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Showing 401 to 420 of 858 Records
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2010 (3) TMI 889
Issues Involved:
1. Levy of penalty under section 271(1)(c) of the Income Tax Act.
2. Filing of revised return and its voluntariness.
3. Explanation and reasons provided by the assessee for revising the return.
4. Assessing Officer's satisfaction and detection of concealment.
5. Bona fide nature of the assessee's explanation.
6. Applicability of Supreme Court judgments and legal precedents.
Issue-wise Detailed Analysis:
1. Levy of Penalty under Section 271(1)(c):
The primary issue was the levy of penalty amounting to Rs. 37,89,520 under section 271(1)(c) of the Income Tax Act. The Assessing Officer (AO) imposed the penalty on the grounds that the revised return was not voluntary and was filed after the AO initiated scrutiny. The AO concluded that the assessee had concealed particulars of income, which warranted the penalty.
2. Filing of Revised Return and its Voluntariness:
The assessee initially filed a return declaring an income of Rs. 3,53,027 but later revised it to Rs. 1,18,06,439. The revision was made after the AO called for details of investments in mutual funds reported in the Annual Information Return (AIR). The AO noted that the revised return was filed beyond the prescribed time limit and during the pendency of scrutiny assessment, thus questioning its voluntariness.
3. Explanation and Reasons Provided by the Assessee:
The assessee explained that the revised return was filed after discovering investments made by his deceased brother in joint accounts. The explanation included details of the bank accounts and transactions, asserting that the revised returns were filed voluntarily upon discovering the income. The assessee requested not to initiate penalty proceedings, claiming the revisions were beyond his control.
4. Assessing Officer's Satisfaction and Detection of Concealment:
The AO argued that the revised return was not voluntary but prompted by the AO's inquiries. The AO conducted independent verifications with the bank and found discrepancies in the original returns. The AO concluded that the revised returns were filed only after the concealment was detected, thus justifying the penalty.
5. Bona Fide Nature of the Assessee's Explanation:
The Tribunal examined whether the assessee's explanation was bona fide. The assessee argued that the revised return was filed before any specific query from the AO regarding the surrendered amounts. The Tribunal noted that the explanation was not found false by the AO and that the revised return was filed before any satisfaction regarding concealment was recorded.
6. Applicability of Supreme Court Judgments and Legal Precedents:
The Tribunal referenced multiple legal precedents, including the Supreme Court's judgments in B.A. Balasubramaniam & Bros. Co. v. CIT and Union of India v. Dharamendra Textile Processors. The Tribunal emphasized that penalty provisions are penal in nature and require a finding of a guilty mind. The Tribunal also considered other High Court and ITAT decisions supporting the assessee's case, asserting that mere surrender of income does not automatically lead to penalty.
Conclusion:
The Tribunal concluded that the assessee's explanation was bona fide and that the revised return was filed before any detection of concealment by the AO. The Tribunal held that the conditions for imposing penalty under section 271(1)(c) were not satisfied and canceled the penalty of Rs. 37,89,520. The appeal of the assessee was allowed.
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2010 (3) TMI 888
Issues Involved:
1. Denial of claim of exemption u/s 80-IA for income from telecommunication services.
2. Interpretation of provisions of section 80-IA(4C) and its applicability.
3. Quantum of deduction and apportionment of income for new and old exchanges.
Summary:
1. Denial of Claim of Exemption u/s 80-IA:
The common grievance of the assessee for the assessment years 1998-99, 1999-00, 2000-01, 2002-03 & 2005-06 pertains to the denial of exemption u/s 80-IA for income earned from telecommunication services. The CIT(A) upheld the Assessing Officer's (AO) decision to deny the deduction, which was based on the interpretation that the assessee was not eligible for such a claim.
2. Interpretation of Section 80-IA(4C):
The ITAT noted that the AO, in the second round of assessment, accepted the eligibility of the assessee for deduction u/s 80-IA but restricted the claim to new exchanges only. The assessee argued that sub-section (4C) of section 80-IA, which applies to telecommunication services, does not impose conditions such as the undertaking being new or not formed by reconstruction. The ITAT agreed with the assessee's contention that the conditions for telecommunication services are distinct and do not include restrictions applicable to industrial undertakings.
3. Quantum of Deduction and Apportionment:
The AO allowed partial deduction based on the proportion of new exchanges to total exchanges, which was confirmed by the CIT(A). The ITAT found this approach incorrect, emphasizing that the deduction should be based on the profits of the eligible business, not merely the number of new exchanges. The ITAT recognized the significant technological advancements and new services introduced post-1995, which contributed to the income. Consequently, the ITAT directed the AO to attribute 75% of the income to new exchanges and 25% to old exchanges for computing the deduction u/s 80-IA.
Conclusion:
The ITAT concluded that the assessee is eligible for deduction u/s 80-IA for income derived from telecommunication services. The AO is directed to recompute the deduction attributing 75% of the income to new exchanges and 25% to old exchanges. The appeal is allowed in part, with specific directions for recomputation in line with the amended provisions for the assessment year 2005-06.
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2010 (3) TMI 887
Issues Involved:
1. Rejection of registration application u/s 12AA.
2. Perpetual succession and control of trustees.
3. Charitable nature of the trust's objects.
Summary:
1. Rejection of Registration Application u/s 12AA:
The appeal was filed by the assessee against the order of the CIT, Meerut, dated 20-2-2009, which rejected the registration application of the appellant Trust u/s 12AA(1)(b)(ii). The CIT's order was challenged as arbitrary, unlawful, and unjustified, with a prayer for directions to grant registration u/s 12AA.
2. Perpetual Succession and Control of Trustees:
The CIT observed that the trust deed implied perpetual succession, with the settler and his relatives exercising full control over the trust. The CIT concluded that this perpetual control converted the public charitable trust into a private trust, thus refusing the registration. The assessee contended that the clauses did not imply perpetual succession and that the trustees could be replaced by a 3/4th majority of the Board of Trustees, arguing that the refusal was unjustified.
