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Showing 281 to 300 of 692 Records
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2010 (5) TMI 684
Issues involved: Denial of renewal of registration under section 80G for charitable activities.
Summary:
The appeal was filed against the Commissioner of Income-tax's order denying renewal of registration under section 80G for engaging in charitable activities like providing free education and professional training. The Commissioner rejected the renewal application citing that the activities did not fall under the definition of charitable activity u/s 2(15) of the Income-tax Act, 1961. The appellant argued that the society's activities were fully charitable, providing free education and training to the poor and needy. The appellant contended that the refusal was unjustified as the society operated on donations and did not engage in profit-making activities.
The Tribunal found the Commissioner's reasoning flawed, stating that the activities were indeed charitable in nature, aimed at providing education to the underprivileged to make them self-dependent. The Tribunal noted that the society's registration under section 12A remained valid, and no evidence was presented to refute the appellant's claims. The Tribunal directed the Commissioner to grant renewal of the 80G certificate to the appellant.
The Tribunal distinguished a previous case cited by the Commissioner, where the society's activities were profit-oriented, unlike the present case where the appellant's activities were genuinely charitable. Consequently, the appeal was allowed, and the appellant's renewal of registration under section 80G was granted.
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2010 (5) TMI 683
Income deemed to accrue or arise in India - agency PE - nature of the business activities carried out by the assessee - whether assessee had a fixed place of business through which he was carrying out his business? - HELD THAT:- Undoubtedly, the consignment stock of the assessee was stored at specific physical locations but this storage was under control of the airlines and the assessee did not have any place at his disposal in the sense that he could carry out his business from that place.
The existence of PE in a country cannot warrant or justify taxation of all the profits arising to a foreign enterprise in that country. The business with regard to that consignment is over when that consignment is given for standby purposes to the airline. It is thus clear that not only that the assessee did not have any right to use the location of consignment stock, such a location was also not used for the purposes of assessee’s business. There is also no projection of the assessee at this physical location in the sense that the business of the assessee is not carried out, or sought to be carried out or even projected, from these locations. When the physical locations at which consignment stock is kept do not project the assessee, it cannot be said that these locations constitute PE of the assessee.
As a matter of fact, there is no sale involved in this transaction, and as such, there is no question of delivery for sale. In view of these discussions, it is clear that the revenue authorities have not been able to establish that the assessee had a PE in India. It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. [2005 (6) TMI 226 - ITAT DELHI-A], that the onus is on the revenue to demonstrate that a PE of the foreign enterprise exists in India. That onus is not discharged. Having said that, we may also add that, in our considered view, the business model of the assessee-company is such that in the above arrangements, a PE in the source location does not come into existence.
We are of the considered opinion that the assessee-company did not have any PE in India, and, accordingly, the entire income attributable to the India operations could not have been taxed in India. The grievances raised against quantification of income attributable to the PE, under article 7(1), are thus rendered infructuous. To that extent, we uphold the grievance of the assessee and vacate the orders of the authorities below.
In the case before us, as evident from a plain reading of the consideration clause in the agreement between the parties, consideration for use of replacement components is distinct and separate and the same can perhaps be neatly segregated from the overall receipts. In this view of the matter, non-taxability under article 7 will still mean that application of article 13 is to be considered and adjudicated upon. However, since this aspect of the matter has not been heard by any the authorities below, we deem it fit and proper to remit the matter to file of the CIT(A) for limited adjudication on this aspect of the matter.
We are not inclined to uphold the orders of the authorities below on the issue of existence of the PE and for quantification of taxable income. The matter is, however, remitted to the file of the CIT(A) for adjudication on the question of taxability, if any, of consideration for use, or right to use, of industrial, scientific or commercial equipment contained in the payments made by the airlines to the assessee-company. We make it clear that our above observations should not influence the decision of the CIT(A) on merits of this issue, and that the CIT(A) will decide the matter in accordance with the law, by way of a speaking order and after giving due and fair opportunity of hearing to the parties. We direct so.
In the result, the appeal is allowed for statistical purposes in the manner and in the terms indicated above.
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2010 (5) TMI 682
Issues involved: Appeal against order u/s 143(3) for assessment year 2001-02 - Addition of advertising revenues - Deletion of interest charges u/s 234B and 234C.
Issue 1 - Addition of advertising revenues:
The appeal was filed by the Assessing Officer against the order of the CIT(A) directing to delete the addition made on account of advertising revenues received by SA5 BV for the assessment year 2001-02. The assessee contended that the advertisement revenue should not be taxed on an accrual basis. The Tribunal noted that the issue was already decided in favor of the assessee in a previous case. The Tribunal found no reason to interfere with the CIT(A)'s decision and dismissed Ground No. 1 accordingly.
Issue 2 - Deletion of interest charges u/s 234B and 234C:
The assessee raised a grievance against the deletion of interest charges under sections 234B and 234C by the CIT(A). The Assessing Officer had levied interest for non-deduction of tax at source by the assessee. However, the CIT(A) deleted the interest charges based on previous decisions. The Tribunal observed that it was the obligation of the person making payments to the non-resident assessee to deduct tax at source. Relying on various tribunal decisions and a Special Bench decision, the Tribunal upheld the CIT(A)'s decision to delete the interest charges. Ground No. 2 was also dismissed, and the appeal was ultimately dismissed.
This judgment highlights the importance of following established legal precedents and principles in tax assessments, especially regarding the taxation of income and the levy of interest charges under relevant sections of the Income-tax Act, 1961.
