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2008 (2) TMI 896
Survey conducted u/s 133A - Estimation of sale - arrived at based on extrapolation technique - record of earlier 5 days sales - bills and chits of paper found - rejection of books of account - whether the AO could be right in estimating the sales and profits, based on the sales of 5 days recorded in the books of account and making an assessment without rejecting the books in question? - Allegation that sale of liquor which is a controlled item under Excise Act is suppressed cannot be done in a light manner without evidence. This is a case where no investigation whatsoever has been made. The figure of sales of 5 days' was taken and simply multiplied with 350 days and turnovers estimated for five years.
HELD THAT:- Not finding of the books of account during the course of survey, in the restaurant premises, in our humble opinion, cannot draw a conclusion that the assessee is not maintaining books of account. The assessee's books of account have been audited regularly and returns of income filed along with balance sheets and P&L a/c. AO should have pointed out defects and recorded reasons as to why he was inclined to reject the books of account. In this case when there is no rejection of the books of account at all, we are of the opinion that the CIT(A) was in error in coming to the conclusion that impliedly the AO rejected the books of account. What the AO has done is took the income declared as per the return of income and added further the GP rate of 70.79 per cent on the estimated suppression of sale. This, in our considered opinion, is not correct. No material is brought on record to support such an action by the Revenue.
Therefore, the assessment orders passed by the sales-tax authorities which record that the turnovers of the assessee are at a particular figure based on the verification of its books of account and in view of the lack of investigation or evidence to contradict the submissions of the assessee or the orders of another Government agency, we are inclined to agree with the arguments of the learned counsel for the assessee and delete the addition made in this regard. Thus the estimation of turnovers for both the assessment years based on only a small sample figure is not well founded and has to be necessarily quashed.
In the result, the appeals filed by the assessee for both the assessment years are allowed.
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2008 (2) TMI 895
Issues Involved:
1. Justification of penalty u/s 271(1)(c) of the IT Act.
2. Assessee's burden to disclose presumption under Explanation to s. 271(1)(c) of the IT Act, 1961.
Summary:
Issue 1: Justification of Penalty u/s 271(1)(c) of the IT Act
The High Court examined whether the levy of penalty u/s 271(1)(c) was justified. The appellant filed returns, and notices were issued u/s 143(2) and 142(1). The assessment was finalized, and a penalty notice was issued for concealing particulars of income and non-filing of higher estimates. The Dy. CIT imposed a penalty of Rs. 2,75,000, concluding that the assessee failed to explain why the penalty should not be imposed, as the payments to M/s Radha Kishan Bal Kishan Muchhal and M/s Pyroff Packaging (P) Ltd. were not for business consideration. The Tribunal upheld the penalty, stating that the assessee concealed particulars of income. However, the High Court found that the AO did not record a positive satisfaction for initiating penalty proceedings, as required by s. 271(1). The Court emphasized that imposition of penalty is not automatic and requires a deliberate act of concealment or furnishing inaccurate particulars, which was not established in this case.
Issue 2: Assessee's Burden to Disclose Presumption under Explanation to s. 271(1)(c)
The Tribunal concluded that the assessee did not discharge the burden to disclose the presumption arising against him under Explanation to s. 271(1)(c). The High Court referred to the Supreme Court's judgment in Dilip N. Shroff vs. Jt. CIT, which clarified that mere disallowance of a deduction does not automatically lead to penalty. The Court noted that the assessee had bona fidely claimed the deduction, and the authorities did not find that the payments were not made, but rather that they were not for business purposes. The High Court held that the Tribunal's conclusion that the assessee concealed particulars of income was not supported by a finding of a deliberate act of concealment, as required by law.
Conclusion:
The High Court allowed the appeal, quashing the orders of the Tribunal and the AO (Dy. CIT), and answered both questions in favor of the assessee and against the Revenue.
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2008 (2) TMI 894
The Supreme Court granted leave in the case. The citation is 2008 (2) TMI 894 - SC Order. High Court reference: 2006 (8) TMI 125 - KARNATAKA High Court. Judges: MR. JUSTICE ASHOK BHAN AND MR. JUSTICE DALVEER BHANDARI. Petitioner represented by Mr. Sanjay Kunur, Adv. Respondent represented by Mr. Vikram Gulati, Adv. For Mr. B.V. Balaram Das, Adv.
