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2009 (9) TMI 691
Issues involved:
The judgment involves the issue of correctness of passing an order under section 263 by the CIT and setting aside the order passed under section 143(3) of the Act regarding deduction under section 80HHC for an exporter.
Details of the judgment:
Issue 1: Correctness of CIT's order under section 263
The CIT set aside the order of the Assessing Officer under section 143(3) of the Act, directing a recomputation of deduction under section 80HHC by excluding sales tax refund and disallowing a donation from the net profit. The CIT found that the assessee should have been allowed a deduction of Rs. 6,73,580 instead of the claimed Rs. 8,18,638. The assessee argued that sales tax refund should not be considered in the deduction calculation as it is not equivalent to other receipts like brokerage or commission. The Tribunal held that the CIT's order was not justified as the Assessing Officer's order was correct and not prejudicial to revenue interests.
Issue 2: Interpretation of section 263 of IT Act
The Tribunal analyzed section 263 of the IT Act, which allows the Commissioner to revise orders if they are erroneous and prejudicial to revenue interests. The Tribunal emphasized that an order can only be termed erroneous if it deviates from the law, not simply because the Commissioner disagrees with the Assessing Officer's decision. The Tribunal clarified that the Commissioner cannot substitute their judgment for that of the Assessing Officer unless the decision is legally incorrect. In this case, the Tribunal found that the Assessing Officer's decision on the deduction under section 80HHC was in accordance with the law and not erroneous.
Conclusion:
The Tribunal allowed the appeal of the assessee, stating that the CIT's order under section 263 was not justified as the Assessing Officer's order regarding the deduction under section 80HHC was correct and not prejudicial to revenue interests. The Tribunal reinstated the Assessing Officer's order and set aside the CIT's order.
This judgment highlights the importance of adherence to legal principles and the requirement for orders to be in accordance with the law to avoid being deemed erroneous under section 263 of the IT Act.
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2009 (9) TMI 690
Issues Involved:
1. Taxability of the difference between slump price and book value.
2. Jurisdiction of the Assessing Officer in bifurcating the consideration realized on transfer of the business.
3. Admissibility of depreciation claimed by the appellant firm.
Issue-wise Detailed Analysis:
1. Taxability of the Difference Between Slump Price and Book Value:
The primary issue was whether the difference of Rs. 3,90,75,997 between the slump price of the business realized and the book value, as worked out by the Assessing Officer, was exigible to tax. The appellant argued that this amount should not be taxed, citing various precedents such as B.C. Shrinivasa Shetty (128 ITR 294) and Mugneeram Bangur & Co. (57 ITR 299). The Assessing Officer, however, treated part of this amount as short-term capital gain (Rs. 1,55,84,366) and the rest as long-term capital gain (Rs. 3,92,94,500), arguing that the value of assets could not exceed the revalued amount and the remaining consideration was goodwill. The CIT(A) supported this view, relying on the Supreme Court's decision in Artex Engg. Co. (227 ITR 260), and concluded that the provisions of section 50 were applicable since the assets transferred were depreciable, and the remaining amount was goodwill taxable under section 55(2)(a)(ii).
2. Jurisdiction of the Assessing Officer in Bifurcating the Consideration Realized on Transfer of the Business:
The appellant contended that the bifurcation of the consideration by the Assessing Officer was beyond his jurisdiction and erroneous. The appellant argued that the entire business was sold as a going concern at a slump price, and no part of the income should be taxable. The appellant cited decisions such as Syndicate Bank Ltd. (155 ITR 681) and B.C. Shrinivasa Shetty (128 ITR 294) to support their claim. The Tribunal, however, upheld the view that the transfer was not itemized but a slump sale, and the method of arriving at the sale consideration was based on profit capitalization, not on the valuation of individual assets. The Tribunal concluded that the transaction was a slump sale and not an itemized sale, thereby reversing the findings of the Assessing Officer and CIT(A).
3. Admissibility of Depreciation Claimed by the Appellant Firm:
The appellant firm claimed depreciation of Rs. 1,81,670, which was rejected by the taxing authorities. The appellant argued that the rejection was erroneous and contrary to the provisions of law. However, at the outset of the hearing, the appellant's representative conceded this ground, and it was dismissed as not pressed.
Separate Judgments Delivered by the Judges:
A difference of opinion arose between the Judicial Member and the Accountant Member of the Tribunal. The Judicial Member held that the transaction was a slump sale, emphasizing that the consideration was fixed based on profit capitalization and not on the valuation of individual assets. Conversely, the Accountant Member viewed the transaction as an itemized sale, arguing that the assets were specifically revalued, and the excess amount was goodwill.
The matter was referred to a Third Member, who agreed with the Judicial Member's view that the transaction was a slump sale. The Third Member highlighted that the sale consideration was computed on the basis of profit capitalization, and the method was not challenged by the authorities below. The Third Member concluded that the transaction was not an itemized sale but a slump sale of the business.
Final Decision:
The Tribunal, in conformity with the majority view, held that the transaction was a slump sale and not an itemized sale. Consequently, the grounds related to the taxability of the difference between the slump price and book value were allowed, and the appeal was partly allowed.
