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2011 (6) TMI 803
Issues involved: Appeal against order of ld. CIT(A) regarding depreciation on windmill foundation, infrastructural fee, and transformer as integral part of windmill.
Depreciation on Windmill Foundation:
- The Revenue appealed against the order allowing depreciation on windmill foundation.
- The ld. CIT(A) directed treating windmill foundation as part of windmill for depreciation based on precedent.
- Tribunal confirmed ld. CIT(A)'s decision as no contrary evidence was presented.
- Revenue's appeal dismissed for both years under consideration.
Depreciation on Infrastructural Fee:
- Appeal against ld. CIT(A)'s decision allowing depreciation on infrastructural fee.
- Tribunal upheld ld. CIT(A)'s decision based on precedent regarding capitalization of installation cost.
- No contrary decision presented, thus confirming ld. CIT(A)'s order.
- Revenue's appeal dismissed.
Transformer as Integral Part of Windmill:
- Appeal against ld. CIT(A)'s ruling considering transformer as integral part of windmill.
- Ld. CIT(A) supported the claim based on the function of the transformer in power transmission.
- Tribunal upheld ld. CIT(A)'s decision citing precedent regarding transformer's role in power generation.
- No opposing decision cited, leading to confirmation of ld. CIT(A)'s order.
- Revenue's appeal dismissed for both years.
Cross Objections by Assessee:
- Assessee's cross objections supported ld. CIT(A)'s decision.
- Since no grievance existed, cross objections were deemed infructuous and dismissed.
- Both Revenue's appeals and Assessee's cross objections were dismissed.
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2011 (6) TMI 802
Unaccounted investment in purchase from unaccounted income - Assessee has made purchases from M/s M.D.R Jewellers which were in turn purchased by M/s M.D.R Jewellers from M/s Amit Agency - The AO considered purchases from M/s Amit Agency as bogus - Therefore, made the addition.
HELD THAT:- We observe that all the purchases made by assessee are verifiable. Most of the purchases are made from Jewellers. Partner of M/s M.D.R Jewellers who appeared confirmed having made sales to the assessee. It is further seen that purchases made from M/s M.D.R Jewellers were made through made from known sources.
Thus, we are of the considered view that the AO decision was not justified. The Hon'ble Supreme Court in the case of SREELEKHA BANERJEE VERSUS COMMISSIONER OF INCOME-TAX [1963 (3) TMI 47 - SUPREME COURT] has held that the suspicion howsoever strong cannot take the place of evidence. We order accordingly.
Rejection of Books of Accounts - Reduction in Trading Addition - CIT(A) confirmed the rejection of books of accounts on the account that sales made to two concerns have been established as bogus, therefore sales are not fully verifiable - Also, it reduced the trading addition made by AO - HELD THAT:- Complete books of account were produced before learned CIT(A) which were audited. In our considered view, observations of ld. CIT (A) regarding bogus sales are not correct as assessee has made sales from its stock which has not been disturbed, sales made by assessee have been accepted. If other parties are bogus then it cannot be said that the genuine party who made sales to these parties are also bogus.
Written submissions filed on behalf of the assessee are self-explanatory. In some of the branches the GP rate shown is higher and only in one branch the GP rate declared by assessee is lower, reason for the same has been explained. No defects in the books of account were found. All the purchases and sales are vouched. Therefore, we are of the considered view that there was no justification in making trading addition and sustaining partly at the end of the learned CIT(A). We hold that learned CIT(A) was not justified in restricting the trading addition - Accordingly, same is deleted
Unexplained Cash Credits u/s 68 - AO treated an amount so transferred through journal entry as unexplained cash credit - whether journal entry passed or odd can be added as unexplained cash credit - HELD THAT:- CIT(A) held that AO has not understood the accounting sequence of the adjustment entry in question and wrongly considered the same as unexplained credit which was factually incorrect. Findings of CIT(A) find support from the decision of Hon'ble jurisdictional High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS HAZARIMAL MILAPCHAND SURANA. [2002 (9) TMI 29 - RAJASTHAN HIGH COURT] wherein the Hon'ble Court has held that mere book entry does not create income.
In view of the reasoning given by learned CIT (A) we confirm his order on this issue.
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2011 (6) TMI 801
Rejection of Books of Account u/s 145(3) - Addition on account of Low profit Rates - The assessee's business is of sale and purchase of gold and gold jewellery. AO rejected the books of account u/s 145(3) and addition was made on account of alleged low gross profits.
HELD THAT:- In view of facts of the present case and in the absence of any defects being pointed out in the books of account maintained by the assessee, merely because there was a fall in the GP rate as compared to the preceeding year and the nature of the trade being carried on by the assessee being sale and purchase of gold jewellery, where the rates of gold had increased, we find no merit in the rejection of books of account and the estimation of profits. Accordingly, we direct the Assessing Officer to accept the trading results shown by the assessee and delete the addition.
Deduction u/s 40A(2) - Assessee in addition to the carrying on its main business had also carried on the business of sale of cloth - As he couldn't succeed in such business, the total sales were made at the same rate as of purchase price to its sister concern - As he suffer no losses - AO estimating GP rate at 15% and attached Provision of 40A(2)
HELD THAT:- It is not apprehensible that the assessee has entered into a new venture and had made investment in the purchase of stock which was sold with no margin of profit to its sister concern. In each line of business some margin of profit is earned by the person trading in the business and in the absence of any such profits, we are in agreement with the order of the authorities below that the provisions of section 40A(2) are attracted in the case because the transaction was with a sister concern and not at the market rate as the goods were sold at its cost price. However, we find the rate of 15% applied by the AO to be excessive and direct the Assessing Officer to apply net profit rate of 5% to the transactions to determine the additional income in the hands of the assessee.