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2008 (2) TMI 893
Issues Involved:
1. Validity of the CIT's order under section 263 of the Income Tax Act.
2. Allowability of partner's training expenses under section 37(1) of the Income Tax Act.
3. Validity of reopening the assessment under section 148 of the Income Tax Act.
Issue-wise Detailed Analysis:
1. Validity of the CIT's order under section 263 of the Income Tax Act:
The CIT exercised powers under section 263 to set aside the Assessing Officer's (AO) order allowing partner's training expenses, deeming it erroneous and prejudicial to the interest of revenue. The CIT's decision was based on the fact that the AO did not establish that the expenses were incurred wholly and exclusively for business purposes. The CIT noted the absence of material evidence showing that the training expenses were for the business benefit of the assessee firm. The Tribunal upheld the CIT's order, agreeing that the AO's decision was based on incorrect assumptions of fact and law, and that the AO failed to conduct necessary inquiries to verify the legitimacy of the expenses under section 37(1).
2. Allowability of partner's training expenses under section 37(1) of the Income Tax Act:
The assessee claimed that the training expenses for one of the partners were incurred wholly and exclusively for business purposes and thus allowable under section 37(1). However, the CIT and Tribunal found that the expenses did not meet the criteria specified in section 37(1), which requires the expenses to be wholly and exclusively for business purposes. The Tribunal noted that the AO did not have sufficient evidence to support the claim that the training expenses were business-related, especially given the nature of the business (diesel truck dealership) and the nature of the training (software engineering and management). The Tribunal referenced various judicial pronouncements to support the view that personal education expenses cannot be considered business expenses.
3. Validity of reopening the assessment under section 148 of the Income Tax Act:
The assessee challenged the reopening of the assessment under section 148, arguing that the AO had no valid reasons to believe that income had escaped assessment. However, during the hearing, the assessee's representative did not press upon these grounds. The Tribunal did not find it necessary to make a specific decision on these grounds as they were not actively contested.
Conclusion:
The Tribunal upheld the CIT's order under section 263, agreeing that the AO's original assessment was erroneous and prejudicial to the interest of revenue. The partner's training expenses were not allowable under section 37(1) as they did not meet the necessary criteria. The appeal regarding the reopening of the assessment under section 148 was not actively pursued, and the Tribunal did not make a specific ruling on this issue. Consequently, both appeals by the assessee were dismissed.
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2008 (2) TMI 892
Issues involved:
The judgment involves the issue of whether the Full Bench of the Kerala High Court should have decided a revision petition on merits after answering a reference made by the Division Bench, contrary to the law laid down by the Supreme Court in previous cases.
Details of the Judgment:
Issue 1: Reference made by Division Bench to Full Bench
The appeal was directed against a judgment and order passed by the Full Bench of the Kerala High Court in response to a reference made by the Division Bench. The Full Bench answered the reference and proceeded to decide the case on merits, which was challenged by the appellant citing previous Supreme Court decisions.
Issue 2: Decision on Merits by Full Bench
The appellant contended that the Full Bench should not have disposed of the revision petition on merits after answering the reference. The appellant argued that the Full Bench should have remitted the matter back to the Division Bench for deciding the revision petition in accordance with the law.
Issue 3: Precedents and Legal Principles
The Supreme Court referred to previous cases, such as Kesho Nath Khurana Vs. Union of India and Kerala State Science & Technology Museum Vs. Rambal Co., where it was held that when a reference is made to a larger Bench, the larger Bench should answer the reference and then remit the case to the appropriate Bench for decision on merits.
Judgment Outcome:
The Supreme Court allowed the appeal to the extent that the Full Bench's decision to dismiss the revision petition on merits was incorrect. The revision petition was revived and directed to be placed before a Division Bench for disposal in accordance with the law. The Division Bench was requested to expedite the hearing of the matter due to its age.
In conclusion, the appeal was allowed, and no costs were imposed.
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2008 (2) TMI 891
Issues Involved:
1. Addition to sales shown in audited accounts.
2. Disallowance of expenditure on artwork, proofing, and design charges.
3. Disallowance of write-off of inventory.
4. Consequential benefit u/s 80HHC.
5. Levy of interest u/s 234B, 234C, and 234D and withdrawal of interest u/s 244A.
Summary:
Assessment Year: 2000-2001
1. Addition to Sales:
Ground No. 1.1 to 1.6 pertained to the addition of Rs. 2,74,38,300/- to the sales shown in the audited accounts. The Tribunal noted that the facts were identical to those in the assessment year 1998-99, where the addition was deleted. The Tribunal found that the basis for taxation under the Central Excise Act and the Income-tax Act is different, and the transactions between the assessee and Oriflame were on a principal-to-principal basis, not related concerns. There was no material to show that a colourable device was used to defraud the revenue. The Tribunal deleted the addition following its earlier order.
2. Disallowance of Expenditure:
The second ground was against the disallowance of Rs. 2,44,702/- on artwork, proofing, and design charges for packing, treated as capital expenditure. The Tribunal disagreed with the income-tax authorities, stating that the expenditure was incurred to improve the profitability of the business and did not confer an enduring benefit. The disallowance was deleted, and the expenditure was allowed as revenue expenditure.
