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Showing 421 to 440 of 782 Records

2009 (2) TMI 509

Issues Involved:

1. Eligibility of income earned from offshore activities for deduction under section 33AC of the Income-tax Act.
2. Quantification of income earned from offshore activities at 30% of manpower cost.
3. Eligibility of remission of liability of Rs. 1,51,77,210 for deduction under section 33AC.

Issue-wise Detailed Analysis:

I. Eligibility of Income Earned from Offshore Activities for Deduction under Section 33AC

The assessee sought rectification of the Tribunal's order regarding the eligibility of income earned from offshore activities for deduction under section 33AC. The Tribunal had relied on the Supreme Court decisions in Sterling Foods Ltd. (237 ITR 579) and Pandian Chemicals (262 ITR 278), which defined the term "derived from." The Tribunal concluded that the income claimed for deduction did not directly emanate from the core activity of the assessee, as required by the judicial interpretation of "derived from." The assessee argued that the Tribunal did not consider the factual distinctions in its case, where the income was derived from the operation of ships, unlike the cases cited. However, the Tribunal held that the decision was made after appreciating the rival submissions and relevant records, and no mistake apparent from the record existed. The Tribunal emphasized that the term "derived from" was judicially interpreted, and the income in question did not qualify for the deduction under section 33AC.

II. Quantification of Income Earned from Offshore Activities at 30% of Manpower Cost

The assessee disputed the Tribunal's confirmation of CIT(A)'s findings regarding the quantification of income earned from offshore activities at 30% of manpower cost. The Tribunal noted that the CIT(A) had found no specific defects in the assessee's working of overall profitability. The assessee argued that the Tribunal did not address the reliance on CIT(A)'s findings and submissions made during the proceedings. However, the Tribunal concluded that the issue had been adjudicated on merit after considering the rival submissions and relevant records. The Tribunal reiterated that the provisions of section 254(2) could not be invoked to argue that the appellate order was vitiated due to the Tribunal's failure to discuss all contentions or provide reasons for its conclusions. Therefore, the Tribunal found no mistake apparent from the record in its decision.

III. Eligibility of Remission of Liability of Rs. 1,51,77,210 for Deduction under Section 33AC

The assessee contested the Tribunal's confirmation of CIT(A)'s findings regarding the eligibility of remission of liability for deduction under section 33AC. The Tribunal noted that the issue had been adjudicated on merit after appreciating the findings of CIT(A). The assessee argued that the Tribunal did not address submissions regarding the absence of a provision in section 33AC analogous to section 115JB and the reliance on the Punjab and Haryana High Court decision in Satya Nand Munjal (256 ITR 516). The Tribunal found that the issues raised did not fall under the purview of section 254(2) as they had been adjudicated on merit. The Tribunal also noted that the decision in Honda Siel Power Products Ltd. v. CIT (295 ITR 466) was not applicable as no decision of a Co-ordinate Bench was presented. The Tribunal emphasized that the issues raised were debatable and not mistakes apparent from the record, thus falling beyond the scope of section 254(2).

Conclusion:

The Tribunal dismissed the Miscellaneous Application filed by the assessee, concluding that all the issues raised did not constitute mistakes apparent from the record and were not amenable to rectification under section 254(2) of the Income-tax Act. The Tribunal reiterated that its jurisdiction under section 254(2) was limited to correcting glaring and obvious mistakes and did not extend to reviewing or reconsidering decisions made on merit.
2009 (2) TMI 508

Issues Involved:
1. Whether the CIT(A) erred in directing the Assessing Officer to delete the penalty levied u/s 271(1)(c).
2. Whether the assessee concealed income or furnished inaccurate particulars of income.

Summary:

Issue 1: Deletion of Penalty u/s 271(1)(c)
The revenue challenged the CIT(A)'s decision to delete the penalty levied u/s 271(1)(c). The CIT(A) had directed the Assessing Officer to delete the penalty on the grounds that the issue was highly debatable and that there was no concealment of income or furnishing of inaccurate particulars. The revenue argued that the penalty was justified as the expenses incurred by the assessee-company were covered by the provisions of section 35D of the Income-tax Act.

Issue 2: Concealment of Income or Furnishing Inaccurate Particulars
The Assessing Officer levied penalty u/s 271(1)(c) on two counts: expenditure on project feasibility report and expenditure on market survey and research. The CIT(A) cancelled the penalty, observing that the issue was highly debatable and the assessee had furnished all relevant particulars of its income. The Tribunal examined whether the penalty u/s 271(1)(c) read with Explanation 1 was applicable. It was noted that the expressions "has concealed the particulars of his income" and "has furnished inaccurate particulars of income" are not defined in the Act but imply a duty to make a correct and complete disclosure of income.

The Tribunal emphasized that the penalty provisions operate when there is concealment of particulars of income or failure to disclose fully and truly all material facts. The Tribunal found that the assessee had disclosed full particulars for computation of total income, supported by technical reports, and had the right to claim deductions and reliefs. The Assessing Officer's duty was to compute the correct income in accordance with law, and merely disallowing certain claims did not constitute furnishing inaccurate particulars or concealment of income.

