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Showing 361 to 380 of 699 Records
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2008 (5) TMI 389
‘Paper and paperboard or articles made there from’ - exemption under Notification No. 6/2002-C.E., as amended by Notification No. 48/2004-CE., dated 10-9-04 (S. No. 86A) - Central Pulp & Paper Research Institute and IIT, Roar in their separate opinion have opined that the appellant’s plant appears to be suitable for pulping agricultural residues - unit of the appellants are eligible for the benefit of exemption.
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2008 (5) TMI 387
Appellate Tribunal - Appeal filed by appellant was adjourned, in view of pendency of appeal in another case on same facts in High Court. Appellant filed application for modification of said order on ground that it was passed on mis-representation of facts by revenue and that there was no interim order of High Court in that regard. Appellant further prayed for return pre-deposited amount in case appeal was not heard on merit. Held that - since there was no interim order of High Court to the contrary, two vies could always be taken and it was open to Tribunal to hear appeal in such matters.
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2008 (5) TMI 385
Levy of interest under section 234A, 234B, and 234C on the ground that there was no specific direction was given indicating that the interest was being charged under section 234A, 234B, 234C of the Act. The order merely directed, “Charge interest as per law”. Held that:- The assessment order specified all the provisions of law, under which the interest to be charged from the assessee. Moreover the order was passed in consequence of the order passed by the Tribunal. The order also revealed that the interest was being charged under section 234A, 234B, 234C of the act and also the amount of interest to be charged. The order was valid.
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2008 (5) TMI 382
Rectification of an order – section 154 - the petitioner has been filing repeated applications under Section 154 and that this practice is not to be encouraged. The petitioner has agreed that if he is given an opportunity of hearing in respect of his application under Section 154, which was dismissed on 26.04.2005, no further applications under Section 154 would be filed in respect of the very same order. He also undertook that the fourth application, which has purportedly been filed under Section 154 of the said Act, could also be deemed to have been withdrawn. Held that: Considering the chequered history of this case and the somewhat convoluted facts, we are of the view that it would serve the ends of justice if the entire proceedings are cut short and the petitioner is given a final opportunity to present his case with regard to his application under Section 154, which had been dismissed by the impugned order dated 26.04.2005. We note from the impugned order itself that the petitioner was not given a personal hearing before disposing of the said application. Consequently, we set aside the impugned order dated 26.04.2005 and direct the Commissioner of Income-tax (Appeals), New Delhi to grant the opportunity of hearing to the petitioner and thereafter pass an order on the said application in accordance with law.
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2008 (5) TMI 379
Capital or Revenue Expenditure – Hotel Expenditure on repair and maintenance of room – whether the sum of Rs. 4,26,000/- which was incurred by the assessee on the repairs and maintenance of the rooms of the hotel was revenue expenditure? - In this case Rajasthan High Court-held that the Tribunal appears to be correct in concluding that the said amount ought to be treated as an expenditure and not as income, the appeal therefore is dismissed. Decision in favor of assessee – against the revenue
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2008 (5) TMI 375
AO made additions as assessee has not submitted its accounts in Form No. 10AA on or before June 30, 2004, to the DGIT(E), New Delhi as required under section 80G(SC)(v) of the Income-tax Act, 1961 read with rule 18AAAA of the Income-tax Rules, 1962 - Commissioner of Income-tax (Appeals) deleting the addition on ground that filing of audited report along with the return was directory and is not mandatory - Commissioner of Income-tax (Appeals) as well as the Tribunal both rightly found that though the assessee has not submitted its accounts in Form No. 10AA before the prescribed authority in given time, but that does not justify the addition and disallowance of the claim of the assessee. – Revenue’s appeal is dismissed
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2008 (5) TMI 372
Validity of re-assessment proceedings under section 147 - condition precedent for reopening is absent - Computation deduction u/s 10A - set off business loss or unabsorbed depreciation of non-STPI unit from the income of the STPI unit for computing deduction u/s 10A - Computation of Export Turnover - Export (sic-expenses) incurred in foreign exchange.
HELD THAT:- In the case of Yokogawa India Ltd. It has been held that s. 10A allows deduction from total income and does not allow exemption from total income as s. 10A has been amended w.e.f. 1st April, 2001. Deduction is undertaking specific as the word an undertaking is used. Income of that undertaking is to be computed as per provisions of the Act, as if it was the only undertaking. The jurisdictional High Court in the case of CIT vs. Siddaganga Oil Extractions (P) Ltd [1992 (11) TMI 65 - KARNATAKA HIGH COURT] held that loss in respect of hydrogenation plant cannot be set off from the profits of the solvent plant for computing deduction under s. 80HH in respect of solvent plant. Hence, if there are brought forward losses (including unabsorbed depreciation) of STPI unit then the same is to be considered for the purpose of computing deduction under s. 10A.
Following the orders of Tribunal in the case of Huawei Technologies (India) (P) Ltd. held that for computing deduction u/s 10A, one has to ascertain the total income as per provision of the Act in respect of that undertaking and the amount so determined, to be reduced from the total income, meaning thereby, the s. 10A deduction is to be allowed from the total income without setting off of brought forward and current year's loss of non-s. 10A unit.
Therefore, AO is directed not to set off business loss or unabsorbed depreciation of non-STPI unit from the income of the STPI unit for computing deduction u/s 10A.
Export (sic-expenses) incurred in foreign exchange - CIT(A) confirmed that on site payments should be reduced for the purposes of arriving at the export turnover - HELD THAT:- The CBDT Circular No. 694, stated that computer programmes are not physical goods but are developed as a result of an intellectual analysis of the system and method followed by the purchaser of the programme. It is often prepared on site with the software personnel going to the clients premises. Hence, when the expenditure is in respect of payments on site development. the same cannot be excluded from the export turnover by holding it as technical services. When export of services only is not entitled to deduction under s. 10A then the legislature made clear that foreign exchange relating to technical services will be excluded. If there is export of goods as well as services then only that portion will be eligible for deduction which relates to goods. Hence. the AO is not justified in excluding from export turnover.
