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Showing 401 to 420 of 1255 Records
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2015 (5) TMI 861
Disallowance of Community Development Expenses - Held that:- It is not proper to disallow the entire amount on the basis of non-availability of few vouchers even though assessee has provided evidence by way of ledger accounts and payment details. AO does not have any right to disallow the amount stating that business necessity was also not proved beyond doubt. This issue was also decided by the DRP, so AO cannot again come to the same point which was held in favour of assessee. In view of this, we in the interest of justice, restore the issue to the file of AO to examine the vouchers only along with other Books of Accounts and other details to verify whether the expenditure was spent for the purpose of 'corporate social responsibility' of assessee-company which was allowed as a business expenditure u/s.37(1) by the DRP itself - Decided in favour of assesse for statistical purposes.
Disallowance is 'giveaways' - Held that:- If we pursue the orders, it is very clear that expenditure was incurred for purchase of gifts to advocates marriages, purchase of coolers gifted to Joint Director (Mines), purchase of gifts to M.V.Mysoora Reddy's son's marriage function, purchase of silver plate gifted to Inspector of Factories, purchase of gifts to Railway employees, purchase of gift for ESI official daughter's marriage, purchase of gifts to other Govt. employees etc. Except the purchase of gold coins from Corporation Bank, Bangalore on 16-02-2008 for ₹ 3,85,166/- vide Invoice No.120 for which no details were furnished, rest of the expenditure has same identity etc. Since the business necessity was already decided by the DRP, AO's duty is only to examine the vouchers. In our opinion, except the amount of ₹ 3,85,166/- for which details were not available, rest of the expenditure cannot be disallowed on the reasons stated by AO. We therefore, direct the AO to allow the expenditure, except the amount of ₹ 3,85,166/ - Decided partly in favour of assesse.
Disallowance of Contribution to Zuari School - Held that:- We were surprised about the reasoning given by the AO. He was directed by the DRP only to examine the necessary vouchers, AO should not question the wisdom of the DRP in allowing the expenditure u/s.37(1), subject to verification of the availability of vouchers. In our opinion, AO exceeded his jurisdiction in examining the MOU itself. Not only that, assessee also made contributions to another school at Sitapuram. This was being contributed earlier by SVCL which was later merged with assesseecompany. In both the places of Yerraguntla and Sitapuram, the school is being run mainly for the benefit of employees. Since, the DRP already decided to allow the expenditure u/s.37(1) and assessee furnished the vouchers, the reasons assigned by AO to disallow the expenditure cannot be accepted. - Decided in favour of assesse.
Transfer pricing adjustment - rejection of TNMM as most appropriate method - Held that:- As far as the royalty payment on sales is concerned, as rightly pointed out by the Ld.Counsel, there are no comparable companies which are offering similar services. The TPO's comparison on transactions of assessee subsidiary company much prior to the year under consideration cannot be justified. Therefore, on that basis itself, the comparison cannot be considered as an internal CUP. Moreover, the need for not charging royalty from SVCL was also explained as the subsidiary company was a sick company and in the process of reviving the company, assessee has not charged any royalty to its subsidiary company. Therefore, on FAR analysis, SVSL's past record with that of present transactions of assessee-company is not correct. Then, coming to external comparables, we were surprised to note that the TPO considered the technical fee payments without analyzing the nature of the payments. In some cases, it is royalty for acquiring the lime stone from Govt., which is not a 'royalty' for getting the technology from foreign AE. There is foreign exchange expenditure also considered as 'technical know-how fee'. A detailed objections of the assessee were not even considered or discussed either by the TPO or by the DRP. Therefore, on the basis of an external CUP ALP of 0.91% itself is not correct. Therefore, the entire exercise undertaken by the TPO on this issue is erroneous and cannot be justified.
Transfer of economic value of Zuari trade mark to Italcementi Group trade mark - Under the guise of TPO provisions, the TPO cannot determine the ALP at NIL as held by the Hon'ble Delhi High Court in the case of CIT Vs. EKL Applicances Ltd., (2012 (4) TMI 346 - DELHI HIGH COURT ). Therefore, rejecting the entire payment without there being any analysis on the CUP method cannot be accepted. In the guise of analyzing the transactions in the CUP method, the TPO has not brought any evidence on record to reject the 1% payment made to Italcementi Group. Moreover, while determining the price at NIL on the issue, the TPO surprisingly holds that assessee has transferred its 'Zuari Brand' to 'Italcementi Group'. We are unable to understand this logic. Italcementi Group never obtained, acquired or used Zuari Brand anywhere in the world, so that this cannot be considered for Transfer Pricing analysis. It is the Italcementi Group brand which is used by assessee-company. The TPO's analysis of AMP expenses are also not correct. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. - Decided in favour of assesse for statistical purposes.
Allowability of depreciation of goodwill - additional ground raised - Held that:- As rightly held by the Hon’ble Supreme Court in the case of S.A. Builders Ltd., [2006 (12) TMI 76 - SUPREME COURT OF INDIA], additional ground cannot be considered, in the absence of any facts on record.In view of this, since the issue did not arise in the year under consideration and the facts pertaining to the quantification of the claim are not on record, we cannot entertain the additional ground, just because law on this was settled on legal principles. If at all assessee's claim to depreciation was allowed in AY.2007-08, then, assessee can claim consequential depreciation in this assessment year, before the AO, the additional ground is accordingly rejected. - Decided against assesse.
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2015 (5) TMI 860
Revision u/s 263 - assessee has made only provision for doubtful debt and has not made a write off - Held that:- The details called for by the Assessing Officer were furnished by the assessee and such details were accepted by the Assessing Officer and in such circumstances, it cannot be said that there is a lack of enquiry. There was an enquiry, though it is inadequate and in such circumstances, in view of the above decision of CIT Vs. Development Bank Ltd. (2010 (2) TMI 161 - BOMBAY HIGH COURT) the Commissioner of Income Tax lacks jurisdiction under section 263 of the Act to revise the assessment order.
