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2011 (8) TMI 1185
The High Court of Bombay dismissed the appeal stating that the questions raised were already decided against the revenue in a previous case. The appeal was dismissed with no order as to costs. (Citation: 2011 (8) TMI 1185 - BOMBAY HIGH COURT)
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2011 (8) TMI 1184
Issues Involved:
1. Limitation issue regarding orders served u/s 143(3) r.w.s. 147 of the Income Tax Act.
2. Addition of amounts received as gifts under section 68 of the Income Tax Act.
Summary:
Limitation Issue:
The first common issue in these appeals concerns the limitation issue regarding orders served u/s 143(3) r.w.s. 147 of the Income Tax Act. The assessee's counsel conceded that this issue would not be pressed. Consequently, the Tribunal dismissed this issue as not pressed.
Addition of Amounts Received as Gifts:
The second common issue pertains to the addition of amounts received as gifts, which the Assessing Officer (AO) treated as unexplained under section 68 of the Income Tax Act. The AO received information from the Investigation Wing indicating that the assessee was a beneficiary of bogus gift entries. The AO added these gifts as unexplained income since the donors were untraceable and did not respond to summons.
The CIT(A) upheld the AO's additions, emphasizing that the primary onus of proving the genuineness of cash credits u/s 68 lies on the assessee. The assessee must prove the identity of the creditor/donor, the genuineness of the transaction, and the capacity of the creditor/donor to give such sums. The CIT(A) concluded that the assessee failed to prove the genuineness of the transactions and the capacity of the donors, despite providing various documents.
The Tribunal examined the facts and circumstances, noting that the assessee had provided affidavits, income-tax returns, balance sheets, PAN cards, and bank statements of the donors. The Tribunal found that the AO did not verify the income-tax records of the donors and did not pursue the matter further despite having the necessary details. The Tribunal cited the decision of the Hon'ble Calcutta High Court in CIT Vs. Eastern Commercial Enterprises, which held that a person indulging in double speaking cannot be considered truthful.
The Tribunal also referred to the Mumbai Bench's decision in ACIT Vs. Mrs. Uttara S. Shorewala, which supported the view that the assessee had discharged the initial onus by proving the identity and capacity of the donors. The Tribunal concluded that the revenue did not make sufficient efforts to verify the creditworthiness of the donors and that the assessee had provided all necessary details.
The Tribunal further cited the Hon'ble Gujarat High Court's decision in DCIT v Rohini Builders and the Hon'ble Apex Court's decision in CIT, Orissa -vs.- Orissa Corporation P. Ltd., which supported the assessee's position. The Tribunal held that the assessee had discharged the burden of proof and that the revenue's conclusions were unreasonable.
Conclusion:
The Tribunal reversed the orders of the lower authorities and allowed the appeals of the assessee, concluding that the additions made by the AO were not justified. The appeals were allowed, and the order was pronounced in open court on 12.08.11.
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2011 (8) TMI 1183
Issues involved: Appeal against order of Commissioner of Income-tax (Appeals) II, Pune for assessment year 1999-2000.
Issue 1: Addition of Rs. 7,50,000 on account of alleged on-money received by the assessee firm.
The assessee firm, a construction business, disclosed additional income of Rs. 7,50,000 for AY 1999-2000 after a survey action u/s 133A. The project completion was in AY 2003-04, and the income was offered in the return for that year. Despite being taxed in AY 2003-04, AO made the same addition for AY 1999-2000, leading to the appeal.
Issue 2: Discrepancy in accounting method and taxation of on-money.
The assessee followed the "project completion method" for accounting, including on-money. The AO's decision for AY 2003-04 was accepted, but objected for AY 1999-2000. The AO's addition of Rs. 7,50,000 for AY 1999-2000, already taxed in AY 2003-04, is contested in the appeal.
Issue 3: Taxation of income without accrual in relevant year.
Despite no accrual of income in the previous year relevant to AY 1999-2000, the addition of Rs. 7,50,000 as business income for that year was sustained. This discrepancy in taxation is a key point of contention in the appeal.
Issue 4: Double taxation of the same income for different assessment years.
The AO's addition of Rs. 7,50,000 as business income for AY 1999-2000, already taxed in AY 2003-04 u/s 143(3), is challenged in the appeal. The argument revolves around the legality and fairness of taxing the same income twice for different assessment years.
In the proceedings, the counsel cited a relevant order from the Pune Bench, emphasizing that unaccounted receipts should not be taxed on cash basis but on par with other business receipts. The Tribunal found merit in this argument, noting that the impugned income was already taxed in AY 2003-04, the year of project completion, and should not be taxed again on cash basis for AY 1999-2000. The Tribunal reversed the CIT(A)'s decision based on this legal position and allowed the grounds raised by the assessee, ultimately allowing the appeal.
