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2004 (3) TMI 336
Issues Involved:
1. Validity of proceedings initiated under Section 148 of the Income Tax Act.
2. Nature of interest received on delayed payment of compensation-whether it is a capital receipt or a revenue receipt.
3. Compliance with the provisions of the Land Acquisition Act, particularly Section 17.
Issue-wise Detailed Analysis:
1. Validity of Proceedings Initiated under Section 148:
The primary contention was whether the notice under Section 148 was validly issued. The assessee argued that the reasons for reopening the assessment were recorded on April 22, 1996, while the notice was issued on April 3, 1996, suggesting post-dating of reasons. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] concluded that the reasons were recorded on April 3, 1996, making the notice valid. The CIT(A) rejected the additional evidence from the handwriting expert provided by the assessee. The tribunal upheld the CIT(A)'s decision, stating that the proceedings under Section 148 were validly initiated as the assessee had not fully disclosed particulars related to income from compensation and interest on delayed compensation.
2. Nature of Interest Received on Delayed Payment of Compensation:
The main issue was whether the interest received on delayed payment of compensation was a capital receipt or a revenue receipt. The AO treated the interest as a revenue receipt and included it in the taxable income. The CIT(A) reversed this, holding the interest as a capital receipt, relying on the Tribunal's order in J.D. Singhal vs. ITO and the Supreme Court's decision in Dr. Shamlal Narula vs. CIT. The tribunal upheld the CIT(A)'s decision, emphasizing that the interest was received due to deprivation of possession of land, making it a capital receipt. The tribunal referenced various case laws, including Jethmull Bhojraj vs. State of Bihar and Banwari Lal & Sons (P) Ltd. vs. Union of India, to support the view that the possession taken was not in accordance with Section 17 of the Land Acquisition Act, thus making the interest a capital receipt.
3. Compliance with the Provisions of the Land Acquisition Act:
The tribunal examined whether the possession of the land was taken in compliance with Section 17 of the Land Acquisition Act. The assessee argued that possession was taken before the expiry of 15 days from the publication of the notice under Section 9(1) and without paying 80% of the estimated compensation, as required by Section 17. The tribunal found that the possession was indeed taken before the stipulated period and without the necessary payment, rendering the possession unlawful. The tribunal referenced the Supreme Court's decision in Jethmull Bhojraj vs. State of Bihar and the Delhi High Court's decision in Banwari Lal & Sons (P) Ltd. vs. Union of India, which held that non-compliance with Section 17(1) and (3A) rendered the acquisition invalid. Consequently, the tribunal concluded that the land did not vest in the Government as per the provisions of the Land Acquisition Act, supporting the view that the interest received was a capital receipt.
Conclusion:
The tribunal dismissed all the appeals of the Revenue and the cross-objections by the assessee, upholding the CIT(A)'s findings that the proceedings under Section 148 were valid and that the interest received on delayed compensation was a capital receipt. The tribunal emphasized the importance of compliance with the provisions of the Land Acquisition Act, particularly Section 17, in determining the nature of the interest received.
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2004 (3) TMI 335
Cash credits - onus to prove - Nature and genuineness of the impugned loan - Whether the transaction of unsecured loan is a sham transaction - HELD THAT:- Even if the statement of Shri Parveen Khurana is accepted, yet certain questions remain unanswered which arise out of the enquiries conducted by the AO. The circuitous route of repayment noticed by the AO leads to a definite conclusion that the transactions done through banking channels and that the parties existed and were identifiable as the bank accounts were maintained. Further, the furnishing of the balance sheet of the creditor by the assessee also lends credence to the existence and identification of the source of loans. It is a moot point to consider as to whether all these conclusions could be brought to nought by a mere statement made by the third party, that also, at the back of the assessee. In fact the averment in the statement of Shri Parveen Khurana that monies have been paid in cash on behalf of the assessee-company with respect to the impugned loan is not supported by any material or evidence and hence lacks factual support.
Thus, we are of the considered view that the Revenue does not have enough material to justify the conclusion drawn to the effect that the impugned transaction was a sham transaction. In particular, there is no evidence or cogent material brought out by either of the lower authorities which suggests that the assessee had made any payment to the creditor company or to Shri Parveen Khurana outside the books of account. Hence, on account of lack of evidence and factual support, we do not sustain the conclusions drawn that the impugned transaction was a sham. Hence, on the first issue, we hold the issue in favour of assessee.
Discharge of onus cast in terms of s. 68 - Admittedly, the impugned amount has been received from M/s Sumit Polymers Ltd. as is discernible from its balance sheet, a copy of which is placed at pp. 17-18 of the paper book filed by the assessee. The said balance sheet evidently reflects adequate sources for advancing of the impugned amount to the assessee. It is also an admitted position that the money has come through the banking channels. Thus, in view of the detailed facts noted by us in earlier paragraphs, the inferences that can be safely drawn are that the creditor is identified; that the creditor has necessary financial capacity to advance the impugned amount. Thus, the duty cast on the assessee u/s 68, is said to have been discharged. Hence, the assessee is liable to succeed on this issue also.
In the result, we are of the considered opinion that the impugned additions are liable to be deleted. We hold so.
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2004 (3) TMI 334
Issues Involved:
1. Infructuous Appeal
2. Deletion of Addition by CIT(A)
3. Permanent Establishment (PE) in India
4. Taxability of Outside India Receipts
5. Application of CBDT Instruction No. 1767
Issue-wise Detailed Analysis:
1. Infructuous Appeal:
The Revenue filed two appeals against the same order of the CIT(A) for the same assessment year 1993-94, taking identical grounds in both appeals. Consequently, Appeal No. 1754/Del/1999 was treated as infructuous and dismissed accordingly.
2. Deletion of Addition by CIT(A):
The CIT(A) deleted the addition made by the AO, who had brought to tax income arising to the assessee in respect of payments shown as outside India receipts. The CIT(A) accepted the assessee's contention that outside India activities were not attributable to a permanent establishment in India. The CIT(A) relied on the order for the assessment year 1992-93, where a similar issue was decided in favor of the assessee.