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2010 (5) TMI 681
Issues Involved:1. Validity of assessment orders passed u/s 144 based on DVO's report. 2. Justification of cancellation of assessment orders in light of judicial precedents. 3. Legitimacy of reopening assessments u/s 148 based solely on DVO's report. Summary:Issue 1: Validity of assessment orders passed u/s 144 based on DVO's reportThe Department appealed against the cancellation of assessment orders passed u/s 144 of the IT Act, which were based on the DVO's report. The Assessing Officer initiated proceedings u/s 148 due to discrepancies between the DVO's valuation and the investment shown by the assessee in the books of account. The CIT(A) cancelled these assessment orders, deeming the reopening as bad in law. Issue 2: Justification of cancellation of assessment orders in light of judicial precedentsThe CIT(A) relied on the Allahabad High Court's decision in Fusion Electronics (P.) Ltd. and other cases like CIT v. Suresh Kumar and CIT v. V.T. Rajendran, which held that reopening assessments solely based on the DVO's report was invalid. The Tribunal upheld this view, emphasizing that valuation is a matter of opinion and cannot be the sole basis for reopening assessments. Issue 3: Legitimacy of reopening assessments u/s 148 based solely on DVO's reportThe Tribunal noted that the Assessing Officer issued notices u/s 148 solely based on the DVO's report without applying his own mind. Citing various judicial precedents, including the Supreme Court's decision in Dhariya Construction Co., the Tribunal held that the DVO's opinion alone does not constitute valid information for reopening assessments u/s 147. Consequently, the reassessment proceedings were deemed invalid. Conclusion:The Tribunal dismissed the Department's appeals, affirming that the CIT(A) was justified in cancelling the assessment orders passed by reopening the assessments solely based on the DVO's report. The Tribunal emphasized that the Assessing Officer must apply his own mind and cannot rely solely on the DVO's valuation for reopening assessments.
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2010 (5) TMI 680
Issues Involved:
1. Validity of reopening the assessment u/s 147.
2. Whether the provisions of section 11(5) read with section 13(1)(d) were violated.
Summary:
Validity of Reopening the Assessment u/s 147:
The assessee, a charitable trust registered u/s 12A and notified u/s 10(23C)(iv), filed its IT return for AY 2001-02 declaring nil taxable income due to the exemption. The return was processed u/s 143(1)(a). On 26-5-2004, a notice u/s 148 was issued for reassessment based on the auditor's report indicating non-compliance with the prescribed pattern of investment u/s 11(5) read with section 13(1)(d). The assessee challenged this notice before the Hon'ble Bombay High Court, which directed the Assessing Officer (AO) to dispose of the objections by a speaking order. The AO rejected the objections, and the CIT(A) upheld the AO's action, stating that the AO had valid reasons to believe that income had escaped assessment. However, the Tribunal found that the AO's understanding was contrary to the legal position, as non-adherence to section 11(5) does not lead to the amount being taxed. The Tribunal noted that the reasons for reopening were recorded without proper application of mind and quashed the reassessment proceedings, citing judgments from the Hon'ble Bombay High Court and the Supreme Court emphasizing the necessity of valid reasons to believe that income had escaped assessment.
Violation of Section 11(5) read with Section 13(1)(d):
Since the reassessment proceedings were quashed, the Tribunal did not find it necessary to adjudicate on whether the provisions of section 11(5) read with section 13(1)(d) were violated, rendering this issue academic.
Conclusion:
The appeal was allowed, and the reassessment proceedings were quashed due to the lack of valid reasons for reopening the assessment.
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2010 (5) TMI 679
Issues:
1. Wrong selection of the case under compulsory scrutiny.
2. Addition of Rs. 13,29,206 on account of salary and interest.
Issue 1 - Wrong selection of the case under compulsory scrutiny:
The assessee appealed against the order passed by the CIT(A) challenging the selection of the case under compulsory scrutiny. The appellant argued that the assessment order should be quashed as the selection was erroneous, making the order void ab initio. However, during the hearing, the appellant withdrew this ground, and it was dismissed accordingly.
Issue 2 - Addition of Rs. 13,29,206 on account of salary and interest:
The main contention was the addition of Rs. 13,29,206 on account of salary and interest. The appellant argued that the Revenue authorities did not consider the facts correctly and cited a previous Tribunal decision where a similar deduction was allowed. The Departmental Representative, on the other hand, supported the Assessing Officer's decision based on non-compliance with the provisions of section 144 and section 184(5) of the Income-tax Act, disallowing the deduction. Reference was made to judicial precedents supporting the disallowance due to non-compliance with notices.
The Tribunal analyzed the facts and the previous decision cited by the appellant. It was noted that the Assessing Officer disallowed the interest and salary under section 184(5) due to the absence of the assessee during assessment proceedings. The Tribunal disagreed with the first appellate authority's view that the original default under section 142 remained intact even after producing books of accounts. Referring to the previous Tribunal decision, the Tribunal held that once the books of account were produced, the deduction of interest and salary should be allowed. Therefore, the Tribunal concluded that the issue was covered by the previous decision, and the addition in dispute was deleted, allowing ground No. 2 of the appeal.
In conclusion, the appeal was partly allowed based on the deletion of the addition related to salary and interest, as the Tribunal found in favor of the appellant on this issue.
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2010 (5) TMI 678
Levy of Penalty u/s 271(1)(c) - bogus purchases - AO noticed that the assessee was making bogus purchases from various concerns belong to Mr. F.H. Rizvi and treated as bogus purchases for AY 1996-97 and levied penalty u/s 271(1)(c). CIT(A), confirmed the addition to the extent of 25 per cent of total purchases.
HELD THAT:- We find that the assessee had tried to substantiate its claim by filing affidavit and other material in quantum matter. In quantum matter, the CIT(A) asked the assessee to produce Mr. Rizwi for examination but the assessee failed to do so. The AO has also mentioned in the remand report, which was reproduced by the CIT(A) in quantum order that summons u/s 131 issued to Mr. Rizwi but the same was not complied by Mr. Rizwi. It was submitted by the AO that the assessee has not availed opportunity as he did not impress upon Shri Rizwi to attend before the AO.
In respect of quantum matter if the assessee failed to submit such material information to substantiate their claim addition could be sustained but this aspect of human probability tendency of non-co-operation by the parties after business transaction is over, is required to be considered while deciding bona fide aspect of the assessee in penalty matter u/s 271(1)(c). The case of the assessee falls under the essence of Part B of the Explanation. The assessee offered reasonable explanation.