*Order pronounced in the court on 26-8-2011.*
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2011 (8) TMI 1182
Issues involved: Cross appeals for assessment years 2006-07 regarding deduction u/s 10B of the IT Act, exclusion of certain amounts from export turnover, and treatment of consultancy charges and expenses.
Assessment Year 2006-07:
The assessee, a private limited company engaged in software development and export, filed its return declaring a total income of &8377; 59,90,038 and claimed deduction u/s 10B of the IT Act. The AO observed various receipts related to consultancy services and expenses, reducing the export turnover accordingly. The CIT(A) confirmed some additions but deleted the addition of export sale proceeds received after six months. The Tribunal directed the AO to verify the nature of consultancy services and exclude certain expenses from export turnover.
Consultancy Charges and Expenses:
The AO reduced the export turnover by amounts received for consultancy services and certain expenses. The CIT(A) confirmed some additions, but deleted the addition of export sale proceeds received after six months. The Tribunal directed the AO to verify if consultancy services were for independent purposes and exclude certain expenses from export turnover.
Internet Charges and Expenses:
The Tribunal directed the AO to verify if internet charges and expenses were attributable to delivering software outside India and exclude them from export turnover accordingly. Any excluded amount from export turnover should also be reduced from total turnover for computing deduction u/s 10B.
Traveling Expenses and Foreign Currency Expenditure:
The Tribunal found that the assessee did not provide details for traveling expenses and foreign currency expenditure, directing their exclusion from export and total turnover.
Judicial Precedents:
The revenue's appeal was dismissed as the CIT(A)'s order was in line with judicial precedents regarding the treatment of remittances under FEMA regulations for deduction u/s 10B of the IT Act.
In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, maintaining the CIT(A)'s order based on judicial precedents.
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2011 (8) TMI 1181
Whether the appellant Ethiopian Airlines is entitled to sovereign immunity in this case - proceedings before the Consumer Forum are suits - According to the respondent there was gross delay in arrival of the consignment at the destination, which led to deterioration of the goods. the respondent filed a complaint. the State Commission held that the complaint filed by the respondent was not maintainable. The respondent aggrieved by the said order preferred an appeal before the National Consumer Disputes Redressal Commission (`the National Commission'). The National Commission categorically observed in the impugned judgment that Section 86 of the Code of Civil Procedure (for short `C.P.C.') was not applicable since the case in dispute is covered under the provisions of the Consumer Protection Act, 1986 (`the Act'). The National Commission set aside the order passed by the State Commission and remitted it to the State Commission so that the State Commission could decide it afresh in accordance with law. The appellant, aggrieved by the said order, has preferred this appeal on the ground that a foreign State or its instrumentality cannot be proceeded against under the Act without obtaining prior permission from the Central Government. The appellant contends that a foreign State or its instrumentality can legitimately claim sovereign immunity from being proceeded against under the Act in respect of a civil claim.
HELD THAT:- Ethiopian Airlines is not entitled to sovereign immunity with respect to a commercial transaction is also consonant with the holdings of other countries' courts and with the growing International Law principle of restrictive immunity. It may be pertinent to mention that the Parliament has recognized this fact while passing the Consumer Protection Act, 1986 and the Carriage by Air Act, 1972. Section 86 was itself, a modification and restriction of the principle of foreign sovereign immunity and thus, by limiting Section 86's applicability, the Parliament through these acts, further narrowed a party's ability to successfully plead foreign sovereign immunity. In the modern era, where there is close interconnection between different countries as far as trade, commerce and business are concerned, the principle of sovereign immunity can no longer be absolute in the way that it much earlier was. The preliminary objection raised by the appellant before the court is devoid of any merit and must be rejected.
However, we agree with the findings of the National Commission so far as it has remitted the matter to the State Commission for adjudication. In the facts and circumstance of this case, we direct the State Commission to dispose of the case as expeditiously as possible.
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2011 (8) TMI 1180
Issues involved: Seizure of consignment under section 48(7) of the U.P. Value Added Tax Act on grounds of undervaluation, rejection of representation, appeal before Trade Tax Tribunal, justification of seizure, relevance of market value in determining undervaluation.
Summary:
The judgment by the Allahabad High Court pertains to the seizure of a consignment under section 48(7) of the U.P. Value Added Tax Act, based on the allegation of undervaluation exceeding 50% of the true value of the goods. The representation against the seizure was rejected by the Joint Commissioner, leading to an appeal before the Trade Tax Tribunal under section 57 of the Trade Tax Act. The Tribunal allowed the appeal, emphasizing that the Department failed to establish the undervaluation as per relevant documents, rendering the seizure unjustified and ordering the release of goods without any security.
