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Income Tax - Case Laws
Showing 261 to 280 of 743 Records
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2012 (9) TMI 797 - ITAT DELHI
Addition u/s 68 - Share application money – addition made on ground that though Share applicants are assessees but their level of income is not sufficient enough to make investments in the company, moreover they are first time assessee – Held that:- CIT(A) has deleted the addition on the basis that applicants are long time assessees and they might have taken some loans from family members for making investment into the company which does not seem to be correct as there is no evidence of old income tax return or statement of share applicants that they had taken loans from some family members for investment into the company.
However in view of decision in case of CIT v. Lovely Exports Pvt. Ltd.(2008 (1) TMI 575 - SUPREME COURT OF INDIA ) wherein it was held that if the names & addresses and confirmation from shareholders has been provided by the company to the AO then the share application money cannot be added in the income of the company u/s 68 and instead the Department is free to reopen the assessment of such individual in accordance with law, we do not see any reason to interfere in the order of CIT(A). Yet, it is opined that the individual assessments of the alleged shareholders should be reopened and in view of that Department is directed to issue instructions to all jurisdictional AO to reopen the individual cases of all shareholders as listed by AO – Decided against Revenue
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2012 (9) TMI 796 - ITAT MUMBAI
Deduction u/s 54EC - assessee entered into a development agreement in respect of jointly owned property with developer - sale proceeds arising out of the transfer of capital asset, was invested in specified bonds and exemption u/s 54EC was claimed - denial on ground that last payment of instalment received in pursuance of development agreement dated 21.9.2002, received on 28.3.2003 through cheque (returned back and redeposited on 16.4.2003) and the investment in the specified bond was made on 21.4.2003 and 26.4.2003, which falls beyond the period of six months, hence, not eligible for deduction u/s. 54EC - Held that:- Benefit of exemption intended in this section can only be given, unless and until the assessee receives the payment from transfer of a capital asset, otherwise it cannot be expected from an assessee to invest the same within the period prescribed. It will frustrate the entire purpose and spirit of the section itself.
Looking to this hardship in a similar situation, the CBDT vide circular No.791 dated 26.2.2000 has clarified that such an investment can be made within the period of six months from the date of receiving of money from transfer of capital asset. Assessee’s claim for exemption u/s 54EC from capital gains, is allowed - Decided in favor of assessee.
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2012 (9) TMI 795 - ITAT MUMBAI
Penalty u/s 271(1)(c) - assessee having income from commission/service charges from direct marketing/selling agency of ICICI Bank Ltd. on car loan sanctioned through it - dis-allowance of commission paid to sub brokers on ground of non-confirmation and encashment by assessee of cheques issued by ICICI in favor of sub-brokers - Held that:- Out of the payment of commission of Rs.35.65 lacs, only sum of Rs.1.73 lacs has been disallowed on the ground that addresses and confirmations could not be submitted. Assessee explained that it was only in some of the cases, where sub-brokers were reluctant to encash the bearer cheques, the assessee has assisted them in the bank at the time of encashment. Further, in most of the cases, it has been encashed by sub-brokers which are verifiable by the bank itself. Thus, the explanation of the assessee cannot be brushed aside as it carries some probability looking to the fact that huge amount of commission paid has already been accepted.
