Entitlement for exemption in terms of Section 80P(2)(a)(i) - whether assessee are not a Co-operative Banks but a Co-operative Societies? - as per HC merely giving credit facilities to the members would not be a Co-operative Bank but continued to be a Co-operative Society and as there is no material on record that the respondents were giving any such credit facilities to the non members - Held that:- Delay condoned. Leave granted.
Addition u/s 68 - addition made towards share application money - identity, creditworthiness and genuineness of transaction - Held that:- All the share applicants are assessed to income tax and had regularly filed their income tax and ROC returns. Hence, the identity of the share applicants was duly proved. All the share applicants had made investments in share capital with the assessee company through account payee cheques from their disclosed bank accounts with sufficient sources which were duly explained. Hence, the genuineness of the transactions was also proved in the instant case.
We find that the assessee had even proved the source of source of share applicants in the instant case which are quite evident from the confirmations filed by them before the AO which are forming part of the records and the paper book. The share applicants had duly explained that they had liquidated their existing investments in shares of certain companies for which the proceeds were received by cheques and got deposited in their regular bank account.
From the said bank account, account payee cheques were issued to the assessee company towards investment in share capital by them. Hence the source of source for share applicants also is explained in the instant case by the assessee though it is not required to be proved by the assessee as per law. None of the documents pertaining to the share applicants which were filed before the AO were found to be ingenuine or non creditworthy by the AO. We find that the AO had made a wild allegation that these share applicant companies are mere paper companies without bringing any cogent material and evidences on record. - decided in favour of assessee.
Application of transfer pricing regulations on the Liaison Office of the assessee - addition made on account of Arm’s Length Price - Held that:- As decided in assessee'e own case [2010 (10) TMI 597 - ITAT, DELHI] Provision taxing of a non-resident U.K. company in a manner which is more burdensome vis-ŕ-vis an Indian company would lead to discrimination. This would also amount to unfavourable treatment being meted out to a U.K. company vis-ŕ-vis the Indian company doing identical business in India. Accordingly the assessee is entitled to protection of Art. 26 of the Indo-UK Treaty and should not have been subjected to tax on gross basis, but on net basis. The net profit was to be determined in accordance with the Indian Income Tax Act provisions for determining profits and gains of business from sections 28 to 43–B i.e. limits laid down in the domestic law of allowance of expenditure u/s. 30,31,32,36,37,40,43B etc would have to be taken in to account. In our view this is the purport of Article 7.5 read with Article 26 of the DTAA between India and UK - Decided in favour of the assessee.
Application of mark-up of 27.08% instead of 16.21% proposed by the TPO - Held that:- matter relating to the determination of Arm’s Length Price of the services rendered by the Liaison Offices was referred by the AO to the TPO who passed the order dated 18.01.2013 u/s 92CA(3) of the Act holding that Arm’s Length margin should be taken at 16.21% as against 15% in the earlier year of the cost incurred by the LO. However, the AO worked out the Arm’s Length Price by applying the mark-up of 27.08% instead of @ 16.21% of the cost and made the addition of ₹ 1,12,009/- by holding that income was to be added to the Liaison Offices costs incurred by the assessee, under transfer pricing provisions for the reason that the Liaison Offices had provided services to its head office. This issue is co-related with the issues raised in Ground Nos. 4, 5 and 7 to 11 which we have already adjudicated in the former part of this order in favour of the assessee, so it becomes academic in nature and hence dismissed
Treating of the receipts from operation & maintenance agreement (O&M) project of Godavari as FTS within the meaning of explanation-II to Section 9(1)(vii) of the Act and Article 13(4)(c) of the DTAA between India and UK and taxing the same on gross basis u/s 44D - Held that:- As decided in assessee's own case [2012 (5) TMI 806 - ITAT DELHI] assessee had also not “make available” any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and Section 44AD has no application to the facts of the instant case. Furthermore, Article 13(4)(c) read with Article 26 of DTAA does not permit the revenue authorities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee’s case. Thus, looking from any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee’s income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis.
