Disallowance of loss on forfeiture of earnest money(forfeiture of shop) - in-genuine transaction - Held that:- AO has elaborately quoted the relevant portion of the agreement of the assessee with the other company. There was nothing on record to show that the transaction was not a genuine transaction. Merely by saying that the transaction is not genuine cannot result in a just and proper transaction in the eyes of law being held as not a genuine transaction.
When the parties agreed to certain terms and conditions in a contract, the same are binding on the parties and it is not for the A.O. to say otherwise. One has to look into the aspect that under certain circumstances, if the parties cannot fulfill the terms of the agreement, the agreement provides certain mechanism to save the party who will suffer from the monetary loss. The genuineness of the agreement cannot be doubted by the AO by simply giving one general statement to that effect. AO has to make out through the terms and conditions of the contract between the parties and the circumstantial evidences that the agreement was deliberately not fulfilled by any of the parties. There was nothing to show on record to that effect in this particular case. All these aspect was taken into account by CIT (A), therefore, the CIT (A) has rightly given a finding in favour of the assessee
Disallowance of deduction u/s. 80IB(11A) - Held that:- Remit the file back to the Assessing Officer to consider the claim of the assessee. The assessee would be eligible to claim deduction u/s. 80IB(11A) on the share of income from the business of warehousing, transportation and handling of foodgrains of the units (warehouses) which have started operating on or after 01-04-2001.
Disallowance of deduction u/s. 80IA(4) - assessee has set up Inland Container Depot (ICD) and Container Freight Station (CFS) for handling bonded warehousing facilities on leasehold land of SIDCO - Held that:- The Hon'ble Madras High Court in the case of Commissioner of Income Tax Vs. A.L. Logistics (P.) Ltd. [2015 (1) TMI 401 - MADRAS HIGH COURT] has held that CFS is part of Inland port and therefore, is an infrastructure facility as defined in Explanation to section 80IA(4)(i) of the Act. In view of the various decisions discussed above and the facts of the instant case we accept ground no. 2 raised in the appeal of the assessee for assessment year 2009-10. Thus, we hold that the assessee is eligible to claim deduction u/s. 80IA(4) in respect of the ICD/CFS set up by the assessee.
Addition in respect of payment made by the assessee to the Maharashtra State Warehousing Corporation Karmachari Welfare Fund - Addition u/s 40A(a) - Held that:- In Vinay Narayan Vajpayee [1980 (1) TMI 204 - SUPREME COURT] held that the contribution made by the assessee towards Karamchari Welfare Fund falls within the expression ‘as required by or under any other law” for the purpose of section 40A(a) of the Act. We do not find any error in the findings of Commissioner of Income Tax (Appeals) on this issue. Neither, the ld. DR has been able to controvert the said findings nor the ld. DR has placed on record any judgment contrary to the view taken by the Co-ordinate Bench of the Tribunal. Hence, the ground raised in the appeal of Department are dismissed being devoid of any merit.
Addition on account of “understatement of warehousing charges” - addition on the basis of remarks made in the Audit report - Held that:- A perusal of the impugned findings by Commissioner of Income Tax (Appeals) shows that the assessee has furnished explanation in respect of alleged understatement of warehousing charges. The assessee has purportedly offered the amount of insurance claim for tax in the year of receipt. In support of his submissions the assessee has furnished computation statements for assessment years 2007-08, 2008-09 and 2009-10. The Commissioner of Income Tax (Appeals) has deleted the addition after considering the same. We do not see any infirmity in the action of Commissioner of Income Tax (Appeals) in deleting the addition. Once the assessee has offered the amount to tax in the year of receipt of claim, the same amount cannot be taxed twice.
Addition of fixed deposit closing balance differences - whether or not the assessee has offered the differences as its income for the respective assessment years - Held that:- A perusal of the impugned order shows that the Commissioner of Income Tax (Appeals) has rejected the claim of the assessee and sustained the addition made by the Assessing Officer. Since, the claim of the assessee in respect of aforesaid ground has been rejected by the Commissioner of Income Tax (Appeals) there should be no grouse for the Revenue against the said findings of the Commissioner of Income Tax (Appeals).
Addition of understatement of income resulting from overstatement of “other liability” under the heads fire at Kalamboli warehouse and fire at Kopargaon warehouse - Held that:- DR has not been able to show from records that the findings of Commissioner of Income Tax (Appeals) on this issue are erroneous. The assessee has received insurance claim on account of loss of capital asset, therefore, there is no infirmity in treating the claim amount as capital receipt. The ld. DR has not been able to controvert the finding of Commissioner of Income Tax (Appeals) on this issue. The findings of Commissioner of Income Tax (Appeals) are upheld
Disallowance of claim of deduction under section 80P(2)(a)(i) on interest income received from the banks - assessee was a co-operative society engaged in providing credit facilities to its members - Held that:- For the year under consideration, the assessee had received interest income on the deposits with the banks other than co-operative societies or co-operative banks, which admittedly was received on the surplus available with the assessee, which was deposited in the said banks.
As relying on ITO Vs. M/s. Kundalika Nagari Sahakari Patsanstha Maryadit & Another [2016 (2) TMI 879 - ITAT PUNE] The assessee is entitled to claim the aforesaid deduction. However, no such deduction is available on the interest arising on MSEB deposits - decided partly in favour of assessee.
Claim of pro-rata deduction u/s.80IB(10) - non-completion of the few buildings - Held that:- We find the assessee in the instant case is an individual and engaged in the activity of Promoters and Builders in the name and fashion of “Harshad Constructions”. During the impugned assessment year the assessee has constructed a housing project at Ashok Nagar, Handewadi Road, Hadapsar, Pune. The commencement certificate for this project was received by the assessee on 14-02-2007 which was subsequently revised on various dates.
