Disallowance u/s.14A - main contention of the ld.A.R before the DRP is that the assessee company has made strategic equity investment in Tata Tele Services Ltd.,(TTSL), an unregistered telecom company of the Tata Group and that TTSL is a huge loss making company and hence, no dividend was received from it during the year - HELD THAT:- In this case the undisputed facts are that the assessee not able to show that sources of funds were diverted into investment in shares, which has not yielded any interest or dividend income, even if assessee earned dividend income, it is exempted u/s.10(33) of the Act from the tax liability and the same cannot be computed under the head “income from other sources”. The expenditure relating to exempted income is not liable for deduction in view of Sec.14A of the Act. In view of this, the claim of assessee is only untenable and decision relied upon by the ld.A.R before the Ld.CIT(A) have no application to the facts of the case.
The jurisdictional High Court in the case of CIT Vs. Seshasayee Paper And Boards Ltd. r [1984 (4) TMI 17 - MADRAS HIGH COURT] wherein held that the borrowing has not been made exclusively and wholly for the purpose of earning interest, in which case alone it should be taken as income, which should be deducted from the interest receipts. Also in the case of Pradeep Kar Vs. ACIT [2009 (6) TMI 331 - KARNATAKA HIGH COURT] wherein held that dividend income being exempt u/s.10(33) and not assessable to tax, assessee was not entitled to deduction for interest in view of Sec.14A of the Act. Accordingly, this ground of the assessee stands dismissed.
TP Adjustment - interest received at 6% p.a. from his wholly owned subsidiary India Telecom Holdings Ltd, Mauritius - HELD THAT:- The similar issue came up for consideration before the Mumbai Bench of Tribunal in the case of DCIT (International Taxation) Vs. Development Bank Of Singapore [2013 (8) TMI 175 - ITAT MUMBAI] considering the LIBOR as one comparable uncontrolled interest rate, in our considered opinion is a restricted and narrow approach incapable of acceptance. Since the LIBOR is not a rate in itself at which some bank is willing to borrow or lend, but an average of rates at which various panel banks offer to borrow or lend inter bank offers, the same cannot be characterized as one price determined under the comparable uncontrolled price method. It is required to be considered as arithmetical mean of such prices, thereby making available the option of plus minus 5 percent variation to the assessee. As the present addition made by the AO was the outcome of not allowing plus minus 5 percent cushion, which in our considered opinion is richly due to the assessee, we hold that the learned CIT(A) was justified in deleting this addition - Decided in favour of assessee.
Transfer Pricing adjustment in respect of guarantee fee - HELD THAT:- This issue came up for consideration before this Tribunal in the Case of Redington India Ltd. Vs. JCIT [2014 (10) TMI 669 - ITAT CHENNAI] relying on BHARTI AIRTEL LIMITED (BHARTI CRESCENT) VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 2, NEW DELHI [2014 (3) TMI 495 - ITAT DELHI] that providing corporate guarantee does not involve any cost to the assessee and it is not an “international transaction”, even under the definition of the said term as amended by the Finance Act, 2012, as it does not have any bearing on profits, income, losses or assets of the assessee company. - Decided in favour of assessee.
Accrual of income - demurrage/wharfage charges accrued to the assessee particularly when the assessee followed mercantile system of accounting - HELD THAT:- Taking into consideration the evidence on record, we are of the opinion that the Tribunal while considering the issue has rightly appreciated and has rightly allowed the appeal preferred by the assessee. Assessee was a Government Corporation and has shown the liability in spite of stay order granted by the Court and in our view, the view taken by the Tribunal is just and proper. The issues are required to be answered in favour of the assessee and against the Department.
