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2010 (1) TMI 1236
Issues involved: Challenge to legality and validity of order regarding disallowance of keyman insurance premium by revenue, and appeal by assessee against disallowance of interest.
Challenge by Revenue:
The revenue contested the deletion of keyman insurance premium disallowance, arguing that the director did not have specialized skills linked to company profitability, thus not qualifying as a key business person. The AO disallowed the premium as the director's role was deemed insignificant to business profitability. However, CIT(A) overturned this decision, citing Section 10(10D) exemption for life insurance policies and clarifications by the CBDT on keyman insurance policies. The CIT(A) emphasized the director's crucial role in business success, justifying the premium deduction. The Tribunal upheld CIT(A)'s decision, noting the director's significant impact on company profits and the acceptance of similar premium as business expenses in a previous assessment u/s 143(3) for another year.
Assessee's Appeal:
The assessee's appeal pertained to the disallowance of interest by the DCIT, which was not addressed by the CIT(A) and was not pressed during the hearing. Consequently, the appeal was dismissed.
In conclusion, the Tribunal upheld the CIT(A)'s decision to allow the keyman insurance premium as a business deduction, emphasizing the director's crucial role in the company's profitability. The revenue's appeal was dismissed, and the assessee's cross objection regarding interest disallowance was also dismissed due to non-pursuance.
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2010 (1) TMI 1235
Issues involved: Assessment of expenditure towards Compensatory Afforestation Management and Planning Agency (CAMPA) as capital expenditure u/s. 37.
Assessment Year 2006-07:
The appeal by the assessee challenges the order confirming the expenditure towards CAMPA as capital expenditure. The assessee argued that the expenditure should be treated as revenue in nature and allowable u/s. 37.
Facts Leading to Dispute:
The assessee filed income tax return declaring income at Rs. 79,72,878. A search action u/s. 133A revealed escaped income, leading to assessment reopening. The assessee, owning mines, debited Rs. 84,80,000 for Net Present Value paid to the Forest Department for CAMPA.
Assessing Officer's Decision:
The AO considered the payment as capital expenditure due to its enduring benefit linked to mining rights. He emphasized it facilitated mining activities and was nonrecurring, hence capital in nature.
CIT(Appeals) Decision:
The CIT(Appeals) held the expenditure as capital, connected to the capital asset of mine owners. He distinguished it from revenue expenditure, emphasizing its relation to the mining site. He concluded it as capital expenditure intrinsically linked to the capital asset.
Tribunal's Decision:
The Tribunal, citing previous rulings and the Supreme Court's directions, allowed the appeal by the assessee. It noted the contribution to CAMPA was not akin to royalty, thus treating it as revenue expenditure. The Tribunal's decision was binding, leading to the allowance of the appeal.
Conclusion:
The Tribunal allowed the appeal, overturning the previous decisions and treating the expenditure towards CAMPA as revenue expenditure rather than capital expenditure, based on the specific circumstances and legal precedents cited.
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2010 (1) TMI 1234
Addition u/s 68 - Unexplained credit - share application money and share premium money - Addition made as there is no basis on which the shares of the assessee company can command premium of ₹ 490/- per share - reliance on Tribunal order in the preceding year in deleting addition by CIT(A) - HELD THAT:- We find that the relevant para of this Tribunal decision rendered in the case of the assessee in assessment year 2000-01 this aspect was not there in that year that the share application money was received by the assessee company at a high premium of ₹ 490/- per share whereas in the present year, this is the main basis on which addition was made by the Assessing Officer. Hence, merely on this basis of the Tribunal order in the preceding year, the issue in the present year cannot be decided and in the same, this aspect has to be examined as to whether the receipt of high share premium of ₹ 490/- per share in the present year is reasonable and in spite of this high premium, the transaction of receipt of share application money in the present year can be accepted as a genuine transaction.
Regarding judgment of Lovely Exports [2008 (1) TMI 575 - SC ORDER], we feel that judgment is not squarely applicable in the present case because the facts are different. In that case, it was not the allegation of the revenue that because of high amount of share premium on per share, that the transaction in question was not genuine. Hence, we feel that this matter should go back to the file of the Ld CIT(A) for afresh decision.
We set aside the order of the Ld CIT(A) on this issue to the extent of addition deleted by him on amount received by the assessee company during this year and restore this matter back to the to his file for a fresh decision.Appeal of the revenue stands allowed for statistical purposes.
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2010 (1) TMI 1233
Issues involved: Disallowance of interest on outstanding loan, addition of deemed dividend, addition under sec. 68 of the Income-tax Act, 1961.
Disallowance of interest on outstanding loan: The assessees contended that the interest on outstanding loans should not be disallowed as the loans were obtained for the purpose of earning income. However, the departmental representative argued that there was no nexus between the borrowed amount and the interest earned. The Tribunal found that there was no evidence to suggest that the borrowed amount was used for earning interest income. Relying on the judgment of the Apex Court, the disallowance was confirmed as the assessees failed to prove that the interest was exclusively for earning income. The Tribunal upheld the decision of the lower authority.
Addition of deemed dividend: The issue revolved around the computation of accumulated profit for treating payments to beneficial shareholders as deemed dividend. The assessees admitted the accumulated profit, but it was not computed on the date of payment. The Tribunal held that the accumulated profit should be calculated on the date of payment, which was not done by the lower authorities. As no material was provided for computing the profit on the payment date, the matter was remitted back to the Assessing Officer for re-examination.
Addition under sec. 68 of the Income-tax Act, 1961: A sum was added under sec. 68 due to the failure of the assessee to prove the identity and creditworthiness of creditors. The Tribunal noted that confirmation letters were submitted, but the AO rejected them for lacking details. The assessee expressed readiness to provide necessary details, prompting the Tribunal to remit the matter back to the AO for reevaluation based on the additional material that may be presented.
