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2007 (6) TMI 242
Issues Involved:
1. Application of Provisions of Section 145 and Gross Profit Rate
2. Treatment of Interest on FDRs as 'Income from Other Sources'
3. Exclusion of Duty Difference and FDR Interest from Eligible Business Income under Section 80-IB
4. Reduction of Deduction under Section 80HHC by the Amount of Deduction under Section 80-IB
Issue-wise Detailed Analysis:
1. Application of Provisions of Section 145 and Gross Profit Rate:
The assessee contested the application of provisions of Section 145 and the gross profit (G.P.) rate applied by the Assessing Officer (AO). The AO observed discrepancies in the reconciliation of raw materials and finished goods, leading to the rejection of the books of account. The AO applied a G.P. rate of 27.3% compared to the 22% declared by the assessee, resulting in a trading addition. The CIT(A) accepted the rejection of books but applied a G.P. rate of 22.5%, providing partial relief. Upon review, it was found that the assessee maintained comprehensive records and adhered to EXIM policy norms, which were verified by independent authorities. The Tribunal concluded that the AO's rejection of the books and the application of a higher G.P. rate were unjustified, leading to the deletion of the trading addition.
2. Treatment of Interest on FDRs as 'Income from Other Sources':
The assessee argued that interest on FDRs should be treated as business income since the FDRs were kept as margin money for availing overdraft facilities used in the export business. However, the AO and CIT(A) treated the interest as 'Income from Other Sources' and did not allow netting against interest paid on loans. The Tribunal upheld this treatment, referencing the Supreme Court decision in CIT vs. Dr. V.P. Gopinathan, which established that interest on FDRs is not business income and cannot be netted against business expenditure.
3. Exclusion of Duty Difference and FDR Interest from Eligible Business Income under Section 80-IB:
The AO excluded the value of duty difference and interest on FDRs from the eligible business income for calculating deduction under Section 80-IB, reducing the deduction claimed by the assessee. The CIT(A) confirmed this action. The Tribunal, however, found that the duty difference was part of the direct cost of the business and should not be excluded from the eligible business income. The Tribunal directed the AO to treat the duty difference as part of the direct cost and allow the deduction under Section 80-IB as claimed by the assessee. The interest on FDRs was correctly treated as 'Income from Other Sources.'
4. Reduction of Deduction under Section 80HHC by the Amount of Deduction under Section 80-IB:
The AO first allowed the deduction under Section 80-IB and then reduced the deduction under Section 80HHC by the amount of the Section 80-IB deduction. The CIT(A) upheld this approach. The assessee argued that deductions under Sections 80HHC and 80-IB should be computed independently. The Tribunal agreed, noting that Section 80AB, which has an overriding effect on Chapter VI-A, supports the independent computation of deductions. The Tribunal directed the AO to allow the deduction under Section 80HHC on the full profit without reducing it by the Section 80-IB deduction, ensuring the total deductions do not exceed the business profits.
Conclusion:
The Tribunal allowed the assessee's appeal in part, reversing the rejection of the books of account and the application of a higher G.P. rate, and directed the AO to treat the duty difference as part of the direct cost for Section 80-IB deduction. The treatment of interest on FDRs as 'Income from Other Sources' was upheld. The Tribunal also directed the AO to compute the deductions under Sections 80HHC and 80-IB independently. The Revenue's appeal was dismissed.
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2007 (6) TMI 240
Issues Involved:
1. Interpretation of Rule 3(5) of Income-tax Rules.
2. Calculation of perquisites for free/concessional educational facilities provided by schools.
3. Deduction of Rs. 1,000 per month per child under Rule 3(5).
4. Computation of cost of education for tax purposes.
Summary:
Issue 1: Interpretation of Rule 3(5) of Income-tax Rules
The primary issue in both sets of appeals was the interpretation of Rule 3(5) of the Income-tax Rules. The assessees, running public schools, claimed deductions under this rule for free/concessional educational facilities provided to their employees' children. The Assessing Officer (AO) disagreed, leading to the assessees being treated as defaulters u/s 201(1)/201(1A) for not deducting proper tax at source.
Issue 2: Calculation of Perquisites for Free/Concessional Educational Facilities
The AO found that the assessees claimed a deduction of Rs. 1,000 per month per child while calculating the perquisite value, which was disallowed. The CIT(A) noted that the AO accepted the perquisite value based on fees charged by similar institutions but disallowed the Rs. 1,000 deduction. The CIT(A) directed the AO to work out the short deduction of tax based on the actual cost of education, which was higher than Rs. 1,000 per month per child.
Issue 3: Deduction of Rs. 1,000 per Month per Child Under Rule 3(5)
The CIT(A) and the Tribunal held that the deduction of Rs. 1,000 per month per child is only applicable if the cost of education does not exceed Rs. 1,000. If the cost exceeds this amount, the entire value is to be taxed as a perquisite. The Tribunal emphasized that the proviso to Rule 3(5) does not universally allow a Rs. 1,000 deduction in all cases.
Issue 4: Computation of Cost of Education for Tax Purposes
The CIT(A) computed the cost of education by including all expenses incurred in running the school, both direct and indirect, except for depreciation. The Tribunal upheld this method, allowing the assessees to point out any specific errors in the computation to the AO for reconsideration.