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2009 (9) TMI 689
Issues Involved:
1. Deduction u/s 80HHE and 10A for the same assessment year.
2. Validity of the claim for deduction u/s 10A for a unit registered mid-year.
3. Determination of the initial year for deduction u/s 10A.
Summary:
Issue 1: Deduction u/s 80HHE and 10A for the same assessment year
The primary issue was whether the assessee could claim deductions u/s 80HHE and 10A for different periods within the same assessment year. The Assessing Officer (AO) denied the deduction u/s 10A, arguing that profits accrue at the end of the accounting year and thus cannot be split for different deductions. The CIT (Appeals) allowed the split, referencing the Tribunal's decision in Legato Systems India (P.) Ltd. v. ITO, which supported the claim of deductions under different sections for different periods. The Tribunal upheld the CIT (Appeals) decision, stating that the principle of apportionment of income is well entrenched in taxation laws, and the profits for the two periods were different, not the same.
Issue 2: Validity of the claim for deduction u/s 10A for a unit registered mid-year
The AO argued that since the unit was set up in the financial year 2000-01 and not in the year of registration (2003), it was a case of reconstruction of an existing business, thus not satisfying the conditions of section 10A. The Tribunal found that the assessee had set up only one unit, which started production in the financial year 2000-01, and there was no reconstruction of an existing business. The delay in registration was due to procedural lapses, and the approval obtained on 14-1-2003 was valid. Therefore, the assessee was entitled to deduction u/s 10A from 14-1-2003 to 31-3-2003.
Issue 3: Determination of the initial year for deduction u/s 10A
The Tribunal discussed whether the initial year for deduction u/s 10A should be the year of setting up the unit or the year of obtaining STPI approval. The Tribunal referred to Board Circular No. 1/2005, which clarified that the deduction shall be available from the year of approval as a 100% EOU and for the remaining period of ten consecutive assessment years. Thus, the initial year was determined to be the year the unit began production (assessment year 2001-02), making the year at hand the third year of deduction u/s 10A.
Subsequent Years:
For assessment years 2004-05 and 2005-06, the Tribunal upheld the CIT (Appeals) decision allowing deduction u/s 10A for the entire year, as it was not a case of claiming deductions on the same profits under two provisions. The Tribunal dismissed the revenue's appeals for these years, confirming the assessee's entitlement to deductions u/s 10A for the fourth and fifth years, respectively.
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2009 (9) TMI 688
Issues involved:
The only issue involved in this appeal relates to Long Term Capital Loss claimed by the assessee on the sale of a bungalow.
Summary:
The assessee purchased a bungalow and later sold it at a lower price, resulting in a Long Term Capital Loss claim. The Assessing Officer disagreed with the sale price and referred the matter to the District Valuation Officer. The Fair Market Value determined by the DVO was higher than the sale price, leading to a minimal Long Term Capital Loss calculation by the Assessing Officer. The CIT(A) upheld this decision based on the property value escalation in the area. However, the ITAT Ahmedabad found that the Assessing Officer's reference to the Valuation Officer under section 55A was not valid for determining the full value of consideration. They clarified that section 55A pertains to Fair Market Value, not the full value of consideration. As section 50C was not applicable, the ITAT directed the Assessing Officer to recalculate the capital gain using the sale price as the full value of consideration, thereby allowing the appeal filed by the assessee.
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2009 (9) TMI 687
Issues Involved:
1. Validity of reopening the assessment u/s 147.
2. Non-deduction of 70% share of loss from a dissolved partnership firm.
3. Disallowance of brokerage paid in respect of sale of property.
4. Charge of interest u/s 234B and 234C.
Summary:
1. Validity of Reopening the Assessment u/s 147:
The Tribunal initially dismissed the assessee's appeal for non-prosecution but later recalled the order. The assessee challenged the reopening of the assessment u/s 147, arguing it was based on a mere change of opinion. The return was processed u/s 143(1), and the Assessing Officer (AO) later issued a notice u/s 148, believing the income had escaped assessment due to an improper set-off of a partnership firm's loss against other income. The Tribunal upheld the reopening, referencing the Supreme Court's decision in *Rajesh Jhaveri Stock Brokers (P.) Ltd.*, which clarified that processing a return u/s 143(1) does not constitute an assessment, and thus, reopening does not amount to a change of opinion.
2. Non-Deduction of 70% Share of Loss from a Dissolved Partnership Firm:
The assessee claimed a set-off of her share of loss from a dissolved firm against short-term capital gains. The Tribunal examined sections 10(2A), 75, and 78, concluding that the share of loss from the firm could not be deducted from the assessee's other incomes. Section 10(2A) excludes the share of income or loss from a partnership firm from the partner's total income. Sections 75 and 78 were deemed inapplicable as they pertain to losses prior to assessment year 1993-94 and changes in the firm's constitution, respectively.
3. Disallowance of Brokerage Paid in Respect of Sale of Property:
The assessee claimed a brokerage expense of Rs. 20,000 for selling a property, which the AO disallowed due to lack of evidence. The Tribunal held that such a nominal expenditure is common and justified even without proof, directing the AO to deduct this amount in computing capital gains.
4. Charge of Interest u/s 234B and 234C:
The charge of interest u/s 234B and 234C was deemed consequential. The AO was instructed to recompute these interests after giving effect to the Tribunal's order.
Conclusion:
The appeal was partly allowed, upholding the reopening of the assessment and the non-deduction of the partnership firm's loss, but allowing the brokerage expense. The interest charges were to be recalculated accordingly.
