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Showing 341 to 360 of 781 Records

• 2009 (12) TMI 729
  
  Issues Involved:
  1. Whether the loss on valuation of shares on the last day of the previous year attracts the Explanation to section 73 of the Income-tax Act, 1961.
  2. Whether the loss should be treated as a business loss or speculation loss.
  
  Issue-wise Detailed Analysis:
  
  1. Applicability of Explanation to Section 73 on Valuation Loss:
  
  The Revenue contested that the loss of Rs. 90,69,917, arising from the valuation of the closing stock of shares, should be treated as speculation loss under the Explanation to section 73 of the Income-tax Act, 1961. The Assessing Officer classified this loss as speculation loss, while the Commissioner of Income-tax (Appeals) held it as a business loss, not speculative in nature. The Commissioner observed that the loss was due to a decrease in the valuation of shares held as stock-in-trade, valued at cost or market value, whichever is lower, as per the mercantile system of accounting. Thus, the provisions of section 73 and its Explanation were deemed inapplicable.
  
  2. Nature of Loss - Business Loss vs. Speculation Loss:
  
  The Commissioner of Income-tax (Appeals) directed the Assessing Officer to treat the loss as a business loss, deductible while computing the total income of the assessee. The Commissioner relied on the Supreme Court's decision in Chainrup Sampatram v. CIT [1953] 24 ITR 481, which stated that anticipated losses are accounted for in valuation, but not anticipated profits. The Commissioner concluded that the loss did not result from dealing in shares but from a decrease in the valuation of shares lying in stock for trading purposes.
  
  Relevant Case Laws and Principles:
  
  Several case laws were cited to support the assessee's contention that valuation losses should be treated as business losses. The Special Bench decision in Mannalal Nirmal Kumar Soorana v. ITO [1982] 1 ITD 412 (Delhi) emphasized that no taxable income arises from mere revaluation of assets unless there is an actual sale. Similarly, in Sanjeev Woolen Mills v. CIT [2005] 279 ITR 434 (SC), it was held that showing market value of closing stock does not constitute real profit for tax purposes.
  
  Department's Argument:
  
  The Department argued that the assessee-company did not fall within the exceptions provided in the Explanation to section 73, and hence, the loss, including that from valuation, should be treated as speculation loss. The Department highlighted that the total loss comprised Rs. 66.66 lakhs from trading in shares and Rs. 23.94 lakhs from diminution in stock value.
  
  Tribunal's Decision:
  
  The Tribunal considered the rival contentions and the orders of the authorities below. It noted that the assessee was engaged in the business of purchase and sale of securities and that the Explanation to section 73 was applicable. The Tribunal referred to the Kolkata Bench decision in Paharpur Cooling Towers Ltd. v. Deputy CIT [2003] 85 ITD 745, which held that losses from valuation of closing stock in share trading are speculation losses under the Explanation to section 73. Similarly, in Prudential Construction Co. Ltd. v. Asst. CIT [2000] 75 ITD 338 (Hyd), it was held that trading losses, including those from valuation, are speculation losses.
  
  Conclusion:
  
  The Tribunal concluded that the loss arising from the valuation of shares should be treated as speculation loss under the Explanation to section 73. It found no merit in the Commissioner of Income-tax (Appeals)'s direction to treat the loss as a business loss. Consequently, the appeal of the Revenue was allowed, and the loss was to be treated as speculation loss.
  
  Order Pronounced:
  
  The order was pronounced in the open court on December 18, 2009.

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• 2009 (12) TMI 728
  
  Issues involved: Appeal against order u/s 263/143(3) of the Income-tax Act for disallowance of bad debts claimed by the assessee in the assessment year 2001-02.
  
  Summary:
  The assessee, engaged in share broking, claimed deduction for bad debts in the profit and loss account due to non-recovery of debts from clients. The Assessing Officer disallowed the claim under section 36(1)(vii) as the debt written off was not shown as income in earlier years. The Commissioner of Income-tax (Appeals) upheld the decision. The Tribunal considered the nature of the business and allowed the claim as a business loss under sections 28, 29, and/or section 37(1) of the Income-tax Act. The Tribunal noted that the loss occurred in the normal course of business and was incidental to share broking activities. The genuineness of transactions and efforts for debt recovery were not questioned. The Tribunal distinguished between bad debts and business loss, allowing the latter without the condition of showing the amount as income in earlier years. Citing precedents, the Tribunal held that the amount written off as bad debts due to clients' failure to pay for shares is allowable as a business loss. The Tribunal reversed the lower authorities' decision and allowed the appeal of the assessee.
  
  In conclusion, the Tribunal found no merit in the disallowance of the business loss claim and allowed the appeal of the assessee.

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• 2009 (12) TMI 727
  

  Unexplained cash credit u/s 68 - share application money unexplained - amount was never received as share capital/share application money but a camouflaged transaction - AO noted that as per the report of investigation wing it was found that the referred five companies were not carrying on actual business but were engaged in the business of providing accommodation entries and assessee is one of the beneficiaries of such accommodation entries

  HELD THAT:- In this case existence of share applicants has been shown by the assessee on papers which even could not be substantiated by proof that the existence is on the address provided to the assessee by the share applicants. the existence of share applicants were not proved. Therefore, the papers submitted itself by the assessee do not prove the existence of share applicant factually. Therefore merely on certain papers produced by the assessee it cannot be said that these share applicants were in existence who have actually applied for shares and were allotted the shares. The fact also remains that now the shares are acquired by the family members of the directors at much lesser price. This fact also should have been examined.

  The CIT (A) has deleted the addition for the reason that since the AO has not made any enquiry after the appellant furnished all these particulars, it has discharged its onus and no addition is called for u/s 68. The CIT (A) has also not examined whether the share applicant had any creditworthiness and the transaction was genuine. In such a situation the CIT (A) erred in deleting the addition as the AO failed to make any enquiry. Rather it was incumbent upon the CIT (A) to carry the enquiry further and should have done what the AO failed to do.