Conclusion:
The Tribunal concluded that the Rs. 1,000 deduction under Rule 3(5) is only applicable when the cost of education does not exceed Rs. 1,000 per month per child. All expenses, except depreciation, should be included in computing the cost of education. The appeals were allowed in terms stated above, with directions for the AO to objectively consider any objections to the computation of cost/perquisite value.
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2007 (6) TMI 239
Assessment made u/s 153A - estimating the receipts of the appellant from job work of buffing and polishing - Estimation Of Profits u/s 144 - rejection of books of account - HELD THAT:- As rightly contended by the ld DR, there is no requirement for an assessment made u/s 153A of the Act being based on any material seized in the course of search. Further under the second proviso to section 153A pending assessment or re-assessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in section 153A(b) of the Act shall abait. Thus the Assessing Officer, gets jurisdiction for six years assessment years referred to in section 153A(b) of the Act for making an assessment or reassessment.
It is not the complaint of the assessee that any income, which is already subjected to assessment u/s 143(3) or u/s 148 of the Act completed prior to the search in respect of six assessment years referred to in section 153A(b) of the Act and in the second proviso to section 153A, has also been included in the assessment framed u/sn 153A of the Act. In such circumstances the plea of the assessee cannot be accepted. Ground No. 1 is, therefore, rejected.
Books of account rejected - estimation of income - In the present case, the Assessing Officer in coming to the conclusion that the income of the assessee from buffing and polishing was at Rs. 5,50,000 has not brought any material on record. In fact it has been a wild guess, on the part of the Assessing Officer. The addition having been made without any reference to either the past history in assessee's case or any special circumstances suggesting earning of higher income by the assessee, or any comparative case, the addition deserves to be deleted and the same is directed to be deleted. The 6th ground of appeal of the assessee, is allowed.
Income from sale of scrap - HELD THAT:- We are of the view that the addition made by the Assessing Officer and sustained by the CIT (Appeals) deserves to be deleted. There has been no basis for the estimation given by the Assessing Officer. The sweeping observation that the income from sale of scrap declared by the assessee was very low in the type of business in which the assessee is engaged would not be sufficient for making the addition. The addition made is, therefore, directed to be deleted and the 7th ground of appeal of the assessee is also allowed.
Addition u/s 68 - undisclosed concealed income - HELD THAT:- Assessee has not been able to Jet in any evidence or to show as to how the source of Rs. 40,000 deposited in the capital account was from disclosed sources. On the other hand, general argument was advanced that because of lapse of time the assessee has not been able to explain the source properly. It has also been argued that the plea of the assessee has to be accepted on the basis of probability as the assessee can be expected to have source to the extent of Rs. 40,000. We are of the view that such general submissions cannot be accepted. The assessee having failed to explain the source with regard to the deposit under capital account, the addition of Rs. 40,000 was justified and the same is confirmed and the third ground of appeal of the assessee, is dismissed.
Addition on low household expenses - HELD THAT:- We are of the view that this addition has been made purely on surmises and conjectures. The estimate of house-hold expenses as made by the Assessing Officer is without any basis. In the light of the categorical assertion that the quantum of household expenses was only Rs. 99,800 and in the light of the withdrawal by the assessee's husband of Rs. 60,000 from his books of account and the surrender of Rs. 39,800 before the Income-tax Settlement Commission, there was no basis for the Assessing Officer to have made the impugned addition and the same is directed to be deleted. Ground No. 5 of the assessee is allowed.
In the result, the appeal filed by the assessee, is partly allowed.
Addition on unexplained deposit u/s 68 - identity of the creditor, creditworthiness of the depositor and the genuineness of the transaction had not been established - HELD THAT:- In our view, the assessee had established the identity of the creditors. The sums in question were Rs. 18,000 and Rs. 5,000 respectively. These were too small an amount, which would warrant drawing of adverse inference regarding the creditworthiness and genuineness of the transaction. In the circumstances, the Assessing Officer ought to have exercised his discretion in not making an addition u/s 68 of the Act. Accordingly, we delete the addition made in respect of the credits appearing in the name of Shri Mohan Lal and Shri P.K. Sharma. Ground No. 2 of the assessee, is partly allowed.
Addition of low withdrawals for meeting the house-hold expenses - HELD THAT:- We are of the view that the addition has been made without any basis and the explanation of the assessee in this regard is found to be satisfactory. The addition made is directed to be deleted. The third ground of appeal of the assessee is allowed.
In the result, Income-tax Appeal are partly allowed while other Income-tax Appeal is dismissed.
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2007 (6) TMI 238
Disallowance on claim of bad debt/business loss - Guarantee to debts borrowed by its subsidiary companies - claimed guarantee money as loss - Non-banking finance company (NBFC) - engaged in providing funds and non-fund based financial services - Onus to prove - HELD THAT:- We find that the assessee has discharged its onus to prove that the money had become bad in fact. The objections of the lower authorities that the assessee is not indulging any money-lending activities is not correct because the assessee was incorporated in 1987 and money-lending activities have been done by doing non-banking financial business. Huge amounts earned on account of interest was offered for taxation and the same has taxed in earlier year as well as in the year under consideration also. We have seen the objects clauses of the assessee-company and found that there are clauses of objects to run the business of non-banking finance business and to advance money as inter-corporate deposits and also business of leasing business.
