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2010 (5) TMI 845
TP Adjustment - Selection of CPM or TNMM as MAM - HELD THAT:- the assessee is manufacturing Optical Brightening Agents (OBAs) which are being used in textile and paper industries and which are exported by the assessee to the AEs as well as Non-AEs. the cost data for the manufacture of products are available as per cost audit report, the reliability there of is assured and therefore Cost Plus Method is the most appropriate method. In this view of the matter and in view of the detailed discussion by the learned CIT(A), we hold that the Cost Plus Method (CPM) is the most suitable method for the international transactions with AEs in the instant case.
Since the exports to AEs at ₹ 34,32,62,520 is almost six times of the exports to Non-AEs which is at ₹ 5,58,47,305, therefore, an adjustment on account of volume discount should be allowed to the assessee in order to carry out a prudent transfer pricing analysis. We find from the orders of the TPO that similar volume discounts were allowed by him for the A.Ys. 2003-04 and 2004-05. Since the methodology for computation of volume discount for the A.Y. 2002-03 is the same as that was adopted for the A.Y. 2003-04 and which has already been verified by the TPO and accepted by the CIT(A), therefore, in our opinion, volume discount should be allowed to the assessee for the A.Y. 2002-03 on the basis of methodology accepted by the TPO and the CIT(A) in the subsequent year. With these observations, we restore this issue to the file of the AO for calculating the necessary volume discount and give appropriate relief to the assessee on the basis of the methodology adopted by him in the sub sequent years. The grounds raised by the assessee are partly allowed.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
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2010 (5) TMI 844
Issues involved:
The issues involved in this case are the deletion of a non-genuine donation amount, application of income for charitable purposes, and the validity of assessment proceedings u/s 147.
Deletion of Non-genuine Donation Amount:
The appeal and cross objection arose from the CIT(A)'s order deleting the addition of Rs. 1,50,226 representing a non-genuine donation, following a decision of the Delhi High Court. The appellant contended that the sum was an accommodation entry obtained by paying an equivalent amount in cash to the entry provider. The exemption u/s 11 was granted without considering adverse inferences by the Assessing Officer, resulting in a reduction in income by Rs. 9,42,706.
Application of Income for Charitable Purposes:
The CIT(A) concluded that the assessee proved the identity, creditworthiness, and genuineness of the transaction. The donors were assessed to tax, and the donation was treated as corpus donation based on the Keshav Social Charitable Foundation case. The benefit of accumulation of income u/s 11(2) was allowed as Form No.10 was timely filed. The revenue appealed, arguing that the High Court decision was not accepted by the department, but the assessee's counsel contended that the judgment was binding.
Validity of Assessment Proceedings u/s 147:
The learned counsel did not press the cross objection challenging the validity of assessment proceedings u/s 147. The result of the discussion was that the assessee was entitled to deduction u/s 11(1) of all expenses except the application of income shown at Rs. 6,245.
This judgment highlights the importance of proving the genuineness of transactions, the application of income for charitable purposes, and the adherence to legal provisions in assessment proceedings.
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2010 (5) TMI 843
Issues involved: Application u/s.254(2) for rectification of ITAT order regarding penalty u/s.271(1)(c) based on citation of judgment not mentioned during hearing.
Summary:
The Miscellaneous Application u/s.254(2) of the Income-tax Act, 1961 was filed by the assessee seeking rectification of the ITAT order dated 20.02.2009 in ITA No.4251/Mum/2007. The assessee contended that the Tribunal upheld the penalty u/s.271(1)(c) based on a judgment not cited during the hearing, while relying on a different judgment. The Departmental Representative claimed to have relied on the judgment in question during the hearing, leading to conflicting affidavits. The Tribunal noted the conflicting affidavits and the transfer of the Members who heard the appeal, making it impossible to determine the accuracy of the claims.
Regarding the substantive issue, the assessee, engaged in manufacturing toothpaste, claimed deductions u/s.80-I and 80-HHA for profit on the sale of shares. The Assessing Officer disallowed the deduction, assessing the income as capital gains, a decision upheld in further appeals. Subsequently, a penalty u/s.271(1)(c) was imposed and upheld by the CIT(A). The Tribunal found that the profit on the sale of shares was not derived from the manufacturing business, leading to the penalty being sustained based on independent reasoning, not solely on the judgment in question.
