Disallowance u/s 14A - HELD THAT:- As decided in Taikisah engineering Ltd [2014 (12) TMI 482 - DELHI HIGH COURT] has held that under sub-section (2) of section 14A Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of incurring no expenditure in relation to exempt income, can he determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e., rule 8D.
Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after referring to the accounts, determine the disallowance. AO has failed in his duty to do so. In view of this, we direct the assessing officer to delete the disallowance made under section 14 A of the income tax act. In view of this, we reverse the order of the Ld. CIT (A) on this ground. Ground No. 1 to 4 of the appeal of the assessee are allowed.
Deduction of provisions no longer required written back claimed during the assessment proceedings - HELD THAT:- Hon‟ble Delhi High Court in case of CIT versus J parabolic Springs Ltd. [2008 (4) TMI 3 - DELHI HIGH COURT] has held that considering the decision of Honourable supreme court in Goetz (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. In appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal. Therefore, according to us there is no restriction on the powers of the appellate authority to entertain such claim. In view of this we set aside this ground of appeal to the file of the Ld. CIT (A) to examine whether the provisions no longer written back can be charged to income tax in spite of the claim of the assessee that no deduction of such sum has been allowed in the earlier years. In the result ground No. 5 of the appeal of the assessee is allowed with above directions.
Admission of the additional ground - whether the income shown by the assessee on sale of carbon credit certificates is “ income‟ chargeable to tax or not? - HELD THAT:- In view of the decision of the Hon‟ble Supreme Court in case of NTPC Ltd .[1996 (12) TMI 7 - SUPREME COURT] wherein the purpose of any assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with the law. It is further held therein that if as a result of a judicial decision given while the appeal is pending before the tribunal if it is found that a non-taxable item is taxed or a permissible deduction is denied, The assessee cannot be prevented from raising that question before the tribunal. The assessee has demonstrated in view of the decision of the Hon‟ble Andhra Pradesh High Court [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] that such income cannot be taxed. Therefore the case of the assessee squarely falls within the law laid down by the Hon‟ble Supreme Court. In view of this we admit the additional ground of appeal and remit the issue back to the file of the Ld. assessing officer to decide the issue on merit.
Recovery of loan under section 41 (1) - HELD THAT:- CIT (A) has recorded a finding that the recovery of loan cannot be taxed under section 41 (1) because this amount has never been debited in the profit and loss account and never allowed to assesseee as deduction. The Ld. CIT appeal further noted the provision of the law u/s 41(1) of the act and held that the basic requirement for charging an amount to tax is the fact that the same should have been claimed as deduction in the earlier years. We fully agree with the finding of the Ld. CIT appeal in holding that the provisions of section 41 (1) do not apply to the facts of the present transaction and therefore we confirm the finding of the Ld. CIT appeal in deleting the addition under section 41 (1) of the income tax act. In the result ground No. 2 of the appeal of the revenue is dismissed.
Charging interest u/s 234C - HELD THAT:- While deciding the appeal of the assessee for the same assessment year, we have already remitted the issue of chargeability of the above income to the file of the Ld. assessing officer and applicability of the provisions of section 234C with respect to chargeability of interest would also depend on the decision of the assessing officer in that ground as it is consequential in nature. In the result we also set aside the appeal of the assessee against chargeability of interest under section 234C of the income tax act back to the file of the Ld. assessing officer to decide the issue on merit after deciding the additional ground raised by the assessee.
Nature of receipt - subsidy received as Excise duty reimbursement - CIT(A) in directing the AO to delete the addition made to book profits u/s. 115JB an account of excess depreciation and subsidy received by way of excise duty - HELD THAT:- For the reasons indicated in our order 2014 (2) TMI 1260 - ITAT MUMBAI the questions as proposed do not give rise to any substantial question of law. Thus, not entertained.
TP Adjustment - comparable selection - HELD THAT:- Vishal Information Technology Ltd. - We deem it appropriate to remand the matter back to the TPO/AO with a direction to decide this issue afresh after giving liberty to the assessee to furnish the record to prove that data entry charges and vendor payments are not related to cost of employees and further prove that its prices were influenced by Indian company.
