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2006 (12) TMI 175
Expenditures are in relation to advertisement, publicity, trade shows, etc - Capital Or Revenue Expenditure - enduring benefit - HELD THAT:- There is no concept of deferred revenue expenditure known to the IT Act. The expenditure is either revenue expenditure or capital expenditure. The allowability of the same is to be looked into as per provisions of ss. 28 to 44 of the IT Act. The expenditures were treated as deferred revenue expenditure by the AO and 1/5th of such expenditure were allowed. At first instance, it can be said that having satisfied himself that the expenditures are genuine and allowable as such, the AO allowed 1/5th of the same. Since the expenditures are in relation to advertisement, publicity, trade shows, etc., it can be held that the same are revenue in nature. Such expenditures do not bring any capital asset into existence. Thus, the same were rightly treated as revenue expenditures by learned CIT(A).
It is also true that the CIT(A) is competent to examine the allowability or otherwise of such expenditure. When the details were called for, the assessee has submitted that the sum out of such expenses was never claimed as expenses as the same were claimed in earlier years. The provision made in this regard for earlier year is now reversed. Thus, there is no question of any disallowance of such expenditure. We accordingly delete the disallowance.
In our opinion, the claim of assessee could not have been dismissed holding the same as prior period expenditure. Any liability though relating to earlier year depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the year, cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it related to a transaction of the previous year, The expenses are contractual in nature and not statutory payments. Thus, the same will be allowed as liability in the year in which such liability crystallizes. Thus, the expenditures which were earlier in dispute and in view of the fact that the dispute is settled during the year under consideration, the same are allowable in such year. We accordingly delete the disallowance.
Disallowance on foreign exchange fluctuation loss - HELD THAT:- The Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd. vs. CIT [1978 (9) TMI 1 - SUPREME COURT] held that where profit or loss arises to assessee on account of appreciation or depreciation in the value of foreign currency held by him, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business.
Admittedly, in the present case, the foreign currency loan was taken for working capital requirement. The decision of Hon'ble Supreme Court will, therefore, squarely apply. The liability on the date of balance sheet has to be reckoned in the accounts on the basis of fluctuation in the rate of exchange during the year and not merely when the loan is repaid, particularly when the assessee is following mercantile system of accounting. The Special Bench of the Tribunal held that such loss cannot be called as notional or contingent loss.
We also find that the loss was allowed while deciding the appeal of assessee for asst. yr. 2001-02. The decision of Special Bench of the Tribunal as well as that rendered in the case of Maruti Udyog Ltd. squarely applies. Thus, the loss of Rs. 87,52,111 is allowable as claimed.
Disallowance u/s 43B - customs duty paid during the year and included in the closing stock valuation - HELD THAT:- We find that similar issue has been decided in favour of the assessee by the earlier decision of the Tribunal for AY 1996-97 and 1997-98. Hon'ble Supreme Court in the case of Berger Paints India Ltd.[2004 (2) TMI 4 - SUPREME COURT] held that the entire amount of customs duty paid by assessee in a particular accounting year is allowable u/s 43B as a deduction in respect of that year irrespective of the amount of customs duty included in the valuation of assessee's closing stock at the end of accounting year as relating thereto. While so holding, Hon'ble Supreme Court approved the decision of the Special Bench of the Tribunal in the case of Indian Communication Network (P) Ltd.[1994 (1) TMI 245 - ITAT DELHI]. We accordingly dismiss this ground.
In the result, the appeal of assessee is allowed and that of Revenue is dismissed.
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2006 (12) TMI 174
Issues Involved:
1. Exemption under Section 10(5B) of the Income-tax Act, 1961.
2. Definition and scope of "Information Technology" under the Notification No. S.O. 569(E), dated 27-7-1993.
3. Residential status of the assessee.
4. Qualification as a "technician" under Section 10(5B) of the Income-tax Act, 1961.
Detailed Analysis:
1. Exemption under Section 10(5B) of the Income-tax Act, 1961
The primary issue revolves around the assessee's claim for exemption under Section 10(5B) of the Income-tax Act, 1961. The Assessing Officer disallowed the exemption, which was confirmed by the CIT(A). The CIT(A) observed that the assessee's specialization in telecommunication technology did not fall under the specified fields in the Notification No. S.O. 569(E), dated 27-7-1993, which includes "Information technology including computer architecture systems, platforms and associated technology, software development process and tools."
2. Definition and Scope of "Information Technology" under the Notification No. S.O. 569(E), dated 27-7-1993
The CIT(A) held that telecommunication technology and information technology are distinct fields and that the former is not covered under the specified fields for exemption under Section 10(5B). However, the Tribunal disagreed, citing definitions from the Oxford Dictionary and Longman's Dictionary, which include telecommunications within the scope of information technology. Additionally, the Tribunal referred to rulings by the Authority for Advance Rulings (AAR) in the cases of Vance Robert Heffern v. CIT and David Kenneth White v. CIT, which held that cellular telecommunication networks fall within the purview of information technology.
3. Residential Status of the Assessee
The Tribunal noted that the CIT(A) did not consider the issue of the assessee's residential status, which is a condition for exemption under Section 10(5B). The matter was remanded to the Assessing Officer to examine whether the assessee was not resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India.
4. Qualification as a "Technician" under Section 10(5B) of the Income-tax Act, 1961
The CIT(A) acknowledged that formal technical qualification certificates might not be necessary, as per precedents like V.R. Heffern v. CIT and Shane G. Montgomery (AAR No. 283 of 1996). The Tribunal further emphasized that the assessee's specialized knowledge and experience in wireless telecommunication (field operations) and his role in setting up and commissioning cellular network systems in India qualified him as a "technician" under Section 10(5B).
Conclusion:
The Tribunal set aside the CIT(A)'s order, holding that the assessee's specialization in telecommunication technology falls within the scope of "information technology" as per the definitions and AAR rulings. The matter was remanded to the Assessing Officer to verify the assessee's residential status. If the assessee satisfies this condition, the exemption under Section 10(5B) should be granted. The appeal was allowed for statistical purposes.
