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Showing 341 to 360 of 514 Records
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2005 (11) TMI 178
Interest On Borrowed Capital - Treatment of expenditure "Capital Or Revenue" - interest paid on borrowings for acquisition of shares can be allowed as deduction u/s 36(1)(iii)? - HELD THAT:- Admittedly 'Trumac' was a joint venture of assessee and Mafatlal Group of companies. In its reply to show-cause notice, the assessee had stated that promoters of assessee-company as well as of Mafatlal group had good business relationships having close association with Indian Textile Industry. This fact has not been disputed by the revenue at any stage. It is because of these facts, the Chairman of assessee-company was on the Board of Trumac' as non-executive Chairman and could get sole-selling agency for the distribution of the products manufactured by Trumac. Since it was main source of income, it was natural for a prudent man to safeguard its business interest.
Therefore, if the assessee decided to increase its holding in 'Trumac', in our opinion, the assessee was guided by business consideration to safeguard its selling agency. If shares are purchased by outsiders then there is possibility that outsider may jeopardize the business interest of assessee-company. Therefore, in our opinion, act of borrowing money for the acquisition of shares was closely connected with or incidental to the carrying on of the business. Consequently, the conditions of allowing deduction u/s 36(1)(iii) stood satisfied.
Thus, we hold that the assessee is entitled to claim the deduction not only u/s 36(1)(iii) but also u/s 37 of the Act, 1961 to the extent interest is attributable to the amount borrowed and utilized for acquisition of share of 'Trumac'. However, the interest on money borrowed utilized for acquisition of shares of other companies would be deductible u/s 57(iii) against the dividend income. Accordingly, we set aside the order of the CIT(A) and direct the Assessing Officer to allow deduction u/s 36(1)(iii)/37 of the Act and consequently allow the deduction u/s 80M with reference to gross dividend income received against the shares of Trumac' and net dividend income received against the shares of other companies.
In the result, appeal is partly allowed.
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2005 (11) TMI 177
Issues Involved:
1. Justification of the deletion of the penalty levied under section 158BFA of the Income-tax Act, 1961.
Detailed Analysis:
1. Justification of the deletion of the penalty levied under section 158BFA of the Income-tax Act, 1961:
Facts of the Case:
The premises and lockers of the deceased assessee were searched under section 132 of the Income-tax Act on 9-2-1999. The legal heir was issued notices under section 158BC, and initially, no income was declared in the return. However, a revised return was later filed disclosing undisclosed income of Rs. 5,82,439. The Assessing Officer treated the revised return as non est but completed the assessment on the disclosed income.
Penalty Proceedings:
The Assessing Officer initiated penalty proceedings under section 158BFA and levied a penalty of Rs. 3,49,460. The legal heir contended that the revised return was filed voluntarily upon discovering errors in the original return and requested leniency. The Assessing Officer, however, was not satisfied with this explanation and imposed the penalty.
Appeal to CIT (Appeals):
The CIT (Appeals) deleted the penalty, observing that:
- The legal heir, a housewife, was unaware of the deceased's financial transactions.
- No incriminating material was found during the search.
- The revised return was filed immediately upon discovering the omitted income.
- The Assessing Officer did not independently find any unaccounted income.
- There was no mens rea (guilty mind) on the part of the legal heir.
Revenue's Appeal to the Tribunal:
The Revenue argued that mens rea was not required under section 158BFA(2) and that the penalty was automatic if the assessed income exceeded the returned income. The Department contended that the revised return was non est and the penalty was justified.
Tribunal's Analysis:
The Tribunal considered several principles regarding the levy of penalty:
- Penalty proceedings are quasi-criminal and distinct from assessment proceedings.
- The principle of natural justice mandates a reasonable opportunity of being heard.
- The levy of penalty is discretionary and should be exercised judiciously based on the facts and circumstances.
- The Tribunal referred to the Supreme Court's judgment in Hindustan Steels Ltd. v. State of Orissa, which emphasized that penalty should not be imposed for technical or venial breaches and should consider all relevant circumstances.
Section 158BFA Provisions:
The Tribunal noted that section 158BFA(2) uses "may" for the levy of penalty, indicating discretion, and "shall" for the quantum of penalty, indicating obligation. Section 158BFA(3) requires providing a reasonable opportunity to the assessee before imposing a penalty.
Conclusion:
The Tribunal concluded that the levy of penalty is not automatic and must consider the bona fides of the assessee. In this case, the legal heir acted in good faith, and no incriminating material was found during the search. The revised return was filed voluntarily upon discovering the omitted income. The Tribunal held that the Assessing Officer should have exercised discretion in favor of the assessee and that technicalities should not hinder justice. The Tribunal also noted that the capital gain was not assessable as "undisclosed income" under section 158BB/158BC since no incriminating material was found.
Final Decision:
The Tribunal upheld the CIT (Appeals) order deleting the penalty, emphasizing the bona fides of the legal heir and the absence of incriminating material. The appeal of the Revenue was dismissed.
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2005 (11) TMI 176
Claimed inter-head set off of business loss against income from other sources as permissible u/s. 71 - exemption u/s 10B - HELD THAT:- Admittedly, in this case, there was loss in the unit eligible for deduction u/s. 10B. The business income of such unit is computed at Rs. 13,40,575 whereas the loss itself is Rs. 4,26,73,854. Thus, the business income can be computed only after set off of business loss against the business income in the same year as per provisions of s. 70 of the Act. Similarly, after setting off of the business loss against the business income, there is still a loss and such loss has to be set off against income from other sources in the same year as per the provisions of s. 71 of the Act.