RPT filter - Since the CIT(A) has rejected the comparable companies by applying 0% RPT filter as well as by applying the other criteria which are not acceptable to the revenue, as this Tribunal in series of decisions have held that the tolerance range of RPT in normal circumstances is 15% and in extreme circumstances it can be extended up to 25%. Therefore, we modify the impugned order of the CIT(A) on the issue of related party filter at 15% instead of 0% offered by the CIT(A)
We deem it appropriate to direct the learned TPO/AO to consider the turnover filter while rejecting the comparables and also more particularly Wipro BPO Solution Ltd., as it was pointed out by the learned AR that the turnover of the Wipro is 18 times more than that of the assessee. It is of the consistent view that the turnover is within the range of 1/10th of the turnover or up to 10 times, then the comparable is considered to be good comparable. However, if the comparable turnover is more than 10 times, it is held not to be an appropriate or a good comparable. The learned TPO will keep the consistent view of the Tribunal while applying RPT filter of 15% as well as simultaneously consider the turnover filter in the light of the consistent view of the Tribunal as stated herein above.
Exclusion of telecommunication charges and travel expenses from the export turnover as well as total turnover while computing the deduction u/s 10A - HELD THAT:- This issue of exclusion of the expenses incurred in foreign exchange from the export turnover as well as from the total turnover is settled by the judgment of Hon’ble Jurisdictional High Court in the case of Tata Elxsi [2011 (8) TMI 782 - KARNATAKA HIGH COURT]
Thus, the Hon’ble Karnataka High Court that the total turnover is sum total of export turnover and domestic turnover and, therefore, if an amount is excluded from export turnover, the total turnover is also reduced by the same amount as a consequences of deduction from export turnover. In this view of the matter, we direct the AO to exclude the above expenses from total turnover as well while computing the deduction u/s 10A
TP Adjustment - Provision of SWD services segment - comparable selection - related party transactions - RPT filter - HELD THAT:- We direct exclusion of Celestial Labs Ltd, E-Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd, Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technologies Ltd, Flextronics Software Systems Ltd (seg), Helios & Matheson Information Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) , Thirdware Solutions Ltd and Quintegra Solutions Ltd as they are functionally different from the assessee.
Megasoft Solutions Ltd is concerned, we direct the AO / TPO to rework its segmental results and consider its comparability only with regard to the software development services segment. The Assessing Officer/TPO is also directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues.
Segment of receipts for ITE services - This Tribunal in the case of Pole to Win India P. Ltd [2016 (6) TMI 1296 - ITAT BANGALORE] has examined and excluded the comparables Bodhtree Consultancy Ltd, e-clerx Services Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.) , Vishal Information Technology Ltd and Wipro Limited . Found that the comparables , Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet Systems & Services Ltd and Informed Technologies India Ltd exceeded RPT at 15% and hence directed to excluded them. Set aside the issues in connection with comparables I-services India Pvt. Ltd, Accentia Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with a direction to re-examine them in the light of their observations /directions, supra. Following the above decision, the assessee’s plea is allowed in respect of the above 6+4 comparables on functional dissimilarity + RPT exceeding 15%. The issues in connection with the last 3 comparables are set aside for re-examination on the similar lines in which this Tribunal directed in the above case.
Disallowance of deduction claimed u/s 10A of the profits of business of UB Plaza Unit in BANGALORE - HELD THAT:- We have considered the rival submissions and find merit in the assessee’s plea. Deduction u/s 10A cannot be denied to the UB Plaza Unit, which is otherwise undisputedly an eligible unit, merely on the ground that it was acquired via a slump sale. Deduction u/s 10A is undertaking / unit specific and that, therefore, an undertaking otherwise eligible for deduction u/s 10A cannot be denied only because its owner has changed . The AO has rightly allowed the deduction in the earlier year. The AO is directed to allow the deduction for the balance period of eligibility.
Re-computation of deduction claimed u/s 10A by reduction of telecommunication charges and travel expenses in foreign currency only from export turnover - HELD THAT:- We heard the rival submissions. The assessee’s plea is supported by the binding decision in CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - Hence, consistent with the above decision, the AO is directed to exclude the above expenditure both from ETO and TTO. The assessee’s appeal in this regard is allowed.
