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2010 (8) TMI 761
Issues:
1. Failure to dispose of additional ground of appeal regarding taxability of income under section 9 of the Income-tax Act, 1961.
Analysis:
The Tribunal did not address an additional ground of appeal raised by the Appellant regarding the taxability of income under section 9 of the Income-tax Act, 1961. The Appellant argued that the income in the form of 'subscription revenue' was taxable due to business connection in India and the foregone consideration for subscription did not change the taxability. However, the Hon'ble Bombay High Court, relying on the Supreme Court's judgment in DIT v. Morgan Stanley & Co., held that no further profits could be attributed to the foreign enterprise in India under the India Singapore Double Taxation Avoidance Agreement. The High Court also referred to CBDT circular No. 23 to support this conclusion.
The High Court's decision overrode the Tribunal's order, stating that under the provisions of the India Singapore DTAA, the Appellant had no tax liability, thus rendering the issue raised by the Revenue irrelevant under domestic law. As the Tribunal's order merged with the High Court's decision, the Tribunal was deemed powerless to modify the ruling. The Tribunal rejected the Assessing Officer's miscellaneous application, concluding that they could not alter the decision already adjudicated by the High Court in appellate jurisdiction.
Therefore, the Tribunal dismissed the miscellaneous application, upholding the High Court's ruling and determining that the Appellant had no tax liability under the India Singapore DTAA, as per the decision in DIT v. Morgan Stanley & Co. The Tribunal's inability to modify the order due to the High Court's jurisdictional decision led to the rejection of the Revenue's claim, solidifying the Appellant's position regarding taxability of income in India.
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2010 (8) TMI 760
Issues involved: Appeal against order of CIT(A)-I, Ludhiana u/s 143(3) of the Income-tax Act for assessment year 1998-99. Grounds raised against charging of interest u/s 234B and 234C of the Act.
Charging of Interest u/s 234B and 234C:
The assessee filed a return declaring nil income with a deduction under section 80HHC of the Act. After a notice u/s 148, the assessment was completed at a total income of Rs. 13,04,907, allowing a deduction of Rs. 7,76,733 under section 80HHC. An addition of Rs. 8,88,376 was made under section 68, later deleted by CIT(A). The Tribunal upheld the reopening under section 147 but set aside the deduction computation under section 80HHC for fresh determination. The Assessing Officer recomputed the deduction at Rs. 16,65,150. The charging of interest u/s 234B and 234C was disputed by the assessee, claiming no obligation to pay advance tax due to the amended provisions. The CIT(A) held the assessee liable for interest under sections 234B and 234C.
The assessee argued that the deduction claimed under section 80HHC was in accordance with law and judicial precedents at the time of filing returns. As there was no taxable income estimated, the assessee contended that no interest should be charged under sections 234B and 234C. The Tribunal agreed, citing the provisions of section 208/209 that no advance tax liability arises when no taxable income is estimated. Referring to legal precedents, the Tribunal held that no interest should be charged under sections 234B and 234C in the present case. Consequently, the interest charged under these sections was deleted, and the appeal was partly allowed.
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2010 (8) TMI 759
Issues Involved:
1. Whether the payment made to Avaya International Sales Ltd., Ireland (AISL) for activation charges is a payment for buying a standard product/software.
2. Whether the payment made to AISL can be classified as 'Royalty' or 'Fees for Technical Services'.
3. Whether the assessee is liable to deduct tax at source on the payment made to AISL as per Indian tax laws and the Double Taxation Avoidance Agreement (DTAA) between India and Ireland.
Issue-wise Detailed Analysis:
1. Payment for Buying a Standard Product/Software:
The assessee, engaged in selling Converged Communication Solutions, entered into an agreement with AISL to purchase hardware (EPABX) and standard software embedded in the hardware. The software features are not fully activated at the time of supply. Customers can choose to activate additional features later, which enhances the hardware's functionality. The assessee argued that the activation charges are not taxable as they do not qualify as 'fees for technical services' or 'royalty'. The CIT(A) concluded that the activation charges should be considered part and parcel of the equipment supplied by AISL and not as 'fees for technical services'. The CIT(A) held that these payments are for buying a standard product/software.
2. Classification as 'Royalty' or 'Fees for Technical Services':
The Assessing Officer (AO) contended that the activation charges are taxable as fees for technical services, arguing that AISL provided technical services for activating enhanced features of the equipment. The AO noted that the assessee had previously withheld tax at source on these payments, considering them as fees for technical services. However, the CIT(A) examined the definitions under section 9(1)(vii) of the Income-tax Act and Article 12 of the DTAA between India and Ireland. The CIT(A) found that the activation of software features embedded in the hardware does not constitute customized software or additional technical services. Therefore, the payments cannot be classified as 'royalty' or 'fees for technical services'.