3. Permanent Establishment (PE) in India:
The AO claimed that the assessee had a PE in India during the previous year, as per Article 5(3) of the DTAA between India and South Korea. The AO argued that pre-designing activities were carried out in India, and therefore, the total receipts in relation to such contracts should be included in the income of the assessee. However, the CIT(A) found that the assessee had no presence at the offshore site in any form prior to the arrival of structures for carrying out Indian operations. The CIT(A) relied on certificates from ONGC and the Korean Taxation Office, which confirmed that the payments were made for work completed outside India and were not in the nature of advance payments.
4. Taxability of Outside India Receipts:
The AO attributed 10% of the payments received for outside India operations to the PE in India, due to the lack of books and records to determine the actual income. The CIT(A) disagreed, stating that the payments made by ONGC were related to work done at the yard in Korea and were not taxable in India. The CIT(A) relied on the precedent set in the assessment year 1992-93, where similar facts were considered, and the issue was decided in favor of the assessee. The Tribunal also noted that the Department had not preferred any appeal against the CIT(A)'s order for the assessment year 1992-93, making it final.
5. Application of CBDT Instruction No. 1767:
The AO argued that the CIT(A) did not follow the spirit of CBDT's Instruction No. 1767, which lays down that payments for outside India activities for turnkey contracts are taxable at a deemed profit rate of 1%. The CIT(A) found that the issue had already been examined in detail in the assessment year 1992-93 and decided in favor of the assessee. The CIT(A) noted that the facts for the assessment year 1993-94 were similar to those of the previous year, and therefore, the claim of the assessee was allowed.
Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeals. The Tribunal found that the Department had not provided any evidence to prove the existence of a PE in India or to attribute any part of the income to such PE. The Tribunal also noted that the Department had not conducted a thorough investigation into the nature of the establishment of the assessee in India or the activities carried out in respect thereto. Consequently, the Tribunal confirmed the CIT(A)'s order, which allowed the assessee's claim that the receipts from outside India operations were not taxable in India.
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2004 (3) TMI 333
Issues Involved:
1. Validity of levy of penalty under section 271C of the Income-tax Act, 1961.
2. Nature of payment made by the assessee to Pradeep Oil Corporation and the applicable TDS provisions.
3. Interpretation of sections 194C and 194-I of the Income-tax Act.
4. Applicability of CBDT Circulars and their impact on the case.
5. Reasonable cause for non-deduction of proper tax under section 194-I.
Issue-wise Detailed Analysis:
1. Validity of Levy of Penalty under Section 271C:
The primary issue revolves around the confirmation of the penalty levied by the Assessing Officer under section 271C of the Income-tax Act, 1961. The assessee was penalized for short deduction of tax at source (TDS). The Tribunal upheld the penalty, noting that the assessee's deduction of TDS at 2% under section 194C instead of the required 20% under section 194-I was not justified.
2. Nature of Payment Made by the Assessee to Pradeep Oil Corporation:
The assessee made payments to Pradeep Oil Corporation, which were initially treated as warehousing charges. The Assessing Officer, upon verification, concluded that these payments were essentially rent for the use of the warehouse. The agreement between the assessee and Pradeep Oil Corporation indicated a fixed rent arrangement, contradicting the assessee's claim that it was a service contract.
3. Interpretation of Sections 194C and 194-I:
Section 194C pertains to payments made to contractors or sub-contractors for carrying out work, while section 194-I deals with payments of rent. The Tribunal emphasized that section 194-I's definition of "rent" includes payments for the use of land or buildings, making it clear that the payments in question fell under section 194-I and not section 194C. The Tribunal extracted relevant portions of these sections to highlight the distinction.
4. Applicability of CBDT Circulars:
The Tribunal referred to CBDT Circular Nos. 715 and 718, which clarified that composite agreements for taking premises on rent should be treated under section 194-I. Circular No. 718 specifically addressed that warehousing charges are subject to TDS under section 194-I. The Tribunal also examined Circular No. 275, which clarified that non-enforcement of demand under section 201(1) does not affect the liability for penalty under section 271C.
5. Reasonable Cause for Non-Deduction of Proper Tax:
The assessee argued that the payments were treated as business income by the recipient and that there was a reasonable cause for the deduction under section 194C. The Tribunal rejected this argument, stating that the CBDT Circulars issued before the relevant financial years had already clarified the correct TDS treatment for warehousing charges. The Tribunal found no evidence of the assessee seeking legal advice to support its action and concluded that the assessee intentionally deducted TDS at a lower rate.
Conclusion:
The Tribunal upheld the penalty under section 271C, dismissing the appeals filed by the assessee. It concluded that the payments made to Pradeep Oil Corporation were indeed rent, subject to TDS under section 194-I at 20%, and not under section 194C. The Tribunal emphasized that the assessee's actions were not based on a bona fide belief or reasonable cause, and the penalty was justified.
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2004 (3) TMI 332
Issues:
Appeals against penalties imposed under s. 272A(2)(c) of IT Act for asst. yrs. 1996-97 and 1997-98 by CIT(A) - I, Bhubaneswar.
Analysis:
The appeals were filed by the assessee, the State of Orissa represented by Executive Engineer, PH Division, against penalties imposed for late filing of annual returns. The main issue was whether leniency could be granted for the delays in filing. The CIT(A) upheld the penalties, noting the history of late filings and lack of reasonable cause for the delays. The Tribunal considered arguments from both sides. The senior counsel for the assessee cited legal provisions and case laws, urging for a lenient view. However, the Tribunal disagreed, emphasizing that the State, through its officials, must fulfill its obligations, and the executive engineer cannot evade responsibility for late filings. The Tribunal rejected the argument that difficulties in recovery should lead to leniency, stating that the law must be upheld uniformly. Ultimately, the Tribunal upheld the penalties imposed by the AO and confirmed by the CIT(A), dismissing the appeals filed by the assessee.