As per the original plan passed by the Municipal authorities, there are three buildings, viz., A, B and C. The assessee has submitted the completion certificate only for Buildings B and C but did not furnish the completion certification for Building A on the ground that the same was not constructed. Since the plan was sanctioned for Buildings A, B and C and the assessee has completed only Buildings B and C and Building A was never constructed in appeal the Ld.CIT(A) following various decisions allowed the claim of pro-rata deduction in respect of Buildings B and C which were completed.
No infirmity in the order of the CIT(A) granting pro-rata deduction to the assessee in respect of Buildings B and C which were completed. We find the Pune Bench of the Tribunal in the case of M/s. Kumar Company [2016 (2) TMI 231 - ITAT PUNE] while deciding identical issue had allowed the claim of pro-rata deduction wherein held AO cannot reject the claim of deduction u/s.80IB(10) of the entire project for non-completion of the few buildings. We therefore set aside the order of Ld.CIT(A) and direct the AO to allow pro-rata deduction claimed u/s.80IB(10) - Decided in favour of assessee.
Correct head of income - sale of land - business income or capital gain - Held that:- A small portion of the land was sold and the loss therefrom was declared as a capital loss and was not set off against any other income. The ITAT held that a mere fact that a development agreement was entered into by the Assessee with Vatika Ltd. would not change the nature and character of the land since in terms of the agreement it was the developer who would undertake the work of development upon being paid a fee by the Assessee. It was also observed that although the main object of the Assessee may be to carry on the business of real estate, that would not prevent the Assessee from holding the land in question as a capital asset. Therefore the income generated through the sale of land would be chargeable to tax under the head capital gains and not as business income. - No substantial question of law
Maintainability of appeal - tax effect - monetary limit - Held that:- We find that the CBDT vide the aforesaid Circular dated 10.12.2015 has revised the monetary limit to ₹ 10 lakh for filing the appeal by the department before Income Tax Appellate Tribunal. Para 3 of the aforesaid Circular has been made applicable vide para 10 retrospectively. Considering the settled legal precedent that the Board’s instructions or directions issued to the Income Tax Authorities u/s 268A of the Income Tax Act, 1961 are binding on the authorities, we dismiss the departmental appeal considering the material available on record. In view of the same, relying upon the aforesaid circular, the departmental appeal is dismissed
Rejection of books of accounts - GP estimation - unaccounted sales - Held that:- The assessee is dealing in precious metal like gold and silver and the rates are verifiable and available in open to every customer from MCX gold reports or Sarafa Publications. Thus, the customers who purchase goods from the assessee were well aware about the prevailing market price of these metals at the relevant time. Most of the purchases are from reputed dealers. Very few documents pertaining to the assessment year 2011-12 were seized which suggest that the assessee indulged in trading which was not recorded in the books of accounts. For recorded purchases, the assessee was maintaining day to day stock register with quantities and purchase vouchers. The payments were also made through banking channels. Therefore, the learned CIT(A)’s action in enhancing the turnover by 17.5% for all the years is unjustified. There was seizure of documents which suggest unaccounted sales for the assessment year 2011-12 and with a view to plug the loopholes, we are of the view that the enhancement in turnover by 5% on the sales recorded in the books of accounts shall be reasonable for the assessment year 2011-12
The gross profit estimated on unrecorded sales cannot be applied to the recorded sales as the margin of tax also remains with the seller of unaccounted sales while in the recorded sales the prices are increased by VAT which reduces the margin of profit by the similar amount. The cumulative effect of increase in turnover and increase in gold price must have reduced the gross profit for the assessment years 2010-11 and 2011-12 - we are of the view that on unrecorded sales estimated, the profit has to be worked out at the rate of 1.25%. Considering all these aspects we sustain the gross profit rate of 1.25% on the enhanced turnover of gold bullion for the assessment years 2010-11 and 2011-12 and on the recorded turnover disclosed in the books of accounts, we direct to apply gross profit rate of 0.25%.
CIT(A) was not justified in considering the combined sales of gold and silver bullion because there was not a single incriminating document or any evidence found on the basis of which the Assessing Officer could reject the book results of purchase/sale of silver bullion. No addition can be made on estimations and on hypothetical grounds with regard to sale of silver bullion. We are also of the view that not only the enhancement made by the CIT(A) in silver bullion account by 17.5% but the application of GP rate of 1.25% applied by the learned CIT(A) is not justified. We, therefore, delete the additions made in silver bullion account for the assessment years 2010-11 and 2011-12.
Addition on account of unaccounted investment - Held that:- We are of the view that the assessee has made payment in advance through RTGs and submitted a bill issued by Riddhi Siddhi Bullion. The seller has also confirmed the transaction. The copy of bill of exchange obtained from the seller on account of import of goods was also produced. Since it was an imported material and the bar numbers were inscribed on the seized bars which tallied with the purchase bills, we find no merit in sustaining such addition. We, therefore, direct to delete the same.
Unexplained purchases - Held that:- We find that the assessee has filed confirmation from the seller, the original bills were produced, the purchases are entered in the regular books of accounts and stock register. The payments for these purchases were made through banking channels that too in advance, which are verifiable from the books of accounts as well as from the bank statements. The assessee has submitted necessary documents and evidence in the paper book. Keeping all these facts in view, we find no merit in sustaining the addition. Hence, we delete the same.
Addition u/s 68 - identity, creditworthiness and genuineness of the transaction - Held that:- We find from the bank statement of M/s Pramila Investment & Finance Limited that there was bank balance of ₹ 32.5 lacs on the last date of the financial year i.e. on 31.3.2009. The interest was paid after deducting TDS. These facts are sufficient to establish that the assessee was able to be discharge the obligation casted upon him u/s 68 of the Act by establishing the identity, creditworthiness and genuineness of the transaction. In this view of the matter, we have no alternate but to delete the addition.