Also, AO has not carried out any enquiry or has brought any material on record to show that payments were bogus. The explanations offered by the assessee have not been found to be false. Therefore, penalty for concealment of the income u/s 271(1)(c), cannot be levied and same is deleted - Decided in favor of assessee
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2012 (9) TMI 794 - ITAT MUMBAI
Addition under the head “income from house property’ - assessee contended that shops were the commercial asset of the appellant, and since no rent was received, there was no question of determining the notional income and taxing the same under aforesaid head - Held that:- For determination of ALV u/s 23(1), AO has first to find out the reasonable expected rent which the property might fetch by letting out from year to year and then this reasonable expected rent has to be compared with the annual rent received or receivable. In the case in hand, when the property was never let out, than the AO has to consider all the relevant factors including the standard rent, if any as determined under the provisions of Rent Control Act or Municipal Rateable Value of the property for computing the Annual Letting Value. Since no such exercise was carried out, matter restored back
Long term capital loss - computation at reduced figure in comparison to computation of assessee - AO denied the claim of expenditure incurred by the assessee on the improvement of the property - Held that:- Since it is not clear from the records that whether the assessee has capitalised the cost of improvement and shown in the balance sheet for the respective assessment years; therefore, in the interest of Justice, we remit this issue to the record of the AO for deciding the same afresh after considering the aspect of capitalisation of the expenditure incurred on the improvement, stamp duty and interest etc
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2012 (9) TMI 793 - ITAT MUMBAI
Profit arising out of purchase and sale of shares as well as units of mutual fund through Portfolio Management Services - Business income or Capital Gains - AY 03-04 - assessee showed it as business income in return, however during the course of assessment proceedings, claimed it to be capital gains - whether head of income can be changed without filing of revised return - Held that:- Merely because assessee claimed an income under the head ‘business income’ but is to be assessed under the law under another head cannot be rejected only on the ground that no revised return has been filed. AO has to decide the assessability of income under correct head on the basis of the facts and as per provisions of I.T.Act. It is a legal ground and the same could be considered by CIT(A) on the basis of the facts and as per provisions of law. Non-filing of the revised return of income should not come in the way if all the relevant facts are available on record.
On perusal of the contents of the agreement, it is observed that assessee has placed funds with PMS to make investment in shares/mutual funds and not with a view to do trade. Assessee also made direct investments in shares and there was short term capital gain and long term capital gain being accepted by department. Considering the scheme of Portfolio Management, it is observed that investments made by the assessee through PMS is meant for maximization of wealth and not with a view to do trade in purchase and sale of shares. Further, department has not disputed the fact that the Portfolio Manager have the sole and absolute discretion to make the investments for and on behalf of the assessee and the assessee has no role to play on the same. The assessee has not taken any borrowing for making investments for placing its funds with Portfolio Manager.
Very nature of PMS is such that investments made by the assessee cannot be said to be scheme of trading of shares and stocks and, accordingly, the profit is to be assessed under the head ‘capital gains’ - Decided in favor of assessee
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2012 (9) TMI 792 - ITAT MUMBAI
Addition on account of unexplained cash credit - deposit in bank - search and seizure operation conducted u/s 132(1) in the case of S.K.S. Ispat Group including the directors of different associates and sister concern as well as in assessee’s own case - assessee being supporting staff of one of the company was also registered as director in few concerns of the group - assessee contended that said amount was received on behalf of Samardhan Securities and the same has been given back to them - Held that:- It is observed that assessee has established the identity of the party by submitting the PAN, Election Card, I–Card, etc. Bank statement, confirmation of account and confirmation regarding receipt and payment of the aforesaid amount. Since said sum was given back also; and that too through banking channels, hence, the assessee has proved the genuineness of the transaction also. CIT(A) rightly deleted the addition on observation that genuineness of the transaction cannot be doubted as the amount has been re–paid on the same day or within a fortnight of receiving the same - Decided against Revenue.
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2012 (9) TMI 791 - ITAT MUMBAI
Addition u/s 68 on account of cash deposited in banks - assessee engaged in the wedding card business had also purchased and sold shares - addition made on ground that gross receipts of the assessee from Wedding card business, consultancy charges, interest and dividend etc. were to the tune of Rs.7.17 lacs but there were deposit of Rs.46.81 lacs in the two bank accounts of the assessee which were not explained satisfactorily - Held that:- Explanation of assessee that source of funds is from sale of shares, out of which a sum of Rs 1.48 lacs was shown by assessee as short term capital gain and Rs.39.67 as long term capital gain was not accepted by AO on ground that assessee had not given details and evidence regarding date of purchase, purchase price etc. Case of the assessee is that assessee could not furnish details and evidence in relation to shares as documents were lost in the unprecedented floods on 26.7.2005. Contracts notes now produced are admitted as additional evidence to meet the ends of justice. The matter is thus restored to CIT(A). Matter in relation to addition on account of unexplained cash and addition on account of loans is also restored to file of CIT(A) - Appeal allowed for statistical purposes.
