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2008 (6) TMI 609
The Bombay High Court dismissed the appeal as the losses were deemed as business losses and there were concurrent findings of fact in favor of the assessee.
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2008 (6) TMI 608
Issues involved: The main issue in this case is whether the petitioner is entitled to a deemed license as per sec.447(6) of the Kerala Municipality Act, 1994.
Controversy and Facts:
The petitioner sought relief to carry on a retail store in a building owned by the Corporation of Thiruvananthapuram. The petitioner applied for a license on 13.3.2008, but the respondent pointed out inadequacies in the application. The respondent later declined the license on 23.4.2008. The petitioner claimed that as no response was received within thirty days of application, they were entitled to a deemed license and started the business on 28.4.2008. The respondent contended that the application was defective and the order declining the license was communicated within the prescribed time.
Legal Provisions:
Sec.447(3A) of the Act states the procedure for granting or refusing a license within fifteen days of application. Sec.447(6) provides for a deemed license if the order is not communicated within thirty days of application.
Petitioner's Argument:
The petitioner argued that the communication declining the license was issued beyond the 30-day limit, entitling them to a deemed license u/s 447(6).
Court's Decision:
The court accepted the petitioner's argument, citing that the communication was indeed issued beyond the prescribed time, thus entitling the petitioner to a deemed license as per sec.447(6) of the Act. The court referred to previous judgments to explain the effect of legal fiction and held that the petitioner should benefit from the statutory provisions.
Final Judgment:
The writ petition was disposed of in favor of the petitioner, granting them a deemed license u/s 447(6) and restraining the respondent from preventing the petitioner from operating the retail shop. However, the Corporation was allowed to take legal action if any provisions of the Act, Rules, or Bye-laws were not complied with, with prior notice to the petitioner.
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2008 (6) TMI 607
Addition u/s. 69B - addition based on the value adopted by the stamp valuation authority - investment made in land - consideration paid higher than that stated in the sale deed - land was agricultural land which was subsequently converted in industrial land - determination of market value for computing payment of stamp duty.
HELD THAT:- The consideration mentioned in the sale deed differs from the consideration admitted in the course of recording of statement by the AO of the sellers on 5th Jan., 2006. Again, the consideration, as averred in the affidavit made by the sellers before the Civil Judge, on 25th Nov., 2003 reiterates the consideration i.e. as stated in the sale deed. Quite clearly, the statements of the sellers are not only inconsistent but are contradictory.
We are also conscious of the fact that both the stands of the sellers were before the AO. Therefore, while recording the statements of the sellers on 5th Jan., 2006, the AO should have made appropriate query and confronted the seller. So, however, neither such action has been taken at the time of recording the statement and nor subsequently before completion of the assessment proceedings. The impact of the aforesaid situation is that the statement attributed to the sellers becomes suspect. Moreover, the statement of the seller given on 5th Jan., 2006 lies uncorroborated. For the reasons enumerated above we are inclined to uphold the stand of the CIT(A) that the statement of the seller is unreliable.
If the evidence in the shape of the statement of the seller dt. 5th Jan., 2006 is removed from the scenario, there remains no cogent evidence with the AO to rebut the consideration stated in the sale deed. It is in this manner, in our considered opinion, the legal position emerging in the case of P.V. Kalyanasundaram [2006 (2) TMI 79 - MADRAS HIGH COURT] is attracted to the present case. Thus, on the basis of the parity of reasoning upheld in the case of P.V. Kalyanasundaram (supra), the impugned addition is liable to be deleted.
We are in agreement with the order of the CIT(A) that the fiction created by s. 50C is for the limited purpose of computing the capital gains. It only seeks to make a special provision for determining the full value of consideration in cases of transfer of immovable properties for the purpose of s. 48 of the Act. Therefore, the fictional regime of s. 50C is not available with the AO in support of his case of invoking s. 69B against the present assessee.
Therefore, we hereby sustain the order of the CIT(A) - In the result, the appeal of the Revenue is dismissed.