Non genuine Expenses in Profit and Loss Account - CIT(A) confirmed the addition of 10% of expenses as debited to the profit & loss account - HELD THAT:- In the first instance, there is no merit in such disallowance of the expenses, in cases where an estimation of income is made by rejecting the books of account. Further, the AO has failed to point out the exact expenses which are not verifiable. We have upheld the trading results shown by the assessee in its business and resale of gold and gold jewellery and accepted the book version declared by the assessee. Accordingly, we direct the AO to restrict the disallowance to 1/10th out of car expenses, car depreciation and telephone expenses. No disallowance is warranted in probability of expenses being unvouched unless it has been established that the expenditure claimed by the assessee are unvouched.
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2011 (6) TMI 800
Issues Involved:
1. Eligibility for deduction u/s 80IB(10) of the Income Tax Act.
2. Definition and measurement of built-up area.
3. Requirement of completion certificate for housing projects.
Summary:
1. Eligibility for deduction u/s 80IB(10):
The primary issue was whether the assessee was eligible for deduction u/s 80IB(10) of the Income Tax Act. The assessee argued that they had applied for a completion certificate from the Municipal Corporation, handed over possession to customers, and executed registered sale deeds. They contended that the law applicable at the time of the map sanction in 2004 should apply. The Revenue, however, argued that the completion certificate had not been issued, and the built-up area exceeded the prescribed limit, thus disqualifying the assessee from the deduction.
2. Definition and measurement of built-up area:
The Revenue's verification found the built-up area of a sample house to be 1811.23 sq. ft., including balconies and mumties, exceeding the 1500 sq. ft. limit specified in section 80IB(10). The assessee claimed that excluding balconies and mumties, the area was within the limit. However, the Tribunal noted that the definition of "built-up area" u/s 80IB(14) includes projections and balconies, and since the assessee built independent bungalows, there were no common areas to exclude. Thus, the built-up area exceeded the prescribed limit.
3. Requirement of completion certificate:
The Tribunal emphasized that u/s 80IB(10), the completion certificate issued by the local authority is essential to claim the deduction. The assessee had not obtained this certificate, which was a critical requirement. The Tribunal referenced various judicial precedents but found them inapplicable as the completion certificate was not issued in this case.
Conclusion:
The Tribunal concluded that the assessee did not meet the conditions for deduction u/s 80IB(10) due to the built-up area exceeding the limit and the absence of a completion certificate. The appeal was dismissed, affirming the decision of the CIT(A).
Order:
The appeal of the assessee is dismissed. Order pronounced in the open Court on 23rd June, 2011.
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2011 (6) TMI 799
Issues involved: Challenge to order u/s 260-A of the Income Tax Act, 1961 regarding validity of assessment order u/s 158BC for the block period 1989-90 to 1998-99 and 1.4.98 to 3.9.98 due to non-issuance of notice u/s 143(2) within one year from the date of filing of the return.
The High Court of Gujarat dismissed the appeal challenging the order made by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot. The substantial question of law formulated by the Court was whether the assessment order u/s 158BC for the block period was invalid due to non-issuance of notice u/s 143(2) within one year from the date of filing of the return. The controversy was settled by the Supreme Court in the case of Assistant Commissioner of Income Tax v. Hotel Blue Moon, [2010] 321 ITR 362 [SC], favoring the assessee.
The Court noted that as per the Supreme Court decision in the case of Assistant Commissioner of Income Tax v. Hotel Blue Moon, notice u/s 143(2) must be issued within one year from the date of filing of the block return for completing the assessment under Section 143(3) read with Section 158-BC. The failure to issue such notice is not a procedural irregularity and cannot be cured, thus making it a mandatory requirement. Consequently, the appeal was dismissed in favor of the assessee and against the revenue, with no order as to costs.
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2011 (6) TMI 798
100% EOU - exemption from NCCD imposed on POY cleared for captive consumption - Held that: - NCCD is not leviable in respect of goods cleared availing the benefit of N/N. 108/95-CE dated 28.8.95 - NCCD is not leviable in respect of clearance to 100% EOUs also - appeal allowed - decided in favor of appellant.
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2011 (6) TMI 797
Issues Involved: Deletion of disallowance on account of repairs, Deletion of addition of staff welfare expenses, Deletion of disallowance of miscellaneous expenses, Deletion of disallowance on foreign travel expenses, Exclusion of excise duty from total turnover for deduction u/s 80HHC.
Deletion of Disallowance on Account of Repairs:
The Assessing Officer disallowed a provision for repairs claimed under "repairs and maintenance of factory building" totaling to Rs. 16,82,836, as the vouchers were billed in the next accounting year. The assessee contended that the work was completed before March 2003, and bills were received subsequently. The CIT(A) allowed the amounts as allowable during the year. The Tribunal upheld the order, stating that even though bills were dated later, the work was completed before March 2003, and provision was made accordingly. Ground No. 1 was rejected.
Deletion of Addition of Staff Welfare Expenses:
The AO disallowed 50% of staff welfare expenses, stating lack of details on amounts incurred in excess of IT Rules. The CIT(A) deleted the addition, citing past history and business purposes. The Tribunal confirmed the order based on previous findings for the assessment year 2001-02. Ground No. 2 was dismissed.
Deletion of Disallowance of Miscellaneous Expenses:
The AO disallowed Rs. 16,28,850 as miscellaneous expenses. The CIT(A) deleted the disallowance, emphasizing that reliance on earlier years' confirmation is insufficient. The Tribunal upheld the CIT(A)'s order, stating there was no scope for adhoc disallowance. Ground No. 3 was dismissed.