The Hon’ble High Court in CIT Vs. U.P.Rajkiya Nirman Nigam Ltd [2013 (7) TMI 176 - ALLAHABAD HIGH COURT] held that where books are not closed and not signed by the Board of Directors and not adopted by the shareholders as per the Companies Act, it is legally permissible to make adjustments before they are finally adopted. Hence, in the case of the assessee when the books are closed and adopted by the Board of Directors and shareholders on 18.08.2009 by which time the entries were passed writing off the irrecoverable claims to the profit and loss account and party accounts. Thus, even on merits, the claims have to be allowed in view of the above Hon’ble Allahabad High Court decision. - Decided in favour of assesse.
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2015 (5) TMI 859
Withdrawal of registration u/s. 12A - legal consequence/s of the applicability of proviso to section 2(15) on the registration of an entity as a charitable institution - Held that:- The language of proviso to section 2(15) extends to any activity that may be in the nature of trade, commerce or business - all terms of wide amplitude, or any activity of rendering any services in relation to the same. We, accordingly, have no hesitation in holding that the assessee’s activities are covered by the proviso to section 2(15); the gross receipt for the current year exceeding the minimum threshold limit which exceeds the application of the first proviso.
How to proceed in the matter to decide the present appeal, i.e., given our admission of a mistake apparent from record - the appropriate course under the circumstances, even as indicated during the hearing in the instant proceedings - Held that:- As to no objection by either party, is that the matter be referred to the hon’ble President of the Tribunal for constituting a larger bench of the tribunal to decide the highly contentious issue raised by the assessee’s Ground No.1, decided differently by different coordinate benches of this tribunal, for uniform application across the tribunal, of course after hearing the parties. The larger bench of the tribunal, in the case the reference made hereby is accepted by the hon’ble President, shall, apart from the other arguments and case law as may be canvassed before it by the parties, consider the same. We support our decision for the reference aforesaid, apart from the clear provision of section 255(4) of the Act, on the settled law on precedence as explained by several celebrated decisions in the higher courts of law, as for example in the case of CIT v. B.R. Constructions [1992 (6) TMI 13 - ANDHRA PRADESH High Court].
The matter is accordingly referred to the Hon’ble President for constituting a larger bench to decide the assessee’s Ground I. We decide accordingly.
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2015 (5) TMI 858
Determination of arm's length price of international transactions - ‘Export of components and parts’ made by the assessee to its associated enterprises - CIT(A) deleted the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction - Held that:- In the domestic market assessee was supplying carburettors and ASVs to OEMs such as Bajaj Auto and Hero Honda who used these products in the production of vehicles that they manufactured. In contrast, the associated enterprises to whom the components and parts were exported were essentially manufacturers of carburettors, who used the products exported by the assessee for manufacture of carburettors which in turn they sold to the OEMs. This difference was brought out by the assessee to establish that there were differences in functions performed and risks assumed with regard to export of components/parts and the sale of carburettors/ASVs in the domestic market. The CIT(A) has appreciated the aforesaid differences and in our considered opinion, there is no cogent material or evidence before us to dissuade us from affirming the stand of the CIT(A). The CIT(A) has categorically noted that assessee had exported components and parts whose profit margins should be compared with the margins derived from sale of parts/components and not sale of manufactured products. Going further, the CIT(A) held that volume of domestic sale of components/parts was quite insignificant to constitute a valid comparable with the export transactions. For all the aforesaid reasons, CIT(A) has differed with the approach of the TPO in benchmarking the impugned transaction of export of components and parts with the profit margin of domestic sales which primarily consist of manufactured products i.e. carburettors. Thus no reason to interfere with the ultimate conclusion of the CIT(A) to delete the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction.
Disallowance of engineering services fee - Held that:- No fault can be found in the manner in which the CIT(A) has come to conclude that the expenditure in question is to be allowed as a revenue expenditure. It is also not disputed before us that similar expenditure in assessment year 2006-07 stands allowed as a revenue expenditure by the Assessing Officer after due verification. The CIT(A) also noted that the engineering services provided by the parent company in this year related to day to day running of business in contrast to the earlier assessment year of 2004-05 wherein it related to the pre-installation stage of the imported machinery. Having regard to the facts and circumstances of the case and the findings of the CIT(A), we find no reasons to interfere with his decision of allowing deduction for ₹ 1,21,87,328/- representing engineering services fee as a revenue expenditure. The Revenue fails on this aspect. - Decided in favour of assesse.
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2015 (5) TMI 857
Condonation of delay - Disallowance made u/s40(a)(ia) r.w.s 194C - Charging of interest u/s. 201(1)/(1A) - Held that:- In the instant case the assessee society is registered under the Karnataka Co-operative Societies Act 1959. The assessee society’s main object is to manufacture of sugars by procuring cane from members and non-members. Thus, the society runs on co-operative basis. The assessee could not obtain the legal advice. Moreover, the assessee’s sugar factory was running in loss for so many years. Therefore, the assessee could not file appeal in time before the ld.CIT(A). The assessee has obtained legal opinion from an ex-principal, G.K.Law College, Hubli. The assessee has filed the appeal. The assessee has understood the legal position. We are of the view that the assessee had reasonable cause in not filing the appeal in time before the ld.CIT(A). The appeal may not be decided on technical ground, but it must be decided on merit in the interest of public. We find that the assessee society has huge money of the public. Therefore, in the interest of justice and fair play, we condone the aforesaid delay in filing all the appeals for all the assessment years under consideration and restore the matter to the file of the ld.CIT(A) to decide the appeal on merits after giving the assessee adequate opportunity of hearing. - Decided in favour of assesse for statistical purpose.
