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2010 (8) TMI 1007
Issues involved: Interpretation of provisions u/s 12AA of the Income Tax Act, 1961 for registration of a corporation established under the Warehousing Corporations Act, 1962 as a charitable organization.
The judgment addressed the following substantial questions of law:
1. Whether the corporation, not being a trust or charitable institution, is eligible for registration u/s 12AA of the Act.
2. Whether failure to provide original documents and audited accounts affects eligibility for registration u/s 12AA.
3. Whether the corporation, deemed as a company under the Warehousing Corporation Act, can be considered for registration u/s 12AA.
The assessee, a Corporation under the Warehousing Corporations Act, previously claimed exemption under Section 10(29) but applied for registration u/s 12AA after the provision's deletion. The Commissioner rejected the application citing profit-making activities. The Tribunal held that the corporation's main purpose was public utility, not affected by profit-making. The Tribunal's finding was based on the Supreme Court's judgment in Director of Income-tax v. Bharat Diamond Bourse.
The appellant argued that statutory provisions of the Warehousing Corporations Act supported its charitable status under Section 2(15) of the Act. The corporation's functions aligned with public utility objectives, as per Supreme Court precedents in Bharat Diamond Bourse and Gujarat Maritime Board cases. The Court upheld the Tribunal's decision, emphasizing the corporation's statutory functions and public welfare objectives.
Referring to the Supreme Court's observations in Gujarat Maritime Board, the Court reiterated that objects promoting public welfare qualify as charitable purposes. The Court ruled in favor of the assessee, dismissing the appeals based on established legal principles and precedents.
The judgment concluded by dismissing the appeals, affirming the corporation's eligibility for registration u/s 12AA as a charitable organization under the Income Tax Act, 1961.
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2010 (8) TMI 1006
Charges for Murder u/s 302 IPC - circumstantial evidence - HELD THAT:- In view of the fact that Benny (PW.10) had developed intimacy with the deceased Sweety and her mother and while travelling in a car he had fed Sweety with his hands while the appellant was asleep and there had been some untoward incident about which the appellant had confronted the deceased, the possibility of some involvement of Benny (PW.10) cannot be ruled out or it could also cause embarrassment to deceased.
In a case of circumstantial evidence, motive must be established at least to certain extent. Had there been a motive on the part of the appellant to get rid of deceased and he had purchased the Sodium Cyanide on 26th/27th May, 2000, from Xavior (PW.7), it is difficult to believe that he was waiting upto 1.6.2000 and that he would have advised his wife to take the Cyanide under the guise of an Ayurvedic contraceptive medicine at the residence of her parents. The Trial Court had doubts regarding the veracity of the depositions of Jaison (PW.4), Davis (PW.5), and Xavior (PW.7), being friends of Benny (PW.10). The Trial Court, in fact, had an advantage to watch the demeanour of the witness and was in a better position to evaluate their credibility. Thus, the High court ought not to have reversed the judgment of the Trial Court. In fact, the High Court has erred in emphasising that onus to prove his innocence was on the appellant. It could not be the requirement of law. In fact the prosecution has to prove its case beyond reasonable doubt. In the case of circumstantial evidence the burden on prosecution is always greater.
In view of the above, the judgment and order of the High Court in Criminal Appeal is hereby set aside and judgment and order of the Trial Court is restored. The appellant be released forthwith if he is in custody and not wanted in any other case. The appeal is allowed accordingly.
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2010 (8) TMI 1005
Issues Involved:
1. Disallowance of administrative expenses.
2. Disallowance of employees' contribution to PF and ESIC.
3. Disallowance of rent paid for accommodation.
4. Disallowance of tools expenditure.
Issue-wise Detailed Analysis:
1. Disallowance of Administrative Expenses:
The first issue concerns the confirmation of disallowance of Rs. 37,23,017/- on account of share of administrative expenses. The assessee firm shared administrative expenses with Avion System Inc, USA, a related concern. The ratio of expense sharing changed significantly from 69.05% in AY 2004-05 to 33.76% in AY 2005-06. The Assessing Officer (AO) required the assessee to explain this variation and provide documentary proof, which the assessee failed to do convincingly. The AO concluded that the assessee's share should have been 42.68%, resulting in an addition of Rs. 37,23,017/- due to lack of evidence and the assessee's inability to justify the change in expense sharing ratio. The CIT (A) confirmed the addition, noting that the assessee failed to furnish details regarding revenue generated by the parent/associate company vis-`a-vis the revenue generated by the assessee company from their India-related projects. The Tribunal allowed the assessee's appeal on this ground, noting that the reimbursement from the parent company was not a matter of right but was at the sole discretion of the parent company, ensuring a minimum guaranteed post-tax return of 5% of gross revenues.
