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Showing 341 to 360 of 669 Records
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2008 (10) TMI 396
Professional fees and Drama receipts - Method of accounting - Rejection of accounts - CIT Sustained the addition received during the previous year relevant to the AY 2001-02 and also sustained the balance of the b/f advances, outstanding without appreciating the assessee’s method of accounting and the policy in respect of income recognition - Assessee follows Mercantile system of accounting and the income recognition in respect of advances received for professional fee is only when the film is either completed or released -
HELD THAT:- There is no dispute on the regularly employing of the method of accounting and, therefore, the same is irrelevant to this case. Regarding the completeness of accounts, it refers not only to the accounting entries for all the transactions done in the previous year but also to the list of books of account. Thus, the completeness refers to list of books of account and entries therein and the accuracy refers to the quality of the accounts of the assessee.
The scope of the provisions of section 145 conclusively establishes the fact that, what is important for rejection of books is the AO being not satisfied about the correctness or completeness of the accounts as specified in section 145(3) and it is not the question of assessee establishing the method applied is fit enough to deduce from the accounts the correct profits.
Therefore, we proceed to examine the fact, where the rejection was done merely without any finding on the ‘correctness or completeness’ of the books of account. In our opinion, the rejection the books of account u/s 145, while accepting the books as correct and complete, is an invalid assumption of jurisdiction by the AO. On merits, we find that the assessee has finally recognized the un-refunded advances as income of the assessee in the later years. Therefore, we are of the opinion that the order of the CIT(A) is set aside and the addition made by the AO are deleted. Above views are fortified by the Madras Bench decisions in the cases of S. Kamalahasan [1988 (2) TMI 128 - ITAT MADRAS-C]and S. Priyadarshan [2001 (7) TMI 298 - ITAT MADRAS-B]. Accordingly, the ground of the assessee in this regard is allowed.
Recognition of Income - AO has invoked the provisions of section 145 without jurisdiction and additions are made arbitrarily thrusting the cash system of accounting on the assessee with regard to the advances from the producers. Resultantly, the ground of the revenue is dismissed.
In the result, appeal of the assessee is allowed and appeal of the revenue is dismissed.
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2008 (10) TMI 395
Addition on Unexplained investments - statement on oath during survey u/s 133A - HELD THAT:- Though during the course of survey the director of the assessee-company admitted on oath that the unexplained investment on renovation was not included in the total income. The assessee explained that no renovation was actually carried on. Proof in this regard was also filed. An addition is sustainable provided expenditure has been incurred. Income is not computed on the basis of submissions of parties but on the basis of actual earning of income. The assessee has all along been claiming that it has not carried out any renovation, which requires any expenditure to be incurred. This fact should have been verified by the AO. Even after filing photographs in this regard the AO turned a blind eye to the ground reality and has sought to made addition merely on the basis of statement recorded during the course of survey.
Section 133A do not compel an assessee to give statement on oath. If the survey officials have recorded the statement on oath, it is an excessive exercise of power. Except the statement of a director of the assessee-company, there is no other material to make the addition.
However, when the assessee denies the fact of having made any investment and there is no other material except the statement of assessee that any investment has been made, no addition can be made u/s 69 without actually finding that investments are made. Since the basis of addition is statement of the assessee rather than actual investment having been made, we hold that provision of section 69 is not attracted in such a situation. We, therefore, delete the addition made u/s 69.
In the result, the appeal is allowed.
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2008 (10) TMI 394
Issues Involved:
1. Entitlement to depreciation allowance u/s 32 of the Income-tax Act.
2. Ownership of the building for the purpose of depreciation.
3. Alternative claim for depreciation on common areas.
Summary:
1. Entitlement to Depreciation Allowance u/s 32:
The primary issue in this appeal was whether the assessee was entitled to a depreciation allowance u/s 32 of the Income-tax Act for a building located at Bangalore Airport Road. The assessee claimed depreciation of Rs. 12,79,59,928, but the Assessing Officer (AO) denied it, stating that the property was technically owned by the shareholders who had an undivided right and interest in the property, not the assessee.
2. Ownership of the Building:
The CIT (Appeals) upheld the AO's decision, relying on Supreme Court judgments in R.B. Jodha Mal Kuthiala v. CIT, CIT v. Podar Cements (P.) Ltd., and Mysore Minerals Ltd. v. CIT. The CIT (Appeals) concluded that the assessee was not the real owner of the building, as it had only a shell of ownership without any rights incidental to ownership. The assessee was merely in charge of maintenance and did not derive any income from the building.
The Tribunal examined the documentation, including the Memorandum of Association, Articles of Association, and the scheme for allotment of units. It found that the shareholders had absolute and exclusive rights to use and enjoy the property and its income. The Tribunal noted that the assessee's role was limited to maintaining the superstructure and that the shareholders were the real owners of the units.
The Tribunal also referred to the Supreme Court's judgment in Mysore Minerals Ltd., which held that for the purpose of section 32, the owner is the person who has paid the price, taken possession, and uses the asset for business purposes. The Tribunal concluded that the shareholders, not the assessee, fulfilled these conditions.
3. Alternative Claim for Depreciation on Common Areas:
The assessee raised an alternative claim for depreciation on common areas of the building. The CIT (Appeals) denied this claim, stating that common areas were incidental to the allotted areas and could not be viewed separately. The Tribunal upheld this view, noting that the assessee had taken monies from the allottees for the use of common areas.
Conclusion:
The Tribunal dismissed the appeal, confirming that the assessee was not entitled to depreciation u/s 32 as it was not the real owner of the building. The alternative claim for depreciation on common areas was also rejected.