Assessee was making available technical knowledge, experience, skill, know-how or processes as per the provisions of Article 13(4)(c) of the DTAA to M/s SPGL under the O&M - Held that:- As decided in assessee's own case [2012 (5) TMI 806 - ITAT DELHI] The income so received for executing the work contract did not fall within the definition of FTS u/s 9(1)(vii) Explanation 2 of the IT Act nor as defined in Article 13(4) of DTAA between India and UK. The assessee had also not “make available” any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and Section 44AD has no application to the facts of the instant case. Furthermore, Article 13(4)(c) read with Article 26 of DTAA does not permit the revenue authorities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee’s case. Thus, looking from any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee’s income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis.
Treating the other incomes from Godavari Operation & Maintenance Project as FTS and taxing the same on gross basis instead of net basis u/s 44D - Held that:- The identical issue relating to the treatment of the other income as FTS and taxing as business income on net basis u/s 44D of the Act has been decided for the assessment years 2007-08 and 2008-09 respectively held nterest received by the assessee in U.K. on bank accounts maintained in U.K. cannot be taxed in India. We find force in the submissions of the assessee as on the point of law there is no dispute between the assessee and the Revenue. The assessee has only current account in India and all the interest amount has arisen out of Bank accounts in U.K. and, therefore, the same should not have been subjected to tax in India at all. We allow this ground of appeal. The AO is directed to exclude interest earned outside India under Article 12(2) of the DTAA and tax interest earned in India as normal income. AO is at liberty to examine such interest income whether taxable as income from other sources or as business income.
Interest on foreign bank accounts accruing outside India - Held that:- The income so received for executing the work contract did not fall within the definition of FTS u/s 9(1)(vii) Explanation 2 of the IT Act nor as defined in Article 13(4) of DTAA between India and UK. The assessee had also not “make available” any knowledge, skill etc. to M/s Spectrum within the meaning assigned to it under Article 13(4)(c) of the DTAA to FTS under the treaty. Accordingly, assessee cannot be taxed on gross basis and Section 44AD has no application to the facts of the instant case. Furthermore, Article 13(4)(c) read with Article 26 of DTAA does not permit the revenue authorities to discriminate against the assessee, a UK registered company and accord it less favourable treatment than a domestic company and therefore, section 44AD cannot be invoked in assessee’s case. Thus, looking from any angle, the income received by the assessee from M/s Spectrum was not a fee for technical services, we therefore direct the AO to compute assessee’s income and profit and gains of business from operation and maintenance of power plant of net profit and loss basis.
Taxation of Foreign Exchange Fluctuation - Held that:- There is no dispute to the well settled legal proposition that if profit or loss on account of foreign exchange fluctuation arises out of capital assets, then it will be capital receipt and in case it arises out of trading business, then it should be treated as trading income. The AO is directed to verify the same and act accordingly.
Taxing the interest on Income Tax Refund @ 40% of gross basis - Held that:- In the present case, nothing is clear from the orders of the authorities below that what were the clauses in the DTAA between India and UK. The claim of the assessee that the said income was not connected to execution of any profit conducted during the year and was not connected to the PE of the assessee, however, in the absence of the clear facts on record, it is difficult to take a just decision. Therefore, we deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
Adjustment of unabsorbed brought forward losses, unabsorbed depreciation and the interest charged u/s 234B of the Act, we deem it appropriate to remand these issues to the file of the AO to be adjudicated after considering the relevant facts already available on the record and after providing due and reasonable opportunity of being heard to the assessee. - Appeal of the assessee is partly allowed and partly allowed for statistical purposes.
Principles of natural justice - Validity of assessment order - CST Act - case of petitioner is that pre-assessment notice was not served on the petitioner - Held that:- The petitioner is directed to pay 25% of the disputed tax within a period of three weeks from the date of receipt of a copy of this order and if the petitioner complies with the said condition, the petitioner will be entitled to treat the impugned assessment order as show cause notice and submit their objections to the same within a period of two weeks thereafter - petition disposed off.
Penalty u/s 271(1)(c) - unexplained deposits on bank - addition on peak of one bank account and unexplained cheque deposits - Held that:- The Assessee is found have been depositing money into his bank account in cash as well as cheque for which the Assessee could not given adequate explanation and therefore such sum was found to be undisclosed income of the Assessee. The Assessee did not give complete name, address of those persons on account of whom he has obtained demand draft.
