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Showing 201 to 220 of 1054 Records
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2011 (2) TMI 1436
Issues Involved:
1. Whether controlling interest has a separate existence from the shares and is separately tradable.
2. The correct sale value for the purposes of capital gains.
3. Taxability of consideration received for parting with controlling interest.
4. Applicability of Section 55(2)(a) regarding the cost of acquisition of controlling interest.
5. Whether non-compete fees are taxable under Section 28(va).
Detailed Analysis:
1. Whether controlling interest has a separate existence from the shares and is separately tradable:
The assessee argued that the controlling interest is separate from the shares and should be valued independently. The Assessing Officer (AO) disagreed, stating that managerial control is an inalienable part of the shares and cannot be traded separately. The AO relied on several case laws including Maharani Ushadevi vs. CIT, Venkatesh (Minor) vs. CIT, and CIT vs. Mahadeo Ram Kumar, which held that controlling interest is an incidence arising from holding a particular number of shares and cannot be separately acquired or transferred.
2. The correct sale value for the purposes of capital gains:
The assessee disclosed a short-term capital gain of Rs. 3,77,02,504 and a long-term capital gain of Rs. 7,27,34,858 from the sale of shares at Rs. 105 per share. The assessee contended that only Rs. 74.20 per share should be considered for capital gains, with the balance being non-taxable as it was for parting with managerial control. The AO, however, took the full value of consideration for transfer of shares at Rs. 105 per share, calculating higher capital gains.
3. Taxability of consideration received for parting with controlling interest:
The CIT(A) held that the transaction involved the transfer of controlling interest and that the value of controlling interest should be apportioned from the total consideration. The CIT(A) accepted the valuation report by Deloitte Haskins and Sells, which valued the shares without controlling interest at Rs. 74.20 per share. The balance was considered as the value for controlling interest, which was held to be non-taxable as per the Supreme Court's decision in B.C. Srinivasa Shetty.
4. Applicability of Section 55(2)(a) regarding the cost of acquisition of controlling interest:
The AO argued that as per Section 55(2)(a), the cost of acquisition in relation to "a right to manufacture, produce, or process any article or thing, or right to carry on any business" is deemed to be taken as nil. The CIT(A), however, held that controlling interest is not covered by Section 55(2)(a) and thus, the consideration received for it is not taxable.
5. Whether non-compete fees are taxable under Section 28(va):
The agreement dated 28-01-06 included a non-compete undertaking, for which Rs. 15 per share was paid. The tribunal held that this amount is squarely covered by Section 28(va) of the Act and is assessable as income under the head 'business'.
Conclusion:
The tribunal decided that the full value of consideration for the transfer of shares is Rs. 90 per share for the purpose of calculating capital gains, and Rs. 15 per share is to be assessed as business income under Section 28(va). The appeals by the revenue were allowed, overturning the CIT(A)'s decision to apportion the consideration between shares and controlling interest.
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2011 (2) TMI 1435
The Bombay High Court dismissed the appeal as the Tribunal set aside the order of C.I.T. u/s 263 of the Income Tax Act, 1961, based on a previous judgment in the case of Commissioner of Income Tax Vs. M/s Mukta Arts Pvt. Ltd. No costs were awarded.
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2011 (2) TMI 1434
The appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2006-07 was dismissed by the ITAT Mumbai due to lack of prosecution by the assessee. The decision was based on precedents and the appeal was deemed unadmitted.
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2011 (2) TMI 1433
Computation of Capital Gain - LTCG or STCG - addition u/s 50 - Cost Indexation Benefit - assessee had stopped claiming depreciation in the income tax return - Assessee treated a flat as fixed asset in balance sheet - claimed the benefit of cost indexation while computing the capital gains on sale of that flat - whether the character of the asset did change and the asset became a fixed asset or investment and ceased to be a business asset? - CIT(A) noted assessee erred in not considering income from flat as business income. The sale gave rise only to short term capital gains. As regards the cost indexation benefit, the benefit was available only where an asset held as investment is realized
HELD THAT:- The order in SAKTHI METAL DEPOT VERSUS INCOME-TAX OFFICER. WARD-2 [2004 (11) TMI 507 - ITAT COCHIN] is applicable where in held that if no depreciation had been claimed or allowed in respect of the asset, even though for an earlier period depreciation was claimed and allowed, from the year in which the depreciation claimed was discontinued, the asset would cease to be a business or depreciable asset and if the asset had been acquired beyond the period of thirty six months from the date of sale, it would be a case of long term capital gains.
In our humble understanding, the ratio of the order appears to be that the asset had ceased to be a business asset and had become an investment. The moment the assessee stopped claiming depreciation in respect of the flat and even let out the same for rent; it ceased to be a business asset.
In the present case there is also no dispute that the flat under consideration was held for a period of more than thirty six months and therefore a long term capital asset. Accordingly the capital gains is directed to be assessed as long term capital gains after allowing the benefit of cost indexation as claimed by the assessee - Decision in favour of Assessee
Applicability of Section 112 - In our view the capital gains are long term capital gains, the assessee’s contention regarding application of Section 112 is correct. However, since the entire capital gains will then be exempt under section 54EC.
