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Showing 161 to 180 of 920 Records
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2010 (7) TMI 1077
Issues involved:
Cross appeals against the order of CIT(A)-XXXI, Mumbai for the assessment year 2003-04.
Issue 1 - Permanent Establishment (PE) in India for sale of Completely Built Up (CBU) cars:
The assessee, a German company, sells CBU cars in India through DaimlerChrysler India Pvt. Ltd. (DCIL). The dispute was whether DCIL constitutes a dependent agent of the appellant for such sales, leading to a PE in India. The ITAT, referring to previous decisions, held that DCIL's role was mainly that of manufacturing cars and acting as a communication conduit, not actively procuring orders. As DCIL did not actively engage in negotiating or concluding contracts, it was deemed not a dependent agent. Therefore, no profits could be attributed to DCIL's activities in India, and the income was not taxable in India.
Issue 2 - Business Connection under section 9 of the Income-tax Act, 1961:
The contention was whether DCIL constituted a business connection for the appellant in India regarding the sale of spare parts and raw materials. The ITAT, following precedent, ruled that DCIL's activities did not create a business connection for the appellant in India. The sale of raw materials to DCIL did not result in income accruing to the appellant in India, and thus, it was not taxable under Indian law.
Issue 3 - Attribution of profits to PE in India:
The dispute was over the attribution of 30 percent of the net profits earned by the appellant from direct sales of CBU cars to the PE in India. The ITAT, as no profits could be attributed to DCIL's activities in India, deemed this issue infructuous and dismissed it accordingly.
Issue 4 - Existence of Permanent Establishment (PE) in India u/s Article 5(2) of the DTAA:
The question was whether the appellant had a PE in India as per Article 5(2) of the Double Taxation Avoidance Agreement. Referring to previous decisions, the ITAT concluded that the appellant did not carry out operations in India regarding the sale of parts/CKD to DCIL on a principal to principal basis. As DCIL did not act as a sales outlet/warehouse for the appellant and the management was in Germany, the appellant did not have a PE in India.
Conclusion:
The ITAT upheld the decisions based on precedents for all issues, ruling in favor of the assessee and dismissing the revenue's appeals. Additionally, the interest u/s 234B was deemed not leviable for non-residents subject to tax deduction u/s 195.
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2010 (7) TMI 1076
Issues Involved:
1. Validity of orders passed under Section 143(3) read with Section 153C of the Income Tax Act.
2. Appropriateness of profit ratio applied on undisclosed sales.
3. Addition of peak credit in bank accounts as undisclosed investment under Section 69.
4. Liability of interest levied under Sections 234B, 234C, and 234D.
5. Addition of unexplained cash under Section 69A.
6. Addition of deficit stock as unexplained investment.
Issue-Wise Detailed Analysis:
1. Validity of Orders under Section 143(3) read with Section 153C:
The assessee argued that the orders passed under Section 143(3) read with Section 153C were not in accordance with the provisions of the Act and were therefore bad in law. However, the Tribunal found that the assessee did not provide credible documentary evidence to substantiate this claim. The Tribunal upheld the orders of the lower authorities, stating they were in conformity with the provisions of the Act. This ground was dismissed for all assessment years under dispute.
2. Profit Ratio on Undisclosed Sales:
The assessee contested the adoption of a 7% profit ratio on undisclosed sales, arguing that the declared profit ratio of 6% was reasonable. The Tribunal noted that the AO had reasonably estimated the GP at 7% on unaccounted sales, as the proceeds were deposited in unaccounted bank accounts. The Tribunal found no credible evidence to support the assessee's contention that a 6% profit ratio was higher. The Tribunal upheld the AO's estimation of a 7% profit ratio, finding it reasonable and supported by the assessee's own declarations in previous years.
3. Addition of Peak Credit as Undisclosed Investment under Section 69:
The assessee argued that the peak credits in the bank accounts were out of sales proceeds and not undisclosed investments. The Tribunal noted that the assessee failed to substantiate this claim with evidence. The Tribunal upheld the addition of Rs. 20.53 lakhs as unexplained investments under Section 69, agreeing with the lower authorities that the assessee did not provide satisfactory evidence to explain the source of the investments.
4. Liability of Interest under Sections 234B, 234C, and 234D:
The Tribunal noted that interest under Sections 234B and 234C is mandatory and consequential, and thus these grounds were summarily rejected. However, interest under Section 234D can only be charged from the assessment year 2004-05 onwards. Therefore, interest charged under Section 234D for the assessment years 2001-02 to 2003-04 was not in accordance with the Act and was deleted.