In dismissing the Miscellaneous Application, the Tribunal emphasized that rectification u/s.254(2) is not a tool for reviewing earlier orders unless there is a clear mistake on record. Citing a recent judgment, the Tribunal concluded that the impugned order did not warrant rectification under section 254(2) of the Act. The Miscellaneous Application was therefore dismissed on May 21, 2010.
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2010 (5) TMI 842
Issues Involved:
1. Disallowance of Bad Debts.
Summary:
Disallowance of Bad Debts:
The assessee filed a Miscellaneous Application (MA) seeking reconsideration of the disallowance of bad debts amounting to Rs. 2,92,70,003/-. The assessee contended that the Tribunal did not consider the documents submitted in the paper book during the appellate proceedings. The documents included details of bad debts, letters from Universal Foods, profiles, agreements, and submissions before the CIT (A).
The Tribunal had previously rejected the claim on the grounds that no evidence was provided to prove that the amounts were advanced in the course of business. The Tribunal noted that the assessee failed to furnish necessary details to the A.O., CIT (A), or the Tribunal itself.
The Tribunal reiterated that for an amount to be allowed as bad debt, it must satisfy the conditions u/s 36(2). The assessee's claim was found to be based on approximate figures without establishing the correct amounts involved. The CIT (A) had also found contradictions in the submissions and noted that the assessee failed to provide agreements or evidence of transactions that would satisfy the conditions for bad debt deduction.
The Tribunal concluded that since the assessee did not provide sufficient evidence to substantiate the claim, the disallowance was justified. The Tribunal also stated that it does not have the power to review its own order. Consequently, the MA was dismissed.
Order Pronounced on 14th May 2010.
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2010 (5) TMI 841
Addition u/s 40(a)(ia) - Disallowance on payments made to parent company - reimbursement of expenses - TDS was not deducted as per provisions of section 40(a) - HELD THAT:- We find that the facts are not in dispute inasmuch as the payment was made to parent company M/s. J.B. Boda & Co. Pvt. Ltd. as payment of reimbursement expenses on the basis of cost sharing arrangement. This arrangement was entered into for more effective cost management. The common expenses are incurred for and on behalf of everyone in the group. All the group companies reimbursed the expenses to M/s. J.B. Boda & Co. Pvt. Ltd. on an equitable basis determined in earlier years by the management consultant. There is no material on record to show that the assessee has made payments to the contractor or sub-contractor or actual service provider. Therefore, the payments made to M/s. J.B. Boda & Co. Pvt. Ltd. do not fall within the purview of section 40(a)(ia).
In the absence of any distinguishing feature brought on record by the revenue, we hold that the assessee is not liable to deduct TDS on the reimbursement of expenses and accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the disallowance made by the AO.
''The ld. CIT(A) while observing that the expenses reimbursed by the group company to the flagship company does not constitute income in the hands of the later and does not partake the nature of commission, held that there is no liability to deduct tax on part of the appellant company and accordingly deleted the disallowance made by the AO.''
The grounds taken by the revenue are therefore, rejected.
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2010 (5) TMI 840
Fringe benefit tax - vehicle hire expenses for arriving at value of FBT - DR submitted that the facility of conveyance given to the employees is covered by clause (F) of sub-section 2 of section 115WB and there is no discretion left to the AO in making any exception to the rule - HELD THAT:- What is intended to be taxed is a benefit attributable to employees collectively but the transport services for workers and staff are to be outside the tax net.
Any form of conveyance provided by the employer to the employees would be fringe benefits, taxable in the hands of the employer. During the previous year relevant to asst. year 2006-07, the clause (F) included the words "conveyance, tour and travel (including foreign travel)", while the words "tour and travel (including foreign travel)" were omitted by Finance Act of 2006 w.e.f. 1/4/2007 and has been inserted into clause (Q) w.e.f. 1/4/2007; therefore, in the relevant asst. year, the words "conveyance, tour and travel (including foreign travel)" have to be read together.
In the case before us, items 1, 2 and 3 considered by the CIT(A) are for the purposes of carrying on the business activities of the assessee company by the agencies of the assessee company and it is only item 4, which is spent on the employees for attending the meetings, inspections and other official functions. From the reading of the provisions of section 115WB(2), it is clear that the benefits given to an employee directly or indirectly only would be taxable under Chapter XII-H. As rightly pointed out by the CIT(A), the other expenditure is incurred for agencies other than the employees, who are outside the scope of the provisions of section 115WB(2). Therefore, we do not see any reason to interfere with the order of the CIT(A).
In the result, the appeal filed by the revenue is dismissed.