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2008 (6) TMI 606
Issues Involved:
1. Disallowance of interest u/s 36(1)(ii) read with sec.14A of the IT Act.
2. Disallowance of interest u/s 36(1)(iii) of the IT Act.
Summary:
1. Disallowance of interest u/s 36(1)(ii) read with sec.14A of the IT Act:
The Assessee borrowed Rs. 5 crores from State Bank of Mauritius, investing Rs. 3.60 crores in shares of M/s. Southern Agrifurance Industries Limited (SAFL) and giving Rs. 1.7 crores as an interest-free loan to a sister concern, M/s. Anand Transport. The Assessing Officer disallowed the interest expenditure, citing sec.14A and sec.36(1)(iii) of the IT Act, arguing that investments in shares yield exempt dividend income. The Assessee contended that the investment was for business purposes, not merely for earning dividend income, and cited case law to support the claim that interest on borrowed capital for investment in shares is a business expenditure. However, the Assessing Officer, referencing the Supreme Court decision in CIT v. Rajendra Prasad Moody, held that even if no dividend was earned, sec.14A was applicable. The CIT(Appeals) confirmed the disallowance, noting the clear nexus between the borrowed funds and the investment in shares, and the lack of interest-free funds available for such investments. The Tribunal upheld the CIT(Appeals) decision, stating that sec.14A applies even if no exempt income is earned during the year.
2. Disallowance of interest u/s 36(1)(iii) of the IT Act:
The Assessee also faced disallowance of interest on overdraft facilities from Global Trust Bank, used for interest-free advances to sister concerns. The Assessing Officer determined the interest relatable to these advances and disallowed it. The CIT(Appeals) confirmed this disallowance, noting that the borrowed funds were clearly diverted for non-business purposes. The Tribunal, however, remitted this issue back to the Assessing Officer for re-examination in light of the Supreme Court decision in SA Builders Ltd. v. CIT, which allows interest on borrowed funds if the advances were made for business expediency.
Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal confirming the disallowance of interest u/s 14A but remitting the issue of disallowance u/s 36(1)(iii) for re-examination.
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2008 (6) TMI 605
Issues involved: Appeal against order dated 11.12.06 passed by CIT(A) for assessment year 1994-95 u/s 250(6) of the Income-tax Act, 1961.
Ground 1: Ad-hoc disallowance of Rs. 50,000/- out of business promotion and general expenses was made by AO and upheld by CIT(A). The addition lacked precise quantification and was based on surmises without corroborative evidence. Citing various Supreme Court decisions, the Tribunal held such subjective additions unsustainable and deleted the same.
Ground 2: Concerns the treatment of Fine Installments (FIPL) and Handsome Investment P. Ltd. (HIPL) as separate legal entities. The Tribunal referenced a previous decision and reiterated the principle that investment companies are distinct entities, emphasizing arms' length transactions and adherence to legal formalities. As the issue was already addressed in a prior ruling, no further adjudication was deemed necessary.
Ground 3: Following the discussion on Ground 2, the issue raised in Ground 3 was rendered moot and required no further consideration.
Conclusion: The appeal was allowed, and the order was pronounced in open court on 27.06.2008.
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2008 (6) TMI 604
Issues Involved:1. Disallowance of Rs. 50,000 on account of personal expenses. 2. Reduction of Rs. 1,57,28,127 from the block of assets received from the insurance company. 3. Addition of Rs. 1,31,437 u/s 14A as proportionate expenses incurred to earn exempt dividend income. Summary:Issue 1: Disallowance of Rs. 50,000 on Account of Personal ExpensesDuring the assessment proceedings, the Assessing Officer disallowed Rs. 50,000 on an estimate basis out of business promotion, travelling, vehicle maintenance, and miscellaneous expenses, citing unverifiable nature and potential personal element. The CIT(A) upheld this disallowance due to practical difficulties in verifying the genuineness of these cash expenses. The Tribunal found the disallowance justified given the unverifiable nature of the expenses and dismissed the ground. Issue 2: Reduction of Rs. 1,57,28,127 from Block of AssetsThe assessee received Rs. 1,57,28,127 from an insurance claim for damaged tanks and terminals due to an earthquake. The Assessing Officer reduced this amount from the WDV of the block of assets and restricted the depreciation claim. The CIT(A) confirmed this decision. The Tribunal, however, found that the provisions of sections 43(6)(c)(i)(B), 45(1A), and 50 of the Income-tax Act did not support the reduction of WDV by insurance receipts for damaged assets. The Tribunal held that the insurance receipts should not be adjusted against the WDV and set aside the additions made by the Assessing Officer and confirmed by the CIT(A). Issue 3: Addition of Rs. 1,31,437 u/s 14A for Proportionate ExpensesThe Assessing Officer disallowed Rs. 1,31,437, estimating 5% of the exempt dividend income as expenses incurred to earn it. The CIT(A) upheld this disallowance. The Tribunal noted that while no direct expenditure was identified, some employee time and resources were likely used for handling dividend warrants. The Tribunal deemed a round sum disallowance of Rs. 50,000 appropriate, partly allowing the ground. Conclusion:The appeal of the assessee was partly allowed, with the Tribunal upholding the disallowance of Rs. 50,000 for personal expenses, setting aside the reduction of Rs. 1,57,28,127 from the block of assets, and reducing the disallowance u/s 14A to Rs. 50,000.