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2012 (9) TMI 790 - ITAT, MUMBAI
Disallowance u/s 14A – Assessee is a Bank – AO disallow 0.5% of average of investment yielding tax free income - Assessee contended that the same cannot exceed the proportionate expenditure incurred by the treasury department and amount relating to tax free income proportionately arrived at based on exempt income to total income amounts to ₹ 15,76,875 – Held that:- As the disallowance is to be made on a reasonable basis. Assessee have not shown any working on the disallowance, and how they arrived at figure of ₹ 15,76,875 and why 0.5% of average of investment yielding tax free income was excessive. Issue remand back to AO.
Disallowance of Prior Period expense – The expenditure stated as relating to prior period consisted of rent, electricity charges, payment to R & T agents, repairs etc – Held that:- Following the decision in case of Union Bank of India (2012 (6) TMI 500 - ITAT MUMBAI), even though they are treated technically as prior period expenses, it relates to a continuous flow of expenditure. Therefore, there is no justification in disallowing the expenditure, otherwise normally eligible for deduction. Issue decided in favour of assessee
Disallowance of Lease premium expenses – Assessee claim lease premium as revenue expenditure – Following the decision in case of Mukund Limited(2007 (2) TMI 358 - ITAT MUMBAI), the claim of expenses made by the assessee have been treated as capital in nature and hence cannot be allowed. Issue decide in favour of revenue
Disallowance of claim of Bad debts – AO hold that the bad debt is allowable only if it is irrecoverable and is actually written off in the books of accounts – Held that:- Following the decision in case of Vijaya Bank(2010 (4) TMI 46 - SUPREME COURT) debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee has correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance-sheet, and, consequently at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance-sheet is shown as net of the provision for “impugned bad debt”, the assessee will be entitled to the benefit of deduction under section 36(1)(vii), as there is an actual write off by the assessee in his books. Disallowance cannot be made on an apprehension that if the assessee failed to close each and every individual account of its debtor, it may result in the assessee claiming deduction twice over”, allowed the appeal of the assessee, allowing the claim of bad debts. Issue decides in favour of assessee
Income from foreign branches – Assessee excluded the income from foreign branches as per provision of DTAA – AO denied the benefit of foreign except branches at Singapore and Japan – Held that:- In all the foreign countries the operation is carried out through its branches which is a PE situated outside India. Hence the income attributable to these branches cannot be taxed in India. Therefore, consistent with the earlier finding of the Tribunal in assessee’s own case for the earlier years case, we do not see any merit in the ground taken by the Revenue. Therefore issue decides in favour of assessee
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2012 (9) TMI 789 - ITAT, BANGALORE
Capital Gain - Cost Inflation index - while computing indexed cost of acquisition under head capital gain, Cost inflation index is used for which year FY of possession of property acquired or FY of registration of property - Assessee went on to claim that he was put in the possession of the property in the FY 1998-99 and the indexed cost of acquisition claimed by her effective from the FY 1998-99 – Whereas property was register in name of assessee in 2000-01 – Held that:- As the above sale deed makes it abundantly clear that the assessee was actually put in possession of the subject property only in year 2001 and not in the FY 1998-99 itself as claimed by the assessee. In essence, the subject property was transferred and the assessee was put in possession of the said asset only on in year 2001. Appeal decides in favour of revenue
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2012 (9) TMI 788 - ITAT, PUNE
Ad-hoc addition on account of variation in the yield and higher wastage in comparison to previous years – Assessee was engage in business of manufacturing and trading of Printed Circuit Boards – Products are manufactured as per specification of customers - Held that:- As the generation of wastage on cutting of large copper clad laminates into smaller pieces of PCBs which are of different sizes as per the requirements of the customers. The manufacturing process involves some wastage and no addition was made in the past on account of such low yield and also the addition has been made by AO on the basis of presumptions. Appeal decides in favour of assessee.