3. Tax Deduction at Source and DTAA Provisions:
The assessee argued that AISL, being a tax resident of Ireland with no permanent establishment in India, is not liable to tax in India on the remitted amounts as per Article 7 of the DTAA between India and Ireland. The CIT(A) supported this view, stating that the income of AISL from these payments is not taxable in India. The CIT(A) referenced previous judicial pronouncements and the provisions of section 9(1)(vii) to conclude that the assessee is not liable to deduct tax at source on these payments.
Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeals. It concluded that the activation charges paid to AISL are part of the equipment supplied and not fees for technical services. The Tribunal noted that the nature of the transaction, supported by the invoices, indicates a sale of goods rather than a provision of technical services. Consequently, the assessee is not required to deduct tax at source on these payments, as they are not taxable in India under the DTAA provisions.
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2010 (8) TMI 758
Issues Involved:
1. Disallowance of deduction under section 80-IB(10) of the Income-tax Act.
2. Initiation of penalty proceedings under section 271(1)(c) of the Act.
3. Levy of interest under sections 234A, 234B, and 234C of the Act.
Issue-wise Detailed Analysis:
1. Disallowance of Deduction under Section 80-IB(10) of the Act:
The primary issue was whether the assessee was entitled to a deduction under section 80-IB(10) for developing and building housing projects. The Assessing Officer (AO) denied the deduction on the grounds that:
- The assessee was not the owner of the land.
- The project approval was in the name of other persons.
- The landowners sold pieces of land directly to unit holders, and the assessee acted merely as a confirming party and contractor.
- The assessee never sold the houses to the unit holders as there was no registered document.
The CIT(A) disagreed with the AO's reasoning regarding the ownership of the land but upheld the disallowance based on the project being approved as a residential-cum-commercial project rather than a housing project. The CIT(A) relied on the decision of the Mumbai Tribunal in Laukik Developers v. Dy. CIT, which held that a project approved as residential-cum-commercial could not be considered a housing project eligible for deduction under section 80-IB(10).
The Tribunal noted that the provisions of section 80-IB(10) before 1-4-2005 did not include a specific clause regarding commercial establishments. The Special Bench in Brahma Associates v. Jt. CIT (OSD) concluded that deduction under section 80-IB(10) is admissible for a housing project comprising residential units and commercial establishments, provided the commercial use does not exceed 10% of the total built-up area. The Tribunal set aside the CIT(A)'s order and remanded the matter to the AO to re-examine whether the residential-cum-commercial project qualified as a housing project under the provisions of section 80-IB(10).
2. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The Tribunal noted that mere initiation of penalty proceedings is not appealable. Therefore, this ground was dismissed without further discussion.
3. Levy of Interest under Sections 234A, 234B, and 234C of the Act:
The Tribunal stated that the levy of interest under sections 234A, 234B, and 234C is mandatory, as affirmed by the Supreme Court in CIT v. Anjum M.H. Ghaswala and other cases. Therefore, this ground was also dismissed. However, the AO was directed to allow consequential relief while giving effect to the Tribunal's directions.
Conclusion:
The appeals were partly allowed for statistical purposes, with the issue of deduction under section 80-IB(10) remanded to the AO for re-examination in light of the Tribunal's observations and relevant judicial pronouncements. The grounds related to penalty proceedings and interest levy were dismissed.
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2010 (8) TMI 757
Exemption u/s 11 - Withdrawing registration granted earlier u/s 012A -. HELD THAT:- In the instant case, it is not the case of the CIT that the activities of the assessee society are not genuine or are not being carried out in accordance with the objects of the society. Thus, both the conditions laid down in sub-section (3) of section 12AA regarding cancellation of registration are missing. In our considered view, object per se cannot be re-examined under the provisions of sub-section (3) of section 12AA. As per the provisions of sub-section (3) of section 12AA, the CIT should be satisfied that the activities of the assessee society are not genuine or are not being carried on in accordance with the objects of the society and only then the CIT has power to cancel the registration granted to the assessee society. In our considered view, cancellation/withdrawal of registration by the learned CIT amounts to reviewing its earlier order. Hence, the impugned order passed u/s12AA(3) is illegal and unsustainable. In view of the above, we set aside the order of the learned CIT passed u/s 12AA(3) of the Act and allow the appeal of the assessee.
In the result, the appeal is allowed.
