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2010 (10) TMI 1078
The assessee filed a corrigendum application to rectify a typographical error in the Tribunal's order dated 30.11.2009. The error was in paragraph 2.6, where "exclude" was used instead of "include" for computing operating income. The Tribunal agreed with the assessee's contention and rectified the error. The application filed by the assessee was allowed. Decision pronounced on 20th October, 2010.
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2010 (10) TMI 1077
Transfer Price adjustment on total Income - HELD THAT:- the fact that the profit declared by the supplier, an associated enterprise, is only 2.1% in this year and, therefore, its sales to the assessee should be held to be at arm’s length because of low profitability. The alternative case of the ld. counsel is that raw-material supplied by the associated enterprise constitutes only 40% of the total raw-material consumed in this year and, therefore, any variation on account of transfer pricing can be made in respect of 40% of the turnover. Both these matters have not been considered by the lower authorities. Of course, the ld. counsel has not filed detailed accounts of the associated enterprise in order to ascertain whether its transactions are at arm’s length or its transactions or part thereof contain controlled transactions. The matter regarding applicability of adjustment to 40% of the total turnover is based upon the decision of the coordinate Bench in the case of Il Jin Electronics India (P) Ltd. [2009 (11) TMI 669 - ITAT DELHI], which is a precedent of binding nature. However, since both the matters require further verification of facts on the part of the AO, we accept the suggestion of the ld. counsel that the matter may be remanded to the AO for fresh adjudication in the matter keeping in view both these points.
Regarding operating profit to sales - HELD THAT:- The revenue has taken two substantive grounds in its appeal to the effect that the ld. CIT(A) erred in adopting the PLI as the ratio of operating profit to sales as against the ratio of operating profit to total cost adopted by the AO. It is also mentioned that he erred in reducing the amount of adjustments made by the AO to ₹ 4,62,43,567/-. this matter is also remanded to the AO for fresh adjudication with the further direction that both the parties will be at liberty to agitate the whole matter afresh and will be entitled to bring on record any fresh evidence, as thought fit.
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2010 (10) TMI 1076
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Addition of loans received from Deepakbhai A. Nanavati-HUF and Amratlal N. Nanavati-HUF as unexplained cash credits.
3. Addition of advance received from M/s Jay Builders as unexplained cash credits.
4. Setting aside the original assessment and directing a de novo assessment.
Detailed Analysis:
1. Jurisdiction under Section 263 of the Income Tax Act:
The primary issue was whether the Commissioner of Income Tax (CIT) was justified in assuming jurisdiction under Section 263 of the Income Tax Act. The CIT found that the assessment order dated 25th February 2004 was erroneous and prejudicial to the interests of the Revenue because the Assessing Officer (AO) had accepted the loans and advance without proper verification. The CIT issued a show-cause notice and, after considering the assessee's submissions, concluded that the AO had not made adequate inquiries or properly evaluated the evidence.
The tribunal noted that the power of the CIT under Section 263 is supervisory and can only be invoked if the order is both erroneous and prejudicial to the interests of the Revenue. The tribunal cited several precedents, including Malabar Industrial Co. Ltd. v. CIT, where it was held that an order cannot be deemed erroneous unless it is not in accordance with the law. The tribunal emphasized that the CIT cannot assume jurisdiction merely because they disagree with the AO's conclusion if the AO has made inquiries and applied their mind to the facts.
2. Addition of Loans from Deepakbhai A. Nanavati-HUF and Amratlal N. Nanavati-HUF:
The CIT added the loans of Rs. 3,00,000 and Rs. 3,10,000 received from Deepakbhai A. Nanavati-HUF and Amratlal N. Nanavati-HUF, respectively, as unexplained cash credits. The CIT found discrepancies in the bills and transactions provided as evidence for the loans, suggesting they were not genuine. The tribunal, however, found that the AO had accepted the loans based on confirmations, PAN details, and bank statements provided by the assessee. The tribunal held that the AO had made inquiries and was satisfied with the genuineness of the loans, and a different view by the CIT did not justify the invocation of Section 263.
3. Addition of Advance from M/s Jay Builders:
The CIT set aside the addition of Rs. 3,00,000 received as an advance from M/s Jay Builders, directing the AO to re-examine the issue. The CIT found inconsistencies in the dates and amounts of the transactions. However, the tribunal noted that the AO had accepted the advance based on confirmations and details provided by the assessee. The tribunal held that the AO had made inquiries and applied their mind, and a mere difference in opinion by the CIT did not warrant the exercise of revisional jurisdiction under Section 263.