3. Disallowance of Write-off of Inventory:
Ground No. 3 addressed the disallowance of Rs. 30,05,581/- for the write-off of obsolete raw material. The Tribunal found that the assessee had consistently followed a practice of creating a provision for obsolete raw material, which was accepted by the income-tax authorities in the past. The Tribunal upheld the assessee's claim and deleted the disallowance.
Assessment Year: 2001-2002
4. Addition on Account of Suppression of Sales:
Ground No. 2 related to the addition of Rs. 2,62,09,137/- for suppression of sales, identical to the issue in the previous year. The Tribunal deleted the addition in line with its decision for the assessment year 2000-2001.
5. Disallowance of Provision for Write-off of Inventory:
Ground No. 3 involved the disallowance of Rs. 44,63,696/- for the provision made for the write-off of inventory. The Tribunal deleted the disallowance, consistent with its decision for the previous year.
6. Consequential Benefit u/s 80HHC:
Ground No. 4 was about the non-allowance of consequential benefit u/s 80HHC when the returned loss was converted into positive income due to additions. This ground was consequential to the Tribunal's decisions on the other grounds.
7. Levy of Interest:
Ground Nos. 5 and 6 concerned the levy of interest u/s 234B, 234C, and 234D and the withdrawal of interest u/s 244A. These grounds were stated to be consequential, and the assessee would get relief accordingly.
Conclusion:
The appeal for the assessment year 2000-2001 was allowed, and the appeal for the assessment year 2001-2002 was partly allowed. No costs were awarded.
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2008 (2) TMI 890
Issues Involved:
1. Legality and validity of the orders passed by the AO and CIT(A).
2. Treatment of the Liaison Office (LO) as a Permanent Establishment (PE) in India and its taxability under "Business income."
3. Presumption of income for the LO by AO/CIT(A).
4. Alleged contravention of RBI conditions by the appellant.
5. Determination of profits attributable to the alleged PE.
6. Conduct of survey by AO at the appellant's premises and reliance on collected documents.
7. Adequate and reasonable time for the appellant to collect details from its Tokyo office.
8. Liability to pay interest under section 234AC of the Act.
9. Adoption of correct figures of salary paid to expatriates and fringe benefits.
Detailed Analysis:
1. Legality and Validity of Orders:
The appellant contended that the orders passed by the AO and CIT(A) were illegal, invalid, and ab initio void. The Tribunal did not specifically address this issue independently, but the overall context suggests that the Tribunal's decision to allow the appeal implicitly addresses the legality and validity concerns.
2. Treatment of LO as PE:
The central issue was whether the LO constituted a PE in India. The Tribunal noted that the LO was engaged in activities of a preparatory or auxiliary nature, as per clause 6(e) of Article 5 of the Double Taxation Avoidance Agreement (DTAA) with Japan. The Tribunal referred to its own prior decisions, particularly the Special Bench decision for the assessment years 1980-81 and 1981-82, which held that the LO did not constitute a PE as it was only involved in liaison and information supply activities.
3. Presumption of Income for LO:
The AO and CIT(A) presumed that the LO had income liable to tax in India. The Tribunal found no evidence to suggest that the LO was engaged in any trading or commercial activities that would generate taxable income. The Tribunal emphasized that the LO's activities were confined to preparatory and auxiliary functions, such as collecting information and facilitating communication between the head office and Indian clients.
4. Alleged Contravention of RBI Conditions:
The CIT(A) held that the appellant had submitted incorrect details to the RBI and had not complied with the conditions laid down by the RBI. The Tribunal found no material evidence to support these findings. It was noted that the LO's activities were regulated and supervised by the RBI, and there was no indication of any violation of RBI guidelines.
5. Determination of Profits Attributable to PE:
The CIT(A) had attributed 50% of the total net income to Indian operations, which was contested by the appellant. The Tribunal did not specifically adjudicate on this issue, as it held that the LO did not constitute a PE and, therefore, the question of attributing profits did not arise.
6. Conduct of Survey and Reliance on Collected Documents:
The AO conducted a survey at the LO's premises and relied on the collected documents to support the assessment order. The Tribunal noted that the survey was conducted without a proper direction under section 250(4) of the Act by the CIT(A). It held that the evidence collected during the survey could not be considered in the appeal proceedings.
7. Adequate and Reasonable Time for Collecting Details:
The appellant argued that it was not given adequate time to collect the required details from its Tokyo office. The Tribunal did not specifically address this issue independently, but the overall decision to allow the appeal suggests that the Tribunal found merit in the appellant's contentions.