This case highlights the importance of timely compliance with tax obligations, even for entities representing the State. It underscores that excuses like being busy cannot justify delays in fulfilling legal requirements. The judgment emphasizes that all individuals, including government officials, must manage their affairs responsibly and cannot expect special treatment under tax laws. The decision sets a precedent that penalties can be upheld even for entities like the State when there is a history of non-compliance and no valid reason for delays.
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2004 (3) TMI 331
Issues:
1. Whether the expenditure incurred on the construction of a boundary wall by a trust is eligible for deduction under section 11 of the Income Tax Act.
2. Whether a trust is entitled to exemption under section 11 for the sale proceeds of a capital asset utilized for the trust's objects.
Issue 1:
The first issue revolves around the eligibility of the expenditure incurred on the construction of a boundary wall by a trust for deduction under section 11 of the Income Tax Act. The Assessing Officer (AO) disallowed the sum spent on the boundary wall, stating it did not amount to application of income for the trust's objects. The Commissioner of Income Tax (Appeals) upheld this decision. The trust argued that as one of its objects was to make additions and alterations to buildings and property attached to the Holy Darbar, the expenditure should be considered applied for the trust's objects. Reference was made to a decision of the Madras High Court. The Income Tax Appellate Tribunal (ITAT) analyzed the Madras High Court decision, emphasizing that income from trust property must be applied for trust objects, whether for revenue or capital purposes. Considering the trust's objects and the Madras High Court decision, the ITAT concluded that the trust was entitled to exemption for the expenditure on the boundary wall. Consequently, the ITAT allowed the appeal of the assessee, deleting the addition made by the AO.
Issue 2:
The second issue concerns whether a trust is eligible for exemption under section 11 for the sale proceeds of a capital asset utilized for the trust's objects. The AO denied exemption to the trust on the grounds that the conditions under section 11(1A) were not met when the trust sold land and utilized the proceeds. However, the CIT(A) held that the trust was entitled to exemption under section 11, even without meeting the conditions of section 11(1A). The Revenue contended that section 11(1A) was specifically incorporated, and non-compliance excluded the trust from exemption on capital gains. The ITAT examined the facts, noting that the trust had always enjoyed exemption under section 11. The ITAT highlighted that the trust had utilized the capital gains for charitable purposes, including a significant donation. Citing relevant case law, the ITAT affirmed the CIT(A)'s decision, stating that the expenses incurred were for the trust's objects. Consequently, the ITAT dismissed the Revenue's appeal while allowing the appeal of the assessee.
In conclusion, the ITAT's judgment in this case clarifies the application of section 11 of the Income Tax Act regarding deductions for trust expenditures and exemptions for capital gains utilized for trust objects. The detailed analysis provided by the ITAT demonstrates a thorough consideration of legal principles and precedents, resulting in a balanced decision benefiting the trust in both issues presented before the tribunal.
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2004 (3) TMI 330
Issues:
1. Dispute over addition of Rs. 1,40,500 out of Rs. 1,53,360 in asst. yr. 1996-97.
Analysis:
The appeal before the Appellate Tribunal ITAT Chandigarh-A was regarding the Revenue's disagreement with the CIT(A) order concerning the addition of Rs. 1,40,500 out of Rs. 1,53,360 for the assessment year 1996-97. The dispute arose from a sales discrepancy of Rs. 1,53,360 in the account of ICL, which the AO believed was sales suppression. The assessee explained that although the goods were initially sold to ICL and later returned, the sales were reduced in the trading account and the closing stock was credited. The CIT(A) accepted the assessee's explanation that only the profit attributable to the sales should be taxed, considering the goods were returned in the subsequent year. The Tribunal agreed that the addition should not be the entire Rs. 1,53,360, as the facts were undisputed. The CIT(A) had correctly reduced the addition to Rs. 12,860, which was upheld by the Tribunal, leading to the dismissal of the Revenue's appeal.
Therefore, the Tribunal found no merit in the Revenue's appeal, as the explanation provided by the assessee regarding the sales discrepancy was verified with reference to excise records and deemed satisfactory. The Tribunal upheld the CIT(A)'s decision to reduce the addition from Rs. 1,53,360 to Rs. 12,860 based on the verified facts and explanations provided by the assessee. Consequently, the Revenue's appeal was dismissed by the Tribunal, affirming the decision of the CIT(A) regarding the disputed addition in the assessment for the year 1996-97.
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2004 (3) TMI 329
Issues:
1. Maintainability of the order made under section 154 by the Assessing Officer (AO) and the subsequent order of enhancement by the Commissioner of Income Tax (Appeals) [CIT(A)].
2. Power of the CIT(A) to make enhancement while deciding the appeal arising from the order made under section 154 by the AO.
Issue 1: Maintainability of the order made under section 154 by the AO and the subsequent order of enhancement by the CIT(A):
The appellant challenged the order made under section 154 by the AO, which rectified the assessment order completed under section 143(3) of the Income Tax Act for the assessment year 1994-95. The AO assessed the long-term capital gain differently from the original assessment, leading to an appeal by the appellant. The CIT(A) held that the AO and the appellant erred in computing the capital gain, as the AO failed to assess the capital gains arising from the land transfer to the developer at a single stage. The CIT(A) proposed to enhance the long-term capital gain, ultimately determining it at Rs. 1,16,14,085. The appellant contended that the CIT(A) exceeded his power in making enhancements in an appeal against a rectification order under section 154. The Tribunal found that the mistake pointed out by the AO and the CIT(A) was not a glaring and apparent one, as it involved debatable points of law and facts. As the mistake was not obvious and patent, it could not be rectified under section 154. The Tribunal concluded that the orders determining the long-term capital gains under section 154 were without jurisdiction, cancelling them.
Issue 2: Power of the CIT(A) to make enhancement while deciding the appeal arising from the order made under section 154 by the AO:
The appellant argued that the CIT(A) lacked the power to enhance the assessment in an appeal against a rectification order under section 154. The appellant cited provisions of the Income Tax Act and court rulings to support this contention. The Tribunal observed that the jurisdiction to decide the appeal against the order made under section 154 was limited to the question decided by the AO in rectifying the order. It reiterated that the CIT(A) cannot do what the AO himself cannot do, especially when there is no obvious mistake on record. The Tribunal emphasized that the AO and the CIT(A) had determined the capital gain through a process involving debatable points, making it beyond the scope of rectification under section 154. Consequently, the Tribunal held that the CIT(A) exceeded his jurisdiction in enhancing the long-term capital gain, leading to the cancellation of the orders made by the authorities below.
