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2010 (4) TMI 1101
Issues involved:
The appeal challenges the order regarding employer's contribution to PF & ESI and provision made for foreign exchange fluctuation in technical know-how fee.
Employer's contribution to PF & ESI:
The Assessing Officer disallowed the employer's contribution towards PF and ESI under section 43B of the Income-tax Act as it was remitted belatedly. The Commissioner of Appeals allowed the appeal, but the revenue appealed to the Tribunal. The Tribunal granted relief to the assessee, and the High Court upheld the decision citing a precedent case.
Provision for foreign exchange fluctuation:
The Assessing Officer disallowed a sum provided for foreign exchange fluctuation in technical know-how fee under section 40(a)(i) of the Act. The Commissioner of Appeals allowed the appeal, which was further challenged by the revenue before the Tribunal. The Tribunal rejected the revenue's contention, stating that TDS deduction was not required for the fluctuation amount, as it would be adjusted when the fee is actually paid in the future. The High Court upheld the Tribunal's decision, ruling against the revenue.
This judgment clarifies the treatment of employer's contribution to PF & ESI and provision for foreign exchange fluctuation in technical know-how fee under the Income-tax Act, emphasizing the importance of following the Mercantile System of Accounting and the impact of foreign exchange fluctuations on tax deductions.
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2010 (4) TMI 1100
Issues Involved:
1. Validity of the CIT(A)'s order.
2. Disallowance of amortization of lease rent.
3. Disallowance of contributions to welfare and benevolent funds.
4. Classification of expenditure on replacement of membrane cells.
5. Disallowance under Section 40A(3).
6. Deduction of lease rent claimed by the assessee.
7. Adjustment of provision for bad debts and diminution in value of investments.
8. Deduction under Section 80HHC while computing book profits.
9. Levy of interest under Sections 234B and 234C.
Detailed Analysis:
1. Validity of the CIT(A)'s Order:
The assessee contended that the CIT(A)'s order was "bad in law, contrary to legal pronouncements" and sought its quashing. The Tribunal dismissed this ground as being general in nature and not requiring separate adjudication.
2. Disallowance of Amortization of Lease Rent:
The assessee claimed amortization of lease rent for land as a revenue expenditure. The CIT(A) upheld the AO's view that the payment was capital in nature, providing an enduring benefit. The Tribunal noted the assessee's admission that the issue had been decided against them in earlier years and upheld the CIT(A)'s decision.
3. Contributions to Welfare and Benevolent Funds:
The assessee's contributions to the "GACL Employees Welfare Trust Fund" and "GACL Employees Benevolent Fund" were disallowed under Section 40A(9). The CIT(A) upheld the disallowance based on earlier Tribunal decisions. The Tribunal confirmed the CIT(A)'s decision, noting the lack of new material or arguments from the assessee.
4. Classification of Expenditure on Replacement of Membrane Cells:
The AO treated the expenditure on replacing membrane cells as capital in nature, while the assessee argued it was revenue expenditure. The CIT(A) upheld the AO's decision, but the Tribunal reversed this, citing consistency with earlier years where similar expenditure was allowed as revenue.
5. Disallowance under Section 40A(3):
The AO disallowed 20% of cash payments under Section 40A(3). The CIT(A) upheld this disallowance due to the lack of evidence from the assessee that the payments were advances not debited to the profit and loss account. The Tribunal affirmed the CIT(A)'s decision, noting the assessee's failure to provide supporting evidence.
6. Deduction of Lease Rent Claimed by the Assessee:
The AO allowed only the interest component of the lease rent, treating the principal as repayment of a loan. The CIT(A) allowed the entire lease rent deduction, following earlier Tribunal decisions. The Tribunal upheld the CIT(A)'s decision, noting consistency with previous years and the Revenue's acceptance of similar decisions.
7. Adjustment of Provision for Bad Debts and Diminution in Value of Investments:
The AO added back provisions for bad debts and diminution in investment value while computing book profits under Section 115JB. The CIT(A) deleted these additions, and the Tribunal upheld this, citing the Supreme Court's decision in CIT v. HCL Comnet Systems & Services Ltd. that such provisions are not liabilities.
8. Deduction under Section 80HHC while Computing Book Profits:
The AO denied the deduction under Section 80HHC for book profits, but the CIT(A) allowed it based on the Tribunal's decision in DCIT v. Syncome Formulations (I) Ltd. The Tribunal set aside the CIT(A)'s order and remanded the issue for reconsideration in light of the Bombay High Court's decision in CIT v. Ajanta Pharma Ltd.
9. Levy of Interest under Sections 234B and 234C:
The CIT(A) canceled the interest charged under Sections 234B and 234C on book profits. The Tribunal reversed this decision, citing the Special Bench decision in Additional CIT v. Ashima Syntex Ltd. and other judicial precedents, holding that interest is mandatory on book profits under Section 115JB.
Conclusion:
The Tribunal's decisions resulted in partly allowing the appeals of both the Revenue and the assessee. The Tribunal upheld the CIT(A)'s findings on several issues, reversed some decisions, and remanded others for reconsideration based on judicial precedents and consistency with earlier years.
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2010 (4) TMI 1099
Issues involved: Appeal filed by Revenue against CIT(A) order for AY 2006-07 regarding deduction u/s 80IB of the IT Act.
