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Showing 121 to 140 of 931 Records
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2008 (8) TMI 928
Issues involved: Appeal against Tribunal's judgment on disallowance under s. 43B and s. 80IA.
Disallowed deduction under s. 43B: The assessee produced a certificate from District Industries Centre certifying a sum converted into a loan, leading to the disallowance under s. 43B being set aside by CIT(A). The Tribunal held that filing the report along with the return is directory, not mandatory, and if provided during assessment proceedings, deduction should not be rejected.
Disallowed deduction under s. 80IA: The appellant filed for deduction under s. 80IA after noticing it was not claimed in the return, supported by necessary documents during assessment proceedings. CIT(A) allowed the deduction, citing a judgment that the requirement of filing the report along with the return is directory, not mandatory.
Judicial decisions: The High Court held that the requirement of filing the report along with the return for claiming deduction under s. 80IA is not just limited to the stage of "during the assessment proceedings." A previous judgment was referenced where a similar distinction was not accepted. The Court ruled in favor of the Revenue for question No. 1 and against the assessee for question No. 2 based on relevant case laws.
Final decision: The appeal was partly allowed, setting aside the deduction under s. 80IA and upholding the deduction under s. 43B. The AO was directed to take necessary actions, and each party was ordered to bear their own costs of the appeal.
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2008 (8) TMI 927
Issues involved: Interpretation of Article 285 and 289 of the Constitution, applicability of Section 184 of the Railways Act, 1989 in relation to Entry Tax under Orissa Entry Tax Act, 1999.
Interpretation of Article 285 and 289 of the Constitution:
The Supreme Court examined the immunity granted by Articles 285 and 289 of the Constitution, emphasizing that the exemption is limited to taxes directly on income or property, not on goods indirectly. The Court referred to previous judgments highlighting the distinction between direct taxes on property/income and indirect taxes like excise duty or sales tax. It reiterated that duties of excise are imposed on the act of manufacture, not directly on goods, emphasizing the difference between direct and indirect taxes.
Applicability of Section 184 of the Railways Act, 1989:
The Court analyzed Section 184 of the Railways Act, 1989, which states that a railway administration is not liable to pay tax in aid of local authority funds unless specified by the Central Government. The argument that Octroi Duty and Entry Tax are similar was dismissed, clarifying that Entry Tax is levied on goods entering a local area for consumption, distinct from Octroi Duty. The Court differentiated between the charging provisions and collection/disbursement of taxes, emphasizing that Section 36 of the 1999 Act deals with collection and disbursement, not levy.
Conclusion:
The Court found no merit in the appeals, dismissing them without costs. It upheld the Orissa High Court's judgment that Entry Tax is not a tax directly imposed on the income or property of the Union, and that Section 184 of the Railways Act does not apply to Entry Tax under the 1999 Act. The judgment reaffirmed the distinction between direct and indirect taxes, emphasizing the Constitutional Scheme and Articles 285 and 289 of the Constitution.
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2008 (8) TMI 926
Continuation of detention order - Held that: - There is no dispute that despite the fact that the order of detention was passed as far back as on 19-3-2002, the same could not be or has not been executed against the appellant till date. The detention order was in respect of the activities indulged in or said to have been indulged in by the appellant as far back as in 2002 - continuing the order of detention today is an exercise in futility and the same should not, therefore, be given effect to any further - appeal allowed.
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2008 (8) TMI 925
The High Court of Bombay heard a case regarding the invocation of Section 11A(1) of the Central Excise Act and Rule 12 of the Cenvat Credit Rules. The court admitted the case based on substantial questions of law related to fraudulent invoices and penalty imposition under Section 11AC of the Act. The court also considered whether reversal of credit before the show cause notice absolves the liability to pay penalty and interest under the Cenvat Credit Rules. The case was to be heard along with Central Excise Appeal No. 195 of 2006.
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2008 (8) TMI 924
Issues involved:
The judgment involves the following issues:
1. Allowance of maintenance expenses on a flat provided to employees.
2. Treatment of maintenance expenses on a flat in relation to perquisite and disallowance under section 40A(5) of the Income-tax Act.