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2009 (9) TMI 686
Issues Involved:
1. Whether the payment made to LTC Ltd., UK should be treated as "Fees for Technical Services" taxable in India.
2. Whether the payment should be considered as "Business Profits" not taxable in India due to the absence of a permanent establishment of LTC Ltd. in India.
Issue-wise Detailed Analysis:
Issue 1: Fees for Technical Services
The primary issue in these appeals is whether the payments made by TVS Motor to LTC Ltd., UK, for the assessment years 2001-02 and 2002-03 should be classified as "Fees for Technical Services" under the Double Taxation Avoidance Agreement (DTAA) between India and the UK.
The assessee contended that LTC Ltd. did not provide any technical know-how, plan, or design to TVS Motor, and thus the payments should not be treated as fees for technical services. The assessee argued that LTC Ltd. merely conducted tests on motorcycles and provided reports, which is part of LTC's business and does not constitute technical services as defined in the DTAA.
The Revenue, however, argued that the payments fell under paragraph 4(c) of Article 13 of the DTAA, which defines fees for technical services as payments for making available technical knowledge, experience, skill, know-how, or processes. The Revenue emphasized that LTC Ltd. provided training and shared technical knowledge with TVS Motor, thus making the payments taxable as fees for technical services.
Upon reviewing the Project/Purchase Order TS 0102, the tribunal noted that LTC Ltd. was to provide training for TVS Motor's engineering staff and make the ADAMS model available to TVS Motor. This constituted making available technical knowledge and skills, thereby falling under the definition of fees for technical services in the DTAA. Consequently, the payments of Rs. 6,79,794 and Rs. 23,48,526 made by TVS Motor to LTC Ltd. during the relevant years were upheld as fees for technical services.
Issue 2: Business Profits
The assessee also argued that the payments should be considered as "Business Profits" under Article 7 of the DTAA, which are taxable only in the UK since LTC Ltd. does not have a permanent establishment in India.
The tribunal examined the Project/Purchase Order TS 0105 related to the TVS "Rombo" motorcycle. The objective of this project was merely to provide an independent evaluation of the motorcycle prior to its launch, without making available any technical knowledge, experience, skill, or processes to TVS Motor. Therefore, the tribunal concluded that the payment of Rs. 4,53,675 for this project did not constitute fees for technical services and should be considered as business profits, not taxable in India due to the absence of a permanent establishment.
Conclusion:
For assessment year 2001-02, the appeal was dismissed, confirming the payment as fees for technical services. For assessment year 2002-03, the appeal was partly allowed, reducing the addition from Rs. 28,02,201 to Rs. 23,48,526, as the payment related to Project TS 0105 was considered business profits, not taxable in India.
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2009 (9) TMI 685
Issues Involved:1. Whether the Assessing Officer has the powers to grant any specified time for completing a special audit u/s 142(2A). 2. Whether the time period u/s 142(2A) is controlled by the provisions of section 142(2C). Summary:Issue 1: Powers of the Assessing Officer to Grant Time for Special Audit u/s 142(2A)The Tribunal examined whether the Assessing Officer (AO) has the authority to specify any period for completing a special audit u/s 142(2A). The Tribunal noted that section 142(2A) allows the AO to direct an audit if the accounts are complex, with the prior approval of the Chief Commissioner or Commissioner. However, no specific time limit is mentioned in section 142(2A) for completing the audit. The Tribunal concluded that the AO's discretion in granting time is controlled by section 142(2C), which specifies that the audit report must be furnished within a period determined by the AO, subject to a maximum of 180 days from the date of the audit direction. Issue 2: Control of Time Period u/s 142(2A) by Section 142(2C)The Tribunal further analyzed whether the time period u/s 142(2A) is governed by section 142(2C). It was observed that section 142(2C) allows the AO to extend the audit period, either suo motu or upon the assessee's request, but this extension is limited to a total of 180 days. The Tribunal referred to the Finance Act, 2008, and Circular No. 1, dated 27-3-2009, which clarified that the AO's power to extend the audit period suo motu was effective from 1-4-2008. Before this date, extensions could only be granted upon the assessee's request. Since the extensions in the present case were made before 1-4-2008 without any application from the assessee, the Tribunal held that these extensions were without jurisdiction and invalid. Conclusion:The Tribunal concluded that the assessment orders were barred by limitation as the valid period for completing the special audit was from 12-12-2006 to 12-3-2007. Consequently, the appeals filed by the assessee were allowed, and the appeals filed by the revenue were dismissed.
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2009 (9) TMI 684
Issues Involved:
1. Applicability of Section 80-IA(9) in conjunction with Section 80HHC.
2. Validity of initiation of reassessment proceedings.
3. Levy of interest u/s 234D.
Summary:
1. Applicability of Section 80-IA(9) in conjunction with Section 80HHC:
The revenue's appeals challenged the CIT(A)'s decision, arguing that Section 80-IA(9) was introduced to prevent taxpayers from claiming repeated deductions on the same eligible income. The CIT(A) had relied on the Mumbai ITAT's decision in M/s. Iflunik Pharmaceuticals Ltd., which held that as long as the assessee did not claim more than 100% deduction of profits under both Sections 80-IB and 80HHC, the deductions should be computed independently. The Tribunal upheld the CIT(A)'s decision, directing the Assessing Officer to compute the deductions independently, ensuring that the total deductions do not exceed 100% of the eligible profits. The Tribunal also referenced the Bombay High Court's decision in Godrej Agrovet Ltd., which clarified that Section 80-IA(9) applies only when deductions under Sections 80HHC and 80-IA are claimed for the same undertaking. The case was remanded to the Assessing Officer for verification.