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2006 (12) TMI 172
Issues Involved:
1. Denial of deduction u/s 80-IA of IT Act, 1961.
2. Whether the assessee is engaged in manufacturing activity.
3. Whether job work qualifies for deduction u/s 80-IA.
Summary:
Issue 1: Denial of deduction u/s 80-IA of IT Act, 1961
The solitary issue in these appeals is the denial of deduction u/s 80-IA of the IT Act, 1961, to the assessee concerning the profits of its Parwanoo Unit. The AO denied the deduction on the ground that the assessee was not engaged in any manufacturing activity that would qualify for the benefit under the said section.
Issue 2: Whether the assessee is engaged in manufacturing activity
The assessee, a partnership firm, owns a factory in Himachal Pradesh and produces automobile filter elements. The AO concluded that the processes carried out by the assessee did not amount to manufacturing as they merely involved assembling components provided by another concern, M/s Purolator India Ltd. The CIT(A) upheld the AO's decision. However, the Tribunal found that the assessee's activities resulted in a new and commercially different product, thus qualifying as manufacturing. The Tribunal referred to various judgments, including Union of India vs. Delhi Cloth & General Mills Co. Ltd. and Gramophone Company India Ltd. vs. Collector of Customs, to support its conclusion that the assessee's processes amounted to manufacturing.
Issue 3: Whether job work qualifies for deduction u/s 80-IA
The Revenue argued that since the assessee was performing job work for another concern, it did not qualify for the deduction. The Tribunal rejected this objection, stating that the assessee met the criteria for manufacturing and that the job work nature did not detract from this fact. The Tribunal referred to the Madras High Court's decision in CIT vs. Taj Fire Works Industries to support its conclusion.
Conclusion:
The Tribunal held that the assessee is engaged in manufacturing activity and is entitled to claim the benefits of s. 80-IA of the Act. The Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction to the assessee u/s 80-IA with respect to the profits derived from its industrial undertaking (Parwanoo Unit). The appeals of the assessee were allowed.
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2006 (12) TMI 171
Minimum Alternate Tax - loss declared - Whether, the provisions made for doubtful debts, advances & investments, i.e., for unascertained liabilities, falls within the purview of adjustments u/s 115JA and whether the Assessing Officer was justified to make adjust of Rs. 1,56,00,000 in this case in computing the books profits? - diminution in the value of asset or for known liability of which the amount cannot be determined with substantial accuracy? - HELD THAT:- The provision for bad and doubtful debt is the provision for diminution in the value of asset, i.e., debt. The provision for bad and doubtful debt cannot be said to be a provision for liability, because even if a debt is not recovered, no liability would be fastened upon the assessee. In the above example if as against the outstanding debt of Rs. 1 crore only Rs. 90 lakhs has been realized, then due to non-realisation of the debt of Rs. 10 lakhs there is no question of any liability upon the assessee. The debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision towards irrecoverability of the debt cannot be said to be provision for liability. Once it is held that the provision for bad and doubtful debt is not a provision for any liability, the question whether the liability is ascertained liability or unascertained liability does not arise.
Whether clause (c) of the Explanation to section 115J A would not be applicable in respect of provision for bad and doubtful debts - We agree with the view taken by the ITAT, Pune Bench in the case of I.G. Vacuum Plasks (P.) Ltd. [2001 (4) TMI 203 - ITAT PUNE], !TAT, Delhi Bench in the case of Eicher Motors Ltd. [2006 (1) TMI 183 - ITAT DELHI-C] and the !TAT, Kolkata Bench [2000 (3) TMI 170 - ITAT CALCUTTA-E] in the assessee's own case. At the cost of repetition, we reiterate that the provision for bad and doubtful debt is not a provision for liability but it is a provision for diminution in the value of the assets. Once the provision is not for any liability, the question whether the liability is ascertained or unascertained does not arise. We, therefore, hold that clause (c) of the Explanation to section 115J A would not be applicable in respect of provision for bad and doubtful debts.
We find that in the accounts, the assessee had made the provision for bad and doubtful debts of Rs. 2.20 crores as on 31-3-1997. The provision as on 31-3-1996 was Rs. 64 lakhs. Thus the additional provision of Rs. 1.56 crores is made for the year under consideration. The balance sheet of the assessee is duly audited and certified by the Chartered Accountants and it has nowhere reported that the provision for bad and doubtful debt is excessive in the opinion of either directors or auditors. We also find that the total outstanding debt as on 31-3-1997 was more than Rs. 86 crores against which the provision for bad and doubtful debt was Rs. 2.20 crores, which is even less than 3 per cent of the total debt. The Assessing Officer in the assessment order has nowhere stated that the provision made by the assessee for bad and doubtful debt is excessive or unreasonable considering the purpose for which the provision is made. At the time of hearing before us also, the revenue except making a claim that the provision for bad and doubtful debt should be considered as 'reserve' under clause (b) of Explanation to section 115JA, has not proved how the provision made for bad and doubtful debt is excessive or unreasonable.
Thus, we are unable to accept the revenue's claim that the provision for bad and doubtful debt in the case of the assessee, viz., Usha Martin Industries Ltd. Would fall within clause (b) of the Explanation to section 115JA of the Income-tax Act. Accordingly, we uphold the order of the CIT(A) deleting the addition of Rs. 1.56 crores made by the Assessing Officer in respect of provision for bad and doubtful debt.
In the case of Usha Martin Industries Ltd. The Assessing Officer has also made the addition of Rs. 1,25,000 in respect of provision for wealth-tax. The same was deleted by the CIT(A) - We have already stated above that for the purpose of section 115JA the addition to the book profit, which is computed as per Parts-II & III of Schedule-VI to the Companies Act, can be made only if it is permissible by item Nos. (a) to (f) of the Explanation to section 115J A. We find that as per clause (a) to Explanation "any amount of income-tax paid or payable and the provision therefore" is liable to be added to the book profit. However, there is no such provision for making the addition with regard to wealth-tax.
