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2010 (12) TMI 1207
Assumption of jurisdiction and framing of assessment by the Assessing Officer u/s 153C - satisfaction - notice issued u/s 143(2) prior to filing of return in response to notice u/s 153-C - Mandatory conditions - unexplained bogus Purchase u/s 69C - rejection of books of account - depreciation of Wind Mill - HELD THAT:- The legal requirement of recording of such satisfaction cannot be substituted by appraisal note which is prepared by the search party after completion of search insofar as such appraisal note is a secret document prepared by the department for their internal use, contents of which are not conveyed to the assessee nor its copy is supplied to the assessee even on making a written request. The appraisal note so prepared by the department is meant to monitor after the search proceedings are over so as to ensure exhaustive assessment of all searched person with respect to their correct income and to plan a strategy for further deep inquiry and investigation of documents found during the course of search.
Since copy of such appraisal note is not supplied to the assessee, it cannot be taken at par with the requirement of recording of satisfaction note as stipulated u/s 153C of the Act, which is a mandatory requirement. What is the legislative intent of such satisfaction and in what manner it should be recorded has been dealt with in the judicial pronouncements in the cases of Manish Mahehwari [2007 (2) TMI 148 - SUPREME COURT] and G.K. Drive Shaft [2002 (11) TMI 7 - SUPREME COURT] by the Hon'ble Supreme Court. Accordingly, we are not inclined to agree with the proposition that the appraisal note prepared by the department should be treated as a satisfaction note as required to be recorded in terms of section 153C of the Act so as to empower the Assessing Officer to assume jurisdiction to issue notice and thereafter frame assessment u/s 153A read with section 143(3) of the Act.
Thus, we do not find any infirmity in the order of the ld CIT(A) who has quashed the assessment framed u/s 153C of the Act. Further, the detailed finding recorded by the ld CIT(A) with respect to recording of satisfaction has not been controverted by the department by bringing any positive material on record. We, therefore, do not find any infirmity in the order of the ld CIT(A), quashing the assessments framed u/s 153C of the Act in the cases of all these assesses.
So far as various additions were made by the Assessing Officer on merits, The findings recorded by the ld CIT(A) for partly deleting the additions on merits have not been controverted by the department, we, therefore, do not find any reason to interfere with such finding of the ld CIT(A). Accordingly, even the part of additions deleted on merit by the ld CIT(A) require no interference.
As we have already upheld the order of the ld CIT(A) in entirety, even for the additions/disallowance sustained by him on merits, nothing was brought by the learned counsel for the assessee to our notice to persuade us to deviate from these findings of the ld CIT(A), accordingly, all the grounds taken in the cross objection are also dismissed in terms of the findings recorded by the ld CIT(A).
Additional ground was taken by the assessee to the effect that since no adverse material was found during the course of search u/s 132 of the Act in respect of the additions made by the Assessing Officer or otherwise, therefore, the assessment is bad in law and unjustified. As we have already confirmed the order of the ld CIT(A) in annulling the assessment itself framed u/s 153C of the Act, we do not see any valid reason in the technical ground raised by the assessee in the form of additional ground. The same is, therefore, dismissed in limine.
In the result, all the appeals of the revenue and cross objections filed by the assessee in all the years are dismissed.
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2010 (12) TMI 1206
Issues involved: Allowability of depreciation on a capital asset already allowed as deduction.
Summary:
The appeal by the Revenue was directed against the order of the Commissioner of Income-tax(Appeals) for the assessment year 2005-06. The grounds of the Revenue in the appeal stated that the CIT(A)'s order was erroneous both in law and in facts, and failed to appreciate the decision of the Apex Court in the case of Escorts Ltd. regarding the applicability to trust cases. The issue was whether depreciation on a capital asset, already allowed as deduction, should be permitted.
The counsel for the assessee argued that the issue was in favor of the assessee based on a decision of the Hyderabad Bench of the Tribunal in a previous case. The Departmental Representative could not counter this argument but relied on the Assessing Officer's order. After considering the submissions, it was found that the issue of allowability of depreciation on the capital asset was covered in favor of the assessee by a decision of the coordinate Bench of the Hyderabad Tribunal in a specific case. The Tribunal noted that in the case of a charitable institution, a specific provision regarding depreciation was not available under the relevant section of the Act. Therefore, the decision was made in favor of the assessee, and the appeal of the Revenue was dismissed.