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2010 (8) TMI 756
Accrual of income - difference in the Truck Hire charge receipts shown in the Profit & Loss account as against the same shown in the TDS certificate - whether receipts shown as per the TDS certificate as the income of the assessee to be taxed wholly without any adjustments? - CIT(A) deleted the addition as income of the appellant cannot be artificially enhanced there being no corresponding debit in the profit and loss account. No doubt the TDS receipts have to be reconciled but once the same is explained with verifiable ledger accounts then no separate addition could be made when the explanation are verifiable with reference to contra entries in the respective accounts -
HELD THAT:- Facts have revealed that the TDS was deducted on the whole amount of freight on trucks supplied through assessee but said amount had an over-riding right of the Truck-owners therefore directly diverted to their respective accounts. On careful examination of the statutory provisions to answer this legal question, it is evident that the deduction of tax at source is not a levy of tax unless and until it is followed by an assessment order making a charge of tax. Even this is also a settled position that the deduction of tax at source in no way expressly indicates that ipso facto the assessee is entitled for the refund or adjustment of tax of the TDS amount against the income mentioned therein.
The provisions relating to Tax Deduction at Source are not the provisions for the computation of income. An income of a taxpayer is not required to be computed merely with reference to the TDS Certificate but assessment of an income is altogether an independent exercise.
With this understanding of law if we compare the facts of the case, and then it is evident that the amount which was certified on the TDS Certificate could or could not have been subject to tax in the hands of the assessee-recipient. The deductor had chosen a safe procedure of deduction of tax on the entire amount of freight. Otherwise the freight was to be paid to the truck owners and not to the assessee-company, who is only a conduit in arranging the hiring of the trucks.
The freight was to be passed on to the truck owners, therefore, the freight was not subject to tax in the hands of the assessee. Nevertheless, accounts of the assessee have also demonstrated the same. With the result, the amount on which the TDS was deducted had not matched with the figures of the income disclosed by the assessee in respect of those transactions. Such a business transaction can be dealt with in two ways; i.e., either to be treated as the receipts with overriding liability or secondly that the freight receipts were subject to the expenditure of freight charges to be paid to the truck-owners. On appreciation of the facts, the transaction in question had fallen in first category. In view of above observation, the ground of the revenue has no legal stand, therefore, deserves to be rejected.
As decided in SHUSHILADEVI ANILKUMAR SINGHAL VERSUS INCOME TAX OFFICER [2007 (9) TMI 651 - ITAT AHMEDABAD] case only dispute is that the assessee instead of showing receipt of full freight and then showing the freight paid to truck operators/owners, has shown only the difference between the aforesaid two amounts as here income as because the payments of freight were directly collected by the truck drivers. In our considered opinion, this is simply a matter of presentation of accounts and merely for not presenting in the accounts, the amount of the gross freight and then freight paid to truck operator/owner separately, the claim of TDS cannot be denied to the assessee - Appeal of the revenue is dismissed.
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2010 (8) TMI 755
Rejection of books of account - Estimation of income - onus of rejecting the books - HELD THAT:- In our considered view there are no reasons for rejecting the books. Even though AO has not given any specific finding as to whether he is invoking section 145 and rejecting the books. The main plank of AO in resorting to estimating the wastage in petrol and diesel is that assessee has shown higher wastage/losses as compared to what it ought to have been in the eyes of AO. Secondly, assessee is not issuing bills and vouchers in respect of sales made by the assessee to the customers and therefore, assessee has opportunity to manipulate the sales as per his will and thirdly, the daily stock report is apparently written in one sitting. We are not convinced with any of the above defects. If the department had any doubt it could have submitted the original daily reports and produced before us. It has not been done. Even otherwise apparently photocopies of such daily reports indicated that there are enough variations in the writing and impression of the ink, which in turn indicate that it could not have been written in one sitting.
It is because not a single instance has been pointed out by the Assessing Officer that assessee is not issuing vouchers to the customers for sale of petrol and diesel etc. Merely making a general statement without actually looking into the books would not be sufficient to arrive at a finding that assessee is issuing or not issuing vouchers against its sales. Regarding daily stock report we are not convinced that it has been prepared in one sitting. If the department had any doubt it could have submitted the original daily reports and produced before us. It has not been done.
So far as the claim of loss is concerned, it is not a consequence of writing of the books but a consequence of doing business in a particular manner and, therefore, excess claim of losses or low GP cannot be a basis for rejecting the books.
The rejection of the books in accordance with section 145 is the initial step before AO resorts to next step i.e., estimation of income. Thus, the rejection of books cannot be done without pointing the defects in accounts or accounting method. the AO has neither given any finding about rejection of books nor it is discernible from his order, the working of his mind for rejection of the books. In view of this we hold that AO has failed to discharge the onus of rejecting the books and invoking section 145(3).
We are supported by the decision of in Madnani Construction Corpn.(P.) Ltd. v. CIT [2006 (12) TMI 79 - GAUHATI HIGH COURT]. Accordingly we hold that books of assessee cannot be rejected and, therefore, AO cannot resort to estimation of income by estimating losses. Accordingly, the appeal filed by the Department is dismissed.