Deletion of Disallowance on Foreign Travel Expenses:
The AO disallowed Rs. 3,54,954 on foreign travel expenses. The CIT(A) deleted the addition, and the Tribunal dismissed the ground, following the decision in the assessee's own case for the assessment year 2001-02. Ground No. 4 was dismissed.
Exclusion of Excise Duty from Total Turnover for Deduction u/s 80HHC:
The AO included excise duty in total turnover for deduction u/s 80HHC. The CIT(A) deleted the addition based on relevant case law. The Tribunal upheld the order, citing a Supreme Court decision. The argument on excise duty in export turnover was not considered as it was not part of the issue before the Tribunal. The AO was directed to follow the Supreme Court principles. The appeal was partly allowed for statistical purposes.
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2011 (6) TMI 796
Deduction u/s 80-IB(10) - Must be Developer and Builder both to Claim Deduction - AO, found that Assessee merely provided the other incidental services and transfer of land were only on papers - thus can't be considered as development activity
HELD THAT: - Development Activities - The most of the crucial, preliminary and basic developmental activities necessary for the purpose of making the land ready and prepared for construction activity, both legally and factually, were undertaken and put through only by the assessee. It would be unfair to ignore or brush aside these activities by calling them not developmental activities merely because the assessee has claimed deduction in respect of the profits under sec. 80-IB(10)
Activities merely Paper transactions - It is also not fair to treat the activities undertaken by the assessee as paper transactions merely to enable it to claim deduction, because many of the activities and responsibilities undertaken by the assessee were statutory in nature such as the clearance under the ULCRA, permissions, approvals and IODs from the BMC etc. These cannot be treated as paper transactions - Decision in favour of Assessee.
Escapement of tax by double deduction - We have noticed that the gross sale proceeds are to be divided between the assessee and EBPL in 43:57. Thus the assessee would be getting deduction u/s 80-IB(10) in respect of the profits derived by it from the housing project and EBPL will be similarly claiming deduction in respect of its share of the profits. Both of them combined do not exceed 100 per cent of the profits from the housing project. Thus, there is also no double deduction.
Disallowance u/s 40A(2)(b) - Assessee paid its managing director remuneration, on account of salary, ex gratia and medical reimbursement which was higher than other directors - AO found it unreasonable - Disallowed the excess payment
HELD THAT:- As CIT(A), rightly pointed out that managing director in question is a chartered accountant had quality experience. Other two directors are not so qualified and also did not take part in the business in the same way in which that managing director took. Also, the AO ought to have compared the payment made managing director with payments made for similar services by other companies. Comparison of the payment with the payments made to the other two directors is not justified because in every organization there may be differential payments depending upon the qualification, experience, etc. of each employee. The AO has not brought on record anything to show that the payment to managing director is excessive or unreasonable.
Thus, CIT(A) was right in deleting the disallowance. His decision is confirmed - Decision in favour of Assessee.
Disallowance of Sundry Balance written off in P&L A/c - While approving the balances pertained to payments made to contractors - one payment was made to a person who was declared bankrupt
HELD THAT:- CIT(A) rightly accepted that the amounts have been paid by the assessee as advances to contractors for execution of various projects. If the work done by them and certified is less than the advances paid to them, there is an outstanding balance in their account which is to be written off as a loss. The assessee wrote off the amounts outstanding against the contractors because there was no scope of getting back the amount. In the case of one person, he had become bankrupt.
Therefore, assessee's claim is upheld - Decision in favour of Assessee.
Disallowance u/s 40(a)(ia) - The AO, disallowed the professional fees and brokerage and commission as the tax deducted was not deposited by the assessee with the Government before the due dates
HELD THAT:- In the present case the assessee has admittedly deducted the tax at source at the time of the payment.
Professional fee - According to the details set out in the assessment order, the tax was deducted from the professional fees. The tax was deposited within the due date. Therefore, there is no justification for the disallowance of the professional fees - Decision in Favour of Assessee
Brokerage and Commission - The tax deducted in Feb, 2005, was actually deposited after due date. Therefore, the disallowance made by the AO should be upheld. The AO is directed to ascertain the relevant amount and disallow the same. However, with regard to the tax deducted in March, 2005, the same has been deposited within the due date as per sec. 139(1). Therefore, cannot be disallowed. The said disallowance is held to be rightly deleted - Decision partly in favour of Assessee.
Disallowance of the Delayed Employees' Contribution to Provident Fund - Assessee paid amount on the next day of due date - HELD THAT:- The payment is within the grace period allowed as per the circular issued by CPDC. It gives a grace period of five days. The assessee has deposited the contribution within the grace period. Accordingly the decision of the CIT(A) to delete the disallowance is upheld.
Disallowance u/s 14A - Administrative Expenses attributable to the Exempt Income - AO disallowed 2.49 percent of Administrative expenses - CIT(A), held, a disallowance of 3 per cent of the dividend income can be held to be a proper estimate of administrative expenses attributable to the earning of the dividend income
HELD THAT:- On a careful consideration of the facts, we are of the view that the disallowance sustained by the CIT(A) based on a percentage of the dividend income seems less reasonable than the method adopted by the AO. The AO has adopted the same percentage which the dividend income bears to the total income of the assessee as per the P&L a/c. This seems to be a more reasonable approach. We accordingly reverse the decision of the CIT(A) and restore the disallowance made by the AO.
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2011 (6) TMI 795
Issues involved:
The issue involves the assessment of undisclosed cash credit u/s 68 of the IT Act based on the alleged laundering of black money into white money through share capital transactions by the assessee company.