Deduction u/s 80P - HELD THAT:- Questions under Section 80P can also be considered only in the light of the question whether interest derived by the society is income from other sources, we are of the view that it is necessary that the Tribunal re-considers all the issues arising for decision in these appeals, in particular, the applicability of circular No.18/2015 dated 02.11.2015 and the question of applicability of the ratio of the decision in Chirakkal Service Co-operative Bank Limited [2016 (4) TMI 826 - KERALA HIGH COURT] as to the effect of Section 80P of the Income Tax Act on the appellants. To enable a comprehensive consideration by the Income Tax Appellate Tribunal of all the issues arising for decision in these appeals, in the appeals before the Tribunal, in the light of what we have stated above, the impugned orders of the Tribunal are vacated and the cases are remitted to the Tribunal for re-consideration.
Parties are directed to mark appearance before the Tribunal on 15.11.2016
Disallowance of benefit of deduction u/s. 80P(2) - assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969 - HELD THAT:- Admittedly, the assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate issued by the Registrar of Cooperative Societies to the above said effect is placed on record. The Hon’ble High Court of Kerala in the case of Chirakkla Service Coop Bank Ltd. [2016 (4) TMI 826 - KERALA HIGH COURT] had held that a primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969 is entitled to the benefit of deduction u/s. 80P(2). - decided in favour of assessee.
Levy of penalty u/s 271(1)(b) - alleged failure to comply with the notice issues under section 142(1) - delay on the part of the assessee in complying with the information called for finalizing the assessment - HELD THAT:- The assessments for all the captioned assessment years have been completed under section 143(3) r.w.s.153A of the Act and, therefore, the initial non-compliance with the notice issued under section 142(1) of the Act can be understood to be made-up subsequently and, therefore, the levy of penalty under section 271(1)(b) of the Act is not justified. See AKHIL BHARTIYA PRATHMIK SHIKSHAK SANGH BHAWAN TRUST. VERSUS ASSISTANT DIRECTOR OF INCOME-TAX. [2007 (8) TMI 386 - ITAT DELHI-G] - Decided in favour of assessee.
Addition u/s 69 - unexplained investment - reference of matter to the District Valuation Officer (DVO) for estimation of investment made in land at fair market value - investment made by the assessee in purchase of 11 plots in the course of its business - HELD THAT:- A careful perusal of the provision divulges that in order to invoke this provision, it is sine qua non that the assessee must have made investments which are not recorded in the books of account. The factum of the assessee having made investment should be first proved by the AO, only then the burden shifts on the assessee to prove the source of investment.
Such investment outside the books of account must be positively proved by the AO and not only inferred from the attending facts. If such an investment outside the books is not proved, the assessee cannot be called upon to prove the source of such a hypothetical investment. Apart from relying on the DVO’s report, the AO has not brought on record any other material to indicate that the assessee did make investment in purchase of plots over and above that declared in the books of account.
The legislature is also not oblivious of the practice of understatement of consideration in the transactions of immovable properties in certain cases. That is why, apart from inserting section 50C, which is applicable in the hands of a seller, section 56(2)(vii) was introduced w.e.f. 1.10.2009 for charging to tax the difference between stamp value and the declared consideration in the hands of the buyer, if such difference is more than ₹ 50,000/-. As this is a substantive provision inserted w.e.f. 1.10.2009, the same cannot be applied to the assessment year 2006-07 under consideration. Ex consequenti, the entire addition made by the AO is deleted. The ground taken by the assessee is allowed and that by the Revenue is dismissed.
Addition on account of stamp duty and registration charges - AO applied 8% rate on the alleged excess investment made by the assessee, the CIT(A) proportionately reduced the same. In view of the fact that the substantive addition u/s 69 on account of the alleged investment made by the assessee has been deleted in an earlier para, this consequential addition is also liable to be deleted. - Decided against revenue.
Disallowance u/s.36(1)(iii) - interest made on account of borrowed funds utilized for investment in subsidiary company - HELD THAT:- Equity shares of the subsidiary company i.e DIC Coatings India Ltd were acquired pursuant to sale of coating business by the assesse in terms of a scheme of arrangement approved by Hon’ble Calcutta High Court.