Since the provision for wealth-tax does not fall within any of the items of the Explanation to section 115JA, we hold that the CIT(A) was justified in deleting the addition made by the Assessing Officer in this regard. Hence, we reject the revenue's appeal in the case of Usha Martin Industries Ltd.
In the result, the appeals filed by the revenue in the cases of respective assessees are dismissed and appeal filed by the assessee, Balmer Lawrie & Co. Ltd., is allowed.
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2006 (12) TMI 170
Validity of the reassessment proceedings u/s 147 - Capital Gains - deemed transfer u/s 2(47)(v) - sale of plot of land - meagre - whether the transferee to have 'performed or is willing to perform' his obligations under the agreement - HELD THAT:- It is not possible to hold that the transferee was willing to perform his obligations in the financial year 1995-96 in which the capital gains are sought to be taxed by the Revenue. We hold that this condition laid down u/s 53A of the Transfer of Property Act was not satisfied. Once we come to the conclusion that the transferee was not 'willing to perform', as stipulated by and within meanings assigned to this expression u/s 53A of the Transfer of Property Act, his contractual obligations in this previous year, it is only a corollary to this finding that the development agreement dt. 12th Oct., 1995, based on which the impugned taxability of capital gain is imposed by the AO and upheld by the CIT(A), cannot be said to be a "contract of the nature referred to in s. 53A of the Transfer of Property Act" and, accordingly, provisions of s. 2(47)(v) cannot be invoked on the facts of this case Chaturbhujdas Dwarkadas Kapadia vs. CIT's case [2003 (2) TMI 62 - BOMBAY HIGH COURT] undoubtedly lays down a proposition which, more often that not, favours the Revenue, but, on the facts of this case, the said judgment supports the case of the assessee inasmuch as 'willingness to perform' has been specifically recognized as one of the essential ingredients to cover a transaction by the scope of s. 53A of the Transfer of Property Act. Revenue does not get any assistance from this judicial precedent. The very foundation of Revenue's case is thus devoid of legally sustainable basis.
In the present case, the situation is that the assessee has received only a meagre amount' out of total sales consideration, the transferee is avoiding adhering to the payment schedule on one ground or the other, and there is no surety that the sales consideration will actually be realized by the assessee, and yet the assessee is expected to pay capital gains on the entire agreed sales consideration. It is also important to bear in mind that this order, it was specifically agreed between the parties under the agreement in question that "that the Lok Housing will not issue stop payment instructions in any circumstances nor put forward any excuses of any type to avoid presentation and consequent encashment of the said cheques on their respective due dates. Further encashment of the said cheques on presentation shall be as of the essence of the contract". This condition of the contract was, by no stretch of logic, fulfilled. The transferee did request the assessee to reschedule the payments. When payment on time is essence of the contract, and the payments are not made in time, it cannot be said that such a contract confers any rights on the transferee to seek redressal u/s 53A of the Transfer of Property Act. This agreement cannot, therefore, be said to be in the nature of a contract referred to in s. 53A of the Transfer of Property Act. It cannot, therefore, be said that the provisions of s. 2(47)(v) will apply in the situation before us.
For all these reasons, we are of the considered view that the assessee deserves to succeed on both the counts-i.e. for the reason that the reopening of assessment was not justified, as also for the reason that the capital gains, on sale of plot in question, could not have been taxed in the particular assessment year in appeal before us. For our purposes, it is not necessary to go into the question as to in which year the capital gain on sale of plot will be taxable. We leave it at that.
In the result the appeal is allowed.
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2006 (12) TMI 169
Reopening of assessment u/s 147 - Non issuance of notice u/s 143(2) - procedural in nature - Income Escaping Assessment - amendment to section 148 by the Finance Act - retrospective effect - time-limit for completion of assessment - Whether the assessment framed without issuing the notice u/s 143(2) of the Act is a valid assessment? - HELD THAT:- In the present case, admittedly, the notice u/s 148 was issued validly. The return was also deemed to have been filed by the assessee by virtue of letter dated 25-6-2001 wherein, it was stated that original return filed by him should be treated as filed in pursuance of notice u/s 148. We have already held that this amounted to filing of return in view of the case of Tiwari Kanhaiya Lal [1984 (5) TMI 15 - RAJASTHAN HIGH COURT]. Therefore, it cannot be said that the assessment proceedings was not validly initiated and, therefore, on this ground, it cannot be said that assessment proceedings were void ab initio.
Once the notice u/s 148 has been issued validly, the Assessing Officer is vested with the powers to assess or reassess u/s 147 of the Income-tax Act. Therefore, jurisdictional power for making reassessment is vested in the Assessing Officer by virtue of section 147 and, therefore, it cannot be said that the assessment order was without jurisdiction.
The combined reading of all the judgments leads to the only one conclusion that the provisions of section 143(2) is only the procedural provisions though mandatory and does not give jurisdiction to assess and does not vest in the Assessing Officer to make the assessment. The real purpose behind provisions of section 143(2) is to provide an effective opportunity to the assessee to support and explain the return filed by him and the books of account maintained by him. This requirement is part of the natural justice, which has been incorporated in the Act. Noncompliance of the same may invalidate the assessment order but certainly it does not render the assessment without jurisdiction. Accordingly, we hold that non-compliance of provisions of section 143(2) in the present case does not render the assessment as null and void since valid jurisdiction was vested in the Assessing Officer by virtue of clear provisions of section 147/148 itself.
This view of ours is also fortified by the recent judgment in the case of Areva T&D India Ltd. v. Asstt. CIT [2006 (11) TMI 166 - MADRAS HIGH COURT]. The facts of that case are similar to facts of the present case. In that case, it was held in that case that not issuing the notice u/s 143(2) and not considering the objections of the assessee for reopening were only irregularities and the matter was set aside to the Assessing Officer with a direction to consider the matter afresh, particularly the objection given by the assessee for reopening and to issue notice u/s 143(2) of the Act and after providing opportunity to the assessee of being heard.
