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2015 (12) TMI 1830
Exemption u/s 10(23G) on the interest income - assessee is a non-banking financial company engaged in advancing loans and making investments - AO denied the exemption on the ground that the assessee has not earned the interest income out of investment activities, but out of business activities and the Ld CIT(A) also confirmed the same - HELD THAT:- Issue decided in favour of assessee as relying on own case [2012 (4) TMI 772 - BOMBAY HIGH COURT]
Loss arising on sale of investment as a business loss - HELD THAT:- We notice that the Ld CIT(A) has allowed the claim in AY 2002-03 [2014 (10) TMI 1018 - ITAT MUMBAI] by considering the business activities of the assessee. Since the AO has accepted the claim of the assessee in a number of years, we are of the view that the AO was not justified in taking different view in this year. Accordingly, we uphold the order of Ld CIT(A) on this issue.
Treatment of leasehold improvements expenditure - revenue or capital expenditure - HELD THAT:- As assessee has incurred the expenditure on lease hold premises and no asset has come into existence. Accordingly he directed the AO to allow the same as revenue expenditure. The Ld A.R submitted that an identical issue was considered by the Tribunal in the assessee’s own case relating to AY 2004-05 [2012 (4) TMI 772 - BOMBAY HIGH COURT] and was decided in favour of the assessee. Consistent with the view taken therein, we uphold the order of Ld CIT(A) on this issue.
Assessment of interest arising on “Non Performing assets” on accrual basis - HELD THAT:- As this issue is covered by the decision rendered by the Tribunal in the assessee’s own case for AY 2004-05 [2012 (4) TMI 772 - BOMBAY HIGH COURT] wherein the Tribunal has decided this issue in favour of the assessee. He further submitted that the decision taken by the Tribunal was in accordance with the decision rendered by the Hon’ble Bombay High Court in the case of CIT Vs. KEC Holdings Limited [2014 (7) TMI 139 - BOMBAY HIGH COURT] Hence, consistent with the view taken by the Tribunal in the assessee’s own case, se set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition.
Rejection of claim of Bad debts written off relating to the TDS certificate not received by the assessee - HELD THAT:- As decided in INDIAN PRODUCTS TRADING CO. PVT. LTD. VERSUS ITO RG 3 (2) (1) , MUMBAI [2010 (9) TMI 1263 - ITAT MUMBAI] it is stated that the assessee did not receive TDS certificates from the debtor and hence it could not claim credit for the tax deducted at source amount. Accordingly the assessee has written off the TDS amount as irrecoverable, herefore the amount withheld by the debtor has TDS is certainly due to the assessee and when the assessee writes off this debt as irrecoverable, the same is allowable as deduction u/s 36(1)9vii), applying the ratio of the Apex Court in the case of TRF Ltd [2010 (2) TMI 211 - SUPREME COURT]
Disallowance of various expenses - HELD THAT:- we notice that the assessing officer has, in addition to the element of personal expenses, also taken the view that they have been incurred for non-business purposes. Before us also, the assessee has failed to establish the business connection in incurring all these expenses. Accordingly we are of the view that some portion of expenses needs to be disallowed to take care of deficiencies, if any, but the disallowance of 30% appears to be on the higher side. Accordingly, in the case of Business development and entertainment expenses, we sustain an addition of 10% of expenses and modify the order of Ld CIT(A) accordingly. In the case of advertisement and publicity expenses, we sustain the addition of ₹ 1.00 lakh pertaining to the donation made to Doon School and Dutch National daily and 10% of the remaining portion of the expenses listed out in the table given in page 32 of the assessment order. The order of Ld CIT(A) stands modified accordingly.
Disallowance of write off of deposit as irrecoverable - CIT(A) allowed the same by holding that the same is related to the business of the assessee - HELD THAT:- Assessee did not furnish the relevant details to support the said contention. In our view, the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Reliance Engineering Associates Pvt.Ltd [2010 (11) TMI 507 - ITAT, MUMBAI] can be applied only if the assessee proves that the rent deposit was paid in respect of accommodation hired for the staff members. Hence, in the interest of natural justice, we are of the view that the assessee should be provided one more opportunity to prove the same. We shall make it clear that the addition made by the AO shall be sustained, if the assessee fails to prove to the satisfaction of the AO that the concerned accommodation was taken for the residential purposes of staff members of the assessee. The order of ld. CIT(A) on this issue stands modified accordingly.
Disallowance of “out of pocket expenses” incurred in relation to Yes Bank - HELD THAT:- we notice that the assessee failed to file details of expenditures, purpose for which it was incurred, how it was incurred and how it was not recoverable from “Yes Bank” and steps taken for recovery of the same etc., either before the AO or before Ld CIT(A). In our view, the relevant details are necessary in order to decide about the allowability of this expenditure. Accordingly, we modify the order of ld. CIT(A) and restore the same to the file of the AO in order to provide an opportunity to the assessee to furnish relevant details. We shall make it clear that the addition made by the AO shall be sustained, if the assessee fails to furnish the details to the satisfaction of the AO.
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2015 (12) TMI 1829
Depreciation u/s 32 on the said revalued trademark - AO's failure to obtain prior approval of the JCIT - HELD THAT:- We find the CIT (A) in the second round has left so many gaps with regard to the fact of AO‟s failure to obtain prior approval of the JCIT and the consequences of not obtaining such approval on the claim of the assessee.