Estimation of shortage in petrol and diesel - disallowance of excess shortage - CIT(A) adopted shortages of last 3 years as a base to hold shortage in sale of petrol at 0.87 per cent and diesel at 0.38 per cent to be reasonable - HELD THAT:- These two items relate to trading account and estimation of shortage etc., which have the effect of enhancing trading results which can be done only after books are rejected by the AO. Thus, once it is held by us that books cannot be rejected by the AO for the reasons discussed in departmental appeal, then he cannot resort to estimation of profits either by applying GP rate or by estimating shortage or loss in petrol and diesel. Therefore, only course open to the AO is to accept the book results as he has no ground to reject the books. Accordingly the addition retained by the ld. CIT(A) is also deleted. This ground of assessee is also allowed.
In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed.
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2010 (8) TMI 754
Issues Involved:
1. Whether the Special Land Acquisition Officer was required to deduct tax under section 194LA on compensation payments for land, buildings, and trees.
2. Whether the lands acquired were agricultural lands or immovable properties other than agricultural land.
3. Whether the compensation for trees and buildings on the land should be treated as part of agricultural land or as separate immovable properties.
4. Whether the Land Acquisition Officer acted under a bona fide belief that the compensation was not subject to TDS.
Detailed Analysis:
1. Requirement to Deduct Tax under Section 194LA:
The core issue in this appeal was whether the Special Land Acquisition Officer (LAO) was required to deduct tax under section 194LA on the compensation payments made for acquiring land, buildings, and trees. The Income Tax Officer (ITO) argued that the LAO should have deducted tax at source on these payments, as the land and other assets acquired did not qualify as agricultural land under the relevant provisions of the Income Tax Act.
2. Nature of the Lands Acquired:
The ITO contended that the lands in question were not agricultural lands, as they were not used for agricultural purposes and were situated in an area surrounded by industries. The ITO referenced various legal precedents and criteria to determine whether land is agricultural, including whether the land was classified as agricultural in revenue records, used for agricultural purposes, and whether it had characteristics conducive to agriculture. The ITO's investigation revealed that the lands were barren, saline, and not used for agriculture, leading to the conclusion that they were immovable properties other than agricultural land.
3. Compensation for Trees and Buildings:
The ITO also argued that the compensation paid for trees and buildings on the land should be treated separately from the land itself. According to the ITO, trees and buildings on agricultural land do not qualify as agricultural land under section 2(14)(iii) of the Act and should be considered as "property of any kind" subject to capital gains tax. The LAO, however, treated these assets as part of the agricultural land, arguing that they were integral to the land's agricultural use.
4. Bona Fide Belief and Actions of the LAO:
The LAO maintained that he acted under a bona fide belief that the compensation paid was not subject to TDS, as the lands were classified as agricultural in revenue records. The LAO argued that the presumption of agricultural land status based on revenue records was sufficient to justify non-deduction of tax. The LAO's decision was also influenced by the absence of clear guidelines or provisions requiring consultation with revenue authorities to determine the nature of the land.
Judgment:
The Tribunal considered the arguments and evidence presented by both parties. It concluded that the LAO was justified in relying on the revenue records to determine the nature of the land as agricultural. The Tribunal emphasized that the LAO's role was to make a prima facie determination based on available evidence, and it was not his responsibility to conduct an in-depth investigation akin to that of the ITO.
The Tribunal held that:
- The LAO had sufficient basis to conclude that the lands were agricultural, based on revenue records and other evidence.
- Trees and buildings on agricultural land should be treated as part of the agricultural land for the purpose of TDS under section 194LA.
- The LAO acted in good faith and had a reasonable basis for his decision not to deduct tax at source.
The appeal filed by the Special Land Acquisition Officer was allowed, and the order of the Commissioner of Income Tax (Appeals) was set aside. The Tribunal's decision underscored the importance of prima facie evidence and the LAO's reasonable belief in determining the applicability of TDS provisions.
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2010 (8) TMI 753
Issues Involved:
1. Quashing of assessment due to non-service of notice under section 143(2).
2. Genuineness of gifts received by the assessee.
3. Taxability of gifts received under section 56(2)(v) and section 28.
Issue-wise Detailed Analysis:
1. Quashing of Assessment Due to Non-Service of Notice under Section 143(2):
The CIT(A) quashed the assessment for the assessment year 2004-05 on the ground that the mandatory notice under section 143(2) was not served within the prescribed period. The department argued that the notice was issued and sent by registered post within the statutory period. However, the CIT(A) found discrepancies in the department's records and concluded that the notice was not served on time. The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of proper record-keeping and the procedural requirements for issuing notices.
2. Genuineness of Gifts Received by the Assessee:
For the assessment year 2004-05, the CIT(A) held that the gifts amounting to Rs. 8,29,25,107 were genuine, based on the evidence provided by the assessee. The Tribunal upheld this finding, noting that similar issues in earlier years had been resolved in favor of the assessee. The Tribunal referred to its previous order in the assessee's case for the assessment year 2003-04, where it was held that the gifts were genuine, considering the identity and capacity of the donors and the voluntary nature of the gifts.