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2008 (10) TMI 393
Issues Involved:
1. Assumption of jurisdiction under section 147 of the Income-tax Act, 1961.
2. Disallowance of claim of deduction under section 80-IA of the Income-tax Act, 1961.
3. Validity of the reassessment proceedings.
4. Reliability of the book results declared by the assessee.
5. Bifurcation of income between business income and income from undisclosed sources.
6. Employment of the requisite number of workers for claiming deduction under section 80-IA.
Issue-wise Detailed Analysis:
1. Assumption of jurisdiction under section 147 of the Income-tax Act, 1961:
The primary grievance of the assessee was the assumption of jurisdiction under section 147 of the Act. The Tribunal examined whether the reasons recorded by the Assessing Officer (AO) constituted a valid cause to form a belief that income had escaped assessment. The AO's reasons were based on generalized observations without any material evidence. The Tribunal highlighted that the AO's belief must be based on relevant material and not mere suspicion. The AO's reasons, such as high profits and low expenses, were found to be unsupported by any material evidence. The Tribunal emphasized that "reason to believe" is a mandatory precondition for assuming jurisdiction under section 147, which was not satisfied in this case. Consequently, the initiation of proceedings was deemed arbitrary and without jurisdiction, leading to the quashing of the reassessment proceedings.
2. Disallowance of claim of deduction under section 80-IA of the Income-tax Act, 1961:
The AO disallowed the deduction under section 80-IA on the grounds that the assessee was primarily engaged in trading finished goods rather than manufacturing. The Tribunal analyzed the evidence presented by the assessee, including registration with various departments, excise duty payments, and maintenance of statutory records, which supported the claim of manufacturing activities. The AO's conclusions were found to be based on conjectures and surmises without any material evidence. The Tribunal held that the assessee was engaged in manufacturing emergency lights and met the conditions for claiming deduction under section 80-IA. The disallowance of the deduction was thus reversed.
3. Validity of the reassessment proceedings:
The Tribunal scrutinized the reasons recorded by the AO for initiating reassessment proceedings. It was found that the AO's reasons were based on assumptions and lacked tangible material. The Tribunal reiterated that reassessment proceedings cannot be initiated for conducting fishing and roving enquiries. The reasons recorded by the AO did not establish a rational connection or relevant bearing on the formation of the belief that income had escaped assessment. Therefore, the reassessment proceedings were deemed null and void.
4. Reliability of the book results declared by the assessee:
The AO rejected the book results declared by the assessee, bifurcating the income between business income and income from undisclosed sources. The Tribunal found that the AO did not record any specific defects in the books of accounts maintained by the assessee. The AO's conclusion that the profits declared were excessive was based on general assumptions without any evidence. The Tribunal held that the entire profits declared by the assessee were correct and supported by the books of accounts, reversing the AO's bifurcation of income.
5. Bifurcation of income between business income and income from undisclosed sources:
The AO bifurcated the income, attributing a portion to business income and the rest to undisclosed sources. The Tribunal found this bifurcation to be arbitrary and unsupported by any material evidence. The AO's adoption of a 7% profit rate was deemed unsustainable as it lacked any basis. The Tribunal concluded that the entire profits declared by the assessee were eligible for deduction under section 80-IA, rejecting the AO's bifurcation of income.
6. Employment of the requisite number of workers for claiming deduction under section 80-IA:
The AO contended that the assessee did not employ the requisite number of workers to qualify for the deduction under section 80-IA. The Tribunal found this contention to be factually incorrect and legally misplaced. The evidence presented by the assessee established that it employed the required number of workers and used power in its manufacturing process. The Tribunal held that the assessee met the conditions specified in section 80-IA(2)(iv) and was entitled to the deduction.
Conclusion:
The Tribunal allowed the appeals filed by the assessee, quashing the reassessment proceedings and reversing the disallowance of the deduction under section 80-IA. The Tribunal emphasized that the AO's conclusions were based on assumptions and lacked material evidence, thereby upholding the assessee's claims.
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2008 (10) TMI 392
Issues Involved:
1. Validity of notice u/s 148.
2. Re-opening of assessments.
3. Jurisdiction of Assessing Officer.
4. Bifurcation of interest expenses.
5. Claim of excessive loss.
Summary:
1. Validity of notice u/s 148:
The primary issue was whether the notice u/s 148 was issued without jurisdiction. The assessee contended that the notice was invalid as there was no "income chargeable to tax" that had escaped assessment. The Tribunal found that the Assessing Officer did not have "reason to believe" that any income had escaped assessment, as the bifurcation of interest expenses did not result in any excess claim or loss. Hence, the notices u/s 148 were deemed without jurisdiction and the assessments based on such notices were quashed.
2. Re-opening of assessments:
The assessments for the years 1994-95, 1995-96, and 1996-97 were re-opened based on the bifurcation of interest expenses between business income and income from other sources. The Tribunal noted that the original returns were processed u/s 143(1)(a) and the re-opening was not justified as there was no new fact or change in law. The re-opening was considered invalid as it was not based on any fresh material.
3. Jurisdiction of Assessing Officer:
The Tribunal examined whether the Assessing Officer had jurisdiction to issue the notice u/s 148. It was concluded that the Assessing Officer lacked jurisdiction as there was no relevant material to form a belief that income had escaped assessment. The Tribunal emphasized that the mere bifurcation of interest expenses did not constitute a valid reason for re-opening the assessments.
4. Bifurcation of interest expenses:
The Assessing Officer's reason for re-opening the assessments was the bifurcation of interest expenses between business income and income from other sources. The Tribunal found that this bifurcation did not affect the total loss declared by the assessee. Therefore, it could not be considered as a reason to believe that income had escaped assessment.
5. Claim of excessive loss:
The Department argued that the assessee had claimed excessive loss, which justified the re-opening of assessments. However, the Tribunal held that the loss remained the same before and after the bifurcation of interest expenses. Thus, there was no excessive loss claimed by the assessee, and the re-opening of assessments on this ground was invalid.