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2008 (6) TMI 603
Issues:
1. Abetted appeal under Rule 22 of CESTAT Procedure Rules due to High Court's order of company liquidation.
2. Appeal restoration following High Court's recall of winding-up order.
Analysis:
1. The judgment initially dealt with the abetted appeal under Rule 22 of CESTAT Procedure Rules due to the High Court's order of liquidation of the company. The appellant's appeal was rejected based on this ground. However, the High Court of Karnataka subsequently allowed the Company Application and recalled the order of winding up as the company had paid all amounts due to creditors. This led to the appellant seeking restoration of the appeal since the company remained in existence. The Tribunal acknowledged this development and decided to recall the Stay Order and Final Order, thereby restoring the appeal and stay application to their original numbers.
2. The Tribunal considered the appeal restoration following the High Court's recall of the winding-up order. The learned DR referred to the Commissioner's comments, and both sides were heard on the matter. The Tribunal noted that the appeal was dismissed due to the abetted status under Rule 22, following the High Court's winding-up order. However, with the High Court's subsequent decision to recall the winding-up order, the Tribunal decided to reinstate the appeal and stay application to their original status. The Tribunal scheduled the Stay application for consideration on a specific date and granted the Counsel's request for an out-of-turn issuance of the order, emphasizing the restoration of the appeal process.
In conclusion, the judgment addressed the issues of abetted appeal under Rule 22 of CESTAT Procedure Rules due to the High Court's liquidation order and the subsequent restoration of the appeal following the High Court's recall of the winding-up order. The Tribunal's decision to reinstate the appeal and stay application highlighted the importance of legal developments impacting the status of the company and the procedural rules governing such cases.
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2008 (6) TMI 602
The Appellate Tribunal CESTAT, Mumbai dismissed the appeal by M/s. Ariane Orgachem Pvt. Ltd. as not maintainable after they sold their business to M/s. Amri India Pvt. Ltd. All assets and liabilities were taken over by M/s. Amri India Pvt. Ltd., making M/s. Ariane Orgachem Pvt. Ltd. no longer aggrieved by the subsequent order. Stay application and COD application were also dismissed.
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2008 (6) TMI 600
Issues involved: Settlement application u/s 127B of the Customs Act, 1962 for evasion of export duty/cess through fraudulent means.
Facts of the case: The applicant and co-applicants were accused of committing fraud by producing forged duty payment challans to evade export duty/cess amounting to Rs. 52,46,637/-. Investigations revealed the evasion in the year 2003-2004. A show cause notice was issued demanding the duty/cess. The applicants filed a settlement application admitting the duty liability and deposited Rs. 53,00,000/- during investigation.
Applicant's submissions: The applicant cooperated in the proceedings, admitted the duty liability, and paid the interest amount. They claimed that the fraud was masterminded by one of the exporters, not known to them, resulting in revenue loss. They requested immunity from interest, fine, penalty, and prosecution. Co-applicants also sought immunity from penalty.
Revenue's objection: The Revenue objected to granting immunities to the applicant.
Settlement terms: The Settlement Commission found the applicant partially responsible for the fraud due to lack of criminal complaint against the alleged executor. However, considering the cooperation and payment made, minimum penalty was imposed. Goods were already exported, so no confiscation was possible. The settlement terms included settling the duty/cess amount, paying interest, granting immunity from penalty exceeding Rs. 50,000 to the applicant, immunity from penalty to co-applicants, and immunity from prosecution to all.
Conclusion: Immunities were granted u/s 127H of the Act, with a caution that the settlement would be void if obtained by fraud or misrepresentation. All concerned parties were informed accordingly.
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2008 (6) TMI 599
Issues involved: Misdeclaration of goods, confiscation, fine, penalty.
