Validity of reopening of assessment - reopening was made after the end of the four years from the assessment orders - HELD THAT:- There is no allegation by the Assessing Officer that there is any failure on the part of the assessee to disclose all material facts for the purpose of assessment. The assessee having furnished all material facts for the purpose of assessment, even if an assessee erroneously placed higher deduction, in respect of issues raised by the Assessing Officer in his reasons recorded, it will not be a case of failure to disclose fully and truly all material facts and the notice u/s.148 issued to the assessee beyond the period of 4 years from the end of the relevant assessment year is liable to invalid, the same to be annulled.
Our view is fortified by the judgment of Fenner (India) Ltd. v. ITO [1998 (11) TMI 66 - MADRAS HIGH COURT] wherein it was held that to initiate any proceedings u/s.147 of the Act, after the expiry of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee, which was not done by the Assessing Officer. - Decided in favour of assessee
Original assessment was completed u/s.143(3) - reopening of assessment - HELD THAT:- Assessing Officer has not pointed out any new material, which came into possession after completing the assessment u/s.143(3). In our opinion, after 1st April, 1989, the Assessing Officer has the power to reopen the assessment u/s.147, if the Assessing Officer has reason to believe that income has escaped assessment and if there is no tangible material to come to the conclusion that there is escapement of income; “mere change of opinion” cannot be a reason to reopen the assessment, as held by the Supreme Court in the case of CIT vs. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT] . In these cases, issues are already considered by the Assessing Officer in his original assessments u/s.143(3). Being so, he cannot relook the same records so as to make additions, which amounts to double taxation. - Decided in favour of assessee
Revision u/s 263 - disallowance of depreciation on securities - AO added back and disallowed the same. Similarly, the Assessing Officer disallowed a sum in the net appreciation of the value of AFS and HFT categories - HELD THAT:- the issue dealt with by the Commissioner of Income-tax was actually examined by the Assessing Officer, which was resulted in excess tax than required. The same is evidenced by the consequential order passed by the Assessing Officer dated 27.3.2014 and there was no addition whatsoever in the order of the Assessing Officer. In our humble opinion, the twin conditions stipulated in sec.263; i.e. an assessment order should be erroneous and prejudicial to the interests of the Revenue, are not complied with. Being so, the order passed by the Commissioner of Income-tax under sec.263 of the Act is devoid of merit. Accordingly, the same is annulled and the appeal of the assessee is allowed.
Computing the profit on sale of securities at the time of sale - assessee contended that the claim is revenue in nature and being allowable it was not added back. But the Assessing Officer has rejected - HELD THAT:- In our opinion, this issue is squarely covered in favour of the assessee by the judgment of the Supreme Court in the case of UCO Bank [1999 (9) TMI 4 - SUPREME COURT] and KARUR VYSYA BANK LTD. [2004 (7) TMI 52 - MADRAS HIGH COURT] the securities are held by the assessee bank as stock in trade of the business and the profit and/or loss on sale of securities have been regularly accounted as revenue income and revenue loss in the books of accounts of the assessee. The profit or loss on sale of securities is treated as revenue in nature since the securities are held as stock in trade in the case of the assessee bank.
Disallowance of expenditure incurred on earning of exempted income by invoking the provisions under sec.14A - HELD THAT:- 2% of the exempt income to be disallowed. This ground of appeal is partly allowed.
Disallowance of broken period interest - HELD THAT:- The income from interest on securities is to be assessed only on due/receipt basis and not on mercantile basis as adopted by the Assessing Officer . See KARUR VYSYA BANK LTD. [2009 (7) TMI 1210 - MADRAS HIGH COURT] and CITY UNION BANK LIMITED. [2007 (2) TMI 187 - MADRAS HIGH COURT]
Disallowance of fees paid to SEBI - HELD THAT:- As decided in assessee’s own case for the assessment years 1991-92, 1995-96 and 1996-97 Commissioner(Appeals) has deleted this disallowance and that the same has become final inasmuch as the department has not preferred any appeal on this decision of the Commissioner(Appeals).