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2015 (5) TMI 856
Eligibility of deduction u/s 10B - whether the three units of the assessee company namely NIITITES, NIIT-KTWO and NIIT-Mumbai are separate 100% EOUs of the assessee company ? - Held that:- Each of the three undertakings had been separately and independently granted registration by Software Technology Park of India, Pune (STPI) for claiming exemption u/s 10B of the act as newly set up 100% EOU, which is evident from the copies of STPI approval and extension letters thereto. Those three units were also granted separate licence by the Customs Authorities. Those EOU’s were situated at separate location having independent buildings on separate addresses, their Plant & Machinery and fixed assets were also separate, each of the EOU furnished separate Audit Report in Form No. 56G. Therefore, it cannot be said that the three EOU’s of the assessee company were formed after splitting off of the existing unit or reconstructing the old or non-eligible unit. In the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books. Therefore, the ld. CIT(A) was fully justified in directing the AO to compute the deduction u/s 10B of the Act in respect of each unit separately. - Decided in favour of assesse.
Allowability of deduction u/s 10B - at the source itself and not after the computation of Gross Total Income - CIT(Appeals) allowing that deduction u/s 10B after deducting unabsorbed depreciation from the profit of business - Held that:- In the present case, it appears that the assessee was not having any unabsorbed depreciation relating to the eligible Export Oriented Units (EOU’s). Therefore, adjustment in the eligible profits of the EOU was not to be made on account of brought forward unabsorbed depreciation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. - Decided against revenue.
Admission of the additional evidence - Held that:- AO vide notice u/s 142(1) of the Act called the details relating to claim u/s 10B of the Act which the assessee furnished. The ld. CIT(A) found from the record that the assessee replied to the showcause regarding the allowability of deduction u/s 10B of the Act vide submissions dated 30.12.2009. The ld. CIT(A) categorically stated that there was no specific show-cause given to the assessee as to why all the units of the assessee company be not treated as a single unit for the purpose of allowance of deduction u/s 10B of the Act, therefore, specific opportunity was not granted to the assessee for clarifying the issue as to why all the units of the assessee may not be considered as one unit for the purpose of section 10B of the Act and that the documents furnished by the assessee before him goes to the route of the aforesaid issue relating to deduction u/s 10B of the Act. In the present case, the ld. CIT(A) admitted those evidences after providing due and reasonable opportunity to the AO who furnished his remand report. Therefore, we do not see any merit in this ground of the departmental appeal - Decided against revenue.
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2015 (5) TMI 855
Rectification of mistake - Issue of guarantee by DSM Finance B.V.- Held that:- It is respectfully submitted that the appellant enjoyed significant savings interest cost due to the guarantee provided by the associated enterprise against the LC facility availed by the appellant. The detailed economic analysis undertaken by the appellant for benchmarking the guarantee provided by the associated enterprise is provided as Annexure 4A guarantee fee charged by DSM Netherlands to DSM India at 4% for the overall arrangement, shall be considered to be at arm's length as required under Indian Regulations.In view of the aforesaid, it is respectfully submitted that the above documents now placed on record by the appellant pursuant to the query raised by the Hon'ble Tribunal may kindly be taken into consideration while adjudicating the appeal of the assessee.
Corporate Service Charge - Held that:- The assessee had started receiving some financial services also from the holding company which explained the increase in total payments on account of corporate services. The assessee had tried to justify the payment on account of such financial services but when again it was confronted that if assessee had saved ₹ 100/- and if he pays the entire amount of ₹ 100/- to the holding company and in that case there would be no savings to the assessee. In response to this query, the Ld. Counsel on behalf of the assessee had admitted that there is international practice to pass on 50% of the amount of such financial savings on account of financial services and balance 50% was to be retained by the recipients of the services. This was found to be logical because benefit was being shared on 50 - 50 basis. Therefore, assessee was asked to give amount of total benefit on account of financial services.On the basis of above admission the Bench held that fee paid for other corporate services could not have increased so much and therefore, it was fair and just that that normal fee paid for corporate services should not be disallowed but in view of the increase in the amount the benefits obtained by the assessee on account of financial services have to be shared on the basis of 50-50. Thus no error in the order of Tribunal and therefore, no rectification can be made.
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2015 (5) TMI 854
Suppression of income - sale price shown in the sale deed of the private respondent at ₹ 800/- per square feet is deliberately undervalued - Tribunal deleted the addition - Held that:- Considering appellant submition that the statement of the agreement-holder clearly discloses that the agreement was made on behalf of the respondent company. The agreement also discloses a payment of advance amount of ₹ 4-crore, which, according to the agreement-holder, was paid by the respondent company. The respondent company issued cheques towards advance payment to the vendor and virtually purchased the property. Therefore there appears to be no reasonable nexus and substantial evidence available to show that the agreement made by Mr Modi with the erstwhile owner was in fact for the benefit of the company and that the Tribunal did not appreciate the evidence in proper perspective, thus erred in allowing the appeal. - Decided against revenue.
The respondent company has shown the sale price in the account books at ₹ 9-crore odd. The department has not found any contra material to controvert the entries in the account books of the respondent company.Tribunal was justified and correct in law in holding that even if the addition was justified, it should had been made under Section 69B of the Income Tax Act, 1961 and not under section 69 of the Income Tax Act, 1961. Department has failed to discharge the burden under Section 69B of the Income Tax Act, 1961 of proving that the assessee made additional investment. - Decided against revenue.
Tribunal was justified and correct in law in holding that the provision of Section 114(g) of the Indian Evidence Act, 1872 is attracted in the case - Decided against revenue.
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2015 (5) TMI 853
Registration as a Charitable Trust under Section 12A cancelled - whether running of Bar/Restaurant renting out of rooms to its members/guests and letting out choultry on commercial basis are not charitable activities ? - Held that:- Registration granted under Section 12A of the Act can be cancelled under two circumstances i.e., (i) If the activities of such trust or institution are not genuine and (ii) The activities of trust or institution not being carried out in accordance with the object of the trust or institution.
It is not in dispute that the Director of Income Tax (Exemption) has not recorded any such finding about the violation of the two conditions stated above. The Tribunal while deciding the matter has rightly recorded a finding that a perusal of impugned order shows that Director of Income Tax (Exemption) has not arrived at any such finding. The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organization can neither lead to the conclusion that the activities of the trust or institution are not genuine nor it can be said that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution and therefore, the two conditions stipulated under the provisions of sub-section (3) of Section 12AA of the Act, which empowers the authority to cancel the registration, do not exist in the present case. - Decided in favour of assesse.