Re-computation of deduction allowable u/s 10A by the reapportionment of certain expenses between its UB P la za Unit & its Pinnacle Unit -AO held that the deduction u/s 10 should also be further recomputed by the re-apportionment of certain expenses between the aforesaid UB Plaza Unit and its Pinnacle Unit, being the unit ineligible for deduction u/s 10A with effect from AY 2007-08, on the ground that the appellant’s basis of apportionment was erroneous - HELD THAT:- The assessee claimed legal, professional charges, staff recruitment expenses and management fees and apportioned them between Pinnacle and UB plaza units based on the head count. The AO examined and found that the management fees has been debited against Pinnacle Unit alone and the assessee could not explain why this expenditure is not apportioned at all as per it’s own method. On examination, the AO held that the head count is not a fair basis for apportionment. Since the turnover indicated activity level, he apportioned them on the basis of turnover which resulted in increased income of the Pinnacle Unit and reduction of income of UB plaza Unit. The DR submitted that the assessee has to establish its claim before the AO . We are of the view that this issue requires minutest examination and verification of facts, vis a vis units and hence remit the issue to the AO/TPO. The AO/TPO shall give due opportunity to the assessee and decide the issues in accordance with law.
Disallowance of claim for set -off of unabsorbed Depreciation - HELD THAT:- From the orders, it is seen that the AO denied the set-off of the above unabsorbed depreciation on the ground that the Pinnacle Unit was a profit making unit in all years prior to a y 2007-08 and that, therefore, the above unabsorbed depreciation is deemed to have been setoff in such years of profit before computing the deduction under Section 10A for those years. Further, the A O has also denied the claim for set-off contending that the same was allowed in the assessment order for AY 2006-07. In the absence of the corresponding facts and figures, it is apparent that AO has decided this issue on surmise. Hence, this issue is remitted to the AO for re-examination and due decision in accordance with the Hon’ble Supreme Court decision in CIT v. Yokogawa India Ltd [2016 (12) TMI 881 - SUPREME COURT]
Assessee’s appeal is allowed/ treated as allowed for statistical purpose.
The Supreme Court granted permission to file additional documents. The detention order from 15th March, 2014 was not extended, so the special leave petition was dismissed as infructuous.
Rejection of books of account - estimation of profit at 8% of contract receipts - HELD THAT:- Without going into the merits of the reasons assigned by the AO for rejecting the books of account of the assessee, we find that for all the years stated above the Department consistently accepted the profit ratio in the business of the assessee is between 1.60 and 3.31 and at no point of time any objection is taken by the AO on the ground that in the kind of business of the assessee average rate of profit would be anything around 8%.
We do not find any rational in the AO estimating the profit at 8% and the consistency of the net profit as was established by the accepted books of account in the business of the assessee was something between 1.60% and 3.31% as such taking a pragmatic view, we find that 3% of the profit ratio of the contract receipt would meet the ends of justice - Decided in favour of assessee in part.
Principle of forum conveniens - petition rejected on the ground that the designated Judge in the High Court of Bombay under the Maharashtra Protection of Interest of Depositors (in Financial Establishment) Act, 1999 would be more appropriate forum - HELD THAT:- There are no reason to interfere with this order.
It is submitted that the petitioners have raised the issue of jurisdiction before the High Court of Gujarat viz. the petitioners are not the financial establishment. Since the notifications dated 12.03.2015 and 22.06.2015 issued by the Government of Maharashtra are challenged on this ground, it would be open to the petitioners to raise this issue before the High Court of Bombay.
Dishonor of Cheque - vicarious liability of husband - cheques which have been dishonoured were issued by his wife in her personal capacity - applicant is not a signatory to the cheque - HELD THAT:- Indisputably, the applicant herein has not signed the cheque. The cheque has been signed by the wife of the applicant herein. As the applicant is not a signatory to the cheque, no liability can be fastened upon him for the dishonour of the cheque under Section 138 of the Negotiable Instruments Act. The law in this regard is well-settled.
The Supreme Court in the case of MRS. APARNA A. SHAH VERSUS M/S SHETH DEVELOPERS PVT. LTD. AND ANOTHER [2013 (7) TMI 718 - SUPREME COURT] has held that under Section 138 of the Act, it is only the drawer of the cheque who can be prosecuted. In the case on hand, admittedly, the appellant is not a drawer of the cheque and she has not signed the same. A copy of the cheque was brought to our notice, though it contains name of the appellant and her husband, the fact remains that her husband alone put his signature. In addition to the same, a bare reading of the complaint as also the affidavit of examination-in-chief of the complainant and a bare look at the cheque would show that the appellant has not signed the cheque.