Addition made on account of payment of filing fees to Registrar of Companies to increase the authorized capital - HELD THAT:- Similar issue came up for consideration before the Tribunal, Mumbai Bench ‘B’ in the case of Navi Mumbai SEZ (P.) Ltd. vs. ACIT [2015 (3) TMI 314 - ITAT MUMBAI] , wherein it was held that where the assessee incurred certain expenditure for increase in share capital, the entire incremental share capital was used for the purpose of trading stock, then expenditure in question was to be allowed as revenue expenditure and the judgment of the Supreme Court in the case of Brooke Bond India Ltd. vs. CIT [1997 (2) TMI 11 - SUPREME COURT] has no application as in that case, it was increased capital base. Respectfully following the order of the Tribunal, Mumbai Bench ‘B’ cited supra, we are inclined to decide the issue in favour of the assessee
Disallowance of advertisement and publicity expenses - HELD THAT:- In this case, the expenditure was incurred by the assessee wholly and exclusively for the purpose of carrying on the business and it is to be allowed. Accordingly, we confirm the order of the Commissioner of Income-tax(Appeals) and reject this ground.
Addition made on account of excess bonus provision debited in profit and loss account relating to earlier years - HELD THAT:- In our opinion, the assessee claimed bonus every year in respective assessment years and the amount transferred has already been suffered tax in respective assessment years. Being so, the Commissioner of Income-tax(Appeals) is justified in deleting the addition made by the Assessing Officer. This ground is rejected.
Addition made on account of payment of architect fee for interior decoration - HELD THAT:- This ground is not emanating from the order of the Commissioner of Income-tax(Appeals) and the ld. DR was not able to show in which paragraph the Commissioner of Income-tax(Appeals) has dealt with this issue. Since the issue is not arising out of the order of the Commissioner of Income-tax(Appeals), this ground is rejected.
Claim of deduction fully u/s.36(1)(vii) - HELD THAT:- This issue is squarely covered in favour of the assessee by the judgment of the Supreme Court in the case of Catholic Syrian Bank [2012 (2) TMI 262 - SUPREME COURT] wherein held that schedule commercial banks would continue to get the full benefit of the write off of irrecoverable debts u/s.36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debts u/s.36(1)(viia . Respectfully following the aforesaid judgment of the Supreme Court, we decide this issue in favour of the assessee. Accordingly, this ground is dismissed in both these appeals.
Addition made towards payment of arrears though it was ascertained liability - HELD THAT:- The assessee is following mercantile system of accounting and accounting system of recognition of expenditure on accrual basis is accepted method of accounting. Hence, the Commissioner of Incometax( Appeals) is justified in deleting the addition. This ground is rejected.
Addition on account of amortization charges, though it was a capital expenditure - HELD THAT:- . In our opinion, this issue is covered in favour of the assessee by the decision of the Jurisdictional High Court in the case of City Union Bank Ltd. [2007 (2) TMI 187 - MADRAS HIGH COURT] wherein it was held that the investments are made in accordance with the requirements of the Act, wherein the market price charged from the value shown in the opening balance and at the end of the year, the same could be allowed as depreciation. Accordingly, we decide this issue in favour of the assessee and this ground is rejected.
Provision for Expenses - TDS u/s 194C/J - Disallowance u/s 40(a)(i) - short / non deduction of tax - HELD THAT:- Appeal deserves to be admitted on the following substantial question of law :
“(A) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal is justified in accepting the assessee's contention that the amount covered by 'Provision for Expenses' were not credited to the account of any of the payee but was credited to 'Provision for Expenses' and therefore TDS provisions were not applicable without appreciating the provisions of sub-section (2) of section 194C, Explanation (iv) to section 194H and Explanation (ii) to section 194I ?
(B) Whether on the facts and in the circumstances of the case and in law, in the context of 'Provisions for expenses', the Hon'ble Tribunal has erred in deleting the short / non deduction of tax by holding that in view of disallowances u/s 40(a)(i) / 40(a)(ia), no demand can be raised u/s 201(1) r.w.s. 194C / 194J of the Act?”
TDS u/s 194C - Purchase of traded goods, purchase of packing material and clinical trials - stand of the Revenue was that these are all works contract and there is a requirement of deduction of tax at source u/s 194C - HELD THAT:- The Pharma company provides the formulation and specifications. The third party then manufactures the product or goods and affixes thereon the trademark of the assessee. The raw materials for manufacturing these products are procured not by the assessee or supplied by the assessee but independently by the third party. The property in the goods does not pass on to the assessee till delivery. This is termed as an agreement on principal to principal basis. That is why this is termed as a contract of sale. We do not see how this situation and in the case of Glenmark [2010 (3) TMI 289 - BOMBAY HIGH COURT] is inapplicable to the present assessee.