3. Charitable Nature of the Trust's Objects:
The CIT did not dispute the charitable nature of the trust's objects or the genuineness of its activities. The Tribunal noted that the trust deed contained a prohibition clause preventing trustees from deriving any pecuniary advantage from the trust properties or income. The Tribunal emphasized that the mere fact of perpetual succession in trustee appointments does not disqualify the trust from registration if the objects are charitable and there is no contravention of the trust deed.
Conclusion:
The Tribunal concluded that the CIT's reason for rejecting the registration was not in accordance with the law. Since the CIT did not doubt the charitable nature of the trust's objects, the Tribunal directed the CIT to grant registration u/s 12A. The Tribunal also noted that the CIT could later utilize his powers u/s 12AA(3) if the activities of the trust were found to be non-charitable. The appeal filed by the assessee was allowed.
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2010 (3) TMI 886
Application of section 50C for the computation of unexplained investment u/s 69B - Computation of capital gains in real estate transactions - Addition on unaccounted investment - investment in GIDC plot not fully disclosed in the books of account - whether the provision of section 50C of the Act applies to purchaser or not? - It is found that assessee has purchased land along with building through deed of assignment and stamp duty was paid thereon. AO has treated seller and the buyer on the same footing in making addition referring to higher value taken for stamp duty purpose - CIT(A) deleted the addition made by AO u/s 69B.
HELD THAT:- We find from the Memorandum Explaining the provision of section 50C in the Finance Bill, 2002, which clearly states that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by any authority of a State Government for the purposes of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration and capital gains shall be computed, u/s 48.
Section 50C creates a legal fiction thereby apparent consideration is substituted by valuation done by Stamp Valuation Authorities and capital gains are calculated, accordingly. Legal fiction cannot be extended any further and has to be limited to the area for which it is created. the High Court in the case of Addl. CIT v. Durgamma [1986 (9) TMI 58 - ANDHRA PRADESH HIGH COURT] held that it is not possible to extend the fiction beyond the field legitimately intended by the statute.
AO has applied this provision of section 50C for the computation of unexplained investment u/s 69B and which is not permissible under the Act. Apart from the stamp duty valuation, there is nothing on record which suggests that the revenue has proved that the assessee has accepted over and above, what has been recorded as purchase consideration of the land in the instrument, i.e., the sale deed.
Therefore, We are in full agreement with the arguments of the assessee that section 50C is not applicable in the case of purchaser and this provision being a deeming provision will apply for determining the full value of consideration as a result of transfer of capital assets for the purposes of computation of capital gains u/s 48. further there is no evidence on record to show that the consideration over and above, what has been recorded in the sale deed, has been made by the assessee and in the absence of the same, no addition of undisclosed investment can be made by invoking the provision of section 69B.
Accordingly, we confirm the order of CIT(A) deleting the addition and this issue of the revenue’s appeal is dismissed.
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2010 (3) TMI 885
Issues Involved:
1. Confirmation of TDS recovery and interest u/s 201 read with section 194A.
2. Applicability of section 194A to proforma entries.
3. Treatment of interest accrued but not due.
4. Consideration of CBDT opinion on proforma entries.
Issue-wise Summary:
1. Confirmation of TDS recovery and interest u/s 201 read with section 194A:
The assessee challenged the CIT(A)'s confirmation of the Assessing Officer's order u/s 201 read with section 194A of the Income-tax Act, 1961, which demanded TDS of Rs. 3,24,890 and interest of Rs. 1,21,834. The assessee argued that the provisions of section 194A were not applicable as TDS was already deducted and paid on a yearly basis.
2. Applicability of section 194A to proforma entries:
The assessee contended that the proforma entry for "provision of interest accrued" made on 30-9-2001 was for ascertaining the bank's profit and loss and was reversed the next day. The CIT(A) and Assessing Officer treated this entry as covered by section 194A, which the assessee disputed, citing that no actual interest was due and payable.
3. Treatment of interest accrued but not due:
The CIT(A) held that the interest accrued but not due was credited to a suspense account and was identifiable to individual accounts, thus attracting TDS provisions. The CIT(A) referenced the Finance Act, 1987, which mandates TDS on accrual of interest at the end of the accounting year or at the time of payment, whichever is earlier.
4. Consideration of CBDT opinion on proforma entries:
The assessee referred to a CBDT letter and Circular No. 3 of 2010, which clarified that TDS is not obligatory on proforma entries made for management information systems where no actual credit to the depositor's account occurs. The Tribunal found that the notional provision made on 29-9-2001 was reversed the next day and did not constitute actual credit or payment of interest, thus TDS was not applicable.
Conclusion:
The Tribunal concluded that the lower authorities had misunderstood the nature of the proforma entries and allowed the assessee's appeal, ruling that the TDS provisions were not applicable to the notional entries reversed the next day. The assessee's appeal was allowed.
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2010 (3) TMI 884
Issues Involved:
1. Taxability of Pass Book Benefit Receivable.
2. Entitlement to interest under section 244A.
3. Validity of proceedings under section 154.
4. Limitation period for rectification under section 154.
5. Jurisdiction and procedure under section 244A(2).
Issue-wise Detailed Analysis:
1. Taxability of Pass Book Benefit Receivable:
The assessee, a company, contended that the Pass Book Benefit Receivable should not be taxed in the assessment year 1997-98 as no income had accrued until the credit was received in the pass book. This issue was raised for the first time before the CIT(A), who held that the benefit receivable could not be taxed. Consequently, the Assessing Officer (AO) excluded the amount from the total income, resulting in a refund.
2. Entitlement to Interest under Section 244A:
The AO initially granted interest under section 244A on the refund. However, the CIT directed the AO to withdraw this interest, arguing that the claim for non-taxability was made for the first time before the CIT(A) and not in the original return, implying that the delay was attributable to the assessee. The AO, without giving notice or an opportunity to be heard, withdrew the interest. The ITAT restored the issue to the AO, directing that an opportunity be given to the assessee.