CIT (A) did not consider the fact whether the provisions of Explanation-3 to section 43(1) of the Act actually apply to the facts of the present case; whether AO merely ignored the claim of depreciation on the revalued cost of the trademark. Further, CIT (A) has also not considered whether there is any substitution of valuation at all when the AO considered the value of the trademark at “zero”.
CIT (A) is directed to pass a speaking order as to how the Explanation-3 to section 43(1) applies to the facts of the present case from all angles if the conditions specified in the said Explantion-3 are fully satisfied or not. He is also directed to pass an order on how the AO is permitted to reject the valuation report furnished by the assessee when the AO does not have any other report on hand from the DVO or otherwise. Further, CIT (A) is also directed to examine the applicability of the cited judgment of the Hon‟ble Gujarat High Court in the case of Ashwin Vanaspati Industries [2002 (1) TMI 40 - GUJARAT HIGH COURT] and others. Further also, CIT (A) should examine the applicability of the 5th proviso to section 32(1) of the Act and give reasons in writing on how the amended provisions apply to the facts of the present case. Thus, we remand the whole of the issue relating to the claim of depreciation on the trademark to the file of the CIT (A) for third round of the proceedings before him. Accordingly, all the issues raised in the original grounds as well as additional grounds are allowed for statistical purposes.
Quantification of allowable depreciation u/s 32 - The same is dependent on the WDV of the asset, therefore, Block of Asset. If the value of the asset varies in the year of acquisition and in amount, the consequence shall be there in all the subsequent years. It is an admitted fact that the issue raised in the allowability of depreciation is always with reference to the WDV of the trademark at the end of each of the AY. Accordingly, considering the commonality of the issues involved in all the 9 appeals with that of the one adjudicated by us in the above paragraphs of this order (appeal for the AY 19992000), our decision given therein squarely applies to the present 9 appeals too. Accordingly, all the grounds as well as the additional grounds raised in all the 9 appeals are allowed for statistical purposes.
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2015 (12) TMI 1828
Allowability of commission payment - non-discharge the burden of proving that the expenditure laid out were incurred wholly and exclusively for the purpose of business - HELD THAT:- Undisputedly, the assessee company had paid commission through account payee cheque. This will not debar the AO from probing the matter further to examine whether the commission payments are allowable expenditure or not. In this context, it is worth quoting that the decision of the Hon’ble Supreme Court in the case of Laxmi Narayan Madanlal Vs CIT [1972 (9) TMI 4 - SUPREME COURT].
AO is empowered to probe further and reach at a conclusion whether the commission was paid for the services actually rendered and determine whether the expenditure was laid out wholly and exclusively for the purpose of business. In the present case, the AO had called upon the assessee company to furnish evidence in support of the services rendered by the commission agents. In response to this, except highlighting the role of commission agent, no evidence was furnished in support of the services rendered by the commission agent. The AO gave categorical finding that the assessee had failed to substantiate the actual services rendered by the sales agent.
Assessee company had chosen not to file any evidence in support of the services rendered by sales agencies either before the learned CIT(A)or before us. Even before us, the learned AR miserably failed to demonstrate before us as to what kind of proof was filed before the lower authorities in support of services rendered by the commission agent. Pursuant to the direction of the Bench to file evidence in support of the services rendered the assessee had chosen to file only correspondence relating to the payment which no way establishes the actual services rendered by the commission agent. Thus, the assessee failed to discharge the burden of proving that the expenditure laid out were incurred wholly and exclusively for the purpose of business.
CIT(A) had not examined any evidence to show that the agents have actually rendered their services. The learned CIT(A) had totally misdirected himself by examining the issue from the angle of tax deducted at source and he had failed to examine whether the services are actually rendered by the commission agents or not. Therefore, we are unable to sustain the order of the learned CIT(A) and hold that the commission payments in question are not allowable. The assessee company had miserably failed to demonstrate the actual services rendered by the agents to whom the commission payments were made, despite ample opportunity granted by this Tribunal to furnish evidence in support of service rendered by commission agent. - Decided against assessee.
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2015 (12) TMI 1827
Arms length price of International transaction - corporate services charge paid - HELD THAT:- Disallowance on account of corporate services was made for the same reason as in the impugned assessment year. Since this issue has already been adjudicated upon by the Hon'ble Tribunal in the preceding year, respectfully following the same in the impugned assessment year also, we remit the matter back to the file of the AO and direct him to compute the ALP of the corporate services charge paid by reducing 50% of the benefit if any received by the assessee from the financial services received. The AO is directed to examine the amount of benefit as calculated by the assessee and thereafter decide the issue as per the direction given.
Disallowance of commission expenses - Rate of commission paid by the assessee - HELD THAT:- Rate of commission paid for the transaction cannot be interfered by the Assessing Officer as it is the understanding between the parties at the relevant time which determines the rate of commission to be paid on a particular transaction. In view thereof, we reverse the order of Assessing Officer in restricting the rate of commission to 3% . In any case, the said restriction was made by the Assessing Officer observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are M/s Integrated Technology and M/s Aakaar Engineering & Manufacturing Co. The commission to the said parties, as alleged by the Assessing Officer are paid @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties.