Merely because the patent is not in any way dealt with and or rights therein are retained by the assessee does not make any difference. The formulations and specifications are provided for manufacture of the goods and which are eventually sold to the assessee. In these circumstances, we do not see that the transactions partake the character of works contract in any manner. Therefore, the issue or question is covered by Commissioner of Income Tax vs. Glenmark.
Transaction was of sale and the assessee was not required to deduct tax at source on payments. (BDA Ltd. vs. Income Tax Officer (TDS) [2004 (3) TMI 11 - BOMBAY HIGH COURT] - Appeal cannot be entertained on Questions (C) and (D)
Rectification petition u/s 254 - AO rejected the claim of refund, as the return was filed belatedly, but advised the assessee to file a petition under Section 119(2)(b) for condonation of delay and to seek refund - CIT(A) dismissed the appeal holding that the order passed by the AO is not under Section 237 - Tribunal allowed the appeal filed by the assessee holding that the communication from the AO amounted to an order under Section 237 - HELD THAT:- Tribunal, on merits, had come to the conclusion that the order passed by the Assessing Officer is one within the provisions of Section 237 of the Income Tax Act. When the Tribunal had arrived at such a finding, it is not open to the Revenue to file a Miscellaneous Petition challenging the said finding in the guise of rectification of the order. The Revenue has a remedy of appeal as against the findings of the Tribunal. Without resorting to such a remedy, the Revenue has filed the Miscellaneous Petition.
In the light of the above, we see no reason to interfere with the order of the Tribunal. - Decided against revenue
Levy of penalty u/s 271 (1)(c) - scope of deliberate default - cost of acquisition for the computation of long term capital gains - debatable issue - HELD THAT:- Assessee during the course of the penalty proceedings for concealment to file documents as well as to give explanations which were not given in the assessment proceedings. Merely because an addition has not been contested, it cannot be presumed that the addition represents concealed income. It has been held by the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. [1987 (7) TMI 3 - SUPREME COURT] that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. Hence in the present case, even though the Hon’ble ITAT has confirmed the appeal on merits (though admitted by the Hon’ble High Court) the penalty proceedings stand under a different footing and is not automatic.
Penalty for concealment is not imposable where there are two views on the issue: If the issue is a debatable one and two views are possible, penalty for concealment cannot be levied.
It was held by the Rajasthan High Court in the case of CIT vs. Harshvardhan Chemicals & Minerals Ltd, reported [2002 (5) TMI 15 - RAJASTHAN HIGH COURT] that where the wrong deduction has been claimed by the assessee but the issue is debatable, it could not be said that there was concealment of income.
The claim of deduction made by the assessee can be described as inaccurate computation of income for which penalty for concealment cannot be levied. The above decisions are in line with that of the Supreme Court in the case of CIT vs. Reliance Petroproducts Ltd. [2010 (3) TMI 80 - SUPREME COURT] where it was held that where the claim of deduction of interest was disallowed, it would be insufficient for levy of penalty for concealment as an incorrect claim does not amount to furnishing inaccurate particulars. Where a claim is made in the return of income it is up to the authorities to accept the claim when all particulars had been furnished.
To conclude in the present case, the assessee has disclosed all the material facts before the AO and also the explanation offered by the assessee as to why FMV on the date of exercise was considered as cost of acquisition for the computation of long term capital gains in the return of income filed for the relevant A.Y.is bonafide. - Decided in favour of assessee.
Legal Judgment Summary: - Court: Supreme Court - Citation: 2015 (4) TMI 1260 - SC Order - Justices: Mr. A.K. Sikri and Mr. Rohinton Fali Nariman - Decision: Appeals dismissed due to tax effect of only Rs. Four lakhs approximately.