3. Taxability of Gifts Received under Section 56(2)(v) and Section 28:
For the assessment years 2005-06 and 2006-07, the assessee received gifts, some of which were offered for taxation under section 56(2)(v) as "income from other sources" while others were claimed as non-taxable. The Assessing Officer taxed the gifts up to Rs. 25,000 under section 28 as "income from business or profession," arguing that these were vocational receipts due to the assessee's political activities. The CIT(A) disagreed, holding that the gifts were personal in nature, received on the occasion of the assessee's birthday, and should be treated uniformly under section 56(2)(v). The Tribunal upheld the CIT(A)'s decision, emphasizing that the gifts were given out of personal admiration and love for the assessee's social work and not for any political quid pro quo.
Conclusion:
The Tribunal dismissed the revenue's appeals for all three assessment years, upholding the CIT(A)'s decisions on quashing the assessment due to non-service of notice, accepting the genuineness of the gifts, and treating the gifts uniformly under section 56(2)(v) rather than splitting them into different heads of income. The Tribunal's decision was based on a thorough examination of the facts, evidence, and relevant case laws, ensuring that the gifts were correctly classified and taxed according to the legislative intent.
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2010 (8) TMI 752
Unexplained credit - availability of cash - HELD THAT:- Once the department accepted the return of income for the assessment year 1999-2000, it is to be construed that they accepted the computation of income and also cash-flow statement and the balance sheet enclosed with the return of income. They have not questioned the cash-flow statement regarding the availability of funds thereon. Later on, the department cannot say this fund is not available to the assessee. Due credit to this should be given. It is not open to the department to pick and chose the contents of the return as suits to them. Accordingly, in our opinion, the credit is to be given to the availability of cash to the tune of Rs. 2,14,012. Hence, this ground taken by the assessee is allowed to that extent of Rs. 2,14,012.
Addition of Low drawing - assessee paid a Municipal Property Tax at Rs. 12,752 and the assessee’s family consists of 5 members and the drawings of Rs. 20,000 is not enough to meet the monthly expenditure of the family - HELD THAT:- AO has not brought on record anything other than payment of municipal tax of Rs. 12,752. Unless the AO brought on record any evidence regarding the exact amount of expenditure incurred by the assessee in the form of bills, vouchers or bank withdrawals, we are not in a position to confirm this issue in its entirety. Accordingly, we confirm the addition to the tune of Rs. 12,752 paid towards municipal tax for which there is an evidence of expenditure. Thus, Appeal is partly allowed.
Exemption u/s 54F - assessee not utilized the capital gains in purchase of plot and construction of house thereon. The plot was purchased much before the capital gain accrued/received by the assessee and the assessee has not produced any evidence to prove that he has constructed the house within a period of 3 years from the date of sale of the property- Also assessee has not invested the unutilized long-term capital gain in a specific bank account - HELD THAT:- From a bare reading of section 54F, we find that sub-section (1) should be read along with sub-section (4). If both these sub-sections are read in a conjunction only one inference is drawn that to avail the benefit of section 54F, the assessee is required either to purchase a residential house out of the sale proceeds or long-term capital asset within a period of one year before or 2 years after the date on which transfer took place or within a period of 3 years after that date, construct a residential house. In that case, gain shall be computed as per clauses (a) and (b) of sub-section (1).
In the present case, it is admitted fact that the assessee has brought an asset in the month of September, 2000, though the assessee sold the property in the month of January, 2001. Thus, the assessee has fulfilled the conditions laid down in this. The assessee invested the capital gain arised from the transfer of long-term capital asset not being a residential allowance invested in residential house. The assessee is entitled for deduction to that extent and the findings of the CIT(A) in accordance with the provisions of section 54F and the same is confirmed. Thus, appeal is dismissed.
Addition as receipts - Year of assessment - assessee received remittance - AO concluded the remittance should have come only during that year to explain such liability - Since the remittance has come in the earlier year, the CIT(A) deleted the addition - HELD THAT:- These facts were not controverted by the departmental representative and, hence, in our opinion, the addition cannot be made in the assessment year 2003-04. The deletion of addition by CIT(A) is justified and same is confirmed.
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2010 (8) TMI 751
Issues Involved:
1. Determination of excess credit period allowed to Associate Enterprises (AEs) and disallowance under section 92AC.
2. Disallowance of advertisement expenditure.
3. Disallowance of software expenses.
4. Disallowance under section 14A.
5. Disallowance of interest on advances to associate company.
6. Disallowance of bad debts.
Issue-wise Detailed Analysis:
1. Determination of Excess Credit Period Allowed to AEs and Disallowance under Section 92AC:
The primary issue was whether the Assessing Officer/TPO correctly determined the average 100 days excess credit period allowed to AEs compared to unrelated parties and rightly worked out the quantum of disallowance under section 92AC. The assessee, engaged in travel and tours, had transactions with AEs and unrelated parties, adopting the Transactional Net Margin Method (TNMM) for determining the Arm's Length Price (ALP). The TPO found that the credit period allowed to AEs was more favorable, leading to an interest disallowance of Rs. 81,50,001. The CIT(A) reduced this disallowance to Rs. 11,08,045 after correcting calculation errors. The Tribunal noted that the TPO had wrongly calculated the weighted average credit period and remanded the issue back to the Assessing Officer for re-evaluation.