  As decided in Kapurchand Shrimal v. CIT[1981 (8) TMI 2 - SUPREME COURT] it is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute.

  Since no further evidence is available before us to give a finding that the cash credit during the year has been proved, and since the authorities below also failed to conduct necessary enquiries in this regard, we remit the matter back to the file of the AO. The assessee is directed to place necessary evidence so as to justify the identity and creditworthiness of the creditor and genuineness of the transaction.

  For statistical purposes, the appeal is treated as allowed.

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• 2009 (12) TMI 726
  
  Issues involved:
  1. Recalling of order for deciding issues of exemption under section 80P on transportation of fertilisers and head office expenses.
  2. Validity of deduction under section 80P on transport income and head office expenses.
  3. Consideration of head office expenses for the assessment year 2002-03.
  
  Issue 1: Recalling of order for deciding exemption under section 80P:
  The Tribunal recalled its order to decide on the exemption under section 80P related to transportation of fertilisers and head office expenses. The Tribunal observed that certain issues had inadvertently remained undecided, necessitating rectification. The order was recalled specifically for these two issues, and the appeals were directed to be reheard for a decision.
  
  Issue 2: Validity of deduction under section 80P on transport income and head office expenses:
  The Departmental representative argued against allowing deduction under section 80P for transport income, stating that since the assessee did not own any godown, they were not eligible for the deduction. The Tribunal examined the nature of the assessee's activities related to handling and transport contracts with specific companies, concluding that the incidental activity could not be considered eligible for deduction under section 80P(2)(e). Consequently, the claim for transport income deduction was rejected. Regarding head office expenses, it was highlighted that the issue was only relevant for the assessment year 2002-03. The Tribunal noted that the claim for head office expenses had not been considered previously and directed the Commissioner of Income-tax (Appeals) to pass a speaking order on this issue after providing the assessee with a reasonable opportunity for a hearing.
  
  Issue 3: Consideration of head office expenses for the assessment year 2002-03:
  The Tribunal acknowledged the specific plea made by the assessee regarding head office expenses for the assessment year 2002-03. It was noted that the Commissioner of Income-tax (Appeals) had not addressed this aspect in a speaking order. In the interest of justice, the Tribunal restored the issue of head office expenses to the Commissioner of Income-tax (Appeals) for a detailed consideration and a speaking order. The Tribunal rejected the claim for transport income deduction under section 80P(2)(e) while allowing the ground for head office expenses for the assessment year 2002-03 for statistical purposes.
  
  In conclusion, the Tribunal disposed of the appeals by rejecting the claim for transport income deduction under section 80P(2)(e) and allowing the ground for head office expenses for the assessment year 2002-03 to be considered further.

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• 2009 (12) TMI 725
  
  Issues Involved:
  1. Disallowance of wages paid in cash.
  2. Disallowance of telephone expenses.
  
  Detailed Analysis:
  
  1. Disallowance of Wages Paid in Cash
  
  Facts and Contentions:
  - The assessee, a proprietor of M/s. Safeguards, engaged in supplying manpower, filed a return declaring an income of Rs. 38,80,071 for the assessment year 2006-07.
  - The assessee paid wages amounting to Rs. 12.61 crores, with Rs. 36,00,341 paid in cash.
  - The Assessing Officer (AO) noted discrepancies in the attendance register and salary receipt register, particularly differences in signatures, and disallowed the cash payments as bogus expenses supported by fabricated documents.
  - The assessee explained that due to operational constraints, employees often collected salaries on behalf of their colleagues, leading to differences in signatures. The assessee also provided evidence of statutory compliance and reimbursement by clients.
  
  Commissioner of Income-tax (Appeals) Findings:
  - The Commissioner (Appeals) observed that the cash payment of salary constituted only 2.86% of the total salary expenditure.
  - The Commissioner accepted the assessee's explanation regarding discrepancies in signatures and the operational necessity of cash payments.
  - The Commissioner upheld a partial disallowance of Rs. 1 lakh, considering the minor nature of discrepancies.
  
  Tribunal's Analysis:
  - The Tribunal noted that the assessee's business model involved reimbursement from clients based on attendance records maintained by both the assessee and clients.
  - The Tribunal found the AO's reasons for disallowance (irregular attendance register and signature discrepancies) inadequate.
  - The Tribunal emphasized that the discrepancies were minor and adequately explained, and that the AO failed to find any substantial evidence of non-genuine expenses.
  - The Tribunal deleted the entire disallowance, including the Rs. 1 lakh upheld by the Commissioner (Appeals), affirming that there was no finding that such expenses were not incurred for business purposes.
  
  2. Disallowance of Telephone Expenses
  
  Facts and Contentions:
  - The assessee incurred telephone expenses totaling Rs. 17,67,132, with the AO disallowing 10% of these expenses.
  - The assessee contended that only Rs. 7,875 pertained to the residential telephone, while the rest were for office use or mobile allowances for employees.
  
  Commissioner of Income-tax (Appeals) Findings:
  - The Commissioner (Appeals) reduced the disallowance from 10% to 5%.
  
  Tribunal's Analysis:
  - The Tribunal reviewed the details and found that Rs. 12.25 lakhs were mobile telephone allowance arrears paid to employees, and Rs. 4.39 lakhs were for mobile connections provided to employees.
  - The Tribunal concluded that these amounts could not be considered personal expenses.
  - The Tribunal upheld a disallowance of Rs. 10,000, considering the remaining expenses for office and residential telephones.
  
  Conclusion:
  - The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection.
  - The Tribunal's order was pronounced in the open court on December 18, 2009.

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• 2009 (12) TMI 724
  
  Issues involved: Validity of reassessment proceedings u/s 147 of the Income-tax Act, 1961.
  
