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2009 (7) TMI 1280
Issues Involved:
The judgment involves issues related to assessment validity, additions and disallowances made by the Assessing Officer (AO), directions issued by the Additional CIT, relief granted by the CIT(A), and the procedure followed in entertaining additional evidence.
Assessment Validity:
The AO proceeded with the assessment after discussing with the Additional CIT under Section 144(A). The ACIT issued directions, and the AO completed the assessment based on those directions. The CIT(A) contended that the assessment was invalid as it was framed without giving the assessee an opportunity as required by the Explanation below Section 144(A). The CIT(A) observed that the assessment order cannot be sustained due to lack of opportunity provided to the assessee, even though the AO had given several opportunities. However, the Tribunal held that the directions issued by the ACIT were more in the nature of guidance to the AO and not prejudicial to the assessee. Therefore, the Tribunal allowed the first ground raised by the department.
Additions and Disallowances:
The department raised grounds questioning the relief granted by the CIT(A) regarding additions made to contract income, cash credits, and disallowances of various expenses. The CIT(A) deleted these additions without detailed reasoning, prompting the department to argue that the additions and disallowances should be restored. The Tribunal noted that the CIT(A) had not examined the facts thoroughly and had placed the burden on the AO incorrectly. As a result, the Tribunal directed that the matter be reconsidered by the AO, emphasizing the need for a fresh assessment in accordance with the law and after providing adequate opportunity to the assessee for being heard.
Entertaining Additional Evidence:
The department also raised a ground regarding the CIT(A) entertaining additional evidence without following the procedure under Rule 46A(3) of the IT Rules. The Tribunal did not specifically address this ground in its judgment.
Conclusion:
The Tribunal allowed the appeal of the department for statistical purposes, directing a fresh assessment by the AO. The judgment emphasized the importance of providing the assessee with adequate opportunities for being heard and ensuring that assessments are conducted in accordance with the law.
Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.
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2009 (7) TMI 1279
Issues involved: Appeal against cancellation of penalty u/s.271(1)(c) of the Income-tax Act, 1961 for Assessment Year 2003-04.
Judgment Summary:
Issue 1: Disallowance of Interest Expenses and Bad Debts
The Assessing Officer levied a penalty of Rs. 6,00,000 u/s.271(1)(c) based on disallowances of Rs. 4,72,603 for interest expenses and Rs. 14,00,000 for bad debts. The Tribunal directed the bad debt of Rs. 14 lakhs to be treated as speculation loss to be carried forward. The CIT(A) found the percentage calculation by the Assessing Officer incorrect and allowed a portion of the interest expenses. The CIT(A) cancelled the penalty, stating that the additions were due to a difference of opinion and not concealment of income. The Tribunal upheld this decision, emphasizing that rejection of a claim does not equate to concealment.
Issue 2: Justification for Penalty Cancellation
The Revenue argued that even if the set-off of capital loss against business profits was due to negligence, penalty under u/s 271(1)(c) should not be deleted. Citing case law, the Tribunal held that penalty is imposed only for deliberate default, not mere mistakes. As there was no concealment or submission of inaccurate particulars, the CIT(A) rightly cancelled the penalty. The Tribunal upheld this decision, dismissing the Revenue's appeal.
In conclusion, the Tribunal upheld the cancellation of the penalty u/s.271(1)(c) as there was no concealment of income or submission of inaccurate particulars, based on the facts and circumstances of the case.
This order was pronounced in open court on 24.07.09.
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2009 (7) TMI 1278
Issues Involved:1. Regular bail application u/s 21, 23, and 29 of the NDPS Act. 2. Non-recovery of contraband from the petitioner. 3. Voluntariness and retraction of the petitioner's statement. 4. Applicability of Section 37 of the NDPS Act. Summary:Issue 1: Regular Bail Application u/s 21, 23, and 29 of the NDPS ActThe petitioner sought regular bail for offences u/s 21, 23, and 29 of the NDPS Act, arguing that no recovery was effected from him. The learned senior counsel for the petitioner highlighted that 6 kilograms, 200 grams of heroin were recovered from the exclusive possession of accused No.1 (Danon Armand Erick @ Peter), and the petitioner was not named as an associate or accomplice in the commission of the offence. Issue 2: Non-recovery of Contraband from the PetitionerThe complaint detailed the recovery of heroin from accused No.1, who was apprehended by DRI officers based on specific intelligence. The heroin was concealed in metal gears within polythene bags. The statements of accused No.1 did not implicate the petitioner in the supply, possession, or transportation of heroin. The petitioner, who ran a courier service, admitted to booking consignments for accused No.1 but retracted his statement on 5.2.2009. Issue 3: Voluntariness and Retraction of the Petitioner's StatementThe petitioner argued that his statement made on 25.9.2008 was not voluntary and was retracted on 5.2.2009. The learned counsel for the respondent opposed the bail application, citing the petitioner's admission of awareness about the concealed drugs and the extra payment charged for generating commercial invoices. The trial court had declined bail, noting the petitioner's involvement in dispatching the contraband. Issue 4: Applicability of Section 37 of the NDPS ActSection 37 of the NDPS Act imposes stringent conditions for granting bail, requiring the court to be satisfied that there are reasonable grounds for believing that the accused is not guilty and is not likely to commit any offence while on bail. The court referred to the Supreme Court's interpretation in Union of India Vs. Shiv Shanker Kesari, emphasizing that "reasonable grounds" mean substantial probable causes for believing the accused is not guilty. The court found that the petitioner had no past record of dealing with drugs, and there was no evidence suggesting he would commit any offence if granted bail. The petitioner's role was limited to dispatching the consignment, and no contraband was seized from his possession. The prime accused did not implicate the petitioner in his statements. The court concluded that the parameters of Section 37 of the NDPS Act were met and granted bail to the petitioner, subject to conditions including furnishing a personal bond, surrendering his passport, and not leaving the country without court permission. Conclusion: The application for bail was granted, and the petitioner was released on bail with specific conditions to ensure compliance with the legal requirements and prevent tampering with evidence or influencing witnesses.