Disallowance u/s 14A - HELD THAT:- Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not been paying any interest to the assessee. The investment as is apparent from the facts was made as a business expediency to procure raw material manufactured by M/s Hindustan Max GB Ltd. The Income Tax Appellate Tribunal, therefore, rightly deleted the addition made by the assessing officer, under Section 14A of the Act.
Since the disallowance made u/d 14A has been deleted nothing remains for making adjustment to the Book Profits u/s 115JB in respect of Section 14A. Therefore adjustment made to the Book Profit on account of disallowance u/s 14A is also deleted.
Interest expenses allowability - Non allowance of depreciation on the amount treated as capital expenditure - HELD THAT:- Indirect expenses would constitute revenue expenditure only and would not become capital merely for the reason that such expansion was termed as new project. Therefore we hold that the treatment given by AO to the sum as capital is not in accordance with law and is hereby reversed.
Disallowance of interest expenses on account of capital expansion - HELD THAT:- If no particular loan has been taken for the asset which has been shown under the head 'capital work in progress' then disallowance could not have been made. However, each loan and its utilization requires fresh examination, therefore, we remand this issue to the file of Assessing Officer with a direction to ascertain details of various loans and how they were fully utilized and then only decide the issue in accordance with law. Respectfully following the same we hold that no disallowance u/s 36(1)(iii) can be made if no loan has been taken for investment in capital work in progress, and further for the verification of this fact, we remit the matter back to the file of the AO with a direction to ascertain the utilization of various loans taken by the assessee and thereafter decide the issue in accordance with law.
Deduction u/s 43B r.w.s. 36(1)(ii) - HELD THAT:- We hold that ex-gratia payment pertaining to the impugned year only is allowable as business expenditure and since this aspect has not been examined by the AO, we set aside the order and remand the matter back to the file of the A.O. for re-examination in terms of the direction contained in para-43 of the order of Tribunal for A.Y. 2009-10.
Disallowance of Royalty expenses incurred by the assessee for the manufacture of its product Purimox - HELD THAT:- We hold that the expenditure incurred by the assessee for the payment of Royalty is allowable and we further hold that the depreciation allowed thereon be withdrawn. We therefore, set aside the order of the AO and delete the addition made.
Disallowance of expenditure - assessee had failed to produce relevant bills and vouchers during the course of assessment proceedings - HELD THAT:- Claim of the assessee that it has not claimed any deduction in respect of impugned prior period expenses, has not been examined by AO or by DRP, despite the fact that specific argument was raised to this effect and books of accounts produced before the AO. Therefore, the AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of above mentioned direction.
As regards the other component of disallowance on account of non-production of supporting documents, it is seen that AO did not give adequate opportunity to the assessee and when evidences were filed before DRP, DRP without assigning any reason, brushed aside the same which in our considered opinion is not justified. Therefore this issue is sent back to the file of AO to decide it after giving reasonable opportunity of being heard to the assessee.
Disallowance of expenditure - assessee failed to file satisfactory reply and the said bills pertained to either earlier year or were unsupported with voucher - HELD THAT:- Certain expenses have also been disallowed for the reason that the invoice amount does not tally with the supporting voucher. Ld. AR submitted that this issue was clarified to the A.O. wherein it was explained that in certain cases a single purchase order is made for materials /products / items required by different departments of the assessee and in pursuance to which the material is supplied by the vendor raising a single bill, sometimes without mentioning the PO reference no. The SAP system of the assessee, thereafter, posts the purchases in the respective ledger accounts wherein the purchases accounted for do not tally with the consolidated figure mentioned in the purchase order. Ld. AR stated that relevant purchase order and invoices were also placed before the A.O.
Despite the submissions and evidences placed by the assessee before the assessing officer, the same has neither been considered nor examined by him. Moreover we find that the DRP also failed to consider the submission of the assessee. In view of the same we find no justification in the order of the A.O. making the disallowance without appreciating the submissions made by the assessee and the evidences filed by it. But in the interest of justice we remit the matter back to the file of the A.O. to examine the issue afresh in the light of submissions and evidences placed by the assessee and thereafter adjudicate thereon in accordance with law. The assessing officer is directed to give adequate opportunity of hearing to the assessee in respect of the above issues.
Depreciation on certain civil construction expenses under the head Plant & Machinery - HELD THAT:- Referring detailed explanation of the assessee that the civil work undertaken pertained to building reinforced foundation for the purpose of installing new plant and machinery has not been rebutted much less with the help of any cogent basis. Therefore such reinforcement even to civil construction would be treated as installation cost of Plant and Machinery and would qualify for depreciation as Plant and Machinery. In view of the same, we allow depreciation on civil construction work in the facts of the present case as applicable to Plant and Machinery.
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2015 (12) TMI 1825
Unutilised modvat credit - HELD THAT:- As decided in own case [2015 (11) TMI 1799 - ITAT MUMBAI] the assessee had, in valuing their stock, uniformly adopted the “net method”, viz. , valuing the raw materials at the purchase price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw materials and the work in progress at the end of the year. The Assessing Officer took the view that the Modvat credit should be treated as an income or advantage in the nature of income and added back the Modvat credit. The Appellate Tribunal held that the Modvat credit could not be added back to the income of the assessee, that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of dutypaid raw material, that would not amount to income which was liable to be taxed under the Act : income was not generated to the extent of the Modvat credit on unconsumed raw material ;(ii) that it was not permissible for the Assessing Officer to adopt the “gross method” for valuation of raw materials at the time of purchase and the “net method” for valuation of stock on hand.