Addition of unexplained cash credit u/s 68 - amount received as partners’ contribution -Held that:- Sum was invested by the assessee in the firm, M.P. Real Estate & Developers in earlier years and in this year this amount was received as partners’ contribution by that firm. Hence, the addition u/s 68 could not be sustained and it was merely refund of partners’ contribution repaid through cheque. We have no alternate but to delete the addition.
Addition of undisclosed income - receipt for non-performance of the agreement - addition made on account of arbitration award - Held that:- We find that the so called award was not complete as one of the arbitrators did not sign arbitration award. We further find that the addition has been made only on the basis of presumption that the assessee might have received the amount as per the award but no positive evidence has been brought on record to suggest that such amount was received by the assessee in terms of the agreement/award. It is also a fact that the assessee received ₹ 51 lacs as advance through banking channel which was returned back to the intending buyer. The assessee continued to show this plot of land in the fixed assets in his balance sheet. It is also a fact that Indore Development Authority declared scheme no. 131 on this land. Therefore, the above agreement could not be materialized and as such the land could not be transferred. It was informed that this land is even today under the scheme and not transferable. All the three arbitrators filed affidavits which contain the entire details with the assertion that no damages were paid by the assessee because of non-performance of the agreement due to forcemajeure - addition to be deleted.
Addition u/s 68 - Held that:- As decided in Shri Barkha Synthetics Limited vs. CIT [2005 (8) TMI 67 - RAJASTHAN HIGH COURT] if the transactions are made through banking channels and once the existence of the persons is shown, the assessee company cannot be held responsible to prove whether that person himself has invested the said money or some other person had made investment. The burden then shifts on the revenue to establish that such investment has come from the assessee itself. In the absence of such finding, addition cannot be made u/s 68 in the hands the assessee.
Addition based on loose papers - addition on unaccounted entries - Held that;- It is a matter of general knowledge that trading in MCX is being done for short duration of a week’s time and in most of the cases they are intra-day transactions which are normally settled by payment/receipt of difference. When such trading is done on behalf of others, brokerage income is earned. Therefore, it would be unrealistic approach to consider entire trading transactions as unrecorded income. The approach of the CIT(A) to consider credit balance appearing in the name of MCX as undisclosed income even after deducting profit earned and recorded in the books cannot be sustained. While carrying out transactions in any commodity exchange like MCX, nominal margin money is required. Therefore, it would be fair and proper to estimate further additional profit over and above disclosed by the assessee. We, accordingly direct to estimate net profit @ 5% on undisclosed income on ₹ 6,50,10,406/- appearing in the trial balance in the name of MCX. This ground of appeal is therefore, partly allowed in favour of assessee.
Unrecorded transaction - Held that:- CIT(A) has deleted this addition on the basis that “since addition of gross profit of ₹ 14.14 crore is already made in this year taking into consideration, the various unrecorded transaction, hence no separate addition is called for, for the entries recorded on page 108-109 of LPS-5. Hence additions of ₹ 20,27,500/-, ₹ 2,34,64,852/- & ₹ 20,22,954/- made on the basis of notings on these pages is deleted”. We have also decided the issue of estimating the gross profit and the turnover of the assessee in earlier part of this order. We, therefore, following our above order, direct the Assessing Officer to work out the gross profit as per our above direction.
Telescoping benefit - Held that:- Telescoping benefit should be given for explaining any subsequent investment or cash credit which could not be explained to full satisfaction. In case any addition is still sustained by applying the GP Rate, it was definitely available for investment in the books. This is an assessment of the undisclosed income which is taxed as earned outside the books of accounts, has to be considered for the investment and for the entries in the loose papers. The learned counsel for the assessee, therefore, correctly prayed that telescopic benefit be given to assessee.
Income accrued in India - non-taxability of the receipts of DeGolyer and MacNaughton, USA - P.E. in India - India-USA DTAA - fees for technical services - Held that:- It is not in dispute that the services in question were rendered outside India. The payment in question cannot be construed as fees for technical services under India-USA DTAA, as no technical knowledge, skill, know how etc. was made available to the assessee. See DIT vs. Guy Carpenter & Co. Ltd. [2012 (5) TMI 31 - DELHI HIGH COURT]
The amount paid by ONGC to the NRC can be brought to tax only under article 7 of the Indo-USA DTAA as business profit, provided the NRC has a Permanent Establishment (PE) in India and the profit in question is attributable to such PE. Admittedly NRC does not have PE in India. Under these circumstances the receipt of the non resident cannot brought to tax in India under the Indo-USA DTAA. Hence this ground of the assessee has to be allowed. The amount deposited by the assessee on the sums payable to DeGolyer and MacNaughton, USA should be refunded. - Decided in favour of assessee
'MAT' credit u/s 115JAA - AO restricted MAT credit to the extent of tax portion of earlier years and not allowed surcharge and educational cess - Held that:- In the current assessment year, the assessee company liable to pay income tax based on the normal computation of income, in such circumstances the assessee is eligible for MAT credit carried forwarded from earlier assessment years u/s.115JA of the Act. Under the provisions of Sec. 115JB tax components deemed to have included surcharge and educational cess. This view was considered by the Apex Court in the case of CIT vs. K. Srinivasan [1971 (11) TMI 2 - SUPREME COURT] were words "income-tax" in the Finance Act of 1964 in sub-sec(2)(a) and sub-se(2)(b) of Sec. 2 would include surcharge and additional surcharge.
We respectfully following the Co-ordinate Bench decision on MAT tax credit u/s.115JAA of the Act and allow the grounds in favour of the assessee.