Claiming of deduction u/s. 80IB(3) - Status of SSI ceased in 9th year - When once the eligible business of an assessee is given the benefit of deduction u/s 80IB on the assessee satisfying the conditions mentioned in Sub-sec.(2) of Sec.80IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry – Held that:- The issue is now covered by the decision of the Tribunal in the own case of the assessee for earlier assessment year 2009-10 [2014 (8) TMI 596 - KARNATAKA HIGH COURT] in the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years - When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfy all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years
If the object of the Legislature providing for the incentives is kept in mind and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself - Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit u/s 80IB cannot be denied - If such a literal interpretation is placed on the said provion, it would run counter to the very object of granting incentives - the benefit of deduction is given to an assessee who has availed the opportunity given to him under law and has grown in his business - if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it’s going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit u/s 80IB for 10 consecutive years, from the initial assessment year – Decided in favour of Assessee.
Disallowance of bad debts written off - Held that:- Now it is quite settled law that, if the bad debts has been written off in the books of account, then it is not necessary for the assessee to establish that debt has become irrecoverable. It is the decision of the assessee to write off the bad debt as irrecoverable in the accounts of the assessee. This proposition has been quite settled in the case of TRF Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] and catena of other decisions. However, from the perusal of the order of the appellate order, it is seen that, Ld. CIT(A) has made on observations that assessee has not written off the bad debts in the account of M/s. Kiraj Consultants Pvt. Ltd. and in its books of account.
Learned counsel has filed a copy of general ledger account and also the parties account of M/s. Kiraj Consultants Pvt. Ltd., wherein it has been clearly shown that amount of ₹ 2,61,09,809/- has been transferred to bad debts. Even in the P&L Account, in schedule 12 the bad debts written off [net of provisions] have been shown. Thus, this matter needs verification from the end of the AO to see, whether the bad debts has in fact been written off in accounts of the assessee or not - Appeal filed by the Assessee is partly allowed for statistical purposes.
Depreciation @60% on all equipments falling under the head ‘Computers’ including ‘Bizebra Weighing Scale’ - whether the same is weighing scale and not included in the list of hardwares defined as ‘computer’? - Held that:- As observed that a computer, in common sense and as popularly understood, refers to any electronic or high speed data processing device which performs logical, arithmetic and memory functions on data whereas weighing scale fairly do not fall within the ambit of computer. These are only peripherals which draw support from computer for its functions. Most of the computers are used in coordinating with other machineries for weighing articles, generating cash memo, etc. Therefore the basic function of the weighing scale falls in the category of plant and machinery and depreciation @15% is allowed.
CIT(A) merely reproduced the contentions of the assessee as well as the decision of the Special Bench of ITAT, Mumbai in the case of Datacraft India Ltd. [2010 (7) TMI 642 - ITAT, MUMBAI] and observed that weighing scale should be treated as computer hardware and accordingly allowed the claim of the assessee. It deserves to be noticed that the detailed functions of the weighing scale were not mentioned by the CIT(A). It is not known as to what are the substantial functions of the weighing scale and whether they can independently be operated or not, in order to consider as to whether they are part of computer hardware or not.
We set aside the order of the CIT(A) and direct the AO to reconsider the matter by taking into consideration the technical details of the weighing scale and analyse the same in order to appreciate as to whether the functions of the weighing scale fall within the meaning of computer hardware as specified by the ITAT Special Bench in the case of Datacraft India Ltd. With these observations the appeal filed by the Revenue is treated as allowed for statistical purposes.
Legal/professional and sales promotion expenses - to be treated as capital expenditure or revenue in nature - Held that:- Similar agreement was entered into with M/s. A.T. Kerney Ltd. and the payment was made for the launch of the retail business and therefore it has to be treated as pre-operative expenditure and it gives the assessee an enduring benefit in which event the expenditure has to be treated as capital in nature. Though the assessee filed a paper book, as per Rule 18(6) of the Appellate Tribunal Rules, only those papers which were referred to and relied upon by the parties during the course of arguments shall alone be treated as part of the record of the Tribunal whereas in the instant case none appeared before us and no material, whatsoever, was brought to our notice and therefore the paper book cannot be taken into consideration. Thus, the assessee has not brought any material to controvert the findings of the learned D.R. Even otherwise the paper book consists of copies of the agreements with three parties and the same were already considered by the CIT(A). Having regard to the circumstances of the case we do not find any infirmity in the order passed by the CIT(A) and accordingly we dismiss ground No. 1 of the assessee.