The order was pronounced in court on 3.12.2010.
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2010 (12) TMI 1205
Issues involved: Appeal against order confirming levy of Penalty u/s 271(1)(c) of the Income Tax Act, 1961.
Summary:
1. The appeal was filed by the assessee against the order confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961.
2. The assessee initially showed long term capital gain in the return, later revised it to short term capital gain due to market news.
3. The Assessing Officer held that no genuine purchase/sale transactions took place, treating the gains as income from other sources.
4. The assessee contended that revised return was voluntary, but AO found it invalid and imposed penalty u/s 271(1)(c).
5. The Tribunal considered the nature of transactions involving penny stocks and the disputed taxability of gains.
6. The Revenue argued that the transactions were bogus, and revised return should not be considered valid.
7. The Tribunal referred to previous decisions where voluntary disclosure without incriminating evidence did not warrant penalty.
8. The Tribunal found the assessee's case to be covered by previous decisions and concluded that it was not a fit case for penalty.
9. The appeal of the assessee was allowed, and the penalty was set aside.
Judgement: The Appellate Tribunal ITAT Pune allowed the appeal of the assessee against the penalty u/s 271(1)(c) of the Income Tax Act, 1961, based on the voluntary nature of the revised return and lack of incriminating evidence regarding the penny stock transactions.
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2010 (12) TMI 1204
Issues involved: Appeal against orders u/s 263 of the Income-tax Act for assessment years 2001-02 and 2002-03.
Summary:
The Appellate Tribunal ITAT Chennai adjudicated on appeals by the assessee against orders u/s 263 of the Income-tax Act for the assessment years 2001-02 and 2002-03. The Tribunal observed a mistake in not considering a specific ground raised by the assessee regarding the power of the ld. CIT to consider a matter already decided by the ld. CIT(A). The Tribunal recalled its order for adjudicating on the ground raised by the assessee related to the addition made in the original assessment. The assessee contended that the issue was already decided in their favor by the ld. CIT(A) and should not have been considered u/s 263. The Department argued that the assessee was not entitled to the claim under the relevant section. The Tribunal found that the issue required consideration by the Assessing Officer for computation of deduction as decided by the ld. CIT(A) and the ld. CIT u/s 263. The issue was restored to the Assessing Officer for fresh consideration separately for both assessment years. The appeals by the assessee were considered allowed for statistical purposes.
The judgment was pronounced on 16th December, 2010.
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2010 (12) TMI 1203
Issues involved: Cross appeals against penalty confirmation u/s.271(1)(c) for disallowances of brokerage expenses, foreign tour expenses, and excess depreciation claimed on machinery.
Penalty on excess depreciation claim:
The Revenue's appeal challenged the deletion of penalty on excess depreciation claim, contending that the correct rate of depreciation was debatable. The Assessing Officer disallowed depreciation claimed at 50% instead of the allowable 25%. However, the Tribunal held that the claim was not deliberate concealment but a genuine dispute on the correct rate. Citing the case of CIT vs. Reliance Petroproducts, the Tribunal upheld the deletion of penalty, emphasizing that a penalty cannot be levied merely for a difference in interpretation.
Penalty on brokerage expenses:
Regarding the Assessee's appeal on penalty for disallowance of brokerage expenses, the Tribunal found that the payments to specified persons under section 40A(2)(b) were deemed excessive but not bogus. Relying on a precedent, the Tribunal ruled that disallowance under section 40A(2)(b) does not warrant a penalty for concealment, leading to the penalty deletion.
Penalty on foreign tour expenses:
In the Assessee's appeal against penalty for foreign tour expenses, the Tribunal noted the lack of evidence to substantiate the expenses. Despite the company's explanations, the Tribunal found the disallowance unjustified and directed the penalty to be deleted, emphasizing that the disallowance did not amount to concealment.
In conclusion, the Revenue's appeal was dismissed, and the Assessee's appeal was allowed, with penalties on excess depreciation and brokerage expenses deleted, and the penalty on foreign tour expenses overturned.