Conclusion:
The Tribunal confirmed the CIT(A)'s order, holding that the assessee had furnished all particulars of income and that the issue was highly debatable. Therefore, the penalty u/s 271(1)(c) was not justified. The appeal of the revenue was dismissed.
2009 (2) TMI 507

Disallowance of “Provision for foreseeable loss” - Claim was made as per Accounting Standard 7 relating to Construction Contracts - Method of accounting - difference in the figures of cost incurred shown at the time of assessment proceedings and shown at the time of hearing of the appeal - AO, disallowed the assessee’s claim observing that this being only a provision made on estimated basis cannot be allowed and loss actually incurred is to be allowed in the year in which it had taken place under the Income-tax Act - CIT held that the loss was bogus loss as the assessee had not been able to prove the genuineness in view of variation in different figures.

HELD THAT:- In view of mandatory requirements of AS-7, change in the method of valuation of work-in-progress was a bona fide, particularly in view of the qualification made in this regard by statutory auditors as well as by Comptroller & Auditor General of India.

It is not disputed that the department in earlier years has allowed the loss on estimated basis having regard to the expenditure actually incurred in various years. Therefore, in principle, it is not disputed that the estimated loss under the present and circumstances is an allowable deduction. However, merely because the change in method of accounting is bona fide, it would not lead to the inference that the income is also deducible properly under the Income-tax Act. This aspect is very evident from 1st proviso to section 145 as it stood prior to amendment 1995 with effect from 1-4-1997

The matching principle is of relevance where income and expenditure, both are to be considered together. However, in the present case, the effect of valuation of WIP will automatically affect the profits of subsequent years accordingly. We, accordingly, do not find any reason for not accepting in principle the assessee’s claim as being allowable. However, in view of discrepancies pointed out by CIT(A) for correct estimation of loss, we restore the matter to the file of AO to examine the correctness of amount claimed. This ground is, accordingly, treated as allowed for statistical purposes.

Disallowance on provision for leave encashment - HELD THAT:- Assessee-company, submitted before AO, stated that the provision for leave salary encashment was on accrual basis and was in accordance with Accounting Standard 15 viz., "accounting for retirement benefits in Financial Statements for employers" issued by ICAI. The AO has not brought on record any facts from which it could be inferred that assessee had not complied with the requirements of AS-15. We, therefore, do not find any basis for not applying the ratio laid down in the case of Bharat Earth Movers[2000 (8) TMI 4 - SUPREME COURT], held that the provision made by the assessee-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and staff subject to the ceiling on accumulation as applicable on the relevant date, was entitled to deduction out of the gross receipts of the accounting year during which, the provision is made for the liability. It was further held that the liability was not a contingent liability.

Respectfully following the decision of the Hon’ble Supreme Court in the case, we direct AO to allow the deduction as claimed by the assessee in respect of provision for leave encashment. This ground is, accordingly, allowed.
2009 (2) TMI 506

Issues:
Denial of deduction under section 80-IB amounting to Rs. 1,00,13,301.

Analysis:

1. The appeal concerned the denial of deduction under section 80-IB amounting to Rs. 1,00,13,301 for the assessment year 2003-2004. The Assessing Officer reduced the deduction based on the judgment of the Hon'ble Bombay High Court, which required adjusting the losses from two eligible units against the profit of another eligible unit before allowing the deduction.

2. The Tribunal analyzed the provisions of section 80-IB, which allow deductions from profits and gains derived from an industrial undertaking. The Tribunal emphasized that the deduction should be granted based on the profits of each eligible industrial undertaking separately. Adjusting losses from one eligible unit against the profit of another would not align with the clear language of the section.

3. Referring to the judgment in CIT v. Canara Workshop (P.) Ltd., the Tribunal highlighted a similar scenario where the High Court held that losses from one priority industry cannot be set off against profits from another priority industry for the purpose of deductions. This principle was further supported by the judgment in CIT v. Visakha Industries Ltd.

4. The Tribunal distinguished the case of Synco Industries Ltd., which was relied upon by the authorities below, by noting the differences in the facts. In the present case, the gross total income was positive, and there were no brought forward losses from eligible industrial undertakings, unlike in the Synco Industries case.

5. The Tribunal also discussed the computation of deductions under Chapter VI-A, emphasizing that the aggregate deductions should not exceed the gross total income of the assessee. In this case, the gross total income was higher than the claimed deduction under section 80-IB, making the deduction eligible without adjusting losses from other units.

6. Ultimately, the Tribunal overturned the decision of the lower authorities and allowed the deduction under section 80-IB on the profit derived from the eligible unit without reducing losses from other eligible units. The Tribunal held that the interpretation applied in the Synco Industries case was not applicable in the current scenario due to the differences in factual circumstances.

7. Therefore, the appeal was allowed in favor of the assessee, granting the deduction under section 80-IB on the profit derived from the eligible unit without adjusting losses from other eligible units.
2009 (2) TMI 505

Issues Involved:

1. Disallowance of bad debt written off.
2. Disallowance of depreciation claimed on the membership card of BSE.
3. Disallowance of expenditure u/s 14A.
4. Disallowance of loss on 'dividend stripping' u/s 94(7).
5. Disallowance of salary paid to an expatriate employee u/s 40(a).
6. Disallowance of perquisites provided to an expatriate employee.
7. Interest levied u/s 234D.

Summary:

1. Disallowance of bad debt written off:
The first issue pertains to the disallowance of bad debt written off amounting to Rs. 5,50,03,219. The assessee argued that the debts were written off as irrecoverable, citing continuous losses by the debtors. The Tribunal held that the debts written off in the books of account fulfill the conditions laid down u/s 36(2) and are allowable. The Assessing Officer's denial was not justified, and the order of the CIT(A) was set aside, allowing the assessee's claim.