During the course of assessment proceedings the Assessee submitted that he is not in a position to supply all the names of the creditors. No such evidences were even filed during penalty proceedings also. Therefore in absence of any plausible explanation the Assessee is found to have concealed the particulars of his income as he has failed to offer explanation which he is not able to substantiate and further has failed to prove that such explanation is bonafide and that the relevant and material facts relating to the computation of income. In view of these facts the provision of section 271(1)(c) gets attracted correctly. See MAK DATA P. LTD.case [2013 (11) TMI 14 - SUPREME COURT] - decided against assessee.
Net profit rate at 7% on the gross receipts - Held that:- The assessee is a civil contractor and the total receipts amounting to ₹ 9,96,62,747/- were shown during the year under consideration thereby showing the rate of profit @ 4.61%. AO took the net profit at ₹ 99,66,275/- after applying 10% rate to the total receipts. Against this the salary to partners was allowed and the net income was determined at ₹ 79,66,275/-.
Against the said addition the assessee went in appeal before the ld. CIT(A) and the ld. CIT(A) applied a net profit at 7% on the gross receipts declared by the assessee. It was also held that the deprecation as claimed at ₹ 2,13,22,380/- may be allowed. While allowing the depreciation the CIT(A) relied upon the decision in the case of Lali Construction Co. vs. ACIT [2014 (9) TMI 500 - PUNJAB & HARYANA HIGH COURT] in which, it was observed that the depreciation allowable from net profit even if the total income is computed by applying net profit rate. Several other Courts have also held the same view.
Provisions of section 40a(ia) are not applicable as this amount has been shown in the hands of the receipt ant and which has suffered tax. As such the disallowance is not called for and the department has got no justification for coming in appeal before the Tribunal.
Payment made to ex-partners as allowable deduction - Held that:- It is an agreed position between the parties that the question proposed by the Revenue in the appeal stands concluded against the Revenue and in favour of the respondent assessee by the decision of this Court in (i) Commissioner of Income Tax Vs. Kanga & Co. (2016 (2) TMI 573 - BOMBAY HIGH COURT), Commissioner of Income Tax Vs. Mulla & Mulla and Craigie, Blunt and Caroe [1990 (9) TMI 32 - BOMBAY HIGH COURT] and Commissioner of Income Tax Vs. M/s. C.C. Chokshi & Co. (2013 (2) TMI 872 - BOMBAY HIGH COURT). No substantial question of law.
Addition of undisclosed income in his statement recorded u/s 132(4) - Held that:- It is clear that there is no material or corroborative evidence to support the statement made under section 132(4) of the Act in respect of the addition of ₹ 30 lakh against unexplained investment in stock and ₹ 23.20 Lacs against the unexplained expenditure. The assessee did not admit the addition, which means, he retracted the said surrender in the return of income filed.
We find that the Tribunal in the case of best infrastructure (India) Private Limited (2016 (5) TMI 1298 - ITAT DELHI) and case of Harjeev Aggarwal (2016 (3) TMI 329 - DELHI HIGH COURT) have in the similar facts and circumstances, held that no addition can be made merely on the statement recorded under search and seizure proceedings on a standalone basis without any supporting or corroborative material - thus order passed by the CIT(Appeals) on the issue in dispute is well reasoned and no interference on our part is required, accordingly, we uphold the finding of the CIT (Appeals) on the issue in dispute. Thus, ground No. 1 and 2 of the appeal are dismissed.
Adjudication of appeal without filing of the statement of fact as mandated by the statutory form No. 35. - Held that:- CIT(A) has not treated the forms filed before him as defective. He admitted the appeal and adjudicated the matter on merits. The order of the CIT(A) is the impugned order appealed against before us. The ld. DR wants us to hold that the order of the ld. CIT(A) is illegal and against the law as there is a defect in Form No. 35 In our view the arguments raised by the ld. DR are devoid on merit. Defects in the return of income filed, defects on Form No. 35 which is the form of appeal etc. are to be considered by the respective authorities before whom these are filed and the maintainability of the appeal before us cannot be challenged. The right of appeal is a substantive right. Procedural issues can not take away substantial rights of a person. This cannot be a ground for the revenue to challenge the order of the ld. CIT(A) which is in this case in favour of the Revenue. The arguments to say the least are farfetched. Hence we dismiss the same.- decided against revenue
Validity of reopening of assessment u/s 147 - eligible reasons to believe - non independent application of mind by AO - borrowed knowledge - Held that:- AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year - the reasons are vague and are not based on any tangible material as well as are not acceptable in the eyes of law.