We feel that after this change regarding making the notice u/s 143(2) valid even if the same is issued after prescribed period of 12 months but before the expiry of time-limit for completion of assessment, the purpose of issuing notice is nothing but to provide natural justice to the assessee to enable him to explain his case before the Assessing Officer completes the assessment. In view of this, we are of the considered opinion that after this amendment in section 148, this Tribunal judgment rendered in the case of Raj Kumar Chawla [2005 (1) TMI 334 - ITAT DELHI-F] is not valid in the present case because in the present case also, return is deemed to have been filed by the assessee in pursuance to notice u/s 148 issued during this period, i.e., during 1-10-1991 to 30-9-2005.
Having held that the impugned assessment order is only irregular and not illegal, we feel that the correct course of action is to set aside the same and restore the matter to the Assessing Officer for framing a fresh assessment order after issuing notice u/s 143(2) to the assessee but we also feel that this whole exercise will be academic only and will not serve any real purpose because in the present case, although, no notice u/s 143(2) was issued but queries were raised by issuing notice u/s 142(1) and the assessee has participated in the assessment proceedings, has submitted his explanations and the Assessing Officer has considered the submissions made by the assessee. The issue of setting aside of assessment order in such a case merely to give a fresh notice to the assessee has been discussed elaborately by the Special Bench of Lucknow ITAT in the case of Nawal Kishore & Sons Jewellers [2003 (8) TMI 194 - ITAT LUCKNOW]. In this case, it has been held that if principles of natural justice have otherwise been met then setting aside the assessment order would be a futile exercise and in such a situation, the appellate authority should proceed to decide the case on merits.
Thus, we do not set aside the assessment order but we want to make it clear that where proper opportunity was not provided to the assessee, the assessment order should be invariably set aside under these circumstances.
Deduction on account of interest - HELD THAT:- The sale of shares by the company is on behalf of those shareholders and it is at par with sale by the shareholders. Hence, the nature of income remains same, i.e., capital gains. Since, in the present case, it was offered by the assessee wrongly under the head 'Income from other sources', it cannot assume the character of 'Income from other sources' although the Assessing Officer accepts the same but still it cannot be held that the investment in shares is also for the purpose of earning 'Fraction Entitlement' taxable under the head 'Other sources'. We, therefore, reject this contention of the assessee also.
We find force in this argument of the learned AR of the assessee and we direct the Assessing Officer that deduction should be allowed for interest expenses incurred during 1-4-1997 to 31-5-1997. He should quantify the amount of deduction allowable for these 2 months after providing adequate opportunity of being heard to the assessee. The issue is restored to him for allowing deduction on account of interest for this period of 2 months. Ground Nos. 1 to 3 are rejected and Ground No. 4 is partly allowed.
In the result, this appeal of the assessee stands partly allowed.
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2006 (12) TMI 168
Addition u/s 45(4) on account of revaluation of assets - relinquishment of rights in the firm's assets on the reconstitution of the firm - whether short-term capital gain arises on surrender of rights in the revalued partnership assets - HELD THAT:- the partnership asset was revalued by the partners at the start of the year and the difference on account of revaluation of asset was credited to the partners account. The revaluation of partnership assets was anterior to the introduction of new partners. Revaluation of assets by partnership firm does not attract capital gains. The revaluation of assets of partnership and the credit of revalued amount to the capital account of partners in their respective share ratio does not entail any transfer as defined u/s 2(47) of the Income-tax Act. The introduction of new partners to a partnership firm owning immovable assets and consequent reduction in the share ratio of present partners does not entail any relinquishment of their rights in the partnership property. On introduction of new partners, there is realignment of share ratio inter se between the partners only to the extent of sharing the profits or losses, if any of the partnership business.
When any new partner is introduced into an existing partnership firm, the profit sharing ratios undergo a change, which does not amount to transfer as defined under section 2(47) of the Act, as there is no change in the ownership of assets by the partnership firm. As during the subsistence of the partnership firm, the partners have no defined share in the assets of the partnership and thus on realignment of profit sharing ratio, on introduction of new partners, there is no relinquishment of any non-existent share in the partnership assets as the asset remained with the firm. Such an arrangement is not covered by the provisions of section 45(4) of the Act, which covers the case of dissolution of partnership firm.
Accordingly, no capital gains arises on such relinquishment of share ratio in the partnership firm. We confirm the order of CIT(A) and dismiss the grounds of appeal raised by the revenue.
In the result, the appeals filed by the revenue are dismissed.
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2006 (12) TMI 167
Issues:
- Delay in filing quantum appeal under s. 143(3)
- Condonation of delay in filing penalty appeals under s. 273(1)(b), s. 271(1)(a), and s. 221(1)
Delay in Filing Quantum Appeal:
The assessee filed a quantum appeal under s. 143(3) after a delay of 13 years, seeking condonation. The assessee argued that the delay was due to the tax consultant's negligence. The Tribunal considered the provisions of s. 253(5) and emphasized the requirement of establishing "sufficient cause" for condonation. The Tribunal referred to precedents emphasizing the liberal construction of "sufficient cause" to advance substantial justice. The Tribunal held that the delay, although significant, could be condoned if sufficient cause was established. The Departmental Representative acknowledged the principles but argued that the delay in this case was not due to a genuine intention to file the appeal initially.
Condonation of Delay in Penalty Appeals:
The Tribunal dismissed three penalty appeals under ss. 271(1)(a), 273(1)(b), and 221(1) due to delays exceeding 12 years. The CIT(A) had also refused to condone the delays. The Tribunal, following the analysis of the quantum appeal delay, upheld the CIT(A)'s decision not to condone the delays in the penalty appeals. The Departmental Representative argued that the intention to file the appeals was not genuine initially, as evidenced by the delays and subsequent actions taken only after receiving prosecution notices.
In conclusion, all four appeals by the assessee were dismissed due to the delays in filing and the failure to establish sufficient cause for condonation. The Tribunal emphasized the importance of genuine intention and timely action in filing appeals to avoid dismissal on grounds of limitation.