3. Deduction under section 32A for computers installed in office premises.
4. Allowance of travelling expenses incurred by staff members visiting branch office in India.
Maintenance Expenses on Flat:
The High Court had previously ruled in favor of the Revenue regarding the allowance of maintenance expenses on a flat provided to employees. The questions related to this issue were not entertained by the Supreme Court as the assessee did not file an appeal.
Treatment of Maintenance Expenses:
The High Court had also ruled in favor of the Revenue regarding the treatment of maintenance expenses on a flat in relation to perquisite and disallowance under section 40A(5) of the Income-tax Act. The Supreme Court did not address these questions as they were not appealed by the assessee.
Deduction for Computers:
The issue of deduction under section 32A for computers installed in the office premises was raised. The Revenue argued that the bank is not an industrial undertaking, but since this point was not raised earlier, the Supreme Court declined to consider it. It was also noted that the nature of computers as plant was not disputed earlier, so the Revenue was not allowed to raise this point. The High Court had found that data processing amounts to the manufacture or production of an article or thing, which was supported by a previous order of the Court. Consequently, the Supreme Court decided in favor of the assessee on this issue.
Travelling Expenses:
Regarding the allowance of travelling expenses incurred by staff members visiting the branch office in India, the Supreme Court ruled in favor of the assessee based on a previous order. Therefore, Questions 3 and 4 were decided against the Revenue and in favor of the assessee. The appeal was disposed of accordingly with each party bearing their own costs.
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2008 (8) TMI 923
Issues:
1. Applicability of Section 44C of the Income Tax Act 1961 to a non-resident company.
2. Validity of expenses incurred by the assessee at its head office.
3. Effect of not filing an appeal by the revenue against a previous judgment.
Issue 1: Applicability of Section 44C of the Income Tax Act 1961 to a non-resident company:
The case involved a non-resident company with its head office in Singapore and a branch office in India for oil exploration. The Commissioner of Income Tax and the Income Tax Appellate Tribunal held that expenses incurred by the assessee at its head office were related to Indian operations, making Section 44C inapplicable. This decision was based on a precedent from the Calcutta High Court. The High Court upheld this decision as the revenue did not appeal against the Calcutta High Court judgment. The Supreme Court affirmed this conclusion, stating that the revenue's failure to appeal against the Calcutta High Court decision led to the applicability of Section 44C in favor of the assessee.
Issue 2: Validity of expenses incurred by the assessee at its head office:
The expenses incurred by the assessee at its head office on administration, accounting, and management services were deemed related to Indian operations. The Commissioner of Income-tax (Appeals) and the Tribunal supported this finding, leading to the conclusion that Section 44C would not apply. The Tribunal's decision was based on the Calcutta High Court judgment, which was accepted by the High Court as the revenue did not appeal against it. The Supreme Court upheld this decision, emphasizing that the revenue's failure to challenge the Calcutta High Court ruling resulted in the expenses being considered related to Indian operations.
Issue 3: Effect of not filing an appeal by the revenue against a previous judgment:
The revenue did not appeal against the Calcutta High Court judgment due to the small amount involved. The revenue's counsel cited a Supreme Court decision stating that not appealing against similar orders does not preclude the revenue from filing appeals in other cases for justifiable reasons. However, the revenue failed to produce evidence of a conscious decision not to appeal. Consequently, the Supreme Court assumed that the revenue accepted the Calcutta High Court judgment, leading to the dismissal of the appeals in favor of the assessee. The Supreme Court highlighted the importance of conscious decisions regarding appeals and the impact of not challenging previous judgments.
In conclusion, the Supreme Court's judgment affirmed the applicability of Section 44C in favor of the non-resident company, based on the expenses incurred at its head office being related to Indian operations. The decision underscored the significance of conscious decisions regarding appeals and the consequences of not challenging previous judgments, ultimately leading to the dismissal of the appeals in this case.
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2008 (8) TMI 922
Issues involved: Interpretation of sections 194-C, 194-I, and 194-J of the Income Tax Act, 1961 regarding the tax deduction on payments for landing and parking charges made by the assessee to the Airport Authority of India.
Summary:
The High Court of Delhi heard an appeal by the revenue against the Income Tax Appellate Tribunal's order related to the assessment year 2001-02. The main issue was whether the payments for landing and parking charges should be covered under section 194-C or section 194-I of the Income Tax Act, 1961. The Assessing Officer, Commissioner Income-tax (Appeals), and the Tribunal had differing views on the applicable section for tax deduction.