2. Disallowance of depreciation claimed on the membership card of BSE:
The second issue involves the disallowance of depreciation on the BSE membership card. The Tribunal noted that this issue was already decided in favor of the assessee in the preceding assessment year and followed the decision in Techno Shares & Stocks Ltd. v. ITO. The Tribunal directed the Assessing Officer to grant depreciation on the WDV of the membership card.

3. Disallowance of expenditure u/s 14A:
The third issue relates to the disallowance of expenditure incurred in relation to tax-free income u/s 14A. The assessee did not press this ground, and it was dismissed as not pressed.

4. Disallowance of loss on 'dividend stripping' u/s 94(7):
The fourth issue concerns the disallowance of loss amounting to Rs. 12,45,342 u/s 94(7). The Tribunal upheld the disallowance, noting that the amended provision of section 94(7) applies, and the loss should be disallowed to the extent of the dividend received. The alternate plea raised by the assessee was not accepted, and the ground was dismissed.

5. Disallowance of salary paid to an expatriate employee u/s 40(a):
The fifth issue involves the disallowance of salary paid to Mr. Brian Brown, an expatriate employee, u/s 40(a). The Tribunal held that the assessee's statutory obligation was to deduct tax at the time of payment, which was done, and thus the claim of the expenditure towards the salary payment was not hit by section 40(a)(iii). The Tribunal upheld the CIT(A)'s order and dismissed the revenue's ground.

6. Disallowance of perquisites provided to an expatriate employee:
The sixth issue pertains to the disallowance of perquisites valued at Rs. 90,40,880 provided to Mr. Brian Brown. The Tribunal held that the valuation of perquisites forms part of salary and no separate treatment is given for TDS purposes. The disallowance was not justified, and the ground taken by the assessee was allowed.

7. Interest levied u/s 234D:
The seventh issue is regarding the interest levied u/s 234D. The Tribunal noted that this issue is covered by the decision of the Special Bench of the ITAT in the case of ITO v. Ekta Promoters (P.) Ltd. and held that the Assessing Officer was not justified in charging interest on the refund granted prior to 1-6-2003. The ground taken by the assessee was allowed, and the interest charged u/s 234D was directed to be deleted.

Conclusion:
The appeals for assessment years 2002-03 and 2003-04 were partly allowed in favor of the assessee, while the revenue's appeal for the assessment year 2002-03 was dismissed.
2009 (2) TMI 504

Disallowance of interest expenditure u/s 36(1)(iii) - interest free loan to sister concern - interest bearing borrowed funds and own capital has lost its separate identity as both are mixed - contention of the assessee is that advances were given for the purpose of business in accordance with commercial expediency.
HELD THAT:- The payment of interest on the amount not used in the business cannot be regarded as a business expenditure as the business does not derive any benefit by the outgoing by way of interest on an amount which is no longer in the business, but had been diverted from the business. This provision, therefore, cannot be construed as enabling an assessee to burden the business with interest even while taking the amount initially borrowed for the business, but subsequently taken out of the business by diverting it as interest-free loans to sister concerns and relatives or for personal use.

From the judgment of High Court in the case of CIT v. Gopikrishna Murlidhar [1961 (11) TMI 68 - ANDHRA PRADESH HIGH COURT], We find that the assessee has right to replace his own capital with borrowed funds which were already used for the purpose of business in acquiring assets and other. With the help of this ratio of the judgment such problem can be resolved by examination and analyses of financial statements prepared on the basis of books of account maintained by the assessee.

It is well accepted proposition that for the purpose of ascertaining profit and gains, the normal principles of commercial accounting should be applied, so long as they do not conflict with any express statutory provisions as held by the Hon’ble Supreme Court in CIT v. UP State Industrial Development Corpn.[1997 (4) TMI 2 - SUPREME COURT]. Thus such problem can be resolved by analyzing statement of accounts and in particular balance-sheet. The onus is on the assessee to furnish the relevant material regarding replacement of borrowed funds by own capital and interest-free funds available with the assessee. The presumption of availability of interest-free funds in the form of capital in case of company can be drawn on material furnished by the assessee-company.

Considering the corporate sections, it is important and relevant to state that in case of company governed by Companies Act, such interest-free, if the same is not found in conformity with the provisions of the Companies Act and regulatory bodies to that extent, it cannot be presumed that the assessee has given interest-free funds out of interest funds available with the assessee in the form of capital and reserve. The owner of capital and reserve of a company is shareholders and their consent for giving interest-free funds only can be presumed that the interest-free loans are given in conformity with above discussion. The commercial expediency is also required to be established by the assessee by furnishing relevant material based on which it can be said that interest-free funds given to sister concern are in conformity with provisions of Companies Act and provisions of regulatory bodies.

Before disallowing such interest AO is duty bound to examine those material as enough power in this regard provided in IT Act. Needless to mention that AO should record all such facts clearly by passing a speaking order.

Since in the case under consideration, such complete details are not found on record we, therefore, remit both the grounds of appeal to the file of AO to decide the issue afresh in accordance with law keeping in above discussion and guidelines. AO is further directed that though the CIT(A) has also directed that netting claim also be examined, whether the same is allowable in accordance with law or not has to be found out by AO.

The appeal of the assessee is treated as allowed for statistical purposes.
2009 (2) TMI 503

Issues Involved:
1. Legality of penalty imposition under section 271(1)(c) of the Income-tax Act.
2. Quantum of penalty based on estimated income.
3. Concealment of income and furnishing inaccurate particulars.
4. Validity of the Assessing Officer's actions and CIT(A)'s directives.
5. Applicability of judicial precedents and statutory provisions.

