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2010 (8) TMI 1089
Issues Involved:
1. Non-allowance of loss on sale of securities and adhoc disallowance of expenses.
2. Disallowance of marketing agency fees paid.
3. Levy of interest under section 234B and 234D.
4. Depreciation on BSE/NSE stock exchange membership card.
Issue-wise Detailed Analysis:
1. Non-allowance of loss on sale of securities and adhoc disallowance of expenses:
The assessee, engaged in share broking, reported a share trading loss of Rs. 81,942. The Assessing Officer (AO) treated this as speculative loss under the explanation to section 73 of the Income Tax Act, 1961, which the CIT(A) upheld. The AO also apportioned expenses related to speculative transactions, disallowing Rs. 3,71,886, which CIT(A) reduced to Rs. 1,85,943. The Tribunal, referencing a prior decision in the assessee's case for A.Y. 2001-02, upheld the treatment of the loss as speculative and confirmed the reduced disallowance of expenses by CIT(A), dismissing both the assessee's and revenue's grounds.
2. Disallowance of marketing agency fees paid:
The assessee paid marketing agency fees to ICICI Bank Ltd., claiming Rs. 3,69,29,155. The AO applied section 40A(2)(a), allowing only Rs. 35,91,150 and disallowing the rest as excessive. CIT(A) reduced the disallowance to Rs. 1,84,64,577. The Tribunal, referencing a decision for A.Y. 2002-03, found that section 40A(2) was not applicable as the parties were not related under section 40A(2)(b). The Tribunal noted the significant increase in brokerage income due to the services rendered by ICICI Bank and found no basis for the AO's disallowance. Consequently, the Tribunal allowed the assessee's ground and dismissed the revenue's ground.
3. Levy of interest under section 234B and 234D:
The Tribunal noted that the levy of interest under section 234B is consequential. Regarding section 234D, the Tribunal referenced the Special Bench decision in ITO Vs. Ekta Promoters Pvt. Ltd., holding that section 234D, being a substantive provision, applies prospectively from A.Y. 2004-05. Therefore, interest under section 234D could not be levied for the assessment year in question. The Tribunal directed the AO not to levy interest under section 234D.
4. Depreciation on BSE/NSE stock exchange membership card:
The revenue challenged the allowance of depreciation on the BSE membership card. CIT(A) had allowed this based on the ITAT decision in Techno Shares & Stocks Ltd. However, the Tribunal referenced the Bombay High Court decision in the same case, which held that depreciation under section 32 cannot be allowed on stock exchange membership cards acquired on or after 1.4.1998. The High Court clarified that such cards do not qualify as "intangible assets" under section 32(1)(ii). Consequently, the Tribunal reversed CIT(A)'s order and restored the AO's decision, disallowing the depreciation claim.
Conclusion:
The appeals by the assessee and the revenue were partly allowed, with specific directions and confirmations based on prior judicial decisions and statutory provisions. The Tribunal upheld the speculative loss treatment, allowed the marketing agency fees, directed no levy of interest under section 234D, and disallowed depreciation on the BSE membership card.
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2010 (8) TMI 1088
Issues Involved:
1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956.
2. Alleged fraudulent transfer of shares and the first respondent's membership status.
3. Jurisdiction of the Company Law Board to address issues of fraudulent share transfer.
Detailed Analysis:
1. Maintainability of the Company Petition under Sections 397 and 398 of the Companies Act, 1956:
The appeals arise from a Company Petition filed under Sections 397 and 398 of the Companies Act, 1956, concerning allegations of mismanagement and oppression. The Company Law Board held that the petition was maintainable as the first respondent met the qualifications under Section 399 of the Act. However, the appellants contended that the first respondent was neither a member nor a shareholder of the company at the time of filing the petition. The High Court found that unless the first respondent was a member on the filing date, the petition could not be maintained. The first respondent's claim to shares and membership status needed to be established before proceeding with the petition.
2. Alleged Fraudulent Transfer of Shares and the First Respondent's Membership Status:
The first respondent alleged that his shareholding was mischievously reduced from 50% to 25.5% and later fraudulently transferred, leaving him with no shares. He claimed that he continued to possess share certificates and that the documents showing the transfer were fraudulent. The appellants argued that the first respondent had sold all his shares and received full consideration. The High Court noted that the Company Petition did not challenge the alleged fraudulent transfer of shares, which was crucial for establishing the first respondent's membership status. The court emphasized that the first respondent must establish his membership and shareholding to maintain the petition.
3. Jurisdiction of the Company Law Board to Address Issues of Fraudulent Share Transfer:
The Company Law Board held that it could consider the first respondent's claim to shares despite the alleged fraudulent transfer. However, the High Court found this approach flawed as the Company Petition did not challenge the transfer. The court cited the Gujarat High Court's decision in *Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel*, emphasizing that a person must be a member to file a petition under Sections 397 and 398. The High Court concluded that without establishing membership, the petition could not be entertained. The court allowed the first respondent time to file appropriate proceedings to challenge the transfer and establish his membership.
Conclusion:
The High Court set aside the Company Law Board's order, holding that the first respondent must establish his membership to maintain the petition under Sections 397 and 398. The court granted the first respondent twelve weeks to file appropriate proceedings to challenge the alleged fraudulent transfer of shares. If such proceedings are not filed within the stipulated period, the Company Petition will be dismissed as not maintainable. The appeals were partly allowed on these terms.