  The judgment dealt with the issue of the validity of reassessment proceedings u/s 147 of the Income-tax Act, 1961. The original assessment was completed under section 143(3) of the Income-tax Act, and notice for reassessment under section 147 was issued after four years from the end of the relevant assessment year. The learned Commissioner of Income-tax (Appeals) quashed the reassessment proceedings, citing lack of failure on the part of the assessee to disclose material facts as required by the proviso to section 147. The Tribunal analyzed the provisions of section 147 and observed that reassessment cannot be initiated after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal noted that the reassessment was based on facts already on record and submitted by the assessee, indicating no failure on the part of the assessee to disclose material facts. The Tribunal relied on previous High Court decisions to support its conclusion that the reassessment under section 147 was not justified.
  
  The Tribunal upheld the order of the learned Commissioner of Income-tax (Appeals) quashing the reassessment on the ground of lack of jurisdiction. The appeal filed by the Revenue was dismissed, confirming that the reopening under section 147 was not justified. The order was pronounced in open court on December 16, 2009, upon conclusion of the hearing.

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• 2009 (12) TMI 723
  
  Issues Involved:
  1. Disallowance of loss on hedging as speculative loss.
  2. Disallowance of expenditure related to speculative transactions and taxable capital gains.
  
  Summary:
  
  Issue 1: Disallowance of Loss on Hedging as Speculative Loss

  The assessee appealed against the disallowance of a loss of Rs. 24,96,424 arising from hedging, which the Assessing Officer (AO) treated as speculative loss. The AO noted that the transactions in shares of ICICI Bank and Reliance Industries Ltd. (RIL) were not made to guard against losses in the assessee's holdings, as the assessee did not hold ICICI Bank shares at the time of the transactions. The AO concluded that the loss was speculative and not covered by proviso (d) to section 43(5) of the Income-tax Act, 1961, which became effective from April 1, 2006. The assessee's appeal to the Commissioner of Income-tax (Appeals) [CIT(A)] was unsuccessful. The Tribunal, referencing the Special Bench decision in Shree Capital Services Ltd. v. Asst. CIT, upheld that proviso (d) to section 43(5) is prospective and not applicable for the assessment year 2005-06, thus confirming the loss as speculative. The Tribunal also rejected the request to refer the matter to a Larger Bench, noting that the relevant Division Bench decisions had been considered and overruled by the Special Bench.

  Issue 2: Disallowance of Expenditure Related to Speculative Transactions and Taxable Capital Gains

  The AO disallowed Rs. 3,20,259 and Rs. 42,50,885, holding them as not for business purposes but related to speculative transactions and taxable capital gains, respectively. The assessee argued that expenses incurred for various business activities, including trading of shares and investment activities, should not be prorated and disallowed. The Tribunal found that expenses attributable to investment activity should be considered as incurred for earning dividend income and not allowed u/s 14A. The Tribunal directed the AO to apply rule 8D of the Income-tax Rules, 1962, for a fresh decision on the disallowance, as agreed by the assessee's representative. Ground No. 3, related to the same issue, was dismissed as not pressed by the assessee.

  In conclusion, the appeal was partly allowed for statistical purposes, with the matter of disallowance of expenses restored to the AO for reconsideration under rule 8D.

  The order pronounced in the open court on 17th December, 2009.

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• 2009 (12) TMI 722
  

  Unexplained cash credits - Addition made u/s 68 - amount received by way of share capital is not sustainable - genuineness of transaction and creditworthiness - Notice u/s143(2) is not addressed to the “ principal officer” but is addressed in the name of company itself - The assessee-company is engaged in share trading in the year under consideration. AO noted that the appellant has introduced fresh share capital to the tune of Rs. 15,00,000 at a share premium of Rs. 1,35,00,000. AO held that the credit in the name of these shareholders are not genuine and represents unexplained cash credits. Accordingly he made addition of Rs. 1.50 lakhs to the returned income.

  HELD THAT:- The facts of the present case when analysed in the light of this observation it will be seen that the instant case is not a case of public issue of shares. Rather it is a case of private placement. In a case of public issue it can be said that the appellant has discharged the onus the moment it has furnished the permanent account number of shareholders, shareholder register, share application form, share transfer register, etc.

  But in the case of private placement it has to satisfy the AO about the genuineness of the transaction which in the instant case is highly doubtful as some of the applicants during the course of investigation by the Investigation Wing had confessed of having provided entry only. Thus the AO has reached a dead end of the enquiry and the onus has shifted on the appellant to produce the persons for verification.

  We find that as per section 282(1) a notice under this Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure, 1908. The notice can also be addressed in the name of a company to the principal officer thereof. Therefore the notice can be served in the name of a company either on the company itself or on the principal officer thereof. There is no denying fact that the notice was served on the company itself. Therefore, the same is within the provision of section 282(1) of the Act and hence valid. Accordingly ground is to be dismissed.

  The existence of a person is not merely on paper. Particularly when the AO required the assessee to produce the share applicants and particularly when at the stated address the share applicants are not found to be existing, it cannot be said that the amount received by the assessee is proved to be towards share capital. The transaction cannot be proved merely on paper. Neither before the AO nor before the ld CIT (A) the assessee could make the share applicants available. Therefore, when the identity of the person itself is not proved, the amount received by the assessee cannot be considered to be genuinely received.

  the assessee-company is stated to have issued shares at premium nine times its face value. The assessee is a private limited company. It has not issued prospectus for issue of shares nor under the Companies Act, 1956, it can invite the public to apply for and allot the shares. The company is prohibited from making any invitation for allotment of shares. How the premium was fixed is not forthcoming. Looking at the balance-sheet or past history of the assessee, the assessee-company has never declared dividend in the past. The company has no business plans which can raise its profitability in the near future. The income declared by the assessee is only by way of short-term capital gain and the assessee does not seem to have carried on any business. In such circum-stances the share premium is not found to be justified by any of the act on the part of the assessee. These facts are revealing more than the apparent shown on the paper.

