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Income Tax - Case Laws
Showing 181 to 200 of 662 Records
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2012 (12) TMI 874
Re opening of assessment - labour charges and radiography charges to be disallowed u/s 40(a)(ia)- Non deduction of TDS - Held that:- As during the assessment proceedings leading to the assessment order dated 11/11/2009 the petitioner had disclosed all facts with regard to deduction being claimed on account of labour charges and radiography charges. In fact, the assessment order dated 11/12/2009 records the fact that a notice was issued to the petitioner to explain why expenses on account of labour and radiography charges should not be disallowed under Section 40(a)(ia) & petitioner explained its view point and the AO on consideration of those facts in his order of assessment dated 11/12/2009 concluded that these payments on account of radiography charges and labour charges are tax deductible at source in terms of Section 194C.
Thus the petitioner has disclosed all primary facts and on consideration of those facts as reflected in the assessment order dated 11/12/2003 therefore, the impugned notice u/s 148 and the reasons in support thereof clearly indicates that it has been issued merely on the basis of change of opinion and would amount to a review of the Assessment Order dated 11/12/2003. The reasons for reopening is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the AO has duly considered while passing the order dated 11/12/2003 for AY 2007-08.
Also that is in the order dated 15/10/2012 rejecting the objections filed by the petitioner with regard to reassessment proceedings for assessment year 2007-08 a completely new ground has been added to reopen assessment is the lack of co-relation between the payment received by the petitioner and the TDS Certificate issued by the persons making payment to it during the assessment year 2007-08. This according to order dated 15/10/2012 resulted in under assessment of income to the extent of ₹ 21.61 lacs. The aforesaid issue was not one of the grounds specified in the reasons communicated to the petitioner on 23/7/2012 for the purpose of reopening the assessment for assessment year 2007-08. Our Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar, Assistant Commissioner of Income Tax and others reported in (2004 (2) TMI 41 - BOMBAY HIGH COURT ) has held that for the purpose of examining the jurisdiction to reopen a completed assessment one is only concerned with the reasons recorded at the time of issuing notice under Section 148 of the Act. These reasons cannot be supplemented/ improved upon later. Therefore, the order dated 15/10/2012 disposing of the objection also cannot be sustained - the impugned notice dated 28/3/2012 is bad in law - in favour of assessee.
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2012 (12) TMI 873
Disallowance u/s 40(a)(ia) - lesser deduction of tax and also under different head - 194C v/s 194I - Held that:- The conditions laid down u/s.40(a)(ia) for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment cannot be disallowed u/s. 40(a)(ia).
Here in the present case the assessee has deducted tax u/s. 194C(2) and not u/s. 194I but there is no allegation that this TDS is not deposited with the Government account. Section 40(a)(ia) refers only to the duty to deduct tax and pay to government account there is nothing in the said section to treat the assessee as defaulter where there is a shortfall in deduction. And if there is any shortfall due to any difference of opinion the assessee can be declared to be an assessee in default u/s. 201 but no disallowance u/s 40(a)(ia) is allowed - no substantial question of law is involved.
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2012 (12) TMI 871
Disallowance u/s 14A r.w.s. 8D - Held that:- Godrej Boyce Mfg. Co. Ltd. v. Dy. CIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] holding that Rule 8D is applicable prospectively from assessment year 2008-09 & disallowance u/s 14A for the years prior to assessment year 2008-09 has to be made by adopting some reasonable method. As AY for the present case if 2005-06 impugned order of the CIT(A) confirming the disallowance u/s 14A is set aside and restore the matter to the file of the AO to recompute the disallowance - in favour of assessee for statistical purposes.
Addition on deemed dividend u/s 2(22)(e) - loans taken from M/s JMC Securities Pvt. Ltd - Held that:- Interest income earned by M/s JMC Securities Pvt. Ltd. during the year under consideration was to the tune of Rs.9,16,088/- which constituted about 70% of its total business income amounting to Rs.13,04,088/-. Moreover, the maximum amount of loan advanced by M/s JMC Securities Pvt. Ltd. during the year under consideration was to the tune of Rs.95,45,000/- which constituted 32% of the total funds available with the said company.
If these facts and figures are considered in the light of the decision in the case of Parle Plastics Ltd. (2010 (9) TMI 726 - BOMBAY HIGH COURT), it becomes abundantly clear that lending of money was a substantial part of a business of M/s JMC Securities Pvt. Ltd. and the loan in question to the assessee was made by the said company in the ordinary course of its business. It, therefore, follows that the conditions stipulated in section 2(22)(e)(ii) were duly satisfied and the amount of loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee could not be regarded as a deemed dividend. As the assessee has also filed a copy of the assessment order passed u/s 143(3) in the case of M/s JMC Securities Pvt. Ltd. for the assessment year 2006-07 wherein the nature of the business of the said company was clearly indicated as "finance" and it was further mentioned in the body of order that the said company continued into business of short term finance of idle funds. Thus the addition made by the AO u/s 2(22)(e) on account of the loan advanced by M/s JMC Securities Pvt. Ltd. to the assessee by treating the same as deemed dividend is not sustainable - in favour of assessee.
