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Showing 321 to 340 of 678 Records
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2007 (7) TMI 391
Classification of imported goods - mixing Vitamin-E with silica - Goods appropriately be classifiable under CTH 2936.28 attracting basic Customs duty (a) 35% and under CETH 2936.00 attracting CVD @ 16% - demand notice issued for recovery of the differential amount of duty from the importer - HELD THAT:- The Chemical Examiner’s report confirms that the item is a preparation containing Vitamin-E and silica and that such compositions are known to find use as additives in animal feeds. The Chemical Examiner, in his subsequent clarification, appears to have confirmed that silica was used as a carrier for the vitamin. The appellant has no case that the goods imported by the respondents was used in any manner other than as an animal feed additive. For these reasons, learned Commissioner (Appeals) has rightly classified the goods under Heading 23.09 and SH 2309.90.
In the case of Ranbaxy Laboratories [1994 (5) TMI 67 - CEGAT, NEW DELHI], the Tribunal had classified synthetic preparations containing mixtures of vitamins under Heading 29.36 of the Schedule to the CETA despite the presence of some minerals and materials therein. This decision of the Tribunal has been relied on by the appellant. But, as rightly pointed out by the consultant, the said decision was set aside by the Apex Court [2002 (12) TMI 660 - SC ORDER]. The Apex Court classified the above synthetic preparations under Heading 23.02 of the CETA Schedule.
It is also noticed that a Larger Bench of the Tribunal in the case of Tetragon Chemie P. Ltd. v. Collector of Central Excise [1998 (9) TMI 390 - CEGAT, NEW DELHI], classified animal feed supplements under Heading 23.02 of the CETA Schedule after rejecting the Department’s claim for classification as vitamins under Heading 29.36. The item considered in that case was a preparation containing vitamins mixed with dilutants and, which was used as an additive to the main feed for livestock. We find that the Tribunal’s decision was upheld by the Supreme Court in Collector v. Tetragon Chemie P. Ltd.[2001 (7) TMI 127 - SUPREME COURT].
It thus appears that the appellate Commissioner’s order impugned in the present appeal is supported by the Apex Court’s decision in the cases of Ranbaxy Laboratories (supra) and Tetragon Chemie (supra).
In the result, the Revenue’s appeal gets dismissed.
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2007 (7) TMI 383
Issues involved:
1. Remand of appeal for fresh disposal on merits due to lack of proper approval of the Commissioner of Central Excise for show cause notices.
2. Jurisdiction of the Tribunal to decide on the claim of rebate against exported goods under Section 35B of the Central Excise Act, 1944.
Analysis:
Issue 1: Remand of appeal for fresh disposal on merits
The appeal was remanded back to the Commissioner (Appeals) for fresh disposal on merits due to the observation that show cause notices were issued without proper approval of the Commissioner of Central Excise. The initial hearing for admission and the subsequent disposal on merits were based on this issue. The remand was made for verification purposes, and the appeal filed by the assessee was allowed in terms of the remand order.
Issue 2: Jurisdiction of the Tribunal
The applicant pointed out that the subject matter of the appeal pertained to a claim of rebate against exported goods, specifically man-made fabrics. It was argued that the Tribunal did not have jurisdiction to decide on this matter as per Section 35B of the Central Excise Act, 1944. Citing various decisions such as M/s. Madura Coats Ltd., M/s. India Jute Industries Ltd., M/s. Atlas Copco India Ltd., and M/s. Lakshmi Mills Co. Ltd., the applicant contended that such claims could only be decided by the Joint Secretary of the Government of India. In light of the principles established in the aforementioned decisions and the provisions of Section 35B, the earlier order was recalled. The Revenue was directed to present the appeal before the Joint Secretary, Govt. of India, who had the jurisdiction to decide on the claim of rebate against exported goods. Consequently, the earlier order passed in the impugned order was set aside, and the Revenue was instructed to present the appeal before the appropriate authority as per the cited provisions.
This comprehensive analysis of the judgment covers the issues of remand for fresh disposal on merits and the jurisdiction of the Tribunal to decide on the claim of rebate against exported goods, providing a detailed understanding of the legal reasoning and decisions involved in the case.
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2007 (7) TMI 382
Book profit- Whether the Income-tax Appellate Tribunal was justified in holding that no interest under sections 234B and 234C of the Act is leviable once income-tax is determined under section 115J of the Act? Held that- in the light of the decision of Karnataka High Court and the Supreme Court the Income-tax Appellate Tribunal was justified in holding that no interest under sections 234B and 234C of the Act is leviable once the income-tax is determined under section 115J of the Act.