Issue 1: Deduction u/s 80IB
The appeal was filed by the Revenue against the order of CIT(A) for AY 2006-07, concerning the allowance of deduction to the assessee u/s 80IB of the IT Act. The Tribunal noted that in the assessee's own case for the preceding AY 2005-06, a similar issue was dealt with, and the deduction u/s 80IB was allowed. The Tribunal observed that u/s 80IB, deduction is permitted to small scale industrial undertakings that begin manufacturing during a specified period. It was highlighted that in the case at hand, there was no splitting up or reconstruction of the business, but rather a change in the constitution of the industrial concern. The Tribunal, in line with its previous decision and the finding of the CIT(A), upheld the allowance of the deduction u/s 80IB for the relevant period, as the conditions disqualifying the deduction were not present. Consequently, the appeal of the Revenue was dismissed, affirming the order of the CIT(A).
This summary provides a detailed overview of the judgment, focusing on the issues involved and the Tribunal's decision regarding the deduction u/s 80IB of the IT Act.
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2010 (4) TMI 1098
Issues involved: The judgment involves the issue of whether certain charges towards freight and insurance should be excluded from the total turnover while calculating the deduction u/s 10B of the Income Tax Act.
Summary of Judgment:
Issue 1: Exclusion of freight and insurance charges from turnover calculation
The assessee, a company, filed an appeal against the order of CIT(A) regarding the exclusion of charges towards freight and insurance from the total turnover for the purpose of calculating deduction u/s 10B of the Income Tax Act. The Assessing Officer had excluded these charges from the export turnover but not from the total turnover, leading to a discrepancy in the deduction calculation.
Details:
- The assessee claimed deduction u/s 10B based on both export turnover and total turnover.
- The Assessing Officer reduced the charges from the export turnover but not from the total turnover, affecting the deduction calculation.
- The assessee argued that similar deductions in other sections of the Act support the exclusion of these charges from the total turnover.
- The CIT(A) upheld the Assessing Officer's decision, deviating from previous Tribunal decisions favoring the exclusion of such charges from total turnover.
Decision:
- The Tribunal, citing previous decisions and the Special Bench ruling, ruled in favor of the assessee.
- It emphasized maintaining parity between export turnover and total turnover in sections encouraging foreign exchange earnings.
- The Tribunal directed the Assessing Officer to exclude the freight and insurance charges from both export and total turnover while calculating the deduction u/s 10B.
Conclusion:
The Tribunal allowed the appeal, overturning the decisions of the lower authorities and directing the exclusion of the charges from turnover calculations for deduction u/s 10B.
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2010 (4) TMI 1097
Deduction u/s 10B denied - STP unit cannot automatically be regarded as a 100% EOU - whether CIT(A) has erred allowing deduction u/s 10B to the assessee company which is in contravention of the statutory requirement contained in Explanation 2(iv) of section 10B which stipulates a mandatory condition that a hundred per cent export oriented undertaking means an undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951)and the rules made under the Act?
HELD THAT:- We find that this issue has been decided by Ld CIT(A) on the basis of Instruction No.1 dated 31.3.2006 issued by CBDT and Minutes of Industrial Ministerial Communication vide letter dated 23.3.2006 issued by the Ministry of Communication and Technology. Since the facts are identical in the present case, this Tribunal decision rendered in the case of regency Creations Ltd.[2011 (5) TMI 943 - ITAT DELHI] is directly applicable in the present case and respectfully following this Tribunal decision, We hold that the STIP registration granted to the assessee on 16.11.1998 is valid for allowing deduction to the assessee u/s 10B and hence we do not find any reason to interfere in the order of the Ld CIT(A) on this issue.
We would also like to point out that in an earlier year i.e. AY 2004-05, the AO himself has allowed deduction u/s 10B to the assessee in a scrutiny assessment. It is also not brought on record by the revenue that this order is revised u/s 263 or reopened u/s 147. Under these facts, we feel that having decided in assessment year 2004-05 that the assessee is eligible for deduction u/s 10B, it cannot be denied in this subsequent year on the basis that the assessee is not an 100% EOU for the reason that necessary approval is not with the assessee.
This is against the rule of consistency. For this reason also, we decline to interfere in the order of Ld CIT(A). In the result, the appeal of the revenue is dismissed.
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2010 (4) TMI 1096
Issues involved: Revenue appeal against CIT(A) order for AY 2001-02 regarding penalty on provision for warranty expenses.
Brief facts: AO made addition of &8377; 31,82,677/- for provision of warranty expenses. Tribunal allowed deduction of &8377; 7,29,428/- as actual expenses. AO imposed penalty of &8377; 53,33,101/- for both disallowances. CIT(A) deleted entire penalty. Revenue appealed for penalty on provision of warranty expenses confirmed by Tribunal.
Legal analysis: Explanation 1 to section 271(1)(c) relevant. Situations where addition or disallowance represent concealed income outlined. Assessee made provision @ 1% of gross sales for warranty expenses based on technical estimate and experience. Tribunal allowed deduction based on actual expenditure incurred. Tribunal's basis not that provision was excessive or unreasonable. Assessee disclosed provision in notes, stating it's based on technical estimate. Tribunal noted year-wise provision and actual expenses, showing rising actual expenses each year. Assessee's explanation considered bona fide, no concealment of income found. Section 271(1)(c) not applicable. CIT(A) deletion of penalty upheld.
Conclusion: Revenue appeal dismissed.
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2010 (4) TMI 1095
Jessica Lal Murder Case - Appeal u/s 379 CrPC - HC reversed the order of acquittal - Conviction u/s 302, 201/120B IPC and sentenced to undergo imprisonment for life - Section 27 of the Arms Act - The Incident took on night intervening 29-30.04.1999, at restaurant also called "Tamarind Cafe". The liquor was being served by the bartenders, namely, Jessica Lal (since deceased) and one Shyan Munshi (PW-2). At about 2.00 a.m., Sidhartha Vashisht @ Manu Sharma along with his friends came there and asked for two drinks. The waiter did not serve him liquor as the party was over. On refusal to serve liquor, the appellant took out a pistol and fired one shot at the roof and another at Jessica Lal which hit near her left eye as a result of which she fell down. Jessica Lal was rushed to Ashlok Hospital from where she was shifted to Apollo Hospital. On 30.04.1999, in the early morning hours, Jessica Lal was declared brought dead at Apollo Hospital.