In the case of SREI International Finance Ltd.[2006 (9) TMI 302 - ITAT DELHI], has held there was no qualification in section 36(2) that the business of money lending should be understood only in a traditional sense. The business of a NBFC apart from leasing definitely involves lending of money. Similarly, the guarantee stood by the assessee has to be taken as activities of money lending.
On the amount of guarantee, the assessee earned interest from bank as well as from Fairmark. The business of Fairmark was abandoned in the year 1996 and whatever the amount due from Fairmark either on account of advances given by Citibank guaranteed by the assessee or some other amount recoverable from Fairmark was treated as the amount recoverable from Fairmark in the year ending on 31-1-1997 and when it is noticed that the same was not recoverable, were claimed as bad debts in the year ending on 31-3-1998. All the conditions provided u/s 36(1)(vii) r/w section 36(2) are satisfied in the present case because the interest earned on account of guarantee stood by the assessee was offered for taxation in earlier years as well as in the year under consideration and the same has been taxed also. Therefore, the claim of the assessee is allowable as bad debts.
Advance given to Makan - allotment of preference shares - Inter-corporate deposit Or share application money - No doubt, the amount was given for allotment of preference shares in assessment year 1997-98. However, Piem refused to allot the same. Therefore, the assessee asked to refund the amount with interest. Piem accepted this request of the assessee and therefore, in these circumstances, Makan was instructed to pay on behalf of Piem to the assessee. The assessee had shown this amount as on 31-3-1998 as inter-corporate deposit with Makan and interest has also shown. The same has taxed also for the year under consideration. Therefore, it cannot be said that the amount has no character of inter-corporate deposit but the character of share application money. The share application money was shown by the assessee as on31-3-1997 and in July 1997 when Piem refused to allot shares, the same was converted into inter-corporate deposit. Inter-corporate deposit is nothing but the deposit on which the assessee was to receive interest.
Therefore, we are of the considered view that since the assessee was doing non-banking finance business, therefore, inter-corporate deposits are also to be treated as deposits for the purpose of earning interest which is equal to money-lending business. Once it is seen that the inter-corporate deposits is for earning interest then the same has to be treated advancing under money-lending activities. Accordingly, the conditions of section 36(2) are satisfied here also.
Fixed deposit with Citibank - guarantee money as loss - The assessee has given guarantee amount to Citibank on behalf of the Piem on which the assessee earned interest. In the case of Birla Bros (P.) Ltd.[1970 (4) TMI 20 - SUPREME COURT], no interest was given and the Tribunal has given a finding that guarantee was for some selling agent. The observations of the Supreme Court, in our considered view are in support of the case of the assessee.
In the present case, the guarantee was given to safeguard the business interest of the assessee because the business with Fairmark was joint venture and the assessee was interested in that joint venture. Therefore, the amount guaranteed by the assessee has to be treated as business debt. On this amount, as discussed above, the assessee has earned interest also from bank as well as Fairmark. Therefore, it cannot be said that in any way the amount of outstanding against Fairmark was not business debt.
Assessee's one of the objects is of money-lending business and this is an undisputed fact that the assessee was doing non-banking finance business. Therefore, the ratio of the decision of the Supreme Court is not against assessee but supports the case of the assessee. Thus, the assessee on behalf of its joint venture Fairmark stood the guarantee and when Fairmark failed to discharge its onus then only the assessee has claimed the guarantee money as loss.
Therefore, we hold that the assessee's claim of bad debt is allowable.
However, we noted that in the case of Fairmark, the assessee claimed a sum as their share of Fairmark on 31-1-1997 included in the amount of total bad debts which is not clear that whether the amount have been offered for taxation as profit in assessment year 1997-98 or not - It has been shown in the profit of assessment year 1997-98 then the assessee is entitled for deduction of this amount also. Otherwise, to this extent the amount cannot be allowed as bad debt because the conditions of section 36(2) that the amount should be taken into profit & loss account is not satisfied. If it is found that this amount is not offered for taxation then to this extent the claim of the assessee cannot be allowed. Therefore, to this extent, we restore the issue to the file of the Assessing Officer to examine the same and the remaining amount of Rs. 115.75 lakhs (Rs.122 lakhs - 6.25 lakhs) is allowed as bad debt. The amount of Rs. 85 lakhs on account of Piem/Makan is also allowed.
Since we have held that the same is allowable as bad debt, therefore, we are not inclined to consider the alternative contentions of the assessee that the claim is allowable as business loss.
In the result, the appeals filed by the assessee are allowed in part as above.
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2007 (6) TMI 237
Issues Involved:
1. Deletion of addition on account of remuneration paid to field/sales staff.
2. Deletion of addition under section 40A(9) on account of employees' welfare expenses.
3. Deduction of depreciation on water installation, water works, and water distribution system.
4. Deletion of addition on account of excess price realized under the Sugar Incentive Scheme.
5. Allowance of depreciation on Dish Antenna System.
Issue-wise Detailed Analysis:
1. Deletion of Addition on Account of Remuneration Paid to Field/Sales Staff:
The appeal by the revenue contested the deletion of an addition of Rs. 23,86,401 made by the Assessing Officer (AO) for remuneration paid to field and sales staff. The CIT(A) had previously decided in favor of the assessee for similar issues in earlier years, and these decisions were upheld by the Tribunal. The revenue's appeal was pending before the High Court, but the Tribunal decided to follow its previous rulings, dismissing the ground.