The decision of the Tribunal in the case of Navin Bharat Industries Ltd.[2004 (3) TMI 318 - ITAT BOMBAY-E] also supports our view that the income of unit eligible for deduction u/s 10B is merely a deduction from income and not exemption. Accordingly, the assessee is eligible to set off the loss of such unit under ss. 70 and 71 of the Act. The AO is accordingly directed to set off the loss and compute the income.
In the result, the appeal is allowed.
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2005 (11) TMI 175
Block Assessment - additions by way of income from chit business - whether the assessee can claim income of Rs. 4 lakhs as exempt on the principle of mutuality?- HELD THAT:- In the present case, it is seen that various persons contributing (to) the chits are availing the combined contributed sum for a lesser sum called chit and the surplus arising is distributed amongst the chit contributors. Thus, the contributors to the common fund and the participators in the surplus are same persons. Hence, the principles of mutuality are squarely applicable. Applying the ratio laid down by Hon'ble Supreme Court in the case of Bankipur Club Ltd. [1997 (5) TMI 392 - SUPREME COURT] as well as the Andhra Pradesh High Court in the case of Nataraj Finance[1987 (8) TMI 76 - ANDHRA PRADESH HIGH COURT], the income is not to be taxed but is to be exempted as the profit is made from oneself and not from others.
AO as well as learned CIT(A) has taxed the sum of Rs. 4 lakhs merely because the assessee agreed for the same. It is settled law that there cannot be any concession against the provision of law. Even though the assessee admitted but is able to demonstrate that the income admitted is either not his income or that such amount is not chargeable to tax, the same cannot be brought to tax merely on admission.
Thus, we hold that though the assessee admitted the income of Rs. 4 lakhs, yet it is clear that the income is not chargeable in view of the principle of mutuality and hence to be taken out of the purview of chargeable income under the Act. We accordingly delete the addition of Rs. 4 lakhs.
Block Assessment - The income for the period 1990-91 to 1999-2000 as recorded in the books of account is Rs. 3,94,302. Similarly, the additional sales as per seized document and the profit from such additional sales is Rs. 1,09,110. The total of these two gives the figure of Rs. 5,03,412. The AO has not found such computation incorrect. It is settled law that undisclosed income can be computed only on the basis of material found as a result of search. We accordingly direct the AO to restrict the profit as proprietor of M/s Kusboo Enterprises to a sum of Rs. 5,03,412 instead of the sum of Rs. 6lakhs adopted.
In the result, the appeal is partly allowed.
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2005 (11) TMI 174
Issues Involved:
1. Compliance with Section 249(4)(a) of the Income-tax Act, 1961.
2. Levy of interest under Sections 234A, 234B, and 234C.
3. Validity of prima facie adjustments under Section 143(1)(a) after the issuance of notice under Section 143(2).
4. Delay in filing appeals and condonation of delay.
Issue-wise Detailed Analysis:
1. Compliance with Section 249(4)(a) of the Income-tax Act, 1961:
The assessee's appeals were initially dismissed by the CIT(A) for non-compliance with Section 249(4)(a), which mandates that no appeal shall be admitted unless the tax due on the income returned is paid at the time of filing the appeal. The CIT(A) interpreted that the payment made by the assessee was first to be adjusted against the interest payable, leading to a shortfall in the tax payment on the returned income. However, the Tribunal held that Section 249(4)(a) requires the payment of tax on returned income, not interest under Sections 234A, 234B, and 234C. The Tribunal emphasized that the provisions of taxing statutes require strict interpretation and that the CIT(A)'s reference to Section 140A and its Explanation was incorrect. The Tribunal concluded that the assessee had complied with the requirement of Section 249(4)(a) by the time of filing the appeals, thus setting aside the CIT(A)'s orders on this ground.
2. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee contended that the interest under Sections 234A, 234B, and 234C should not be levied as the liability to tax arose due to the Supreme Court judgment in the case of Ch. Atchaiah, delivered on 11th December 1995, which held that the income of the AOP was taxable in the hands of the AOP and not the individual members. The assessee argued that the delay in filing returns and payment of tax was due to the inaction of the Assessing Officer in adjusting the payments made by individual members against the demand of the AOP. The Tribunal did not record specific findings on the merits of this issue due to the dismissal of the appeals on the ground of delay.
3. Validity of Prima Facie Adjustments under Section 143(1)(a) after Issuance of Notice under Section 143(2):
The assessee argued that the prima facie adjustments under Section 143(1)(a) made on 12th October 1999 were illegal and void ab initio as they were made after the issuance of notice under Section 143(2) on 8th January 1999. The Tribunal did not provide specific findings on this issue as the appeals were dismissed on the ground of delay.
4. Delay in Filing Appeals and Condonation of Delay:
The assessee's appeals were dismissed by the CIT(A) for being filed late. The Tribunal noted that the appeals against the processing of returns under Section 143(1)(a) were dismissed by the CIT(A) on 15th March 2000, and the appeals against the assessments completed under Section 143(3) were dismissed on 1st August 2000. The Tribunal observed that the assessee did not file appeals immediately after the adjustments of demand by the Assessing Officer in March 2000, leading to a delay of more than six months. The Tribunal held that there was no valid explanation for the delay and upheld the CIT(A)'s decision to dismiss the appeals on this ground. The Tribunal referenced several judicial pronouncements to support its decision, emphasizing that sufficient cause must be shown for the delay, which was not done in this case.
Conclusion:
The Tribunal partly allowed the appeals, setting aside the CIT(A)'s orders on the ground of non-compliance with Section 249(4)(a) but upheld the dismissal of the appeals due to the delay in filing. The Tribunal did not record specific findings on the merits of the issues related to the levy of interest under Sections 234A, 234B, and 234C, and the validity of prima facie adjustments under Section 143(1)(a) due to the dismissal of the appeals on the ground of delay.