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2007 (7) TMI 380
Recovery of Tax– Provisional Attachment –On the writ petition filed by the assessee contending that by the attachment of three fixed deposits amounting to Rs. 1 Crore, the assessee was deprived of his opportunity to complete the transaction of fresh purchase of agricultural land with in two years from the date of transfer of agricultural land in question which resulted in capital gain. In this case Rajasthan High Court held that the provisional attachment order of three FDRs (annexure 11) dated April 17, 2007 is quashed and it is directed that the FDRs in question may be released within a period of 15 days from today. It is expected that the appeal pending before the learned Commissioner of Income-tax (Appeals) would be expeditiously decided within a period of three months from today. This writ petition is disposed of with no order as to costs.
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2007 (7) TMI 376
Notice under section 148 of the Act was issued by the Assessing Officer on July 4, 1998, for reopening of the assessment - In spite of fact that all the documents and material was available with the Assessing Officer when the return of income was filed by the assessee and was processed, the Assessing Officer while recording the reasons for issuing notice under section 148 of the Act has not specifically mentioned the items of jewellery and the particulars of shares which in his opinion had escaped assessment. Merely recording the reason that examination of the seized records revealed that the assessee has made huge investments in the purchase of shares and other movable and immovable assets and those transactions have not been recorded in the books of account therefore, the Assessing Officer has reason to believe that the assessee’s income assessable to tax had escaped assessment, is not sufficient for reopening the assessment. - Thus, in our opinion, the Tribunal was fully justified while coming to the conclusion that the Assessing Officer was not justified in reopening the assessment of the assessee under section 147/148
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2007 (7) TMI 373
Issues Involved:
1. Depreciation on assets not in existence.
2. Deduction under section 80-I for manufacturing activities.
3. Cross-objection by the assessee regarding construction activities and section 80-I deduction.
Detailed Analysis:
1. Depreciation on Assets Not in Existence:
The department contended that the CIT(A) erred in allowing depreciation on assets that were not in existence as per the findings of the Assessing Officer. The assessee had declared additional income of Rs. 30 lakhs during a search, with Rs. 7 lakhs attributed to plant and machinery and Rs. 3 lakhs to furniture and fixtures. The Assessing Officer disallowed the depreciation claim due to the lack of inventory details provided by the assessee, which was upheld by the Accountant Member. The Judicial Member, however, supported the CIT(A)'s view, stating that the assets were owned and used for business purposes, and the department had accepted the investment during the search. The Judicial Member cited the Kerala High Court's decision in Geo Tech Construction Corpn., emphasizing that assets kept ready for use qualify for depreciation. The Third Member concurred with the Accountant Member, highlighting that the assessee failed to furnish necessary details to prove ownership and usage of the assets, thus not satisfying the conditions of section 32. Consequently, the department's ground on this issue was allowed.
2. Deduction Under Section 80-I for Manufacturing Activities:
The department challenged the CIT(A)'s decision to allow partial deduction under section 80-I, arguing that the assessee was not engaged in manufacturing activities. The CIT(A) determined that making steel pipes from steel plates constituted manufacturing, eligible for section 80-I deduction, but laying these pipes did not. The CIT(A) restricted the deduction to 70% of the total turnover, considering the manufacturing activities. The Tribunal upheld the CIT(A)'s decision, noting that the department did not provide cogent reasons to contest the findings. Thus, the department's ground on this issue was rejected.
3. Cross-Objection by the Assessee:
The assessee's cross-objection argued that construction activities were incidental to the main manufacturing activities and should be fully eligible for section 80-I deduction. The Tribunal upheld the CIT(A)'s order, which had already considered the construction activities separately from manufacturing activities, and rejected the cross-objection.
Conclusion:
The departmental appeal was partly allowed, disallowing the depreciation claim on assets not in existence, while upholding the partial deduction under section 80-I. The assessee's cross-objection was dismissed. The Third Member's decision aligned with the Accountant Member, emphasizing the necessity of furnishing details to claim depreciation, thereby resolving the difference of opinion.
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2007 (7) TMI 370
Depreciation on leased out assets - interest of commercial expediency - interest on loan for purchase of leased assets - HELD THAT:- It is true that the Expln. 4A to s. 43(1) inserted by the Finance Act, 1996 w.e.f. 1st Oct., 1996 is a recognition of the position that all SLB transactions cannot be held to be motivated only by tax evasion. There can be a genuine SLB transaction. The Explanation only seeks to thwart the move to inflate the value of the asset leased out in order solely to obtain the benefit of 100 per cent depreciation. It applies to an otherwise genuine SLB transaction. If SLB transaction itself is not genuine then there is no need to invoke the Explanation.