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2012 (12) TMI 870
Reopening of assessment - difference in sale price as per the 'agreement to sell' dated 14.10.1999 & sale deed dated 01.09.2002 - undisclosed payment of Rs. 65.80 lacs to the sellers - escaped assessment for the AY 2000-01 - Held that:- There can be no escape in the light of the interpretation of Section 147 that there existed sufficient reasons for the AO to believe that the undisclosed income in the hands of the appellant-assessees escaped assessment in the year 2000-01. The agreement to sell dated 14.11.1999 was admittedly signed by both of them. The Notary Public also supported the cause of Revenue regarding execution of the said agreement. JD Gupta was cross-examined by the assessees at length but he withstood the test of credibility who was blamed to have got the 'agreement to sell' signed by the assessees without letting them see the contents of the agreement.
The agreement to sell dated 14.11.1999 referred to four demand drafts which were exactly the same as mentioned in the sale deed dated 13.09.2002. These very demand drafts appeared in the subsequent agreement to sell dated 03.02.2000 also. In the light of this overwhelming material brought on record the AO was fully justified in disbelieving the subsequent agreement dated 03.02.2000. Similarly, the far-fetched plea taken by the assessees that their signatures on the agreement to sell dated 14.10.1999 were obtained without disclosing its contents to them, cannot be accepted. The decisions relied upon by the appellants have no bearing on the point in issue - assessee's plea regarding second agreement to sell dated 03.02.2000 or the agreed sale consideration amounting to Rs. 16 lacs only, was disbelieved concluding that the assessees had made an undisclosed payment of Rs. 65.80 lacs to the sellers and both of them had invested Rs. 43,86,667/- out of their undisclosed income - against assessee.
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2012 (12) TMI 869
Appointment of field organizers - revenue treated it as establishment of sole selling agency system - whether a business expenditure? - Held that:- The assessee created a network of field/sales organizers, who rendered specific services under agreements entered into with them. This was after the sale of cement was decontrolled. As AO has neither doubted the genuineness of the payments nor held that the field organizers did not render any services as per the agreements it follows that the expenditure was rightly allowed by the CIT (Appeals) as business expenditure and his decision was rightly affirmed by the Tribunal. They cannot be called sole-selling agents within the meaning of Section 294 of the Companies Act, 1956 also confirmed by a letter dated 10.11.1989 issued by the Department of Company Affairs, Government of India to the assessee - in favour of the assessee.
Deposits received to be treated as secured loans within the meaning of section 40A(8)(b)(1) - Held that:- As decided in L.G.Balakrishnan & Bros. Ltd. Vs. CIT [1998 (4) TMI 16 - MADRAS HIGH COURT] & Super Spg. Mills. Ltd. Versus Commissioner of Income-Tax.[2002 (7) TMI 8 - MADRAS HIGH COURT] fixed deposits secured by a floating charge on specific assets of the company amounts to secured fixed deposits and therefore the interest paid on them cannot be disallowed to the extent of 15% under Section 40A(8) - They are therefore, secured loans and interest paid on them is allowable in full under Section 36(1)(iii) without being regulated by Section 40A(8) read with Explanation (b)(i) - in favour of the assessee.
Puja expenses - ITAT allowed the expenditure as business expenditure - Held that:- The Tribunal has taken the correct view having regard to the inclusive nature of the expression “for the purpose of the business” appearing in Section 37(1) and as explained by the Supreme Court in the case of CIT v. Malayalam Plantations Ltd. (1964 (4) TMI 9 - SUPREME COURT) - in favour of the assessee.
Retainership paid to tax consultant - whether covered u/s 80VV - Held that:- The retairnership paid to Advocate was not in connection with income tax proceedings but for general advice relating to other laws, thus the provisions of Section 80VV are not attracted. The Section as it stood at the relevant time was applicable only in respect of the expenditure incurred in pursuing income tax assessment proceedings or proceedings before the authorities under the Act. It did not apply to retainership fees paid to consultants or advocates - in favour of the assessee.
Depreciation on water distribution system - whether is entitled for depreciation at the rate of plant and machinery or it is to be taken as part of the building for the purpose of depreciation - telephone exchange system - whether it is an office appliance which was entitled to investment allowance, additional depreciation and extra shift depreciation allowance - Held that:- The assessment year involved is 1985-86 thus the matter is more than 25 years old & after such a long lapse of time even if lesser rate of depreciation is allowable on the assets as claimed by the revenue, the whole exercise would only be academic, therefore, return the reference of these two questions unanswered.
