|
Advanced Search Options
Case Laws
Showing 181 to 200 of 858 Records
-
2010 (3) TMI 1111
Issues Involved:
1. Deletion of addition on account of disallowance of pre-operative interest expenses.
2. Inclusion of pre-operative interest expenses and prior period expenses while computing book profit u/s 115JB.
3. Deletion of interest charged u/s 234B and 234C.
Summary:
Issue 1: Deletion of Addition on Account of Disallowance of Pre-operative Interest Expenses
The Tribunal upheld the deletion of the disallowance of Rs. 2,19,92,647/- on account of pre-operative interest expenses, which had been capitalized in the books and claimed as revenue expenses. The Tribunal followed its own earlier decisions in the assessee's case for Assessment Years 2000-01, 2001-02, and 2002-03, where similar disallowances were deleted based on the decision of the Hon'ble Gujarat High Court in CIT vs. Core Health Care Limited 251 ITR 61 (Guj.). The proviso to section 36(1)(iii) inserted by the Finance Act, 2003, w.e.f. 01/04/2004, was held not applicable for the Assessment Year 2003-04. Thus, the Tribunal rejected the Revenue's ground.
Issue 2: Inclusion of Pre-operative Interest Expenses and Prior Period Expenses While Computing Book Profit u/s 115JB
The Tribunal upheld the CIT(A)'s direction to the Assessing Officer not to include pre-operative interest expenses and prior period expenses while computing book profit u/s 115JB. The Tribunal referred to its earlier decisions and the Hon'ble Supreme Court's ruling in Apollo Tyres Limited 255 ITR 273 (SC), which restricts the Assessing Officer from altering the net profit shown in the P&L account except as provided in the Explanation to section 115J. The Tribunal found no infirmity in the CIT(A)'s order and rejected the Revenue's ground.
Issue 3: Deletion of Interest Charged u/s 234B and 234C
The Tribunal examined the CIT(A)'s directions regarding the deletion of interest charged u/s 234B and 234C. The CIT(A) had directed the Assessing Officer to delete the interest if the assessee was not liable for taxation under normal provisions, following the decision of the Hon'ble Karnataka High Court in 243 ITR 519 (Karn). However, the Tribunal noted that in the assessee's own case for earlier years, it was held that interest u/s 234B and 234C is leviable when income is computed u/s 115JA. The Tribunal held that interest u/s 234B and 234C is mandatory and compensatory, not penal, and directed the Assessing Officer to rework the interest chargeable after giving effect to the order. This ground of appeal was partly allowed.
Conclusion:
The appeal of the Revenue was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on issues 1 and 2, and modifying the decision on issue 3 regarding the levy of interest u/s 234B and 234C. The order was signed, dated, and pronounced in the Court on 31/03/2010.
-
2010 (3) TMI 1110
Issues Involved:
1. Deletion of addition of Rs. 3.95 crores being interest on share application money (SAM).
2. Deletion of prior period expenditure of Rs. 1.49 crores while computing book profit u/s 115JB of the Income Tax Act.
Issue 1: Deletion of Addition of Rs. 3.95 Crores Being Interest on Share Application Money
The assessee company had debited Rs. 395.87 lakhs as interest on SAM pending allotment of preference shares. The Assessing Officer (AO) disallowed this interest, arguing that SAM is not a borrowed amount and does not create a debtor-creditor relationship. The AO cited various legal precedents to support the view that interest on SAM should be treated as capital expenditure and not allowable under sections 36(1)(iii) or 37(1) of the Income Tax Act.
The CIT(A) reversed the AO's decision, accepting the assessee's argument that SAM should be treated as a borrowing until the allotment of shares, creating a debtor-creditor relationship. The CIT(A) relied on the provisions of the Companies Act, 1956, and guidelines from the Institute of Chartered Accountants of India (ICAI), which treat SAM as a borrowing pending allotment. The CIT(A) also noted that the interest paid on SAM was related to the business activity of earning call option fees from investments made with the SAM.
The Tribunal upheld the CIT(A)'s decision, agreeing that the relationship between the assessee and the share applicant was that of debtor and creditor until the allotment of shares. The Tribunal referred to the decision of the Delhi Tribunal in Winner Estates (P) Ltd. vs. DCIT, which held that share application money becomes a debt only when shares cannot be allotted and the amount has to be returned. The Tribunal also cited the Supreme Court's decision in Seth R Dalmia vs. CIT, which allowed interest as a deductible expense when it was wholly paid for earning income.
Issue 2: Deletion of Prior Period Expenditure of Rs. 1.49 Crores While Computing Book Profit u/s 115JB
The AO added back Rs. 1.49 crores of prior period expenditure to the book profit under section 115JB, arguing that only the profit above the line should be considered for computing book profit. The AO relied on the decision in Sree Rajendra Mills Ltd. vs. DCIT, which held that prior period expenses charged to the P&L appropriation account cannot be deducted from the profit of the year for the purpose of book profit.
The CIT(A) disagreed with the AO, citing the Supreme Court's decision in Apollo Tyres Ltd. vs. CIT, which held that the AO does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J. The CIT(A) also referred to the Delhi High Court's decision in CIT vs. Khaitan Chemicals and Fertilizers Ltd., which held that prior period items and extraordinary items should be included in the determination of net profit or loss as per the prescribed Accounting Standards.
The Tribunal upheld the CIT(A)'s decision, agreeing that prior period expenses should be included in the determination of net profit or loss as per the Accounting Standards and the Companies Act. The Tribunal concluded that the AO was not justified in adding back the prior period expenditure to the book profit under section 115JB.
Conclusion
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The interest on SAM was allowed as a deductible expense, and the prior period expenditure was included in the computation of book profit under section 115JB.