Admission of fresh claim of deduction towards gratuity paid as same was not claimed in the original return of income - Held that:- AR to substantiate the genuiness of payment supported the grounds with copies of form no.16 issued by the assessee company as employer to employees and the breakup was reflected in the profit and loss account for the year ending 31.03.2011 under the schedules of personal expenses. The assessee filed extract of ICICI Bank statement in support of gratuity payments. Prime facie it is a clear case of mistake in not claiming deduction by the assessee company. Considering the provisions of law, subject to verification by the AO and we rely on the Apex Court decision CIT vs. Shelly Products and Another [2003 (5) TMI 4 - SUPREME COURT] - Considering the apparent facts, factual evidence, claim of deduction and decision of Apex Court, we remit the disputed issue to the file of Assessing Officer to verify and examine the genuiness of the claim and allow deduction and Assessing Officer shall provide adequate opportunity of being heard to assessee before passing the order - Appeal of the assessee is allowed for statistical purpose.
The Supreme Court of India condoned the delay, granted leave, and tagged the case with other connected matters. The respondent did not appear in the case. (2016 (5) TMI 1479 - SC)
Constitutional validity of Sections 499 and 500 of the Indian Penal Code and Section 199 of the Code of Criminal Procedure - Human Rights - fundamental right to free speech - Held that:- The principles as regards reasonable restriction as has been stated by this Court from time to time are that the restriction should not be excessive and in public interest. The legislation should not invade the rights and should not smack of arbitrariness. The test of reasonableness cannot be determined by laying down any abstract standard or general pattern. It would depend upon the nature of the right which has been infringed or sought to be infringed. The ultimate "impact", that is, effect on the right has to be determined. The "impact doctrine" or the principle of "inevitable effect" or "inevitable consequence" stands in contradistinction to abuse or misuse of a legislation or a statutory provision depending upon the circumstances of the case.
The conception of social interest has to be borne in mind while considering reasonableness of the restriction imposed on a right. The social interest principle would include the felt needs of the society.
The principles being stated, the attempt at present is to scrutinize whether criminalization of defamation in the manner as it has been done Under Section 499 Indian Penal Code withstands the said test. The submission of the Respondents is that right to life as has been understood by this Court while interpreting Article 21 of the Constitution covers a wide and varied spectrum. Right to life includes the right to life with human dignity and all that goes along with it, namely, the bare necessities of life such as nutrition, clothing and shelter and facilities for reading, writing and expressing oneself in diverse forums, freely moving about and mixing and commingling with fellow human beings and, therefore, it is a precious human right which forms the are of all other rights.
Whether Section 499 of Indian Penal Code either in the substantive sense or procedurally violates the concept of reasonable restriction? - Held that:- Explanation 1 stipulates that an imputation would amount to defamation if it is done to a deceased person if the imputation would harm the reputation of that person if he is living and is intended to be harmful to the feelings of his family or other near relatives. It is submitted by the learned Counsel for the Petitioners that the width of the Explanation is absolutely excessive as it enables the family members to prosecute a criminal action whereas they are debarred to initiate civil action for damages.
The provision along with Explanations and Exceptions cannot be called unreasonable, for they are neither vague nor excessive nor arbitrary. There can be no doubt that Court can strike down a provision, if it is excessive, unreasonable or disproportionate, but the Court cannot strike down if it thinks that the provision is unnecessary or unwarranted. Be it noted that it has also been argued that the provision is defeated by doctrine of proportionality - To treat a restriction constitutionally permissible it is necessary to scrutinize whether the restriction or imposition of limitation is excessive or not. The proportionality doctrine recognizes balancing of competing rights and the said hypothesis gains validity if it subserves the purpose it is meant for.
When a law limits a constitutional right which many laws do, such limitation is constitutional if it is proportional. The law imposing restriction is proportional if it is meant to achieve a proper purpose, and if the measures taken to achieve such a purpose are rationally connected to the purpose, and such measures are necessary. Such limitations should not be arbitrary or of an excessive nature beyond what is required in the interest of the public. Reasonableness is judged with reference to the objective which the legislation seeks to achieve, and must not be in excess of that objective.
The constitutional validity of Sections 499 and 500 of the Indian Penal Code and Section 199 of the Code of Criminal Procedure - petition disposed off.
Addition on account of undisclosed investment and on account of gross profit earned on estimated profits - Held that:- CIT(A) is not justified in sustaining the addition of ₹ 1,32,000/- by applying G.P. rate on the alleged sales. Under the Income Tax Act, addition on account of Net profit rate can be made for the purpose of assessment and not on the basis of G.P. Rate.
As such, the addition of ₹ 1,32,000/- confirmed by the CIT(A) is deleted. It is also pertinent to mention here that where N.P. rate is applied, no separate addition can be made on account of purchases made outside the books of account. Therefore, the addition of ₹ 1,00,000/- sustained by the CIT(A) on account of undisclosed investment for making undisclosed sales is deleted. - Decided in favour of assessee.
Reopening of assessment u/s 147 - Deduction u/s 80IA - ‘initial assessment year’ - set off against the other business income in earlier years and set-off being allowed by the Revenue shall not be adjusted from the profit so computed by the assessee company - Held that:- No hesitation in holding that the assessment year 2002-03 chosen by the assessee company shall be the ‘initial Assessment year’ for the purposes of claiming deduction u/s 80IA of the Act , although the Jojobera 67.5MW unit started generating power w.e.f. assessment year 1997-98.
Thus, Jojobera 67.5 MW power undertaking shall be deemed to be the only source of the income as provided u/s 80IA(5) of the Act only from the assessment year succeeding the assessment year 2002-03 being the initial assessment year and subsequent assessment year up-to and including the assessment year for which the determination is to be made which in any case shall not transgress beyond fifteen years from the year when Jojobera 67.5 MW power generating unit started generating power. We also hold that the notionally brought forward losses/ depreciation of the Jojobera 67.5 MW power generating unit for the period from the assessment year 1997-98 to 2001-02 which are already set off against the other business income in earlier years and set-off being allowed by the Revenue shall not be adjusted from the profit so computed by the assessee company with respect to Jojobera 67.5MW power generating unit for the assessment year 2002-03 for the purposes of computing deduction u/s.80IA of the Act.