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2005 (11) TMI 173
Cash credits - Income Escaping Assessment - Validity of notice issued u/s 148 - time barred - Whether, the re-assessment proceedings intimated by the Assessing Officer and confirmed by the CIT(A) are valid? - HELD THAT:- In the present appeals, we are concerned with the unamended provisions. The relevant provision of clause (a) of section 147 empowers the Assessing Officer to assess or reassess any income, where he has reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, any income chargeable to tax has escaped assessment. It shows that proceeding u/s 147(a) read with section 148 can be initiated if two conditions are specified, namely, (i) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly material facts necessary for his assessment for that year or to make a return u/s 139 for the assessment year to the Assessing Officer. Both the conditions should be cumulatively satisfied to confer jurisdiction to the Assessing Officer to initiate the proceedings. So long as the disclosure made by the assessee is full and true of all the material facts, the intention of the assessee cannot be questioned. If however, the subsequent events, after completion of the assessment, belie the claim of the assessee made at the assessment stage, it cannot be said that the disclosure earlier made was full and true.
On consideration of the facts, we are of the view that Assessing Officer did not validly assumed jurisdiction in initiating proceedings u/s 147 of the Income-tax Act. Considering the discussion and relying on earlier order of ITAT Amritsar Special Bench in case of Assam Tea Co.[2004 (1) TMI 296 - ITAT AMRITSAR], we are of the view that cases of assessees are squarely covered by order of Special Bench in case of Assam Tea Co. therefore, initiation of the reassessment proceedings are not in accordance with law. We, accordingly, quash the same. We, therefore, answer the first question in negative i.e., in favour of the assessee and against the Revenue. Since question No. 1 is decided in favour of the assessee, therefore, there is no need to decide question No. 2 on merits as it is of academic interest only.
No other point is argued or pressed nor there is any need to go in those points in view of our above finding. As a result, we cancel the orders of the authorities below and allow all the appeals of the assessee.
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2005 (11) TMI 172
Income From Undisclosed Sources - HELD THAT:- The admitted facts of the case are that purchases were recorded in the regular books of account maintained. The purchases are supported by proper bills/vouchers. The assessee filed the necessary details regarding name, address, sales-tax number. The payments were made through banking channels. Thus, the sale against the purchases are not doubted. It is not the case of AO that amounts paid for purchases had come back to the assessee. We noticed that the AO had made addition merely on the ground that the suppliers are not located and they were not produced for examination. After considering the facts of the case we are of the view that when purchases are supported with authenticated purchase bills, having sales-tax numbers and payment through cheques, the addition cannot be made u/s 69 or 69A as in this section.
Thus, we are of the considered view that the addition is not warranted. We accordingly delete the addition. In the result, the appeal is partly allowed.
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2005 (11) TMI 171
Exemption u/s 10B - deletion of addition on account of interest to GSFC - 100% export oriented undertaking (EOU) - non-satisfaction of the prerequisite conditions - HELD THAT:- In the instant case, it is not disputed that the assessee's produce stands sold to another EOU against relevant declaration in Form CT3, sample of which stands also adduced as an exhibit at paper book p. 39. As such, we do not find any merit in this objection of the Revenue.
The undertaking, it may be appreciated, stands recognized as an EOU, and thus subject to its qualifying criteria, as well as those stipulated under the Act, only of and from the date on which it stands recognized as such. The assessee may, in a given case, export 100 per cent of its bought out goods, but that would not entitle it for exemption u/s 10B; the export to be reckoned for the purpose being only in respect of goods manufactured/produced by it. Therefore, as long as the profits from the trading activity are not considered for deduction u/s 10B, we do not consider any adverse inference as enuring to the assessee on account of the same. This disqualification is, again, therefore, superfluous.
We fail to understand as to how this inference stands drawn in the facts and circumstances of the present case; there being no splitting-up or reconstruction involved or adverted to by the AO himself. The condition apparently is only to prevent claims where an undertaking is formed through a division, reconstruction, and the like, of the resources already in existence, while in the present case the ownership, management and control of the assets of business continued to vest in the same assessee, both prior to and subsequent to its being accorded approval. Rather, the CBDT circular, adverted to earlier, clarifies this matter, if at all one was required, beyond any doubt. And the fact that the exemption period stands curtailed in respect of such units, to the balance unexpired portion of the eligible period, only ensures that no undue advantage is availed by the existing units, which would otherwise qualify for exemption, though only at or with reference to a future date, and not from the first day of their operations.
Thus, we find that none of the debilitating defects in the assessee's claim u/s 10B as pointed out by the Revenue survive and hence, there is no infirmity in the order of the learned CIT(A), which is hereby upheld.
In the result, the appeals are dismissed.
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2005 (11) TMI 170
Issues Involved:
1. Adjustment under Section 143(1)(a) and additional tax under Section 143(1A).
2. Trading addition of Rs. 7,29,378.
3. Disallowance of secret commission of Rs. 1,19,895.
4. Disallowance of commission paid to M/s. Mahavir Fabrics (P.) Ltd. and Shri Suresh Jain.
5. Disallowance of deposit in the names of children of the partner.
6. Disallowance of printing expenses.
7. Disallowance of bad debts.
8. Disallowance of vehicle expenses and depreciation.
9. Disallowance of rent.
10. Disallowance under Section 37(2A).
11. Levy of interest under Sections 234A and 234B.
Detailed Analysis:
1. Adjustment under Section 143(1)(a) and Additional Tax under Section 143(1A):
The assessee filed a return showing total income of Rs. 3,52,306. The Assessing Officer made an adjustment of Rs. 1,30,815 for bad debts and charged additional tax under Section 143(1A). The CIT(A) upheld this action. The Tribunal noted the retrospective amendment to Section 36(1)(vii) by the Finance Act, 2001, effective from 1-4-1989, which disallowed provisions for bad and doubtful debts. The Supreme Court's decision in CIT v. Hindustan Electro Graphites Ltd. was cited, stating that additional tax could not be charged based on subsequent amendments. The Tribunal held that no additional tax under Section 143(1A) should be charged, partly allowing the appeal.