-
2010 (3) TMI 1109
Issues Involved:1. Deletion of addition made u/s 40A(3) of the Act. 2. Deletion of addition made u/s 37 of the Act. 3. Deletion of addition made u/s 40(a)(ia) of the Act. Summary:I. Cash Payments Exceeding Rs. 20000/- u/s 40A(3):The AO found that the assessee made cash payments exceeding Rs. 20000/- by splitting amounts to avoid the provisions of s.40A(3). The CIT(A) deleted the addition, stating the AO did not prove intentional splitting and relied on case laws such as Aloo Supply Co., 121 ITR 680 (Orissa). The Tribunal agreed, noting the payments were cash discounts, not expenditure, and thus did not attract s.40A(3). II. Traveling and Conveyance:The AO disallowed expenses for conferences in Singapore, Bangkok, and Bombay due to lack of evidence. The CIT(A) allowed 90% of the expenses, considering them business-related. The Tribunal upheld this, noting the AO did not dispute the business purpose and the CIT(A)'s decision was reasonable. III. Marketing Expenses - u/s 194H:The AO treated marketing expenses as commission payments without TDS, invoking s.194H. The CIT(A) disagreed, stating no evidence of principal-agent relationship was provided. The Tribunal upheld this, citing the absence of service elements and reliance on CIT v. Popular Automobiles Ltd., 212 ITR 611 (Kerala HC), concluding s.194H and s.40(a)(ia) were not applicable. Conclusion:The Tribunal dismissed the Revenue's appeal, agreeing with the CIT(A) on all counts. Pronounced in the open court on this 19.3.2010.
-
2010 (3) TMI 1108
Issues Involved:
1. Deletion of addition of Rs. 4,80,00,000 on account of bogus share application money.
2. Deletion of addition of Rs. 4,80,000 on account of commission/extra charges.
3. Validity of proceedings under sections 147/148 of the Income Tax Act, 1961.
Issue-Wise Detailed Analysis:
1. Deletion of addition of Rs. 4,80,00,000 on account of bogus share application money:
The Assessing Officer (AO) had added Rs. 4,80,00,000 to the assessee's income, claiming it was bogus share application money from 15 entities. This was based on a survey under section 133A and statements from entry operators and a director of the assessee company, who admitted to routing unaccounted money as share capital. The AO found that the companies providing the share application money were non-genuine and only provided accommodation entries. The AO rejected the assessee's evidence, including confirmations, bank statements, and the fact that these companies were registered and active as per the Registrar of Companies (RoC).
The CIT(A) deleted the addition, stating that the assessee had provided sufficient evidence of the identity, creditworthiness, and genuineness of the transactions. The CIT(A) relied on various judicial pronouncements, including the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd., which held that if the identity of the subscribers is established, no addition can be made under section 68. The CIT(A) also noted that the statement of the director was not corroborated by any material evidence found during the survey.
2. Deletion of addition of Rs. 4,80,000 on account of commission/extra charges:
The AO had added Rs. 4,80,000 as commission paid to obtain the bogus share application entries. This was based on statements from entry operators who admitted to providing accommodation entries for a commission. The CIT(A) deleted this addition as well, stating that the AO did not provide any corroborative material evidence to support the claim that the assessee paid any commission for obtaining the entries.
3. Validity of proceedings under sections 147/148 of the Income Tax Act, 1961:
The assessee challenged the initiation of reassessment proceedings under sections 147/148, arguing that the AO had no valid reasons to believe that income had escaped assessment. The CIT(A) upheld the validity of the reassessment proceedings, stating that the AO had sufficient reasons to believe that income had escaped assessment based on the statements and evidence gathered during the survey. The CIT(A) noted that the AO's belief could be formed in any manner and was not qualified by the precondition of full and true disclosure by the assessee.
Conclusion:
The ITAT examined the detailed findings of the AO and CIT(A). It noted discrepancies in the addresses and details provided by the assessee and the statements of entry operators. The ITAT found that the CIT(A) did not properly appreciate the peculiar facts of the case and the substantial material with the Department indicating that the share application money was not genuine. The ITAT restored the matter to the AO for a thorough verification, providing the assessee an opportunity to substantiate its claim that the share application money was genuine. The appeal by the Revenue was allowed for statistical purposes, and the cross-objection by the assessee was dismissed.
-
2010 (3) TMI 1107
Deduction of expenditure u/s 37(1) - expenses incurred in respect of M/s Accenture Organisation International Services Agreement (SA) - software development and information technology enabled services - scope of expression 'for the purpose of business or profession'.
HELD THAT:- The scope of expression 'for the purpose of business or profession' is wider in scope and its range is wide. It may take not only day-to-day running of business but also rationalization of its administrative and modernization of its machinery. It may include global consistency in business practices, economies of scale improvements in efficiency and its productivity and access to the skills and expertise from all parts of global organizations. In the case under consideration, services covered under ISA have been classified in to eight different categories, which are the global business, strategy, client business development, knowledge, quality and risk management, personnel and policies, communication and information services, global facilities management, finance, legal and tax services and education development services.
Under the present circumstances of the business, such global arrangement is necessary for the purpose of business. The expenditure incurred for such global arrangement is allowable expenses u/s 37(1) of the Act. In addition to that, we find that the payment of expenditure is at arm's length determined by the TPO u/s 92CA(3) of the Act. We do not find any substance in the case of the revenue because when an international transaction at arms length as determined by the TPO in the said transaction, it cannot be said that the assessee has paid the prices under the said transaction without obtaining any services. The contention of the revenue is baseless and the expenditure is incurred for the purpose of business. Therefore, we are of the view that the CIT(A) has rightly allowed the claim of the assessee.
Thus, ground no.1 of the revenue is dismissed.
Disallowance of expenses paid to M/s Little and Co. towards professional fees for rebranding exercise and review of leave and license agreement u/s 35 of the Act - HELD THAT:- We find that the CIT(A) has given categorical finding that expenses incurred were wholly and exclusively for the purpose of business, revenue in nature and expenditure cannot be considered as preliminary expenses which is neither capital expenditure nor personal expenditure. There is no contrary material on the record. Thus, we uphold the order of the CIT(A) on this issue.
Disallowance on customs duty - Nature of expenditure - Revenue Or Capital - HELD THAT:- We have heard the learned representatives of the parties and perused the record. The CIT(A) gave a finding after considering the assessee's submission that the claim of the assessee is a revenue expenses incurred for the purpose of business. The revenue had failed to point out any contrary material against the findings of the CIT(A). In the light of that fact, we incline to uphold the order of CIT(A) and dismiss the ground raised by the revenue.