2. Disallowance of Advertisement Expenditure:
The assessee claimed Rs. 8,01,92,534 as advertisement expenditure, with Rs. 2,38,91,862 pertaining to earlier years. The Assessing Officer disallowed this amount, stating it should have been claimed earlier. For the remaining Rs. 5,63,00,672, the Assessing Officer treated it as deferred revenue expenditure, allowing only 1/5th. The CIT(A) allowed Rs. 5,39,42,311 as revenue expenditure but disallowed Rs. 23,58,361, considering it not pertaining to the current year. The Tribunal upheld the CIT(A)'s decision to allow Rs. 5,39,42,311 and further allowed Rs. 22,00,219, treating it as revenue expenditure.
3. Disallowance of Software Expenses:
The assessee did not press this issue, and the Tribunal dismissed it as not pressed.
4. Disallowance under Section 14A:
The assessee did not press this issue, and the Tribunal dismissed it as not pressed.
5. Disallowance of Interest on Advances to Associate Company:
The assessee provided interest-free loans to M/s. Ezeego, while incurring interest on borrowed funds. The Assessing Officer disallowed Rs. 21,31,174 as interest on these advances. The CIT(A) confirmed this disallowance. The Tribunal found the issue needed reconsideration, as the assessee claimed commercial expediency and interest-free funds usage. The Tribunal remanded the issue to the Assessing Officer for fresh adjudication.
6. Disallowance of Bad Debts:
The assessee claimed Rs. 51,43,835 as bad debts, which the Assessing Officer disallowed due to lack of details. The CIT(A) allowed the claim, noting the bad debts were from amounts receivable for which income was already offered for taxation. The Tribunal upheld the CIT(A)'s decision, citing relevant case law.
Conclusion:
The Tribunal partly allowed both appeals for statistical purposes, remanding specific issues for further examination and upholding the CIT(A)'s decisions on others.
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2010 (8) TMI 750
Rate of depreciation on the computer software - expenditure incurred on software treated treated as a capital expenditure - AO allowed the depreciation @ 25 per cent - CIT(A) accepted the claim of the assessee to allow the depreciation @ 60 per cent - HELD THAT:- In the assessment year 2002-03, the software was not identified as a separate item for depreciation but from the assessment year 2003-04 software is the part of the computer for the purpose of the depreciation. Otherwise also, as rightly held by the Ld CIT (A) the software cannot work in isolation but has to be loaded on computer and the later also cannot work without software. In sum and substance, the software is integrated part of the total operation of the computer. Accordingly, the issue is decided in favour of the assessee.
Revenue has also raised the grievance that Ld CIT (A) erred in directing the AO to recomputed the exemption u/s 10A. In our opinion, this is a consequential issue as higher rate of depreciation is allowed on the software. Accordingly, ground is dismissed.
Exemption u/s 10A - income generated from training given to the customer for the use of the software - he AO was of the view that the income generated from the training activity cannot be considered for the computation of deduction/exemption under section 10A and it is not on account of any development of software, but, training is given after software is delivered to the customer - HELD THAT:- In the case of Sovika Infotek Ltd[2007 (7) TMI 441 - ITAT MUMBAI] an identical issue has been considered by the Tribunal and it is held that the training activity of the assessee is intricately connected with the software development, sale, maintenance etc. and the same would be entitled for exemption under section 10B. Identical view is also taken in WOODWORD GOVERNORS INDIA (P.) LTD. [2007 (4) TMI 391 - ITAT DELHI] while interpreting the scheme of section 80IB and held that income generated for providing the training to his employees of his customers for the use of the product sold to them and was also maintaining after sales services and the repairing the products sold to his customers and same is to be treated as profit derived for the purpose of section 80IB. As the scheme of section 10A is analogous to section 80IB, the same principles are also applicable here also. We, therefore, confirm the order of Learned CIT (A) holding that the income generated from training given to the customer for the use of the software is eligible for exemption/deduction u/s 10A.
Grievance of the assessee that it should form the part of the export turnover - CIT (A) directed AO to include the receipts of the training into the ‘total turnover’ but exclude the same from the ‘export turnover’ - We do not understand the logic behind the directions of the Learned CIT (A). It is a basic principle that the numerator and denominator of the formula are to be same, and adjustment should be made both to denominator and numerator. Once it is held that it is intricately related with the export of the software then it has to be included into the export turnover also as admittedly same is brought in to India in convertible foreign exchange. We, therefore, direct the Assessing Officer to include said amount of training receipt into export turnover and also to the total turnover and thereafter work out allowable deduction/exemption under section 10A of the Act.