The AO has not given finding based on some contradictory evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Penalty u/s 271(1)(c) cannot be levied unless the case is strictly covered by the provisions of section 271(1)(c).
There is no finding that that the assessee has concealed particulars of income or furnished inaccurate particulars of income, discussed above. Under the circumstances, it cannot be held that the AO has found that the assessee has concealed particulars of income or furnished inaccurate particulars of income.
We find that this is not a fit case for levy of penalty u/s 271(1)(c). We hereby cancel the penalties made by the AO u/s 271(1)(c) in all the three years under consideration.
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2010 (5) TMI 677
Issues involved:
The judgment involves issues related to non-reduction of TDS u/s 194H and u/s 194C in assessment years 2004-05 and 2005-06.
Non-reduction of TDS u/s 194H:
The Revenue's appeal in assessment year 2004-05 raised concerns about the non-reduction of TDS u/s 194H. The CIT(A) held that the transaction between the assessee and concessionaires was a principal-to-principal transaction and not a principal-to-agent transaction. The ITAT, based on previous orders and agreements, determined that the relationship between the assessee and vendors was of principal-to-principal nature, not subject to TDS u/s 194H. The ITAT upheld the CIT(A)'s decision, stating that the assessee was not liable for TDS u/s 194H.
Challenge to CIT(A) decision on TDS u/s 194H:
The assessee challenged the CIT(A)'s conclusion regarding the difference between Maximum Retail Price (MRP) and the Sale price charged as "commission" to concessionaires, contending that ownership of goods vested with the concessionaires upon sale. The ITAT, following previous rulings and agreements, upheld the assessee's claim that the relationship was principal-to-principal, not subject to TDS u/s 194H.
Issue of TDS u/s 194C:
Regarding the issue of TDS u/s 194C, the assessee purchased printed packing material from suppliers. The lower authorities considered these transactions as contracts for supply, but the ITAT, citing a judgment involving similar circumstances, ruled that these were transactions of purchase and sale of goods, not contracts for supply. The ITAT, in line with the Delhi High Court judgment, held that the assessee was not liable for TDS u/s 194C in relation to the printed packing material purchases.
In conclusion, the ITAT dismissed the Revenue's appeal and allowed both of the assessee's appeals for assessment years 2004-05 and 2005-06.
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2010 (5) TMI 676
Issues Involved:
1. Disallowance of depreciation on building and machinery.
2. Addition made under section 145A.
3. Disallowance out of salary and wages.
4. Disallowance of discount on sale.
5. Addition made under section 68 on account of unsecured loan.
6. Levy of penalty under section 271(1)(c) of the Act.
Detailed Analysis:
1. Disallowance of Depreciation on Building and Machinery:
The Assessing Officer (AO) disallowed the depreciation claimed by the assessee on the grounds that the building and machinery were not put to use. The assessee failed to provide documentary evidence to support the claim that the building was used for storage and the machinery for packing finished products. The AO concluded that the assessee intended to reduce tax liability by claiming depreciation on non-operational assets, leading to a concealed income of Rs. 6,84,109. The CIT(A) found that the AO did not examine whether the assets were used for business purposes and thus, did not uphold the penalty. However, the Tribunal held that the onus was on the assessee to prove the use of assets, which was not done, thus justifying the penalty.
2. Addition Made Under Section 145A:
The AO added Rs. 4,41,002 to the income under section 145A, as the estimated cost of stock was higher than declared by the assessee. The AO concluded that the assessee concealed income by not providing full details. The CIT(A) observed that the assessee furnished details and explanations during penalty proceedings, which the AO ignored. The Tribunal agreed with the CIT(A) that the explanation was bona fide and the AO did not prove it false, thus no penalty was warranted.
3. Disallowance Out of Salary and Wages:
The AO disallowed Rs. 1,57,340, concluding that the assessee made an excess provision for salary and wages to reduce tax liability. The CIT(A) found that the AO did not counter the assessee's explanation that there was no discrepancy. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not prove the explanation false or the claim non-bona fide.
4. Disallowance of Discount on Sale:
The AO disallowed Rs. 7,98,692 claimed as a discount on sales, as the assessee failed to prove its genuineness. The CIT(A) noted that the AO did not inquire into the genuineness during penalty proceedings. The Tribunal disagreed, stating the assessee failed to substantiate its claim with evidence, thus justifying the penalty.
5. Addition Made Under Section 68 on Account of Unsecured Loan:
The AO added Rs. 11,50,728 under section 68, as the assessee failed to prove the identity, genuineness, and creditworthiness of loan creditors. The CIT(A) found that the AO did not call for confirmatory letters. The Tribunal noted that the assessee did not ensure creditors' attendance or provide correct addresses during penalty proceedings. The Tribunal upheld the penalty, as the assessee failed to substantiate its explanation with proper material.
6. Levy of Penalty Under Section 271(1)(c) of the Act:
The AO levied a penalty of Rs. 12,44,269 under section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The CIT(A) deleted the penalty, observing that the AO did not record satisfaction during assessment proceedings. The Tribunal held that the initial burden is on the assessee to prove bona fides and substantiate explanations. The Tribunal partially upheld the AO's penalty, finding that the assessee failed to discharge the burden for disallowance of depreciation, discount on sales, and unsecured loans, but agreed with the CIT(A) on salary and wages and section 145A additions.
Conclusion:
The Tribunal partly allowed the revenue's appeal, upholding penalties related to disallowance of depreciation, discount on sales, and unsecured loans, while agreeing with the CIT(A) on salary and wages and section 145A additions.
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2010 (5) TMI 675
Issues Involved:
1. Determination of Permanent Establishment (PE) in India under Article 5(2)(f) of the DTAA between India and Australia.
2. Taxability of payments received by the assessee outside India under section 44BB(2) of the Income-tax Act.
3. Chargeability of interest under section 234B in the case of a non-resident assessee whose income is liable to deduction of tax at source under section 195 of the Act.