Technical service charges - Words mentioned in respect of debit of expenditure are to be considered unless it is established by the assessee that the expenditure does not relate to that issue. Hence, the AO was justified in excluding a sum from the export turnover.
Disallowance on Communication charges - This Bench, while deciding the appeal in the case of I Gate Global Solutions Ltd.[2007 (11) TMI 444 - ITAT BANGALORE] upheld the finding of the learned CIT(A) that 80 per cent of the uplinking charges be reduced from the export turnover. Hence, the AO will ascertain the telecommunication charges attributable to the delivery of the software. To that extent, the amount will be reduced from the export turnover.
In the result, the appeal filed by the assessee is partly allowed.
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2008 (5) TMI 371
Income deemed to accrue or arise in India - Operations through its liaison office - Activities of the Liaison Office (LO) - Non Resident - liaison office in India as the PE - Applicability of cl. (b) of Expln. 1 to s. 9(1)(i) of the IT Act - main activity of purchase or procurement of apparels from India for the purpose of export by those manufacturers directly to the various subsidiaries of the assessee spread at various places in the world - HELD THAT:- Assessee had clarified that its duties or activities are confined to communicating and co-ordinating of purchase and is not to be a part of contract of purchase by itself, other than identifying the buyer to the manufacturer and the ultimate affiliates to whom the goods are sent. It was clearly mentioned that all purchase orders are issued by the office in USA and only that the goods are supplied to various affiliates whose addresses are provided. It was also explained that the goods that are exported to various affiliates located at different parts of the world have made payments.
The liaison office was clearly not an office which was floating tenders, placing purchase orders and taking physical delivery of the goods, since it was only an agency office of the assessee or buying agents for all its affiliates in the course of its activity as agent to see that the various affiliates receive the goods they want and to the quality they expect. The officials train the employees of the manufacturers only so that the standard that is required and maintained by the assessee affiliates and that the name of the Nike related to a quality is sustained. It was also explained that all the services provided by the liaison office were in connection with the supplies to be made by the manufacturer to the affiliates. The training and other activities were only carried with the manufacturers to whom contract has been awarded for manufacturing apparels for supply to affiliates, it was not provided to any other third party.
Further, since all these were required for the purpose of ultimate quality control, it was only an identical activity as the assessee supervising manufacturing by itself. No billing was made on the manufacturer and hence there was no income on this count. The various employees of different types with different qualifications were only assisting the manufacturers and ensuring that the quality product is purchased by the affiliates of the assessee. The authorities below, in our opinion, had gone wrong in holding that the assessee did not buy the goods for export and exemption is not applicable under s. 9(1)(i) on the reasoning that it is applicable only to the actual buyer.
Assessee has opened a liaison office solely for the purpose of helping its affiliates located at different parts of the world to buy the goods etc. for trading operations. The assessee is the purchasing agent of the various affiliates who are actual buyers. The assessee as the purchasing agent places the orders, specifying the quantity, price, the affiliate with address on whom the bill is to be raised and the destination to which the goods should be sent.
There are three ways of purchase. (1) Purchase of goods and receipt of goods at the same time at one place where the office of the assessee is located. (2) Purchase information sent by the assessee but goods dispatched to the various places as directed by it which may be where its sale outlets are located. (3) The assessee as an agent of buyers indicates to the manufacturer the rate at which the goods will be supplied, the names of the buyers and the address of the buyers where the goods have to be sent under intimation to it and that the person so indicated will be the purchaser on whom the bill should be raised and such person shall make the payment also.
Liaison office in India as the PE - Assessee in USA apparently is a world wide organization and carries on as agents for its various affiliates, who ultimately buy the goods and sell the goods - Activities of the assessee non-resident are confined to purchase of goods though not for itself, but for its affiliates and it ends by export of the same from India - The only contract between the local manufacturer and the assessee is to manufacture various products according to the specifications provided by the assessee and raise the invoice on the various affiliates indicated by the assessee and finally dispatch the goods to the destination of the various affiliates as indicated by the assessee. The local manufacturer raises the invoice and supplies the material to the affiliates of the assessee and receives sale consideration in convertible foreign exchange from these affiliates. The assessee nowhere acts as the agent of the local manufacturer but always remains the agent of its various affiliates with activities of identifying the manufacturer and assisting in the affiliates receiving the goods as per the norms at the price determined by the assessee.
It is a case of the assessee purchasing the goods for the purpose of exports. In the absence of there being any prima facie contract between the assessee and the local manufacturer, the only relationship is that of buyer's agent and the local manufacturer knows the assessee only as the agent of the buyers, The local manufacturers know that the agent of the buyer, viz., the assessee, has placed the orders on it with a view to buy the goods in the course of export and as directed exported it to various affiliates of the assessee. Therefore, the Expln. (1)(b) purchase for the purpose for export clearly applies to the assessee and hence, no income is derived by it in India through its operations of the liaison office in India.
In the result, the appeals by the assessee are allowed and that of the Department are dismissed.
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2008 (5) TMI 370
Eligibility of Exemption u/s 10(23C)(iiiab)/(vi) - Educational Institution - Institute is wholly and substantially financed by the Government or not - grants received from the Government and the balance amount is generated by the Institute out of fees and other income - fees collected exceed the grants received from the Government - fees received and credited in the Consolidated Fund of India.
HELD THAT:- This Bench in the case of Bangalore University held that in case in a year fees collected from students exceed the grants received from the Government will not render it outside the purview of being an educational institution existing solely for the education purpose. The fact that the university was being hitherto run by the Government funds cannot be ignored. The Tribunal allowed exemption to Bangalore University u/s. 10(23C)(iiiab). The ratio of law as laid down in that judgment is squarely applicable.
From the figures as appearing in the balance sheet, it is clear that the finance has been provided by the Government and it cannot be said that the institute is not substantially financed by the Government. Therefore, we have no hesitation to hold that the institute is substantially financed by the Government.
