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2010 (3) TMI 1131
Issues involved: Appeal against CIT(A) order regarding treatment of expenses paid to Trade Mark Attorneys and weighted deduction u/s 35(2AB)(1) for clinical trials outside approved R&D labs.
Issue 1 - Treatment of expenses paid to Trade Mark Attorneys:
The Revenue appealed against CIT(A) order directing to treat expenses paid to Trade Mark Attorneys as revenue expenditure. The Revenue argued that the expenses should be treated as capital expenditure, while the assessee contended that it is revenue expenditure necessary for regulatory requirements. CIT(A) directed to withdraw depreciation and allow the expenses as business expenditure, citing ITAT orders and Supreme Court decisions. The ITAT upheld CIT(A) decision based on consistency with earlier years and legal precedents, rejecting Revenue's appeal.
Issue 2 - Weighted deduction u/s 35(2AB)(1) for clinical trials outside approved R&D labs:
The second ground of appeal was against allowing weighted deduction u/s 35(2AB)(1) for expenses incurred on clinical trials outside approved R&D labs. The Revenue disallowed 50% of the claimed deduction as the expenses were not incurred inside approved facilities. CIT(A) accepted the assessee's claim, but the ITAT held that the weighted deduction is only available for expenses on in-house research and development facility as approved by the prescribed authority. The ITAT referred to the language of the section and Explanation, concluding that expenses on clinical trials outside approved facilities do not qualify for the deduction. The ITAT reversed CIT(A) order based on legal interpretation, upholding Revenue's appeal partially.
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2010 (3) TMI 1130
Issues Involved:
1. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 for three disallowed claims: payment to AT&T Singapore, fees paid to ROC, and amount received from Birla AT&T.
Detailed Analysis:
1. Penalty on Disallowance of Payment to AT&T Singapore:
The assessee claimed a deduction of Rs. 1,31,58,290/- for payment made to AT&T, Singapore. The A.O. disallowed this claim under Section 40(a)(i) because the tax deducted at source was not paid within the relevant financial year. The CIT(A) upheld the disallowance, reasoning that the liability did not crystallize during the year under consideration. The Tribunal, however, found that the liability had indeed crystallized during the year as the services were rendered within that period. The Tribunal also noted that the disallowance was due to a technical provision and not because the claim was bogus. Consequently, the Tribunal held that the penalty under Section 271(1)(c) was not justified as the claim was made in good faith and all relevant particulars were disclosed.
2. Penalty on Disallowance of Fees Paid to ROC:
The assessee claimed Rs. 33,333/- as revenue expenditure, which was 1/3rd of Rs. 1,00,000/- paid to the Registrar of Companies (ROC) for increasing authorized capital. The A.O. disallowed this claim, treating it as capital expenditure, and the CIT(A) upheld this decision. The Tribunal noted that a similar claim was not disallowed in the previous year, which gave the assessee a bona fide impression that the claim was admissible. Therefore, the Tribunal concluded that the penalty under Section 271(1)(c) was not warranted for this disallowance.
3. Penalty on Addition of Amount Received from Birla AT&T:
The assessee received Rs. 3,98,36,108/- from Birla AT&T for brand building activities but did not include it in its income, treating it as a liability. The A.O. added this amount to the income, and the CIT(A) upheld the addition, considering it revenue in nature. The Tribunal later remanded the issue to the A.O. for fresh examination. Given this remand, the Tribunal held that the basis for the penalty no longer existed and set aside the penalty related to this amount. The Tribunal emphasized that the penalty could only be reconsidered after the fresh assessment.
Conclusion:
The Tribunal allowed the appeal, deleting the penalties imposed under Section 271(1)(c) for all three disallowed claims. The decision was based on the findings that the claims were made in good faith, with full disclosure of relevant particulars, and the issues involved interpretations of law rather than concealment or furnishing of inaccurate particulars.
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2010 (3) TMI 1129
Nature of income - Income from sale of shares - “income from business or profession” or Short Term Capital Gain - activity of earning profits through purchase and sale of shares - frequency of transactions - AO held that the entire profits arising from this activity should be assessed under the head “income from business or profession” and not as short term capital gains as claimed by the assessee - As pointed out that the assessee did not borrow monies for the purpose of acquiring shares and this is sufficient indication that the shares were held only as investment and not as stock-in-trade - CIT(A) endorsed the decision of AO that the gains on the sale of shares should be assessed as business income subject to the normal rates of tax and not as short term capital gain assessable to concessional rate of tax of 10% under the provisions of section 111A.
HELD THAT:- We uphold the conclusion of the departmental authorities that the sale of shares must be treated as business transactions and that the profits must be assessed as business profits and not as short term capital gains. However, the securities transaction tax paid by the assessee is allowable as a deduction under section 88E, while computing the business profits.
AO is directed to ascertain the details of the payment, if any, and allow the same as a deduction. Similarly, the AO is also directed to examine and take an appropriate decision vis-a-vis the assessee’s plea that the AO ought to have considered the stock on hand also, instead of taking into account only the shares which were sold, consistent with his view that the assessee is carrying on business in shares. The assessee shall be given sufficient opportunity to adduce evidence in support of this alternative plea which shall be considered by the Assessing Officer before taking a decision on this alternative plea. Thus, the first six grounds are partly allowed.