4. Setting Aside the Original Assessment:
The CIT directed the AO to frame a de novo assessment, citing inadequate inquiries and improper evaluation of evidence by the AO. The tribunal, however, found that the AO had conducted inquiries and was satisfied with the explanations and evidence provided by the assessee. The tribunal emphasized that the CIT cannot assume jurisdiction under Section 263 merely because they would have reached a different conclusion based on the same evidence.
Conclusion:
The tribunal concluded that the CIT wrongly assumed jurisdiction under Section 263 of the Income Tax Act. The AO had made inquiries and was satisfied with the genuineness of the loans and advance based on the evidence provided by the assessee. The tribunal set aside the impugned order under Section 263 and quashed the same, allowing the appeal in favor of the assessee. Consequently, other grounds raised in the appeal did not require adjudication.
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2010 (10) TMI 1075
Issues Involved:
1. Whether the assessee carried on any business activity.
2. Disallowance of interest claim by invoking provisions of section 14A of the Act.
3. Enhancement of disallowance amount u/s 37(1) of the Act.
4. Disallowance of legal and professional fees expenses.
5. Disallowance of miscellaneous expenses.
6. Disallowance of general and administrative expenses.
Summary:
Issue 1: Business Activity
The primary issue was whether the assessee carried on any business activity. The CIT(A) observed that the assessee did not carry on any business activity. However, the assessee contended that it was engaged in the business of investment in shares and securities, including strategic investments, and had procured a strategic controlling stake in Tata Infomedia Ltd. The Tribunal held that the nature of the assessee's activity of investment in shares is a business activity, referencing the statutory definition of 'business' u/s 2(13) and relevant case law, including CIT Vs. Amalgamations (P.) Ltd. 108 ITR 895 (Mad) affirmed by the Supreme Court in 226 ITR (SC).
Issue 2: Disallowance of Interest Claim u/s 14A
The AO disallowed interest paid on borrowed capital, invoking section 14A, as the borrowed capital was used for investing in securities to earn dividend income, which is not part of total income. The CIT(A) enhanced this disallowance applying Rule 8D of the Income Tax Rules. The Tribunal directed the AO to re-examine this issue in light of the jurisdictional High Court's judgment in Godrej Boyce & Co. Ltd., 43 DTR 177.
Issue 3: Enhancement of Disallowance u/s 37(1)
Ground No. 1 involved the enhancement of disallowance amount u/s 37(1) of the Act, which was allowed by the AO as general and administrative expenses. The Tribunal's finding that the assessee's investment activity is a business activity implies that such expenses are allowable in accordance with law.
Issue 4: Disallowance of Legal and Professional Fees
The AO disallowed legal and professional charges of Rs. 31,73,200/- on the ground that the expenditure was not incurred for business purposes. The Tribunal remitted this issue back to the AO to examine the allowability of expenditure, considering the finding that the assessee's activity is a business activity.
Issue 5: Disallowance of Miscellaneous Expenses
The AO disallowed miscellaneous expenses of Rs. 3,50,424/- on similar grounds. The Tribunal directed the AO to re-examine these expenses in light of the finding that the assessee's investment activity is a business activity.
Issue 6: Disallowance of General and Administrative Expenses
Ground No. 8 involved the disallowance of general and administrative expenses. The Tribunal remitted this issue back to the AO to decide afresh, considering the finding that the assessee's activity is a business activity.
Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the issues afresh, providing the assessee an opportunity of hearing, and decide in accordance with the law. The appeal was pronounced in the open court on the 27th day of 2010.
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2010 (10) TMI 1074
Issues Involved:
1. Waiver of pre-deposit and stay of recovery.
2. Negation of natural justice by the adjudicating authority.
3. Non-supply of documents.
4. Denial of cross-examination.
5. Non-supply of original documents.
6. Non-consideration of submissions and documents.
7. Joint and several liability.
Summary:
1. Waiver of Pre-deposit and Stay of Recovery:
The appellants sought waiver of pre-deposit and stay of recovery concerning duty and penalty amounts. The Commissioner of Customs fixed "joint and several liability" on Vision Inc, R.A. Overseas, and other exporters for the recovery of drawback amounts and imposed penalties u/s 114 of the Customs Act.
2. Negation of Natural Justice:
The appellants argued that the adjudicating authority violated natural justice. The Tribunal concluded that the case required remand to the adjudicating authority due to these violations.