In conclusion, the appeals of the assessees were partly allowed for statistical purposes, with the Tribunal setting aside the orders of the lower authorities on the issues of deemed dividend and addition under sec. 68, remitting them back to the Assessing Officer for further examination in accordance with the law.
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2010 (1) TMI 1232
Issues involved:
The issues involved in this case are:
1. Whether the Tribunal should have kept the Appeal pending regarding sales tax dues when the Appeal for exemption was also pending before the same Tribunal.
2. Whether the Appeal should be restored to the VAT Tribunal to consider the total effect on liability for tax penalty and interest after the claim for exemption was allowed.
3. Whether the Tribunal erred in relying on disclosure in income tax proceedings for deciding the Sales Tax Appeal.
4. Whether the VAT Tribunal erred in not considering contentions regarding wrong additions on the ground of shortage of cash balance and shortfall in stock.
Issue 1:
The appellant assessee filed a Tax Appeal under sec. 78 of the Value Added Tax Act, 2003 for Assessment Year 1992-93, questioning whether the Tribunal should have kept the Appeal pending regarding sales tax dues when the Appeal for exemption was also pending before the same Tribunal. The appellant contended that the exemption issue pending had a substantial impact on the quantum of sales tax dues, interest, and penalty. The Tribunal's decision on this matter was crucial for determining the overall liability.
Issue 2:
The second issue raised was whether the Appeal should be restored to the VAT Tribunal to consider the total effect on liability for tax penalty and interest after the claim for exemption was allowed. The appellant sought a review of the liability in light of the exemption granted by the Tribunal, emphasizing the need for a comprehensive assessment of the financial implications.
Issue 3:
Regarding the third issue, the Tribunal's reliance on disclosure in income tax proceedings for deciding the Sales Tax Appeal was questioned. The appellant argued that the disclosure of &8377; 18 lakhs in income tax proceedings, related to stock valuation, was not a valid basis for the Sales Tax Appeal. Discrepancies between the income tax and sales tax proceedings were highlighted, raising concerns about the Tribunal's decision-making process.
Issue 4:
The final issue pertained to the VAT Tribunal's alleged failure to consider contentions regarding wrong additions based on cash balance and stock discrepancies. The appellant contended that the Tribunal overlooked crucial evidence contradicting the additions made, indicating errors in the assessment process.
In conclusion, the High Court dismissed the Appeal, stating that no substantial question of law arose from the Tribunal's order. However, the Court directed the respondent authorities to decide on the appellant's claim of exemption within a specified timeframe, acknowledging that a favorable decision on exemption would significantly impact the demand amount.
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2010 (1) TMI 1231
Issues involved: Attachment of Overdraft Account u/s 39(1) of Karnataka Value Added Tax Act, 2003 without challenging assessment order.
The petitioner challenged the action of the Deputy Commissioner for Commercial Taxes in attaching their Overdraft Account No. 120206110240007 based on an order u/s 39(1) of the Karnataka Value Added Tax Act, 2003. The petitioner's business was affected due to the freezing of the account.
The petitioner argued that as per a previous court decision, the bank is not obligated to pay the amount in an Overdraft Account to the tax department. Therefore, the attachment of the petitioner's account was unjustified. The petitioner's counsel relied on the legal position established in M/s Karnataka Bank Limited Vs. Commissioner for Commercial Taxes {1999(2) KCCR S.N. 116}.
The Government Pleader contended that the writ petitions were not maintainable as the petitioner had not challenged the assessment order. It was suggested that the petitioner should appeal the assessment order before making grievances against the attachment order.
After hearing both parties, the court clarified that if the account with Vijaya Bank was an Overdraft Account, the attachment order should not freeze the account. The authorities were permitted to proceed against other accounts of the petitioner if necessary. The petitioner was also allowed to appeal the assessment order before the appropriate authority.
The writ petitions were disposed of with the above observations.
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2010 (1) TMI 1230
Issues Involved:
1. Effect of delay in filing the application for striking off the additional written statement.
2. Whether the High Court could pass an order for striking off the additional written statement under Order VI Rule 16 CPC.
3. Justification of the High Court in setting aside the trial court's order without identifying jurisdictional or legal errors.
Detailed Analysis:
Issue 1: Effect of Delay in Filing the Application
The appellants filed an additional written statement on 3.3.2004, which was accepted without objection from respondent Nos. 1 and 2. The respondents did not seek leave to file further pleadings and led their evidence, completed in 2006. The application to strike off the additional written statement was filed after three years and six months, without explaining the delay. The trial court dismissed the application, noting that the respondents did not object initially and led their evidence based on the additional written statement. The High Court's casual dismissal of the delay issue was criticized for not seriously examining the delay's impact and the respondents' failure to object earlier.
Issue 2: Striking Off Additional Written Statement under Order VI Rule 16 CPC
Order VI Rule 16 CPC allows the court to strike out pleadings if they are unnecessary, scandalous, frivolous, vexatious, prejudicial, embarrassing, or an abuse of the court process. The trial court found that the respondents' application did not meet these criteria. The High Court, however, struck off the additional written statement without considering Order VI Rule 16, assuming the plea was inconsistent with the predecessor's defense. The Supreme Court emphasized that striking off pleadings should be done with great care and only if the criteria under Order VI Rule 16 are met, which the High Court failed to assess.
Issue 3: High Court's Justification in Setting Aside the Trial Court's Order
The Supreme Court noted that the High Court did not identify whether it was exercising jurisdiction under Article 226 or 227 of the Constitution. The High Court treated the matter as an appeal rather than a supervisory or certiorari jurisdiction, failing to follow principles laid down in Syed Yakoob v. K.S. Radhakrishnan and Surya Dev Rai v. Ram Chander Rai. The High Court did not consider if the trial court's order involved a jurisdictional error, an error of law, or a substantial failure of justice, which are necessary for intervention under Articles 226 or 227.