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2009 (7) TMI 1277
Issues Involved:
1. General nature of the first ground.
2. Addition made by the Assessing Officer regarding payments considered as fees for technical services.
3. Applicability of CBDT circulars to the non-chargeability of commission paid to KGL.
4. Nature of payments made to KGL as Fees for Technical Services (FTS).
5. Reimbursement claims by the assessee.
6. Taxability of 5% mark-up fees.
7. Assessment order objections by the assessee before the first appellate authority.
8. Determination of whether payments made to KGL amount to making available technical skill or know-how under the India-UK tax treaty.
Detailed Analysis:
1. General Nature of the First Ground:
The first ground is general in nature and does not call for any specific dealing as such.
2. Addition by Assessing Officer Regarding Payments as Fees for Technical Services:
The assessee, a domestic company engaged in providing customized publishing-related solutions, entered into a Master Services Agreement (MSA) with KGL, a UK-based company. The agreement entailed three types of payments: compensation fee (2% on gross revenue), reimbursement of specific expenses, and a 5% mark-up on expenses. The Assessing Officer held that these payments were fees for technical services under Explanation 2 to Section 9(1)(vii) of the Income Tax Act, 1961, and Article 13.4(c) of the India-UK DTAA. The services rendered were deemed technical and consultancy in nature, making technical knowledge, skill, and experience available to the assessee.
3. Applicability of CBDT Circulars:
The assessee contended that the commission paid to KGL should not be taxed, relying on CBDT Circular No.23 of 1969 and Circular No.786 of 2000. The Assessing Officer rejected this contention, stating that the circulars apply to principal-to-principal arrangements, which was not the case here as both companies were part of the same group.
4. Nature of Payments as Fees for Technical Services:
The assessee argued that the payments did not fall under the definition of FTS as per Article 13.4 of the India-UK DTAA, which requires making available technical knowledge, experience, skill, know-how, or processes. The Commissioner of Income-tax(A) held that the services provided by KGL did not involve making available any technical knowledge or skills to the assessee. The employee profiles did not indicate technical expertise, and no credible evidence was presented to substantiate the Assessing Officer's conclusion.
5. Reimbursement Claims:
The Assessing Officer held that the reimbursement of expenses was not entertainable as the liability to pay the costs was KGL's, not the assessee's. The reimbursement was seen as a part of the payment for services rendered, thus taxable as FTS. The Commissioner of Income-tax(A) disagreed, stating that the reimbursement did not involve making available technical knowledge or skills.
6. Taxability of 5% Mark-up Fees:
The Assessing Officer considered the 5% mark-up fees as another mode of payment for services rendered, thus taxable as FTS. The assessee admitted that this amount might be chargeable to tax under the Act but argued it did not fall under the purview of DTAA due to the lack of "making available" technical knowledge.
7. Assessment Order Objections:
The assessee objected to the assessment order on three counts: the taxability of commission/marketing fee disregarding CBDT circulars, the aggregate of commission, reimbursement, and mark-up being taxable, and the aggregate payments amounting to making available technical skill or know-how under the India-UK tax treaty. The Commissioner of Income-tax(A) rejected the applicability of the CBDT circulars and held that the services rendered did not make available any technical knowledge or skills.
8. Determination of Making Available Technical Skill or Know-how:
The Tribunal, relying on various decisions, held that mere rendering of services does not amount to making available technical knowledge, skill, or experience. The payments made to KGL did not involve transferring any technical knowledge or skills to the assessee that could be used independently in the future. Consequently, the aggregate payments could not be brought into the tax net as FTS under the India-UK DTAA.
Conclusion:
The Tribunal concluded that the aggregate of the commission/marketing fee, reimbursement of expenses, and mark-up could not be taxed as FTS since no technical knowledge, expertise, skill, know-how, or process was made available to the assessee. The appeal by the revenue was dismissed.
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2009 (7) TMI 1276
Issues Involved:
1. Exclusion of telecommunication charges from total turnover for deduction u/s 10A.
2. Allowance of deduction u/s 10A without setting off brought forward unabsorbed depreciation and business losses.
Summary:
Issue 1: Exclusion of Telecommunication Charges from Total Turnover
The revenue appealed against the CIT(A)'s decision to exclude 50% of telecommunication charges from the total turnover for computing deduction u/s 10A of the I.T. Act. The Tribunal referenced the Special Bench decision in ITO vs Sak Soft Ltd., which held that expenses like freight, telecom charges, or insurance attributable to the delivery of goods outside India, and expenses incurred in foreign exchange for technical services outside India, should not be included in the total turnover. These receipts are considered reimbursements and do not represent "consideration" for exports. Consequently, the CIT(A) was justified in directing the Assessing Officer to exclude 50% of the telecommunication charges from the total turnover.
Issue 2: Deduction u/s 10A Without Setting Off Brought Forward Unabsorbed Depreciation and Business Losses
The second issue pertained to the CIT(A)'s direction to allow deduction u/s 10A without setting off brought forward unabsorbed depreciation and business losses of earlier years. The Assessing Officer initially held that such set-offs were necessary before ascertaining the quantum of deduction allowable u/s 10A. However, the assessee argued that losses pertaining to non-STPI units could not be set off against profits of STPI units, citing various decisions, including KPIT Cummins Infosystems (P) Ltd. vs ACIT.
The Tribunal noted that Section 10A(1) allows deduction of profits derived from export activities from the total income of the assessee, without mentioning the need to reduce brought forward losses and unabsorbed depreciation. The Tribunal emphasized that the computation of deduction should be based on the profits of the particular assessment year, as indicated by the third proviso to Section 10A(1) and the absence of a provision similar to Section 80AB in Section 10A. The Tribunal also referenced the Supreme Court decision in CIT vs Lakshmi Machine Works, which supported the exclusion of certain items from total turnover.