Computation of Minimum Alternative Tax u/s 115JB - CIT(A) confirmed the action of AO in not reducing the profit earned by the petitioner on sale of flat for the purposes of computing the book profits u/s 115JB - HELD THAT:- It is agreed by the parties that this ground is covered in favour of the department by the order of the Special Bench in the case of RAIN COMMODITIES LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3(1), HYDERABAD [2010 (7) TMI 794 - ITAT HYDERABAD]. Accordingly the orders of the departmental authorities in respect of this ground are confirmed - Decision Against Assessee
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2011 (2) TMI 1432
Issues Involved:
1. Deletion of unaccounted investment made by the assessee.
2. Deletion of unaccounted income on unaccounted investment.
3. Assessments on a protective basis pending appeals in the case of Saravana Constructions.
4. Failure to substantiate the claim of finance procured through various financiers.
Summary:
Issue 1: Deletion of Unaccounted Investment
The CIT (A) erred in deleting the unaccounted investment made by the assessee. The Revenue argued that the seized materials indicated that the assessee was involved in money lending to Saravana Constructions Pvt. Ltd. (SCPL). However, the CIT (A) found that the assessee was a small financier with limited capital and primarily acted as a finance broker. The CIT (A) deleted the protective addition in the assessee's hands, stating that the issue should be examined substantively in the hands of SCPL.
Issue 2: Deletion of Unaccounted Income on Unaccounted Investment
The CIT (A) also erred in deleting the unaccounted income on unaccounted investment. The Revenue contended that the interest income earned by the assessee on the unaccounted investment was evident from the seized materials. The CIT (A) concluded that the assessee did not have the means to indulge in such money lending activities and primarily earned income through commission as a finance broker.
Issue 3: Assessments on a Protective Basis
The assessments were made on a protective basis, pending appeals in the case of Saravana Constructions. The CIT (A) noted that the additions were made protectively in the hands of the assessee and could be substantive in the hands of SCPL. The CIT (A) deleted the protective addition in the assessee's hands, emphasizing that the issue should be examined substantively in the hands of SCPL.
Issue 4: Failure to Substantiate the Claim of Finance Procured
The CIT (A) ought to have appreciated that the assessee failed to substantiate the claim of finance procured through various financiers by producing necessary material evidence. The Revenue argued that the assessee did not provide confirmation letters or details of transactions made by other parties. The CIT (A) found that the assessee's books were not rejected, and the assessee was primarily a finance broker with limited capital for investment.
Conclusion:
The Tribunal concluded that the assessing officer was not within his domain to initiate action u/s 153C r.w.s. 153A of the Act against the assessee, as no books of account or incriminating documents pertaining to the assessee were seized during the search. The Tribunal upheld the CIT (A)'s decision to delete the protective additions in the assessee's hands and dismissed the Revenue's appeals for all the assessment years under challenge.
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2011 (2) TMI 1431
Issues involved:
The judgment involves appeals and cross objections arising from a common order of the CIT(A)-II dated 18/1/2010 for the assessment years 1997-98 to 1999-2000.
Deduction u/s 80P(2)(vi) of the Act:
The assessee, a cooperative society providing marketing assistance to its members, claimed deduction u/s 80P for the relevant assessment years. The AO initially restricted the deduction to a nominal amount u/s 80P(2)(c) of the Act. Upon remand by the Tribunal, the AO re-assessed the income, concluding that the service charges earned by the society were akin to commission and not eligible for deduction u/s 80P(2)(a)(vi). However, the CIT(A) allowed the deduction after considering the society's activities and the nature of income derived, emphasizing that the service charges were related to marketing goods manufactured by its members.
Interpretation of Tribunal's earlier order:
The Tribunal's previous order had determined that certain activities of the society fell under u/s 80P(2)(a)(vi) based on the bye-laws and nature of operations. The CIT(A) directed the AO to examine the gross profit from various activities and apply the relevant provisions of u/s 80P accordingly. The Tribunal's finding regarding the specific activities entitled to deduction u/s 80P(2)(a)(vi) was upheld, emphasizing the finality of the Tribunal's decision and the correctness of the CIT(A)'s order.
Conclusion:
The appeals filed by the revenue were dismissed, affirming the CIT(A)'s order allowing deduction u/s 80P(2)(a)(vi) for the society's relevant activities. The cross objections filed by the assessee were deemed infructuous due to the dismissal of the revenue's appeals. The judgment was pronounced on February 28, 2011, in Bangalore.
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2011 (2) TMI 1430
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Penalty levied u/s 271(1)(c) - disallowance u/s 040(a)(ia) for non payments of TDS - The brief facts leading to the issue are that assessee-firm is engaged in construction activities and it has filed it’s return income. The AO issued notice u/s.143(2) and during assessment proceedings he found that assessee had made TDS from gross contract payment to carting contractor. However, TDS amount was not deposited into govt. exchequer before expiry of time prescribed u/s 200(1).