Additional Considerations
The Supreme Court rejected the argument that the additional written statement was inconsistent with the original defense. It noted that the appellants' plea about the inventory proceedings and property allotment was not inconsistent with Abdul Razak's original defense. The Court reiterated that legal representatives could raise defenses appropriate to their character, including independent titles, as long as it does not oust the court's jurisdiction.
Conclusion
The Supreme Court allowed the appeal, setting aside the High Court's order and restoring the trial court's decision. The respondents were ordered to pay costs of Rs. 25,000/- to the appellants for unnecessary litigation. The judgment underscores the importance of adhering to procedural rules and principles when considering striking off pleadings and exercising supervisory or certiorari jurisdiction.
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2010 (1) TMI 1229
Issues Involved:
The issue involves determining whether the conduction royalty amount received on letting out the business should be classified as "Business Income" or "Income from other sources" for the assessment year 2003-04.
Judgment Summary:
Issue 1: Classification of Conduction Royalty Amount
The High Court upheld the decision of the Income Tax Appellate Tribunal, which classified the conduction royalty amount as income from business. The Tribunal found that the assessee retained control of the business, as evidenced by the terms of the agreement and the fact that licenses and permits were in the assessee's name. The agreement specified that the conductor would vacate the premises and remove equipment upon termination or expiry. Based on these terms, the Tribunal concluded that the royalty income should be assessed as income from business. The High Court agreed that this interpretation was correct, and no substantial question of law was found to arise in the appeal. Therefore, the appeal was dismissed with no order as to costs.
This summary provides a detailed overview of the judgment, highlighting the key issues and the court's decision on the classification of conduction royalty amount for the assessment year 2003-04.
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2010 (1) TMI 1228
Issues:
1. Limitation period for raising demand beyond six months.
2. Applicability of proviso to Section-28 of the Customs Act, 1962.
3. Justification of Deputy Commissioner issuing notice after six months.
4. Tribunal's confirmation of dropping duty demand as barred by limitation.
5. Imposition of penalty under Central Excise Act.
6. Tribunal's dismissal of appeal without addressing raised issues.
7. Reliance on earlier tribunal decision.
8. Granting benefit of Notification No.02/95-CE to the respondent.
Analysis:
1. Limitation period for raising demand beyond six months:
The Commissioner found that the respondent had declared the use of alcohol in their products in the necessary license and import invoices. The Commissioner concluded that the charge of suppression of alcohol content was not tenable as the information was available with the Department before clearance. Therefore, the Commissioner held that the show cause notices were barred by limitation as they were issued beyond six months. The CESTAT upheld this decision, emphasizing that the extended time limit could not be invoked in this case. The Tribunal dismissed the Tax Appeals filed by the Revenue, and the High Court concurred, finding no substantial questions of law.
2. Applicability of proviso to Section-28 of the Customs Act, 1962:
The issue of whether the proviso to Section-28 of the Customs Act, 1962 would be applicable due to suppression and misdeclaration by the respondent was raised. However, the Commissioner's decision to drop the proceedings on the ground of limitation rendered this point moot, as the show cause notices were considered time-barred.
3. Justification of Deputy Commissioner issuing notice after six months:
The Deputy Commissioner's issuance of notice after six months was questioned in light of the respondent's suppression of facts and willful misstatement. However, the Commissioner's finding that the show cause notices were barred by limitation negated the need to address this issue further.
4. Tribunal's confirmation of dropping duty demand as barred by limitation:
The Tribunal confirmed the Commissioner's decision to drop the duty demand, citing the limitation period as the primary reason. The Tribunal also considered the issue on merits, following its previous decision in the respondent's case, and dismissed the Revenue's Appeal. This decision was upheld by the High Court, leading to the dismissal of the current Tax Appeal.
5. Imposition of penalty under Central Excise Act:
The Revenue sought to impose penalties under the Central Excise Act due to contraventions of Central Excise Rules and other regulations. However, the Tribunal's dismissal of the appeal based on limitation and merits rendered the question of penalty imposition irrelevant in this case.
6. Tribunal's dismissal of appeal without addressing raised issues:
The Revenue contended that the Tribunal dismissed the appeal without addressing the raised issues, focusing on irrelevant grounds. However, the High Court found that the Tribunal's decision was based on the limitation issue, and as no substantial questions of law were identified, the Appeal was dismissed.
7. Reliance on earlier tribunal decision:
The Tribunal's reliance on its earlier decision in the respondent's case, where the issue of demand being barred by limitation did not arise, was questioned. However, since the Tribunal's decision in the present case was upheld based on the limitation aspect, the reliance on the previous decision did not impact the final outcome.
8. Granting benefit of Notification No.02/95-CE to the respondent:
The Tribunal's decision to grant the respondent the benefit of Notification No.02/95-CE was also challenged. However, since the primary issue of limitation was determinative in this case, the High Court did not find any substantial questions of law regarding the grant of benefits under the notification.
In conclusion, the High Court dismissed the Tax Appeal, finding no substantial questions of law arising from the Tribunal's decision, which primarily focused on the limitation period for raising demands and the related factual findings regarding the respondent's declarations and the availability of information with the Department before clearance.
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2010 (1) TMI 1227
Issues involved: Appeal against deletion of addition made by Assessing Officer u/s 144 of the Income-tax Act, 1961 for assessment year 2006-07.
Summary:
The Appellate Tribunal ITAT DELHI heard an appeal by the revenue against the order of the learned CIT(Appeals) regarding the deletion of an addition of Rs. 25 lacs made by the Assessing Officer u/s 144 of the Income-tax Act, 1961 for the assessment year 2006-07. The revenue contended that the CIT(Appeals) erred in deleting the said addition.