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2006 (12) TMI 166
Liability to pay tax u/s 115-O - Life Insurance Corporation - deemed dividend u/s 2(22) (e) - Payment made to Central Government out of the surplus profit - Whether the assessee can be said to be in default u/s 115Q of the Act on account of non-payment of tax on distributed profits u/s 115-O - HELD THAT:- The Hon'ble Supreme Court had to consider the question with reference to section 2(6A) of 1922 Act corresponding to section 2(22) of the Act of 1961; held that - "'Dividend', in its ordinary connotation, means the sum paid to or received by a shareholder proportionate to his shareholding in a company out of the total sum distributed."
In the present case, the assessee is the creation of Life Insurance Corporation Act, 1956. Section 5 of the said Act provides that original capital of the Corporation would be 5 crores of rupees which shall be provided by the Central Government.
Reading of section 5, clearly shows that capital of the company is not divided into shares and therefore Central Government cannot be said to be shareholder. The position of the Central Government is akin to the sole proprietor of a business concern. The learned CIT(A) has himself given a finding that Central Government cannot be called a shareholder. This finding has also been upheld by us in the earlier part of the order. Therefore, in our considered opinion, the payment made by the assessee to the Central Government could not be treated as 'dividend' within the ambit of definition clause (22) of section 2 of the Act.
Having held that payment by assessee to Central Government is not dividend, it is not necessary for us to deal with the other arguments of the parties since payment of dividend is the condition precedent for invoking the provisions of section 115-O. Accordingly, it is held that the provisions of section 115-O of the Act were not applicable to the present case. Consequently, the assessee could not be declared as assessee in default u/s 115Q of the Act. In view of the same, the orders of both the authorities below are quashed. The payment, if recovered, shall be refunded to the assessee in accordance with law.
In the result, appeal of the assessee is allowed.
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2006 (12) TMI 165
Issues Involved:
1. Legality of assessment under section 158BD read with section 158BC.
2. Validity of search warrant and its implications.
3. Jurisdiction of the Assessing Officer.
4. Recording of satisfaction under section 158BD.
5. Block period discrepancies.
Detailed Analysis:
1. Legality of Assessment under Section 158BD Read with Section 158BC:
The revenue contended that the CIT(A) erred in quashing the assessment framed under section 158BD read with section 158BC. The CIT(A) held that the search on the assessee was direct, and thus, proceedings under section 158BD were not in accordance with law. The CIT(A) quashed the block assessment, concluding that the documents seized during the search belonged to the assessee and his connected companies, not to the persons named in the search warrant. Therefore, the assessment should have been completed under section 158BC, not section 158BD.
2. Validity of Search Warrant and Its Implications:
The search warrant was issued in the names of S/Sh. Rakesh Kumar, Ashok Kumar, and M/s. R.K. & Co. (Builders and Colonisers) for premises at 11/2, Grain Market, Jalandhar Cantt. During the search, incriminating documents related to the assessee were found. The assessee challenged the search action on the grounds that no search warrant was issued in his name. The Hon'ble Punjab & Haryana High Court upheld the validity of the search action, noting the incriminating documents found during the search.
3. Jurisdiction of the Assessing Officer:
The assessee argued that the ACIT, Inv. Cir. 2(2), Jalandhar, wrongly assumed jurisdiction as no order under section 127 was passed to transfer the case from Ward 2(6) to ACIT, Inv. Cir. 2(2). The CIT(A) rejected this submission, stating that the common jurisdictional order passed by the CIT, Jalandhar, on 7-10-1994, automatically transferred the jurisdiction over cases covered under search actions to ACIT, Inv. Cir. 2(2). The CIT(A) upheld the validity of the notice issued under section 158BD.
4. Recording of Satisfaction under Section 158BD:
The CIT(A) found that the Assessing Officer did not produce evidence of satisfaction recorded in the cases of S/Sh. Rakesh Kumar, Ashok Kumar, and M/s. R.K. & Co. (Builders and Colonisers). The CIT(A) held that the satisfaction recorded in the case of the assessee was contrary to the provisions of section 158BD. However, the Tribunal found that the Assessing Officer had recorded satisfaction based on the incriminating documents seized during the search, which indicated undisclosed income of the assessee. The Tribunal held that the satisfaction recorded by the Assessing Officer was valid.
5. Block Period Discrepancies:
The CIT(A) noted that the block period mentioned in the order was from 1-4-1988 to 23-12-1998, whereas the search against the persons named in the warrant concluded on 8-12-1998. The CIT(A) observed that the Assessing Officer treated the case of the assessee as an independent search, which conformed more with the provisions of section 158BC rather than section 158BD. The Tribunal, however, held that the action under section 158BD was correctly taken against the assessee and his two business companies.
Conclusion:
The Tribunal set aside the order of the CIT(A) and restored the appeals to the file of the CIT(A) for deciding the grounds relating to the merits of the additions after allowing reasonable opportunity to both parties. The Tribunal held that the action under section 158BD was correctly taken, the satisfaction recorded by the Assessing Officer was valid, and the jurisdiction was rightly assumed by the DCIT, Inv. Cir. 2(2), Jalandhar. The appeals of the revenue were treated as allowed for statistical purposes.
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2006 (12) TMI 164
Issues Involved:
1. Validity of the reopening of assessment under sections 147/148.
2. Legality of the reassessment order dated 23-1-2004.
3. Computation of capital gains and cost of acquisition.
Detailed Analysis:
1. Validity of the reopening of assessment under sections 147/148:
The revenue contended that the reopening of the assessment was valid under section 147/148 due to the unexplained deposit of Rs. 11,73,679 and the deemed dividend of Rs. 7,50,000 received by the assessee. The assessee argued that the reopening was based on erroneous assumptions and lacked genuine and definite information. The tribunal noted that the Assessing Officer (AO) had prima facie reasons to believe that income had escaped assessment based on the material available at the time of reopening. The tribunal emphasized that the AO is not required to establish escapement of income at the initiation stage but only to have reasonable grounds for reopening. Subsequent explanations provided by the assessee, which were accepted by the AO, do not invalidate the reassessment proceedings.