The Department challenged the Tribunal's order, arguing that the current price list from the market showed a significant discrepancy between the disclosed price and the actual market value. However, the Tribunal did not find this argument convincing, as it deemed the documents produced by the Department irrelevant and did not permit the introduction of new pricing information under section 47(1) of the Trade Tax Act.
In response, the opposing counsel highlighted that the Department must have concrete evidence to support the claim of undervaluation, rather than relying on presumptions and subsequent attempts to justify the seizure with unrelated market documents. It was emphasized that without proper material as per Section 47(1) of the Trade Tax Act, any seizure would be deemed illegal.
Upon hearing the arguments, the Court referred to section 48(1)(iii) of the Value Added Tax Act, which mandates that the calculation of undervaluation must be based on the market value in the local market area where the transaction occurred. In this case, as the transaction took place in Ghaziabad, the market value in Ghaziabad should have been considered to determine undervaluation. Since the Department failed to provide such evidence, the Court concluded that the seizure was illegal, supporting the Tribunal's decision. Consequently, the revision was dismissed.
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2011 (8) TMI 1179
Issues Involved:
1. Deletion of addition of Rs. 27,85,925/- in respect of estimated gross profit.
2. Deletion of addition of Rs. 3,56,878/- in respect of deemed dividend u/s 2(22)(e).
Summary:
Issue 1: Deletion of addition of Rs. 27,85,925/- in respect of estimated gross profit
The assessee company, engaged in real estate development, faced scrutiny for a substantial increase in current liabilities. The AO observed discrepancies in the 'Scheme Account' and concluded that the assessee failed to provide adequate details about the receipts and refunds related to various projects. Consequently, the AO treated the booking amounts received as trade receipts and estimated a gross profit of Rs. 27,85,925/- by applying a 16% GP rate, rejecting the book results u/s 145(3).
Before the CIT(A), the assessee argued that the increase in liabilities was due to advances and booking amounts, not trade receipts. The assessee maintained that it followed a consistent accounting method accepted by the Revenue in previous years. The CIT(A) accepted the assessee's explanation and deleted the addition, stating that profits arise on the transfer of property title, not on receipt of advances.
The Tribunal upheld the CIT(A)'s decision, citing the Jurisdictional High Court's rulings in CIT vs. Asha Land Corporation and CIT vs. Motilal C. Patel and Co., which support the view that profits are assessable in the year of sale completion. The Tribunal found no justification for rejecting the book results and dismissed the Revenue's appeal on this ground.
Issue 2: Deletion of addition of Rs. 3,56,878/- in respect of deemed dividend u/s 2(22)(e)
The AO added Rs. 3,56,878/- as deemed dividend, noting that a significant shareholder held shares in both the assessee company and the lender company, Chase Buildcon Projects (P) Ltd. The AO applied the provisions of section 2(22)(e), considering the unsecured loan as deemed dividend.
The assessee contended before the CIT(A) that it was not a registered shareholder of the lender company, making the addition unsustainable. The CIT(A) agreed, referencing the Tribunal's decision in ACIT vs. Bhaumik Colour (P) Ltd., which clarified that deemed dividend provisions do not apply to non-shareholders.
The Tribunal concurred with the CIT(A), emphasizing that section 2(22)(e) does not extend to loans or advances to non-shareholders. Since the assessee was not a registered shareholder of the lender company, the addition was unjustified. The Tribunal dismissed the Revenue's appeal on this ground as well.
Conclusion:
The appeal filed by the Revenue was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decisions to delete the additions related to estimated gross profit and deemed dividend.
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2011 (8) TMI 1178
Issues involved: Appeal against order of Commissioner of Income-tax (Appeals)-XVI, Ahmedabad u/s 143(3) of the Income Tax Act, 1961 regarding treatment of short term capital gain as business income.
Treatment of Short Term Capital Gain as Business Income:
The assessee, an individual deriving income from salary, invested in shares of various companies totaling &8377; 7,94,371 with realization of &8377; 10,35,503 resulting in a surplus of &8377; 2,41,132 treated as short term capital gain by the AO. Assessee contended that intention at the time of purchase determines investment/trading activity, emphasizing being a full-time employee with no trading intent. Previous and subsequent years' investments were accepted as capital gain/loss. Citing relevant case laws, it was argued that the frequency of transactions alone does not establish trading. The ITAT, Ahmedabad Bench's decision in a similar case supported the assessee's position, emphasizing various factors favoring investment over trading. Consequently, the AO was directed to treat the amount as short term capital gain, allowing the appeal on grounds 1 to 5.