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2010 (8) TMI 1087
Issues Involved: Confirmation of notional interest on debit balance of partners, Interpretation of section 40(b) of the IT Act.
Confirmation of Notional Interest on Debit Balance of Partners:
The Appellate Tribunal ITAT Ahmedabad heard the appeal by the assessee against the order of the CIT(A)-XX, Ahmedabad for the assessment year 2007-08. The Assessing Officer (AO) directed to charge interest on the debit balance of partners @12% and made an addition of Rs. 1,56,535 u/s 40(b) of the IT Act. The assessee contended that no interest was charged on the debit balance as per the partnership deed, which allowed partners to change the rate of interest. The CIT(A) confirmed the addition, citing the appearance of the debit balance against the partners. However, the Tribunal held that the addition was unjustified, referring to the decision of the Gauhati High Court and the Supreme Court. It emphasized that section 40(b) allows deduction of expenditure, but does not provide for charging notional interest on the debit balance of partners. The Tribunal noted that the partners had mutually decided not to charge interest on the debit balance in the current year. Therefore, it concluded that the AO was not justified in directing to charge notional interest, and deleted the addition.
Interpretation of Section 40(b) of the IT Act:
The Tribunal analyzed the provisions of section 40(b) of the IT Act, which allows deduction of expenditure while computing business income. It highlighted that section 40(b)(iv) permits the payment of interest to partners as an allowable deduction if authorized by the partnership deed. However, the Tribunal noted that the provision does not authorize charging notional interest on the debit balance of partners. It emphasized that the partnership deed in this case did not specify charging interest on the debit balance. The Tribunal further reiterated that the partners had decided not to charge interest on the debit balance for the current year. Therefore, it concluded that the AO's direction to charge notional interest was unwarranted. By considering the facts and circumstances, the Tribunal set aside the orders of the authorities below and allowed the appeal of the assessee.
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2010 (8) TMI 1086
Petition filled u/s 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) - non-award of interest pendente lite - HELD THAT:- We are of the view that the decisions in Engineers-De-Space-Age[1995 (12) TMI 400 - SUPREME COURT] and Madnani [2009 (12) TMI 1007 - SUPREME COURT] are inapplicable for yet another reason. In Engineers-De-Space- Age and Madnani the arbitrator had awarded interest for the pendente lite period. This court upheld the award of such interest under the old Act on the ground that the arbitrator had the discretion to decide whether interest should be awarded or not during the pendente lite period and he was not bound by the contractual terms insofar as the interest for the pendente lite period. But in this case the arbitral tribunal has refused to award interest for the pendente lite period. Where the arbitral tribunal has exercised its discretion and refused award of interest for the period pendente lite, even if the principles in those two cases were applicable, the award of the arbitrator could not be interfered with. On this ground also the decisions in Engineers- De-Space-Age and Madnani are inapplicable. Be that as it may.
For the aforesaid reasons, we find no merit in these appeals and they are dismissed.
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2010 (8) TMI 1085
Issues involved:
The issues involved in the judgment are:
1. Disallowance of vehicle hire charges u/s.40a(ia) of the I.T. Act.
2. Addition of undisclosed income as capital introduction u/s. 68 of the I.T. Act.
3. Disallowance of expenses on vehicle upkeep, loading-unloading, and miscellaneous expenses.
Issue 1: Disallowance of vehicle hire charges u/s.40a(ia) of the I.T. Act:
The AO disallowed vehicle hire charges of &8377; 33,25,728/- for non-deduction of TDS. The CIT(A) upheld the disallowance. However, the ITAT Kolkata, relying on a previous case, held that the provision of s. 194C(2) was not applicable as there was no contract between the assessee and transporters. The ITAT deleted the addition, stating that there was no written agreement with the truck drivers for transportation, thus favoring the assessee. The ITAT allowed the appeal of the assessee, deleting the addition.
Issue 2: Addition of undisclosed income as capital introduction u/s. 68 of the I.T. Act:
The AO added &8377; 1,43,500/- as undisclosed income out of the total capital introduced by the assessee. The CIT(A) upheld the addition partially. The ITAT found that further verification was required regarding the source of the cash introduced as capital. The matter was restored to the AO for fresh adjudication, allowing the appeal of the assessee for statistical purposes.
Issue 3: Disallowance of expenses on vehicle upkeep, loading-unloading, and miscellaneous expenses:
The AO disallowed a portion of expenses claimed by the assessee for vehicle upkeep, loading-unloading, and miscellaneous expenses. The CIT(A) restricted the disallowance to 10% of the total claimed expenses. The ITAT found the restriction reasonable and upheld the CIT(A)'s order, dismissing the appeal of the assessee on this ground.
In conclusion, the ITAT Kolkata partly allowed the appeal of the assessee for statistical purposes, deleting the disallowance of vehicle hire charges and ordering further verification for the undisclosed income addition, while upholding the restriction on disallowance of expenses for vehicle upkeep, loading-unloading, and miscellaneous expenses.