2. Disallowance of Employees' Contribution to PF and ESIC:
The second issue involves the disallowance of employees' contribution to PF and ESIC amounting to Rs. 3,38,670/- due to delayed payment. The CIT (A) directed the AO to allow payments made within the due date, including the grace period, for PF contributions but confirmed the disallowance for ESIC contributions not made within the grace period. The Tribunal, following the decision in CIT v. Alom Extrusions Ltd., allowed the deduction for employees' contribution to PF and ESIC if paid before the due date for filing the return of income. As it was undisputed that the amounts were paid before the due date of filing the return, the Tribunal allowed this ground of appeal.
3. Disallowance of Rent Paid for Accommodation:
The third issue pertains to the disallowance of Rs. 75,000/- paid as rent for accommodation provided to a visiting consultant of the parent company. The AO disallowed the expenditure, considering it a gratuitous payment and not a business expenditure. The CIT (A) confirmed the disallowance, noting that the payment was in connection with business requirements and covered by section 194J, requiring TDS deduction. The Tribunal upheld the CIT (A)'s decision, agreeing that the rent was part of the professional services rendered by the consultant and required TDS deduction. The Tribunal also noted that even if considered a gratuitous payment, it could not be allowed as a business expenditure.
4. Disallowance of Tools Expenditure:
The fourth issue involves the disallowance of Rs. 78,918/- claimed as tools expenditure. The AO treated the expenditure as capital in nature, allowing depreciation and disallowing Rs. 59,188/-. The CIT (A) confirmed this, observing that the tools were used for implementing new projects and had an enduring advantage. The Tribunal upheld the CIT (A)'s decision, noting that the tools were capital in nature and formed part of the block of assets, allowing only depreciation on them.
Conclusion:
The appeal filed by the assessee is partly allowed. The Tribunal allowed the appeal concerning the disallowance of administrative expenses and employees' contribution to PF and ESIC but upheld the disallowances related to rent paid for accommodation and tools expenditure.
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2010 (8) TMI 1004
Issues Involved:
1. Addition of Rs. 1,60,512/- in respect of purchases from M/s Anirita Trade Links (wife's concern).
2. Disallowance of supervision fees of Rs. 2.18 lakhs paid to Mr. Shriharsh L Joshi (brother of the assessee).
3. Addition of Rs. 2,80,476 u/s 41(1) of the Income Tax Act, 1961.
Summary:
1. Addition of Rs. 1,60,512/- in respect of purchases from M/s Anirita Trade Links (wife's concern):
The assessee failed to provide documentary evidence to substantiate the purchases from M/s Anirita Trade Links (ATL), a concern owned by his wife. The concern had not filed returns since AY 2001-02 and lacked books of accounts for the relevant years. The CIT(A) deleted the addition of Rs. 1,61,054/- out of Rs. 3,21,556/- but confirmed the addition of Rs. 1,60,502/-. The Tribunal upheld the CIT(A)'s decision, noting the absence of valid purchase or sale bills and the failure of the assessee to discharge the onus of proof.
2. Disallowance of supervision fees of Rs. 2.18 lakhs paid to Mr. Shriharsh L Joshi (brother of the assessee):
The assessee initially claimed the payment under site provision charges, later changed to supervisory charges. The CIT(A) confirmed the disallowance due to lack of substantiation of services rendered. However, the Tribunal reversed this decision, accepting the sample bills and quotations provided as evidence of services rendered by Mr. S.L. Joshi, and allowed the claim of the assessee.
3. Addition of Rs. 2,80,476 u/s 41(1) of the Income Tax Act, 1961:
The CIT(A) confirmed the addition of Rs. 2,80,476/- out of a total discrepancy of Rs. 4,21,038/-, citing the failure of the assessee to reconcile the amounts. The Tribunal, however, found that the liabilities do not cease merely by efflux of time and noted that the amounts were written off as income in AY 2006-07. Consequently, the Tribunal reversed the CIT(A)'s decision on this issue and allowed the assessee's appeal, dismissing the revenue's grounds.
Conclusion:
The appeal of the revenue was dismissed, and the appeal of the assessee was partly allowed. The order was pronounced in the open Court on 13th August 2010.
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2010 (8) TMI 1003
Issues Involved:
1. Addition on account of sundry creditors.
2. Addition on account of income diverted to retired partners.
3. Credit for tax deducted at source (TDS).
4. Levy of interest u/s 234C(1).
5. Addition on account of difference in EEFC account valuation.
Summary:
1. Addition on account of sundry creditors:
The assessee, following the cash system of accounting, was showing certain amounts as liabilities. The AO made an addition of Rs. 16,46,455/- for the balance amounts not accepted. The CIT (A) directed the AO to follow the order for the assessment year 2001-02. The Tribunal restored the matter to the AO for verification and decision in accordance with law, particularly for items like profession tax, unpaid cheques, travel advance, and inter-office conversion exchange. The Tribunal noted that the assessee's system of accounting had been accepted by the department in part and required verification of payments made in subsequent years.