Charging of Interest under Section 234A, 234B, and 234C:
Ground 6 challenged the interest charged under Sections 234A, 234B, and 234C, deemed consequential. The AO was instructed to levy interest post re-computation of income in accordance with the tribunal's decision.
Conclusion:
The ITAT, Ahmedabad ruled in favor of the assessee, directing the AO to treat the surplus amount as short term capital gain and adjust interest charges accordingly. The appeal was allowed, pronouncing the order on 12th August, 2011.
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2011 (8) TMI 1177
Issues involved: Appeal against addition of Rs. 1,50,000 under section 69 made by AO under section 68 of the I.T. Act for the assessment year 2003-2004.
Facts:
- The AO added Rs. 1,50,000 under section 68 of the I.T. Act, 1961, as cash deposited from undisclosed source of income.
- The assessee failed to prove the genuineness of the transaction and creditworthiness of the creditor.
- The assessee argued that the amount received was not a loan but his own money received back.
- The AO observed discrepancies in the entries related to cash deposit and cheque issuance.
Arguments before CIT(A):
- The appellant explained that the money received was not a loan but his own funds.
- The AO's contention regarding the sequence of entries was challenged.
- The appellant cited judicial decisions to support the argument that section 68 does not apply if books of accounts are not maintained.
CIT(A) Decision:
- The CIT(A) confirmed the addition of Rs. 1,50,000, stating that the appellant failed to provide plausible evidence for the source of deposit.
- The CIT(A) rejected the argument that section 68 does not apply due to the absence of maintained books of accounts.
- The addition was upheld under section 69 as unexplained investment.
Tribunal Hearing:
- The appellant requested further investigation by the AO.
- The Revenue supported the AO's decision, emphasizing the burden of proof on the assessee.
Tribunal Decision:
- The Tribunal upheld the CIT(A)'s decision, noting the lack of evidence provided by the assessee.
- The Tribunal rejected the argument that section 68 does not apply due to the absence of maintained books of accounts.
- The addition of Rs. 1,50,000 was deemed justified and the appeal was dismissed.
Conclusion:
The Tribunal upheld the addition of Rs. 1,50,000 under section 69, as the appellant failed to prove the genuineness of the transaction and the source of deposit, despite citing lack of maintained books of accounts as a defense. The appeal was dismissed, affirming the CIT(A)'s decision.
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2011 (8) TMI 1176
Issues Involved:
1. Disallowance of deposit written off.
2. Addition on account of excess consumption of raw material.
3. Disallowance of long-term capital loss on redemption of preference shares.
Issue-wise Detailed Analysis:
1. Disallowance of Deposit Written Off:
The assessee claimed a deduction for deposits written off amounting to Rs. 2,63,750 with the Maharashtra State Electricity Board under Section 36(1)(vii) rws 36(2) or alternatively under Section 28 or 37 of the IT Act. The CIT(A) rejected the claim on the grounds that the conditions under Section 36(2) were not satisfied and the loss did not arise during the year under consideration. The Tribunal upheld this decision, stating that the loss should have been claimed in the year the unit was sold (F.Y. 1996-97).
2. Addition on Account of Excess Consumption of Raw Material:
The assessee, engaged in manufacturing biscuits, faced an addition of Rs. 1,32,51,851 for excess consumption of raw material based on an input-output ratio of 108.19:100. The CIT(A) allowed adjustments for empty bags of maida and excess weight of biscuits in packets but rejected the claim for wastage of 1 kg of maida per bag. For Contract Manufacturing Units (CMUs), the CIT(A) directed the AO to allow adjustments similar to those for the own factory. The Tribunal found merit in the assessee's submission that the books of accounts were audited, and there was no evidence of bogus purchases or sales outside the books. The Tribunal directed the AO to accept the book results for both own factory and CMUs, as no excess consumption was quantified for CMUs.
3. Disallowance of Long-term Capital Loss on Redemption of Preference Shares:
The assessee claimed a long-term capital loss of Rs. 35,58,718 on redemption of preference shares, arguing it was a transfer under Section 2(47) and relied on the Supreme Court decision in Anarkali Sarabhai vs. CIT. The AO treated the amount as deemed dividend under Section 2(22)(d) and disallowed the loss. The Tribunal held that redemption of preference shares is a transfer under Section 2(47), and the loss should be computed accordingly. The Tribunal rejected the AO's treatment of the amount as deemed dividend, citing Section 80(3) of the Companies Act, which states that redemption of preference shares does not reduce the share capital. The Tribunal allowed the assessee's claim for long-term capital loss.
Separate Judgments:
For the assessment years 1999-00 and 2004-05, similar issues of excess consumption of raw material and long-term capital loss on redemption of preference shares were raised. The Tribunal followed the same reasoning and conclusions as in the assessment year 1998-99, allowing the assessee's claims and dismissing the Revenue's appeals.