Ad-hoc disallowance on account of carriage inward/outward – AO found that some of these expenses are not fully supported with proper evidences - Vouchers since certain vouchers are of self-made – Held that:- Since neither the details in respect of carriage inward/outward was submitted nor any evidence was produced or claim made about the genuinuity of self-made vouchers questioned by the Assessing Officer could not be controverted by the assessee. Restrict the disallowance upto 50% of disallowed amount.
Addition on account of Bad debts – AO disallow the same on the basis of that the assessee had not taken any steps to recover the bad debts – Held that:- As the assessee submitted that these are really not bad debts but various outstandings on account of sales which should have been reversed. Issue remand back to AO.
Disallowance on account of stipend to trainees - Training was given at the factory premises by the Senior Member of the factory - AO noted that no statistical data, no dates of training, no agenda of the training, no venue of the training are submitted – Held that:- As concluded from the facts of the case addition made by the AO on the ground that such huge expenditure under the head “stipend” does not look justified. Merely because the disallowance is a small percentage of the total expenditure cannot be a ground for sustaining the addition. If the claim is bogus, the entire amount has to be disallowed and if not bogus the whole amount should be allowed as deduction but no adhoc addition can be made on the basis of presumptions and surmises. Therefore disallowance of stipend is not justified. Decision in favour of assessee
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2012 (9) TMI 787 - ITAT, PUNE
Taxability of profit on sale of shares as capital gain or business income – AO contended that there were several purchases and sale transactions of shares during the year and treat profit derived as business income – Held that:- As the assessee had shown the shares as investment in the balance sheet and in some cases the shares have been held fairly for a longer period. The AO in the past has accepted the profit on sale of shares as capital gain. And during the impugned AY a part of the profit on sale of shares has been accepted as LTCG. Rule of consistency will be applicable to the facts of the present case and the profit on sale of shares in our opinion should be treated as “Short term capital gain”. Appeal decides in favour of assessee
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2012 (9) TMI 786 - ITAT, CHENNAI
Deduction under section 80HHC – AO compute turnover on pro-rata basis. The assessee has two separate business divisions - For both the divisions separate books of accounts are being maintained – Held that:- The assessee had rightly claimed deduction u/s 80HHC only in respect of business profits of export division. Where the assessee had maintained separate accounts and maintained trading receipts and profit and loss account separately for export sales and domestic sales and had produced sufficient material in support of the claim there is no warrant for disallowing any portion of export earnings pro rata by invoking the provisions of Sec. 80HHC(3)(b). Therefore assessee is entitled to deduction u/s 80HHC on the income of export division only. Appeal decides in favour of assessee
Depreciation on P&M - Windmill was ready to use as the same was commissioned on 30.03.2004 - TNEB issued a certificate on 30.03.2004 certifying the commissioning and connection of the windmill – AO contended that the said windmill did not generate a single unit of energy till the end of the FY i.e. 31.03.2004 - Held that:- Following the decision in case of Orchid Chemicals (2012 (3) TMI 551 - ITAT CHENNAI), it is beyond any dispute that it has been officially recognized by the competent authority that the commissioning of the generators was completed in the impugned assessment year itself. This is the condition which is to be satisfied to claim depreciation on the windmill. Once the said condition is satisfied, the question of actual generation of electricity, perhaps in the next previous year, does not defeat the claim of the assesse, as the assessee is entitled for depreciation on commissioning itself. Therefore, assessee is entitled for depreciation. Appeal decides in favour of assessee.
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2012 (9) TMI 775 - SUPREME COURT
Penalty u/s 271(1)(c) - assessee providing multi-disciplinary management consultancy services and having worldwide reputation - claimed deduction of provision towards payment of gratuity in its return of income, when the same was not allowable as provision towards payment of gratuity was not allowable as per Statement of Particulars filed by the assessee in Form 3CD - assessee contended it to be genuine mistake - Held that:- Contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make.