Addition made on account of catalyst - revenue or capital expenditure - AR's submission that the capitalization was done by the assessee only because of the prescription of the ICAI with regard to the change of the accounting standard - HELD THAT:- The objection by the revenue that the assessee should have claimed it in the earlier years, or the basis for claiming this during the year under consideration is because the assessee started making profit for the first time after amalgamation etc. , is not sustainable. Even the assessee's counsel submitted before us that this was not the first year of profit making. Even before the amalgamation the company made the profit. It is true that after amalgamation also the assessee had positive income. We have to accept the assessee's contention that it was not the motive to reduce tax, but it was because of the change in the method accounting standard prescribed by the ICAI is a reason to be accepted in the absence of any evidence to the contrary.
Disallowanceu/s. 14A - HELD THAT:- While deciding the appeal for the AY. 2007-08 we have restored back the issue of disallowance to be made u/s. 14A to the file of the AO. Following the same, AO is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee. Additional Ground No. 1 and 2 also deal with the disallowance made u/s. 14A of the Act. Following out order for AY07-08 we are remitting back the issue to the file of AO
Disallowance u/s. 40(a)(ia) towards provisions made for expenses at the year end - HELD THAT:- We find that the AO had invoked the provisions of section 40(a)(ia), though he has also discussed the principles of contingent liability, while making the disallowance. We find that FAA has passed a nonspeaking order and just endorsed the views of the AO but he was also of the opinion that provisions of section 40(a)(ia) were applicable. It is found that assessee had specifically mentioned during the assessment proceedings, that it had not received the bills under various heads, that provisions of tax deducting at source were not applicable for the provisions made. We find that similar issue had arisen in the case of Mahindra & Mahindra Ltd. [2013 (9) TMI 522 - ITAT, MUMBAI] . In that matter it was held that TDS provisions were not applicable for the provisions made at the year end.
Disallowance u/s. 43B(f), being provision made for leave salary - HELD THAT:- As decided in own case[ 2014 (10) TMI 154 - ITAT MUMBAI] as it has been decided in assessee’s own case for the earlier assessment year, following the decision in Srikakollu Subba Rao And Co. And Others Versus Union Of India And Others [1988 (3) TMI 46 - ANDHRA PRADESH HIGH COURT] in order to apply the provisions of Sec. 43B not only should be the liability to pay the tax or duty be incurred in the accounting year but also should be statutorily payable in the accounting year - the provision for leave salary is not a statutory liability but only a contractual liability which is payable only if the employees resigns or retired from the services – Decided in favour of assessee.
Disallowance of Employee Stock Option Scheme(ESOP) - HELD THAT:- We find that the Special Bench of the Tribunal in the case of Biocon Limited [2013 (8) TMI 629 - ITAT BANGALORE] has decided the issue of ESPO in favour of the assessee.
Disallowance of depreciation on goodwill on acquisition of Madura garments Division - HELD THAT:- As decided in own case [2013 (11) TMI 1241 - ITAT MUMBAI] we direct the AO to allow the claim of depreciation on Goodwill.
Sale of certified emission reduction (CER) - revenue or capital receipt - HELD THAT:- Tribunal has factually found that "carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns". We agree with this factual analysis as the assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income.
Treatment of interest subsidy under TUFS - HELD THAT:- We find that, while deciding the appeal for 95-96 the Tribunal had dealt with the sales tax/Vat subsidy. It had no occasion to deal with the interest subsidy received under the TUFS. We find that neither the AO nor the FAA had any occasion to decide the nature of the interest subsidy of TUFS while passing the assessment order or deciding the appeal for the year under consideration. We are of the opinion that in the interest of justice the matter should be restored back to the File of FAA for fresh adjudication
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2015 (12) TMI 1824
TP Adjustment - comparable selection - admission of additional grounds - HELD THAT:- By virtue of Special Bench decision in the case of M/s Quark Systems Pvt. Ltd [2009 (10) TMI 591 - ITAT, CHANDIGARH] , assessee can raise additional grounds seeking exclusion of comparables selected by it or not objected by it before the lower authorities. However, the Hon’ble Punjab & Haryana High Court [2011 (5) TMI 508 - PUNJAB AND HARYANA HIGH COURT] had upheld the Special Bench decision in the case of M/s Quark Systems Pvt. Ltd. ( Supra) specifically noting that the Special Bench had remitted the issue of comparability of such companies to the AO/TPO for verification afresh. Hence, we are admitting the additional grounds. Hence the additional grounds are set aside to the file of the Assessing Officer.
Comparables selecton - Companies functionally dissimilar with that of assessee as engaged in providing software design, development and maintenance services and marketing support services to its associated enterprises (AEs) as a captive service provider need to be deselected from final list.
Companies having turnover exceeding ₹ 200 crores is to be excluded from the final list of comparables selected by the TPO in the light of decision of the coordinate Bench of this Tribunal in the case of Cypress Semiconductor India P. Ltd [2015 (4) TMI 373 - ITAT BANGALORE]
Companies with related party transactions exceeding 15% be excluded from the list of comparables chosen by the TPO.