Misdeclaration of goods: The appellants imported a calibrator in December 1997, returned it to the manufacturer for repairs within the warranty period, and subsequently re-imported it in October 2000. However, upon examination, it was found that the re-imported calibrator was new and had a different serial number than the one sent for repairs. The Additional Commissioner confiscated the goods, imposed a fine of Rs. 33,000, and a penalty of Rs. 16,000 due to misdeclaration.
Confiscation: The Additional Commissioner held that the goods had been misdeclared, leading to their confiscation with an option for redemption upon payment of a fine. The Commissioner (Appeals) upheld this decision, resulting in the appeal to the tribunal.
Decision: After hearing both sides, the tribunal found that there was no dispute regarding the import, return for repairs, and subsequent re-entry of the calibrator. The Italian manufacturer confirmed that a new machine was mistakenly dispatched to the importer in India. Considering this, the tribunal accepted the importer's explanation that the receipt of the new machine was a bona fide mistake and not a case of misdeclaration. Therefore, the tribunal set aside the order of confiscation, fine, and penalty, ultimately allowing the appeal.
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2008 (6) TMI 598
Issues involved: Whether the penalty imposed by the Assessing Officer was rightly deleted by the ITAT u/s 271 of the Income-tax Act.
Summary:
1. The only point urged by the revenue was that the ITAT wrongly deleted the penalty imposed by the Assessing Officer, citing section 271 of the Income-tax Act. The penalty was imposed on the assessees for concealment of income. However, the ITAT found that there was no deliberate concealment as the assessees had disclosed all details in the returns filed before receiving notice under section 148 of the Act. The delay in filing the returns was condoned by the Assessing Officer. The ITAT concluded that there was no deliberate concealment of income, even though discrepancies were present in the balance sheet filed by the assessees.
2. The ITAT's decision was based on the fact that the assessees had disclosed all material facts relevant to the computation of their income. It was established that the assessees had indeed disclosed all necessary facts, even though the returns were filed late and the delay was condoned. Therefore, it was held that the assessees had proven the disclosure of all material facts related to the computation of their total income.
3. Consequently, the appeals were dismissed as there was no merit in challenging the ITAT's decision to delete the penalty imposed by the Assessing Officer.
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2008 (6) TMI 597
Pre-deposit - principles of natural justice - several opportunities were granted to the petitioners to comply with the pre-deposit order - Held that: - we direct that the petitioners shall deposit a total amount of ₹ 44 lacs including the amount of ₹ 12,78,000/- lacs already deposited by the petitioners earlier.
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2008 (6) TMI 596
Issues involved:
The judgment deals with the validity of reassessment under section 147 of the Income Tax Act, focusing on the question of whether the Tribunal was correct in annulling the reassessment order despite income escaping due to excess depreciation claim.
Relevant Details:
The relevant assessment year was 1998-99, where the assessee initially declared a net income of Rs. 1,54,640. The Assessing Officer (AO) later issued a notice under section 148 of the IT Act in 2001, alleging an escapement of income due to excess depreciation claim of Rs. 16,74,008. The AO reopened the assessment based on this ground, as the assessee had not withdrawn the depreciation claim for previous years. The Tribunal found that the only item escaping assessment was the excess depreciation claim, which was not valid as the assessee had filed a revised return within the allowed time. The AO also made other additions during reassessment, which were not considered by the Tribunal.
The AO's reasoning for reopening the assessment was that the assessee had not withdrawn the depreciation claim for plant and machinery leased out in previous years, leading to an escapement of income. However, the Tribunal concluded that the AO lacked valid reasons to believe that income had escaped taxation, as the revised return had been filed within the specified time. The Tribunal emphasized that without a valid initiation of reopening proceedings under section 147, no reassessment could be made.
The Tribunal's decision was based on the legal principle that for a reassessment to be valid, there must be a proper initiation of reopening proceedings under section 147. If the reasoning for reopening is not present at the time of initiation, the reassessment would be considered invalid. Therefore, the appeal was dismissed, upholding the Tribunal's decision to annul the reassessment order.
In conclusion, the judgment highlights the importance of valid reasons for reopening assessments under section 147 of the Income Tax Act, emphasizing that without proper initiation based on prima facie materials, reassessments cannot be deemed valid.
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2008 (6) TMI 595
Powers conferred on CIT u/s 263 - sundry credits not proved to be genuine - Whether the Tribunal has erred in law in quashing the order passed by CIT u/s 263 and is there any illegality in the order of the CIT directing the AO to make assessment de novo after giving the opportunity to the assessee? - HELD THAT:- In our opinion the word ‘erroneous’ used in the section includes the expression ‘erroneous in law’ as well as ‘erroneous in fact’. When the CIT was satisfied that the sundry credits were not duly verified, it rightly found that the AO has erred in accepting the huge sundry credits.