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2010 (5) TMI 839
Valuation of cost of acquisition of FSI and TDR - HELD THAT:- We are of the opinion that the Ld. CIT(A) was right in assessing the transfer of FSI/TDR under the head "capital gain" instead of assessing the same under the head "income from other sources". However, as there is no cost of acquisition of the asset transferred, there will be no liability to capital gains.
''Ld. CIT (A) held that Once it has been decided that sale of FSI in the form of development rights results into capital gains, it is crystal clear that the compensation received by the appellant has to be assessed as capital gains. The loading of TDR has been possible on the plot of land in question only on account of the ownership right of the appellant subsisting in the piece of land. Transfer of such TDR to the developer through development agreement, therefore, clearly results in capital gains. The AO is, accordingly, directed that the gain arising on transfer of FSI/TDR rights be assessed as capital gain for which he will make the necessary calculation of sale consideration and cost of acquisition and/or improvement. He will also allow exemption u/s. 54 and 54EC to the extent of investments made, after due verification.'' Similar view has been taken in the case of Jethalal D. Mehta vs Dy. CIT [2005 (1) TMI 595 - ITAT MUMBAI] and Maheshwar Prakash[2008 (5) TMI 455 - ITAT MUMBAI].
In the result, the appeal filed by the Revenue is dismissed.
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2010 (5) TMI 838
Issues Involved:1. Disallowance of short-term capital loss. 2. Disallowance of loss on purchase and sale of mutual fund units. 3. Reopening of assessment u/s 147. 4. Addition of unexplained cash credit u/s 68. 5. Disallowance of deduction for legal fees. Summary:1. Disallowance of Short-Term Capital Loss:The assessee challenged the CIT(A)'s order confirming the disallowance of short-term capital loss of Rs. 4,58,770 made by the Assessing Officer (AO), treating the transactions with Richmond Securities Pvt. Ltd. (RSPL) as bogus. The AO based the disallowance on the statement of Mr. Mukesh Chokshi, Director of RSPL, who admitted that the transactions were not genuine and were settled in cash. The CIT(A) upheld the AO's decision, citing the lack of cross-examination request by the assessee and the circumstantial evidence against the assessee. The Tribunal, however, found the issue similar to a previous case (Rajkumar Sandeep Kumar HUF) where the Tribunal had ruled in favor of the assessee. Consequently, the Tribunal allowed the assessee's appeal and directed the AO to rectify the order accordingly. 2. Disallowance of Loss on Purchase and Sale of Mutual Fund Units:The AO disallowed the short-term capital loss of Rs. 12,44,821 incurred on mutual fund units, suspecting a pre-determined intention to incur loss and earn exempted dividend income. The CIT(A) upheld the AO's decision. However, the Tribunal referenced the Hon'ble Bombay High Court's decision in CIT vs. Walfort Shares & Stock Brokers Pvt. Ltd., which validated such transactions as bona fide commercial transactions. Thus, the Tribunal allowed the assessee's appeal on this ground. 3. Reopening of Assessment u/s 147:The assessee did not press this ground of appeal during the hearing, and it was dismissed as not pressed. 4. Addition of Unexplained Cash Credit u/s 68:The AO treated the short-term capital gain of Rs. 12,29,457 from transactions with M/s. Gold Star Finvest as bogus and added it as unexplained cash credit u/s 68. The CIT(A) upheld the AO's decision. The Tribunal, finding the facts identical to a previous case (I.T.A. No. 1610/Mum/07), ruled in favor of the assessee and allowed the appeal on this ground. 5. Disallowance of Deduction for Legal Fees:The assessee claimed a deduction of Rs. 20,000 for legal fees, which the AO did not allow. The CIT(A) rejected the claim, noting the absence of any discussion or addition/disallowance in the assessment order and the lack of substantiation during appellate proceedings. The Tribunal upheld the CIT(A)'s decision, finding no documentary evidence to support the assessee's claim. Conclusion:I.T.A. No. 1610/Mum/2007 is allowed, whereas I.T.A. No. 7100/Mum/2008 is partly allowed. Pronounced on 14th May, 2010
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2010 (5) TMI 837
Issues Involved:
1. Classification of rental income.
2. Disallowance of loss on opening stock.
3. Imposition of penalty u/s 271(1)(c).
Summary:
1. Classification of Rental Income:
The assessee company declared rental income of Rs. 50,40,000/- as "Business Income." The AO assessed it 'protectively' under "Income from Other Sources," while the CIT(A) confirmed this classification. The Tribunal, however, held that the rental income should be assessed substantively in the hands of the assessee company, stating, "The assessment of rents received by SSRPL from BEST has to be made on substantive basis in the hands of the SSRPL."