In conclusion, the Tribunal allowed the appeal filed by the appellant, as the orders passed by the authorities below were deemed to be without jurisdiction. The other grounds of appeal raised by the appellant were considered infructuous and did not require adjudication.
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2004 (3) TMI 328
Issues involved: Appeal against penalty u/s 271D for violation of s. 269SS of the IT Act for accepting cash loan exceeding Rs. 20,000.
Summary:
The appellant appealed against a penalty of Rs. 10,000 imposed u/s 271D for violating s. 269SS by accepting a cash loan exceeding Rs. 20,000. The appellant contended that the transaction was a temporary adjustment/accommodation between the Hindu Undivided Family (HUF) and its Karta, not a loan. The CIT(A) upheld the penalty, leading to the appeal before the Tribunal.
During the appeal, the Authorized Representative argued that the transaction did not fall under s. 269SS as it was not a loan or deposit but a temporary adjustment. The Departmental Representative supported the lower authorities' decisions.
The Tribunal noted that the transactions between the HUF and its Karta were temporary adjustments with no cash loan or deposit involved. Citing precedents, the Tribunal held that such transactions did not attract s. 269SS. Notably, no interest was paid or received. Therefore, the penalty was canceled as the journal entry for gift expenses did not constitute a loan or deposit under s. 269SS.
As a result, the appellant's appeal was allowed, and the penalty of Rs. 10,000 was revoked.
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2004 (3) TMI 327
Capital Gains - slump sale or itemized sale - cost of acquisition - Short-term capital gain on sale of building and plant and machinery - Applicability of section 50 - HELD THAT:- While computing the short-term capital gain tax the Assessing Officer has taken this value and deducted the cost of land and the WDV arrived at the figure of Rs. 35,57,295, computation already reproduced in above paras, which was accordingly taxed. The approach of the assessee indicates that to settle the sale consideration help of professional was sought and thereafter a final figure was arrived at. Our fourth observation in this sequence is that one M/s. Mehta Padamse, registered valuer was also appointed, though claimed to be by the purchaser who has valued the fair market value of plant and machinery including electrical installation.
As per the valuation given the fair market value of plant and machinery was determined at Rs. 1,64,75,000. The Assessing Officer has adopted this figure for the purpose of calculation of short-term capital gain on sale of plant and machinery, the computation already reproduced in above paras. So undisputedly the appellant was aware before hand distinctly about the value of plant and machinery and the value of land and building. Hence it is not a case of lump sum price for the business as a whole but the price was fixed in respect of the identifiable assets.
At this juncture we would like to mention that from the side of the revenue it was argued that the broken up figure were accounted for in its books of account by the purchaser M/s. HIL, however, this argument is not in the right perspective. The reason is that the buyer has to claim certain deduction in its income-tax matter and for the purpose the seller has its own independence. But the situation in the instant appeal is that the appellant was very much aware about the sale price of each and every assets and therefore, on that basis a figure was arrived at Rs. 150.63 lakhs as surplus on sale of industrial undertaking in its books of account. In view of the above observation based upon the factual matrix we can arrive at a conclusion that it was not a case of transfer of undertaking as a whole but it was a transfer of the assets of the undertaking excluding the liability. It is an admitted fact that the liability was not transferred to the buyer, hence cannot be termed as an instance of slump sale.
Applicability of section 50 - The two units of the appellant company were part of the total business of the assessee and they were not segregated for the purpose of taxation, therefore, should also not have been segregated while computing short-term capital gain. Moreover, as far as the business operation of the assessee is concerned, there is a factual finding that the Ahmednagar unit was operating as a feeder unit for Pimpri unit. Though the Ahmednagar unit was an independent unit but it was a part and parcel of the entire business venture of the appellant company. So the block of assets of particular unit should not be segregated from the entire WDV of an assessee for the limited purpose of computation of short-term capital gain. The newly substituted sub-section (2) provides that in a case where any block of assets ceases to exist for the reason that all the assets in that block are transferred during the previous year then in such a case the cost of acquisition of the block of assets shall be the written down value of the block at the beginning of the previous year.
Once the capital asset that has been transferred is found to form part of a block of assets in respect of which depreciation has been allowed the surplus, if any, computed in the section will be treated as short-term capital gain. The emphasis thus is that such block of assets should cease to exist. In terms of this section, in our opinion surplus arising on transfer of capital assets is taxable as short-term capital gain when the written down value of a block of assets is reduced to 'nil' even though all the assets falling within that block are not transferred. Thus where an assessee has obtained a deduction on account of depreciation in previous years, the provision of sections 48 and 49 shall have to be subjected to the modifications indicated in section 50. Both the depreciation as well as the block of assets belongs to an assessee and for all purposes has to be taken into account as a whole. There is no indication in the language of section 50 that while computing the short-term capital gain of a particular asset is to be segregated from the block of assets. The view taken by the revenue authorities was thus ipso jure wrong.
Resultantly, in solido, first limb of Ground No. 1 is hereby decided against the assessee and second limb is decided in favour of the assessee. Before we part with we may mention a word of appreciation to Shri Khare and Shri Sunil Agarwal ld. representatives of both the sides for their valuable assistance in deciding this ground.
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2004 (3) TMI 326
Issues Involved:
1. Disallowance of depreciation claimed on leased assets.
2. Addition under Section 68 for share application money.
3. Disallowance of claim under Section 35D for public issue expenses.
Issue-wise Detailed Analysis:
1. Disallowance of Depreciation Claimed on Leased Assets:
The primary issue was whether the assessee could claim depreciation on assets leased to M/s Beta Napthol Ltd. The assessee, a public limited company engaged in leasing and hire-purchase, had purchased assets from M/s Beta Securities Ltd. and leased them to Beta Napthol Ltd. The Assessing Officer (AO) disallowed the depreciation claim of Rs. 49,16,250, arguing that the transaction was a finance transaction rather than a lease, and the assessee was not the owner of the assets.