Conclusion:
The Tribunal quashed the assessments for the years 1994-95, 1995-96, and 1996-97, holding that the notices u/s 148 were issued without jurisdiction. Consequently, the other grounds raised by the assessee were rendered academic and were not addressed. The appeals for all the assessment years were allowed.
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2008 (10) TMI 391
Issues Involved:
1. Deletion of addition of Rs. 42 lakhs by CIT(A) treating non-compete fee as revenue receipts.
2. Determination of non-compete fee as capital receipt and its taxability.
3. Validity of the non-compete agreement and whether it was a sham agreement.
4. Consideration of the agreement's execution details such as dates and notarization.
Detailed Analysis:
1. Deletion of Addition of Rs. 42 Lakhs by CIT(A):
The revenue appealed against the CIT(A)'s order deleting the addition of Rs. 42 lakhs, which the Assessing Officer had treated as revenue receipts. The CIT(A) held that the non-compete fee received by the assessee was a capital receipt and not chargeable to tax. The CIT(A) found that the agreement clearly indicated that the assessee, having detailed financial, technical, and commercial knowledge of SIEL Ltd., was in a position to use this information detrimentally against SIEL Ltd. if employed by a competitor.
2. Determination of Non-Compete Fee as Capital Receipt:
The CIT(A) concluded that the non-compete fee was a capital receipt based on the terms of the agreement, which restricted the assessee from undertaking any employment or consultancy in competing businesses. The CIT(A) noted that the payment was made due to the assessee's potential to use his acquired knowledge against SIEL Ltd. The CIT(A) referenced the ITAT Chandigarh Bench's decision in ACIT v. Tarun Kumar Ghai, which held that compensation for restrictive covenants was a capital receipt not chargeable to tax.
3. Validity of the Non-Compete Agreement:
The CIT(A) determined that the Assessing Officer had not provided evidence to prove that the non-compete agreement was a sham. The CIT(A) emphasized that the agreement was executed due to genuine business concerns and threats from competition, and there was no indication that the payment was disguised as salary. The CIT(A) also highlighted that the amendment to tax such receipts under section 17(3)(iii) was effective from 1-4-2002, indicating that the non-compete fee in the assessment year 2001-02 was not taxable.
4. Consideration of Agreement's Execution Details:
The revenue argued that the agreement was unsigned, undated, and not notarized, suggesting it was a sham. However, the CIT(A) found these claims insufficient to disregard the agreement, as the necessity and rationale for the agreement were adequately explained by SIEL Ltd. The CIT(A) noted that the Assessing Officer did not disprove the agreement's contents or provide evidence of continued services by the assessee to SIEL Ltd. after termination.
Conclusion:
The Tribunal upheld the CIT(A)'s order, affirming that the non-compete fee was a capital receipt not chargeable to tax. The Tribunal referenced the ITAT Special Bench's decision in Saurabh Srivastava v. Dy. CIT, which supported the view that non-compete fees are not taxable under the head 'Salary' and are capital receipts. The Tribunal also cited the Delhi High Court's decision in Rohitasava Chand v. CIT, which held that non-compete fees impairing a source of income are capital receipts. Consequently, the appeal by the revenue was dismissed.
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2008 (10) TMI 390
Revision u/s 263 - Expenditure incurred on earning the tax free income - Disallowance of proportionate expenditure u/s 14A - order of the AO is erroneous and prejudicial to the interest of the revenue - Whether CIT has invoking the provisions of section 263 and thereby directing the AO to consider issue of disallowance of proportionate expenditure u/s 14A allegedly relating to the dividend income earned - HELD THAT:- As per the record, AO has categorically asked the assessee the break up of interest and dividend income. The assessee has also filed various details and also demonstrated before us the fact that dividend income was received through a single cheque and no extra expenditure was incurred for earning the same with regard to deployment of funds. Investment in shares was made in earlier years, sufficient own capital reserve was shown in the balance sheet out of which investment was made in the subsidiary company and it was submitted that no interest bearing funds were utilized for the same. A bare reading of provisions of section 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue.
Not only the incurring of expenditure but also its relationship with the exempted income must be clear and must be capable of being ascertained. There was no specific finding by the CIT to the effect that any particular expenses has been incurred for earning the exempted income, he only asked the AO to make inquiry and find out the proportionate expenses which can be disallowed u/s 14A.
While applying section 14A, there is no authority conferred by the section upon the AO to deem or assume certain expenditure to have been incurred in relation to the tax free income. Accordingly, common expenditure incurred cannot be broken artificially to attribute for apportioning a part thereof to the earning of the tax free income on the assumption that such part of the common expenditure was incurred in relation to the tax free income.
Therefore, we do not find any merit in the order passed by CIT u/s 263.
Appeal filed by the assessee is allowed.
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2008 (10) TMI 389
Issues Involved:
1. Invoking Explanation to Section 73 and calculating deemed speculative loss.
2. Reduction of brokerage income from deemed speculative losses.
3. Charging of interest u/s 234B.
Summary:
Issue 1: Invoking Explanation to Section 73 and calculating deemed speculative loss
The assessee, a share broker, incurred a loss of Rs. 45,74,931 from trading in shares on its own account. The Assessing Officer treated this loss as a deemed speculative loss by invoking the Explanation to section 73 of the Income-tax Act, 1961. The CIT (Appeals) upheld this decision, stating that the losses from share transactions are "deemed" speculation losses under section 73, irrespective of their non-speculative nature as per section 43(5). The Tribunal referred to the Explanation to section 73, which deems the business of purchase and sale of shares by certain companies as speculative for the purpose of section 73. The Tribunal also cited the Calcutta High Court's decision in CIT v. Arvind Investments Ltd. [1991] 192 ITR 365, which supported the view that losses from share dealings are speculative losses under the Explanation to section 73, even if the transactions are not speculative under section 43(5). Consequently, the Tribunal upheld the CIT (Appeals)'s order, confirming the deemed speculative loss.