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2010 (8) TMI 1084
Issues involved: Confirmation of sale of land, inter-se bidding process, liabilities towards pre-liquidation period, payment of dues to Commercial Tax Officer, distribution of sale consideration among claimants.
Confirmation of sale of land: The Official Liquidator sought confirmation of the sale of land at plot no.1037 of Survey No. 1037/p and 1038/p of Village Rajpur, Taluka- Kadi, District Mehsana. Despite an initial offer of &8377; 1.15 Crores by Mahakali Scrap Traders, the Court directed for a re-advertisement with an upset price of &8377; 1.15 Crores to attract higher bids due to inflationary trends. Subsequently, after inter-se bidding, the land was confirmed to Mahakali Scrap Traders for &8377; 2.45 Crores, with certain modifications in terms and conditions.
Inter-se bidding process: Following the Court's order, the Official Liquidator published advertisements and invited offers from interested parties. Out of 9 participants, 3 opted out of the bidding process, while the rest agreed to pay late entry charges to participate. Ultimately, Mahakali Scrap Traders emerged as the highest bidder at &8377; 2.45 Crores, leading to the confirmation of the sale in their favor.
Liabilities towards pre-liquidation period: The auction purchaser was exempted from discharging liabilities towards the pre-liquidation period as per the tender document's condition. This exemption was granted as part of the modifications made to the terms and conditions of the sale.
Payment of dues to Commercial Tax Officer: An affidavit filed by the Commercial Tax Officer highlighted an unpaid amount of &8377; 4,13,787 by the Company in liquidation as of December 31, 2009. The Commercial Tax Officer was directed to lodge a claim before the Official Liquidator for the recovery of these dues, which would be paid in accordance with Section 530 of the Companies Act, 1956.
Distribution of sale consideration among claimants: Upon realization of the full sale consideration, the Official Liquidator was instructed to initiate the process for distribution among the claimants. This step was crucial for ensuring the fair and timely distribution of funds to the rightful parties.
In conclusion, the Official Liquidator's report was disposed of in accordance with the specified directions and observations, thereby resolving the issues related to the sale of land, inter-se bidding process, liabilities, payment of dues, and distribution of sale consideration among claimants.
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2010 (8) TMI 1083
Look-out Circular (LOC) - Red Corner Notice (RCN) issued by Delhi Police and Interpol - petitioner emotionally tortured his wife while his family physically tortured his wife - RCN described the petitioner as “fugitive wanted for prosecution”. A warning is there that the petitioner may be “dangerous” and “violent” - The petitioner claimed that he was a Canadian citizen since January, 2004 and a person of Indian origin. He had married one Ms. Reema Salkan on 24th March, 2002 according to Hindu rites and ceremonies. The facts reveal that wife of the petitioner was not able to join the petitioner in Canada, as difference arose between the parties in the very beginning. The petitioner alleged that he was compelled to withdraw the sponsorship made by him for his wife Reema in view of certain developments.
A complaint against the petitioner and his parents and married sister was filed at Crime Against Women Cell (CAW Cell) u/s 498-A/406 IPC making various allegations. Later on, an FIR was registered on 22nd April, 2003 on the basis of this complaint. The parents and sister of petitioner obtained anticipatory bail from the court. Since petitioner was in Canada, he could not be arrested by the police.
ADC of Police wrote a letter dated 27th May, 2003 to Foreigners Regional Registration Office (FRRO) for opening LOC against the petitioner, a letter seems to have also been written to Interpol Wing of CBI on 11th June, 2003 for opening and issuance of a Red Corner Notice and service of summons on the petitioner in Canada.
HELD THAT:- In the present case, petitioner’s address in Canada was well known to the police as well as to the complainant. No effort was made by the police to initiate extradition proceedings against the petitioner from Canada to Delhi despite the fact that even according to police; the petitioner is wanted since 2003. The information given in RCN is that the petitioner emotionally tortured his wife while his family physically tortured his wife. The RCN requirements provide that the request has to be made to the country if the country is linked by Bilateral Extradition Treaty or by any other Convention or Treaty containing provision of Extradition Treaty.
LOC was issued against the petitioner soon after the registration of FIR. It is alleged by the petitioner that LOC was issued in view of the fact that complainant’s close relative was an IPS officer. This allegation of the petitioner finds support from the fact that the punishment stated by the police to Interpol in respect of the offences committed has been deliberately given as 10 years while the prescribed punishment is maximum 3 years imprisonment.
The petitioner’s description of being ‘violent and dangerous’ also has been added malafidly, with ulterior motive, in view of the fact that allegations against petitioner were of only of emotional torture. Offence of kidnapping was given as the reasons for issuance of RCN, which on the representation of petitioner was removed. It is apparent that the LOC & RCN were issued for extraneous reasons by an officer who was not authorized. The petitioner has also highlighted the difference in statements made by witnesses on different occasions. Since the matter pertaining to these offences is sub judiced, it will not be appropriate to comment on this aspect but suffice it to say that the action against the petitioner of issuing RCN was uncalled for in view of the fact that neither offence, for which the petitioner is facing trial in India, is an extraditable offence, nor any request for extradition of the petitioner has been made for the last 7 years despite knowing whereabouts of the petitioner. I, therefore, consider it a fit case for quashing the RCN issued against the petitioner at the behest of Delhi Police. The RCN, is therefore, hereby quashed.