Assessment of undisclosed cash credit u/s 68 of the IT Act:
The AO observed that the assessee received share application money from various parties, with the amounts being routed through multiple accounts before reaching the assessee's account. The AO concluded that the share capital and premium amount were undisclosed money of the assessee invested as share capital. The CIT(A) deleted the addition, stating that the appellant provided relevant details and shifted the burden of proof to the AO. The AO failed to establish a link between the appellant and the share applicant companies. Judicial precedents were cited to support that share capital amounts are outside the scope of assessment u/s 68 if received from alleged bogus shareholders.
Arguments and Decision:
The Revenue argued that the AO's findings were not considered by the CIT(A) as the appellant rotated the deposited amount. The appellant contended that most payments were made before the alleged date, and subsequent court orders confirmed the legitimacy of the share applicants. The Tribunal found that the appellant received the share application money before the alleged date and that the AO's observations were untenable. Citing a similar case and the decision of the Jurisdictional High Court, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.
In conclusion, the Tribunal dismissed the Revenue's appeal based on the findings and legal precedents, confirming the CIT(A)'s decision regarding the assessment of undisclosed cash credit u/s 68 of the IT Act.
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2011 (6) TMI 794
Issues involved: Appeal against CIT(A) order for assessment year 2006-07. Grounds include treatment of excise duty refund and interest subsidy as capital receipts not liable to tax u/s 80-IB.
Excise Duty Refund and Interest Subsidy as Capital Receipts:
The assessee, a partnership firm engaged in manufacturing, received excise duty refund and interest subsidy during the relevant year. The AO treated these amounts as revenue receipts, disallowing deduction u/s 80-IB. CIT(A) upheld this decision based on a Tribunal order. The issue was whether these amounts were capital or revenue receipts. The J & K High Court, in a separate judgment, held that the incentives provided were for creating new assets and employment opportunities, serving a public purpose. The Court concluded that the excise duty refund and interest subsidy were capital receipts, not liable to tax. Following this judgment, ITAT Amritsar allowed the appeal, holding the amounts as capital receipts not taxable u/s 80-IB.
Consequential Grounds and Partial Allowance:
Other grounds related to the eligibility of excise duty refund and interest subsidy for deduction u/s 80-IB were not adjudicated as the main issue was decided in favor of the assessee. The ground concerning interest u/s 234B was deemed consequential and decided accordingly. The appeal was allowed partly based on the above findings.
This judgment by ITAT Amritsar clarified the treatment of excise duty refund and interest subsidy as capital receipts, following the decision of the J & K High Court. The amounts were held not liable to tax u/s 80-IB, resulting in the partial allowance of the appeal for the assessment year 2006-07.
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2011 (6) TMI 793
Issues involved:
1. Computation of total taxable income for A.Y. 2007-08 based on e-return filed by the assessee.
2. Disallowance of additional development cost paid to the Municipal Corporation.
3. Disallowance of site development expenses, BMC expenses, and brokerage charges.
Issue 1: Computation of total taxable income for A.Y. 2007-08
- The assessee filed an e-return showing a loss of Rs. 23,11,275 for the Assessment Year 2007-08.
- The Assessing Officer (A.O.) considered the income as Nil and made additions for additional development cost, site development expenses, BMC expenses, and brokerage charges.
- The Ld. CIT(A) dismissed the appeal, stating that the columns showing loss in the return did not represent total income.
- The assessee argued that the Ld. CIT(A) overlooked the e-filing Acknowledgement where the total loss was clearly mentioned.
- The ITAT allowed the loss of Rs. 23,11,275 from the taxable income for A.Y. 2007-08.
Issue 2: Disallowance of additional development cost paid to the Municipal Corporation
- The A.O. disallowed Rs. 24,24,200 as additional development cost paid to BMC, considering it capital in nature.
- The Ld. CIT(A) upheld the disallowance, stating the payment was a penalty for unauthorized development and not a revenue expenditure.
- The assessee appealed, presenting the order of the Municipal Corporation which mentioned the penalty and enhanced fine for unauthorized work.
- The ITAT held that the expenditure was for saving the building from demolition, necessary for the business, and allowed the deduction as a permissible business expense.
Issue 3: Disallowance of site development expenses, BMC expenses, and brokerage charges
- The Ld. CIT(A) sustained the disallowance of site development expenses, BMC expenses, and brokerage charges due to lack of details and vouchers.
- The assessee argued that the expenses were shown in Work in Progress and should not be disallowed.
- The ITAT allowed these grounds of the assessee, finding that everything was accounted for in Work in Progress, hence no disallowance was warranted.
In conclusion, the ITAT Mumbai allowed the appeal filed by the assessee, permitting the deduction of the loss from taxable income, recognizing the additional development cost as a necessary business expense, and overturning the disallowance of site development expenses, BMC expenses, and brokerage charges.
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2011 (6) TMI 792
Issues Involved:
1. Disallowance of entertainment expenses under Section 37(2).
2. Deduction of premium on leasehold land.
3. Deduction of process know-how fees under Section 35AB.
4. Disallowance under Rule 6B for gifts.
5. Provision for warranty obligations.
6. Taxation of mesne profits.
7. Deduction for short deducted tax paid to Income-tax Department.
8. Deduction of public issue expenses.
9. Deduction under Section 80-I for various incomes.
10. Exclusion of retention money from sales.
11. Deduction under Section 80-HHC for various incomes.
12. Deduction under Section 43B for late payment of Provident Fund.
13. Deduction under Section 35 for scientific research expenses.
14. Computation of indirect costs for Section 80HHC.
Detailed Analysis:
1. Disallowance of Entertainment Expenses under Section 37(2):
- The assessee's contention that only individual instances of entertainment expenses exceeding Rs. 10,000 should be considered was dismissed as it was not pressed during the hearing.