Disallowance of expenses on employees stock purchase plan - expenses incurred for the benefit of parent company - HELD THAT:- The CIT(A) has given a categorical finding after examining the relevant material and submission of the assessee that shares were allotted to its employees and not to the employees of the parent company. The expenses incurred by the assessee to motivate and award its employees for their hard work, which amounts salary cost of the assessee company. The expenditure incurred by the assessee for the purpose of business on employees is allowable expenses. The CIT(A) has examined the entire scheme and found that such expenses are business expenses and should be allowable as deduction. Since there is no contrary material to the findings of the CIT(A), in the light of that we confirm the order of CIT(A) on this issue.
In the result, the appeal of the revenue is dismissed.
Disallowance u/s 10A - reimbursement of expenses - method of accounting - HELD THAT:- In the case under consideration the assessee has followed second method of accounting that is when the assessee incurred such reimbursable expenses and accounted for in profit and loss account the eligible profit was reduced as total expenses including reimbursement part of expenses were debited to profit and loss account. At that time if profit is not increased then the same cannot be reduced when the amount of expenditure is reimbursed. The CIT (A) has appreciated the accounting method followed by the assessee and deleted disallowance of claim made by the AO except in respect of Reimbursement of telecommunication charges. The CIT(A) invoked Explanation 2(iv) to section 10A of the Act in respect of Reimbursement of telecommunication charges.
In principle we agree with finding of the CIT (A) in respect of reimbursement of expenses. We also find force in alternate submission of the learned AR that if it is held that the receipts for the reimbursable expenses are not eligible for deduction u/s 10A of the Act, only profits, if any, relating to such reimbursable expenses should be considered as being not eligible for deduction u/s 10A of the Act. Further, same should not part of total turnover and export turnover.
On an analysis of definition of 'export turnover' as provided in clause (iv) of the Explanation 2 to section 10A, we notice that for the purpose of not including in the consideration received in or brought into India in convertible foreign exchange there are two types of expenditures. The first type of expenditure is freight, telecommunication charges, or insurance attributable to the delivery of article or thing or computer software out of India. The second type of expenditure is expenditure, if any, incurred in foreign exchange in providing technical services outside India. The basic idea or intention for deducting the first type of expenditure, i.e., freight, telecommunication charges, or insurance charges is that delivery of goods should be Free on Board (FoB).
The goods exported at FoB is important in the sense that deduction under section 10A is permissible only in respect of consideration received against goods and not for the consideration received against freight etc. All the assessees should get deduction under section 10A on consideration received against supply of goods at FoB. Therefore, the condition of delivery of goods at FoB has been put and the definition of export turnover as provided in clause (iv) of Explanation 2 to section 10A is required to be interpreted accordingly.
We therefore send back matter of this cross ground of appeal and Co to the file of the AO for necessary verifications in the light of discussions. The AO will provide reasonable opportunity of hearing to the assessee.
Disallowance of deduction u/s 10A - foreign exchange fluctuation without appreciating that the same is not derived from export business but the same is income from other sources - HELD THAT:- We find that in the case of Sujata Grover [2001 (11) TMI 232 - ITAT DELHI-E] held that 'basic character of the receipt of foreign currency remains the same i.e. it remains attributable to the export effected by the assessee.' Following the said decision of ITAT, in the case of Renaissance Jewellery Pvt. Ltd. V. ITO [2005 (5) TMI 246 - ITAT BOMBAY-G] held that 'exchange gain arising on account of change in exchange rate after the end of accounting year constitutes part of export turnover eligible for deduction u/s 10A.'
We find that the issue under consideration is covered by the decisions of ITAT mentioned above and the order of CIT(A) is in consonance with those decisions of ITAT, therefore, we do not find any infirmity in the order of CIT(A) and the same is hereby confirmed on the issue.
In the result, the appeal of the revenue is partly allowed for statistical purposes and the C.O. filed by the assessee is allowed for statistical purposes as indicated above. It is to note that grounds of CO has been taken as per separate summary sheet of grounds of appeal as well grounds of CO. filed by the learned AR.
-
2010 (3) TMI 1106
Issues Involved:
1. Exclusion of transport and insurance charges from export turnover and total turnover for computing deduction u/s 10B.
2. Exclusion of deemed exports from export turnover for deduction u/s 10B.
3. Setting off unabsorbed depreciation against profits before calculating deduction u/s 10B.
Exclusion of Transport and Insurance Charges:
The appeal addressed the correctness of reducing expenditure on freight and insurance charges from the export turnover and whether it should also be reduced from the total turnover for computing deduction u/s 10B. The CIT(A) relied on precedents and directed the AO to exclude these expenditures from both turnovers. The Tribunal upheld this decision, emphasizing that expenses incurred in Indian Rupees should not be deducted, as clarified by legislative history and relevant case law. The Tribunal found no reason to interfere with the CIT(A)'s ruling, affirming that the said expenses should be reduced from both export and total turnover for computing deduction u/s 10B.
Exclusion of Deemed Exports:
The issue involved the exclusion of deemed exports totaling &8377; 13,05,22,177 from the export turnover for calculating deduction u/s 10B. The CIT(A) granted relief after considering evidence that confirmed the realization of payments in convertible foreign exchange against materials purchased from the assessee under third party export basis. The Tribunal upheld this decision, noting that third party exports, when fulfilling specific criteria, qualify as export turnover eligible for benefits u/s 10B. The CIT(A)'s analysis of the evidence presented by the assessee supported the conclusion that the deemed exports should not be excluded for deduction u/s 10B.
Setting off Unabsorbed Depreciation:
The AO restricted the deduction available to the assessee u/s 10B after setting off unabsorbed depreciation against profits of the undertaking. The CIT(A) ruled in favor of the assessee, citing a Tribunal decision and pending High Court case. The Tribunal, acknowledging the similarity of the issue with another case, restored the matter to the AO for further consideration in light of the pending case's outcome. The Tribunal refrained from commenting on the issue's merits, directing the AO to decide after affording a reasonable opportunity to the assessee. Consequently, the appeal by the revenue was partly allowed, pending further assessment based on the final outcome in the related case.