3. Non-supply of Documents:
The appellants contended that crucial documents, both relied upon and non-relied upon, were not supplied by the adjudicating authority, hindering their ability to contest the allegations effectively. The Tribunal found merit in this argument, noting that some relied-upon documents were not supplied, and many non-relied-upon documents were crucial for the appellants' defense.
4. Denial of Cross-examination:
The appellants were denied the opportunity to cross-examine key witnesses whose statements were relied upon in the show-cause notice. The Tribunal found that the Commissioner should have provided another reasonable opportunity for cross-examination, as the denial amounted to a negation of natural justice.
5. Non-supply of Original Documents:
The show-cause notice relied on copies of import documents from Dubai Customs. The appellants argued that they should have been given the original documents or allowed to inspect them. The Tribunal agreed that denying this opportunity was a violation of natural justice.
6. Non-consideration of Submissions and Documents:
The appellants' submissions and documents were not considered by the adjudicating authority. The Tribunal found that the Commissioner ignored crucial documents and submissions, leading to a pre-determined conclusion without independent application of mind.
7. Joint and Several Liability:
The adjudicating authority held Vision, RAO, and other exporters "jointly and severally liable" for the entire drawback amount. The Tribunal found no legal provision for such recovery and directed the Commissioner to fix individual duty liability based on individual drawback claims.
Conclusion:
The Tribunal set aside the impugned order due to gross negation of natural justice and non-application of mind. The case was remanded to the adjudicating authority with specific directions to ensure compliance with principles of natural justice, including the return of non-relied-upon documents, supply of relied-upon documents, allowing cross-examination, and considering all documentary evidence and submissions. The Commissioner was directed to pass a speaking order on all issues within six months, without ordering joint and several recovery or imposing separate penalties on a proprietorship and its proprietor.
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2010 (10) TMI 1073
Issues involved:
1. Depreciation claimed on a bridge constructed under BOT scheme.
2. Disallowance under S.43B of the Act regarding employees' contribution to Provident Fund.
Depreciation on bridge under BOT scheme:
The Revenue's appeals were against the CIT(A) orders for assessment years 2003-04 to 2006-07 regarding depreciation claimed by the assessee on a bridge constructed under BOT scheme approved by the Government of Andhra Pradesh. The CIT(A) allowed the depreciation based on an agreement with the government and a previous Tribunal decision. The Tribunal found that the issue was settled in favor of the assessee by a previous Tribunal decision and upheld the CIT(A) orders, dismissing the Revenue's appeals.
Disallowance under S.43B - PF Contribution:
For assessment years 2004-05 to 2007-08, the issue was the disallowance made by the Assessing Officer under S.43B regarding employees' contribution to Provident Fund. The CIT(A) deleted the disallowance based on precedents including a decision of the Karnataka High Court. The Tribunal found that the issue of deduction for PF contributions made before the due date for filing the return under S.139(1) was settled in favor of the assessee by previous decisions. Consequently, the Tribunal upheld the CIT(A) orders, dismissing the Revenue's appeals.
In conclusion, the Appellate Tribunal ITAT Hyderabad upheld the CIT(A) orders in both issues, dismissing all four appeals of the Revenue.
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2010 (10) TMI 1072
Disallowance u/s 014A - interest expenditure - Penalty proceedings - the revenue is in appeal before us. the sum and substance of which is that the ld. CIT(A) erred in deleting the penalty of ₹ 39,27,965/- by holding that the matter is debatable and it involves difference in opinion.
HELD THAT:- The facts of the case are that the assessee claimed payment of bank interest and charges. Certain other expenses were also claimed. Besides interest income, the assessee earned dividend income on investment in shares. The dividend income was not liable to be taxed in view of the provisions contained in section 10(34) of the Act. The AO was of the view that the net interest of ₹ 95,63,346/-, demat charges of ₹ 60/- and proportionate expenses amounting to ₹ 11,70941/- were not deductible in computing the total income by dint of the provision contained in section 14A, as such expenses related to earning of tax-free income. .On careful consideration of various cases relied upon by the assessee, it is found that three major propositions arise therefrom –(a) penalty proceedings are quasi-criminal in nature and, therefore, it is for the revenue to establish contumacious conduct on the part of the assessee; (b) if all facts in respect of a claim have been furnished fully and correctly and no falsity is found therein, then, the claim made on the basis of such facts does not lead to inference of concealment of income and (c) the penalty is not leviable when there is honest difference of opinion between the assessee and the authorities in respect of admissibility of a claim. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the AO that there was any collusion between the auditor and the assessee to enhance the loss in the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide.