Look-out-Circular has also been issued against the petitioner as the petitioner is an accused before the Court of M.M. and he has not appeared before the Court of M.M. If the petitioner gives an undertaking before the court for his appearance on a particular date, through his counsel, the Look-out-Circular issued against the petitioner shall be withdrawn within 24 hours of giving undertaking by the petitioner.
The questions raised in the reference are as under:
What are the categories of cases in which the investigating agency can seek recourse of Lookout-Circular and under what circumstances? - Recourse to LOC can be taken by investigating agency in cognizable offences under IPC or other penal laws, where the accused was deliberately evading arrest or not appearing in the trial court despite NBWs and other coercive measures and there was likelihood of the accused leaving the country to evade trial/arrest.
What procedure is required to be followed by the investigating agency before opening a Lookout-circular? The Investigating Officer shall make a written request for LOC to the officer as notified by the circular of Ministry of Home Affairs, giving details & reasons for seeking LOC. The competent officer alone shall give directions for opening LOC by passing an order in this respect.
What is the remedy available to the person against whom such Look-out-Circular has been opened? The person against whom LOC is issued must join investigation by appearing before I.O. or should surrender before the court concerned or should satisfy the court that LOC was wrongly issued against him. He may also approach the officer who ordered issuance of LOC & explain that LOC was wrongly issued against him. LOC can be withdrawn by the authority that issued and can also be rescinded by the trial court where case is pending or having jurisdiction over concerned police station on an application by the person concerned.
What is the role of the concerned Court when such a case is brought before it and under what circumstances, the subordinate courts can intervene? LOC is a coercive measure to make a person surrender to the investigating agency or Court of law. The subordinate courts’ jurisdiction in affirming or cancelling LOC is commensurate with the jurisdiction of cancellation of NBWs or affirming NBWs.
The petitions stand disposed of in above terms.
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2010 (8) TMI 1082
Issues involved:
The judgment deals with the disallowance of contribution made to a group gratuity scheme of LIC of India, being an unapproved fund u/s 40A(7) of the Income Tax Act, 1961.
Details of the Judgment:
Issue 1: Disallowance of contribution to unapproved gratuity fund u/s 40A(7) of the IT Act
The AO disallowed the claim of payment of &8377; 26,53,000/- to LIC under section 40A (7) as the application for recognition of the group gratuity scheme was pending for approval. The CIT(A) allowed the appeal based on the decision of ITAT Ahmedabad Bench in the case of Crystal Solvent Pvt. Ltd., stating that disallowance u/s 40A(7) cannot be made due to the absence of approval of the gratuity fund as the deduction was not claimed on account of any provision.
Issue 2: Interpretation of Section 40A(7) of the IT Act
The Tribunal analyzed Section 40A(7) which disallows deduction for any provision made by the assessee for gratuity payment. It was noted that the assessee claimed deduction for actual expenses incurred under gratuity contribution, not just a provision. Citing precedents like CIT vs Gujarat Machine Tools and CIT vs Bitoni Lamps Ltd., it was held that actual payment of funds to LIC, not mere provision, is not hit by section 40A(7).
Conclusion:
After considering the submissions and legal provisions, the Tribunal found no error in the CIT(A)'s decision to delete the addition. The departmental appeal was dismissed, affirming that the contribution towards gratuity made to LIC was allowable as a deduction under the circumstances presented.
Note: Separate judgment was not delivered by the judges mentioned in the case.
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2010 (8) TMI 1081
Assessment u/s 153A - Whether incriminating documents found during the course of search? - Rejection of claim u/s 80IB(10) - HELD THAT:- There is not only a statement of having made e-xcessive claims, but it is followed up by su-motto surrender of the claims made earlier u/s. 80IB(10) of the Act. Just because there is no statement or withdrawal of claim for this particular assessment year, it cannot be said that there is no possibility of the assessee not having made the false claim u/s 80IB(10) during this year. Once during the course of search, certain information has come to light, that the assessee has made certain false claims, on a particular issue, in our considered opinion, the AO has jurisdiction to examine the validity of the claim of exemption u/s 80IB(10) in all the assessment years, while processing the returns of income u/s. 153A read with section 143(3). Thus in view of the information that has come to light during the course of search and seizure operations on the claims of exemption made by the assessee u/s 80IB(10) during the period prior to the search, it is held that there is information, which is intangible material, unearthed as a result of search, and this material can be used for the purpose of assessment made u/s 153A read with section 143(3). Hence, on facts, we fully agree with the submission of the ld. Departmental Representative
Deduction u/s.80(IB)(10) - whether the project is constructed on a plot of land which is more than one acre.? - HELD THAT:- Additional housing project constructed on an existing project, which fulfils the requirement of the size of the plot of land of minimum 1 acre, would be eligible for deduction u/s 80IB(10). This clarification, in our considered opinion supports the literal interpretation pleaded by the learned counsel for the assessee.
In view of the factual position that the project in question is purely a residential project without a commercial element and as this project is located on a plot of land of a size of 1.43 acres as following VANDANA PROPERTIES case [2009 (4) TMI 530 - ITAT MUMBAI] we allow this ground of the assessee.