On Perusal of the letter from the Ministry of HRMD to the Director, IIM. It is clear that the revenue generated by the institute belongs to the Consolidated Fund of India and the Government after a conscious decision has permitted the IIMs to retain and spend the revenue so generated for their maintenance and growth. Thus, the fees which are being received and credited in the Consolidated Fund of India are made available to the institute by the Government as per power conferred to the Government under Art. 266(3) of the Constitution. This makes it abundantly clear that finances are provided by the Government.
Income of an educational institution is exempt if it is existing solely for educational purposes and wholly and substantially financed by Government u/s 10(23C)(iiiab). In other cases, i.e., if it is not wholly and substantially financed by Government, the income is exempt u/s 10(23C)(iiiad) if receipts are less than one crore and exempt u/s 10(23C)(vi) if receipts exceed one crore.
Eligible for exemption u/s 10(23C)(vi), the institute is to be approved by prescribed authority. The institute applied for approval u/s 10(23C)(vi) as the Revenue was taking a stand that income is not exempt u/s 10(23C)(iiiab). The application for notification u/s 10(23C)(vi) was not processed as according to the AO, the case of the assessee fell u/s 10(23C)(iiiab). Now the Revenue cannot take a different stand. It cannot be visualized that the case of the assessee will fall neither u/s 10(23C)(iiiab) nor 10(23C)(vi). Once application u/s 10(23C)(vi) was not preceded then it is to be held that the case of assessee falls u/s 10(23C)(iiiab). The Revenue cannot be permitted to blow hot and cold.
Therfore, we hold that the learned CIT(A) was justified in holding that income of institute is exempt u/s 10(23C)(iiiab) and the appeal of Revenue is dismissed.
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2008 (5) TMI 363
Issues:
The appeal filed by the assessee against the order of the CIT(A) upholding the disallowance of interest paid for making interest-free advances.
Details of the Judgment:
The Assessing Officer (AO) observed a significant difference between the interest paid and interest received by the assessee, along with interest-free advances made. The CIT(A) noted that the assessee had surplus funds from advances received from customers, yet borrowed funds on interest to make interest-free advances to related parties. The CIT(A) confirmed the disallowance of interest paid by the assessee. The assessee argued citing a precedent from the Ahmedabad Bench of the Tribunal, emphasizing the overall position of funds. The Tribunal disagreed with the lower authorities, stating that interest on borrowed funds is allowable when used for business purposes. The Tribunal found the interpretation of law by the lower authorities to be incorrect and decided to restore the issue back to the AO for further consideration.
Therefore, the appeal of the assessee was allowed for statistical purposes, and the issue was remanded back to the AO for proper examination and decision after providing a reasonable opportunity of hearing to the assessee.
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2008 (5) TMI 362
Issues involved:
The issues involved in this case are whether the amount received for the transfer of rights in land should be treated as business income or long-term capital gains.
Issue 1: Classification of income
The assessee claimed that the profit from the sale consideration of land should be considered as capital gains and not business income since the land was inherited and not purchased. However, the AO treated the sale proceeds as business income, stating that the land had been converted into stock-in-trade for profit. The AO relied on the definition of transfer under section 2(47) of the Act to support this classification. The CIT(A) upheld the AO's decision, noting the intention of the landowner to earn profits through a partnership firm's construction activities on the land.
Issue 2: Partnership arrangement
The partnership deed of the firm involved in the construction project revealed that the assessee, as a co-owner of the land, had entered into an arrangement where the land was used for business purposes. The CIT(A) observed that the assessee's involvement in the construction venture indicated a clear intention to earn profits from the land. The Tribunal concurred with the lower authorities that the surplus arising after the conversion of the land into stock-in-trade should be treated as business income. However, the Tribunal found the date of conversion to be arbitrary and directed the AO to re-compute the income based on the fair market value as of a specific date.
Conclusion
The Tribunal allowed the appeal of the assessee for statistical purposes, directing the AO to re-calculate the income considering the specific date of conversion into stock-in-trade. The Tribunal rejected the argument that the income from the land should not be treated as business income due to the separate treatment of income from the partnership firm. The decision emphasized the intention of the landowner to engage in profit-making activities through the partnership arrangement, leading to the classification of the surplus as business income.
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2008 (5) TMI 361
Allowability of deduction u/s 10B - Object clause - No new undertaking - Violation of STPI norms - Not engaged in production of computer software - business of software development - 100 per cent export oriented software technology park - conversion of an existing software export unit to STP unit - Whether or not company can be termed as manufacture or production of software - Main contention of the AO is that the employees of the taxpayer, including its CMD have admitted during the survey that the taxpayer company was not undertaking any manufacturing activities -
HELD THAT:- Manufacture or production of software has to be decided in the light of relevant provisions of law and the activities actually undertaken by the taxpayer and not on the basis of statement of employees. The words 'manufacture or production' have been subject-matter of judicial interpretation under various enactments. What their meaning is in common parlance may not necessarily be so on interpretation of relevant provisions of an enactment. In any case interpretation of these words for the purpose of deduction under s. 10B of the Act, cannot solely be decided on the statement of employees alone.
Sec. 10B was inserted by the Finance Act, 1988 w.e.f. 1st April, 1989 and later on it was amended from time to time. According to this provision, any profits and gains derived by an assessee from a hundred per cent EOU shall not be included in the total income of the assessee. As provided in cl. (2) of s. 10B, the exemption is available to undertakings.
Sec. 10BB: The profits a gains derived by an undertaking from the production of computer programs u/s 10B, as it stood prior of its substitution by s. 7 of the Finance Act, 2000 00 of 2000), shall be construed as if for the words 'computer programs', the words 'computer programs or processing or management of electronic data' had been substituted in that section".
When the provisions of s. 10BB of the Act, stipulate the profits and gains derived by an undertaking from the production of computer programs or processing or management of electronic data, to be eligible for deduction u/s 10B of the Act, we are inclined to accept the findings of learned CIT(A), who after analyzing the details of activities of the taxpayer concluded that taxpayer is entitled to deduction under s. 10B of the Act. As explained before the learned CIT(A), unit is involved in developing test programs that would automate the function of verifying the functioning of complete designs involving millions of transistors on a single chip. That chip verification as a process is not a manual job as may be viewed by an outsider. It requires development of highly sophisticated test programs in very special high level languages.