5. Addition of Unexplained Cash under Section 69A:
For the assessment year 2007-08, the assessee contested the addition of Rs. 31.64 lakhs as unexplained cash under Section 69A. The Tribunal found that the assessee failed to provide satisfactory evidence to explain the source of the cash found during the search. The Tribunal upheld the addition, agreeing with the lower authorities that the cash was unaccounted and the assessee's explanation was not satisfactory.
6. Addition of Deficit Stock as Unexplained Investment:
The Revenue contested the deletion of an addition of Rs. 6.98 lakhs as deficit stock. The Tribunal found that the CIT(A) had overlooked that the shortage of stock was due to unaccounted sales. The Tribunal remitted this issue back to the AO to calculate the profit element on the unaccounted sales based on the deficit stock, directing the AO to provide an opportunity to the assessee to be heard.
Conclusion:
- The assessee's appeals for the assessment years 2001-02, 2002-03, and 2003-04 were partly allowed.
- The assessee's appeals for the assessment years 2004-05, 2005-06, 2006-07, and 2007-08 were dismissed.
- The Revenue's appeal for the assessment year 2007-08 was partly allowed.
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2010 (7) TMI 1075
Issues Involved:1. Classification of income from share transactions as either short-term capital gains or business profits. Issue-wise Detailed Analysis:1. Classification of Income from Share Transactions:The primary issue in this case is whether the surplus of Rs. 2,25,47,992/- from the sale of shares should be classified as short-term capital gains or as profits from a business in shares. The assessee contends that she is an investor, not a trader, and thus the gains should be treated as capital gains. The Assessing Officer (AO), however, argues that the frequency and nature of transactions indicate a business activity, warranting classification as business income. The assessee presented several points to support her claim: she is a working partner in a garment manufacturing and export firm and a director in a similar business company, indicating no expertise or business in shares. She used her own funds, not borrowed money, for investments and engaged Portfolio Management Service Providers for advice. Shares were held as investments in her books, and substantial dividends were earned, further supporting her investor status. The AO, however, cited several observations to counter this claim: frequent transactions, speculative transactions, high turnover relative to capital, and short holding periods. He argued that these factors indicate an intention to profit from trading rather than investing. The AO referred to Circular No.4/2007 and Supreme Court decisions to support his stance, ultimately treating the gains as business income. The CIT(A) upheld the AO's view, emphasizing the substantial nature of transactions, the profit motive, and the frequency and magnitude of trades. Despite recognizing that the assessee had two portfolios (investment and trading), the CIT(A) concluded that the transactions in question were driven by market trends and profit motives, thus qualifying as business activity. Upon appeal to the Tribunal, the assessee reiterated her arguments, highlighting her lack of expertise in share trading, the classification of shares as investments in her books, and the consistent treatment of similar transactions in past and subsequent years as capital gains. The assessee also pointed to a similar case involving her father, where the Tribunal ruled in favor of treating the gains as capital gains. The Tribunal carefully considered the facts and arguments. It noted that the assessee's background and the manner of transactions supported her claim of being an investor. The shares were acquired from surplus funds, classified as investments in the balance sheet, and substantial dividends were earned. The Tribunal also observed that the AO had accepted similar claims in previous and subsequent years, invoking the principle of consistency. Ultimately, the Tribunal concluded that the assessee's transactions were indeed investments, not business activities. The surplus from the sale of shares was rightly declared as short-term capital gains. The appeal was allowed, and the income was to be assessed as short-term capital gains, not business profits. Order pronounced in the Open Court on 23rd July 2010.
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2010 (7) TMI 1074
Issues involved: Appeal against addition made u/s 69 of the Income Tax Act, 1961.
Ground 1: The Learned CIT(A) confirmed the addition of Rs. 21,87,041 u/s.69.
Ground 2: The CIT(A) should have considered that legal fiction u/s 50C is for capital gains, not u/s 69.
Ground 3: The CIT(A) should have given a specific opportunity to the assessee before sustaining the addition.
The case involved an appeal by the Assessee against an addition made u/s 69 of the Income Tax Act, 1961, based on the order of the Learned CIT(Appeals)-II for Assessment Year 2005-06. The Assessing Officer noted a difference between the consideration paid by the assessee for agricultural land and the value assessed by the Stamp Duty Authorities, treating it as unexplained investment. The assessee contended that the Jantri value considered by the authorities for stamp duty purposes should not be the basis for the addition u/s 69. The Assessing Officer, however, made an addition of Rs. 21,87,041, which was challenged by the assessee.
