which is registered under the Travancore-Kochi Literary Scientific and Charitable Societies Registration Act 1955 are not exempted from the levy of TDS.
Dispose of this writ petition leaving it open to the petitioner to approach the AO by making an application under Section 197 of the Income Tax Act.
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