Further unit is also involved in software development and manufacturing of such programs from a scratch. Apparently, these are very complex programs. Similarly, the complete system, that incorporates microprocessor hardware and software; but does not look like a computer is stated to be an 'embedded system'. Telephone exchanges as well as phone instruments are examples of such products. Unit also designs, develops, prototypes and markets such complete products. Besides, unit designs, develops and manufactures such application software for its clients and tests it.
From time to time, it is also involved in testing of such software to ensure that there are no defects in such programs. Apparently, in the light of relevant provisions of ss. 10B and 80HHE of the Act, unit is involved in software development activity in writing 'programs' to carry out the services as per the agreements with various customers. Moreover, the AO in his order admits that activities of human resource, engineering and design as also data processing falling within the notification issued by the CBDT, are entitled to deduction under s. 80HHE of the Act but not under s. 10B of the Act.
Apparently, this stand of the AO is self-contradictory, as pointed out by the learned CIT(A), especially when the aforesaid notification has been issued, having recourse to same definition of computer software in both the sections and is thus, equally applicable for benefits under both these sections.
Manufacture or production of computer programs, In the case of Sovika Infotek Ltd. vs. ITO [2007 (7) TMI 441 - ITAT MUMBAI] training activity of the assessee intrinsically connected with software development, sale, maintenance, etc. was held to be entitled to deduction under s. 10B of the Act.
The argument of the Revenue that the ld CIT(A) has completely overlooked that 'computer software' as defined under the section means any computer program recorded on any disc, tape, perforated media or other information storage device and does not include any services of qualified personnel given by the assessee, is not in accordance with the intent expressed in the circular and Expln. 3 to s. 10B applicable for the year under consideration.
The next plea of the Revenue that even tools for manufacturing are not available with the company, is also baseless since for development of software, what is necessary is skilled manpower, computer and internet apart from certain reference books. Even otherwise, assuming this plea is accepted, then on what basis the AO allowed deduction u/s. 80HHE of the Act, has not been explained.
Another argument of the Revenue is that learned CIT(A) erred in applying the definition of computer software under the Copyright Act and not under the IT Act. We find from the order of learned CIT(A) that while referring to decision of the Tribunal in the case of Asstt. CIT vs. Amadeus India (P) Ltd.[2001 (1) TMI 918 - ITAT DELHI], it was observed that computer program (not computer software) is not defined in the Act.
We are in agreement with the findings of learned CIT(A) that activities undertaken by the taxpayer were in respect of production and export of computer software within the meaning of provisions of s. 10B of the Act, especially when the AO himself concluded so for the purpose of s. 80HHE of the Act. We are also in agreement with the uncontroverted submission of the ld AR on behalf of the taxpayer that the taxpayer did not claim any deduction in AY 1996-97 and for the first time claimed deduction u/s 10B in AY 1997-98 and this being the 5th year, claim has to allowed.
Violation of STPI norms and Establishment of new undertaking - On the aspects of violation of STPI norms and establishment of new undertaking, we do not find any infirmity in the findings of learned CIT(A) - In the light of this circular and the findings of learned CIT(A), with which we agree, there is no ground for denial of claim for deduction under s. 10B of the Act, the taxpayer having registered as 100 per cent EOU in the period relevant to AY 1996-97.
Violation of norms of STPI, we are of the view that unless violation of conditions of approval, impinge on conditions for grant of deduction under the relevant provisions of the Act, there is no ground for denial of deduction. In this case the status of taxpayer as 100 per cent EOU and under STPI scheme continues. For the default, already penalty has been imposed by the concerned authorities.
Domestic sales - second proviso to the extant s. 10B(1) itself permits that that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent, of total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software.
Therefore, we do not find any infirmity in the findings of learned CIT(A) and consequently uphold his order and reject the grounds raised by the Revenue - Appeal is dismissed.
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2008 (5) TMI 357
Issues Involved:
1. Claim of deduction under Section 36(1)(viii) of the Income Tax Act, 1961.
2. Cancellation of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.
Issue-wise Detailed Analysis:
1. Claim of Deduction under Section 36(1)(viii):
Facts and Proceedings:
The assessee claimed a deduction under Section 36(1)(viii) amounting to Rs. 155.75 lakhs, which included discounting charges and interest on bank deposits. The Assessing Officer (AO) initiated proceedings under Section 147 and issued a notice under Section 148, ultimately holding that Rs. 553.57 lakhs was not derived from the business of providing long-term finance for housing, thus not eligible for deduction. The AO recalculated the deduction, reducing it to Rs. 84,24,228, resulting in an excess deduction of Rs. 68,66,728 being withdrawn.
Appeal to CIT(A):
The CIT(A) allowed deductions for Pre-EMI and fees but disallowed deductions for discounting charges and interest on bank deposits, citing the Supreme Court decision in CIT vs. Sterling Foods.
Arguments:
The assessee argued that the funds were temporarily deposited, and the interest derived was part of the housing finance business. The Revenue contended that the immediate source of income was not from providing long-term housing finance.
Tribunal's Analysis:
The Tribunal examined the provisions of Section 36(1)(viii) and relevant amendments, emphasizing that the deduction was restricted to profits derived from providing long-term finance for housing. The Tribunal referred to legislative intent and various case laws, concluding that the immediate source of income must be from the specified business activities. The Tribunal upheld the CIT(A)'s decision, disallowing the deduction for discounting charges and interest on deposits, as they were not directly derived from the housing finance business.
Conclusion:
The appeal by the assessee was dismissed, affirming the recalculated deduction under Section 36(1)(viii).
2. Cancellation of Penalty under Section 271(1)(c):
Facts and Proceedings:
The AO levied a penalty of Rs. 4,85,097 under Section 271(1)(c) for alleged concealment of income related to the disallowed deduction under Section 36(1)(viii). The assessee argued that all facts were disclosed, and there was no concealment or furnishing of inaccurate particulars.