The tax-consultant of the assessee requested an adjournment, which was rejected by the Tribunal. The assessment order by the Assessing Officer highlighted discrepancies in the addresses provided by the assessee, leading to the assessment being made at Rs. 25,00,000 u/s 144 of the IT Act. The Assessing Officer also initiated penalty proceedings u/s 271(1)(b) and 271(1)(c) separately.
On appeal, the CIT(Appeals) acknowledged that the Assessing Officer was justified in framing an assessment under sec.144 due to the assessee's non-compliance with notices. However, the CIT(Appeals) emphasized that the best judgment order should be made honestly and fairly, with a reasonable nexus to available material. The CIT(Appeals) found that the Assessing Officer did not reference any available material while estimating the income at Rs. 25 lacs.
The revenue sought to set aside the CIT(Appeals) order and restore the issue to the Assessing Officer for reinvestigation. The Tribunal, after due consideration, dismissed the appeal by the revenue. It was noted that the Assessing Officer failed to provide any material to justify reversing the CIT(Appeals) findings. The Tribunal upheld the CIT(Appeals) decision, stating that no interference was warranted.
Therefore, the appeal filed by the revenue against the deletion of the addition made by the Assessing Officer u/s 144 of the Income-tax Act, 1961 for the assessment year 2006-07 was dismissed by the Appellate Tribunal ITAT DELHI.
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2010 (1) TMI 1226
Issues Involved:
1. Suppression of sales.
2. Commission on exchange of coins/torn notes.
3. Disallowance of expenses due to failure to produce books of accounts/vouchers.
Detailed Analysis:
1. Suppression of Sales:
The primary issue was the suppression of sales by the assessee. The Assessing Officer (A.O.) made an addition of Rs. 1,15,00,988/- for the assessment year 1998-99 based on the quantity of Maida consumed and the yield of bread production. The A.O. rejected the assessee's books of account and estimated the sales at a higher amount than disclosed by the assessee.
The CIT(A) found that the A.O.'s estimation of wastage at 2.5% was arbitrary and without sufficient reasoning. The CIT(A) noted that the assessee's wastage was 3.7% due to manual production methods and old machinery. The CIT(A) averaged the wastage at 3.1% and adjusted the sale price of bread to Rs. 7.17 per 800 grams loaf, instead of Rs. 9.24 estimated by the A.O.
The Tribunal upheld the CIT(A)'s approach, noting that the A.O.'s estimation lacked direct evidence of suppressed sales. The Tribunal agreed with the CIT(A) on the wastage rate and sale price adjustments, finding no reason to interfere with the CIT(A)'s order.
2. Commission on Exchange of Coins/Torn Notes:
The A.O. added Rs. 6,21,029/- estimating 2% commission on the total sales for converting small denomination notes and coins into book currency notes. The CIT(A) deleted this addition, reasoning that the A.O.'s assumption that all sales were received in small denominations was incorrect. The CIT(A) found the assessee's commission expense of Rs. 31,050/- reasonable.
The Tribunal upheld the CIT(A)'s decision, emphasizing that the A.O.'s addition was based on estimation without concrete evidence. The Tribunal found the assessee's claimed commission expense reasonable and supported by past assessments.
3. Disallowance of Expenses:
The A.O. disallowed 20% of the total expenses due to the failure of the assessee to produce relevant bills and vouchers. The CIT(A) deleted this disallowance, noting that the major expenses such as interest to bankers, salaries, wages, diesel, and electricity were reasonable and supported by bills and vouchers.
The Tribunal found that the CIT(A) had inconsistently applied disallowances across different years. For the assessment year 1998-99, the Tribunal sustained a 10% disallowance of total expenses, aligning with the CIT(A)'s decisions in other years where the disallowance was not appealed by either party.
Subsequent Years (1999-2000, 2000-01, 2001-02, 2002-03, 2003-04):
For the subsequent years, the issues and the decisions followed the same pattern as the assessment year 1998-99. The Tribunal upheld the CIT(A)'s adjustments regarding the suppression of sales and commission on exchange of coins/torn notes. For the disallowance of expenses, the Tribunal consistently applied a 10% disallowance where applicable.
Conclusion:
The Tribunal's judgment in all six appeals filed by the revenue was partly allowed, sustaining the CIT(A)'s decisions with minor adjustments. The Tribunal emphasized the need for concrete evidence and reasonable estimations in best judgment assessments, aligning with the principles of fairness and reasonableness in tax assessments.
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2010 (1) TMI 1225
Issues involved: Interpretation of Section 78(5) of the Act regarding penalty imposition for absence of Form No.ST 18A with goods in transit.
Summary:
The High Court of Rajasthan heard a revision petition filed by the Revenue challenging the Tax Board's order rejecting the appeal of the Revenue. The Tax Board had ruled that since the goods in transit, specifically Polyester Filaments Fibre, were not listed as goods requiring Form No.ST 18A, no penalty under Section 78(5) of the Act could be imposed for the absence of the form. Both the Appellate Authorities concurred in setting aside the penalty, emphasizing that the goods in question were not notified goods, thus no penalty could be imposed. The Court, after considering the arguments and the lower authorities' judgments, found no legal question for the Revenue under Section 86 of the RST Act, 1994. It was concluded that without a legal requirement for the form, no penalty could be imposed on the respondent-assessee for its absence during the transit check. The Court dismissed the revision petition, upholding the decision of the lower authorities.
In essence, the judgment clarified that penal consequences can only arise for a breach of a legal requirement, and in the absence of such a requirement, no penalty can be imposed. The Court's decision was based on the lack of necessity for Form No.ST 18A with the goods in question during transit, leading to the dismissal of the Revenue's revision petition.
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2010 (1) TMI 1224
Issues involved: Challenge to validity of reopening of assessment u/s. 147/148, treatment of license fees under different heads of income, allowance of depreciation on house property, interest u/s. 234B and 234C, initiation of penalty proceedings.