AO has mechanically issued notice u/s. 148 on the basis of information allegedly received by him from the DIT (Investigation), New Delhi. Thus the reopening in the case of the assessee for the AY in dispute is bad in law and deserves to be quashed. See Pr. CIT vs. G&G Pharma India Ltd. [2015 (10) TMI 754 - DELHI HIGH COURT]. - Decided in favour of assessee.
Accumulation of income u/s. 11(2) - Held that:- As find that assessee has given a notice of accumulation of funds, but the AO did not take cognizance of this fact and has made the addition; whereas the CIT(Appeals) has examined the issue in detail in the light of various judicial pronouncements and since find no infirmity in the order of CIT(Appeals), thus confirm the same.
Disallowance of depreciation claimed by the assessee trust - Held that:- CIT(Appeals) has decided the issue in the light of judgments of various High Courts in which it has been held that depreciation is exhaustion of effective life of a fixed asset owing to its ‘use’ or obsolescence. It is computed as part of the cost of asset which will not be recovered when the asset is put to use. Even the Hon’ble Bombay High Court has held that depreciation should be allowed even on assets received on transfer on which no cost was borne by the assessee trust. CIT(Appeals) has properly adjudicated the issue and no interference is called for. - Decided against revenue
Addition u/s 68 - assessee does not maintain any books of accounts - Held that:- As relying on case of MS. MAYAWATI [2011 (8) TMI 12 - DELHI HIGH COURT] and KAMAL KUMAR MISHRA [2014 (1) TMI 71 - ITAT LUCKNOW] no addition can be made u/s 68 of the Act, as no books of accounts are maintained by the assessee and Bank Pass Book cannot be considered as the assessee’s books of accounts. - Decided in favour of assessee.
Valuation - enhancement of value without any basis - principles of natural justice - Held that:- The enhancement of the value from US $ 300 to US $ 450 was done by Assessing Officer arbitrarily without any basis. It is also observed that before enhancement of the declared value, it is necessary that assessing officer should have given opportunity to the assessee and also cite the proper reasons for not accepting the declared value and what is the basis of the enhancement of value and basis of quantum of enhancement.
No efforts was made by the assessing officer to find out the fact in this regard. In the show cause notice also no reason was given for enhancement of the value, enhancement of the value was made directly on the Bill of Entry at the time of assessment, which is gross violation of principle of natural justice.
Matter remanded to the original authority for passing a speaking order - appeal allowed by way of remand.
Reopening of assessment u/s 147 & 148 - disallowing the additional depreciation u/s 32(1)(ii) - Held that:- Beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has righly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization, and provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. See THE COMMISSIONER OF INCOME-TAX, LTU, THE ASST. COMMISSIONER OF INCOME-TAX (LTU) VERSUS M/S RITTAL INDIA PVT. LTD. (NO. 1) [2016 (1) TMI 81 - KARNATAKA HIGH COURT]
We hereby hold that the assessee is entitled to claim the remaining 10% of the additional depreciation of ₹ 2,04,84,781/- for the relevant assessment year 2008-09 in the case of the assessee. It is ordered accordingly. Since we have decided the issue on merits, we do not find it necessary to adjudicate the issue with respect to reopening of assessment since it would be only academic. - Decided in favour of assessee
Time limitation - service of notice - the adjudication order dated 28-12-2012 was sent by the Range Office on 21-2-2014 and the same was received on 28-2-2014. The appeal was filed on 19-3-2014 - Held that:- The proof of delivery of the order is not available in the file. Section 37C of the Central Excise Act, 1944 mandates that in case of dispatch of the order or decision through speed post, the proof of delivery has to be obtained - In this case, admittedly, the proof of delivery of the order is not available, and hence, it has to be presumed that the order sent by the Department was not received by the appellant.