Appeal to CIT(A):
The CIT(A) canceled the penalty, noting that the assessee had disclosed all material facts and that the issue involved a difference of opinion regarding the interpretation of the law. The CIT(A) cited various judicial decisions supporting the view that mere disallowance of a claim does not constitute concealment.
Tribunal's Analysis:
The Tribunal reviewed the provisions of Section 271(1)(c) and Explanation 1, emphasizing that the penalty is not automatic and requires a finding of concealment or furnishing of inaccurate particulars. The Tribunal agreed with the CIT(A) that the assessee had provided a plausible explanation and had not concealed income. The Tribunal referenced the Gujarat High Court decision in National Textiles vs. CIT, which held that penalty requires evidence of conscious concealment or furnishing of inaccurate particulars.
Conclusion:
The appeal by the Revenue was dismissed, and the cancellation of the penalty by the CIT(A) was upheld.
Final Judgment:
Both appeals were dismissed, affirming the CIT(A)'s decisions regarding the recalculated deduction under Section 36(1)(viii) and the cancellation of the penalty under Section 271(1)(c).
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2008 (5) TMI 355
Issues Involved:
1. Liability to deduct tax at source under section 194C of the Income-tax Act from payments made to Mukadams and Transporters by Zone Samiti.
2. Liability for deduction of tax under section 194C from payments made as advances to member farmers for the purchase of sugarcane.
3. Applicability of section 194C to payments made to Mukadams and Transporters who are member farmers of the Zone Samiti and have no direct contact with the applicant.
Detailed Analysis:
Issue 1: Liability to Deduct Tax at Source from Payments to Mukadams and Transporters by Zone Samiti
The Tribunal examined whether the payments made to Mukadams and Transporters by the Zone Samiti required the assessees to deduct tax at source under section 194C of the Income-tax Act. The Assessing Officer had concluded that the payments were effectively made by the sugar mill through the Zone Samiti, which was deemed a division of the sugar mill. The Tribunal, however, found that the Samiti was an independent body formed by the farmers to manage harvesting and transportation. The payments made by the Samiti were on behalf of the cane growers, not the sugar mill. Therefore, the Tribunal held that the assessees were not liable to deduct tax at source under section 194C from these payments.
Issue 2: Liability for Deduction of Tax from Advances to Member Farmers for Purchase of Sugarcane
The Tribunal explored whether advances paid to member farmers for the purchase of sugarcane necessitated tax deduction under section 194C. The assessees argued that these advances were part of the purchase price for sugarcane, which the farmers were responsible for delivering to the factory gate. The Tribunal agreed, noting that the payments were debited to the cane growers' accounts and adjusted against the cost of sugarcane. Since the payments were for the purchase of sugarcane and not for any work contract, the Tribunal concluded that section 194C did not apply, and no tax deduction was required.
Issue 3: Applicability of Section 194C to Payments Made to Mukadams and Transporters
The Tribunal assessed whether section 194C applied to payments made to Mukadams and Transporters who were member farmers of the Zone Samiti and had no direct contract with the applicant. The Tribunal found that the responsibility for harvesting and transporting sugarcane lay with the cane growers, as per the agreements and resolutions. The payments were made by the Samiti on behalf of the cane growers, not the sugar mill. Therefore, the Tribunal ruled that the provisions of section 194C did not apply, and the assessees were not liable to deduct tax at source from these payments.
Conclusion
The Tribunal concluded that the assessees were not liable to deduct tax at source under section 194C of the Income-tax Act from payments made to Mukadams and Transporters by the Zone Samiti. It also held that the assessees were not required to deduct tax from advances paid to member farmers for the purchase of sugarcane, as these payments were part of the purchase price. Finally, the Tribunal determined that section 194C did not apply to payments made to Mukadams and Transporters who were member farmers of the Zone Samiti and had no direct contract with the applicant. All appeals were allowed.
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2008 (5) TMI 354
Limitation period for assessment or reassessment u/s 147 - completion of assessment after 4 years from the end of the assessment year u/s 153 - Validity of reassessment - Income Escaping Assessment - 'reason to believe' - Disallowances of Loss - Penalty levied u/s 271(1)(c) - furnishing inaccurate particulars of income and concealment of income - reassessment proceedings for the disallowance of loss as capital loss.
Limitation period for assessment or reassessment u/s 147 - Completion of assessment after 4 years from the end of the assessment year u/s 153 - HELD THAT:- In our opinion section 147 is only an enabling provision empowering the AO to reopen the assessment of income that had escaped assessment and rest of things are provided in the following sections 148 to 153 of the Act.
Though we agree with what the learned counsel of the assessee Shri S.N. Soparkar says that it is not the case where there was failure on the part of the assessee, either to file return as required under section, 139 or 142(1) or 148 or even to disclose fully and truly all material facts necessary for the assessment and therefore the time limit of 4 years would apply, but we do not any merit in his contention that as per the proviso to section 147, no action of making of reassessment could be taken under this section after expiry of four' years from the end of relevant assessment year. His submission that under the scheme of the Act an assessment made under section 147 of the Act is a separate code has no force in view of the decision of R. Dalmia's case[1999 (2) TMI 4 - SUPREME COURT] and Special Bench decision in Raj Kumar Chawla's case [2005 (1) TMI 334 - ITAT DELHI-F].
Section 147 provides for assessment of the escapement of income and the enumerations as provided in Explanation 2 are items of deemed escapement. These are not part of procedure for assessment. For making an assessment for escaped income, there are various stages. Initially an opinion is to be formed vis-a-vis Explanation 2, then a notice for reopening the assessment is to be issued under section 148, and a time limit is to be seen as provided in section 149 for issuing the notice, section 150 deals with 'provisions for cases where assessment is in pursuance of an order of the appeals etc.,' section 151 deals with 'sanction for issue of notice', section 152 deals with rates of tax to be charged on escaped the assessment and certain other specific provisions and lastly, the assessment is to be made within time limit provided under section 153 for completion of assessment or assessment'.
In our opinion therefore there is no merits in the case of the assessee on the additional ground raised and is accordingly rejected. We accordingly hold that the proviso to section 147 does not have the effect of curtailing the limitation period for passing the order u/s 147 as prescribed u/s 153(2).