Benami transaction - Property purchased the suit property in the name of the wife/second respondent, for the benefit of the second respondent and children - whether suit is hit by the provisions of Sections 3 & 4 of the Benami Transactions (Prohibition) Act, 1988? - HELD THAT:- In the plaint, the first respondent has stated that he had purchased the suit property out of his income in the name of his wife, the second respondent herein, out of love & affection and for their benefit as well as for the benefit of their children to construct the residential building after obtaining loan from a Nationalised Bank. The first respondent has also stated that after purchase, he was in possession of the suit property and all the original documents of title were with him. Due to misunderstanding, the second respondent left the matrimonial home taking all the original documents of title of the suit property. When the first respondent came to know about the intending sale of the suit property in favour of the petitioner by the second respondent, he issued a legal notice to the petitioner. Even after receipt of such notice, the petitioner had purchased the suit property.
When a property is purchased in the name of wife or unmarried daughter, there is a presumption that the said purchase is for their benefit. At the same time, a person who purchases the property in the name of his wife or unmarried daughter can prove that the same is not for their benefit. In the present case, the purchase in the name of second respondent/wife, according to the first respondent is not for her exclusive benefit but for the benefit of the children as well as for the construction of a residential house, after obtaining loan from a Nationalised Bank. Considering Section 3 (2) (a) of the Act, the first respondent has a right to let in evidence to rebut the presumption that the property was purchased for the exclusive benefit of second respondent. This issue is not a pure question of law but mixed question of fact and law. In view of the same, the judgment relied upon by the learned counsel for the petitioner, do not advance the petitioner's case at this stage.
The learned Judge has rightly held that the issue raised by the petitioner can be decided only after detailed trial by appreciating the oral and documentary evidence let in by the parties and it cannot be decided at this stage. In the above circumstances no illegality or irregularity in the order passed by the trial court warranting interference by this Court.
Dishonor of Cheque - Whether the wife by virtue of her status as a wife of the payee of the cheque can be said to be “a holder in due course”? - whether she can be a competent complainant to lodge complaint under Section 138 of the Negotiable Instruments Act, 1882 - holder in due course - legal heir for receipt of money - HELD THAT:- The concept of “holder” is in Section 8 of the Act whereas the connotation “holder in due course” is a special concept under the Act which Section 9 speaks of. As per Section 8, holder of a promissory note, cheque etc., means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. The “holder in due course”, meaning of which bears relevance to the controversy, means any person who for consideration become the possessor of a promissory note, bill of exchange or cheque, if payable to the bearer or the payee or endorsee thereof if payable to order before the amount mentioned in it becomes payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
The gist ingredient of the concept “holder in due course” is that “holder in due course” is a person who becomes possessor of instrument-the cheque etc., and that he becomes such possessor and possession thereof for a consideration, leaving the other conditions mentioned in the provisions standing satisfied - it would not be right to simply say that every possessor of a promissory note or cheque or bill of exchange is a holder in due course. What is trite is that he must be one who is the possessor of the instrument for a consideration. It is not the holder of the cheque but the holder in due course of the cheque who acquires a legal competence and locus standi in law to base an action on the basis of returned cheque.
The legal connotation “holder in due course” has twin important essentials to carry. A person in order to become a holder in due course within the meaning of Section 9 of the Act must be in possession of a promissory note, bill of exchange or cheque, as is in the present case; at the same time, mere becoming possessor of the cheque etc., would not suffice. A person to the possessor of the instrument has to be for a consideration. It is indispensible ingredient for being clothed with the legal capacity of “holder in due course” is that the person in possession of the instrument, must have been in the possession for some consideration - merely being an heir of payee, though may be in possession of instrument, would not automatically make such heir or legatee a 'holder in due course' within the meaning of Section 9 of the N.I. Act. The concept of holder in due course does not recognize such position, besides which the ingredient of being a possessor for consideration has to exist. Respondent No.2 wife, in absence of possessing such ingredient-capacity, cannot claim locus standi in law to become a complainant under Section 138 of the Act.