The Tribunal, in its order, relied on a previous decision and concluded that the payments fell under section 194-C, justifying the 2% tax deduction rate. It also ruled out charging interest under Section 201(1A) due to the decision on the deductibility of tax at source under section 194-C.
However, the appellant argued that the payments should be considered 'rent' under section 194-I based on a previous court decision. After considering the arguments and the previous decision, the High Court held that the payments for landing and parking charges should indeed be deemed as 'rent' under section 194-I, contrary to the Tribunal's decision under section 194-C.
As a result, the appeal by the revenue succeeded, and the department was directed to grant any consequential benefits to the assessee upon demonstrating that the Airport Authority of India had paid the taxes. Additionally, the department was instructed to calculate interest under Section 201(1A) in accordance with the relevant provisions.
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2008 (8) TMI 921
Challenged the order passed by CIT u/s 263 - assessment framed by the AO is erroneous in as much as prejudicial to the interest of revenue - no inquiry had been made by the AO before the assessment mid there was cash payment exceeding ₹ 20,000 which is required to be considered for disallowance u/s 40A(3) - HELD THAT:- In the instant case, we found that assessment was framed by the AO after due inquiry and verification of the books of accounts and other details. Justifiable addition has also been made by the AO, merely because the books of accounts which were destroyed could not be produced before the CIT, as unreasonable view for estimating the profit at the rate of 8 per cent cannot be substituted for the decision of the AO which has been arrived at after verification of books of accounts, details of expenses, reason for low GP rate etc.
Therefore, we found that action of CIT is net sustainable on facts and in law. On merits also, no expenditure in excess of ₹ 20,000 have been made in cash, as found by AO on subsequent inquiry which framing assessment u/s 263/143(3). There is also no justification for computing the profit at the rate of 8 per cent when the reasonable addition has already been made by the AO after taking into account various facts and circumstances of the case Including nature of assessee’s business, reason for decline in GP rate, possibility of over statement of expenses or that of unverifiable nature of expenses etc.
Hence, the order passed by CIT u/s 263 is set aside and the appeal of the assessee is allowed.
In the result, the appeal of the assessee stands allowed.
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2008 (8) TMI 920
Issues involved: Interpretation of liability to pay interest under Section 234B of the Income Tax Act, 1961 when tax deduction at source is involved.
Summary:
The High Court of Uttarakhand heard an appeal under Section 260-A of the Income Tax Act, 1961, challenging a decision by the Income Tax Appellate Tribunal (ITAT) regarding the liability of the assessee to pay interest under Section 234B. The case involved M/s Oil Ltd., a non-resident foreign company engaged in mineral oil exploration by another non-resident foreign company. The dispute arose when the Assessing Officer directed interest to be charged under Section 234B due to a petition of tax evasion, even though initially no interest was charged. The ITAT upheld the decision that the assessee was not liable to pay interest under Section 234B, leading to the appeal by the Revenue.
It was established that the profits and gains of the assessee were to be assessed under Section 44BB of the Income Tax Act, and the dispute centered around whether the individual assessee was liable to pay interest under Section 234B if the company engaging them failed to deduct tax at source under Section 195 of the Act.
The Court referred to relevant provisions of the law, including Section 208, Section 209, and Section 234B of the Act, which outlines the payment of interest for defaults in advance tax payment. The Court considered arguments from both sides, with the Revenue contending that the assessee should pay interest due to the employer's failure to deduct tax at source, while the respondent argued against individual liability for the employer's negligence.
After reviewing relevant case laws, the Court concluded that the individual assessee cannot be held liable to pay interest under Section 234B for the employer's failure to deduct tax at source. Citing precedents, the Court emphasized that when it is the duty of the employer to deduct tax at source, the individual assessee cannot be made responsible for the employer's default. Therefore, the appeal was dismissed, affirming the ITAT's decision that the assessee was not liable to pay interest under Section 234B in this case.
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2008 (8) TMI 919
The Supreme Court dismissed appeals due to a delay of 157 days, which was not satisfactorily explained.