2. Validity of initiation of reassessment proceedings:
The assessee's challenge to the reassessment proceedings was rejected by the CIT(A). The Tribunal did not find it necessary to consider this issue further, given the decision on the merits of the case.
3. Levy of interest u/s 234D:
The assessee contested the levy of interest u/s 234D, arguing that the provision applies only from assessment year 2004-05 onwards. The Tribunal referred to the Special Bench decision in ITO v. Ekta Promoters (P.) Ltd., which held that Section 234D applies prospectively from 1-6-2003. Consequently, the Tribunal directed the Assessing Officer not to levy interest u/s 234D for the assessment year 2003-04.
Conclusion:
The revenue's appeals were allowed for statistical purposes, and the assessee's cross-objections were dismissed, except for the objection regarding the levy of interest u/s 234D, which was allowed.
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2009 (9) TMI 683
Issues:
Validity of initiation of proceedings under section 147, justification in making additions against unexplained credits, disallowing claim for deduction of losses by way of bad debts.
Validity of Initiation of Proceedings under Section 147:
The assessee raised numerous grounds challenging the initiation of proceedings under section 147, among others. However, during the hearing, the assessee focused only on the partial additions sustained by the CIT (Appeals) related to unexplained credits of depositors and dealers/agents. The counsel for the assessee argued that the Assessing Officer had made additions without fully appreciating the circumstances, especially regarding deposits accepted from the public in compliance with the Companies Act, 1956. The counsel contended that the CIT (Appeals) should have accepted the evidence provided by the assessee and deleted the entire additions. The Revenue, represented by the Additional Commissioner of Income-tax, argued that the CIT (Appeals) had appropriately granted relief based on the additional evidence presented by the assessee. The Tribunal noted the arguments from both sides and proceeded to analyze the evidence and legal aspects involved.
Additions against Unexplained Credits of Depositors:
The Tribunal examined the additions sustained by the CIT (Appeals) concerning unexplained credits of depositors for the assessment years 1999-2000 and 2001-02. The assessee, a public limited company, had accepted deposits from the public in accordance with the Companies Act, 1956. The Tribunal observed that the assessee had demonstrated the source of the deposits collected from the public and provided documentary evidence supporting the majority of these deposits. The Tribunal emphasized that once the source of the deposits was established, they could not be treated as unexplained credits. It further highlighted that under the law, unreturned deposits must be transferred to the public account of the Government of India. Therefore, the Tribunal concluded that the additions made by the lower authorities were not justified, and subsequently, deleted the additions for both assessment years.
Additions against Unexplained Credits of Dealers/Agents:
Regarding the additions sustained by the CIT (Appeals) related to unexplained credits of dealers/agents, the Tribunal noted that the assessee maintained accounts with numerous newspaper agents, which were running accounts. The Tribunal acknowledged the challenges in producing confirmation letters and details for all these accounts within a short period. However, the Tribunal found that the majority of the accounts had been explained and supported with documentary evidence. Applying the rule of probability, the Tribunal concluded that there was no basis to treat a part of these accounts as unexplained. Without any incriminating evidence, the Tribunal held that the CIT (Appeals) erred in sustaining the additions and proceeded to delete them for both assessment years.
Conclusion:
In conclusion, the Tribunal partly allowed the appeals filed by the assessee, deleting the additions made against unexplained credits of depositors and dealers/agents for the respective assessment years. Other grounds raised by the assessee were dismissed as not pressed, resulting in a partial success for the assessee in the appeals.
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2009 (9) TMI 682
Computation of book profit - Excluding various income earned - profit on the sale of investments -"principle of mutuality" - HELD THAT:- The assessee-club is incorporated under the Companies Act and was granted certificate u/s 25 of the Companies Act. Under the provisions of section 25 of the Companies Act, where the Central Government found that an association was incorporated for promoting commerce, arts, science, religion, charity or any other useful objects and intends to apply its profit in promoting any object and to prohibit any payment to its members, direct that such association may be registered as a company with limited liability. Under the general law relating to mutual concerns, the surplus earned by the mutual concern cannot be regarded as profits and gains for the purpose of charging section 4 of the Income-tax Act insofar as the contributors are to receive back a part of their own contributions and there is complete identity between the contributors and recipients. Thus, a mutual concern can carry on the activity with its members, though the surplus arising from such activity is not its taxable income. Hon’ble Karnataka High Court in the case of Canara Bank Golden Jubilee Staff Welfare Fund v. Dy. CIT.
When the dividend income on shares was held to be not liable to tax under the principle of mutuality in case of Canara Bank Golden Jubilee Staff Welfare Fund [2008 (7) TMI 239 - KARNATAKA HIGH COURT], there is no reason to exclude the gain arising on the sale of such shares, from the principle of mutuality. Once the income is found to be covered by principle of mutuality, the same cannot be brought to tax even under the provisions of section 115JB. Accordingly, there is no merit in the action of lower authorities for bringing the income exempt under principle of mutuality, within the purview of section 115JB.