2. Deletion of Addition Under Section 40A(9) on Account of Employees' Welfare Expenses:
The revenue challenged the deletion of an addition of Rs. 30,25,135 made under section 40A(9) for employees' welfare expenses. The CIT(A) noted that the facts were consistent with earlier years, where the matter had been decided in favor of the assessee. The Tribunal restored the issue to the AO for a fresh decision, directing the AO to hear the assessee on the applicability of section 40A(9) and then make a new order. This ground was allowed for statistical purposes.
3. Deduction of Depreciation on Water Installation, Water Works, and Water Distribution System:
The revenue disputed the CIT(A)'s decision to allow a 25% depreciation rate on water installations, water works, and water distribution systems, which the AO had treated as buildings eligible for only 10% depreciation. The Tribunal referenced previous decisions where the issue was resolved in favor of the assessee. The AO was directed to bifurcate the costs into civil construction and plant and machinery, allowing depreciation accordingly. This ground was partly allowed.
4. Deletion of Addition on Account of Excess Price Realized Under the Sugar Incentive Scheme:
The revenue's appeal contested the deletion of an addition of Rs. 79,69,280 made for excess price realized under the Sugar Incentive Scheme. The CIT(A) had followed previous rulings that favored the assessee. The revenue cited a decision by the Allahabad High Court, which held such incentives as revenue receipts. However, the Tribunal noted that other High Courts had ruled these as capital receipts, and the revenue's reliance on an ex parte judgment was not sufficient. The Tribunal decided in favor of the assessee, holding the receipt as capital in nature and directing the AO to reduce the cost of fixed assets by the incentive amount for depreciation purposes.
5. Allowance of Depreciation on Dish Antenna System:
The revenue disputed the CIT(A)'s direction to allow depreciation on the Dish Antenna System. The CIT(A) had previously classified the expenses as capital in nature, and the AO did not allow depreciation due to pending appeals. The Tribunal held that since the expenses were deemed capital, the assessee was entitled to depreciation, provided the capital nature of the expenses remained unchanged. This ground was allowed.
Conclusion:
The appeal was partly allowed, with the Tribunal providing specific directions on each ground, ensuring consistency with prior rulings and legal precedents.
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2007 (6) TMI 236
Issues:
1. Interpretation of status code in the return of income.
2. Application of tax rate on income.
3. Levying of interest under sections 234B and 234C of the Income-tax Act, 1961.
Interpretation of Status Code:
The appeal involved a dispute regarding the status code mentioned in the return of income filed by the assessee. The assessee claimed to be an unregistered firm (URF) and argued that it should be assessed as an Association of Persons (AOP) instead of a firm. The Assessing Officer processed the return under section 143(1) and applied a tax rate of 35% instead of the 30% rate claimed by the assessee. The CIT(A) upheld the decision of the Assessing Officer, stating that there was no error apparent from the record. The tribunal held that the Assessing Officer could not change the status of the assessee without proper inquiry and that the ambiguity in the return should have been resolved in favor of the assessee. The tribunal concluded that the Assessing Officer erred in adopting the 35% tax rate without further clarification from the assessee.
Application of Tax Rate:
The tribunal analyzed the facts and submissions regarding the application of the tax rate on the income of the assessee. The tribunal noted that the assessee had paid tax under section 167B, indicating its status as either an AOP or a Body of Individuals (BOI). The tribunal observed that the return was ambiguous about the status of the assessee, as it was described as a "Firm" in some instances. The tribunal emphasized that the Assessing Officer should have questioned the assessee to resolve the ambiguity or adopted a favorable view to the assessee. The tribunal held that the Assessing Officer's decision to apply the 35% tax rate without proper clarification was erroneous, and the cases cited by the revenue did not support their position. Therefore, the tribunal allowed the appeal on this issue.
Levying of Interest under Sections 234B and 234C:
The issue of levying interest under sections 234B and 234C of the Income-tax Act was briefly mentioned in the judgment. The tribunal noted that this issue was not argued by the learned counsel and considered it as consequential in nature. As a result, the tribunal did not delve into a detailed analysis of this issue, and it was taken as a consequential aspect of the overall decision on the appeal.
In conclusion, the tribunal allowed the appeal based on the errors identified in the interpretation of the status code and the application of the tax rate on the income of the assessee. The judgment highlighted the importance of resolving ambiguities in the return of income in favor of the assessee and emphasized the need for proper inquiry before changing the status or tax rate applicable to the assessee.
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2007 (6) TMI 235
Classification of income from hire charges of Janak Theatre - Business receipts Or under the head 'Income from house property' - HELD THAT:- The case of the assessee falls within the situation as envisaged at Sl. No. 3 as in the present case all the assets of the business owned by the assessee have been leased out. If such is a situation then the period for which the assets are let out is a relevant factor. It has already been pointed out that the period of lease is short and thereafter the intention of the assessee is relevant to find out that whether assessee intents to get out of business altogether or he is intended to come back and restart the same. From the facts it is clear that after leasing out the property the assessee had come back to its business and had restarted the same. Thus, the assessee has fulfilled both these factors/tests and, therefore, applying the ratio of aforementioned decision of Hon'ble Supreme Court in the case of Universal Plast Ltd [1999 (3) TMI 15 - SUPREME COURT]. it is to be held that such income was assessable as income from business.