HELD THAT:- It is proved beyond reasonable doubt that accused Sidharth Vashisht @ Manu Sharma after committing the murder of Jessica Lal fled away from the scene of occurrence. It is further proved from the testimony of PW-100, PW-101, PW-87 Raman Lamba, PW-85 and PW-80 that from afternoon of 30.04.1999 search was made for the black Tata Safari bearing Regn. No. CH-01-W-6535 and for Sidharth Vashisht @ Manu Sharma, Director of Piccadilly Sugar Industries at Bhadson, Kurukshetra, Chandigarh, his farmhouse at Samalkha and Okhla Delhi. It is also proved that even after the seizure of vehicle on 02.05.1999 the search for accused Sidharth Vashisht @ Manu Sharma continued and search was made at Piccadilly Cinema, Piccadilly Hotel, his residence at Chandigarh, PGI Hospital where his father was subsequently admitted. However, accused Sidharth Vashisht @ Manu Sharma was not found nor anybody informed his whereabouts and it is only on 06.05.1999 that accused Sidharth Vashisht @ Manu Sharma surrendered at Patiala Guest House, Chandigarh in the presence of Shri Harish Ghai, advocate and Sh. Vinod Dada. The above evidence of the witnesses clearly establishes beyond reasonable doubt that accused Manu Sharma absconded after committing the crime and surrendered on 06.05.1999 after extensive searches were made.
Accused Manu Sharma was sent to judicial custody on 15.05.1999 and the statement of witnesses continued even thereafter and thus resort to photo identification was properly taken by mixing the photograph of accused Manu Sharma with number of other photographs and asking the witnesses to pick up the photograph of the person they had witnessed on the fateful night and the morning thereafter i.e. 29/30.04.99. This mode of photo identification was resorted to vis-`-vis Deepak Bhojwani PW-1 on 24.05.1999 at Delhi, Shiv Dass PW-3 and Karan Rajput PW-4 on 29.05.99 and Shyan Munshi PW-2 on 19.05.99 at Calcutta. Thus there is no merit in the contention of the defense that the dock identification was a farce as it was done for the first time in the Court.
the appellant-Manu Sharma has, inter alia, has taken false pleas in reply to question nos. 50, 54, 55, 56, 57, 64, 65, 67, 72, 75 and 210 put to him under Section 313 of the Code.(ii) Adverse inference qua non explanation of Pistol Appellant/Accused - Manu Sharma was holder of a pistol .22" bore P Berretta, made in Italy duly endorsed on his arms licence. It was his duty to have kept the same in safe custody and to explain its whereabouts. It is proved beyond reasonable doubt on record that extensive efforts were made to trace the pistol and the same could not be recovered. Moreover as per the testimony of CN Kumar, PW-43, DSP/NCRB, RK Puram there is no complaint or report of the said pistol. Thus an adverse inference has to be drawn against the accused-Manu Sharma for non- explanation of the whereabouts of the said pistol.
Similarly another plea not supported by any positive evidence led by the appellant-Manu Sharma is that his pistol i.e. the weapon of offence and the arms licence was recovered from his farm house on 30.04.1999, when in fact it is an established fact that the pistol could not be recovered and that the licence was surrendered on 06.05.1999 at the time of his arrest. It defies all logic and ordinary course of conduct to allege that the prosecution has withheld the pistol after seizing the same from his farmhouse. The fact that he has failed to produce the pistol, a presumption shall arise that if he has produced it, the testing of the same would have been to his prejudice. The burden thus shifts on him.
As per the disclosure of accused-Manu Sharma, the pistol was given to accused - Ravinder Sudan @ Titu (PO). It has been proved by the testimony of PW- 37, Martin Raj and PW-49-Inspector Mahender Singh Rathi that accused, Ravinder Sudan @ Titu left the country by Gulf Airways on 04.05.1999. Accused-Manu Sharma surrendered on 06.05.1999 only after accused Ravinder Sudan @ Titu left the country. It is pointed out by the State that calls were made from PCO, Ambala and PCO Hazrat Nizamuddin which have been duly proved by the testimony of PW-36, Ram Lal Jagdev, PW-16-Raj Narain Singh, PW-17-Mohd. Jaffar. This conduct of accused-Manu Sharma which is relevant and admissible u/s 8 of the Indian Evidence Act an adverse inference has to be drawn against Manu Sharma for this conduct.
Summary of our Conclusion:
The appellate Court has all the necessary powers to re-evaluate the evidence let in before the trial Court as well as the conclusions reached. It has a duty to specify the compelling and substantial reasons in case it reverses the order of acquittal passed by the trial Court. In the case on hand, the High Court by adhering to all the ingredients and by giving cogent and adequate reasons reversed the order of acquittal.
The presence of the accused at the scene of crime is proved through the ocular testimonies of PWs 1, 2, 6, 20, 23, 24 and 70, corroborated by Ex PW 12/D-I as well as 3 PCR calls Ex PW 11/A, B and C.
Phone calls made immediately after an incident to the police constitutes an FIR only when they are not vague and cryptic. Calls purely for the reason of getting the police to the scene of crime do not necessarily constitute the FIR. In the present case, the phone calls were vague and therefore could not be registered as the FIR. The FIR was properly lodged as per the statement of Shyan Munshi PW-2.
Delay in recording the statement of the witnesses do not necessarily discredit their testimonies. The court may rely on such testimonies if they are cogent and credible.