2. Legality of the reassessment order dated 23-1-2004:
The assessee argued that the reassessment order was illegal as the AO did not make any addition regarding the unexplained deposit of Rs. 11,73,679, which was the basis for reopening the assessment. The tribunal held that the validity of the reassessment should be judged based on the material available at the time of reopening and not on the final outcome of the reassessment proceedings. The tribunal clarified that the AO has the discretion to make additions either of the items on which the assessment was reopened or of the items discovered during the reassessment proceedings. The tribunal rejected the contention that the AO must make an addition of the amount on which the assessment was reopened to validate the reassessment.
3. Computation of capital gains and cost of acquisition:
The AO computed the capital gains by rejecting the assessee's valuer's report and adopting a lower rate for the land. The CIT(A) canceled the reassessment order without adjudicating on the quantum of capital gains. The tribunal reversed the CIT(A)'s order canceling the assessment and restored the matter to the CIT(A) to adjudicate the quantum of capital gains based on the material available and to be furnished by the assessee and the AO.
Conclusion:
The tribunal upheld the validity of the reopening of the assessment under sections 147/148 and clarified that the AO has the discretion to make additions of the items discovered during the reassessment proceedings. The tribunal reversed the CIT(A)'s order canceling the assessment and directed the CIT(A) to adjudicate the quantum of capital gains. The appeal filed by the revenue was allowed for statistical purposes, and the cross-objection filed by the assessee was dismissed.
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2006 (12) TMI 163
Issues:
1. Determination of undisclosed income for the block period.
2. Validity of order passed under section 158BC.
3. Applicability of provisions regarding undisclosed income in the case of no maintenance of books of account.
4. Taxability of income above the chargeable limit for which no advance tax or TDS was paid.
Detailed Analysis:
1. The first issue pertains to the determination of undisclosed income amounting to Rs. 1,00,000 for the block period, contested by the assessee who initially showed nil income. The Assessing Officer brought the amount of Rs. 1,20,000 to tax as undisclosed income, along with accrued interest. The appellate proceedings revealed that the assessee surrendered Rs. 1,00,000 without providing evidence of the source. The CIT (Appeals) held that the surrendered amount could be considered as undisclosed income for the assessment year, given the lack of proof. The Tribunal reviewed this issue in light of the submissions made.
2. The second issue revolves around the validity of the order passed under section 158BC, challenged by the assessee on the grounds that no seizure was made in their hands, suggesting that the order should have been under section 158BD. The Tribunal considered the search conducted in the locker standing in the name of the assessee, concluding that the order under section 158BC was justified, as separate orders for the same block period could not be issued. The pronote amount was rightly considered as undisclosed income under section 158BC.
3. The third issue addresses the applicability of provisions regarding undisclosed income in cases where books of account are not maintained. The Tribunal examined whether the surrendered amount of Rs. 1,00,000 represented undisclosed income for the block period. The assessee's argument regarding the purchase of NSCs and non-requirement of advance tax was analyzed in light of relevant legal provisions and court decisions. The Tribunal emphasized that the undisclosed income is governed by tax payment through TDS or advance tax.
4. The final issue concerns the taxability of income exceeding the chargeable limit for which no advance tax or TDS was paid. The Tribunal highlighted the importance of determining such income after considering applicable rebates and deductions. The Assessing Officer and CIT (Appeals) were directed to conduct a thorough assessment to determine the undisclosed income for the block period accurately.
In conclusion, the Tribunal allowed the appeal by the assessee for statistical purposes, emphasizing the need for a comprehensive assessment of undisclosed income in accordance with the law and tax payment provisions.
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2006 (12) TMI 162
Cenvat/Modvat - Interpretation of statutes of Rule 57CC - manufacture of gelatin - Phosphoryl Liquor/Mother Liquor removed - HELD THAT:- It is clear from the reading of the Rule 57CC and Rule 6 the same applies to the final product, dutiable or exempted and makes no distinction between a intended final product or unintended emergence of by-product. The said rule in simple terms, requires the assessee to pay an amount equal to 8% of the value of the goods cleared at nil rate of duty, even where the inputs have been used directly or indirectly in the manufacture of such final product.
As we have already held that HCL has been used in the manufacture of final product Phosphoryl 'A' & 'B', which attract nil rate of duty, the provisions of Rule 57CC would apply. The expression "in or in relation to" has been interpreted by various decisions to be of wide connotation. It is impossible to obtain the mother liquor or the resultant Phosphoryl 'A' & 'B', without the use of HCL. As long as it is held that HCL is used in the manufacture of Phosphoryl 'A' & 'B', the applicability of provisions of Rule 57CC cannot be ruled out.
The issue in the instant case is not relatable to reversal of the credit originally taken by the appellant on the ground of emergence of any by-product. The issue before us is a straight and simple interpretation of Rule 57CC, which as already held does not make any distinction between exempt final product or exempt by product. As along as the excisable product cleared from the assessees factory enjoys exemption or attracts nil rate of duty, provisions of Rule 57CC will come into play. T
he straight answer to the above question lies in the literal interpretation of the language employed in the said Rule without straining to find out the legislative intent, especially when the language used is unambiguous. As already observed, the provisions of Rule 57CC or Rule 6 envisage common use of inputs in two final products i.e. one dutiable and other exempted, for the applicability of the same. As such, we are of the view that as long as two final products emerging out of use of common inputs are excisable and one of them is exempted, the provisions of Rule 57CC will apply. The exempted final product may be intended manufacture or unintended by-product. As such, we agree with the view expressed in Binani Zinc Ltd.[2005 (4) TMI 148 - CESTAT, BANGALORE]].
Reference is answered is above terms. File is sent back to the regular bench for disposal of appeal.
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2006 (12) TMI 161
Whether the Proposed Product i.e. Indian Mouth Freshener to be manufactured will be classified as "Pan Masala" under CETSH 2106.9020?