Eligibility for exemption u/s.80IB(10) of Pocket 10 MIDC - Whether FAA has erroneously considered 10% of the plot area instead of considering 10% of the total constructed area while examining the eligibility for exemption? - HELD THAT:- As per the mandate Tribunal in the case of Brahma Associates [2009 (4) TMI 215 - ITAT PUNE] as already referred above while dealing ground No.1, what is to be considered is 10% of the built up area and not 10% of the plot area. Thus we set aside this issue to the file of the AO for examining, if the assessee’s built up commercial area is less than or more than 10% of the total built up area. If the commercial built up area is less than 10% of the total built up area, the case of the assessee should succeed. If it is not so, the assessee will not be entitled for any exemption u/s.80IB(10). With these observations we set aside the issue to the file of the A.O. for fresh adjudication. In the result, this ground is allowed for statistical purposes
Addition made u/s 2(22)(e) - financial transactions between sister concerns - HELD THAT:- The Hon’ble Delhi High Court in the case of CIT vs. Ambassador Travels P. Ltd. [2008 (4) TMI 428 - DELHI HIGH COURT] held that when the assessee entered into normal business transaction as a part of day to day business activity, this cannot be treated as loans or as advances.
We accept the arguments of the learned counsel for the assessee that the transactions between these sister concerns are business transactions and are guided by commercial expediency and are mere diversion of funds and are neither a loan or advance as contemplated u/s 2(22)(e). Thus this ground of the assessee is allowed.
Appeals are allowed in part.
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2010 (8) TMI 1080
The Supreme Court of India, in a case before Justice Sanjib Banerjee, adjourned the matter to August 16, 2010, to receive the affidavit of service as it was found that no affidavit had been filed despite notice of motion being taken out against all parties. The first defendant applicant was directed to inform all parties about the next hearing date.
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2010 (8) TMI 1079
Issues involved: Appeals against separate orders dated 18.3.2008 of ld CIT (A)-I, Mumbai for the assessment years 1999-2000 and 2000-2001.
For the assessment year 1999-2000: The Assessing Officer observed fraudulent exports by M/s. Precision Shears & Knives Pvt Ltd. and M/s. Koyana Glass Works Pvt Ltd. The assessee did not file returns, leading to assessment u/s.144. Total income determined at Rs. 1,01,94,360. CIT (A) dismissed the appeal.
For the assessment year 2000-2001: Similar facts led to the AO determining total income at Rs. 6,29,85,437. CIT (A) dismissed the appeal following the assessment year 1999-2000.
Key Details: The Tribunal, in a similar case, set aside the order and directed the AO to frame the assessment afresh after considering new evidence. The Tribunal found the present case to be covered by the decision in the previous case. Consequently, both appeals were allowed for statistical purposes.
Judgment Date: Pronounced on 20th August, 2010.
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2010 (8) TMI 1078
Issues Involved:
1. Adoption of unaccounted sales.
2. Estimation of Gross Profit on unaccounted sales.
3. Additions for unaccounted purchases.
4. Addition towards payment of money on retirement from Partnership Firm.
5. Addition in respect of purchases of chemicals.
6. Addition of gifts as unexplained income u/s 68 of the Act.
Summary:
1. Adoption of Unaccounted Sales:
The first common issue relates to the adoption of unaccounted sales at Rs. 3,13,29,137/- more than the unaccounted sales admitted by the appellant at Rs. 76,16,558/-. The appellant was found to have carried on parallel business outside the books of accounts using "One day clearing agents." The Assessing Officer (AO) calculated additional unaccounted sales and estimated the income at 7.24%. The appellant argued that the adoption of the figure of suppressed sales is not sustainable, citing that the cheques worth Rs. 76,16,558/- were related to him, and there was no connection with the remaining cheques. The Tribunal found that the AO's adoption of unaccounted sales was based on surmises and conjectures without any cogent evidence. Therefore, the addition made by estimating income at 7.24% on the alleged unaccounted sales of Rs. 3,13,29,137/- was directed to be deleted.
2. Estimation of Gross Profit on Unaccounted Sales:
The next issue relates to the estimation of Gross Profit (GP) on the unaccounted sales. The appellant contended that the GP on unaccounted sales should be at 5%, as stated in his statement. The Tribunal held that since the adoption of unaccounted sales itself was not sustainable, the estimation of GP at 7.24% was also not sustainable.
3. Additions for Unaccounted Purchases:
For the assessment years 2000-01 and 2005-06, the AO made separate additions towards unaccounted purchases. The appellant argued that the working made for unaccounted purchases based on alleged sales was erroneous. The Tribunal held that since the adoption of unaccounted sales was not sustainable, the additions towards unaccounted purchases were also not sustainable. Therefore, the additions of Rs. 7,59,920/- and Rs. 38,73,880/- for the respective assessment years were directed to be deleted.
4. Addition Towards Payment of Money on Retirement from Partnership Firm:
The issue relates to the addition of Rs. 40,00,000/- towards payment of money on retirement from the Partnership Firm. The appellant argued that the amounts standing to the credit of the retiring partners were paid through cheques, and there was no material to support the addition. The Tribunal found that except for a statement from one of the retiring partners, no other material was unearthed by the Department to support the addition. Therefore, the addition of Rs. 40,00,000/- was directed to be deleted.