In the case of assessee-club, Hon’ble Delhi High Court in assessee’s own case - CIT v. Delhi Gymkhana Club Ltd.[1985 (4) TMI 51 - DELHI HIGH COURT] has observed that object of the assessee-club was mainly to provide recreation of its members by promoting various types of sports and pastime and refreshment for the members. The income from providing refreshment to its members was held exempt from income-tax on the basis of doctrine of mutuality. Even income earned as a room rent which were made available to the members on payment of fixed monthly charges and also income from providing various facilities, were held to be covered by principle of mutuality.
In view of the above discussion, and respectfully following the proposition of law laid down by Jurisdictional High Court and Karnataka High Court as discussed hereinabove, the appeal of assessee is allowed in terms indicated hereinabove.
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2009 (9) TMI 681
The appellate tribunal CESTAT, Bangalore, in the 2009 case of 2009 (9) TMI 681, heard an appeal against OIA No. 135/2004 dated 23-7-2004 passed by the Commissioner of Customs (Appeals), Cochin. The appeal concerned the declared price in Bill of Entry No. 137151 dated 5-1-2004 for goods declared as "Prepainted Coils/Sheets (galvanized base)" from Japan. The Revenue compared this price to another item imported by Bill of Entry No. 424894 dated 7-1-2004 by a different importer, described as "Galvannealed Steel Sheets in Coil." The appellant argued that the goods were not comparable as they were mixed and of varying thickness, unlike the prime quality steel coil in the comparison item. The tribunal found that the descriptions were distinct and the sizes different, with the Revenue failing to prove the goods were identical. Therefore, the tribunal set aside the impugned order, stating that the enhancement of value was not justified under Section 14 of the Customs Act. The appeal was allowed with consequential relief, if any. The judgement was delivered by Dr. S.L. Peeran and Shri T.K. Jayaraman, JJ. The appellant was represented by Shri S. Murugappan, Advocate, and the respondent by Shri K.J. Sanchis, JDR. The order was pronounced and dictated in open court.
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2009 (9) TMI 680
Issues Involved:
1. Deletion of addition regarding unexplained cash deposits.
2. Admittance of fresh evidence without giving opportunity to the Assessing Officer (AO).
3. Confirmation of additions as unaccounted cash received.
4. Classification of income from letting out shops/stalls.
5. Treatment of deposits received from sub-lessees.
Issue-wise Detailed Analysis:
1. Deletion of addition regarding unexplained cash deposits:
The AO added Rs. 17,80,700 as unexplained cash deposits in the assessee's bank accounts due to lack of explanation. Before the CIT(A), the assessee claimed the deposits were from earlier withdrawals. However, the CIT(A) did not provide the AO an opportunity to examine this claim, violating Rule 46A. The Tribunal set aside the CIT(A)'s order and remanded the issue to the AO for fresh examination, directing the AO to consider additional evidence and decide the issue in accordance with the law.
2. Admittance of fresh evidence without giving opportunity to the AO:
The CIT(A) admitted fresh evidence explaining the sources of cash deposits without confronting the AO, which is mandatory under Rule 46A. The Tribunal noted this procedural lapse and restored the issue to the AO for fresh examination, emphasizing the need for the AO to have a reasonable opportunity to examine the additional evidence.
3. Confirmation of additions as unaccounted cash received:
The AO added Rs. 1,20,000 and Rs. 2,10,000 for assessment years 1999-2000 and 2001-02 respectively, based on the statement of Mr. Rakesh Upadhyay, who claimed to have paid these amounts as non-refundable cash. Despite the assessee's objections, the AO found no reason to disbelieve Mr. Upadhyay's statement. The CIT(A) upheld the AO's additions. The Tribunal, after reviewing the case, found no grounds to interfere with the CIT(A)'s order, noting the assessee's failure to disprove Mr. Upadhyay's statement even after cross-examination.
4. Classification of income from letting out shops/stalls:
The AO classified the income from letting out shops/stalls as 'Income from House Property' under Section 22, arguing that the assessee was a deemed owner under Section 27(iiib) read with Section 269UA(f). The CIT(A) disagreed, treating the income as 'Business Income' based on the nature of the assessee's activities. The Tribunal reversed the CIT(A)'s decision, concluding that the assessee's activities did not constitute a systematic or organized business. The Tribunal held that the income should be assessed as 'Income from House Property,' emphasizing that the assessee was a lessee, not a licensee, and thus a deemed owner under the relevant provisions.
5. Treatment of deposits received from sub-lessees:
The AO treated the deposits received from sub-lessees as income, arguing they were effectively sale considerations for the shops/stalls. The CIT(A) disagreed, finding the deposits were refundable and not income. The Tribunal upheld the CIT(A)'s decision, noting the lack of evidence to support the AO's conclusion that the deposits were sale considerations. The Tribunal emphasized that the deposits were shown as liabilities in the balance sheet and were refundable, thus not constituting income.
Conclusion:
The Tribunal allowed the revenue's appeal regarding unexplained cash deposits and classification of income from letting out shops/stalls, remanding the former for fresh examination by the AO. It dismissed the revenue's appeal on the treatment of deposits, upholding the CIT(A)'s decision that they were refundable and not income. The Tribunal's comprehensive analysis underscores the importance of procedural compliance and substantive evidence in tax assessments.
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2009 (9) TMI 679
Issues involved: Appeal against deletion of penalty u/s 271(1)(c) of the Income-tax Act, 1961.