Inclusion of reimbursement of expenses in the operating cost as well as operating revenue of the assessee company - HELD THAT:- We find that the assessee company has received reimbursement of these expenses as cost from its AE and consequently the amount received/receivable is deemed to be at arm’s length price. Hence this ground of appeal is allowed.
Working capital adjustment - HELD THAT:- Advances received from AEs should be considered as a part of trade payables in the computation of working capital adjustment. Hence, the TPO/AO is directed to consider advances from ARM Ltd. UK and ARM Inc., USA in the computation of working capital adjustment and rework the same. This ground is allowed for statistical purposes.
Recomputation of deduction u/s. 10A - HELD THAT:- Whatever is excluded from the export turnover, has also to be excluded from the total turnover. Accordingly, we direct the AO to recompute the deduction u/s. 10A in respect of travel expenses and telecommunication charges by reducing the same from total turnover also. See TATA ELXSI LTD. [2011 (8) TMI 782 - KARNATAKA HIGH COURT]
Non-grant of refund and corresponding interest u/s. 234D - assessee submitted that according to the AO, refund of ₹ 7,04,700 has been issued to the assessee, but the assessee has not received the refund. Consequently, the AO has erred in charged u/s. 234D of the Act of ₹ 81,041 on the said refund of ₹ 7,04,700 - HELD THAT:- We set aside this issue to the file of Assessing Officer to verify the claim of assessee and decide the issue afresh.
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2015 (12) TMI 1823
The Supreme Court condoned the delay, issued notice, and tagged the case with C.A. Nos. 2515-2519 of 2011. Mr. M.Y. Deshmukh accepted notice on behalf of the respondents.
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2015 (12) TMI 1822
The High Court of Allahabad heard the case regarding the imposition of a penalty on the appellant, who was a supplier of raw material not subject to excise duty. The Court admitted the case based on substantial questions of law, including the justification of imposing penalties without proper findings and considering all evidence. The case was listed and connected with Central Excise Appeal Nos. 2 of 2015 and 4 of 2015.
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2015 (12) TMI 1821
Penalty u/s 271AAA - present assessee covered u/s 132 OR 133A - HELD THAT:- There is no dispute on the fact that the assessee offered the disclosed income and paid taxes. That issue on quantum reached the finality. When comes to the penalty proceedings, the AO erroneously initiated the penalty proceedings u/s 271AAA of the Act when the present assessee is not covered u/s 132 of the Act. He is covered only u/s 133A of the Act. Section 271AAA is not relevant for initiating such proceedings legally. Further, on perusal of the order of the CIT (A), we find paras 6.1 to 6.3 are relevant in this regard.
CIT (A) has rightly adjudicated the issue as per the provisions of the Act and in accordance with law. Therefore, in our view, the decision taken by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed.
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2015 (12) TMI 1820
Penalty u/s 271B - violation of section 44AB - HELD THAT:- We find that the findings recorded by the learned CIT(A) are not correct as assessee has been demanding the release of documents from 12.08.2009 onwards, which were provided to the assessee only on 14.07.2010, therefore, the delay in getting accounts audited was beyond the control of assessee. We further find that the penalty for violation of section 44AB is not mandatory. See SS BANGA. [2005 (1) TMI 82 - PUNJAB AND HARYANA HIGH COURT]
In the present case, we find that the reason for late filing of audit report was beyond the control of assessee, and therefore, there is a reasonable cause and therefore, penalty was not imposable. - Decided in favour of assessee.
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2015 (12) TMI 1819
Disallowance of provision for leave encashment payable to its employees claimed as deduction - HELD THAT:- In the light of the decision of the Hyderabad Bench of the Tribunal in the case of Suryavanshi Spinning Mills [2015 (9) TMI 1670 - ITAT HYDERABAD] we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to reconsider the matter in the light of the directions of the Tribunal in para-3 thereof extracted hereinabove. This ground of the assessee is accordingly allowed for statistical purposes.
Disallowance referable to employees' share of Provident Fund and ESI paid beyond the due date under the respective statutes - HELD THAT:- As decided in VBC INDUSTRIES LTD. AND OTHERS VERSUS DY. COMMISSIONER OF INCOME-TAX, CIRCLE – 3 (3) , HYD. AND OTHERS [2015 (6) TMI 1 - ITAT HYDERABAD] we set aside the impugned order of the CIT(A) on this issue, and set aside the matter to the file of the Assessing Officer for reconsideration of the disallowance under S.43B, in the light of the above decision of the Tribunal in the case of VBC Industries, noted above, and with a direction that insofar as the payments made before the due date for the filing of the return u/s 139(1), no disallowance may be made under S.43B. AO is accordingly directed to verify the actual date of remittance of the employees' contribution to PF land ESI and redecide this issue accordingly after giving reasonable opportunity of hearing to the assessee. This ground of the assessee is also treated as allowed for statistical purposes.
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2015 (12) TMI 1818
Addition on account of unpaid Service Tax - unpaid statutory liability as prescribed u/s 43B - HELD THAT:- We are of the considered opinion that no interference is required in the decision given by the learned CIT (A). The issue of disallowance of unpaid statutory liability as prescribed u/s 43B of the IT ACT now stood resolved by several decisions. The impact of Circular No.372 dated 8th December, 1981 has also been considered.