5. Addition in Respect of Purchases of Chemicals:
The issue relates to the addition of Rs. 32,760/- in respect of purchases of chemicals for dyeing job work. The Tribunal held that since the appellant was doing business on credit, there was no justification for the addition. Therefore, the addition of Rs. 32,760/- was directed to be deleted.
6. Addition of Gifts as Unexplained Income u/s 68 of the Act:
The issue relates to the addition of Rs. 2,02,600/- representing gifts from relatives added as unexplained income u/s 68 of the Act. The appellant argued that no incriminating evidence was found during the search, and the addition was based on the appellant's disclosure. The Tribunal held that since no incriminating evidence was found, the addition could not be made. Therefore, the addition was directed to be deleted.
Conclusion:
All the appeals in the case of Shri S. Selvaraj and Shri S. Kathirvel were allowed, and the respective additions were directed to be deleted.
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2010 (8) TMI 1077
Issues involved:
The judgment involves the issue of whether the interest income earned by the assessee from Fixed Deposit Receipts (FDRs) should be assessed under the head "income from other sources" and the consequent deduction of expenses u/s 57(iii) for the purpose of making or earning such income.
Assessment Year 2002-03:
The assessee, a 100% export-oriented unit engaged in manufacturing and exporting gold jewelry, claimed exemption u/s 10A for the relevant years. The dispute arose when the Assessing Officer treated the interest income from FDRs as income from other sources, denying the assessee the benefit of netting interest paid against interest earned on FDRs.
Decision of Ld. Commissioner of Income Tax (Appeals):
The Ld. Commissioner upheld the character of the income from FDRs as "income from other sources" but allowed the benefit of netting based on the ITAT's decision for the A.Y. 2003-04. However, the Ld. Commissioner did not quantify the deductible amount u/s 57(iii) for the expenses laid out or expended wholly or exclusively for earning such income.
Arguments and Ruling:
The Departmental Representative argued that the Ld. Commissioner's order should be set aside as the quantification of deductible expenses was not done. On the other hand, the Authorized Representative supported the Ld. Commissioner's decision based on the ITAT's precedent.
Judgment and Direction:
The ITAT Delhi Bench, considering the precedent set by the tribunal in the assessee's own case, ruled that the interest income from FDRs should be assessed under "income from other sources." However, the quantification of deductible expenses u/s 57(iii) was deemed necessary. Therefore, the issue was remanded to the Assessing Officer to determine the allowable deduction strictly as per section 57(iii) for all the assessment years under appeal.
Conclusion:
All the appeals filed by the Revenue were allowed for statistical purposes, and the issue was remanded to the Assessing Officer for quantifying the deductible amount as per section 57(iii) of the Income Tax Act.
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2010 (8) TMI 1076
Issues involved:
The judgment involves the issue of deduction for bad and doubtful debts under sections 36(1)(vii) and 36(1)(viia) of the Income Tax Act.
Details of the Judgment:
Issue 1: Deduction for bad and doubtful debts under section 36(1)(vii) and 36(1)(viia) of the Act
The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2006-07. The assessee, a public sector undertaking, had received COD approval only for one ground of appeal before the Tribunal. The other grounds of the assessee were rejected due to the absence of COD approval. The specific ground of appeal, No.4, raised by the assessee challenged the CIT(A)'s decision regarding the provisions under section 36(1)(viia) of the Act. The counsel for the assessee argued that the assessee is entitled to deduction for bad and doubtful debts separately under sections 36(1)(vii) and 36(1)(viia) of the Act. The Tribunal noted that while the CIT(A) directed the Assessing Officer to verify and allow the claim made under section 36(1)(vii), no such direction was given for the claim made under section 36(1)(viia). After considering the submissions, the Tribunal held that the Assessing Officer should verify the claim made under section 36(1)(viia) in light of various court decisions cited by the assessee, and directed to allow the deduction after providing a reasonable opportunity of hearing to the assessee.
Therefore, the appeal of the assessee was partly allowed for statistical purposes, with the direction to verify and allow the deduction claimed under section 36(1)(viia) of the Act.
Order pronounced in the court on 6.8.2010.
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2010 (8) TMI 1075
Issues involved: Disallowance of demurrage paid u/s 37(1) of the IT Act, 1961.
The Appellate Tribunal ITAT Mumbai heard an appeal against the order of CIT(A)-III for the assessment year 2003-04. The only ground raised was the disallowance of demurrage paid amounting to Rs. 81,84,925 by the AO under section 37(1) of the IT Act, 1961. The assessee had exported molasses to a company and incurred demurrage charges due to delays in loading and unloading. The AO disallowed a portion of the claimed expenditure invoking Explanation 1 to section 37(1) of the Income Tax Act, 1961. The CIT(A) upheld this disallowance.
The assessee argued that the demurrage charges were a contractual obligation and not a penalty for any offense prohibited by law. The charges were compensation for delays in loading, as per the agreement with the buyer. The assessee cited a decision of the Allahabad High Court in support of their argument. The revenue authorities, however, supported the disallowance made by the AO.