-
2010 (3) TMI 1105
Issues Involved:
1. Validity of re-assessment proceedings.
2. Deletion of addition of Rs. 20,00,000/- made u/s 69A of the IT Act, 1961.
Summary:
1. Validity of Re-assessment Proceedings:
The assessee challenged the validity of the re-assessment proceedings on the grounds that the Assessing Officer (AO) did not pass a speaking order on the objections raised regarding the reasons for reopening the case, as required by the Supreme Court in GKN Driveshaft (India) Ltd. vs. ITO 259 ITR 19 (SC). The CIT (A) rejected this contention, stating that there was sufficient material to reopen the assessment, though it was noted that the AO did not dispose of the objections by passing a speaking order.
2. Deletion of Addition u/s 69A:
The AO made an addition of Rs. 20,00,000/- to the assessee's income u/s 69A based on information from the Brij Mohan Gupta group, which was involved in unaccounted cash loan transactions. The assessee denied any transactions with the group and requested cross-examination of Brij Mohan Gupta, which was not provided by the AO. The CIT (A) deleted the addition, observing that the AO failed to establish a case against the assessee, did not provide the requested statements, and did not allow cross-examination, thus violating principles of natural justice.
Tribunal's Decision:
The Tribunal noted that the CIT (A) deleted the addition due to the AO's failure to conduct necessary inquiries and provide cross-examination opportunities. Citing the Bombay High Court's decision in Smt. Prabhavathy S. Shah vs. CIT 230 ITR 1 (Bom), the Tribunal emphasized that the CIT (A) should have exercised his quasi-judicial powers to make further inquiries or direct the AO to do so. Consequently, the Tribunal restored the matter to the AO to confront the assessee with the material and provide the opportunity for cross-examination, thereby allowing the revenue's appeal for statistical purposes.
-
2010 (3) TMI 1104
Taxation of interest income under the head "Income from other sources" - while computing the profits of business of 100 per cent Export Oriented Unit (EOU) of the assessee-company - Regard to additional ground - order of assessment framed by the AO is without jurisdiction as no notice u/s 143(2) was issued and served after the assessee had filed the return of income in pursuance of notice u/s 148 -
HELD THAT:- It becomes clear from the submissions of the ld. counsel that all the facts are available on record and no new fact is required to be found for giving a finding on this ground. In the case of NTPC [1996 (12) TMI 7 - SUPREME COURT], the Hon'ble Supreme Court held that the view that the Tribunal has to confine itself only to issues arising out of the appeal before the CIT (A) takes too narrow a view of the powers of the Tribunal. Thus, it is clear that the Tribunal can entertain a new ground, more particularly when it is only a question of law although the discretion is vested in the Tribunal in this regard. Further, the additional ground was taken up 15 months after the aforesaid Finance Act was enacted and there is no explanation on record for the delay thereafter. Nonetheless, since it is purely a question of law to be decided on the basis of facts available on record, the ground is admitted for adjudication in the interest of justice.
Reopening of the assessment u/s 147 - interest on the fixed deposits - CIT (A) uphold the reopening of the assessment u/s 147. It was prayed that the assessment made thereafter may be cancelled.
HELD THAT:- We have perused the signatures on assessment order and in the reasons recorded by the AO. On prima facie perusal of these two signatures, we are of the view that they have been made by the same person, being full in the assessment order and in initial in the recorded reasons. However, we qualify our aforesaid observation by stating that we are not handwriting experts and it is only our prima facie view.
Notwithstanding the aforesaid observation, we also mention that all acts done in discharge of official duty are assumed to be done in regular course unless proved otherwise, and the onus of such proof is on the party which disputes the fact. Apart from making only a verbal submission, no evidence was brought on record by way of opinion of hand-writing expert, report of hand-writing expert, record from the Additional CIT, etc.
Therefore, we have no reason whatsoever to agree with the ld. counsel that this note was not initialed by the AO. Further, only initialing the note is sufficient for the purpose of the Act so as to assume jurisdiction. Therefore, this argument is dismissed.
Validity of issuance of notice u/s 148 - exemption u/s 10B - HELD THAT:- No addition is permissible in the intimation and no opportunity is to be granted to the assessee. Therefore, intimation being no assessment, there is no question of change of opinion. It may be mentioned here that in this and succeeding years, the AO had granted deduction to the assessee u/s 10B in respect of interest income. However, he took a different stand in AY 2001-02 and held that interest on fixed deposits was to be taxed under the residuary head. This order was confirmed by the CIT (Appeals) on 3-3-2003 in Appeal. The AO did not take any action u/s 147 on passing assessment order for AY 2001-02, but waited for the order of CIT (Appeals) in the matter before recording his note u/s 147 on 17-3-2003.
These background facts cannot be ignored while deciding whether jurisdiction was validly assumed by him for issuing notice u/s 148. Once his altered stand was fortified by the order of the ld. CIT (A), he recorded the note to the effect that interest income of ₹ 16,49,441 has escaped assessment. In other words, he had information of law in his possession that the aforesaid income has escaped assessment. Thus, according to us, he was justified in doing so.
Objections in this regard - The background facts only go to support his reasons and are not intended to supplant the reasons. Even if subsequent orders of the AO and the ld. CIT (Appeals) are ignored, the facts do lead to a prima facie inference that interest income was wrongly considered as profits and gains of business of export. The AO was not required to prove his case to the hilt at that point of time. What is required at the time of recording reasons is that there should be some reason which has alive nexus with the formation of the belief. These ingredients exist in this case. Therefore, we do not find any force in the argument of the ld. counsel as the facts of the case of Jamna Lal Kabra are quite distinguishable [1967 (4) TMI 36 - ALLAHABAD HIGH COURT].
We may once more proceed to examine the argument of the ld. counsel in respect of "change of opinion", on which significant emphasis was laid by him. it is clear that the facts of that case are also distinguishable as assessment was made in that case after detailed scrutiny and u/s 143(3). The Hon'ble Court clearly mentioned that the principle of "change of opinion" will have no application where there was no formation of opinion at all and it seems to us that this part of the judgment applies even to an assessment made u/s 143(3). We have already held that processing u/s 143(1)(a) and an order u/s 154 thereon do not lead to inference of application of mind. Therefore, there could be no question of change of opinion.
Thus, it is held that the ld. CIT(A) was right in holding that the AO properly assumed jurisdiction u/s 147 and consequently notice issued u/s 148 was valid in law. Therefore, ground No. 1 is dismissed.