2. Disallowance of Loss on Opening Stock:
The AO disallowed the entire loss of Rs. 45,27,400/- on the opening stock of ink, which the assessee claimed had become unusable. The CIT(A) partially agreed, estimating the value of unusable ink at 50% and thus restricting the disallowance to Rs. 22,63,200/-. The Tribunal upheld this partial disallowance, noting, "Normally over a lapse of time the quality of ink deteriorates and slowly becomes unusable."
3. Imposition of Penalty u/s 271(1)(c):
The AO imposed a penalty of Rs. 11,44,430/- u/s 271(1)(c) for filing inaccurate particulars of income. The CIT(A) deleted the penalty, reasoning that the rental income was disclosed and the write-off of ink stock was supported by an expert report. The Tribunal upheld the CIT(A)'s decision, emphasizing that "mere rejection of a legal claim of the assessee for taxability of income under a particular head of income is not by itself sufficient to warrant imposition of penalty." The Tribunal further cited the Supreme Court's decision in CIT vs. Reliance Petroproducts Pvt. Ltd., stating, "A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee."
Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order to cancel the penalty imposed by the AO. The judgment emphasized the distinction between making an incorrect claim and furnishing inaccurate particulars, concluding that the penalty u/s 271(1)(c) was not justified in this case.
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2010 (5) TMI 836
Validity of reopening of assessment u/s 147 - Interest income on FDR - “Income from other sources” - Facts of the case, The assessee filed its return of income along with the audit report u/s 44AB.The return of income was processed u/s 143(1). Thereafter the AO recorded reasons for reopening and issued a notice u/s 148 reopening the assessment. the AO considered the interest income received by the firm on bank FDRs, as income from other sources. Thus he reduced amount from the book profits declared by the assessee and thereafter recomputed the allowance of remuneration to partners u/s 40(b) and completed the assessment. Aggrieved, the assessee carried the matter in appeal, inter alia, challenging the reopening of the assessment, assessing the interest income on FDR under the head “Income from other sources” and not under the head” “Income from profession” as well as the computation of book profits by the AO and addition made on share income relating to an ex partner. On appeal, the first appellate authority held hat reopening was bad in law, as, as per him, he did not see any case for escapement of income. Aggrieved, the Revenue had filed this appeal
HELD THAT:- In any event, the reopening, if taken to its logical conclusion, would not be revenue-neutral in the hands of this assessee. At the stage of reopening, the AO cannot be expected to verify all the files of the recipients of remuneration and then estimate the escapement of income. This is not contemplated under the Act. Hence in our considered opinion, the order of the CIT(Appeals) is erroneous, on all three counts, on which he held that the reopening is bad in law.
In our considered opinion, the decision in the case of Rajesh Jhaveri Stock Brokers P. Ltd. [2007 (5) TMI 197 - SUPREME COURT] applies on all fours to the facts of this case. Respectfully following the same, we uphold the validity of reopening of assessment u/s 147 and set aside the order of the CIT(Appeals) on this aspect. In the result, this ground of the Revenue is allowed.
As the first appellate authority had not adjudicated the issue on merits, we set aside the matter to the file of the CIT(A) for fresh adjudication of the merits of the case. In the result, the appeal of the Revenue is allowed.
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2010 (5) TMI 834
Issues involved:
The issues involved in this judgment are:
1. Addition made by the AO for a specific amount.
2. Disallowance of expenses on account of Deepawali expenses and conveyance expenses.
Issue 1: Addition made by the AO for a specific amount
The appellant, during assessment proceedings, received a certain amount from Pritam Industries and claimed that a portion of it was paid to other parties as part of a joint venture. However, the AO found that the transaction was more in the nature of professional fees rather than a joint venture. The CIT(A) confirmed the addition made by the AO, emphasizing that the arrangement did not qualify as a joint venture as claimed by the appellant. The CIT(A) also noted discrepancies in the amount offered for taxation by the appellant and the payments made to other parties. The tribunal upheld the orders of the revenue authorities, stating that the appellant failed to provide sufficient evidence to establish the nature of the receipts from Britannia Industries. Consequently, the addition made by the AO was deemed appropriate, and the CIT(A)'s order was confirmed.