Validity of reopening of assessment - Income Escaping Assessment - 'reason to believe' - AO was justified in issuing notice u/s 147? - In the case of the assessee, the notice u/s 147 was issued which is, well within the period of four years from the end of the relevant assessment year. Therefore, the only condition to be satisfied for reopening the assessment is that there should be a reason to believe that income has escaped assessment.
The words 'reason to believe' would mean that the AO should have initially ascertained the fact of the wrong claim and his that conclusion, if it constituted sufficient reason, cannot be overridden by the subsequent decision of the CIT(A) upholding the disallowance on a different ground. On material available on record, the AO was of the belief that income had escaped assessment as capital loss claimed by the assessee company had been allowed as deduction against the business income. AO was therefore justified in issuing notice u/s 147. This ground is therefore rejected.
Disallowance on loss - speculative loss or not - HELD THAT:- Assessee had not explained either before the CIT(A) and also before us as to the position of the date of purchase of the scrip being after the date of its sale. This is a clear indication of the fact the transaction was settled without delivery and was in the nature of speculation. The loss incurred thereon was therefore as speculative loss and was required to be disallowed, in any case.
Contention of the assessee that in the other assessment years the appellant company has not earned any income by way of investments proves that the main business is that of loans and advances, has rightly been rejected by the CIT(A) by stating 'Even if no income has been earned, the amount of transactions in dealing in shares and the investment in shares is much higher as compared to transactions of loans and advances. Specifically in the assessment year under consideration, the investment and the extent of transactions in shares is far in excess of transaction in loans and advances.'
Assessee's case, therefore, does not fall in any of the exceptions in the Explanation to section 73 of the Act. Loss in trading of the shares therefore has rightly been treated as speculative loss. We accordingly reject assessee's appeal on this issue.
Levy of penalty u/s 271(1)(c) - furnishing inaccurate particulars of income and concealment of income - assessee debited the capital loss to the P & L Account - In our opinion, a mere rejection of assessee's claim for loss that too on a different ground by the appellate authority and, therefore, cannot, in any case, be equated with concealment. The Addl. CIT v. Delhi Cloth & General Mills Co. Ltd.[1984 (1) TMI 10 - DELHI HIGH COURT] in similar circumstances deleted the penalty observing that the mere fact that a claim for expenditure stands disallowed does not, by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item. Similarly, in the case of J.K. Jajoo v. CIT [1989 (8) TMI 59 - MADHYA PRADESH HIGH COURT] observed that: "But from the mere fact that a claim for certain expenditure is rejected, it cannot be held that the claim for expenditure made by the assessee was false or inaccurate to his knowledge or was as a result of gross negligence."
We may examine the issue from a, different angel also - We should also keep in mind that penalty proceedings u/s 271 are to be initiated in the course of any proceedings under the Act, either by Assessing Officer or CIT(A) or the CIT. Here in the present case they were initiated by the AO and were initiated in the cause of reassessment proceedings for the disallowance of loss as capital loss. That ground of disallowance was not accepted by the CIT(A) as correct and therefore the entire edifice crumbles and falls down, the penalty initiated on that ground cannot fructify and, therefore, cannot also be levied. The CIT(A) upheld the disallowance on a different ground but penalty cannot be levied or justified on this new ground, as for that, the initiation has to be on that ground and that too by the CIT(A) who made the order of disallowance by upholding the disallowance on a different ground.
Therefore, we hold that in this case no penalty can be levied. In our opinion the assessee had not concealed the particulars of income nor furnished inaccurate particulars of its income. The explanation offered by the appellant is not without any basis and foundation and was substantiated and can be considered as bona fide and accordingly acceptable. The penalty levied u/s 271(1)(c) is therefore deleted.
In the result, the quantum appeal is dismissed and the penalty appeal is allowed.
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2008 (5) TMI 353
Issues Involved:
1. Validity of the return filed under section 139(4).
2. Reasonable cause for late filing of return.
3. Legitimacy of the penalty order under section 271F of the Income Tax Act.
Issue-wise Detailed Analysis:
1. Validity of the Return Filed under Section 139(4):
The assessee argued that the return filed under section 139(4) was valid and hence, penalty under section 271F could not be levied. However, the CIT(A) clarified that the issue was not about the validity of the return but whether it was filed within the prescribed time. Section 271F penalizes the failure to furnish the return by the end of the relevant assessment year, which in this case was 31st March 2004. The apex Court in Prakash Nath Khanna & Anr. vs. CIT established that the time prescribed under section 139(1), and not under section 139(4), is the relevant period for determining default.
2. Reasonable Cause for Late Filing of Return:
The assessee cited the closure of his business due to a ban by the State Government of Maharashtra as a reasonable cause for the delay. However, the CIT(A) noted that income from the partnership firm, if any, is exempt under section 10(2A) of the Act. The assessee could have filed the return stating that the income from the partnership firm was indeterminate and tax-exempt. The CIT(A) also highlighted that the assessee had other incomes and had paid a substantial portion of tax by way of self-assessment tax, undermining the claim that the delay was due to the business closure.
3. Legitimacy of the Penalty Order under Section 271F:
The CIT(A) and the Tribunal both upheld the penalty under section 271F, stating that the penalty is not automatic but depends on the absence of a reasonable cause. The assessee's argument that there was no mens rea was dismissed, as the law does not require the Revenue to show mens rea for penalty imposition under section 271F. The Tribunal clarified that the penalty is meant to ensure timely filing of returns, which is crucial for the assessment process. The Tribunal also noted that the delay in filing the return was not justified by the reasons provided by the assessee, as the substantial formalities for business closure were completed by 31st March 2003, and the return was filed 21 months later on 31st December 2004.
The Tribunal concluded that the assessee failed to show any reasonable cause for not furnishing the return by the end of the assessment year, considering the facts and circumstances. The penalty of Rs. 5,000 was deemed correctly levied, and the appeal by the assessee was dismissed. The decision was supported by judgments from the Hon'ble Kerala High Court and the apex Court in similar cases, emphasizing the importance of adhering to statutory obligations.