Non-issuance and non-service of notice u/s 143(2) - We are of the view that none of the parties can be forced do anything which is impossible. The tenor of the order, which speaks of issuance of notices u/s's 148, 143(2) and 142(1) leads to an irresistible conclusion of fact that notice u/s 143(2) was served on the assessee in due course just as other notices were admittedly served on him. Therefore, on peculiar facts of this case, we are of the view that the notice has been served on the assessee. Otherwise, he has been given full opportunity of being heard under this section as well as section 142(1). Thus, this ground is also dismissed.
Computing the profits of business - Interest income taxable under the head "Income from other sources" - eligible for set off - The facts of the case are that the assessee carries on the business of an EOU. For this purpose, overdraft facilities were taken from the bank to meet liquidity requirements. Subsequently when the assessee earned the profit, the money so generated was placed in fixed deposits with the bank. The case of the ld. counsel is that the deposits were placed with a view to reduce the interest liability and, therefore, interest income partakes the character of profits and gains of business. On the other hand, the case of the ld. DR is that there is no linkage between the borrowings from the bank and placing fixed deposits with the bank. The interest earned from the bank did not have direct or proximate connection with the business of export of the EOU. Therefore, interest so received was taxable under the residuary head.
In the case of Monarch Tools (P.) Ltd.[2002 (10) TMI 53 - MADRAS HIGH COURT] it was held that when own funds are kept in deposits with the banks, interest thereon did not have any direct or proximate connection with the business. It was mentioned that interest received by a company, which carries business, from deposits and loans could only be taxed as income from other sources. The ratio of this decision is applicable to the instant case and it also follows that if it is not business income, the interest income cannot be said to have been derived from the EOU.
In a nutshell, it is held that the ld. CIT (A) was right in holding the interest income to be taxable under the residuary head and not the income derived from the EOU. Therefore, the interest was not liable to be deducted from the total income of the assessee.
In the result, the appeal is dismissed.
-
2010 (3) TMI 1103
Issues Involved:
The judgment involves appeals by the Revenue and Cross Objections by the Assessee against a common order passed by the Learned CIT(Appeals)-III, Ahmedabad for Assessment Years 1997-98, 1998-99 & 1999-2000.
Assessment of Unexplained Investments:
The assessee-company constructed a factory, and the Assessing Officer made additions for unexplained investments based on reports by the DVO. The ITAT directed the Assessing Officer to reevaluate the valuation after allowing the assessee to produce evidence to rebut the DVO's report.
Valuation Discrepancies and Assessment:
The DVO and Registered Valuer provided differing valuations for the construction costs. The Assessing Officer made additions based on the DVO's revised report. The CIT(Appeals) adopted an average valuation rate, allowed deductions for self-purchases, and restricted the additions made by the Assessing Officer.
Appeals and Cross Objections:
The Revenue appealed the CIT(Appeals) decision, arguing for the acceptance of the DVO's valuation. The Assessee contended that since the disclosed costs were not rejected, the additions should be deleted. The ITAT upheld the CIT(Appeals) decision, considering the valuation reports and objections raised by the Assessee.
Conclusion:
The ITAT dismissed the appeals by the Revenue and cross objections by the Assessee, affirming the CIT(Appeals) decision on the valuation discrepancies and assessment of construction costs for the relevant assessment years.
-
2010 (3) TMI 1102
Issues Involved:
1. Disallowance of expenses as capital expenditure.
2. Deduction of interest expenditure u/s 36(1)(iii).
3. Addition of employees' contribution to PF and ESI.
Summary:
1. Disallowance of Expenses as Capital Expenditure:
The assessee contested the CIT(A)'s decision to uphold the AO's disallowance of Rs. 1,32,31,892/- as capital expenditure related to the extension of business at Greater Noida. The AO had categorized these expenses, including interest on loans, as capital in nature. The CIT(A) supported this view, noting the expenses were for a new printing unit and were capitalized until the project was deferred. The Tribunal found that the nature of the project (whether it was an expansion or a new business) was not adequately examined by the lower authorities. The Tribunal remitted the issue back to the AO to determine the nature of the project and whether the expenses should be treated as revenue or capital expenditure, considering the applicability of AS-16.
2. Deduction of Interest Expenditure u/s 36(1)(iii):
The assessee claimed that interest expenditure of Rs. 1,93,98,338/- incurred during the relevant previous year should be allowed as a deduction u/s 36(1)(iii). This issue was not raised before the AO or CIT(A). The Tribunal, citing the Hon'ble Supreme Court's decision in Goetz (India) Ltd. vs. CIT, allowed the assessee to raise this issue. The Tribunal found the claim genuine and remitted it to the AO for adjudication, linking it with the determination of whether the Noida project was an expansion of the existing business.
3. Addition of Employees' Contribution to PF and ESI:
The AO disallowed the employees' contributions to PF and ESI, amounting to Rs. 12,65,976/- and Rs. 7203/-, due to late payment beyond the due date specified in the respective Acts. The CIT(A) upheld this disallowance. However, the Tribunal referred to the Hon'ble Supreme Court's decision in CIT vs. Vinay Cement Ltd., which allows such payments if made before the due date of filing the return. The Tribunal set aside the orders of the lower authorities and decided in favor of the assessee, allowing the deductions.
Conclusion:
The appeal was allowed for statistical purposes, with the issues remitted to the AO for further examination and adjudication in accordance with the Tribunal's directions and applicable law.
-
2010 (3) TMI 1101
Issues Involved: The judgment deals with the calculation of interest under sections 234A, 234B, and 234C of the Income Tax Act.
Issue 1: Calculation of Interest u/s 234A
The appellant challenged the order of the CIT(A) for not giving credit to taxes paid between April 1, 2004, and December 31, 2004, while calculating interest u/s 234A. The Tribunal considered relevant provisions and held that advance tax paid after the due date must be credited while charging interest u/s 234A. The Tribunal emphasized that once advance tax is paid, whether on the due date or belatedly, it should be treated as advance tax paid. Interest under s. 234A is charged on the total income reduced by advance tax paid, and it aims to compensate for the delay in self-assessment tax payment due to belated return submission. The Tribunal directed the Assessing Officer (A.O.) to recalculate the interest u/s 234A by giving credit for tax paid after the due date.