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2015 (5) TMI 852
Transfer pricing adjustment - addition on Service fee received - Held that:- The assessee simply rendered agency services under this segment by co-ordinating between customers and its AEs. By no standard, the assessee can be said to have dealt with the goods of its AEs as an absolute owner. Once position is such, we fail to comprehend as to how financial results of the commission segment can be adjusted for making a comparison with trading segment. The ld. AR has drawn our attention towards the Tribunal orders passed in assessee’s own case for the earlier years reversing similar stand of the Revenue authorities on the international transaction of receipt of Service fee. As such, we set aside the impugned order on this score and remit the matter to the TPO/AO for a fresh determination of ALP of the international transaction of receipt of 'Service fee’ as per law after allowing a reasonable opportunity of being heard to the assessee. In doing so, the assessee will initially propose comparable instances having undertaken activity similar to it under this segment. Then it will be for the TPO to decide on their comparability or otherwise and determine the ALP of this transaction as per law. We further add that in doing so, the TPO will consider the figures of the comparables for the current year alone and not the multiple-year data as has been held by the Hon’ble jurisdictional High Court in ChrysCapital Investment Advisors (India) P. Ltd. VS. DCIT [2015 (4) TMI 949 - DELHI HIGH COURT] .
Disallowance under section 40(a)(i) - TDS u/s 195 - Held that:- the assessee is seeking the benefit of article 24 qua the disallowance u/s 40(a)(i) and not in respect of any transfer pricing adjustment made by bringing transactions between two AEs at arm’s length price. Disallowance u/s 40(a)(i) is an independent component of the computation of total income which is distinct from any transfer pricing adjustment. Article 24 read with Article 9 albeit prohibits the deletion of enhancement of income due to the making of transactions at ALP, but permits the deletion of enhancement of income due to disallowance u/s 40(a)(i) of the Act. Be that as it may, we find that the TPO has not proposed any transfer pricing adjustment in respect of `Trading segment’ of the assessee under which the purchases in question were made. The addition on account of TP adjustment is in respect of `Service fee received’, which was earned by the assessee without making purchases of the goods from its AEs. As disallowance u/s 40(a)(i) is in respect of purchases made from the AEs, which is in no manner connected with the Commission segment, we hold that the assessee is entitled to the benefit provided by article 24 of the DTAA and cannot be visited with the disallowance u/s 40(a)(i) of the Act. The foregoing discussion divulges that there existed no liability on the assessee to deduct tax at source from the payments made by it to the listed seven foreign AEs, either because of non-chargeability of income under the Act from sale of such goods to the assessee or because of the application of non-discrimination clause. The natural corollary which follows is that the provision of section 195 cannot apply and, resultantly, there can be no disallowance u/s 40(a)(i) of the Act. We, therefore, order for the deletion of this disallowance - Decided in favour of assesse.
Disallowance u/s 14A - Held that:- It as an admitted position that the assessee did not earn any exempt income during the year. The Hon’ble jurisdictional High Court in CIT vs. Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) has held that no disallowance u/s 14A can be made in the absence of any exempt income. In Joint Investments Pvt. Ltd. Vs. CIT (2015 (3) TMI 155 - DELHI HIGH COURT) it has been held that disallowance u/s 14A cannot exceed the exempt income. Since the assessee admittedly did not earn any exempt income during the relevant year, respectfully following the precedents, we hold that no disallowance u/s 14A can be made - Decided in favour of assessee.
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2015 (5) TMI 851
Disallowance of exemption claimed u/s 10B - CIT(A) deleted the additions - Held that:- The facts of the present case are similar to the facts in the case of ITO Vs Efextra Esolutions Pvt. Ltd., New Delhi (2012 (8) TMI 895 - ITAT DELHI), which the ld. CIT(A) has followed while allowing the claim of the assessee.
The assessee fulfilled all the conditions for 100% tax exemption u/s 10B of the Act which was earlier granted u/s 143(1) of the Act. The conditions laid down for exemption u/s 10A of the Act are similar to the exemption u/s 10B of the Act. Therefore, the AO should have allowed the claim of the assessee u/s 10A of the Act which was earlier claimed under a bonafide belief u/s 10B of the Act. We, therefore, do not see any valid ground to interfere with the findings of the ld. CIT(A) - Decided in favour of assesse.
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2015 (5) TMI 850
Validity of transfer pricing adjustment - whether income of the assessee holding that the assessee’s calculation of 4.84% of (profit before tax)/total cost is window dressed? - AO/DRP international transaction entered into by the assessee for the purpose of ‘job work’ to be ‘purchase’ and ‘sale’ - Held that:- In substance, the assessee is not the owner of the gold imported and jewellery exported and is not entitled to any profit on the gold content. The assessee does not have any right to dispose of the gold and the AE remains the owner of the gold sent. The gold sent cannot have two owners. As admittedly, no consideration is passed for the value of gold, which is evident from the bank statements produced by the assessee, therefore, the aforesaid transactions cannot be termed as ‘sale’.
In the present case, the value of gold imported and exported is only a ‘pass through cost’ and cannot be part of the operating cost of the assessee. The Ld. TPO and DRP erred in including the cost of gold in the cost base of the assessee, while computing the arm’s length price of the international transaction. Lastly, the assessee also does not separately invoice the jewellery items exported to AE. Thus we are of the view that the assessee is a job worker and not a manufacturer and the Ld. TPO and DRP erred in including the cost of gold into the operating cost of the assesse - Decided in favour of assesse.