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2008 (5) TMI 352
Issues:
- Legal issue: Whether unrealized portion of export incentive is eligible for deduction under section 80HHC.
Analysis:
1. Identification of Appeals and Parties: The judgment pertains to two appeals filed by the revenue against different assessees for the assessment year 2001-02. The assessees involved are Shri Narsi Shah Sadh and Smt. Sheela Sadh from Farrukhabad. The appeals concern identical issues, and the orders appealed against are dated 9-3-2005.
2. Legal Issue: The primary legal issue in these appeals is the eligibility of the unrealized portion of the export incentive issued by the Ministry of Commerce for deduction under section 80HHC. In the case of Shri Narsi Shah Sadh, an amount of Rs. 4,34,477, and in the case of Smt. Sheela Sadh, an amount of Rs. 10,94,255 remained unrealized. The Assessing Officer held these amounts to be not eligible, while the CIT(A) held them to be eligible for deduction under section 80HHC.
3. Precedent and Legal Interpretation: Both parties agreed that the issue in question is covered in favor of the assessee by a decision of the Hon'ble Supreme Court in the case of B. Desraj v. CIT. The Supreme Court clarified that export incentives, including cash compensatory support and duty drawback, are to be included in the profits of the business for computing the deduction under section 80HHC. The Court emphasized that the words 'business profits' in the formula under section 80HHC(3) include such incentives. Therefore, the unrealized portion of the export incentive should be considered for deduction under section 80HHC.
4. Accounting System and Eligibility for Deduction: The assessee in this case followed the mercantile system of accounting and included the entire incentive amount as income in the Profit & Loss account. The Assessing Officer excluded the unrealized portion for the purpose of section 80HHC deduction. However, considering the provisions of section 80HHC(3) and sections 28(iiia), (iiib), and (iiic), amounts receivable under these provisions are entitled to deduction. Since the right to receive the incentive had accrued to the assessee during the export business operations, the CIT(A) was justified in including the unrealized portion for deduction under section 80HHC.
5. Judgment: Based on the settled legal position and the provisions of the Act, the appeals of the Revenue were dismissed. The Tribunal upheld the decision of the CIT(A) to allow the deduction for the unrealized portion of the export incentive under section 80HHC. Therefore, both appeals were dismissed in favor of the assessee.
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2008 (5) TMI 350
Charitable Trust - refusal to grant certificate of registration u/s 12AA - deduction u/s 80G - date on which the registration shall be effective from - Whether the objects mentioned in trust deed 'to do milk business' falls under the definition of charitable purpose - Order of CIT(A) is against the principles of natural justice and is bad in law - application for condonation of delay - trust is claimed to be working for the help of weak and helpless cows - part of the land of the trust was sold to one Shri Madan Gopal, s/o Shri Niranjan Lal, r/o Gyan Gudri -
Ld AR argued that the learned CIT has wrongly misconstrued this object and that in fact, it does not refer to any business activity but refers to proliferation of the cows and their service and in the process, if any profit is earned then that has to be used to fulfil the needs of the public. This also refers to charity and not income.
HELD THAT:- In our considered opinion the learned CIT has misread this object. From the perusal of the trust deed it becomes clear that it is a charitable trust which is created to pursue the objects mentioned therein. None of the objects is for earning profit which can remove the trust from the definition of charitable trust under s. 12AA.
The issue regarding exemption allowed by the CIT at the stage of granting or refusing the registration under s. 12A r/w s. 12AA of the Act the law is almost settled. While refusing application under s. 12A the CIT has to examine only two aspects i.e. genuineness of the activities of the trust/institution, and object of the trust/institution. Once there is no dispute about the genuineness of the activities the learned CIT cannot take shelter of any other outer source for refusing registration under s. 12A. It was held in the case of U.P. Awas Evam Vikas Parishad vs. ITO [2005 (7) TMI 668 - ITAT LUCKNOW] that "while disposing application u/s. 12A, CIT has to examine only two aspects viz., the genuineness of the activities of the trust and 'object of the trust'. Once there is no dispute about genuineness of activities, CIT cannot take shelter of any other outer source for refusing registration under s. 12A".
In our considered opinion no case of refusal of registration has been made out by the CIT; and in view of the facts of the case and the objects of the trust, the assessee is entitled to registration. The learned CIT is, therefore, directed to grant registration to the assessee trust as per law.
Date on which the registration shall be effective from - Application delayed by six years - reasons have been mentioned to be wrong advice/ignorance of law - The application for condonation of delay is placed at the paper book wherein ignorance of income-tax provisions has been pleaded as reason for the delay. It has also been pleaded that no significant activities were done by the assessee trust. By following the recent Supreme Court decision in the Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors.[1978 (12) TMI 45 - SUPREME COURT] held that ignorance of law can be taken as a reasonable excuse. We therefore, condone the delay. From this application it is found that the delay in this case was caused due to a reasonable cause:
Therefore, learned CIT is directed to grant registration from the date of application for registration.
In the result, appeal is allowed.