Since, we have adjudicated this issue on merit in favour of the assessee company based on detailed discussions and reasoning as set out above, the grounds raised by the assessee company challenging the reopening of the assessment u/s 147/148 has become academic and infructuous and hence we refrain from deciding the same and the questions raised by the assessee company in the grounds of appeal are kept open.
Withdrawal of application seeking Permission to bring the actual and factual position to the knowledge of the Court as an Intervenor - Held that:- Permission granted.
Appointment of President and Vice-President of Customs, Excise and Service Tax Appellate Tribunal - only a Single Bench of CESTAT is working since December, 2015 - Held that:- The litigants have fundamental right to have their litigations disposed of as expeditiously as possible. The above unhappy trend in Chandigarh Bench is found all over the country. Under such circumstances, we do not find any reason for the Government of India to delegate only the financial powers and the roster preparation work alone to Sh. M.V. Ravindran, Member (Judicial), CESTAT.
Extraordinary situation warrants extraordinary remedy under Articles 226 and 227 of the Constitution of India. Therefore, in the larger interest of public and litigants and also for smooth functioning of the Tribunal, Sh. M.V. Ravindran, Member (Judicial), CESTAT shall exercise all the powers of the President to discharge administrative as well as judicial functions including transfer and posting for smooth functioning of the Tribunal in the entire country until a regular President is posted. Member (Technical) in CESTAT Bench, Chandigarh be posted within 15 days’ time from the receipt of this order.
The order be communicated to Sh. M.V. Ravindran, Member (Judicial), CESTAT and also to Union Territory, Chandigarh forthwith for strict compliance.
TPA - Non accepting working capacity utilization furnished by the assessee in relation to CPP segment - Held that:- The assessee has, furnished segmental reporting of Annual Report 2007 of Hikal Ltd. for the first time before the ITAT with decision of Special Bench of the ITAT in the case of Quark Systems (P.) Ltd. v. ITO [2009 (10) TMI 591 - ITAT, CHANDIGARH] holding that a comparable can be considered even at the appellate stage for the first time. Similarly, the authorities below were not justified in selecting Dhanuka Agritech Ltd. as comparables since it has gone through restructuring as per director's report referred in Annual Report 2006-07. As during the year under consideration, sales of Dhanuka went up by 260%, profits by 152%, whereas overall profit margin dipped by nearly 3% as compared to earlier years. This argument has been raised by the assessee before the ITAT for the first time. Since facts of the case for the assessment year under consideration are similar to the facts in the case for the assessment year 2006-07, we respectfully following the decision taken on an identical issue in the case of assessee itself set aside the matter to the file of the Assessing Officer to decide the issue afresh.
Rejection of comparable - Held that:- A company cannot be rejected merely because it is making losses - filter of selecting company with R & D Expense less than 3% as comparable needs verification - CIT(Appeals) was not justified in allowing some of the services and rejecting others which are being part of the same agreement.
We are of the view that when nature of services provided to CPP and OC Segments is same as provided to other segments, the learned TPO ought to have adopted consistent treatment to the services utilized in CPP as well as OC Segments and services rendered to the other business segments.
We are of the view that it is not the prerogative of tax authorities to ascertain the benefit received from the availment of services and the benefit received from a particular service has to be perceived from the point of view of businessman and not the tax authorities.
The grievance of the assessee also remained that it had duly submitted evidences on sample basis relating to receipt of services from its AEs. These services were (i) marketing and business support services; (ii) sources/logistics/HR services; (iii) legal services; & (accounting and financial services). A detailed submission in this regard made on behalf of the assessee has been reproduced hereinabove while discussing submissions made by the Learned AR. It was submitted that in reference to some additional evidences, remand report was obtained by the Learned CIT(Appeals) but the same has not been duly considered. Since we are setting aside the matter to the file of the learned TPO for his fresh adjudication on the issue, he is also directed to verify the above grievance and consider the same while deciding the issue.
Further contention of the AR remained that the assessee company has no intention to shift profits from India to other jurisdiction having regard to the fact that it is some of service provider countries, the corporate tax rate is as high as 41% (Japan) and 30% (Australia, Newzeland and Thailand) which is more than or closed to the corporate tax rates in India. Reliance has been placed on several decisions in this regard including the decision in the case of Loreal India Pvt. Ltd. [2015 (2) TMI 407 - BOMBAY HIGH COURT] approving the decision of ITAT accepting the method adopted by the assessee observing that AE's which supplied to the tax-payers earned only 2-4%, hence, it cannot be said that there is set of profits.
As discussed above, TPO is directed to decide the issue of adjustment in relation to intergroup services afresh after affording opportunity of being heard to the assessee on the grievances discussed above. The ground of the appeal preferred by the assessee are thus allowed for statistical purposes.
Adjustment under intra group services and allowing the expenses related to treasury charges and safety consultancy services availed - Held that:- CIT(Appeals) has rightly come to the conclusion that no adjustment should be made on account of treasury charges services, process safety management services etc. resulted in the relief of ₹ 14,19,69,937 to the assessee. The first appellate order on the issue is reasoned one, hence, we are not inclined to interfere therewith. The same is upheld. The ground of the appeal of the Revenue are accordingly rejected.
TPO is also directed to use the data available at the time of deciding the issue of ALP afresh and consider the benefit available under proviso to section 92C of the Income-tax Act, 1961 for downward variation of 5% from the arm's length price. These grounds are thus allowed for statistical purposes.