Validity of Reopening of Assessment u/s. 147/148:
The appeal challenged the order upholding the validity of reopening of assessment u/s. 147/148 of the Income-tax Act, 1961. The counsel for the assessee did not press this ground, leading to its dismissal as not pressed.
Treatment of License Fees:
The appeal contested the treatment of license fees under the head "Income from house property" instead of "business income." The counsel for the assessee acknowledged the decision of the Supreme Court in Shambhu Investments case, resulting in the dismissal of this ground against the assessee.
Allowance of Depreciation on House Property:
The appeal challenged the disallowance of depreciation on house property. The counsel for the assessee accepted that since the income from the property is categorized as income from house property and not a business asset, depreciation could not be allowed, leading to the dismissal of this ground.
Interest u/s. 234B and 234C:
The appeal raised concerns regarding interest u/s. 234B and 234C. The Tribunal dismissed this ground as the charging of interest under these sections is mandatory and consequential in nature.
Initiation of Penalty Proceedings:
The appeal questioned the initiation of penalty proceedings. The Tribunal deemed this ground premature and therefore dismissed it.
General Grounds of Appeal:
A general ground of appeal by the assessee was dismissed.
In conclusion, the appeal filed by the assessee was dismissed by the Tribunal, with the order pronounced on 22nd January, 2010.
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2010 (1) TMI 1223
Arbitration proceedings - Interpretation of the term 'appeal' appearing in Section 7 the Interest on Delayed Payments to Small Scale and Ancillary Undertakings Act - Whether the expression 'appeal' used in Section 7 of the Interest Act includes an application to set aside the arbitral award filed u/s 34 of the Arbitration Act? - Small Scale Industrial Undertaking for the purposes of the Interest Act - The Maharashtra State Electricity Board ('MSEB') issued a Work Order in favour of Maharashtra Small Scale Industries Development Corporation ('the Corporation') - work was completed and the bills were duly submitted - huge delay on the part of the Corporation in paying the said bills - demanded interest on delayed payment under the Interest Act - claim denied by the Corporation - Arbitration Application u/s 11 - the Corporation filed an application u/s 34 - During the pendency of these proceedings the Appellant company pointed out that u/s 7 of the Interest Act the Corporation has to deposit 75 % of the amount awarded by Arbitrator under the Award - Division Bench of the High Court had held that if one considers the expression "appeal" in the context of the expression decree, it can only be a judicial determination by a Regular Civil Court considering the hierarchy of courts.
HELD THAT:- We fail to understand why the expression "appeal" shall be construed solely in the context of a decree or order when the Section clearly makes reference to 'Awards' as well. According to the Respondents, the word 'award' appearing in Section 7 relates to those that result from a reference made under Maharashtra Cooperative Societies Act to the Industry Facilitation Council. The provisions for such reference, which is to be governed by Arbitration Act, were incorporated in 1998 by way of an amendment in the INterest Act. However, section 7 contained the word 'award' even before such reference mechanism was incorporated in the Interest Act by way of the Amendment Act, 1998. Therefore, it is difficult to see why 'award' in section 7 should not include an arbitral award other than the one arising from reference made to the Industries Facilitation Council.
It is true that in almost all definitions of appeal', there is reference to removal of a cause from an inferior Court to a superior Court. It is also trite that an arbitrator deriving his authority from a private agreement does not fit into the ordinary hierarchy of Courts. In our opinion, however, an appeal need not necessarily lie from an inferior Court to a superior Court, especially within the meaning of Section 7.
We are of the view that "appeal" is a term that carries a wide range of connotations with it and that appellate jurisdiction can be exercised in a variety of forms. It is not necessary that the exercise of appellate jurisdiction will always involve reagitation of entire matrix of facts and law. We have already seen in the case of Abhayankar [1969 (4) TMI 106 - SUPREME COURT] that even an order passed by virtue of limited power of revision u/s 115 of the Code is treated as an exercise of appellate jurisdiction, though under that provision, the Court cannot go into the questions of facts.
There is no quarrel that Section 34 envisages only limited grounds of challenge to an award; however, we see no reason why that alone should take out an application u/s 34 outside the ambit of an appeal especially when even a power of revision is treated as an exercise of appellate jurisdiction by this Court and the Privy Council.
While the learned counsel for the appellant company urged that the Legislature had used the terms 'appeal' and application' interchangeably, we are of the view that we cannot conclusively infer the same. Use of the term 'application' appears to be in the context of the dispute resolution mechanism provided for under Section 17 which essentially comprises of conciliation and arbitration, to be governed by Arbitration Act, 1996. The legislature has intended to bring about improvements to the Interest Act as stated in the Statement of Objects and Reasons of the Act of 2006. Indeed, it might have contemplated a change in the legal position while enacting the Act of 2006, but we cannot make that change apply retrospectively. In this respect, we agree with the reasoning of the High Court and with the contentions of learned counsel for the respondents as we cannot read the provision of a subsequent enactment into an Act which was repealed by the former.
The interest Act is a beneficial piece of legislation intended to expedite timely payment of money owed to Small Scale Industries. Most of the contracts of supply or sale that Small Scale Industries enter into contain arbitration clauses. These arbitration proceedings result in an 'award'. If the term appeal' is interpreted in the limited context of a 'decree or order' and as excluding an application to set aside or remit such awards, the very purpose behind the enactment of Interest Act will be defeated.
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2010 (1) TMI 1222
Issues involved:
Confirmation of disallowance of cost of construction, applicability of section 2(47) of the Income Tax Act, and direction for reassessment for Assessment Year 2001-02.