Detailed Analysis:

1. Legality of Penalty Imposition under Section 271(1)(c):
The primary issue revolves around whether the penalty under section 271(1)(c) of the Income-tax Act was lawfully imposed. The assessee argued that the penalty was based on estimated income, which should not attract penalty provisions. However, the Tribunal noted that the assessee had concealed income by not declaring certain receipts and inflating expenses. The Tribunal highlighted that the wilfulness of the assessee is not essential in matters of penalty under section 271(1)(c). The relevant provisions and Explanation 1 to section 271(1)(c) were cited, emphasizing that the onus is on the assessee to substantiate the explanation or prove its bona fides.

2. Quantum of Penalty Based on Estimated Income:
The Tribunal examined the quantum of penalty, which was initially set at 200% of the tax on the concealed income. The assessee contended that the penalty should not be levied on estimated income and argued for a reduction. The Tribunal upheld the CIT(A)'s decision to impose the penalty at 200% of the tax on the income estimated at 6% of the gross receipts, in line with the ITAT's earlier order. The Tribunal found that the penalty was justified given the background and manner of concealment by the assessee.

3. Concealment of Income and Furnishing Inaccurate Particulars:
The Tribunal confirmed that the assessee had concealed income by not declaring certain receipts and inflating expenses. The Assessing Officer's enquiries revealed that the assessee received payments in the names of K.S. Corporation and S.D. Corporation, which were not disclosed in the original returns. The Tribunal noted that the assessee admitted to the additional contract receipts only after the Assessing Officer unearthed the concealed transactions. The Tribunal cited the Supreme Court's judgment in Union of India v. Dharamendra Textiles Processors, which clarified that wilful concealment is not an essential ingredient for attracting penalty under section 271(1)(c).

4. Validity of the Assessing Officer's Actions and CIT(A)'s Directives:
The Tribunal reviewed the actions of the Assessing Officer and the directives of the CIT(A). The Assessing Officer had enhanced the gross receipts and determined the total income based on detailed enquiries and evidence. The CIT(A) had directed the Assessing Officer to impose penalty based on the income estimated at 6% of the gross receipts. The Tribunal found that the Assessing Officer's actions were justified and upheld the CIT(A)'s directives.

5. Applicability of Judicial Precedents and Statutory Provisions:
The Tribunal referred to various judicial precedents and statutory provisions to support its decision. The Tribunal noted that the penalty provisions under section 271(1)(c) are aimed at providing deterrence to economic offenders and ensuring compliance with tax laws. The Tribunal also considered the Gujarat High Court's judgment in CIT v. Subhash Trading Co., which held that penalty is not leviable in cases of best judgment assessment. However, the Tribunal distinguished the present case, noting that the concealment was deliberate and not a result of mere estimation.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's appeal. The penalty related to the suppressed labour receipts was upheld, while the penalty related to the declared gross receipts was deleted. The Tribunal directed the Assessing Officer to quantify the penalty accordingly. The Tribunal emphasized that the penalty provisions under section 271(1)(c) are stringent and aimed at deterring economic offenses, and upheld the imposition of penalty in cases of deliberate concealment of income.
2009 (2) TMI 502

Deduction of tax at source u/s 194C - Assessee in default - Whether the work done by the manufacturers can be said to be sale of goods to the assessee or carrying out any work in pursuance of contract ? - HELD THAT:- Here is a case in which the assessee had simply placed the orders for the manufacture of medicines according to its own specification and all other relevant decisions for the manufacturing have been left to the wisdom of the manufacturer. The assessee is only interested in the output coming up to its standard and how that output is achieved is the job of the manufacturer. The checks provided by the assessee cannot alter the real character of the transaction. Simply because the assessee monitors the manufacturing from time to time to ensure that the medicines manufactured by the parties are as per its specifications, that will not put the assessee into the shoes of manufacturer more so when the establishments are of the third parties and they have their own labour force with all the infrastructure. Not only the cost of raw material has to be incurred by the manufacturers but even the excise duty is also paid by them directly. Further when such manufacturers make the sale of such goods to the assessee the sales tax is also paid by them. It is not as if the manufacturers had done some process or added the value to the material supplied by the assessee.

On the contrary it is a case where the manufacturer has produced the goods at its own, though subject to the assessee’s specifications, supervision and control and later on sold such goods to the assessee. The property in goods passes over to the assessee only when such goods were manufactured and delivered to it.

We find that there is complete identity of facts with those considered by the Hon’ble jurisdictional High Court in the case of BDA Ltd. v. ITO (TDS) [2004 (3) TMI 11 - BOMBAY HIGH COURT] inasmuch as that the goods were manufactured by the manufacturers in their own establishments, albeit in accordance with the specifications of the assessee. The raw material cost and other ancillary costs were also incurred by the manufacturers. Even the excise duty was paid by them and it was only when the goods were sold to the assessee that the property in them passed over to it. Under these circumstances we are of the considered opinion that the agreements of the assessee with the manufacturers cannot be termed as "works contract". The impugned order is, therefore, set aside and the applicability of section 194C is ruled out. That being the position there cannot be any question of treating the assessee as in default u/s 201(1) or charging any interest u/s 201(1A).