However, it is also a fact that such segregation is beset with lot of problems as the issue has finally been laid to rest by introduction of Rule 8D in the Income-tax Rules in the year 2008. The assessee did not have benefit of this rule when it filed the return of income. Therefore, even in absence of any attempt on the part of the assessee, it can be said that questions of disallowance and its quantification are quite disputable and can lead to bona fide difference in opinion between the assessee and the authorities. In such a situation, the levy of penalty will not be justified.
In the result, the appeal is dismissed.
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2010 (10) TMI 1071
Issues Involved:
1. Justification of penalty cancellation u/s 271(1)(c) by CIT (A).
2. Entitlement for immunity under Explanation 5 to section 271(1)(c).
3. Addition u/s 68 and its impact on penalty.
Summary:
1. Justification of Penalty Cancellation u/s 271(1)(c) by CIT (A):
The primary issue was whether the CIT (A) was justified in canceling the penalty levied by the A.O. u/s 271(1)(c) on the undisclosed income declared by the assessee following a search and seizure operation u/s 132. The assessee argued that the declaration was made to avoid litigation and under the understanding that no penalty would be levied. However, the A.O. did not accept this explanation, stating that the undisclosed income would not have been detected without the search action.
2. Entitlement for Immunity under Explanation 5 to Section 271(1)(c):
The assessee claimed immunity from penalty under Explanation 5 to section 271(1)(c), arguing that the income was declared during the search and taxes were paid. The CIT (A) accepted this plea, citing precedents such as CIT vs. S.D.V. Chandru and CIT vs. Kanhaiyalal. However, the Tribunal referred to the decision in ACIT vs. Kirit Dahyabhia Patel, which held that immunity under Explanation 5(2) is confined to returns for the year in which the previous year is yet to end or the time for filing the return u/s 139(1) is yet to expire. Since the due dates for filing returns for the relevant assessment years had already expired, the Tribunal concluded that the assessee was not entitled to immunity.
3. Addition u/s 68 and Its Impact on Penalty:
For A.Y. 2001-02, the A.O. also made an addition u/s 68 for unexplained cash credits. The CIT (A) confirmed the penalty for this addition, as the assessee could not provide confirmations for the loans. The Tribunal upheld this decision, noting that the assessee admitted the undisclosed income in the bank account during the search and did not deny ownership of the account in the statement recorded u/s 132(4).
Conclusion:
The Tribunal reversed the CIT (A)'s order and restored the A.O.'s penalty orders, concluding that the assessee had concealed income and was not entitled to immunity under Explanation 5 to section 271(1)(c). The appeals of the Revenue for the assessment years 2001-02 to 2004-05 were allowed.
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2010 (10) TMI 1070
Issues involved: Declaration sought regarding amalgamation of two research centers, application for withdrawal of suit, opposition by contesting defendants, interpretation of Order 23 Rule 1 of CPC.
Issue 1: Declaration sought regarding amalgamation
The suit sought a declaration that there was no amalgamation of two research centers and alternatively, that the amalgamation was void and bad in law.
Issue 2: Application for withdrawal of suit
Plaintiffs applied to withdraw the suit and pending applications citing a settlement agreement with defendants No. 2 and 9, stating no grievance remained to proceed with the suit.
Issue 3: Opposition by contesting defendants
Contesting defendants opposed the application for withdrawal, arguing that serious allegations were made in the suit and plaintiffs should withdraw the allegations and tender a public apology before being allowed to withdraw the suit.
Issue 4: Interpretation of Order 23 Rule 1 of CPC
Plaintiffs relied on Order 23 Rule 1 of CPC for the unconditional withdrawal of the suit, citing the Apex Court's decision in "M/S Hulas Rai Baij Nath vs. Firm K.B. Bass and Co." to support their position.
The Court allowed the application for withdrawal of the suit and pending applications, emphasizing the unqualified right of a plaintiff to withdraw under Order 23 Rule 1 of CPC. The Court noted that no counterclaim was filed by the defendants and no application was made to vacate the interim order of status quo, which became inconsequential after the amalgamation. The Court held that no reply to the application was necessary as the plaintiffs sought unconditional withdrawal of the suit.
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2010 (10) TMI 1069
Issues involved: Appeal against disallowance of wages paid to weavers and tailors, Disallowance of depreciation on building.