Computation of the total income - adjustment of the future and option loss while computing the total income - whether loss suffered in trading derivatives cannot be considered as speculative loss? - HELD THAT:- In the Special Bench case of Shree Capital Services Ltd. Vs. ACIT.[2009 (7) TMI 172 - ITAT CALCUTTA] it was held that clause (d) of section 43(5) is prospective in nature and will be applicable to AY 2006-07 onwards. This appeal relates to the AY 2005-06. The Special Bench decision is therefore in favour of the revenue.
The loss in futures and options will therefore be speculation loss for the year under appeal and can be adjusted only against speculation profit which the assessee claims to have included in the total income. The AO is directed to verify the claim and allow relief if the claim is found correct. The grounds are allowed.
Appeal is partly allowed.
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2010 (3) TMI 1128
Issues involved: Challenge to order of Income Tax Appellate Tribunal regarding the service of notice u/s 143(2) of the Income Tax Act for block period assessment.
Summary:
1. The Appellant Revenue challenged the order of the Income Tax Appellate Tribunal, Ahmedabad Bench 'A', questioning the cancellation of assessment for the block period due to non-service of notice u/s 143(2) of the Act.
2. Both parties acknowledged that the issue was settled by the Supreme Court in Assistant Commissioner of Income Tax v. Hotel Blue Moon, where it was held that the notice u/s 143(2) is mandatory for block period assessments.
3. The High Court found no legal flaw in the Tribunal's decision, citing the Apex Court's ruling, and concluded that no substantial question of law arose for interference. Therefore, the Appeal was dismissed.
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2010 (3) TMI 1127
Issues involved: Appeal under s. 260A of the IT Act against order under s. 143(3) for asst. yr. 2003-04; Jurisdiction of CIT u/s 263 of the IT Act; Correctness of assessment order; Non-application of mind by assessing authority.
Judgment Summary:
Appeal against Assessment Order:
The appellant, an assessee, appealed under s. 260A of the IT Act against an order dated 25th Sept., 2009 in ITA No. 579/Coch/2008 of the Tribunal. The assessment for the asst. yr. 2003-04 was completed under s. 143(3) of the IT Act on 20th Jan., 2006.
Jurisdiction of CIT u/s 263:
The CIT invoked authority under s. 263 of the IT Act, setting aside the assessment order and remitting the matter for de novo consideration due to the genuineness of credits amounting to &8377; 21,00,000 and &8377; 8,00,000. The appellant's appeal to the Tribunal was dismissed, leading to the present appeal before the High Court.
Legal Principles and Arguments:
The appellant contended that the CIT's exercise of authority under s. 263 was based on a different view from the assessing authority, not on an erroneous order prejudicial to Revenue. Citing Malabar Industrial Co. Ltd. vs. CIT, the Supreme Court held that the provision cannot correct every mistake but only erroneous orders prejudicial to Revenue. The CIT set aside the assessment due to non-application of mind by the assessing authority regarding the genuineness of credits introduced by the appellant.
Court's Decision:
The High Court, considering the facts and legal principles, found that the assessment order lacked proper application of mind and was too cryptic. In line with the Supreme Court's guidance on the jurisdiction under s. 263, the Court dismissed the appeal at the admission stage, as no substantial question of law arose for consideration.
This judgment highlights the importance of proper assessment procedures and the jurisdiction of the CIT under s. 263 of the IT Act to ensure correct application of tax laws and protection of Revenue's interests.
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2010 (3) TMI 1126
Issues Involved:
1. Jurisdiction for issuance of notice under Section 148 of the Income Tax Act.
2. Classification of income as business income versus capital gains.
Issue-wise Detailed Analysis:
1. Jurisdiction for Issuance of Notice under Section 148:
Background: The assessee firm challenged the jurisdiction of the Assessing Officer (AO) for issuing a notice under Section 148 of the Income Tax Act, arguing that the conditions precedent for the issuance of such notice were absent, making the proceedings void-ab-initio.
Arguments and Findings:
- The AO issued notices under Section 148 based on documents and evidence gathered during a search on the Mantri Group, which indicated transactions with the assessee.
- The assessee objected to the reopening of the assessments under Section 147, arguing that the AO did not pass a speaking order on these objections.
- The AO responded by stating that detailed reasons for reopening the assessments were provided and that the objections were disposed of in the order sheet noting.
- The CIT(A) found that the AO's order, although brief, contained reasons for rejecting the objections and held that the reasons recorded for reopening the assessment were sufficient to dispose of the objections.
- The Tribunal noted that the AO's handling of the objections was not in conformity with the ruling of the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO, which mandates that the AO must dispose of objections by passing a speaking order.
- The Tribunal observed that the objections were not disposed of by a speaking order, but the assessee's representative did not press this ground further.