Issue-wise Detailed Analysis:
1. Determination of Permanent Establishment (PE) in India under Article 5(2)(f) of the DTAA between India and Australia:
The revenue contended that the assessee had a PE in India based on Article 5(2)(f) of the DTAA, which includes "a mine, an oil or gas well, a quarry or any other place of extraction of natural resources." The Assessing Officer argued that the assessee's activities related to the installation and upgrading of platforms in the Panna Oil field constituted a PE under this clause. However, the CIT(A) disagreed, stating that the assessee was only involved in installation and assembly projects and did not own or operate the oil wells. The CIT(A) concluded that the assessee's activities fell under Article 5(2)(k), which pertains to "a building site or construction, installation or assembly project" and requires the site to exist for more than six months to constitute a PE. Since the assessee's activities did not meet the six-month threshold, the CIT(A) held that there was no PE in India. The Tribunal upheld this view, agreeing that the assessee was not covered by Article 5(2)(f) and did not have a PE under Article 5(2)(k) due to the duration of the activities.
2. Taxability of payments received by the assessee outside India under section 44BB(2) of the Income-tax Act:
The revenue argued that the payments received by the assessee outside India were subject to tax under section 44BB(2) of the Income-tax Act, considering that the assessee had a PE in India. However, since the CIT(A) and the Tribunal concluded that the assessee did not have a PE in India, the payments received outside India were not taxable under section 44BB(2). The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 98,00,60,397 made by the Assessing Officer.
3. Chargeability of interest under section 234B in the case of a non-resident assessee whose income is liable to deduction of tax at source under section 195 of the Act:
The revenue contended that the CIT(A) erred in holding that interest under section 234B was not chargeable in the case of a non-resident assessee whose income is subject to deduction of tax at source under section 195. The CIT(A) relied on findings from the ITAT, which supported the view that interest under section 234B was not applicable in such cases. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest under section 234B was not chargeable for the non-resident assessee.
Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s findings that the assessee did not have a PE in India under Article 5(2)(f) or 5(2)(k) of the DTAA, the payments received outside India were not taxable under section 44BB(2), and interest under section 234B was not chargeable.
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2010 (5) TMI 674
Issues Involved:
1. Whether the lease in question is a bareboat lease or wet lease.
2. Whether the income received by the assessee as royalty can be brought to tax under the Double Taxation Avoidance Agreement (DTAA).
3. Whether the assessee has a Permanent Establishment (PE) in India.
4. Levy of interest under section 234B of the Income-tax Act.
Issue-Wise Detailed Analysis:
1. Lease Classification: Bareboat Lease vs. Wet Lease
The core issue was whether the lease of the dredger "Sagar Manthan" was a bareboat lease or a wet lease. The assessee argued that the dredger was given on a bareboat basis to HAM, meaning HAM had full control, management, and operation of the dredger. The Assessing Officer (AO) contended it was a wet lease, implying the assessee retained control and provided the crew. The CIT (Appeals) and the Tribunal upheld the assessee's claim, noting substantial documentary evidence showing HAM managed and operated the dredger. The AO's conclusion was based on presumption without substantial evidence, and the Tribunal affirmed the CIT (Appeals)'s findings that the lease was indeed a bareboat lease.
2. Taxability of Royalty Income under DTAA
The Tribunal examined the amendments to Article 12 of the India-Netherlands DTAA, which excluded "payments for use of equipment" from the definition of royalty effective from 1-4-1998. Under the Indian Income-tax Act, such payments are considered royalty under section 9(1)(vi). However, due to the DTAA's amendments, these payments were not taxable as royalty. The Tribunal cited precedents, including the Chennai Bench's ruling in Van Oord ACZ Equipment BV, affirming that such payments, while considered royalty under domestic law, are exempt under the DTAA.
3. Permanent Establishment (PE) in India
The Tribunal addressed whether the assessee had a PE in India under Article 5 of the DTAA. The AO argued that the presence of the dredger and its crew in India constituted a PE. However, the Tribunal, referencing OECD commentary, concluded that merely leasing a dredger on a bareboat basis does not establish a PE. The assessee had no fixed place of business or personnel in India, and the dredger was operated entirely by HAM. Thus, the Tribunal upheld the CIT (Appeals)'s finding that the assessee did not have a PE in India.
4. Levy of Interest under Section 234B
The Tribunal noted that the issue of interest under section 234B was consequential. Since the primary grounds for taxability were resolved in favor of the assessee, the interest levy was rendered moot. The cross-objection by the assessee regarding the interest levy was dismissed as it was mandatory and consequential.
Conclusion:
- The Tribunal upheld the CIT (Appeals)'s findings that the lease was a bareboat lease.
- The income received as royalty was not taxable under the DTAA.
- The assessee did not have a PE in India.
- The levy of interest under section 234B was consequential and thus dismissed.
The appeals by the revenue were dismissed, and the cross-objection by the assessee was also dismissed.
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2010 (5) TMI 673
Issues:
1. Entertaining additional ground of appeal for computing book profit under section 115JA.
2. Consideration of latest legal position regarding provision for bad and doubtful debts.
3. Reopening assessment under section 263 and allowing new benefits to the assessee.
Issue 1: Entertaining Additional Ground of Appeal for Computing Book Profit under Section 115JA:
The appeal by the revenue challenged the CIT(A)'s decision to entertain an additional ground of appeal related to the computation of book profit under section 115JA. The assessee claimed that the net profit should be reduced by certain amounts credited to the Profit & Loss A/c on account of withdrawals from provisions made, which had not been allowed in earlier years. The Assessing Officer supported this claim in a remand report, stating it was allowable under section 115JA. However, the tribunal held that the claim could not be entertained at the assessment stage following a section 263 order. The tribunal emphasized that the power under section 263 is limited to errors prejudicial to the revenue's interest, not for the benefit of the assessee. Citing the Madras High Court decision, the tribunal ruled that assessments made under section 263 are solely for the revenue's benefit, and the assessee cannot seek new benefits in such proceedings. Therefore, the tribunal allowed the revenue's appeal, concluding that the CIT(A) was not justified in permitting the additional claim by the assessee.