The respondent No.2-wife only on the ground of she being a wife or on the ground that she was an heir of the husband to receive money cannot be treated as “holder in due course” within the meaning of Section 9 of the Act. A locus standi for her cannot be conceived in law to be one entitled to file a complaint under the N.I. Act. If she is claiming any right over the amount of cheque in capacity of heir, her remedy would be in civil law. Complaint at her instance under the N.I. Act, however cannot be maintainable, she having no locus standi to be a complainant under the N.I. Act.
Seeking cancellation of the sale deed - sum and substance of the Plaintiff's case is that the Defendant Nos. 1 to 5 have purchased the suit property from a private person though the said property is the Wakf property and therefore the sale deed dated 12.1.2013 does not convey any right, title or interest in favour of the Defendants 1 to 5 - HELD THAT:- The overall view of various provisions contained in Wakf Act, 1954 and Waqf Act 1995 make it evident that even under 1954 Act, as in 1995 Act, the Survey Commissioners were appointed for the purpose of making survey of wakfs in State. The Survey Commissioner was duty bound to conduct the survey of wakfs in the State and after making such enquiry, as he might consider necessary, would submit his report in respect of Wakfs existing in the State to the State Government with necessary particulars. Copy of the said report would be forwarded by the State to the Wakf Board which in turn would examine the report by applying its mind and thereafter would publish the notification. Whereas under 1995 Act, the Wakf Board after examining the report forwards it back to Government within a period of 6 months for publication in the Official Gazette in the State. Pursuant thereto the State will publish the Gazette notification. The revenue authorities will consequently include the list of Auqaf properties while updating the revenue records under Sub-section (3) of Section 5 of 1995 Act.
It is amply clear that the conducting of survey by the Survey Commissioner and preparing a report and forwarding the same to the State or the Wakf Board precedes the final act of notifying such list in the official gazette by the State under 1995 Act, (it was by the Board under 1954 Act).
Admittedly in the matter on hand, the survey was conducted prior to 1962 and based on such Surveyor's report only, the list was prepared and the same was submitted to State Government, which in turn, was forwarded to Wakf Board, the Wakf Board after examining the report published the list in the official gazette in the year 1962. Hence, Sub-section (1A) of Section 4 also will be of no avail to the Plaintiff - the Tribunal and the High Court, on facts have held that the property in question is not included in the list published in the Official Gazette as a wakf property. Such non-inclusion was never questioned by any person including the Wakf Board. The Board has not exercised jurisdiction Under Section 27 of 1954 Act and Section 40 of 1995 Act, though 50 years have elapsed from the date of the gazette notification.
The averments in the plaint do not disclose the cause of action for filing the suit. The suit is manifestly meritless and vexatious - Appeal allowed - decided in favor of appellant.
Dishonor of cheque - insufficiency of funds - preponderance of probability - initial presumption arising under Sections 118 and 139 of NI Act - Standard of proof to prove defence on the part of accused - HELD THAT:- There is no corresponding provision under the N.I. Act, which would vitiate the entire loan transaction for dealing with cash amount above ₹ 20,000/-. The culpability of offence under Section 138 of the Act will not freeze for the reason of violation of Section 269SS of the I.T.Act and nothing prevents the operation of the statutory presumption under Sections 118 and 139 of the Act. The accused in his attempt to dislodge the initial presumption arising out of the evidence of complainant produced the order sheet pertaining to the proceedings under Section 13-B of the Hindu Marriage Act filed by the complainant and her husband and also the copy of the joint petition filed therein. The petition for divorce by mutual consent was filed on 30.5.2005 and it was disposed of on 12.9.2006, since the complainant was not willing for divorce by mutual consent.
It stands clear that the accused failed to dislodge the statutory presumption under Section 118(a) of the Act that he had issued the cheque for consideration; further, the presumption under Section 139 of the Act that the cheque was issued towards discharge of legally recoverable debt could not be shaken.
Seeking transfer of proceedings, pending before the learned Additional Judicial First Class Magistrate, Anantpur, Andhra Pradesh to the Court of Chief Metropolitan Magistrate at Bangalore in Karnataka - allegations made in the complaint constitute an offence Under Section 295A of the Indian Penal Code or not - whether this Court, in the obtaining factual matrix, relegate the trial at some other place or grant him liberty to file an application Under Section 482 Code of Criminal Procedure for quashing?