The CIT(A) reversed this disallowance, holding that the transaction was a genuine lease and not a sham. The CIT(A) emphasized that the assessee was the legal owner of the assets and the decision to purchase and lease the assets was a business decision aimed at earning income through lease rentals.
The Tribunal upheld the CIT(A)'s decision, finding that the terms of the lease agreement supported the assessee's claim of ownership. Key clauses of the lease agreement, such as the absence of a security deposit, the lessee's covenant not to claim ownership, and the requirement for the lessee to insure the equipment in the name of the assessee, were consistent with a genuine lease transaction. The Tribunal also noted that the lease rentals were not unconscionably low or high, and there was no evidence of a paper arrangement or hawala transaction. The Tribunal referenced a similar case, Sharyans Resources Ltd. vs. Jt. CIT, where the transaction was also held to be a genuine lease.
2. Addition under Section 68 for Share Application Money:
The second issue concerned the addition of Rs. 5 lakhs under Section 68, which represented share application money received in the name of one Kunal Kapoor. The CIT(A) found that the AO had not made any enquiry into the matter and restored the issue to the AO for verification. The Tribunal upheld this decision, allowing the AO to verify the claim in depth and make a fresh decision in accordance with the law, ensuring the assessee was afforded adequate opportunity of being heard.
3. Disallowance of Claim under Section 35D for Public Issue Expenses:
The final issue was the disallowance of Rs. 63,179 claimed under Section 35D for public issue expenses. The CIT(A) held that the assessee's business had already commenced, and therefore, the expenditure should be amortized over a period of 10 years. The Tribunal found no error in the CIT(A)'s decision and confirmed the same.
Conclusion:
The Tribunal dismissed the Department's appeal, confirming the CIT(A)'s decisions on all three grounds. The assessee was entitled to claim depreciation on the leased assets, the addition under Section 68 was to be re-examined by the AO, and the claim under Section 35D was correctly allowed by the CIT(A).
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2004 (3) TMI 325
Issues Involved:
1. Validity of the return filed on 31-12-1991.
2. Withdrawal of exemption under section 47(v) and applicability of section 47A.
3. Levy of interest under section 234A.
4. Levy of interest under section 234B.
Detailed Analysis:
1. Validity of the Return Filed on 31-12-1991:
The primary issue was whether the return filed by the assessee on 31-12-1991, signed by the Secretary instead of the Managing Director or a Director, was valid. The Assessing Officer (AO) deemed it invalid and only recognized the return filed on 15-10-1992. The assessee argued that the defect was curable under sections 139(9) and 292B, which the AO and CIT(A) rejected. However, the ITAT found that the defect was curable and directed the AO to treat the return filed on 31-12-1991 as valid once the defect was rectified on 15-10-1992. This decision was supported by judicial precedents favoring the assessee.
2. Withdrawal of Exemption under Section 47(v) and Applicability of Section 47A:
The AO withdrew the exemption under section 47(v) due to the desubsidiarisation of the assessee company, which reduced the holding company's shares from 100% to 43%. The CIT(A) held that the AO should first allow the exemption under section 47(v) and then withdraw it under section 155(7B). The ITAT found this approach illogical, noting that the AO was justified in applying section 47A directly in the assessment order under section 143(3) due to the known facts. The ITAT reversed the CIT(A)'s direction and upheld the AO's approach.
3. Levy of Interest under Section 234A:
The AO levied interest under section 234A for late filing of the return. The CIT(A) upheld this, but the ITAT directed that interest under section 234A should be computed with reference to the date of filing the return on 31-12-1991, treating the initial return as valid after rectification.
4. Levy of Interest under Section 234B:
The AO levied interest under section 234B due to the shortfall in advance tax payment, which the assessee contested, arguing that it had paid the correct tax based on its "current income" and could not have anticipated the withdrawal of exemption under section 47(v). The CIT(A) upheld the levy of interest, and the ITAT agreed, citing the mandatory nature of section 234B as established by the Supreme Court in Anjum M.H. Ghaswala's case. The ITAT emphasized that the interest under section 234B is compensatory, not penal, and must be levied regardless of the circumstances leading to the shortfall.
Conclusion:
The ITAT allowed the Revenue's appeal, confirming the AO's actions regarding the withdrawal of exemption and levy of interest under section 234B. The assessee's appeal was partly allowed concerning the validity of the return filed on 31-12-1991 and the computation of interest under section 234A. The assessee's appeal against the order under section 155(7B) was dismissed.
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2004 (3) TMI 324
Issues:
Validity of penalty under section 271(1)(c) of the Income Tax Act for the assessment year 1993-94.
Analysis:
The Revenue appealed against the CIT(A) order regarding the validity of a penalty of Rs. 3,05,998 under section 271(1)(c) of the Income Tax Act for the assessment year 1993-94. The Departmental Representative argued that discrepancies were found during a survey, leading to the surrender of additional income by the assessee and justifying the penalty. The Representative cited various legal precedents to support the imposition of the penalty. On the other hand, the assessee's counsel contended that the discrepancies were due to estimation errors, and the penalty should not be levied. The counsel referred to the AO's acceptance of the assessee's contentions regarding stock valuation and conditional surrender to avoid penalty. Additionally, the counsel highlighted inconsistencies in the quantum of additions made by the Revenue. Legal decisions were cited to support the argument against penalty imposition. The Departmental Representative countered by emphasizing the stock discrepancy and disputing any agreement between the assessee and the Revenue on penalty imposition. Various legal precedents were cited to support this stance.