Treating of foreign travelling expenditure as capital in nature - Held that:- CIT(A) considered the issue in para 5.3 of his order wherein he observed that foreign travel was for procuring capital goods and hence the AO was justified in disallowing an amount proportionate to the amount of capital goods imported. Here also no material was brought to our notice to controvert the findings of the CIT(A). We, therefore, do not find any justification to interfere with the order passed by the learned CIT(A) on this aspect. Therefore ground No. 2 of the assessee is rejected.
Disallowance computed under section 14A read with Rule 8D - Held that:- Share application money is also an investment and it has to be considered in the investment while working out the average of investment and accordingly worked out the amount disallowable under section 14A read with Rule 8D. Here also no material, whatsoever, was placed to controvert the findings of the learned CIT(A). We, therefore, affirm the order of the learned CIT(A) on this aspect also and dismiss ground No. 3 of the assessee.
Grant of deduction u/s 54F - assessee could not be constructed by the builder for a sufficient long time and the same could not be categorised as residential house - Held that:- The assessee had booked a residential flat on 15.01.1981. The builder failed to complete the construction and the dispute travelled to the Hon’ble Bombay High Court.
The Hon’ble Bombay High Court had appointed a committee/receiver with a direction to complete the construction. The construction of the building was not complete up to Feb 2011 as has been gathered by the CIT(A) from the letter dated 17.02.2011 issued by the said committee of court receiver. The assessee, however, in the year 2005 had sold the unconstructed/under construction unit resulting in taxable long term capital gains.
CIT(A) has categorically held, after appreciation of the factual matrix of the case, that the property transferred by the assessee could not be termed to be a residential house. The findings of the CIT(A) have been reproduced above. The provisions of section 54F are beneficial provisions enacted for the purpose of promoting the construction/purchase of residential houses. The property in question sold by the assessee could not be constructed by the builder for a sufficient long time and the same could not be categorised as residential house and therefore the claim of the assessee has rightly been allowed by the Ld. CIT(A) under section 54F. No infirmity on the order of the CIT(A) in this respect. - Decided in favour of assessee.
Application of Blanket Rate of Tax - computation of tax based on different rates in the assessment orders - computation of tax on royalty income - India-USA DTAA Treaty - Held that:- Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME COURT) has held that where a provision in the taxing statute is capable of two reasonable interpretations, the view favourable to the assessee is to be preferred. We are of the considered opinion that the computation of tax by the assessee in respect of royalty income is to be accepted. In this view of the matter, the grounds of appeal raised at S. Nos.2,3,4 and 5 are accordingly allowed.'
Following the directions of this co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 in IBM World Trade Corpn's case (2012 (5) TMI 58 - ITAT BANGALORE ), on identical facts and issues, we hold and direct that the computation of tax submitted by the assessee in respect of royalty income is to be accepted. In this view of the matter, the grounds of appeal raised at S.Nos.2 to 8 are accordingly allowed.
Levy of interest u/s.234B - Held that:- Tribunal in the assessee's own case for Assessment Year 2007-08, with which we do not find any reason to differ as it was on similar facts and issues, we hold that the assessee is not liable to be charged interest under Section 234B of the Act.
Penalty u/s 271(1)(c) - Held that:- We find that since no penalty thereunder has been levied on the assessee in the impugned order of assessment for Assessment Year 2008-09, no cause of grievance arises therefrom in respect of the assessee, requiring our adjudication. In this factual matrix, this ground raised by the assessee is not maintainable
Addition u/s 14A - Held that:- Respectfully following the order of the ITAT in the case of the assessee itself for the assessment year 2006-07 (supra), on identical issue, we remand the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee in view of the order of the ITAT passed in the assessment year 2006-07. These grounds are accordingly allowed for statistical purposes.
TPA - interest rate charged to the subsidiaries - contentions of the assessee remained that the interest rates were accepted at arm's length in the earlier years since the interest rates cannot be changed year after year, therefore, the same should be considered at arm's length this year also - Held that:- Considering above submissions, we find that it is an undisputed fact that in the earlier assessment years 2005-06 and 2006-07, the interest rates have been accepted at arm's length. in the case of Bhansali & Co [2014 (12) TMI 1149 - ITAT MUMBAI] held DRP erred in considering the loan as loan from India. The fact of the matter is that it was a foreign currency loan which was given abroad. Therefore the most appropriate method is taking the LIBOR as correct benchmark - the benchmarking done by the assessee is correct and the AO is directed to delete the addition.