3. Validity of Proceedings under Section 154:
The assessee argued that the proceedings under section 154 were barred by limitation as they were initiated beyond the four-year period stipulated under section 154(7). The ITAT held that the order under section 154 passed by the AO pursuant to the ITAT's order was beyond time and could not be accepted, citing the Orissa High Court's decision in CIT v. Gangaram Chapolia & Co.
4. Limitation Period for Rectification under Section 154:
The assessee contended that the rectification order dated 26-8-2002 was passed beyond the four-year limitation period from the end of the financial year in which the original order was passed, making it time-barred and void. The ITAT agreed, noting that the limitation period could not be extended by the appellate order, as any order passed without following the principles of natural justice is a nullity.
5. Jurisdiction and Procedure under Section 244A(2):
The ITAT emphasized that when a dispute arises regarding the period to be excluded for interest calculation under section 244A, the AO must refer the matter to the Chief Commissioner or Commissioner. In this case, the CIT's letter directing the AO to withdraw interest was done without following the proper procedure and without giving the assessee an opportunity to be heard. The ITAT held that the AO's order under section 154 was bad in law as it did not comply with the procedure under section 244A(2).
Conclusion:
The ITAT allowed the appeal of the assessee, holding that the order under section 154 was not sustainable both on procedural grounds and on merits. The ITAT emphasized the necessity of following the proper procedure and providing the assessee with an opportunity to be heard, especially when the issue involves a potential exclusion of interest under section 244A.
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2010 (3) TMI 883
Issues involved: Preliminary objections to hearing of the appeal by the Special Bench, allowability of depreciation on goodwill, constitution of the Special Bench.
Preliminary Objections: The appellant's Senior Advocate raised objections regarding the framing of the question and potential impact on a related case pending before the High Court. The Special Bench's composition was also questioned due to a member's prior opinion on a similar issue. The Departmental Representative responded by agreeing to modify the question and asserting that the issues in the related case were distinct. The decision on reconstitution of the Bench was left to the President of ITAT.
Allowability of Depreciation on Goodwill: The main question raised was whether the appellant could claim depreciation on intangible assets, specifically goodwill, under section 32 of the Income-tax Act. The Special Bench considered different formulations of the question proposed by the Senior Advocate and the Departmental Representative. It was decided that the controversy would be addressed by determining the entitlement to claim depreciation on goodwill acquired for Rs. 10 crore. The matter was referred to the President of ITAT for reframing the question.
Constitution of the Special Bench: Due to concerns about potential prejudice and judicial discipline, one of the Judicial Members expressed a decision to recuse himself from hearing the appeal. The President of ITAT was tasked with deciding on the composition of the Special Bench, and the hearing was adjourned pending further action.
This judgment addressed preliminary objections to the appeal's hearing, the issue of depreciation on goodwill, and the constitution of the Special Bench, emphasizing the need for clarity on the questions raised and ensuring fairness and judicial discipline in the proceedings.
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2010 (3) TMI 882
Issues involved: The judgment involves the interpretation and application of sections 269SS, 271D, 269T, 271E, and 273B of the Income Tax Act.
Summary:
Issue 1: Violation of section 269SS - Cash loans exceeding Rs. 20,000
The appeals by the revenue were against the CIT(A)'s order regarding the violation of section 269SS, where the assessee advanced loans exceeding Rs. 20,000 in cash. The Addl. CIT imposed penalties under section 271D for the assessment years 2004-05, 2005-06, and 2006-07.
Details:
- The assessee, an auto financier, was assessed under section 153A post a search under section 132.
- The Addl. CIT found a violation of section 269SS and levied penalties under section 271D.
- The CIT(A) subsequently deleted the penalties imposed under section 271D, leading to the revenue's appeal.
Issue 2: Applicability of sections 269SS and 271D
The tribunal analyzed sections 269SS and 271D, emphasizing that these sections do not apply in cases where the assessee received money in cash instead of advancing or accepting loans in cash. Therefore, the penalty under section 271D could not be imposed for receiving cash from the borrower.
Conclusion:
The tribunal upheld the CIT(A)'s decision to delete the penalties under section 271D, as the sections 269SS and 271D were deemed inapplicable to the scenario where the assessee received cash. Consequently, the revenue's appeals were dismissed.
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2010 (3) TMI 881
Issues Involved:
1. Taxability of income received by the assessee from technical services.
2. Applicability of Article 7 of the DTAA between India and Australia.
3. Applicability of sections 44D and 115A of the Income-tax Act.
4. Determination of whether the services rendered fall under "fee for technical services" or business income.
Issue-wise Detailed Analysis:
1. Taxability of income received by the assessee from technical services:
The assessee, a division of Technical Resources (P.) Ltd., Australia, entered into contracts for evaluation of coal and iron ore deposits in India. The Assessing Officer (AO) treated the amounts received from these contracts as "fee for technical services" under section 9(1)(vii) read with section 115A of the Income-tax Act and taxed them at 20% on a gross basis. The assessee contended that the services provided did not constitute "fee for technical services" as they did not make available any technical knowledge, skill, or know-how, and were integral to a mining project, thus falling under the exclusion in Explanation (2) to section 9(1)(vii).
2. Applicability of Article 7 of the DTAA between India and Australia:
The assessee argued that it had a permanent establishment (PE) in India as per Article 5 of the India-Australia DTAA, and thus, Article 7, which deals with business profits, should apply. Article 7(1) states that business profits of an enterprise of Australia can be taxed in India only to the extent attributable to the PE in India. The AO, however, held that Article 7 did not prescribe any tax rate, thus referring to the domestic law provisions of sections 115A and 44D.