In the result, the appeals filed by the assessee are allowed and those of the revenue are dismissed.
2009 (2) TMI 501

Ascertaining Fair Market Value of capital asset - reference made to the DVO by the AO u/s 55A(a) is invalid, bad in law and without jurisdiction - HELD THAT:- From perusal of the documents relating to the reference by AO, placed at the paper book, revealed that AO mentioned u/s 55A against the relevant columns of the said reference. Thus, it does not specify the particulars of the clause (a) or ( b) of the said section. Regarding the purpose the reference, AO mentioned that the reference is ‘to determine the FMV of the property as on 1-4-1981 for the purpose of computing capital gains on the long-term capital assets’. Being the issue relating to the determination of the cost of acquisition, it is obvious that AO is certainly inclined to adopt lesser FMV and per contra, the assessee attempt to inflate the FMV as on 1-4-1981 with view to reduce the capital gains.

In these circumstances, the provision of clause (a) cannot be resorted to by AO while making a reference to the DVO, as the said clause (a) deals with the cases of assets of value lesser than the fair market value.

Therefore, we are of the considered opinion that this is the case, where the subject-matter of the reference u/s 55A revolves around the determination of the cost of acquisition based on the FMV as on 1-4-1981 for the purpose of computation of the capital gains and in such circumstances, the provisions of section 55A(a) and (b)(i ) will not apply and under such circumstances, it will, however, be open to the ITO to make a reference to the Valuation Officer u/s 55A(b)( ii) as explained in the aforesaid Explanatory notes.

Hence, the reference made by the DVO is valid and we confirm the order of CIT(A). Accordingly, the additional ground filed by the assessee is dismissed. On having upheld the validity of the reference, we proceed to adjudicate the grounds of the revenue as well as the assessee on merits in the following paragraphs.

Estimation of fair market value of the property - Method of valuation - rent capitalization method or comparable instances - difference between the FMV ascertain by assessee and DVO - assessee owns a flat and and sold the same and for the purpose of computing the capital gains - appellant submits that the three instances given by the DVO in his report do not reflect real status and are not comparable instances - he also submits that in order to determine the price of the property the instances of the sale should be of similar property in similar locality.

HELD THAT:- It is noticed that the value of the asset as on 1-4-1981 based on the ‘rent capitalisation method’ as per the Registered Valuers; whereas, the value as per the DVO based on his comparable sale instances. In our opinion, the gap is unbridgeable and none of the two methods enjoys perfection. Considering the self occupied nature of the flat as well as the assessee’s inclination to inflate the FMV for cost of acquisition, the ‘rent capitalisation method’ relied on by the assessee is not acceptable. Further, considering the comparable sale instances relied on by the DVO as well as AO’s tendency to reduce the cost of acquisition of an asset, in our opinion, the DVO’s figures also suffer from inadequacy.

Therefore, we are of the opinion that CIT(A) has rightly rejected both the figures. On having held so, we have examined the basis for CIT(A) to arrive the value of the flat at Rs. 1,750 per sq. ft., which is not even the average sq. ft. figures of Rs. 2,200 plus Rs. 1,154, which in fact, works out Rs. 1,677, In the absence any other reliable data in this regard, we are of the opinion that average of both the valuations based on rent capitalisation method of the Registered Valuer as well the averaging of three sale instances gathered by the DVO, though incomparable, would be appropriate.

In other words, determining the FMV of the flat for the cost of acquisition at Rs. 1,677 per sq. ft., in our opinion, would meet both ends of justice. Accordingly, the order of CIT(A) is set aside to that extent and AO is directed to recompute the capital gains on the sale of the said flat adopting the value of the flat at the rate of Rs. 1,677 per sq. ft.

In the result, appeal of the assessee is dismissed and that of the revenue is partly allowed.
2009 (2) TMI 500

Issues Involved:
1. Whether the gifts received by the assessee and his minor sons were genuine.
2. Whether the assessee knew the family background and residential address of the donors.
3. Whether the assessee knew the business activities and correct names of the donors.

Detailed Analysis:

Issue 1: Genuineness of Gifts
The core issue was whether the gifts amounting to Rs. 46,87,378 received by the assessee and his minor sons were genuine. The Assessing Officer (AO) scrutinized the gifts under section 143(3) and determined the total income at Rs. 75,38,201, adding the gifts as unexplained cash credits under section 68 of the Income-tax Act. The AO found that the gifts were received in the form of SBI Resurgent India Bonds (RIBs) from non-resident donors, V.K.S. Panicker and Jaspal Singh Oberoi. The AO questioned the creditworthiness and genuineness of the gifts, noting that the gifts were not received on any eventful occasions and that the assessee did not know the donors personally.

The assessee appealed to the CIT(A), who accepted the identity and creditworthiness of the donors based on the ownership of the RIBs and other bank documents. The CIT(A) also relied on the Delhi High Court judgment in the case of Mrs. Sunita Vachani, which stated that gifts can be received from foreigners and strangers and that gifts originating from foreign countries through banking channels cannot be doubted. Consequently, the CIT(A) deleted the addition made by the AO.

However, the Tribunal, upon appeal by the revenue, found that the assessee failed to establish the creditworthiness and genuineness of the gifts. The Tribunal noted that there was no evidence of the donors' financial capabilities or their relationship with the assessee. Additionally, the Tribunal emphasized that the banking transactions alone do not establish the genuineness of the gifts, citing the Supreme Court judgment in the case of P. Mohanakala.