Issue 2: Reduction of brokerage income from deemed speculative losses
The assessee claimed that the brokerage income of Rs. 3,45,914, earned from its own share transactions and included in the gross brokerage income, should be reduced from the deemed speculative losses. The CIT (Appeals) rejected this claim, noting that there was no evidence on record to show that the assessee had charged brokerage and commission from itself. The Tribunal restored this issue to the Assessing Officer for further examination and verification of the books of account and other relevant materials to ascertain the correct position. The Assessing Officer was directed to adjudicate this issue after providing an opportunity of being heard to the assessee.
Issue 3: Charging of interest u/s 234B
The issue of charging interest u/s 234B was also restored to the Assessing Officer for fresh adjudication. The Assessing Officer was instructed to consider the assessee's contentions and the relevant provisions of law, and to provide an opportunity of being heard to the assessee on this matter.
Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, with issues 2 and 3 being remanded to the Assessing Officer for further examination and adjudication.
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2008 (10) TMI 388
Issues involved: Appeal against the order of the Commissioner of Income-tax (Appeals) dated 8-6-2007 pertaining to the assessment year 2001-02. Main grounds of appeal include alleged gift from an NRI, addition of income from undisclosed sources, and allowance of expenditure without proper verification.
Ground No. 5 - Admission of Additional Evidence:
The revenue challenged the admission of additional evidence by the Commissioner of Income-tax (Appeals) under Rule 46A of Income-tax Rules, 1962. The Assessing Officer had made additions based on lack of evidence provided by the assessee. The Commissioner of Income-tax (Appeals) considered fresh evidence, including a sale deed and affidavit, which were not presented during the assessment proceedings. The Revenue contended that the admission of new evidence violated the rules governing such proceedings.
Ground Nos. 1-4 - Merits of Additions:
Three additions were made by the Assessing Officer, including a sum credited in the capital account, a gift from an NRI, and expenditure on mitti. The Commissioner of Income-tax (Appeals) deleted some of these additions based on new evidence submitted by the assessee, such as affidavits and documents supporting the transactions. However, the Tribunal set aside the Commissioner's order due to the improper admission of additional evidence, directing a fresh consideration of the merits of the additions.
The Tribunal found that the Commissioner of Income-tax (Appeals) did not provide reasons for admitting the additional evidence as required by Rule 46A. The Tribunal held that the new evidence was considered in violation of the rules, leading to the setting aside of the Commissioner's order. The appeal of the revenue was allowed for statistical purposes, and the issues were remanded back to the Commissioner of Income-tax (Appeals) for a fresh decision in accordance with the law.
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2008 (10) TMI 387
Deduction under section 80HHB of the Income-tax Act - assessee had executed certain contracts in the countries, viz., Oman and Qatar - foreign currency earned from the said project was partially used for repaying the loan taken in foreign currency in the foreign country for executing the said project – Held that:- Loan amount was paid in foreign currency is not disputed and even if the entire foreign currency was brought into India, the assessee would have been required to remit the foreign currency to discharge the loan taken in foreign currency for executing the project. Therefore, assessee is entitled to claim deduction under section 80HHB of the Income-tax Act
Exclusion of profit - profit earned in Oman – Held that:- Assessee has a permanent establishment at Oman and the assessee has been taxed in respect of the income earned from the said establishment under the provisions of the income tax law at Oman - in the light of article 7 of the Double Taxation Avoidance Agreement (DTAA) entered into by and between India and Oman - decision of the Tribunal in excluding the profit earned from the permanent establishment at Oman cannot be faulted.
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2008 (10) TMI 386
Issues Involved:
The judgment deals with the issue of whether repair expenses incurred by the assessee for business premises are capital or revenue expenditure u/s 32(1) and the interpretation of Explanation 1 to section 32(1).
Details of the Judgment:
Issue 1: Capital vs. Revenue Expenditure
The assessee, a proprietor of an institute, filed a return declaring income, which was assessed under section 143(3) with an increase due to disallowance of repair expenses. The Assessing Officer disallowed a portion of the repair expenses as capital expenditure under Explanation 1 to section 32(1), citing the right of occupancy held by the assessee. The CIT(A) deleted the addition, stating that the repairs were necessary for conducting business and did not create a new asset. The Tribunal upheld the CIT(A)'s decision, emphasizing that the expenditure was for business purposes and not capital in nature, hence allowable u/s 37(1).
Issue 2: Interpretation of Explanation 1 to section 32(1)
The revenue contended that the Explanation 1 to section 32(1) applied as the assessee held the right of occupancy, making the repair expenses capital in nature. The assessee argued that the agreement did not grant perpetual occupancy and relied on various judgments to support their case. The Tribunal analyzed the provisions of Explanation 1 and section 30(a)(i), concluding that capital expenditures are not deductible under section 30 and are eligible for depreciation under Explanation 1 to section 32(1). The Tribunal found the repair expenses to be revenue in nature, allowing the assessee's claim under section 37 of the Act.
In conclusion, the Tribunal dismissed the revenue's appeal, affirming that the repair expenses were revenue expenditure and not capital in nature, hence allowable under section 37 of the Income-tax Act.