Dispute 1 - Disallowance of wages paid to weavers and tailors:
The assessee, engaged in textile business, claimed tailoring and packing expenses. The AO made an adhoc disallowance of 2% of the claim, amounting to Rs. 1,01,415, stating some vouchers were defective. The CIT(A) upheld this disallowance, but the ITAT Chennai found in favor of the assessee. The ITAT noted that the vouchers clearly indicated the nature of payments made, and without specific defects being pointed out, an adhoc disallowance was not justified. The disallowance was deleted, and ground No.2 of the assessee was allowed.
Dispute 2 - Disallowance of depreciation on building:
The assessee claimed depreciation on civil work and electrical fittings associated with a windmill project. The AO disallowed Rs. 26 lakhs of the claim, stating these items did not qualify for higher depreciation rates applicable to windmills. The CIT(A) agreed with the AO, but the ITAT Chennai disagreed. The ITAT held that the civil work and electrical fittings were integral parts of the windmill and satisfied the functional test. Citing precedents, the ITAT concluded that the claim of the assessee should not have been disallowed. The disallowance was cancelled, and ground No.3 of the assessee was allowed.
Conclusion:
The ITAT Chennai allowed the appeal of the assessee in both disputes, cancelling the disallowances made by the lower authorities.
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2010 (10) TMI 1068
Disallowance u/s 14A - expenditure incurred for earning the tax free income - In present case, The assessees are all Scheduled Banks engaged in the banking business and in the course of banking business they are also engaged in the business of investment in bonds, securities and in shares which earn the assessees interest from such securities and bonds and also dividend on investments in shares of companies and from units of U.T.I. etc., which are tax free. Section 14A was introduced to the Income-tax Act by Finance Act, 2001 with retrospective effect from 1-4-1962. This provision provide for disallowance of expenditure incurred by the assessee in relation to income which does not form part of the total income.
HELD THAT:- Since we find that the rational adopted by the AO to estimate the expenditure for the purpose of disallowance u/s 14A is not tenable, we feel the matter should be restored to the AO for making disallowance u/s 14A by reasonably estimating as nearly as possible the expenditure incurred for earning the tax free income. This should be done after giving opportunity to the assessee-Banks to suggest their own formula with reference to accounts for the purpose of arriving at the actual amount or near actual amount. The disallowance on estimated basis has to be done as above until rule 8D was framed and thereafter it is for the AO to make disallowance by following sub-section (2) of section 14A and rule 8D of the Income-tax Rules.
Regard to disallowance of administrative expenditure - HELD THAT:- considering the fact that there is no precise formula for proportionate disallowance, no disallowance is called for, for proportionate administrative cost attributable to earning of tax free income until rule 8D came into force. We, therefore, dispose of the appeals by setting aside the orders of the Tribunal and that of the first appellate authority on this issue and remand all the assessments back to the AO for reworking disallowance u/s 14A in the case of each assessee for each assessment year. The proportionate disallowance u/s 14A should be limited to only interest liability and not overheads or administrative expenditure; which should be considered for disallowance under rule 8D from 2007-08 onwards.
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2010 (10) TMI 1067
Issues involved: The judgment deals with penalty levied u/s 271(1)(c) of the Income-tax Act, relating to assessment year 2004-05, against three different assessees challenging the jurisdiction of the Assessing Officer to levy the penalty.
Issue 1 - Jurisdiction of Assessing Officer:
The appeals raised the issue of the penalty imposed u/s 271(1)(c) being time-barred in view of the proviso to section 275(1)(a) of the Act, which was considered fundamental to the matter at hand.
The CIT(A) dismissed the appeal of the assessee, upholding that the Assessing Officer had initiated the penalty proceedings within the prescribed time limit as per section 275 of the Act. The CIT(A) relied on the judgment of the Hon'ble Madras High Court in Rayala Corporation Pvt. Ltd. Vs. UOI (161 Taxman 127) to support the decision. The assessee appealed against this order.
Issue 2 - Time Limit for Imposing Penalty:
The time limit for imposing penalty under Chapter XXI is governed by section 275 of the Act. Subsection 1(a) specifies that the penalty order cannot be passed after the expiry of the financial year in which the proceedings for penalty were initiated or six months from the receipt of the order by the Chief Commissioner or Commissioner, whichever is later. The proviso to section 275(1)(a) states that if the CIT(A) passes an order after June 1, 2003, the penalty order must be passed within one year from the receipt of the CIT(A)'s order.
In this case, the order of the CIT(A) was passed on December 19, 2007, and received on December 20, 2007. The penalty proceedings were time-barred on March 31, 2009, as per the proviso to section 275(1)(a). The penalty order passed on September 25, 2009, was beyond the statutory limitation, leading to the decision to delete the penalty.