  In such circumstances the court cannot put blinker on the eye and look only at the papers presented before it. There is something more than that meets the eye. As rightly contended by the learned Departmental representative in such situation the observation in the case of CIT v. Durga Prasad More[1971 (8) TMI 17 - SUPREME COURT] and in the case of Sumati Dayal v. CIT [1995 (3) TMI 3 - SUPREME COURT] are apt for application. We therefore do not find any reason to hold that the share capital receipts by the assessee were from persons whose identity is established and the amount is genuinely received towards share capital.

  In the result the appeal is dismissed.

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• 2009 (12) TMI 721
  

  Nature of Royalty Payment - Revenue or Capital - assessee had entered into a technical know-how agreement with Revlon Mauritius Ltd. for the supply of technical knowhow to manufacture the goods. As per the said agreement, in consideration for the supply of know-how, the assessee shall pay every year royalty (net of taxes) at the rate of 5 per cent. on domestic sales and 8 per cent. on export sales. During the year, the assessee paid royalty to RML in pursuance of the grant of right to use the technical know-how.

  AO treated part of royalty payment as capital in nature, therefore disallowed 25 per cent of royalty payment - basic objection of the Assessing Officer while capitalising 25 per cent. of the royalty paid was on account of his observation that know-how agreement is open ended in terms of duration and that the assessee has exclusive rights to use the know-how and patents and the new products developed by the licensor.

  CIT (A) treated 5 per cent of the royalty as capital in nature.

  HELD THAT:- In terms of the agreement, there is no dispute to the fact that the assessee had been given only right to use know-how and the patents and at no point of time any property of enduring benefit has been transferred in favour of the assessee. In view of the decision of the in the case of CIT v. Ciba of India Ltd.[1967 (12) TMI 3 - SUPREME COURT], it can safely be concluded that where the assessee cannot assign or sub-license any part of the right obtained from the know-how, the payment made therefor cannot be termed as capital in nature.

  In the instant case, RML has not provided any assets to the assessee for establishing any factory, by giving right to use technical know-how, no asset of enduring nature was acquired and upon termination the assessee was not entitled to use the industrial properties and know-how of RML. Enduring benefit can be said only if right to manufacture is given even after termination of the agreement. In the result, the ground taken by the assessee with regard to revenue nature of royalty payment is allowed, whereas the ground of the Revenue is dismissed in both the years under consideration.

  Disallowance u/s 40A - Consultancy charges - AO has alleged that consultancy charges paid by the assessee were nothing but an arrangement to siphon off part of the profits of the assessee-company to its sister concern and joint ventures and has allowed part as director's remuneration and disallowed u/s 40A(2), by alleging the same as unreasonable and excessive - CIT (A) deleted the same - HELD THAT:- Sufficient evidence was produced before the AO to indicate that MMPL was actively involved in the day-to-day activities of the assessee-company. MMPL has duly incorporated the consultancy charges in its income and paid due taxes thereon, it cannot be said that agreement was entered for siphoning off of income to the sister concern. The categorical finding recorded by the CIT (A) with regard to reasonableness of the consultancy charges paid has not been controverted by the learned Departmental representative, We therefore do not find any reason to interfere with the order of the CIT (A) for deleting disallowance made by the AO by invoking the provisions of section 40A(2).

  Disallowance of proportionate advertisement and publicity expenses - objection of AO that advertising expenses were incurred by the assessee to promote the brand "Revlon", therefore it cannot be said that advertising expenses were incurred wholly and exclusively for the purpose of the business of the assessee - HELD THAT:- Since the assessee was the brand owner, it has vested interests and incurring of expenditure for promotion of brand was in the interest of the business of the assessee company only. We also found that similar expenditure was allowed consistently in the past and no disallowance has been made towards these expenses. Even under the scrutiny assessment for the AY 2000-01 and 2001-02, similar expenditure was allowed.

  There is no change in the facts and circumstances during the year, even on the principle of consistency, such expenditure cannot be disallowed. On the similar reasoning, the disallowance made by the lower authorities during the AY 2006-07 also stands deleted. Accordingly, we do not find any merit in the disallowance made by the lower authorities on account of expenditure incurred for advertising and publicity.

  In the result, the appeals of the assessee are allowed whereas the appeals of the Revenue are dismissed.

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• 2009 (12) TMI 720
  
  Issues Involved:
  
  1. Deletion of disallowance of Rs. 5,02,890 towards excess interest paid by the assessee.
  2. Deletion of addition of Rs. 92,60,000 towards share capital u/s 68 of the Income-tax Act.
  
  Summary:
  
  Issue 1: Deletion of disallowance of Rs. 5,02,890 towards excess interest paid by the assessee

  The Assessing Officer (AO) noticed that the assessee-company had paid interest in excess of 12% to certain parties while charging only 12% on loans given. The AO disallowed the excess interest payment of Rs. 5,02,890, citing lack of business expediency and invoking sections 37(1) and 36(1)(iii) of the Income-tax Act. The Commissioner of Income-tax (Appeals) [CIT(A)] deleted this addition, noting that the AO failed to prove any nexus between the interest-bearing loans taken and given by the assessee. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance under sections 37(1) or 36(1)(iii) can only be made if it is proved that the loans were not used wholly and exclusively for business purposes. The Tribunal found no merit in the Department's grounds and rejected ground Nos. 1 to 5.