8. Liability to Pay Interest under Section 234AC:
The appellant contested the liability to pay interest under section 234AC of the Act. The Tribunal did not specifically adjudicate on this issue, as it held that the LO did not constitute a PE and, therefore, the question of interest liability did not arise.
9. Adoption of Correct Figures of Salary and Fringe Benefits:
The appellant argued that the CIT(A) did not adopt the correct figures of salary paid to expatriates and fringe benefits while computing the profits attributable to the alleged PE. The Tribunal did not specifically address this issue independently, as it held that the LO did not constitute a PE and, therefore, the question of computing profits did not arise.
Conclusion:
The Tribunal allowed the appeal, holding that the LO did not constitute a PE in India and, therefore, no income was liable to tax in India. The Tribunal's decision was based on the consistent application of past precedents and the lack of evidence to suggest that the LO was engaged in any trading or commercial activities. The issues related to the computation of income, interest liability, and adoption of correct figures were rendered academic and were not adjudicated upon.
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2008 (2) TMI 889
Issues Involved:
1. Deletion of addition on account of disallowance of proportionate deduction for days on official duty outside India.
2. Deletion of addition on account of estimated salary income not disclosed.
3. Deletion of addition on account of perquisites.
4. Deletion of addition on account of unexplained cash credits u/s 68.
Summary:
Issue 1: Deletion of Addition on Account of Disallowance of Proportionate Deduction for Days on Official Duty Outside India
The Revenue challenged the deletion of Rs. 56,411/- (grossed up to Rs. 86,920/-) made by the A.O. on account of disallowance of proportionate deduction claimed by the assessee for days on official duty outside India. The assessee, a French citizen and employee of Air France, excluded 19 days of salary from taxable income in India, arguing that these days were spent working outside India. The CIT(A) deleted the addition, following the ITAT Special Bench decision in a similar case. The Tribunal upheld the CIT(A)'s decision, stating that the contract of employment recognized the division of work between India, France, and South Asia, and there was no justification for the AO to insist on evidence regarding the nature of services rendered outside India.
Issue 2: Deletion of Addition on Account of Estimated Salary Income Not Disclosed
The Revenue contested the deletion of Rs. 1,00,000/- (grossed up to Rs. 1,54,083/-) on account of estimated salary income not disclosed by the assessee. The AO had treated contributions to various social security schemes in France as perquisites and added them to taxable income. The CIT(A) deleted the addition, observing that these contributions were mandatory and not at the discretion of the assessee. The Tribunal upheld the CIT(A)'s decision, citing the ITAT Mumbai decision in Gallotti Raoul vs. ACIT, which held that such contributions are a diversion of income by overriding title and cannot be considered income in the hands of the assessee.
Issue 3: Deletion of Addition on Account of Perquisites
The Revenue also challenged the deletion of Rs. 4,43,196/- (grossed up to Rs. 6,82,891/-) on account of perquisites. The AO had treated contributions to various social security schemes as perquisites. The CIT(A) deleted the addition, following the ITAT Mumbai decision in Gallotti Raoul vs. ACIT. The Tribunal upheld the CIT(A)'s decision, agreeing that these contributions were a diversion of income by overriding title and could not be taxed as income.
Issue 4: Deletion of Addition on Account of Unexplained Cash Credits u/s 68
The Revenue contested the deletion of Rs. 1,01,000/- (grossed up to Rs. 1,69,492/-) on account of unexplained cash credits u/s 68. The AO had made the addition, treating cash deposits in the assessee's bank account as unexplained. The assessee explained that the cash deposits were made from cash withdrawals over two years. The CIT(A) deleted the addition, noting that the assessee had sufficient cash balance and was a highly paid employee. The Tribunal upheld the CIT(A)'s decision, stating that the AO could not make the addition without rejecting the cash book supported by bank withdrawals.
Conclusion:
In the result, both appeals by the Revenue were dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, finding no justification for the additions made by the AO.
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2008 (2) TMI 888
Issues:
1. Confirmation of duty and penalty imposition under Section 114A.
2. Applicability of Section 114A for penalty imposition.
3. Redemption fine reduction.
Analysis:
1. Confirmation of Duty and Penalty Imposition under Section 114A:
The case involved a show cause notice issued to a 100% EOU for the shortage of duty-free imported Polyester Filament Yarn (PFY) found during a physical inventory check. The Joint Commissioner confirmed the duty demand of &8377;2,20,952 on the 7200 kgs of PFY and imposed a penalty of equal amount under Section 114A. The Commissioner (Appeals) upheld the duty demand but reduced the redemption fine from &8377;2 lakhs to &8377;1 lakh. The appellant did not dispute the duty confirmation but contested the penalty imposition under Section 114A, arguing that penalty for contraventions under Sections 111(o) and 111(j) should be imposed under Section 112 of the Customs Act.