Conclusion:
The Tribunal's comprehensive analysis upheld the disallowance of the deposit written off, allowed the book results for both own factory and CMUs regarding excess consumption of raw material, and permitted the long-term capital loss on redemption of preference shares. The Revenue's appeals were dismissed, and the assessee's appeals were partly allowed.
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2011 (8) TMI 1175
Issues involved: Appeal by department regarding deletion of depreciation addition u/s 11 of Income Tax Act, 1961.
Issue 1 - Depreciation disallowance: The department appealed against the deletion of depreciation addition of Rs. 58,24,330/- made on account of disallowance of depreciation, arguing that the assets were already claimed as expenses and depreciation was in addition to capital expenditure. The Assessing Officer disallowed the depreciation as the assets were allowed as application of income under section 11 of the Act. The CIT(A) allowed the claim based on a Bombay High Court judgment, which held that both capital expenditure and depreciation were allowable. The Supreme Court's decision in Escorts Ltd. vs. Union of India was cited, stating that double deduction cannot be claimed. The Tribunal affirmed the CIT(A)'s decision based on the judgments of Bombay High Court and Punjab & Haryana High Court, dismissing the appeal by the revenue.
Conclusion: The Tribunal upheld the CIT(A)'s decision, stating that depreciation is a legitimate deduction in computing the real income of the assessee, following the principles established by the Bombay High Court and the Punjab & Haryana High Court.
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2011 (8) TMI 1174
Disallowance of depreciation to assessee trust - Held that:- The income of the assessee being exempt, the assessee was only claiming that depreciation should be reduced from the income for determining the percentage of funds which had to be applied for the purposes of the trust. There was thus no double deduction claimed by the assessee.
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2011 (8) TMI 1173
Issues Involved:
1. Classification of 'Boom Flower' for tax purposes.
2. Validity of the impugned clarification and assessment order.
3. Applicability of judicial precedents.
Summary:
1. Classification of 'Boom Flower' for tax purposes:
The petitioner, engaged in the business of manufacturing and selling 'Boom Flower', contended that their product should be classified as a chemical fertilizer under Entry 14 of Part B of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, and taxed at 4%. However, the Enforcement Wing Officials informed them that 'Boom Flower' is liable to tax at 12% under the Residuary entry, being a micro-nutrient.
2. Validity of the impugned clarification and assessment order:
The petitioners sought clarification from the respondent No.1 u/s 28(a) of the Act, which reiterated that 'Boom Flower' is taxable at 12% under the Residuary entry. The petitioners challenged this clarification and the subsequent assessment order, arguing that their product falls under Entry 14 of Part B, which includes Zinc Sulphate and Urea Ammonium Phosphate, and should not be treated under the Residuary entry.
3. Applicability of judicial precedents:
The petitioners cited the case of Transelektra Domestic Products P. Ltd. vs. C.T.O, 1993 (90) STC 436, where it was held that the product should be classified based on its general description rather than specific percentages of its components. The respondent relied on the judgments in State of Tamil Nadu vs. Rallis India Ltd., 1974 (34) STC 532 and Shaw Wallance & Co. Ltd. vs. State of Tamil Nadu, 1976 (37) STC 522(SC), which dealt with whether a new product formed by mixing two products should be taxed or exempted.
The court found that the respondent No.1 erred in relying on these judgments to classify 'Boom Flower' under the Residuary entry. The court held that the product should be classified based on its general description and not specific percentages of its components, as per the precedent set in Transelektra Domestic Products P. Ltd. vs. C.T.O.
Conclusion:
The court allowed all the writ petitions, setting aside the impugned orders and clarifications. The product 'Boom Flower' was held to fall under Entry 14 of Part B, taxable at 4%, and not under the Residuary entry. The court emphasized that if two interpretations are possible, the one favoring the assessee should be followed. Connected Miscellaneous Petitions were closed with no costs.
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2011 (8) TMI 1172
Issues involved: Dispute over carry forward of loss u/s 139(5) for Assessment Year 2005-06.
Summary:
The appellant, an assessee, filed a return of income on 28.10.2005 u/s 139(1) declaring total income of Rs. 30,00,223/-. Later, a revised return was filed on 28.3.2006 claiming a long term capital loss of Rs. 10,80,121/- to be carried forward. The AO disallowed the claim stating that the original return did not declare any loss, hence revision u/s 139(5) was not permissible. The CIT(A) upheld this decision citing section 80. The Tribunal, however, allowed the claim to carry forward the loss, emphasizing that the revised return rectified the mistake within the time limit u/s 139(5) and the loss was determined as per the revised return, which should be treated as declared u/s 139(3). The Tribunal's decision was supported by a previous case with similar circumstances.