The laboratory reports in the present case are vague and ambiguous and, therefore, they cannot be relied upon to reach any specific conclusion regarding the incident.
The evidence regarding the actual incident, the testimonies of witnesses, the evidence connecting the vehicles and cartridges to the accused - Manu Sharma, as well as his conduct after the incident prove his guilt beyond reasonable doubt. The High Court has analyzed all the evidence and arrived at the correct conclusion.
The public prosecutor is under a duty of disclosure under the Cr.P.C., Bar Council Rules and relevant principles of common law. Nevertheless, a violation of this duty does not necessarily vitiate the entire trial. A trial would only be vitiated if non-disclosure amounts to a material irregularity and causes irreversible prejudice to the accused. In the present case, no such prejudice was caused to the accused, and therefore the trial is not vitiated.
No prejudice had been caused to the right of the accused to fair trial and non-furnishing of the copy of one of the ballistic reports had not hampered the ends of justice. The right of the accused to disclosure has not received any set back in the facts and circumstances of the case.
The High Court has rightly convicted the other two accused, namely, Amardeep Singh Gill @ Tony Gill and Vikas Yadav after appreciation of the evidence of PWs 30 and 101.
Normally, the judgment/order should be set aside or affirmed as the case may be but preferably without offering any undesirable comments, disparaging remarks or indications which would impinge upon the dignity and respect of judicial system.
Every effort should be made by the print and electronic media to ensure that the distinction between trial by media and informative media should always be maintained. Trial by media should be avoided particularly, at a stage when the suspect is entitled to the constitutional protections. Invasion of his rights is bound to be held as impermissible.
In the light of the above discussion, we hold that the prosecution has established its case beyond doubt against the appellants and we are in agreement with the conclusion arrived at by the High Court, consequently, all the appeals are devoid of any merit and are accordingly dismissed.
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2010 (4) TMI 1094
Issues involved: Disallowance of MODVAT credit on certain capital goods and imposition of penalty against the appellants.
Issue I - Credit availed on original invoices without prior permission:
The appellants availed MODVAT credit on original invoices without prior permission, leading to a demand of Rs. 66,00,257/- and a penalty. The appellant argued that they followed the provisions of Rule 57T (8) and applied for permission, but the jurisdictional Assistant Commissioner did not act on their application for over five years. The Tribunal found the disallowance of credit on original invoices to be unsustainable and allowed the appeal on this ground.
Issue II - MODVAT credit on power transformer and compliance with Rule 57R(3):
The appellant availed MODVAT credit of Rs. 23.00 lakhs on a damaged transformer, which was repaired and cleared by the supplier. The appellant contended that they followed Rule 57R(3) and there was no violation. The Tribunal held that the disallowance of credit on the transformer was not sustainable and set aside the impugned order.
Issue III - MODVAT credit on various items and eligibility for credit:
The appellant did not press for MODVAT credit on certain items during adjudication. The Tribunal upheld the disallowance of credit on printer ribbon cable and cafi cored wire. The fire fighting equipment was excluded from the definition of capital goods at the time. The appellant failed to establish the eligibility of credit on nozzles. The appeal was dismissed on these grounds.
Penalty related issue:
The penalty imposed under Rule 57U (6) of Central Excise Rules 1944 was linked to the limitation issue, which was remanded for further consideration. The Tribunal set aside a portion of the penalty and allowed the appeal on this aspect.
In conclusion, the Tribunal allowed the appeal in part, setting aside the disallowance of MODVAT credit on original invoices and the transformer, remanding the issue of limitation and penalty, and upholding the dismissal of credit on certain items.
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2010 (4) TMI 1093
Issues Involved:
The judgment involves the cancellation of registration under section 12-A of the Income Tax Act, 1961 based on the legal status of the school as an institution.
Issue 1: Legal Status of the School as an Institution
The Appellate Tribunal ITAT Delhi considered the appeal challenging the cancellation of registration under section 12-A of the Act. The school, St. Thomas Girls Sr. Sec. School, was granted registration based on the management committee but was found not to be a legal entity. The Director of Income-tax (Exemption) concluded that there was no instrument constituting a legal entity like a society or trust. The school's status as an institution was questioned as it did not have the power to acquire or dispose of properties, leading to the withdrawal of registration.
Issue 2: Interpretation of 'Institution' under the Income Tax Act
The Tribunal analyzed the definition of 'institution' in the context of the school's legal status. While the Income Tax Act does not define 'institution,' references were made to various legal precedents. The Tribunal cited cases where entities like tanks, religious organizations, and schools were considered institutions. It was argued that the school's inability to deal with properties does not negate its existence as an institution. The Tribunal opined that the school could be treated as an Association of Persons (AOP) in the absence of a formal constitution.
Conclusion:
The Tribunal set aside the decision to cancel the registration and directed the Director of Income-tax (Exemption) to reexamine the school's status as an institution. The Tribunal emphasized the broad interpretation of 'institution' and the need to consider the school's role in imparting education. The appeal by the assessee was allowed, with the decision pronounced on April 30, 2010.
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2010 (4) TMI 1092
Third member appointment - difference between the ld' JM and the ld' AM - sale of shares and genuineness of receipts of money - Addition in Income from undisclosed and unexplained sources - JM decided the case in favour of the assessee that sale transaction of the assessee has to be treated as genuine and the claim of the assessee has to be accepted. while the learned AM decided the case against the assessee.
HELD THAT:- The assessee, purchase of the shares has duly been proved and there is no dispute on the purchase of the shares being made by the assessee. The shares were purchased in earlier year. From the entire appreciation of the evidence, I noted that the assessee had acquired the shares, the purchase made on 15th July, 1999 was duly declared by the assessee in earlier years which stand accepted by the Revenue. The shares were sold through stock brokers who were registered with the stock exchange. Shares were sold at the prices quoted at the stock exchange at the relevant time.