Issue 2: Consideration of Latest Legal Position Regarding Provision for Bad and Doubtful Debts:
The revenue contended that the CIT(A) failed to consider the latest legal position established by the Supreme Court and the Delhi High Court regarding the treatment of provision for bad and doubtful debts in calculating book profits under section 115JA. The courts held that such provisions cannot be added to book profits as they represent a diminution in asset value, not an unascertained liability. The revenue argued that since this issue was already adjudicated in a previous order under section 143(3), it should not have been reconsidered. The tribunal acknowledged the legal position but did not delve deeper into this issue as it primarily focused on the first issue related to the additional ground of appeal.
Issue 3: Reopening Assessment under Section 263 and Allowing New Benefits to the Assessee:
The tribunal highlighted the sequence of events where the original assessment under section 143(3) was set aside by the CIT under section 263 for reassessment due to specific issues prejudicial to the revenue. Subsequently, the reassessment was done under section 263, resulting in an addition to the income. The assessee then raised the additional ground during appellate proceedings, which was allowed by the CIT(A) based on the Assessing Officer's remand report. The tribunal emphasized that assessments under section 263 are meant to correct errors prejudicial to the revenue, not to provide new benefits to the assessee. Therefore, the tribunal concluded that the CIT(A) erred in permitting the additional claim by the assessee during the reassessment process under section 263.
This detailed analysis of the judgment from the Appellate Tribunal ITAT Hyderabad highlights the key issues raised, the arguments presented by both parties, and the tribunal's rationale for allowing the revenue's appeal.
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2010 (5) TMI 672
Issues Involved:
1. Deletion of addition made on account of share capital.
2. Deletion of addition made on account of unsecured loans.
Issue-wise Detailed Analysis:
1. Deletion of Addition Made on Account of Share Capital:
The revenue's grievance pertains to the deletion of the addition made on account of share capital received by the assessee during the assessment year 2003-04. The Assessing Officer (AO) had reopened the assessment under section 148 on the basis of a report from the Investigation Wing, alleging that the assessee received Rs. 10 lakhs from an entry operator and that the share capital and unsecured loans were unexplained credits under section 68. Consequently, the AO added the entire share capital to the income of the assessee under section 144.
Upon appeal, the CIT(A) observed that the assessee had submitted all necessary documents, including share application forms, confirmations from shareholders, and evidence that the funds were received through cheques. The CIT(A) forwarded these documents to the AO for a remand report. The AO admitted that all parties who subscribed to the share capital were on the roll of the Income-tax Department, having PANs and being assessed to tax separately. The CIT(A) concluded that the identity of the share applicants was established beyond doubt and relied on the decisions of the Hon'ble Delhi High Court and Supreme Court, including CIT v. Divine Leasing & Finance Ltd., CIT v. Makhni & Tyagi (P.) Ltd., and Lovely Exports (P.) Ltd., to rule that no addition could be made if the identity of the share applicant was established.
The Tribunal upheld the CIT(A)'s decision, noting that the AO's remand report confirmed the identity of the shareholders. The Tribunal emphasized that once the identity of the share applicants is established, no addition can be made in the hands of the assessee-company, as per the decisions of the Hon'ble Supreme Court in the cases of Lovely Exports (P.) Ltd. and Divine Leasing & Finance Ltd. The Tribunal also cited several other judgments, including those of the Hon'ble Delhi High Court and Karnataka High Court, which supported the CIT(A)'s decision to delete the addition on account of share capital.
2. Deletion of Addition Made on Account of Unsecured Loans:
The revenue also contested the deletion of the addition made on account of unsecured loans received by the assessee. The AO had alleged that the unsecured loans were unexplained credits under section 68. During the remand proceedings, the AO issued summons to the loan creditors, who responded by post. The AO's remand report confirmed the identity of the loan creditors but did not address the genuineness of the loan transactions or the creditworthiness of the loan creditors.
The Tribunal noted that in the case of loan creditors, not only the identity but also the genuineness of the loan transaction and the creditworthiness of the loan creditor must be established. The Tribunal found that the CIT(A) had only addressed the identity of the loan creditors and had not made any findings regarding the genuineness or creditworthiness of the loan transactions. Consequently, the Tribunal did not uphold the CIT(A)'s decision to delete the addition of Rs. 87.29 lakhs on account of loan creditors and restored the matter to the AO for fresh consideration, with instructions to afford the assessee a reasonable opportunity to present their case.
Conclusion:
The appeal of the revenue was allowed in part. The Tribunal upheld the CIT(A)'s decision to delete the addition on account of share capital, citing established legal precedents that once the identity of the share applicants is proved, no addition can be made in the hands of the assessee-company. However, the Tribunal restored the addition on account of unsecured loans to the AO for fresh consideration, emphasizing the need to establish the genuineness and creditworthiness of the loan transactions.
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2010 (5) TMI 671
Issues Involved:
1. Computation of deduction u/s 10B before setting off brought forward losses.
2. Inclusion of export turnover received in the form of equity shares for deduction u/s 10B.
3. Exclusion of communication expenses from export turnover and total turnover.
Summary:
Issue 1: Computation of Deduction u/s 10B Before Setting Off Brought Forward Losses
The assessee argued that the exemption u/s 10B should be deducted from the current year's business profit before setting off brought forward losses. The Assessing Officer (AO) disagreed, stating that post-amendment, section 10B is treated as a deduction rather than an exemption, and thus, the deduction should be allowed after setting off brought forward losses. The CIT(A) directed the AO to compute the deduction u/s 10B before setting off the brought forward business loss. The Tribunal, following its earlier decision in the case of CCL Products (I) Ltd., held that the deduction u/s 10B should be computed after setting off unabsorbed business losses and depreciation carried forward from earlier years. Thus, the Tribunal reversed the CIT(A)'s order on this issue.