2. Applicability of Section 114A for Penalty Imposition:
The appellant relied on a Tribunal decision in a similar case to support their argument against the penalty imposition under Section 114A. The Tribunal's decision highlighted that penalties for contraventions under Sections 111(o) and 111(j) cannot be imposed under Section 114A. Following the precedent, the Member (J) set aside the personal penalty of &8377;2,20,952 imposed on the appellant under Section 114A. However, the duty amount was upheld as the goods were not used for the intended purpose. The penalty imposed under Section 112(b) was reduced to &8377;30,000, which was deemed adequate.
3. Redemption Fine Reduction:
The appellant also sought a reduction in the redemption fine imposed for the seized PFY. The Commissioner (Appeals) had already reduced the fine from &8377;2 lakhs to &8377;1 lakh. The Member (J) found no justifiable reasons for further reduction and confirmed the redemption fine at &8377;1 lakh. Apart from setting aside the personal penalty under Section 114A, the appeal was rejected in all other aspects.
In conclusion, the judgment addressed the issues of duty confirmation, penalty imposition under Section 114A, and redemption fine reduction in a detailed manner, providing legal reasoning based on precedents and specific provisions of the Customs Act. The decision highlighted the importance of correctly applying penalty provisions based on the nature of contraventions and upheld the duty demand while modifying the penalties imposed on the appellant.
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2008 (2) TMI 887
Nature of 'gifts' Transaction is cash credits u/s 68 or not? - whether the authorities were justified in treating the gifts stated to have been received from 13 persons, as assessee's own income from undisclosed sources or not? - HELD THAT:- It is established beyond doubt that the donors were possessed of the funds and they were well and sufficiently entitled to alienate the same by way of gift or otherwise. We have examined each and every case and find that even after making the gifts in question, they were left with sufficient fund. In this respect, the facts in this year are entirely different.
In order to come out of the ambit of s. 68, the assessee has to prove prima facie three ingredients viz. (i) identity of the person concerned; (ii) his capacity and (iii) genuineness of the transaction.
There is no dispute that all the 13 persons who are the transferors and donors were existing persons and subject-matter of transfer is the 'movable asset' available with them in the form of credit balances in their respective bank accounts. The transfer was voluntary as no coercion of any kind has been alleged. All the transferors/donors have given their confirmatory letters to this effect and further stated the same on oath through sworn evidences. All of them had sent confirmation letters, directly to the AO and in such confirmation letters they have urged that the information about the gifts is available in the records of the AOs (having jurisdiction in their respective cases) and the same may be called for, if such further verification is considered necessary.
It is also very relevant to mention here that for a 'gift' in order to be valid, should not necessarily emanate from a relative. Under the IT Act, no such condition has been laid down. On the other hand, if we probe into the legislative intent, it will become clear that a ceiling of ₹ 25,000 had been imposed on acceptance of gifts from non-relative by insertion of cl. (xii) in sub-s. (24) of s. 2 of the Act and by corresponding insertion of cl. (v) in sub-s. (2) of s. 56 effective from 1st Sept., 2004. As the said section is prospective, it can safely be inferred that prior to 1st Sept., 2004, there was no legislative hindrances in accepting the gifts from non-relatives, without any limit. As the transactions in question fall during the financial year 2001-02, the gift received from non-relative, will not come in the way of acceptability of the same under the IT Act.
It will be seen that all the three ingredients of cash credit as envisaged in s. 68 stand fully satisfied. The identity of the donors stands fully established even with reference to their income-tax particulars and the letters written by them directly to the AO, the remittances had originated from their own bank accounts wherein sufficient funds were found already credited. The genuineness of the transaction is not only supported by the said bank statements but also by the certificates issued by the bankers concerned which are construable as evidence under s. 5 of the Bankers' Evidence Book, 1891. Thus, on the facts of the present case, the provisions of s. 68 also cannot be applied to the sums aggregating ₹ 47 lakhs.
We, therefore, conclude that subject-matter of transfer through gifts from 13 donors to the donee was the movable asset belonging, to the donors themselves. Therefore, the receipts, in the hands of the appellant are in the nature of 'gifts' which are not exigible to tax as the same does not fall in any of the charging section under the IT Act.
Therefore, we hold that the transactions covering the receipts are 'gifts' in nature which are valid also in the eyes of law and the gifts not being fallen within the charging provisions of IT Act, no tax could have been levied on the appellant, with reference to such receipts. The additions made/sustained by the authorities below, are, therefore, deleted.