- The claim that 60% of entertainment expenses related to employees was also dismissed, following the precedent in the assessee's own case for the assessment year 1994-95.
2. Deduction of Premium on Leasehold Land:
- The claim for deduction of Rs. 1,98,775 and Rs. 16,34,000 as premium on leasehold land was disallowed, following the decision of the Special Bench in Mukund Limited and the Tribunal's decision for the assessment year 1994-95.
3. Deduction of Process Know-How Fees under Section 35AB:
- The assessee's claim for deduction of the full amount of Rs. 1,84,28,945 as process know-how fees was disallowed, following the Tribunal's decisions for assessment years 1993-94 and 1994-95.
- The matter was remanded to the Assessing Officer to re-examine new agreements in light of the Supreme Court's decision in Swaraj Engines Ltd.
4. Disallowance under Rule 6B for Gifts:
- The disallowance of Rs. 1,50,462 under Rule 6B was upheld due to the assessee's failure to provide names of recipients, following the Tribunal's decision for the assessment year 1994-95.
5. Provision for Warranty Obligations:
- The provision of Rs. 1,20,73,791 for warranty obligations was disallowed as contingent in nature. The Tribunal directed the Assessing Officer to follow the precedent set in the assessee's own case for the assessment year 1993-94.
6. Taxation of Mesne Profits:
- The amount of Rs. 1,32,751 received as mesne profits was treated as a casual and non-recurring receipt and taxed accordingly, following the Tribunal's decision for the assessment year 1994-95.
7. Deduction for Short Deducted Tax Paid to Income-tax Department:
- The claim for deduction of Rs. 25,55,407 paid to the Income-tax Department for short deduction of tax at source was disallowed, following the Supreme Court's decision in Indian Aluminium Co. Ltd.
8. Deduction of Public Issue Expenses:
- The claim for deduction of Rs. 4,44,46,017 as public issue expenses was disallowed under Section 37(1) and Section 35, following the Supreme Court's decisions in Brooke Bond India Ltd. and Punjab State Industrial Development Corporation Ltd.
9. Deduction under Section 80-I for Various Incomes:
- The claims for deduction under Section 80-I for various incomes were partly allowed and partly dismissed, following the Tribunal's decisions for the assessment year 1994-95.
10. Exclusion of Retention Money from Sales:
- The claim for exclusion of retention money from sales was dismissed as it was not pressed during the hearing.
11. Deduction under Section 80-HHC for Various Incomes:
- The issues relating to exclusion of excise duty and sales tax from total turnover were decided in favor of the assessee, following the Supreme Court's decision in Lakshmi Machine Works.
- Other issues were decided based on precedents and specific facts, with some being remanded for re-examination.
12. Deduction under Section 43B for Late Payment of Provident Fund:
- The Assessing Officer was directed to re-work the disallowance under Section 43B, considering payments made within the grace period as allowable deductions.
13. Deduction under Section 35 for Scientific Research Expenses:
- The claim for deduction of expenses on scientific research was allowed, following the Madras High Court's decision in Rane Brake Linings Ltd.
14. Computation of Indirect Costs for Section 80HHC:
- The issue of computing indirect costs for trading goods was remanded to the Assessing Officer to follow the directions given in the Tribunal's order for the assessment year 1994-95.
Conclusion:
All the captioned appeals of the assessee and the Revenue were partly allowed, with specific issues remanded for re-examination or decided based on precedents. The decision was pronounced in the open Court on 30th June, 2011.
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2011 (6) TMI 791
Issues Involved:
1. Disallowance of expenditure on tax-free bonds and shares.
2. Deduction claimed under Section 37(1) for write-off of investments categorized as non-performing assets (NPA).
3. Disallowance of deduction for loss on revaluation of investment in unquoted shares.
4. Disallowance of expenditure incurred toward the issue of equity shares.
5. Disallowance of deduction for payment of pension.
6. Addition for excess cash available with the assessee.
7. Levy of interest under Section 234B(3).
8. Assessee's claim in respect of bad debts under Section 36(1)(vii).
9. Assessee's claim for depreciation on HTM (Hold to Maturity) category of investments.
10. Assessee's claim for provision for leave encashment.
11. Addition in respect of unclaimed balance in deposit accounts.
12. Addition of surplus amount realized on the sale of pawned jewelry.
Issue-wise Detailed Analysis:
1. Disallowance of Expenditure on Tax-Free Bonds and Shares:
The assessee's appeal contested the disallowance of Rs. 4,33,113/- and Rs. 78,87,262/- for interest and management expenses related to investments in tax-free bonds and shares. The AO attributed these expenses to the common pool of funds and proportionate yield. The CIT(A) confirmed the disallowance, directing the AO to apply Rule 8D. The tribunal restored the matter to the AO for re-examination in line with the jurisdictional high court's decision in CIT vs. Dhanalakshmi Bank Ltd.
2. Deduction Claimed Under Section 37(1) for Write-off of Investments Categorized as NPA:
The AO disallowed the deduction of Rs. 123.10 lakhs for write-off of NPA investments, citing non-compliance with Section 36(1)(vii) and Section 36(2). The CIT(A) remanded the issue to the AO for reconsideration based on the jurisdictional high court's decision in CIT vs. Nedungadi Bank. The tribunal upheld this approach, requiring the assessee to substantiate the decline in value and actual write-off.