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2010 (12) TMI 1202
Issues Involved:
1. Deletion of addition of Rs. 9,51,257/- as unexplained cash credit u/s 68 of the IT Act.
2. Satisfaction of the explanation offered by the assessee regarding the creditworthiness of the donor.
3. Consideration of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. P. Mohankala & Others.
4. Whether the CIT(A) was justified in deleting the addition made by the AO.
Summary:
Issue 1: Deletion of addition of Rs. 9,51,257/- as unexplained cash credit u/s 68 of the IT Act
The AO added Rs. 9,51,257/- to the assessee's income as unexplained cash credit u/s 68, questioning the creditworthiness of the donor, Smt. Bhanumati J. Doshi, and the genuineness of the gift. The CIT(A) deleted the addition, accepting the assessee's submission that the gift was received through International Banking Channel and that the primary onus to prove the creditworthiness was discharged by providing necessary documents.
Issue 2: Satisfaction of the explanation offered by the assessee regarding the creditworthiness of the donor
The AO contended that the assessee failed to produce sufficient evidence to prove the donor's creditworthiness, such as the bank pass book, salary certificate, and balance sheet. The CIT(A) accepted the documents provided by the assessee, including the gift deed, bank certificate, passport copy, and the donor's income tax return, as sufficient to prove the genuineness and creditworthiness of the donor. However, the Tribunal found that these documents did not conclusively prove the donor's financial capacity or the genuineness of the gift.
Issue 3: Consideration of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. P. Mohankala & Others
The Tribunal referred to the Supreme Court's judgment in CIT Vs. P. Mohankala & Others, which emphasized that mere identification of the donor and movement of the gift amount through banking channels are not sufficient to prove the genuineness of the gift. The Tribunal noted that the CIT(A) failed to consider this judgment while deleting the addition.
Issue 4: Whether the CIT(A) was justified in deleting the addition made by the AO
The Tribunal concluded that the CIT(A) was not justified in deleting the addition, as the assessee failed to prove the donor's creditworthiness and the genuineness of the gift. The Tribunal restored the AO's order, emphasizing that the assessee did not provide sufficient evidence to satisfy the conditions of section 68 of the IT Act.
Conclusion:
The Tribunal allowed the revenue's appeal, setting aside the CIT(A)'s order and restoring the AO's addition of Rs. 9,51,257/- as unexplained cash credit u/s 68 of the IT Act. The Tribunal emphasized the need for concrete evidence to prove the creditworthiness of the donor and the genuineness of the gift, in line with the Supreme Court's judgment in CIT Vs. P. Mohankala & Others.
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2010 (12) TMI 1201
Estimation of income - Bogus purchases - Whether purchases are genuine even though backed by defective bills? - assessee failed to produce seller in order to substantiate his claim - onus of burden to prove regarding the genuineness of purchases - HELD THAT:- The assessee did not make any effort to controvert the finding recorded by the DDIT (Investigation) and it made no efforts to produce the seller parties on the other hand it claimed that it is not his responsibility to produce the seller. It is a settled law that onus is on the assessee to establish the genuineness of the purchase. The assessee has produced various evidence with regard to the receipt of the goods by it, i.e. stock register, receipt of weigh-bridge for weighment of goods purchased by the assessee, octroi receipt for the payment of octroi duty etc. After considering the entire material, it is oopined that the assessee did not purchase the goods from the parties mentioned in the sales bill. At the same time, it did purchase the goods from some other suppliers, may be without bill.
Therefore, purchase rate as mentioned in the alleged sales bill cannot be accepted. Any person indulging in the practice of purchasing goods from the grey market and obtaining bogus bills of some other parties, would do so for getting some benefit. But what would be the magnitude of the benefit would depend upon facts of each case.
In the case of VIJAY PROTEINS LTD. VERSUS ASSISTANT COMMISSIONER [1996 (1) TMI 144 - ITAT AHMEDABAD-C], ITAT held that such benefit to be 25% and therefore sustained the disallowance for bogus purchase at 25%. In the case of INCOME TAX OFFICER. VERSUS SUNSTEEL. [2004 (6) TMI 236 - ITAT AHMEDABAD-B], the ITAT deemed it fit to sustain the disallowance for a lumpsum amount of ₹ 50,000/- - However, in the case of Shri Anubhai Shivlal, the ITAT has considered both the decisions in the case of Vijay Proteins and Sunsteel and thereafter sustained the disallowance at 12.5%.
Thus, it would meet ends of justice, if the disallowance is sustained at 12.5% of the purchase from these two parties. The Assessing Officer is directed to work out the disallowance accordingly - the Revenue’s appeal is partly allowed.