HELD THAT:- this is not allowable as deduction while computing the income chargeable under the head ‘profit & gains of business or profession’ for the year. We find from the orders of the lower authorities that there is no allegation that the payment of catering expenses on which TDS is deducted but not paid to Govt. exchequer is non-genuine or bogus. It is also a fact that the lower authorities have not brought anything or not disputed that the payment is excessive or unreasonable. The disallowance is simply made either for non-deduction of TDS in view of provisions of Section 040(a)(ia) or non-payment of TDS deducted to the govt. exchequer. In view of the above discussion, that the legal fiction created by Section 040(a)(ia) will not apply to the provisions of Section 271(1)(C), the disallowance made simply by invoking the provisions of Section 040(a)(ia) will not attract penalty for furnishing of inaccurate particulars of income because there is no inaccurate particulars of income in the return. Accordingly, we confirm the order of CIT(A) deleting the penalty and this issue of the Revenue’s appeal is dismissed.
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2011 (2) TMI 1429
Issues Involved:
1. Additional depreciation on windmill.
2. Deduction under section 80-IA for the new unit at Plant-II.
3. Combining profits and losses of all units for deduction under section 80-IA.
4. Addition under section 40(a)(ia) for non-deduction of TDS on commission paid to non-resident agents.
5. Disallowance under section 14A.
Issue-wise Detailed Analysis:
1. Additional Depreciation on Windmill:
The Revenue challenged the CIT(A)'s direction to allow additional depreciation on the windmill. Both parties agreed that the issue was covered by the Tribunal's earlier decision in the assessee's own case, which followed the jurisdictional High Court's ruling in Hi Tech Arai (321 ITR 477). The Tribunal confirmed the CIT(A)'s finding, allowing the additional depreciation on the windmill installed during the relevant period.
2. Deduction under Section 80-IA for the New Unit at Plant-II:
The Revenue contended that the assessee started production in Plant-II for the year ending 31.3.1995, making the assessment year 2007-08 beyond the ten-year period for deduction under section 80-IA. The assessee argued that significant machinery was installed only by 31.3.1998, and production began in the assessment year 1998-99. The Tribunal reviewed the annual reports and found that the imported machinery essential for production was used only in the year ending 31.3.1998. It concluded that the first year of manufacture for Plant-II was the assessment year 1998-99, confirming the CIT(A)'s decision to allow the deduction under section 80-IA for the assessment year 2007-08.
3. Combining Profits and Losses of All Units for Deduction under Section 80-IA:
The Revenue argued that all units fed into a common power grid, and profits and losses should be combined for deduction purposes. The Tribunal referred to its decision in Bannari Amman Sugars Ltd., where it was held that each power generating unit should be treated independently for section 80-IA deductions. The Tribunal confirmed the CIT(A)'s decision, allowing separate deductions for each unit.
4. Addition under Section 40(a)(ia) for Non-Deduction of TDS on Commission Paid to Non-Resident Agents:
The Revenue argued that the assessee failed to deduct TDS on commission paid to non-resident agents, justifying the addition under section 40(a)(ia). The assessee contended that the agents had no income arising in India and relied on CBDT circulars and the Supreme Court's decision in GE India Technology Centre P. Ltd. (327 ITR 456). The Tribunal, following the Supreme Court's ruling, held that no TDS was required as the commission was not chargeable to tax in India, confirming the CIT(A)'s deletion of the addition.
5. Disallowance under Section 14A:
The Revenue challenged the CIT(A)'s restriction of disallowance under section 14A to Rs. 10,000. The Tribunal noted that this issue was already addressed in the assessee's appeal (ITA No. 675/Mds/2010), where it was remanded to the Assessing Officer for re-adjudication. Consequently, the Tribunal also remanded this issue in the Revenue's appeal for re-adjudication by the Assessing Officer.
Conclusion:
The appeal of the Revenue (ITA No. 722/Mds/2010) was partly allowed for statistical purposes, and the appeals of the assessee (ITA Nos. 731 and 1168/Mds/2010) were allowed. The order was pronounced on 04/02/2011.
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2011 (2) TMI 1428
Issues Involved:
1. Disallowance of deduction under section 80IA(4) on captive power plant.
2. Disallowance under section 14A towards interest and other expenses in relation to exempted income.
3. Disallowance of provision for bad debts for computing book profit.
4. Allowance of reduction of withdrawal from revaluation reserve for computing book profit.
5. Disallowance of deduction of wealth tax provision for computing book profit.
6. Confirming disallowance of deduction under section 80HHC for computing book profit.
Issue-wise Detailed Analysis:
1. Disallowance of Deduction Under Section 80IA(4) on Captive Power Plant:
The Revenue's appeal contested the deletion of disallowance under section 80IA(4) for the captive power plant. The Learned Commissioner of Income Tax (Appeals) had allowed the deduction following the ITAT's decision for Assessment Year 2003-04, which set the market value of electricity based on the price at which the assessee purchased electricity from the Electricity Board. The Tribunal confirmed the order of the Learned Commissioner of Income Tax (Appeals), finding no infirmity and dismissed the Revenue's ground of appeal.