Most Appropriate Method (MAM) for calculating the arm’s length price of the international transaction entered into by the assesse - held that:- As we have held that the assessee has correctly applied CUP method to benchmark its transaction, TNMM being an indirect method cannot be applied in the case of the assessee. TNMM method can only be applied when direct and traditional methods are incapable of determining the arm’s length price of the transaction. TNMM method is a profit based method which might result in possibility of vitiation of results by number of factors which are not relevant to the determination of prices at which international transactions are entered into by the associated enterprises. It would thus follow that in a situation in which the assessee has followed one of the standard methods of determining ALP, such a method cannot be discarded in preference over transactional profit methods unless the revenue authorities are able to demonstrate the fallacies in application of standard methods. - Decided in favour of assesse.
Furthermore, the method adopted by the Ld. TPO is ex facie incorrect as all the comparables relied upon by the Ld. TPO are companies which are engaged in retail business who sell directly to the consumer. On the other hand, the assessee is engaged in a business to business model whose profitability cannot be compared to companies which are in business to customer model. Moreover, the profitability of the comparables relied upon by the Ld. TPO is calculated after including the cost of gold into the operating base of the company as the companies are in retail segment. The comparison by the Ld. TPO to one Manohar Lal Saraf Jewellers who is charging 8% making charges cannot be applied to the case of the assessee for the aforesaid reasons. Thus in view of our findings above we delete the first addition of ₹ 9,50,31,469/- made on account of applicability of MAM. - Decided in favour of assesse.
Addition is with respect to the charges of facility, freight and insurance made by the assesse - Held that:- A perusal of these policies clearly shows that in case of any loss, the same would be recovered from the insurance company and paid to the AE. The assessee is only reimbursed by its AE of the freight and insurance charges at the rate of $ 350 consignment. These three insurance polices have been ignored by the Ld. TPO and DRP. We are in agreement with the contention of the assessee that reimbursements can never come within the scope of charging Section 4 of the Act and therefore income cannot be deemed under the transfer pricing provisions under Chapter X of the Act as held by Hon’ble Bombay High Court in Vodafone Vs. UOI [2014 (10) TMI 278 - BOMBAY HIGH COURT]. We thus delete the second addition of ₹ 176,66,900/- on account of provision of facility, freight and insurance. - Decided in favour of assesse.
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2015 (5) TMI 849
Addition on undisclosed GP rate - suppressed sales assumed on the basis of a diary seized from third party - CIT(A) restricted part addition - whether the documents seized during the course of search and the statements recorded during search and post-search was sufficient to draw an inference about undisclosed sales? - Held that:- The entire sales as made by the assessee during the year aggregate to ₹ 699.73 crores and sale of manufactured goods is of ₹ 257.51 crores and the quantity-wise details furnished by the assessee have been accepted as such. Not a single party has been examined before drawing adverse inference regarding undisclosed sales made by the assessee. It is also worth noting that the sale is always made between the two parties and once there is no evidence either seized or gathered from the two parties then it would not only be highly improper but also unjust and arbitrary to assume undisclosed sales between the said parties. We are thus of the view that the seized diary during the course of search and the statements of Shri Salek Chand Garg recorded during the course of search and post-search was not sufficient to draw an inference about the alleged undisclosed sales dehors corroborative evidence supporting the third party statements and the entries recorded in the diary found from the possession of the third party during the course of search. - Decided in favour of the assessee.
Whether a profit can be estimated without rejecting books of account with this finding that on the basis of the said books of account, proper income cannot be adduced? - Held that:- It is a settled position of law that estimation of profit by applying a reasonable g.p. rate can be adopted and applied only when it is not possible for the Assessing Officer to deduce the profit of the assessee on the basis of books of accounts produced by the assessee. In such a situation, the Assessing Officer will have to afford opportunity of being heard to the assessee to meet out the defects pointed out by the Assessing Officer in the books of account and if the Assessing Officer is not satisfied with the explanation of the assessee to those defects pointed out by the Assessing Officer, then the Assessing Officer will reject the books of account by invoking the provisions of sec. 145(3) of the Act and will estimate the profit.In the present case, in view of the above finding on sub-issue No.(i), the Assessing Officer was having no reason to reject the books of account of the assessee, hence, he was not justified to jump on the second step for estimation of the profit by applying different g.p. rate than that shown by the assessee. - Decided in favour of the assessee.
Whether application of g.p. rate at 10% by Assessing Officer and 5% by Learned CIT(Appeals) was reasonable to estimate the profit? - Held that:- No plausible reason has been assigned by the Assessing Officer for application of g.p. rate at 10% nor has the Learned CIT(Appeals) assigned any convincing reason for applying the g.p. rate at 5% of the turnover. The g.p. rate declared by the assessee in respect of manufacturing was 1.24%. Also keeping in mind the above findings on other sub-issues, the issue is decided in favour of the assessee.
Unexplained investment in stock - CIT(A) sustained the addition to the extent of ₹ 6,62,35,000 - Held that:- The Learned CIT(Appeals) thereafter has held that variation in quantity of raw material of six items was imaginary to obtain credit facility from bank on account of accounts financial crises. He also held that there was no difference in stock on the date of search and that the stock has not been pledged with the bank but only hypothecated to bank as such stock statement given to bank cannot be a basis to assume unexplained investment in stock. In this regard, he placed reliance on several decisions. We also find that on the issue, there are several decisions in favour of the assessee as well as the Revenue. In such a situation, it is now a well settled position of the law that in absence of decision of Hon'ble jurisdictional High Court on the issue, the decision favoring the assessee will have to be followed. The finding of the Learned CIT(Appeals) on the issue following the decision in favour of the assessee thus cannot be held erroneous. The same is upheld. - Decided against revenue.
As regards CIT(A) sustained the addition to the extent of ₹ 6,62,35,000 the closing stock as on 31.3.2009 in any case cannot be added as unexplained investment for the assessment year under consideration as in that case it will be amounting to unexplained investment for the assessment year 2009-10, especially when the closing stock of that assessment year was accepted. In this regard, we find support from the cited decision of Hon'ble Delhi High Court in the case of CIT vs. Om Prakash Mahajan (supra) and in the case of J.M. Wire Industries vs. CIT (supra). The addition of ₹ 6,62,35,000 sustained by the Learned CIT(Appeals) is thus not tenable. The same is directed to be deleted - Decided in favour of assesse.