Eligible profit for claiming deduction u/s 10A - Exchange gain on travelling expenses recovery - AO noted that the assessee has recovered travelling expenses from his customers, which was received in foreign exchange due to the recovery of the travelling expenses in foreign exchange and treated the same as part of its eligible profit for the purpose of claiming exemption/deduction under section 10A - HELD THAT:- Admittedly, the gain is on account of reimbursement of expenditure incurred by the assessee from his customers and that is also on account of fluctuation in the rate of the foreign exchange. It can not be treated as an income derived by an undertaking from the export of articles or computer software. In our opinion, the same cannot form part of eligible profit for claiming deduction under section 10A of the Act as it can not be treated as income derived from the export of the software.
TP Adjustment - computation of Arm's Length Price along with the price in relation to international transactions entered into by the assessee with it's subsidiaries as commission has been paid on customisation fees - D.R. vehemently argued that there is no reason to pay the additional commission to the subsidiaries then the independent local distributors. It is argued that entire customisation work is done by the assessee only and there is no contribution by the subsidiaries in the customisation work entrusted by the users of the software manufactured by the assessee company
HELD THAT:- Though the subsidiaries are not directly involved in the customisation work of the software but at the same time they are only authorised to collect the customisation work in the market and other independent distributors are not doing said work. It is also seen that some of the independent distributors are paid higher commission then the subsidiaries without doing any job for collection of customization work.
No interference is called in the order of the Ld CIT(A) on this issue. Accordingly, the same is confirmed. Ground taken by the revenue is dismissed.
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2010 (8) TMI 749
Condonation petition - HELD THAT:- There is a delay of 489 days in filing of the CO by the assessee. After considering the reasons given in the condonation petition, the affidavit and in the view of the principles laid down in the case N. Balkrishnan V.M. Krishnamurthy [1998 (9) TMI 602 - SUPREME COURT], Vasu & Co. v. State of Kerala [2001 (6) TMI 796 - KERALA HIGH COURT] the delay in filing of the CO is condoned, as the assessee is not otherwise gaining more as he can also take shelter of Rule 27.
Adjustment (international transaction) in the ALP - comparable cases - Assessee has purchased goods from and sold to its AEs and has adopted the Cost Plus Method. Referring to provisions of section 92C(2), he submitted that there is no scope for the CIT(A) to adopt weighted average method since the Act provides only simple arithmetic mean.
HELD THAT:- we find the AO made the addition on the basis of the order of the TPO who had selected four parties as comparable cases for the T.P. study. We find out of the four companies, namely, Moon Diamonds (India) Ltd., Deep Diamonds (India) Ltd., Shantivijay Jewels Ltd. and Sovereign Diamonds Ltd., the CIT(A) considered the first three parties as comparables and he accepted the contention of the assessee that Sovereign Diamonds Ltd. cannot be compared because it is engaged in the business of diamonds and the results shown by it i.e., G.P. of 53.81 per cent on cost is beyond the norms and standards of the industry.
In our opinion, Sovereign Diamonds Ltd. showing a gross profit margin of 53.81 per cent cannot be considered as a comparable which shows abnormal profit which is beyond the norms and standards of the industry. Similarly, in view of the wide variations in various parameters of the comparables, weighted average, in our opinion, should be adopted as against simple arithmetic average adopted by the AO. We, therefore, do not find any infirmity in the order of the CIT(A) to this extent and the grounds raised by the revenue have to be dismissed.
Applicability of the Board circular - CIT(A) while deciding the issue has not considered the CBDT circular according to which no adjustment to the ALP can be made where the difference in the margin is within 1 5 per cent of the price determined by the AO.
HELD THAT:- It is the settled proposition of law that the Board’s circulars are binding on the Department. We find, although the CIT(A) has discussed the issue, he, however, has not given any specific finding whether the assessee’s case is covered by the Board’s circular. It is the submission of the learned DR that since this issue was not before the AO and the assessee has raised the issue before the CIT(A) for the first time who has not given any decision on this issue, therefore, the matter may be restored to the CIT(A) for adjudication on this issue.
However, considering the totality of the facts of the case, we are of the considered opinion, that this issue i.e., applicability of the Board circular No. 12/2001 to the facts of the case of the assessee should be restored to the file of the AO since it requires certain calculations and verifications. We, therefore, restore the matter to the file of the AO for fresh adjudication of the issue. The grounds raised by the revenue on this issue are dismissed and the CO filed by the assessee is allowed for statistical purposes.