The payment of sale consideration has also flown from the bank account of the broker where the fund came through clearing, not in cash. The decisions of the lower authorities are influenced by the general observation of the Investigation Wing that arose a suspicion turned into conclusive proof in the minds of the authorities that everybody who has sold the shares at a high price has converted his unaccounted money through accommodation entries. This approach does not have any leg to stand. Hon'ble Supreme Court in the case of Umacharan Shaw & Bros. vs. CIT [1959 (5) TMI 11 - SUPREME COURT] has clearly laid down that suspicion howsoever strong cannot take place of proof.
From the entire appreciation of evidence, I noted that AO has failed to establish that the assessee has introduced her own unaccounted money in the shape of alleged sale proceeds of shares. Hon'ble Supreme Court in the case of Kishinchand Chellaram vs. CIT [1980 (9) TMI 3 - SUPREME COURT has observed that "the amount cannot be assessed as undisclosed income of assessee in the absence of positive material brought by the Revenue to prove that the amount in fact belonged to assessee as the burden lay on the Revenue".
It was the duty of the AO to bring on record sufficient evidences and materials to prove that the documents filed by the assessee were bogus, false or fabricated and the long-term capital gain shown by him was actually his income from undisclosed sources. The only material to support such conclusion of the lower authorities is either the findings of the DDI in general investigations or the twisting statements of M/s P.K. Jain & Associates which remain untested by the AO himself. None of the judicial precedents supports the case of the Revenue. While making addition as income from undisclosed sources, burden on the Department is very heavy to establish that the alleged receipt was actually income of the assessee from the undisclosed sources.
the action of the CIT(A) was not correct in confirming the assessment as the income from undisclosed sources as against the sale consideration of shares declared by the assessee. The CIT(A) was not justified in rejecting the claim of long-term capital gain of the assessee from sale of shares. I accordingly direct the AO to assess the income declared from the sale of shares under the head income from long-term capital gain.
In the result, appeal of the assessee is treated as allowed and that of the Revenue is treated as dismissed.
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2010 (4) TMI 1091
Issues involved: Appeal by Revenue against CIT(A) orders u/s 143(3) r.w.s. 147 for deduction u/s 80HHC on DEPB benefits, cost component in sale value of DEPB license, computation of profit on sale of DEPB license.
Deduction u/s 80HHC on DEPB benefits:
The ITAT Ahmedabad considered the grounds raised by both parties regarding the deduction u/s 80HHC of Rs. 54,29,782 on DEPB benefits. The ITAT referred to a decision by the Special Bench of the ITAT, Mumbai in the case of Topman Exports, which clarified that export incentives, including DEPB, are to be included in the eligible amount for deduction under s. 80HHC. The ITAT directed the Assessing Officer to re-compute the deduction under Section 80HHC in accordance with the decision of the Special Bench.
Cost component in sale value of DEPB license:
The ITAT also addressed the issue of the cost component in the sale value of the DEPB license. The parties admitted that the issue involved the computation of deduction under Section 80HHC in relation to the sale proceeds of the DEPB license. The ITAT relied on the decision of the Special Bench in the Topman Exports case to determine that the face value of DEPB cannot be reduced from the purchase cost but should be considered as separate income under s. 28(iiid). Only the profit element on the sale of DEPB, i.e., the amount exceeding the sale proceeds over the face value, is covered under s. 28(iiid).
Computation of profit on sale of DEPB license:
Regarding the computation of profit on the sale of the DEPB license, the ITAT found that the Special Bench's decision provided clarity on the treatment of DEPB and other export incentives as separate business income. The ITAT emphasized that the face value of DEPB should not be reduced from the cost of purchases but should be considered as a distinct income under s. 28(iiid). The ITAT directed the Assessing Officer to re-calculate the relief amount in accordance with the law.
In conclusion, the ITAT allowed the appeals of the Revenue for statistical purposes based on the directions provided in the Special Bench's decision. The order was pronounced in Open Court on 30th April 2010.
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2010 (4) TMI 1090
Issues Involved:
1. Deletion of trading addition of Rs. 5 lacs.
2. Deletion of addition on account of difference in the cost of construction of factory building determined by the DVO and shown by the assessee in the books of account.
Detailed Analysis:
1. Deletion of Trading Addition of Rs. 5 Lacs:
The Revenue's first grievance was that the learned CIT(A) erred in deleting the trading addition of Rs. 5 lacs. The AO observed discrepancies in the valuation of closing stock, particularly regarding the purchases of color and chemical and packing material. The AO suspected that some purchases made in the previous year might have been booked during the current year and noted that payments to small parties were made in cash, while larger payments were made through cheques. Consequently, the AO made a trading addition of Rs. 5 lacs due to a marginal decrease in the net profit rate.
Before the CIT(A), the assessee explained that packing material purchases were consumed within 7 to 15 days and consistently recognized as expenses. The CIT(A) accepted this consistent practice and referenced the Tribunal Chandigarh Bench's decision in CIT vs. Ram Sahai Wool Combers (P) Ltd., which held that additions on account of closing stock cannot be made if purchases are consistently shown as expenses. The CIT(A) noted that the GP rate had increased from 18.63% to 18.89%, and there was no justification for the lump sum trading addition.
Upon further review, it was found that the AO did not verify the genuineness of the purchases and did not consider the opening stock on the same basis as the closing stock. The consistent method of valuing the closing stock by including the packing material as consumed at the time of purchase was upheld. The AO's rejection of the books of account was deemed unjustified as no material suggested excessive consumption or inflated purchases. Thus, the CIT(A)'s deletion of the trading addition was upheld, and the Revenue's ground was dismissed.