As far as the requirement of ‘prejudicial to the interest of revenue’ is concerned if the amount shown on sundry credits is not found verified and becomes part of the taxable income, the interest of the revenue is certainly prejudicially affected. As such, in our opinion, both the conditions were fulfilled in the present case and the CIT had committed no error of law in passing the order.
We do not agree with the reasons given by the ITAT for quashing the order passed by CIT that heavens would have not fallen if one more opportunity was given to the assessee before passing the order. The question of giving further opportunity would have arisen only when the assessee would have sought further date to give the reply. In a casual manner ITAT has mentioned that loans were confirmed by the AO, but it has not given any details as a court of fact that what amount was got confirmed by which document.
Therefore, we are of the view that the ITAT has erred in law in quashing the order passed by CIT u/s 263, and we find that there is no illegality in the order passed by CIT directing the AO to make de novo assessment. Accordingly the question of law stands answered in favour of revenue and the appeal is allowed. The impugned judgment and order passed by ITAT, is hereby set aside.
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2008 (6) TMI 594
Issues Involved:
1. Disallowance of deduction under Section 10BA.
2. Disallowance of deduction under Section 80HHC on counter sales.
Issue-wise Detailed Analysis:
1. Disallowance of Deduction under Section 10BA:
The Revenue challenged the CIT(A)'s decision to grant relief to the assessee on the disallowance of the deduction under Section 10BA amounting to Rs. 8,99,43,092. The assessee, a partnership firm engaged in manufacturing and exporting wooden handicrafts, claimed deductions under Section 10BA for three units. A survey under Section 133A revealed that these units did not meet the conditions of Section 10BA, leading to the disallowance of the claim by the AO.
Kusum Sarovar Unit, Maharani Farm, Near Nala Mansarovar, Jaipur:
The AO disallowed the deduction, citing that the unit used old machinery, violating Section 10BA(2)(c), which prohibits the transfer of previously used machinery to a new business. The partner of the firm admitted during the survey that the unit was not eligible for the deduction.
Kusum Sarovar Unit-II, FCI Godown, Durgapura, Jaipur:
The AO found that the unit did not produce articles of artistic value as required under Section 10BA and employed fewer than the required 20 workers. The AO disallowed the deduction of Rs. 4,36,24,323.
Lali Unit, Ramgarh Road, Delhi National Highway, Jaipur:
The AO noted that this unit employed only seven workers, failing to meet the requirement of employing 20 or more workers under Section 10BA(2)(e). The deduction of Rs. 55,78,968 was disallowed.
CIT(A)'s Findings:
The CIT(A) allowed the deductions, stating that the assessee met the conditions under Section 10BA. It was noted that the existing business was not formed by splitting up or reconstruction of an existing business, nor by transferring previously used machinery, as per Sections 10BA(2)(b) and 10BA(2)(c). The CIT(A) also found that the assessee employed more than 20 workers, including those hired through contractors, and produced articles of artistic value.
Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s decision, emphasizing that Section 10BA is a special provision to encourage the export of wooden handicrafts and should be interpreted liberally. The Tribunal found that the assessee fulfilled all conditions under Section 10BA(2), including employing more than 20 workers and producing artistic articles. The Tribunal also highlighted that the assessee's confession to withdraw the claim during the survey was not permissible as it was not based on credible evidence.
2. Disallowance of Deduction under Section 80HHC on Counter Sales:
The Revenue contested the CIT(A)'s decision to grant relief on the disallowance of deduction under Section 80HHC for counter sales against convertible foreign exchange amounting to Rs. 66,96,039. The AO had disallowed this deduction, but the CIT(A) reversed the decision, relying on the Tribunal's decision in the case of S. Kasliwal & Co. vs. Asstt. CIT.
Tribunal's Analysis:
The Tribunal concurred with the CIT(A)'s decision, citing consistent decisions by the Jaipur Bench and the Supreme Court's ruling in CIT vs. Silver & Arts Palace. The Tribunal found no infirmity in the CIT(A)'s order and upheld the relief granted to the assessee.
Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions to grant deductions under Sections 10BA and 80HHC to the assessee.
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2008 (6) TMI 593
Deduction u/s 10B - CIT(A) - Disallowance on telecommunication expenses.