2. Disallowance Under Section 14A Towards Interest and Other Expenses in Relation to Exempted Income:
The Revenue appealed against the deletion of disallowance under section 14A. The Learned Commissioner of Income Tax (Appeals) had canceled the disallowance based on previous decisions, which held that the Assessing Officer must pinpoint expenditure incurred in relation to exempt income, rather than making an ad-hoc disallowance. The Tribunal, however, set aside the orders of the lower authorities and remanded the matter back to the Assessing Officer for re-adjudication in light of the Bombay High Court's decision in Godrej and Boyce Manufacturing Co. Ltd. v. P. K. Gupta.
3. Disallowance of Provision for Bad Debts for Computing Book Profit:
The Revenue's appeal contested the deletion of disallowance of provision for bad debts. The Learned Commissioner of Income Tax (Appeals) had canceled the addition based on the ITAT's decisions in previous years. However, the Tribunal noted the retrospective amendment in section 115JB disallowing such provisions and restored the matter back to the Assessing Officer to allow the actual amount of bad debt claimed during the year while computing book profits.
4. Allowance of Reduction of Withdrawal from Revaluation Reserve for Computing Book Profit:
The Revenue appealed against the allowance of reduction of withdrawal from the revaluation reserve. The Learned Commissioner of Income Tax (Appeals) had followed the ITAT's decision in the assessee's own case for Assessment Year 2003-04, allowing the reduction. The Tribunal found no specific defect in the order and confirmed the decision of the Learned Commissioner of Income Tax (Appeals), dismissing the Revenue's ground of appeal.
5. Disallowance of Deduction of Wealth Tax Provision for Computing Book Profit:
The Revenue contested the deletion of disallowance of wealth tax provision. The Learned Commissioner of Income Tax (Appeals) had canceled the disallowance, following previous decisions which held that the provision for wealth tax does not fall within the items of the Explanation to section 115JB. The Tribunal upheld the decision of the Learned Commissioner of Income Tax (Appeals), confirming that the provision for wealth tax is an ascertained liability and should not be added back while computing book profit.
6. Confirming Disallowance of Deduction Under Section 80HHC for Computing Book Profit:
The assessee's cross-objection challenged the disallowance of deduction under section 80HHC while computing book profits under section 115JB. However, the Tribunal noted that this issue did not arise out of the order of the Learned Commissioner of Income Tax (Appeals) and was not mentioned in the assessment order. Consequently, the Tribunal did not admit this ground of cross-objection, dismissing it as not arising out of the orders of the lower authorities.
Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes by remanding certain issues back to the Assessing Officer for re-adjudication. The cross-objection filed by the assessee was dismissed. The Tribunal confirmed several decisions of the lower authorities, maintaining consistency with previous rulings and judicial pronouncements.
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2011 (2) TMI 1427
Deduction of TDS u/s 194H - Disallowance of sub-brokerage u/s 40(a)(ia) - Assessee was engaged in distribution of units of Mutual Funds and no tax was deducted at source from brokerage by Mutual Fund companies - Assessee contended since he received brokerage without any TDS in view of provisions of section 194H, the payment of sub-brokerage on similar lines should also gets exemption u/s 194H - CIT(A) has accepted the contention and directed the A.O. to delete the disallowance so made u/s 40(a)(ia).
HELD THAT - As per 194H, the commission or brokerage definition does not include transactions in securities.There is no doubt that Mutual Funds are categorised as securities under Securities Contract (Regulation) Act. From the details placed, we are convinced that the sub-brokerage paid is connected with the services rendered in the course of buying and selling of units of Mutual Funds or in relation to transactions pertaining to Mutual Funds and as per the provisions of section 194H Explanation (i) these are not covered by the provision for deduction of tax at source.
There is nothing on record to indicate that the sub-brokerage is paid for any other services other than relating to securities. The A.O. also accepts that the brokerage received by the assessee is not covered by TDS whereas he was of the opinion that the sub-brokerage paid is covered by the provisions. We are unable to understand this logic of the A.O. For these reasons, we are of the opinion that the order of the CIT(A) does not require any modification and accordingly the same is confirmed.
With reference to cross objection regarding disallowance made by AO includes service tax, since the entire amount disallowed by the AO was allowed to the assessee, there is no need to adjudicate this issue separately and there is no need to give any specific direction to the A.O.
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2011 (2) TMI 1426
Issues involved: Appeal against cancellation of registration u/s 12A of the Income Tax Act, 1961.
Summary:
1. The appeal challenged the cancellation of registration u/s 12A by the Director of Income Tax (Exemption) on the grounds of jurisdiction.