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2010 (12) TMI 1200
Issues Involved:
1. Addition on account of profit on sale of investments.
2. Disallowance on account of investments written off.
3. Disallowance on account of loss on amortization.
4. Disallowance of expenditure u/s 14A.
5. Deletion of interest u/s 234D.
Summary:
1. Addition on account of profit on sale of investments:
The Tribunal noted that this issue had been previously adjudicated in favor of the assessee for the assessment year 2005-06 and earlier years. The Tribunal followed its earlier decision, which was based on the case of Bajaj Allianz General Insurance Co. Ltd., and concluded that profits on sale of investments are not taxable for the years prior to the amendment effective from 2011-12. Consequently, the addition made on account of profit on sale of investment was deleted.
2. Disallowance on account of investments written off:
The Tribunal observed that after the omission of Rule 5(b) of the First Schedule of the Income Tax Rules, any provision or amount written off on account of depreciation or loss on the realization of investment is not allowed as a deduction. Therefore, the disallowance of Rs. 3,73,76,789/- on account of investments written off was upheld.
3. Disallowance on account of loss on amortization:
Similar to the disallowance on investments written off, the Tribunal held that any provision or amount written off on account of depreciation or loss on the realization of investment is not allowed as a deduction. Thus, the disallowance of Rs. 34,00,22,121/- on account of loss on amortization was confirmed.
4. Disallowance of expenditure u/s 14A:
The Tribunal referred to its earlier decisions, including the case of Bajaj Allianz General Insurance Company Ltd. and M/s Reliance General Insurance Co., and concluded that the provisions of section 14A do not apply to insurance companies. The Tribunal reiterated that section 44, which governs the computation of income for insurance companies, prevails over other provisions, including section 14A. Therefore, the disallowance of Rs. 44,03,609/- on account of expenditure u/s 14A was deleted.
5. Deletion of interest u/s 234D:
The Tribunal dismissed this ground of appeal as the Committee on Disputes (COD) had not granted permission to the assessee to pursue this ground. Consequently, the issue of deletion of interest u/s 234D was not considered.
Conclusion:
The appeal of the assessee was partly allowed, with the Tribunal deciding in favor of the assessee on the issues of profit on sale of investments and disallowance of expenditure u/s 14A, while upholding the disallowances on account of investments written off and loss on amortization. The ground related to interest u/s 234D was dismissed for lack of COD permission.
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2010 (12) TMI 1199
Method of accounting - Excess collection of cash – correct date of payment of PF dues – accrual of interest on government securities – claim of deduction u/s 36(1)(vii)(a) - advance income received by way of commission, exchange and discount, including locker rent - Held that:- The questions raised in this Appeal are covered against the Revenue by the decision of this Court in the case of CIT Vs. Bank of Rajasthan Ltd.[2010 (4) TMI 217 - BOMBAY HIGH COURT]
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2010 (12) TMI 1198
Issues involved: Appeal against order allowing bad debts deduction u/s 36(viia) and direction to examine claim u/s 10(34) for dividend income exemption.
Bad debts deduction u/s 36(viia): The appellant contested the allowance of bad debts amounting to Rs. 2,84,42,000 under section 36(viia) for assessment year 2007-08. The appellant, a cooperative society engaged in banking, had made a provision for bad debts but the Assessing Officer disallowed the claim stating the amount should have been written off. The CIT (A) allowed the claim, emphasizing that section 36(viia) does not mandate actual write-off in books, contrary to section 36(vii). The ITAT upheld the CIT (A)'s decision, noting that the clause does not require actual write-off by the assessee.
Examination of claim u/s 10(34) for dividend income exemption: The appellant received dividend income of Rs. 20,03,000 but did not initially claim exemption u/s 10(34). Subsequently, during assessment, the exemption was sought. The Assessing Officer did not address this claim, leading to an appeal. The CIT (A) directed the AO to investigate the claim further, as the appellant had not provided sufficient evidence of tax payment by the distributing company. The ITAT supported the CIT (A)'s decision, stating that the CIT (A) did not exceed jurisdiction in directing verification of the tax payment on distributed profits, thereby upholding the exemption claim.
Conclusion: The ITAT dismissed the revenue's appeal, affirming the allowance of bad debts deduction u/s 36(viia) and the direction to examine the claim for dividend income exemption u/s 10(34). The ITAT found no error in the CIT (A)'s orders and upheld the decisions in favor of the assessee.