3. Applicability of sections 44D and 115A of the Income-tax Act:
The AO applied sections 115A and 44D, which tax "fee for technical services" on a gross basis without allowing any deductions for expenses. The assessee contended that these sections should not apply as the income should be considered business income under Article 7 of the DTAA, allowing deductions for expenses as per sections 28 to 44C of the Act.
4. Determination of whether the services rendered fall under "fee for technical services" or business income:
The Tribunal noted that the services provided by the assessee included geological mapping, drilling, testing, and feasibility studies, which are integral to a mining project. These activities are not merely technical or consultancy services but involve substantial on-site work. Therefore, the income should be considered business profits under Article 7 of the DTAA, not "fee for technical services" under Article 12 or section 9(1)(vii) of the Act.
Conclusion:
The Tribunal held that the assessee's income should be taxed as business profits under Article 7 of the DTAA between India and Australia. Consequently, sections 44D and 115A of the Income-tax Act, which apply to "fee for technical services," do not apply. The assessee's PE in India should be treated as an independent enterprise, and the income should be computed under the regular provisions of the Indian Tax Laws, allowing deductions for expenses. The appeals of the assessee were allowed, reversing the orders of the lower authorities.
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2010 (3) TMI 880
Losses - Carry forward and set-off of business losses - Facts of the case, the assessee is a non-resident company and not subjected to tax on capital gains in this year in India. It is also not in dispute that the assessee has shown capital losses amounting to Rs. 87,06,49,335 in the return for the assessment year 2002-03 and has claimed the same to be carried forward to the subsequent assessment years.
HELD THAT:- Applying the ratio of the law laid down by the Their Lordships in CIT v. Western India Oil Distributing Co. Ltd.[1997 (4) TMI 16 - SC ORDER], to the facts of the present case and keeping in view the CBDT Circular, we find that it is not the case of the revenue that the assessee has not brought forward losses to be carried forward to the subsequent year or the same have already been adjusted. In this view of the matter we are of the view that the assessee was fully justified in claiming the carried forward of brought forward losses of the earlier years to the subsequent years and the AO and the ld. CIT(A) have erred in not allowing the same. The AO is directed to allow the carry forward of brought forward loss of earlier years to the subsequent years according to law. The ground taken by the assessee is, therefore, allowed.
In the result, assessee’s appeal stands allowed.
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2010 (3) TMI 879
Computation of income - unaccounted investment - survey u/s 133A - HELD THAT:- In the present case, though assessee has stated that he has incurred expenditure to earn that income, the AO has over looked this fact. In view of this, we are of the opinion that the net income generated out of commission to be taxed in the AY 2007-08 and 2008-09 and balance receipt of Rs. 1.5 crores is being capital receipt cannot be brought to tax in these assessment years. further we are of the opinion that statement recorded u/s 131 consequent to the survey action cannot be sole basis for addition unless there is a material to support the departmental case. In these circumstances, on confessions during the course of search and seizure and survey operations do not serve any useful purposes. The CBDT instruction is binding on the department. In our opinion, addition on the basis of admission during the survey without any supportive material cannot be sustainable.
In view of the judgments in the case of S. Khader Khan Son [2007 (7) TMI 182 - MADRAS HIGH COURT], Paul Mathews & Sons [2003 (2) TMI 25 - KERALA HIGH COURT] and in view of the CBDT instructions, section 133A does not empower any authority to examine any person on oath, any such statement has no evidentiary value and any admission made during such statement, cannot, by itself, be made the basis for addition unless the AO have corroborative material in hand to make such additions. If there is any unaccounted investment, the same should have been brought to tax as undisclosed income and not on the basis of MoU or on the basis of unsubstantiated statements recorded either from the assessee or from the third parties.
Gross violation of principles of natural justice - opportunity of cross-examining - HELD THAT:- In our opinion, the authorities concerned required to give an opportunity of cross-examining the parties concerned and also comments on the statements and books of account to be relied upon by the revenue authorities. This will enable assessee to prove the incorrectness or incompleteness of those books of account. The opportunity would therefore necessarily carrying with it right to examine witness and that would include the right to cross-examine the witness examined by the revenue authorities. The revenue authorities relied on the books of account of the M/s. Bharathi Estates and their statements and came to the conclusion that the assessee received Rs. 2.8 crores middle men commission. Placed in these circumstances, the assessee could prove the incorrectness or incompleteness of these evidences, only after cross examining them. The cross-examination of witness is one of the most efficacies method of establishing to and exposing falsehood. Though there is a record in the form of raising this ground before the CIT(A), the CIT(A) held that reasonable opportunity of being heard has been given to the assessee but the order is silent about giving the opportunity of cross-examining the witness. The normal principle is that ordinary cross-examination has to be granted when asked for. If the department to rely on any exceptions, the burden is on the department to establish the existence of any exceptions. The non-providing of cross-examination of witness clearly constitutes infraction of the right conferred on the assessee and that vitiated the order of the assessment made against the assessee.
In the result, the appeals of the assessee in ITA Nos. 1152 and 1153/Hyd./2009 are allowed.
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2010 (3) TMI 878
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Transfer Pricing adjustments - goods sold to associate entities were valued at a discount of 5 per cent as compared to the goods sold to non-associate entities - CIT deleted the addition made by the AO. The assessee-company is engaged in the business of processing and export of chemicals. The assessee-company has transaction with the associate enterprises as well as non-associated enterprises. The associate enterprise is M/s. Chemical Link LLC, USA with whom the majority of the transaction of sale was entered into by the assessee-company. The method of computation of arm’s length price has been stated to be comparable uncontrolled price method.
HELD THAT:- We heard both the parties. The Ld. DR relied on the order of the ‘L’ Bench in assessee’s own case for the earlier AY 2003-04 wherein the matter has been set aside. The Ld. Counsel for the assessee replied that for the earlier AY 2003-04, the matter was remanded since the AO has not brought on record any evidence to substantiate its calculation of ALP.