2. The key issue was whether the Director had the power u/s 12AA(3) to cancel the registration granted u/s 12A. The Tribunal held that the Director lacked the authority to cancel the registration under s. 12A, as s. 12AA(3) only applied to registrations granted under s. 12AA(1)(b).
3. The Tribunal emphasized that the provisions of s. 12AA(3) were substantive and prospective, not retrospective, and could not be applied to registrations granted u/s 12A.
4. The subsequent amendment to s. 12AA(3) to include registrations granted u/s 12A was deemed clarificatory and not retrospective, thus the cancellation order was set aside as devoid of jurisdiction.
5. Since the cancellation order was held to be without jurisdiction, the Tribunal did not address other grievances raised by the assessee, rendering them academic.
6. Consequently, the appeal was allowed, and the cancellation order was quashed.
Judges: R. S. Padvekar (Judicial Member) and Pramod Kumar (Accountant Member)
Citation: 2011 (2) TMI 1426 - ITAT MUMBAI
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2011 (2) TMI 1425
Issues Involved:
1. Deletion of penalty u/s 271(1)(c) of the IT Act.
2. Disallowance of provision made for sludge disposal charges.
3. Levy of interest u/s 234D of the IT Act.
Summary:
1. Deletion of Penalty u/s 271(1)(c) of the IT Act:
The departmental appeal challenged the deletion of penalty u/s 271(1)(c) amounting to Rs. 3,80,610/- levied on the addition due to disallowance of provision for sludge disposal charges of Rs. 10,40,131/-. The CIT(A) had deleted the penalty, noting that the assessee had disclosed all relevant facts and provided detailed explanations during the assessment proceedings. The CIT(A) concluded that the disallowance was a matter of legal interpretation and not due to concealment or furnishing of inaccurate particulars of income. The ITAT upheld this view, emphasizing that penalty provisions require strict adherence and the onus to prove concealment lies on the Revenue. Since the addition on merit was deleted by the Tribunal in the preceding assessment year, the penalty on the same matter was deemed unnecessary and thus dismissed.
2. Disallowance of Provision Made for Sludge Disposal Charges:
The assessee's appeal contested the disallowance of the provision for sludge disposal charges amounting to Rs. 10,40,131/-. The AO had disallowed the provision, considering it a contingent liability created to reduce taxable income, as no actual expenses were incurred and the assessee had not complied with Accounting Standards I and II. The CIT(A) upheld the disallowance, noting that the provision was not based on actual liability but on future disposal of sludge. However, the ITAT, referencing its own decision in the assessee's case for previous years, allowed the provision, recognizing that the liability for sludge disposal accrues as soon as the sludge is generated, following the mercantile system of accounting. Thus, the provision for sludge disposal charges was allowed as a deduction u/s 37 of the Act.
3. Levy of Interest u/s 234D of the IT Act:
The assessee's appeal also challenged the computation of interest u/s 234D amounting to Rs. 83,010/-. The CIT(A) had upheld the AO's action of computing interest on the aggregate of the refund granted u/s 143(1) and interest u/s 244A. The assessee argued that interest u/s 234D should only be levied on the excess amount of tax refunded, excluding interest u/s 244A. The ITAT noted that the interest point was not argued further and thus dismissed this part of the appeal.
Conclusion:
The ITAT dismissed the departmental appeal regarding the penalty and allowed the assessee's appeal partly by permitting the provision for sludge disposal charges as a deductible expense. The interest computation issue u/s 234D was not further contested and thus dismissed. The order was pronounced in the open court on 11-02-2011.
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2011 (2) TMI 1424
Issues involved: Interpretation of monetary limit for filing departmental appeal before the Appellate Tribunal and applicability of Board's Instruction u/s 3 lacs.
Interpretation of monetary limit for filing departmental appeal:
The appeal was filed by the Revenue against the order passed by the ld. CIT(A)-31 for the Assessment Year 2005-06. The Ld. Counsel for the assessee pointed out that the monetary limit for filing departmental appeal before the Appellate Tribunal was fixed at Rs. 3 lakhs. The tax effect in the present case was Rs. 2,65,856. The Ld. Departmental Representative objected to this plea, citing a decision and arguing that the Board's Instruction should be applied prospectively and not to pending matters. However, the Ld. Counsel for the assessee relied on decisions of the Bombay High Court to support their argument.
Applicability of Board's Instruction u/s 3 lacs:
The Tribunal heard both parties and distinguished the case cited by the Ld. DR, stating that the saving clause in the circular allows appeals involving substantial questions of law or recurring legal issues to be considered irrespective of monetary limits. The Tribunal found that the case at hand involved a question of law regarding the interpretation of a specific section of the Act, falling under the exception clause of the CBDT Circular. Therefore, the Tribunal dismissed the departmental appeal on the grounds that the tax effect was less than Rs. 3 lakhs, in accordance with Instruction No. 3 dt. 9.2.2011, which was similar to Instruction No. 5 dt. 15.5.2008. The Tribunal applied the ratio of a previous decision to support this dismissal.