Ad hoc disallowance out of expenditure claimed under the heads vehicle expenses, mobile expenses and telephone expenses - disallowances as have been made by the AO and sustained also by the learned CIT(A), are 10 per cent of the total claim. No information about the availability of any vehicles with the assessee and telephone connections has been placed on record. In such a situation, the element of personal user in these services cannot be ruled out. There is, therefore, no justification for any deviation and accordingly we uphold the order passed by the learned CIT(A) on this score.
In the result the appeal is partly allowed as stated above and announced in the open Court.
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2008 (2) TMI 886
Issues involved: Determination of annual capacity of production of induction furnaces u/s Rule 96ZO(3), consideration of power situation in capacity determination.
Issue 1: Determination of annual capacity of production
The Tribunal directed the Commissioner to reconsider the issue of differential duty payable by the appellant based on the determination of annual capacity of production. The Commissioner confirmed the duty without considering the directions for re-determination of capacity based on power situation. The Tribunal referred to a similar case involving M/s. Electromelt Ltd. where it was held that capacity must be finalized before demanding differential duty. Citing judgments from various High Courts, the Tribunal emphasized the importance of considering power availability in determining annual capacity of production. Consequently, the Tribunal set aside the Commissioner's order and remanded the case for proper consideration of capacity determination based on electricity availability.
Issue 2: Consideration of power situation in capacity determination
The Tribunal highlighted the significance of power availability in determining the annual capacity of production of induction furnaces. Referring to judgments from different High Courts, the Tribunal emphasized that electricity availability during the relevant period is a crucial factor in assessing production capacity. Relying on legal precedents, the Tribunal concluded that the order confirming the differential duty without considering power availability was unsustainable. Therefore, the Tribunal set aside the Commissioner's order and directed that capacity determination should take into account the availability or non-availability of electricity during the relevant period before adjudicating any demands.
Conclusion:
The Tribunal allowed the appeal by way of remand, emphasizing the need for proper consideration of power situation in determining the annual capacity of production of induction furnaces. The order confirming the duty, interest, and penalty was set aside, and the case was remanded for a reassessment based on the availability or non-availability of electricity during the relevant period.
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2008 (2) TMI 885
Disallowance u/s 40A(3) - Cash payments against capital expenditure? - HELD THAT:- We have heard learned counsel for the revenue. The Tribunal has found as a fact that the annual reports for the assessment year 1989-90 of the assessee clearly shows the outstanding loans to the three parties. Copies of the loan account of the three parties for the period comprising the previous year are also available on the record. The plea of the assessee that the payments were made in respect of the capital account have been rightly accepted by the Commissioner of Income-tax (Appeals). The Assessing Officer without giving any finding on the issue has merely gone on the presumption that the books of account have been manipulated. The Assessing Officer has also not given a finding that the sum in question was actually revenue expenditure which were claimed as deduction in profit and loss account.
Therefore, the Tribunal has rightly concluded that the payment in question were made on account of capital account, therefore, provisions of section 40A(3) of the Act were not attracted. Thus, we do not find any merit in this appeal and no substantial question of law arises for determination of this Court. Hence this appeal is dismissed.
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2008 (2) TMI 884
Issues involved: Appeal against order of Income-tax Appellate Tribunal for assessment year 1991-92 regarding sundry credits and addition based on sales tax assessment.
Sundry Credits Issue:
The assessee, a dealer in old spare parts and scraps, showed sundry credits in the accounts for the relevant year. The Assessing Officer made an addition as the assessee failed to provide names and addresses of creditors or confirmation letters. The appellate authority deleted the addition citing the accountant's lack of qualification and improper accounts. The Tribunal upheld the appellate authority's decision, but the High Court disagreed. The Court held that the burden of proof lies on the assessee to establish sundry credits, and failure to do so can lead to addition as income. Referring to sections 68 and 69(c) of the Income-tax Act, the Court emphasized that if sundry credits are not proven, they should be disallowed and added to the assessee's income. Consequently, the Court allowed the department's appeal, reversing the Tribunal and restoring the assessment.
Sales Tax Assessment Issue:
The department raised a question regarding the addition of Rs. 4,000 based on a sales tax assessment for gross profit. Due to the insignificance of the amount, the Court declined to delve into this issue. However, the Court allowed the department's appeal concerning the sundry credits by overturning the Tribunal's decision and reinstating the assessment.
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2008 (2) TMI 883
Determination of net profit - income from undisclosed sources - merely on presumption and suspicion - Addition u/s 68 - bogus share application and premium - Disallowance under s. 40A(3) - unrecorded purchases from the records seized by excise authorities.
Determination of net profit - hypothetical calculation of turnover and estimation of GP merely on guesswork and presumption - Regular books are maintained and audited under s. 44AB - HELD THAT:- AO has estimated the turnover for 9 months (April to December, 2003) at ₹ 9.50 crores based on the turnover of ₹ 2.21 crores for two months but adopted ₹ 8 crores on which applied the GP @ 16 per cent on the turnover and worked out the income of ₹ 1.48 crores. In this regard, it is pertinent to mention here that the correct figure comes to ₹ 1.28 crores. This action of the AO in our view is not correct since there is no material on record to support the same.