The Tribunal concluded that the CIT(A) was justified in directing that brought forward losses and unabsorbed depreciation should not be reduced while computing deduction u/s 10A. This conclusion was supported by the jurisdictional Bench's decision in KPIT Cummins Infosystems (P) Ltd. vs ACIT, which clarified that unabsorbed depreciation should not be factored into the computation of profits for deduction u/s 10A.
Conclusion:
Both appeals by the revenue were dismissed, affirming the CIT(A)'s decisions on both issues. The judgment was pronounced in the open Court on 24.7.2009.
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2009 (7) TMI 1275
... ...
... ... ..... radip Sharma, Adv. Mr. T.A. Khan, Adv. Mr. B.V. Balaram Das,Adv. ORDER Delay condoned. Dismissed.
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2009 (7) TMI 1274
Source of power on the part of the RBI to issue circulars and guidelines as regards one time settlement - bank to settle the case in terms of the said guidelines as applicable at the time of declaring the account as Non Performing Assets (NPA) and not to recover the said amount in terms of the judgment and recovery certificate - Respondent – Bank issued a circular bearing No. 176 dated 18.10.2005. Questioning the validity of the said circular - Appellants herein as also the Performa respondent Nos. 2 to 11 along with one Smt. Darshan Kaur (since deceased) obtained the facilities for grant of loan for a sum of ₹ 3, 54,50,000/- for business purposes - mortgaged their properties in favour of the respondent – Bank by way of security - Defaults having been made in discharging their liabilities, their assets were declared as NPA as per the guidelines issued by the Reserve Bank of India.
The Appellate Tribunal affirmed the judgment as also the validity of the recovery certificate dated 23.11.2006. It furthermore permitted the appellants and the Proforma Respondent Nos. 2 to 11 to sell the secured properties for clearing the dues in terms of one time settlement scheme and ordered that such an exercise must be completed within a period of four months during which period the bank was restrained from taking any coercive steps against them.
Respondent – Bank filed writ application thereagainst which by reason of the impugned judgment has been allowed. Appellants filed a review application before the High Court which has been dismissed.
HELD THAT:- The Reserve Bank of India is a statutory authority. It exercises supervisory power in the matter of functionings of the Scheduled Banks. The matter relating to supervision of Scheduled Banks is also governed by the Reserve Bank of India Act. For the aforementioned purpose, the Reserve Bank is entitled to issue guidelines from time to time.
The Parliament also enacted the 1949 Act to consolidate and amend the law relating to banking.
We may, however, place on record that the Parliament, in its wisdom, inserted Section 36A of the Act by the Banking Companies (Amendment) Act, 1959 in terms whereof some of the provisions of the 1949 Act were not to be applied to certain banking companies.
The guidelines were issued by the Reserve Bank of India by reason of a letter dated 3.09.2005 addressed to the Chairman/ Managing Director of all public sector banks. It clearly refers to a circular dated 19.08.2005 issued by the Reserve Bank of India in terms whereof it was directed that one time settlement scheme for recovery of NPA below ₹ 10 crore was laid down.
The said letter was issued pursuant to the aforementioned circular in terms whereof one time settlement scheme was formulated for recovery of NPA below ₹ 10 crores. It was categorically stated therein that the same was required to be implemented by all public sector banks. The guidelines issued were to provide a simplified, nondiscretionary and non-discriminatory mechanism therefor in SME sector. It was categorically stated that all public sector banks shall uniformly implement these guidelines.
Respondent – Bank concededly is a public sector bank. It was, therefore, bound by the said guidelines. The said circular letter was issued by the Chief General Manager of the Reserve Bank of India. The High Court in its impugned judgment inter alia was of the opinion that he had no authority therefor.
Whether the respondent – Bank had itself applied the said guidelines in case of the appellants or not - We may notice that the respondent – Bank appears to have accepted the said guidelines as is evident from the letter dated 24.11.2005 by the respondent Bank to the appellants. Such a proposal was made bona fide. It was within the framework of the guidelines issued by the Reserve Bank of India.
It is not necessary to place on record the further correspondences exchanged between the parties although our attention has been drawn thereto in terms whereof the appellants had all along been making sincere efforts to one time settlement within the parameters of the guidelines issued by the Reserve Bank of India.
It may be true that the appellants filed a writ petition before the Punjab and Haryana High Court which was dismissed on the ground of suppression.
The said order of the Punjab and Haryana High Court dated 21.11.2006 again indisputably has been affirmed by this Court. But, in our opinion, the same by itself did not preclude the appellants to approach the Appellate Tribunal. The jurisdiction of the appellate tribunal is co-extensive with the powers of the Tribunal. The memo of appeal filed by the appellants before the Tribunal clearly shows that the contentions with regard to the enforcement of the aforementioned provisions had been made therein.
It is, therefore, not correct to contend that no pleadings were made for the purpose of enforcing the RBI guidelines in respect of one time settlement.
Keeping in view the provisions of the 2002 Act, did not preclude the Appellate Tribunal to consider the offer of the appellants. The Appellate Tribunal in terms of the provisions of the Act like the original Tribunal is interested only in recovery of the amount. While doing so, it, in our considered opinion, has the requisite jurisdiction to consider the prayer made by a debtor for one time settlement particularly in view of the fact that the same is within the purview of One Time Settlement Scheme of the RBI. If a public sector bank is otherwise bound by any guidelines issued by the RBI, we see no reason as to why the same cannot be enforced in terms of the provisions of the Act by the Tribunal and consequently by the Appellate Tribunal. It is not a case where the appellants had prayed for quashing of a policy decision taken by the respondent – Bank.