Issue 2: Calculation of Interest u/s 234B
The appellant contended that interest u/s 234B was not calculated as per the Act's provisions. The Tribunal found that the mode of calculation under s. 234B is clear, and credit for tax payments after the due date should be considered. The A.O.'s calculation did not align with the Act's provisions, leading to the order's setting aside by the Tribunal. The matter was restored to the A.O. for recalculating interest u/s 234B in accordance with the Act and the Tribunal's judgment in a similar case. The Tribunal found no issue with the calculation of interest u/s 234C.
Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the A.O. to recalculate interest u/s 234A and 234B in line with the Act's provisions and the Tribunal's judgments. The judgment was pronounced on March 29, 2010.
-
2010 (3) TMI 1100
Non-State Civil Service Officers impleadment application in the Delhi High Court for being impleaded as respondents in Writ Petition - cadre reviewing exercise with reference to the vacancy position as on 1st January 2004 - appellants to satisfy this Court about their locus to participate in the controversy at the stage when the matter was before the High Court - HELD THAT - In view of repeated and authoritative pronouncement by the Constitution Bench of this Court, the approach made to the High Court for the first time by these appellants in respect of their service disputes over which C.A.T.[Central Administrative Tribunal] has jurisdiction, is not legally sustainable. The Division Bench of the High Court, with great respect, fell into an error by allowing the appellants to treat the High Court as a Court of first instance in respect of their service disputes, for adjudication of which C.A.T. has been constituted.
The grievances of the appellants in this appeal are that they were not made parties in proceedings before the Tribunal. But in the impleadment application filed before the High Court it was not averred by them that they were not aware of the pendency of the proceeding before the Tribunal. Rather from the averments made in the impleadment petition it appears that they were aware of the pendency of the proceedings before the Tribunal.
It was therefore, open for them to approach the Tribunal with their grievances. Not having done so, they cannot, in view of the clear law laid down by the Constitution Bench of this Court in Chandra Kumar [1997 (3) TMI 90 - SUPREME COURT], approach the High Court and treat it as the Court of first instance in respect of their grievances by `overlooking the jurisdiction of the Tribunal'. The C.A.T. also has the jurisdiction of Review under Rule 17 of CAT (Procedure) Rules, 1987. So, it cannot be said that the appellants were without any remedy.
As the appellants cannot approach the High Court by treating it as a Court of first instance, their Special Leave Petition before this Court is also incompetent and not maintainable. The principles laid down in the case of Chandra Kumar (supra) virtually embody a rule of law and in view of Article 141 of the Constitution the same is binding on the High Court. The High Court fell into an error by allowing the appellants to approach it in clear violation of the Constitution Bench judgment of this Court in Chandra Kumar (supra).
-
2010 (3) TMI 1099
Issues Involved:
1. Disallowance of business promotion expenses.
2. Treatment of Rs. 14.27 crores as 'business expenditure' u/s 37(1) of the Act.
Summary:
Disallowance of Business Promotion Expenses:
The assessee company claimed Rs. 5 crores as business promotion expenses for publicizing its project 'Shantiniketan' in two films. The AO disallowed 50% of this expenditure, noting that publicity was given in only one film. The CIT(A) upheld this disallowance, stating that only Rs. 2.5 crores was allowable u/s 37(1) as the other film was released in the subsequent year. The Tribunal agreed with the CIT(A), concluding that the expenditure was not wholly and exclusively for the purposes of business for the relevant year.
Treatment of Rs. 14.27 Crores as 'Business Expenditure' u/s 37(1):
The AO disallowed Rs. 14.27 crores paid to Unitech Ltd. for regaining land possession, treating it as an expenditure enhancing the value of the project and deferring its allowance to the year in which income from the project materializes. The CIT(A) allowed this expenditure, considering it as a business expense incurred to have unencumbered stock-in-trade. However, the Tribunal found that the CIT(A) misinterpreted the remand report and upheld the AO's view that the expenditure should be added to the work-in-progress and recognized in the year the revenue is realized from the project.
Conclusion:
1. The assessee's appeal regarding the disallowance of business promotion expenses is dismissed.
2. The Revenue's appeal regarding the treatment of Rs. 14.27 crores as 'business expenditure' u/s 37(1) is allowed.
-
2010 (3) TMI 1098
Issues Involved:
1. Whether Uppanar river and its banks at the point where pipelines pass fall in the CRZ III area.
2. Whether paragraph 2(ii) of the 1991 Notification restricts the transfer of VCM (hazardous substance) beyond the port area to the PVC plant through pipelines.
3. The validity of the permissions and clearances granted to Chemplast by various authorities.
Issue-wise Detailed Analysis:
1. Whether Uppanar river and its banks at the point where pipelines pass fall in the CRZ III area:
The court examined the 1991 Notification and subsequent amendments, particularly focusing on the Coastal Zone Management Plan (CZMP) of Tamil Nadu approved in 1996 (1996 Plan). The 1996 Plan, prepared and approved by the MOEF, does not categorize the banks of Uppanar river at the relevant location as CRZ III area. The court noted that the amendments to the 1991 Notification in 1998 and 2002, which introduced new criteria for demarcating CRZ areas, do not override the 1996 Plan. The court concluded that the 1996 Plan remains operative and authoritative for identifying CRZ areas. Consequently, the Uppanar river and its banks where the pipelines pass do not fall under CRZ III, and no environmental clearance was required for the pipelines at that location.
2. Whether paragraph 2(ii) of the 1991 Notification restricts the transfer of VCM (hazardous substance) beyond the port area to the PVC plant through pipelines:
The court interpreted paragraph 2(ii) of the 1991 Notification, which prohibits the handling of hazardous substances in the CRZ area, except for transfer from ships to ports, terminals, and refineries and vice versa, in the port areas. The court applied a purposive construction to the phrase "in the port areas," interpreting it as "in or through the port areas" to avoid absurdity and ensure the provision's functionality. This interpretation allows the transfer of hazardous substances, such as VCM, through pipelines from the port area to the plant. The court found that the permission granted by the MOEF on December 19, 2005, for the construction of the Marine Terminal Facility (MTF) and the associated pipelines was valid and in compliance with the 1991 Notification.