2. Trading Addition of Rs. 7,29,378:
The assessee, a trading firm, disclosed a lower GP rate of 8.01% compared to 11.87% in the previous year. The Assessing Officer rejected the books of account due to discrepancies and adopted a higher GP rate, making an addition of Rs. 7,29,378. The CIT(A) sustained this addition. The Tribunal found that the assessee maintained complete quantitative stock details and provided a reasonable explanation for the lower GP rate, including increased discounts and turnover. The Tribunal deleted the trading addition, allowing the appeal.
3. Disallowance of Secret Commission of Rs. 1,19,895:
The assessee could not provide details of secret commission payments, claiming business expediency. The Assessing Officer and CIT(A) disallowed the commission, citing the Supreme Court's decision in French Dyes & Chemicals India (P.) Ltd. The Tribunal upheld the disallowance, referencing a similar Tribunal decision and the Explanation to Section 37(1), which considers both genuineness and legality of payments.
4. Disallowance of Commission Paid to M/s. Mahavir Fabrics (P.) Ltd. and Shri Suresh Jain:
The Assessing Officer disallowed commissions paid to these parties, questioning their genuineness. The CIT(A) upheld the disallowance. The Tribunal found that the Assessing Officer recorded statements at the back of the assessee, violating natural justice principles. The Tribunal remitted the issue back to the Assessing Officer for fresh adjudication, allowing the assessee to rebut the evidence.
5. Disallowance of Deposit in the Names of Children of the Partner:
The ground was not pressed by the assessee and was dismissed.
6. Disallowance of Printing Expenses:
The Assessing Officer treated Rs. 22,320 spent on printing and stationery as capital expenditure. The Tribunal agreed with the assessee that these were revenue expenses for printing sales bills and deleted the disallowance.
7. Disallowance of Bad Debts:
The Tribunal upheld the disallowance of Rs. 1,30,815 for bad debts, citing the retrospective amendment to Section 36(1)(vii), which requires debts to be written off in the debtor's account.
8. Disallowance of Vehicle Expenses and Depreciation:
The Tribunal deleted the disallowance of Rs. 2,942 for vehicle expenses and Rs. 1,409 for depreciation, considering the small amounts relative to the business turnover.
9. Disallowance of Rent:
The ground was not pressed by the assessee and was dismissed.
10. Disallowance under Section 37(2A):
The Assessing Officer disallowed Rs. 20,000 out of Rs. 61,631 for office expenses, treating them as entertainment expenses. The Tribunal found the disallowance excessive and reduced it to Rs. 5,000, partly allowing the appeal.
11. Levy of Interest under Sections 234A and 234B:
The Tribunal directed the Assessing Officer to recompute the interest based on the finally assessed income, allowing the ground for consequential relief.
Separate Judgments:
The Judicial Member disagreed with the Accountant Member on ITA No. 698/Ahd./95, particularly on the deletion of additional tax under Section 143(1A). The Judicial Member cited the Supreme Court's decision in Asstt. CIT v. J.K. Synthetics Ltd., which expressed reservations about the earlier decision in Hindustan Electro Graphites Ltd. The Judicial Member upheld the levy of additional tax. The matter was referred to the President, ITAT, for resolution. The President agreed with the Accountant Member, holding that additional tax was not warranted due to the retrospective amendment. The appeal was partly allowed.
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2005 (11) TMI 169
Disallowance u/s 37 - Payment made to the Ministry of Forest and Environment - HELD THAT:- Relying on the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. v. CIT [1980 (4) TMI 1 - SUPREME COURT] held the same as compensatory in character, and thus, allowable as a business expenditure u/s 37. The assessee happens to be one such unit. Thus, we hold the impugned payment by assessee to the Government of Gujarat as compensatory in nature, and thus allowable in full. The order of the learned CIT(A) is thus upheld.
Payment(s) made to Ahmedabad Municipal Corporation ("AMC")/Gujarat Industrial Development Corporation ("GIDC") and to M/s. Odhav Enviro Projects Limited (OEPL), towards setting-up of a common Effluent Treatment Plant (ETP) - Claimed as "Revenue or Capital" Expenditure - HELD THAT:- Once the matter becomes subjudice, it is the writ of the court that shall hold the field, so that even as the assessee's primary obligation to treat its discharge may have been the factor weighing on the court's mind, the very fact that it directed the defaulting unit(s) to contribute also towards the pipeline, only goes to show that it looked at the larger picture, and did not adjudicate in the matter on the basis of that primary obligation alone. And the considerations that would have weighed on the said units, in accepting the court's directions, could only be that of business. As such, the contribution even though comprising of two separate amounts for different purposes, has to be viewed as a composite sum, serving the same end, and forming part of the same common scheme formulated by the court, so that one cannot be divorced from, or looked at independent of, the other, as, for want of either, the said scheme becomes inoperational.
We hold the entire contribution by the assessee for the setting up of the common ETP facility and for the laying of the pipeline network for conveyance of the discharge, in the facts and circumstances of the case, as a revenue expenditure. We order accordingly, upholding the order of the learned CIT(A).