Confirmation of disallowance of cost of construction:
The appellant entered into an agreement with a sister concern for the development of immovable property, where the appellant had a 1/4th share. The Assessing Officer disallowed the excess apportioned cost of the project, amounting to Rs. 1,44,98,140, based on the terms of the agreement and the perceived non-profitable nature of the venture. The appellant contended that the allocation of expenses was in accordance with the agreement and the rejection of accounts was unjustified. The CIT (A) upheld the disallowance, citing the provisions of section 2(47) of the Act and the relinquishment of control by the appellant over the property and construction activities. The Tribunal, after considering the submissions, found in favor of the appellant, stating that the profit sharing at 20% instead of 25% was reasonable and commercially viable, given the circumstances of the agreement and project development.
Applicability of section 2(47) of the Income Tax Act:
The CIT (A) held that the transaction between the appellant and the co-developer constituted a sale under section 2(47) of the Act, affecting Assessment Year 2001-02. However, the Tribunal disagreed, noting that the ownership rights remained with the appellant until the project's completion and that the agreement for joint development was genuine. As the asset was stock-in-trade and income was offered under the head of "profits and gains of business or profession," the provisions of section 2(47) were deemed inapplicable. The Tribunal set aside the CIT (A)'s findings and directions for reassessment for Assessment Year 2001-02.
Conclusion:
The Tribunal allowed the appeal of the assessee, overturning the disallowance of cost of construction and rejecting the applicability of section 2(47) of the Income Tax Act. The directions for reassessment for Assessment Year 2001-02 were quashed, and the Tribunal directed the Assessing Officer to accept the profit shown by the assessee.
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2010 (1) TMI 1221
Issues Involved:
1. Legality of the High Court's interference with the concurrent findings of the Special Tribunal and Special Court.
2. Acquisition of title by adverse possession by the respondents.
3. Jurisdiction and powers of the Special Tribunal and Special Court under the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982.
4. Interpretation and application of the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982.
Detailed Analysis:
1. Legality of the High Court's Interference:
The Supreme Court found that the High Court exceeded its jurisdiction by interfering with the well-reasoned concurrent findings of the Special Tribunal and Special Court. The High Court had set aside the orders of the lower courts based on the premise that the respondents had acquired title by adverse possession. The Supreme Court noted that the High Court's approach was erroneous, as it failed to consider the detailed analysis and evidence reviewed by the lower courts. The High Court's presumption that the authorities had allowed the respondents to continue possession was not supported by any affirmative evidence.
2. Acquisition of Title by Adverse Possession:
The respondents claimed that they had acquired title by adverse possession, arguing that they had been in continuous and open possession of the land for over 50 years. The Special Tribunal and Special Court rejected this claim, noting that the respondents failed to provide sufficient evidence of continuous and hostile possession. The Supreme Court agreed, emphasizing that mere long possession without evidence of hostile intent does not establish adverse possession. The respondents' applications to the government for assignment of the land and payment of land revenue further undermined their claim of adverse possession.
3. Jurisdiction and Powers of the Special Tribunal and Special Court:
The Supreme Court reaffirmed the jurisdiction of the Special Tribunal and Special Court under the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982, to adjudicate disputes related to land grabbing, including claims of adverse possession. The Act provides a comprehensive mechanism for addressing land grabbing issues, bypassing the need for regular civil court proceedings. The Court cited previous judgments to support the view that the Special Tribunal and Special Court have the authority to determine questions of title and possession.
4. Interpretation and Application of the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982:
The Supreme Court emphasized the need for a purposive interpretation of the Land Grabbing Act, given its objective to curb unauthorized occupation of public and private lands. The Act's provisions are designed to address the menace of land grabbing comprehensively. The Court highlighted the broad definitions of "land grabber" and "land grabbing," which include various unauthorized activities related to land possession. The Act's provisions, including the burden of proof on the alleged land grabber, were applied to uphold the findings of the Special Tribunal and Special Court.
Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's order, and restored the orders of the Special Tribunal and Special Court. The respondents were directed to hand over possession of the land to the government within two months. The Court also directed the government not to regularize the respondents' possession and barred the respondents from seeking any court orders to frustrate the implementation of the Supreme Court's decision.
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2010 (1) TMI 1220
Issues Involved:
1. Disallowance of depreciation for CAN Plant.
2. Addition as deemed dividend under section 2(22)(a) of the Income Tax Act.
3. Disallowance of claim for deduction of unutilized credits under DEPB and irrecoverable amounts due from Export Credit and Guarantee Corporation (ECGC).
4. Disallowance of bad debts.
5. Denial of claim for carry-forward of loss on transfer of capital assets.
6. Addition to book profit under section 115JB of the Act.
7. Exclusion of certain receipts from the profits of business for computing deduction under section 80HHC.
Detailed Analysis:
1. Disallowance of Depreciation for CAN Plant:
The first ground of appeal for the assessment year 2004-05 is against the disallowance of depreciation of Rs. 68,799/- in respect of CAN Plant. The learned AR for the assessee conceded that the issue was decided against the assessee by the Ahmedabad Bench of the Tribunal in the assessee's own case for the assessment year 2003-04. Consequently, the disallowance was upheld.
2. Addition as Deemed Dividend under Section 2(22)(a):
The second ground of appeal for AY 2004-05 and the only ground for AY 2000-01 is against the order confirming the addition as deemed dividend under section 2(22)(a) of the Act. The CIT(A) upheld the addition made by the AO, albeit on different grounds, concluding that the benefit could be covered under section 2(22)(a). The Tribunal noted that the provisions of section 2(22)(a) require a distribution out of accumulated profits coupled with the release of any part of the assets of the company. Since there was no release of any assets by YIPL to the assessee and no findings that the distribution was out of accumulated profits, the addition under section 2(22)(a) was deleted.
3. Disallowance of Claim for Deduction of Unutilized Credits under DEPB and Irrecoverable Amounts Due from ECGC:
The next grounds of appeal for AY 2004-05 involve the disallowance of a claim for deduction of Rs. 29,37,576/- being unutilized credits under DEPB and irrecoverable amounts due from ECGC. The CIT(A) held that these claims were not in the nature of bad debts but business losses, which could only be allowed in the hands of the amalgamating company in the year in which the claims were time-barred. The Tribunal, however, held that since the amounts written off were earlier offered as income and taxed accordingly, they should be allowed as business losses. Consequently, the disallowance of Rs. 29,37,576/- was deleted.
