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2011 (9) TMI 1042
Issues involved: Appeal against order u/s 263 of the Income-tax Act, 1961 for the assessment year 2005-06.
Grounds of Appeal:
1. Initiation of proceedings u/s 263 by CIT-1 against facts and bad in law.
2. CIT-1 failed to show how the order passed by DCIT is erroneous or prejudicial to revenue.
3. Observations of CIT in setting aside order with directions under Section 14A and rule 8D.
4. Ignored that Addl.CIT passed order after due application of mind.
5. Order of CIT-1 u/s 263 against the law and deserves to be quashed.
6. General ground.
Contentions:
- AR argued AO passed assessment order u/s 143(3) after due application of mind.
- AR cited case laws to support the argument.
- DR contended AO did not consider the issue dealt with by CIT in the order u/s 263.
- DR emphasized applicability of Section 14A to the case.
- DR referred to relevant provisions and case laws to support the argument.
Decision:
- Tribunal found AO did not address the issue raised by CIT u/s 263 in the assessment order.
- Specific query on Section 14A applicability not addressed by AR with evidence.
- CIT issued Show Cause Notice indicating AO's failure to apply mind.
- Tribunal dismissed appeal based on lack of AO's application of mind as per legal precedent.
- CIT set aside assessment order directing fresh assessment under Section 14A.
- AO's ignorance on Section 14A issue led to dismissal of appeal.
- Tribunal pronounced order on 21st September, 2011.
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2011 (9) TMI 1041
Issues involved: Determination of sale value of residential flats for assessment year 2007-08 u/s 50C of the Income Tax Act, 1961.
Summary:
The appeal was filed by the assessee against the order of the Commissioner (Appeals) regarding the sale of residential flats in Mumbai. The Assessing Officer questioned the declared sale value of the flats compared to the valuation by stamp authorities, resulting in an addition to the income. The first appellate authority upheld the decision based on previous orders. The Tribunal referred to a similar case from the previous year where the issue was analyzed. It was noted that the Assessing Officer did not provide evidence to support the discrepancy in sale values and did not find any defects in the accounts. The Tribunal concluded that the provisions of section 50C were not applicable in this case as the income was computed under the head "Profits & Gains under business or Profession." Therefore, the grounds raised by the assessee were allowed, and the appeal was granted.
In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the lack of evidence supporting the addition to the business income based on the variance between the sale price and the valuation by stamp authorities. The decision highlighted that the Assessing Officer failed to demonstrate any defects in the accounts or the need for invoking section 50C in cases where income is computed under specific heads. The Tribunal's verdict allowed the appeal, overturning the previous orders and dismissing the addition to the income for the assessment year in question.
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2011 (9) TMI 1040
Disallowance u/s 14A - Held that:- In the facts of the case, the turnover of the share trading cannot be a basis for disallowance of interest expenditure; because the dividend income earned is only on that part of the shares, which are held as stock-in-trade. Even otherwise, it is clear from the record that the assessee’s own fund is much more than the average stock-in-trade of the assessee; then, in our opinion, no disallowance of interest expenditure can be made u/s 14A.
Not deducted tax at source (TDS) while making payments to the BSE - Decided in favour of assessee
Disallowance of payment to the Jobbers/Arbitragers - Held that:- We do not see how such payments can be termed as payments to contractors for any work to be carried out by them. We therefore uphold the finding of the CIT (A) that these payments do not attract section 194C and the assessee was not liable to deduct tax there from. Accordingly section 40(a)(ia) is also not applicable.
Disallowance of the penalty paid to the Stock Exchange - Decided in favour of assessee.
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2011 (9) TMI 1039
Penalty under s. 271(l)(c) - Held that:- The assessee had made full disclosure about the claim. The claim was also certified by the chartered accountant. Necessary declarations in the prescribed forms were made, may be in the case of the assessee, such claim on merits was not granted. However, this does not mean that the assessee had concealed any income. Further, we find that the issue ultimately at any rate is debatable since one High Court has already held in favour of the assessee. We also find that in the case of CIT us. Reliance Petroproducts (P) Ltd. (2010 (3) TMI 80 - SUPREME COURT), the apex Court observed that when no information as given in return is found to be incorrect, penalty could not be imposed. It was held that making incorrect claim does not amount to concealment of particulars.