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2010 (8) TMI 748
Whether valued answer sheets of an examination returned to a public authority by the examiner entrusted with the task of valuation, is information exempted from disclosure under any of the provisions of the Right to Information Act, 2005 after the results of the examination are published - University may not be treated as situated in a fiduciary relationship with the examinee. University is, no doubt, to discharge statutory functions and one of its functions is to conduct examinations. But a person, who has been entrusted with the valuation of an answer script, by the University, enjoys a position of trust and there would come into existence a fiduciary relationship between the University and the valuer of the answer script, in the context of the valuation of the answer script of an examinee, matter refered for consideration of a Division Bench
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2010 (8) TMI 747
Valuation – demand - whether, under Section 14 of the Customs Act, the duty element was liable to be deducted from the FOB value of the export goods in determining the assessable value of the goods for the purpose of payment of export duty – Held that:- FOB price of iron ore exported by one of the present appellants was held to be cum-duty price and accordingly abatement of duty element from the FOB price was allowed to the assessee, appeal dismissed
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2010 (8) TMI 746
Classification - whether the "voltage stabilizer" manufactured and sold by the assessee (respondent herein) ought to be taxed as electrical goods under entry No. 16 of the Schedule to the U.P. Trade Tax Act, 1948 or as electronic goods under entry No. 74(f) of Notification No. 1223 dated March 31, 1992 - Held that:- voltage stabilizers were electronic goods falling within entry No. 74(f) of Notification No. 1223 dated March 31, 1992, passed under the U. P. Trade Act, 1948, and were liable to sales tax under the U.P. Trade Tax Act, 1948, at the rate of four per cent.
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2010 (8) TMI 745
Whether Tribunal was correct in law for holding that the provisions of section 263 of the Income-tax Act have not been rightly invoked in this case for the assessment year 1982-83 - Commissioner of Income-tax served a notice to the assessee stating therein that while completing the assessement the Income-tax Officer did not inquire into the genuineness of the capital investments of the two partners and unsecured loans taken - Held that:- assessee explained that the capital investment made by the partners, which had been called into question by the Commissioner, was duly reflected in the respective assessments of the partners who were income-tax assessees and the unsecured loan taken from M/s. Stutee Chit and Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee, decision in favour of the assessee and against the Revenue
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2010 (8) TMI 743
Assessment - petitioner-assessee chosen to withdraw the objections filed before the Dispute Resolution Panel - Dispute Resolution Panel directed the Assessing Officer under section 144C(5) of the Act to pass assessment order in consonance with the draft assessment order already passed by him. Being aggrieved, the petitioner has moved the present petition seeking the reliefs - directions issued by the Dispute Resolution Panel makes it apparent that the Dispute Resolution Panel has failed to consider the contents of the letter/application - application clearly indicates that there is nary a whisper regarding withdrawing the objections - By the said application the petitioner has only requested the Dispute Resolution Panel to give its consent to allow it to approach the Assessing Officer and request him to issue the final order so as to enable the petitioner to avail of the appellate channel - order also causes immense prejudice to the petitioner as recorded - order of the Dispute Resolution Panel, therefore, cannot be sustained, petition succeeds and is accordingly allowed, objections filed by the petitioner before the Dispute Resolution Panel are hereby restored to the file of the Dispute Resolution Panel
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2010 (8) TMI 741
Search - block assessment - addition made on account of unexplained investment in property by the assessee deleted by ITAT - Held that:- As the addition made by the AO is solely based upon the report made by the District Valuation Officer, which cannot be stated to be material found during the course of search. No other material had been found at the time of search to indicate that the assessee had spent any amount in excess of what had been recorded in the books of account regularly maintained by it. In the circumstances, without going into the question of the validity of the reference made under section 131(1)(d) of the Act to the District Valuation Officer, as has rightly been held by the Commissioner (Appeals) the issue would not relate to block assessment in the given set of facts and as such the addition in question was beyond the scope of the block assessment - no legal infirmity can be found in the impugned order of the Tribunal so as to warrant interference.
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2010 (8) TMI 740
Undisclosed income - gifts received by the assessee-firm from NRIs - Applying the previous year's gross profit rate of 4.39 per cent. to the current year, it was noticed that the gross profit of the assessee would have been ₹ 62.57 lakhs as against the declared gross profit of ₹ 41.26 lakhs giving a difference of ₹ 21.31 lakhs - Held that:- No plausible explanation had been furnished by the assessee for lower gross profit in the current year and the amount of alleged gifts amounting to ₹ 22,01,000 was almost equal to the lower gross profit declared. The trading results of the assessee were, thus, rejected and the addition of ₹ 22,01,000 was treated as undisclosed income of the assessee. In view thereof, the alleged gifts received from NRIs by the partners were the undisclosed income of the assessee-firm in the facts and circumstances of the present case - substantial question of law is answered in favour of the Revenue.
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