Termination of services of petitioner working as Manager in U.P. Export Corporation Limited Maintainability of writ petition under Article 226 of Constitution of India - specific relief - Held that:- The petitioner's rights is founded on a contract and once contract has already come to an end in accordance with its stipulation, no writ jurisdiction under Article 226 of the Constitution would lie so as to entitle a party to the contract for continuance of contractual obligation or for reentering into contract as there is no such statutory obligation upon respondents to enter into the contract once the same has come to an end. In such cases, where the contract of service is not governed by the statutory provisions, it is well-settled that contract of service cannot be sought to be enforced by seeking reinstatement or continuance since such a relief is barred under the Specific Relief Act.
In Executive Committee of U.P. State Warehousing Corporation, Lucknow Vs. C.K. Tyagi [1969 (9) TMI 125 - SUPREME COURT OF INDIA] held that position in law is that no declaration to enforce a contract of personal service will be normally granted. But there are certain well-recognized exceptions to this rule and they are: To grant such a declaration in appropriate cases regarding (1) a public servant, who has been dismissed from service in contravention of Article 311. (2) Reinstatement of a dismissed worker under Industrial law by Labour or Industrial Tribunals. (3). A statutory body when it has acted in breach of a mandatory obligation, imposed by statute.
The petitioner, therefore, has remedy in common law regarding damages for alleged breach of contract but relief as sought in this writ petition is not permissible.
Non deduction of tds u/s 194C printing and stationary expenses - Disallowance u/s 40(a)(ia) - Held that:- All the expenses related to printing and stationary on the basis of particular specification given by the assessee and the assessee had paid VAT on it. The Board circular No. 681 dated 08/3/1994 referred by the AR of the assessee is squarely applicable. Accordingly, such payments are not covered U/s 194C of the Act. Case of CIT-XVII, Delhi Vs Silver Oak Laboratories P. Ltd. (2010 (8) TMI 839 - SUPREME COURT) is also squarely applicable including other cited cases of the assessee. Alternatively, the assessee’s claim is allowable on paid basis as relied upon in the case of CIT Vs. Vector Shipping Services (P) Ltd. (2013 (7) TMI 622 - ALLAHABAD HIGH COURT). These facts had not been controverted by the DR during the course of hearing. Therefore, we allow the assessee’s appeal on this ground.
Disallowance of provisions of gratuity - Held that:- The facts of the present case and similar additions were made in A.Y. 2008-09 by the ld Assessing Officer, which has been deleted by the Coordinate Bench in assessee’s own by relying on the Hon'ble Supreme Court decision in the case of CIT Vs Textool Co. Ltd. [2009 (9) TMI 66 - SUPREME COURT ]. The assessee had applied before the ld CIT, Kota but approval of the prescribed authority is pending. Therefore, there is no lack on the part of the assessee. Accordingly, this ground of the assessee is allowed.
Addition of pension, leave salary - amount allowable only as paid before due date of return - Held that:- CIT(A) wrongly concluded that amount paid on 03/2/2009 had been included in provision. However, as per paper book submitted by the assessee, this amount of ₹ 5,92,714/- was paid over and above ₹ 43,57,530/-. The ld DR has not controverted the facts and figures, therefore, we allow the assessee’s appeal on this ground.
Not allowing the provision of agreement arrears - Held that:- This issue has been considered by the Coordinate Bench in assessee’s own case for A.Y. 2008-09, which is squarely applicable on the facts and circumstances of the case for the year under consideration. Therefore, by respectfully following the order of the Coordinate Bench, we allow the assessee’s appeal on this ground.
Interest addition - difference in disclosing the interest - credit of TDS had been given on interest payment - Held that:- The assessee had admitted this difference on the basis of 26AS and disclosed the differences of interest income of ₹ 78,563/- in A.Y. 2010-11 and there is no revenue loss if the same amount is considered in A.Y. 2010-11 by the assessee. The Hon'ble Supreme Court decision in the case of Excel Industries (2013 (10) TMI 324 - SUPREME COURT) is squarely applicable. Therefore, we delete the addition confirmed by the ld CIT(A).
Addition of excess cash reserve - This amount is not payable on expenditure - CIT(A) restricted this addition of ₹ 34,489/- by observing that as per balance sheet as an amount of ₹ 96,342/- had been shown as excess cash reserve. This amount is not payable on expenditure - Held that:- this issue is considered by the Hon’ble ITAT in assessee’s own case in A.Y. 2008-09 wherein it has been held that reserve account in balance sheet has been created on the liability side. The same represents the excess cash found as per books which the bank is required to repay to the legitimate person on a proper claim. Thus, it is an amount in trust held by the bank, it is not credited to P&L account and is a balance sheet item. The assessee’s explanation is bonafide.
Disallowance on account of Ganesh Mahotasava - allowable busniss expenditure - Held that:- Lord Ganesha is the God of Wealth as considering in Indian methodology. The assessee also deals in banking. It is a fact that all the banks generally participate in Ganesh Mahotasava, which motivates the employee as well as maintain good relation with the customers. Therefore, it is an allowable expense U/s 37 of the Act. The case laws relied upon by the assessee is also applicable. Accordingly, order of the ld CIT(A) on this ground is confirmed.
Addition on account of leave salary encashment fund U/s 43B(f) - assessee had shown ₹ 94,84,740/- as leave salary encashment fund under “Funds and Reserve” in the balance sheet as against Rs. Nil shown in the assessment year 2008-09 - Held that:- Assessing Officer had made addition by making disallowance U/s 43B(f) of the Act by taking amount from the balance sheet, which is grossly incorrect and without even going through his own action on the same issue for the expenditure claimed in the P&L account. It is a clerical mistake before the ld CIT(A), who had verified from the record, which has also been clarified during the course of hearing by the ld AR, which has not been controverted by the ld DR. - Decided in favour of assessee
Addition on account of unsecured loans u/s 68 - assessee was unable to substantiate the genuineness of the transaction and unable to prove the capacity and credit worthiness of the lenders - Held that:- Most of the amount has come from the family members/group entities, which are regularly assessed to tax with the same AO and these matters could have been examined and the other allegations of the AO has also been turned down by the CIT(A) on cogent reasons as discussed. Once that is so, then there is no need for making such a wild allegation that the capacity of the lenders has not been proved.