2. Deletion of Addition on Account of Difference in the Cost of Construction:
The second issue concerned the deletion of the addition made due to the difference in the cost of construction of the factory building as determined by the DVO and shown by the assessee. The assessee constructed a new factory building, declaring a total cost of Rs. 2,32,51,711. The DVO estimated the cost at Rs. 4,29,16,000, leading the AO to propose an addition for undisclosed investment.
The assessee objected, citing the maintenance of complete accounts with supporting bills and vouchers and referencing decisions of the Hon'ble Rajasthan High Court, which held that the AO could not refer to the Valuation Cell without rejecting the books of account. The CIT(A) accepted the assessee's books, referencing the decisions in CIT vs. Hotel Joshi and CIT vs. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar, which emphasized the necessity of rejecting the books before making such a reference.
The Tribunal reviewed the DVO's report and the assessee's objections, noting discrepancies in the DVO's methodology, such as incorrect plinth area rates and insufficient rebates for poor specifications. The Tribunal acknowledged that the AO was justified in referring to the Valuation Cell under s. 142A but found the DVO's estimate excessive. The Tribunal adjusted the estimated cost of construction to Rs. 2.45 crores, partially upholding the addition but recognizing the need for a more accurate estimate. The AO was directed to ascertain the undisclosed investment proportionally to the cost of construction during the year.
Conclusion:
The appeal of the Revenue was partly allowed, with the trading addition of Rs. 5 lacs dismissed and the addition on account of the cost of construction partially upheld with adjustments.
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2010 (4) TMI 1089
The appeal by the assessee against the order of the CIT[A] for the A.Y 2005-06 was dismissed by ITAT Mumbai on 28th April, 2010 due to non-prosecution by the assessee. The dismissal was based on the inherent power of Courts and Tribunals to dismiss proceedings for non-prosecution.
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2010 (4) TMI 1088
Issues Involved:
1. Disallowance of short-term and long-term capital loss on sale of shares.
2. Disallowance of short-term capital loss on sale of shares of Killick Halco Ltd.
3. Disallowance of long-term capital loss on sale of shares of Pelican Paints Ltd.
4. Valuation of Chandivali land and enhancement of long-term capital gains.
5. Disallowance of compensation for redemption of sub-tenancy rights.
6. Disallowance of trading loss on guarantee provided to Vysya Bank.
7. Disallowance of secret commission.
8. Disallowance of interest on borrowed funds.
9. Levy of interest under sections 234B and 234C.
Detailed Analysis:
1. Disallowance of Short-term and Long-term Capital Loss on Sale of Shares:
The assessee claimed short-term and long-term capital loss on the sale of shares of four companies: Matterhorn Investments Ltd., Fircrest Investments Ltd., Galatica Investments Ltd., and Montblanc Investments Ltd. The AO disallowed these losses, considering the transactions as sham. The AO found that the investments were made at a huge premium in non-active companies, and the funds were routed back to the assessee through circular transactions. The CIT(A) upheld the AO's decision, agreeing that the transactions were not genuine and were designed to create artificial losses to offset capital gains.
2. Disallowance of Short-term Capital Loss on Sale of Shares of Killick Halco Ltd.:
The assessee claimed short-term capital loss on the sale of shares of Killick Halco Ltd., which were purchased at a high premium. The AO disallowed the loss, considering the investment at a premium as sham. The CIT(A) upheld the AO's decision, noting that the company was loss-making and on the verge of closure, and there was no justification for the high premium.
3. Disallowance of Long-term Capital Loss on Sale of Shares of Pelican Paints Ltd.:
The assessee claimed long-term capital loss on the sale of shares of Pelican Paints Ltd. The AO disallowed the loss, noting that the shares were sold to a sister concern at a nominal price, and the valuation did not consider the market value of land and buildings. The CIT(A) upheld the AO's decision, agreeing that the transaction was designed to create artificial losses.
4. Valuation of Chandivali Land and Enhancement of Long-term Capital Gains:
The AO adopted the fair market value of the Chandivali land as Rs. 11.10 crores as on 01.04.1981, subject to rectification upon receipt of the DVO's report. The CIT(A) enhanced the long-term capital gains based on the DVO's report, which valued the land at Rs. 1.70 crores. The CIT(A) rejected the assessee's valuation report, considering it self-serving and not credible.
5. Disallowance of Compensation for Redemption of Sub-tenancy Rights:
The assessee claimed compensation for redemption of sub-tenancy rights. The AO disallowed the claim, noting that the payment was not made during the year, and there was no proof of the amount being payable. The CIT(A) upheld the AO's decision, agreeing that the claim was not substantiated.
6. Disallowance of Trading Loss on Guarantee Provided to Vysya Bank:
The assessee claimed a trading loss on giving a guarantee to Vysya Bank for a loan taken by Geekay Exim (India) Ltd. The AO disallowed the claim, noting that the guarantee was not given in the normal course of business, and the assessee did not take necessary precautions to secure its obligations. The CIT(A) upheld the AO's decision, agreeing that the loss was not genuine and was an afterthought.
7. Disallowance of Secret Commission:
The assessee claimed secret commission paid to various dealers. The AO disallowed the claim, noting that the names and addresses of the recipients were not furnished. The CIT(A) upheld the AO's decision, agreeing that the expenditure was not substantiated and relying on judicial precedents.
8. Disallowance of Interest on Borrowed Funds:
The AO disallowed interest on borrowed funds, noting that some interest-bearing funds were diverted for other purposes. The CIT(A) confirmed the disallowance. The Tribunal set aside the issue to the AO for re-examination in light of directions given in previous years.
9. Levy of Interest Under Sections 234B and 234C:
The levy of interest under sections 234B and 234C was considered consequential, and the AO was directed to levy interest as per the provisions of the Act.