Issue 2: Disallowance of expenses on account of Deepawali expenses and conveyance expenses
The AO disallowed a portion of the expenses claimed by the appellant for Deepawali and conveyance, citing a personal element in the expenditure. The CIT(A) agreed with the disallowance. However, upon further review, the tribunal found that the AO's decision lacked specific reasons for assuming a personal element in the expenses. The appellant argued that the expenses were incurred solely for business purposes. As a result, the tribunal decided to delete the disallowance of the expenses related to Deepawali and conveyance. Consequently, the appeal of the assessee was partly allowed.
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2010 (5) TMI 833
Exemption u/s 11 - registration u/s 12AA(3) denied - DIT(Exemption) stated that the registration u/s 12AA(3) was granted erroneously and therefore it was withdrawn from the first date of the registration -assessee is an autonomous body set up and governed by the provisions of The Gujarat Town Planning and Urban Development Act, 1976 (“GTP Act”) and was registered u/s 12AA of the DIT(Exemption) but subsequently cancelled the registration u/s 12AA w.e.f. 1-4-2002.
HELD THAT:- As evident that once a trust or institution has been granted registration u/s12AA(3), subsequently, the if Commissioner finds that one of the conditions viz. (i) the activity of such trust or institution are not genuine, and (ii) the activity of the such trust or institution are not being carried out in accordance with the objects of the trust or institution is satisfied, then the Commissioner has power to cancel registration granted u/s.12AA(1) by passing an order in writing. Therefore, registration granted u/s.12AA(1) cannot be cancelled u/s.12AA(3) unless one of the conditions prescribed u/s.12AA(3) is satisfied.
In present case, the assessee is recovering the cost as provided under the “GTP Act”, under which the assessee is functioning. Merely because the assessee is recovering the cost of the project, partially or wholly, it cannot be said that the activities of the assessee are not being carried out in accordance with the object of the institution. None of the conditions as prescribed u/s12AA(3) is satisfied in the case of the assessee so as to cancel the registration granted u/s 12AA.
We therefore quash the order of the DIT(Exemption) passed u/s 12AA(3) and restore the order of the Registration passed by the DIT(Exemption) u/s12AA(1). In the result, the assessee’s appeal is allowed.
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2010 (5) TMI 832
Wealth-tax assessment - assessees acquired the right to receive the compensation/ enhanced compensation - admittedly, the land of the assessees was acquired u/s. 4 of the LA Act and the compensation was paid, during the relevant period of asst. yr. 1995-96. - LA Act was passed at the time when India was not an independent sovereign State and its provisions were designated to compulsorily acquire the land by the State exercising the power of eminent domain to serve the public purpose - whether Tribunal was right in holding that right of the assessee to receive compensation and interest accrued thereon is not liable to wealth-tax?
HELD THAT:- Tribunal has rightly held that mere right to receive enhanced compensation did not represent any wealth and legally directed its deletion. Therefore, we are also of the considered view that such right, which would depend upon the outcome of the appeal, is not absolute right. The mere right to receive compensation/enhanced compensation is variable, speculative and inchoate. Such right cannot be treated as wealth and includible in the previous returns of the assessees as such. Hence, the question of law posed in these appeals is answered against the Revenue and in favour of the assessees.
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2010 (5) TMI 831
Nature of expenditure - interest/expenditure allowed as revenue expenditure incurred for new unit which was a separate unit from existing unit and this new unit had not started production - HELD THAT:- Both, the Tribunal as well as CIT (A), have recorded concurrent findings of fact and come to the conclusion that the so called new unit was merely an expansion of the existing business of the assessee and was not setting up of a new business and as such the expenses incurred in this regard were allowable as revenue expenses.
Considering the fact that the AO had not considered the claims of each of the items of expenditure incurred by the assessee from the angle as to whether the same were in the nature of revenue or capital expenditure, the matter has been restored to the AO to look into the nature of the expenses and consider as to whether the same are allowable u/s 36(1)(iii) or Section 37. In the circumstances, no infirmity can be found in the approach adopted by CIT (A) as confirmed by the Tribunal so as to warrant interference.
The appeals are, accordingly, dismissed.
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2010 (5) TMI 830
Issues Involved:
1. Whether the gain of Rs. 69,56,024/- was business income or capital gain.
Summary:
Issue 1: Whether the gain of Rs. 69,56,024/- was business income or capital gain.