As per the said circular it is specifically mentioned that several cases have come to the notice where tax payers did not discharge their liability in respect of excise duties or other taxes although claimed, the said liability as deduction on the ground that the accounts have been maintained on mercantile basis. The CBDT has observed that on one hand the tax payers have claimed the deduction merely on the basis of accrual of liability but on the other hand, disputed the liability and did not discharge the obligation of payment of the tax.
For some reasons or the other, the liability is disputed and not paid. This aspect has been considered by several Courts and came to the conclusion that in a situation when deduction has not been claimed and a separate account has been maintained, then disallowance u/s 43B of the IT Act should not be made. In the case of CIT Vs Noble & Hewitt (India) (P) Ltd. [2007 (9) TMI 238 - DELHI HIGH COURT] , the case of Chowringhee Sales Bureau P. Ltd. Vs CIT [1974 (6) TMI 5 - CALCUTTA HIGH COURT] has been distinguished and it was held that when the amount of tax has not been debited to profit & loss account as an expenditure nor claimed any deduction in respect of the said amount then, the question of disallowance u/s 43B of the IT Act does not arise. Respectfully, following this decision, we hereby hold that there was no fallacy in the view taken by the learned CIT (A). The same is hereby confirmed and ground No.1 of the appeal of the Revenue is, therefore, dismissed.
Addition on account of donation treating the same as personal expenditure - HELD THAT:- We are not in agreement with the view taken by the learned CIT (A) because he has simply generalised the issue although, the AO had made a specific observation that the assessee had not filed any evidence through which the deduction could be qualified. The onus was on the assessee to place on record such evidence to establish that the donation was not in the nature of personal expenditure but in the nature of business expenditure to be allowed under the provisions of the Act. We hereby reverse the finding of the learned CIT (A) and allow this ground of appeal of the Revenue.
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2015 (12) TMI 1817
Reopening of assessment u/s 147 - assessee has not filed any return of income for assessment year under appeal - HELD THAT:- Assessee filed return of income in assessment year 1999-2000 on 08.03.2000. Copy of the acknowledgement of filing of the return is filed at page 28 of the Paper Book. Since the Assessing Officer recorded incorrect and non-existing reasons for re-opening of the assessment, therefore, re-opening of the assessment would not be justified in the matter. We rely upon decision of Hon'ble Punjab & Haryana High Court in the case of Atlas Cycle Industries [1989 (4) TMI 48 - PUNJAB AND HARYANA HIGH COURT] - Decided in favour of assessee
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2015 (12) TMI 1816
Correct head of income - Profits realized on sale of shares - business income or capital gain - long term capital gain or short term capital gain - period of holding of the shares - HELD THAT:- Schedule L (on Investments) to the Balance Sheet enclosed along with return that long –term investments are stated at cost less permanent diminution in value of investments only. The Investments(Other than Trade) of ₹ 44.71 crores as on 31 March 2006 are detailed in Schedule F of the Balance Sheet. The aforesaid investments are made upon the decision made by Board of Directors and with clear intention to hold the aforesaid Capital Assets as investment. The intention of the assessee is therefore never to make profit from sales as in the case of trading activities. The intention is to have steady and substantial capital appreciation and earn dividends if any from such investment.
As regards, trading stock where the assessee intends to make profits, such stock has been disclosed in Schedule I of the Balance sheet showing a closing value of ₹ 30.85 crores on 31 March 2006. The accounting policy for trading of shares is disclosed in Schedule L of the Balance sheet which states that “closing stock of securities is valued at cost of market price which ever is lower.
Thus, the intention of the assessee is very much clear as to what stocks are to be treated as business stock and what to be treated as investment stock. The Policy and treatment of stock transaction are clearly reflected in the Balance sheet of the assessee.
We thus fully concur with the finding of the Learned CIT(Appeals) that the profit of ₹ 34,61,63,879 in respect of shares sold during the year (including gain of ₹ 29,05,58,750 realized on sale of shares of Dawar India Ltd. ) has been rightly treated by the assessee as long term capital gain and thus the Learned CIT(Appeals) has rightly held that the assessee is eligible for exemption under sec. 10(38) of the Act on the said long term capital gain. The First Appellate Order in this regard is thus upheld. The ground Nos. 1 and 2 are accordingly rejected.
It is also clear that 84% gains from capital gains were long term and only 15% was from short term investment.
It is always material that the intention of the assessee, which is to be seen while determining the nature of the transaction conducted by the assessee. On perusal of the holding period of the shares it is seen that the assessee transacted in 85 scripts had holding period of more than 400 days ( Dabur India holding was more than 6900 days), 29 scripts had holding period of more than 365 days (Appendix A). Besides, all the scripts sold were STT paid and all were delivery based.
Accrual of interest income - AO made addition on the basis of special auditor’s report that assessee had not shown interest income received from Dawar Foods Ltd. - HELD THAT:- The submission of the assessee remained that assessee had advanced an amount of ₹ 6 crores to Dawar Foods Ltd. initially at the interest rate of 10%, however, during the year on mutual consents the rate was reduced from 10% to 8.5%. The Assessing Officer had not accepted this explanation of the assessee but the Learned CIT(Appeals) has accepted the same with this finding that it is a settled principle of law that only real income is to be taxed. In this regard, he has followed the ratios laid down in the case of CIT vs. Shoorji Ballabdass & Co. [1962 (3) TMI 6 - SUPREME COURT] . We thus do not find reason to interfere with the First Appellate Order in this regard. The same is upheld. The ground No. 3 is accordingly rejected.