In the result, the appeal is partly allowed.
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2005 (11) TMI 168
Issues Involved:
1. Mistake apparent from records regarding the Written Down Value (WDV) of the asset.
2. Rejection of the assessee's application under section 154 for higher depreciation.
3. Whether the total income can be reduced below the returned income without filing a revised return.
Detailed Analysis:
1. Mistake Apparent from Records Regarding the WDV of the Asset:
The appellant contended that the CIT(A) erred in holding that there was no mistake apparent from the records regarding the adoption of WDV of the asset. The appellant argued that the WDV should have been recalculated based on the revised computation of earlier years, citing decisions in Maharana Mills and Mahendra Mills. However, the CIT(A) upheld the Assessing Officer's rejection of the appellant's claim for higher depreciation, stating that any modification of income under section 154 is not permissible since the original order was passed under section 143(1).
2. Rejection of the Assessee's Application Under Section 154 for Higher Depreciation:
The appellant filed an application under section 154 to claim higher depreciation, which was rejected by the Assessing Officer. The original depreciation claimed was Rs. 6,45,841, and the revised claim was Rs. 7,20,154. The Assessing Officer rejected the application, reasoning that no further modification of income is allowable under section 154 since the original order was passed under section 143(1). Additionally, allowing the claim would reduce the revised income below the returned income, which is not permitted under section 154. The CIT(A) upheld this rejection, agreeing that the appellant's claim was not tenable in law.
3. Whether the Total Income Can Be Reduced Below the Returned Income Without Filing a Revised Return:
The appellant argued that the WDV should be recalculated for the year under consideration based on changes made in the depreciation claim for the assessment year 2001-02. However, the Assessing Officer and CIT(A) both held that the income could not be revised under section 154 to bring down the assessed income below the returned income. The Tribunal noted that under section 143(1), the Assessing Officer's powers are limited to processing the return as filed and cannot recompute the income or make adjustments beyond what is declared in the return. The Tribunal further observed that what cannot be done directly under section 143(1) cannot be done indirectly under section 154, citing the principle that what is prohibited by law cannot be achieved by indirect means.
Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the appellant's claim was not tenable in law. The Tribunal dismissed the appeal, stating that the Assessing Officer rightly declined to rectify the order under section 143(1) and that the appellant could not seek relief under section 154 or section 143(1) without filing a revised return. The Tribunal also noted that the case laws cited by the appellant were not applicable to the facts of the present case, as the powers of the Assessing Officer under section 143(1) are limited and do not allow for adjustments to the returned income.
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2005 (11) TMI 167
Charge Of Tax - income from interest from intercorporate deposit - chargeable to tax under Interest-tax Act or not ? - HELD THAT:- We have to strictly abide by the meaning given to it by the Legislature, as in the present case. The new definition of section 2(7) defines interest only to mean interest on loans and advances. No doubt two other categories have also been included, i.e., commitment charges on unutilized portion of any credit sanctioned for being availed of in India, and discount on promissory notes and bills of exchange drawn or made in India. We are not concerned with these two additional categories in the present case. Hence, in our opinion, "interest" in the new section 2(7) only means interest on loans and advances, and we cannot give it an extended meaning as contended by learned counsel for the appellant."
In view of the above rules of interpretation of a taxing statute which will be strictly applied, the interest on inter-corporate deposits unless they clearly fall within the meaning of "interest on loans and advances" would not be taxable. We accordingly hold that inter-corporate deposit can neither be a loan nor an advance. We, therefore, direct the Assessing Officer to exclude the interest on inter-corporate deposit from the assessment of the assessee. Consequently, the levy of penalty made would also not stand. They are, accordingly, deleted.
In the result, all the appeals of the assessee are allowed.
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2005 (11) TMI 166
Deduction - Possibility of two views - Computation of income - Under general provisions vis-a-vis under Chapter VI-A - Whether, the depreciation which is though allowable but not claimed in the return for normal computation of income has to be allowed while computing the deductions under Chapter VI-A viz. sections 80HH, 80I-A, 80-IB, etc., of an industrial undertaking? - HELD THAT:- The income for the purpose of Chapter VI-A is a mirror image of the income computed under the head Income from business'. Therefore, when the assessee can be permitted not to claim depreciation and the income can be computed without depreciation, the same income has to be the basis for Chapter VI-A Deduction. We are unable to accept the above contention of the learned counsel for the assessee. Exceptions are provided in Chapter VI-A itself. We can find these in sub-section (5) of section 80-IA providing that for the purpose of determining the quantum of deduction under this section, the profits and gains of the eligible business is to be computed as if such eligible business were the only source of income of the assessee. This provision overrides the other provisions of the Act which is clear from the sentence "notwithstanding anything contained in other provisions of this Act". Thus, the separate computation of the profits and gains of the eligible business for the purpose of deduction under this section is the clear mandate of the Legislature.
Sub-section (8) of section 80-IA provides another exception, i.e., where there is transfer of goods or services by the eligible business to any other business carried on by the assessee or vice versa and the consideration for such transfer as recorded in the accounts does not correspond to the market value of such goods, then for the purpose of deduction under this section the profits and gains of the eligible business is to be computed by taking the market value of such goods or services on the date of transfer.
Therefore, though in the accounts the goods or services are transferred at a different rate and the said rate will be taken for the purpose of computation of profits and gains of business but for the purpose of computing the profits and gains of eligible business for the purpose of deduction u/s 80-IA, the profits and gains is to be re-computed by taking the market value of goods or services transferred to or from the eligible business.