Issue 2: Knowledge of Donors' Family Background and Residential Address
The AO observed that the assessee did not know the family background or residential address of the donors. The assessee provided Xerox copies of the donors' passports and detailed addresses, but the AO found this insufficient to establish a genuine connection between the assessee and the donors. The Tribunal agreed with the AO, noting the lack of any personal relationship or interaction between the assessee and the donors.

Issue 3: Knowledge of Donors' Business Activities and Correct Names
The AO also noted that the assessee did not know the business activities of the donors and even referred to one of the donors by an incorrect name. The Tribunal found this to be a significant factor in questioning the genuineness of the gifts. The Tribunal emphasized that the lack of knowledge about the donors' financial status and business activities further weakened the assessee's claim of genuine gifts.

Conclusion:
The Tribunal concluded that the assessee failed to discharge the onus of proving the creditworthiness and genuineness of the gifts. The Tribunal reversed the CIT(A)'s order and restored the AO's addition of Rs. 46,87,378 as unexplained cash credits under section 68 of the Income-tax Act. The appeal of the revenue was allowed, and the gifts were deemed to be the assessee's own unaccounted money ploughed back in the form of gifts.
2009 (2) TMI 499

Eligibility for deduction u/s 80-IA - income derived from rolling stock - Profits and gains from infrastructure development undertakings - ‘Rail system’ - Whether Inland Container Depot (ICD) and Central Freight Station (CFS) as separate infrastructure facility and are not part of Port? - HELD THAT:- In its business of handling and transportation of containerized cargo, the operating activities are mainly carried out at its Inland Container depots (ICDs), Container Freight Station (CFS) and Port Side Container Terminals (PSCT’s) spread all over the country. Its wagons are running on Indian Railway System for carriage of container traffic. Thus, assessee is engaged in developing, operating and maintaining infrastructure facilities, the income from which eligible for deduction u/s 80-IA.

The assessee fulfils the conditions of section 80-IA for being eligible to the said deduction, namely;

(a) it is a company registered in India;

(b) it is providing infrastructure facility;

(c) it has kept separate accounts for the eligible business and submitted separate P&L Account and Balance Sheet duly audited;

(d) it is new industrial undertaking in view of the Supreme Court decision in Textile Machinery Corpn. Ltd. [1977 (1) TMI 3 - SUPREME COURT] and in Premier Cotton Mills Ltd.[1999 (2) TMI 41 - MADRAS HIGH COURT] as it had purchased huge new machinery for substantial expansion as evidenced by the depreciation chart from 1-4-2001;

(e) it had filed the CA certificate, in Form No. 10CCB accompanied by accounts of eligible ICDs and Rail System as required under the law;

(f) the places of its ICD/CFS are notified vide notification No. 10682 dated 1-9-1998 in exercise of powers conferred by section 80-IA(12)(ca) CBDT has notified ICDs and CFS as infrastructure facility eligible for deduction provided that such places are notified as ICDs and CFS under section 7(aa) of Customs Act. Custom Department has so notified the above places;

(g) its ‘Rail System’ is part of the term ‘Infrastructure facilities’ as defined in Explanation to section 80-IA(4)(c);

(h) its ‘rail system’ is clarified by the CBDT Circular No. 733, dated 3-1-1996 as infrastructure facilities;

(i) the rolling stock, i.e., wagons etc. form part of Rail System vide definition of Railways under the Railways Act and Rail System is part of infrastructure facility vide Explanation (a ) to section 80-IA(4)(c) of the Act. The CBDT Circular No. 733 and Letter of Ministry of Railways supports the view that the assessee’s wagon etc. (Rolling Stock) running on Indian Railways System are part of infrastructure facilities;

(j) it had not been allowed any deduction on these profits under any of the provisions of Chapter VIA of the Act therefore, it is not hit by the provisions of section 80-IA(9) of the Act;

(k) it had created, developed, operated and maintained ICDs after 1-4-1995 as is evidenced from notifications stating : (i) The ICD at Jamshedpur vide notifications u/s 7(aa) of Customs Act and u/s 8 of the same Act and u/s 45 (ii) the ICD at Jaipur vide notification u/s 7(aa) and u/s 8 and u/s 45; (iii) the ICD at Jodhpur vide notification u/s 7(aa) and u/s 8 and u/s 45; (iv) the ICD at Pondicherry port vide notification u/s 7(a) and u/s 8; and (v) the ICD at Dronagiri vide copy of letter from Ministry of Commerce and Industries for setting up this ICD, Custom Notification u/s 8 and u/s 45.

The provisions for deduction u/s 80-I are different than the provisions u/s 80-IA. Sub-section (9) only provides that the income to the extent of which deduction has been allowed under this other section of Chapter VIA, the same cannot be qualified for deduction under different section and the income pertaining to Rail System and ICD, has not been claimed as deduction under any other section the deduction cannot be denied only on the ground of its claim in earlier years claimed but disallowed u/s 80-I.

The term ‘Rail system’ for deduction u/s 80-IA has not been defined under the Income-tax Act but as declared in letter issued by Government of India, Ministry of Railways, (Rail Board), the assessee Container Corporation of India Limited (CONCOR) is running on, for carriage of containers carriage trzaffic.

The rolling stock of the assessee is, therefore, a part and parcel of rail system. Accordingly, we uphold the direction of CIT(A) to allow the deduction u/s 80-IA against the income derived from rolling stock.