Issue 2: Inclusion of Export Turnover Received in the Form of Equity Shares for Deduction u/s 10B
The assessee claimed that Rs. 2,26,30,000 received as equity investment in an American company should be considered as export turnover for the purpose of deduction u/s 10B. The AO rejected this claim, stating that there was no inflow of foreign exchange into India. The Tribunal upheld the AO's decision, stating that the objective of section 10B is to encourage the inflow of convertible foreign exchange into India. The sale proceeds must be physically brought into India, and investment in equity shares does not qualify as receipt in convertible foreign exchange. Therefore, the assessee was not entitled to the benefit of section 10B on this investment.
Issue 3: Exclusion of Communication Expenses from Export Turnover and Total Turnover
The CIT(A) directed the AO to exclude communication expenses from both export turnover and total turnover for computing deduction u/s 10B. The Tribunal upheld this decision, referencing the case of ITO v. Sak Soft Ltd., which held that expenses attributable to the delivery of articles or things or computer software outside India should be excluded from both export turnover and total turnover. Thus, the Tribunal found no infirmity in the CIT(A)'s order on this issue.
Conclusion:
The appeal of the assessee was dismissed, and the revenue's appeal was partly allowed.
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2010 (5) TMI 670
Issues Involved:
1. Taxability of Inland Haulage Charges (IHC) under Article 8 of the Indo-Belgium DTAA.
2. Taxability of interest on income-tax refund under Article 11 of the Indo-Belgium DTAA.
3. Correct rate of tax to be applied on interest income.
Detailed Analysis:
1. Taxability of Inland Haulage Charges (IHC):
The Revenue argued that income from Inland Haulage Charges (IHC) should be taxable in India as it is not covered under Article 8 of the Indo-Belgium DTAA, which pertains to "International Transport." The Revenue claimed that IHC should be taxed as "Business Profits" under the Income-tax Act since it is not directly connected with the operation of ships in international traffic.
The Assessee, a non-resident company engaged in the business of operating ships, argued that IHC is incidental and closely connected with the direct operation of ships and thus falls under Article 8 of the Indo-Belgium DTAA, which exempts such income from being taxed in India.
The Tribunal noted that the issue had already been decided in favor of the Assessee in earlier years, where it was held that income from IHC is covered under Article 8 of the DTAA. The Tribunal reiterated that the Assessee's inland transportation activities are directly connected with the operation of ships in international traffic, as they facilitate the transportation of goods from the place of origin to the destination. Thus, the income from IHC is exempt from tax in India under Article 8 of the DTAA.
2. Taxability of Interest on Income-tax Refund:
The Assessee received interest on an income-tax refund for the assessment year 1990-91 and argued that this interest should be exempt under Article 8(2)(a) of the Indo-Belgium DTAA, which states that interest on funds directly connected with the operation of ships in international traffic shall be regarded as income from such operations and not subject to withholding tax.
The Assessing Officer disagreed, stating that the interest on income-tax refund is not directly connected with the operation of ships and should be taxed under Article 11 of the DTAA, which pertains to interest income.
The Tribunal upheld the view of the Assessing Officer and CIT(A), concluding that the interest on income-tax refund is not directly connected with the operation of ships in international traffic. The interest arose due to the delay in refunding taxes and is considered income from debt claims, thus falling under Article 11 of the DTAA and subject to tax in India.
3. Correct Rate of Tax to be Applied on Interest Income:
The Assessee contested the rate at which tax was charged on the interest income. The Assessing Officer had initially stated that the tax rate should be 15% as per Article 11(2) of the DTAA but then calculated the tax at 40%.
The Tribunal directed the Assessing Officer to apply the correct tax rate of 15% on the interest income, as per the provisions of Article 11(2) of the DTAA, thereby correcting the error in the tax calculation.
Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision that IHC income is exempt from tax in India under Article 8 of the Indo-Belgium DTAA. The Tribunal also upheld the taxability of interest on income-tax refund under Article 11 of the DTAA but directed the Assessing Officer to apply the correct tax rate of 15%. Thus, the Assessee's appeal was partly allowed.
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2010 (5) TMI 669
Issues involved: Rejection of registration under section 12AA of the Income-tax Act, 1961 due to mixed charitable and religious activities.
Summary:
The appeal was against the rejection of registration under section 12AA of the Income-tax Act, 1961, by the Director of Income-tax (Exemptions), Hyderabad, based on the grounds that the assessee-society's objects included both charitable and religious activities.
The assessee-society applied for registration under section 12AA of the Act, having been registered under the A.P. Societies Registration Act. The society's objects included preaching the good news of Jesus Christ, supporting/maintaining churches, establishing Bible Schools, schools, medical relief centers, orphanages, and carrying out acts of charity.
The main contention was whether a trust/society with mixed charitable and religious objects is eligible for registration under section 12AA. The counsel for the assessee argued that engaging in both charitable and religious activities does not disqualify the trust for registration, citing relevant case laws to support the argument.
Upon review, the Tribunal found that there is no provision precluding an institution with mixed objects from registration under section 12AA. The trust in question was found to be engaged in only charitable and religious activities, with no non-charitable or non-religious activities. Previous judgments supported the view that a trust with charitable and religious objects is not debarred from registration.
The Tribunal disagreed with the DIT(E)'s interpretation and directed the grant of registration to the assessee-society, as there was no contrary decision brought to their notice. The DIT(E)'s observation regarding the concept of "charitable religious trust" was deemed unwarranted, and registration was ordered subject to any other conditions.
In conclusion, the appeal of the assessee was allowed, and registration under section 12AA was granted.
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2010 (5) TMI 668
Deduction u/s 80 HHC - book profit and not the income - HELD THAT:- this is an appeal against the order passed u/s 263. The original assessment order has been passed u/s 143(3) for the AY 2002-03. The AO after proper appraisal of the material on record taken one view. The action taken by CIT u/s 263 is not justified because different view was possible on the said issues considered by CIT. In the case of CIT v. Max India Ltd.[2007 (11) TMI 12 - SUPREME COURT] held that where the order passed by the AO was a possible view supported by subsequent decision of Tribunal it was not amenable to revisional jurisdiction of CIT.