Two views stated to be (i) the depreciation has to be allowed while determining the profit and gains of Industrial Undertaking for the purpose of computing deduction under Chapter VI-A. The view canvassed by the revenue is supported by the decisions of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd.[1978 (4) TMI 1 - SUPREME COURT] and Mettur Chemical & Industrial Corpn. Ltd.[1995 (11) TMI 3 - SUPREME COURT], the decision of the Jurisdictional High Court in the case of Cadila Chemicals (P.) Ltd.[2001 (9) TMI 12 - GUJARAT HIGH COURT], Rajasthan High Court in the case of Vijay Industries [2004 (5) TMI 35 - RAJASTHAN HIGH COURT] and the Bombay High Court in the case of Indian Rayon Corpn. Ltd.[2003 (1) TMI 58 - BOMBAY HIGH COURT]; (ii) The other view stated to be canvassed on behalf of the assessees that to claim or not to claim the depreciation is choice of the assessees and it cannot be thrust upon them even for the purpose of Chapter VI-A. This view is claimed to be supported by the decisions of the Supreme Court in the case of Mahendra Mills [2000 (3) TMI 3 - SUPREME COURT], Jurisdictional High Court in the case of Arun Textile 'C' [2000 (3) TMI 3 - SUPREME COURT], Bombay High Court in the case of Shri Someshwar Sahakari Sakhar Karkhana Ltd [1988 (12) TMI 92 - BOMBAY HIGH COURT].
On the facts of these cases the assessees want to avail both the benefits and opt to pay lesser tax ultimately by resorting this type of disclaimer. In any case by virtue of deeming fiction that the Industrial Undertaking would be the only source of income for computing the income on that hypothesis, there is bound to be difference in both the incomes as well as written down values from year to year. Again the different written down values is for computing the income for the purpose of Chapter VI-A and would have no impinging effect in disturbing written down values for the purpose of section 43(6) in determining the income of the assessee u/s 29 of the Act. This contention of the assessees, therefore, has no decisive value for deciding the issue before us.
We, therefore, hold that the depreciation, which is though allowable but not claimed in the return for normal computation of income, has to be allowed while computing the deductions under Chapter VI-A viz. sections 80HH, 80-IA, 80-IB, etc. of an Industrial Undertaking.
In the result, two appeals filed by the revenue, are allowed and remaining 24 appeals filed by the assessees are dismissed.
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2005 (11) TMI 165
Validity of assessment u/s 153 - Time limit for completion of assessments and reassessments - whether the assessment passed by AO, is barred by limitation of time in terms of section 153(2A)? - HELD THAT:- In our opinion, it is not essential that the word 'set aside' should be written in the order, where the order has been set aside, the order has been set aside must be borne out of the facts and context of the order. The provisions of s. 153(2A) and 153(3) are to be interpreted harmoniously. The word 'set aside' is defined in Webister 3rd New International Dictionary as "to put to one side, to discard, to set apart for a purpose, overrule." Going to the order of the CIT(A) relating to the ground Nos. 7 and 8, we find that the CIT(A) noted that the AO has not given credit of the instalment received by the assessee for working out the total investment made in moneylending business, therefore, he directed the AO to give allowance for the same for working out the total investment and also directed that for this purpose peak credit should be worked out and allowance must be given for the past savings made by the assessee.
For working out the interest income, CIT(A) directed that the rate of 24 per cent should be applied and the business expenditure for earning such income should be deducted for working out the net income from interest. Thus direction was given that the interest income should be worked out only after working out the total investment. These directions are not the ones which can be followed by the AO without calling the assessee and without appreciating the various evidences/documents which are required for working out instalments received by the assessee, peak credit, computation of total investment, working out the expenditure incurred for by the AO by applying its mind. This will also tantamount to restoring the issue to the file of the AO to be decided afresh after giving the hearing to the party and following the direction of the CIT(A). This also implies that the assessment relating to these issues stand set aside and to be decided afresh in accordance with the directions of the CIT(A).
We are of the view that the setting aside the assessment will include therein even the assessment, which has been set aside on some of the issues because an assessment can be regarded to be completed only when the total taxable income is determined and tax to be paid by the assessee is worked out. Until and unless, part of the issues are not decided, the total income of the assessee cannot be determined and the AO cannot raise the demand for the tax payable by the assessee. The setting aside the assessment could be borne out of the order of the authorities.
We therefore hold that the orders passed by the AO are barred by limitation as the limitation as laid down u/s 153(2A) will apply to the facts of the case before us. Accordingly, we quash the orders passed by the AO for the AY's 1984-85 to 1986-87. Since the orders passed by the AO stand quashed, the other grounds taken by the assessee on merit do not survive.
In the result all these appeals of the assessee are allowed.
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2005 (11) TMI 164
Issues Involved:
1. Deduction under section 80P(2)(a)(i) for income from SLR and non-SLR investments.
2. Treatment of Rs. 4,58,76,000 received from the government.
3. Imposition of interest under sections 234B, 234D, and withdrawal under section 244A.
Detailed Analysis:
1. Deduction under Section 80P(2)(a)(i) for Income from SLR and Non-SLR Investments:
The primary issue was whether the income from SLR (Statutory Liquidity Ratio) and non-SLR investments qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The assessee, a Regional Rural Bank (RRB), claimed this deduction, arguing that the entire income is attributable to its banking business.
The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] denied this deduction, stating that the investments were not in accordance with the Regional Rural Banks Act, 1976, and the income from such investments does not qualify for the deduction. The AO argued that the income from these investments was not part of the banking business as defined under the Banking Regulation Act, 1949, and the RRB Act, 1976.