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2008 (10) TMI 385
Issues Involved:
1. Classification of expenditure on leased premises as capital or revenue.
2. Taxability of interest income under "income from other sources."
3. Classification of software purchase expenditure.
4. Addition of provision for bad and doubtful debts to book profits under section 115JB.
5. Charging of interest under section 234B.
6. Validity of the assessment.
7. Deduction under section 10A for STP unit.
8. Charging of interest under section 234D.
9. Deduction of bad debts.
10. Treatment of customization of software expenditure.
11. Addition of provision for doubtful debts and advances to book profit under section 115JB.
12. Computation of profits under section 115JB for deduction under section 80HHE.
13. Withdrawal of interest granted under section 244A.
14. Levy of interest under section 234D.
15. Exclusion of provision for leave encashment in computing book profits under section 115JB.
Issue-wise Detailed Analysis:
1. Classification of expenditure on leased premises as capital or revenue:
The assessee claimed an expenditure of Rs. 2,05,08,030 on leasehold premises as revenue expenditure. The Assessing Officer and CIT(A) classified it as capital expenditure under Explanation 1 to section 32. The Tribunal remanded the issue to the Assessing Officer to determine if any structural alteration was made, which would classify the expenditure as capital.
2. Taxability of interest income under "income from other sources":
The Tribunal upheld the lower authorities' decision to tax interest income of Rs. 79,86,465 under "income from other sources," following the Delhi High Court decision in CIT v. Shriram Honda Power Equipments.
3. Classification of software purchase expenditure:
The Tribunal remanded the issue regarding the expenditure of Rs. 29,96,699 on software purchase to the Assessing Officer for re-adjudication in light of the Special Bench decision in Amway India Enterprises Ltd. v. Dy. CIT.
4. Addition of provision for bad and doubtful debts to book profits under section 115JB:
The Tribunal allowed the assessee's appeal, following the Delhi High Court decision in CIT v. Eicher Ltd., holding that no adjustment could be made to the book profit for provision for bad and doubtful debts.
5. Charging of interest under section 234B:
The Tribunal directed the Assessing Officer to recompute the interest after giving effect to its order, treating the ground as partly allowed for statistical purposes.
6. Validity of the assessment:
The Tribunal dismissed the ground as it was not pressed by the learned counsel.
7. Deduction under section 10A for STP unit:
The Tribunal upheld the CIT(A)'s decision allowing the deduction under section 10A, finding that the new unit set up in STP, Chennai, met all conditions under section 10A(2) and was separate from the existing unit.
8. Charging of interest under section 234D:
The Tribunal held that section 234D, inserted with effect from 1-6-2003, was not applicable to assessment year 2001-02, dismissing the revenue's ground.
9. Deduction of bad debts:
The Tribunal upheld the CIT(A)'s decision allowing the deduction of Rs. 3,14,90,305 for bad debts, noting that the amount was written off in the immediately preceding year and claimed in this year.
10. Treatment of customization of software expenditure:
The Tribunal restored the issue to the Assessing Officer for re-adjudication in light of the Special Bench decision in Amway India Enterprises Ltd. v. Dy. CIT.
11. Addition of provision for doubtful debts and advances to book profit under section 115JB:
The Tribunal allowed the assessee's grounds, following the Delhi High Court decision in CIT v. Eicher Ltd.
12. Computation of profits under section 115JB for deduction under section 80HHE:
The Tribunal held that the deduction under section 80HHE should be computed with reference to the book profits, following the Special Bench decision in Dy. CIT v. Syncome Formulations (I) Ltd.
13. Withdrawal of interest granted under section 244A:
The Tribunal dismissed the ground as it was not pressed by the learned counsel.
14. Levy of interest under section 234D:
The Tribunal deleted the interest, following the Special Bench decision in ITO v. Ekta Promoters (P.) Ltd., holding that interest under section 234D is chargeable for assessment year 2004-05 and onwards.
15. Exclusion of provision for leave encashment in computing book profits under section 115JB:
The Tribunal upheld the CIT(A)'s decision to exclude the provision for leave encashment, following the Supreme Court decision in Bharat Earth Movers Ltd. v. CIT.
Conclusion:
- ITA No. 2826 (Delhi)/2005 of the assessee is partly allowed.
- ITA No. 2694 (Delhi)/2005 of the revenue is dismissed.
- ITA No. 1721 (Delhi)/2006 of the assessee is partly allowed.
- ITA No. 1492 (Delhi)/2006 of the revenue is partly allowed.
- ITA No. 3398 (Delhi)/2006 of the assessee is allowed.
- ITA No. 1975 (Delhi)/2007 of the assessee is partly allowed.
- ITA No. 1944 (Delhi)/2007 of the revenue is dismissed.
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2008 (10) TMI 384
Deduction u/s 10A - Free trade zone - 100 per cent Export Orientated Unit - export turnover - no deduction can be allowed if the domestic sales exceed the prescribed percentage - assessee is contending that if the domestic sales exceed the prescribed percentage, then the deduction on domestic sales is to be allowed by restricting it to the extent of the twenty five per cent of the total sales - HELD THAT:- The cap has been provided on the profits derived from the domestic sales meriting inclusion in the deemed profits from the export of articles as restricted up to twenty five per cent of the total sales. To put it more simply, the profit from the domestic sales is deemed as profit from export of articles to the extent it does not exceed 25 per cent of total sales. If the ratio of domestic sales out of the total sales is more than 25 per cent then the profit from the domestic sales upto 25 per cent is to be deemed as profit derived from the export of eligible articles. We, therefore, dismiss the ground raised by the revenue and allow this part of the Ground No. 1 of the assessee’s appeal.
Therefore, we direct the AO to recompute the deduction u/s 10A by considering the export turnover as reduced by the local sale made to M/s. Neogem India Limited and to M/s. Shankar Jewels.