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2012 (12) TMI 868
Expenditure incurred on integrated software HIPACK-warranty Module HIPACK-Sales Modules and HIPACK-Parts Module - Revenue v/s Capital - CIT(A) treated as Capital expenditure - Held that:- The assessee is stated to have set up its first manufacturing unit at Greater Noida, commencing operations in 1997 as a joint venture between Honda Motor Company and Usha International of Siddharth Shriram Group. The assessee claimed that it was merely a licensee of the integrated software HIPACK and the right to use the software was subject to the conditions mentioned in the license agreement, which agreement despite repeated adjournments has not been placed by the assessee nor any reasons have been adduced as to why the said agreement could not be furnished. In the absence of relevant agreement, it is not known as to whether or not there was transfer or parting with secret processes and technical know-how to the assessee nor the relevant terms and conditions in respect of use of software are known.
The ITAT vide their order dated 26th September,2008 set aside the issue to the file of the AO with the directions to redecide the issue in the light of tests laid down in the case of Amway India Enterprises(2008 (2) TMI 454 - ITAT DELHI-C). In the absence of terms and conditions of the license, it is not known as to how the AO or the CIT(A) could ascertain economic and functional role which the integrated software plays in the business of the assessee.
Though in a confirmation dated 6.9.2012 Honda Motor Co. Ltd., Japan stated that it granted license to the assessee and its other subsidiaries worldwide to use HIPACK software, it does not spell out any terms and conditions of the license. A number of factors are relevant to determine whether the advantage operates in the capital field or revenue field. The nature of business of the assessee, an understanding of the business functions or effect of a concern's software. Software normally functions as a tool enabling business to be carried on more efficiently. The scope, power, longevity of such a tool and its centrality to the functions of the business have all bearing on its treatment. Thus in view of the foregoing, especially when the relevant agreement, licensing the aforesaid integrated software has not been placed nor the CIT(A) examined as to how the assessee carried on its functions before acquiring the aforesaid integrated HIPACK software and nor even as to whether or not the said software was part of infrastructure for commencing the business operations in India and whether or not each of the aforesaid four modules could function independently in the light of aforesaid economic and functional test laid down in Amway India Enterprises(supra) while confirmation dated 6.9.2012 of Honda Motors Ltd., Japan was not before the lower authorities, it fair and appropriate to vacate the findings of the CIT(A) and restore the matter to his file with the directions to readjudicate the issue in the light of aforesaid observations. CIT(A) shall pass a speaking order, keeping in mind the mandate of provisions of sec. 250(6) bringing out clearly as to whether or not expenditure on aforesaid integrated HIPACK software is revenue or capital in nature.
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2012 (12) TMI 867
Delay in filing appeal - Rejection of appeal by ITAT without going into the merits - addition made on reassessment - appeal filed before the Tribunal challenging the said order of addition by Commissioner( Appeals) & also an application for rectification u/s 154 - Held that:- The Tribunal committed an error in rejecting the assessee's appeal without examination of issues on merits. After the Commissioner dismissed the assessee's appeal by an order dated 9.1.2002, the assessee's application for rectification was substantially allowed. In such rectification application, the assessee had raised two issues pertaining to an addition of Rs.1 ,48,00,000 /- and other to Rs.43,300/-. The assessee's case with respect to addition of Rs.1 ,48,00,000 /- was allowed. The request for deleting addition of Rs.43 ,300 /- was not accepted.
It was only when the Tribunal while allowing the Revenue's appeal and holding that the Commissioner erred in rectifying his own order that the Commissioner's original order dated 9.1.2002 was revived. It was therefore, only by virtue of Tribunal's order dated 31.3.2008 that the appellant's cause to challenge the Commissioner's order dated 9.1.2002 came to be revived. For the first time therefore, after rectification was allowed in favour of the assessee by the Commissioner( Appeals), he was aggrieved by the Commissioner's original order dated 9.1.2002 only when the Tribunal resorted to such an order by judgement dated 31.3.2008. Between 17.3.2003 when the Commissioner had allowed rectification application and 31.3.2008 when the Tribunal reversed such order, the assessee had no cause, no reason, no possibility of maintaining any appeal against the Commissioner's original order dated 9.1.2002. Under the circumstances, he has filed fresh appeal before the Tribunal once the entire reason for challenging the Commissioner's order changed, therefore, delay was technical in nature and well explained. Tribunal having held that Commissioner (A) should not have exercised rectification powers, had the responsibility to examine the assessee's challenge to the original order dated 9.1.2002 by which its appeal came to be dismissed by the Commissioner. The assessee only required an opportunity to challenge on merits the additions made by the Assessing Officer and confirmed by the Commissioner - appeal in favour of the appellant and against the Revenue. Order of the Tribunal is reversed. Delay caused in filing the appeal before the Tribunal stands condoned. Appeal shall be heard by the Tribunal on merits - in favour of assessee
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2012 (12) TMI 866
Shipping business of non-residents - DTAA between India and UK denied - AO has passed composite order u/s 172(4) in respect of all the 45 voyages at 7.5% of total amount of freight - Held that:- The persons covered by section 172 are only those who are in occasional shipping business and not in the regular shipping business.