Deduction on SLB transactions - income in the form of lease rent - offered for tax - In our considered opinion the order of the CIT(A) is totally erroneous, to say the least. The AO, after discussing the facts and circumstances in detail, concluded that the impugned transactions were 'motivated by nothing else but to reduce the taxable income of the profit making company'. We fail to understand how the CIT(A) got the impression from the assessment order that the bona fides of the transactions were not questioned by the AO.
Admittedly, the assessee was a manufacturing company and was not a finance company. The impugned transactions were between two sister/group companies. The assessee, a profit making company, tried to reduce its profit by as much as by using a device of taking over the claim of depreciation from a loss making group company, by creating the aforesaid facade of SLB transaction. If we look at the arrangement as a whole it becomes abundantly clear that the transactions had no commercial or economic sense.
We have no doubt in our mind that it was not a bona fide arrangement. We entirely agree with the AO that the real intention behind this arrangement was to reduce the tax liability of the assessee company. Manifestly, it was a case of a colourable device. Once we have held that the arrangement itself was not bona fide it becomes totally immaterial that there was no illegality about the transactions.
In our considered opinion, the present case is squarely covered by the decision of the Special Bench of Tribunal Mumbai in the case of Mid East Portfolio Management Ltd.[2003 (8) TMI 475 - ITAT MUMBAI] In fact, in the present case the impugned SLB transactions were between two group companies and therefore it stands on a much stronger footing than the case of Mid East Portfolio Management Ltd. We respectfully follow the decision of the Tribunal (SB) in the case of Mid East Portfolio Management Ltd. and hold that the order of the CIT(A) has to be reversed; that the order of the AO has to be restored; and that, as a consequence, the lease rent assessed on 'protective basis' has to be deleted. We order accordingly.
In the present case, after examining all the relevant facts and the surrounding circumstances, as discussed in the above paras, we have concluded that the entire arrangement of the impugned SLB transactions was not bona fide, that it was a colourable device, and therefore the assessee's claim could not be allowed. In taking this view we are fortified by the decision of the Supreme Court in the case of Union of India & Ors. vs. Play world Electronics (P) Ltd. & Anr.[1989 (5) TMI 57 - SUPREME COURT]. In this case it was held by the Supreme Court that, "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious means."
The grounds Nos. 6 and 7 are accordingly allowed.
Deduction u/s 80-I - income of a profit-making company - inter-unit transfer of material - HELD THAT:- Admittedly, separate books of account are maintained for the old unit at Pimpri and the new unit at Urse, and therefore the major part of expenses would be identifiable either with one unit or the other, but still there would be some expenses, which cannot be so identified. The new unit is eligible for deduction u/s 80-I, which is calculated at a certain percentage of the profit of that unit, and therefore, it is necessary to correctly determine the profit of the new unit. An error in the allocation of expenses to the two units can distort their respective profits. The AO was of the view that the profit of the new unit was artificially inflated by erroneously shifting certain expenses from the new unit to the old unit. We have mentioned, where the approach of the CIT(A) was, in our opinion, inconsistent, and arbitrary.
The principles for the allocation of expenses to the old and new units have been clearly laid down, that the expenses, which were specifically incurred for a particular unit, and were directly attributable either to the Pimpri or to the Urse units should be allocated to the respective units. And the 'common unidentifiable expenses' have to be allocated to the old and the new units as per the order of the Tribunal in the assessee's own case for AY 1990-91.
Thus, we are of the considered view that entire issue of the allocation of expenses should be remitted back to the file of the CIT(A). He will re-examine the issue in the light of the directions given and will pass a fresh order after giving adequate opportunity of being heard to the assessee. The ground No. 8 is decided accordingly.
In the result, the appeal filed by the Department is partly allowed.
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2007 (7) TMI 367
Issues:
1. Legality of initiation of reassessment proceedings.
2. Validity of additions made by the AO.
Analysis:
1. The assessee appealed against the initiation of reassessment proceedings for the assessment year 1999-2000. The AO had issued a notice under section 148 of the Act, citing unexplained investments and agricultural income as grounds for reassessment. The assessee contended that all relevant details had been disclosed in the original return, questioning the AO's reasonable belief that income had escaped assessment. The Departmental Representative highlighted discrepancies in the explanation provided by the assessee regarding the investment and agricultural operations. The Tribunal observed that the AO lacked justification for initiating reassessment, as all necessary information had been furnished by the assessee initially. Citing a previous case, the Tribunal emphasized that the AO cannot initiate proceedings merely for verification purposes when all details are already on record. Consequently, the Tribunal canceled the assessment order, ruling in favor of the assessee on ground No. 1.