Profit from export of traded goods - whether eligible for deduction? - CIT(A) has not granted deduction to the assessee insofar as it relates to the profit from export of trading goods - HELD THAT:- Section 10A is akin to section 80HHC in some respects, as will be seen infra and the later section also provides for deduction in respect of profits from the export of the goods or merchandise manufactured by the assessee as well as from the export of trading goods.
Since the benefit has been granted to the profits and gains derived ‘from the export of’ eligible articles, without further restricting it to the articles manufactured by the assessee in its industrial undertaking, we are of the considered opinion that the ld CIT(A) was not justified in excluding the export of trading in goods from the qualifying exports.
Sale of finished goods to local parties - whether qualify as export?- Assessee made local sales of finished goods to TJEL, M/s. Neogem India Limited and Shankar Jewels - claimed deduction on this amount by treating it as part of exports - CIT(A) held that no deduction can be allowed on this part of the turnover - HELD THAT:- There is no indication in the section for treating the local sales as exports. It is trite law that unintended benefit cannot be granted by stretching the provision so far as to breach the prescription of the section itself. We cannot read what is not provided in the section.
No analogous provision has been inserted in section 10A. If the intention of the Legislature had been to provide deduction on the line argued by the ld. AR, then suitable stipulation had been made accordingly. In the absence of such provision, sub-section (3) of section 10A shall have full effect and resultantly domestic sales of finished goods cannot be equated with the exports save as otherwise provided in proviso, as discussed in I above.
We, therefore, reject this argument of the assessee.
Sales made to holding company without profit - whether qualfies for exclusion from export and total turnover?- Assessee claimed deduction on the total income - CIT(A) held that local sales of raw material as made by the assessee to its holding company to be included in the total turnover but not in the export turnover - HELD THAT:- It is admitted position that the assessee purchased the goods in its dominion by making the payment at his own. It has not been shown that the amount equal to the purchase price was obtained by the assessee in advance from the holding company. On making the purchase, the ownership in the goods vested in it. Transferring some part of the goods purchased by it to subsequently on invoice is an altogether different transaction.
We, therefore, hold that this amount merits inclusion in the total sales for the purposes of calculating the benefit of deduction u/s 10A.
Deduction u/s 10A - Foreign exchange gain - CIT(A) held that accrual of foreign exchange fluctuation gain on the opening balance of the debtors cannot be said to have been derived from eligible business of industrial undertaking u/s 10A - HELD THAT:- There is no logic in splitting the amount of export turnover into two parts, viz., the first part as relatable to the year one and the second part as relatable to the year two, more specifically, when a clear and unambiguous provision has been enshrined in this regard.
If that is the position that the foreign exchange fluctuation gain as relatable to the year one realized within six months after the close of the year or with in such further period as allowed by the competent authority is to be treated as part of the export turnover for the year one and not the year two, then logically such amount would also stand excluded from the income of year two and form part of the income of year one.
This view has been recently taken by the Special Bench of the Tribunal in the context of section 80HHC in the case of Asstt. CIT v. Prakash L. Shah [2008 (8) TMI 387 - ITAT BOMBAY-K].Therefore, we hold that assessee is not entitled to benefit of deduction u/s 10A with reference to foreign exchange gain . The income to this extent would also be excluded and would form part of the income of the preceding year and the deduction u/s 10A on this part will be eligible in the said preceding year. We order accordingly.
In the result, the appeal of the revenue is dismissed and that of the assessee is partly allowed for statistical purposes.
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2008 (10) TMI 383
Expenditure incurred in relation to income not includible in total income - scope of section 14A - dividend income earned by the assessee engaged in the business of dealing in shares and securities, on the shares held as stock-in-trade - Whether or not any disallowance of expenses is warranted u/s 14A, when the assessee is dealing in shares by way of purchase and sale and any dividend income, which is exempt u/s 10(33), is earned on the shares or other securities held by it as stock-in-trade - Judicial Member and Accountant Member are not consensus ad idem with Third Member - The case of the revenue is that the disallowance is necessary u/s 14A even when the shares are held as stock-in-trade. On the other hand, the view point of the assessee is that the main purpose of making investment in shares and securities is to hold them as stock-in-trade and earning profit on their trading, which income is otherwise taxable under the head ‘Profits and gains of business or profession’ (‘Business income’).
HELD THAT:- On perusal of the section 14A reveals that any expenditure incurred in relation to income not forming part of total income has to be disallowed. Thus, the scope of this section entirely depends upon the meaning of the expression ‘in relation to’ used by the Legislature in this section. Such expression has not been defined in the Act.
In the case of Ahmed G.H. Ariff v. CWT [1969 (8) TMI 4 - SUPREME COURT] held that: "It is well-settled that where the Legislature uses a legal term which has received judicial interpretation, the courts must assume that the term has been used in the sense in which it has been judicially interpreted."
In view of the above legal position, it is held that the expression ‘in relation to’ in section 14A of the Act must be understood in the same sense in which their Lordships of the Apex Court understood in the case of H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior [1970 (12) TMI 87 - SUPREME COURT].
Accordingly, the expression ‘in relation to’ would mean dominant and immediate connection. This means that disallowance of expenditure u/s 14A can be made only when there is dominant and immediate connection between the expenditure incurred and the income not forming part of the total income. As a necessary corollary, it would mean that disallowance cannot be made if the connection is not dominant and immediate but is merely incidental, ancillary or remote one. The contention of the revenue that the expression ‘in relation to’ would mean any and every relation except remote is, therefore, rejected.
The decision of the Hon’ble Supreme Court in the case of Doypack Systems (P.) Ltd. v. Union of India [1988 (2) TMI 61 - SUPREME COURT] has been relied on by the revenue for the proposition that the expression ‘in relation to’ would include direct as well as indirect connection. A perusal of this decision shows that it was rendered by Bench of two Judges without considering the decision of the Constitution Bench of Eleven Judges in the case of H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior (supra).