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2008 (8) TMI 918
Undisclosed investment u/s 69 - enhanced GP rate - excess stock found during survey - rejection of books of account u/s 145 - deduction u/s 80IA - additions made in the income from the undisclosed sources - considered as income of the business - eligibility for deduction u/s. 80IA?
HELD THAT:- From Persual of provisions of s. 69, it is clear that the basic condition, for attracting the provisions of s. 69 is, that the investments made in the financial year concerned, should not be recorded in the books of account, maintained by the assessee, for any source of income, and secondly, the assessee should have not offered any explanation, about the nature and sources of investments, or the explanation offered should not be satisfactory, in the opinion of the AO.
In the present case, the relevant financial year is 1999-2000, and in the books of accounts of that year, this stock has been duly accounted for, and after so accounting for the same, the figure of sales has been accepted by the Department, and enhanced GP rate has been applied thereto.
In that view of the matter, it cannot be said, that an investment has been made, which was not recorded in the books of account.
Thus, in our view, the provisions of s. 69 cannot be said to be attracted to the price of stock in question. Though, not necessary, but still it may be considered and observed, that during the relevant year, the entire income of the assessee was exempted u/s 80-IA, and thus there was, possibly no reason, for the assessee to conceal the stock-in-trade, as thereby, the assessee was not to gain anything.
The net result is that, we do not find any force in the appeal, and the same is therefore, dismissed.
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2008 (8) TMI 917
Issues involved: Appeal against order of CIT(A)-II, Bangalore u/s 143(3) of the Act and u/s 250 of the Act, computation of deduction u/s 10B, adjustment of outward freight charges, penalty proceedings u/s 271(1)(c) of the IT Act.
Comprehensive details of the judgment:
Issue 1: Legality of orders u/s 143(3) and u/s 250 of the Act
The appeal was filed challenging the legality of the orders passed by DCIT u/s 143(3) and CIT(A) u/s 250 of the Act. The Tribunal considered the arguments presented and upheld the finding that adjustment needs to be made to export turnover for computing deduction u/s 10B of the IT Act. The Tribunal also affirmed that the expenses reduced from the export turnover should be deducted from the total turnover for computing eligible profit for deduction u/s 10A of the IT Act.
Issue 2: Adjustment of outward freight charges
The CIT(A) held that for computing deduction u/s 10B, an adjustment must be made to the export turnover due to expenditure related to the delivery of goods outside India. The Tribunal agreed with this decision, stating that outward freight charges should be reduced from the export turnover. Additionally, the Tribunal clarified that the expenses reduced from the export turnover should also be deducted from the total turnover for determining the eligible profit for deduction u/s 10A of the IT Act.
Issue 3: Penalty proceedings u/s 271(1)(c) of the IT Act
The CIT(A) erred in not holding that there was no basis for the DCIT to initiate penalty proceedings u/s 271(1)(c) of the IT Act. However, the Tribunal did not provide detailed reasoning on this issue in the judgment.
In conclusion, the Tribunal partly allowed the appeal filed by the assessee based on the above considerations.
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2008 (8) TMI 916
Issues involved: Appeal against CIT(A)'s order regarding deduction u/s 10B of the IT Act and treatment of freight and insurance charges for export goods sold on FOB basis.
Deduction u/s 10B:
The appeal concerned the CIT(A)'s decision on the assessee's entitlement to deduction u/s 10B of the IT Act. The CIT(A) erred in determining the amount of deduction, leading to a variance from the assessee's claim. The Tribunal agreed with the assessee's contention that if freight and insurance charges were excluded from export turnover, they should also be excluded from total turnover. This direction was based on a similar decision by the Bangalore Bench of the Tribunal in a previous case. The Tribunal upheld the assessee's argument, partially allowing the appeal.
Treatment of Freight and Insurance Charges:
The issue also involved the treatment of freight and insurance charges incurred by the assessee for exporting goods sold on a Free on Board (FOB) basis. The learned AR did not contest the quantum but emphasized that if these charges were excluded from export turnover, they should also be excluded from total turnover. The Tribunal agreed with this argument and directed the Assessing Officer (AO) to make the necessary adjustments. The Tribunal cited a previous case to support this decision. Additionally, the Tribunal addressed the computation of Minimum Alternate Tax (MAT) under section 115JB, emphasizing that the AO was justified in increasing the expenditure relatable to income under section 10A for computing adjusted book profit. The Tribunal upheld the AO's decision regarding the taxation of the amount, leading to a partial allowance of the appeal.