The question which arose for consideration before the Appellate Tribunal as also before the High Court was as to whether offer having been made by the bank to the appellants herein, it could have turned around and contend that only because the appellants had furnished security to the extent of ₹ 11 crores, the same by itself would entitle it to take recourse to a discriminatory treatment. The answer to the said question must be rendered in the negative.
We may notice that the offer made by the appellants in terms of the RBI guidelines for one time settlement was ₹ 3,45,31,000/-, however, keeping in view the fact that the respondent – Bank had a better security available to it demanded a sum of ₹ 4.92 crores.
If, therefore, the broad policy decisions contained in the guidelines were required to be followed, the power of the Board of Directors to make deviation in terms of Clause 4 thereof would only be in relation to some minor matters which does not touch the broad aspects of the policy decision and in particular the one governing the non-discriminatory treatment. In a case of this nature, we are satisfied that the respondent – Bank is guilty of violation of the equality clause contained in the Reserve Bank of India guidelines as also Article 14 of the Constitution of India.
Whether the guidelines issued by the Reserve Bank of India are binding or not - stands concluded by reason of a Constitution Bench Judgment of this Court in Central Bank of India v. Ravindra and Others [2001 (10) TMI 1065 - SUPREME COURT]. Yet again in Corporation Bank v. D.S. Gowda and Another [1994 (6) TMI 217 - SUPREME COURT] this Court held:
“17…As pointed out earlier, under the Banking Regulation Act wide powers are conferred on the Reserve Bank to enable it to exercise effective control over all banks. Sections 21 and 35-A enable it to issue directives in public interest to regulate the charging of interest on loans or advances made from time to time…”
Judicial discipline mandates the bench comprising of two Judges to follow the judgments of the Constitution Bench having regard to Article 141 of the Constitution of India.
If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement.
In BSNL & anr. v. BPL Mobile Cellur Ltd. & ors.[2008 (5) TMI 648 - SUPREME COURT], it was held that “the direction contained in the said circular letters are relevant for the officers who are authorised not only to grant licenses but also enter into contracts and prepare bills. The circular letters having no statutory force undoubtedly would not govern the contract”.
A distinction, thus, must be made between statutory and non-statutory guidelines. A distinction must also be made between the circular which are relevant but not binding on the third parties and which are imperative in character.
As regards the Reserve Bank of India guidelines, it was the direction of the Appellate Tribunal that the Respondent-Bank should settle the case of the appellants under the RBI guidelines through a One Time Settlement and should invite a proposal for settlement and recovery of the agreed amount. The Appellate Tribunal in passing its order followed the dicta laid down in Constitution Bench judgment in Central Bank of India [2001 (10) TMI 1065 - SUPREME COURT], wherein it was held that:
“.....RBI directive have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under subsection (4) of S. 46 of the Banking Regulation Act, 1949”.
We, therefore, are of the opinion that the impugned judgment cannot be sustained. It is set aside accordingly. The appeals are allowed.
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2009 (7) TMI 1273
Issues Involved:
1. Deferred Employees Compensation.
2. Provision for Pension to Employees.
3. Contributions to RCHS and RSF.
4. Deduction under Section 80HHC.
5. Demand Raised by NPPA.
6. Weighted Deduction under Section 35(2AB).
7. Demand Raised by Department of Chemicals & Petrochemicals.
Issue-wise Detailed Analysis:
1. Deferred Employees Compensation:
The Tribunal addressed the common issue raised in both the Revenue's and Assessee's appeals regarding the deduction of Rs. 4,28,43,984/- as deferred employees compensation under the ESOP scheme. The Tribunal referred to its earlier decision for AYs 02-03 and 03-04, where it was held that the difference between the market price and the grant price of shares under the ESOP scheme did not constitute an actual expenditure but a notional loss due to the short receipt of share premium. Consequently, the Tribunal decided against the Assessee, dismissing their ground and allowing the Revenue's ground.
2. Provision for Pension to Employees:
The Revenue's appeal on the disallowance of Rs. 28,76,76,167/- for provision for pension was dismissed by the Tribunal. The Tribunal followed its earlier decisions for AYs 01-02, 02-03, and 03-04, where it was held that the provision for pension, computed on an actuarial basis, was allowable as a deductible expense even though no pension trust was constituted. The Tribunal affirmed the CIT(A)'s decision in favor of the Assessee.
3. Contributions to RCHS and RSF:
The Revenue's appeal against the CIT(A)'s decision to treat contributions of Rs. 35 lakhs to Ranbaxy Community Health Care Society and Rs. 6 lakhs to Ranbaxy Science Foundation as revenue expenditure was dismissed. The Tribunal referred to its earlier decisions where similar contributions were allowed as business expenditure under Section 37(1) of the Act, as these contributions were aimed at promoting the business and earning goodwill for the Assessee.
4. Deduction under Section 80HHC:
The Tribunal upheld the CIT(A)'s direction to exclude excise duty from total turnover and include foreign exchange gain in export turnover for computing deduction under Section 80HHC. The Tribunal relied on the Supreme Court's decision in CIT vs. Laxmi Machine Works, which held that excise duty and sales tax are not includible in total turnover. Additionally, the Tribunal followed its earlier decisions and other case laws to include foreign exchange gain as part of export turnover.
5. Demand Raised by NPPA:
The Tribunal dismissed the Revenue's appeal against the deletion of additions of Rs. 1,88,06,077/- and Rs. 46,94,01,495/- made on account of demands raised by NPPA. The Tribunal followed its earlier decision for AY 03-04, where it was held that such statutory demands, crystallized during the year and enforceable by law, were allowable as deductions. The Tribunal emphasized that disputing the liability by filing a writ petition does not disentitle the Assessee from claiming the deduction.
6. Weighted Deduction under Section 35(2AB):
The Tribunal dismissed the Revenue's appeal against the CIT(A)'s decision to allow weighted deduction under Section 35(2AB) on the cost of computers, motor-cars, and other assets provided to R&D employees. The Tribunal followed its earlier decisions, where it was consistently held that the Assessee was entitled to weighted deduction for capital expenditure incurred on assets used in approved R&D facilities.