3. The validity of the permissions and clearances granted to Chemplast by various authorities:
The court reviewed the sequence of approvals and permissions granted to Chemplast, starting from the environmental clearance by the MOEF for the PVC plant and MTF, the consent from the Tamil Nadu Pollution Control Board (TNPCB), and the permission from the Executive Engineer for laying pipelines under the Uppanar river. The court found no suppression of material facts by Chemplast regarding the existence of Uppanar river in its proposals. The court upheld the validity of all the permissions and clearances granted, including the environmental clearance by the MOEF on December 19, 2005, and the permission by the Executive Engineer on February 27, 2008. The court dismissed the objections raised by the petitioners, concluding that the project had been established with substantial investment and had already commenced operations, making it unjust and against public interest to interfere with it at this stage.
Conclusion:
The Supreme Court dismissed the civil appeal and writ petitions challenging the environmental clearances and permissions granted to Chemplast. The court held that the Uppanar river and its banks at the relevant location do not fall under CRZ III as per the 1996 Plan, and the transfer of VCM through pipelines is permissible under the 1991 Notification. The court validated all the permissions and clearances granted to Chemplast and rejected the alternative solutions suggested by the petitioners. The project, having been established with significant investment and already operational, was not to be interfered with in the interest of justice and public interest.
-
2010 (3) TMI 1097
The Supreme Court of India directed the petitioner to provide a breakdown of worldwide income and expenses related to learning and software businesses. The court allowed proceedings to continue without recovery, stating that the Department's limitation would not be affected. The case was adjourned for three weeks.
-
2010 (3) TMI 1096
Issues involved:
The judgment involves the addition of deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961 in the case of an assessee who had taken a loan from a company where it was not a shareholder. The key issue was whether the deemed dividend could be assessed in the hands of a person who is not a shareholder of the lending company.
Summary:
Issue 1: Addition of Deemed Dividend
The assessee appealed against the addition of Rs. 50,000 as deemed dividend u/s 2(22)(e) made by the Assessing Officer. The assessee argued that since it was not a shareholder of the lending company, the deemed dividend should not be assessed in its hands. The assessee relied on the decision of the Special Bench of the ITAT in the case of Bhaumik Colours P. Ltd. The Departmental Representative contended that the provisions of Section 2(22)(e) were clear and the deemed dividend should be taxed in the hands of the person who received the loan. The ITAT, after considering the arguments, held that the deemed dividend could only be assessed in the hands of the person who is a shareholder of the lending company. Since the assessee was not a shareholder of the lending company, the addition of Rs. 50,000 as deemed dividend was deleted.
Case Laws and Decisions:
The ITAT referred to the decision of the Special Bench in Bhaumik Colours P. Ltd. and held that the deemed dividend could only be assessed in the hands of a shareholder of the lending company. The ITAT disagreed with the Departmental Representative's contention that this decision was contrary to Section 2(22)(e) and held that the decision was binding. The ITAT also distinguished the decisions of the Bombay High Court and the Calcutta High Court cited by the Departmental Representative, stating that they were on different facts and did not support the contention that deemed dividend could be assessed in the hands of a person other than the shareholder.
Outcome:
The ITAT allowed the appeal of the assessee and deleted the addition of Rs. 50,000 as deemed dividend, as the assessee was not a shareholder of the lending company.
Conclusion:
The ITAT's decision in this case clarified that deemed dividend u/s 2(22)(e) can only be assessed in the hands of a person who is a shareholder of the lending company, and not in the hands of a person who is not a shareholder, as per the provisions of the Income Tax Act, 1961.
-
2010 (3) TMI 1095
Issues Involved:
1. Legitimacy of purchases from M/s Pujan Impex and M/s Marvel Impex.
2. Justification for penalty u/s 271(1)(c) of the Income Tax Act, 1961.
Summary:
1. Legitimacy of Purchases:
The assessee, a company engaged in the manufacture of studded jewellery, faced scrutiny from the Income Tax Department following a survey u/s 133A. The department questioned the genuineness of purchases from M/s Pujan Impex and M/s Marvel Impex. The assessee maintained that all purchases were genuine, supported by account payee cheques and stock records. Despite this, the assessee offered additional income for taxation to avoid litigation. The AO and CIT(A) rejected the assessee's explanation, asserting that the purchases were not substantiated and were deemed bogus.
2. Justification for Penalty u/s 271(1)(c):
The AO initiated penalty proceedings u/s 271(1)(c), claiming the assessee concealed income by furnishing inaccurate particulars. The assessee argued that the additional income was offered voluntarily to avoid litigation, and no penalty should be levied since there was no difference between the assessed and returned income in the revised return. The Tribunal noted that the AO did not dispute the manufacturing and sale of jewellery, nor did he provide evidence to counter the assessee's claim of genuine purchases. The Tribunal emphasized that penalty proceedings are independent and require substantial evidence to prove concealment or inaccuracy. The Tribunal cited the Supreme Court's ruling in T. Ashok Pai vs. CIT, highlighting that a bona fide explanation negates the imposition of penalty.
Conclusion:
The Tribunal concluded that the assessee's explanation was bona fide and that the Revenue failed to provide evidence of bogus purchases. Consequently, the penalty u/s 271(1)(c) was deleted, and the appeal was allowed.
-
2010 (3) TMI 1094
... ...
... ... ..... , Mr. Vikas Malhotra,Adv., Mr.B.V. Balaram Das,Adv. ORDER Heard learned counsel for the petitioner. Delay condoned. The special leave petition is dismissed.
-
2010 (3) TMI 1093
Exemption u/s 11 - Rejected registration u/s 12AA - Charitable trust for imparting education - Whether, CIT is competent to make enquiries which fall beyond the purview of s. 12AA, specifying the nature and scope of enquiries contemplated u/s. 12AA - It has also been providing free education to economically weaker sections, women and handicapped students and also giving concession to the needy and meritorious students, as per evidence placed in the paper book - It is mentioned that not even a word commenting adversely about the genuineness of such activities has been recorded by the CIT in the impugned order.