Benefit of charging of the gain u/s 111A - HELD THAT:- It is not the finding of the Assessing Officer or the Learned CIT(Appeals) that these shares were shown as stock in trade or the assessee was not correct in showing these shares as investment. We thus do not find infirmity in the claim of the assessee that the profit accrued on sale of these shares was short term capital gain and the assessee was eligible for claiming charging of the gain under the provisions laid down under sec. 111A of the Act. We thus while setting aside the orders of the authorities below in this regard direct the Assessing Officer to accept the claim of the assessee and allow the benefit of charging of the gain under sec. 111A of the Act.
Addition u/s 14A - HELD THAT:- Interest receipt is more than the interest payment in respect of financial activities and the Assessing Officer has also not disputed the reserves available with the assessee. We are thus of the view that the Learned CIT(Appeals) has rightly deleted the disallowance. The same is upheld.
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2015 (12) TMI 1815
Deduction u/s. 54 - substantive advances made for purchasing the house property in question to housing society/builder - capital gains for purchasing the residential house in question - HELD THAT:- There can hardly be any quarrel that this statutory provision envisages three basic conditions to be fulfilled by the claimant assessee. First one is that the new property can be purchased within a period of one year before executing the sale deed. Second one is that the same can be purchased within two years after the sale deed. Third and final condition stipulates construction of a new house within three years from the date of transfer.
It has come on record that the assessee has paid a gross sum of ₹ 1,15,00,000/- to the builder/housing society. This amount is almost equal to the gross sale price of ₹ 1,18,00,000/-. We repeat that conveyance deed in his favour is dated 31-03-2008. The builder thereafter applied for AUDA’s permission on 24-012-2008 which finally came on 15-12-2009 prescribing some construction regulations. We are of the view in these facts that the same has to be read applicable from the date of application. The same falls within three years of 11-05-2006. We are further of the view that the assessee has already advanced a sum much more than the impugned capital gains for purchasing the residential house in question.
A co-ordinate bench of the tribunal in SHRI HASMUKH N. GALA VERSUS ITO [2015 (8) TMI 1204 - ITAT MUMBAI] allows a similar claim of section 54 deduction in case involving substantive advances made for purchasing the house property in question by holding the same to mean as ‘purchase’ for the purpose of the impugned deduction - the assessee’s act of having made substantive payment of ₹ 1,15,00,000/- to housing society/builder followed by his getting the specified residential house constructed satisfies all the necessary conditions stipulated in section 54 - Decided in favour of assessee
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2015 (12) TMI 1814
Deduction u/s. 36(1)(viia) before setting of brought forward losses - Whether deduction is to allowed on total income and not on business income? - HELD THAT:- While computing the statutory deduction under Clause (viiia)of Sub-section 1 of Section 36 of the Income Tax Act, 1961, the total income would be the business income of the assessee before deducting the deduction under this Clause and deductions under Chapter 6A of the Income Tax Act, 1961. Therefore the brought forward losses would not be deducted while computing the total income for the purpose of Sec. 36(1)(viia). Since, the deduction is available only for computing the business income under this Clause, therefore the total income also refers the income of the assessee from profit and gain from a business and shall not include the income other than the business income
Interest u/s 244A - HELD THAT:- As decided in own case amount refunded by the Revenue has to be adjusted towards interest payable to the assessee and the balance, if any, shall be adjusted towards tax. On this principle there is no contrary decision placed before us, we therefore agree with the plea of the assessee and direct the Assessing Officer accordingly
Deduction for bad debts written off - HELD THAT:- As decided in own case [2015 (11) TMI 1058 - ITAT MUMBAI] Tribunal has allowed identical claim has followed the decision rendered by the Hon’ble Supreme Court in the case of Catholic Syrian Bank [2012 (2) TMI 262 - SUPREME COURT] and CIT Vs Karnataka Bank Ltd [2013 (2) TMI 40 - SC ORDER] . We also notice that the new Explanation 2, which covers both rural and non-rural advances, has been inserted u/s. 36(1)(vii) of the Act by the Finance Act, 2013 w.e.f. 1.4.2014 only and hence it cannot have retrospective effect, since it affects substantive rights of the assessee.
Loss on revaluation of trading derivatives - HELD THAT:- Issue decided in own case [2013 (1) TMI 992 - ITAT MUMBAI] as relying on UCO Bank [1999 (9) TMI 4 - SUPREME COURT]
Deduction u/s 80LA - assessee failed to file audit report with the return - HELD THAT:- As decided in own case [2015 (11) TMI 1058 - ITAT MUMBAI] followed the decision of the Hon’ble Delhi High Court in the case of CIT Vs Web Comerce India Pvt. Ltd. [2008 (12) TMI 13 - HIGH DELHI COURT] and held that since the assessee has filed the Audit report before finalization of assessment order, the Ld. CIT(A) was justified in directing the AO to allow the claim.