Summary:
The appeal was filed by the revenue against the deletion of a penalty of Rs. 4,00,000 imposed by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961. The case involved an assessee company, a subsidiary of a corporation in Canada, which filed its return of income and later a revised return. The penalty was initiated for furnishing inaccurate particulars of income. The CIT(A) cancelled the penalty after considering the submissions and legislative history of the section, emphasizing the need for a deliberate attempt to conceal income. The Tribunal reviewed the case laws and provisions of section 271(1)(c) to determine the applicability of the penalty.
The Tribunal noted that the penalty under section 271(1)(c) is leviable if the Assessing Officer is satisfied that the person concealed income or furnished inaccurate particulars. The Explanation 1 to the section deals with situations where the assessee fails to offer a valid explanation or fails to substantiate it. The Tribunal emphasized that the presumption of concealment under Explanation 1 is rebuttable and not conclusive. The onus is on the assessee to prove no concealment took place.
In line with legal precedents, the Tribunal held that the mere confirmation of additions in assessment does not automatically imply concealment or inaccurate particulars by the assessee. The Tribunal referenced cases where penalties were not justified when additions were made on an estimate basis. Upholding the CIT(A)'s decision, the Tribunal dismissed the revenue's appeal and deleted the penalty.
Judgment by Tribunal:
The Tribunal upheld the CIT(A)'s decision to delete the penalty u/s 271(1)(c) after considering the legislative history, provisions of the Act, and legal precedents. The Tribunal emphasized the need for a deliberate attempt to conceal income and the rebuttable nature of the presumption under Explanation 1. The Tribunal concluded that the penalty was not justified based on the facts of the case and legal interpretations.
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2009 (9) TMI 678
Issues Involved:
1. Addition of Rs. 22,50,000 on account of share capital contributed by alleged shareholders.
2. Disallowance of expenses under Section 14A of the Income-tax Act.
3. Disallowance of Rs. 17,308 relating to preliminary expenses written off under Section 35D of the Income-tax Act.
Issue-wise Detailed Analysis:
1. Addition of Rs. 22,50,000 on account of share capital contributed by alleged shareholders:
The assessee raised share application money of Rs. 27,40,600 from eight persons, but the confirmations provided were undated, and the Assessing Officer (AO) issued summons under Section 131 of the Income-tax Act to six shareholders. Summons to two shareholders were returned with remarks "incomplete address" and "no such person." The assessee failed to provide current addresses. Statements from two shareholders, Shri Mool Chand Nirmal and Shri Yogesh Saxena, revealed they had not invested in the assessee-company. Further bank enquiries indicated that the share application money was received from accounts belonging to a Mr. Aggarwal, not the alleged shareholders.
The AO issued a show-cause notice and rejected the assessee's contentions, citing the following:
- Failure to produce six shareholders for verification.
- Share application money received from fictitious accounts.
- Denial of investment by two shareholders, indicating forged signatures.
- Fabricated confirmations and affidavits.
- Non-attendance by principal officers of M/s. MLF Classic Finance Ltd. and M/s. Rapid Impex (P.) Ltd.
- Failure to establish the actual existence of shareholders.
- No request for cross-examination of alleged shareholders.
- Non-production of books of account.
The CIT (Appeals) upheld the AO's decision, noting that the appellant company, being a private limited company, should have known its shareholders. The denial by two shareholders and the fact that the money came from Mr. Aggarwal's accounts indicated that the names were included for name sake. The CIT (Appeals) concluded that the assessee failed to prove the identity of the shareholders and thus did not discharge the onus under Section 68 of the Act.
The Tribunal confirmed the CIT (Appeals)'s findings, emphasizing that the identity of the shareholders was not proved, and the money did not come from their accounts but from Mr. Aggarwal's accounts. The assessee's failure to request cross-examination during the assessment proceedings was noted, and the Tribunal rejected the request for setting aside the case for cross-examination.
2. Disallowance of expenses under Section 14A of the Income-tax Act:
The AO disallowed 30% of the total expenses, attributing them to earning exempt dividend income, resulting in a disallowance of Rs. 1,80,692. The CIT (Appeals) reduced this to 20%, recognizing that some expenses were incurred for investment activities.
The Tribunal referred to the Special Bench decision in ITO v. Daga Capital Management (P.) Ltd., which held that both direct and indirect expenditures related to exempt income should be disallowed under Section 14A. The Tribunal directed the AO to recompute the disallowance as per Rule 8D of the Income-tax Rules, 1962, providing the assessee an opportunity to be heard.
3. Disallowance of Rs. 17,308 relating to preliminary expenses written off under Section 35D of the Income-tax Act:
The AO disallowed the claim for amortization of preliminary expenses, citing that Section 35D does not cover expenses for private share subscription and referencing the Supreme Court decision in Brook Bond (India) Ltd. v. CIT. The CIT (Appeals) upheld the disallowance, agreeing that the expenses were capital in nature and not allowable under Section 35D.
The Tribunal confirmed the disallowance, stating that Section 35D applies to expenses incurred before the commencement of business or for the extension of an industrial undertaking or setting up a new unit. Since the assessee was incorporated in 1982 and the expenses were for raising capital by private placement, they did not qualify for amortization under Section 35D.