HELD THAT:- Section 295A does not stipulate everything to be penalised and any and every act would tantamount to insult or attempt to insult the religion or the religious beliefs of class of citizens. It penalise only those acts of insults to or those varieties of attempts to insult the religion or religious belief of a class of citizens which are perpetrated with the deliberate and malicious intention of outraging the religious feelings of that class of citizens. Insults to religion offered unwittingly or carelessly or without any deliberate or malicious intention to outrage the religious feelings of that class do not come within the Section - Emphasis has been laid on the calculated tendency of the said aggravated form of insult and also to disrupt the public order to invite the penalty.
There is no hesitation in holding that the allegations remotely do not satisfy the essential ingredients of the offence and, therefore, applying the principle stated in STATE OF HARYANA VERSUS BHAJAN LAL [1990 (11) TMI 386 - SUPREME COURT], the complaint proceedings initiated against the Petitioner is quashed.
In the case at hand, as the complaint is quashed, needless to say, for the reasons for which the complaint is quashed shall squarely apply to the co-accused, who is the Editor of the magazine. Therefore, the same principle is applied and the complaint even against co-accused is quashed.
Demolition of Babri Masjid - offences of dacoity, robbery, causing of hurt, injuring/defiling places of public worship, promoting enmity between two groups on grounds of religion, etc. - HELD THAT:- The judgment dated 12th February, 2001, clearly and unequivocally held that a joint charge sheet had been filed by the CBI on the ground that all the offences were committed in the course of the same transaction to accomplish the conspiracy alleged. The evidence for all these offences is almost the same and these offences, therefore, cannot be separated from each other, irrespective of the fact that 49 different FIRs were lodged. It is clear that in holding to the contrary, the impugned judgment, which upheld the judgment dated 4th May, 2001, is clearly erroneous.
There is no need for a de novo trial inasmuch as the aforesaid charges against all 21 Accused persons can conveniently be added Under Section 216 of the Code of Criminal Procedure in the ongoing trial. No prejudice will be caused to the Accused as they have the right to recall witnesses already examined either in Rae Bareilly or in Lucknow for the purpose of cross-examination. The Court of Sessions at Lucknow will have due regard to Section 217(a) of the Code of Criminal Procedure so that the right to recall is not so exercised as to unduly protract the trial - A number of judgments have been cited including the celebrated Supreme Court judgment in Supreme Court Bar Association v. Union of India and Anr. [1998 (4) TMI 531 - SUPREME COURT], in which a Constitution Bench of this Court held that Article 142 cannot authorize the Court to ignore the substantive rights of a litigant while dealing with the cause pending before it and cannot be used to supplant the substantive law applicable to the cause before this Court.
In the present case, the power of transfer is being exercised to transfer a case from one Special Judge to another Special Judge, and not to the High Court. The fact that one Special Judge happens to be a Magistrate, whereas the other Special Judge has committed the case to a Court of Sessions would not make any difference as, as has been stated, even a right of appeal from a Magistrate to the Sessions Court, and from the Sessions Court to the High Court could be taken away under the procedure established by law, i.e., by virtue of Section 407 (1) and (8) if the case is required to be transferred from the Magistrate at Rae Bareilly to the High Court itself - That Article 142 can be used for a procedural purpose, namely, to transfer a proceeding from one Court to another does not require much argument.
The proceedings in the Court of the Special Judicial Magistrate at Rae Bareilly will stand transferred to the Court of Additional Sessions Judge (Ayodhya Matters) at Lucknow - Appeal disposed off.