Key Points:
- Original return filed u/s 139(1) showed no loss, revised return u/s 139(5) claimed Rs. 10,80,121/- loss on sale of shares.
- AO accepted the loss but did not carry it forward, CIT(A) confirmed AO's decision.
- Tribunal held that revised return rectified the mistake within the time limit, so loss should be carried forward as declared u/s 139(3).
- Tribunal's decision supported by a previous case involving a similar claim of loss on sale of shares.
Decision:
The Tribunal allowed the appeal of the assessee, setting aside the CIT(A)'s order and permitting the carry forward of the loss.
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2011 (8) TMI 1171
Issues Involved:
1. Re-opening of assessments.
2. Addition on account of unexplained investment in plots.
Summary:
Re-opening of Assessments:
At the time of hearing, the assessee's representative did not press the grounds relating to the re-opening of assessments for the assessment years 2002-03 and 2003-04. Consequently, these grounds were dismissed as not pressed.
Addition on Account of Unexplained Investment:
The primary issue in both appeals was the confirmation of additions of Rs. 7,42,000/- for AY 2002-03 and Rs. 49,28,000/- for AY 2003-04, based on material seized from the premises of Shri Navneet Jhamb. The assessee had invested in plots B-5 and B-7 at Village Jharsently, Distt. Faridabad. The assessing officer, relying on documents found during a search u/s 132 at the premises of Shri Navneet Jhamb, concluded that the assessee had paid cash premiums for these plots. The CIT (Appeals) confirmed these additions, emphasizing the evidentiary value of the seized documents and the business relationship between the parties involved.
Tribunal's Decision:
The Tribunal noted that the issue was covered by the decision of ITAT, Delhi Bench in the case of DCIT Vs. M/s. Indication Instruments Ltd., where it was held that additions cannot be made merely on the basis of entries recorded on papers found during a search at a third party's premises. The Tribunal observed that the assessing officer did not bring any material on record to substantiate the addition and relied solely on the seized documents. The Tribunal upheld the CIT (Appeals)'s decision in favor of the assessee, emphasizing that the burden of proving the understatement or concealment of consideration lies with the Revenue, as established in the case of K. P. Varghese Vs. Income Tax Officer and C.I.T. vs. P.V. Kalyanasundaram.
Conclusion:
The Tribunal allowed both appeals filed by the assessee, concluding that the addition based on third-party documents without corroborative evidence was not sustainable. The order was pronounced in the open court on 05th August, 2011.
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2011 (8) TMI 1170
Difference with ALP in respect of transactions with AEs - Costing Method adopted by AE's - The assessee-company has many ‘Associated Enterprises’ (AEs) with whom it has ‘international transactions' - The assessee-company has revenue billings with 2 AEs only upon which TPO has reproduced the working given by the assessee company of the profit margin in the case of transactions with those two AEs in which there is revenue billing and also with non-AEs.
HELD THAT:- We are of the considered opinion that the majority view adopted by the TPO has to be reversed and the view taken by the single member of the DRP has to be upheld being found by us to be correct as per law. In our opinion, the majority view, that the internal comparables are reliable than external comparables, which gives a more precise computation of ALP is a wrong inference based on misconception of facts because the assessee has considered transactions of only with two AE's as compared with the non-AEs. There is no dispute in connection with the method of determination of AlP in applying TNMM in respect of transactions with AEs because the MAM and TNMM adopted by the assessee have been accepted by the TPO.
TPO is not correct in observing that the transactions with AE at 40% and transactions with non-AEs at 2.44% do not reflect the true market conditions. She is not correct in her observation that the costs adopted by the assessee-company in arriving at the net margin of its transactions with its AEs and non-AEs needs to be rejected since the cost work is skewed(doctored). In our opinion, the assesseecompany has given proper explanation for the basis of costing adopted by the AE. There is no material on which the TPO has rested her above observation.
We are not in agreement with the ld. CIT/DR when he submits that the assessee-company is not correct in splitting its results to suit its convenience. It is not a case of convenience, the assessee company is undeniably having revenue billing with only two AEs. The decision in the case of PANASONIC INDIA PVT. LTD. VERSUS ITO [2010 (9) TMI 682 - ITAT, DELHI], as suggested by the ld. CIT/DR, would not apply here. The simple reason being that the facts of that case are entirely different and distinguishable.
Hence, with the force of the principle laid down in the above decisions regarding the scope and application of TNMM method fully support the assessee’s contention. This issue is, therefore, allowed in favour of the assessee and against the Revenue.