It is a settled rule of precedence that in case of any conflict of opinion between the views expressed by different Benches of a Court then the view taken by the Larger Bench would prevail since the Division Bench cannot enlarge the scope of the decision rendered by the Larger Bench. Therefore, in our opinion, the later decision cannot be applied to determine the scope of section 14A of the Act.
Nature of the connection between the expenditure incurred and the income earned by the assessee - If the expenditure is incurred with a view to earn the taxable income then it can be said that dominant and immediate connection exists between the expenditure incurred and the taxable income and consequently, no disallowance u/s 14A can be made even where some tax-free income is received incidentally. On the other hand, if the expenditure is incurred mainly with a view to earn the tax-free income then it can be said, that the dominant and immediate connection exists between the expenditure incurred and in the tax-free income and consequently disallowance u/s 14A can be made even though some taxable income may arise incidentally.
Disallowance can be made u/s 14A on proportionate basis in accordance with the provisions of sub-sections (2) and (3) of section 14A of the Act. At this stage, it may also be pointed out that section 14A was inserted with a view to overcome the effect of the decision of the Supreme Court in the case of Rajasthan State Warehousing Corpn.[2000 (2) TMI 5 - SUPREME COURT].
Disallowance u/s 14A, in the case of a dealer in shares - Generally, in our opinion, a dealer in shares does not acquire shares and securities to earn dividend income. The dominant and immediate object behind acquisition of shares is to earn profit on the sale of shares at the earliest point of time which is chargeable to tax under the Act. Sometimes, such person by chance may also get the dividend on the shares held by him as ‘stock-in-trade’. Since such dividend income is never intended at the time of purchase of shares, in our opinion, the connection between the expenditure incurred and the dividend income can be said to be incidental only since the dominant and immediate connection exists only between the expenditure incurred and profit on sale of shares.
In our considered opinion, the disallowance u/s 14A can be made in such cases in respect of expenditure incurred. However, onus would be heavy on the revenue to establish such connection because the settled legal proposition is that onus of proof lies on the person who invokes a particular provision or alleges that a fact exists. If AO wants to invoke the provisions of section 14A then onus would be on him to establish that there exists dominant and immediate connection between the expenditure incurred and the income not forming part of total income. On the other hand, where the assessee claims deduction u/s 36(1)(iii) or section 37, the onus would be on the assessee to prove that expenditure was for the purpose of the business. Once this onus is discharged, it would shift to the AO to establish that there exists dominant and immediate connection between expenditure incurred and income exempt from tax if section 14A is to be invoked by him. We hold accordingly.
Scope of sub-sections (2) and (3) of section 14A - We find that these are the procedural provisions for determining the disallowance of the expenditure in relation to income not forming part of the total income. These sub-sections provide the procedure for making disallowance u/s 14A.
Therefore, If the AO finds that there is dominant and immediate connection between the expenditure incurred and the income not forming part of the total income then only the provisions of sub-sections (2) and (3) would come into play and not otherwise. We hold accordingly.
Hence, it is held that in case of dealer in shares no disallowance u/s 14A of the Act can be made merely because some dividend is received incidentally unless it is established that there was dominant and immediate connection between the acquisition of shares and the earning of dividend income.
In the case of Daga Capital Management Pvt. Ltd., we find that assessee was engaged in the business of purchase and sale of shares and securities which is also apparent from the fact that AO himself has accepted the loss incurred in dealing of shares and securities. There is nothing on record to suggest that there was any dominant and immediate connection between the borrowed funds for acquisition of funds and the dividend earned by the assessee. The onus which lies on the AO to prove such connection has not been discharged and consequently, we do not find any infirmity in the order of the ld CIT(A) deleting the disallowance made by the AO.
In Case of Cheminvest Limited and Maxopp Investments Limited - In the case of investment companies, the main purpose of investment is to earn the maximum dividend income. There is no other motive or intention in case of investment companies. Therefore, we are of the view that there did not exist any dominant and immediate connection between the interest paid and the taxable income. In fact, such connection existed between interest paid and the dividend income since the only motive/object was to earn the dividend income as is apparent from the amount of dividend received. Therefore, in our view, the disallowance under section 14A was justified. The orders of the ld CIT(A) in both the cases are therefore upheld.
In the result, the appeal of the revenue in the case of M/s. Daga Capital Management (P.) Ltd. and the appeals of M/s. Maxopp Investments Ltd. and M/s. Cheminvest Ltd. are dismissed.
Two Members Decision - Ld AM and Ld JM - We observe that the disallowance is contemplated in respect of expenditure incurred by the assessee in relation to the income which does not form part of the total income under this Act. When the language of section is clear and does not admit of any doubt whatsoever, we are bound to interpret it literally.
It is trite law that so long as there is no ambiguity in the statutory language, resort to in interpretive process to unfold the Legislative intent becomes impermissible. Taxing statute has to be strictly construed and nothing can be read in it as has been held by the Hon’ble Supreme Court in several cases including Federation of Andhra Pradesh Chambers of Commerce & Industry v. State of Andhra Pradesh [2000 (8) TMI 78 - SUPREME COURT]. In Padmasundara Rao v. State of Tamil Nadu [2002 (3) TMI 44 - SUPREME COURT] also it was held that ‘while interpreting a statute legislative intention must be found in the words used by the Legislature itself; legislative casus omissus cannot be supplied interpretative process except in case of clear necessity and when reason for it is found in the four corners of the statute itself’.
We note that sub-section (1) of section 14A provides in unequivocal terms for not allowing deduction in respect of expenditure incurred by the assessee in relation to exempt income and sub-section (2) lays down the mechanism for determining such amount of expenditure incurred in relation to the exempt income in accordance with the method as prescribed under rule 8D. There is hardly anything to infer, that the Legislature intended to immune the expenditure in relation to incidental exempt income from the operation of section 14A. There is no exception for not considering any income which is exempt from tax, be it the main or incidental. We, therefore, jettison this argument.