The Learned CIT(A) upheld the addition, citing the applicability of section 50C of the Income Tax Act, 1961. The CIT(A) rejected the argument that section 50C was not applicable to the purchaser, as in this case, and affirmed the Assessing Officer's action. However, upon review, it was found that there was no concrete evidence to prove that the assessee had actually paid more than the documented consideration for the agricultural land. The provisions of section 50C were deemed inapplicable as the assessee was the purchaser, not the seller, as clarified in relevant case law.
In line with previous judicial decisions and the provisions of the law, it was concluded that there was no justification for confirming the addition u/s 69. The findings of the Learned CIT(A) were reversed, and the grounds of the Assessee were allowed. Consequently, the appeal of the Assessee was allowed, and the order was pronounced on 23/07/2010.
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2010 (7) TMI 1073
Issues involved: Appeal against order allowing deductions for advance license benefits and Duty Free Replenishment Certificate receivable.
Deductions for advance license benefits and DFRC:
The appeal was filed by the revenue against the order allowing deductions for advance license benefits and Duty Free Replenishment Certificate (DFRC) receivable by the assessee. The Tribunal considered the issue in question based on previous cases and held that the benefits did not accrue to the assessee until the raw material imported was consumed. Citing a previous decision, it was concluded that the value of import entitlement receivable could not be treated as income accrued in the relevant year. Therefore, the Tribunal upheld the order of the first appellate authority, dismissing the appeal.
Conclusion:
The Tribunal dismissed the appeal and upheld the order of the first appellate authority regarding the deductions for advance license benefits and Duty Free Replenishment Certificate receivable by the assessee. The decision was based on the principle that the benefits did not accrue until the raw material imported was consumed, in line with previous case law.
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2010 (7) TMI 1072
Issues involved: Notification and demand for penalty to a Value Added Tax dealer u/s 53(3) of the Andhra Pradesh Value Added Tax Act, 2005.
The petitioner, a company dealing in edible oils, challenged a notification imposing a penalty of Rs. 20,76,106 under Section 53(3) of the VAT Act for claiming excess input tax credit during the audit period. The petitioner contended that the notice lacked reasons for the proposed penalty and argued that Section 53(3) can only be invoked in cases of fraud or willful neglect. The petitioner cited various legal precedents to support their objections. The first respondent, after considering the objections, upheld the penalty, stating that the petitioner did not maintain a separate stock register for purchases made using a DEPB license and had under-declared tax. The petitioner's counsel argued that the input credit was claimed in accordance with the VAT Act and that imposing a penalty equal to the tax without allegations of fraud or willful neglect is without jurisdiction. The Special Standing Counsel for Commercial Taxes argued that the appeal remedy provided by the statute bars the writ petition, as under-declaration of tax attracts Section 53(3) of the VAT Act.
The High Court emphasized the importance of exhausting alternative remedies before resorting to a writ petition, citing legal precedents. While acknowledging exceptions where a writ petition can be filed, such as for Fundamental Rights enforcement or jurisdictional issues, the Court highlighted the discretionary nature of writ jurisdiction. Referring to past judgments, the Court reiterated that when a statute provides a complete redressal mechanism, parties should utilize those remedies before approaching the High Court directly. The Court declined to entertain the writ petition, emphasizing the need to follow established legal principles and exhaust appellate avenues before seeking writ relief.
In line with the precedent set by the three Judge Bench in C.A. Abraham, the Court declined to delve into the merits of the case regarding tax under-declaration and excess input tax credit. The Court emphasized that such matters should be raised before the appropriate appellate or revisional forum, rather than through a writ petition. Consequently, the writ petition was dismissed at the admission stage, reinforcing the principle of exhausting alternative remedies before seeking writ relief.
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2010 (7) TMI 1071
Issues involved: Cross appeals relating to the assessment year 2005-06 involving the applicability of the principle of mutuality to a company and the taxability of various receipts.
Assessment of Share Transfer Fees and Other Receipts:
The Assessing Officer rejected the claim of exemption based on the principle of mutuality for share transfer fees, nominee occupancy charges, repairs, security deposits, interest, and dividends. CIT(A) held that the principle of mutuality applies to the company, and share transfer fees collected from intending purchasers are exempt. Non-refundable security deposits and nominee occupancy charges collected from members were also held to be exempt under the principle of mutuality.
Taxation of Interest Income:
The CIT(A) held that interest income from banks, bonds, and tax refunds was not exempt under the principle of mutuality as the contributors were not members of the company. The interest income was held to be taxable.