Other important fact emerging from records as noted by the CIT(A) that the amount of ₹ 79,90,000/- received from the 12 parties consisting of the family members/group entities have been repaid back in the impugned year itself and on this aspect as pointed out by the ld. Counsel, ITAT in the case of assessee’s brother Haresh Majethia has deleted the addition on the ground that if the receipts and repayment of loan is corroborated by the ledger account and bank entries. Here also exactly the same fact is permeating, therefore, following the Tribunal order this amount of ₹ 79,90,000 has to be deleted.
On other amount of ₹ 61.50 lakhs also, it is undisputed fact that it has been received from one proprietorship concern of the assessee to another, therefore, it cannot be added as income of the assessee. Thus, on these amounts of loans no adverse inference can be drawn and has rightly been deleted by the CIT(A). As noted above, already an amount of ₹ 46,95,000/- which has been added in the hands of the lenders has already been directed to be deleted by CIT(A) for which there is no dispute by the revenue. Thus, out of ₹ 1,55,10,000/-, sum of ₹ 79,90,000/- and ₹ 61,50,000/- (aggregating ₹ 1,41,40,000) could not have been added in wake of the aforesaid facts. Regarding other small loans also, we agree with the finding of the CIT(A) that the entire onus cast upon the assessee in wake of evidences filed have been fully discharged and accordingly, no addition could be made under the deeming provisions of section 68. - Decided against revenue.
Deduction u/s 80IC on interest earned on FDR - interest income netted off with interest expenditure incurred by the assessee - Held that:- The assessee has claimed that the interest income earned by him on FDRs are linked with the business of the assessee and therefore they should be netted off with interest expenditure incurred by the assessee. Most of the fixed deposit receipts are for the purposes of obtaining bank guarantee for the purposes of the business of the assessee.
CIT (A) has himself held that Interest earned on FDR placed as margin money for securing letter of credit from bank. Assessee has placed balance sheet on record which shows that assessee has only borrowed funds such as secured loan, unsecured loan and partners capital which is also a borrowings because interest is allowable as expenditure on this sum it might not have claimed such expenditure during the year. It does not have its own reserve and surplus which does not carry interest. All FDRs have been taken from C C account, used for the bank guarantee purposes as submitted by AR, and not disputed by the Ld DR. Interest Income on FDR is also taxed by the AO as business income. It is also apparent that assessee does not have any other business other than the business of eligible undertaking. Further CIT (A) has rejected the reliance on all the decided case laws by the assessee holding that those cases pertain to Section 80 HHC not on section 80IA of the act.
Deduction u/s 80IC is allowed from the income derived from industrial undertaking. Therefore, we do not find that word “derive “can have different meaning for these two sections. In view of this we hold that all those decisions relied by the assessee squarely applies to the facts of the present case as far as the issue of netting off the interest is concerned. In view of this, the ground of the assessee so far as netting off the interest income of ₹ 302269/- is allowed and order of CIT (A) is reversed to that extent. - Decided in favour of assessee.
Disallowance u/s 43B - statutory duties paid during the year like excise duty, customs duty on import/purchase of inputs/components and also an amount of duty paid in PLA account - Held that:- Under similar set of facts has decided an identical issue after discussing in detail and following the decision cited before it including the decision of special Bench of the ITAT in the case of DCIT vs. Glaxo Smith Klin Consumer Health Care Ltd. (2007 (7) TMI 334 - ITAT CHANDIGARH) holding that the excess amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. Thus we set aside the matter to the file of the Assessing Officer to decide the issue afresh.
Customs duty paid on import of components for export purposes for which exports had not been made - Held that:- Identical issue in the appeal for the assessment year 2006-07, we set aside the matter to the file of the Assessing Officer to decide the issue afresh as per the above decision of the ITAT after affording opportunity of being heard to the assessee
Duty draw back accrues in the year in which rate is fixed by the competent authority after verification of claim of the assessee and amount is quantified and not in the year of export, we direct the Assessing Officer to decide the issue afresh.
Disallowance regarding balance in RG 23A Part-II - Held that:- We set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above decision of the ITAT in the case of assessee itself in the appeal for the assessment year 2006-07 after affording opportunity of being heard to the assessee.
Disallowance of advance payment, liability in respect of which has not crystallized and, therefore, not allowable as deduction under sec. 43B - Held that:- Identical issue under similar set of facts has been decided by the ITAT in the appeal for the assessment year 2006-07 AO is directed to first verify the argument of following the 'Inclusive method’ and then allow deduction u/s 43B in the manner discussed above, if the same did not get eventually allowed. The AO should further make it is sure that no double deduction is allowed on this score, either in the current year with the last year’s amount getting separately deducted u/s 43B or in the next year with the current year’s amount getting separate deduction.
Disallowance of excess consumption of raw-material and component - Held that:- Identical issue under similar set of facts has been decided in favour of the assessee by the ITAT in the appeal for the assessment year 2006-07 (supra) in the case of assessee itself, holding that there can be no logic in disallowing such amount which is nothing but excess consumption of inputs.
Disallowance made under sec. 14A - Held that:- Before making disallowance under sec. 14A of the Act, it is mandatory on the part of the Assessing Officer to record his satisfaction that explanation made by the assessee on the applicability of the provisions under sec. 14A of the Act. We thus in the interest of justice set aside the matter to the file of the AO to decide the issue afresh following the ratios laid down by the Hon'ble jurisdictional High Court in the case of Maxopp Investment Ltd. (2011 (11) TMI 267 - DELHI HIGH COURT) after affording opportunity of being heard to the assessee. The ground is accordingly allowed for statistical purposes.