  Issue 2: Deletion of addition of Rs. 92,60,000 towards share capital u/s 68 of the Income-tax Act

  The AO added Rs. 92,60,000 as unexplained share capital u/s 68, as the assessee-company failed to establish the identity, creditworthiness, and genuineness of the share subscribers. The CIT(A) deleted this addition, noting that the assessee had provided complete details of the share subscribers, including income-tax returns, confirmations, and cheque payments. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Lovely Exports P. Ltd. and the Delhi High Court's decision in CIT v. Value Capital Services Pvt. Ltd., which state that once the identity of the share subscribers is established, no addition can be made in the hands of the assessee-company. The Tribunal found the Department's reliance on the Beautix case inapplicable, as the facts differed. Ground Nos. 6 to 8 were thus rejected.

  In conclusion, the appeal filed by the Department was dismissed.

  The order pronounced in the open court on December 9, 2009.

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• 2009 (12) TMI 719
  
  Issues Involved:
  1. Violation of principles of natural justice in disallowing short-term capital loss.
  2. Justification of applying provisions of section 94(7) of the Income-tax Act by the Commissioner of Income-tax (Appeals).
  3. Justification of sustaining the order that the units were sold within three months from the record date.
  
  Detailed Analysis:
  
  Issue No. 1: Violation of Principles of Natural Justice
  
  The Tribunal examined whether there was a violation of the principles of natural justice when the short-term capital loss was disallowed by the Assessing Officer. It was found that the case was discussed with the deputy manager and general manager (taxation) of the assessee on various dates, and a questionnaire was issued by the Assessing Officer. The assessee was given sufficient opportunity to present its case. Therefore, the Tribunal concluded that there was no violation of the principles of equity and natural justice.
  
  Issue No. 2: Applicability of Section 94(7) of the Income-tax Act
  
  The assessee invested in units of Birla Gilt Liquid Plan Dividend Payout and received dividends. The Assessing Officer disallowed the short-term capital loss on the ground that the units were purchased on the record date (August 8, 2003), and sold within three months (November 7, 2003), invoking section 94(7) of the Income-tax Act. The Commissioner of Income-tax (Appeals) confirmed this disallowance but directed the Assessing Officer to verify and grant appropriate relief as per law on the alternative claim that the disallowance should be restricted to the amount of dividend received.
  
  The assessee argued that section 94(7) should not apply as the units were purchased on the record date, not within three months prior to it. The Tribunal, however, rejected this argument, stating that excluding the record date from the three-month period would render the provision meaningless and unworkable. The Tribunal emphasized that the purpose of the provision is to prevent tax avoidance through short-term transactions around the record date. The Tribunal also dismissed the contention that the units were non-transferable, stating that redemption is also a form of transfer. Thus, this issue was decided against the assessee and in favor of the Revenue.
  
  Issue No. 3: Sale of Units Within Three Months from the Record Date
  
  The assessee contended that the units were sold on November 7, 2003, which is on the expiry of three months from the record date (August 8, 2003). The Tribunal clarified that the period of three months starts from August 9, 2003, and expires on November 8, 2003. Since the units were sold on November 7, 2003, the sale was within three months from the record date. The Tribunal found no merit in the assessee's contention and decided this issue against the assessee.
  
  Conclusion
  
  In conclusion, the appeal filed by the assessee was dismissed. The Tribunal upheld the disallowance of the short-term capital loss under section 94(7) of the Income-tax Act, finding no violation of natural justice and confirming that the units were sold within three months from the record date. The order was pronounced in the court on December 4, 2009.

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• 2009 (12) TMI 718
  
  Issues involved:
  The judgment involves issues related to the tax treatment of interest income earned from temporary surplus funds, reduction of claim under section 80HHB, consideration of deputation charges as business income, and deduction under section 80HHC.
  
  Interest Income from Temporary Surplus Funds:
  The Assessing Officer treated the interest income earned by the assessee from temporary surplus funds as income from other sources, not as business income. The learned Commissioner of Income-tax (Appeals) upheld this action, citing various decisions. However, the Tribunal considered the facts and relevant case laws, including decisions by the Bombay High Court, and held that the interest income was inextricably linked to the business activities of the assessee and thus assessable as business income.
  
  Interest Income on Margin Money:
  Regarding interest received on margin money in relation to foreign projects, the Tribunal referred to a decision by the Delhi High Court and concluded that the interest income was assessable as business income as it was linked to the execution of the foreign project. The Tribunal upheld that interest income on margin money was to be treated as business income.
  
  Other Interest Income:
  The Tribunal upheld the treatment of other interest income as income from other sources, as it was earned on bank fixed deposits, income tax refunds, and inter-corporate deposits not directly linked to the business activities of the assessee. The Tribunal partially allowed Ground No. 1 in this regard.
  
  Reduction of Claim under Section 80HHB:
  The assessee had claimed deduction under section 80HHB for interest received on bank deposits and margin money. The Assessing Officer denied this deduction, stating that the interest income was assessable as income from other sources and did not fall under the phrase "profits and gains derived from the business." The Tribunal referred to a Supreme Court decision and directed the Assessing Officer to exclude only the net interest income for the purpose of deduction under section 80HHB, as the interest income was held to be assessable as business income. Ground No. 2 was partially allowed in this regard.
  
  Other Grounds:
  The other grounds raised in the appeal were not pressed by the assessee and were dismissed as not pressed. The appeal filed by the assessee was partly allowed by the Tribunal.
  
  This summary provides a detailed overview of the judgment, addressing each issue involved and the Tribunal's findings on each issue based on the arguments presented and relevant legal precedents.

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• 2009 (12) TMI 717
  
  Issues:
  - Deduction under section 80HHC in respect of Duty Entitlement Pass Book.
  - Requisite conditions under the third proviso to section 80HHC(3).
  - Compliance with conditions for claiming benefit under the third proviso.
  - Interpretation of provisions of law by the Commissioner of Income-tax (Appeals).
  