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2010 (12) TMI 1197
Issues involved: Appeal against order of CIT(Appeals)-IV, Bangalore for assessment year 2007-08 regarding exemption u/s 54 and 54EC, ownership of property/bonds, deduction of amount deposited in Capital Gains Deposit Account.
Exemption u/s 54 and 54EC: The assessee, a nonresident individual, sold a residential property and invested in a new property and Rural Electrification Corporation Ltd., Bonds. The AO disallowed 50% of the investment as the new property and bonds were in joint names. The CIT(A) upheld the AO's decision. The assessee argued that she paid the entire consideration and should be considered the sole owner, citing relevant legal provisions. The Tribunal noted that the assessee's investment came from the sale proceeds and held that joint ownership does not affect exemption eligibility. Relying on legal precedents, the Tribunal allowed the appeal, granting exemption u/s 54 and 54EC.
Ownership of property/bonds: The dispute centered on whether joint ownership affected the assessee's exemption claim. The Tribunal analyzed the Transfer of Property Act, determining that joint ownership does not diminish the assessee's entitlement if she funded the purchase. Legal representatives presented contrasting views, but the Tribunal's interpretation favored the assessee's position. Citing relevant case laws, the Tribunal concluded that joint ownership does not preclude exemption eligibility, especially when the investment stems from the seller's proceeds.
Deduction of amount in Capital Gains Deposit Account: The assessee sought a deduction for an amount deposited before the due date for filing the return. However, this issue was not extensively discussed in the judgment, and the Tribunal's decision did not explicitly address this specific deduction request.
In conclusion, the Appellate Tribunal ITAT Bangalore allowed the assessee's appeal, granting exemption u/s 54 and 54EC based on the sole ownership of the investments made, despite joint names on the property and bonds. The judgment emphasized that joint ownership does not negate exemption eligibility when the investment originates from the seller's funds.
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2010 (12) TMI 1196
Claim of deduction u/s 080 - HELD THAT:- Once the letter for completion of project is given by the assessee to the Local Authority, it is the duty of the Local Authority to verify physically the Projects stated to be completed from its own parameters. This process may take time and, therefore, the date of issue of letter is not so crucial to determine the assessee’s eligibility for claim of deduction as per Explanation (ii) of Section 80IB(10)(a). What is crucial is date mentioned in the letter so issued certifying completion of the Project. Thus, the date of issue of letter is not important, but the date mentioned in the letter certifying completion of project is important. We, therefore, do not find any merit in the observation of the lower authorities to the effect that the date of completion shall be taken the date on which certificate is physically issued by the Local Authorities.
We restore the matter back to the file of AO and assessee is at liberty to procure the required letter/certificate from the Local Authority clearly mentioning therein the date of completion of the project.
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2010 (12) TMI 1195
Issues Involved:
1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act.
2. Validity of the explanation provided by the assessee regarding cash credits.
3. The distinction between assessment proceedings and penalty proceedings.
4. Interpretation of terms "concealment" and "inaccurate particulars" in the context of penalty u/s 271(1)(c).
Summary:
1. Imposition of Penalty u/s 271(1)(c):
The appeal by the revenue challenges the order of CIT(A)-IV, Rajkot, which cancelled the penalty of Rs. 3,76,702 imposed u/s 271(1)(c) of the Act. The penalty was initially imposed by the assessing officer after computing an income of Rs. 7,76,320 against a returned loss of Rs. 86,850, primarily due to cash credits aggregating to Rs. 6,90,256.
2. Validity of Explanation Provided by the Assessee:
The CIT(A) found that the additions u/s 68 were made because the appellant could not discharge the primary onus, and the evidence was deemed insufficient. However, the Tribunal had deleted part of the addition and restricted the rest. The CIT(A) concluded that the concealment must be deliberate, and there was no proof of such deliberate concealment. The explanation provided by the assessee was found bona fide, and all facts were disclosed, thus no penalty was warranted.
3. Distinction Between Assessment and Penalty Proceedings:
The Tribunal emphasized that penalty proceedings are independent and separate from assessment proceedings. In assessment proceedings, the primary burden lies on the appellant to prove their case, whereas in penalty proceedings, there must be a conscious and willful default on the part of the assessee. Mere failure to prove the case in assessment does not automatically lead to penalty.