Whether all the duties discharged under Rule 8 of the Central Excise Rules, 2002 such as Basic Excise Duty [BED], Special Excise Duty [SED], National Calamity Contingent Duty [NCCD], Additional Duty of Excise on Pan Masala [AED (Pan Masala)] and Education Cess on the aggregate of duties discharged through Account Current [PLA] after mandatory utilization of available Cenvat credit under the Cenvat Credit Rules, 2002 at the end of the month, are eligible for exemption and refund as envisaged in Notification 56/2002-C.E. dated 14-11-02 as amended?"
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2006 (12) TMI 160
Issues Involved:
1. Jurisdiction of Customs officials for search and seizure.
2. Proof of contraband goods being of foreign origin.
3. Specific provisions under which penalties were imposed.
4. Opportunity to cross-examine and fairness of the inquiry process.
5. Retraction of statements and their admissibility.
6. Concurrent findings of lower authorities and leniency in penalty.
Issue-wise Detailed Analysis:
1. Jurisdiction of Customs officials for search and seizure:
The petitioners contended that the search and seizure conducted by the Customs officials from Goa were beyond their jurisdiction since the contraband was seized in Sawantwadi, Maharashtra. However, the court found no merit in this argument, stating that the contraband was smuggled on the shores of Goa and transported to Sawantwadi. The court referenced a Supreme Court decision (Union of India v. Ram Narain Bishwanath) but distinguished it from the present case, affirming the jurisdiction of the Goa Customs officials.
2. Proof of contraband goods being of foreign origin:
The petitioners argued that there was no material evidence to show that the seized goods were of foreign origin. The court noted that this issue was raised for the first time and found that the manner of transportation and landing at Goa coast sufficiently demonstrated that the goods were foreign. The burden then shifted to the petitioners to prove otherwise, which they failed to do.
3. Specific provisions under which penalties were imposed:
The petitioners claimed that the show cause notice was vague and did not specify the provisions under which penalties were imposed. The court examined the notice and found it sufficiently clear, distinguishing it from the case of B. Lakshmichand v. Government of India, where proceedings were quashed due to vagueness. Here, the court found no such vagueness.
4. Opportunity to cross-examine and fairness of the inquiry process:
The petitioners contended that they were not given the opportunity to cross-examine the persons who recorded their statements under Section 108 of the Customs Act. The court found that Mr. Mascarenhas, who interrogated the petitioners and under whose supervision the statements were recorded, was examined and cross-examined. The court concluded that this was sufficient and that the petitioners had been given a fair opportunity.
5. Retraction of statements and their admissibility:
The petitioners argued that their statements under Section 108 were obtained under duress and should not be admissible. The court noted that both authorities below had dealt with this issue and found no evidence to support the claim of duress. The court also observed that the petitioners were not in custody when their statements were recorded, further weakening their claim.
6. Concurrent findings of lower authorities and leniency in penalty:
The court found no reason to interfere with the concurrent findings of the lower authorities, which had established the petitioners' involvement in smuggling. The petitioners' plea for leniency due to the passage of time and loss suffered was also rejected, as the penalties were proportionate to their involvement. An attempt to argue that the real culprits were not nabbed was also dismissed.
Conclusion:
The petitions were dismissed with no order as to costs, affirming the penalties and confiscation orders imposed by the Customs authorities.
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2006 (12) TMI 159
Jurisdiction on the Settlement Commission - Composite order - cut and polished diamond - absence of filing of bill of entry as contemplated under the proviso to Section 127C(1) - HELD THAT:- It is the case of the Revenue that the Special Leave Petition filed against the decision of this Court dated 21st July, 2005 is pending before the Apex Court. Therefore, when this Court has already ruled that the application filed by Manish Kalvadiya is maintainable, it is not open to the revenue to contend that the Settlement Commission was in error in entertaining the application filed by Manish Kalvadiya. Accordingly, the first argument of Mr. Jetly is liable to be rejected.
It is pertinent to note that in the application filed by M/s. I.P. Patel & Co., relating to cut and polished diamond no additional amount of duty has been disclosed and they have referred to the amount offered by Manish Kalvadiya in respect of cut and polished diamonds. By the impugned order, the Settlement Commission has held that in view of composite show cause notice issued, the reliefs granted to Manish Kalvadiya in cut and polished diamond will be applicable to M/s. I.P. Patel and Co. as a co-noticee in respect of cut and polished diamond.
In our opinion, when the order passed by the Settlement Commission is a composite order, it will not be proper to hold that it is restricted to Manish Kalvadiya alone. Moreover, even in the case of Manish Kalvadiya, the Settlement Commission has not given any finding as to whether the enhanced duty liability accepted by Manish Kalvadiya represents the correct duty liability. In this view of the matter in our opinion, it is just and proper to set aside the impugned order and remit the matter back to the Settlement Commission with a direction to decide it afresh in accordance with law, leaving all the contentions of both the sides open.
Accordingly, the impugned order is quashed and set aside and the matter is remitted back to the Settlement Commission to decide the applications filed by the parties independently and in accordance with law. All contentions of all the parties are kept open.
Both the petitions are disposed of accordingly with no order as to cost.
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2006 (12) TMI 158
Issues:
1. Appeal against order of Customs, Excise and Service Tax Appellate Tribunal
2. Disallowance of abatement claim
3. Delay in filing appeal before the Tribunal
Analysis:
1. The appeal was filed against the order of the Customs, Excise and Service Tax Appellate Tribunal, challenging the rejection of the abatement claim by the authorities. The substantial questions of law raised included whether the Tribunal's order without delving into the facts of the case was legally sustainable and if the rejection of the abatement claim based on the presumption of non-closure of the unit was valid.
2. The assessee had applied for abatement of duty for specific periods, but the claim was disallowed because the unit did not remain closed entirely during the relevant periods. The rejection was based on the unit being registered as a single unit with specific furnace capacities, and it was found that the unit did not comply with the requirement for abatement claims due to non-closure.