CIT-A examined the facts of the order passed by the CIT-A for A.Y 2005-06 and found satisfied that the facts involved therein in the first appellate order for AY 2005-06 is one and same to the facts of case the year under consideration. Further, the CIT-A found that the assessee invested only in its wholly owned subsidiary DIC Coating lndia Limited which was acquired in 1997 in terms of the scheme approved by the Hon’ble High Court of Calcutta. Undisputedly, the Revenue did not carry the first appellate order for A.Y 2005-06 in appeal to the higher forums having jurisdiction. No infirmity in the order impugned before us and the said order passed by the CIT-A is justified in deleting the disallowance of interest made on account of borrowed funds u/s. 36(1)(iii) - Decided in favour of assessee.
The Supreme Court of India granted leave in the case and tagged it with C.A. Nos.14659-14661 of 2015. The arbitral proceedings will continue pending the final appeal outcome.
Provision for transit breakages - allowable revenue expenditure - HELD THAT:- Since the leading SLP [2016 (7) TMI 1292 - SUPREME COURT OF INDIA] has already been dismissed does not want to press this petition and seeks permission to withdraw the petition.
Special Leave Petition is, accordingly, dismissed as withdrawn
Characterization of income - agricultural income treated as income from other sources - absence of books of accounts in respect of agricultural produce - HELD THAT;- We find that the assessee has shown agricultural income sales which includes being sales of wheat and soyabean shown at higher price as compared to Mandi sales. These sales are in the nature of on spot sales made effected outside Mandi to private parties.
The assessee has agricultural land holding at 40 acres of irrigated agricultural land. The assessee has also filed confirmation of parties i.e. agriculturist, to whom sales was made.
Therefore, considering the circumstances and in absence of books of accounts in respect of agricultural produce being not maintained and case laws as relied on by the Assessee, it would be reasonable to estimate 30% of the sales amounting to ₹ 6,00,000/- to private parties as non-explained agricultural income which would be worked out to ₹ 1,80,000/-. Accordingly, the addition of ₹ 1,80,000/- is confirmed and the balance addition of ₹ 3,11,590/- i.e. [Rs.4,91,590- ₹ 1,80,000] is deleted. This ground of appeal is therefore, partly allowed.
Stay of demand - condition to deposit 15% of the outstanding demand, for stay of remaining demand - attachment of all movable and immovable properties - HELD THAT:- Pursuant to search operations, assessments were carried out, which has resulted into substantial tax demands. Merely because the petitioner has filed appeals against such order of assessment by itself, would not permit us to grant blanket stay. Whether such demand pending appeal should be stayed, must be dependent upon facts of each case.
The second contention of the petitioner however warrants consideration. If the properties are under attachment, naturally it would be difficult for the petitioner to raise funds for payment of substantial taxes. If on the other hand, the extension of attachment made under order dated 21.01.2016 has expired with efflux of time, the grievance of the petitioner would be substantially reduced. In such a situation, except for granting additional time for depositing the tax, no further relief would be necessary.
Disallowance made u/s. 14A r.w.r. 8D - computation of deduction - HELD THAT:- As decided in assessee’s own case [2014 (3) TMI 399 - ITAT MUMBAI] Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D. The disallowance worked out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income.
Thus we set aside this issue to the record of AO for the limited purpose of computing the total expenditure incurred by the assessee for the composite/indivisible activities in which taxable and non-taxable income is received and if the disallowance work out under Rule 8D on account of administrative expenses exceeds the total claim of expenditure incurred for the composite activities resulting taxable or non-taxable income then the disallowance should be restricted to the said actual total claim of expenditure.
We set aside the order passed by the CIT(A) on this issue and restore the same to the file of the Assessing Officer for considering the issue afresh by duly considering all the types of contentions that may be raised and all the materials that may be produced by the assessee. - Appeal filed by the assessee as allowed for statistical purposes.