4. Interpretation of "Concealment" and "Inaccurate Particulars":
The Tribunal discussed the terms "concealment" and "inaccurate particulars" as not being defined in the Act. The Supreme Court in Reliance Petroproducts Pvt. Ltd. held that these terms imply a deliberate act or omission. The Tribunal noted that the penalty u/s 271(1)(c) is a civil liability and does not require mens rea. The explanation provided by the assessee must be bona fide and all facts disclosed; otherwise, penalty provisions apply.
Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty, concluding that the assessee had acted in a bona fide manner and there was no conscious default. The appeals filed by the revenue were dismissed.
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2010 (12) TMI 1194
Issues Involved:
1. Allowability of expenditure on production of advertisement films as business expenditure.
2. Allowability of club membership fees as business expenditure.
3. Allowability of expenditure on acquiring software as revenue expenditure.
Summary:
Issue 1: Allowability of expenditure on production of advertisement films as business expenditure.
The Assessing Officer (AO) disallowed the expenditure of Rs. 10,93,93,677/- incurred on production of advertisement films, treating it as capital expenditure. The CIT(A) allowed the expenditure as business expenditure, relying on the Tribunal's decision in the assessee's own case for earlier years. The Tribunal upheld the CIT(A)'s order, distinguishing the facts from the case of Patel International Film Ltd., and citing the Bombay High Court judgment in Geoffrey Manners and Co. Ltd., which held that expenditure on advertisement films for ongoing business is revenue in nature. The Tribunal dismissed the AO's appeal on this issue.
Issue 2: Allowability of club membership fees as business expenditure.
The AO disallowed the expenditure of Rs. 2,18,977/- incurred on obtaining club membership fees. The CIT(A) allowed the expenditure, and the Tribunal upheld this decision, citing the Bombay High Court judgment in Otis Elevator Co. (I) Ltd. v. CIT, which held that club membership fees are allowable as business expenditure. The Tribunal dismissed the AO's appeal on this issue.
Issue 3: Allowability of expenditure on acquiring software as revenue expenditure.
The AO disallowed the expenditure of Rs. 11,17,245/- on software, treating it as capital expenditure. The CIT(A) allowed the expenditure as revenue expenditure, relying on Tribunal decisions in IBM India Ltd. and Citicorp Overseas Software Ltd. The Tribunal remitted the matter back to the AO for fresh adjudication in light of the Special Bench decision in Amway India Enterprises, which provides guidelines for determining the nature of software expenses. The Tribunal allowed this ground for statistical purposes.
Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal upholding the CIT(A)'s decisions on advertisement films and club membership fees, and remitting the issue of software expenditure back to the AO for reconsideration.
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2010 (12) TMI 1193
Issues Involved:
1. Addition to the value of closing stock.
2. Disallowance of depreciation on BMW motor cycle.
3. Errors in not considering revised return and assessing excess income.
4. Levy of interest under sections 234B and 234C without adjusting cash seized towards advance tax.
Issue-wise Detailed Analysis:
1. Addition to the Value of Closing Stock:
The Assessing Officer (AO) added Rs. 1.77 crores to the value of the closing stock. The assessee argued that the AO ignored wastage, damaged stock, and the trade practice of describing materials as 'random slabs'. The AO also failed to consider the physical stock taken on 31.3.2007 and used a gross profit basis for valuation instead of cost. The CIT(A) upheld the AO's decision, stating that the assessee did not provide evidence to substantiate its contentions and that the stock found was not reflected in the books of account. However, the Tribunal found the AO's reasoning conflicting and lacking credible evidence, thus ruling that the addition of Rs. 1,77,96,879/- was not justified and required deletion.
2. Disallowance of Depreciation on BMW Motor Cycle:
The AO disallowed the depreciation claim of Rs. 1.02 lakhs on a BMW motor cycle, asserting it was not connected to the business. The CIT(A) agreed, noting the vehicle was purchased in the partner's name. The assessee contended the vehicle was used for business purposes and disclosed under fixed assets. The Tribunal remitted the issue back to the AO to determine if the vehicle was used exclusively for business purposes. If so, the depreciation claim should be allowed, but with a 1/3rd disallowance for potential personal use by the partner.