Judicial Precedents and Tribunal Orders:
Tribunal orders for the assessment years 1995-96 and 2004-05 established that the principle of mutuality applies to the company. The judgement of the Hon'ble Bombay High Court in the case of Sind Co-operative Housing Society supported the exemption of transfer fees and nonrefundable security deposits. The Supreme Court's ruling in CIT Vs. Bankipur Club Ltd. affirmed the applicability of the principle of mutuality.
Decision and Orders:
The department's appeal was dismissed, upholding the exemption of transfer fees and nonrefundable security deposits. The appeal by the assessee was allowed, exempting nominee occupancy charges and interest income based on judicial precedents and Tribunal orders.
In conclusion, the principle of mutuality was held applicable to the company, resulting in the exemption of certain receipts while taxing others based on the contributors' membership status. The Tribunal's decision aligned with established judicial precedents and upheld the CIT(A)'s rulings on the taxability of specific receipts.
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2010 (7) TMI 1070
Issues involved: Appeal against additions u/s 133A - Shortage of stock, negative cash balance, unaccounted sales, unaccounted service charges, unaccounted AMC.
Shortage of stock: During survey, stock valued at Rs. 15,88,660 against declared value of Rs. 32,09,510, showing a shortage of Rs. 16,20,850. Assessee declared additional income of Rs. 3,00,000. AO proposed entire addition. CIT(A) upheld AO's action. Assessee argued only profit on stock deficiency should be considered. Tribunal held unreliable accounts can be rejected u/s 145(3), directed AO to apply 25% GP on total sales, allowing partial relief.
Negative cash balance: AO added Rs. 1,19,995 for cash shortage, confirmed by CIT(A). Tribunal found no authority to treat cash shortage as income, deleted the addition.
Unaccounted service charges: AO estimated unaccounted service charges at Rs. 7,31,600 based on notebook details. CIT(A) confirmed addition. Tribunal upheld CIT(A)'s decision, considering the charges as unaccounted income, reasonable estimate by survey officers.
Conclusion: Appeal partly allowed, deletion of cash shortage addition, upheld additions for stock shortage and unaccounted service charges.
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2010 (7) TMI 1069
Valuation of closing stock of gold jewellery - LIFO or FIFO method - accounting standard - Present appeal is with regard to the valuation of closing stock. the AO had changed the value of closing stock but not that of opening stock. In view of the declaration of additional income by the assessee during survey. it was held that further addition in the year would result in double addition. Accordingly, the AO was directed to delete the addition of ₹ 52,23,753/-. Revenue is in appeal against the said order.
HELD THAT:- we find support from the ratio laid down in Chainrup Sampat Ram Vs. CIT [1953 (10) TMI 2 - SUPREME COURT] wherein it has been held that the value of stock cannot be appreciated higher than the cost because the closing stock is not the source of profit for the assessee. In the facts and circumstances of the present case, we are in conformity with the order of CIT(A) and uphold the same. There is no merit in adopting the weighted average cost method for valuation of inventory of stock in the circumstances of the case. We confirm the deletion of addition made by the AO totaling ₹ 52,23,753/-. The ground of appeal raised by the Revenue is thus dismissed
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2010 (7) TMI 1068
... ...
... ... ..... . Bhakti Pasrija,Adv., Mr. B.V. Balaram Das,Adv. For the Respondent Dr. Rakesh Gupta,Adv., Mr. Ambhoj Kumar Sinha,Adv. O R D E R Delay condoned. The special leave petition is dismissed.
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2010 (7) TMI 1067
Issues:
1. Surrender of additional income during survey
2. Disallowance of claimed losses and deductions
3. Appeal against CIT(A) and Tribunal decisions
Analysis:
1. Surrender of additional income during survey:
The assessee, involved in "Hundi Dalali," surrendered additional income of &8377; 31,70,000 during a survey conducted under s. 133A. The assessee filed a return showing an income of &8377; 11,81,200 but surrendered additional income under different heads. The Assessing Officer (AO) disallowed a loss claimed in the garlic account and a deduction under s. 35AC. The AO found discrepancies in the garlic business, leading to the disallowance of the claimed loss. The AO's decision was challenged by the assessee.
2. Disallowance of claimed losses and deductions:
The CIT(A) allowed the deletion of the disallowed amount, but the Revenue appealed to the Tribunal. The Tribunal set aside the deletion of the disallowed amount, leading to an appeal under s. 260A of the IT Act by the assessee. The appellant argued that all transactions were through banking channels with registered dealers, and the loss was due to a change in market trend. However, the Tribunal found discrepancies in the transactions and the timing of sales, leading to a dismissal of the appeal.