2. The assessee also disputed the additions made by the AO in grounds 2 to 5 of the appeal. However, since the Tribunal had already canceled the assessment order due to the invalid initiation of reassessment proceedings, it deemed further adjudication on the additions unnecessary. As a result, the Tribunal allowed the appeal of the assessee, thereby concluding the case in favor of the appellant.
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2007 (7) TMI 365
Deduction claimed u/s 10B to the extent of 90% remaining profit are eligible for set off of losses from earlier years ? - export-oriented undertaking - Remaining profit (i.e.10%) after the deduction u/s 10B should be treated as business profits? - HELD THAT:- Since the expression used in clause (ii) of sub-section (6) clearly mentions "in so far as such loss relates to the business of the undertaking", therefore, this restriction is applicable only in respect of loss which is directly relatable to the loss of the undertaking which is subject to the provision of section 10B. Therefore, in our view, this restriction is not applicable to the losses in respect of other businesses.
The mere fact that section 10B is contained in Chapter III will not make much difference as the hon'ble Supreme Court in the case of Prakash Nath Khanna v. CIT [2004 (2) TMI 3 - SUPREME COURT] has clearly observed that marginal notes in an Indian statute, as in an Act of Parliament cannot be referred to for the purpose of construing the statute. In view of this observation merely because section 10B has been placed in Chapter III it does not mean that it relates to exempted income, particularly in view of the fact that only 90 per cent. of the profits from eligible undertaking is allowed to be deducted.
Since the business profits have to be assessed and have indeed been assessed in this case as income from business, therefore whatever remains after allowing such 10 per cent. deduction has to be treated only as business income. Once such balance income has been treated as business income, the provisions of section 72 etc. would apply accordingly.
As observed by us earlier, the losses were held to belong, to the business and had been allowed by the Tribunal in the earlier years, therefore such losses should have been allowed against the business income of the assessee. In these circumstances, we set aside the order of the learned CIT (A) and direct the Assessing Officer to allow set off of the loss claimed by the assessee.
In the result, the appeal of the assessee is allowed.
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2007 (7) TMI 364
Issues Involved:1. Whether the assessee is engaged in manufacturing or processing for the purpose of claiming deduction u/s 80-IB of the Income-tax Act, 1961. Summary:Issue 1: Manufacturing vs. Processing for Deduction u/s 80-IBThe Revenue's appeal contended that the Commissioner of Income-tax (Appeals) erred in holding that the assessee is engaged in the manufacture of specialized polymer alloys in powder form and is entitled to deduction u/s 80-IB of the Income-tax Act, 1961. The Assessing Officer (AO) argued that the assessee's activity of pulverizing plastic granules into plastic powder did not qualify as "manufacturing" but merely as "processing," thus disqualifying it from the deduction u/s 80-IB. The AO emphasized the distinction between "manufacturing" and "processing," stating that manufacturing results in a new product with a different identity, whereas processing only changes the physical form of the material. Upon appeal, the Commissioner of Income-tax (Appeals) elaborately discussed the issue and concluded that the assessee was indeed engaged in manufacturing specialized polymer powders. The Commissioner noted that the assessee uses a combination of various polymers and specialty chemicals to produce distinct polymer alloys in powder form, which have specific industrial applications. The manufacturing process involves multiple steps and specialized machinery, resulting in a new and distinct product that cannot be equated with the raw materials used. The Commissioner of Income-tax (Appeals) supported the assessee's case with various case laws, including Kailash Nath v. State of U.P. [1957] 8 STC 358 (SC) and Aspinwall and Co. Ltd. v. CIT [2001] 251 ITR 323 (SC), which recognized the transformation of raw materials into new products as manufacturing. The Tribunal agreed with the Commissioner, noting that the assessee's production process results in a commercially different product with distinct characteristics and qualities, thus satisfying the requirements of manufacturing or producing an article or thing for the purposes of section 80-IB. The Tribunal also referenced the hon'ble apex court decision in N.C. Budharaja and Co. [1993] 204 ITR 412, which stated that "production" has a wider connotation than "manufacture" and includes bringing into existence new goods by a process that may or may not amount to manufacture. The Tribunal concluded that the assessee's activities qualified as manufacturing, thereby entitling it to the deduction u/s 80-IB. In conclusion, the Tribunal dismissed the Revenue's appeal and upheld the order of the Commissioner of Income-tax (Appeals), affirming that the assessee is engaged in manufacturing and is entitled to the deduction u/s 80-IB. The cross objection by the assessee, being supportive of the Commissioner's order, was dismissed as infructuous.