Deduction u/s 10B - CIT(A), excluded expenses incurred in foreign currency for providing software development services outside India from the 'export turnover - HELD THAT:- On the issue of exclusion of expenses incurred in foreign currency towards payments to the assessee's personnel deputed outside India , it was explained that the expenses were incurred in connection with development of software and services provided by the assessee outside India. Therefore, it is not excludible from the gross export turnover in arriving at the export turnover for computing deduction u/s 10B - The ld counsel for the assessee further explained that this is so because, the assessee is not engaged in the business of providing technical services outside India as contemplated in Explanation 2 to Sec.10B(8) of the Act.
The issue raised by the assessee is squarely covered by the order of this Tribunal in the case of M/s. Infosys Technologies Ltd., vs. JCIT [2007 (10) TMI 627 - ITAT BANGALORE] ''held that the appellant company was not involved in the business of providing technical services outside India in connection with the development of computer software and directed to compute the figures of export turnover and total turnover relevant for the application of the formula in sub-section 3 of the 80HHE, no exclusion be made of any expenditure incurred in foreign currency other than those already done by the appellant company.''
Applying the same, we direct the AO to grant relief to the assessee as indicated.
Disallowance on telecommunication expenses - HELD THAT:- The issue raised by the assessee is squarely covered by in the decision of Bharat Earth Movers Ltd.[2004 (3) TMI 761 - KARNATAKA HIGH COURT] ''held that Consequently, it follows that if the export turnover does not have the elements of sales tax or excise duty, the total turnover should also not have the said inputs. In the circumstances, to include excise duty and sales tax and excise duty not form part of export turnover, would be illogical and arbitrary. we direct the AO to exclude the expenditure incurred in foreign currency by the assessee from the total turnover. It is ordered accordingly - Applying the same, we direct the AO to grant relief to the assessee as indicated.
In the result, the appeals filed by the assessee are partly allowed to the extent stated above.
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2008 (6) TMI 592
Eligibility of deduction u/s 10A - profits of the business - clubbing of loss from Non-STPI Unit with the profit of the STPI Unit - business of software and information system - Expenditure reduced from the export turnover - Set off against the profit of the STPI Unit.
Eligibility of deduction u/s 10A - profits of the business - clubbing of loss from Non-STPI Unit with the profit of the STPI Unit - business of software and information system - Non-STPI Unit with its head office in Bangalore consisting of four foreign branches - HELD THAT:- Tribunal decision in the case of Tata Elxsi Ltd. vs. ACIT [2007 (10) TMI 630 - ITAT BANGLORE] and I-Gate Global Solutions Ltd. vs. ACIT [2007 (11) TMI 444 - ITAT BANGALORE] relied upon by the learned counsel were on similar facts and situation wherein it has been held that when there is no unabsorbed depreciation or unabsorbed loss in respect of STPI Unit and the profits and gains of the same would be exempt u/s 10A were to be without setting off of the loss of the other divisions or the setting off of carry forward losses of other divisions. The Tribunal held that the exemption u/s 10A to STPI unit and consequently to allow carry forward of such losses and depreciation of non-STPI Unit were separate - AO had taken recourse to consider this clubbing on the basis of finding relating to the separate units interlinked by way of receipts, coupling and deriving costs. The learned CIT(A) thereafter did not take cognizance of the said finding but considered the assessee's agitation by relying on the intention of the legislation for granting deduction u/s 10A only to export income and not other income. These facts have not been controverted.
We are inclined to hold that the law is very clear regarding incomes not taxable under Chapter III in the Income Tax Act which only relates to incomes forming part of total income for consideration in the spirit of the legislation has to be considered when the assessee has been able to establish the income of the STPI Unit as was available to the AO remains undisputed. This ground by the assessee, therefore, stands allowed as covered by the decision of the ITAT, Bangalore Bench in Tata Elxsi Ltd. vs. ACIT [2007 (10) TMI 630 - ITAT BANGLORE] on similar facts and circumstances.
Expenditure reduced from the export turnover - HELD THAT:- The learned counsel did not argue the amount of expenditure on account of foreign travel and lease line charges as not pertaining to export of software as considered and definite in sub-clause (iv) to Expln. 2 to sub-section 8 of Section 10A. Therefore, this ground stands partly allowed to the extent that the expenditure that has been reduced from the export turnover has to be reduced from the total turnover as well for the purpose of quantifying the profits of the STPI Unit available under section 10A. In other words ground No. 2 stands dismissed and ground No. 3 stands allowed as covered by the decision of the ITAT, Bangalore Bench in cases mentioned above.