Scope of SCN - opportunity of being heard - principles of natural justice - Held that:- The case set up in the writ petition was entirely different from the one which is sought to be projected before us at the time of arguments which cannot be permitted - the High Court while allowing the appeal of respondent No. 1 and dismissing the writ petition of the appellant had given an opportunity to the Learned Counsel to file civil suit. Civil Suit was in fact filed but the same was dismissed some time in the year 2011 - appeal dismissed.
(1) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that interest received by the assessee, out of funds placed with its HO and other overseas branches, is not taxable in India?
(2) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that interest payable by the Indian branch / permanent establishment of the foreign bank to its head office and other overseas branches, is deductible in computing the total income ?
(3) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that provisions of section 40(a)(i) are not applicable on interest payable by the Indian branch / permanent establishment of the foreign bank to its head office and other overseas branches, as it does not give rise to any income although as per the deeming provisions of article 7 of the concerned DTAA the income of the branch is to be computed as a separate and a distinct identity from the main entity and for the computation of income the provisions of domestic law are applicable ?
Addition on account of deferred guarantee commission - ITAT not deciding the case on merits and setting aside the matter on the issue to the assessing officer - Held that:- The matter has been sent back to the authority, lower to the Tribunal for a decision on merits. Merely because a order passed in the case of Bank of Bahrain and Kuwait [2010 (8) TMI 578 - ITAT, MUMBAI] has been brought to the notice of the parties and the assessing officer, does not necessarily mean that the issue will not be decided by him in accordance with law. We do not see any basis for entertaining this question.
Addition u/s 14A - Held that:- ITAT was justified in holding that no interest section 14A for earning of interest income on tax free bonds as the assessee has sufficient interest free funds available.
Setting aside the matter to the assessing officer on the issue of applicability of provisions of section 115JA to foreign companies - No substantial question of law.
TDS u/s 194A - cooperative society engaged itself in the business of banking liability to deduct tax on the income/interest paid to depositors/ members - Held that:- Section 194A(3)(v) of the Act says that when the interest is credited or paid by a co-operative society to a member or any other co-operative society, tax need not be deducted. Section 194A(3)(v) of the Act does not refer to a cooperative society carrying on the business of banking. It simply says that “income paid or credited by a co-operative society”. Therefore, the provisions of Section 194A(3)(v) may not be applicable to a co-operative society which carries on the banking business, since the co-operative society which carries on banking business is differently treated by the Parliament in Section 194A(3)(i)(b) of the Act.
Assessee's being co-operative societies engaged in carrying on the business of banking, are liable to deduct tax in respect of interest on time deposit to the members when it exceeds ₹ 10,000/-. However, in view of Section 194A (3)(viia)(b) in respect of other deposits, such as Savings Bank deposit, Recurring Deposit, other than time deposit, the assessee are not liable to deduct tax. Since the assessee's are co-operative societies engaged in banking business, they cannot have any transaction with non-members. Therefore, the question of payment of any interest to non-members does not arise for consideration.
In the case before us, no details are available with regard to nature of deposit on which interest was paid. It is not clear whether the interest was paid on the time deposit or in respect of other deposits, such as Savings Bank deposit, Recurring Deposit, etc. Therefore, the matter needs to be verified. Accordingly, orders of the lower authorities are set aside and the issue of deduction of tax is remitted back to the file of the Assessing Officer for a limited purpose of verifying the nature of deposits on which the interest was paid. It is made clear that the assessees are liable to deduct tax on the interest paid to their members on the time deposit. However, the assessees are not liable to deduct tax on the interest paid on Savings Bank account and Recurring deposit account. - Decided partly in favour of assessee.
Nature of income - treatment to the income from Sale of Shares as Business income OR Short Term Capital Gain - intention behind the purchases - Held that:- When the assessee itself is shifting his stand and offering the profit arising from sale and purchase of shares as business income and subsequently as a short term capital gain, then the rule of consistency will also be applicable on the assessee and not on the AO alone.
In view of the fact that all the transactions of sale and purchase are carried out in such a fashion that it cannot be regarded that the assessee purchased the shares with the intention to retain and hold the same for a longer period and for appreciation of value but the sale of the shares within a short period of time and within a period of one week in the most of the cases clearly manifest the intention of the assessee that the transactions were not undertaken by the assessee with a view to keep the same as investment. Accordingly, we do not find any error or illegality in the orders of the authorities below. - decided against assessee.