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2007 (7) TMI 361
Computation of capital gains - Addition u/s 50C - Determination of sale consideration of residential property - valuation considered as on the date of sale - non-speaking order of the learned CIT(A) - HELD THAT:- In the present case, the assessee had shown a sale consideration of Rs. 21,50,000, the stamp valuation authority had adopted the value at Rs. 37,51,480. The DVO has determined the value at Rs. 37.75 lacs which is higher than valuation made by the stamp valuation authority. The AO has, therefore, adopted the valuation as made by stamp valuation authority and accordingly calculated the capital gains. The learned CIT(A) has confirmed the same.
We do not find any infirmity in the action taken by the authorities below and the ld AR has also not been able to point out any error. The argument of the ld AR has been that the DVO had not considered the post-purchase construction made by the purchaser but we notice that the DVO had actually considered such construction by the purchaser and given effect to by only adopting the area and space as existing on the date of the sale as per sale deed. Therefore, we do not find any material which would substantiate the argument of the assessee. The next objection of the assessee is that the AO has not given any importance to the quality of construction. The sale deed showed that construction was simple and it was six years old before being sold.
However, we do not find any material to show that valuation made by the DVO was anyway adversely affected because of this factor or that he has not taken these factors into account while valuing the property u/s 50C(2).
Another objection was that the AO has not given any credence to the report of the Government approved valuer, whose report was made the basis for determination of sale price and the property was sold accordingly as per sale deed. In our considered view, this objection has no merit because what has to be compared as per s. 50C(3) is the DVO's report and stamp duty valuation and nothing else. For the purposes of invoking s. 50C(1) what is to be compared is the sale consideration as shown by the assessee and the valuation shown by stamp valuation authorities. The report of the approved valuer is an alien evidence for the purpose of applying s. 50C(1) or s. 50C(3).
Accordingly, we do not find any merit in various contentions raised by the ld AR.
Where s. 50C is invoked, then there is no scope of any discretion and the AO is duty bound to adopt the valuation made by stamp valuation authority if it is higher than the sale consideration shown by the assessee. However sub-s. (3) of s. 50C does provide some latitude. Where valuation made by DVO is higher, then the valuation by stamp valuation authority will be adopted for sale consideration declared but where the valuation made by DVO is less than the valuation made by the stamp valuation authority, then he may adopt such fair market value to be the full value of consideration. Thus, the discretion available to the AO, if any, is limited to this extent and as clarified in the Departmental Circular referred.
In the present case, we do not find any material to come to the conclusion that valuation adopted by the DVO was lesser or could have been lesser than the valuation made by stamp valuation authority and therefore, we do not find any discretion available to the AO within the sub-s. (3) of s. 50C.
As a result, we do not find any force in the appeal filed by the assessee. The order of the learned CIT(A) is upheld and the appeal filed by the assessee is dismissed.
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2007 (7) TMI 357
Issues Involved:
1. Entitlement to claim the benefit of fluctuation rates in currency by adding it to the cost of assets.
2. Justification of reliance on judgments from other High Courts for deciding the issue in favor of the assessee.
Issue-wise Detailed Analysis:
1. Entitlement to Claim the Benefit of Fluctuation Rates in Currency:
The primary issue revolves around whether the assessee is entitled to claim the benefit of fluctuation rates in the currency by adding it to the cost of the assets, even if no actual payment was made based on these fluctuation rates. The ITAT, Indore Bench, initially dismissed the revenue's appeal, supporting the assessee's claim for depreciation on the increased cost of plant and machinery due to fluctuation in the exchange rate, based on judgments from the Patna, Gujarat, and Madras High Courts.
The Hon'ble High Court of Madhya Pradesh remanded the case to the Tribunal, directing it to reconsider the issue in light of the Supreme Court's decision in CIT v. Arvind Mills Ltd. [1992] 193 ITR 255. The Supreme Court in Arvind Mills Ltd. had examined the impact of exchange rate fluctuations on the actual cost of assets and the subsequent eligibility for depreciation.
Upon remand, the Tribunal re-evaluated the matter, noting that the assessee had increased the cost of assets due to foreign exchange rate fluctuations without actual remittance. The Tribunal considered section 43A of the Income-tax Act, which allows adjustments to the actual cost of assets due to exchange rate fluctuations, even if the payment was not made during the relevant assessment years. The Tribunal also acknowledged the assessee's mercantile system of accounting, which supports the accrual of liabilities.
2. Justification of Reliance on Judgments from Other High Courts:
The Tribunal had initially relied on judgments from various High Courts, including Usha Beltron Ltd. (Patna High Court), Windsor Foods Ltd. (Gujarat High Court), Chengalvarayan Co-operative Sugar Mills, and South India Viscose Ltd. (Madras High Court). These judgments uniformly held that additional liability due to exchange rate fluctuations should be added to the actual cost of the asset, thereby allowing depreciation on the enhanced cost.