Set off against the profit of the STPI Unit - HELD THAT:- As section 10A falls under Chapter III being income exempt from tax to be excluded in determining the total income and procedural computation of taxable income as provided in the I.T. Return Format requires income or loss from eligible business u/s 10A be excluded while computing the income from business. This method of computation should be followed consistently in accordance with the provisions of the I.T. Act and profits of the non-STPI Unit cannot be clubbed to the STPI Unit profit going by the same principle, the loss for the non-STPI Unit cannot be set off against the profit of the STPI Unit. Therefore, we direct the AO to consider the carry forward business loss and unabsorbed depreciation of the Non-STPI unit in accordance with the provisions of the Income Tax Act, 1961 after computing deduction 10A deduction based on the income of the STPI Unit which is the eligible profit under the said section.
In the result the appeal of assessee stands partly allowed.
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2008 (6) TMI 590
Issues Involved:
1. Deletion of addition made by the AO on account of 30% contribution paid to the Board.
2. Deletion of disallowance of depreciation made by the AO.
3. Eligibility for exemption under sections 11 to 13 of the IT Act, 1961.
4. Classification of expenditure on road repairs as capital or revenue.
5. Treatment of income from the sale of shops.
6. Inclusion of interest income from FDs.
7. Set off of brought forward losses and unabsorbed depreciation.
Detailed Analysis:
1. Deletion of Addition on Account of 30% Contribution to the Board:
The Revenue's grievance was regarding the deletion of the addition made by the AO on account of the 30% contribution paid to the Haryana State Agricultural Marketing Board (HSAMB). The AO had disallowed contributions to the board, considering only the expenses related to class III employees as deductible. The CIT(A) allowed the entire contribution, stating it was a statutory requirement under the Punjab Agriculture Produce Marketing Act, 1961, and was used for broader purposes, including administrative expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing that the contributions were indeed for defraying various expenses as mandated by the Act, not just for class III employees.
2. Deletion of Disallowance of Depreciation:
The AO had disallowed the depreciation claimed by the assessee, considering it a notional outgo and not an application of income for charitable purposes. The CIT(A) allowed the depreciation, relying on judgments from the Gujarat and Bombay High Courts, which held that depreciation should be allowed while computing income under section 11(1)(a) of the IT Act. The Tribunal confirmed the CIT(A)'s decision, agreeing that depreciation is a legitimate deduction in computing income for charitable purposes.
3. Eligibility for Exemption under Sections 11 to 13 of the IT Act, 1961:
The AO had assessed the income of the assessees as business income without granting exemption under sections 11 to 13, citing the pending appeal against the Tribunal's order directing registration under section 12AA. The CIT(A) allowed the exemption, but the Tribunal noted that the AO had not considered the registration granted by the CIT. The Tribunal remanded the matter back to the AO for de novo assessment, directing the AO to consider the registration under section 12AA and examine the eligibility for exemption under sections 11 to 13.
4. Classification of Expenditure on Road Repairs:
The AO had classified the expenditure on road repairs as capital expenditure. The CIT(A) allowed it as revenue expenditure, considering it an application of income for charitable purposes. The Tribunal remanded the matter back to the AO for fresh examination, directing the AO to determine whether the expenditure was capital or revenue and if it could be considered an application for charitable purposes.
5. Treatment of Income from Sale of Shops:
The AO had treated the income from the sale of shops as business income, while the assessee claimed it as long-term capital gain. The CIT(A) remanded the matter back to the AO to verify if the income was considered in earlier years. The Tribunal directed the AO to re-examine this issue during the de novo assessment.
6. Inclusion of Interest Income from FDs:
The AO had added interest income from FDs, which the assessee had not declared. The CIT(A) included the interest income on an accrual basis but allowed it as exempt under sections 11 to 13 if utilized for charitable purposes. The Tribunal directed the AO to re-examine this issue during the de novo assessment.
7. Set off of Brought Forward Losses and Unabsorbed Depreciation:
The AO had disallowed the set off of brought forward losses and unabsorbed depreciation. The CIT(A) upheld the AO's decision. The Tribunal directed the AO to re-examine this issue during the de novo assessment.