3. Despite the dismissal of a writ petition earlier due to the availability of an alternative remedy, the appellant filed an appeal that was dismissed as time-barred. The appellant sought condonation of the delay in filing the appeal before the Tribunal, arguing for a remand for a fresh decision. However, the court found that the issue had been settled in a previous judgment, highlighting that the abatement of duty was permissible only when the entire factory was closed, not just specific sections.
4. Referring to a Supreme Court judgment, the court emphasized that the abatement claim could not be accepted if only one furnace remained closed while the rest of the unit operated. The court noted that the appellant's unit had one registration number and one furnace in operation, leading to the dismissal of the appeal due to lack of merit as the abatement claim did not meet the legal requirements.
In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision to disallow the abatement claim due to the unit's failure to comply with the necessary closure requirements for duty relief.
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2006 (12) TMI 157
Issues:
1. Admissibility of credit under Rule 57C and 57CC for both dutiable and exempted goods without separate account maintenance.
2. Allowance of specific duty credit on inputs for exempted final products.
3. Liability to pay 8% duty when credit is allowed without separate accounts.
Analysis:
1. The revenue filed a petition under Section 35H of the Central Excise Act, seeking a direction for the Tribunal to refer questions of law from their order. The questions pertained to the admissibility of credit under Rule 57C and 57CC for both dutiable and exempted goods without separate account maintenance. The case involved an assessee engaged in manufacturing steel forgings and forged articles availing Modvat credit under Central Excise Rules. It was found that the assessee used modvatable inputs for dutiable goods and job work without paying duty or reversing Modvat credit, failing to maintain separate accounts as required. The duty of 8% of the price was deemed payable in such cases.
2. The second question raised was regarding the allowance of specific duty credit on inputs used for manufacturing final products exempted from duty or charged at a 'nil' rate. The case highlighted that the assessee was utilizing modvatable inputs for both dutiable goods and job work without maintaining separate accounts, leading to the duty liability issue.
3. The final issue addressed whether the party is liable to pay 8% duty even when credit of duty is allowed but separate accounts for inputs used in dutiable and duty-free goods are not maintained. Despite the respondent's absence, the Court directed the Tribunal to send the statement of the case for determination of the liability to pay duty at the rate of 8% in case of failure to maintain separate accounts. The judgment concluded by disposing of the petition, emphasizing the importance of complying with the rules and maintaining accurate records to avoid duty liabilities.
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2006 (12) TMI 156
Issues:
1. Interpretation of "inputs" for availment of Modvat credit under Rule 57A of the Central Excise Act, 1944.
2. Exclusion of specific items from the scope of "inputs" under the explanation to Rule 57A.
3. Justifiability of CEGAT's decision not to refer certain questions of law to the High Court.
Analysis:
1. The Revenue, through a reference application under Section 35H of the Central Excise Act, challenged the order of the Tribunal regarding the treatment of refractories and other furnace lining items as "inputs" for Modvat credit under Rule 57A. The High Court found the questions raised by the Revenue to be referable questions of law deserving consideration on merits. The court directed the Tribunal to send a statement of case for answering the questions framed.
2. The second issue pertained to the exclusion of certain items from the definition of "inputs" under the explanation to Rule 57A. The High Court, after hearing the Assistant Solicitor General, held that the questions raised on this matter were referable questions of law requiring detailed consideration. The court directed the Tribunal to provide all necessary facts and documents for a comprehensive analysis of whether the excluded items covered not only machinery but also parts thereof.
3. The final issue revolved around the justifiability of CEGAT's decision not to refer certain questions of law to the High Court despite similar references made in other judgments. The High Court, after perusing the case record and hearing the arguments, concluded that the questions proposed by the Revenue were indeed referable questions of law that needed to be addressed on their merits. The court directed the Tribunal to refer the questions to the High Court within a stipulated timeframe along with all required enclosures for a thorough examination and resolution of the legal issues.
In conclusion, the High Court allowed the Revenue's application, emphasizing the importance of addressing the questions of law raised regarding the interpretation of "inputs" for Modvat credit and the exclusion of specific items under Rule 57A. The court's decision aimed to ensure a comprehensive analysis and resolution of the legal issues involved in the case.
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2006 (12) TMI 155
Issues involved:
1. Discrepancy in orders issued by the Tribunal regarding pre-deposit amounts for hearing appeals.
2. Arbitrariness in the Tribunal's decisions.
3. Consistency in handling appeals with similar subject matters.
4. Direction on pre-deposit requirements for hearing appeals.
Detailed Analysis:
The judgment by the High Court of Judicature for Rajasthan at Jodhpur, delivered by Rajesh Balia and Gopal Krishan Vyas, JJ., addresses the discrepancy in orders issued by the Tribunal concerning pre-deposit amounts for hearing appeals. The court notes that the petitioner was initially required to deposit a consolidated amount of Rs. 25 lakhs within 8 weeks for 8 appeals, while the pre-deposit was suspended entirely for another appeal by a different order just two days later. This inconsistency in decisions by the same Tribunal highlights the arbitrariness in the orders under challenge.
Furthermore, the court observes that all 12 appeals before the Tribunal have identical subject matters. The judgment emphasizes that directing the petitioner to deposit the amount for 8 appeals, especially when other similar appeals were allowed on merit without pre-deposit, would serve no useful purpose. The court emphasizes the need for consistency in handling appeals with the same issues and facts to avoid subjecting the petitioner to varying conditions for entering the appeals.
In light of the above analysis, the High Court sets aside the impugned order that directed the petitioner to pre-deposit Rs. 25 lakhs for the 8 appeals. The court directs the Tribunal to hear all 8 appeals on merit without insisting on any pre-deposit amount, similar to how the other 4 appeals were handled. It is decided that the appeals in question will be decided after considering the orders passed in the remaining appeals on a specific date. The judgment concludes by stating that there shall be no orders as to costs, indicating that no additional financial burden is imposed on any party in this matter.
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