The Tribunal carefully considered the submissions and observed that the stock discrepancy figures changed over time. The assessee declared minimal income in the return, and the assessed income was based on additions related to low GP and unaccounted purchases. Subsequently, the assessed income was revised following the AO's acceptance of the assessee's stock valuation. The Tribunal noted that the assessee agreed to additions to maintain peace with the Department, with a condition against penalty imposition. Similar additions in other group cases were deleted by the CIT(A) without appeal from the Revenue. The Tribunal found the Revenue's material sufficient for quantum addition but insufficient for penalizing the assessee under section 271(1)(c) for income concealment. The Tribunal rejected the Departmental Representative's argument regarding the application of specific legal decisions, stating that each decision was based on different grounds. The Tribunal upheld the CIT(A)'s cancellation of the penalty, citing legal precedent and the applicable law. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the cancellation of the penalty.
In conclusion, the Tribunal's detailed analysis focused on the evolving stock discrepancy figures, the assessee's minimal income declaration, the basis for assessed income, the conditional surrender to avoid penalty, and the lack of grounds for penalty imposition. The Tribunal's decision was based on legal principles and precedents, ultimately upholding the cancellation of the penalty under section 271(1)(c) for the assessment year 1993-94.
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2004 (3) TMI 323
Disallowance of loss on sale of tax-free bonds - Disallowance of interest and administrative expenses related to tax-free bonds - Treatment of loss as speculation loss - HELD THAT:- The real objection of the IT authorities in the present case appears to be that the assessee is getting tax-free interest. But at the same time is also claiming loss on the sale of the tax-free bonds. But, as we have already noticed, the claim is in accordance with the judgment of the Supreme Court in Vijaya Bank's case[1990 (9) TMI 5 - SUPREME COURT], where the interest paid upto the date of purchase was considered to be part of the cost. Naturally, when the bond is sold, after the coupon date and after the interest is received, the price would have fallen and there is bound to be a loss. Howsoever strong one may feel, this position cannot be wished away and has to be accepted and full effect has to be given in the assessment. Thus, we are of the view that assessee is entitled to the allowance of the loss of Rs. 8,44,156 for the asst. yr. 1989-90 and Rs. 5,75,994 for the asst. yr. 1991-92. Accordingly, the first ground in the appeal filed by the Department for the asst. yr. 1989-90 is dismissed and the first ground filed by the assessee in the appeal for the asst. yr. 1991-92 is allowed.
We have carefully considered the issue. Sec. 14A which has been introduced by the Finance Act, 2001, w.e.f. 1st April, 1962, says that for the purpose of computing the total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. There is no dispute that the income from bonds was not chargeable to income-tax and was exempt under s. 10. The expenditure incurred in relation to such income is, therefore, to be disallowed. This is what the AO has done. He has attributed a part of the financial and administrative expenses as expenditure incurred in relation to the tax-free income and has disallowed the same. In our view, this action of the AO is authorised by the section. Before us, though the learned counsel for the assessee contended that the amounts borrowed for interest were not used for the purchase of tax-free bonds, but was unable to furnish any details to show how the loans taken from M/s Bimal Gandhi, Hiten P. Dalal and Industrial Credit & Development Syndicate Ltd. were repaid. Though funds might have been provided by these persons without interest for the purpose of acquiring the tax-free bonds, in the absence of any details to show that the assessee did not use interest-bearing funds to repay the above loans, it must be taken that the AO was right in his view. Accordingly, we reverse the decision of the CIT(A) and restore the disallowance made by the AO. The ground is allowed.
In the appeal by the assessee for the asst. yr. 1991-92, the only other ground is that the CIT(A) erred in treating the loss of Rs. 2,32,505 as speculation loss. This ground was not pressed at the time of hearing and is, therefore, dismissed.
In the result, both the appeals are partly allowed.
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2004 (3) TMI 322
Capital Gains - expenditure towards repairs - Whether the assessee is entitled to full exemption u/s 54 despite being a co-owner - HELD THAT:- We are of the view that the assessee can be treated as purchaser of the property in terms of section 54. Our view is further fortified by the Hon'ble Supreme Court judgment in the case of Podar Cement (P.) Ltd. [1997 (5) TMI 2 - SUPREME COURT] for the proposition that the concept of "constructive ownership" to be applied to income-tax proceedings. The issue before Hon'ble Supreme Court was of depreciation. Nevertheless, it lays down a general proposition of law that in income-tax proceedings the concept of "constructive ownership" can be applied considering the facts of the case. We are of the view that the facts of the present case conform to be seen from the gloss of the Hon'ble Supreme Court judgment in the case of Podar Cement (P.) Ltd., which also helps the case of the assessee. Thus, we hold that the assessee is purchaser of the flat and the entire amount spent by her has to be considered towards the purchase price paid by her for the new flat entitled to be computed while allowing deduction u/s 54.
Revenue appeal is dismissed.
Allowability of Expenditure on Repairs u/s 54 - Lower authorities have not disputed the fact that the repairs etc., undertaken by the assessee were genuine. The assessee would not have been able to carry out necessary repairs unless the conveyance was executed. The same will obviously mention the figure of agreed purchase price between vendor and assessee. Therefore, this fact cannot be held against the assessee. This issue has been considered by the Tribunal in Gulshanbanoo R. Mukhi's case [2002 (1) TMI 1296 - ITAT MUMBAI]. Following the same, we hold that the assessee is entitled to deduction of Rs. 40 lakhs towards purchase of the flat while working out the chargeable capital gains u/s 54.
Assessee's cross objection is allowed.
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2004 (3) TMI 321
Issues:
Whether interest under section 234A can be levied when self-assessment tax is paid before the due date of filing the income tax return.
Analysis:
The appeal was filed against an order under section 154 read with section 143(1)(a) of the Income-tax Act, 1961, for the assessment year 1994-95. The core issue was whether an Assessing Officer can levy interest under section 234A when self-assessment tax is paid before the due date of filing the income tax return. The tribunal referred to the judgments of the Delhi High Court and the Bombay High Court to determine the legal position on this matter.
The Delhi High Court in the case of Dr. Prannoy Roy v. CIT held that interest under section 234A is not leviable if the tax has been paid, even if the return is not filed. The Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf emphasized the importance of respecting the law laid down by higher courts. The tribunal, following the Delhi High Court's judgment, concluded that the Assessing Officer cannot charge interest under section 234A if the tax has been paid, and only the filing of the return is delayed.