3. Appeal against CIT(A) and Tribunal decisions:
The High Court analyzed the facts and upheld the Tribunal's decision, stating that no substantial question of law was involved. The Court found the proximity of purchases to the survey date suspicious, indicating no merit in the appeal. Consequently, the appeal was dismissed summarily.
This judgment highlights the importance of maintaining consistency and transparency in business transactions to avoid scrutiny and disallowances by tax authorities. The case serves as a reminder for taxpayers to ensure the accuracy and legitimacy of their financial dealings to prevent adverse legal consequences.
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2010 (7) TMI 1066
Issues involved: Determination of taxable services value including free supplies of explosives and fuel, waiver of pre-deposit amounts u/s 76, 77, and 78 of the Finance Act, 1994.
In the present case, the issue revolved around the inclusion of the value of Diesel, Fuel, and Explosives supplied by M/s. Singareni Colleries Company Limited (SCCL) to the applicant for services like site formation, clearance, excavation, and demolition. The Revenue contended that the value of these supplies was not included in the taxable services value, leading to suppression. The applicant had been paying service tax based on the services' value rendered. The Chartered Accountant cited a previous case where a waiver was granted in a similar situation.
The JCDR argued that the consideration for taxable services should encompass both cash and kind, referring to Section 67 of the Finance Act. He mentioned that the amount paid for explosives was deducted from the applicant's progressive account by SCCL. After considering the arguments and records, the Tribunal found the issue to be identical to a previous stay order. Citing precedent where free supplies were not included in taxable services value, the Tribunal granted a prima facie case for the waiver of pre-deposit amounts. Consequently, the recovery was stayed until the appeal's disposal, and the appeal was linked with another similar case for joint disposal.
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2010 (7) TMI 1065
Issues involved: Cross appeals regarding addition of unexplained cash credit.
Summary:
1. The assessee, a manufacturing company, filed its return showing a net loss. During scrutiny, the AO found discrepancies in share applications and directed the assessee to prove the identity, genuineness, and creditworthiness of the applicants. Some applicants were not found, leading to the addition of unexplained cash credit. The Tribunal set aside the orders and remanded the issue to the AO.
2. In the subsequent proceedings, some applicants appeared before the AO, but the AO still disbelieved the assessee's contentions and confirmed the addition. The CIT(A) deleted the additions for 13 persons produced before the AO but confirmed for 9 absent persons due to failure in proving their identity.
3. The assessee contended that it had provided evidence and addresses of the absent persons, and the AO did not issue summons despite requests. The counsel cited legal precedents stating the assessee's obligation to prove identity and genuineness, not to produce all applicants. The CIT(A) deleted the additions for the produced persons but confirmed for the absent ones due to failure in proving identity.
4. The Tribunal noted the inadequacy of the AO's inquiry in the original assessment and the failure to explore options to procure the absent applicants. It upheld the CIT(A)'s decision to delete the addition, citing legal precedents and the assessee's fulfillment of the onus under section 68 of the Income Tax Act.
5. Consequently, the appeal of the assessee was allowed, and the addition was deleted, while the revenue's appeal was dismissed.
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2010 (7) TMI 1064
Issues involved: Classification of spent sulphuric acid under chapter sub heading 28070010, admissibility of cenvat credit on inputs used in the manufacture of exempted goods, requirement of payment of 10% of value of exempted goods under Rule 6 of Cenvat Credit Rules, 2004.
Classification of spent sulphuric acid: Respondents cleared spent sulphuric acid at nil rate of duty for use in manufacturing fertilizers under notification No.4/2006-CE. Department contended that cenvat credit is not admissible on inputs used in manufacture of exempted goods u/s Rule 6(1) of Cenvat Credit Rules, 2002/2004 unless separate accounts are maintained u/s Rule 6(2). As respondents did not maintain separate accounts, they were required to pay 10% of the price of spent sulphuric acid cleared at nil rate of duty u/s Rule 6(3)(b).
Admissibility of cenvat credit: Rule 6(2) requires maintaining separate accounts for inputs used in dutiable goods and exempted goods. Failure to maintain separate accounts necessitates payment of 10% of the price of exempted goods. Show cause notices were issued to respondents for demand of duty and penalty due to lack of separate accounts.
Legal precedent and judgments: Commissioner (Appeals) ruled in favor of the assessee based on Tribunal's decision in CCE Indore Vs. S.R.F. Ltd. and Bombay High Court's judgment in Rallis India Ltd. Vs. UOI, holding that Rule 6 does not apply to bye-products like spent sulphuric acid. Tribunal's previous decision in a similar case also supported this interpretation, emphasizing that penal clause should not have been invoked when the issue was arguable. Revenue's appeals were rejected based on the above legal precedents and decisions.