Reopening of assessment u/s 147 OR assessment u/s 153C - addition on account of alleged purchases of bogus material and payment of commission - search in the case of Shri Vaibhav Jain and Navneet Jain were made u/s.132 of the Act who have been indulging in profiting accommodation entries through their thirty seven paper entries and charging commission from the beneficiary on the accommodation entries provided - HELD THAT:- DR in fact could not bring the reasons otherwise and therefore, in the circumstances and facts of the case, the assessment proceedings in the case of Vaibhav Jain and Navneet Jain have been initiated u/s.153C of the Act, and therefore, if in view of the department the information so received is considered as a material, the assessment in the present case should have been made u/s.153C and accordingly proceeded u/s.153A to 153C which should have been initiated in the present case but the proceedings u/s.147/148 of the Act has been initiated which itself is bad in law and the reliance is placed in the case of Rajat Subhra Chaterjee [2016 (7) TMI 258 - ITAT DELHI]
In the circumstances and facts of the case, the proceedings initiated u/s.148 of the Act are ab initio and are directed to be quashed - Decided in favour of assessee.
Deduction u/s 54F and 54EC - Claim denied as asset happened to be short term capital asset - CIT(A) arrived at a conclusion that as the period of holding is treated as short term period, the benefit of indexed cost and inflation cost to the asset to the previous owner is not applicable because the transfer of asset is not covered by sec. 49(1) r.w.s. 2(42A). The AO is accordingly, directed to withdraw the cost of indexation given in the assessment order - HELD THAT:- Admittedly, there was no issue of applicability of Sec.46 of Transfer of Property Act, 1882 was raised before the lower Authorities and this is a new plea taken by the ld.A.R before us. The lower authorities have no occasion to consider this plea. Being so, in the interest of justice, we remit the issue back to the file of Ld.CIT(A) for denovo consideration and decide after giving opportunity of hearing to the assessee. Before the Ld.CIT(A), the assessee is at liberty to present necessary documents in support of claim made by the assessee. At this stage, we refrain from adjudicating any other grounds raised before us.
Addition being difference between royalty income as per the books and as per tax deducted at source certificates - difference in the amount of tax deducted at source - HELD THAT:- Assessee in its submissions, filed before the FAA, had furnished a table and had tried to reconcile the difference. It appears that the submissions made by the assessee have not been considered properly. Therefore, we are of the opinion, that in the interest of Justice, the matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee, who would submit all the necessary papers before the AO with regard to royalty received. Accordingly, first ground is decided in favour of the assessee, in part.
Disallowance u/s. 36(1)(ii) being commission paid to one of the directors - Addition on the Ground that the directors had not rendered services to the company - HELD THAT:- It is pertinent to note that the commission was paid as per the Board Resolution, that in the earlier year similar expenditure was allowed by the AO, that the director had paid taxes on the commission received, that the higher slab of tax rate was applicable in both the cases. Considering these facts, we are of the opinion that the order of the FAA cannot be endorsed. Ground No.2, is decided, in favour of the assessee.
Disallowance on account of depreciation and repair and maintenance - HELD THAT:- FAA had specifically mentioned that the assessee had not filed the full audit report during the appellate proceedings, that the assessee was using its Mumbai property as commercial asset, in absence of correct and full details the AO and FAA had made and upheld the disallowance. Considering the peculiar facts and circumstances of the case, we are of the opinion that matter should be restored back to the file of AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee and decide the case accordingly. Both the grounds are decided in favour of the assessee, in part.
Seeking appointment of the Arbitrator - dispute between the parties is civil nature or any case is made out against the Appellants for launching criminal prosecution? - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT:- The matter entirely pertains to civil jurisdiction and not even a prima facie case is made out for offences Under Sections 420, 406, 409 read with Section 120B of Indian Penal Code even if the allegations contained in the complaint are to be taken on their face value. The complaint gives a clear impression that it was primarily a case where the Respondent had alleged breach of contract on the part of the Appellants in not making the entire payments for the services rendered to the Appellants. On the other hand, it is not in dispute that substantial amounts have been paid by the Appellants to the Respondent-company for the services rendered.
Reason for non-payment of the balance amount as given by the Appellants is that the services rendered by the Respondent-company were not in terms of the agreement entered into between the parties and were deficient in nature. For this reason, even the Appellants have filed claims against the Respondent-company alleging that Appellant suffered losses because of the defective services provided by the Respondent - it cannot be said that at the time of entering into the agreement, either the first agreement or even the second agreement, there was any intention on the part of the Appellants to cheat the Respondent. No suspicion of any nature was shown or even alleged.