Conclusion: The Tribunal dismissed the ground related to the issuance of notice under Section 148 as not pressed by the assessee.
2. Classification of Income as Business Income vs. Capital Gains:
Background: The assessee firm reported income from the sale of land as capital gains for the assessment year 2005-06, while the AO classified it as business income for the assessment year 2003-04.
Arguments and Findings:
- The AO argued that the sale of land was in line with the business activity of the assessee firm, which was created for real estate business, and thus, the income should be taxed as business income.
- The CIT(A) supported the AO's view, stating that the partnership deed indicated the firm was constituted for dealing in real estate, and the sale of land was part of its business activity.
- The CIT(A) also noted that the possession of the land was handed over to the purchasers through a General Power of Attorney (GPA) in 2002, and the construction of a residential project commenced in 2003, indicating that the transfer of ownership occurred in the assessment year 2003-04.
- The assessee argued that the sale agreement stipulated that the sale would be completed upon the payment of the entire sale consideration, and the possession was to be delivered only on the date of sale.
- The Tribunal noted that the AO did not have conclusive evidence to show that the possession of the property was handed over to the purchasers during the financial year 2002-03 and that the income should be taxed in the assessment year 2003-04.
- The Tribunal observed that the assessee had consistently disclosed the land as an investment in its balance sheets and had previously reported income from the sale of a portion of the land as capital gains, which was accepted by the Revenue.
Conclusion: The Tribunal concluded that the assessee held the land as an investment and that the income from the sale of the land should be assessed as capital gains in the assessment year 2005-06, not as business income in the assessment year 2003-04. The assessee's appeal was partly allowed.
Final Order: The Tribunal ordered that the income offered as capital gains by the assessee should be assessed in the assessment year 2005-06, and the AO's classification of the income as business income for the assessment year 2003-04 was not justified. The appeal was partly allowed.
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2010 (3) TMI 1125
Issues Involved:
The judgment involves the cancellation of registration under section 12A of the Income-tax Act, 1961.
Issue 1: Registration Cancellation
The assessee's appeal was against the cancellation of registration under section 12A. The Commissioner withdrew the registration granted in 1974, citing that the trust's activities were not genuine. The assessee argued that under the amended provision of section 12AA, no authority can withdraw registration once granted. The Departmental Representative contended that the power to withdraw registration is impliedly available to the authority. The Tribunal analyzed the legal provisions and held that registration granted under section 12A cannot be withdrawn under section 12AA(3). The Tribunal emphasized that the law does not allow for the cancellation of registration granted under section 12A, and the provisions of section 12AA(3) cannot be applied retrospectively. The Tribunal referred to various decisions supporting this view and concluded that the impugned order was vitiated in law. Consequently, the registration granted under section 12A was restored.
Conclusion:
The Tribunal allowed the appeal, holding that the cancellation of registration under section 12A was not valid. The registration granted to the assessee was restored.
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2010 (3) TMI 1124
Issues:
1. Reversal of CENVAT credit on capital goods cleared under bond for export.
2. Reversal of CENVAT credit on inputs and capital goods cleared from the factory.
3. Interpretation of the term "as such" under Rule 3(5) of the Cenvat Credit Rules, 2004.
Issue 1: Reversal of CENVAT credit on capital goods cleared under bond for export:
The appellant imported capital goods, cleared them under bond for export claiming drawback, and took CENVAT credit on the CVD. The original authority held that the appellant was not entitled to avail CENVAT credit as the goods were not intended for manufacturing excisable goods. A demand of duty was confirmed against the appellant. The Commissioner(Appeals) did not examine the contention that the appellant had modified their drawback claim to exclude CVD. The Tribunal remanded the issue to the Commissioner(Appeals) to decide whether the appellant is entitled to retain the CENVAT credit of CVD on the capital goods while pursuing their drawback claim.
Issue 2: Reversal of CENVAT credit on inputs and capital goods cleared from the factory:
The assessee cleared inputs and capital goods from the factory after taking CENVAT credit. The department demanded differential duty on the inputs cleared at a lower assessable value and sought to recover duty on the capital goods under the Cenvat Credit Rules. The original authority confirmed the demand of duty, which was sustained by the Commissioner(Appeals). The Tribunal found no valid ground against the demand of duty on the inputs cleared at a lower value. Regarding the capital goods, the Tribunal considered conflicting decisions and directed the lower appellate authority to readdress the question of whether the capital goods were removed "as such" under Rule 3(5) of the Cenvat Credit Rules, 2004.
Issue 3: Interpretation of the term "as such" under Rule 3(5) of the Cenvat Credit Rules, 2004:
The Tribunal analyzed the interpretation of the term "as such" in the context of capital goods removed from the factory after being used for manufacturing final products. The Tribunal referred to relevant case law and held that the question of whether the credit-availed capital goods were removed "as such" should be readdressed by the lower appellate authority. The input-related issue was decided in favor of the Revenue, while the second appeal was disposed of accordingly.