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2011 (9) TMI 1038
Deduct TDS under sec. 194C or 194I - payments made to the transporters who have plied their busses for transporting the employees and their wards to different destination as per the agreement between the assessee and the transporters - Held that:- It is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C. The assessee has placed on record copy of a letter of award for hiring of busses. It has also placed on record copy of the contract entered on Ist of February 2008. On perusal of these documents, it reveals that assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours. Before the Learned First Appellate Authority, assessee has made a reference to Circular No. 558 dated 28.3.1990 issued by the CBDT. In the circular, board has considered this aspect and was of the view that where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service. Learned First Appellate Authority has considered this aspect while observing that it is a service contract and assessee was to deduct tax under sec. 194 C of the Act. Considering the order of Learned CIT(Appeals) and in view of the above discussion, we do not find any merit in this appeal. It is dismissed.
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2011 (9) TMI 1037
Issues Involved:
1. Deduction of balance depreciation/amortization.
2. Deduction in respect of delayed payment of employees' monthly contribution to PF and ESI.
3. Disallowance of amortization of building expenses.
Summary:
Issue 1: Deduction of Balance Depreciation/Amortization
- The department's appeal questioned whether the CIT(A) was justified in allowing the deduction of balance depreciation/amortization of Rs. 2,82,64,428/- for the assessment year 2006-07.
- The assessee had claimed amortization of leasehold amounting to Rs. 1,41,32,214/- for each of the assessment years 2005-06 and 2006-07. The lease was terminated during the assessment year 2006-07, and the assessee apportioned the remaining WDV equally between the two years.
- The AO disallowed the amortization for the assessment year 2005-06 but allowed depreciation at 10%. For the assessment year 2006-07, the AO disallowed both depreciation and amortization, treating the remaining WDV as a capital loss.
- The CIT(A) allowed the entire WDV as a deduction for the assessment year 2006-07, treating it as revenue expenditure.
- The Tribunal upheld the CIT(A)'s decision, referencing the judgments in CIT v. Madras Auto Service (P) Ltd (233 ITR 468) and CIT v. TVS Lean Logistic Ltd (293 ITR 432), which supported treating such expenditure as revenue expenditure.
Issue 2: Deduction in Respect of Delayed Payment of Employees' Monthly Contribution to PF and ESI
- The AO disallowed the contributions to PF and ESI for certain months due to delayed payment.
- The CIT(A) allowed the deduction, referencing the decisions in Sabari Enterprises (213 CTR 12) and Vinay Cements (213 CTR 268), which permit deductions if payments are made before the due date of filing the return u/s 139(1).
- The Tribunal remitted the issue back to the AO to verify if the payments were made before the due date of filing the return.
Issue 3: Disallowance of Amortization of Building Expenses
- The assessee's appeal questioned the disallowance of amortization of building expenses amounting to Rs. 1,41,32,214/- for the assessment year 2005-06.
- The Tribunal upheld the disallowance, noting that the lease termination took effect in the assessment year 2006-07, and thus the amortization claim for the assessment year 2005-06 was not justified.
Conclusion:
- The assessee's appeal for the assessment year 2005-06 was dismissed.
- The Revenue's appeal for the assessment year 2006-07 was partly allowed for statistical purposes, with the issue of delayed payment of PF and ESI contributions remitted back to the AO for verification.
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2011 (9) TMI 1036
Issues involved: The judgment deals with the following issues raised by the Revenue in the appeal:
a) Allowance of personal expenses as business expenditure
b) Allowing personal expenses as business expenses without cross-examination
c) Allowing unaccounted expenses without evidence
d) Set off of undisclosed expenses from different financial years
e) Allowance of cash expenses without nexus to bank withdrawals
Issue (a): The Tribunal justified allowing personal expenses as business expenditure since they were recorded in the regular books of account, stating that the matter should be considered in regular assessment, not block assessment. The High Court found no fault with this decision, dismissing the first two questions raised.
Issue (b): The Tribunal held that undisclosed income declared by the assessee included certain expenses not seized during the search. The Tribunal accepted the explanation that the undisclosed expenses were part of the declared income or could be covered by the cash in hand from previous years. The High Court found no legal issue with this finding of fact, dismissing questions (c) and (d).
Issue (c): The assessing officer disallowed certain expenses incurred by the assessee on behalf of associate concerns, alleging lack of proof that the expenses were covered by funds withdrawn from the bank. However, the Tribunal found that the expenses were indeed paid from the withdrawn amounts, and since the department did not dispute this, the Tribunal's decision was upheld as based on factual findings.