Further instead of industrial discount of 10 per cent he has allowed 5 per cent and quantitative discount of 20 per cent was not allowed totally. Since no evidences were brought on record for disallowances of 20 per cent of quantitative discount as claimed by the assessee and 5 per cent of industrial discount, the matter was set aside for earlier years whereas in this year all the facts are available and therefore the matter is to be decided by the Tribunal.
We find that the following factors have been rightly considered by Ld. CIT(A).
Turnover or quantity difference: The sale to Non-AE is of 1150 Kgs. Only, whereas there is a sale to the magnitude of 62,000 Kgs. to the AE which will have a bearing on the prices. Volume sold is a significant factor in fixing the price.
Geographical difference : In the case of Ranbaxy Laboratories Ltd. v. Asstt. CIT[2008 (1) TMI 445 - ITAT DELHI-H] it has been held that it could have been appreciated if a particular entity in a particular country was sought to be compared with some similar entity in that very country as geographical situations in several ways influence the transfer pricing.
Profile of Customer : The transactions with high profile clients such as AKZO Nobel or Isola is different when compared to small sales to small players in South East Asian business.
Survival of the appellant: In order to capture and maximize its profits of the big and flourishing market of USA and Europe it has to depend on its AE only.
Lastly on a simple average it is 8.21 from it to its AE whereas it is 8.87 from its AE to Customers. At the weighted average rate it is 8.20 from it to its AE while it is 8.75 from its AE to customers. If the overheads as identified in the submissions to run the AE is reduced then there would be hardly any profit.
In our opinion the transaction with the AE was at Arm’s Length and there is no case of making adjustments. We confirm the order of the Ld. CIT(A) deleting the addition made on such adjustments. The Revenue’s appeal is dismissed on this issue.
Interest on fixed deposit and dividend - disallowed for deduction u/s 80HHC - HELD THAT:- We find that The Ld. CIT(A) rightly held that ''it is a 100 per cent exporter and has kept FD in the bank at the Banker’s instance to avail OD facility. Thus there is a direct nexus between the interest received and export activity and it is therefore part of the operational income. Further the interest payable on OD facility and receivable on FD are inter-linked having direct nexus with each other."
We find no infirmity in the order of the Ld. CIT(A) and we direct the AO to treat the interest income as business income. This ground raised by the revenue is dismissed.
Interest income on net basis - HELD THAT:- Following the decision of the Special Bench in the case of Lalsons Enterprises v. Dy. CIT [2004 (2) TMI 294 - ITAT DELHI-E], we direct the AO to take the net interest income of Rs. 9,17,208 for calculation of deduction u/s 80HHC and confirm the order of the Ld. CIT(A). Revenue’s appeal on this issue is dismissed.
In the result, the appeal filed by the revenue is dismissed.
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2010 (3) TMI 877
Issues Involved:
1. Validity of appeals filed with scanned signatures and missing dates.
2. Treatment of defects in appeal filings.
3. Procedural fairness and substantial justice versus technical considerations.
4. Jurisdiction and authority of the CIT (Appeals) in dismissing appeals.
Issue-wise Detailed Analysis:
1. Validity of Appeals Filed with Scanned Signatures and Missing Dates:
The primary issue in these appeals was whether the appeals filed by the assessees with scanned signatures and missing dates in Form No. 35 were valid. The CIT (Appeals) dismissed the appeals as non est (invalid) because they were not signed in ink and the date was missing in the verification part of the form. The assessees contended that the appeals should not be invalidated merely due to these defects, arguing that these were curable irregularities. The Tribunal noted that the forms were filed within the prescribed time and were signed by authorized persons, even though the signatures were scanned. The Tribunal emphasized that the requirement under Rule 45 of the Income-tax Rules, 1962, does not explicitly mandate signatures in ink.
2. Treatment of Defects in Appeal Filings:
The Tribunal highlighted that defects in appeal filings, such as missing dates or scanned signatures, are curable. It cited various judicial precedents to support the view that procedural defects can be rectified and once cured, the appeals should be considered valid. The Tribunal referred to the Supreme Court's decision in Pannalal Brijlal v. Union of India, which emphasized a humane and considered application of the Income-tax Act, 1961. The Tribunal also cited other cases where courts held that procedural defects should be allowed to be rectified, and appeals should not be dismissed summarily without giving an opportunity to correct the defects.
3. Procedural Fairness and Substantial Justice versus Technical Considerations:
The Tribunal criticized the CIT (Appeals) for being hyper-technical in procedural matters. It underscored that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice should prevail. The Tribunal noted that the assessees had filed fresh appeal memos with signatures in ink and the required dates during the course of the appellate proceedings, thereby rectifying the defects. The Tribunal directed the CIT (Appeals) to treat the defects as removed and to decide the appeals on merits.
4. Jurisdiction and Authority of the CIT (Appeals) in Dismissing Appeals:
The Tribunal held that the CIT (Appeals) erred in dismissing the appeals in limine without considering the rectified appeal memos. It directed the CIT (Appeals) to admit the appeals and decide them on merits, providing reasonable opportunities for both sides to be heard. The Tribunal emphasized that the CIT (Appeals) should not have treated the fresh memos as separate proceedings but should have considered them as rectifications of the original defects.
Conclusion:
The Tribunal set aside the orders of the CIT (Appeals) and directed him to treat the defects as removed by the filing of fresh memos. It instructed the CIT (Appeals) to admit and decide the appeals on merits after providing reasonable opportunities for both sides to be heard. The decision underscored the importance of procedural fairness and substantial justice over technicalities in the appellate process.