The Tribunal's Judicial Member (JM) upheld the AO's view, emphasizing that the banking activity, as per the RRB Act, is narrower and should be confined to the target group within the notified area. However, the Accountant Member (AM) dissented, arguing that the investments are part of the banking business and the income from these investments is attributable to the banking business, thus qualifying for the deduction.
The Third Member, Vice President R.V. Easwar, resolved the difference by agreeing with the AM, holding that the income from both SLR and non-SLR investments is eligible for deduction under section 80P(2)(a)(i). The Third Member emphasized that the term "attributable to" used in the section has a wider connotation than "derived from," and includes income from activities closely connected to the banking business.
2. Treatment of Rs. 4,58,76,000 Received from the Government:
The second issue was the treatment of Rs. 4,58,76,000 received by the assessee from the government, which was shown under the "share deposit account" in the balance sheet. The AO treated this amount as a revenue receipt, taxable in the year under consideration, while the CIT(A) upheld this view, treating it as a protective addition.
The AM noted that the addition was made on a protective basis and should be assessed substantively in the assessment year 1996-97 if the stay on the assessment proceedings is vacated. The JM, however, made observations on the merits, treating the amount as taxable revenue receipt.
The Third Member agreed with the AM, stating that since the addition was made on a protective basis, no observations on the merits should be made, and the issue should be resolved in the assessment year 1996-97.
3. Imposition of Interest under Sections 234B, 234D, and Withdrawal under Section 244A:
The AO imposed interest under sections 234B and 234D and withdrew interest under section 244A without passing a speaking order. The CIT(A) upheld the AO's action, stating that the charging of interest is mandatory as per the Supreme Court's decision in CIT v. Anjum M.H. Ghaswala.
The Tribunal, concurring with the CIT(A), held that the imposition of interest is consequential and mandatory, thus rejecting the assessee's ground on this issue.
Conclusion:
The appeal was allowed in favor of the assessee regarding the deduction under section 80P(2)(a)(i) for income from SLR and non-SLR investments. The protective addition of Rs. 4,58,76,000 was left to be assessed substantively in the assessment year 1996-97. The imposition of interest under sections 234B, 234D, and withdrawal under section 244A was upheld as mandatory and consequential.
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2005 (11) TMI 163
Issues:
1. Re-determination of actual production and duty liability of manufacturers of Mild Steel Ingots under the Hot Re-rolling Mills Induction Furnace Annual Capacity Determination Rules, 1997.
2. Confirmation of duty and penalty raised in show cause notices.
3. Omission of Section 3A of the Central Excise Act and its impact on pending proceedings.
4. Legality of interest provision under Rule 96ZO(3) in light of the Constitution Bench judgment.
5. Legality of penalty provisions under Rule 96ZO(3) and delegation of legislative power.
Detailed Analysis:
1. The appeals involved the re-determination of actual production and duty liability of manufacturers of Mild Steel Ingots under the Hot Re-rolling Mills Induction Furnace Annual Capacity Determination Rules, 1997. The issue was whether the manufacturers could switch from duty liability under Rule 96ZO(3) to payment of duty under Section 3A of the Central Excise Act, 1944 (Actual production basis).
2. Appeal No. E/2246/03 concerned the confirmation of duty and penalty raised in show cause notices totaling Rs. 97,62,588/-. The duty amount was raised based on the determination of Actual Capacity of Production under Rule 96ZO(3) of the Central Excise Rules.
3. The main issue revolved around the omission of Section 3A of the Central Excise Act and its impact on pending proceedings. The appellants argued that since Section 3A was omitted without a saving clause, pending proceedings could not be continued. They relied on a Tribunal order and Supreme Court judgments to support their contention.
4. The legality of the interest provision under Rule 96ZO(3) was questioned in light of a Constitution Bench judgment which held that interest can only be levied if the taxing statute makes a substantive provision for it. The analysis highlighted the absence of specific provisions empowering delegated legislation to levy interest under Rule 96ZO(3).
5. The issue of penalty provisions under Rule 96ZO(3) was examined, emphasizing that penalty is a substantive liability requiring plenary legislation. The analysis concluded that there was no provision in the Central Excise Act enabling the framing of rules for penalty imposition under Rule 96ZO(3. The delegation of powers and the source of legislating penalty provisions were thoroughly scrutinized, leading to the finding that the penalty provisions were ultra vires.
In conclusion, the Tribunal set aside the demand, interest, and penalty, allowing the appeals based on the findings related to the legality of the provisions under Rule 96ZO(3) in light of the omitted Section 3A of the Central Excise Act and the delegation of legislative power.
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2005 (11) TMI 162
Issues:
- Appeal against Order-in-Original No. 23/2004 passed by Commissioner of Central Excise, Belgaum
- Allegations of suppression of production and clearance of cement without duty payment
- Remand by Tribunal for re-determination of cement quantity used in in-house building activity
- Non-supply of relied upon documents violating principles of natural justice
- Demand of duty under Section 11(A)(1) of C.E. Act, 1944
- Challenge to findings of adjudicating authority
- Appellants' submissions regarding production and dispatch details, reliance on register, and lack of excess consumption evidence
- Failure to provide relied upon documents like Silo dip register
- Invocation of extended period for duty demand
- Non-determination of normal production by the department
- Discrepancies in Mill Log Sheets and RG 9 register records
- Relevance of case laws cited by appellants
Analysis:
The case involved an appeal against an Order-in-Original alleging suppression of production and clearance of cement without duty payment. The Tribunal remanded the matter for re-determination of cement quantity used in in-house building activity and highlighted the non-supply of relied upon documents like the Silo dip register, emphasizing the violation of natural justice principles. The impugned order demanded duty under Section 11(A)(1) of the C.E. Act, 1944, which the appellants strongly contested. The appellants provided detailed submissions regarding production and dispatch details, emphasizing the lack of evidence for excess consumption and challenging the invocation of the extended period for duty demand.