The tribunal rejected the contention that charging interest under section 234A was mandatory for the Assessing Officer, emphasizing the need to follow higher court judgments. It also addressed the objection raised by the Departmental Representative regarding rectification under section 154, stating that if the levy of interest is debatable, it cannot be subject to unilateral adjustments by the Assessing Officer under section 143(1)(a).
Furthermore, the tribunal discussed the nature of interest under section 234A, stating that it cannot be compensatory if taxes are already paid by the assessee, and if viewed as penal, it would violate principles of natural justice by not providing an opportunity for a hearing. Therefore, the levy of interest under section 234A, in a situation where self-assessment tax is paid, was deemed unsustainable in law, and the tribunal deleted the same, allowing the appeal.
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2004 (3) TMI 320
Issues Involved:
1. Deletion of addition on account of unexplained investment in purchases.
2. Rejection of books of account under Section 145(2).
3. Addition on account of alleged cash credits under Section 68.
4. Treatment of agricultural income as income from undisclosed sources.
5. Levy of interest under Section 234B.
6. Initiation of penalty proceedings under Section 271(1)(c).
Issue-wise Detailed Analysis:
1. Deletion of Addition on Account of Unexplained Investment in Purchases:
The Revenue's appeal challenged the CIT(A)'s deletion of an addition of Rs. 21,54,303 made under Section 69C for unexplained investment in purchases. The AO had treated purchases from certain entities as unexplained due to the lack of identity confirmation and non-payment records. The CIT(A) deleted the addition, noting that the AO's assumptions were based on surmises and that sales corresponding to the purchases were recorded. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not substantiate claims of undisclosed sources for the purchases and that the assessee acted as an intermediary, not requiring actual payments.
2. Rejection of Books of Account under Section 145(2):
The assessee's appeal contested the rejection of its books of account under Section 145(2). The AO had pointed out defects in the books, including the absence of a stock register, leading to the rejection. The Tribunal agreed with the CIT(A) and the AO, confirming that the rejection was justified due to the unreliability of the books of account.
3. Addition on Account of Alleged Cash Credits under Section 68:
The AO added Rs. 2,96,603 as undisclosed income under Section 68, citing unverified cash loans from 17 parties. The CIT(A) upheld this addition, noting that the assessee failed to prove the identity and creditworthiness of the creditors. The Tribunal concurred, emphasizing that mere affidavits were insufficient to establish the genuineness of the loans.
4. Treatment of Agricultural Income as Income from Undisclosed Sources:
The AO treated Rs. 25,510 shown as agricultural income as income from undisclosed sources due to lack of corroborative evidence. The CIT(A) upheld this addition. However, the Tribunal reversed this decision, accepting the assessee's explanation and evidence of owning agricultural land and having a history of declared agricultural income. The Tribunal directed the AO to delete the addition.
5. Levy of Interest under Section 234B:
Both parties agreed that the issue of interest under Section 234B was consequential. The Tribunal directed the AO to recalculate the interest after giving effect to its order.
6. Initiation of Penalty Proceedings under Section 271(1)(c):
The ground related to the initiation of penalty proceedings under Section 271(1)(c) was deemed infructuous as it was not argued and merely pertained to the initiation, not the imposition, of the penalty. The Tribunal dismissed this ground, noting that the assessee could appeal if and when a penalty is levied.
Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing relief on the issue of agricultural income and directing recalculation of interest under Section 234B. The rejection of books of account and addition under Section 68 were upheld.
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2004 (3) TMI 319
Unexplained Money - addition u/s 69A - Ownership and possession of contraband gold - Burden of proof - HELD THAT:- As regards the statement of KNJ the same too was not recorded by the Assessing Officer during assessment proceedings but was recorded by the customs officials. The said statement was recorded at the back of the assessee and the assessee has not been allowed an opportunity to cross-examine KNJ on the said statement. Besides, whatever be contained in the said statement of KNJ dated 15-10-1986, the same has been retracted by KNJ as is evident from his letter dated 17-10-1986 and his another letter dated 7-11-1986 alleging that the same was recorded forcibly and under threat and under influence and that the same was not voluntary. In this regard, we may not be unmindful of this fact as well that KNJ, being himself involved in the unlawful transaction of carrying contraband gold, is a tainted witness, whose testimony, even otherwise, may not be worth reposing credence therein or placing reliance thereon. As against the said statement of KNJ there is also the statement of assessee (Pukhraj Jain) denying totally his involvement in or connection with the said gold transaction. There is no statement of Ahmed either on record to corroborate the department's case
KNJ having been found in possession of gold, prima facie it is KNJ who is to be treated as owner of his possession (gold) unless this presumptive inference is rebutted by proper/convincing evidence. We do not find any such rebuttive evidence on record whether brought by the Assessing Officer or otherwise available, on record. There being no 'evidence' worth the name, the 'other material' being the said statement of KNJ and the order of Customs Collector, remain too feeble to entangle assessee as the owner of the said contraband gold, seized by the Customs Officials from the possession of KNJ.
For making an addition u/s 69A of Income-tax Act, 1961, apart from ownership of the asset/valuable article, which is deemed to be the income of the assessee of that financial year, it is also a pre-requisite that such asset/valuable article "is not recorded in the books of account" maintained by the assessee (if any). In the instant case, even if the department's factual allegations were assumed to be correct, the stage of recording the said seized gold in the books of account of the assessee cannot be said to have arrived yet as the gold is stated to have been seized on the way when KNJ was bringing the same, and thus the valuable article had not yet been brought to the assessee.
Thus, we find no fault with the impugned order of the learned CIT(A) in deleting the addition made by the Assessing Officer. We therefore, decline to interfere with the same.
In the result, this appeal of the Revenue is dismissed.
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2004 (3) TMI 318
Deduction u/s 10(A) - Free Trade Zone - Set-off of loss incurred by SEEPZ Unit against other business income - difference of opinion between the Accountant Member and the Judicial Member - Third member Order - in respect of the applicability of section 14A of the Act - Subject to its applicability, the question apropos to its retrospective applicability would be pertinent for deciding the issue.