Conclusion: The Tribunal rejected the Revenue's appeals based on legal precedents and judgments, finding no merits in the arguments presented. The issue of payment of 10% of value of exempted goods under Rule 6 of Cenvat Credit Rules, 2004 was deemed inapplicable to the clearance of spent sulphuric acid used in manufacturing fertilizers.
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2010 (7) TMI 1063
Issues Involved: Appeal against addition of closing stock of work in progress.
Summary:
1. The appellant, engaged in fabric printing on job work basis, disputed the addition of closing stock of work in progress by the Assessing Officer (AO).
2. The AO calculated the closing stock based on the average processing days and cost per meter, adding Rs. 4,96,625 to the total income.
3. The ld. CIT(A) upheld the addition citing accounting principles and previous tribunal decisions.
4. The appellant argued that as a job worker, they did not own the goods and followed consistent accounting practices as per AS-2.
5. The appellant relied on tribunal decisions supporting their case.
6. The Tribunal favored the appellant, citing precedent cases where work in progress was not applicable in job work scenarios.
7. The Tribunal dismissed the Revenue's appeal and allowed the appellant's appeal, directing deletion of the addition.
Conclusion: The appeal against the addition of closing stock of work in progress was allowed in favor of the appellant.
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2010 (7) TMI 1062
TDS u/s 194C - disallowed subcontracts - disallowance u/s 40(a)(ia) - HELD THAT:- the disallowance sustained by the CIT (A) is not correct. Accordingly, we direct the AO to delete the same. In our considered view, the department should not take the advantage of the ignorance of the assessee while claiming some relief which the assessee is legally entitled. In Instant case, the assessee is legally entitled to claim the said deduction as per the proviso (A) to section 40 a (ia). Therefore, the ground raised by the assessee on this issue is allowed.
With regard to the disallowance of expenditure amounting to ₹ 4 lakhs made by the AO - HELD THAT:- We find that the lower authorities have made only a token disallowance out of the expenditure claimed by the assessee looking into the reasonableness of the expenditure. Even before us, the learned counsel for the assessee could not state any good reason why the assessee could not produce bills, vouchers etc., before the authorities below in support of his claim. Hence, we find no reason to interfere with the order of the lower authorities. In view of the above, we confirm the findings of the CIT (A) and reject the grounds raised by the assessee on this issue.
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2010 (7) TMI 1061
Reduction in Penalty - fraudulent availment of CENVAT credit - Held that: - 100% penalty has already been levied on the assessee wrongly claiming the benefit of Cenvat Credit, the view taken by Tribunal in reducing penalty in the case of the respondent cannot be said to be perverse so as to hold that a substantial question of law arises - appeal dismissed - decided against Revenue.
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2010 (7) TMI 1060
Claimed exemption u/s 10(23C)( iiiad) - notices u/s 148 issued for 3yrs - Assessee filed returns for the respective assessment years on 17-8-2004 declaring nil income - assessee is running two Schools in the name of Gagan Public School, one at Agra Road and other at Exhibition Road. Proceedings u/s 147 were initiated in all these three years as in the assessment year 2003-04 vide order dated 31-12-2004 the AO held that the Society is running the School for profit and not for charitable purposes.
Income-tax Rules 2BC prescribes the limit of ₹ 1 crore. It means that if the turnover is ₹ 1 crore or less, then the educational institution has not to be approved by prescribed authority. Otherwise, educational institution has to get approved by the prescribed authority. In the case of the assessee, in each of the assessment year the annual receipts as detailed above is less than ₹ 1 crore.
Therefore, in our opinion, the assessee is not required to get approved by any prescribed authority. It is not the case of the Revenue that the assessee has defaulted the proviso to section 10(23C). Merely this surplus has arisen to the assessee during the course of carrying on the education activity does not mean that the assessee is not existing for education purpose. Even no such evidence or material was brought on record which may prove that the assessee was engaged in any of the activities other than the education activities so that the assessee may be disentitled for the exemption under section 10(23C)(iiiad), rather the AO has accepted by allowing exemption to the assessee u/s 11 during the assessment year 2007-08 that the assessee is a genuine educational institution and the activities of the assessee are genuine and has been carried on as per the objects of the assessee.