We hold that the provisions of section 14A of the Act are applicable with respect of dividend income earned by the assessee engaged in the business of dealing with shares and securities, on the shares held as stock-in-trade when earning of such dividend income is incidental to the trading in shares. We, therefore, answer the question posed to us in affirmative. As we have held that sub-sections (2) and (3) of section 14A are retrospective in nature and the resultant rule 8D would also fall on the same line, then the disallowance u/s 14A is required to be computed with reference to the mandate of these provisions. We, therefore, set aside the impugned orders in all the cases before us and remit the matter to the file of the AO's for computing the disallowance in terms of section 14A r/w rule 8D.
In the result, all the appeals are allowed for statistical purposes, by majority view.
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2008 (10) TMI 382
Stay petitions - valuation of imported consignments - appellant undervalued the consignments by declaring the value as 1$ PMT as against 3-5 $ PMT and that sold the imported goods in the local market at prices ranging from Rs. 210 to Rs. 230 per meter whereas the sale value was shown as Rs. 80 to Rs. 115, that they manipulated accounts to hide their sales transactions; their local sales invoices indicated quantity strangely - import value and the sale value have not been fully and correctly reflected in their invoices/book of accounts, and there have been collection in cash amounts in excess of invoices, their books are not at all reliable as indicator of their actual financial positions, appellant companies have not made out a case for total waiver of duties demanded from them, there is no justification for total waiver of penalties imposed
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2008 (10) TMI 380
Duty - major part of the manufactured excisable goods were cleared on payment of duty - A small part was cleared without payment of duty - said clearance was covered under Notification No. 19/97-C.E., dated 1-3-1997, which exempts payment of excise duty in respect of the goods cleared - For the provisions of Rule 57CC(1) to apply, there should be one final product which is dutiable and another final product which is exempted from payment of duty or chargeable to “Nil” rate of duty - Revenue not allowed to say that a part of the quantity of manufactured and removed from the factory, was one final product and the remaining quantity of the same final product was another final product for the purpose of levying excise duty, no merit in the civil miscellaneous appeal and the same is dismissed
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2008 (10) TMI 378
Fraudulent Drawback and DEPB claims - Assessee mis-declaring the goods being exported in the name of various companies owned/controlled by him, the officers of DRI, detained and examined export containers declared to contain ‘Gear cutting tools made of high speed steel’, ‘heat resistant rubber tension tape’ and ‘Track wheel’. These containers had already been cleared by the Customs officers and were on way for shipment - goods actually exported were different from the goods from which the samples had been drawn and this indicated collusion between the Exporter and the Customs officers - SCN issued to the exporters for confiscation of the seized goods, disallowing the drawback & DEPB benefit and imposition of penalty under Section 114 of the Customs Act - records were maintained to justify export by making false entries in the Central Excise records like RG-1 register - Raw material purchased from certain firms which, were found to be non-existent - consignees were non-existent and fictitious - Held that:- goods, in question, had been grossly misdeclared in terms description, quality and value with intention to claim drawback and since their actual value was much less than the amount of drawback claimed, no drawback was admissible and the penalty has been rightly imposed. Confiscation of goods exported - Commissioner in the impugned order has observed that since the goods have already been exported, the same are not liable for confiscation and accordingly he has not imposed any redemption fine in lieu of confiscation under Section 125 of Customs Act. - Appeal by revenue - Authorization by committee of chief commissioners - held that:- It is only in the Finance Act, 2008 that a specific provision was made for reference to the Board in case of disagreement between the two Chief Commissioner’s of the Committee of Chief Commissioners, on the question of legality and proprietary of the Commissioner’s order, but this provision cannot be given retrospective effect. In view of this, the three appeals of the Revenue have to be dismissed, as the same are not backed by a valid review authorisation.
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2008 (10) TMI 376
Addition on the basis of Report by TPO - Arm length price - section 92CA(3)- The grievance of the petitioner against that order,is that the show-cause notice was issued to the petitioner on 21-2-2008 - The petitioner filed his reply by 29-2-2008., but in the reply it was stated that due to short time that has been allowed for filing reply, the petitioner could not place all the documents on which the petitioner wish to rely upon and could not submit his complete reply - Held that: - The submission made on behalf of the respondents that the petitioner at the rehearing of the matter should not be given an opportunity to file additional reply, wherein he may change his stand or take alternate stand or file additional reply, has no substance because on the final order being set aside the matter becomes at large and, therefore, in our opinion it will be in the interest of natural justice that the petitioner should be given an opportunity to file additional reply and raise contentions that may be available to him in law - The order dated 7-3-2008 impugned in this petition is set aside - Decided in favour of assessee.
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2008 (10) TMI 373
Exemption from payment of customs duty - import of marble amongst other commodities from Sri Lanka under the treaty – Denial of exemption - object which specified in the affidavit defeats both the notification issued under the Customs Tariff Act, as also the provisions of the India-Sri Lanka Treaty and, therefore, it cannot be said that the purpose of issuing the notification is legitimate and, therefore, it cannot be said that the notification impugned in the present petition has been issued in public interest, because what is opposed to law cannot be said to be in public interest - petition succeed
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2008 (10) TMI 371
Income from business or property - rental income from warehouses - derived by the appellant from procurement of wheat and paddy as agent of Food Corporation of India/Government is exempt under sec-tion 10(29) of the Act - common expenses incurred by the appellant - Held that: - letting out of premises and of rent was a part of business, the income will be business income - In present case the income is business income - appeal is dismissed
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