Separate Judgment:
The Tribunal directed the Assessing Officer to delete the penalty levied u/s 271(1)(c) of the Act in all three appeals (ITA Nos. 694 to 696/Chd/2010) as they were time-barred. The merits of the penalty levy were not addressed due to the time-bar issue.
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2010 (10) TMI 1066
Issues Involved:
1. Whether the amount of Rs. 2,00,000 claimed as gifts by the assessee should be considered as income from undisclosed sources.
2. Whether the assessment process adhered to the principles of natural justice.
3. Validity of the assessment order and the application of mind by the Assessing Officer (AO).
Issue-Wise Detailed Analysis:
1. Whether the amount of Rs. 2,00,000 claimed as gifts by the assessee should be considered as income from undisclosed sources:
Majority View (Learned Judicial Member and Third Member):
- The assessee received Rs. 1,00,000 each from Smt. Manisha Devi Jain and Shri Anil Kumar Jajodia.
- The assessee provided evidence including PAN, balance sheets, income-expenditure statements, and gift deeds to substantiate the gifts.
- Smt. Manisha Devi Jain appeared before the AO but was not examined. She later confirmed the gift via a letter.
- No notice under section 131 was issued to Shri Anil Kumar Jajodia due to an incomplete address, despite the AO having access to his tax details.
- The AO failed to pursue further verification of the donors' capacity and the genuineness of the gifts.
- The Tribunal relied on precedents such as CIT vs. Shree Gopal & Co., Nemi Chand Kothari vs. CIT, and Orissa Corporation (P) Ltd., emphasizing that it is not necessary for the assessee to prove the source of the source.
- The gifts were considered genuine and the addition of Rs. 2,00,000 was deleted.
Dissenting View (Learned Accountant Member):
- The AO and CIT(A) found the gifts to be non-genuine, citing reasons such as the donors' lack of substantial income and high cash in hand.
- The AO observed that the gifts were received in cash and the deposits were made just before the gifts.
- The CIT(A) held that mere filing of PAN and returns below taxable limits does not prove the capacity to gift.
- The learned AM emphasized the need to prove the identity, capacity of the donor, and genuineness of the transaction, which he found lacking.
- The learned AM upheld the addition of Rs. 2,00,000 as the assessee failed to prove the genuineness of the gifts.
2. Whether the assessment process adhered to the principles of natural justice:
- The AO issued notices under sections 143(2) and 142(1) and served them to the assessee.
- The Tribunal found no violation of principles of natural justice as the assessment was completed after hearing the assessee.
- The ground alleging violation of natural justice was rejected.
3. Validity of the assessment order and the application of mind by the Assessing Officer (AO):
- The AO's assessment order dated 31st March 1995 included an addition of Rs. 2,00,000 as undisclosed income without specifying the section under which the income was treated.
- The Tribunal noted a lack of application of mind and a casual approach by the AO in making the addition.
- The Tribunal criticized the AO for not examining Smt. Manisha Devi Jain and not issuing a notice to Shri Anil Kumar Jajodia.
- The Tribunal concluded that the AO's non-application of a judicious mind and unilateral attitude did not justify the addition.
Conclusion:
- The majority view, supported by the learned Judicial Member and the Third Member, concluded that the gifts were genuine and the addition of Rs. 2,00,000 was deleted.
- The appeal of the assessee was partly allowed, with the Tribunal's decision reflecting the majority view on the genuineness of the gifts and the procedural adherence to natural justice.
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2010 (10) TMI 1065
Disallowance u/s 40A(2)(b) - HELD THAT:- In the present case, the AO has made no effort to demonstrate as to what would be fair market value of services and proceeded to disallow the same on ad hoc basis as overall percentage of expenditure incurred. The disallowance in the present case is thus based on quantum of expenditure incurred rather than the fair market value of services for which expenditure is incurred. As regards the basis of allocation, we have noted that costs have been allocated to the assessee-company on the basis of turnover, and it cannot, therefore, be said that allocation of expenses are devoid of any basis. It is essential to bear in mind that the fact the company to which the payment has been made is a parent company of the assessee and commercial realities do not dictate rigidity a in such approach in intra group dealings. The disallowance u/s 040A(2)(b) can come into play when the payment is excessive or unreasonable and the foundation of disallowance thus must rest on categorical findings that the payments for services is indeed excessive or unreasonable vis-a-vis fair market value of the services in the case before us. Therefore, we are of the considered view that the impugned disallowance was indeed uncalled for on the facts of this case. In this view of the matter, we uphold the grievance of the assessee. The grievance of the AO, which is only against the quantum of disallowance, is thus rendered academic and is only fit to be dismissed summarily.