Thus, the Tribunal upheld the CIT(A)'s decision to treat the hire charges as 'Profit and gains of business or profession', emphasizing the temporary nature of the lease and the assessee's intention to continue its business. The Tribunal also stressed the importance of consistency in tax assessments and found that the judicial precedents cited by the assessee were applicable to the facts of the case.
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2007 (6) TMI 234
Issues Involved:
The issues involved in this judgment are the addition of sales-tax payment as expenditure, applicability of section 43B of the IT Act, 1961, and the claim of deduction under said section.
Addition of Sales-Tax Payment as Expenditure:
The AO disallowed the claim of expenditure on sales-tax payment, stating it pertained to the preceding year. The CIT(A) upheld this decision, leading to an appeal. The Tribunal directed the AO to allow the liability on the basis of payment, emphasizing the applicability of section 43B of the Act.
Applicability of Section 43B of the IT Act:
The assessee claimed deduction under section 43B for sales-tax payment made in the relevant year. The CIT(A) declined the claim, stating the assessee was seeking double benefit. The Tribunal emphasized that section 43B overrides other provisions, allowing deduction only upon actual payment of tax or duty, not just on accrual of liability.
Claim of Deduction under Section 43B:
The Tribunal, considering the legal position under section 43B, disagreed with the lower authorities' decision to decline the deduction claim. It directed the AO to allow the deduction of sales-tax liability paid during the relevant year, ensuring the assessee had not already claimed it in a previous year. The appeal of the assessee was allowed based on the provisions of section 43B.
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2007 (6) TMI 233
Issues Involved:
1. Validity of the notice issued u/s 16(1) of the Gift-tax Act.
2. Jurisdictional validity of the assessment proceedings.
3. Applicability of section 292B of the Income-tax Act.
Summary:
1. Validity of the notice issued u/s 16(1) of the Gift-tax Act:
The Tribunal examined whether the notice issued u/s 16(1) of the Gift-tax Act was valid. The notice was issued to Smt. Jasbir Kaur after the death of her mother, Smt. Gurcharan Kaur, who allegedly made a deemed gift. The Tribunal found that the notice did not specify the status in which it was issued, whether to assess the mother through the assessee or the assessee as the donee. The Tribunal held that the notice should have been issued u/s 19 of the Gift-tax Act, which mandates serving notice to all legal representatives of the deceased donor. The notice was deemed invalid as it was not served on all legal heirs and did not conform to the statutory requirements.
2. Jurisdictional validity of the assessment proceedings:
The Tribunal addressed the jurisdictional validity of the assessment proceedings initiated based on the defective notice. It was argued that the entire assessment was vitiated due to the invalid notice. The Tribunal agreed, stating that the notice was a jurisdictional requirement, and its defectiveness rendered the entire proceedings invalid. The assessment made under the defective notice was consequently cancelled.
3. Applicability of section 292B of the Income-tax Act:
The Departmental Representative contended that the provisions of section 292B of the Income-tax Act, which allow for the rectification of technical mistakes in notices, should apply. However, the Tribunal rejected this argument, stating that the notice issued u/s 16(1) was not in conformity with the statutory provisions of the Gift-tax Act. The Tribunal emphasized that the requirements for a valid notice were not satisfied, and thus, section 292B could not be invoked to validate the defective notice.
Conclusion:
The Tribunal allowed the assessee to raise the additional ground of appeal regarding the validity of the notice. It concluded that the notice issued u/s 16(1) was defective, illegal, and without jurisdiction. Consequently, the assessment made under the defective notice was cancelled, and the appeal of the assessee was allowed.
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2007 (6) TMI 232
Revision u/s 263 - Computation of total income u/s 115JB - Claimed deduction u/s 80-IB - Merger With Appellate Order - the learned CIT has power to assume jurisdiction u/s 263 in view of the doctrine of merger and whether the order of the AO in this case has merged with the order of the learned CIT(A) on the issue of deduction u/s 80-IB or not ? - No dispute to the fact that while working out the claim of deduction u/s 80-IB of the Act, the assessee itself had added back the amount of depreciation to the P&L a/c - HELD THAT:- It is the settled proposition of law that the CIT(A) has plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the AO. He can do what the AO can do and can also direct him to do what he has failed to do. [decision in the case of CIT v. Kanpur Coal Syndicate [1964 (4) TMI 18 - SUPREME COURT]. Therefore, in our opinion, when the issue of deduction u/s 80-IB was before the learned CIT(A) he is presumed to have applied his mind regarding the deduction u/s 80-IB as a whole.
We find that the Hon'ble apex Court in the case of State of Madras v. Madurai Mills Co. Ltd.[1966 (10) TMI 119 - SUPREME COURT] held that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction.
We are of the considered opinion that since the matter regarding deduction u/s 80-IB was a subject-matter of appeal before the learned CIT(A), therefore, the order of the AO on the issue of deduction u/s 80 IB as a whole had merged with that of the order of the learned CIT(A) and therefore, by virtue of Expln. (c) to s. 263 of the IT Act the learned CIT had no power to assume jurisdiction u/s 263 of the IT Act on the issue of deduction u/s 80-IB of the Act.
Since the assessee succeeds on this legal issue regarding assuming of jurisdiction by CIT u/s 263 on the issue of deduction u/s 80-IB the alternative submission of the assessee regarding allowability of depreciation from business profits in case depreciation has to be considered for 80-IB deduction becomes academic in nature and therefore the same is not dealt with separately.