In the present case, there are various decisions available at the time of completing assessment which are in favour of the assessee on the impugned issues. In the case of Starchik Specialities Ltd.[2003 (7) TMI 283 - ITAT HYDERABAD-B], Govind Rubber (P.) Ltd.’s case [2003 (1) TMI 231 - ITAT BOMBAY-E], Tushako Pumps Ltd. v. Asstt. CIT [2005 (1) TMI 586 - ITAT MUMBAI] and in the case of Syncome Formulations (I) Ltd [2007 (3) TMI 288 - ITAT BOMBAY-H], wherein it was held that the deduction u/s 80HHC deserves to be computed by taking into consideration book profit and cannot be restricted to the profits of the business as comupted under the normal provisions of the IT Act.
Therefore, we are of the opinion, that the AO’s decisions are based on various judicial pronouncements though decision of the AO is prejudicial to the revenue, it cannot be treated as erroneous. In view of this, in our opinion, the CIT cannot invoke the provisions of section 263 to set right the errors committed by the AO. In the result, the appeal of the assessee is allowed.
Addition to the book profit - provision for gratuity - an ascertained liability - we are of the opinion that this issue is required to be re-examined by the AO. Hence, we set aside this issue to the file of AO to see the crystallization of the liabilities in the assessment year under consideration. If the liabilities towards gratuity is crystallized in the assessment year under consideration, then it is to be considered as ascertained liability and claim of the assessee is to be allowed. Accordingly, this issue is set aside to the file of AO with a direction to assessee to place necessary evidence to prove that the liabilities are ascertained.
In the result, the appeal of the assessee is partly allowed.
Unabsorbed business losses - deducted u/s 80HHC - calculating the book profit u/s115JA - The AO set off the losses of earlier year while computing the deduction u/s 80HHC on book profit determined u/s115JA while passing order u/s 143(3). In our opinion, the lower authorities taken correct view since section 80AB, which is also in Chapter VI-A, starting with the words ‘where any deduction is required to be made or allowed under any section of this Chapter’ would include section 80HHC also. Further, section 80AB uses the words ‘notwithstanding anything contained in that section’. Thus, section 80AB has been given an overriding effect over all other sections in Chapter VI-A. But, section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of the Act. Section 80HHC would thus be governed by section 80AB.
The unabsorbed business losses, unabsorbed depreciation etc., should be taken into account while computing the income for the purpose of deduction u/s 80HHC. Moreso, these grounds are covered against the assessee by the Judgment of Supreme Court in the case of IPCA Laboratory Ltd. v. Dy. CIT [2004 (3) TMI 9 - SUPREME COURT] and in the case of Shirke Construction Equipment Ltd. [2007 (5) TMI 194 - SUPREME COURT]. Accordingly, the grounds are dismissed.
Interest u/s 234B and 234C - HELD THAT:- This issue is covered in favour of the assessee by the judgment of Hon’ble Supreme Court in the case of CIT v. Kwality Biscuits Ltd.[2006 (4) TMI 121 - SC ORDER] wherein it was held that when assessee is liable for to pay tax u/s 115J, interest u/s 243 B & C cannot be charged. This issue decided in favour of the assessee and the ground taken by the assessee on this issue is allowed.
Determination of total turnover - deduction u/s 80HHC - HELD THAT:- The assessee raised additional grounds relating to the computation of total turnover which includes sales tax and also contended before the CIT(A) that these issues are borne out of assessment order and prayed to adjudicate the issue but he failed to adjudicate the same. In our opinion, the CIT(A) must have considered these issues while deciding the appeal. His jurisdiction is co-terminus with AO. Accordingly, we set aside this issue to the file of AO for fresh consideration.
In the result, the appeal of the assessee is partly allowed.
Deduction of loss - HELD THAT:- On perusal of the profit and loss account, the CIT(A) came to the conclusion that no such loss of the earlier year company has been brought forward in the profit and loss account of the relevant year and also he was of the opinion that the judgment of Hon’ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME COURT] as per which profit arrived at the profit and loss account which is prepared in accordance with the Companies Act has to be adopted for the purpose of book profit.
As no such loss of earlier company reflected in the profit and loss account of the relevant year, the CIT(A) held that there is no justification for deduction of such loss in arriving at the book profit of this year. However, before us the authorised representative submitted that the loss of the Deccan are merged in the final accounts of the assessee company on the date of merger of Deccan Drugs Ltd., with the assessee company. As such, the said loss to be considered for deduction while arriving at book profit of the assessee company.
In our opinion, the argument of the assessee is to be examined by the lower authorities w.r.t. the evidence in support of that claim. Accordingly, We remit back matter to AO for fresh consideration.
Disallowance of depreciation - state subsidy received - HELD THAT:- If the payment of subsidy is not related to actual acquisition of assets and the subsidy is granted on capital investment on land, building and machinery, then it cannot be reduced from the value of the asset (written down value). Further, if there is no special mention regarding the intention to adjust the said subsidy against the actual cost of machinery, then that amount of subsidy cannot be reduced from the cost of the plant and machinery.
Hence, we set aside this issue to the file of AO to examine the terms and conditions of sanction of subsidy and if the subsidy was not given to meet the cost of any specific capital asset and the amount of subsidy so received was quantified according to the investment made by the assessee in plant and machinery and building, the claim of the assessee to be allowed. With this direction, the issue set aside to the file of AO for fresh consideration.
In the result, the appeals of the assessees are allowed.
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2010 (5) TMI 667
Issues Involved:
1. Depreciation on Membership Card of Stock Exchange.
2. Allowance of Trading Loss out of Bad Debts.
3. Addition under Section 68 for Unexplained Cash Credits.
4. Charging of Interest under Sections 234A, 234B, 234C, and 234D.
Detailed Analysis:
1. Depreciation on Membership Card of Stock Exchange:
The primary issue was whether depreciation could be allowed on the membership card of the Ahmedabad Stock Exchange. The Assessing Officer denied the claim, arguing that the card was acquired before 1-4-1998 and did not fall under the categories specified in section 32(1)(ii). The CIT(A) allowed the claim, referencing the Tribunal's decision in V.G. Gajjar v. Dy. CWT, which recognized the card as a property and an asset. However, the ITAT, following the Bombay High Court's decision in Techno Shares & Stocks Ltd., concluded that the stock exchange card does not qualify as a business or commercial right or intellectual property under section 32(1)(ii). Consequently, the claim for depreciation was disallowed, reversing the CIT(A)'s decision and restoring the Assessing Officer's order.