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2008 (5) TMI 340
Issues Involved:1. Interpretation of s. 43A(1) of the IT Act regarding entitlement of depreciation u/s 32. 2. Carry forward of unabsorbed depreciation from the assessment year 1994-95 to 2003-04. Summary:Issue 1: Interpretation of s. 43A(1) of the IT Act regarding entitlement of depreciation u/s 32The assessee company, engaged in the manufacture and sale of Oxo Alcohol, imported plant and machinery with payment in foreign currency. Due to exchange rate fluctuations, the assessee claimed higher depreciation based on the increased asset value. The AO contended that 'actual cost' should be based on the cost at the time of purchase and additional amounts paid through instalments, excluding future instalments' differential amounts. The AO cited a Ministry of Law clarification stating that intermediary exchange rate fluctuations are irrelevant. The first appellate authority accepted the assessee's claim, referencing CIT vs. Arvind Mills Ltd. and New India Industries Ltd. The authority noted that the Finance Act, 2002 amended s. 43A w.e.f. 1st April, 2003 to base depreciation on actual payment, which should not apply retrospectively. The assessee's mercantile accounting system requires cost determination on an accrual basis. The Revenue appealed, arguing that intermediary fluctuations are irrelevant for determining actual cost, citing CIT vs. Century Enka Ltd. and CIT vs. Gujarat State Fertilizer Co. Ltd. The assessee countered that the pre-amendment s. 43A focused on liability from exchange rate fluctuations, not actual payments, and the prospective amendment supports this interpretation. The Tribunal concluded that the amended provisions are not clarificatory and do not apply retrospectively. The decisions in New India Industries Ltd. and CIT vs. Madras Fertilizers Ltd. support the assessee's position. The Tribunal dismissed the Revenue's appeals for the assessment years 1994-95 to 1999-2000, directing the AO to allow depreciation based on the actual cost determined per s. 43A(1). Issue 2: Carry forward of unabsorbed depreciation from the assessment year 1994-95 to 2003-04The AO denied carrying forward unabsorbed depreciation from the assessment year 1994-95, citing an eight-year limit starting from the assessment year 1997-98. The assessee argued that the Finance Act, 2001 revived the earlier provisions allowing indefinite carry forward, supported by CBDT Circulars. The Tribunal agreed with the assessee, noting that the provisions as of 1st April, 2002, allowed carrying forward unabsorbed depreciation without the eight-year limit. The Tribunal set aside the tax authorities' orders and directed the AO to permit carrying forward depreciation from the assessment year 1994-95. Conclusion:The appeals filed by the Revenue are dismissed, and the appeal filed by the assessee is allowed.
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2008 (5) TMI 339
Validity of reopening the assessment u/s. 147 - beyond four years - Addition u/s 41(1) - cessation of liability - waiver of loan as a one time settlement package - business of deep sea fishing and export - HELD THAT:- The proviso to s. 147 of the Act specifically states that where an assessment has been made under s. 143(3) or under s. 147 of the Act for any assessment year, reopening of such assessment after expiry of four years from the end of the relevant assessment year shall be made only if there is a failure on the part of the assessee, amongst other things, to disclose fully and truly all material facts necessary for his assessment for that year.
Explanation 1 to s. 147 of the Act specifically states that the production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO, will not necessarily amount to disclosure within the meaning of the proviso.
Whether the assessee has disclosed fully and truly all the material facts before the AO in the original assessment proceedings - The waiver of loan by SCICI consisted of two parts, i.e., (i) waiver of principal portion and (ii) waiver of interest portion. The assessee duly offered the waiver of interest portion in its return of income. In earlier years the assessee's claim of interest on the abovesaid loan had been disallowed under s. 43B of the Act.
Hence the assessee claimed deduction of interest amount that was disallowed under s. 43B of the Act in earlier years. To that extent the AO verified the claim of the assessee and found that the above claim is in excess and accordingly reduced the claim by that amount. However, the AO did not go into the details in connection with the waiver of principal portion or its taxability. The assessee had disclosed the facts regarding waiver of principal portion and credit of that amount in capital reserve account in the annual report in the schedule containing the notes forming part of accounts.
Whether such disclosure in the annual report would amount to full and true disclosure of all material facts - In the present case, though the assessee has given a note regarding the waiver of principal portion of loan, it was not brought to the notice of the AO by the assessee. The AO has also not dealt with the matter of waiver of principal portion and its taxability in the original assessment proceeding. Hence Expln. 1 to s. 147 will apply to the present case and hence it cannot be said that there is no failure on the part of the assessee to disclose fully and truly all material facts.
AO did not make enquiries regarding taxability of principal portion waived. The assessee has also failed to bring the facts to the notice of the AO though the same have been mentioned in the annual report. In view of the Hon'ble Supreme Court decision in the case of Sri Krishna (P) Ltd. vs. ITO [1996 (7) TMI 2 - SUPREME COURT] and further in view of the Expln. 1 to s. 147, the note given in the annual report cannot be taken as full and true disclosure. Hence the belief of the AO regarding escapement of income can be taken as reasonable one. The assessee has also not established that there existed no belief or the belief was not at all bona fide one. Hence, on a conspectus of the matter, we hold that the issue of notice under s. 148 is valid.
Whether waiver of principal amount of loan would amount to trading liability? - The Hon'ble Delhi High Court in Phool Chand Jiwan Ram [1980 (4) TMI 29 - DELHI HIGH COURT] held that only trading debts, which are allowed as deduction in earlier years, can be treated as trading liability. It is not in dispute the principal portion of loan amount, which has been waived, has not been claimed as deduction in any of the years.
Hence, waiver of principal portion of loan cannot be termed as waiver of trading liability and hence the second clause of s. 41 (1), relating to trading liability, shall not apply to the present case under consideration.
Whether the waiver of loan will amount to a benefit relatable to depreciation expenditure claimed earlier? - Assessee obtained a loan from SCICI and acquired four trawlers by utilizing the loan - claimed depreciation from 1988-89 to 1997-98 on the trawlers so acquired by availing the loan - waiver of principal - Loan is availed as a source of finance while the depreciation is allowed on the actual user of the asset. So 'availing of loan' and 'claim of depreciation' are two distinct things, which cannot be clubbed together. The Hon'ble Kerala High Court in the case of Cochin Co. (P) Ltd. [1989 (10) TMI 20 - KERALA HIGH COURT] has specifically held that remission of loan taken to purchase machinery cannot be reduced from the cost of machinery. Hence, we find no force in the contention of the Revenue that in view of nexus between the term loan and acquisition of assets, remission of loan will amount to remission of depreciation.
The decision of Bombay High Court in the case of Mahindra & Mahindra Ltd. [2003 (1) TMI 71 - BOMBAY HIGH COURT] relied upon by the tax authorities will not support their contention as the Hon'ble Bombay High Court has not gone into the question of depreciation at all. Accordingly, we hold that the remission of principal portion of the loan cannot fall in the purview of the provisions of s. 41(1) of the Act. Accordingly, we reverse the decision of the learned CIT(A) in this regard.
In the result, the appeal filed by the assessee is allowed.
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