Conclusion: The High Court dismissed the appeal, upholding the Tribunal's decisions on the various issues raised by the Revenue, stating that no substantial questions of law arose from the Tribunal's orders.
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2011 (9) TMI 1035
Treatment given to the profit from shares - taxable under the head `Capital gains’ OR `Business income’ - Held that:- The principle of consistency requires that the view taken in one year should be followed in subsequent years, unless the facts or the legal position justify departure therefrom. Recently the Hon’ble Bombay High Court in CIT Vs. Darius Pandole [2010 (6) TMI 405 - Bombay High Court ] has held that income from sale of shares treated as business income in earlier year by way of assessment u/s 143(3) cannot be taken as capital gain in subsequent year. The essence of the judgement is that the principle of consistency should be followed and the parties should not be allowed to register departure from the existing position time and again. Since in the earlier years the Department has accepted income from shares as falling under the head 'Capital gains’, in our considered opinion and respectfully following the above judgements, that the learned CIT(A) was justified in upholding the assessee’s stand.
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2011 (9) TMI 1034
Issues involved: Appeal by revenue against deletion of Long Term Capital Gain addition and treatment of gift as invalid.
Long Term Capital Gain Issue:
The appellant, an individual and Chartered Accountant, filed a return for AY 2006-07 but did not declare long term capital gains on selling a property jointly owned with his brother. The AO added &8377; 15.57 lakhs as LTCG. The appellant argued a family arrangement where he gave up his share to his brother, who declared and paid tax on the entire capital gain. The AO rejected this, alleging tax evasion and misuse of the family arrangement. The CIT(A) ruled in favor of the appellant, stating the capital gain was already taxed in the brother's hands, and the family arrangement was valid without needing registration. The Tribunal upheld the CIT(A)'s decision, confirming that the appellant had no rights over the property due to the family arrangement.
Invalid Gift Issue:
The AO treated a gift as invalid due to lack of registration, leading to tax evasion allegations against the appellant. The CIT(A) found the gift valid under a family arrangement and not requiring registration. Citing legal precedents, the CIT(A) held that the AO's actions were improper. The Tribunal dismissed the revenue's appeal, affirming the validity of the family arrangement and the lack of need for registration in such cases.
In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal regarding the Long Term Capital Gain addition and the treatment of the gift as invalid.
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2011 (9) TMI 1033
Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the CIT.
2. Verification of the genuineness of the assessee's claim regarding outstanding sundry creditors.
3. Jurisdiction of the CIT under Section 263 based on the adequacy of the AO's enquiry.
Issue-wise Detailed Analysis:
1. Invocation of Section 263 of the Income Tax Act by the CIT:
The assessee challenged the CIT, Kota's decision to invoke Section 263 of the Act, claiming it was contrary to the provisions of law. The CIT issued a notice under Section 263, stating that the assessment order under Section 143(3) was erroneous and prejudicial to the interest of Revenue because the AO did not verify the genuineness of the sundry creditors amounting to Rs. 19,65,614. The CIT argued that the AO failed to take the names and addresses of the farmers on record.
2. Verification of the genuineness of the assessee's claim regarding outstanding sundry creditors:
The assessee provided a detailed explanation of their business operations as a Kachcha Adatiya, which involved selling farmers' crops in auctions and making payments to farmers during a sight period. The assessee claimed that this process inherently led to outstanding payables to farmers, and they produced complete books of accounts before the AO. The CIT, however, found that the AO did not verify the genuineness of the creditors, as the full addresses and date-wise details of transactions with the farmers were not recorded. The CIT concluded that the assessment order was erroneous and prejudicial to the interest of Revenue and set it aside for fresh assessment after proper verification.
3. Jurisdiction of the CIT under Section 263 based on the adequacy of the AO's enquiry:
The assessee argued that the CIT could only assume jurisdiction under Section 263 if the order was both erroneous and prejudicial to the interest of Revenue. They contended that the AO had raised detailed queries and received replies, indicating that an enquiry was made. The CIT's assumption of jurisdiction was challenged on the grounds that it was based on the opinion that the AO's enquiry was insufficient rather than non-existent. The assessee cited various judicial precedents, including decisions from the Hon'ble Delhi High Court and the jurisdictional High Court, to support their claim that the CIT's invocation of Section 263 was unwarranted if the AO had made some enquiry, regardless of its perceived adequacy.