Conclusion:
The appeal filed by the Revenue was dismissed by the Tribunal based on the interpretation of the monetary limit for filing departmental appeals before the Appellate Tribunal and the applicability of Board's Instruction u/s 3 lakhs. The decision was pronounced on 28th February 2011.
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2011 (2) TMI 1423
Issues Involved:
1. Deduction u/s 80M
2. Deduction u/s 35D
3. Computation of income from house property
4. Allowing interest and administrative expenses
5. Compensation paid to tenants
6. Disallowance of expenditure on HRC Division
Summary:
1. Deduction u/s 80M:
The assessee contended that the learned CIT(A) did not decide on the allowability of the deduction u/s 80M due to the absence of positive income. The Tribunal restored the issue to the file of the Assessing Officer to examine and allow the deduction after giving an opportunity to the assessee. The ground was considered allowed.
2. Deduction u/s 35D:
The assessee withdrew the ground related to the deduction u/s 35D in light of subsequent relief granted by the Assessing Officer u/s 154 of the I.T. Act. The ground was treated as withdrawn.
3. Computation of income from house property:
The revenue's appeal contested the learned CIT(A)'s decision to compute income from house property based on the municipal rate rather than actual rent receivable. The Tribunal upheld the CIT(A)'s decision, referencing the ITAT's decision in Chandrakala Ruia, and dismissed the revenue's ground.
4. Allowing interest and administrative expenses:
The revenue challenged the CIT(A)'s decision to allow interest and administrative expenses as part of the cost of plant and machinery. The Tribunal agreed with the CIT(A) that the expenses were necessary for the installation of machinery and should be capitalized as installation expenses towards the cost of the assets sold. The revenue's ground was rejected.
5. Compensation paid to tenants:
The revenue argued that the compensation paid to tenants was a collusive transaction. The Tribunal found no doubt about the payment of compensation and upheld the CIT(A)'s decision to treat the compensation as cost of improvement u/s 48(ii), following the jurisdictional High Court's decision in Miss Piroja C. Patel. The revenue's ground was rejected.
6. Disallowance of expenditure on HRC Division:
The revenue disputed the allowability of various expenditures related to the HRC Division. The Tribunal noted that the ITAT had previously upheld the CIT(A)'s decision to allow these expenditures as revenue expenses. Consequently, the Tribunal confirmed the CIT(A)'s order and dismissed the revenue's grounds.
Conclusion:
The assessee's appeal was allowed for statistical purposes, and the revenue's appeal was dismissed. The order was pronounced on 25th February 2011.
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2011 (2) TMI 1422
Claim for deduction u/s 080P(2)(a)(i) - cooperative society - The assessee in the instant case being an apex cooperative society lending money to such primary units functioning within the State of Kerala. The assessee’s claim is that it is not a ‘cooperative bank’, so that it would not be hit by the provision of section 80P (4). In fact, it is not a bank, inasmuch as it is not in the business of banking. It would be incorrect to be guided by the presence of the word ‘bank’ in its name, which is not determinative of its character. It is in fact a land mortgage bank, to which the provisions of Banking Regulation Act, by virtue of section 3 thereof, do not apply, even as being a cooperative society providing credit facilities to its members, its income continues to enjoy exemption u/s. 80P(2)(a)(i). Hence, this appeal.
HELD THAT:- In view of the obtaining legal position, as discerned from the reading of the applicable laws, i.e., the BR Act and the NBARD Act, in conjunction with which the relevant provisions of the Act are to be read, and the judicial precedents brought to our notice, we are of the clear view that the assessee is a ‘cooperative bank’ and, consequently, hit by the provision of s. 80P(4), so that the deduction provided by the said section would not be available to it from A.Y. 2007-08 onwards and, accordingly, stood rightly denied the impugned claim in its assessment for the year. So, however, we also clarify that to the extent the assessee is (also) or is acting (also) as a ‘state land development bank’, which too falls within the purview of the NBARD Act, exigible for financial assistance from NBARD, the assessee’s claim merits acceptance, and it would be entitled to deduction u/s. 80P(2)(a)(i) on the income relatable to its lending activities as such a bank. The matter is, therefore, remitted to the file of the AO for a consideration of this aspect of the matter and adjudication as per law on factual verification and determination, per a speaking order, after allowing reasonable opportunity to the assessee to establish its claims, the onus for which is only on it. We decide accordingly.
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2011 (2) TMI 1421
Issues Involved: Appeal against penalty imposed under s. 271(1)(c) of the Income Tax Act based on additional income declared after survey u/s 133A.
Summary:
1. The appeal was filed by the Revenue against the CIT(A)'s order regarding penalty imposition after a survey u/s 133A.
2. The assessee initially declared total income of Rs. 2,50,290, but after survey, it was determined as Rs. 12,66,010, with additional income of Rs. 14,00,000 surrendered during survey. The AO observed trading addition was in concealment nature. Penalty imposed under s. 271(1)(c) was challenged.