4. Disallowance of Bad Debts:
The next grounds of appeal for AY 2004-05 involve the disallowance of bad debts in respect of Bhogyeshwar Dye Chem (Rs. 1,67,104) and Oscar Chemicals Ltd (Rs. 14,772). The Tribunal found that the transactions with Bhogyeshwar Dye Chem during FY 2003-04 were only to the extent of transferring deposits held in their account to the debts account and reversing the entries. Therefore, the net amount was considered to be bad. In respect of Oscar Chemicals Ltd, the Tribunal held that the amount was not bad debt in the strict sense but a credit note issued against a bill, and thus allowable as a business loss.
5. Denial of Claim for Carry-Forward of Loss on Transfer of Capital Assets:
The assessee claimed long-term capital loss on the sale of equity shares and units of UTI. The AO held that the loss from such transfer would not form part of the total income. The CIT(A) dismissed the claim, following the decision of the Hon. Madras High Court in the case of CIT V/s Thiagarajan. The Tribunal held that while the loss on sale of shares is allowable to be carried forward under section 74 of the Act, the loss on transfer of units of UTI is not allowable to be carried forward as it does not form part of the total income.
6. Addition to Book Profit under Section 115JB:
The next grounds of appeal for AY 2004-05 involve the addition to book profit computed under section 115JB of the Act, being the provision for gratuity and deemed dividend added under section 2(22) while computing the income under regular provisions of the Act. The Tribunal held that the provision for gratuity on the basis of actuarial valuation is an ascertained liability and should not be added to the book profit. Similarly, the deemed dividend taxed under section 2(22)(a) did not form part of the book profit computed as per Part II and III of Schedule VI to the Companies Act, 1956, and thus no adjustment was called for.
7. Exclusion of Certain Receipts from the Profits of Business for Computing Deduction under Section 80HHC:
The AO held that certain receipts should not form part of the "profits of business" as per Clause (baa) of Explanation to Section 80HHC and hence 90% thereof should be reduced from the computation of "profits of business." The Tribunal, following the decision of the Mumbai Bench of the Tribunal in the case of Star India Limited, held that conversion charges, miscellaneous sales, insurance claims, foreign currency exchange fluctuation gains, sales tax refunds, and miscellaneous scrap sales should not be excluded while computing the profit of business under clause (baa) of Explanation to section 80HHC.
Conclusion:
In summary, the appeal of the assessee for AY 2004-05 is partly allowed, the appeal of the revenue for AY 2004-05 is allowed, and the appeal of the assessee for AY 2000-01 is also allowed. The Tribunal's order pronounced on 29.1.2010 addresses each issue comprehensively, ensuring that the legal principles and relevant provisions of the Income Tax Act are meticulously applied.
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2010 (1) TMI 1219
Issues Involved:1. Deletion of addition made u/s 68 regarding share application money. Summary:Issue 1: Deletion of addition made u/s 68 regarding share application moneyThis appeal by the revenue is directed against the order of the learned Commissioner of Income-tax (Appeals)-XVI, New Delhi, dated 09.02.2009 in an appeal against the assessment framed u/s 143(3) of the Income-tax Act (the Act). The revenue raised the ground that the Ld. CIT(A) erred in law in deleting the addition of Rs. 18,00,000/- made u/s 68 with respect to the money claimed to have been received as share application money without appreciating the facts and the circumstances in the right perspective. During the year, the assessee company issued 18000 shares of Rs. 10/- each at a premium of Rs. 90/-. The AR of the assessee provided details including acknowledgments of IT returns, balance sheets, and confirmations on affidavit from M/s. G.C. Technology India Pvt. Ltd. and M/s. Fair 'N' Square Exports Pvt. Ltd. However, the AR failed to produce the Principal Officers of these parties for verification. Investigations revealed that these companies were not carrying on any actual business and were engaged in providing accommodation entries. Summons u/s 131 were issued but the companies did not respond, and the Inspector's report confirmed that the companies did not exist at the given addresses. The AO concluded that the amount of Rs. 18,00,000/- was never received as share capital and was a camouflaged transaction to avail the benefit of favorable judicial pronouncements on share capital, thus adding it back to the income u/s 68. The learned CIT(A) observed that the AO made the additions based on information from the Investigation Wing without verifying the facts. The CIT(A) held that the assessee had discharged its initial onus by providing documentary evidence proving the identity of the shareholders. The CIT(A) deleted the addition as the AO did not conduct any investigation/enquiry during the assessment proceedings. The learned DR relied on the order of the AO, while the learned counsel for the assessee supported the findings of the CIT(A). The Tribunal considered the facts and arguments, referring to the ITAT Delhi Bench's decision in the case of ITO vs. M/s. Omega Biotech Ltd., which dealt with identical issues. The Tribunal noted that the existence of share applicants was not proved as the companies did not exist at the given addresses, and the directors of the shareholder companies admitted to providing accommodation entries. The Tribunal found that the assessee failed to establish the identity of the shareholders and the justification for charging a premium of Rs. 90/- per share. The Tribunal restored the matter back to the file of the AO to provide the assessee a reasonable opportunity to establish the identity of the shareholders. In the result, the appeal was allowed for statistical purposes. Pronounced in the open court on 29th January, 2010.