We accordingly set aside the order of the AO and allow the exemption to the assessee u/s 10(23C)(iiiad). The aforesaid view is supported by the decision of the Allahabad High Court in the case of City Montessory School v. Union of India [2009 (5) TMI 41 - ALLAHABAD HIGH COURT] and that of Ewing Christian College Society v. Chief CIT [2009 (5) TMI 103 - ALLAHABAD HIGH COURT] and American Hotel & Lodging Association, Educational Institute v. CBDT[2008 (5) TMI 17 - SUPREME COURT].
In the result, all the three appeals are allowed.
Exemption u/s 11 & 12 - Granted registration u/s 12AA - HELD THAT:- By allowing the exemption to the assessee u/s 11 during the assessment year 2007-08, the AO has himself accepted that the assessee is a genuine education institution and the activities of the assessee are genuine and has been carried out as per the objects of the assessee. If the main object of the assessee is imparting of the education and during the course of imparting of the education, if some surplus has arisen to the assessee, it cannot be said that the assessees institution is not engaged for charitable purpose as defined under section 2(15). The Hon'ble Supreme Court in the case of Asstt. CIT v. Surat City Gymkhana [2008 (4) TMI 16 - SUPREME COURT] has held that once the trust is registered u/s 12A, it is a fait accompli and the AO cannot thereafter make a further probe into the objects of the trust. We accordingly set aside the order of the CIT(A) on this issue and hold that the assessee institution is engaged for charitable purpose. Once the assessee is engaged and is duly registered u/s 12AA, unless and until the assessee violates the terms and conditions as stipulated u/s 12 to 13 in our opinion, the assessee cannot be denied exemption u/s 11.
Issue relates to the donation - The assessee has donated a sum of ₹ 15,73,600 out of the current year income to Gagan Academic Society. The Society is also engaged in imparting education and is registered u/s 12A as pointed out by the ld. A.R. The donation so paid was not treated as an application of the income by the AO and confirmed by the CIT(A).
HELD THAT:- We have gone through the provisions of explanation to section 11(2). This explanation has been inserted by the Finance Act, 2002 by amending section 11(2). This explanation provides that the amount accumulated cannot be credited or paid to any other trust or institution registered under section 12AA or to any fund or institution or trust or any University or any other educational institution or any hospital or other medical institution referred to in section 10(23C), as any such credit or payment shall not be treated as application of income for charitable or religious purpose, either during the period of accumulation or thereafter. Any such credit or payment by the donor trust to another trust or institution shall be deemed to be the income of the donor trust in such year of credit or payment.
Since the 15 per cent accumulation u/s 11(1) is unconditional and need not be spent at all by the trust, the question of treating the same as income in case it is credited or paid to another trust (in the subsequent year) does not arise in any case, section 11(3) which beings with the words "income referred to in sub-section (2)", makes it explicitly clear that the restriction imposed by section 11(3)(d) applies only to income accumulated u/s11(2) and not to the current year's income or to the accumulation u/s 11(1).
Therefore, we set aside the order of CIT(A) on this issue and direct the AO to allow deduction to the assessee in respect of donation paid to Gagan Academic Society provided that the society is duly registered u/s 12AA as a charitable institution.
Interest income earned - loan advanced - We, therefore, set aside the order of CIT(A) and restore this issue to the AO with the direction that the AO shall verify from record of the concerned assessment year whether the assessee has received interest at the rate of 15 per cent from Smt. Urvashi Sharma or not. He is also further directed to verify whether the loan advanced by the assessee to Smt. Urvashi Sharma during the year do not exceed 5 per cent of the capital of Smt. Urvashi Sharma. In case amount invested by the assessee by way of loan to Smt. Urvashi Sharma do not exceed 5 per cent of the capital of Smt. Urvashi Sharma, the AO is directed to allow exemption to the assessee u/s 11.
Capital expenditure as an application of the income u/s 11 - We, therefore, restore this issue to the file of the AO with the direction that the AO should verify the quantum of the capital expenditure from the audited balance sheet and allow the application to the assessee u/s 11 to the extent the assessee has incurred the capital expenditure. The assessee is free in case he so chooses to submit consolidated balance sheet of both the educational institutions run by the assessee for the purpose of verification of the figures of the capital expenditure incurred by the assessee before the AO.