‘A Port is a place for the lading and unlading of ships or vessels erected by Charter of the King or a lawful prescription.’(per Ld. Chelmsford Foreman v. Free Fishers of Whitstable). Thus in common parlance and commercial world and statutorily recognized a port is associated with ships and is a place of shelter where ships may load and unload their cargo. That seems to be the reason for stating in the definition ‘a port, airport, inland waterways, inland port’ which distinguishes the term port from inland port. A port, therefore, would not include an inland port.

We, therefore, uphold the order of the CIT(A) in denying the deduction u/s 80-IA on the income derived from ICDs and SKFs situated in Jaipur, Jodhpur and Jamshedpur ICDs of Pondicherry and Drongiri. Inland Container Depot (ICD) and Central Freight Station (CFS) as separate infrastructure facility and are not part of Port.

The ICDs and CFSs of the assessee were included in "infrastructure facility" by extended meaning given to it in terms of the phrase ‘any other public facility of similar nature as may be notified by the Board in this behalf in the Official Gazette’. But this phrase has been omitted from the Explanation as substituted by Finance Act, 2001 with effect from 1-4-2002 and, therefore, these ICDs and CFSs ceased to be infrastructure facility.

We, therefore, are of the opinion that term "Inland Port" does not include the ICD. Had it been included in the term Inland Port, the CBDT would have not notified them as separate infrastructure facility and would have clarified that ICDs and CFSs are part and parcel of Inland Port.

Thus after amendment of the section vide Finance Act, 2001 with effect from 1-4-2002 there is certain change in the definition of infrastructure facility given in the Explanation. Prior to the said amendment, sub-section (12)(ca) provided that "Infrastructure facility means (i) a road, bridge, airport, port, inland waterways and inland ports, rail system or any other public facility of similar nature as may be notified by the Board in this behalf in the Official Gazette." But Explanations (a) and (d ) to sub-section (4)(c) provide that "For the purpose of this clause infrastructure facility means - (a) a road including toll road, a bridge or a rail system;. . . (d) a port, airport, inland waterways or inland port."

Thus the portion "as may be notified by the Board in this behalf in the Official Gazette" as appearing before the said amendment has been deleted in the new Explanation. Therefore, AO’s observation about the customs notification in respect of the ICD’s is irrelevant and unjustified. Not only that the assessee’s claim based on CBDT’s and customs notifications in respect of the ICD’s referred to above is not correct, after the said amendment dropping the words "as may be notified by the Board in this behalf in the Official Gazette" the claim is not allowable on the basis of the above Explanation independent of the notifications.

Claimed Depreciation at 60 per cent on computer peripherals and accessories and peripherals like Printers, Scanner, Modems, and Servers etc - AO held that depreciation at 60 per cent was allowable only on computer and software but not on accessories and peripherals - He allowed depreciation at 25 per cent as normal plant and machinery - HELD THAT:- The claim of depreciation of 60 per cent gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60 per cent. As held in CIT v. Jokai India Ltd.[2001 (6) TMI 45 - CALCUTTA HIGH COURT].

In view of the decision in the case of ITO v. Samiran Majumdar [2005 (8) TMI 293 - ITAT CALCUTTA-B], we hold that printers, scanners and other peripherals were part and parcel of computer and depreciation against such asset are allowable at the rate of 60 per cent. Therefore, this ground is decided in favour of the assessee and against the revenue.

Hence, we uphold the order of CIT(A) in allowing depreciation at the rate of 60 per cent on computer peripherals and accessories by treating them as computers.

In the result all the appeals by the assessee and revenue are dismissed.
2009 (2) TMI 498

Whether on the facts and in the circumstance of the case and in law the Hon’ble Tribunal was right in deleting the disallowance made by the Assessing Officer of interest paid by the Assessee Company on borrowed funds amounting to Rs.241.10 lakhs overlooking the fact that the borrowed funds were used by the Assessee Company to invest in the Capital of another Partnership Firm and since profits derived by the Assessee Company from a Partnership firm were exempt from tax u/s.10(2A) of the Income-tax Act, the interest expense related to such tax free profits is to be disallowed u/s.14A of the Income Tax Act?
2009 (2) TMI 497

Income chargeable to tax in India under section 5(2) of the Act and whether the assessee has any business connection in India as per section 9(1)(i) of the Act - Tribunal opined that the respondent's income was chargeable to tax in India under section 5(2) of the Income-tax Act as it had business connections in India as per section 9(1)(i) of the said Act. Tribunal was of the opinion that 15 per cent. of the revenue accruing to the respondent in respect of bookings made in India should be treated as income accruing or assessed in India and chargeable under section 5(2) read with section 9(1)(i) of the Act – Held that:- no guidelines are available as to how much should be the income reasonably attributable to the operations carried out in India, the same has to be determined on the factual situation prevailing in each case, In the absence of some statutory or other fixed formula, any finding on the question or proportion involves some element of guess work, no question of law arises in these matters which needs any further determination by this court. These appeals are accordingly dismissed in limine
2009 (2) TMI 495

Applicability of section 115BB - prizes won in entertainment programmes on television - whether the receipt by the appellant was taxable thereunder or not and the receipt by the appellant taxable under the said provision or not, On a reading of section 2(24)(ix) and the Explanation thereto which come into effect from April 1, 2002, and section 115BB, a conjoint reading of the aforesaid two provisions is required to be made. The Tribunal failed to taken into account the fact that section 2(24)(ix) was introduced and the Explanation thereto was introduced with effect from April 1, 2002, appellant's cross-objection back to the Tribunal to reconsider afresh keeping in view the date of amendment, appeal is allowed.
2009 (2) TMI 493