It is worthwhile to mention that at one place, the AO proposed the estimation at ₹ 90 lakhs i.e. ₹ 10 lakhs per month for a period of nine months and at the other place, proposed ₹ 1.48 crores which shows that the AO was not certain in regard to the addition to be made on account of unaccounted sales for the period of nine months. In our opinion, the addition of ₹ 58 lakhs (corrected figure is ₹ 38 lakhs) made by the AO is arbitrary and unwarranted on the facts and in the circumstances of the case.
We, therefore, hold that the no details were available to the AO to arrive at such figure. Had there been any concealed sales for nine months, it could have been detected by the Central Excise authority during their search operation. We are therefore of the considered opinion that the addition made by the AO is purely based on guesswork, presumption and surmises and not on the basis of any material found during the course of search operation by the Central Excise authority. The learned CIT(A) completely failed to appreciate the facts of the case. In our view, such additions based on hypothetical calculation of turnover and estimation of GP on presumption and surmises are not sustainable. We direct the AO to delete the same.
The first ground of appeal of the assessee is allowed.
Addition made u/s 68 of bogus application money and premium - HELD THAT:- In our considered opinion, the assessee has complied with all the requirements to prove (i) the genuineness of the amount received towards share application money and premium, (ii) identity of the creditor, (iii) genuineness of the transaction and (iv) creditworthiness of the creditor by filing the relevant documents. The AO failed to make necessary enquiries and only relied on the report of the Inspector thereby rejecting the explanation of the assesseee for making addition under s. 68 without having any evidence on record to show that the explanation of the assessee is false.
In our view, the AO is not justified in making the addition since the assessee has proved all the three criteria simultaneously. Hence, the addition cannot be sustained. The cases relied upon by the learned counsel support the case of the assessee. The addition made by the AO and confirmed by the learned CIT(A) is hereby deleted and the appeal of the assessee on this ground is allowed.
Disallowance under s. 40A(3) - unrecorded purchases from the records seized by excise authorities - HELD THAT:- In the present case, the disallowance under s. 40A(3) has been made by the AO out of unrecorded purchases from the records seized by excise authorities. Such records are not at all a part of the regular books of accounts therefore a lump sum as income was surrendered on account of unrecorded transactions discovered during raid by the Excise Department. As observed by the AO that the books of account have not been rejected. This observation of the AO is also immaterial as there are no instances of payments exceeding ₹ 20,000 in violation of s. 40A(3) in the regular books of accounts kept and maintained by the appellant.
The violation of s. 40A(3) comes out of loose papers seized by the Excise Department forming part of unrecorded transaction therefore the ratio of judgments in case of Banwarilal Banshidhar [1997 (5) TMI 37 - ALLAHABAD HIGH COURT]; Santosh Jain [2006 (8) TMI 167 - PUNJAB AND HARYANA HIGH COURT] and Purushottamlal Tamrakar [2003 (3) TMI 10 - MADHYA PRADESH HIGH COURT] are directly applicable to the present case.
It is very much relevant to refer to the decision of Hon'ble Gujrat High Court in case of Hasanand Pinjomal vs. CIT [1977 (7) TMI 32 - GUJARAT HIGH COURT]. It was held that 40A(3) has been enacted with objective of checking tax evasion and to know whether the transactions are genuine and has been made out of the income from "disclosed sources". In the present case, the disallowance under s. 40A(3) has been made by the learned AO out of unrecorded purchases therefore it is not accordingly to law and judicial decisions as stated.
In our considered view, the learned CIT(A) has very correctly and judiciously deleted the addition. No interference is called for in the order of the learned CIT(A) in deleting the disallowance made by the AO under s. 40A(3) of the Act. The order of the learned CIT(A) is confirmed and the ground of appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.
In the result, the appeal of the assessee is partly allowed whereas the appeal of the Revenue is dismissed.
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2008 (2) TMI 882
Granting registration u/s 12A - Approval under section 80G - ignoring the fact that it had religious purpose and not charitable purpose - HELD THAT:- We find ourselves in agreement with the view of the Madras High Court in New Life in Christ Evangelistic Association v. CIT [1998 (8) TMI 8 - MADRAS HIGH COURT] that the question of exemption under sections 11 and 12 of the Act or as the case may be, u/s 80G of the Act, would come only when such exemptions are claimed by the trust at the time when it is assessed to tax.