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2010 (3) TMI 876
Issues Involved:
1. Eligibility for deduction under section 80-IB(10) of the Income-tax Act.
2. Applicability of amended provisions of section 80-IB(10) with effect from 1-4-2005.
3. Definition and scope of a housing project.
4. Proportionate deduction for residential portion of the project.
5. Commercial space within the housing project.
Issue-wise Detailed Analysis:
1. Eligibility for Deduction under Section 80-IB(10):
The assessee, a joint venture, undertook a slum rehabilitation project approved by MMRDA, constructing 3,840 tenements. The project was completed and handed over to MMRDA, and the assessee claimed a deduction under section 80-IB(10) for the net profit declared. The Assessing Officer disallowed the deduction, citing excess commercial space beyond the limit specified in the amended section 80-IB(10)(d) effective from 1-4-2005.
2. Applicability of Amended Provisions of Section 80-IB(10):
The core issue was whether the law as it existed during the assessment year 2004-05, when the project commenced, should apply, or the amended provisions effective from 1-4-2005. The Tribunal referred to the Special Bench decision in Brahma Associates v. Jt. CIT, which stated that the limit on commercial space prescribed by clause (d) of section 80-IB(10) has no retrospective application and applies only from assessment year 2005-06 onwards.
3. Definition and Scope of a Housing Project:
The Tribunal clarified that the term "housing project" is not explicitly defined in section 80-IB(10). However, as per CBDT's clarification, any project approved by a local authority as a housing project qualifies. The project, despite being a slum rehabilitation scheme, was considered a housing project as it provided residential units for slum dwellers, fulfilling the primary objective of addressing housing shortages.
4. Proportionate Deduction for Residential Portion of the Project:
The Tribunal referred to the Special Bench decision in Brahma Associates, which allowed proportionate deduction for the residential segment of a housing project if the commercial space exceeded the permissible limit. The Tribunal remanded the case to the Assessing Officer to determine if the assessee met the conditions for deduction under section 80-IB(10) based on the law applicable during the assessment year 2004-05.
5. Commercial Space within the Housing Project:
The Tribunal noted that the project included commercial space exceeding the limit specified in the amended section 80-IB(10)(d). However, it held that the law as it existed during the assessment year 2004-05, which had no such restriction, should apply. The Tribunal emphasized that the legislature did not intend to retrospectively apply the amended provisions, thereby protecting the assessee's vested rights.
Conclusion:
The Tribunal concluded that the law as it existed during the assessment year 2004-05 should apply to the assessee's project. It remanded the case to the Assessing Officer to verify if the assessee met the conditions for deduction under section 80-IB(10) based on the principles laid down by the Special Bench in Brahma Associates. The appeal was allowed for statistical purposes.
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2010 (3) TMI 875
Issues involved: Penalty imposed u/s 271(1)(c) for concealment of income.
Facts of the case: During investigation, it was found that the assessee had shown gifts from NRIs as bogus, later declared as undisclosed income. The assessee declared income as long-term capital gain but did not disclose additional income from bogus gifts. Assessing Officer treated the undisclosed sum as income and taxed it at 30%. Penalty proceedings were initiated u/s 271(1)(c) for concealment of income.
Assessee's arguments: Assessee argued that penalty was invalid as Assessing Officer did not record concealment satisfaction in assessment order. Also, Explanation 1 to section 271(1)(c) was not applicable as no addition was made to income. Assessee challenged the penalty on grounds of different grounds for initiation and imposition, and inapplicability of Explanation 4.
CIT(A) decision: CIT(A) held that penalty was leviable under the main provision of section 271(1)(c) for concealing income, not under Explanations. Rejected argument on Explanation 4 and upheld penalty based on main provision. Confirmed Assessing Officer's order.
Tribunal's decision: Tribunal upheld CIT(A)'s decision, stating that penalty was rightly imposed under the main provision of section 271(1)(c) for concealing income. Dismissed the appeal of the assessee.
Conclusion: Tribunal found no infirmity in CIT(A)'s order confirming the penalty for concealment of income u/s 271(1)(c). Upheld the penalty and dismissed the appeal of the assessee.
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2010 (3) TMI 874
Validity of initiation of reassessment u/s 148 - transfer of shares u/s 2(47) - Return processed u/s 143(1) - assessment of short-term capital gain - capital gain on sale of shares was taxed as long-term capital gains in assessment year 2001-02 only on protective basis - Escapement of income chargeable to tax - spot delivery basis for a purchase - transaction carried out on the stock exchange in settlement period.
Whether the assessment for assessment year 2001-02 can be said to be a protective assessment - HELD THAT:- In the present case, we are of the view that the observations of the Assessing Officer while completing assessment for assessment year 2001- 02 which we have extracted cannot be said to be an expression of his intention to make a protective assessment of the capital gain as long-term capital gain. It is an assessment pure and simple. Firstly, the words used by the Assessing Officer do not express his intention that the long-term capital gain is being brought to tax by way of protective assessment. Secondly, there is no substantive assessment already made treating the capital gain as short-term capital gain. Therefore, there can be no protective assessment. Thirdly, there has been a demand (without any limitation that it should not been recovered) raised pursuant to the above assessment which also shows that the said assessment is not a protective assessment. The decision of the Mumbai Bench of the Tribunal in the case of M.P. Ramachandran [2009 (5) TMI 121 - ITAT BOMBAY-E] clearly applies to the facts of the present case.
Escapement of income chargeable to tax or Not - Can the Assessing Officer entertain a belief that income chargeable to tax has escaped assessment? - According to the learned D.R., short-term capital gains are taxed at higher rate compared to long-term capital gain and if the capital gain is considered as having resulted in the hands of the assessee in assessment year 2000-01 it would be short-term capital gain since the shares were held by the assessee for less than a period 12 months. Therefore, according to the learned D.R., there was escapement of income and the belief entertained by the Assessing Officer that there was escapement of income cannot be found fault with.
The law on this aspect is very clear. The belief entertained by the Assessing Officer should be that of a honest and reasonable person based upon reasonable grounds. The reason to believe should be held in good faith and should not be a mere pretence.