The assessee, a non-banking finance company, appealed against the order of the Ld. CIT(A), Kolkata, which upheld the AO's decision that the gain of Rs. 69,56,024/- was business income and not a capital gain. The AO observed that the profit and loss account credited the profit on sale of investment, but the assessee treated it as long-term capital gain exempt u/s 10(38) of the I.T. Act. The AO issued a show cause notice and found the assessee's reply unconvincing, noting that the nature of business described in Form No. 3CD included investment and trading in shares and securities. The AO argued, referencing the Supreme Court judgment in G. Venkataswami Naidu & Co. (35 ITR 594), that the transactions were an adventure in the nature of trade. Consequently, the gain was treated as business income and taxed accordingly. The Ld. CIT(A) confirmed this action.
During the hearing, the assessee's counsel reiterated that the company maintained separate portfolios for trading shares and shares held as investments, with the main income components being interest, dividend, and rental income. The shares in question were held as investments since 01.04.2004, and no purchases or sales occurred until their sale during the year under appeal. The counsel argued that the decisions cited by the AO and Ld. CIT(A) were not relevant to the current context.
The Ld. DR supported the lower authorities' orders. Upon review, the tribunal found that the assessee maintained two separate portfolios, and the shares in question were transferred from stock in trade to investment portfolio on 01.04.2004, with the profit on transfer offered for taxation and accepted by the department. The tribunal referenced CBDT Circular No. 4/2007, which allows for separate portfolios for investment and trading, and concluded that the gain from the sale of these shares should be treated as capital gains, not business income. The tribunal set aside the lower authorities' orders and directed the AO to accept the assessee's claim that the gain was a capital gain.
Conclusion:
The appeal of the assessee was allowed, and the gain of Rs. 69,56,024/- was directed to be treated as capital gain. The order was pronounced in the open court on 14.5.2010.
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2010 (5) TMI 829
Registration u/s 12AA Rejected - assessment of trust - university is not a competent person for making application for its registration u/s 12AA, it is not a charitable institution as it is intended to benefit only a limited number of persons, it is not meant to carry out any charitable purpose as there is no element of any benefit by way of donations to common man, and it will be charging substantial fees from the student -case of the learned counsel was that the university shall become a body corporate as soon as it is established as a private university under section 6 of that Act - whether, the assessee-university is competent to file an application for its registration?
HELD THAT:- Assessee came into existence by way of Ordinance No. 4 of 2009 promulgated by Governor, which was subsequently adopted by the Assembly of the State of Haryana on 20-3-2009. The name of the assessee has been added in the Schedule to that Act. Under section 7 of that Act, every university established by an Act of the State Legislature under section 6 shall be a body corporate by the name as specified in the Act and shall have perpetual succession and a common seal. It shall have the power to acquire and hold property and to make contract, and shall sue and be sued in its name.
We find that that Act clothes the assessee-university with the character of a body corporate, an artificial juristic person with powers to hold properties, make contracts and sue or be sued. Therefore, the juristic person created under that Act may or may not be incorporated as a company or a society so as to be a person under the Act. Accordingly, we are of the view that the learned CIT erred in coming to the conclusion that the assessee-university is not a competent person to make an application for its registration.
Sponsoring Body and the assessee university are two different persons during the life-time of the latter. Assuming for a moment that they are the same person, then it follows automatically that the activities of the university are entitled to exemption under section 11, as the Sponsoring Body has already been registered by the Director of Income-tax (Exemption) vide order dated 25-4-2005, a copy of which has been placed before us.
Therefore, the objection of the learned CIT is merely technical, in nature. However, we are of the view that in view of section 7, the assessee is a separate juristic person, separate and apart from the Sponsoring Body. By virtue of this provision, it is a competent person u/s 12AA, to apply for its registration.
Whether, the assessee university is a charitable institution as understood under the Act? - The expression "charitable purpose" was defined in an inclusive manner to include relief of poor, education, medical relief and advancement of any other object of general public utility. The objects of the assessee-university are mentioned in that Act, in section 3, all of which are educational in nature, primarily aimed awarding diplomas and degrees to the students. The funds of the university are to be applied in accordance with section 13, which are either in the nature of disbursement of expenses or granting fellowship, freeship, schoolship etc., to students belonging to weaker sections of the society.
The only benefit granted to the Sponsoring Body is that in case of dissolution the assets and liabilities of the assessee university shall vest in it. However, as seen earlier, the Sponsoring Body itself is a charitable institution, registered u/s 12AA. Therefore, the net assets going to the Sponsoring Body amount to application of assets or accumulated income for charitable purpose. Therefore, when assets and liabilities get vested in the Sponsoring Body on dissolution, it can be said at that time also that the application of the assets or accumulated income is for charitable etc., purposes.