No other issue was argued or raised by either of the side before us rather the ld. A.R. contended that even if the disallowance of the expenses of ₹ 5,63,189 is confirmed, but the assessee is allowed statutory accumulation u/s 11 and the application u/s 11 in respect of the capital expenditure, the income of the assessee will be nil and accordingly the claim of the assessee in respect of ₹ 14,08,804 will merely be academic and the assessee therefore did not press the claim before us and accordingly we dismiss this claim of the assessee.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Whether the assessee is running an institution for charitable purposes, whether the assessee is entitled for statutory accumulation u/s 11(1)(a), whether the assessee is entitled for claim of application u/s 11 in respect of the capital expenditure or not - HELD THAT:- We have already held during the assessment year 2003-04 that the assessee is a charitable institution. We have already allowed deduction to the assessee at the rate of 15 per cent u/s 11(1)(a). We have also allowed capital expenditure as an application of the income u/s 11 but restored the issue relating to the capital expenditure for the purpose of verifying the figures as claimed by the assessee to the AO.
We have confirmed the disallowance of the expenses in the assessment year 2003-04 and restored the issue so far the advance to Smt. Urvashi Sharma is concerned to the file of the AO. Accordingly, we restore this issue for the assessment years 2004-05, 2005-06 and 2006-07 relating to the verification of the capital expenditure incurred by the assessee to the file of the AO with the direction that the AO shall allow exemption to the assessee u/s 11 in respect of the capital expenditure to the extent it is found that the assessee has incurred the capital expenditure.
In the result, the appeals filed by the assessee for assessment years 2000-01, 2001-02, 2002-03, are allowed while the appeals for the assessment years 2003-04 to 2006-07 are partly allowed for statistical purposes.
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2010 (7) TMI 1059
Issues involved: Rejection of application for registration u/s 12A of the Income Tax Act.
Summary:
The only issue raised in the present appeal is against the rejection of application for the grant of registration u/s 12A of the Income Tax Act. The assessee trust was created in 2002 and applied for registration in 2008. The CIT rejected the application citing various objections, including a vague dissolution clause, lack of evidence of charitable activities, and alleged profit-making motives. The applicant appealed against the CIT's decision.
The applicant argued that the Supplementary deed clarified the dissolution clause, all required documents were submitted, collaboration with M/s Fountainhead was for genuine charitable purposes, and books and toys were purchased for distribution to poor students. The applicant also cited legal precedents supporting their case.
After considering the submissions, the Tribunal found that the trust's activities, including purchasing land and constructing a school, were for charitable purposes. The Tribunal disagreed with the CIT's objections and allowed the appeal, remitting the issue back to the CIT for re-consideration in line with legal precedents. The Tribunal emphasized that assessing the quantum of activities is the Assessing Officer's domain, not the CIT's when granting registration u/s 12A. The appeal was allowed for statistical purposes.
In conclusion, the Tribunal ruled in favor of the applicant, allowing the appeal against the rejection of registration u/s 12A of the Income Tax Act.
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2010 (7) TMI 1058
Issues Involved:
The judgment involves the treatment of short-term capital gains on the sale of shares as business income, the intention of the assessee in holding the shares, and the applicability of provisions related to short-term capital assets.
Treatment of Short-Term Capital Gains:
The Assessing Officer treated the short-term capital gains (STCG) on the sale of shares as share trading income of the assessee, alleging that the intention was to claim long-term capital losses. However, the CIT(A) disagreed, stating that the STCG cannot be treated as business income solely based on the assessee's history of purchasing and selling shares. The CIT(A) emphasized the importance of assessing the real nature and intention of the transactions, supported by the entries in the books of accounts. The CIT(A) also highlighted past instances where the assessee's STCG claims were accepted by assessing officers for previous assessment years.
Assessee's Intention in Holding Shares:
The CIT(A) examined the intention of the assessee in holding the shares, noting that they were treated as investments in the books of accounts audited by the company's auditors. The CIT(A) emphasized that the Assessing Officer did not provide substantial evidence to refute the assessee's claim that the STCG represented its capital gains. The CIT(A) further highlighted that the company's total income mainly consisted of capital gains, and the investments did not align with typical share trading business transactions.
Applicability of Provisions Related to Short-Term Capital Assets:
The CIT(A) analyzed the nature of the investments, pointing out that they were held for a short period, indicating a short-term nature. The CIT(A) directed the Assessing Officer to treat a portion of the gains as short-term capital gains and the remaining balance as income from share trading business. The Tribunal upheld the CIT(A)'s decision, citing the past acceptance of the assessee's STCG claims by assessing officers in previous years, emphasizing the need for consistency in treatment when circumstances remain the same.
Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order regarding the treatment of short-term capital gains and the assessee's intention in holding the shares. The Tribunal relied on past precedents and the principle of consistency in treatment, as established by the Bombay High Court, to support its decision. The Tribunal found no infirmity in the CIT(A)'s order and upheld the treatment of the gains as directed.
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