3. CIT(A) deleted the penalty considering submissions and case laws. Revenue appealed to the Tribunal.
4. Departmental Representative argued additional income disclosure not voluntary, supported penalty imposition.
5. Assessee's counsel argued disclosure made for peace, no false explanation found, supported CIT(A)'s order.
6. CIT(A) found trading addition was estimated, no material to show concealment, penalty deleted. Tribunal upheld CIT(A)'s decision.
7. Assessee's explanation not found false, penalty not sustainable on estimation basis, no interference needed in CIT(A)'s order.
8. Revenue's appeal dismissed, penalty cancellation upheld.
9. Order pronounced on 09-02-2011.
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2011 (2) TMI 1420
Issues involved: Assessment year 2008-09, Tribunal fee payment discrepancy, Appeal against CIT(A) order, TDS payment liability, Compliance with S.249(4)(a) of the Income Tax Act.
Tribunal Fee Payment Discrepancy:
The Registry pointed out a shortfall in the Tribunal fee paid by the assessee. The assessee argued that the issue is settled in their favor based on precedents from the Hon'ble Karnataka High Court and the Hyderabad Bench of the Tribunal. It was held that the Tribunal fee of Rs. 500 is payable when the appeal is against the CIT(A) order dismissing the appeal in limine. The Tribunal found no merit in the defect raised by the Registry and proceeded to dispose of the appeal on its merits.
Appeal Against CIT(A) Order:
The grounds of appeal by the assessee included contentions that the CIT(A) order was erroneous both on facts and in law, particularly regarding the non-payment of admitted tax. The assessee argued that the tax due was paid, and the balance represented TDS not remitted to the government account. The Tribunal considered these submissions and set aside the CIT(A) order, directing a reevaluation of the appeal on its merits after verifying the TDS payment by the deductor.
TDS Payment Liability:
The dispute arose from the CIT(A) dismissing the appeal due to alleged non-payment of TDS by the deductor, M/s. Demi Realtors. The deductor later deposited the TDS amount to the government and issued Form 16A to the assessee. The Tribunal observed that the liability for TDS deposit lay with the deductor, not the assessee. In light of the evidence provided, the Tribunal set aside the CIT(A) order and instructed a reevaluation of the appeal after considering the TDS payment made by the deductor.
Compliance with S.249(4)(a) of the Income Tax Act:
The Departmental Representative contended that the assessee should have complied with the provisions of S.249(4)(a) before the CIT(A) appeal disposal. However, the Tribunal clarified that the deductor's responsibility for TDS deposit was fulfilled, and the appeal should be decided on its merits. The Tribunal directed the CIT(A) to admit the appeal after verifying the TDS deposit evidence and to proceed with the appeal hearing while ensuring a fair opportunity for both parties.
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2011 (2) TMI 1419
Issues Involved:
1. Disallowance of interest on interest-free advances to sister concerns.
2. Disallowance of interest on investments in shares.
3. Disallowance of deferred tax liability and wealth tax provision while computing book profit under Section 115JB.
Detailed Analysis:
1. Disallowance of Interest on Interest-Free Advances to Sister Concerns:
The Assessing Officer (AO) disallowed Rs. 10,91,194/- of interest expenses on the grounds that the interest-free advances to sister concerns were made from borrowed funds on which interest was paid. The AO argued that under Section 36(1)(iii) of the Income Tax Act, 1961, interest on borrowed funds is deductible only if the funds are used for business purposes. The disallowance was based on the proportionate interest expenses attributable to these advances.
The CIT(A) deleted this disallowance, noting that similar disallowances in previous assessment years had been overturned by both the CIT(A) and the ITAT. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee had sufficient interest-free funds to cover the advances, and thus, no disallowance was warranted.
2. Disallowance of Interest on Investments in Shares:
The AO disallowed Rs. 84,82,979/- of interest expenses, asserting that the borrowed funds were used for investments in shares, which was not the business of the assessee. The AO allowed the interest as a deduction under Section 57(iii) instead of Section 36(1)(iii).
The CIT(A) upheld the disallowance in principle but reduced it to Rs. 21,79,536/- after verifying that the investments made in earlier years were from interest-free funds. The CIT(A) found that the interest-free funds available during the year were not significantly higher than the investments, thus partially sustaining the AO's disallowance.
The Tribunal, however, disagreed with the CIT(A) and fully allowed the assessee's appeal. It noted that the assessee had sufficient interest-free funds to cover the investments, following the precedent set by the ITAT in earlier years and the Bombay High Court's ruling in Reliance Utilities & Power Ltd., which established that if sufficient interest-free funds are available, it is presumed that investments are made from these funds.
3. Disallowance of Deferred Tax Liability and Wealth Tax Provision while Computing Book Profit under Section 115JB:
The assessee raised an additional ground concerning the AO's disallowance of deferred tax liability of Rs. 2,51,74,574/- and wealth tax provision of Rs. 28,282/- while computing book profit under Section 115JB. The assessee argued that deferred tax liability must be provided as per Accounting Standard 22, and adjustments for wealth tax are not permitted under Section 115JB.