After considering the contentions and records, the Tribunal noted that the demurrage charges were paid solely for delays in loading and unloading, not for any legal infraction. Referring to the Allahabad High Court decision, the Tribunal held that such charges were compensatory in nature and allowable as business expenditure. Citing another case, the Tribunal ruled in favor of the assessee, allowing the deduction for the demurrage charges. Consequently, the orders of the lower authorities regarding this issue were set aside, and the appeal of the assessee was allowed.
Judges: Shri S V Mehrotra, Accountant Member and Shri Vijay Pal Rao, Judicial Member.
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2010 (8) TMI 1074
Issues Involved:
1. Determination of annual value under Section 23(1)(a) of the Income Tax Act.
2. Inclusion of notional interest on interest-free security deposits in the income from house property.
Issue-wise Detailed Analysis:
1. Determination of Annual Value under Section 23(1)(a) of the Income Tax Act:
The primary issue in this case is the determination of the annual value of the property for the purpose of computing income from house property under Section 23(1)(a) of the Income Tax Act. The assessee had let out properties and received substantial interest-free security deposits. The AO added notional interest on these deposits to the income from house property, which was contested by the assessee.
Section 23(1)(a) states that the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The Tribunal and CIT(A) held that the annual value should be based on the actual rent received or the rateable value determined by the municipal corporation, whichever is higher. They rejected the inclusion of notional interest on the security deposits.
2. Inclusion of Notional Interest on Interest-Free Security Deposits:
The AO included a sum of Rs. 30.41 lakhs as notional interest on the interest-free security deposits in the income from house property. The CIT(A) and the Tribunal deleted this addition, holding that notional interest is not part of the rent received or receivable under Section 23(1)(b).
The Tribunal relied on various judgments, including those of the Calcutta, Bombay, and Madras High Courts, which held that notional interest on interest-free security deposits cannot be included in the annual value of the property. The Bombay High Court in J.K. Investors (Bombay) Ltd. stated that the actual rent received, if more than the fair rent, should be considered as the annual value, and notional interest should not be added.
The Calcutta High Court in CIT vs. Satya Co. Ltd. and the Delhi High Court in CIT vs. Asian Hotels Ltd. also held that notional interest on interest-free deposits is not to be included in the income from house property. The courts emphasized that the fair rent should be determined based on the rateable value fixed by municipal laws or under the Rent Control Act.
Conclusion:
The Delhi High Court, in this judgment, agreed with the Tribunal's approach that notional interest on interest-free security deposits should not be included in the income from house property. However, the court recognized the need for a larger bench to address the issue of determining fair rent in cases where the security deposit is disproportionately high compared to the actual rent. The matter was referred to the Chief Justice for constituting a Full Bench to consider these aspects.
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2010 (8) TMI 1073
Issues Involved:
The judgment involves the issue of the validity of re-assessment proceedings u/s 147 of the Income-tax Act, 1961 based on the approval obtained for issuing notice u/s 148 from the Commissioner of Income-tax instead of the Joint Commissioner as required u/s 151 of the Act.
Issue 1: Compliance with Section 151 of the Act
The assessee contended that the Assessing Officer (AO) erred in initiating re-assessment proceedings u/s 147 without complying with the mandatory conditions of Section 147 to 151 of the Act. The AO issued notice u/s 148 after obtaining approval from the CIT, Delhi-III, New Delhi, instead of the Joint Commissioner of Income-tax as required u/s 151. The assessee relied on a decision of the Delhi High Court emphasizing the necessity of obtaining approval from the designated authority, the Joint Commissioner of Income-tax, as statutorily provided under Section 151. The AO argued that approval from the Commissioner of Income-tax, with the knowledge of the Additional CIT, satisfied the conditions of Section 151.
Decision:
The Tribunal noted that the notice u/s 148 was issued after the expiry of four years from the end of the relevant assessment year, 2001-02, by an AO below the rank of Joint Commissioner. As per Section 151(2) of the Act, in such cases, the notice should be issued only if the Joint Commissioner is satisfied that it is a fit case. The approval from the CIT did not meet the statutory requirement of Section 151(2) as per the Delhi High Court's judgment. Therefore, the assessment made by the AO u/s 147 was canceled due to the lack of statutory approval from the designated authority specified u/s 151(2) of the Act. Consequently, the appeal challenging the validity of re-assessment and the addition made by the AO became redundant and were not decided upon.
Result:
The appeal filed by the assessee was allowed, and the assessment made by the AO u/s 147 was canceled for non-compliance with the statutory conditions of Section 151(2) of the Act.
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2010 (8) TMI 1072
Issues involved: Determination of whether income from sale of shares should be treated as business income or capital gains, and disallowance under section 14A of the Income Tax Act, 1961.
Issue 1 - Income Classification: The appellant contested the treatment of short term and long term capital gains as business income by the CIT(A). The main issue was whether the income from sale of shares should be categorized as business income or capital gains. The appellant argued that the shares sold were investments and should be treated as capital gains based on a previous Tribunal decision for the assessment year 2005-06. The Departmental Representative failed to provide any evidence to counter the appellant's submissions. The Tribunal accepted the appellant's plea, citing the decision of a co-ordinate bench for the assessment year 2005-06, which concluded that the income on sale of shares should be taxed as capital gains. The Tribunal directed the Assessing Officer to tax the income on sale of shares as capital gains.