Regarding disallowance of ₹ 20 lakhs paid to its holding company towards professional and consultancy charges - HELD THAT:- While there is no finding about the fair market value of these services, all the relevant details are not on record as well. No evidence of actual third party expenditure are placed on record before us either. In these circumstances, and having taken note of learned counsel’s agreeing to file requisite details before the AO, if need be, we deem it fit and proper to remit the matter to the file of the AO for adjudication de novo after assessee’s furnishing specific particulars and complete details about the professional and consultancy charges paid to third party for sharing common supporting staff. The AO will examine the issue afresh and pass necessary orders after hearing the assessee. Grounds of appeals raised by both the parties are thus allowed for statistical purposes.
Regarding, disallowance in principle but restricted the same to 20 per cent of the royalty paid - HELD THAT:- In the present case, learned Departmental Representative does not dispute that both the companies i.e., the assessee and parent companies are taxed at the same rate and have sufficient taxable profits. This is also so stated by the assessee in the statement of facts, which have not been controverted before us. The disallowance u/s 040A(2)(b) can come into play when the payment is excessive or unreasonable and the foundation of disallowance thus must rest on categorical findings that the payments for services is indeed excessive or unreasonable vis-a-vis fair market value of the services in the case before us. we are of the considered view that the impugned disallowance was indeed uncalled for on the facts of this case. In this view of the matter, we uphold the grievance of the assessee. The grievance of the AO, which is only against the quantum of disallowance, is thus rendered academic and is only fit to be dismissed summarily.
Regarding, granting relief of ₹ 5,00,000 on account of travelling and conveyance expenses - HELD THAT:- The amount of ₹ 5,00,000 as reversal of the entry is reflected as opening adjustments in the travel and conveyance account. We thus see no infirmity in the approach adopted by the CIT(A). We, therefore, confirm the order of the CIT(A) on this issue and decline to interfere in the matter.
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2010 (10) TMI 1064
Undisclosed investment in a property - assessee failed to produce his books of accounts to substantiate otherwise - fact came to knowledge of the Revenue due to AIR information - CIT-A deleted the addition - HELD THAT:- On the close perusal of the Ld.CIT(A)’s order it is observed that the appellant had explained that the Investment was not projected as an Asset in the Balance sheet but was shown as the expenditure forming part of cost of construction of the project since the appellant is a builder. The ld. CIT(A) had also examined the payments met out of Indian Bank current account and verified the schedule of cash and bank balances.
The ld.CIT(A)’s order mainly held that the investment made by the appellant for the purpose of residential complex has not been reflected under Fixed Assets in the financial statements. In this connection, the addition without any evidence or material on record cannot be sustained and upheld. The AO has no cogent reason to disallow the said expenditure when the payment was made through appellant’s bank account and the expenses are accounted in the books of accounts. In view of this, I am of the considered opinion that the disallowance made by the AO is not justified and the same has to be deleted.
The arguments put forth by the ld. AR and the Ld.DR, are quit contrary to the facts observed by the ld.CIT(A) in his order - In these circumstances, the matter may be remitted back to the file of the ld.AO for de novo consideration with respect to the loan issue of purchase of property in Peenya. In the event the assessee claims that he has not purchased the property, as revealed in the AIR, before the ld.AO, then, it would be proper for the ld.AO to obtain the Sale Deed from the Sub Registrar’s office to prove the revenue’s claim. Assessment order based only on the AIR report will not stand in the eye of law.
The appeal of the revenue and the cross-objections of the assessee are allowed for statistical purposes.
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2010 (10) TMI 1063
Issues involved: Disallowance u/s 14A of the Income-tax Act and application of Rule 8D, Disallowance u/s 43B of the Income-tax Act for unpaid bonus.
Dispute related to disallowance u/s 14A:
The dispute in the departmental appeal and the assessee's cross objection pertains to the disallowance made u/s 14A of the Income-tax Act, with the Assessing Officer applying the provisions of Rule 8D of the Income-tax Rules, 1962. The CIT (Appeals) noted that the provisions of Rule 8D were to be retrospectively applied as per the decision in the case of Daga Capital Management by the Special Bench, ITAT, Mumbai. The AO's rejection of the appellant's explanation and computation of disallowance under Rule 8D indicated his dissatisfaction with the claim of expenditure relatable to exempt income. The CIT (Appeals) upheld the disallowance as per Rule 8D, emphasizing the need for proper computation. The AR's contention that Rule 8D should only apply to the treasury division for computation was accepted, resulting in a reduced disallowance amount. The Bombay High Court's decision clarified that Rule 8D is not retrospective and directed the AO to frame disallowance u/s 14A accordingly.