This judgment delves into the complexities of CENVAT credit reversal on capital goods cleared for export and inputs/capital goods cleared from the factory. It also provides a detailed analysis of the interpretation of the term "as such" under the Cenvat Credit Rules, 2004, highlighting conflicting decisions and the need for readdressing certain issues by the lower appellate authority.
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2010 (3) TMI 1123
Issues Involved:
1. Computation of capital gain on account of sale of agricultural land.
2. Application of section 50C of the Income-tax Act, 1961.
3. Valuation of property by the departmental valuation cell.
Summary:
Issue 1: Computation of Capital Gain on Sale of Agricultural Land
The assessees, husband and wife, sold agricultural land measuring 51 cents in Sowripalayam Village for Rs. 34 lakhs. The Assessing Officer noted that the stamp valuation authority had fixed the market value at Rs. 1,00,06,200/-. The assessees argued that the guideline value as per the Tamil Nadu Registration Department was Rs. 21,52,000/- per acre, and thus the sale price of Rs. 34 lakhs was reasonable. They also provided evidence of a nearby land sale at a lower price and requested the Assessing Officer to refer the matter to the valuation authority.
Issue 2: Application of Section 50C of the Income-tax Act, 1961
The Assessing Officer applied section 50C of the Act, which mandates considering the value adopted by the stamp valuation authority for stamp duty purposes as the sale consideration. Consequently, the capital gain was reworked based on the higher value of Rs. 1,00,06,200/-, resulting in a significant increase in capital gains.
Issue 3: Valuation of Property by the Departmental Valuation Cell
The assessees requested a valuation by the departmental valuation cell, which declined, stating that they did not estimate the value of agricultural land. The assessees then provided a registered valuer's report valuing the property at Rs. 15,30,000/-. The CIT(A) upheld the Assessing Officer's decision, emphasizing the mandatory nature of section 50C(1).
Tribunal's Findings:
The Tribunal noted that as per section 50C(2), if the assessee claims that the stamp valuation exceeds the fair market value, the Assessing Officer must refer the valuation to a valuation officer. The valuation officer is obligated to estimate the value and provide a report. The Tribunal found that the departmental valuer's refusal to value the property was a failure to carry out a statutory duty. The Assessing Officer, having made the reference, could not rely solely on section 50C(1) without considering the valuation officer's estimate.
Conclusion:
The Tribunal directed the Assessing Officer to refer the matter back to the valuation officer for a proper valuation of the property as on the date of sale. The valuation officer must provide an estimate, and the Assessing Officer should proceed with the assessment of capital gains based on this valuation. The appeals were allowed for statistical purposes with these directions.
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2010 (3) TMI 1122
Issues involved: Penalty under section 271(1)(c) confirmed by CIT(A) XIX, Mumbai for declaring inaccurate particulars of income as long term capital gain.
Summary:
Issue 1: Accuracy of income declaration
The assessee declared long term capital gain on sale of shares, which was later found to be a part of a prestructured device to claim artificial capital gain. The AO initiated penalty proceedings under section 271(1)(c) as the assessee deliberately filed inaccurate particulars of income to reduce tax incidence. The CIT(A) confirmed the penalty, noting the intention of the appellant to manipulate transactions to generate income under long term capital gains. The appellant's submission of having necessary evidences to support the transactions was considered, but the CIT(A) upheld the penalty based on the deliberate inaccuracies in the original return.
Issue 2: Submission of revised return
The appellant filed a revised statement of income after persistent enquiries by the AO, offering the entire long term capital gains as income from other sources to avoid litigation. The AO did not establish concealment or furnishing of inaccurate particulars, leading to the cancellation of penalty based on the principles established by the Supreme Court in a similar case. The Tribunal held that the explanation of the appellant was bona fide, as the revised return was filed with a clear understanding that no penalty proceedings would be initiated.
Conclusion:
The Tribunal found that the appellant's explanation was bonafide, and since the revised return was filed under the understanding that no penalty would be levied, the penalty was cancelled. Similar facts in other appeals of the group led to the cancellation of penalties in those cases as well. The appeals of the assessees were allowed, and the penalty was cancelled in all cases.
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2010 (3) TMI 1121
Issues involved: Assessment under u/s.115JA, Rectification u/s.154, Applicability of retrospective amendment, Mistake apparent from record.
Assessment under u/s.115JA:
The assessee filed a return of income for A.Y 1998-99 declaring total income u/s.115JA of the Act. The AO assessed the total income at a different amount. Subsequently, it was found that the provision for doubtful debts was not added back to the profit & loss account while computing deduction u/s.115JA. The AO rectified this by passing an order u/s.154. The CIT(A) allowed this rectification, which was further confirmed by the ITAT based on relevant case laws. The Finance Act, 2009 introduced a clause making provisions for doubtful debts disallowable while calculating profit u/s.115JA w.e.f. A.Y 1998-99. The Tribunal held that the revenue's application for rectification was not valid as there was no mistake apparent from the record in the order of the Tribunal.