3. Disallowance of Deduction for Loss on Revaluation of Investment in Unquoted Shares:
The AO disallowed Rs. 29,73,883/- claimed for loss on revaluation of unquoted shares, citing lack of evidence and non-compliance with RBI guidelines. The CIT(A) followed the tribunal's previous decision, remanding the issue to the AO for factual determination. The tribunal confirmed this approach, emphasizing the need for the assessee to establish the factual basis for the claimed loss.
4. Disallowance of Expenditure Incurred Toward Issue of Equity Shares:
The AO and CIT(A) disallowed Rs. 911.93 lakhs as capital expenditure, referencing the Supreme Court decision in Brooke Bond India Ltd. vs. CIT. The tribunal agreed, stating that the expenditure for raising capital, whether for working capital or otherwise, is capital in nature and not allowable under Section 37(1).
5. Disallowance of Deduction for Payment of Pension:
The AO disallowed Rs. 650.42 lakhs claimed as pension payment, noting it was in addition to contributions to the approved pension fund. The CIT(A) remanded the issue to the AO for reconsideration, following the tribunal's earlier decisions. The tribunal upheld this approach, requiring the assessee to establish the contractual basis for the liability.
6. Addition for Excess Cash Available with the Assessee:
The AO added Rs. 3.29 lakhs for excess cash transferred to the head office, which the CIT(A) confirmed. The tribunal upheld this addition, referencing its previous decision that such amounts represent contingent liabilities and are not deductible.
7. Levy of Interest Under Section 234B(3):
The assessee contested the levy of interest under Section 234B(3), arguing no liability arose under Section 234B(1). The tribunal upheld the levy, citing the jurisdictional high court's decision in the assessee's own case, which found no exception for the levy of interest under Section 234B(3).
8. Assessee's Claim in Respect of Bad Debts Under Section 36(1)(vii):
The AO disallowed Rs. 2140.05 lakhs claimed as bad debts for non-rural branches, citing non-compliance with the proviso to Section 36(1)(vii). The CIT(A) allowed the claim, following the jurisdictional high court's decision. The tribunal, referencing the Full Bench decision, upheld the disallowance, stating the claim must comply with Section 36(1)(vii) and Section 36(2)(v).
9. Assessee's Claim for Depreciation on HTM Category of Investments:
The AO disallowed depreciation on HTM investments, treating them as capital assets. The CIT(A) allowed the claim, following the tribunal's previous decisions. The tribunal upheld this view, confirming the deletion of the disallowance.
10. Assessee's Claim for Provision for Leave Encashment:
The AO disallowed Rs. 5.96 crores for leave encashment under Section 43B(f). The CIT(A) allowed the claim, referencing the Calcutta High Court's decision in Exide Industries vs. UOI. The tribunal upheld the disallowance, noting the Supreme Court stay on the Exide Industries decision.
11. Addition in Respect of Unclaimed Balance in Deposit Accounts:
The AO added Rs. 42.56 lakhs for unclaimed deposit balances, which the CIT(A) deleted, finding no cessation of liability. The tribunal upheld the deletion, following its previous decisions that such amounts do not represent income under Section 41(1).
12. Addition of Surplus Amount Realized on Sale of Pawned Jewelry:
The AO added Rs. 23,221/- as surplus from the sale of pawned jewelry. The CIT(A) deleted the addition, finding no cessation of liability. The tribunal upheld the addition, consistent with its previous decisions that such surpluses represent trade income.
Conclusion:
The tribunal's judgment addressed multiple issues, providing detailed analysis and directions for each. The appeals resulted in partial relief for the assessee, with several matters remanded for further examination by the AO. The tribunal consistently applied legal precedents and emphasized the need for factual substantiation by the assessee.
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2011 (6) TMI 790
Issues Involved:
1. Validity of the assessment order under section 143(3) due to the alleged non-service of notice under section 143(2) within the statutory time limit.
2. Classification of gains from the transfer of shares as short-term capital gains or business income.
Detailed Analysis:
1. Validity of the Assessment Order:
The assessee contended that the assessment order under section 143(3) was null and void as the notice under section 143(2) was not served within the statutory time limit. The return was filed on 29th July 2007. The notice under section 143(2) was issued on 16th September 2008 and served on 20th September 2008. The relevant amendment by the Finance Act, 2008, effective from 1.4.1988, stipulates that no notice under section 143(2) can be served after six months from the end of the financial year in which the return is furnished. Thus, the time limit for issuing the notice was up to 30th September 2008. The Board clarified that the amended proviso applies to all returns where notices could still be issued on 1st April 2008 under the pre-amended provisions. Since the notice was served within this period, the Tribunal found no illegality in the service of the notice. Consequently, the first grievance of the assessee was rejected.
2. Classification of Gains from Shares:
The primary issue was whether the gains from the transfer of shares should be classified as short-term capital gains or business income. The assessee declared short-term capital gains of Rs. 2,60,73,558 and long-term capital gains of Rs. 47,14,432 (claimed as exempt under section 10(38)). The Assessing Officer (AO) issued a show-cause notice questioning why the short-term capital gains should not be considered as business income. The AO, relying on CBDT Circular No. 4 of 2007 and various judicial precedents, concluded that the assessee was involved in trading shares rather than investing.
The AO highlighted several factors:
- The assessee was engaged in frequent transactions involving 329 scripts.
- The assessee dealt with multiple brokers and maintained several D-mat accounts.
- The magnitude and frequency of transactions indicated trading activities.
- The assessee did not maintain regular books of account or file an audit report.
- The AO observed that the assessee's activities were organized and systematic, akin to trading.
The assessee argued that the investments were made from personal funds, not borrowed, and were valued at cost, not market value. The investments were held in the assessee's name, and substantial dividend income was earned, indicating an investment motive. The assessee also pointed out that the past assessments had accepted the gains as capital gains.