Undisclosed investment - assessee company had paid balance amount to the seller in cash outside the books of account by utilizing unaccounted income - held that:- provisions laid down under sec. 50C of the Act are not applicable in the case of buyer and the valuation report in absence of corroborative evidence in support cannot be the sole basis to arrive at a conclusion beyond doubt that the value shown therein was invested by the assessee to purchase the property in question. It is also an established position of law that a document is reliable or unreliable in its entirety. The Learned CIT(Appeals) was thus not justified in relying upon the valuation report only for the purpose of the value of construction raised on the property shown in the said valuation report. On the other hand, we find that the evidence filed in the shape of agreement, sale deed, remittance of the accounts from the ledger as well as bank account were sufficient evidence to accept sale consideration shown in those documents. The Assessing Officer was thus not justified in making addition solely on the basis of valuation report and the Learned CIT(Appeals) was also not justified in sustaining the part addition partly on the basis of the valuation and applying the provisions of sec. 50C of the Act in the case of buyer. The addition made and sustained by the authorities below on the account of undisclosed investment in the property is thus directed to be deleted - Decided in favour of assesse.
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2015 (5) TMI 848
Revision u/s 263 - AO has omitted to disallow unpaid excise duty resulting in under assessment of tax - Held that:- The assessee explained before the CIT that there is no fresh provision made in respect of unpaid excise duty of ₹ 35.43 lacs. Even now before us, assessee drew our attention to annexure 9 of the Balance Sheet that this amount of unpaid excise duty of ₹ 35.43 lacs pertains to earlier years and no new provision is made. Ld. Counsel for the assessee now before us also filed the copy of assessment order passed in consequence to revision order u/s. 263 of the Act wherein the AO has clearly observed after verifying the records that this excise duty of ₹ 35,43,390/- was actually outstanding balance of pre-existed unpaid excise duty relevant to AY 1997-98 out of total sum of ₹ 1,04,79,687/- which was disallowed u/s. 43B of the Act. Ld. Counsel for the assessee drew our attention to page 13 of assessee’s paper book, which is copy of annexure 9 as certified by Sr. Manager, (Finance, taxation) of the assessee company and the statement showing the details in respect of sum referred to in clause (a), (c) and (d) of section 43B of the Act as required under the audit provisions. Thus unpaid excise duty pertains to earlier years and no claim for this excise duty is made, the disallowance of excise duty is not possible. The AO has taken a correct view while framing assessment and revision order passed by CIT u/s. 263 is without jurisdiction. The assessment order is neither erroneous nor prejudicial to the interest of revenue.
Stock in transit - Held that:- The facts are that the assessee explained from the paper book wherein the copies of Schedule 8 (inventories) of the annual accounts for the FYs 2006-07, 2007-08 and 2008-09 along with copies of journal entries relating to ‘stores in transit’ for the respective years are filed. The assessee has also filed copies of ledger account of raw material and stores and spares at page 14 of the assessee’s paper book where copy of schedule 12 (consumption of raw material and components including stores and spares) of the annual accounts for the FY 2007-08 relevant to AY 2008-09 are filed. We find from the arguments of Ld. Counsel of the assessee that it is consistently following this practice and there is no change in practice that the transit stock is not included in the purchases consequently value thereof was not debited in the P&L Account. In term of the above and the facts of the case, we are of the view that the assessment framed by AO in considering the inventories, i.e. stores in transit was considered and allowed, the assessment order is neither erroneous nor prejudicial to the interest of revenue. The CIT while passing revision order u/s. 263 of the Act has totally erred in revising the assessment. We quash the same. Accordingly, on both the issues the order of CIT passed u/s. 263 of the Act is quashed. - Decided in favour of assesse.
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2015 (5) TMI 847
Undisclosed investment in the money lending business - CIT(A) deleted the addition - Held that:- A bare reading of the assessment order shows that the Assessing Officer accepted the computation made by the assessee with regard to the outstanding amount at ₹ 23,52,000/- as per the transaction found in the seized material. The Assessing Officer also determined the outstanding amount as per the transaction entered in the seized material at ₹ 19,10,300/-. It is not known whether the outstanding amount on the date of search was ₹ 23,52,000/- or ₹ 19,10,300/-. The CIT(Appeals) without any discussion simply deleted the addition on the basis of the so called balance sheet said to be provided by the assessee. Since the facts are not clear from the orders of the lower authorities, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the issue with regard to unexplained investment in the money lending business is remitted back to the file of the Assessing Officer to examine the issue afresh in the light of the provisions of Section 158BB of the Income-tax Act, 1961 - Decided in favour of revenue for statistical purposes.
Disallowance of bad debts - CIT(A) deleted the addition - Held that:- Admittedly, the assessee has not maintained any books of account. Only during the course of search operation, certain materials were found which disclosed the investment made in the money lending business. The assessee claims that the seized material found during the course of search operation referred to an entry of bad debts. However, the Revenue disputed the same. The Ld. D.R. clarified that no such reference was there in the seized material regarding bad debts. Furthermore, the details of money lent to the individuals are not available and with whom the assessee written off the loan amount as bad debts is also not available. In the absence of such details, this Tribunal is of the considered opinion that the issue has to be reconsidered by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the issue of bad debts to the extent of ₹ 16,60,000/- needs to be re-examined by the Assessing Officer. - Decided in favour of revenue for statistical purposes.
Unaccounted investment in the money lending business - CIT(A) deleted the addition - Held that:- The Revenue claims that the money lending business belongs to the assessee. However, the assessee claims that the investment was disclosed in the return filed by the assessee’s son. The details of such assessment made in the assessee’s son are not available on record. The sworn statement recorded from Shri Subramanian shows that the diary was written by his father. In fact, in response to Question No.19, he admitted that the documents are relating to Vijaya Finance and other finance of his family. He, according to the Ld. D.R., admitted that the money lending business belonged to him. In those circumstances, this Tribunal is of the considered opinion that the matter needs to be reconsidered after considering the assessment made in the hands of Shri Subramanian, the assessee’s son. Accordingly, we issue remitted back to the file of the Assessing Officer for reconsideration in the light of the material available on record - Decided in favour of revenue for statistical purposes.