Rectification u/s.154:
The revenue filed a miscellaneous application u/s.254[2] of the I.T.Act seeking rectification of the order passed by the AO u/s.154. The assessee contested this, stating that the revenue failed to point out any mistake apparent from the order when it was passed. The assessee relied on a decision of the Bombay High Court to support their argument that retrospective amendments cannot be a basis for rectification if the proceedings were concluded under the existing law. The Tribunal agreed with the assessee, dismissing the revenue's application for rectification.
Applicability of retrospective amendment:
The Tribunal noted that the retrospective amendment of the Act came after the order was passed. Citing a similar case before the Bombay High Court, it held that proceedings concluded under the existing law do not constitute a mistake apparent from the record. The Tribunal emphasized that it is bound by the decision of the jurisdictional High Court, which established that no mistake existed in the Tribunal's order due to subsequent amendments to the law. The Tribunal distinguished a decision of the Karnataka High Court cited by the revenue, further supporting the dismissal of the revenue's application.
Mistake apparent from record:
After considering the arguments of both parties and relevant case laws, the Tribunal concluded that there was no mistake apparent from the record in the order passed by the Tribunal. It highlighted the timing of the law amendments in relation to the Tribunal's order as a crucial factor in determining the validity of the revenue's application. Consequently, the revenue's miscellaneous application was dismissed by the Tribunal.
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2010 (3) TMI 1120
Issues involved: Application u/s.254(2) of the Income-tax Act, 1961 for rectification of the Tribunal's order in ITA No.543/Mum/2008.
Issue 1 - Finding on profit from shares: The assessee moved a Miscellaneous Application u/s.254(2) seeking rectification of the Tribunal's order regarding profit on shares purchased and sold during the year. The Tribunal had previously found that the assessee was engaged in the business of trading shares, thus treated as carrying on speculation business. The Tribunal concluded that loss in trading shares should be treated as loss from speculation business, disallowing set off against other incomes. The Tribunal held that there was no mistake apparent in the order warranting rectification, citing precedents from the Bombay High Court and the Hon'ble jurisdictional High Court. The application for rectification was ultimately dismissed.
Key Phrases:
- Tribunal's categorical finding on the nature of the assessee's business.
- Treatment of loss in trading shares as loss from speculation business.
- Precedents from the Bombay High Court and the Hon'ble jurisdictional High Court.
- Dismissal of the application for rectification.
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2010 (3) TMI 1119
Condonation of delay - Huge delay of more than 1358 days in filing of the appeals before the Ld. CIT(A) - whether the ITAT has power to admit such appeal dismissed by the CIT(A) in limine that the appeal was filed beyond the prescribed time limit before CIT(A)? - HELD THAT:- A right of appeal is a statutory one, and, unless there is anything explicit in the statute or the rules made there under, such right cannot be restricted. The construction which deprives the parties of valuable rights should be avoided. That taking the plea of limitation when there is a judgment or order against which the statute provides a right of appeal but none is preferred within the time prescribed therefore, the respondent acquires a valuable right, of which he cannot be deprived by an order condoning delay and admitting the appeal behind his back. And when such an order is passed ex parte, he has a right to challenge its correctness at the hearing of the appeal. That is the position under the general law, and there is nothing in the provisions of Act, which enacts a different principle.
Therefore, the contentions relating to preliminary issues are open to consideration at the time of the hearing of the appeal, and that the jurisdiction of the CIT(A) is not limited to the hearing of the appeal on the merits of the assessment only. In this view, the orders of the CIT(A) holding that there were no sufficient reasons for excusing the delay and rejecting the appeals as time-barred would be orders passed u/s 250 and would be open to appeal, and it would make no difference in the position whether the order of dismissal is made before or after the appeal is admitted.
It is well established that rules of limitation pertain to the domain of adjectival law, and that they operate only to bar the remedy but not to extinguish the right. An appeal preferred in accordance with section 30(1) of the 1922 Act must, therefore, be an appeal in the eye of law, though having been presented beyond the period mentioned in section 30(2) it is liable to be dismissed in limine.
Therefore, it must be held that an appeal presented out of time is an appeal, and an order dismissing it as time-barred is one passed in appeal. Section 31 of the 1922 Act is the only provision relating to the hearing and disposal of appeals, and if an order dismissing an appeal as barred by limitation is one passed in appeal, it must fall within section 31. And as section 33 confers a right of appeal against all orders passed under section 31, it must also be appealable. Thus the law laid down by the Apex Court in the case of Meal Ram & Sons V. CIT [1956 (2) TMI 5 - SUPREME COURT] is that an appeal presented out of time is an appeal, and an order dismissing it as time barred is one passed in appeal and that section 250 of Income Tax Act 1961(Section 31 of the Act 1922) should be liberally construed so as to include not only orders passed on a consideration of the merits of the assessment but also orders which dispose of the appeal on preliminary issue, such as limitation and the like.
On the basis of law laid down by the Apex Court we can say that If the CIT(A) holds that the appeal does not comply with the requirements of section 249(2) and rejects it on that ground, the order must be one made u/s 250. All the orders u/s 250 being appealable u/s 253. The order of dismissal for non-compliance with section 249(2), not filing appeal in time is also be appealable. In the light of above discussions we do not find substance in submission of the Learned DR therefore his contention is rejected.