The Tribunal reaffirmed its reliance on these judgments, highlighting that section 43A of the Income-tax Act, as applicable to the assessment years under appeal, supported the assessee's claim. The Tribunal emphasized that the amendment to section 43A by the Finance Act, 2002, effective from 1-4-2003, which mandates adjustments only on actual payment, was not applicable to the assessment years in question (1990-91 and 1991-92).
The Tribunal also noted that the Supreme Court in Arvind Mills Ltd. had considered the issue of development rebate on increased costs due to exchange rate fluctuations, which indirectly supports the assessee's claim for depreciation on the enhanced cost.
Conclusion:
The Tribunal concluded that the assessee is entitled to add the additional liability incurred due to foreign exchange fluctuations to the actual cost of the asset, even if no actual payment was made based on the fluctuation rates. Consequently, the assessee is eligible for depreciation on the enhanced cost for the relevant assessment years. The orders of the learned CIT(A) allowing the assessee's claim were confirmed, and both appeals by the revenue were dismissed.
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2007 (7) TMI 356
Computation Of Undisclosed Income - search and seizure operations - incriminating documents and other evidences showing suppression of sales found - estimated the turnover for three earlier years of the block period - seized material related to 57 days only - Violation of the Principles of Natural Justice - Production and sale of Rawa from wheat - HELD THAT:- In the case under consideration, whatever undisclosed income on the basis of material is found at the time of search has been offered by the assessee in the return filed for the block period. It is also a fact that in the statement recorded it was admitted that such suppression of income was not there in earlier years. Thus, we find that the action of the AO is arbitrary and not based on material found at the time of search nor it is based on the statement recorded at the time of search. Such addition merely on the basis of arbitrary or notional income on the assumption that since there was suppression of turnover for the period 1st April, 2002 to 21st Jan., 2003 and therefore, by same proportion there was suppression of turnover/income for the earlier years and subsequent year/period, is not sustainable. There is no suppression of turnover or sales or unaccounted business of earlier years; there is no question of making any addition on account of investment for running the unaccounted business for earlier years/subsequent period to search.
We, therefore, delete the addition sustained by the CIT(A) on account of suppression of turnover and enhanced by the CIT(A) on account of capital employed for running the unaccounted business.
So far as the ground regarding net profit rate of 4 per cent is concerned, this ground becomes infructuous as we have held that there was no unaccounted turnover in earlier years. Therefore, the question of applying 4 per cent net profit rate does not arise. The assessee's appeal is allowed.
In the result, Appeal of the assessee is allowed, Appeal filed by the Revenue and CO No. filed by the assessee are dismissed.
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2007 (7) TMI 355
Issues Involved:
1. Legality of the penalty levied under section 158BFA(2) of the Income-tax Act.
2. Discretionary nature of the penalty under section 158BFA(2).
3. Requirement of furnishing evidence of tax paid along with the return.
4. Reasonable cause for delay in payment of tax.
Detailed Analysis:
1. Legality of the Penalty Levied under Section 158BFA(2) of the Income-tax Act:
The assessees challenged the penalty of Rs. 9,00,000 levied under section 158BFA(2) on the grounds that it was erroneous and contrary to law. The penalty was imposed because the tax was not paid on the income returned by the assessee. The Commissioner of Income-tax (Appeals) confirmed the penalty, stating that the use of the word "may" in the statute did not negate the mandatory nature of the penalty where tax was not paid on admitted undisclosed income.
2. Discretionary Nature of the Penalty under Section 158BFA(2):
The assessees argued that the penalty is discretionary and not mandatory, as indicated by the use of the word "may" in the statute. The Tribunal agreed, stating that the word "may" confers discretion on the Assessing Officer or the Commissioner of Income-tax (Appeals) to impose or not to impose the penalty based on the facts and circumstances of the case. The Tribunal cited several cases to support this interpretation, including Ramachandra Pesticides P. Ltd. v. CIT, Nemichand v. Asst. CIT, and Dhiraj Suri v. Addl. CIT.
3. Requirement of Furnishing Evidence of Tax Paid along with the Return:
The assessees contended that furnishing the challan in proof of payment of tax is not mandatory, drawing parallels with the non-furnishing of audit reports under other sections of the Income-tax Act. The Tribunal found that under section 158BC, there is no requirement to furnish evidence of tax payment along with the return for the block period. The Tribunal also noted that the return filed by the assessee was not found to be defective, as no notice under section 139(9) was issued.