Interest on Advances made to AE's - The assessee-company had paid some amount to two of its subsidiaries as advance during the financial year but it has not charged any interest from both the transactions. AO invoked the interest. The ld.AR has assailed the jurisdiction of the Assessing Officer to touch this issue of charging interest as it was not a part of DRP’s directions.- HELD THAT:- We hold that the Assessing Officer has jurisdiction to consider this issue, as per law and as per the majority view (DRP view). These advances have been made on account of commercial expediency only as has been claimed by the assessee-company. The Assessing Officer has not disproved the reasons given in this regard. Therefore, the cumulative effect of these factual matrix is that this interest has been wrongly charged. As a result, we allow this issue in favour of the assessee.
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2011 (8) TMI 1169
Assessment of income - business center income - income from house property or business income Held that:- The property can be used only for a specific purpose i.e., I.T. operation and the assessee has provided complex service facilities and infrastructure for operating such business and on this factual matrix, we uphold the contention of the assessee that the income in question should be assessed under the head “Income From Business & Profession”.
Claim for deduction under section 80IA(4)(iii) computation - Held that:- Assessing Officer is directed to allow the claim of expenses as the disallowance was made only on the ground that the income is assessable under the head “House Property”. Consequent to our decision in ground no.1, we direct the Assessing Officer to allow both the expenditure claimed as well as the claim for deduction under section 80IA(4)(iii). Consequently, we set aside the order passed by the Commissioner (Appeals) and allow the ground no.2 and 3 raised by the assessee.
As the income in question is assessable under the head “Income From Business”, the addition made under section 23(1)(a) is to be necessarily deleted
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2011 (8) TMI 1168
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Deduction u/s 80IA(4) - Retrospective Effect of Explantion u/s 80IA - Assessee has entered into infrastructural development project promoted by State Govt - AO disallowed such deduction on the basis of explanation added in section 801A(4) through Finance Act, 2007 and 2009
HELD THAT:- We have gone through the facts of case, the case of the department is that the explanation added to section 80IA(4) by Finance Act, 2007 with retrospective effect from 1.4.2000 and thereafter amended by Finance Act, 2009 with retrospective effect from 1.4.2000 is applicable. Since the explanation to section 80IA(4) has been added and as per explanation if any work is allotted to an assessee on contract basis then no deduction under section 80IA(4) is allowable.
Once in a particular year an assessee has been declared as a Developer then on the same set of facts the assessee cannot be held as a Contractor in a subsequent year. Therefore, the contention of ld. A/R that once assessee has been held as a Developer then in next year or the year under consideration it cannot be held as a Contractor, is acceptable.
We have seen the Explanation added to section 80IA by Finance Act, 2007 and amended by Finance Act 2009 and found that there is no material difference in the language of Explanation added by Finance Act, 2007 and amended by Finance Act, 2009. There is only difference of words i.e. the Central or State Government were included by the Finance Act, 2009. Otherwise, the language is same. The language of the Explanation says that if the Enterprise is a contractor then deduction under section 80IA (4) will not be allowable.
After going through clauses of agreement, according to which assessee has to develop the design and has to be approved by the Engineer-in-Charge and thereafter the manufacturing of Gate has to be started. The awardee has to develop the design itself. If there was no development of design then there could not have been payment on account of development of design. Tender specifications specifically provide the cost of design which is 2%. There is also clause of payment on account of maintenance and running and from all these clauses it is established that assessee is not merely a contractor but a Developer also and as per Explanation added to section 80IA the Developer is not barred for deduction under section 80IA(4).
On ground that assessee has not invested its own funds as they were taken from the VIDC. We have discussed various clauses of detailed Tender Notice, the assessee has invested its own money in developing the design of Gates and manufacturing the Gates after approval of the Engineer-in-Charge of the VIDC. After getting satisfied, then only payment is to be approved and made. Therefore, this is not a case of financing the project by the Corporation or reimbursement of expenses by the Corporation. It is the investment of the assessee only and, therefore, the argument of ld. D/R does not have weight on this point.
The ld. CIT D/R has relied on the decision of Special Bench in the case of BT. PATIL & SONS BELGAUM CONSTRUCTION (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 2, KOLHAPUR [2009 (10) TMI 521 - ITAT MUMBAI]. This decision of Special Bench has been over ruled now by the Hon’ble Bombay High Court in case of COMMISSIONER OF INCOME-TAX VERSUS ABG HEAVY INDUSTRIES LIMITED [2010 (2) TMI 108 - BOMBAY HIGH COURT].