HELD THAT:- In the case of CIT vs. Red Rose School [2007 (2) TMI 575 - ALLAHABAD HIGH COURT], it has been held as under :
''Sec. 12AA does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution was either not being spent for charitable purpose or such institution is earning profit; CIT was not justified in refusing registration u/s. 12AA to assessee educational society and Tribunal was justified in granting the same."
We are of the considered opinion that a bare perusal of the case law clearly supports the contentions of the assessee that the scope and nature of enquiries at the stage of grant of registration are prescribed u/s. 12AA. Thus, CIT has no jurisdiction to conduct enquiries which falls beyond the pale of such statutory prescription.
It is settled legal position that the assessee-trust is entitled to claim exemption independently u/ss. 11 and 12 or u/s. 10(23)(iiiad), subject to satisfaction of relevant preconditions as laid down in the respective sections of the Act. There is no such scheme under the provisions of the Act, for automatic grant of exemption under such sections of the Act. Further, the deduction u/s.10(23)(iiiad) is available, as also the exemption u/ss. 11 and 12 subject to the satisfaction of the statutory conditions prescribed under the relevant sections of the Act.
It is evident from the perusal of these sections that s. 11 is of wider amplitude regarding charitable institutions, whereas s. 10(23C)(iiiad) is specifically made for educational institutions, existing solely for educational purposes. So there is no bar under the scheme of the relevant provisions which prohibit the assessee to avail benefits under these two sections on alternative basis, as both these sections have different statutory preconditions to be satisfied.
Section 12AA, contemplates enquiries about the objects of the trust or institution and genuineness of its activities. This section does not prescribe that enquiry u/s. 12AA will be the forum or stage for adjudication on the eligibility of exemption under ss. 11 and 12 of the Act. The proceedings before the CIT, u/s. 12AA pertain to the initial stage, intended to conduct prescribed statutory enquiries about the genuineness of the activities of the assessee, for the purpose of granting registration. The ld CIT is not statutorily competent to convert such proceedings for grant of registration u/s. 12A r/w s. 12AA into the proceedings for adjudication, on the issue of applicability of the provisions of ss. 11 and 12. Further, it is trite law that the said jurisdiction lies with the AO.
It was further held by the Hon' ble High Court in CIT vs. Krishi Utpadan Mandi Samiti, Purva & Ors. [2009 (12) TMI 13 - HIGH COURT OF ALLAHABAD] that where a trust/institution fulfils all the conditions mentioned in s. 12A/12AA, registration cannot be denied on the ground that some conditions of ss. 11 and 12 are not fulfilled. Even after registration, unless the conditions set out in ss. 11 and 13 are complied with, no benefit would be available to the registered trusts or institutions. Therefore, in the facts of the instant case, the decision of the Tribunal that the assessees, who had fulfilled all the conditions, were entitled to registration, could not be faulted.
The ld CIT has not pointed out any defect in the application made by the assessee, in Form No. 10 read with r. 17A of the IT Rules, 1962. Similarly, the ld CIT has not doubted the genuineness of the activities of the trust carried out in accordance with the objects of the trust. It is further pertinent to point out here that the provisions of s. 12AA(3) were introduced by Finance (No. 2) Act, 2004 w.e.f. 1st Oct., 2004, providing for cancellation of registration of trust or institution by the CIT granted u/s. 12AA(1)(b), subsequently, if the activities of such trust or institution are not being carried out in accordance with the objects of the trust. Therefore, it is evident that grant of registration u/s. 12AA is not absolute and is distinct and independent from grant of exemption u/ss. 11 and 12.
We are of the considered opinion that the impugned orders of the CIT cannot be sustained. Consequently, we set aside these impugned orders passed by the CIT and direct that registration applied for by the applicants u/s. 12A be granted. Thus, these appeals are decided in favour of the assessees.
-
2010 (3) TMI 1092
|
Correct head of income - Income earned from purchase and sale of share - STCG OR business income - Whether considering the magnitude, intention, frequency of transactions which reflects modus operandi of assessee of share business as an adventure in the nature of trade? - HELD THAT:- It is held in the case of Motilal Hirabhai Spg. & Svg. Co. Ltd. [1977 (8) TMI 33 - GUJARAT HIGH COURT] and Raja Bahadur Visheshwara Singh (DECEASED) [1960 (12) TMI 12 - SUPREME COURT] that treatment in the books by an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organised activity with profit motive then it becomes business profit not capital gain.
Keeping in view the above principles, the facts in the present case of the assessee are examined. The assessee during the entire previous year had entered into transaction of purchases and sale of shares of about 32 companies totalling to ₹ 1,87,83,440/- and these shares were sold for a value of ₹ 2,69,71,368/-.
The transactions were effected by actual delivery of shares at the time of purchase and sale of shares except in the case of Hiran Orgo Chem, where there are 19 transactions of purchase and sale on the same day of various number of shares involving a total purchase of ₹ 7,00,457 and sale of ₹ 6,95,224 with a loss of ₹ 5,232/-. There were expenses incurred with reference to brokerage, interest, security transactions, bank charges , etc. totally to ₹ 1,67,829/-.
In all the transactions where capital gain shown during the year the holding period was less than even 6 months. Most of the gain earned by the assessee is in the shares held for a period 31 days to 90 days to an extent of ₹ 30.81 lakhs and 90 day to 180 days, i.e. ₹ 51.29 lakhs. In fact there were no shares which were held for more than 6 months period on which gains were earned. Thus the maximum holding period was from 1 day to a maximum of 180 days.
In the first 6 months of the year the assessee has transacted in 25 scrips and gained ₹ 45,659/- and the investment in those shares is not much when compared to the large transactions as discussed above after 01.10.2004. Most of these shares were also purchased and sold immediately and there are no shares which are acquired prior to 01.04.2004 held after 31.01.2005. All these facts indicate that the intention of the assessee is to gain profits by dealing in short term period only.
Not only the above, AO also discussed about borrowing of funds, small amount of dividend when compared to the gain in sales and also the fact that assessee group companies are involved in share trading. Conclusion of the Revenue authorities that the income from sale of shares declared by the assessee during the year as short term gain is income from business activity is correct and calls for no interference. there are no long term gains in assessee’s case except in small amounts in A.Y. 2001-02 and in the later year only on one group which was discussed above which are from investments discussed above of few company shares. Appeal of the assessee is dismissed.
|
............
|
9911796707