In the present case, the Assessing Officer brought to tax the capital gain as a LTCG in assessment year 2001-02. That treatment of the capital gain in assessment year 2001-02 still remains. We have already held that such assessment is not on a protective basis but on a substantive basis. In such circumstances, how can the Assessing Officer entertain belief that the capital gain in question is short-term capital gain. His belief that capital gain has been brought to tax at too low a rate can be said to be held in good faith and not as a pretence only when the contrary belief of the Assessing Officer in the form of an assessment of the very same capital gain as long-term capital gain in assessment year 2001-02 does not exist. Therefore, there cannot be any belief that capital gain has been assessed at too low a rate.
We are of the view, that in the present case, the condition precedent for valid initiation of reassessment proceedings have not been satisfied inasmuch as the belief that income chargeable to tax has escaped assessment does not exist. In the circumstances, we hold that initiation of reassessment is bad in law and consequently, the order of assessment is held to be bad, hence, annulled.
Determination of the date of transfer of shares - we hold that the date of transfer shares was 12-4-2000 in the case of Vimla Jajoo and 8-4-2000 in the case of Suresh Jajoo and consequently the capital gain on transfer by sale was a long-term capital gain which was already assessed to tax by the Assessing Officer in assessment year 2001-02. The assessment of the capital gain as short-term capital gain in assessment year 2000-01 is, therefore, held to be incorrect. The relevant grounds of appeal of the assessee are allowed. In view of the above conclusion, we are not going into the admissibility of the additional evidence sought to be filed before us and the argument regarding applicability of the rule of consistency.
In the result, both the appeals of the assessees are allowed.
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2010 (3) TMI 873
Issues Involved:
1. Validity of proceedings initiated under section 153A(a) of the Act.
2. Disallowance of short-term capital loss in respect of land transactions.
3. Rejection of additional evidence furnished by the appellant.
4. Confirmation that the gift received was unexplained.
Issue-wise Detailed Analysis:
1. Validity of Proceedings Initiated Under Section 153A(a) of the Act:
The appellant did not press this ground, and hence, it was rejected as not pressed.
2. Disallowance of Short-term Capital Loss in Respect of Land Transactions:
The appellant claimed short-term capital losses for the assessment years 1999-2000 and 2000-01 due to the forfeiture of advances paid for land purchase agreements (Banakhat-nama). The Assessing Officer (AO) disallowed these claims, stating that no property was transferred to the appellant and thus, no capital loss could be recognized. The CIT(A) upheld the AO's decision, noting the lack of credibility and legitimacy in the affidavits provided by the appellant. The Tribunal agreed with the lower authorities, emphasizing that for a capital loss to be recognized, there must be a transfer of a capital asset, which did not occur in this case. The Tribunal cited sections 45, 2(14), and 2(47) of the Act and relevant case law, concluding that the appellant did not acquire any right to the property that could be considered a capital asset. Additionally, the Tribunal noted that the transactions appeared to be a colorable device to offset capital gains from the sale of jewelry declared under VDIS.
3. Rejection of Additional Evidence Furnished by the Appellant:
The appellant argued that the CIT(A) erred in rejecting the additional evidence submitted. However, the Tribunal did not find merit in this argument, as it was not sufficiently demonstrated that the appellant was denied an opportunity to present this evidence during the assessment proceedings.
4. Confirmation that the Gift Received was Unexplained:
The appellant claimed to have received gifts from an individual, which the AO treated as undisclosed income due to lack of satisfactory evidence regarding the donor's creditworthiness and the genuineness of the gifts. The CIT(A) upheld this decision, noting the absence of a direct confirmation from the donor, the lack of evidence of the donor's financial capacity, and the absence of any relationship or occasion justifying the gifts. The Tribunal supported the CIT(A)'s findings, referencing the Supreme Court's decision in P. Mohanakala's case, which emphasized the necessity of proving the genuineness of gifts through credible evidence and surrounding circumstances. The Tribunal concluded that the appellant failed to discharge the burden of proof, and thus, the gifts were rightly treated as income under section 68 of the Act.
Conclusion:
The appeals for both assessment years 1999-2000 and 2000-01 were dismissed, with the Tribunal affirming the decisions of the lower authorities on all grounds. The Tribunal emphasized the importance of credible evidence and the necessity of proving the genuineness of transactions to claim capital losses and gifts.
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2010 (3) TMI 872
Transfer pricing - Computation of arm’s length price - TNMM method - HELD THAT:- We find that the TPO and the CIT(A) have assumed similarity of markets and economic conditions and have made adjustments only for the volume discount, credit offered and a small adjustment of credit risk. They have completely ignored the disparate economic and market conditions of Thailand and Vietnam and have made no adjustment for the same. Mere geographical contiguity of two countries need not mean similarity in economic or market conditions. How can the sale prices to wholesale agents in two different countries be comparable, when the sale price to the final user in one country is less than the sale price to the whole sale agent in another country, unless adjustment for the same has been considered. Thus, the adjustments merely for volume offtake, credit period and credit risk, though material are not sufficient to make the sale price to AE in Thailand comparable with the sale to unrelated party in Vietnam. Scope of adjustments has to be widened and all the submissions of the assessee regarding the disparity between the two transactions should be considered and suitable adjustments made for the same.
With the directions, the issue is set aside to the file of the ld. CIT(A) for deciding the matter afresh after giving reasonable opportunity to the assessee to present their case. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Disallowance on expenditure - ‘Other expenses’ - We find no infirmity in the order of the ld. CIT(A) as ad hoc disallowance out of the business expenditure cannot be sustained. Following the ratio of decisions in the case of Sunder Mal Sat Pal v. ITO [2005 (1) TMI 312 - ITAT AMRITSAR] and Ravi Marketing (P.) Ltd. v. CIT [2005 (1) TMI 20 - CALCUTTA HIGH COURT], we dismiss this ground of revenue. In the result, the appeal filed by the revenue is dismissed.