3. Errors in Not Considering Revised Return and Assessing Excess Income:
The AO did not telescope the cash available with the partner against investments/payments by the assessee and did not consider the revised return furnished on 16.12.2008. The CIT(A) upheld the AO's decision, stating the income had to be determined based on evidence found during the search. The Tribunal noted that the AO failed to consider the revised return and the principle of telescoping. The Tribunal directed the AO to extend the benefit of telescoping the deficit stock of Rs. 3 crores in the case of the sister concern in the hands of the assessee and to take appropriate action after affording a reasonable opportunity to the assessee.
4. Levy of Interest Under Sections 234B and 234C Without Adjusting Cash Seized Towards Advance Tax:
The AO charged interest under sections 234B and 234C, which the CIT(A) upheld, stating the interest was mandatory. The assessee argued that it had requested the adjustment of seized cash towards advance tax. The Tribunal found the CIT(A)'s reasoning lacking and directed the AO to consider the assessee's request and the ruling of the Delhi High Court while giving effect to the order.
Conclusion:
The assessee's appeal was partly allowed, with specific directions to the AO to re-examine certain issues and extend the benefit of telescoping and appropriate adjustments as per the Tribunal's findings. The Tribunal emphasized the need for credible evidence and proper consideration of the assessee's contentions and revised return.
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2010 (12) TMI 1192
Issues involved: Determination of software expenses as capital or revenue expenditure, Disallowance of international travel and accommodation expenses.
Software Expenses Issue:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of software expenses for the assessment year 2006-07. The Revenue contended that the software expenses should be considered as capital expenditure, while the CIT (Appeals) treated them as revenue expenditure. The AO had disallowed the expenses as capital in nature due to lack of documentary evidence, restricting depreciation to 30% instead of 60%.
The CIT (Appeals) held that the expenses were for customization of existing software to meet the company's internal requirements, not resulting in a new asset with enduring benefits. The software was developed in Australia, and the additional expenditure was for upgrading the software for day-to-day business operations. The CIT (Appeals) concluded that the expenses were revenue in nature and allowable as business expenditure, deleting the addition made by the AO.
The ITAT Mumbai upheld the order of the CIT (Appeals) after considering the arguments presented by the assessee. The ITAT found no infirmity in the CIT (Appeals) order, noting that the expenses were for application software, not system software. The ITAT agreed that no enduring benefit was obtained from the expenses, as they were incurred for customization and upgradation of existing software for business operations. Therefore, the ITAT dismissed the grounds raised by the Revenue.
International Travel Expenses Issue:
The Revenue challenged the deletion of disallowance of international travel and accommodation expenses by the CIT (Appeals). The AO had disallowed the expenses due to lack of evidence supporting the business purpose of the trips abroad. The CIT (Appeals) deleted the additions after considering the explanations provided by the assessee.
The CIT (Appeals) noted that the company was a subsidiary of a Mauritius-based parent company with foreign directors in Australia. The expenses for international travel were justified for business purposes, including meetings in Australia and Singapore, and business expansion plans in Malaysia. The CIT (Appeals) found the expenses to be allowable as revenue expenditure, deleting the disallowance made by the AO.
The ITAT Mumbai upheld the order of the CIT (Appeals) after considering the submissions made by the assessee. The ITAT found no infirmity in the CIT (Appeals) order, as the expenses were explained to be for business needs and duly supported with necessary documentation. The ITAT agreed that the expenses were incurred for business purposes, including meetings and business expansion plans, and therefore, upheld the deletion of the disallowance made by the AO.
In conclusion, the ITAT Mumbai dismissed the appeal filed by the Revenue, upholding the orders of the CIT (Appeals) regarding both the software expenses and international travel expenses issues.
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2010 (12) TMI 1191
Issues involved: Appeal against CIT(A) order for A.Y 2005-06 regarding applicability of sec. 14A and Rule 5(b) of First Schedule to Insurance Business.
Applicability of sec. 14A and Rule 5(b) of First Schedule:
The appeal was filed by the assessee against the CIT(A)'s order concerning the applicability of sec. 14A and Rule 5(b) of the First Schedule to Insurance Business u/s 44 of the Income Tax Act, 1961 for A.Y 2005-06. The Revenue also filed a Cross Objection (CO) challenging the interpretation and effects of the amendment to Rule 5(b). The Counsel for the assessee argued that the CIT(A) held that income from the sale of investments cannot be taxed for an assessee engaged in Insurance Business as per part B of the First Schedule, post deletion of Rule 5(b). Referring to a previous order, the Counsel highlighted that the Tribunal had previously ruled in favor of the assessee on similar issues. The Tribunal, after considering the arguments of both parties, directed the AO to compute the income of the assessee in accordance with the Tribunal's previous order for A.Y 2003-04, resulting in the dismissal of the Revenue's appeal and allowing the assessee's appeal.