Looking to the magnitude of the voyages undertaken by the freight beneficiary and the fact that the respondent-company has been, as observed by the CIT(A), regularly filing its return of income at Mumbai and being assessed to tax at Mumbai, the finding of the CIT(A) that the freight beneficiary is not engaged in occasional shipping business but in regular shipping business and hence would be outside the scope of section 172 cannot be said to be untenable on facts and in law. His finding in this behalf is therefore confirmed. Similarly, the Department has not placed any material on record to rebut the finding recorded by the CIT(A) that the respondent-company has already filed its return of income at Mumbai. That being the position, the provisions of section 172(7) would apply to the respondent-company that gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act.
Besides,this the Income-tax Act does not permit multiple assessments in the hands of the same taxable entity and that too in respect of income from the same business. On these facts, unable to disturb the finding recorded by the CIT(A). The order of the CIT(A) that the respondent-company is liable to be assessed on the basis of return filed u/s 139(1) for its entire income is therefore confirmed. His further order quashing the order passed by the AO u/s 172(4) is also resultantly confirmed.
As held in Arabian Express Line Ltd. of United Kingdom (1994 (4) TMI 25 - GUJARAT HIGH COURT) by the very nature of assessment contemplated by section 172, it is not possible to deal with the cases covered by Double Taxation Avoidance Agreement. In the present matter the AO has rejected the claim of the respondent-company that its case falls under DTAA. Such an examination, cannot be undertaken in the proceedings u/s 172 as the AO has no discretion u/s 172(2)/(4) except to compute the income @ 7.5% of freight paid or payable. It is perhaps for this reason that section 172(7) gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Once a return is filed by a non-resident u/s 139 claiming the benefit of DTAA, his assessment would need to be completed under the normal provisions of the Income-tax Act. Thus CIT-DR correctly directed AO to verify the position and tax the income of the freight beneficiary (represented by the respondent-company) from the business of handling cargo transportation (including slot chartering business) as per normal provisions of the IT Act.
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2012 (12) TMI 865
Depreciation on the Uninterrupted Power Supply (“UPS”) - disallowing 80% as UPS is not an energy saving device but instead an energy supply device - Held that:- Legislature in its wisdom has chosen to show an Automatic Voltage Controller’ as an electrical equipment eligible for 100% depreciation, falling under the broader head of energy saving devices. Thus once Legislature deemed that an ‘Automatic Voltage Controller’ is a specie falling within energy saving device, it is not for the AO or CIT(A) to further analyse whether such an Item would indeed an energy saving device. In fact it is beyond their powers.
Whether an UPS is an Automatic Voltage Controller’? - As it is mentioned in the product brochure that the UPS automatically corrected low and high voltage conditions and stepped up low voltage to safe output levels. Thus there cannot be a quarrel that UPS was not doing the job of voltage controlling automatically. Even when it was supplying electricity at the time of power voltage, the outages remained controlled. Therefore a UPS would definitely fall under the head of’ Automatic Voltage Controller’ eligible for claiming 100% depredation on UPS - in favour of assessee.
Disallowance of interest on loan given to subsidiaries - Held that:- Finding substance in the submission of the assessee that no disallowance could be made in respect of the opening balances of loans and advances which were coming from earlier years and in which there were no disallowance as supported by the judgment in case of Sridev Enterprises (1991 (1) TMI 52 - KARNATAKA HIGH COURT) in which it was held that in case loans and advances were being carried forward from earlier years in which there was no disallowance, no disallowance could be made in respect of the opening balance in the current year as the nature and status of the advances on the first day of the current year remained the same as the nature and status of the advances on the last day of preceding year - A categorical finding has been given by the AO that the average interest cost for the AY 2006-07 and 2007-08 are 4.86% and 4.72 % respectively. The assessee had charged @ 6% interest from its subsidiary, therefore, the assessee has charged more interest rate than the average interest rate borne by it on interest bearing funds. Therefore, there is no justification for making any addition - in favour of assessee.
Leave encashment expenses - disallowance on ground of double deduction - Held that:- The assessee had been making the claim earlier on the basis of actuarial valuation but consequent to the amendment of section 438 the claim was being made on payment basis from A.Y.2003-04. AO has made estimated disallowance out of the claim made on payment basis on the ground that part of the payments made may relate to earlier year when these were allowed on actuarial basis. AO has made disallowance on estimate which cannot be sustained. Only the payment which had actually been allowed earlier can be disallowed - as matters require fresh examination and disallowance has to be restricted to the amounts allowed in the earlier year restore the issue to the file of AO for passing a fresh order - in favour of assessee for statistical purposes.
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2012 (12) TMI 864
Rectification under section 154 - whether AO is entitled to invoke Section 154 to correct an assessment order of the appellate authorities based on his opinion that the orders of the CIT (Appeals) and the Tribunal are erroneous and contrary to law - The error was on account of the fact that a decision of the Supreme Court be applied to the case as recorded on 15th January, 1992 and the decision of the Tribunal was dated 3rd December, 1991.