4. Reasonable Cause for Delay in Payment of Tax:
The assessees argued that they were prevented by reasonable cause from paying the tax on time, as the primary source of income (dividends from Galada Power and Telecommunication Limited) was unavailable due to the company becoming sick. The tax was eventually paid after selling jewellery. The Tribunal accepted this explanation, noting that the Assessing Officer did not reject or find it false. The Tribunal emphasized that the intention of affording a hearing is to comply with principles of natural justice, and where reasonable cause is shown, penalty may not be levied.
Conclusion:
The Tribunal held that the appellants had shown reasonable cause for the delay in tax payment and that the penalty under section 158BFA(2) was discretionary. The Tribunal canceled the penalties imposed by the Assessing Officer and sustained by the Commissioner of Income-tax (Appeals), allowing the appeals filed by the assessees.
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2007 (7) TMI 354
Inaction on the part of the City & Industrial Development Corporation of Maharashtra Limited ('CIDCO') in not executing the agreement of lease with the appellant- company -
Held that:- Considering the nature of the controversy which is a recurring feature we direct that a committee be formed to sort out the differences between the Central Government and the State Government entities. The composition of such committee shall consist of the Cabinet Secretary of the Union;Chief Secretary & Chief Executive Officers of the concerned undertakings.
As the matter is pending since long, we direct that the Committee shall be constituted forthwith to take a decision within 4 months from the date of receipt of copy of this judgment.
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2007 (7) TMI 353
Issues involved: Determination of whether interest received by the assessee on staff loans is taxable as 'income from other sources'.
Summary:
The common issue in both appeals was whether the CIT(A) was justified in holding that interest received on staff loans is taxable as 'income from other sources'. The assessments were made under the IT Act for the years 1998-99 and 1999-2000. Initially, the interest income was held taxable under 'Income from other sources'. The Tribunal directed the AO to examine if the interest was incidental to the real estate development business. However, the AO taxed the interest again without a clear finding. The CIT(A) upheld this decision based on legal precedents. The Tribunal found that the interest on staff loans was incidental to the real estate development business and should be set off against capital expenditure. The appeals were allowed, granting relief to the assessee.
The Tribunal emphasized that the appeal was about implementing its order, not re-evaluating the merits. The AO failed to follow the Tribunal's direction to determine if the interest was incidental to the business. Since staff loans were given to employees working in real estate development, the interest earned was considered incidental to the business. The authorities' stand was deemed unsustainable, and the AO was directed to adjust the interest on staff loans against capital expenditure. Relief was granted to the assessee, and both appeals were allowed.
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2007 (7) TMI 352
Issues involved: Determination of whether the CIT(A) was justified in holding that the order regarding set off of accumulated losses and depreciation was a mistake apparent on record and whether the benefit should be granted in the assessment year 1995-96 or 1996-97.
Summary:
Issue 1 - Benefit of set off of accumulated losses and depreciation:
The appeal concerned the question of whether the CIT(A) was correct in determining that the order granting the benefit of set off of accumulated losses and depreciation to the assessee in the assessment year 1995-96 was a mistake apparent on record. The amalgamation between the assessee and Mica Trading Company Ltd. (MITCO) was approved by the Board for Industrial and Financial Reconstruction (BIFR), with the tax benefit restricted to Rs. 663.12 lakhs. The CIT(A) initially allowed the benefit in 1995-96 but later rectified the order based on a certificate from BIFR mentioning the assessment year as 1996-97. However, the ITAT Delhi-I found that the benefit should indeed have been granted in 1995-96 as per the provisions of section 72A(1) of the IT Act, which governs the set off and carry forward of losses and depreciation in cases of amalgamation. The ITAT held that the CIT(A) was mistaken in relying on the certificate from BIFR to determine the assessment year for granting the benefit, as the certificate was issued under a different provision and the relevant year was clearly 1995-96. Therefore, the rectification order by the CIT(A) was set aside, and the assessee was granted the relief accordingly.
Keywords and Phrases:
- CIT(A) order
- Accumulated losses and depreciation
- Mistake apparent on record
- Assessment year 1995-96
- Amalgamation with MITCO
- Board for Industrial and Financial Reconstruction (BIFR)
- Tax benefit restriction
- Section 72A of the IT Act
- Rectification proceedings
- Legal position
- ITAT Delhi-I decision
- Certificate from BIFR
- Section 154 rectifiable error
- Set off and carry forward provisions
- Rehabilitation or revival of business
- Typographical error
- Eligibility for benefit
- Harmonious interpretation
- Relief granted
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2007 (7) TMI 351
Allowable business expenses - Business income assessed at 'nil' - Abandoned business - HELD THAT:- As Dr. Gupta rightly contends, the assessee being an artificial juridical person, it needs to incur certain expenditure to keep itself afloat and have its continued existence. Unlike a natural person, a company can only operate through other natural persons-whether employees or others. It is not the case of the AO that the expenditure of the assessee company are excessive or unreasonable vis-a-vis its legitimate business requirements. The Hon'ble High Courts have consistently held that in the case of the corporate assessees such expenses have to be allowed as deduction irrespective of whether or not the assessee is engaged in active business and even if assessee has only passive incomes. The CIT(A) was, therefore, justified in his conclusions. That is, however, not the only reason why the disallowance made by the AO was unsustainable in law.