In this backdrop of the legal position, the statement of the AR before the CIT that purpose of seeking registration u/s 12A is to get the approval u/s 80G of the Act does not come in the way of the assessee in seeking registration u/s 12A, if otherwise a case for such registration is made out.
The Tribunal, thus cannot be said to have erred in setting aside the order of the CIT insofar as the order passed on the application for registration u/s 12A was concerned. The Tribunal also did not err in observing that at the stage of enquiry, the CIT cannot insist upon the trust to show upon the application of fund. However, in our considered view, the consequential order of registration of the trust ought not to have been made by the Tribunal and matter ought to have been remitted to the CIT for fresh consideration and disposal of the application made by the trust u/s 12A of the Income-tax Act in accordance with law.
We answer the question No. (ii) accordingly. The application made by the trust for registration u/s 12A of the Income-tax Act is restored to the file of CIT for fresh consideration and disposal accordingly.
Since the appeal to the Tribunal from the order of the CIT under section 80G of the Act has been held to be not maintainable, it will be open to the assessee to assail the legality and correctness of the order passed by the CIT in appropriate proceedings, if so advised.
Order accordingly.
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2008 (2) TMI 881
Issues involved:
The issue involves the locus standi of the petitioner in challenging the allotment of fishery rights and the validity of the allotment made in favor of the respondent.
Issue 1: Locus Standi of the Petitioner
The petitioner, Ghanshyam Mandal, claimed to have been allotted fishery rights for specific plots but failed to establish his right as per the document produced. The High Court found that the disputed plots were not allotted to the petitioner, rendering him without locus to challenge the allotment made in favor of a third party. The respondent no. 7, the appellant, challenged the identity of the plots and presented evidence that the plots had not been transferred to the Fishery Department. The Court concluded that the petitioner lacked standing to dispute the allotment and dismissed the writ petition.
Issue 2: Validity of Allotment
The Court examined the Parwana issued for the relevant period and noted that it was in favor of a different entity, not the petitioner. The entity to whom the Parwana was issued did not challenge the allotment made in favor of the appellant. The Court emphasized that only the entity mentioned in the Parwana could have raised grievances regarding the allotment. Consequently, the Court allowed the appeal, set aside the previous judgment, and dismissed the writ petition, emphasizing that the petitioner had no standing to challenge the allotment.
Separate Judgment:
No separate judgment was delivered by the judges in this case.
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2008 (2) TMI 880
Valuation - freight - includibility - Held that: - if the manufacture has made any profit by charging extra transport charges, the same cannot be treated to the assessable value of the goods manufacture and cleared by the applicant - appeal allowed - decided in favor of appellant.
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2008 (2) TMI 879
Whether the manufacturer of final products is entitled to deemed credit under N/N. 58/97-CE dated 30-8-1997 when the manufacturer-supplier of inputs has not paid appropriate Central Excise duty and given a wrong certificate/no certificate on the body of invoices about duty discharged under Rule 96ZP of the erstwhile CER, 1944?
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2008 (2) TMI 878
Penalty u/s 76 - interpretation of statute - Held that: - the question formulated in these review Petitions would not arise out of the order passed by the Commissioner. As noticed by us earlier, the Deputy Commissioner has preceded to levy the penalty in exercise of the discretion conferred on him under Sec. 80 of the Act and not om an interpretation of Sec. 76 of the Act, which mandates the levying of penalty of Rs, 100/- per every day of delay in filling the returns - appeal dismissed.
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2008 (2) TMI 877
Issues involved: Interpretation of service tax liability on discounts received by the appellant from media agencies for advertisement bookings.
Summary:
Issue 1: Service tax liability on discounts received by the appellant
The appellant entered into contracts with clients for arranging advertisements in print and electronic media, receiving a 15% discount on bills from media agencies. The Department contended that the 15% discount should be considered earnings by the appellant, subject to service tax. The Tribunal, considering the appellant's commission ranging from 2.5% to 15%, held that the discount was a pricing mechanism, not a commission paid to the appellant. The actual service charges received by the appellant from clients were deemed taxable, leading to a waiver of pre-deposit and stay on recovery of dues.
The Tribunal referred to the decision in McCann Erickson (India) Pvt. Ltd. v. CST, Delhi, supporting the view that the discount received cannot be equated to commission paid to the appellant. Both the appellant's advocate and the Department's representative relied on this precedent. The Tribunal concluded that the discount was part of a pricing mechanism, distinguishing it from the service charges earned by the appellant from clients, which were subject to service tax.
In light of the prima facie view that the 15% discount was not a commission but a pricing mechanism, the Tribunal granted a waiver of pre-deposit and stayed the recovery of dues as per the impugned order. The decision clarified the distinction between discounts received from media agencies and service charges earned from clients, ensuring the correct application of service tax liability in the appellant's case.
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