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2010 (1) TMI 1218
Issues Involved:
1. Validity of assuming jurisdiction under sections 147/148 of the Income Tax Act, 1961.
2. Allocation of common expenses for the purpose of computing deduction under section 80IA.
3. Apportionment of expenses on account of traveling and conveyance to Unit II.
Detailed Analysis:
1. Validity of Assuming Jurisdiction under Sections 147/148:
The assessee challenged the validity of the reassessment proceedings initiated under sections 147/148 of the Income Tax Act, 1961. The original assessment was completed under section 143(3) on 22.11.2000, and the notice under section 148 was issued on 30.03.2005, beyond the four-year period from the end of the relevant assessment year. The assessee argued that the reassessment proceedings were based on an audit objection and that there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The CIT(A) dismissed these contentions, stating that the notice was issued within six years, and the assessee failed to disclose full facts truly. The Tribunal, however, held that the notice under section 148 was barred by limitation as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal relied on the jurisdictional High Court decision in Haryana Acrylic Manufacturing Co. vs. CIT, emphasizing that the absence of an allegation of failure to disclose material facts in the reasons recorded for issuing the notice rendered the reassessment proceedings invalid.
2. Allocation of Common Expenses for Deduction under Section 80IA:
The assessee disputed the allocation of common expenses to different units on the basis of their respective turnover, arguing that expenses should be allocated at 2.5% of the sales of each unit, as done in the past. The CIT(A) upheld the AO's method of allocating expenses based on turnover, finding it more scientific and rational. The Tribunal supported this view, citing its own decision in the assessee's case for the A.Y. 2003-04 and the ITAT Pune Bench's decision in Khinvasara Investment Pvt. Ltd. vs. JCIT. The Tribunal directed the AO to determine the turnover and expenses in the same manner as held in the A.Y. 2003-04, where expenses were allocated based on the proportion of turnover, leading to a more accurate reflection of each unit's profitability.
3. Apportionment of Expenses on Account of Traveling and Conveyance to Unit II:
The assessee contested the AO's allocation of Rs. 2.50 lakhs (reduced from Rs. 5 lakhs by the CIT(A)) for traveling and conveyance expenses to Unit II, claiming it was based on surmises and conjectures. The Tribunal found that neither the AO nor the CIT(A) provided a rational basis or material evidence for this allocation. The Tribunal noted that the assessee had already debited traveling and conveyance expenses to Unit II, and the AO did not substantiate the claim that these expenses were meager or that they were debited to other units. Consequently, the Tribunal held that the allocation of Rs. 2.50 lakhs was unjustified and should not be made.
Conclusion:
The Tribunal allowed the appeal for the A.Y. 1998-99, canceling the reassessment proceedings as barred by limitation. For the A.Y. 2004-05, the Tribunal partly allowed the appeal, upholding the allocation of common expenses based on turnover but rejecting the additional allocation of traveling and conveyance expenses to Unit II.
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2010 (1) TMI 1217
Issues Involved:
1. Addition of Rs. 8 lacs on account of unexplained cash credit.
2. Addition of Rs. 26,39,294 on account of bogus purchases.
3. Addition of Rs. 9,46,579 on account of advances written off.
4. Addition of Rs. 6,97,440 on account of duty drawback income.
5. Addition of Rs. 30,363 under Section 40A(3).
6. Addition of Rs. 4,80,891 under Section 40(a).
7. Addition of Rs. 30,000 as undisclosed income.
Issue-wise Analysis:
1. Addition of Rs. 8 lacs on account of unexplained cash credit:
The AO noticed cash credits of Rs. 1 lac, Rs. 2 lacs, and Rs. 5 lacs deposited in the capital account of a partner, Mr. Gopal Bhasin, but treated them as undisclosed cash credit due to lack of documentary evidence. The CIT(A) admitted additional evidence showing these amounts were withdrawn from Mr. Bhasin's proprietary firm, B2B Connectors, and deposited into the partnership firm. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee was prevented by sufficient cause from producing the evidence during the assessment and confirmed the deletion of the Rs. 8 lacs addition.
2. Addition of Rs. 26,39,294 on account of bogus purchases:
The AO disallowed purchases from certain parties due to non-submission of confirmations and payments mostly made in cash. The CIT(A) admitted additional evidence, including confirmations from the parties, and deleted the addition. The Tribunal agreed with the CIT(A) that the assessee had submitted sufficient evidence to prove the genuineness of the purchases and confirmed the deletion of the Rs. 26,39,294 addition.
3. Addition of Rs. 9,46,579 on account of advances written off:
The AO treated advances received from M/s BHP Industries Ltd. as a liability no longer required to be paid. The CIT(A) deleted the addition, referencing a Tribunal decision that liabilities can only be examined in the year they were credited. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not prove the liability had ceased and that the assessee had acknowledged the liability in its balance sheet.
4. Addition of Rs. 6,97,440 on account of duty drawback income:
The AO added this amount, stating the assessee failed to account for duty drawback on an accrual basis. The CIT(A) upheld the addition, citing that the assessee followed the mercantile system of accounting and could not selectively apply the cash basis. The Tribunal agreed but remanded the issue back to the AO to quantify the duty drawback accurately.
5. Addition of Rs. 30,363 under Section 40A(3):
The AO made this addition for cash payments exceeding Rs. 20,000, which was not covered by any exclusion clauses of Rule 6DD. The CIT(A) confirmed the addition, and the Tribunal upheld the CIT(A)'s decision, noting the absence of any satisfactory explanation from the assessee.
6. Addition of Rs. 4,80,891 under Section 40(a):
The AO disallowed expenses for non-deduction of TDS on freight and cartage expenses paid to M/s Committed Cargo Care (P) Ltd. The CIT(A) upheld the addition, and the Tribunal agreed, noting that the assessee did not deduct TDS as required under Section 194C.
7. Addition of Rs. 30,000 as undisclosed income:
The AO added Rs. 30,000 due to a negative cash balance of Rs. 20,888. The CIT(A) confirmed the addition. The Tribunal found the addition of Rs. 30,000 excessive and reduced it to Rs. 20,888, providing the assessee relief of Rs. 9,112.
Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing detailed justifications for each decision based on the evidence and legal precedents.
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