Validity of disallowance of deduction claimed under sec. 35DDA - Held that:- Similar issue came up for consideration before the Tribunal in its order for the AY 2004-05. After making a thorough discussion on the issue, the Tribunal has held that Rule 2BA is relevant only for the purpose of availing exemption u/s 10 by employees and not for the purpose of allowing deduction to the employer u/s 35DDA of the Act. Resultantly, the disallowance made by the AO came to be knocked down by the tribunal. In the absence of any distinguishing factor having been pointed out by the ld. DR, respectfully following the precedent, we direct to allow deduction u/s 35DDA.
Validity of disallowance of expenditure incurred on club membership - Held that:- Hon’ble Supreme Court in CIT vs. United Glass Manufacturing Company Ltd. (2012 (9) TMI 914 - SUPREME COURT) in which it has been held that no disallowance can be made for club membership in respect of the employees of the company. Similar view has been taken by the Tribunal in the assessee’s own case for the earlier assessment years including the immediately preceding year. Respectfully, following the above precedents, we order for the deletion of this addition.
Validity of disallowance of royalty paid - Held that:- identical issue in the case of assessee itself for the assessment year 2006-07, we hold that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. The Assessing Officer is directed accordingly.
Disallowance of R & D Cess paid - assessee treated the amount of royalty and cess on royalty as revenue expenditure - Held that:-There is no dispute on the nature of cess, which is on royalty and has been treated both by the assessee as well as the AO as part and parcel of royalty and accordingly claimed/disallowed in line with the treatment of royalty. Since we have allowed deduction for the entire amount of royalty paid by the assessee during the year by deleting the TP adjustment and also overturning the action of the AO in treating the remaining half part as capital expenditure, the consequential amount of cess on royalty payment automatically becomes deductible. We, therefore, direct to allow deduction.
Disallowance of sales-tax subsidy claimed as capital receipts from the total income - Held that:- Respectfully following the above decision of the ITAT for assessment year 2006-07 (supra), we hold that the sales tax subsidy claimed as capital receipt from the total income cannot be characterized as anything other than a capital receipt. It is ordered accordingly to allow the claim as capital receipt.
Non-allowance of depreciation on written down value of software expense capitalized - Held that:- We set aside the matter to the file of the Assessing Officer for allowing deduction in respect of the written down value of the software expenses capitalized in earlier years after affording opportunity of being heard to the assessee in this regard.
Disallowance on account of provisional liability – Expenditure on account of FPI-OE Components - Held that:- It is the case of appellant that consistent method of making provision for aforesaid price increase is being followed for last many assessment years. As noticed, the claim has always been allowed by the Revenue, except in assessment year 2003-04. It was therefore not appropriate on the part of the assessing officer to have disallowed claim for provision for the foreseen price increase in the year under consideration, despite similar claim being allowed in earlier assessment years.
Taking into consideration the entirety of the circumstances, we are of the considered view that provision for foreseen price increase made by the appellant during the relevant year in respect of component/material supplied by the vendors for the escalation in price, which is clearly supported by detailed item-wise working placed in the paper book, clearly represent an accrued/crystallized liability allowable as business deduction. Being so, disallowance made by the assessing officer is directed to be deleted.
Validity of disallowance on account of expenditure on excise duty - Held that:- ITAT on the issue and of the Excise Tribunal in the assessment year 2000-01 that shortage of stock of raw-material and the minor discrepancy was the result of accounting error due to use of large quantity of inputs procured from several hundred suppliers, we hold that the assessee was justified in claiming ₹ 77 lacs on account of expenditure on excise duty on payment basis under sec. 43B of the Act. The Assessing Officer is accordingly directed to allow the claim.
Adjustment on account of alleged AMP expenses, and relating to transfer pricing (royalty, royalty paid to non-AE and error in computing royalty) - Held that:- MP expenses unilaterally incurred by the appellant does not result in an international transaction so as to invoke the provisions of Chapter X of the Act. We thus set aside the matter to the file of the Assessing Officer to decide the issue as per above finding of the Hon'ble High Court after affording opportunity of being heard to the assessee.
Validity of adjustment made by the TPO on account of royalty - Held that:- Addition on account of transfer pricing adjustment can be made by making a comparison between the transacted value of an international transaction and its ALP. Thus it is clear that the availability of the transacted value of an international transaction is sine qua non. If such transacted value is either not separately available or cannot be precisely determined from a combined value of a number of international transactions, then the entire exercise of determining ALP fails. Instantly, we are confronted with such a peculiar situation. There is no separate value of the international transaction of royalty for use of licensed trademark and the tribunal has held in the earlier year that it is a payment of inseparable royalty for use of both the licensed information and the licensed trademarks. In such circumstances and respectfully following the order of the tribunal for the immediately preceding year, we order for the deletion of the addition of ₹ 127.195 crore on account of transfer pricing adjustment of royalty for use of licensed trademark.
Disallowance of credit of TDS certificate claimed through revised return - Held that:- The matter is set aside to the file of the Assessing Officer to consider the claimed TDS credit on the basis of revised return after affording opportunity of being heard to the assessee. Ground allowed for statistical purpose.
Computation of interest payable by the assessee under sec. 234B - Held that:- Charging of interest under sections 234B, 234C and 234D. This ground is consequential and is, accordingly, allowed except the charging of interest under sec. 234C. The Learned AR argued that the Assessing Officer computed interest under sec. 234C on the basis of income finally determined as against the income-tax due on returned income. We find force in the arguments put forth on behalf of the assessee that computation of interest under sec. 234C for deferment of advance tax is required to be made on the basis of ‘tax due on the returned income’ as has been enshrined in the provision itself. We, therefore, direct the Assessing Officer to verify this aspect of the matter and compute interest under sec. 234C as per law.
Royalty considered by the Assessing Officer as capital expenditure should be allowed as Revenue expenditure.
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