Eligibility of revised return u/s 139(5) - time limit to file revised return - whether return null and void since assessee company has filed return of income u/s 139(1) but filed the return of loss u/s 139(3) - as assessee company filed the original return of income u/s 139(1) with a taxable income and revised it to a loss return and the same can be possible u/s 139(3) but not u/s 139(5) rws 139(1) - HELD THAT:- In the present case, the original return was filed on 30.09.2009 i.e. within the time available u/s 139 (1) and the revised return was filed on 28.12.2010 i.e. within the time available u/s 139 (5). We hold that revised return is valid but carry forward of loss is rejected in view of the submission of the learned AR of the assessee. Additional grounds stand partly allowed.
Reduction in turnover - assessee is following “Percentage of Completion Method (POCM) - HELD THAT:- Having accepted that the revised return is valid subject to the rider that carry forward of loss, if any, is not allowable, it is proper to examine the veracity of the assessee’s claim in the revised P/L Account in respect of reduction in turnover but as per the assessment order, this claim was summarily rejected by the A.O. with the observation that the assessee is following “Percentage of Completion Method (POCM) and the income shown in the original return is in line with POCM without giving any specific finding about the claim of the assessee that the turnover shown in the revised return is by following correct POCM. Hence, we restore the matter back to the A.O. for a fresh decision by way of a speaking order as to what should be the turnover of the present year as per correct POCM and AS – 7 if found applicable.
Disallowance u/s 14A - HELD THAT:- As in the present year, Rule 8D is applicable. As per this rule, if the A.O. can show direct nexus between interest expenditure and investment in shares than entire such interest has to be disallowed. Similarly, if the assessee can show that part of whole interest is relatable to earning of taxable income than such interest expenditure cannot be considered for Rule 8D.
But the remaining interest expenditure has to be proportionately disallowed as per Rule 8D. Learned CIT (A) in Para 4.6 has held that substantial portion of interest is on bank overdrafts, debentures and other bank charges and these cannot be stated as being not relatable to the business income - merely because an interest is relatable to the business income is not sufficient to take it out from the applicability of Rule 8D - it has to be shown that it is fully relatable to earning of taxable income. The finding of CIT (A) does not say that this is fully relatable to earning of taxable income. Hence, on this aspect, the order of CIT (A) is reversed and that of the A.O. is restored. Ground No. 3 is allowed. Regarding Ground No. 4, we find that in Para 4.7 of his order, learned CIT (A) has asked the A.O. to recomputed the disallowance under Rule 8 D (2) (iii) after considering the correct figures as per balance Sheet. In our considered opinion, there is no infirmity in this direction of CIT (A). Therefore, Ground 4 is rejected.
Disallowance of interest u/s 36 (1) (iii) - interest free advances to sister concern - sufficiency of own funds - HELD THAT:- As own interest free funds on both these dates i.e. 31.03.2009 and 31.03.2008 is in excess of interest free advances and by respectfully following the tribunal order cited by the learned AR of the assessee having been rendered in the case of M/s Kems Auto Components Ltd.[2016 (9) TMI 1606 - ITAT BANGALORE] and the Judgment of Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT] we decline to interfere in the order of CIT (A) on this issue. These grounds are rejected.
Business expenditure u/s 37 - contribution to PACs development fund and PACs managers salary security fund - HELD THAT:- There is nothing in the statute to suggest, as argued, that the amount standing to its credit cannot be taken into consideration in arriving at the purchase price. For the purposes of sale to a State Board or Government, a different statute lays down how the price is to be fixed, and with it we are not here concerned.
We must add that we asked Mr. Sachar to whom, in his submission, the amounts credited to the Contingencies Reverse were diverted. Mr. Sachar replied that they were diverted to and vested in the State Government. This, for the reasons set out above, is quite unacceptable. We hold that the amount credited to the Contingencies Reserve is not diverted by reason of an (3 of 4) [ITA-254/2011] overriding obligation or title and, in determining the business profits of the assessee, it must be taken into account. Mr. Sachar contended that if the amount credited to the Contingencies Reserved was includible in the computation of the business income of the assessee, the amount so appropriated should be allowed as a business deduction, being expenditure necessary to carry on the assessee's business. As the Calcutta High Court has pointed out, there is no expenditure. The amount appropriated to the Contingencies Reserve is set apart to meet possible exigencies. It is not a provision for known, existing liabilities. - Decided against assessee.
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