2. Allowance of Trading Loss out of Bad Debts:
The assessee claimed bad debts or trading loss amounting to Rs. 5,77,44,844. The Assessing Officer rejected the claim, stating that the conditions under section 36(2) were not met and the assessee failed to prove it as a trading loss. The CIT(A) partially allowed the claim, recognizing Rs. 4,46,18,417 as trading loss based on the details and circumstances provided by the assessee. The ITAT, referencing various judgments, including CIT v. Bonanza Portfolio Ltd. and CIT v. D.B. (India) Securities Ltd., held that the entire amount of Rs. 5,77,44,844 was allowable as a business loss under section 28 since the debts arose from business transactions and the brokerage was included in the P&L account. Thus, the ITAT dismissed the revenue's appeal on this ground and allowed the assessee's claim in full.
3. Addition under Section 68 for Unexplained Cash Credits:
The Assessing Officer added Rs. 14,07,751 under section 68 for unexplained cash credits in the names of Ms. Bharti D. Vakil and D.C. Vakil, who denied any transactions with the assessee. The CIT(A) deleted the addition, noting that the funds came from the bank accounts of these individuals, even if managed by a third party, Ramesh N. Parikh. The ITAT disagreed, stating that the onus was on the assessee to prove the nature and source of the credits. Since the creditors denied knowledge of the transactions, the assessee failed to discharge this onus. Therefore, the ITAT restored the addition made by the Assessing Officer.
4. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
The assessee contested the charging of interest under sections 234A, 234B, 234C, and 234D as consequential. The ITAT rejected this ground, stating that the charging of interest is consequential and must follow the outcome of the other issues.
Conclusion:
The appeal filed by the revenue was partly allowed, disallowing the depreciation on the membership card and restoring the addition under section 68. The appeal filed by the assessee was partly allowed, granting the entire claim of trading loss and recognizing the consequential nature of interest charges.
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2010 (5) TMI 666
Income taxable in India - Income from sale of software as income from royalty chargeable under the IT Act/DTAA - assessees had supplied off-the-shelf shrink-wrapped software to Infosys Technologies Ltd., (ITL) in India - assessee did not find any reason to declare any income in India in the hands of the assessees for the reason that the software sold by the company to Indian entities were shrink-wrapped off-the-shelf software which is only the sale of copies of copyrighted articles
HELD THAT:- A very similar issue in similar circumstances was considered by Larger Bench of the ITAT, Delhi Bench ‘A’ (Special Bench) in the case of Motorola Inc. [2005 (6) TMI 226 - ITAT DELHI-A] the cellular operator did not transfer or load any part of the software as to the SIM card or the handset of the subscriber. That established that the software supplied by the assessee to the cellular operator was installed on the hardware and no part of it was loaded on the SIM card or the handset of the subscriber. The Tribunal held that the crux of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for a copyright, it should be classified as ‘Royalty’ both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment was for a copyrighted article, then it only represented the purchase price of the article and, therefore, could not be considered as ‘Royalty’, either under the, IT Act or under the DTAA.
The very same principle has been upheld by the Authority for Advance Rulings in the case of Airports Authority of India [2010 (3) TMI 110 - AUTHORITY FOR ADVANCE RULINGS] where they have held that the earnings of contract is only purchase of certain copyrighted software on outright basis and when there is no PE in India, royalty income does not arise either within the framework of the Income-tax Act or under the realm of DTAA. In the present case, there is no doubt that both the assesses do not have any PE in India.
Also in the case of Sonata Software Ltd. [2005 (4) TMI 530 - ITAT BANGALORE] software packages were brought in India for the purpose of distributing to ultimate users and imports were made from non-residents. The Tribunal held that the payments partook the character of purchase and sale of goods; and as there is no PE in India, it could be concluded that no income accrued or deemed to accrue or arise in India.
Therefore, in the facts and circumstances of the case, and in the light of the above binding decisions, we find that the sale of software cannot be treated as income from royalty either under the IT Act or under the terms of DTAA. Assessee appeal allowed.
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2010 (5) TMI 665
Penalty u/s 271 - disallowance for bad and doubtful debts - According to the AO, the assessee committed the default of concealment of its income due to furnishing inaccurate - CIT(A) confirmed penalty levy
HELD THAT:- The assessee is a Government company having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details/evidence from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee company and how these escaped the attention of the auditors of the company. Since the onus placed upon the assessee to explain the difference in the returned income and finally assessed income has not been discharged, in terms of Explanation 1(B) to section 271(1)(c), the amount added in computing the total income is deemed to represent income in respect of which particulars have bean concealed. The ld. AR on behalf of the assessee has not referred us to any material so as to enable us to take a different view in the matter.
We, therefore, have no alternative but to uphold the order of the ld. CIT (A) insofar as levy of penalty on the amount in relation to claim for deduction of provision for bad and doubtful debts and provision for diminution in value of investments, is concerned.
Disallowance of 1 per cent of administrative expenses - We are of the opinion that levy of penalty of the aforesaid disallowance made by the AO at the rate of 10 per cent of the total expenses and reduced to 1 per cent by the ld. CIT(A) is not justified.
The provisions of section 271(1)(c) are not attracted in cases where the income of an assessee is assessed on estimate basis and additions are made therein. CIT v. Sangrur Vanaspati Ltd. [2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT]. The decisions in the case of Sahyog Sahakari Shram Samvida Samiti Ltd.[2007 (5) TMI 281 - ITAT LUCKNOW-A] and Raj Bans Singh’s case[2004 (8) TMI 73 - ALLAHABAD HIGH COURT] support this view.
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