In conclusion, the appeal filed by the assessee was partly allowed, with directions given regarding the deduction u/s 10B of the IT Act and the treatment of freight and insurance charges for export goods sold on FOB basis.
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2008 (8) TMI 915
Issues involved: Appeal against CIT (A) order regarding telecommunication cost, technical services fee, total turnover for computing eligible profits u/s 10A.
Telecommunication cost: Assessee contended that cost attributable to delivery of goods outside India should not be estimated at 40% of total cost without basis. Learned AR did not press this ground during the hearing.
Technical services fee: Assessee argued that fee paid was not for services rendered outside India as software development was done in India. The reduction in export turnover due to this fee should be deleted. Learned AR did not press this ground during the hearing.
Total turnover for eligible profits: Assessee raised concern over the adoption of total turnover for computing eligible profits u/s 10A. The appeal was partly allowed, and it was upheld that if expenses are excluded from export turnover, they should also be excluded from total turnover for computing eligible profit u/s 10A of the IT Act.
Condonation of delay: Delay of 165 days in filing the appeal was attributed to the transfer of the Finance Manager of the company. The delay was condoned in the interest of justice, and the appeal was decided on merits.
Conclusion: The appeal was partly allowed, with the grounds related to telecommunication cost and technical services fee not pressed during the hearing. It was decided that expenses excluded from export turnover should also be excluded from total turnover for computing eligible profit u/s 10A of the IT Act.
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2008 (8) TMI 914
Benamidar and commission income in bogus billing - introducer/facilitator for bogus billing and the owners of the primary and secondary concerns were not benamidars - search and seizure operations - statements recorded of the benamidars u/s 131 - trading additions - books of account not produced for verification of the results shown in the final accounts - Unexplained investment and commission earned in share transactions - Addition made by the AO on account of Jewellery - Unexplained cash - Advertisement expenses.
HELD THAT:- We find that the learned CIT(A) has made elaborate findings in his order for asst. yr. 1998-99, after discussing and considering all the facts of the case and statements of alleged benamidar recorded during the course of search and after the search, statements recorded by the customs authorities, returns filed by alleged benamidars, assets owned by the alleged benamidars, operations in bank account/demat account by the alleged benamidar before and after the search and filing of the returns before and after the search by alleged benamidar and various case laws and we fully agree with these and uphold the findings of learned CIT(A) that the contemporary evidence which are in the form of statement recorded by search party u/s 132(4)/131 and statements recorded under the customs authorities clearly speak that the alleged benamidars were acting for themselves. No corroborative evidence was brought on record to prove that the business concerns belonging to these alleged benamidars were funded, managed and controlled by the assessee or his associates and they are the beneficial owner of these concerns.
Thus, we are of the view that there was no sufficient material or evidence before the AO to come to the conclusion that Shri Umesh Saboo, Shri O.P. Ghiya, Shri Mahesh Sharma, Shri Mohan Prakash Sharma, Naman Gems (P) Ltd., Shri Gauri Shanker Pareek, Shri Mahesh Khandelwal, and Shri Raghuvar Dayal Pareek were benamidar of the assessee and his partners, Manmohan Krishna Bagla and Shri Ramesh Chand Maheshwari and the assessee and his partners cannot be held as involved in any manner in the business of these persons.
Therefore, the AO was not justified in making addition on account of commission from issue of bogus purchase bills by holding that the above named persons/concerns were benamidar of assessee and his partners. We thus, while setting aside adverse findings of the lower authorities in this regard, direct the AO to delete the addition of ₹ 51,649 in asst. yr. 1998-99, ₹ 86,832 in asst. yr. 1999-2000, ₹ 1,98,377 in asst. yr. 2000-01, ₹ 2,40,710 in asst. yr. 2001-02, ₹ 2,75,081 in asst. yr. 2002-03, ₹ 5,41,152 in asst. yr. 2003-04, and ₹ 2,15,807 in asst. yr. 2004-05 sustained by learned CIT(A) because there is no material to hold that the assessee and his partners, Shri Manmohan Krishna Bagla and Shri Ramesh Chand Maheshwari might have acted as introducer/facilitator for bogus billing.