The Tribunal examined the records and found that the AO had indeed made an enquiry, as evidenced by the office note and the details of trade creditors provided by the assessee. The Tribunal noted that the AO's enquiry might have been deemed insufficient by the CIT, but it was not a case of no enquiry. The Tribunal referenced the Hon'ble Delhi High Court's rulings, which held that jurisdiction under Section 263 could not be assumed merely because the CIT considered the AO's enquiry inadequate. The Tribunal concluded that the CIT was not justified in passing the order under Section 263 and cancelled the order.
Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the CIT's invocation of Section 263 was not justified as the AO had made an enquiry, and the assessment order was not erroneous or prejudicial to the interest of Revenue based on the facts and legal precedents presented.
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2011 (9) TMI 1032
Issues Involved: Appeal against assessment order for AY 2001-02, computation of deductions u/s 80IB and u/s 80HHC.
Comprehensive Details:
Issue 1: Appeal against Assessment Order
The appeal for the assessment year 2001-02 was filed by the Assessee against the common order dated 21.1.2010 passed by the ld. CIT(A) for the Assessment Years 2000-01 and 2001-02. The assessee firm, engaged in the business as Exporter of Readymade Garments, had filed a return declaring total income at Rs.NIL. However, the assessment was completed determining total income at Rs. 1,12,64,570/-. On appeal, the ld. CIT(A) partly allowed the appeal. Subsequently, the AO computed the assessee's revised income at Rs. 1,11,06,660/- after giving effect to the order of the ld.CIT(A). Both the assessee and Revenue preferred a second appeal before the ITAT. The ITAT set aside the assessment to the file of the AO with certain directions, including allowing deduction u/s 80IB and u/s 80HHC. The AO computed the deductions as per the Tribunal's directions and completed the assessment at an income of Rs. 73,54,340/-.
Issue 2: Computation of Deductions u/s 80IB and u/s 80HHC
The main contention was regarding the calculation of deductions under section 80-IB and 80-HHC. The assessee argued that the deductions were to be calculated independently on the eligible profits, while the AO had calculated deduction u/s 80HHC on the residual profits after reducing the amount of deduction u/s 80IB. The ITAT found that the issue was covered by the judgment of the Hon'ble Jurisdictional High Court in the case of Associated Capsules P. Ltd. v/s DCIT. The High Court held that deductions under different provisions should be restricted to the profits of the business that remain after excluding the profits allowed as deduction under section 80-IA. As there were no distinguishing features brought by the Revenue and considering the binding decision of the High Court, the assessee was found eligible for deductions u/s 80IB and u/s 80HHC. The AO was directed to allow the deductions as per the High Court's decision.
In conclusion, the assessee's appeal was allowed based on the judgment of the Hon'ble Jurisdictional High Court, and the deductions u/s 80IB and u/s 80HHC were to be granted accordingly.
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2011 (9) TMI 1031
Disallowance u/s 14A - Held that:- We find that this issue is now covered by the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] wherein it has been held that Rule 8-D is applicable for assessment year 2008-09 and onwards. We also find that Hon’ble Bombay High Court has further held that the assessing officer had to enforce the provisions of section 14A(1) and for that purpose, the assessing officer was duty bound to determine expenditure which has been incurred in relation to income which did not form part of total income under the Act by adopting a reasonable basis or method consistent with all relevant facts and circumstances.
CIT (Appeals) was not justified in invoking the provisions of Rule 8-D for assessment year 2006-07, which is under consideration. However, since the disallowance under section 14A is to be made in respect of the expenditure incurred in relation to the exempted income, we feel it proper to set aside the matter to the file of the assessing officer with the directions to determine the disallowance of the expenditure relatable to the exempt income in the light of decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). The assessing officer is directed accordingly.
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2011 (9) TMI 1030
Issues involved: Validity of penalty imposed u/s 271(1)(c) of the Income Tax Act for assessment year 2004-05.
Summary:
The appeal by the Revenue challenged the penalty imposed u/s 271(1)(c) of the Act for the assessment year 2004-05. The main issue was the validity of the penalty.
The Departmental Representative argued that the assessee had understated income by not disclosing turnover correctly, leading to the penalty. The assessing officer included the entire additional turnover as income, which was confirmed in appeal.