Undisclosed investment in the construction of house at Arantangi & building at Karaikudi - contention of the assessee before this Tribunal is that the valuation has to be made only on the State PWD rates - Held that:- We find much force in the contention of the assessee. State PWD rates have to be preferred when compared to the Central PWD rates. State PWD rates are prepared as per the local condition prevailing in the particular State. Therefore, this Tribunal is of the considered opinion that the valuation of the building has to be made only on the basis of State PWD rates. Accordingly, we set aside the orders of the lower authorities and the issue of cost of construction with regard to Aranthangi building is remitted back to the file of the Assessing Officer. - Decided in favour of assesse for statistical purposes.
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2015 (5) TMI 846
Rejection of books of accounts - AO applying the net profit rate of 1.25% - Held that:- It is an admitted fact that the AO had not pointed out any specific defect in the books of accounts maintained by the assessee in the regular course of business. It is also not brought on record that there was a difference in the sales declared by the assessee in its books of accounts vis-à-vis accepted by the Sales Tax Authority. In the present case, the AO while applying the net profit rate of 1.25% had not pointed out any specific case wherein similar net profit rate has been shown by any comparable case.We, therefore, considering the totality of the facts and are of the view that the profit declared by the assessee on the turnover of ₹ 3,99,97,585/- does not require any modification on our part.
As regards to the addition on account of application of net profit rate, in the present case, it is not brought on record that the profit declared by the assessee for the year under consideration was not comparable with the profit rate declared for subsequent years which had been accepted by the ITAT. In that view of the matter we are of the view that the ld. CIT(A) rightly deleted the addition made by the AO.
As regards, to the another addition of ₹ 3,10,000/- in respect of difference between the amount shown in the cash receipts issued by the assessee to M/s Krishna Store and the amount entered in assessee’s cash book it appears that the ld. CIT(A) verified from the books of accounts and the bank statement of the assessee that the transactions entered in the primary books of accounts i.e. cash book and in the bank statement was the same but those were wrongly mentioned in the receipts book. The ld. CIT(A) deleted the addition of ₹ 3,10,000/- after proper verification on the basis of verification report of ST-35 forms issued by M/s Krishna Stores giving details of the bill numbers and the amounts of respective bills which confirmed that the correct amounts involved in the two transactions were entered in the primary books of accounts i.e. cash book & ledger. We, therefore, do not see any infirmity in the order of the ld. CIT(A) on this issue. - Decided against revenue.
Penalty u/s 271(1)(c) - held that:- As have upheld the order of the ld. CIT(A) in deleting the quantum addition. The said additions were the only basis for levying the penalty u/s 271(1)(c) of the Act and as the additions has been deleted, there remains no basis for levying the penalty u/s 271(1)(c) of the Act. - Decided in favour of assesse.
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2015 (5) TMI 845
Reopening of assessment - Held that:- We find that notice u/s 148 had been issued primarily on the basis of information received from Investigation Wing of department regarding accommodation entries received from M/s Garg Finvest (P) Ltd. amounting to ₹ 3,00,315/-. Therefore, it is not correct to say that no addition had been made in respect of the amounts on which notice u/s 148 had been issued. - Decided against assesse.
Commission paid for obtaining the said accommodation entry - Held that:- Nothing has been brought on record to controvert the findings of ld. CIT(A) that assessee has not been able to establish the genuineness of the transactions and keeping in view the contrary stand taken by the assessee during assessment proceedings and after the details of the inquires were confronted to assessee, we find no reason to interfere with the order of lower revenue authorities on this count. - Decided against assesse.
Disallowance u/s 14A by applying Rule 8D - Held that:- CIT(A) correctly did not apply Rule 8D by observing that the said Rule was applicable w.e.f. assessment year 2008-09, as laid down by the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] and applying formula for computing disallowance u/s 14A in cases prior to AY 2008-09 where the provisions of Rule 8D of IT rules are not applicable - Decided in favour of assesse.
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2015 (5) TMI 844
Interest received from Bank deposits to the extent as income from other sources.- CIT(A) deleted the addition - Held that:- The income from interest by the assessee since is assessable separately under the head “income from other sources”, therefore, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) - Decided in favour of revenue.
Addition of capital expenditure claimed under the head “loan syndication charges” - CIT(A) deleted the addition - Held that:- This expenditure under section 40A(2) (a) has been incurred by the assessee during the year but this expenditure has not been claimed as revenue expenditure as contended by the ld. A.R. This expenditure has been debited by the assessee under the head “work-in-progress”. The disallowance has been made by the Assessing Officer by applying the provisions of section 40A(2)(a). On perusal of section 40A(2)(a), it is apparent that this section is applicable only for restricting the claim of any expenditure, which is otherwise allowable while computing the income under the head “profit and gains of the business or profession”. Since the expenditure has not been claimed by the assessee while computing the income under the head “income from business”, therefore, no disallowance under section 40A(2)(a) can be made. The provisions of sect ion 40A(2)(a) are applicable only if the assessee has claimed deduction of the expenditure while computing the income under the head “income from business”. We noted that no such expenditure has been claimed, therefore, the disallowance under section 40A(2)(a) cannot be made - Decided against revenue.
Disallowance of the interest expenses on account of term loan - CIT(A)deleted the addition - Held that:- In this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head “income from business”. The said interest, in fact, has been capitalized by the assessee under the head “work-in-progress”, i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee has claimed deduction under section 36(1)(iii) of the Income Tax Act while computing the income from business. Once the assessee itself has not claimed as revenue expenditure, therefore, in our opinion, no disallowance should have been made. - Decided against revenue.