Reversal of CENVAT Credit - unutilized balance in the Cenvat credit - SSI exemption availed - applicability of Rule 9(2) of Cenvat Credit Rules, 2002 - Held that:- Rule 9(2) of Cenvat Credit Rules, 2002 is applicable only in case an assessee has got unutilized Cenvat credit balance, on the record date, when he opts to avail exemption. Admittedly in the facts of the present case the Cenvat credit balance was nil as on 31-3-2003 - no amount was required to be reversed or paid under the provisions of Rule 9(2) of Cenvat Credit Rules, 2002 which is equivalent to the provisions under Rule 11(2) of Cenvat Credit Rules, 2004.
Accrual of income - Additional gross receipts - assessee filed revised computation of income in the course of the assessment proceedings - AO being of the view that it was not reflected in the books of accounts of the assessee added the same to the income of the assessee - DR relying upon the orders of the tax authority submitted that the assessee may need to demonstrate that the return filed could be revised and whether the Revised Computation was accepted by the AO or not - HELD THAT:- The record shows that fresh evidence was filed before the CIT(A) and the reliance has been placed on the Remand Report where facts are stated to be accepted however allegation of contradictory statements during the assessment stage are relied upon.
As find that the issue needs to decided on the basis of facts and evidences and not necessarily only by an argument advanced before the AO at the assessment stage. As per the record, assessee claims relief on the basis of aforesaid Form 16A stated to be made available to the assessee only on or after 12.10.2012 thus in the original computation these could not be reflected. Since the aspect has not been addressed and examined the impugned order is set aside and the ld.CIT(A) is directed to consider the claim of the assessee addressing the specific document - Appeal of the assessee is allowed for statistical purposes.
Undisclosed income u/s 158B(b) - special procedure for assessment of search cases - bogus purchases - HELD THAT:- In view of the observations made by the Supreme Court MA MURTHY VERSUS STATE OF KARNATAKA AND OTHERS [2003 (9) TMI 76 - SUPREME COURT] we are of the opinion that the substantive law which has been amended and 158BC(b) would have all prospective effect. In our view that will not be made applicable in the present case.
The Tribunal did not consider the amendments envisaged by the legislature, therefore, under Section 260-A when we are considering substantial law, we have to consider whether the Tribunal has committed an error. The issue is answered in favour of the assessee and against the department. The view taken by this Court in a case of Relaxo Footwear [2001 (11) TMI 14 - RAJASTHAN HIGH COURT] will apply in the present case and the view taken by the Tribunal is liable to be confirmed and the same is confirmed.
Deemed dividend addition u/s 2(22)(e) - transfer of shares of UPL and UEL owned by the assessee-company to NCPL as gift - HELD THAT:- it is not a case of distribution of accumulated profits to its shareholders. It is an undisputed fact that NCPL per se is not a shareholder in the assessee-company. - Transfer transaction of shares of UPL & UEL by the assessee-company to the NCPL constitutes the "gift transaction" and also they are outside the scope of section 2(22)(a) of the Act. Further, the CIT (A) is not justified legally to issue certain directions to the AO to apply the provisions of section 115-O of the Act in respect of NCPL as the same is not before the CIT (A). - Decided in favour of assessee.
Disallowance u/s 14A - HELD THAT:- In case, if interest free funds are found available, he presumption of use of interest free funds for investment in the dividend yielding shares is required to be honoured. We order AO accordingly. As such, no case is made out by the assessee that the Assessing Officer erroneously applied the provisions of clause-(iii) of Rule 8D(2) of the IT Rules, 1962. Therefore, the order of the CIT (A) on this issue stands. Thus, Ground no.1 raised by the assessee is allowed in the above mentioned manner.