Issue 2 - Disallowance under section 14A: The second ground of appeal related to the disallowance of Rs 3,73,311 under section 14A of the Income Tax Act, 1961. However, this ground was not pursued by the appellant during the proceedings. As a result, Ground No. 2 was dismissed as not pressed.
In conclusion, the Tribunal partially allowed the appellant's appeal, directing the Assessing Officer to tax the income from the sale of shares as capital gains. The decision was pronounced on August 20, 2010.
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2010 (8) TMI 1071
Interpretation of Statute - provisions of the Urban Land (Ceiling and Regulation) Act, 1976 - In present case, The Act came into force on 17th February, 1976. On the said date, the suit land was not within urban limits, however it was included in the urban area residential zone only with effect from 17.05.1976, by extending the limits of the Municipal Corporation. The suit land was acquired under the Act, 1976, in the years 1978-1979 and its possession was taken and handed over to Pune Municipal Transport (for short PMT) for establishing a bus depot and staff quarters. In 1988, the bus depot was constructed on a part of the suit land, however, the appellant preferred a revision u/s 34 of the Act, 1976, dated 6.4.1998 contending that the land ought not to have been acquired under the Act, 1976, on the ground that on the date of commencement of the Act, 1976, i.e. 17.2.1976, the suit land was not within the limits of urban area.
HELD THAT:- Undoubtedly, the Act, 1976, stood repealed by the Act 1999. However, it has no bearing on this case for the reason that proceeding pending in any Court relating to the Act, 1976, stood abated, provided the possession of the land had not been taken from the owner. Therefore, in a case, where the possession has been taken, the repeal of the Act would not confer any benefit on the owner of the land. Therefore, the law, as exists today, is that the land in dispute could be subjected to the provisions of the Act, 1976, with effect from 17.5.1976, i.e. the date on which the suit land came within the limits of the Municipal Corporation. The Act stood repealed in 1999, but the proceedings pending in any court would stand abated provided the tenure-holder was in possession of the land on the date of the commencement of the Act 1999. The High Court has taken note of the fact that the appellant's revision had been entertained only on the basis of the judgment of this Court in Atia Mohammadi Begum [1993 (3) TMI 380 - SUPREME COURT], which stood over-ruled by the subsequent judgment in N. Audikesava Reddy[2001 (11) TMI 1056 - SUPREME COURT]. The aforesaid factual position makes it clear that the appellant is not entitled for any relief whatsoever as per the law, as it exists today. The land once vested in the State cannot be divested. Once the land is vested in the State it has a right to change the user. The appellant cannot be heard raising grievance on either of these issues.
Thus, in view of the above, the appeal lacks merit and is accordingly dismissed. No order as to costs.
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2010 (8) TMI 1070
Issues Involved:
1. Deletion of addition of interest expenditure of Rs. 1,77,33,476.
2. Deletion of addition of Rs. 33,45,882 claimed as bad debt.
3. Deletion of addition of Rs. 10,00,000 claimed as software development expenses.
Issue-wise Detailed Analysis:
1. Deletion of Addition of Interest Expenditure of Rs. 1,77,33,476:
The issue pertains to the deletion of interest expenditure addition by the Ld. CIT(A). The AO disallowed Rs. 1,77,33,476 as it was considered prior period expenditure. The assessee had initially claimed this interest for the earlier financial year 2002-03 but later withdrew the claim through a letter dated 27th November 2006, instead of filing a revised return under section 139(5). The AO rejected the books of account on this basis. The Ld. CIT(A) allowed the claim without obtaining a remand report from the AO, which was contested by the revenue. The Tribunal found that the Ld. CIT(A) should have obtained a remand report due to significant developments between assessment and appellate proceedings. Therefore, the Tribunal restored the matter back to the Ld. CIT(A) for fresh adjudication after obtaining the AO's comments.
2. Deletion of Addition of Rs. 33,45,882 Claimed as Bad Debt:
The AO disallowed the bad debt claim of Rs. 33,45,882, which included loans and advances written off. The AO's disallowance was based on the failure to establish that these debts were recognized as income in the Profit & Loss Account or squared up in the accounts. The Ld. CIT(A) deleted the addition, accepting the assessee's contention that the loans were advanced in the ordinary course of its NBFC business and were written off due to non-recoverability. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the AO's remand report acknowledged the allowability of the loan to Spentex Industries but contested other amounts due to lack of evidence that the erstwhile company was in money lending business. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground.
3. Deletion of Addition of Rs. 10,00,000 Claimed as Software Development Expenses:
The AO disallowed Rs. 10,00,000 as capital expenditure but allowed depreciation. The assessee contended that the expenditure was for application software necessary for business operations and should be treated as revenue expenditure. The Ld. CIT(A) agreed, noting that the software was for enhancing operational efficiency and required frequent upgradation, thus qualifying as revenue expenditure. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the ITAT Special Bench's criteria in the Amway India Enterprises case, which supports treating software with a short useful life as revenue expenditure. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground.
Conclusion:
The Tribunal allowed the revenue's appeal on the interest expenditure issue for statistical purposes by restoring it to the Ld. CIT(A) for fresh adjudication. However, it dismissed the appeals concerning bad debt and software development expenses, upholding the Ld. CIT(A)'s decisions. The revenue's appeal was thus partly allowed for statistical purposes.
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