A plain reading of sub-section (1)(1A) of Section 154, makes it clear that the authority passing the order may amend the order. Thus, an order passed by the CIT(A) cannot be amended by the AO and an order passed by the Tribunal cannot be amended by the CIT(A) or the AO. In any event, neither the AO nor the CIT(A) can sit in judgment over the decision of the Tribunal and they cannot correct an order of the Tribunal. In the present case, the Revenue did not challenge the order of the Tribunal. The matter should have ended by the AO implementing the order of the Tribunal. In fact, upon remand, the AO erroneously did not implement the order of the Tribunal. The AO, ultimately, did so only when the CIT(A) by the said order dated 19th March, 1997 directed him to do so, stating that the AO was bound by the judgment of the Tribunal. The Revenue did not challenge this Order of the CIT(A) either. The matter regarding the claim for depreciation stood concluded, as far as the AO, the CIT(A), as well as the Tribunal are concerned. If the Revenue considered the order of the Tribunal incorrect, it was bound to challenge the same in accordance with law. The AO was not entitled suo motu under Section 154 to do so.
AO had not only stated that the Tribunal did not have the benefit of the decision of the Supreme Court as it was rendered earlier, but has taken liberty of criticizing the Tribunal stating that the Tribunal granted depreciation "even though the ITAT was aware that such custom duty was not payable by a subsequent notification by the Govt. of India in 1987." He ought not to have done so - It is not for the AO or for that matter even for this Court to consider whether a decision of the Supreme Court is a correct interpretation of the law or not. Decisions of higher Courts are bound to be followed, irrespective of the personal views of the lower Courts or authorities.
This was a case where an application for rectification was made before the Income-tax Officer who had made the order sought to be rectified. In other words, it was not a case where the respondent sought an order from the Income-tax Officer for rectification of an order passed by the appellate authorities. - Decided against the revenue.
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2012 (12) TMI 863
Deduction u/s 80-IB - disallowance as assessee not engaged in production or manufacture of mineral oil - AY 2002-03 - assessee is a joint venture between HPCL and M/s. Colas SA France - CIT(A) confirmed disallowance - Held that:- The assessee has claimed to manufacture/produce products such as bitumen emulsion, cutback bitumen and modified bitumen using bitumen as raw material. In terms of the Board Circular No. 57 dated 23.3.1971, not only crude petroleum but also the liquid products derived from crude petroleum i.e. motor spirit, kerosene etc. which are in the nature of mixture of hydrocarbons have to be considered as mineral oil. Bitumen is the base material produced on refining of crude petroleum. It has not been examined whether bitumen can be considered as liquid product having viscosity recognized for liquids. If bitumen is not found to be mineral oil then the products produced by assessee using bitumen cannot be considered as mineral oil as these have no connection with the mineral base oil. However, in case bitumen is found to be a mineral oil in terms of the definition given by CBDT in Circular No.57 dated 23.03.1971, it is further required to be seen whether bitumen emulsion, cutback bitumen and modified bitumen produced from bitumen can be considered as mineral oil. These products have been held to be mixture of hydrocarbons in the opinion given by IIT Chennai but it is not clear whether these can be considered as liquid products. Further, in case these products are found to be mineral oil, it is further required to be examined whether these have been produced by refining of mineral oil or otherwise because in case of refining of mineral oil, deduction under section 80IB (9) is available only when the refining begins on or after 1.10.1998. But in case of manufacture or production of mineral oil, deduction is available if commercial production begins on or after 1.4.1997. The assessee has claimed that it is a producer of mineral oil and not refiner of mineral oil which has not been examined.
This is a highly technical area on which we are unable to arrive at any particular conclusion and matter is required to be referred to IIT Chennai, again as it failed to give opinion whether the products were mineral oil, after giving necessary details regarding the raw material, the products produced and process employed. Therefore, send back the issue to the file of CIT(A) for passing fresh order after obtaining expert opinion and after necessary examination - in favour of assessee for statistical purposes.
The assessee admittedly is manufacturing/producing value added products by using bitumen as raw material after applying certain processes. Therefore, it cannot be accepted that the assessee is not an industrial undertaking. The word "undertaking" used in sub-section (9) is a wider term which also includes industrial undertakings. Since the assessee itself has claimed that it is producing commercial products using bitumen as raw material the assessee is to be considered as industrial undertaking. Therefore, the conditions prescribed in section 80IB(2) will be applicable in the case of the assessee.
Assessee had not fulfilled the conditions relating to the minimum engagement of workers and use of new plant and machinery - Held that:- The fact whether new plant and machinery have been used in setting up the unit has to be examined in the year in which unit had been set up and in case in that year assessee used new plant and machinery the claim has to be allowed in all subsequent years in which assessee is eligible. In this case, the assessee had not claimed deduction in the earlier years and therefore, this aspect could not be examined. Since assessee has claimed deduction in assessment year 2002-03 onwards it is required to be examined whether in the year of setting up, assessee had used new plant and machinery. Therefore, restore this issue also to CIT(A) for necessary examination and finding after allowing opportunity of hearing to the assessee.