Claim of interest - delayed payment - We find that there is no discussion at all either in the body of the assessment order or in the appellate order. Nothing was brought to our notice at the time of hearing of the appeal to state whether the AO has applied his mind on this issue or not. Therefore, the order of the learned CIT on this issue in our opinion is justified and accordingly upheld.
Calculation of profit u/s 115JB - We find there is no dispute to the fact that the assessee is following this system of accounting year after year for the purpose of calculation of taxable income. This otherwise shows that a portion of the expenditure on account of advertisement and sales promotion debited in the P&L a/c remains as unascertained liability. We do not find from the order of the AO or CIT(A) that this aspect has ever been discussed by either of them. Nothing was brought to our notice that the AO has applied his mind on this issue or not. Therefore, the order of the learned CIT on this issue is also upheld.
In the result, the appeal filed by the appellant is partly allowed.
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2007 (6) TMI 231
Issues Involved:
1. Legitimacy of penalty under section 271(1)(c) of the Income-tax Act.
2. Disclosure and concealment of income by the assessee.
3. Change in method of valuation of work-in-progress.
4. Bona fide belief and legal advice in changing the valuation method.
5. Requirement of Assessing Officer's satisfaction for initiating penalty proceedings.
Issue-wise Detailed Analysis:
1. Legitimacy of penalty under section 271(1)(c) of the Income-tax Act:
The primary issue was whether the penalty levied under section 271(1)(c) was justified. The assessee filed a return declaring Nil income, but the assessment was made at Rs. 4,13,70,580, with a crucial addition of Rs. 4,22,96,966. The penalty was imposed for allegedly concealing income or furnishing inaccurate particulars. The Tribunal found that the assessee had disclosed all material facts and had a bona fide belief in the method used, thus the penalty was not justified.
2. Disclosure and concealment of income by the assessee:
The assessee argued that there was no concealment of income or filing of inaccurate particulars. The Tribunal agreed, noting that the assessee had made full disclosures in the Balance Sheet, Profit & Loss Account, and auditors' report. The change in the method of valuation was clearly mentioned, and the reasons for the change were provided. The Tribunal concluded that the assessee's actions did not amount to concealment or furnishing inaccurate particulars.
3. Change in method of valuation of work-in-progress:
The assessee changed the method of valuation of work-in-progress from "at cost" to "cost or market value whichever is lower," resulting in a loss of Rs. 4,22,96,966. This change was made in the assessment year 1998-99 and was disclosed in the financial statements. The Tribunal found that this change was based on legal advice and was in accordance with accepted accounting principles. The Tribunal held that the change was made in good faith and was not intended to evade taxes.
4. Bona fide belief and legal advice in changing the valuation method:
The assessee's change in the method of valuation was based on the advice of Chartered Accountants and Tax Consultants. The Tribunal noted that the assessee obtained opinions from multiple experts who advised that the change was permissible and in line with accounting standards. The Tribunal concluded that the assessee had a bona fide belief in the method used and that the explanation provided was genuine and substantiated.
5. Requirement of Assessing Officer's satisfaction for initiating penalty proceedings:
The Tribunal examined whether the Assessing Officer had recorded satisfaction regarding the concealment of income or furnishing of inaccurate particulars. It was found that the Assessing Officer did not properly record satisfaction in the assessment order, merely noting "issue penalty notice under section 271(1)(c)." The Tribunal held that this was insufficient to meet the legal requirement for initiating penalty proceedings. The Tribunal cited several judgments supporting the need for clear and specific satisfaction to be recorded by the Assessing Officer.
Conclusion:
The Tribunal allowed the appeal, concluding that the penalty under section 271(1)(c) was not justified due to the bona fide belief of the assessee, full disclosure of material facts, and the lack of proper satisfaction recorded by the Assessing Officer. The penalty was deleted, and the appeal was allowed in favor of the assessee.
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2007 (6) TMI 230
Deduction u/s 80-IB - nature of activity - making "CRGO Core Lamination"- "manufacturing/production" - Profits And Gains From Industrial Undertaking - violation of the provisions of section 250(6) of the Act read with the provisions of rule 46A - principles of natural justice - difference of opinion between Learned Members - Third member decision - HELD THAT:- In our opinion there is also no violation of the provisions of section 250(6) of the Act read with the provisions of rule 46A of the Rules. The CIT(A) has visited the factory premises along with the Assessing Officer and whatever findings he has recorded was in the presence of the Assessing Officer at the time of their joint visit. The Assessing Officer was present at the time of visit and remained with the CIT(A), from the beginning to the end. No independent evidences were collected by the CIT(A) and no fresh evidence was taken by him. We noted that as per the mill's specification at a temperature of 820 degree for 72 to 90 seconds depending upon the thickness and grade of material. The inspection report is reproduced above in the order.
The CIT(A) has not considered the opinion of Standing Counsel of the Department by relying upon the Supreme Court decision in Smt. Amiya Bala Paul v. CIT [2003 (7) TMI 4 - SUPREME COURT]. This is only an opinion and has in any case is to be considered as an argument in holding whether there was a manufacture. These issues, material and submissions in any case are being discussed in the proceedings before us and there nothing much turns on that because in substance the CIT(A) has discussed everything stated in the opinion by way of a proposition. No principles of natural justice are violated by him in disposing the appeal.