  Analysis:
  The appeals before the Appellate Tribunal ITAT DELHI concerned the deduction under section 80HHC in relation to Duty Entitlement Pass Book for the assessment years 2003-04 and 2004-05. The Revenue appealed against the decision of the Commissioner of Income-tax (Appeals), Bareilly, who allowed the claim of the assessee regarding the inclusion of Duty Entitlement Pass Book in the deduction under section 80HHC. The Revenue contended that the Commissioner did not address the requisite conditions specified in the third proviso to section 80HHC(3), which were crucial for claiming the benefit. The Tribunal noted that the third proviso applies when the export turnover exceeds Rs. 10 crores, and the assessee must fulfill specific conditions to avail the benefit, including the option between duty draw back and Duty Entitlement Pass Book Scheme, with higher rates of credit under the former. The Tribunal found that the Commissioner's decision did not align with the law as the conditions of the third proviso were not met by the assessee. Therefore, the Tribunal set aside the issue for the Commissioner to reexamine the case in light of the third proviso and make a decision based on the merits.
  
  The Tribunal emphasized that for the computation of deduction under section 80HHC(1), export profit is determined as per section 80HHC(3), with the profit of business calculated under the Explanation to section 80HHC. The export profit is then computed under section 80HHC(3), with specific increases as per the provisos. The third proviso applies to cases where export turnover exceeds Rs. 10 crores, requiring the fulfillment of laid down conditions for claiming the benefit. The Tribunal highlighted the necessity for the assessee to provide evidence of choosing between duty draw back and Duty Entitlement Pass Book Scheme, with higher credit rates under the former. The Tribunal found that the Commissioner's direction to allow the deduction without considering the provisions of the third proviso was not in accordance with the law, leading to the decision to remand the issue for proper examination by the Commissioner.
  
  Ultimately, the appeals filed by the Revenue were allowed for statistical purposes, and the case was remanded to the Commissioner of Income-tax (Appeals) for a thorough review based on the provisions of the third proviso to section 80HHC(3). The judgment was delivered by the Appellate Tribunal ITAT DELHI, with the order pronounced in open court on December 10, 2009, following the conclusion of the hearing.

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• 2009 (12) TMI 716
  
  Issues Involved:
  1. Double addition of Rs. 18,87,000 as capitation fees.
  2. Deletion of addition of Rs. 14,33,132 on account of salary paid and received back.
  3. Deletion of addition of Rs. 9,41,945 on account of salary paid and received back for the assessment year 2006-07.
  
  Summary:
  
  Issue 1: Double Addition of Rs. 18,87,000 as Capitation Fees

  The Revenue contended that the learned Commissioner of Income-tax (Appeals) erred in treating the receipts of Rs. 18,87,000 as 'double addition' and accepting it as advance fees. The assessee argued that the addition of Rs. 3,60,400 was without basis as it would result in double taxation. The Tribunal found that the amount of Rs. 18.37 lakhs was already declared by the assessee as income, either as advance fees or included in tuition fees. Therefore, no additional amount could be justified. The Tribunal allowed the assessee's ground and rejected the Revenue's grounds.

  Issue 2: Deletion of Addition of Rs. 14,33,132 on Account of Salary Paid and Received Back

  The Revenue challenged the deletion of Rs. 14,33,132 made by the Assessing Officer on account of salary paid to employees and received back. The Tribunal noted that the Assessing Officer based his addition on the statement of one employee, while ignoring the statements of 11 other employees who confirmed receiving their full salary. The Tribunal upheld the learned Commissioner of Income-tax (Appeals)'s decision, finding no good reason to interfere, and dismissed the Revenue's ground.

  Issue 3: Deletion of Addition of Rs. 9,41,945 on Account of Salary Paid and Received Back for the Assessment Year 2006-07

  The Revenue raised a similar issue for the assessment year 2006-07 regarding the deletion of Rs. 9,41,945. Both parties agreed that this issue could be decided on similar lines as the previous year's issue. The Tribunal decided in favor of the assessee, dismissing the Revenue's ground.

  Conclusion:

  In the combined result, both appeals of the Revenue were dismissed, and the appeal of the assessee was allowed. The order was pronounced in the open court on December 4, 2009.

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• 2009 (12) TMI 715
  
  Issues:
  1. Liability for failure to deposit tax deducted at source.
  2. Contention regarding refund adjustment and interest liability.
  3. Claim of not being treated as an assessee in default under section 201.
  4. Validity of interest levy under section 201(1A).
  
  Analysis:
  
  1. The issue at hand revolves around the liability of the assessee for failing to deposit tax deducted at source (TDS) into the Government account. The inspection revealed that despite deducting TDS under different heads, the amount was not deposited. The Assessing Officer treated the assessee as an assessee in default and levied interest under section 201(1A) of the Income-tax Act, 1961.
  
  2. The assessee contended that due to financial constraints and losses, it could not pay the TDS, requesting adjustment of a refund against the TDS demand. However, the Commissioner of Income-tax (Appeals) upheld the order, stating that the liability for TDS deposit was admitted, and the refund claim of Rs. 13 lakhs lacked supporting evidence. The interest levy was deemed consequential and upheld.
  
  3. The assessee further argued that export embargoes and incurred losses led to the default in TDS payment, emphasizing a substantial assessed loss. The request to adjust the refund against the TDS department's cheque was pending, seeking non-treatment as an assessee in default under section 201 and withdrawal of penalty under section 201(1A).
  
  4. The Departmental representative countered by asserting that the assessee had deducted TDS from 2004-05 to 2008-09, with the refund not due before 2007-08. Financial losses were deemed insufficient grounds to absolve the assessee from default. The obligation to deposit TDS on time was emphasized, with interest under section 201(1A) seen as compensatory for withholding Government funds.
  
  In the final judgment, the Tribunal noted that the assessee admitted to deducting TDS but failed to deposit it, leading to default under section 201(1). Financial difficulties were not accepted as a valid reason for non-compliance. The obligation to deposit TDS promptly was stressed, and interest under section 201(1A) was upheld as compensatory. Consequently, all appeals by the assessee were dismissed, affirming the liability for TDS default and interest levy.