Conclusion:
The Tribunal upheld the disallowance of capital losses, compensation for redemption of sub-tenancy rights, and secret commission. The issue of interest on borrowed funds was remitted to the AO for re-examination. The enhancement of long-term capital gains based on the DVO's report was upheld, but the CIT(A) was directed to consider the objections raised by the assessee regarding the valuation. The appeal was partly allowed for statistical purposes, and the revenue's appeal was allowed for statistical purposes.
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2010 (4) TMI 1087
Issues involved: The first issue involves the disallowance of a bad debt claim. The second issue pertains to the disallowance of interest expenses. The third issue concerns the initiation of penalty proceedings under section 271(1)(c) of the Act.
First Issue - Bad Debt Claim Disallowance:
The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals) confirming the disallowance of a bad debt claim of Rs. 80,20,000. The assessee had sold goods to M/s. Urmi Chemicals Industries Pvt. Ltd., with an opening receivable balance of Rs. 1,80,20,000. The excess amount of Rs. 80,20,000 was written off by the assessee as irrecoverable and claimed as a bad debt. The Assessing Officer disallowed this claim. The City Civil Court ruled in favor of the assessee, directing M/s. Urmi Chemicals Industries Pvt. Ltd. to pay a sum of Rs. 2,26,45,307. The lower authorities disallowed the bad debt claim, citing a previous court decision. The assessee argued that a subsequent Supreme Court decision supported their claim. The Tribunal found that the claim was not mala fide and allowed the appeal, deleting the disallowance of Rs. 80,20,000.
Second Issue - Disallowance of Interest Expenses:
The second issue involved the disallowance of interest expenses amounting to Rs. 1,38,988. The Assessing Officer disallowed a portion of interest expenses as the assessee had given interest-free advances to sister concerns. The Commissioner of Income Tax (Appeals) upheld this disallowance. The assessee explained that it had sufficient interest-free funds available, exceeding the amount of the interest-free advance given. Citing a Bombay High Court decision, the Tribunal concluded that no disallowance of interest was warranted as the interest-free funds available were more than the advance given. Consequently, the disallowance of Rs. 1,38,988 was deleted.
Third Issue - Penalty Proceedings:
No arguments were presented regarding the initiation of penalty proceedings under section 271(1)(c) of the Act during the hearing. Consequently, this ground of appeal was dismissed for want of prosecution.
In conclusion, the Tribunal partly allowed the appeal, ruling in favor of the assessee on both the bad debt claim disallowance and the interest expenses disallowance.
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2010 (4) TMI 1086
Issues involved: Appeal against CIT(A)'s order disallowing addition made by AO u/s 5(2), applicability of decisions in similar cases, taxation of income received in India but accrued outside India.
Summary:
Issue 1: Disallowance u/s 5(2)
The appeal was against the CIT(A)'s order disallowing the addition made by the Assessing Officer (AO) u/s 5(2) of the Income Tax Act, 1961. The assessee, a non-resident individual working on board a vessel, received salary outside India which was then credited to his NRE account in Bangalore. The AO considered the amount received in India as taxable income u/s 5(2) based on various reasons including the income being received in India and not offered for taxation in any other country. However, the CIT(A) allowed the plea of the assessee, leading to the appeal by the revenue.
Issue 2: Applicability of Previous Decisions
The CIT(A) based his decision on the applicability of decisions such as the one by the Hon'ble ITAT, Calcutta Bench in a similar case. The Tribunal in a previous case held that salary accrued outside India cannot be taxed in India merely because it is received in India. The Tribunal found the facts in the present case similar to the previous case and held that the order of the CIT(A) was correct and in accordance with the law.
Issue 3: Taxation of Income Received in India
The Tribunal emphasized that salary income is taxable on an accrual basis under section 15 of the Act, regardless of whether it has been actually received. In this case, the salary was received in India on the instructions of the assessee to credit it to his bank account in India. The Tribunal held that the salary accrued outside India and received in India did not make it taxable in India, following the precedent set by previous decisions.
In conclusion, the appeal filed by the revenue was dismissed, upholding the CIT(A)'s decision regarding the taxation of the income received in India but accrued outside India.
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2010 (4) TMI 1085
The Bombay High Court admitted an appeal regarding eligibility for deduction u/s.80-IB. The court held that the assessee is eligible for deduction based on a previous Supreme Court judgment. The appeal was disposed of in favor of the assessee. No costs were awarded.
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2010 (4) TMI 1084
Issues Involved:
1. Treatment of profit from purchase and sale of shares as capital gains or speculation profit.
2. Set off and carry forward of speculative loss.
Summary:
Issue 1: Treatment of Profit from Purchase and Sale of Shares
The Revenue appealed against the CIT(A)'s order, which directed to treat the profit of Rs. 54,91,643/- from the purchase and sale of shares as assessable under the head 'Capital Gain' instead of 'speculation business' u/s 73 of the IT Act, 1961. The AO had categorized the profit as speculation profit, arguing that the assessee company did not fall under the exceptions provided in the Explanation to Section 73. The CIT(A) ruled that Section 73 applies only to losses from speculation business and not to profits, referencing decisions from the Hyderabad Bench of ITAT and the Special Bench of Mumbai ITAT. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's transactions did not constitute a speculation business and there was no material evidence to suggest otherwise. Consequently, the profit was to be treated as capital gains.