The ld. JM, therefore, held that as there is no basic change in the characteristics of the raw material and the finished products, the assesses cannot be said to be engaged in the manufacturing activities and held that the CIT(A) was not justified in allowing relief to the assessees.
Third Member - Keeping in view the above meaning of the word "manufacture" as decided by the Hon'ble Courts including the Supreme Court in various cases I have to decide as to whether various processes involved in making the transformer core would amount to manufacturing or not. If the activities amounted to manufacture, the assessees will be entitled to exemption u/s 80-IB of the Act as they are situated in the areas eligible for such exemption.
The core building is done in horizontal position of specifically raised platform. Some of the processes are performed thereafter. A booklet from Parekh group of Industries whose companies are also before me along with various photographs of the processes involved was also filed. This gives picture of the raw material purchased, the physical changes at the end of each process and the new product which comes into existence. Looking to these facts, there cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes. I also find that there was no dispute that the raw material from which the core is made is called CRGO coils whereas the item which has emerged after various processes is called transformer core. It is also undisputed position that the CRGO coils even with few processes cannot be used in a transformer unless all the processes were complete. It is the transformer core only which is end-product which could be used in the manufacturing of transformer.
Thus there cannot be any dispute that due to various processes the product has distinct name, shape and uses. By these processes the raw material loses its identity and new product comes into existence which is commercially recognized as a new product.
As regards the observation of the ld. JM regarding res judicata, I feel that the principle of judicial consistency should be followed where nothing new has come to the notice of the Assessing Officer. Similarly, as on the facts the activities of the assessees were in the nature of manufacturing activities, the question of liberal interpretation of the statutes does not arise.
I also agree with the proposition that the judgment of the court should not be read as a statute. A judgment must be construed upon reading the same as a whole. For the said purpose the attendant circumstances may also be taken consideration. As held by Hon'ble Supreme Court in the case of Ramesh Chand Daga [2005 (3) TMI 788 - SUPREME COURT], P.S. Sathappa [2004 (10) TMI 605 - SUPREME COURT] and order of court of law must be read in its entirety for the purposes of ascertaining its true intent and purport. Reliance on the part judgment may do violence to the true intent and purport of the judgment.
In my final analysis, I am inclined to agree with the views and observations made by ld. Vice President in his proposed order regarding factual aspects of various processes undertaken by the assessee and its effect which are well supported by treatise from various foreign and Indian books on the subject and especially supported by Research Institute known as ERDA which is the highest authority on the subject and approved by the CBDT for giving the technical opinion and ld. VP's analysis of various judicial pronouncements for ascertaining the test for manufacturing activity. From the evidences on record, I am of the opinion that the ld. VP has rightly held that the assessees were engaged in the manufacturing or producing an article or thing and he has rightly allowed the exemption u/s 80-IB of the Act.
I agree with proposed orders of the learned Vice President.
The matter should now be placed before the Regular Bench for disposal in accordance with law.
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2007 (6) TMI 229
The Appellate Tribunal CESTAT, Mumbai rectified a mistake in a previous order regarding the imposition of penalty, setting aside the penalty but upholding the demand. Application E/ROM-3039/05 was allowed, while application E/ROM-3202/06 was dismissed as not required.
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2007 (6) TMI 228
The High Court of Judicature at Bombay quashed and set aside an order by CESTAT due to lack of reasoning. The matter was remanded back to CESTAT for fresh hearing with proper reasonings. CESTAT was directed to hear and dispose of the appeal on its own merits and in accordance with the law.
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2007 (6) TMI 227
The High Court of Judicature at Bombay rejected a petition against the Customs, Excise & Service Tax Appellate Tribunal's decision to deny condonation of delay in appealing. The Tribunal found the reasons for delay inadequate, stating that the petitioner's failure to appoint a manager promptly and mismanagement were not justifications. The petition was dismissed.
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2007 (6) TMI 226
Issues:
1. Appeal against order of the Customs, Excise and Gold (Control) Appellate Tribunal
2. Dispensation of deposit amount pending appeal under Section 35(F) of the Central Excise Act, 1944
3. Financial stringency and undue hardship faced by the appellant
4. Judicial review of the decision of the Hon'ble First Court
Analysis:
1. The appeal was filed against an order of the Customs, Excise and Gold (Control) Appellate Tribunal, where a significant claim and penalties were imposed on the appellant. The appellant sought dispensation of the deposit amount as a pre-condition to the admission of the appeal. The Tribunal directed the appellant to deposit a specific sum, leading to the filing of a writ petition against this order.
2. The appellant's counsel relied on legal precedents to argue that a dispensable claim of the deposit should be allowed if the appellant has a good prima facie case. It was contended that in the present case, the duty was not attracted as there was no re-packing involved, only labelling. The counsel emphasized that the requirement of deposit should have been dispensed with due to the strong case presented.
3. The Court examined Section 35(F) of the Central Excise Act, 1944, which provides for the deposit of duty demanded or penalty levied pending appeal. The provision allows for dispensation of the deposit if it would cause undue hardship to the appellant. The financial position of the appellant, as reflected in the balance sheet, was considered by the Tribunal to determine the existence of undue hardship.
4. The Court noted that the decision of the Hon'ble First Court to dismiss the writ petition was based on a thorough consideration of the facts and materials on record. It was observed that the Tribunal had appropriately assessed the financial position of the appellant before directing the deposit amount. The Court affirmed the decision of the Hon'ble First Court, finding no irregularity or infirmity in the judgment.