7. Demand Raised by Department of Chemicals & Petrochemicals:
The Assessee's appeal regarding the disallowance of Rs. 4,16,84,678/- on account of demand raised by the Department of Chemicals and Petrochemicals was dismissed. The Tribunal held that the liability crystallized only when the demand notice was issued on 15th April 2004, which fell outside the relevant financial year. The Tribunal emphasized that each year is a self-contained accounting period, and liabilities arising after the close of the year cannot be considered for computing income/profits for that year. The Tribunal also noted that the Assessee could claim the deduction in the appropriate year when the liability arose.
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2009 (7) TMI 1272
Issues: Imposition of penalties u/s 112(a) of Customs Act, 1962 for filing Bills of Entry against bogus and forged advance licences.
The Commissioner imposed penalties of Rs. 2 lakhs each on CHA M/s Vaz Forwarding Ltd. and Shri Winston Gregor Vaz, and Rs. 50,000 on Shri Suresh Yadav u/s 112(a) of Customs Act, 1962 for filing Bills of Entry against bogus advance licences. The appellants denied knowledge of the licences being forged, and there was no direct evidence to prove otherwise. The officers cleared the goods against these licences, and only later were they found to be forged. The penalties were set aside as there was no evidence of the appellants' awareness of the forgery.
The Commissioner observed that the appellants, including M/s Vaz Forwarding Ltd. and Shri Suresh Yadav, failed to prove their innocence regarding the filing of Bills of Entry against bogus advance licences. Despite claiming to have acted in a normal course of business, they were unable to provide evidence of their lack of knowledge about the forged licences. The appellants' plea of not being guilty was deemed unacceptable due to their failure to maintain records or copies of relevant documents, which contradicted their claim of acting in good faith.
The appellants, including CHA M/s Vaz Forwarding Ltd. and Shri Winston Gregor Vaz, were penalized for their involvement in filing Bills of Entry against forged advance licences. However, the absence of direct evidence linking them to the knowledge of the forgery led to the setting aside of the penalties. The appellants were cleared of the charges as there was no proof of their complicity in the fraudulent activities related to the advance licences.
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2009 (7) TMI 1271
Issues involved: Appeal against denial of deduction u/s 10A of the Income-tax Act, 1961 for the assessment year 2005-06.
Facts of the case:
The assessee, a private limited company engaged in software development and services, filed a return of income for the assessment year declaring income after claiming deduction u/s 10A. The assessment completed by the Assessing Officer denied the claimed exemption u/s 10A on the grounds of violating conditions specified in the Act.
Contentions raised by the assessee:
1. The existing unit was registered as an STPI unit.
2. Rules permit registration of an existing unit as an STPI unit.
3. The assessee satisfied the conditions prescribed in section 10A(2)(i)(b).
4. CBDT Circular No.1 of 2005 examples are applicable for section 10A.
5. Conversion into an STP unit does not constitute a new undertaking but a change in status.
6. Reliance on the order of the Tribunal in a similar case.
Decision of the CIT(A):
The CIT(A) allowed the appeal, stating that benefits of sec.10A are available even when an existing unit converts into an STPI unit. Citing precedents and CBDT circulars, the CIT(A) directed the Assessing Officer to allow the deduction u/s 10A.
Arguments before the Tribunal:
The issue was argued to be covered by the judgment of the Punjab and Haryana High Court and the order of the Tribunal in a similar case. The Department's appeal against the Tribunal's order was pending.
Tribunal's decision:
The Tribunal noted the High Court's decision on deduction availability on conversion of units. It upheld the order of the CIT(A) based on precedents and rejected the grounds raised by the revenue.
Conclusion:
The appeal filed by the revenue was dismissed, affirming the decision to allow the deduction u/s 10A for the assessee.
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2009 (7) TMI 1270
Disallowance of interest and administrative expenses - HELD THAT:- Ld. Counsel for the assessee fairly stated that none of the authorities below has gone into the Rule 8D of Income-tax Rules, 1962 as inserted by the IT (Fifth Amdt.) Rules, 2008 w.e.f. 24-3-2008. Accordingly, he requested the Bench to set aside this issue to the file of the Assessing officer to reconsider the whole issue in the light of Rule 8D. The Ld. DR conceded the position.
Accordingly, we set aside this issue to the file of the Assessing officer with the direction to re-adjudicate the same afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. This issue of the assesse’s appeal is allowed for statistical purposes.
Deduction u/s 80IB on PAA plant - DEPB benefit - HELD THAT:- We find that in the case of ELTEK SGS P.Ltd.[2008 (2) TMI 17 - DELHI HIGH COURT] has allowed the claim on duty drawback. Since this High Court is in favour of the assessee and one High Court i.e., Hon'ble Punjab and Haryana High Court against the assessee, applying the case law of Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd[1973 (1) TMI 1 - SUPREME COURT], the beneficial view, which is in favour of the assessee is to be adopted. Respectfully following, the above, we allow the claim of the assessee and this common issue in both the appeals of the assessee is allowed.
Deduction on the amount of deduction u/s 80IA and 80IB - reduced while calculating the deduction u/s 80HHC - HELD THAT:- In the case of M/s. SCM CREATIONS [2008 (3) TMI 223 - MADRAS HIGH COURT], it is noticed that, the amendment brought out in Chapter VIA of the Act and introduction of section 80IA(9) was not brought to the notice of the Hon’ble High Court. The Hon’ble Special Bench of Chennai in the case of Rogini Garments [2007 (4) TMI 122 - ITAT, CHENNAI] has already considered the case law of J.P. Tobacco Products P.Ltd.[1996 (8) TMI 29 - MADHYA PRADESH HIGH COURT] and has also considered the amended provisions of section 80IA(9) of the Act.