Disallowed the claim of deduction u/s 80IB to other income such as interest income and foreign exchange gain etc - Held that:- As decided in Liberty India Ltd. v. CIT [2009 (8) TMI 63 - SUPREME COURT] deduction is allowable only in respect of profit having direct nexus with the eligible business. The section does not cover profit from sources beyond first degree in view of the word derived mentioned therein. Profit attributable to business or incidental profit will not be eligible for deduction under section 80IB - The source of interest income is FDR and not the eligible business of the undertaking and therefore FDR pledged for the purpose of business deduction under section 80IB will not be available. The eligibility of foreign exchange gain will depend upon the fact whether foreign exchange gain is in relation to transactions which are integral part of the operation of the eligible business. The eligibility in respect of other items of income details of which have not been given is also required to be examined therefore, restore this issue to the file of CIT(A) for fresh decision
Deduction u/s 35AB - disallowance of deduction claimed of technical know-how fees - assessee had not claimed deduction under section 80IB - petition before CIT under section 264 for claiming deduction - Held that:- AO had allowed the claim u/s 35AB in the original assessment. Subsequently, the assessee filed petition under section 264 before CIT making claim of deduction under section 80IB which the assessee had omitted to make in the original return. CIT in the order dated 12.12.2007 passed under section 264 restored the issue regarding allowability of claim under section 80IB to AO by setting aside assessment order. CIT in the order under section 264 made it clear that while passing fresh assessment, AO shall consider claim of deduction under section 80IB(9). It is thus clear that CIT had set aside the assessment only to consider claim under section 80IB. Assessment had not been set aside to make fresh assessment denovo. CIT under order 264 had no power to pass any order prejudicial to the interest of the assessee denying any claim already allowed to the assessee. Therefore, do not agree with the arguments of the DR that in the fresh assessment proceedings AO could also consider matters in addition to claim of deduction under section 80IB.
Disallowance of deduction u/s 80IB - AY 2003-04 & 2004-05 - Held that:- As the assessee here has not made the claim of deduction in the return of income will be covered under the provisions of sub-section (5) of section 80A inserted by the Finance Act, 2009 w.e.f. assessment year 2003-04, as per which claim of deduction could not be allowed in case assessee failed to make claim in the return of income the disallowance is therefore, confirmed on the legal ground
Disallowance of Deduction u/s 35AB - Held that:- Assessee has incurred the liability on account of technical know how fees in the year of signing the agreement which was before 1.4.98. Normally an expenditure is allowable as deduction in the year in which liability is incurred even if the payment is made later, but in case of technical know-how fees, the deduction has been spread over a period of six years in view of specific provision of section 35AB. And on proper interpretation of the amended provisions of section 35AB, deduction under section 35AB will be allowable even in respect of payments made after 1.4.1998 if the technical know-how has been acquired before 1.4.1998. Therefore hold that deduction will be allowable under section 35AB in respect of payments made after 1.4.1998 as technical know how had been acquired prior to 1.4.1998. The order of CIT(A) is accordingly set aside and the claim of the assessee is allowed.
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2012 (12) TMI 862
Deduction u/s 33AC on insurance claim - the assessee company has reduced the repair charges on account of insurance claim receivable during the year - Held that:- The assessment order reveals that the Assessing Authority has recorded a finding of fact that the assessee did not discharge the onus that lay upon him for producing evidence to prove that such insurance receipt is his business receipt. Also that such insurance receipt is not assessee's business income and, thus, the same does not qualify for deduction under Section 33AC. This finding of fact is not shown to have been challenged by the assessee in appeal before the CIT(A) as he raised two different grounds in appeal before him. Thus CIT(A) is found to have misconstrued the order of the earlier Tribunal
None of the authorities have recorded their satisfaction that the assessee has created adequate reserve and the same does not exceed twice the aggregate of the amount of share capital and assessee having satisfied of conditions as laid down under Section 33AC of the Act, is eligible for deduction in that section. In this view of the matter the matter remitted back to AO for recording a finding of fact as to whether the insurance claim received by the assessee is his profit derived from the business of operation of ships and the same is assessable under the head profits or gains of business or profession or otherwise, it was his other income assessable under the head "income from other sources" - appeal by the revenue stands allowed for statistical purposes.
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2012 (12) TMI 847
Challenging limitation on issuing notice u/s 158BD - Block assessment - Held that:- As per Section 158 BE(2)(b) the period of limitation for completion of block assessment in the case of other person referred to in Section 158BD shall be 2 years from the end of the month in which notice has been served on such other person in respect of the search conducted under Section 132. Therefore, it is obvious that the limitation starts only from the service of notice and not from any point of time prior thereto.
Admittedly, notice in this case was served on the petitioner only by Ext.P6 dated 8.8.2012 and if it is so counted, the proceedings are well within time. This view has been accepted by the Division Bench of this court in Ext.P9 judgment also.
Unexplained or inordinate delay - Proceedings against the petitioner's brother culminated only by Ext.P5 order of the Tribunal rendered on 28.6.2011. If that be so, as held in Ext.P9 judgment itself, proceedings could have been initiated against the other person, viz the petitioner, only thereafter. If that be the case, unable to agree with the counsel that there has been any unexplained or inordinate delay in this case - against assessee.