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• 2009 (12) TMI 714
  

  Capital gain computation - determination of sale price - undervaluation of sale price of the property based on rent capitalisation method - section 50C applicability - AO made addition in the sale price adopting the report of the Valuation Officer in some other case of rented property, taking rent capitalisation as the basis and adopting a multiplier of 12.5 - as contended that the property held by the assessee is stock-in-trade and not a capital asset - CIT(A) deleted the addition stating merely on suspicion and by applying the rent capitalisation method, it cannot be upheld that the actual sale consideration received by the assessee was much higher. Since the sale proceeds could not be determined on the basis of estimation, the addition made by the AO is not justified.

  HELD THAT:- The assessee is following the mercantile system of accounting. As per the mercantile system of accounting those income which accrues to the assessee is chargeable to tax. On the sale of stock-in-trade, what accrues to the assessee is accruing as per the sale deed executed by the assessee. The assessee has declared the income on the basis of sale deed executed by it. There is no provision in section 28 to substitute the accrued consideration for market value of such consideration.

  Assessing Officer has simply applied the Wealth-tax Rules for valuing the property but has neither examined the purchaser nor has independently found out whether the assessee has received any consideration over and above the stated consideration. Except the suspicion or an opinion that the property is undervalued, no material is available to the Assessing Officer to presume that any "on money" was received by the assessee or that anything over and above the stated consideration accrued to the assessee.

  Where the asset sold by the assessee is a capital asset, the income from which is chargeable as capital gain. Prior to insertion of section 50C there was no provision to substitute the fair market value for the consideration accruing as a result of transfer for the purpose of capital gain under section 48 of the Act.

  While considering those provisions the hon'ble Delhi High Court in the case of Smt. Nilofer I. Singh [2008 (8) TMI 165 - DELHI HIGH COURT] held that the Revenue is not justified in substituting actual sale consideration in agreement to sell by the value arrived at by the Departmental Valuation Officer. It was also held that there is no necessity to compute the fair market value.

  Section 50C was introduced by the Finance Act, 2002, with effect from April 1, 2003, wherein the AO is empowered to substitute the value adopted by the stamp valuation authority for the purpose of section 48 to be the full value of consideration received or accruing as a result of transfer for the purpose of computing gain. However, the said provision is only with reference to computation of capital gain and being a deeming provision will strictly apply for the purpose of computing capital gain alone. The settled law in this regard is that deeming provisions are to be strictly construed and will not extend to areas other than the same is deemed to apply. The deeming provision presumes an unreal thing as the real thing.

  Therefore, the provisions of section 50C cannot be imported while computing profits and gains of business or profession. In such a situation only the income accruing to the assessee can be taxed u/s 28. Since there is no finding that the consideration received by the assessee on sale of stock-in-trade is over and above the stated consideration, the AO is not justified in making any addition by estimating the fair market value.

  The decision of Hanemp Properties P. Ltd. v. Asst. CIT [2006 (3) TMI 212 - ITAT DELHI-A] is a decision with reference to the determination of the "purchase price" and not the sale price and, therefore, has no application nor can it lead to the invocation of section 142A. Secondly, for comparison with the fair market value of an asset there are specific sections like section 50C or section 55A which have no application whatsoever to the determination of sale price to stock-in-trade. Reference is made to the decision in the case of Inderlok Hotels P. Ltd. v. ITO.[2009 (2) TMI 235 - ITAT BOMBAY-I].

  The issue is no more res integra. The sanctity of the sale price vis-a-vis its fair market value is covered in favour of the assessee.

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• 2009 (12) TMI 713
  

  Unexplained share capital u/s 68 - bogus share transactions - To find out the identity, creditworthiness and genuineness of the amount received, letters were issued u/s 133(6) calling for requisite information but Most of the letters were not served and were received back with the postal remark "no such party" and for some the reply was not received.

  HELD THAT:- In the present case in spite of all the efforts where the Assessing Officer could not even locate the respective so-called applicants, the assessee could file undated confirmations and affidavits. Therefore, it is a case where all the papers are manufactured at the instance of the assessee and not the real transaction. We, therefore, merely on the basis of such papers cannot hold that the amount received by way of share capital is explained within the meaning of section 68 of the Act.

  The Full Bench of the Delhi High Court in the case of Sophia Finance Ltd. [1993 (8) TMI 62 - DELHI HIGH COURT] have held that the provision of section 68 shall equally apply even in the case of amount stated to be received towards share capital. Since the assessee failed to prove even the basic identity as also the creditworthiness and the genuineness of the transaction in the form of share premium, the addition was rightly made by the Assessing Officer. In the result, the appeal is dismissed.

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• 2009 (12) TMI 712
  
  Issues:
  Assessment of penalty under section 271(1)(c) of the Income-tax Act, 1961 based on additions made by the Assessing Officer, including unpaid SEBI registration fee, travelling expenses, and LIC premia.
  
  Analysis:
  
  The appeal before the Appellate Tribunal pertained to the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the assessment year 2001-02. The Assessing Officer had made additions to the income of the assessee-company, a share broker, resulting in a revised income determination. The Commissioner of Income-tax (Appeals) confirmed certain additions, including unpaid SEBI registration fee, travelling expenses, and LIC premia, leading to the initiation of penalty proceedings. The Tribunal upheld the additions, except for the SEBI registration fee, for which the penalty was deleted by the Commissioner. The assessee contended that the expenses in question were legitimate business expenditures and did not warrant penalty under section 271(1)(c).
  
  The assessee's arguments primarily focused on justifying the deductions claimed, asserting that the expenses were incurred for business purposes and were essential for conducting the company's operations. The assessee highlighted that the foreign travel expenses were aimed at prospecting business from NRI clients, resulting in substantial business gains. Similarly, the LIC premia payments were defended as reflecting business-related involvements of the directors. The assessee emphasized that the quantum additions did not automatically imply concealment of income or inaccurate particulars, especially when the expenses were genuinely incurred for business purposes.
  