We agree with Dr. Gupta's second line of argument as well. We find that the whole cause of action of disallowance of expenses is in the background of AO's observation that the assessee did not carry out any business transactions which at best was AO's finding about an activity of business not being functional in the relevant previous year. In our opinion, not carrying on business activity in a particular period cannot be equate with closure of business as it takes an unsustainably narrow view of the scope of cessation of a business.
In the light of this legal position, it would follow that unless there is some material on record to show that the assessee has completely abandoned the share dealing business, merely because there are no business transactions in the relevant previous year cannot, be reason enough to come to the conclusion the business has come to an end. It could not thus be said; as was the case before in the case of L.VE. Vairavan Chettiar vs. CIT[1965 (4) TMI 6 - MADRAS HIGH COURT], that the assessee had "completely abandoned or closed the business forever". Unless the business is abandoned or closed and even if business is at a dormant stage waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction. For this reason also, the disallowance made by the AO was pot justified, and the CIT(A) rightly deleted the same.
Ground No. 1 is thus dismissed.
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2007 (7) TMI 350
Computation of capital gains u/s 48 - Determination of sale consideration - Applicability Of section 50C - CIT(A) adopted the sale consideration of property at value taken by the stamp valuation authority, as against the actual sale consideration by applying provisions of s. 50C of the Act - CIT(A) ought to have adopted the sale consideration of property as per the valuation done by the Departmental Valuation Officer (DVO) - HELD THAT:- It is an undisputed position that even as per the DVO, the fair market value of the property. In these circumstances, the full value of consideration, for the purposes of s. 48, cannot be taken at a figure higher than Rs. 11,42,100. The scheme of s. 50C(2) clearly mandates so. The action of the authorities below in ignoring the DVO's report cannot be justified at all. We are, therefore, of the considered view that in no case, the full value of consideration on transfer of the property, for the purposes of computing the capital gains u/s 48, can be taken at a figure higher than Rs. 11,42,100.
The DVO has simply adopted the average circle rate of residential and commercial area, on the ground that interior area of the locality, where the assessee's property is situated, is mixed developed area i.e. shops and offices on the ground floor and residence on the upper floors. When DVO's valuation required to compare the same with the valuation by the stamp valuation authority, it is futile to base such a report on the circle report itself. Such an approach will render exercise u/s 50C(2) a meaningless ritual and an empty formality. In our considered view, in such a case, the DVO's report should be based on consideration stated in the registration documents for comparable transactions, as also factors such as inputs from other sources about the market rates.
Therefore, we remit the matter to the file of the AO. The DVO will value the property de novo, in the light of our above observations, and in case the valuation so arrived at by the DVO is less than Rs. 11,42,100, the AO shall adopt the fresh valuation so done by the DVO for the purpose of computing capital gains u/s 48 of the Act. We direct so to.
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2007 (7) TMI 349
TDS u/s 194C - Works Contract Or Contract to Sale - supply of outsourced manufactured goods - Original Equipment Manufacturers (OEMs) - HELD THAT:- The dominant object underlying the arrangement is manufacture and sale by the OEM. Having carefully perused the agreements before us, we also find that the authorities below have proceeded on the erroneous assumption that goods rejected by the assessee cannot be sold by the OEMs. That is factually incorrect. The OEMs are free to dispose of the goods in whatever manner they deem fit but they are forbidden from affixing assessee's trademark on the same. That restriction is quite justified to protect the legitimate business interests of the assessee. The trademark can only be affixed in the case where the goods are purchased by the assessee, and rightly so, because the trademark belongs to the assessee and is to be used for his business purposes. Ld DR's argument that only off the shelf goods can be considered to be purchases and made to order goods is to be considered as works contract, is devoid of any merits sustainable in law.
In view of these discussions, and respectfully following the co-ordinate Benches in the case of ITO vs. Willmar Schwabe India (P) Ltd. [2005 (3) TMI 398 - ITAT DELHI-D], we hold that the supply of outsourced manufactured goods by the OEMs constitutes an outright sale and cannot be treated as a works contract within the scope of s. 194C. The impugned TDS demands raised on the assessee are thus indeed vitiated in law and not warranted by the facts of the case. These demands should, accordingly, be set aside. We order so.
In the result, the appeal is allowed.
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