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2012 (12) TMI 846
TDS on C & F agents - 2.2% under Section 194C OR 22% under Section 194-I - assessee is a well known manufacture of consumer goods such as detergent, soaps etc. hiring godowns on rent and also engages c & f agents - Held that:- What is discernable from the materials on record is that the assessee had rented premises from their landlords. Payments of rent were made after deducting the tax in terms of Section 194-I. What the assessee paid to the c & f agents as warehousing charges was the consideration in terms of the agreement which was tax deductible under Section 194C at 2.2.%. In this factual background it was for the revenue to have established how Section 194-I could be attracted to the amounts or charges paid to the c & f agents in terms of the agreements.
No infirmity in the findings of the CIT(Appeals) as endorsed by the ITAT that Section 194-I can only be applied when the immovable properties are let out & none of the heads of payments made to C & F Agents by the assessee is a head of payment by way of rent - in favour of assessee.
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2012 (12) TMI 845
Unexplained credit - share application money from 9 applicants - CIT (A) opined that the assessee had discharged the basic onus cast upon it after considering the ruling in Lovely Exports [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - Held that:- While there can be no doubt that in Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA) the Court indicated the rule of “shifting onus” i.e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the Revenue in the natural course of assessment proceedings. The information that assessee furnishes would have to be credible and at the same time verifiable.
In this case, 5 share applicants could not be served as the notices were returned unserved. In the backdrop of this circumstance, the assessee's ability to secure documents such as income tax returns of the share applicants as well as bank account particulars would itself give rise to a circumstance which the AO in this case proceeded to draw inferences from. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. Having regard to the totality of the facts, i.e., that the assessee commenced its business and immediately sought to infuse share capital at a premium ranging between Rs.90-190 per share and was able to garner a colossal amount of Rs.4.34 Crores, this Court is of the opinion that the CIT (Appeals) and the ITAT fell into error in holding that AO could not have added back the said amount under Section 68 - The question of law consequently is answered in favour of the Revenue.
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2012 (12) TMI 844
Registration under Section 12A - Ext.P3 communication requiring the petitioner to rectify the defects - non-compliance of Ext.P3 thus Ext.P2 application for registration rejected - registration u/s 12A for the year 2010-2011 granted as per Ext.P8 - petitioner's request for restoration of Ext.P2 application - Held that:- Ext.P9 judgment has attained finality wherein it has been specifically found that Ext.P2 application was not pending. It was therefore that the petitioner sought restoration of Ext.P2. That request was considered by this Court and in Ext.P10 order, it was directed that the petitioner can seek restoration and the same will be considered if permissible in law.
The authority has held in Ext.P11, that such a request is not permissible. The correctness of this conclusion of the respondent will depend upon the provisions of Section 12A of the Income Tax Act. Having gone through this statutory provision, it is unable to find any authority for the respondent to restore an application under Section 12A once rejected. If that be so, it is not permissible to restore an application and if so, the conclusion in Exts.P11 and P13 that the petitioner's request for restoration of Ext.P2 application is impermissible, cannot be said to be faulted. In that view of the matter, no tenable grounds justifying interference in the impugned orders.
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2012 (12) TMI 843
Seeking return of documents seized as per Exts.P1 to P3 mahazars - search under Section 132 - Held that:- Books of account or other documents that may be seized under an authorisation issued u/s 132(1) can be retained by the authorised officer or the concerned ITO for a period of 180 days from the date of seizure, whereafter the person from whose custody such books or documents have been seized or the person to whom such books or documents belong becomes entitled to the return of the same unless the reasons for any extended retention are recorded in writing by the authorized officer/the concerned ITO and approval of the Commissioner for such retention is obtained.
Sub-section (10) of 132 confers upon the person legally entitled to the return of the seized books and documents a right to object to the approval given by the Commissioner under sub-section (8) by making an application to the Central Board stating therein the reasons for such objection and under sub-section (12) it is provided that the Central Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. Thus the scheme of sub-sections (8), (10) and (12) of Section 132 makes it amply clear that there is a statutory obligation on the Revenue to communicate to the person concerned not merely the Commissioner's approval but the recorded reasons on which the same has been obtained and that such communication must be made as expeditiously as possible after the passing of the order of approval by the Commissioner and in default of such expeditious communication any further retention of the seized books or documents would become invalid and unlawful.
In this case even the respondents have no case that Exts.R1(a) or (b) were communicated to the assessee. If that be so, the requirement of Section 132(8) is not satisfied and in which event, the retention of the documents beyond 30 days period of completion of the assessment was illegal. For that reason, the petitioner is entitled to succeed - writ petition disposed of directing the respondents to return the documents seized from the petitioner under Exts.P1 to P3 mahazars within four weeks of receipt of a copy of this judgment.