Respectfully following the Special Bench of Chennai in the case of Rogini Garments (supra), which now stands confirmed by a Five Members Special Bench, Delhi, we are of the view that relief u/s 80-IA should be deducted from the profits and gains of the business before computing relief u/s 80HHC of the Act. Accordingly, this issue of the assessee’s appeal is decided against the assessee and in favour of the Revenue. Accordingly, this issue of the assessee’s appeal is dismissed.
Deduction u/s 80HHC - sale proceeds of DEPB license - HELD THAT:- It is noticed that this issue relates to computation of deduction u/s.80HHC vis-à-vis the income from DEPB. The Ld. Counsel for the assessee contended that this issue can be restored back to the file of the AO in view of the amendment as brought by Taxation Laws (Amendment) Act, 2005 w.e.f 1-4-1998 by virtue of which clause (iiid) is inserted in Section 28 and also Second , third and fourth provisos as inserted by this amendment. The Ld. Counsel for the assessee stated that neither of the authorities below has gone into the amended provisions and accordingly this issue can be set aside to the file of the Assessing officer. The DR also conceded this position.
Accordingly, we set aside this issue to the file of the AO with the direction that the AO shall recomputed the deduction u/s.80HHC of the Act, in view of the amendment by the Taxation Laws (Amendment) Act, 2005 w.e.f 1 4-1998, after giving proper and reasonable of being heard to the assessee. Accordingly, this issue of the assessee’s appeal is allowed for statistical purposes.
Addition on account of transfer pricing adjustment - Arm’s Length Price - manufacturing & sale of Intermediates, dies, colours etc - two subsidiaries based in USA and UK namely, AAI and AEL - CUP method - HELD THAT:- We are of the view that the CUP method compares the price charge for property transferred in a controlled transaction to the price charged for property transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, this may indicate that the conditions of the commercial and financial relations of the associated Enterprises are not at arm’s length and, that the price in the uncontrolled transaction may need to be substitute for the price in the controlled transaction. In the cases, where controlled and uncontrolled transactions are comparable, then regard should be had to the effect on price of border business function other than just product comparability. The examples provided in the OECD guidelines of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration has discussed how the CUP method is to be applied.
The Hon'ble Banagalore Special Bench in the case of Aztec Software & Technology Services Ltd. [2007 (7) TMI 50 - ITAT BANGALORE] has also held that taxpayer as a party to the transaction has full knowledge of transaction carried out and as a personal associate with that particular line of business, the assessee reasonably accepted to be not only aware about nuisance of that business and but also economic conditions and peculiar situation of that business. The Bench further held that the assessee knew even about the comparable uncontrolled transaction, and therefore it is reasonable to call upon the taxpayer to furnish controlled / un controlled transactions which are within taxpayer’s special knowledge. Accordingly, the burden placed on the assessee is not discharged in the present case before us as the assessee has not filed the details before TPO or the Assessing officer. The relevant details, i.e. the transaction carried out of comparable controlled and uncontrolled transactions.
In view of these facts, and in the absence of material, we have no alternative but to expect to set aside this issue to the file of the Assessing officer to decide the issue afresh after giving reasonable opportunity of being heard to the assessee. The assessee may show that sale price of the controlled transactions are at arm’s length. If there are differences between the controlled and uncontrolled transactions, then the assessee is entitled to the benefit of adjustment for such differences under the T.P. Rules. The AO/TPO is directed to pass a fresh order in the light of the above observations. This mater is set aside in the entirely to the file of the AO of this issue.
Penalty levied u/s 271(1)(c) - disallowance of claim u/s.80IA and addition of transfer pricing difference of ALP - HELD THAT:- Assessee has stated in his explanation that very same Assessing officer had scrutinized the return for assessment year 2001-02 and had made disallowance of the assessee’s claim and hence, was aware about the legal stand of the assessee. The assessee is merely canvassing the same stand in the subsequent assessment year ie. Assessment year 2002-03 and hence, there is no question of any concealment or filing of inaccurate particulars in the return of income. The assessee also put the certificate of the chartered Accountant as required u/s 80IA(7) of the Act which also clearly demonstrate the bona fide of the assessee in making this claim.
Thus, we find that that it is a difference of opinion on legal point of view and the assessee’s explanation has never been held to be false and without that the penalty u/s.271(1)(c) of the Act cannot be levied. In the similar circumstances, the Hon'ble jurisdictional High Court in the case of J.C.I.T. v. Kiran Sytex Private Ltd.[2006 (9) TMI 555 - GUJARAT HIGH COURT] held that penalty levied for claim of deduction u/s.80HHC of the Act, which was disallowed while the claim of the assessee was that it was under a bona fide legal belief that it was entitled to the deduction. The Hon'ble High Court affirmed the findings of Tribunal quashing the penalty u/s.271(1)(c) of the Act. Since the facts being similar, we respectfully following the Hon'ble jurisdictional High Court delete the penalty u/s.271(1)(c) of the Act on this issue.
As regards to confirmation of penalty on account of addition of transfer pricing difference on ALP, the matter in quantum appeal has been set aside to the file of Assessing officer, the penalty cannot survive at this stage. However, the Assessing officer is free to initiate the penalty u/s.271(1)(c) of the Act if the facts warrant so during the course of assessment of set aside proceedings and as per law.
Accordingly, this appeal of the assessee is allowed as indicated above.
In the result, the appeals of assessee’s are allowed for statistical purposes and that of Revenue’s appeal is dismissed.
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2009 (7) TMI 1269
Issues involved: Appeal against addition on account of difference in recorded sale consideration of plot of land purchased by assessee and valuation made by Stamp Valuation Authorities treated as undisclosed investment.