2. Addition on account of income diverted to retired partners:
The AO added Rs. 32,85,000/- paid to ex-partners, relying on CIT v. V.G. Bhuta. The CIT (A) confirmed the addition. The Tribunal, however, accepted the assessee's plea, noting that the partnership deed created an overriding title in favor of the ex-partners. The Tribunal referred to the decision in C.C. Chokshi and Co., which was confirmed by the Bombay High Court, and other similar cases, concluding that the amounts paid to retired partners could not be treated as the assessee's income.
3. Credit for tax deducted at source (TDS):
The Tribunal directed the AO to examine the assessee's claim regarding TDS and give credit in accordance with law while giving effect to the order.
4. Levy of interest u/s 234C(1):
The Tribunal noted that this ground was consequential and directed the AO accordingly.
5. Addition on account of difference in EEFC account valuation:
The AO added Rs. 7,41,262/- due to the difference in the EEFC account valuation. The CIT (A) deleted the addition, following the order for the assessment year 2000-2001. The Tribunal upheld this decision, noting that under the cash system of accounting, unrealized gain in the EEFC account could not be added as income, consistent with the precedent set in the assessee's own case for the assessment year 2000-2001.
Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed. The Tribunal directed the AO to verify certain claims and give effect to the order in accordance with law.
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2010 (8) TMI 1002
Issues Involved:
1. Whether the assessee had a business connection/permanent establishment (PE) in India.
2. Attribution of income to the PE and its taxability in India.
3. Reopening of assessments for the assessment years 2001-02 and 2002-03.
Summary:
1. Business Connection/Permanent Establishment (PE):
The primary issue was whether the assessee, a Singapore-incorporated company engaged in airline reservations through a computerized reservation system (CRS), had a business connection or PE in India. The assessee licensed marketing rights to Abacus Distribution System (India) Ltd. (ADSIL), its wholly-owned subsidiary in India. The Assessing Officer (AO) held that the assessee had a PE in India through ADSIL, as ADSIL provided computer hardware and software to travel agents and executed contracts on behalf of the assessee. The CIT(A) confirmed this, stating that ADSIL was a wholly dependent agent of the assessee, constituting a PE under Article 5(8) of the Tax Avoidance Treaty between India and Singapore.
2. Attribution of Income to PE:
The assessee argued that even if it had a PE in India, only a small portion of income could be attributed to it. The AO estimated the income at 10% of the receipts. The CIT(A) upheld this, noting the lack of global profit and loss accounts and the interdependence between the assessee and ADSIL. The assessee cited the case of Galileo International Inc., where the Tribunal held that only 15% of revenue could be attributed to operations in India, and since the payment to ADSIL was 25% of receipts, no further income could be taxed in India. The Tribunal agreed, stating that the facts were identical and followed the decision in Galileo International Inc., attributing only 15% of gross receipts to operations in India, resulting in no taxable income as the payment to ADSIL exceeded this percentage.
3. Reopening of Assessments:
For the assessment years 2001-02 and 2002-03, the assessee challenged the reopening of assessments. However, since the appeals were decided in favor of the assessee on merit, the Tribunal did not address the issue of reopening.
Conclusion:
The Tribunal allowed the appeals, holding that only 15% of gross receipts could be attributed to operations in India, and since the assessee had already incurred expenditure at 25% of gross receipts on payments to ADSIL, there was no income taxable in India. The issue of reopening assessments was not addressed due to the favorable decision on merits.
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2010 (8) TMI 1001
Issues Involved:
1. Rejection of books of account under section 145(3) of the Income-tax Act, 1961.
2. Method of accounting and estimation of profits.
3. Treatment of work-in-progress and administrative expenses.
4. Allowance of depreciation.
5. Enhancement of assessed income by the CIT(A).
Issue-wise Detailed Analysis:
1. Rejection of Books of Account under Section 145(3):
The Assessing Officer (AO) rejected the books of account of the assessee by invoking section 145(3) of the Income-tax Act, 1961. The AO's primary reason was that the assessee was following a hybrid method of accounting, which was not in accordance with the generally accepted accounting principles or Accounting Standard-7 and Accounting Standard-9. The AO also pointed out that the assessee did not maintain stock registers and details of inward and outward registers. However, the Tribunal found that the AO did not point out any specific defects in the books of account or the expenditure claimed by the assessee. The Tribunal held that the rejection of books of account under section 145(3) was bad in law as there was no finding that the expenditure was not for business purposes or that it was excessive.
2. Method of Accounting and Estimation of Profits:
The assessee consistently followed a method of accounting where it offered a certain percentage of the amount received from sales as net profit on an estimated basis. This method was accepted by the revenue for over 22 years. The AO contended that the assessee should have offered the total income from the project to tax in the year in which the occupation certificate was received (1992). The Tribunal noted that there was no prescribed method of accounting for real estate developers during the period under consideration. The Tribunal held that the method of accounting followed by the assessee, though not the most desirable, could not be changed mid-way, especially when it had been consistently followed and accepted by the revenue. The Tribunal emphasized the principle of consistency and ruled in favor of the assessee.