Classification - actual user condition - whether product being manufactured by the appellant is classifiable under heading 4008.21 or the fall under heading 4008.29 - assessee has explained that inasmuch as they were not sure about the use of their product in the overseas market they have classified it under heading 4008.29. they were availing modvat credit of duty in respect of export products and the exports were done under LUT and under the claim of benefit of DEPB, they claimed the classification under heading 4008.29 and no objection was ever raised by the Revenue. - held that:- there is no evidence produced on record by the Revenue to establish that the sheets cleared by the appellant were actually put to some other uses, other than the one specified against the entry. The Revenue’s entire case is based upon only one fact that the appellant have not been able to show that the sheets have actually been used for the specified purposes. - the product for domestic clearance has to be held as classifiable under heading 4008.21. order is accordingly set aside and appeal allowed decision in favour of the assessee.
2009 (2) TMI 491

Application u/s 10(23C)(vi) - The rejection of an application under section 10(23C)(vi) of the Income-tax Act had also come up before this Court in the case of Society for Indian Institute of Rural Management v. Chief CIT (S.B.C.W.P. No. 5954/2006 decided on 7-11-2008 - In that case, this Court had remanded the case back to the Chief Commissioner for being decided after going into the merits of the case - In the light of that judgment, this Court remands the case back to the Chief Commissioner with the direction to re-decide the application.
2009 (2) TMI 489

Modvat credit - whether the appellants would be entitled to the benefit of Modvat credit in respect of fuel used in the manufacture of electricity, a part of which is sold to their sister concern - As per the Tribunal’s decision in the case of M/s. SOLARIS (2007 -TMI - 1589 - SUPREME COURT OF INDIA), the benefit has already been denied.
Limitation - Tribunal held the demand raised after the normal period of 6 months to be barred by limitation - The demand raised for the period April 2002 to March 2003 by way of show cause notice issued in April 2004 would be time barred by limitation, except for the period which falls within the limitation - The same is required to be quantified by authorities below - Appeal is disposed off in above manner.
2009 (2) TMI 487

Addition - The cash payment - tractor hire charges - summon to creditors - Held that: It is not possible for us to accept that the Assessing Officer could not have enforced the presence of Dharminder in the background of the fact that a substantial amount of the payment of Rs.5,96,220 as tractor charges was made by the respondent-assessee to the aforestated Dharminder by way of normal banking channel. There should therefore have been no difficulty either to ascertain his address or to summon him. - Decided in favor of assessee
Deduction u/s 40A(2)(b) - truck charges were also paid by the respondent-assessee to M/s. Mehta Construction Company. Truck charges were paid to M/s. Mehta Construction Company at the rate of Rs. 80 and Rs. 70 per truck. The payment made by the respondent-assessee to M/s. Mehta Construction Company has been accepted by the Assessing Officer as a valid and genuine payment on tractor basis and not on monthly basis. In the background of the aforesaid factual position, it is also apparent that the respondent-assessee paid charges less than the charges paid to M/s. Mehta Construction Company for the same work to M/s. Satyen Enterprises. As noticed hereinabove, M/s. Satyen Enterprises was paid at the rate of Rs. 70 per truck. Thus viewed, it is not possible for us to accept that the Assessing Officer could have invoked section 40A(2)(b) of the Act. - Decided in favor of assessee
Machinery Charges - The purchase of an excavator and to engage staff for its use and maintenance may or may not be a profitable / conceivable business venture. This would depend on the nature of contracts executed by an individual. The purchase of an excavator by itself is, in our view, an irrelevant consideration to determine the genuineness of the expenses incurred by the respondent-assessee. - - Decided in favor of assessee
2009 (2) TMI 485

Cess u/s 5A(1) of the Textile Committee Act, 1963 - Manufacture - The Hon’ble Apex Court in the case of M/s. Ujagar Prints & Ors. v. Union of India & Ors [1988 -TMI - 42346 - SUPREME COURT OF INDIA], held that processing like bleaching, dyeing, printing or finishing, etc. amounts to manufacture and, therefore, the processing activities carried out by the Appellants amount to manufacture of textile and, therefore, liable to pay the cess in terms of Section 5A(1) of the Textile Committee Ac. - the issuance of Demand Notice cannot be faulted as it is issued in accordance with law and sustainable. There is no merit in the Appeal and hence it is dismissed.
2009 (2) TMI 483

Real Estate Business - in view of the fact that land and flat in issue had been purchased in the assessment year 1998-99 and the fact that since then it continued to be shown by the assessee as stock-in-trade, then, merely by virtue of the fact that in the interregnum (i.e., the assessment year 1998-99 and the assess-ment year under consideration) there had been no profit or gain shown by the assessee it could not be assumed that the assessee had given up its business of real estate.
Business Loss - though a sum of Rs. 4 lakhs could not be allowed as a bad debt under the provisions of section 36(1)(vii) of the Act since the said sum had not been taken into account in computing the income of the earlier years and hence the conditions prescribed under section 36(2) of the Act were not fulfilled ; the said loss, however, could be treated as business loss since it was occasioned in the course of business carried on by the assessee
Disallowance of bank interest - Tribunal having returned findings of fact, that the loan given to bodies corporate had not been diverted for "non-business" purposes, as also that, the loan had continued from earlier years ; the interest on bank loan ought to be allowed to the assessee as a deduction as there was no perceptible change in circumstances - No substantial question of law - appeal dismissed