Date of registration of the university - We have held that the objects are charitable in nature. The first step in setting up the university was acquisition of land for construction of building. We are not able to ascertain from the record the date on which the land was acquired. The construction on the land has commenced and as mentioned earlier, substantial expenditure has been incurred.
Therefore, the learned CIT may ascertain the date of acquisition of land from the assessee. The assessee may be granted registration from the date on which it took first step i.e., acquired the land as it can be said that from that date it initiated process for achieving its objects. The assessee will be entitled to the registration from this date or the 1st day of April of the year in which the application for registration was moved.
In view of the aforesaid discussion, we are of the view that the learned CIT erred in refusing to register the assessee university.
University approval u/s 80G - HELD THAT:- The provision contained in section 80G 5(iii) makes it clear that the approval can be granted only if the institution is formed wholly for charitable purposes and none of its object is of religious nature. Section 80G(5B) grants some concession in this matter that approval can be granted if not more than 5 per cent of the total income of a year is applied towards religious purposes. We find that there is no ceiling on religious expenditure in the objects of the Sponsoring Body.
Considering the facts of this case, it is true that none of the objects of the assessee-university pertain to religious activities. However, on its dissolution, all its assets shall vest in the Sponsoring Body. Section 80G(5)(ii) contains the word "do not contain any provision for the transfer or application at any time (emphasis supplied) of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose".
We have supplied emphasis to the words "at any time" for the reason that transfer of its assets and liabilities on dissolution will fall within the ambit of the words "at any time". The rules governing the assessee university contain a provision for transfer of its asset to the governing body, whose objects include a manifestly religious object. In view thereof, and in view of the aforesaid decision rendered by Hon’ble Supreme Court in the case Upper Ganges Sugar Mills Ltd. v. CIT [1997 (8) TMI 4 - SUPREME COURT].
Coming to the facts of this case, it is true that none of the objects of the assessee-university pertain to religious activities. However, on its dissolution, all its assets shall vest in the Sponsoring Body. Section 80G(5)(ii) contains the word "do not contain any provision for the transfer or application at any time (emphasis supplied) of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose". We have supplied emphasis to the words "at any time" for the reason that transfer of its assets and liabilities on dissolution will fall within the ambit of the words "at any time". The rules governing the assessee university contain a provision for transfer of its asset to the governing body, whose objects include a manifestly religious object - we are of the view that the assessee university is not entitled to approval u/s 80G.
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2010 (5) TMI 828
Issues involved: Appeal u/s 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal Delhi Bench for Assessment Year 2000-01.
Factual Matrix: The Assessing Officer reopened the assessment for the year 2001-02, questioning the creditworthiness and genuineness of certain transactions. The Assessee challenged the reopening initially but did not press the issue before the Tribunal.
Assessment and Appeals: The Assessing Officer assessed the Assessee, issued a notice of demand, and initiated penalty proceedings u/s 271(1)(c) of the Act. The Assessee appealed to the CIT(A) who affirmed the order. Subsequently, the Assessee appealed to the Tribunal.
Tribunal's Decision: The Tribunal considered the share application money received by the Assessee and held that, as confirmations were filed and money received through banking channels, there was no justification for the addition made by the Assessing Officer. The Tribunal relied on the decision in Commissioner of Income Tax v. Lovely Exports (P) Ltd. to support its conclusion.
Conclusion: The High Court found the Tribunal's reliance on the Lovely Exports (P) Ltd. decision justified, as the identity of the creditors was known. Therefore, the Assessing Officer could proceed against the creditors in accordance with the law. The appeal was dismissed as no substantial question of law was found.
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2010 (5) TMI 827
Issues Involved:
1. Addition of Rs. 32,12,980/- on account of valuation of closing stock.
2. Application of the "rule of consistency" in accounting methods.
Summary:
Issue 1: Addition of Rs. 32,12,980/- on account of valuation of closing stock
The revenue appealed against the order of the CIT(A) which deleted the addition of Rs. 32,12,980/- made by the AO on account of the valuation of closing stock. The AO was dissatisfied with the method used by the assessee for valuing the closing stock, which involved reducing the selling price of mustard cake from the cost of mustard seeds and manufacturing expenses to arrive at the cost of mustard oil. The AO believed that the cost of production should be allocated between mustard oil and mustard cake. The AO added Rs. 32,13,980/- to the net profit declared by the assessee, based on this revised valuation method.