Since the appeal was filed within one month from the date of its receipt, there is no delay in filing the appeal before the Commissioner (Appeals) - matter remanded back to the Commissioner (Appeals) to pass a reasoned and speaking order on the issue, after affording due opportunity of personal hearing to the appellant - appeal allowed by way of remand.
Penalty u/r 26 of Central Excise Rules, 2002 - Held that:- The impugned order has ordered penalty only for the reason that he has signed the declaration. In our opinion, such action by itself is not sufficient and mens rea has to be established for imposing penalty - penalty not warranted - appeal allowed - decided in favor of appellant.
MAT applicability on assessee bank - Held that:- We set aside the order passed by Ld CIT(A) on this issue and hold that the provisions of sec. 115JB shall not be applicable for both the years under consideration.
Granting of interest u/s 244A - Held that:- Since it is matter involving computation of eligible amount of interest u/s 244A of the Act, we are of the view that this issue requires fresh examination at the end of the AO. In the decisions relied upon by the assessee, the Tribunal has followed the decision rendered in the case of India Trade Promotion Organisation Vs. CIT [2013 (9) TMI 451 - DELHI HIGH COURT] and accordingly given direction to the AO to follow the said decision. Consisted with the view taken by the Tribunal, we restore this issue to his file with the direction to examine this issue afresh
Clubbing of matters - Held that:- We are unable to understand why should an Advocate be briefed when he is not available to appear, particularly when it was made clear on the 19 August 2016 that under no circumstances would these clubbed matters be adjourned bearing in mind that they relate to Assessment Year 1961-62 onwards. Needless to state that if the Advocate would have been told about the circumstances leading to the matters being fixed on 22 August 2016, he would in all likelihood not have accepted the brief. Be that as it may, we refused to grant any further adjournment and directed both of them to proceed with the hearing of their respective briefs. However, both of them expressed their inability to make submissions in support of either the References, and/or the Appeals and/or the Petition.
Thereafter, Mr. Chandnani learned Advocate for the Petitioner/Applicants in the References, sought to place on record written submissions. However, we refused to take the same on record, as the copy of the same has not been forwarded to the Respondent Revenue.
Taking these submissions would entail adjourning the hearing of the References/Appeals/Petition, as the Respondent Revenue would need to respond to the written submissions filed by the Applicant Assessee particularly when both Advocates refuse to make oral submissions. Thus, in effect seeking adjournment indirectly, which we had already declined to grant.
The Applicants in the References, at whose instance the References are made, are unable to make any submissions in support of the References, we return the References unanswered. However, the questions of law, as framed therein are left open for consideration in an appropriate case.
TPA - Comparable selection criteria - exclusion of ICRA Online Limited as a comparable having significant Income on account of sale of products which was not available at the time when the transfer pricing study was first carried out by the respondent-assessee - Held that:- We find that Rule 10 D (4) of the Rules provides us a cut off date, the date specified in Section 92 (f)(iv) of the Act. The date specified in Section 92 (f) (iv) of the Act is the due date specified in Explanation 2 to Section 139 of the Act i.e. 30th November of the Assessment year. In this case the Director's report of ICRA Online Ltd. is dated 12th May, 2007. In view of the fact that the information on the basis of which the respondent assessee seeks to exclude ICRA Online Ltd. from the transfer pricing study is based on document / information available before 30th November, 2007. Therefore reliance upon it is perfectly valid. Thus the direction in the impugned order to the Assessing Officer to exclude ICRA Online Ltd. from the study of comparison, cannot be faulted with in the present facts.
Depreciation on UPS @ 60% to be allowed as relying on THE COMMISSIONER OF INCOME TAX-10 VERSUS M/S. SARASWAT INFOTECH LTD. [2013 (1) TMI 861 - BOMBAY HIGH COURT]
Entitlement to deduction u/s.80P(2)(a)(i) on the interest income kept with various banks other than cooperative banks/societies - Held that:- The assessee cooperative society is entitled to deduction u/s.80P(2)(a)(i) on the interest income of fixed deposits kept with banks other than cooperative banks/societies. Grounds raised by the assessee are accordingly allowed. See - TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LIMITED VERSUS THE INCOME TAX OFFICER, WARD-1, TUMKUR [2015 (2) TMI 995 - KARNATAKA HIGH COURT] - decided in favour of assessee.
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