Facts: Assessee purchased a plot of land for a recorded price of &8377; 12,50,000, but Stamp Valuation Authorities valued it at &8377; 16,66,400. Assessing Officer treated the difference of &8377; 4,16,400 as undisclosed investment u/s 69. CIT(A) confirmed the addition based on evidence suggesting unrecorded investment by the assessee.
Arguments: Assessee contended that Stamp Valuation Authorities' valuation was arbitrary and not reflective of actual purchase price. Assessee challenged the invocation of section 69, as it applies to undisclosed income, and section 50C, which deals with capital gains on property transfer. Assessee cited various authorities to support their position.
Decision: Tribunal held that the difference between recorded consideration and Stamp Valuation Authorities' valuation cannot be treated as undisclosed investment u/s 69. Legal fictions like section 50C are limited in scope and cannot be extended beyond their intended purpose. Various High Courts and Tribunals have held that stamp duty valuation does not necessarily reflect actual consideration. Therefore, the addition was deleted, and the appeal of the assessee was allowed.
Significant Legal References: Addl. CIT v. Durgamma P., CIT v. Kar Valves Ltd., CIT v. Mother India Refrigeration Pvt. Ltd., CGT v. R. Damodaran, Dinesh Kumar Mittal v. ITO, Sri Har Sarup Cold Storage & General Mills v. ITO, Sri Venkatraja Modern Boiled & Raw Rice Rice Mill v. ACIT, and others.
Outcome: The appeal was allowed, and the addition was deleted. The order was pronounced on 24.7.2009.
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2009 (7) TMI 1268
The Supreme Court order in the case 2009 (7) TMI 1268 - SC was dismissed after condoning the delay. Judges were S.H. Kapadia and Aftab Alam.
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2009 (7) TMI 1267
The Bombay High Court dismissed the appeal regarding penalty under section 271(1)(c) as no concealment was found on the part of the assessee. The appeal was dismissed with no order as to costs.
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2009 (7) TMI 1266
Issues involved: Appeal against penalty u/s 271(1)(c) of the Income Tax Act, 1961 for non-deduction of tax at source on job charges.
Summary:
1. The assessee did not deduct tax at source on job charges, leading to penalty proceedings u/s 271(1)(c).
2. The AO disallowed job charges under section 40(a)(ia) and initiated penalty proceedings.
3. The CIT(A) upheld the penalty, citing inaccurate particulars of income and lack of satisfactory explanation.
4. The assessee appealed, arguing genuine expenditure and lack of intentional concealment.
5. The Tribunal found that the assessee disclosed all facts during assessment proceedings and no new information was discovered later.
6. Assessment and penalty proceedings are distinct, and the Tribunal reevaluated the matter.
7. The disallowance of job charges did not automatically imply concealment of income by the assessee.
8. Considering the explanation given by the assessee, the Tribunal set aside the penalty imposed by the AO.
9. The appeal was allowed, and the penalty under section 271(1)(c) was quashed.
This judgment highlights the importance of disclosing all relevant facts during assessment proceedings and distinguishes between disallowances in assessment and penalties under section 271(1)(c) of the Income Tax Act.
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2009 (7) TMI 1265
Issues involved: Appeal against penalty u/s 271(1)(c) for furnishing inaccurate particulars of income for Assessment Years 1996-97 & 1997-98.
Assessment Year 1996-97:
The Assessing Officer made additions for bogus purchases, confirmed by CIT(Appeals), leading to penalty u/s 271(1)(c). Tribunal sustained addition at 25% of bogus purchases, following precedent where penalty was deleted for estimated additions. Penalty of Rs. 3,23,040/- for this year was deleted.
Assessment Year 1997-98:
Additions for payments on bogus purchases were partially deleted by Tribunal, rendering the penalty baseless. Penalty of Rs. 1,31,039/- for this year was deleted.
The Tribunal allowed the appeals of the assessee for both years, setting aside the penalties imposed.
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2009 (7) TMI 1264
Issues involved:
The judgment addresses the chargeability of royalty and fees for technical services, the deduction of tax at source under section 195 of the Income Tax Act, payment by way of reimbursement of expenses, and the requirement of TDS on acquisition of software and reimbursement of expenses.
Chargeability of Royalty and Fees for Technical Services:
The revenue appealed against the order of the CIT(A) regarding the chargeability of royalty for software acquisition and fees for technical services. The CIT(A) held that tax deduction was not required on the acquisition of software as it did not constitute royalty or fees for technical services. The ITAT upheld this decision, emphasizing that the payment for software acquisition was not in the nature of royalty or technical services, based on the agreement between the parties and the absence of income element in the reimbursement of expenses.
Tax Deduction at Source under Section 195:
The revenue contended that TDS should be deducted on payments for intranet fees and reimbursement of expenses. However, the CIT(A) and ITAT held that TDS was not required on these payments as they did not fall under the purview of fees for technical services. The ITAT referred to a similar case to support its decision that reimbursement of expenses without an income element does not necessitate TDS deduction under section 195(1) of the Act.
Payment by Way of Reimbursement of Expenses:
The revenue argued that payments made as reimbursement of expenses should not go uncharged. The CIT(A) concluded that such payments should not be allowed to go uncharged only if the chargeability of the payments is in question. The ITAT further clarified that reimbursement of expenses without an income element does not constitute fees for technical services, hence no tax deduction is required.
Requirement of TDS on Acquisition of Software and Reimbursement of Expenses:
The ITAT consistently held that no TDS was required to be deducted on the acquisition of software and reimbursement of expenses. The decision was supported by previous cases and the absence of a profit element in the expenses reimbursed. The ITAT dismissed the revenue's appeal, stating that no TDS was necessary for these transactions.