3. Treatment of Work-in-Progress and Administrative Expenses:
The AO observed that the assessee had added administrative expenses to the work-in-progress year after year, which inflated the work-in-progress. The AO did not accept the assessee's contention that it had already returned a profit of Rs. 3,87,93,921 up to 31.3.2005. The Tribunal found that the assessee had been consistently following a method where the construction-related expenses incurred each year were carried forward in the balance sheet as work-in-progress under the head "Bangalore Works Account." The Tribunal held that the method of determining income from the projects could not be changed mid-way and that the administrative expenditure should be allowed as there was no finding that it was not for business purposes.
4. Allowance of Depreciation:
The AO disallowed the depreciation claimed by the assessee without recording any specific reason. The Tribunal noted that the AO had not pointed out any defects in the claim for depreciation and that depreciation had been allowed in all the earlier assessment years. The Tribunal held that the depreciation should be allowed and ruled in favor of the assessee.
5. Enhancement of Assessed Income by the CIT(A):
The CIT(A) upheld the assessment order and enhanced the assessed income by reducing the work-in-progress claimed and determined by the AO. The CIT(A) held that the amounts paid as advances to various contractors could not go to increase the work-in-progress as they were still in the nature of advances. The Tribunal found that the CIT(A) had not given an opportunity to the assessee to provide details and evidences regarding the advances. The Tribunal ruled that the enhancement made by the CIT(A) was not justified and allowed the appeal of the assessee on this ground.
Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the rejection of books of account under section 145(3) was not justified, the method of accounting followed by the assessee should be accepted, the administrative expenses and depreciation should be allowed, and the enhancement of assessed income by the CIT(A) was not justified. The Tribunal emphasized the principle of consistency and ruled in favor of the assessee on all grounds.
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2010 (8) TMI 1000
The Appellate Tribunal ITAT Ahmedabad heard appeals by the assessee against orders of CIT(A) for assessment years 2003-04 and 2004-05. The assessee sought to withdraw both appeals, which was granted. Both appeals were dismissed as withdrawn on August 12, 2010.
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2010 (8) TMI 999
Issues Involved:
1. Erroneous order of CIT(A) as per law and facts.
2. Delay in furnishing information by the assessee.
3. Incorrect consideration of suppliers as farmers by CIT(A).
4. Acceptance of documentation by CIT(A) despite ITAT's previous findings.
5. Any other grounds raised during the hearing.
Summary:
Issue 1: Erroneous Order of CIT(A)
The revenue contended that the order of the CIT(A) was erroneous as per law and facts. However, the Tribunal found that the CIT(A)'s order was consistent with the Tribunal's findings for the assessment year (A.Y.) 2002-03, where similar issues were raised and decided in favor of the assessee.
Issue 2: Delay in Furnishing Information
The revenue argued that the assessee should have produced the suppliers of paddy during the assessment proceedings and that the delay in furnishing the required information was attributable to the assessee. The Tribunal noted that the facts of the case were identical to those in A.Y. 2002-03, where the Tribunal had already decided the matter in favor of the assessee, holding that payments made to commission agents representing the farmers were covered by the exemption under clause-f of rule 6DD.
Issue 3: Incorrect Consideration of Suppliers as Farmers
The revenue claimed that the CIT(A) incorrectly considered all suppliers as farmers despite the assessee's inability to distinguish between farmers and agents. The Tribunal reiterated its previous decision from A.Y. 2002-03, where it was concluded that the commission agents were representatives of the farmers, thus qualifying for the exemption under clause-f of rule 6DD.
Issue 4: Acceptance of Documentation by CIT(A)
The revenue contended that the CIT(A) should not have accepted the documentation provided by the assessee, as it was aimed at avoiding the provisions of section 40A(3) of the Income-tax Act. The Tribunal, however, found that the documentation and books of account were genuine and that the payments made to commission agents were covered by the exemption under clause-f of rule 6DD, as previously decided in A.Y. 2002-03.
Issue 5: Any Other Grounds
No additional grounds were raised during the hearing.
Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order, which was in line with the Tribunal's previous decision for A.Y. 2002-03. The Tribunal found no infirmity in the CIT(A)'s order and upheld the exemption under clause-f of rule 6DD for payments made to commission agents representing the farmers. The appeal of the revenue was dismissed, and the decision was pronounced in the open court on 19.8.2010.
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2010 (8) TMI 998
Issues Involved:
- Deduction of bad debts u/s 36(2)
- Apportionment of business expenses between trading and brokerage business
- Disallowance u/s 14A
- Interest paid as per SEBI Interest Liability Regularization Scheme, 2004
- Disallowance of VSAT and Lease Line charges as fee for technical services u/s 40(ia)
Deduction of Bad Debts u/s 36(2):
The Assessing Officer disallowed the claim of the assessee for bad debts written off, stating non-satisfaction of conditions u/s 36(2). The Special Bench decision in another case favored the assessee. The Tribunal remanded the issue to the Assessing Officer for reconsideration based on the Special Bench's principles, allowing the assessee's ground for statistical purposes.