  In contrast, the Revenue contended that the foreign travel undertaken by the directors did not serve a business purpose, as evidenced by the nature of the tour package and lack of tangible evidence linking the trips to business generation. Additionally, the LIC premia payments were deemed personal in nature, unrelated to the company's business activities. The Revenue argued that the penalty was justified based on the nature of the disallowed expenses and the absence of business nexus.
  
  The Tribunal analyzed the factual matrix of the case, emphasizing the importance of substantiating business expenses with concrete evidence of business-related activities. It observed that the foreign travel expenses lacked a clear business purpose, as the luxury trips did not demonstrate efforts to generate business. Similarly, the LIC premia payments were deemed personal withdrawals from the company's funds, unrelated to business exigencies. The Tribunal agreed with the Commissioner's findings that the expenses did not qualify as legitimate business expenditures, warranting penalty under section 271(1)(c) for furnishing inaccurate particulars of income.
  
  Ultimately, the Tribunal upheld the Commissioner's order, dismissing the assessee's appeal and affirming the imposition of penalty under section 271(1)(c) for the disallowed expenses. The decision was grounded in the conclusion that the expenses in question were not incurred for the business purposes of the assessee-company, leading to the furnishing of inaccurate particulars of income and justifying the penalty imposition.
  
  In conclusion, the Tribunal's detailed analysis highlighted the critical distinction between legitimate business expenses and personal expenditures, emphasizing the necessity of establishing a direct nexus between expenses claimed and business activities. The decision underscored the significance of substantiating deductions with business-related evidence to avoid penalties for inaccurate particulars of income under the Income-tax Act.

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• 2009 (12) TMI 711
  
  Issues involved:
  1. Interpretation of deduction under sections 80HHC and 80-IB u/s 80-IA(9) of the Income-tax Act, 1961.
  2. Disallowance of sales commission for failure to prove recipient as a non-resident.
  
  Interpretation of deduction under sections 80HHC and 80-IB u/s 80-IA(9):
  The appeals by the Revenue challenged the direction of the Commissioner of Income-tax (Appeals) to allow deductions under sections 80HHC and 80-IB on the gross total income separately, contrary to the provision of section 80-IA(9). The Tribunal referred to a Special Bench decision and a Madras High Court case, concluding that the deduction under section 80HHC should be allowed after deducting relief under section 80-IA(9). The Tribunal upheld the application of restrictions from the assessment year 1999-2000 onwards, deciding the issue in favor of the Revenue.
  
  Disallowance of sales commission for failure to prove recipient as a non-resident:
  The Assessing Officer disallowed sales commission paid to a foreign entity, questioning the residency status of the recipient. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify if the payment was made outside India and allow the claim if so. The Tribunal upheld this direction, stating that if the payment was made to a non-resident and the income is not taxable in India, section 40(a)(i) would not apply. Consequently, the appeals filed by the Revenue were partly allowed, with the matter remitted for verification.
  
  This judgment clarifies the interpretation of deductions under specific sections of the Income-tax Act and emphasizes the importance of proving the residency status of recipients for claiming certain expenses, ensuring compliance with relevant tax provisions.

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• 2009 (12) TMI 710
  
  Issues involved: Appeal against order u/s 143(3) for assessment year 2000-01 regarding addition of unexplained investments under section 69 and ownership of shares and loans.
  
  Addition of unexplained investments under section 69:
  The Revenue appealed against the deletion of Rs. 23,80,000 addition made on account of unexplained investments towards loan and shares under section 69 of the Income-tax Act, 1961. The assessee had obtained loans against pledge of shares belonging to Shri Gian Gupta and Smt. Usha Gupta. The Assessing Officer treated the investment in shares as made by the assessee, resulting in the addition. However, during the appellate proceedings, the assessee provided evidence that the shares were pledged by Shri Gian Gupta and Smt. Usha Gupta to raise a loan, and the real beneficiaries were not the assessee. The Commissioner of Income-tax (Appeals) considered the submissions and evidence presented by the assessee, concluding that there was no sufficient ground for the addition in the absence of contrary evidence. The Commissioner held that the shares belonged to Shri Gian Gupta and Smt. Usha Gupta, and the assessee was not the owner of the shares. The addition of Rs. 23.80 lakhs was deleted based on the provided documents and explanations.
  
  Ownership of shares and loans:
  The assessee raised loans from HDFC Bank and Standard Chartered Bank against shares belonging to Shri Gian Gupta and Smt. Usha Gupta. Detailed submissions were made regarding the ownership of the shares and the utilization of the loan amounts by the actual owners. Documents including bank accounts, D-mat account details, agreements with banks, and balance-sheets were furnished to support the contentions. Affidavits of concerned persons were also submitted. It was clarified that the shares were pledged by Shri Gian Gupta and Smt. Usha Gupta, and they were the real beneficiaries of the loans. The Commissioner held that the assessee, Shri Hanuman Prasad Shukla, was not the owner of the shares and was merely an employee of Smt. Usha Gupta. The loans were utilized by the actual owners, who declared the investments and liabilities in their balance-sheets. The Commissioner concluded that the assessee had not made any investment in the shares and was not the beneficiary of the loans, upholding the deletion of the addition made under section 69.
  
  Decision:
  The Tribunal upheld the order of the Commissioner of Income-tax (Appeals), dismissing the Revenue's appeal. The Tribunal found that the assessee was not the owner of the shares in question, and there was no evidence to suggest that the investments were made from unaccounted money. The detailed discussion and evidence presented supported the conclusion that the shares belonged to Shri Gian Gupta and Smt. Usha Gupta, and the addition under section 69 was rightly deleted. The appeal filed by the Revenue was therefore dismissed on December 4, 2009.

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