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2009 (7) TMI 1263
Issues Involved:
1. Deletion of addition made on account of receipts towards advertisement in souvenir.
2. Deletion of disallowance of the claim of depreciation.
3. Dismissal of the ground relating to the claim of the assessee u/s 10(23C)(vi).
Summary:
Issue 1: Deletion of Addition on Account of Receipts Towards Advertisement in Souvenir
The Revenue appealed against the CIT(A)'s order deleting additions made for receipts from advertisements in souvenirs for the assessment years (AY) 2001-02 to 2004-05. The Assessing Officer (AO) had treated these receipts as revenue receipts, arguing they were not voluntary contributions and thus required 85% application for charitable purposes. The CIT(A) deleted the additions, referencing decisions from the Bombay and Gujarat High Courts (CIT v. Trustees Of Visha Nima Charity Trust and CIT v. S.V.Vanik Jain Sangh). The Tribunal upheld the CIT(A)'s decision, noting that the advertisements were incidental to the trust's activities and did not provide any market benefit to the contributors, thus qualifying as capital receipts.
Issue 2: Deletion of Disallowance of the Claim of Depreciation
The Revenue contested the CIT(A)'s decision to allow depreciation claims for AY 2001-02 to 2004-05. The AO had disallowed these claims, arguing that depreciation u/s 32 is not applicable when computing income u/ss 11, 12, and 13. The CIT(A) allowed the claims, citing the Gujarat High Court's decision in CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust. The Tribunal upheld the CIT(A)'s decision, agreeing that income should be computed in a commercial sense, which includes allowing depreciation. However, the Tribunal noted that allowing depreciation as further application in subsequent years could lead to double deduction, which is not explicitly provided in the law. Despite this, the Tribunal followed the High Court's precedent and dismissed the Revenue's appeal.
Issue 3: Dismissal of the Ground Relating to the Claim of the Assessee u/s 10(23C)(vi)
The assessee's cross-objections involved the CIT(A)'s dismissal of their claim u/s 10(23C)(vi), arguing that the application for exemption had not been decided by the CCIT/DGIT. The Tribunal found that it could not adjudicate on this issue as no order u/s 10(23C)(vi) had been passed, and Section 253 does not provide for an appeal against a non-existent order. The Tribunal suggested that the assessee seek remedy under the law for the pending application and dismissed the cross-objections.
Conclusion:
All appeals by the Revenue were dismissed, and the cross-objections by the assessee were also dismissed. The Tribunal upheld the CIT(A)'s decisions regarding the deletion of additions for advertisement receipts and the allowance of depreciation claims.
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2009 (7) TMI 1262
Issues: Whether a charitable institution is entitled to registration u/s 12-AA of the Income Tax Act, 1961.
Judgment Summary:
The High Court of Punjab and Haryana addressed the issue of whether a charitable institution, specifically an Improvement Trust constituted under the Punjab Town Improvement Act, 1922, is eligible for registration u/s 12-AA of the Income Tax Act, 1961. The department had previously filed an appeal against a similar matter where it was observed that the Trust was not engaged in activities of general welfare as required by the Act. However, the respondent's counsel argued that a previous judgment favored the petitioner, and the petitioner should be granted relief. The petitioner's counsel failed to counter this legal position. Consequently, the Court allowed the writ petition, quashed the demand notice and assessment order, and ruled in favor of the petitioner based on the precedent set by the previous judgment in a related case.
In conclusion, the High Court granted the relief sought by the petitioner, quashed the demand notice and assessment order, and upheld the petitioner's entitlement to registration u/s 12-AA of the Income Tax Act, 1961.
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2009 (7) TMI 1261
Issues Involved:
1. Eligibility for deduction under section 80-IB of the Income Tax Act.
2. Nature of the assessee company's business activity (manufacturing vs. trading/installation).
3. Interpretation of 'manufacture' and 'production' under the Income Tax Act.
Issue-wise Detailed Analysis:
1. Eligibility for Deduction under Section 80-IB:
The primary issue concerns the assessee company's eligibility for deduction under section 80-IB of the Income Tax Act for the assessment year 2003-04. The assessee company, engaged in the business of buying, selling, assembling, and servicing wireless communication equipment, claimed that its unit was a Small Scale Industrial (SSI) unit eligible for such deduction. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] denied this claim, leading to the appeal.
2. Nature of Business Activity:
The AO and CIT(A) concluded that the assessee company's activities did not constitute 'manufacturing' or 'production' as required for the deduction under section 80-IB. They argued that the company's activities were limited to the assembly and installation of components, which did not transform the components into a new product. The assessee contended that their activities involved significant engineering and integration processes that resulted in a new product distinct from its components.
3. Interpretation of 'Manufacture' and 'Production':
The tribunal examined various judicial pronouncements to interpret the terms 'manufacture' and 'production.' The assessee argued that the absence of a definition in the Income Tax Act should lead to a broader interpretation of these terms, favoring the taxpayer. The tribunal considered several cases, including CIT vs. Shri Mahesh Chandra Sharma, CIT vs. Punjab Wireless System Limited, and Arihant Tiles and Marbles P. Ltd. vs. ITO, which supported the view that transformation of goods into a new commodity qualifies as manufacturing.
Tribunal's Findings:
The tribunal analyzed the facts and judicial precedents extensively. It noted that the assessee's activities involved substantial engineering and integration processes, resulting in a new product with a distinct character and use. The tribunal was convinced by a demonstration conducted by the assessee, showing how various components were integrated into a new product.
Conclusion:
The tribunal concluded that the assessee's activities constituted 'manufacturing' under section 80-IB. It directed the AO to allow the deduction claimed by the assessee. The tribunal's decision was based on a detailed consideration of the facts, judicial interpretations, and a practical demonstration of the manufacturing process.
Appreciation:
The tribunal expressed sincere appreciation for the efforts of the assessee's Authorized Representative (AR) in demonstrating the manufacturing process, which significantly influenced their decision.
Outcome:
The appeal was allowed, and the assessee was granted the deduction under section 80-IB of the Income Tax Act.
Pronouncement:
The judgment was pronounced in the open court on 10.7.2009.
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