The assessee contended that it had discovered the omitted turnover by inadvertence and filed a revised return offering 1% of the additional turnover as income. The assessing officer's decision to tax the entire additional turnover was disputed.
The Tribunal found that the assessee voluntarily disclosed the additional turnover before assessment completion, and the penalty under u/s 271(1)(c) was not justified. The Tribunal upheld the CIT(A)'s decision to delete the penalty, emphasizing that the penalty and assessment proceedings are distinct.
Ultimately, the appeal of the Revenue was dismissed, confirming the decision to delete the penalty imposed under u/s 271(1)(c) for the assessment year 2004-05.
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2011 (9) TMI 1029
Issues involved: Cross appeals by assessee and Revenue against order passed by CIT(A) for assessment year 2004-05.
Assessee's Appeal:
1. Assessee challenges CIT(A)'s order on addition of hypothetical interest on loan and non-treatment as NPA.
2. Dispute over addition of interest on hypothetical basis for non performing assets not received from M/s Prathima Estates.
3. Allegation of CIT(A) not considering mandatory provisions followed by assessee prescribed by RBI and ICAI.
4. Request for allowance of claims and deletion of additions.
5. Assessee seeks leave to modify grounds during appeal hearing.
Revenue's Appeal:
1. Disagreement with CIT(A) treating interest income from Netxell Ltd. as non performing asset due to TDS credit.
2. Argument for application of section 198 for interest income with TDS deduction.
3. Objection to deletion of bad debts addition due to non-compliance with money lending principles and loans to sister concerns.
4. Claim that bad debts loss is capital loss and should be disallowed.
5. Provision for raising additional grounds during Tribunal hearing.
Assessee Appeal Decision:
- Issue revolves around recognition of interest income on non performing asset (NPA).
- Refers to Madras High Court judgment emphasizing deduction limits for bad and doubtful debts under IT Act.
- Decision made in favor of department based on Madras HC ruling, dismissing assessee's grounds and appeal.
Revenue Appeal Decision:
- First two grounds rendered irrelevant due to decision in assessee's appeal on interest income from NPA.
- Third ground concerns treatment of bad debts lent to sister concern.
- Matter referred back to Assessing Officer to determine if advances to sister concern were in ordinary course of business or capital investment, following Special Bench judgment.
- Assessee's appeal dismissed, while revenue appeal partly allowed for statistical purposes.
Conclusion:
- Assessee's appeal dismissed, Revenue's appeal partly allowed, with matters referred back for further assessment.
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2011 (9) TMI 1028
Issues involved:
The judgment involves issues related to the deletion of disallowances claimed by the assessee on account of demurrage and diversion charges, purchase of food grains under unconnected wagons, and prior period expenses. Additionally, the judgment addresses the validity of reassessment proceedings made by the Assessing Officer under section 148 of the Income Tax Act, 1961.
Reassessment Proceedings u/s 148:
The original assessment for the assessment year 2004-05 was made under section 143(3) determining the total income. The Assessing Officer (AO) issued a notice under section 148 for reassessment, citing reasons such as disallowance of demurrages, purchase of unconnected wagons, and prior period expenses. The AO completed the reassessment despite objections raised by the assessee. The ld. CIT (Appeals) upheld the reassessment, stating that the AO had sufficient material to invoke section 147 for reassessment. The reassessment was upheld based on the grounds of demurrages charges, unconnected wagons purchase, and prior period expenses.
Demurrages Charges Disallowance:
The AO disallowed demurrages charges claimed by the assessee, treating them as penal in nature. However, the ld. CIT (A) deleted the addition, citing precedents that demurrages paid to railways are deductible business expenditures. The Tribunal upheld the deletion, stating that demurrage charges were not penalties but fees for extra time consumed, thus allowable as business expenditure under section 37 of the Act.
Purchase of Unconnected Wagons Disallowance:
The AO treated the purchase of food grains under unconnected wagons as capital expenditure, allowing depreciation. The ld. CIT (A) disagreed, noting that the assessee did not purchase rail wagons but dealt with consignments delivered to different destinations. The Tribunal concurred, finding no purchase of wagons by the assessee, and upheld the deletion of the addition.
Prior Period Expenses Disallowance:
As the reassessment was held invalid concerning prior period expenses, the appeal by the Revenue on this ground was dismissed as infructuous. The Tribunal partly allowed the appeal filed by the Revenue and the cross objection filed by the assessee.