Addition in respect of transactions reported in AIR qua the interest income - HELD THAT:- Addition made by the AO and confirmed by the CIT (A) is required to be deleted ads if in case of double taxation in both the AYs. Relevant facts and conclusions of the CIT (A) in this regard are given in paras 6.1 to 6.3 of the CIT (A)'s order. As per the assessee, interest income accrued from the Bank of Baroda is ₹ 4,53,453/- and the same is credited to the P & L Account on the basis of the entries appearing in the bank statements. However, in Form No.26AS, an amount of ₹ 4,68,250/- was reflected. Assessee claims that as per the principle of mercantile system of accounting, which is consistently followed by the assessee, an excess amount was offered. Assessee further submitted that when the amount shown in Form No.26AS is lesser, in such cases the addition of ₹ 14,797/- is uncalled for. - Decided in favour of assessee.
Disallowance in respect of advances written off - HELD THAT:- Revenue disallowed the claim of the assessee for want of evidence that the said advances are given in ordinary course of business of hat merged companies. Para 7.3.2 of the CIT (A) order is relevant in this regard. herefore, we are of the opinion, the matter is required to be remanded to the file of he AO for fresh adjudication. We order accordingly and direct the AO to examine he issue in the light of the above said precedents and facts of the case. Further, in our view, the assessee is under obligation to explain the fulfilment of the conditions specified in the said conditions.
Addition of purchases -Evidences provide before AO - Power of CIT(A) HELD THAT:- It is an undisputed fact that the items purchased were already partly sold and partly shown in the closing stock account. Relevant documents and bank transactions are undisputed by the Assessing Officer. There is no direct evidence suggesting the hawala nature of the transactions. The GP related errors were also not identified. In these circumstances, we are of the opinion the directions of the CIT (A) who does not have power of setting aside the matter are unsustainable in principle. As such, here is no case of making additions by the AO on this account. Considering the above factual matrix of the case, we are of the opinion, ground no.2 raises by the assessee is required to be allowed.
Valuation - includibility - N/N. 1 of 2006 - whether the explanation to Item No. 7 in Notification no. 1 of 2006, issued by the respondent i.e. the sales tax department is enforceable in law in so far as it directs the inclusion of the value of free supplies used by a contractor in construction activity? - Held that:- The explanation to Item No. 7 of the Notification – which is been impugned in this case is worded in a neutral manner; it directs the inclusion of the gross value of the goods to the extent that goods are bought by the contractor, there can be no quarrel in its application. However, the problem in this case is that the petitioner claims that the goods were in fact supplied free of cost for the construction activity undertaken by its principle or the service recipient.
In the light of the Intercontinental Consultants [2012 (12) TMI 150 - DELHI HIGH COURT] and Bhayana Builders [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)], the petitioner’s grievance is well founded. It is accordingly held that in cases where goods are supplied free of cost by the service recipient to the construction contractor of the service provider, the value of such goods shall be excluded from the gross amount in terms of explanation to Item No. 7 of the Notification 1 of 2006.
Petition allowed - decided in favor of petitioner.
Disallowance u/s 14A r.w.r. 8D - Held that:- Application of provisions of Rule 8D notified with effect from 24.03.2008 would apply with effect from assessment year 2008-09, which was not found to have been reversed by the Higher Court, the question of restriction of disallowance @ 2% as well as application of the above said notification whether from retrospectively or prospectively does not arise. Further, the same Division Bench with same combination, in the case of M/s. TVS Motor Company Ltd. v. JCIT [2016 (6) TMI 586 - ITAT CHENNAI] has decided that Rule 8D shall be applicable from the assessment year 2008-09 onwards by following various decision of the “C” Bench of the Tribunal [same combination]. Accordingly, we set aside the order of the ld. CIT(A) on this issue and restore that of the AO.
Disallowance of bad debt written off - loan advanced to sister concern/subsidiary as bad debts - Held that:- In this case, the assessee has not explained any efforts stated to have been made for recovery of the advances. Further, in view of the provisions of section 36(2)(i) of the Act, no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money - lending which is carried on by the assessee. In the appellate order, the ld. CIT(A) has given detailed findings, which have been reproduced hereinabove, and we find no infirmity in the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by the assessee is dismissed.