In the result ground Nos. 1 to 5 of the appeal filed by the Revenue are dismissed and ground No. 2 of the appeal filed by assessee is allowed.
Trading addition - AO rejected the books of account and applied the provisions of s. 145(3) and estimated the profit - We find substance in the contention of the learned Authorised Representative. We find that the Department has carried out search operations and no material was found to show that the assessee has suppressed the profit or sales. The AO estimated the profit without having any material. The AO has not cited any comparable case. Even if the books of account are rejected, the estimation of profit should be made on some basis. Therefore, in the circumstances and facts of the case, the AO is not justified in making trading addition. The learned CIT(A) under these circumstances in our view has rightly deleted the addition of ₹ 67,353 in asst. yr. 1998-99, ₹ 20,000 in asst. yr. 1999-2000, ₹ 1,57,704 in asst. yr. 2000-01 R ₹ 49,874 in asst. yr. 2001-02 and ₹ 2,82,533 in asst. yr. 2002-03 and we uphold the findings made by learned CIT(A) in this regard.
In the result ground No. 6 of the appeal filed by the Revenue is dismissed.
Unexplained investment and commission earned in share transactions - We agree with and uphold the findings of learned CIT(A) that the share transactions in the shares of Gaytri Shakti Papers & Boards Ltd. is an accommodation entry and the real beneficiary in the share transactions is Agarwal family. We uphold the findings of learned CIT(A) that S/Shri Rakesh R. Purohit, Manmohan Krishna Bagla and Ramesh Maheshwari neither control the acquirer of the shares nor they are their agents because the Revenue has no any positive evidence to show that money received against the sale of share was transferred or given to S/Shri Rakesh R. Purohit, Manmohan Krishna Bagla and Ramesh Maheshwari and there is nothing on record to suggest that money relating to these share transaction have flowed from S/Shri Rakesh R. Purohit, Manmohan Krishna Bagla and Ramesh Maheshwari or the shares of these companies were transferred to the above named persons or any benefit has been accrued to these person.
In the result ground No. 6 of the appeal filed by the Revenue is dismissed.
Addition made by the AO on account of Jewellery - whether the jewellery found at the time of search is explained or not - AO has not led any iota of evidence to prove that Smt. Ram Janki might have given her jewellery to someone else. The AO merely disbelieved the explanation given by the assessee. Hon'ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee vs. CIT [1963 (3) TMI 47 - SUPREME COURT], observed that the IT Department cannot by merely rejecting unreasonably a good explanation, convert good "proof into no proof". Further, overall jewellery declared in the WT return should be taken into account while deciding whether the jewellery found at the time of search is explained or not. We are of the view that the jewellery disclosed in past cannot be lost sight in view of non-availability of item-wise tally.
Further the claim of the assessee for 4,000 gms. silver items as ancestral is very reasonable. Therefore, the AO was not justified in making addition on account of the jewellery and silver articles explained by the assessee as belonging to his late mother Smt. Ram Janki and learned CIT(A) has rightly deleted the addition.
Jewellery of 502.160 gms. and 498.400 gms - It is undisputed fact that the jewellery weighing 335.504 gms. (net) was found from the bedroom of Smt. Sweta Purohit and jewellery of 382.00 gms. (net) was found from the locker of Smt. Sweta Purohit and the jewellery of 414.032 (net) gms. was found from the possession of Smt. Mandakani Purohit. Thus, the search party found jewellery weighing 1131.536 gms. from the possession of these two ladies. We also agree with the learned Authorised Representative that jewellery to the extent of 500 gms. should be treated as reasonable holding in the case of each married lady. Therefore, in the circumstances and facts of the case, the AO was not justified in making addition on account of the jewellery explained by the assessee as belonging to his daughters-in-law, Smt. Mandakani Purohit and Smt. Sweta Purohit and learned CIT(A) has rightly deleted the addition.
In the result, ground No. 9 of the appeal filed by the Revenue is dismissed.