Conclusion:
The appeal was partly allowed for statistical purposes, with directions to the AO to recompute the disallowance under Section 14A as per Rule 8D. The additions on account of share capital and disallowance of preliminary expenses were upheld.
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2009 (9) TMI 677
Issues Involved:
1. Software expenses.
2. Depreciation on Membership Card of the Bombay Stock Exchange (BSE).
3. Addition of unidentified stock of the client.
4. Addition on account of unclaimed dividend.
5. Deemed dividend u/s 2(22)(e).
Summary:
1. Software Expenses:
The first issue concerns the disallowance of software expenses by the Assessing Officer (AO), treating them as capital in nature. Both parties agreed to restore this issue to the AO for fresh adjudication in light of the guidelines laid down by the Hon'ble Special Bench of ITAT, New Delhi in the case of *Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112*. The alternate ground regarding the rate of depreciation, if the software expenses are held as capital expenditure, was also restored to the AO for fresh adjudication.
2. Depreciation on Membership Card of the Bombay Stock Exchange (BSE):
The assessee's claim for depreciation on the BSE Membership Card was dismissed. The Hon'ble High Court of Bombay in *CIT v. Techno Shares & Stocks Limited* held that the BSE card does not fall under any categories specified in section 32(1)(ii) of the Act, and thus, depreciation cannot be allowed. The Tribunal followed this decision and dismissed the relevant grounds in all appeals.
3. Addition of Unidentified Stock of the Client:
The AO added Rs. 9,58,608 as unexplained investment u/s 69 of the Act, based on the internal auditor's report indicating unidentified stock of shares. The assessee's alternate plea to allow deduction in the year of handing over shares to the legitimate claimant was rejected. The Tribunal upheld the AO's addition and dismissed the relevant grounds for the assessment year 2003-04.
4. Addition on Account of Unclaimed Dividend:
The AO added unclaimed dividends found during the search operation to the assessee's income. The Tribunal held that for the assessment years 2000-01 to 2002-03 and 2004-05, the dividend income cannot be taxed in the hands of the assessee, as it is exempt u/s 10(33)/(34) of the Act. However, for the assessment year 2003-04, the dividend was taxable, and the addition was upheld.
5. Deemed Dividend u/s 2(22)(e):
The revenue's appeal regarding the addition made u/s 2(22)(e) as deemed dividend was dismissed. The Tribunal followed its earlier decision in the assessee's own case for the assessment year 1999-2000, where it was held that deemed dividend can only be assessed in the hands of a shareholder of the lender company, not in the hands of a person other than a shareholder.
Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, and the revenue's appeal for the assessment year 2001-02 was dismissed.
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2009 (9) TMI 676
Unexplained investments in immoveable properties - search and seizure operations u/s 132 - as per AO annual rent yield on this property was very high as compared to the normal return of investment, accordingly applying the rent capitalization method, the AO has arrived at the fair market value - CIT(A) held that in his opinion the valuation of the property can reasonably be taken at a rate which was higher than the value disclosed by the assessee. Accordingly, part relief was given by the CIT(A).
HELD THAT:- In view of the fact that no material was found indicating anything paid over and above the registered sale price of the property so acquired, keeping in view of the decision of Hon’ble Supreme Court in the celebrated judgment of K.P. Varghese’s case [1981 (9) TMI 1 - SUPREME COURT] wherein it was held that onus lies on the department to prove that some consideration over and above the consideration stated in the sale deed have been invested, no addition can be made on presumptions and suspicions. In the latest case of CIT v. Smt. Shakuntala Devi [2009 (3) TMI 5 - DELHI HIGH COURT], Hon’ble Delhi High Court held "it may be relevant to note that a Division Bench of the court comprising Dr. Arijit Prasayath and Justice D.K. Jain, as their Lordships then were retreated that there must be a finding of the revenue that the assessee had received amounts over and above the consideration stated in the sale deed, following the ratio of K.P. Varghese’s case (supra).
The Division Bench of Hon’ble Delhi High Court in CIT v. Ashok Khetrapal [2007 (7) TMI 36 - HIGH COURT , DELHI] observed that by referring to the report of valuation officer in the absence of any incriminating documents found in the course of a search no addition could be made by treating investment as undisclosed on the basis of any DVO’s report.
Hence, we do not find any merit in the addition made by AO under the head ‘Unexplained investment’ on account of various properties purchased by the assessee during the block period on the basis of fair market value as estimated by the AO. All these additions are directed to be deleted.
Addition made on account of gifts received by them and their children - HELD THAT:- Gifts usually flow from close blood relations and childhood friends. That too only on an important occasions. Mostly these gifts are prevalent among relations and they are reciprocal in nature. Most of these gifts are in kind and cash gifts do exists but they are in small denomination. Seldom we see huge sums of lakh of rupees as gifts especially to minors. In this case the appellant has clarified that he has not given gifts to any of these persons earlier or in subsequent period. Hence the concept of reciprocation is totally lacking in the instant case.
Mere fact that the amounts were routed through bank account does not ipso facto proves the credibility of the donors beyond doubt. To give lakh of rupees as gifts to neighbours the person should have been worth crores of rupees having income of substantial nature. No such confirmations are forthcoming to establish the financial soundness of these two donors.