The Tribunal considered various factors, including the intention at the time of purchase, the frequency of transactions, the source of funds, and the treatment in books of account. It noted that the assessee had a history of being treated as an investor, not maintaining an office or staff, and not being registered with any trading authority. The Tribunal found that the AO's reliance on the frequency of transactions alone was insufficient to classify the assessee as a trader.
The Tribunal also observed inconsistencies in the AO's approach, where long-term gains were accepted as capital gains, but short-term gains from the same scripts were treated as business income. The Tribunal concluded that the assessee's activities were consistent with those of an investor, not a trader. Therefore, the gains should be assessed as capital gains, not business income.
Conclusion:
The Tribunal rejected the first grievance regarding the validity of the assessment order but allowed the second grievance, directing the AO to assess the gains from the sale of shares as capital gains (both short-term and long-term) rather than business income. The appeal was partly allowed.
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2011 (6) TMI 789
Unexplained Cash Credits u/s 68 - As per AO the creditors were not creditworthy and they were not assessed to tax; hence, the assessee has failed to explain the source of such cash - HELD THAT:- The Supreme Court in the case of COMMR. OF INCOME TAX VERSUS M/S LOVELY EXPORTS (PVT) LTD [2008 (1) TMI 575 - SC ORDER], has held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law.
In the case of COMMISSIONER OF INCOME TAX VERSUS STELLER INVESTMENT LTD. [2000 (7) TMI 76 - SC ORDER], the Supreme Court agreed with the decision of the Delhi High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS STELLAR INVESTMENT LIMITED [1991 (4) TMI 100 - DELHI HIGH COURT], wherein the Court had held that, it is evident that even if it is assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons.
In the circumstances, in the light of the aforesaid decisions, the Department is free to proceed to reopen the individual assessments of the depositors named by the assessee, however, under no circumstances, can the amount of share capital be regarded as the undisclosed income of the assessee - Decision in favour of Assessee.
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2011 (6) TMI 788
Issues involved: Levy of penalty u/s 271(1)(c) of the Act for assessment years 2001-02, 2004-05, 2005-06, and 2006-07.
Summary:
The Appellate Tribunal ITAT Rajkot considered four appeals by the revenue against the CIT(A) orders for the mentioned assessment years. The common issue in all appeals was the levy of penalty u/s 271(1)(c) of the Act.
In response to the revenue's appeals, it was argued that incriminating materials were found during a search operation at the assessee's premises, leading to the declaration of undisclosed income for the respective assessment years. The assessing officer accepted the returns filed u/s 153C but imposed penalties under u/s 271(1)(c) due to the undisclosed income not being previously disclosed. Reference was made to a Tribunal order confirming a similar penalty in a related case.
The representative for the assessee contended that since the undisclosed income was disclosed during the block assessment proceedings, penalties should be deleted, citing a previous Tribunal decision in a similar case.
After considering both sides, the Tribunal noted that the assessee had disclosed all income in the returns filed post the search operation, and no further additions were made by the assessing officer. As per the Tribunal's earlier orders and the abatement of pending proceedings post filing u/s 153C, the penalties were rightly deleted by the CIT(A). The Tribunal found no issues with the lower authority's orders and confirmed them, resulting in the dismissal of all four revenue appeals.
The order was pronounced in open court on 17-06-2011.
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2011 (6) TMI 787
Issues involved: Assessment of undisclosed income u/s 153A and levy of penalty u/s 271(1)(c) for assessment year 2005-06.
Assessment of undisclosed income u/s 153A:
The assessee declared income of &8377; 21,41,890 including undisclosed income of &8377; 20,55,000 in the return filed u/s 153A. The assessing officer initiated penalty proceedings u/s 271(1)(c) based on the undisclosed income. The Tribunal noted that the assessee disclosed the entire income in response to the notice u/s 153A, and no addition was made by the assessing officer. It was argued that since the undisclosed income was disclosed in the return filed u/s 153A, there was no concealment of income. The Tribunal referred to similar cases where penalties were deleted in such circumstances and upheld the order of the CIT(A) in favor of the assessee.
Levy of penalty u/s 271(1)(c):
The Tribunal considered the submissions of both the departmental representative and the representative for the assessee. It was observed that the undisclosed income was disclosed in the return filed in response to the notice u/s 153A, and no further addition was made by the assessing officer. The Tribunal held that once the return of income is filed u/s 153A, all pending proceedings for those assessment years stand abated, and the income is to be computed based on that return. As the undisclosed income was disclosed in response to the notice u/s 153A, the Tribunal concluded that there was no concealment of income. Citing previous decisions in similar cases, the Tribunal confirmed the deletion of the penalty by the CIT(A) and dismissed the appeal of the revenue.
Conclusion:
The Tribunal upheld the order of the CIT(A) and confirmed the deletion of the penalty levied by the assessing officer. The appeal of the revenue was dismissed, and the decision was pronounced in open court on 03-06-2011.
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2011 (6) TMI 786
Issues Involved:
1. Confirmation of penalty levied under Section 158BFA(2) of the Income Tax Act.
2. Validity of the penalty in the context of the block assessment.
3. Consideration of client ID mismatches and their implications.
4. Relevance of evidence found during the search.
5. The approach of the Assessing Officer in different assessment years.
6. The impact of pending appeals before higher courts on the penalty.
Issue-wise Detailed Analysis:
1. Confirmation of Penalty Levied under Section 158BFA(2):
The CIT(A) confirmed the penalty of Rs. 672,45,00,000 levied by the Assessing Officer under Section 158BFA(2) of the Income Tax Act. The assessee contended that the CIT(A) erred in upholding the penalty without reference to corroborative evidence and circumstantial evidence filed before the Assessing Officer.