Law of limitation is founded on public policy. It is enshrined in the maxim “interest reipublicae ut sit finis litium” (it is for the general welfare that a period be part to litigation).The very scheme of proper administration of justice pre-supposes expediency in disposal of cases and avoidance of frivolous litigation. Where the parties chose to sleep over their rights for prolonged periods without any just cause, can hardly claim equity in justice particularly faced with the statutory provisions of Section 5 of the Act.
In the light of the above discussion and considering to make justice oriented approach, We find that there was sufficient cause for condoning the delay in the institution of appeal before the CIT(A) by the assessee. The CIT(A) ought to have condoned the delay keeping in view of the laws laid down in the case of N. Balakrishnan V. M. Krishnamurthy [1998 (9) TMI 602 - SUPREME COURT], and ratio laid down in the case of Areva T and D India Ltd., Vs. JCIT,[2006 (2) TMI 142 - MADRAS HIGH COURT] wherein on identical set of facts, affidavit filed by the Director of the assessee company for the delay in filing the appeal, the delay was condoned.
Since the matter has been sent back to the file of the CIT(A) on the first ground of appeal itself, therefore, we do not express any opinion on merit of the case. We remit the matter back to the file of the CIT(A) and the CIT (A) is directed to condone the delay and decide the appeal on merit after providing reasonable opportunity of being heard to both the sides. Appeal of the assessee is allowed.
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2010 (3) TMI 1118
Addition u/s 40A(3) - deduction of payments exceeding permisiable limits - appellant-company avers that payments were made at villages which did not have banking facilities - as per revenue most of the receipts the place of payment has been mentioned as Tirunelveli which is a District headquarter in the State of Tamil Nadu - HELD THAT:- Normally, illiterate poor farmers would insist on cash payments, especially when such payments involve huge amounts, at the place of their residence for the simple reason that they would like to avoid the risk of receiving cash at the town where the sale is to be registered and which may be far away from the village and such cash has to be carried back by them to the village. It is common knowledge that the seller has to confirm before the Sub-Registrar that full payment has been received by him. At the same time the Sub-Registrar satisfies himself about the identity of the seller to ensure that the payment has been made to the right person. For the sake of convenience, in the receipt the place is mentioned as the town where the document is registered. The AO has not made any effort to examine any of the sellers to verify as to whether the payments were received at the villages or at the town. Considering the entire facts we are inclined to accept the proposition that the payments were made at villages where banking facilities did not exist.
In the present case, even if it is assumed that the payment was made at the District headquarter, the admitted position is that the sellers did not have any bank accounts at such town and they did not reside or carry on any business or farming activity at such town. The AO and the learned CIT(A) have observed that the appellant-company could have opened bank accounts at such town in the name of the sellers. In our view, it would be too much to expect that the appellant-company would be able to compel the villagers to open bank accounts at the town which ultimately they will not be able to operate as they do not reside at such town. If such a myopic view is taken regarding the interpretation of r. 6DD(h), in our view, the very object of the legislature would be frustrated. There is no dispute regarding the identity of the payees and the genuineness of the land transactions in respect of which payments have been made.
Rule 6DD(h) must be interpreted keeping in view this object and purpose. It is further seen that cash payments to the extent of ₹ 20,19,208 in respect of 187 transactions are less than ₹ 20,000 per transaction and therefore such payments would be outside of the purview of s. 40A(3). Decided in favour of assessee.
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2010 (3) TMI 1117
Issues involved: Cross appeals against common order passed by CIT(A)-III, Hyderabad for assessment years 2005-06 and 2006-07.
Assessee's grievance: Addition of Rs. 14,10,565 sustained.
Revenue's grievance: Relief granted to assessee at Rs. 21,56,512 out of total addition of Rs. 35,67,077.
The assessee, a partnership firm running a hospital, filed return declaring income at Rs. 3,15,250 for assessment year 2006-07. A survey u/s 133A revealed gross receipts of around Rs. 28.30 lakhs for six months, leading to an estimated total receipt of Rs. 56,58,408 for the year. The assessing officer added Rs. 35,65,077 as undisclosed income, which was later reduced by CIT(A) to Rs. 14,10,565 after considering disclosed income and gross turnover. Both parties appealed.
The AR cited a Tribunal order for a 15% income estimation rate. The DR argued for sustaining the estimated income based on business premises location and competition. The Tribunal noted income estimation varies for hospitals based on factors like location, competition, and service quality. Declined to apply 15% rate without uniformity proof.
Regarding expenses, the D.R. contended that all expenses were already claimed, disallowing further deductions. Tribunal differentiated fixed and variable expenses, stating fixed expenses are already covered in regular business, while variable expenses related to undisclosed receipts should be allowed proportionately. Directed assessing officer to bifurcate and ascertain variable expenses for deduction.
Both appeals were partly allowed, and the issue of expenses was remanded to the assessing officer for fresh adjudication.
Decision: Both appeals allowed partly. Expenses issue remanded for fresh adjudication.