Apportionment of Business Expenses:
The Assessing Officer disallowed a portion of business expenses related to share trading activities, considering them as speculation business. The Tribunal found the allocation based on turnover to be erroneous and remanded the issue for a fresh assessment, directing a reasonable allocation without exceeding the original disallowance.
Disallowance u/s 14A:
The Assessing Officer disallowed a portion of expenditure related to dividend income u/s 14A. The Tribunal upheld the Assessing Officer's estimation of 5% of dividend income as reasonable expenditure, setting aside the CIT(A)'s order and partially allowing the assessee's ground.
Interest Paid as per SEBI Interest Liability Regularization Scheme, 2004:
The Assessing Officer disallowed interest payment under the SEBI scheme as prior period expenditure. The Tribunal held the liability crystallized when the scheme was introduced, allowing the deduction for the interest paid in the relevant assessment year.
Disallowance of VSAT and Lease Line Charges:
The Assessing Officer disallowed VSAT and Lease Line charges as fee for technical services u/s 40(ia). The Tribunal, following precedent, confirmed the CIT(A)'s order in favor of the assessee, dismissing the revenue's ground on this issue.
In conclusion, the appeal filed by the assessee was partly allowed, while the appeal of the revenue was dismissed.
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2010 (8) TMI 997
Issues involved: Stay petition for waiver of service tax, interest, and penalties under various sections of the Finance Act, 1994.
Service tax liability on Works Contract for EPC Projects:
The appellant filed a stay petition seeking waiver of service tax, interest, and penalties imposed by the adjudicating authority for not discharging service tax liability on Works Contract for EPC Projects. The appellant argued that the projects executed were for water supply projects in Andhra Pradesh, involving irrigation and pipeline works. The appellant cited a previous case where a similar waiver was granted by the Bench. After considering the submissions and records, the Tribunal found merit in the appellant's argument and granted unconditional waiver of pre-deposit of the amounts involved, following the precedent set in the previous case.
Decision:
The Appellate Tribunal CESTAT BANGALORE, comprising Shri M. V. Ravindran and Shri P. Karthikeyan, allowed the application for waiver of pre-deposit of the amounts adjudicated in the impugned order, staying the recovery until the appeal is disposed of. The Tribunal relied on a previous case where a similar waiver was granted, establishing a precedent for granting such waivers in cases involving Works Contract for EPC Projects.
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2010 (8) TMI 996
The High Court Bombay disposed of the petition in terms of the draft Minutes of Order filed by both parties, with no order as to costs. (2010 (8) TMI 996 - HIGH COURT BOMBAY)
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2010 (8) TMI 995
Issues Involved:1. Classification of income from interest and lease rent. 2. Disallowance of expenses due to no business activity. 3. Set off of accumulated unabsorbed business losses. Summary:Issue 1: Classification of Income from Interest and Lease RentThe appellant contested the classification of lease rent and interest as "income from other sources" instead of "income from business." The tribunal noted that in previous years, the interest income was consistently assessed as business income except for the Assessment Year 1995-96, where it was assessed as income from other sources but later corrected by CIT(A). The principle of consistency was argued by the appellant, citing various judicial pronouncements. However, the tribunal held that the principle of res-judicata does not apply in income tax proceedings and emphasized that the principle of consistency is only applicable if the previous view was legally tenable. Since the appellant was not in the business of money lending, the interest income could not be classified as business income. Consequently, the tribunal upheld the CIT(A)'s order, rejecting Ground No. 2 of the appeal. Issue 2: Disallowance of Expenses Due to No Business ActivityThe appellant argued that expenses should be allowed as deductions either as business expenses or u/s 57 of the I.T. Act, even though no business was carried out during the year. The tribunal referred to the judgment of the Hon'ble High Court of Calcutta in CIT Vs New Savan Sugar & Gur Refining Co. Ltd., which allows deduction of expenses incurred to maintain establishment and comply with statutory obligations. The tribunal remanded the matter back to the A.O. to determine the extent of expenses incurred for maintaining the establishment and complying with statutory obligations, and to verify if the business faced a temporary lull or was discontinued. Grounds Nos. 3 & 5 were allowed for statistical purposes. Issue 3: Set Off of Accumulated Unabsorbed Business LossesThe appellant sought to set off brought forward unabsorbed business losses against the current year's income. The tribunal noted that u/s 72(1), such set off is permissible only against business income. Since there was no business income in the current year, the tribunal upheld the CIT(A)'s decision to disallow the set off of brought forward unabsorbed business losses. Ground No. 4 of the appeal was rejected. Conclusion:The appeal was partly allowed for statistical purposes, with specific directions for fresh examination of certain expenses by the A.O.