Disallowance of compensation paid for acquisition of land - CIT(A)deleted the addition - Held that:- . It is not a case when the land has been compulsory acquired under any law, therefore, in the absence of sect ion 194LA being applicable, no question of any deduction of TDS arises. The provisions of section 194LA are not applicable when the assessee has purchased the immovable property by an agreement or sale deed. We accordingly confirm the order of the ld. CIT(Appeals) in deleting the addition of ₹ 12,60,000/- and dismiss this ground of appeal taken by the Revenue. - Decided against revenue.
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2015 (5) TMI 843
Disallowance u/s 14A - Held that:- The contention put forth by the ld. AR that it had earned dividend income of ₹ 262907.86 lakhs without incurring any expenses does not convince us at all. The term ‘expenditure’ as per section 14A would include the expenditures that are related to investments made i.e. expenditures on administration, capital expenses, travelling expenses, operating expenses etc. It is difficult to accept that the assessee company was making investments decisions to the tune of ₹ 6,31,637 lakhs of public money without incurring a single penny out of its pocket. Such decisions are highly strategic in nature and are required to be made by highly qualified and experienced professionals. The same would also require market research and analysis. The assessee company by acquiring controlling interest in the subsidiary companies would also be required to attend board meetings and make policy decisions with regard to the aforesaid huge amount of investments made. By no stretch of imagination, it can be assumed that such activities were done without incurring any expenditure. It is pertinent to mention here that even the assessee did not rebut the findings of AO that the assessee was required to supervise and administer all the investments made. Thus in the present case the nexus between the expenditure incurred and the dividend income was established by the revenue authorities - Decided against assesse.
Disallowance computed as per Rule 8D of the Rules cannot be applied u/s 115JB - Held that:- Provisions of section 14A are restricted to computation of income under normal provisions of the Act which cannot be extended to the computation of income u/s 115JB of the Act as relying upon the decisions of ITAT Delhi Bench in the case of Goetze (India)ltd vs CIT (2009 (5) TMI 615 - ITAT DELHI ). - Decided in the favour of the assesse.
Expenses pertaining to foreign exchange fluctuation disallowed - Held that:- In view of the submissions made by the ld. AR the issue is restored back to the file of AO to examine as to whether the assessee has in fact booked profit on account of foreign exchange fluctuation. If that be so, the same shall be dealt with in accordance with judgement in the case of Woodward Governor India (2009 (4) TMI 4 - SUPREME COURT) wherein held market to market loss is an expenditure incurred by the assessee and thus allowable as deduction. - Decided in favour of assesse for statistical purposes only
Disallowance of prior period expenses - Held that:- Assessee had coal dumps against which deposits were received by it. The assessee had earned interest income on the said deposits and certain legal disputes against the claim by the coal dealers of coal dumps are pending in the courts. The assessee feels that such interest may have to be paid back to the said claimants. It is a fact that the assessee has not accounted the prior period expenses which had been stated to have been processed during the year. It is still a contingent liability which had not yet finalised and the assessee had made a provision in apprehension to write off it as bad debts. In the circumstances and facts of the case we find no infirmity in the order of the ld. CIT(A), who has rightly disallowed the claim of assesse - Decided against assesse.
Disallowance u/Rule 8D(2)(ii) and Rule 8D(2)(iii) of IT Rules - CIT(A) deleted addition - Held that:- Rule 8(2)(ii) can be invoked when the assessee had incurred expenditure by way of interest during the previous year relevant to assessment year which is not directly attributable to any particular income or receipt. The assessee had invested ₹ 6,31,637.37 Lakhs in its subsidiaries and had received the same amount from Govt. of India as subscribed share capital. It is pertinent to mention here that the assessee is a public sector undertaking of the Govt. of India and whole of the subscription of the share capital was subscribed by Govt of India till the present A.Yr. and there was no private placement in the form equity before A.Yr.2008-09. The entire share capital invested in the subsidiary companies from which exempt income in the form of dividend was earned was received by the assessee from the Govt. of India. The assessee had not raised loan or borrowed money for making investment in the subsidiaries. In the written submissions filed before the ld. CIT(A) the assessee had also explained the interest expenditure incurred by it was relatable to the business income of the asessee, which was non exempt. In view thereof, we do not find merit in the contentions raised by the revenue - Decided against revenue.
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2015 (5) TMI 842
CENVAT Credit - input services - whether Packaging Services, Security Services, Telephone Services & Chartered Account Services would be considered as input services for of Lending of trademark to others - Payment of service tax on royalty received as output services - Held that:- In the certificate/opinion obtained from Y.J. Trivedi & Co. Patents & Trade Marks Attorney & Advocate, Ahmedabad also no provisions of the Trade Marks Act or any Rules made there under are mentioned under which it is obligatory on the part of the appellant to compulsorily use the Trade Mark himself. Lending its trade mark, getting royalty & paying service tax on the part of appellant should be sufficient to establish that his Trade Mark has been used. Under the present factual matrix it can not be held that packaging Services are availed by the appellant directly for protecting their Trade Mark/Brand Name. Therefore, the packaging Services availed by the appellant has to be considered to have been utilized for making of tea bags and can not be considered to be availed directly or indirectly in maintaining/protection of appellant s Trade Mark.
As per Rule 6 (5) of the Cenvat Credit Rules, 2005 full credit of Security Services credit is permissible if, the credit of such services is not exclusively used in relation to exempted goods or providing exempted services. According credit of service tax on security services is correctly availed by the appellant
So far as credit of Chartered Accounts Services & Telephone Services is concerned, As no separate figures are available for such services it will be appropriate that appellant only takes proportionate value wise credit on such services used commonly in providing trading activity and providing Intellectual Property Right Services and pay the remaining amounts with interest.
So far as invokation of extended period is concerned it is observed that improper credit taken which was detected by the department officers only. At no stage of appellant approached the department for any guidance that there was any confusion in admissibility of credit on the impugned services. Therefore, extended period will be applicable - However, penalties are waived off. - Decided partly in favour of assessee.
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