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2010 (3) TMI 1116
Issues involved:
The judgment involves the interpretation of u/s.54 of the Income Tax Act, 1961 regarding the eligibility of the assessee for deduction on capital gains from the sale of property for the purchase of a new asset.
Summary:
Issue 1: Eligibility for deduction u/s.54(1) of the Act
The assessee declared total income and disclosed taxable capital gain on the sale of property. The AO contended that the assessee did not utilize the entire gains for the purchase of a new asset, resulting in the addition of long-term capital gains. On appeal, the ld. CIT(A) held that the purchase of the new house was out of borrowed funds, not from the sale proceeds, and denied the exemption claimed u/s.54. The Tribunal considered the facts and upheld the assessee's claim for deduction u/s.54(1) based on the decision in ACIT vs. Dr. P.S. Pasricha, where it was established that the source of funds for the new asset is irrelevant as long as the property is acquired within the specified period.
Issue 2: Enhancement of taxable capital gain
The ld. CIT(A) enhanced the taxable capital gain amount. The assessee challenged this enhancement, questioning the justification behind the increase. The Tribunal, referring to the precedent set in ACIT vs. Dr. P.S. Pasricha, upheld the assessee's claim and allowed the deduction under u/s.54(1) of the Act. The Tribunal found no fault in the assessee's actions and dismissed the appeal, concluding that the assessee was entitled to the deduction.
In conclusion, the Tribunal allowed the assessee's appeal, ruling in favor of the assessee's eligibility for deduction u/s.54(1) of the Act. The judgment emphasized that the source of funds for the new asset is not a determining factor as long as the property is acquired within the specified period.
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2010 (3) TMI 1115
Issues involved: Rejection of applications for approval u/s 12A and 80G of the Act by the CIT-Hyderabad.
Summary:
The appeal was filed by the assessee against the CIT-Hyderabad's order rejecting the applications for approval u/s 12A and 80G of the Act. The rejection was based on the assessee's inability to produce books of account and information requested by the Director of Income Tax, despite explaining that the trust's activities had not yet commenced.
The Tribunal emphasized that if the trust's objects are charitable in nature, registration cannot be denied simply because charitable activities have not started. The law dictates that during the registration process, the focus should be on whether the trust's objects are charitable, not on the actual charitable activities being carried out at the commencement stage. As long as the trust's objects are genuinely charitable, registration should not be refused. The Tribunal found no justification for the DIT's action in denying registration to the assessee trust and directed the DIT to reexamine the case and make a decision in accordance with the law.
It was clarified that the commencement of business by the Trust is not a prerequisite for approval u/s 12A and 80G of the Act. The only requirement is for the Director, IT (Exemptions) to be satisfied with the genuineness of the activities conducted by the assessee. Therefore, the Tribunal set aside the issue and directed the assessee to demonstrate the genuineness of its activities in relation to the trust's objects.
Ultimately, the appeal of the assessee was allowed for statistical purposes, and the order was pronounced in the open court on 26.3.2010.
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2010 (3) TMI 1114
Issues involved: Appeal against assessment u/s 143(3) for AY 2004-05 regarding computation of capital gains u/s 50C.
Comprehensive details:
1. The appellant, a Doctor, sold property in Uttaranchal for Rs. 13 lakhs, declared capital gains of Rs. 66,205. AO invoked section 50C based on stamp duty valuation of Rs. 20,06,500. Appellant claimed distress sale due to encroachment and dilapidated condition of property, requested valuation by departmental officer u/s 50C(2)(a).
2. AO noted delay in submission of documents by appellant, did not refer valuation to departmental officer due to time constraints. CIT(A) upheld AO's decision based on stamp duty valuation.
3. Tribunal observed that if stamp duty value exceeds fair market value, valuation can be referred to departmental officer u/s 50C(2)(a). AO accepted appellant's claim based on approved valuer's report showing fair market value of Rs. 11,28,000. Tribunal set aside departmental authorities' orders, directed AO to refer valuation to departmental officer and compute capital gains accordingly.
4. Tribunal found delay not solely attributable to appellant, as claim was made promptly. AO had sufficient time to refer valuation to departmental officer before time bar. Tribunal allowed appeal, directing proper processing of appellant's claim u/s 50C(2)(a) and ensuring due opportunity for appellant.
Separate Judgement: None.
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2010 (3) TMI 1113
Issues Involved:
1. Rejection of books of account and Gross Profit (GP) addition.
2. Deletion of expenditure Rs. 17,45,404/-.
3. Depreciation on intangible assets.
4. Disallowance u/s 14A.
Summary:
1. Rejection of Books of Account and GP Addition:
The Assessing Officer (AO) rejected the books of account u/s 145(3) due to incomplete production of books, bills, and vouchers, and estimated the GP based on previous years. The CIT (A) upheld the rejection but deleted the GP addition, reasoning that the increase in turnover justified the lower GP rate. The Tribunal found no substantial reason for rejecting the books of account, noting that the assessee had provided sufficient details and maintained proper records. The Tribunal allowed the assessee's ground, stating that the rejection was not justified and confirmed the deletion of the GP addition by the CIT (A).