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2010 (8) TMI 994
Issues involved: Cenvat credit eligibility for various services including House Keeping/Cleaning, Tours and Travels, Outdoor Catering, Clearing and Forwarding Agent, and Custom House Agent services.
Summary:
House Keeping/Cleaning Service: The appellant's counsel argued that the service tax paid on House Keeping/Cleaning Service is essential for manufacturing final products. The Tribunal has consistently allowed Cenvat credit for such services.
Tours and Travels Service and Custom House Agent Service: Stay was granted for the Cenvat credit related to Tours and Travels Service and Custom House Agent Service in a previous case. The Tribunal upheld the stay for these services in the current case as well.
Outdoor Catering Services: The SDR referenced a decision by a Co-ordinate Bench stating that Cenvat credit for Catering services may not be eligible. However, the Tribunal found that a Larger Bench decision and consistent Tribunal views support the eligibility of Cenvat credit for Catering Services.
Clearing and Forwarding Agent Service: The Tribunal noted that a Division Bench consistently allowed Cenvat credit for Clearing and Forwarding Agent Service, supporting the appellant's claim for waiver of pre-deposit.
In conclusion, the Tribunal allowed the waiver of pre-deposit for all disputed amounts related to Cenvat credit on various services, citing prima facie evidence in favor of the appellant. The recovery of these amounts was stayed pending the appeal's disposal.
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2010 (8) TMI 993
Issues Involved:
1. Disallowance of expenses u/s 37(2) for hospitality and sale promotion.
2. Deletion of addition on account of selling commission.
3. Disallowance of provision for contribution towards approved gratuity fund u/s 40A(7).
4. Allowance of depreciation on assets in excess of 100% due to amalgamation.
Summary:
Issue 1: Disallowance of Expenses u/s 37(2) for Hospitality and Sale Promotion
The Tribunal found an error in the Assessing Officer's (AO) calculation of hospitality and sale promotion expenses. The AO had made an additional disallowance of Rs. 11,11,147.07, which was incorrect. The Tribunal deleted this addition, stating it was a pure finding of fact related to the calculation of the amount offered for taxation by the assessee.
Issue 2: Deletion of Addition on Account of Selling Commission
The AO disallowed the payment of Rs. 51,17,889/- as commission due to the absence of confirmation letters from the agents. The Tribunal allowed the claim, noting that the assessee had provided names, addresses, GIR numbers, agreements, and invoices, and payments were made by account payee cheques. The Tribunal's decision was based on the sufficiency of the evidence provided by the assessee. However, the High Court remitted the matter back to the AO for verification of the details and documents furnished by the assessee.
Issue 3: Disallowance of Provision for Contribution towards Approved Gratuity Fund u/s 40A(7)
The Tribunal followed the judgment in CIT Vs. Bechtel India (P) Ltd., which held that Section 40A(7)(b) overrides Section 43B. Since the provision made was towards an approved gratuity fund, the Tribunal allowed the deduction. The High Court agreed, stating no substantial question of law arises in this regard.
Issue 4: Allowance of Depreciation on Assets in Excess of 100% Due to Amalgamation
The Tribunal allowed the depreciation claim by both the amalgamating and amalgamated companies, which exceeded 100% for the same financial year. The High Court noted that the fourth proviso to Section 32(1), introduced by the Finance Act, 1996, w.e.f. 1st April 1997, restricts aggregate depreciation to the prescribed rates. However, this proviso was not applicable to the assessment year 1995-96. The High Court upheld the Tribunal's decision, stating that the existing law allowed such claims before the amendment.
Other Appeals:
- ITA 236/2008 (Assessment Year 1996-97): The first question was answered against the revenue based on a previous judgment. The second and third questions were similar to those in ITA 280/2008 and were disposed of accordingly.
- ITA 235/2008 (Assessment Year 1997-98): The questions were similar to those in ITA 280/2008 and ITA 236/2008 and were disposed of based on the same reasoning.
- ITA 258/2009 & ITA 266/2009 (Assessment Year 1998-99): These appeals pertained to the payment of commission and were disposed of based on the decision in ITA 280/2008.
All appeals were disposed of accordingly.
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2010 (8) TMI 992
Issues Involved:
1. Whether the CIT(A) was justified in allowing the claim of bad debts amounting to Rs. 9,69,363/-.
2. Whether the CIT(A) was justified in confirming the addition of Rs. 1,37,20,000/- as income of the assessee being remission of liability on account of Non-Convertible Debentures (NCDs).
Issue-Wise Detailed Analysis:
1. Allowing the Claim of Bad Debts:
The revenue challenged the CIT(A)'s decision to allow the assessee's claim of bad debts amounting to Rs. 9,69,363/-. The AO had disallowed this claim on the grounds that the assessee did not provide sufficient evidence to prove that the debt had actually gone bad, as required under section 36(1)(vii) read with section 36(2) of the Income Tax Act.