Neither the donors given gifts to others nor the assessee received gifts from other close relations. It only fructifies the belief that the gifts are nothing but assessee’s own income which are ploughed back as gifts through other persons. By referring to the various decisions in Smt. Naushaba Rana v. Asstt. CIT [2007 (1) TMI 208 - ITAT DELHI-C], Gurbachan Singh Jaggi v. CIT [2007 (9) TMI 632 - PUNJAB AND HARYANA HIGH COURT], Chain Sukh Rathi v. CIT [2003 (9) TMI 12 - RAJASTHAN HIGH COURT] and CIT v. Anil Kumar [2007 (3) TMI 223 - DELHI HIGH COURT], the authorities below come to the conclusion that gifts are nothing but assessee’s own money received back under the guise of gifts from unknown persons.
Unless ‘occasion’ and ‘relationship’ is established, the gifts cannot be held as genuine. From the perusal of family details it can be seen that a number of close relations are available but none of them had gifted any sums to the assessee. However, assessee could receive substantial amounts as gifts from a remotely connected persons. Assessee also could not confirm to the fact that he knew the donors intimately. This type of one-sided gifts of substantial amounts not associated with any occasion from relatively unknown persons in successive years defies any amount of logic. the whole transaction is designed to show huge amounts as gifts without any liability of paying taxes. The findings so recorded by the lower authorities could not be controverted by the learned AR by bringing any material, much less a cogent material so as to persuade us to deviate from the alleged finding.
We therefore do not find any reason to interfere in the order of the lower authorities in respect of the addition made on account of bogus gifts. In the result, the grounds taken by all the assessees with regard to gifts in various years, are being dismissed.
Charging of interest u/s 234B - it was held by the Co-ordinate Bench in the case of Dinesh Jain belonging to the same group of assessee’s vide order, that interest u/s 234B is to be calculated from the date of order u/s 143(1) or 153A whichever is later. Respectfully following the decision referred, we direct the AO to recompute the interest u/s 234B as directed hereinabove.
In the result, all the appeals of the assessee and, revenue, are allowed in part, in terms indicated hereinabove.
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2009 (9) TMI 675
Doctrine of merger - Rectification of assessment order u/s 154 despite the fact that CIT(A) has passed an order - issue of deduction under section 80HHD - Order of CIT(A) - held that:- while on a legal principle, the merger doctrine operates only in respect of the subject-matter of the appeal and not on an aspect which was not made the subject-matter, the legal position has also found statutory expression under section 154 of the Act.
A perusal of the original assessment order dated March 31, 1999, and the computation as indicated at the end of the assessment order obviously does not show any application of mind on the part of the assessing authority to the intricacies of working out the benefit available to an assessee doing the hotel business or such other business mentioned in the section, getting foreign exchange receipts as part of its business and for qualifying all that the manner of arriving at the figure. - Therefore, the argument of the question being a debatable point does not even arise - Rectification order passed u/s 154 sustained.
Deduction under section 80HHD of the Act – method of computation of deduction – whether deduction under section 80HHD of the Act should be computed based on each approved hotel individually and out of the profit derived from each such hotel - Deduction in respect of earnings in convertible foreign exchange – Held that:- in section 80HHD of the Act the reference is to the business of the assessee which is the business as a whole and as one unit and not by sub- dividing the total income of the business into unit-wise total income and then arriving at the unit-wise overall profit proportionate profit and then adding up the same for arriving at the benefit under section 80HHD of the Act – In favor of Revenue.
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2009 (9) TMI 674
Services received from outside India- banking and other financial services- The appellant had availed the services of M/s. Visa International Service Association, USA (hereinafter referred to as ‘VISA International’) falling under the category of ‘Banking & Financial Services’ under section 65(12)(vii) of the Finance Act, 1994 and had paid for the same. Investigations revealed that VISA International did not have an office in India and hence the Service Tax liability had to be discharged by the recipient of service viz., M/s. Canara Bank in terms of rule 2(1)(d)(iv) of Service Tax Rules, 1994. In the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY, held that- the services provided before 18.4.2006 are not liable for service tax, thus appeal is allowed.
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2009 (9) TMI 673
Cenvat Credit- Input services- Assessee had availed input service credit of service tax paid goods transport agency for outward movement of goods. Revenue authorities held that such credit availed by assessee was on outward transportation of its finished goods beyond place of removal and, hence assessee was not eligible to avail Cenvat Credit. In the light of the decision ABB Ltd. v. CCE&ST [2009] 21 STT 77 (Bang. - CESTAT). v. CCE&ST 2009 -TMI - 34139 - CESTAT, BANGALORE, in which held that services availed by a manufacturer for outward transportation of final products from place of removal should be treated as input services and thus, manufacturer is entitled to take credit of service tax paid on value of such service, thus assessee eligible for Cenvat Credit. Appeal filed by revenue rejected.
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2009 (9) TMI 672
Penalty- suppression- on investigation of the assessee’s record, the department found that the assessee had suppressed the fact of providing commissioning and installation services during relevant period and had neither filed the service tax return nor deposited the service tax amount. Subsequently, the assessee paid service tax along with interest. Thereafter, the department issued a show cause notice raising demand of service tax and to impose the penalties under section 76, 77, and 78. The Commissioner (Appeals) upheld the order. Held that- the assessee could have entertained bonafide belief that when it was supplying the equipment to the telecom department, the services rendered by it were not eligible to service tax. Uphold the order to the extent confirmation of demand of service tax liability and the interest, but set aside the penalty, thus the appeal is partly allowed.
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