Unexplained cash - AO has not rejected the books of account including the cash book hence the balance shown in the cash book have been rightly treated by the learned CIT(A) as correct. Therefore, the AO was not justified in making addition on account of unexplained cash and learned CIT(A) has rightly deleted the addition.
Ground No. 10 of the appeal filed by the Revenue is thus dismissed.
Advertisement expenses - The explanation of the assessee that due to slump in the market, the assessee could not obtain the orders, the business of the assessee was not closed but he could not obtain the profit making orders and the assessee remained busy in attending the office of Dy. Director of IT and other authorities due to search during the year and the business of the assessee remained unattended and the clients shifted to other parties cannot be brushed aside without giving any adverse material against the assessee. For other expenses like car petrol, car insurance, interest on car loan, depreciation on car, we find the disallowance is at higher side. We thus, while setting aside orders of the lower authorities in this regard, direct the AO to restrict the disallowance upto 10 per cent of the total expenses as against the disallowance under these heads made by the AO.
In the result ground No. 3 of the appeal filed by the assessee and ground Nos. 6, 7 and 8 of the appeal filed by the Revenue are dismissed.
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2008 (8) TMI 913
Issues involved: Validity of revisional order beyond scope of show cause notice, breach of principles of natural justice, adequacy of inquiry by Assessing Officer regarding expenses claim.
Validity of revisional order: The tribunal found the revisional order invalid as it exceeded the scope of the show cause notice, incorporating grounds not mentioned in the notice. The tribunal held that this breached principles of natural justice, as the assessee was not given the opportunity to respond to these additional grounds. The requirement of a show cause notice allows the party to present their point of view on the grounds considered for the order. Since additional grounds not in the notice formed the basis of the revisional order, the tribunal was justified in setting it aside.
Adequacy of inquiry by Assessing Officer: The second issue raised was whether the Assessing Officer conducted sufficient inquiries regarding the assessee's claim of expenses in the re-revised return of income. The tribunal questioned if further examinations were needed after the assessee's statement that the expenses were for security purposes and paid from available cash balance. However, the adequacy of inquiry is a question of fact, not law. Therefore, the appeal on this matter was rejected as it cannot be entertained.
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2008 (8) TMI 912
The Supreme Court dismissed the appeal due to a wrong statement in the list of dates regarding a judgment in favor of the Revenue.
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2008 (8) TMI 911
The High Court of Delhi admitted the case for consideration. Two substantial questions of law were framed regarding the deletion of an addition of Rs. 37.82 Crores by the ITAT, related to alleged remuneration/royalty paid by the assessee to subsidiaries, and the examination of reasonableness and genuineness of expenses/payments made to subsidiaries. The case was tagged along with ITA No. 1202/2005.
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2008 (8) TMI 910
Issues involved: Appeal against order affirming assessment made by Income-tax Appellate Tribunal regarding donations to a society.
Assessment by Assessing Authority: The Assessing Authority assessed the society, disregarding donations and deeming donors as bogus. Commissioner of Income-tax (Appeals) reversed the assessment, stating donors were not examined or cross-examined to determine their authenticity. Emphasized that if donors were found to be bogus, society's registration u/s 12AA could be canceled.
Decision of Appellate Tribunal: Appellate Tribunal agreed with Commissioner's view, noting donors were not examined or cross-examined. Held that society, being registered u/s 12AA, was entitled to exemption u/s 11 of the Income-tax Act. Tribunal emphasized the necessity of examining donors to establish the genuineness of donations.
High Court's Analysis: High Court scrutinized findings of Commissioner and Tribunal, concluding that donations could not be labeled as bogus without donor examination and cross-examination. Emphasized the importance of evidence in determining genuineness. Noted that society's registration was not revoked despite donor authenticity concerns, allowing it to claim exemption u/s 11. High Court upheld the decisions of Commissioner and Tribunal, dismissing the appeal.