Issue 2: Application of the "rule of consistency" in accounting methods
The CIT(A) held that the assessee had consistently followed a particular method of valuing the closing stock over the years, which was in accordance with Accounting Standard - 2. The CIT(A) noted that the method had been accepted by the department in previous years and there was no reason to change it. The CIT(A) emphasized the importance of the "rule of consistency" in accounting principles, citing various judicial pronouncements that supported the consistent application of accounting methods unless they were found to be incorrect or unsustainable.
Judgment:
The ITAT upheld the CIT(A)'s decision, stating that the method of valuation of closing stock consistently and regularly adopted by the assessee could not be rejected merely because the AO believed a different method should be used. The ITAT emphasized that the method followed by the assessee was in line with the guidelines provided under AS - 2 and had been accepted by the department in earlier years. The ITAT concluded that the AO's rejection of the assessee's method was unjustified in the absence of any finding that the method did not allow for the proper determination of income, profits, or gains. The appeal filed by the revenue was dismissed, and the addition of Rs. 32,13,980/- made by the AO was deleted.
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2010 (5) TMI 826
Issues involved: The judgment involves the appeal against orders related to assessment years 2005-06 and 2006-07, covering issues of disallowance of penalties paid to stock exchanges, treatment of sundry balances written off, and disallowance of long-term capital loss on redemption of preference shares.
Issue 1 - Disallowance of penalties paid to stock exchanges:
The Revenue appealed against the CIT(A)'s decision to allow penalties paid to stock exchanges, arguing that they were penal in nature. The Tribunal, citing various precedents, held that fines and penalties paid for violations of stock exchange regulations are not for infractions of law but are routine business expenses. The Tribunal upheld the CIT(A)'s decision, stating that such payments are allowable expenditures and not for infraction of law.
Issue 2 - Treatment of sundry balances written off:
The Revenue challenged the CIT(A)'s decision to allow the deduction of sundry balances written off, claiming they were not incidental to the business. The Tribunal noted that the Assessing Officer disallowed the claim as bad debt or business loss without considering the nature of the differences. The Tribunal directed the issue to be reconsidered by the Assessing Officer, emphasizing the need for a fresh adjudication based on the nature of the differences and the regular course of business.
Issue 3 - Disallowance of long-term capital loss on redemption of preference shares:
The Revenue disputed the CIT(A)'s decision to delete the disallowance of long-term capital loss on redemption of preference shares, based on earlier years' assessments. The Tribunal upheld the CIT(A)'s decision, citing precedents where similar disallowances were deleted. The Tribunal concluded that the assessee was entitled to claim indexation on the redemption of preference shares, following the precedent set in earlier years.
Conclusion:
The Tribunal partly allowed the appeal for statistical purposes in one case and dismissed the appeal in the other. The judgments emphasized the distinction between routine business expenses and penalties for legal infractions, the need for a detailed consideration of sundry balances, and the consistency in allowing indexation on redemption of preference shares based on past decisions.
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2010 (5) TMI 825
Issues involved: Appeal against orders passed by CIT(A) denying deduction u/s 10A for assessment years 2004-05 and 2005-06.
Summary:
The Revenue filed appeals against CIT(A)'s orders denying deduction u/s 10A for the assessment years 2004-05 and 2005-06, based on the grounds that the new unit set up by the assessee was a result of reconstructing/splitting up the existing unit, thus not qualifying for the deduction u/s 10A. The Revenue contended that the assessee, being an integral part of the parent company, did not qualify as a newly established undertaking eligible for sec. 10A benefits.
In the first appeal, CIT(A) allowed the assessee's claim for sec. 10A benefits after considering the grounds raised. The Revenue, aggrieved by this decision, filed second appeals before the Tribunal, challenging the CIT(A)'s findings.
During the Tribunal hearing, the Revenue argued that the conditions u/s 10A(2)(ii) and 10A(2)(iii) were violated by the assessee, rendering them ineligible for the deduction. However, the assessee's counsel contended that the organizational change from a branch establishment to a subsidiary company did not alter the essential nature of the business, and therefore, the assessee remained eligible for sec. 10A benefits.
After reviewing the contentions and facts presented, the Tribunal upheld CIT(A)'s orders, stating that the organizational change did not amount to splitting up or reconstruction of the existing business. The Tribunal found that the assessee's unit met all conditions stipulated in the Act and was entitled to the sec. 10A benefit. Consequently, the Tribunal dismissed the Revenue's appeals, affirming CIT(A)'s decision.
In conclusion, the Tribunal upheld CIT(A)'s orders, ruling in favor of the assessee and dismissing the Revenue's appeals.
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