Conclusion:
The Tribunal dismissed the Revenue's appeals regarding the deletion of the addition on account of the 30% contribution to the Board and the disallowance of depreciation. For the remaining issues, the Tribunal remanded the matters back to the AO for fresh assessments, directing the AO to consider the registration under section 12AA and re-examine the eligibility for exemption under sections 11 to 13, the classification of expenditure, the treatment of income from the sale of shops, the inclusion of interest income from FDs, and the set off of brought forward losses and unabsorbed depreciation.
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2008 (6) TMI 589
Issues involved: Justification of addition of cash credits u/s 68 of the Income-tax Act based on loan creditors being close relatives of the assessee.
Summary:
The judgment by the Kerala High Court addressed the issue of whether the Tribunal was justified in sustaining the addition of cash credits u/s 68 of the Income-tax Act. The assessee's case was that some loan creditors, who were close relatives, had confirmed transactions before the Assessing Officer, thereby proving the loan credits. However, the Tribunal rejected this claim as the loan creditors did not prove the source of funds before the Assessing Officer, apart from providing confirmation letters. The Court agreed with the Tribunal, stating that unless the close relatives of the assessee prove the source of funds, the credits claimed by them cannot be accepted. The lack of explanation regarding the source of funds affects the genuineness of the transaction, and without proof of source, the loan creditors cannot be considered to have fulfilled their duty of proving the loans were genuinely advanced to the assessee. Additionally, there was no evidence presented regarding the repayment of the loan credits, as required by Section 269(ss) of the Act, which mandates payments and repayments of loans exceeding a certain amount through account payee cheques. Since there was no proof that the loans were taken or repaid through account payee cheques, the Court found no grounds to interfere with the Tribunal's order. It was also noted that there was no scope for entertaining additional evidence at that stage of the appeal proceedings under section 260A of the Act. Consequently, the appeal was dismissed by the Court.
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2008 (6) TMI 588
Issues Involved:
1. Deletion of addition of Rs. 406,875 as unexplained cash credit.
2. Confirmation of addition of Rs. 2,97,600 and Rs. 2,50,000 on account of unsecured loans.
3. Disallowance of foreign travel expenses.
4. Disallowance of domestic travel expenses.
Summary:
1. Deletion of Addition of Rs. 406,875 as Unexplained Cash Credit:
The Revenue disputed the deletion of Rs. 406,875 made by the A.O. as unexplained cash credit, arguing that additional evidence should not have been admitted by the ld.CIT(A). The Tribunal upheld the ld.CIT(A)'s decision to admit additional evidence u/s Rule 46A, noting that the assessee had sufficient cause for not producing the evidence earlier. The Tribunal found that the principal amount was received in earlier years, and no addition could be made u/s 68 in the present year. The Tribunal rejected the Revenue's ground and allowed the assessee's appeal.
2. Confirmation of Addition of Rs. 2,97,600 and Rs. 2,50,000 on Account of Unsecured Loans:
The assessee disputed the confirmation of additions of Rs. 2,97,600 and Rs. 2,50,000 on account of unsecured loans from Mr. Prabjeer Mighani and Mr. Venkat Raman, respectively. The Tribunal noted that the loans were opening balances from previous years and upheld the ld.CIT(A)'s decision to delete the addition of Rs. 406,875 but confirmed the additions of Rs. 2,97,600 and Rs. 2,50,000 due to lack of evidence on the identity, genuineness, and creditworthiness of the creditors.
3. Disallowance of Foreign Travel Expenses:
The assessee incurred Rs. 2,84,344 on foreign travel, which the A.O. disallowed entirely, arguing that the nature of the assessee's business did not require foreign travel. The ld.CIT(A) allowed 50% of the expenses, accepting that the visit to Bangkok was for business purposes but found the total amount excessive. The Tribunal upheld the ld.CIT(A)'s decision, noting inconsistencies in the evidence provided and the unexplained visit to Hong Kong. The Tribunal found no basis for further allowance beyond the 50% already granted.
4. Disallowance of Domestic Travel Expenses:
The assessee incurred Rs. 36,012 on domestic travel, which the A.O. disallowed entirely. The ld.CIT(A) confirmed this disallowance, and the Tribunal upheld the decision, noting that the assessee failed to provide evidence that the expenses were for business purposes.
Conclusion:
The appeal by the assessee was partly allowed, and the appeal by the Revenue was dismissed. The Tribunal upheld the admission of additional evidence and the partial allowance of foreign travel expenses but confirmed the disallowance of domestic travel expenses and the additions on account of unsecured loans.
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