Judicial Precedent and Tribunal's Decision:
The Tribunal referred to its earlier order in the assessee's case for A.Y 2003-04, where it was concluded that sec. 44 creates a special provision for Insurance Companies, and hence, sec. 14A need not apply to grant exemption on income from the sale of investments due to the deletion of sub rule 5(b) of the First Schedule of sec. 44. The Tribunal upheld the argument of the assessee, reversing the CIT(A)'s order and dismissing the Revenue's CO. The Tribunal emphasized the importance of following precedent and ruled in favor of the assessee based on the previous decision, thereby allowing the assessee's appeal and dismissing the Revenue's CO.
Conclusion:
The Tribunal's decision in the present case was based on the precedent set in the assessee's earlier case for A.Y 2003-04, where it was established that sec. 44 provides a special provision for Insurance Companies, exempting income from the sale of investments from sec. 14A. As a result, the Tribunal directed the AO to compute the assessee's income in line with the previous order, leading to the dismissal of the Revenue's appeal and the allowance of the assessee's appeal.
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2010 (12) TMI 1190
The Bombay High Court dismissed the appeal by the Revenue. Two questions of law were raised, regarding the admission of additional evidence and the justification of business expenditure. The Court held that these were questions of fact, not giving rise to any legal issue. The Tribunal's decision was based on factual findings, so no substantial question of law arose. The appeal was dismissed with no costs.
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2010 (12) TMI 1189
Issues involved: Determination of nature of income from sale of shares - whether long term capital gain or business income.
Summary:
The assessee generated income from the sale of shares in the relevant assessment year, claiming it as long term capital gain. The Assessing Officer treated it as business income, but the CIT(A) reversed the order, considering it as long term capital gain. The Income Tax Appellate Tribunal affirmed this decision, noting that the assessee's main income sources were interest on ICD and dividends on shares. The purchase and sale of securities were not related to the usual trade or business. The assessee held shares as investments, not as stock in trade, and the funds were from its own capital, not borrowed. The shares were held for multiple accounting periods, indicating long term investment intention. The Tribunal found no substantial activity scale in the sale of shares. Consequently, no question of law arose, and the appeal was dismissed.
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2010 (12) TMI 1188
Issues Involved:
The judgment involves consideration of disallowance of claimed loss of stock-in-trade in transit, estimation of agricultural income, and disallowance of claimed business loss.
Disallowed Loss of Stock-in-Trade:
The appeal concerned the disallowance of Rs. 97,48,441 claimed as loss of stock-in-trade in transit. The assessee's goods were seized and forfeited by the Customs and Border Protection Force of USA during transit to Mexico. The issue was whether this loss could be allowed as a business loss. The tribunal held that since the stock-in-trade was confiscated for violation of USA statutory provisions, it should be allowed as a business loss. The tribunal relied on precedents where losses incurred in the course of business activities were allowed as deductions.
Estimation of Agricultural Income:
The second appeal involved the estimation of agricultural income. The assessee claimed Rs. 17,48,875 as agricultural income, but the Assessing Officer restricted it to Rs. 7.5 lakhs, assessing the balance as undisclosed income. The tribunal noted that the assessee owned 130 acres of land, cultivating mango trees and paddy. Despite the lack of proper books of account, the tribunal found no reason to disbelieve the assessee's claim. It held that the estimation made by the assessee was reasonable, and without any basis, the Assessing Officer could not disallow the claim. The tribunal set aside the lower authorities' orders and deleted the disallowance.
Disallowance of Business Loss:
In the third appeal, the issue was the disallowance of Rs. 46,44,420 claimed as business loss due to the seizure and confiscation of pharmaceutical goods exported to Mexico. The tribunal, following the reasoning in a previous case, allowed the claimed loss as a business loss. It set aside the lower authorities' order and directed the Assessing Officer to allow the claimed amount as a business loss.
Conclusion:
The tribunal allowed all three appeals of the two assessees, holding in favor of the assessees in each issue considered.
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