On appeal, the CIT(A) allowed the claim, leading to the revenue's appeal. The learned DR argued that merely writing off the debt is insufficient, citing the Gujarat High Court's decision in Dhall Enterprises (295 ITR 481). The assessee contended that the conditions of section 36(1)(vii) were satisfied upon writing off the debt in the books of account, relying on the Supreme Court's decision in T.R.F. Ltd v. CIT (323 ITR 397).
The Tribunal noted that the AO did not dispute that the amount was part of the sale consideration for the assessment year 2003-04. As per the amended provisions of section 36(1)(vii), it is sufficient for the debt to be written off as irrecoverable in the accounts. The Tribunal upheld the CIT(A)'s decision, stating that in the absence of any findings by the AO that the assessee's decision was dishonest or mala fide, the claim could not be denied. Thus, the revenue's appeal was dismissed.
2. Addition of Rs. 1,37,20,000/- as Income on Account of Remission of NCDs:
The assessee contested the CIT(A)'s decision to confirm the addition of Rs. 1,37,20,000/- as income, which was remission of liability on account of NCDs. The AO had noted that the assessee had originally taken a loan of Rs. 5 crores from State Bank of India Home Finance Ltd, which was later settled by issuing Zero percent NCDs of Rs. 2,93,00,000/-. The balance amount of Rs. 1,37,20,000/- was claimed by the assessee as remission of capital loan and hence exempted.
The AO treated the remission as income, arguing that the NCDs included amounts converted from interest, which had not been claimed as a deduction in earlier years. The CIT(A) upheld this view.
Before the Tribunal, the assessee argued that the entire liability of Rs. 2,93,00,000/- was towards the principal amount and no interest was claimed as expenditure in the earlier years. The assessee relied on several judicial precedents, including Polyflex (India) Pvt Ltd v. CIT (257 ITR 343) and Mahindra and Mahindra v. CIT (261 ITR 501).
The learned DR contended that the NCDs included interest components and thus the remission should be treated as income. The Tribunal examined the settlement letter from SBI Home Finance Ltd, which clarified that the NCDs were issued against the capitalized portion of the loan and future interest.
The Tribunal concluded that since the loan was taken for acquiring a capital asset and no interest was claimed as expenditure, the remission of the NCDs could not be treated as income under section 41(1). The Tribunal distinguished the case from the decisions cited by the DR, noting that the loan was not for trading purposes.
The Tribunal allowed the assessee's appeal, setting aside the orders of the lower authorities on this issue.
Conclusion:
The appeal of the revenue was dismissed, and the appeal of the assessee was allowed. The Tribunal upheld the CIT(A)'s decision on the bad debts claim and reversed the CIT(A)'s decision on the addition of Rs. 1,37,20,000/-.
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2010 (8) TMI 991
Issues Involved:
1. Addition of Rs. 4,47,817 u/s 40A(2)(b) by adopting a higher gross profit rate.
2. Defects in accounts and estimation of net profit.
3. Appropriateness of the net profit estimation by CIT(A).
4. Consideration of facts, nature of business, and explanations provided by the appellant.
Summary:
Issue 1: Addition of Rs. 4,47,817 u/s 40A(2)(b)
The AO made an addition of Rs. 4,47,817 by estimating a gross profit rate of 10.95% on the turnover declared by the assessee, focusing on payments made to four sub-contractors covered u/s 40A(2)(b). The AO found various infirmities in the dealings with these sub-contractors, including lack of infrastructure and experience, and concluded that the sub-contracts were a sham arrangement to reduce tax liability. Consequently, the AO rejected the book results and applied an average GP rate of 10.95% from the last three years.
Issue 2: Defects in Accounts and Estimation of Net Profit
The AO's rejection of the book results was based on the fall in GP rate and the nature of sub-contracts. The CIT(A) accepted the alternative contention of the assessee regarding the application of net profit rate and directed the AO to apply a net profit rate of 1% over and above what was declared by the assessee on total receipts. The CIT(A) noted that the appellant's explanation for the fall in GP rate due to increased turnover and change in the nature of contracts was plausible.
Issue 3: Appropriateness of Net Profit Estimation by CIT(A)
The CIT(A) found that while the AO rejected the entire books of account, the matter primarily fell under the domain of s. 40A(2)(b). The CIT(A) concluded that the appellant's declared results needed to be estimated, and applying a net profit rate of 1% over the declared rate was justifiable. The CIT(A) considered the significant increase in turnover and change in contract nature, which justified the fall in GP rate.
Issue 4: Consideration of Facts, Nature of Business, and Explanations Provided
The Tribunal noted that the assessee had not raised any ground of appeal challenging the rejection of book results. However, it acknowledged the difference in contract nature and increased turnover as reasons for the fall in GP rate. The Tribunal emphasized that non-reporting of transactions with concerns covered u/s 40A(2)(b) could be attributed to the auditors and not a ground to reject the assessee's version. The Tribunal also highlighted that the AO did not make an effort to prove that the expenditure was excessive or unreasonable.