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2012 (12) TMI 842
Deemed dividend u/s 2(22)(e) - reopening of assessment after expiry of four years - assessee had not furnished share holding pattern in respect of ITL Industries Ltd. for assessment year 2002-03 - Held that:- The assessee had let out the properties to M/s. ITL Industries Ltd. in the FY 2000-01 on deposit of Rs.95,68,938/- and monthly rent of Rs.1.5 lacs & vide letter dated 15.3.2001 had requested ITL Industries to increase deposit to Rs.2.00 crores and not to pay any rent during financial year 2001-02. It is clear from records that the assessee was in need of substantial funds for setting up of new project for which assessee was looking for funds from other parties as per its own submission. Money received from ITL Industries Ltd. is obviously of the nature of loans/advances and not deposit and, therefore, amount can not be considered as deposit merely on the ground that the same has been described as deposit in the balance sheet or in correspondence with ITL Industries Ltd. which is a group concern of the assessee. The argument of assessee rejected that he had received deposit and not loan/advances and hold that the assessee had received loan/advances during the year which are covered by the provisions of section 2(22)(e).
The exception from the provisions of section 2(22)(e) is available if the money is advanced in the normal course of business of the company advancing the money. There is no provision for exemption on the ground that the money received has been used by the shareholder in its business. In the present case, there is no material to show that ITL Industries Ltd. advanced the money in the normal course of its business.
As decided in CIT vs. V. Damodaran [1979 (10) TMI 5 - SUPREME COURT] & M.B. Stock Holding Pvt. Ltd. vs. ACIT [2001 (12) TMI 190 - ITAT AHMEDABAD-B] that business profit of the company accrued only at the end of the year and, therefore, current year business profit are not to be included in the accumulated profit relying on cases as submiited by assessee as no contrary decision of any High Court or Apex Court has been brought to notice by the DR section 2(22)(e) has to be applied only to loan/advances received during the year which was Rs.1,04,31,062/-.
The opening balance of Rs.95,68,938/- was in fact not loan/advance but deposit given in connection with letting out of the properties in financial year 2000-01 and therefore, in the earlier year, no addition was required to be made under section 2(22)(e). Therefore, the accumulated profit of Rs.97,91,884/- till 31.3.2001 could not be adjusted against the said deposit in assessment year 2001-02 & will be available for addition u/s 2(22)(e) in respect of loan/advances of Rs.1,04,31,062/- received during the assessment year 2002-03.
The argument of the assessee that out of the accumulated profit of Rs.97,91,884/-, sum of Rs.95,68,938/- has to be adjusted against deemed dividend in assessment year 2001-02 cannot be accepted as the said amount was deposit and provisions of section 2(22)(e) could not be applied in assessment year 2001-02. Therefore, in assessment year 2002-03 addition has to be made up to accumulated profit till 31.3.2001 which was Rs.97,91,884/- appeal of the assessee partly allowed.
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2012 (12) TMI 841
Disallowance of motor car expenses – Depreciation on motor car – Expense in relation to personal usage of car – Held that:- Since assessee is not maintaining any log book and, therefore, there is no proof that the car has been used only for the purpose of business. The estimate disallowance of such expenses @5% is justified. In favour of revenue
Estimate disallowance out of telephone expenses – Mobile expense for personal usage – Held that:- Personal usages of telephone/mobile is quite common and cannot be ruled out and in the absence of full details of call records etc., it is not established that these have been used only for the purpose of business. Therefore, the estimated disallowance is justified. In favour of revenue
Estimate disallowance of expenses - Business promotion expenses - Conveyance expenses - Miscellaneous expenses - Office expenses - AO had disallowed 20% of such expenses on estimate which has been reduced by the CIT(A) to 10% - Held that:- The case of the assessee is that the nature of many of the expenses under these heads is such that no proper vouchers are possible. We agree that it may not be possible to have proper evidence in respect of conveyance and miscellaneous expenses etc, but since the expenses are not supported by the proper evidence, the estimated disallowance of such expenses is justified. The estimate disallowance of Rs. 50,000/- out of these expenses will meet the ends of justice. Partly allowed in favour of assessee
Nature of income - Sale and purchase of shares – Investment activity or trading activity - Capital gain or business income – Held that:- All delivery based shares cannot be treated as an investment activity. Some shares have also been sold after a short duration of holding. Thus most of the transactions are speculative in nature. The share transactions from which the assessee has shown short term capital gain were of the nature of trading activity of the assessee. In favour of assessee
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2012 (12) TMI 840
Disallowance of lease rent – lease of plant & machinery used for business – Hire purchase - AO has allowed such deduction for the previous and subsequent assessment years – AO on the ground that machinery would become the property of the Lessee even though there is no agreement to that effect and ownership remains with the Lessor - Held that:- As concluding from the facts of the case that books of Lessor and taken into account as income of the Lessor and paid tax thereon. There is no material placed on record to show that the transaction is that of hire purchase and not lease agreement. The Revenue has not denied that it did not allow such deduction for the previous years and subsequent year of assessment year in question. AO has disallowed the deduction only for the A.Y 1997-98. Following the decision in case of S. A. BUILDERS LTD. (2006 (12) TMI 82 - SUPREME COURT) appeal decides in favour of assessee
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