The appellants argued that the department failed to determine normal production and pointed out discrepancies in records like the Mill Log Sheets and RG 9 register. They also cited relevant case laws to support their case. The Tribunal found that the original authority did not consider the appellants' submissions adequately, leading to a lack of justification for the duty demand. The failure to provide the Silo dip register and the non-application of mind by the Commissioner were noted as gross violations of natural justice.
Ultimately, the Tribunal concluded that there was no strong case of excess production or clandestine clearance by the Revenue. The appellants' data demonstrated payment of duty on cement used in in-house construction, and their regular filing of returns indicated no suppression of facts. Considering the relevant case laws and the lack of evidence supporting the duty demand, the Tribunal set aside the duty demand, penalty, and interest, allowing the appeal with consequential relief.
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2005 (11) TMI 161
Cenvat/Modvat - inputs - activity of welding the punctured tubes and pipes at regular intervals - Whether welding electrodes used directly or indirectly in relation to manufacture of final product ? - HELD THAT:- Applying the ratio of the judgment in the case of CCE, Chandigarh-II v. National Fertilizer Ltd. [2001 (10) TMI 111 - HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH], which in turn refers to two Supreme Court judgments, and by following the ratio of the Larger Bench judgments rendered in Modi Rubber Ltd. [2000 (5) TMI 64 - CEGAT, NEW DELHI] and Union Carbide Ltd. [1996 (6) TMI 308 - CEGAT, NEW DELHI-LB], the appellant's plea is required to be accepted.
The inputs viz. Welding Electrodes, Oxyygen Gas and Acetylene Gas used for welding the punctured pipes carrying the hot sugar juice should be treated as part of process of manufacture and hence they are eligible inputs for the manufacture of the final product. The appeal is allowed with consequential relief, if any.
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2005 (11) TMI 160
Issues: Revenue appeal against Commissioner (Appeals) order granting deemed credit on inputs received; Eligibility criteria under Notification No. 58/97-C.E. for availing Modvat Credit; Lack of declaration on invoice regarding excise duty payment and payment evidence through cheque.
In the judgment, the Appellate Tribunal CESTAT, Mumbai, consisting of Ms. Jyoti Balasundaram, Vice-President, and Shri Moheb Ali M., Member (T), addressed the appeal by the Revenue against the order of the Commissioner (Appeals) granting deemed credit on inputs received by the respondents. The Tribunal noted that as per Notification No. 58/97-C.E., an assessee can avail Modvat Credit on inputs received directly from the manufacturer's factory under certain conditions. These conditions include the declaration of excise duty payment under Section 3A of the Central Excise Act on the invoice and payment made through a cheque from the assessee's bank account to the manufacturer. However, in this case, the invoice used for claiming deemed credit did not bear the required declaration, and there was no evidence provided that the payment was made through a cheque drawn on the assessee's bank account to the manufacturer. Consequently, the Tribunal agreed with the ld. SDR that the respondents were not eligible for the credit solely based on the payment made through a cheque.
The Tribunal held that the respondents were not entitled to the deemed credit at the rate of 12% of the invoice price as per the mentioned Notification. They set aside the order extending the benefit of deemed credit to the respondents amounting to Rs. 13,68,690. However, the Tribunal upheld the part of the order that set aside the penalties imposed, thereby allowing the appeals partly. The judgment underscores the importance of complying with the specific eligibility criteria outlined in the relevant notifications for availing benefits such as Modvat Credit, emphasizing the necessity of fulfilling all conditions, including proper documentation and payment methods, to claim such credits lawfully.
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2005 (11) TMI 159
Issues: Refund of duty for damaged goods during warehousing period, entitlement to interest on the refunded amount.
Analysis:
1. Refund of Duty for Damaged Goods: The case involved an appeal against an order-in-appeal passed by the Commissioner (Appeals) regarding the refund of duty for damaged goods during the warehousing period. The appellants imported seven induction furnaces in 1979, which were warehoused. Upon noticing damage to the goods, they applied for a survey to assess the cost of the damaged goods under Section 22 of the Customs Act. The survey valued the damaged goods at Rs. 3.5 lakhs. The appellants paid duty without waiting for the survey report and obtained clearance of the goods. The adjudicating authority allowed a refund of Rs. 3,16,777, which was later challenged through a show cause notice for recovery of the erroneous refund. The Commissioner (Appeals) modified the order, stating that the refunded amount was not liable to be recovered from the appellant. The appellant contended that they were entitled to a refund of Rs. 4,71,120.32. However, the tribunal found that the refund was made based on the survey report before clearance, and as the goods were assessed before clearance, the excess duty paid was refunded. Therefore, the tribunal dismissed the appeal on this issue.
2. Entitlement to Interest on Refunded Amount: The appellant also claimed entitlement to interest on the refunded amount. The tribunal noted that the refund was filed in 1982 for damaged goods during the warehousing period. However, as per the provisions of the Customs Act, there were no provisions for granting interest in such cases. The tribunal found no merit in the appellant's claim for interest on the refunded amount. Consequently, the tribunal dismissed the appeal on this ground as well.
In conclusion, the appellate tribunal upheld the decision of the Commissioner (Appeals) regarding the refund of duty for damaged goods during the warehousing period and the denial of interest on the refunded amount. The tribunal found no legal basis to grant additional relief to the appellant beyond the refund already provided based on the survey report conducted before the clearance of the goods.
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