This judgment highlights the importance of proper assessment procedures and the distinction between business expenditures and capital expenses, providing clarity on the treatment of demurrages charges, unconnected wagons purchases, and prior period expenses under the Income Tax Act, 1961.
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2011 (9) TMI 1027
Issues involved: Appeal against order of Commissioner of Income Tax (Appeals) regarding addition made u/s 68 of the Income Tax Act, 1961 for Assessment Year 2002-03.
Summary:
The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the addition made u/s 68 of the Income Tax Act, 1961 for Assessment Year 2002-03. The main issue was whether the First Appellate Authority was correct in deleting the said addition. The assessee, involved in vehicle financing and investments, received share application money from private limited companies, which was added u/s 68 due to non-compliance with AO notices. The First Appellate Authority deleted the addition based on additional evidences submitted by the assessee, including PAN numbers, board resolutions, confirmations, and other documents. The AO, relying on an Investigation Wing report, sought to sustain the addition due to non-production of directors of the subscriber companies. However, the First Appellate Authority found the assessee's evidence sufficient and deleted the addition.
The Revenue contended that the CIT(A) erred in deleting the addition under section 68, as the assessee failed to provide necessary details during assessment proceedings and did not discharge the burden of proof. The ITAT considered the evidence submitted by the assessee, which included various documents supporting the genuineness of the share capital subscribers. The AO did not object to the admission of additional evidence during the remand proceedings and found no adverse findings in the documents submitted. The AO's main contention for sustaining the addition was the Investigation Wing report and non-production of directors of the subscriber companies. However, the ITAT upheld the CIT(A)'s decision, stating that non-production of persons cannot be a sole ground for sustaining the addition when substantial evidence is provided by the assessee.
Referring to a judgment by the Jurisdictional High Court in a similar case, the ITAT emphasized the importance of conducting thorough inquiries and verifications during assessment proceedings. The High Court's decision highlighted that incomplete investigations by the AO could not justify additions, especially when the assessee had provided substantial evidence. Therefore, the ITAT upheld the CIT(A)'s order and dismissed the Revenue's appeal.
In conclusion, the ITAT dismissed the appeal filed by the Revenue, affirming the decision of the First Appellate Authority.
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2011 (9) TMI 1026
Issues Involved:
1. Reopening of assessment under Section 147.
2. Disallowance of prior period expenses.
3. Deduction under Section 80HHC.
4. Nature of tooling and repair expenses.
5. Disallowance of interest expenditure.
6. Disallowance of provision for commission/turnover discount.
7. Disallowance of commission paid to directors.
8. Disallowance of bad debts.
9. Disallowance of advance written off.
10. Disallowance of staff welfare expenses.
11. Disallowance of miscellaneous expenses.
12. Disallowance of foreign travel expenses.
13. Carried forward of long-term capital loss.
Detailed Analysis:
1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under Section 147, arguing that the notice was served beyond the six-year period. The tribunal held that the notice issued on 31-03-2008 and served on 01-04-2008 was valid, referencing the Supreme Court decision in R.K. Upadhyay vs. Shanbhai P. Latel, which distinguished between the "issue of notice" and "service of notice." Consequently, the reopening of the assessment was upheld.
2. Disallowance of Prior Period Expenses:
The assessee contended that the prior period expenses of Rs. 1,20,181 had crystallized in the current year. However, the tribunal found discrepancies between the bills presented and the details of expenses. As the bills did not match the claimed expenses and lacked clarity on late receipt, the tribunal confirmed the disallowance.
3. Deduction under Section 80HHC:
The revenue's appeal contested the CIT(A)'s direction to compute the deduction under Section 80HHC as per the ITAT Special Bench decision in Topman Exports. The tribunal referred to the Bombay High Court decision in CIT vs. Kalpataru Colour & Chemical, which clarified the computation of profits under Section 28(iiid) regarding DEPB credits. Following this decision, the tribunal allowed the revenue's appeal.
4. Nature of Tooling and Repair Expenses:
The tribunal examined the assessee's claim that tooling expenses were revenue in nature due to their short life span. However, significant items like cutters were claimed without corresponding bills. The tribunal upheld the CIT(A)'s decision to disallow Rs. 1,09,61,257 as capital expenditure but allowed Rs. 22,65,705 for spares and repairs as revenue expenditure.