Learned Accountant Member - HELD THAT:- We have also perused the provisions of section 10A, section 70 and section 71 of the I.T. Act and also the decisions relied upon by the learned CIT(Appeals). The special scheme of taxation formulated by the Govt. for taxability of Units set up in the Export Processing Zone, contained in section 10A, is a code by itself. The computation of such Units as well as the carry forward and set off etc., has been specifically laid down in the said section. The other provisions of the I.T. Act and any other disability or restrictions in respect of the set off of carry forward etc., has been specifically provided in section 10A(4) of the Act itself. Therefore, these provisions need to be considered in totality keeping in view the intention of the legislation regarding taxability of such units in the Export Processing Zone. Section 10A(4)(ii) specifically prohibits the carry forward and set off of the loss incurred by such units by specifically referring to sections 72(1) and 72(4)(i) or with effect from 1 -4-1988 under section 74(3). It does not refer to sections 70 or 71 which clearly means that there is no prohibition prescribed in the section regarding set off of the loss of such units against the income from other units or other business income of other sources.
We find that section 14A was not in existence when the impugned order was passed. So also, by the insertion of provision, the intention of the legislation is clear that it is not to be applied to the past assessments by restricting the officers to reopen the assessments etc. Therefore, if the Assessing Officer cannot do a particular action like reopening of assessment already completed, the Tribunal cannot use that provision to disallow something by making use of the same. Otherwise, it would virtually amount to the enhancement which is not permissible under the Act.
We, therefore, agree with the submissions made by the learned Counsel for the assessee and hold that the loss incurred by SEEPZ Unit of Rs.4,79,342 has to be allowed to be set off against the other business income of the assessee. The Assessing Officer is directed accordingly. This ground accordingly succeeds.
In the result, appeal filed by the assessee is allowed in part.
learned Judicial Member, in view of the provisions of section 14A of the Act, the claim of the assessee is not admissible. Proviso to the above section deals with the situation where assessment has got finality. In the present case, the addition was made by the Assessing Officer and was upheld by the CIT(A). The appeal was pending before the Tribunal. Therefore, the issue was alive. Proviso to section 14A of the Act is applicable to a situation where the assessment has got finality and on such assessment, provisions of section 147 or 154 cannot be made applicable. Thus, the learned Judicial Member opined that the Tribunal is duty bound to consider the provision, which is on the statute. The provision of section 14A was brought into statute with retrospective effect from 1-4-1962 and covers the period under consideration. As such, the claim of the assessee was rejected.
learned Judicial Member did not discuss the applicability of section 14A of the Act, vis-a- vis the facts of the present case. It was presumed that this section applies to the case of the assessee and as because it was made operative retrospectively; as such it was applied.
Third Member Order - In the present case I find that the benefit of section 10A of the Act was available to the assessee for five years. The assessee claimed benefit for three years. For rest of the years, the assessee did not claim the benefit of section 10A of the Act. The assessee opted to get the profits of new industrial undertaking assessed under the normal provisions. I find no provision in the Act by which the assessee can be forced to avail the benefit for five years. If the assessee wants to put the income under the normal computation procedure, there appears to be no bar for doing so. If one purchases ticket to undertake journey from Mumbai to Delhi; later on he decides to disembark from the train at Kota, the Railway authorities cannot force him to go up to Delhi. If the benefit is conferred on the assessee, he cannot be forced to avail the same.
Section 10A of the Act, is a code by itself. It contains the scheme of taxation formulated by the Government for taxability of units set up in the export processing zone. As such, it cannot be compared with section 10 of the Act. Ex consequenti, the decisions rendered in the cases of Harprasad & Co. (P.) Ltd. [1975 (2) TMI 2 - SUPREME COURT] and S.S. Thiagarajan [1978 (3) TMI 8 - MADRAS HIGH COURT], in the context of section 10 of the Act, cannot be applied over here. Coming to the applicability of section 10A(4)(ii) of the Act, I find that it put interdict qua sections 72 and 74. It does not preclude the operation of sections 70 and 71. Section 14A of the Act is applicable in respect of 'expenditure'. Loss is different from expenditure. As such, the assessed is entitled to setting off the loss incurred by the SEEPZ unit. In view of this finding, the question whether section 14A-of the Act is prospective or retrospective in operation, has become academic. I concur with the finding of the learned Accountant Member.
The matter will now go before the regular Bench for deciding the appeal in accordance with the opinion of the majority.
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2004 (3) TMI 317
Deduction u/s 37 - Validity and scope of business expenditure u/s 35A - sham transaction entered into for the purpose of claiming deductions wrongly? - The arrangement is designed to serve the purpose of tax avoidance - HELD THAT:- In the present case, both the purport and the effect of the transaction were one and the same, viz., the assessee made a payment of Rs. 6 crores for obtaining the right to use the trademark for a period of ten years. There is no pretence at all involved in this transaction. To demonstrate that a transaction is sham, it will have to be shown that the assessee made a payment of about Rs. 6 crores for some purpose other than it made the payment for trademark for ten years or that he made the payment for no purpose at all. In the absence of this being demonstrated the transaction cannot be considered as sham.
It may be useful to refer the Hon'ble Madhya Pradesh High Court was in CIT v. M.B.Umbrella Industries [1982 (10) TMI 18 - MADHYA PRADESH HIGH COURT]. In the said case the assessee paid a sum of Rs. 25,001 per year for use of trademark without acquiring the same. The agreement was for a limited period of five years. Hon'ble High Court considering the fact held that the payments are to be treated as revenue in nature and allowed the claim of assessee. The facts before us also are identical.
Though the assessee is part of BPL Group of Companies yet the trademark do not belong to it. The two companies are separate legal entities. If the assessee wanted to use the trademark "BPL" which is otherwise exclusive right of BPL Limited only, the payment has to be made. It is also established that BPL Limited got the trademark registered much prior to allowing the assessee use of the same. In view of our discussion above, we hold that the amount paid is allowable deduction u/s 37 of the Act.
In the result the appeal is partly allowed.
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