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2008 (8) TMI 909
Interpretation of statutes - Exemption u/s 10B on interest - receipt of interest on margin monies - export sale proceeds were utilised for making fixed deposits with the banks as margin monies in order to open the LCs - Whether the interest income can be considered as profits and gains derived by the EOU from the export of articles or things within the meaning of sub-section (1) of Section 10B? - expression "profits of the business of the undertaking" - manufacture and export of gold bullion, jewellery and medallions - also deals in gold bullion locally -
HELD THAT:- The expression "profits of the business of the undertaking" is wider in scope than the expression "profits derived from the industrial undertaking". This aspect of the matter has been examined by the Delhi High Court in CIT v. Eltek SGS P.Ltd.[2008 (2) TMI 17 - DELHI HIGH COURT]. In this decision, the Sections involved were 80HH and 80IB. While Section 80HH required that the profits and gains should be derived from the industrial undertaking, Section 80IB required that they should be derived from any business of the industrial undertaking.
No contrary judgement of any other Court on the scope of the expression "profits of the business of the undertaking" as contrasted with the expression "profits derived by/from the industrial undertaking" was brought to our notice.
The facts of the case undisputedly show that it is only for the purpose of making imports that the assessee had to open LCs with the banks and that it was only to comply with the direction of the banks that the assessee was compelled to make fixed deposits with them as margin monies. It is not in dispute that the proceeds of the fixed deposits came out of the export sale proceeds and not out of any surplus monies available with the assessee. Therefore, not only is there an inextricable link between the margin monies and the business of the undertaking, but there is also a link between the interest arising from the margin monies and the assessee's business. Thus, the receipt of interest on margin monies arises out of business transactions and, therefore, has to be considered as profits of the business of the undertaking. If it is found, as we have been able to from the facts of the case, that the interest is incidental to the business carried on by the undertaking, then Section 56(1) comes into play and it is not permissible in law to treat the interest as "income from other sources", the reason being that the interest is assessable as profits of the business of the undertaking. Therefore, in our humble opinion, the departmental authorities were not right in taxing the interest under the residuary head. They ought to have assessed the same as profits of the business of the undertaking.
Therefore, it appears to us that it would not be correct in law to treat the interest income under the residuary head. The mere fact that the fixed deposits were retained well beyond the realization of the related export proceeds cannot justify the assessment of the interest income under the residuary head, the reason being that the margin monies have to continue with the banks until the LCs are honoured. In any case, it cannot be disputed that when the fixed deposits were made with the banks as margin monies they were made as part of the business operations of the undertaking, subject to all the risks of the business, and the character of the deposits cannot change merely because they were retained by the bank beyond the realization of the export proceeds.
Therefore, we are of the humble opinion that the departmental authorities were not right in treating the interest as "income from other sources". In our opinion, the interest falls to be assessed as profits of the business of the undertaking. If that is so, the interest becomes eligible for the deduction u/s.10B. We, accordingly, direct the AO to allow the deduction and modify the assessment. Thus, ground are allowed.
Disallowance of the commission payment to M/s. Virgo Polymers (India) Ltd.- The functions of Virgo Polymers were described for the first time before the Commissioner of Income-tax (Appeals) and we have already reproduced them.
One of the functions was that Virgo Polymers would ensure that there were no bad debts and if there were any, they would make good the same. If such a term is included in the agency agreement, the agent would be a del credre agent which means that the agent will be responsible for any bad debts.We are unable to appreciate why this term was included as one of the functions of Virgo Polymers because in the course of the arguments before us, the ld counsel for the assessee did state that all the sales of bullion were for cash.
It is generally known that in the bullion market transactions are put through only in cash and if really Virgo Polymers had an insight into the functioning of the bullion market, it would not have accepted such a term as one of its functions. Be that as it may, absolutely no evidence has been led to prove that Virgo Polymers did carry out any of the eight functions assigned to them. It may be that the assessee had filed some papers before the Income-tax authorities and it may even be that the commission payment was made by cheque. But the Income-tax authorities are not bound by the mere existence of the documents to hold that the payment was made wholly and exclusively for the purpose of the assessee's business.
Assessee and Virgo Polymers are not related to each other in any manner is not of any consequence. The fact that this was the only year in which any commission was paid is also of no relevance. Merely because of these facts the AO cannot be compelled to allow the commission as deduction in the absence of any evidence to show the rendering of any service by Virgo Polymers.
Therefore, we are unable to hold that the departmental authorities were not justified in disallowing the commission payment to Virgo Polymers. The disallowance is confirmed and ground nos.5 and 6 are dismissed.
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