2. Deletion of Expenditure Rs. 17,45,404/-:
The AO disallowed the expenditure due to a significant increase compared to the previous year. The CIT (A) deleted the addition, noting that the increase in expenses was commensurate with the fivefold increase in turnover. The Tribunal upheld the CIT (A)'s decision, finding the AO's disallowance unreasonable.
3. Depreciation on Intangible Assets:
The assessee claimed depreciation on intangible assets acquired through a slump sale. The AO disallowed the claim, stating that the nature of the intangible assets was not verifiable. The CIT (A) upheld the disallowance, noting that the agreement did not specify any intangible assets. The Tribunal remanded the issue back to the AO for re-examination, directing a fresh assessment of the facts and the legitimacy of the depreciation claim.
4. Disallowance u/s 14A:
The AO disallowed Rs. 1,05,610/- applying Rule 8D for expenses incurred in earning exempt dividend income. The CIT (A) upheld the disallowance. The Tribunal modified the disallowance, restricting it to 5% of the dividend income, considering it a reasonable estimation of administrative expenses.
Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the AO to re-examine the depreciation claim on intangible assets and restricted the disallowance u/s 14A to 5% of the dividend income.
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2010 (3) TMI 1112
Supervision charges received on account of erection, supervision, commissioning etc. - AO and CIT(A) treated it as fee for technical services under the treaty of DTAA with Germany and consequently they had applied the provisions of Article 7 of the DTAA with Germany read with section 44D and 115A - scope of work of Siemens Ltd. (Indian company) under the agreement - Submission that the assessee was only claiming that the income of the assessee was liable to be taxed u/s 44BBB -submission that the assessee falls within the exclusion clause of Explanation (2) to Section 9(1)(vii) of the Act and consequently the income of the assessee was liable to be assessed only under the provisions of Section 44BBB -
HELD THAT:- We would like to refer to the agreement entered into by the assessee with M/s Voith Siemens Hydro Private Limited (VSHPL) on 1st October 2003. This agreement it is found has been produced before both the lower authorities but neither has referred from the same. Even in the course of the arguments, other than referring to this agreement as the agreement in regard to the sub-contracting of the contract work entered into by the assessee with OHPC, no detailed reference has been made to it. But this agreement, it is noticed does give a clear picture of the nature of the work and the scope of work of the assessee in the main contract with OHPC.
A perusal of the above mentioned agreement clearly shows that the assessee has sub-contractor the “supervision services” that the assessee was to do under the main contract between he assessee and OHPC. Thus accepting the arguments of the assessee that the terms of the contract are to be given the meaning as specified in the agreement and not the ordinary or general meaning, if the sub contract agreement is seen, the sub contractor is to perform the supervision services meeting the requirements and terms of the main contract being the one between the assessee and OHPC.
It is noticed that the assessee has not produced before any of the lower authorities or before us any evidence to show how the assessee or the assessee thru its sub-contractor has indulged in any activities, which can be termed construction, assembly or erection. The assessee if has indulged in any of the said activities would have incurred substantial expenses in the form of wages, tools, etc. No such expenses having been incurred have been shown. Just because the employees of the assessee or its sub-contractor have given directions to the personal working at the site but employed with another contractor it cannot be said that the assessee has done the business of erection or the work of assembly of the plant or machinery. In such circumstances it can only be said that the assessee has done the work of supervision simpliciter.
Once it is found that the assessee has not been able to prove that the assessee has involved itself in the physical activities of the business of assembly or erection of the plant or machinery or testing or commissioning of the power project but has only done the supervision simpliciter of the same the assessee would not be eligible to be taxed under the provisions of section 44BBB nor would the receipts fall within the exclusions provided in explanation 2 to section 9 (1).
Further as the assessee has also not challenged the existence of the permanent establishment in India, the findings of the AO and the Ld. CIT(A) in holding that the business profits of the assessee is from the supervision charges are in the nature of “fees for technical services” from the rendering of supervision services in connection with the erection, testing and commissioning of the power project is liable to be upheld and we do so. In the circumstances the finding of the Ld. CIT(A) that the provisions of Article 7 of the DTAA read with section 44D and section 115A apply to the business profits of the assessee is upheld. Consequently grounds of the assesses grounds of appeal are dismissed.
Levy of interest u/s 234 B - HELD THAT:- It is noticed that the receipts of the assessee are liable for tax deduction u/s 195. It is also noticed that M/s OHPC has deducted tax at source on the payments made to the assessee. the fact remains that the receipts of the assessee are liable to TDS and TDS has been done. In these circumstances we are of the view that interest u/s 234B is not leviable on the assessee as the receipts of the assessee under the contract is liable for TDS.
In the circumstances respectfully following the decision of the Special Bench of this tribunal in the case of M/s. Motorola [2005 (6) TMI 226 - ITAT DELHI-A] the interest levied u/s 234B stand deleted. In the circumstances the ground No. 6 of the assessees appeal stand partly allowed.
In the result the appeal of the assessee is partly allowed.
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