Disallowance u/s 14A with reference to investment in partnership firm - Held that:- Assessee has bifurcated the expenses relating to various branches which cannot be considered at all for the earning of the exempt income, which has been worked out at 1,16,01,123. Out of the balance amount, expenditure like godown rent and warehousing charges, other trading expenses insurance, foreign following travelling, business promotion etc. aggregating to ₹ 1.15 crores cannot be considered as expenditure incurred for the purpose of earning exempt income.
The balance expenditure comes to 2.59 crores and if salary cost of approximately 2.12 crores is added then the same comes to ₹ 4.71 crores. If from the total expenditure of ₹ 4.71 crores, the assessee itself has disallowed ₹ 1,65,43,645/-, then definitely it can be held to be reasonable attribution for the purpose of disallowance u/s 14A. Thus, the disallowance made by the AO over and above the disallowance and confirmed by the Ld. CIT(A) is deleted and accordingly, the order of the Ld. CIT(A) on this score is reversed. - Decided in favour of assessee.
Disallowance of deduction claimed u/s 35(2AB) - Assessee is involved into In-House Research & Development activities, which are undertaken at Pune center - Held that:- It is not the case of the revenue authorities that the assessee was not doing scientific research. It is a fact that the assessee was conducting research in its field earlier, is evident from the letter received from Mr. R.R. Abhyankar (Scientist G) reads as renewal, therefore, it means that the relevant approval had been received and when we read the preceding letter also, we find that it talks about renewal from 01.04.2010. In fact vide letter dated 09.01.2008 the nodal officer from the department of Scientific & Industrial Research had accorded the recognition upto 31.03.2010. However all these facts require verification. Hence, this issue is set aside to the file of the AO. Appeal as filed by the assessee is treated as allowed for statistical purposes.
Assessment of income on account of purchase and sale of shares - income from business or income from other sources - assessee had failed to establish the genuineness of the transactions with documentary evidence and also Bombay Stock Exchange had confirmed that no transaction as mentioned in the contract notes had been executed on the Stock Exchange - Held that:- The perusal of details annexed in annexure A to the assessment order also reflects the transaction to have happened in over 1 – 3 days and in the absence of the assessee having established that it had taken delivery of the said shares, the gain arising on such transfer cannot be assessed as income from capital gains or income from business. We find merit in the order of Assessing Officer that since the assessee had failed to explain with documentary evidence, the introduction of unaccounted / undisclosed income to the tune of ₹ 65,51,352/- in the guise of short term capital gains on sale of shares, the same is to be assessed in the hands of the assessee as income from other sources. In the absence of assessee having furnished the details of said shares and establishing the factum of transfer of shares, we reverse the order of CIT(A) and uphold the order of Assessing Officer. - Decided against assessee.
Addition of revenue expenditure - acquisition of capital asset - Held that:- The assessee before us has failed to establish its case and where the intention of the assessee was to acquire a capital asset, the payment of advance money of ₹ 25 lakhs being paid on capital account and its forfeiture would result into capital loss and the same cannot be allowed as revenue expenditure.- Decided against assessee.
Penalty u/s. 271AAA - assessee failed to substantiate the manner in which undisclosed income has been derived - question regarding manner of earning income - Held that:- Referring to observation in case of CIT v. Mahendra C. Shah [2008 (2) TMI 32 - GUJARAT HIGH COURT] it becomes clear that if no question is asked during the statement recorded u/s.132(4) then the assessee cannot be expected to further substantiate the manner of earning of income. In the present case also Revenue never asked any question regarding manner of earning the income therefore following above order we decide this issue against the revenue. Accordingly we set aside the order of Ld. CIT(A) and delete the penalty. - Decided in favour of assessee.
Allowability of expenditure on foreign traveling in the units other than the STP-I unit - allowable busniss expenses - Held that:- In the absence of any discussion on facts in the assessment orders for the years under consideration the issue necessarily has to be restored to the AO. Accordingly the appeal of the assessee and the Revenue in the respective assessment years are being restored back to the AO with the direction to decide the issue raised therein qua the addition made by way of a disallowance discussing the relevant facts in the respective years. Needless to say that before passing the order the assessee shall be afforded a reasonable opportunity of being heard. Appeal allowed for statistical purposes.
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