Deduction u/ s 36(1)(viia) to the extent of provision made in books for bad and doubtful debts instead of the eligible amount as per the said section - HELD THAT:- As assessee placed the decision of the Tribunal Ahmedabad Bench in the case of DCIT Vs Sarvodaya Sahakari Bank Ltd. [2014 (5) TMI 1182 - ITAT AHMEDABAD] . It is the say of the Ld. Counsel that this issue need to be decided afresh in the light of the findings of the Tribunal Ahmedabad Bench. We find force in the contention of the Ld. Counsel. We accordingly set aside the issue to the file of the AO. The AO is directed to decide the issue afresh
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2015 (12) TMI 1813
Penalty u/s 271(1)(c) - assessment proceedings u/s 153A - treat the LTCG declared by the Assessee as “Income from other sources” - HELD THAT:- It is not disputed before us that income returned by the assessee in the return of income u/s 139(1) of the Act, the return filed u/s 153A of the Act and the income brought to tax in the order of assessment u/s 153A of the Act are one and the same. In such circumstances we are of the view that no penalty can be imposed on the assessee. If at all the revenue wants to impose penalty in the present case, then, it has to take recourse to Explanation 5A to section 271(1)(c).
As rightly contended by the learned counsel for the assessee, Explanation 5A would be attracted only in the case where there is difference in the income returned u/s 139(1) of the Act and the income ultimately brought to tax in the order of assessment u/s 153A of the Act. We, therefore, are of the view that the penalty could not have been imposed in this case.
We also are of the view that in the light of the admitted fact that no incriminating material was found in the course of search the impugned addition could not have been made in the proceedings u/s 153A.
The law is well settled that assessment proceedings and penalty proceedings are two independent proceedings and that the assessee in penalty proceedings is entitled to show that the very addition for which penalty is sought to be imposed ought not to have been made in the assessment proceedings. We, therefore, are of the view that even on this ground penalty imposed on the assessee deserves to be cancelled. - Decided in favour of assessee.
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2015 (12) TMI 1812
TDS provisions of section 194A(3)(v) - application to all co-operative societies including co-operative society engaged in the business of banking? - HELD THAT:- It is brought to the notice of this Court by the learned counsel appearing for the Assessee that vide Circular No.19/2015 in F.No.142/14/2015-TPL, the Ministry of Finance, Government of India, has clarified as under:
“42.5 In view of this, the provisions of the section 194A(3)(v) of the Income-tax Act have been amended so as to expressly provide that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) of the Income-tax Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members. As this amendment is effective from the prospective date of 1st June, 2015, the co-operative bank shall be required to deduct tax from the payment of interest on time deposits of its members, on or after the 1st June, 2015. Hence, a cooperative bank was not required to deduct tax from the payment of interest on time deposits of its members paid or credited before 1st June, 2015.”
Consequently, the finding of the Tribunal that the Cooperative banks were required to deduct tax at source is unsustainable. Accordingly, this appeal filed by the revenue stands dismissed.
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2015 (12) TMI 1811
TP adjustment - actual margin earned by AE - MAM - application of TNMM - HELD THAT:- We take note that as per the chart placed on record AE has charged revenue of ₹ 26.63 crores from the customer, whereas value of ALP as determined by the TPO considering the adjustment in the case of appellant and M/s Interra Information Technologies India (P) Ltd. is ₹ 31.21 crores. Thus total value of ALP exceeds the revenue charged by AE from customer. Moreover it is also noticed that AE has incurred loss of ₹ 4.34 crores and there is no margin retained at the end of AE on value of international transactions.
Adjustment in no case can exceed the amount received by the AE from third party. However since the details of AE available on record are only upto 31.3.2007 and not upto 31.3.2008, we restore the matter to the file of the AO since the learned counsel has during the course of hearing stated that appellant company will cooperate and provide all documents to find out the revenue earned by the AE upto 31.3.2008 including production of books of accounts.
Accordingly AO is directed to verify the actual margin earned by AE and make an addition, if any considering the principle stated above. The appellant company is directed to produce the entire accounts of AE for verification of its income. Needless to state fair and proper opportunity will be provided by TPO/AO to the appellant company. Ground No. 2.9 is therefore allowed for statistical purposes.
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2015 (12) TMI 1810
Reopening of assessment u/s 147 - reopening after four years - HELD THAT:- Department has issued a notice dated 10.9.2015 under Section 148 of the Act proposing to re-assess the income for the assessment year 2011-12. The reasons to believe proposes that the petitioner has failed to disclose truly and fully all material facts which are necessary for making the assessment for the relevant assessment year. The petitioner has challenged the present reassessment proceeding contending that all the necessary material had been disclosed while filing the return for the assessment year 2011- 12.
The proviso to Section 147 indicates that if reassessment proceedings are reopened after the expiry of four years, it is essential that an assertion is required to be made that the assessee has failed to disclose fully and truly all the material facts necessary for the assessment for that assessment year.
Prima facie, in the instant case, we find that all necessary material was disclosed by the petitioner when a return was filed on 13.12.2013 which was considered in the original assessment order.
Another question which arises for consideration is, whether the notice issued under Section 148 of the Act is justifiable after the assessment under Section 143(3) of the Act made by the assessing officer is quashed.
We accordingly direct Sri Ashok Kumar, the learned counsel for the Income Tax Department along with Sri Shubham Agarwal and Sri Ashok Mehta, the learned senior counsel to file a counter affidavit by 10.1.2016. Sri P. Chidambaram, the learned senior counsel along with Abhinav Mehrotra, Advocate for the petitioner will file a rejoinder affidavit within a week thereafter.
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