5. Disallowance of Interest Expenditure:
The tribunal agreed with the CIT(A) that interest on investments generating exempt income should be disallowed under Section 14A. However, it noted that the disallowance should not be based on Rule 8D, which applies from A.Y 2008-09. The tribunal remanded the issue to the AO for recomputation following the Bombay High Court decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT.
6. Disallowance of Provision for Commission/Turnover Discount:
The tribunal found merit in the assessee's argument that the provision for commission and trade discount was based on actual turnover and schemes, not contingent liabilities. It remanded the issue to the AO to verify the provision against actual credit notes and allow the claim accordingly.
7. Disallowance of Commission Paid to Directors:
The tribunal upheld the CIT(A)'s partial allowance of commission paid to Mr. S.K. Maheshwari, a technocrat, while disallowing the commission to Mr. D.C. Anand, the promoter, due to the lack of an agreement. This decision was consistent across multiple assessment years.
8. Disallowance of Bad Debts:
The tribunal noted the absence of details supporting the bad debt claims. Citing the Bombay High Court decision in DIT vs. Oman International Bank, it emphasized the need for bona fide write-offs. Without sufficient details, the tribunal confirmed the disallowance.
9. Disallowance of Advance Written Off:
This ground was not pressed by the assessee and was dismissed as not pressed.
10. Disallowance of Staff Welfare Expenses:
The tribunal referenced its earlier decision in the assessee's favor for A.Y 2003-04, where such disallowances were deemed unwarranted. It followed this precedent and allowed the claim.
11. Disallowance of Miscellaneous Expenses:
Similarly, the tribunal allowed the claim for miscellaneous expenses, following its earlier decision for A.Y 2003-04.
12. Disallowance of Foreign Travel Expenses:
The tribunal allowed the claim for foreign travel expenses, consistent with its earlier decision for A.Y 2003-04.
13. Carried Forward of Long-Term Capital Loss:
The tribunal found the AO and CIT(A)'s summary rejection of the long-term capital loss claim insufficient. It remanded the issue to the AO for a detailed examination of the business expediency and transaction genuineness.
Conclusion:
The tribunal's decisions varied across issues, with some disallowances being upheld due to lack of evidence, while others were remanded for further verification or allowed based on precedents. The tribunal emphasized the importance of detailed evidence and bona fide transactions in tax claims.
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2011 (9) TMI 1025
Issues:
1. Disallowance of payments made for noncompetition/restrictive covenant as capital expenditure.
2. Claim for depreciation on non-compete fees.
3. Disallowance of preliminary expenditure claimed under section 35D of the Act.
Issue 1: Disallowance of payments made for noncompetition/restrictive covenant as capital expenditure:
The assessee claimed `34.47 crores as revenue expenditure, justifying it as expenses in the computation of income. The Assessing Officer (A.O.) disallowed the claim, considering it capital in nature. The Commissioner of Income-tax (Appeals) upheld the A.O.'s decision, stating that the expenditure was to ward off competition and did not create any asset eligible for depreciation. The appellant contended that if treated as capital, it should have been capitalized and depreciation allowed. The Tribunal held in favor of the assessee, citing precedents allowing depreciation on non-compete fees, directing the A.O. to allow depreciation on the amount.
Issue 2: Claim for depreciation on non-compete fees:
The assessee challenged the rejection of depreciation claim on non-compete fees before the Commissioner of Income-tax (Appeals). The Tribunal noted that precedents supported allowing depreciation on such fees as intangible assets. The Tribunal found in favor of the assessee, directing the A.O. to allow depreciation by apportioning the amount to fixed assets and plant machinery. The Tribunal relied on Chennai Bench decisions and allowed the depreciation claim.
Issue 3: Disallowance of preliminary expenditure under section 35D of the Act:
The Assessing Officer disallowed `206,320/- of preliminary expenses claimed under section 35D due to professional fees for FIPB and RBI approval not being covered by the Act. The Commissioner of Income-tax (Appeals) upheld the disallowance, leading to the assessee's appeal. The Tribunal found the disallowance justified as the professional fees were not covered under section 35D. Therefore, the disallowance of `206,320/- under section 35D was upheld, and the appeal on this ground was dismissed.