Dispute related to disallowance u/s 43B:
The AO disallowed &8377; 4,49,365 under Section 43B of the Income-tax Act for unpaid bonus based on tax audit reports. However, certificates from different Chartered Accountants indicated that the bonuses were paid on specific dates. The CIT (Appeals) considered the payment certificates and deleted the disallowance. The Tribunal directed the assessee to provide actual proof of payment to the AO for verification and decision in accordance with the law.
Conclusion:
The Tribunal pronounced the decision on 08.10.2010, allowing the assessee's cross objection and partly allowing the revenue's appeal concerning the disallowances u/s 14A and u/s 43B of the Income-tax Act.
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2010 (10) TMI 1062
Issues Involved: Appeal filed by Revenue challenging deletion of gross profit addition and disallowance of plumbing service expenses.
Gross Profit Addition Issue:
The Revenue contended that the CIT(A) erred in law and on facts in deleting the gross profit addition made. The AO calculated an addition based on a higher GP rate compared to what the assessee firm had shown. The CIT(A) deleted the addition stating that the AO did not invoke section 145(3) or reject the books of account. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO cannot estimate profits without rejecting the books of accounts, as supported by various court decisions. Since the AO did not provide any grounds for rejecting the books u/s 145(3), the Tribunal upheld the CIT(A)'s decision to delete the addition.
Plumbing Service Expenses Issue:
Regarding the disallowance of plumbing service expenses, it was argued that if the books of accounts are not rejected, then any disallowance cannot be made. The Tribunal upheld the argument that the plumbing services were provided during the warranty period as part of a contractual obligation, and thus, the expenses were justified. Consequently, the Tribunal dismissed the Revenue's appeal on this ground as well.
In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the gross profit addition and disallowance of plumbing service expenses.
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2010 (10) TMI 1061
Cash Refund - shifting of unit of assessee, where he was exempt from paying Central Excise - Held that:- The unit of the respondent-assessee originally located at Delhi has been shifted to Baddi where it is very much functioning. However, in that area, the assessee was exempt from paying central excise. In these circumstances, no useful purpose would have been served in crediting the amount in the CENVAT account - cash refund to be allowed.
Interest on delayed refund - Held that:- Interest definitely accrued to the respondent, as the refund was made belatedly under Section 11BB of CEA 1944, which stands attracted - interest allowed.
Appeal dismissed - decided against Revenue.
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2010 (10) TMI 1060
Issues involved: Appeal by Revenue against order of ld. CIT(Appeals) u/s. 143(3) of the I.T. Act for A.Y. 2004-05, focusing on granting exemption u/s. 54 of the I.T. Act on property investment made in the name of a member of the HUF.
Summary:
1. The Revenue appealed against the order of ld. CIT(Appeals) regarding exemption u/s. 54 of the I.T. Act on property investment in the name of a HUF member.
2. The assessee-HUF declared income for A.Y. 2004-05, with scrutiny revealing sale of a property by the HUF's Karta and subsequent purchase in the name of his wife.
3. Ld. AO insisted that for exemption u/s. 54, the property should be in the name of the assessee as Karta, citing relevant case law.
4. Ld. CIT(Appeals) noted property details, rent, and tax payments by the HUF, concluding that denial of exemption was incorrect based on differing facts from the cited case.
5. Ld. DR supported ld. AO's decision, citing similarity in facts with the case law, while Ld. AR argued for exemption based on HUF property ownership principles.
6. Tribunal explained HUF property ownership under Hindu Law, recognizing the joint ownership by all members, leading to upholding ld. CIT(Appeals) decision on exemption.
This judgment clarifies the eligibility for exemption u/s. 54 of the I.T. Act concerning property investments made in the name of HUF members, emphasizing the collective ownership nature of HUF property and the distinct status of HUF for tax purposes.
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2010 (10) TMI 1059
Whether the Division Bench of Calcutta High Court erred in declining to entertain the appeal filed by the appellant under Section 11(1)(f) of the West Bengal Premises Requisition and Control Act, 1947 (for short, `the Act') against award dated 1.1.2003 passed by the Arbitrator under Section 11(1)(e)?
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