5. Ultimately, the Court upheld the order of the Hon'ble First Court, dismissing the appeal and the application. All parties were instructed to act in accordance with the order, and certified copies of the judgment were to be provided upon request, subject to formalities.
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2007 (6) TMI 225
Issues:
Challenge to order by Collector, Central Excise (Appeals) and Customs Excise and Gold Control Tribunal's confirmation, applicability of Section 5 of the Limitation Act to appeal proceedings before the Appellate Tribunal.
Analysis:
1. The petitioner contested the order passed by the Collector, Central Excise (Appeals) and confirmed by the Customs Excise and Gold Control Tribunal, seeking exemption from excise duty. The appeal was dismissed due to a delay of four years in filing, with the petitioner requesting condonation of delay within the appeal memo. The petitioner argued that the Appellate Tribunal should be considered a Court, allowing the application of Section 5 of the Limitation Act to their appeal proceedings.
2. The respondents' counsel contended that the Appellate Tribunal does not qualify as a Court, and thus, Section 5 of the Limitation Act does not apply to appeal proceedings before the Tribunal. They emphasized the abnormal delay and the lack of legal grounds for condoning the delay in the petitioner's case.
3. The legal position clarified that a Tribunal, even if quasi-judicial, does not necessarily equate to being a Court. The distinction lies in the forum having the trappings of a Court to be considered as such.
4. The analysis delved into the provisions of the Indian Limitation Act, specifically Section 5, which allows for appeal admission after the prescribed period with sufficient cause. Additionally, Section 29 of the Act was examined to understand the interplay between special or local laws and the general provisions of the Limitation Act.
5. Referring to a previous case, it was established that the Commissioner of Central Excise (Appeals) does not function as a Court, and hence, Section 5 and Section 29(2) of the Limitation Act do not apply to appeals under Section 35 of the Central Excise Act. The judgment emphasized that the Commissioner's decisions lack the essential attributes of a judicial pronouncement.
6. The Court concluded that the Appellate Tribunal's decision not to entertain the appeal due to limitation was valid. The petitioner's request for condonation of delay was deemed unwarranted, leading to the dismissal of the petition without interference in the Tribunal's order.
7. Ultimately, the petition was dismissed, ruling in favor of the Appellate Tribunal's decision, with no costs imposed on either party.
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2007 (6) TMI 224
Cenvat/Modvat credit - Capital goods - Whether the CESTAT is right in allowing of Modvat credit when simultaneous availment of Modvat credit on capital goods and depreciation in income-tax was not allowed in terms of Rule 57-R(5) of the erstwhile Central Excise Rules, 1944 merely on the ground that the depreciation was subsequently not claimed in the revised return?
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2007 (6) TMI 223
Issues Involved:
1. Quashing of criminal proceedings u/s 482 of the Code of Criminal Procedure, 1973.
2. Allegations and evidence against the petitioner.
3. Impact of adjudication proceedings and CBI closure report on the criminal case.
4. Abuse of process of the Court.
Summary:
1. Quashing of Criminal Proceedings u/s 482 of the Code of Criminal Procedure, 1973:
The petitioner sought to quash the proceedings in Criminal Case No. 9/CW/2001 pending before the Additional Chief Metropolitan Magistrate's 3rd Court, Esplanade, Mumbai, under Article 227 of the Constitution of India r/w Section 482 of the Code of Criminal Procedure, 1973.
2. Allegations and Evidence Against the Petitioner:
The prosecution alleged that the petitioner, an Appraising Officer, was involved in a smuggling racket, accepting misdeclarations in Bills of Entry (Bs/E) and receiving monetary consideration. The complaint included forensic evidence linking the petitioner's signatures to the Bs/E. However, the petitioner denied these allegations, stating that his rubber stamp was seized from his residence and forensic evidence was inconclusive.
3. Impact of Adjudication Proceedings and CBI Closure Report on the Criminal Case:
The Customs, Excise and Service Tax Appellate Tribunal had quashed the penalty imposed on the petitioner, citing lack of evidence and improper denial of cross-examination of the handwriting expert. Additionally, the CBI filed a closure report in the related FIR, stating insufficient evidence to proceed against the petitioner. The Special Judge accepted this closure report, further weakening the prosecution's case.
4. Abuse of Process of the Court:
The Court noted that the continuation of criminal proceedings, despite the petitioner being exonerated in adjudication proceedings and the CBI closure report, would be an abuse of the process of the Court. The standard of proof required in criminal cases is higher than in adjudication proceedings. Given the lack of evidence and the petitioner's exoneration in related proceedings, the Court held that forcing the petitioner to undergo a trial would not serve the interest of justice.
Conclusion:
The Court quashed the criminal proceedings against the petitioner, emphasizing that their continuation would be an abuse of the process of the Court and not in the interest of justice.
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2007 (6) TMI 222
Rails - Departmental clarification - Held that: - Section 151A of the Customs Act confers the power to issue direction only with respect to classification of the goods and with respect to levy of customs duty so long as it does not affect the quasi-judicial power of the authorities. The Board has no power to interfere with the quasi-judicial powers of assessing officer or for that matter the appellate authority or revisional authority. In our opinion, the impugned Circular is beyond the powers conferred on the Board under Section 151A of the Act and the same is liable to be quashed and set aside - appeal allowed.
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