In conclusion, the Tribunal partly allowed the appeal, directing the A.O. to allow depreciation on non-compete fees and upholding the disallowance of preliminary expenditure under section 35D of the Act. The judgment provided clarity on the treatment of non-compete fees and the eligibility for depreciation, ensuring compliance with relevant legal provisions and precedents.
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2011 (9) TMI 1024
Issues involved: Appeals against orders of Commissioner of Income-tax(Appeals) by two assessees, treating agricultural incomes as 'income from other sources' and charging of interest under S.234A, 234B, and 234C.
Treatment of Agricultural Incomes:
The main issue in the appeals was the assessing officer's treatment of agricultural incomes as 'income from other sources'. The assessees had consistently declared agricultural incomes in their returns, supported by documents such as land purchase deeds and pattadar passbooks. The assessees established that the agricultural lands had irrigation facilities and income estimation was conservative. The Tribunal noted that the assessees' declared incomes were reasonable considering their land holdings. The Revenue failed to dispute ownership of the lands or the existence of irrigation facilities. The Tribunal held that the assessees had provided sufficient evidence to support their declared agricultural incomes and rejected the Revenue's argument that lack of detailed expenditure evidence meant the incomes should be treated as 'income from other sources'. The Tribunal concluded that the agricultural incomes declared by the assessees were genuine and not to be assessed under a different category.
Charging of Interest under S.234A, 234B, and 234C:
The second common issue in the appeals was the charging of interest under S.234A, 234B, and 234C. The assessees contended that the Assessing Officer should have calculated the interest correctly. The Tribunal, considering this issue as consequential in nature, directed accordingly.
Conclusion:
The Tribunal partly allowed all eleven appeals of the assessees, ruling in their favor on the treatment of agricultural incomes and directing the correct calculation of interest under S.234A, 234B, and 234C. The orders were pronounced on 16.9.2011.
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2011 (9) TMI 1023
Issues Involved:
1. Determination of the cost of acquisition arrived at by the Assessing Officer and confirmed by the appellate Commissioner.
2. Whether the transfer of 52.5% interest in the land owned by the assessee to a developer for exchange of 47.5% built-up area amounts to a transfer, thereby attracting capital gains tax.
Detailed Analysis:
1. Determination of the Cost of Acquisition:
The assessee filed a return of income for the assessment year 1995-96, declaring a total income of Rs. 1,03,80,730, which included long-term capital gains of Rs. 1,32,59,786. The assessment was completed under Section 143(3) of the Income Tax Act, 1961, determining the total income at Rs. 1,86,62,121, which included long-term capital gains of Rs. 1,44,94,439. The discrepancy arose due to the cost of acquisition being adopted at Rs. 92,000 instead of Rs. 10 lakhs as claimed by the assessee. The first appellate authority directed the re-computation of capital gains, which was subsequently done, resulting in long-term capital gains of Rs. 1,32,03,153. The ITAT, in its order, held that there was only a diminution of ownership rights and not a transfer, and thus capital gains could not be assessed under Section 45(1) of the Act. The High Court, however, restored the orders of the first appellate authority and the assessing officer, confirming the computation of capital gains.
2. Transfer of 52.5% Interest in Land:
The assessee entered into a development agreement with a developer on 25-1-1993, agreeing to transfer 52.5% of the undivided share in the property in exchange for either a monetary consideration of Rs. 1,34,00,000 or 47.5% of the built-up area. The assessee opted for the latter. The ITAT held that this did not amount to a transfer as the assessee remained the owner of the entire property, and there was only a diminution of ownership rights. The High Court, however, disagreed, stating that the development agreement allowed the developer to enter into possession and put up construction, thereby constituting a transfer under Section 2(47)(v) and (vi) of the Act. This transfer attracted capital gains tax under Section 45(1) of the Act.
The High Court relied on the decision in Chaturbhuj Dwarkadas Kapadia vs. CIT (2003) 260 ITR 491, where it was held that allowing possession under a development agreement constitutes a transfer, attracting capital gains tax. The High Court also referred to CIT vs. Ghanshyam (HUF) (2009) 8 SCC 412, emphasizing that capital gains arise at the point of transfer, and the definition of 'transfer' under Section 2(47) includes allowing possession under a development agreement.
Conclusion:
The High Court allowed the appeals, setting aside the ITAT's order and restoring the orders of the first appellate authority and the assessing officer. The court concluded that the development agreement constituted a transfer of capital assets, attracting capital gains tax under Section 45(1) of the Income Tax Act, 1961.
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