Restriction of the claim of R & D expenditure under section 35(2AB) - Held that:- In view of the specific provisions laid out under section 35(2AB)(2) of the Act that no deduction shall be allowed in respect of the expenditure mentioned in clause (1) of section 35(2AB) of the Act, under any other provisions of the Income Tax Act. Therefore, once the assessee claimed the R&D expenditure under section 35(2AB), the assessee cannot claim any deduction under section 35(2) of the Act for the same expenditure. When the statute is very clear, there is no ground for the assessee to claim the deduction. Therefore, the ld. CIT(A) has rightly rejected the ground raised by the assessee and thus, the ground raised by the assessee is dismissed.
Rejection of books of account - NP determination - application of net profit rate of 8% - non-deduction of TDS u/s 40(a)(ia) - Held that:- The rate of net profit rate declared at 5.51% should have been accepted but to create a deterrent to maintain books of accounts, the ld. CIT(A) has rightly applied a higher Net Profit ratio. CIT(A) has applied 8% rate of net profit, which is quite high when compared to the actual rate of net profit earned by the assessee in the earlier years. The books of accounts of the assessee has been audited u/s 44AB and it cannot be assumed that the books of accounts were not supported by vouchers. The assessee in this case has produced photocopies of purchase bills and therefore, CIT(A) has rightly distinguished the case laws relied on by the Assessing Officer. Therefore, we deem it appropriate that a 1% higher rate of net profit would have served the ends of justice. In view of the above, we direct the AO to calculate the profits of the assessee by applying net profit rate of 6.51% on the gross receipts.
As regards the grievance of the Revenue that the depreciation should not have been allowed, we find that the department vide Circular No. 29D, dated 31.08.1965 (placed at APB 34) has directed that where the books of the account are rejected and profits are estimated, depreciation allowance should be given
Hon’ble Punjab & Haryana High Court in the case of Lali Construction Co.(2014 (9) TMI 500 - PUNJAB & HARYANA HIGH COURT) has held that where the assessee gives information required under section 32 of the Act regarding claim of depreciation, the AO is bound to allow the claim of depreciation. In view of the above, the ld. CIT(A) has rightly allowed the claim of depreciation out of net profit worked out by applying net profit rate.
As regards the grievance of the Revenue regarding late filing of appeal by the assessee before the ld. CIT(A) and admission by him, we find that the ld. CIT(A) has given cogent reasons for accepting the appeal of the assessee, which he has narrated at page 3 of the impugned order, which reasons we find are reasonable for admission of the appeal and therefore, this grievance of the Revenue is rejected.
As regards the grievance of the Revenue that the AO has taken cogent reason for rejecting the books of account, the CIT(A) should not have taken different view. The ld. CIT(A) has not taken a different view rather he has upheld the action of the A.O. in rejecting books of account and before us nothing has been argued regarding rejection of books therefore we uphold the action of the ld. CIT(A) in rejecting books of accounts. Appeal of the Revenue is dismissed.
As regards the appeal of the assessee, we have already allowed part relief to the assessee by holding that net profit rate of 6.51% should be applied instead of 8% sustained by the ld. CIT(A).
As regards the disallowance under section 40(a)(ia) of the Act, We find that since the income of the assessee has been worked out on estimation, therefore, no further disallowance was warranted - Decided in favour of assessee.
CENVAT Credit - input services - cleaning services - telephone services - case of Revenue is that the services were rendered at the branch offices and that branch offices are beyond the place of removal i.e. factory premises - Held that:- The contention raised by the Department cannot be relied upon that the input services have to be availed within the factory itself. The definition of input services does not state any such criteria for availing credit on input service - credit allowed - appeal dismissed - decided against Revenue.
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