Issue 2: Set Off and Carry Forward of Speculative Loss
The Revenue contested the CIT(A)'s direction to not set off speculative loss of Rs. 9,22,023/- against the income from the purchase and sale of shares and to allow its carry forward. The AO had rejected the assessee's claim due to the absence of detailed information. The CIT(A) accepted the assessee's explanation that the loss was from speculative transactions settled without delivery. However, the Tribunal found that the matter required reconsideration as no detailed information was provided to the AO or CIT(A). The Tribunal set aside the orders of the authorities below and remanded the issue back to the AO for a fresh decision, directing the assessee to provide sufficient material for examination.
Conclusion:
The appeal of the Revenue was partly allowed. The Tribunal upheld the CIT(A)'s decision on treating the profit from the purchase and sale of shares as capital gains. However, it remanded the issue of set off and carry forward of speculative loss back to the AO for reconsideration.
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2010 (4) TMI 1083
Issues Involved:
1. Disallowance of 50% of expenses claimed under "Repairs and maintenance," "Telephone expenses," and "Business promotion expenses."
2. Delay in filing Cross Objection by the assessee.
3. Penalty imposed under section 271(1)(c) for disallowance of boat operating expenses and depreciation.
4. Disallowance of boat operating expenses and depreciation for the assessment year 2004-05.
5. Disallowance of motor car expenses and depreciation.
6. Disallowance of staff welfare expenses.
7. Disallowance of labour charges.
8. Disallowance of repairs and maintenance expenses for the assessment year 2004-05.
Issue-wise Detailed Analysis:
1. Disallowance of 50% of Expenses Claimed:
The Department contended that the CIT(A) erred in directing the Assessing Officer to delete the disallowance of 50% of the expenses claimed by the assessee under "Repairs and maintenance," "Telephone expenses," and "Business promotion expenses." The Assessing Officer had disallowed these expenses due to lack of details and the fact that the assessee was not the owner or tenant of the property. The CIT(A) found merit in the assessee's arguments, supported by the amenities and service agreements and the FIR lodged for loss of records due to floods. The Tribunal upheld the CIT(A)'s decision, stating that the expenses were legitimate business expenditures under section 37(1) of the Act.
2. Delay in Filing Cross Objection:
The assessee filed a Cross Objection with a delay of almost 32 months. The delay was attributed to negligence by an employee, who failed to file the cross objections and later left the company. The Tribunal found the explanation vague and unsupported by records, refusing to condone the delay and dismissing the Cross Objection in limine.
3. Penalty Imposed under Section 271(1)(c):
The penalty was imposed due to disallowance of boat operating expenses and depreciation. The Assessing Officer did not find any business justification for owning and operating a boat. The CIT(A) upheld the disallowance, stating that the expenses were not related to the assessee's business. The Tribunal, however, found that the assessee had not concealed any particulars and had made the claim in a bona fide manner. Citing the Supreme Court's judgment in CIT vs. Reliance Petroproducts Pvt. Ltd., the Tribunal held that making an incorrect claim does not amount to concealment of income or furnishing inaccurate particulars. The penalty was thus cancelled.
4. Disallowance of Boat Operating Expenses and Depreciation for AY 2004-05:
The assessee argued that the expenses were incurred for maintaining cordial relations with tenants. The Tribunal found no business justification for the expenses, stating that they were not incurred wholly and exclusively for the purpose of the assessee's business. The disallowance was confirmed.
5. Disallowance of Motor Car Expenses and Depreciation:
The Tribunal referred to the Gujarat High Court's judgment in Sayaji Iron & Engg. Co. vs. CIT, which held that there can be no personal use of motor cars by a company. The disallowance was deleted.
6. Disallowance of Staff Welfare Expenses:
The Tribunal found that most of the expenses were incurred on medical treatment of non-employees. It was not clear how these expenses were related to the assessee's business. The disallowance was partly upheld, restricting it to Rs. 50,000.
7. Disallowance of Labour Charges:
The Tribunal found that the labour charges were related to the maintenance obligations under the amenities and service agreements. The disallowance of 50% of the labour charges was deleted.
8. Disallowance of Repairs and Maintenance Expenses for AY 2004-05:
The Tribunal directed the Assessing Officer to allow the entire repairs and maintenance expenses, consistent with the decision in ITA No: 2795/Mum/2007.
Conclusion:
- ITA No: 2795/Mum/2007 is dismissed.
- CO No: 86/Mum/2010 is dismissed in limine.
- ITA No: 2222/Mum/2008 is allowed.
- ITA No: 1055/Mum/2008 is partly allowed.
Order pronounced on 30th April 2010.
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2010 (4) TMI 1082
Issues:
Request for rebate claim rejection without personal hearing.
Analysis:
The High Court considered the principle of natural justice as laid down by the Supreme Court in a previous case. The Supreme Court emphasized the importance of natural justice in cases where civil rights of citizens are decided. Natural justice, also known as commonsense justice, is not codified but ingrained in human conscience. It aims to ensure fair adjudication and prevent miscarriage of justice. The first and foremost principle of natural justice is the audi alteram partem rule, which states that no one should be condemned unheard. Notice must be precise, unambiguous, and provide adequate time for the party to make representations. Failure to adhere to these principles can vitiate any order passed against a party. The concept of natural justice has evolved over time, and even administrative orders with civil consequences must comply with these principles.
In the present case, the High Court applied the principles of natural justice to the facts at hand. Considering the significant amount of rebate claim involved, amounting to Rupees Thirty Lakhs Thirty Three Thousand One Hundred and Fifty Seven, the court held that the petitioner was entitled to a personal hearing before the order rejecting the rebate claim was passed. Since no personal hearing was provided to the petitioner before the impugned order was issued, the court set aside the order and remitted the matter back to the respondent for a fresh decision after granting a personal hearing to the petitioner. The respondent was directed to pass revised orders in accordance with the law within four weeks from the date of receipt of the court's order.
Therefore, the writ petition was disposed of accordingly, with no costs imposed on either party.
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