Conclusion:
The Tribunal modified the orders of the authorities below and restricted the addition to Rs. 50,000, considering the facts and circumstances of the case, the increased turnover, and the nature of contracts. The appeal of the assessee was partly allowed.
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2010 (8) TMI 990
The Delhi High Court allowed the application for condonation of delay in re-filing the appeal. The appeal (ITA 956/2010) was dismissed as the controversy was covered by a previous decision. No costs were ordered.
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2010 (8) TMI 989
Correct head of income - Transaction of sale and purchase of shares - capital gain or business income - period of holding of shares - principle of res judicata - CIT(A) in confirming the treatment of short-term capital gain as business income by the AO - AO noted employing the services of portfolio management consultants and investing borrowed funds for purchase of shares the transactions done by the assessee acquired the character of trading rather than mere investment - HELD THAT:- From the chart filed by the learned counsel for the assessee giving the details of shares transacted during the year, it is seen that the shares are held for a few days only and in very few cases for a few months but in no case it is exceeding 200 days. Purchase of shares during the year and selling them frequently in short period, in our opinion, do indicate that the assessee has purchased the shares with a motive to earn profit in a short period. Therefore, the facts of the instant case do not persuade us to hold that the shares were held as investment since these are not held for such a long period so as to treat the same as investment.
The frequency and volume of the transactions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an investment a person usually watches the market over a longer period of time before selling of the shares. The earning of dividend and the appreciation of the shares is the primary consideration. It is only a trader who would look for short-term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to the said transactions in the books of account, in our opinion, is not the only determinative factor about the nature of the transactions.
The submission of the learned counsel for the assessee that in the preceding year the Assessing Officer has accepted the long-term capital loss on sale of shares and, therefore, the same should be followed this year is also without much force since principle of res judicata does not apply to income-tax proceedings and every assessment is independent. When there are changes in the facts and circumstances, the rule of consistency need not be applied.
In this view of the matter, we are of the considered opinion that the activity of frequent buying and selling of shares over a short span of period during the impugned year has to be treated as business being adventure in the nature of trade and the income has to be treated as business income and not as capital gain as claimed by the learned counsel for the assessee. -Decidedagainst assessee.
Disallowance of telephone expenses - CIT(A) restricted disallowance of telephone expenses from 10 per cent to 5 per cent and motorcar expenses from 15 per cent to 10 per cent - HELD THAT:- The order of the CIT(A) is quite reasonable since personal element in case of telephone expenses and motorcar expenses cannot be ruled out. Since the disallowance of telephone expenses has been restricted at 5 per cent of the total expenses and the disallowance of the motorcar expenses has been restricted at 10 per cent of the total expenses by the CIT(A), the same, in our opinion, is justified and reasonable - Grounds raised by the assessee are accordingly dismissed.
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2010 (8) TMI 988
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Revision u/s 263 - non-verification of raw material - HELD THAT:- the observations of learned CIT that certain vouchers were still unverifiable appears to be based on mere assumption and mere assumption is not sufficient to hold that assessment order is erroneous. Therefore, we hold that in the present case there is no incorrect assumption of facts and there is no incorrect application of law so as to make the assessment order passed by the AO as erroneous. so far as it relates to the issue regarding invocation of power u/s 263 with regard to non-verification of raw material purchases to the tune of ₹ 1,94,66,944, we hold that the power has wrongly been exercised by CIT u/s 263.
In regard to donation - HELD THAT:- it is observed that the said mistake was rectified by the AO much prior even to the show-cause notice issued by learned CIT. The said mistake was rectified by the AO vide order passed u/s 154 dt. 22nd May, 2008 whereas the show-cause notice issued by the CIT is dt. 2nd March, 2010. Thus, the said ground cannot be said to be subject-matter of s. 263 as the said issue was not existing on the date when CIT has initiated the proceedings u/s 263.
regard to claim of depreciation - HELD THAT:- it is observed that the AO had raised specific query with regard to user of the asset on which the assessee had claimed depreciation and the replies were also given by the assessee to the AO. The AO being satisfied with the reply has accepted the claim of the assessee regarding depreciation. Learned CIT in his order has nowhere specified that which part of the machinery was not utilized by the assessee for whole of the year and to pinpoint that how the claim of the assessee regarding depreciation was wrongly decided by the AO. In the absence of any such material, the ratio applied by us in respect of the issue regarding raw material purchase will be fully applicable to this issue also and applying the same reasons we hold that learned CIT was wrong in invoking the s. 263 on the issue of depreciation.
Therefore, we are of the opinion that learned CIT has wrongly invoked s. 263 to the case of the assessee. Therefore, the impugned order passed u/s 263 is set aside and the assessment order, which is neither erroneous nor prejudicial to the interest of Revenue, is restored.
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