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2010 (3) TMI 871
Issues Involved:
1. Entitlement of the assessee to exemption under section 10(23C)(iiiad) of the Income Tax Act.
2. Differentiation between sections 10(23C)(iiiad) and 10(23C)(iv) of the Income Tax Act.
3. Application of income for educational purposes.
4. Interpretation of "not for profit" in the context of educational institutions.
5. Relevance of judicial precedents from various High Courts and the Supreme Court.
Detailed Analysis:
1. Entitlement of the Assessee to Exemption under Section 10(23C)(iiiad) of the Income Tax Act:
The primary issue was whether the assessee school was entitled to exemption under section 10(23C)(iiiad) of the Act. The assessee claimed exemption on the grounds that its annual receipts were below the prescribed limit of Rs. 1 crore and that its income was solely applied for educational purposes, specifically for the construction of a school building. The Tribunal noted that the assessee school received fees amounting to Rs. 30,76,275, which was below the prescribed limit, and that the income was used for educational purposes, thus fulfilling the conditions for exemption under section 10(23C)(iiiad).
2. Differentiation between Sections 10(23C)(iiiad) and 10(23C)(iv) of the Income Tax Act:
The Tribunal highlighted the distinction between sections 10(23C)(iiiad) and 10(23C)(iv) of the Act. Section 10(23C)(iiiad) pertains to educational institutions with annual receipts not exceeding the prescribed limit, whereas section 10(23C)(iv) applies to institutions approved by the prescribed authority. The Tribunal emphasized that section 10(23C)(iiiad) is an independent provision and does not require registration under section 12A, which is necessary for claiming exemption under section 11.
3. Application of Income for Educational Purposes:
The Tribunal examined the application of the assessee's income and found that the funds were utilized for the construction of a school building, which is essential for imparting education. The Tribunal noted that there was no evidence of misuse of funds or personal gain by any individual. The Tribunal concluded that the income generated by the school was applied exclusively for educational purposes, thereby satisfying the conditions for exemption under section 10(23C)(iiiad).
4. Interpretation of "Not for Profit" in the Context of Educational Institutions:
The Tribunal addressed the interpretation of "not for profit" in the context of educational institutions. It referred to judicial precedents, including the Supreme Court's decision in Aditanar Educational Institution v. Addl. CIT, which held that incidental surplus from educational activities does not disqualify an institution from being considered as existing solely for educational purposes. The Tribunal concluded that the assessee school existed solely for educational purposes and not for profit, as its income was applied for educational activities and not for personal gain.
5. Relevance of Judicial Precedents from Various High Courts and the Supreme Court:
The Tribunal considered various judicial precedents, including decisions from the Punjab & Haryana High Court and the Uttarakhand High Court. The Tribunal noted that the Punjab & Haryana High Court's decision in Pinegrove International Charitable Trust v. Union of India supported the assessee's case, while the Uttarakhand High Court's decision in CIT v. Queens' Educational Society was not applicable to the facts of the present case. The Tribunal preferred the view that favored the assessee, following the principle laid down by the Supreme Court in CIT v. Vegetable Products Ltd.
Conclusion:
The Tribunal concluded that the assessee school was entitled to exemption under section 10(23C)(iiiad) of the Income Tax Act. The income was below the prescribed limit and was applied solely for educational purposes. The Tribunal dismissed the Revenue's appeal, upholding the order of the CIT(A).
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2010 (3) TMI 870
Issues Involved:
1. Reduction of profits for deduction u/s 80-IA due to notional rebate and interest.
2. Reduction of interest income from bank deposits for deduction u/s 80-IA.
3. Reduction of DEPB credit for deduction u/s 80-IA.
4. Disallowance of foreign travel expenses.
5. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC.
6. Deduction u/s 80-IA on interest income from customers for late payment.
Summary:
1. Reduction of profits for deduction u/s 80-IA due to notional rebate and interest:
The assessee contested the reduction in the claim of deduction u/s 80-IA by invoking sub-section (10) on the grounds of purchasing goods from a sister concern at reduced prices, thereby increasing profits. The Tribunal found no agreement indicating a 20% rebate on purchases and no material evidence showing that the rates were lower than market rates. It was also noted that the intention to transfer profits for higher deduction was not substantiated. Therefore, the addition made by the authorities was deleted, and this ground of the assessee was allowed.
2. Reduction of interest income from bank deposits for deduction u/s 80-IA:
The assessee's claim for deduction u/s 80-IA on interest from bank deposits was disallowed by the Assessing Officer and upheld by the CIT(A), as the interest income was not derived directly from the business of the industrial undertaking. The Tribunal confirmed this view, citing the Supreme Court's interpretation of "derived" in similar contexts, and rejected this ground of the assessee.
3. Reduction of DEPB credit for deduction u/s 80-IA:
The assessee's claim for deduction u/s 80-IA on DEPB credit was rejected, following the Supreme Court's decision in Liberty India v. CIT, which held that DEPB/Duty drawback incentives are ancillary profits and not derived from the industrial undertaking. Therefore, this ground of the assessee was rejected.
4. Disallowance of foreign travel expenses:
The disallowance of Rs. 87,216 for foreign travel expenses of a non-doctor spouse was contested by the assessee. The Tribunal found the distinction made by the authorities between doctor and non-doctor spouses to be artificial and unreasonable. It was held that the business purpose served by the travel of non-doctor spouses was not disproven. Hence, the claim of the assessee was allowed.
5. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC:
The Revenue's appeal against the exclusion of excise duty and sales tax from total turnover for calculating deduction u/s 80HHC was rejected, following the Supreme Court's decision in CIT v. Laxmi Machine Works.
6. Deduction u/s 80-IA on interest income from customers for late payment:
The Revenue's appeal against the deduction u/s 80-IA on interest income from customers for late payment was rejected, following the Gujarat High Court's decision in Nirma Industries Ltd. v. Dy. CIT.
Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.
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