In the present case the facts are on more stronger footing as assessee has to develop the design of gates of dam and thereafter they have to fix the gates in the dam and they have to operate and look after the maintenance also for two years. Therefore, in our humble view the assessee is entitled for deduction under section 80 IA(4) even after the decision of Special Bench in case of M/s. B.T. Patil & Sons and even after Explanation added in section 80IA(4) by Finance Act, 2007 and amended by Finance Act, 2009 with retrospective effect from 1.4.2000 - Decision in favour of Assessee.
Disallowance on account of Traveling, telephone and Prior Period Expenses - AO made disallowance as such expenses were not for business purposes - Also, being prior period expenses disallowance was made - HELD THAT:- Regarding traveling and telephone expenses - how the expenses are not for business purposes, AO has not brought any material on record. Assessee filed full details regarding such expenses, therefore, we delete the addition on account of telephone and traveling expenses - Decision in favour of Assessee.
Regarding disallowance of expenses being prior period expenses, assessee did not produce any evidence in support of his claim. Therefore, the expenditures were disallowed by AO and confirmed by ld. CIT (A) - Decision against Assessee.
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2011 (8) TMI 1167
Issues Involved:
1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessee's claim for Long Term Capital Gain (LTCG) exemption u/s 54F.
3. Assessment of the genuineness of share transactions.
4. Consideration of revised return filed by the assessee.
5. Evaluation of the assessee's explanation and surrender of income.
Summary:
1. Imposition of penalty u/s 271(1)(c) of the Income Tax Act, 1961:
The assessee challenged the order of the CIT(A) confirming the AO's imposition of penalty u/s 271(1)(c). The AO held that the assessee concealed particulars of income and imposed a penalty equal to 100% of the tax sought to be evaded, referring to the Supreme Court decision in K.P. Madhusudanan vs. CIT, 251 ITR 99 (SC).
2. Validity of the assessee's claim for Long Term Capital Gain (LTCG) exemption u/s 54F:
The assessee claimed LTCG exemption u/s 54F on the sale of shares of Poonam Pharmaceuticals Ltd. The AO, after investigation, concluded that the assessee availed an accommodation entry and treated the sale proceeds as unexplained investment u/s 69, disallowing the exemption claimed.
3. Assessment of the genuineness of share transactions:
The AO's investigation revealed discrepancies, including the broker's denial of transactions and the Calcutta Stock Exchange's confirmation of no transactions in the scrip Poonam. Despite these findings, the shares were transferred through the D-Mat account, and sale proceeds were received through banking channels. The Tribunal noted that the denial by the broker alone was not conclusive evidence of bogus transactions.
4. Consideration of revised return filed by the assessee:
The assessee filed a revised return on 19/12/2007, which the AO refused to consider as it was beyond the period permitted u/s 139(5). The Tribunal observed that the surrender of the claim was made to avoid litigation and purchase peace, not necessarily indicating a bogus claim.
5. Evaluation of the assessee's explanation and surrender of income:
The Tribunal found the assessee's explanation for surrendering the claim due to old age and inability to provide complete details credible. The Tribunal emphasized that the surrender was made to avoid litigation and was supported by documentary evidence. The Tribunal concluded that the explanation was bona fide and that general observations by the AO were insufficient to impose a penalty.
Conclusion:
The Tribunal directed the cancellation of the penalty imposed on the assessee, allowing the appeal. The decision was based on the bona fide nature of the assessee's explanation and the circumstances under which the surrender was made. The appeal was allowed, and the order was pronounced in the open court on 5th August 2011.
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2011 (8) TMI 1166
Issues involved: Validity of reassessment u/s.147 r.w.s.148 of the I.T. Act, 1961 and treatment of technical know-how fees as capital in nature.
Validity of reassessment u/s.147 r.w.s.148:
The original assessment u/s.143(3) was completed on 19.03.2004, and later reopened by a notice u/s.148 on 06.03.2006. The CIT(A) rejected the challenge to the validity of reassessment. The appellant argued that the notice u/s.148 lacked prior approval of the Jt.CIT and that the reassessment was based on a change of opinion without new material. The AO's reopening was based on technical know-how fees being capital in nature. The Tribunal found that the notice u/s.148 was validly issued by the D.C.I.T. and no prior approval was required. As the AO had considered all details during the original assessment, the reassessment based on a change of opinion without new material was deemed unsustainable.
Treatment of technical know-how fees:
The AO treated the technical know-how fees as capital in nature, disallowing them and allowing depreciation at 25%. The appellant contended that the reassessment was invalid due to lack of fresh material and change of opinion. The Tribunal noted that the AO had already considered all details during the original assessment u/s.143(3). Citing legal precedents, it held that reassessment cannot be solely based on a change of opinion. As no new information emerged post-original assessment, the reassessment was deemed unlawful. Consequently, the reassessment was declared null and void, and the appeal of the assessee was allowed.
*Order pronounced on 24th August, 2011.*
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