This ground was not pressed by the assessee during the hearing, and thus, it was dismissed as not pressed.
Separate Judgments:
For assessment years 2004-05 to 2006-07, the facts and circumstances were similar. The CIT(A) had sustained partial disallowances of interest expenses, but the Tribunal allowed the assessee's appeals, deleting the disallowances based on the consistent availability of sufficient interest-free funds.
Conclusion:
The appeals by the revenue were dismissed, and the appeals by the assessee were allowed, except for the partial allowance for the assessment year 2003-04. The Tribunal consistently followed the principle that sufficient interest-free funds negate the need for disallowance of interest on borrowed funds used for investments or advances.
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2011 (2) TMI 1418
Whether the issue of notice u/s158BD r.w.s.158BC after expiry of more than 3 years from the date of completion of the block assessment in the case of person searched was valid or not - HELD THAT:- The observation of the Special Bench in Manoj aggrawal [2008 (7) TMI 446 - ITAT DELHI-A] shows that the time limit provided u/s158BE is also applicable for initiating proceedings u/s 158BD. In the case before us also admittedly the search proceedings was initiated and assessee was subject to search. However, the Revenue authorities found material against the assessee with regard to undisclosed income. The AO ought to have completed the assessment on or before 2.11.2003. This date also was not disputed by the Revenue. Therefore, the AO ought to have issued the notice u/s 158BC r.w.s.158BD against the assessee within a reasonable time after completion of block assessment was subjected to tax. Unfortunately, the AO has not taken any steps for more than three years and 7 months. there was a unreasonable delay on the part of the AO for initiating proceedings by issuing notice u/s158BD r.w.s.158BC. Therefore, the issue of notice after expiry of 3 years and 7 months is unreasonable which cannot be a basis for completing the assessment against the assessee. Therefore, in our opinion, the CIT(A) has rightly quashed the proceedings.
Regarding the contention of the Department that the assessee has not challenged the notice before the AO, therefore, he cannot challenge the same in view of section 292BB. Admittedly section 292BB was inserted by Finance Act, 2008 with effect from 1.4.2008. The notice u/s 158 r.w.s. 158BC was issued in this case on 7.7.2006. Since the provisions of section 292BB curtail the right of the assessee, it would operate prospectively as held in Kuber Tobacco Products (P) Ltd. vs. DCIT [2009 (1) TMI 304 - ITAT DELHI]. Therefore, section 292BB may not be applicable to the notice issued on 7.7.2006.
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2011 (2) TMI 1417
Issues Involved:
1. Disallowance of royalty payment as capital expenditure.
2. Disallowance of sales promotion expenses.
Detailed Analysis:
1. Disallowance of Royalty Payment as Capital Expenditure:
The primary issue was whether the royalty payments made by the assessee should be treated as capital expenditure or revenue expenditure. The assessee argued that the royalty payments were for the use of technical know-how, calculated as a percentage of sales, and should be classified as revenue expenditure. The Assessing Officer (AO) treated the royalty payments as capital expenditure, allowing only 25% depreciation, citing the enduring advantage to the assessee's business. This view was supported by the Supreme Court decision in the case of Southern Switchgear Ltd.
The CIT(A) partially agreed with the AO, directing that 25% of the royalty payment be treated as capital expenditure and the remaining 75% as revenue expenditure. This decision was based on the precedent set by the Supreme Court in Southern Switchgear Ltd., which held that the technical knowledge obtained provided an enduring advantage, thus justifying the partial capitalization.
The Tribunal upheld the CIT(A)'s decision, agreeing that the facts of the case were similar to Southern Switchgear Ltd. and that the decision to treat 25% of the royalty payment as capital expenditure was justified. The Tribunal dismissed the appeals from both the assessee and the Revenue on this ground, maintaining the partial disallowance.
2. Disallowance of Sales Promotion Expenses:
For the assessment year 1999-2000, the assessee claimed Rs. 56,58,538 as sales promotion expenses, in addition to a 5% technical consultancy fee payable to Indian Piston Ltd. (IPL). The AO disallowed this claim, noting that the agreement with IPL did not stipulate such a payment and that no such claim was made in the previous year. The AO concluded that the sales promotion expenses were not substantiated.
The CIT(A) upheld the AO's disallowance, finding no evidence of an agreement or justification for the claimed expenses. The Tribunal concurred with the CIT(A), noting the absence of material evidence to prove the necessity and nexus of the expenditure with the business. The Tribunal dismissed the assessee's appeal on this ground.
For the assessment years 2004-05 and 2005-06, the AO disallowed 50% of the sales promotion expenses, a decision confirmed by the CIT(A) by following the precedent set for 1999-2000. The Tribunal, consistent with its earlier decision, dismissed the assessee's appeals for these years as well.
Conclusion:
The Tribunal's order, pronounced on 25.02.2011, resulted in the dismissal of all appeals from both the assessee and the Revenue, upholding the CIT(A)'s decisions on the disallowance of royalty payments and sales promotion expenses.
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