2. Validity of the Penalty in the Context of the Block Assessment:
The assessee argued that the penalty could not be sustained as the issue of addition made by the Assessing Officer as undisclosed income was debatable and pending adjudication before the jurisdictional High Court. The Tribunal noted that the levy of penalty under Section 158BFA(2) is not automatic and mandatory; the Assessing Officer must consider all relevant facts and circumstances.
3. Consideration of Client ID Mismatches and Their Implications:
During the search, 12 CDs containing accounting and trading data revealed discrepancies in client codes between the Stock Exchange records and the assessee's books of account. The Special Auditor observed that approximately 50% to 55% of transactions had mismatched client IDs. The Tribunal upheld the view that the real nature of these transactions was discovered through the search and follow-up inquiries, leading to the determination of undisclosed income.
4. Relevance of Evidence Found During the Search:
The Tribunal emphasized that the undisclosed income must be based on evidence found during the search or information related to such evidence. The data in the CDs and further evidence gathered post-search indicated client ID mismatches, forming the basis for the addition of undisclosed income. The Tribunal held that the transactions recorded in the books of account did not disclose the assessee's true income, and the material found during the search led to the determination of undisclosed income.
5. The Approach of the Assessing Officer in Different Assessment Years:
The assessee highlighted the inconsistency in the Assessing Officer's approach, as similar additions were made in regular assessments for AYs 1998-99 and 1999-00 but in block assessments for AYs 2000-01 and 2001-02. The Tribunal noted that the punching of client IDs was not compulsory during the relevant years, and the addition was based on assumptions and presumptions without proving the transactions were of the assessee.
6. The Impact of Pending Appeals Before Higher Courts on the Penalty:
The assessee's appeal against the Tribunal's order was admitted by the Hon'ble Bombay High Court, making the addition a debatable issue. However, the Tribunal held that mere admission of the appeal does not automatically negate the penalty. The penalty order can be passed within six months from the end of the month in which the order of the CIT(A) or the Tribunal is received, and there is no provision to extend this period for the outcome of appeals before the High Court.
Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the penalty levied under Section 158BFA(2) of the Income Tax Act. The Tribunal found no error or illegality in the lower authorities' orders, emphasizing that the undisclosed income was determined based on evidence found during the search and subsequent inquiries. The Tribunal also clarified that the filing of an appeal before the High Court does not automatically negate the penalty unless the circumstances warrant it.
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2011 (6) TMI 785
Issues involved:
Cancellation of registration under section 12-AA of the Income-tax Act, 1961.
Cancellation of Registration under Section 12-AA:
The appeal was filed by the assessee challenging the cancellation of registration granted under section 12-AA of the Act. The registration was initially granted on 3rd September 2004 with effect from 1st April 2003. The Directorate of Income-tax (Exemptions) cancelled the registration based on various grounds, including false claims of salary payments, lack of reconciliation of corpus funds, and non-charitable expenditure. The assessee failed to provide adequate evidence during the proceedings to counter these findings.
Procedural Compliance and Opportunity of Being Heard:
The assessee argued that the power to withdraw registration under section 12-A could not be exercised for the period before 1st October 2004, as per the Finance Act (No.2) 2004. The assessee also claimed that sufficient opportunity was not granted to present their case, and allegations against them lacked a basis. The Directorate of Income-tax (Exemptions) relied on the findings of the Directorate General of Income Tax (Exemptions) and the Assessing Officer, stating that the trust's funds were not utilized for charitable purposes due to lack of proper vouchers and evidence.
Decision and Directions:
After considering the arguments from both parties, the Tribunal found that the assessee had not provided the necessary information and had not replied to show cause notices. While the cancellation of registration was deemed harsh, the Tribunal set aside the matter and directed the Directorate of Income-tax (Exemptions) to provide another opportunity for the assessee to present their case. The assessee was instructed to produce relevant documents to prove the charitable nature of their activities. The Tribunal did not decide on the issue of retrospective withdrawal of exemption, leaving it to be addressed by the Directorate of Income-tax (Exemptions) in the fresh proceedings.
Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded back to the Directorate of Income-tax (Exemptions) for a fresh decision after providing the assessee with another opportunity to be heard and present their case.
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2011 (6) TMI 784
Issues involved: Appeal challenging the Tribunal's judgment on cancellation of penalty u/s 271(1)(c) of the Act.
Judgment Summary:
Issue 1: Tribunal's decision on penalty cancellation
The Revenue appealed the Tribunal's decision to cancel the penalty of Rs. 8,69,672 levied u/s 271(1)(c) of the Act. The High Court examined whether the Tribunal's observation that the revised return was filed before any notice under Section 142 and 143 of the Act was factually correct. It was found that the revised return was filed after the Income Tax Department issued a notice under Section 143(2) of the Act, following an excise search in the assessee company's premises. The High Court concluded that the Tribunal's decision was not supported by the facts on record and remanded the proceedings to the Tribunal for fresh consideration, allowing both sides an opportunity to be heard.
Key Points:
- Tribunal's decision based on incorrect observation regarding the timing of the revised return filing.
- Revised return filed after notice under Section 143(2) of the Act, not before any inquiry or statutory notice.
- High Court remanded the proceedings to the Tribunal for fresh consideration and disposal in accordance with the law, keeping all contentions open.
Conclusion:
The High Court partially allowed the Tax Appeal, quashed the Tribunal's order, and remanded the proceedings for fresh consideration, ensuring both parties have a fair opportunity to present their case.
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