The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. Absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. Imposition of penalty on the assessee is not justified - Decided in favor of assessee
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2012 (9) TMI 774 - ITAT, BANGALORE
Disallowance of amortization of premium on investment in government securities - Invest surplus fund in Government Securities as per RBI guidelines – Though purchase made from open market at premium – Premium was written off as depreciation of value of securities – Held that:- Following the decision in case of Catholic Syrian Bank Ltd (2009 (8) TMI 858 - ITAT COCHIN), taking into account the totality of the facts and materials, assessee is entitled to claim this deduction. Decision in favour of assessee
Disallowance the claim of bad debts – AO disallow the amount of claim for doubtful debts in excess of provision for doubtful debts provided in P&L – Held that:- As the provision for bad and doubtful debts equal to the amount mentioned in the section is a must for claiming such deduction. An amount of ₹ 36 lakhs is debited to the P&L account under the head "Provision for bad and doubtful debts" and however, the assessee had claimed deduction of ₹ 42,52,319- while computing the taxable income. Therefore appeal decides in favour of revenue
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2012 (9) TMI 769 - ITAT MUMBAI
Exemption u/s 54 - capital gain earned from sale of house property - assessee's contention that that tenancy right was perpetual and assessee was therefore deemed owner of the property - Held that:- Under the provisions of section 54 exemption of capital gain is available in respect of transfer of residential house owned by the assessee. The purpose of the section is to grant exemption in case the assessee acquires a new residential house by investing the capital gain as an owner. It is because of this reason, the words used in section 54 are "purchase" or "construction" of a new residential house. The requirement of section is not that assessee may acquire a new residential house by any other mode.
As decided in CIT v. T.N. Arvinda Reddy [1979 (10) TMI 1 - SUPREME COURT] the word "purchase" appearing in section 54(1) has to be given its common meaning i.e. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Thus, for application of provisions of section 54, the assessee has to buy a property as an owner and not as tenant.
In case of doubt or ambiguity, benefit of it must go to the State. Thus following the said judgment, therefore, even if there is some ambiguity in the provision, the same has to be interpreted in favour of the revenue because it is an exemption provision. In the present case, there is no ambiguity. The provision refers to purchase or construction of a new residential house and it is quite obvious that the same should be as an owner and not as perpetual tenant - against assessee.
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2012 (9) TMI 768 - ITAT KOLKATA
Computation of long term capital gains - dubious method of declaration and payment of dividend to avoid payment of tax on LTCG by the assessee - Held that:- It is important to bear in mind uncontroverted claim of the assessee that there were sufficient reserves and surplus, which were eligible for distribution as 'dividend', and the NIPL had sufficient cash balances as well. The nature of amounts distributed as dividend has not been altered as a result of, what the revenue authorities describe as, colourable device to evade taxes.
As decided in Azadi Bachao Andolan's case(2003 (10) TMI 5 - SUPREME COURT) "nowhere said that every action or inaction on the part of the taxpayer which results in reduction of tax liability to which he may be subjected in future, is to be viewed with suspicion and be treated as a device for avoidance of tax irrespective of legitimacy or genuineness of the act". - Undoubtedly, the course adopted by the assessee was tax advantageous inasmuch as if NIPL, assessee's wholly owned subsidiary, was not to distribute dividend and sell the shares without this exercise, the tax outgo would have been ₹ 94 lakhs more than under the present arrangement, but then every tax advantageous action or inaction cannot be treated as a colourable device unless such an action or inaction is not bonafide, it conceals the true nature of transaction or is an exercise without any commercial justification. Thus distribution of dividend by NIPL, prior to sale of its shares by the assessee, even though tax advantageous cannot be termed as a colourable device or sham transaction and the receipt of these dividends cannot be recharacterized as sale consideration of shares in the hands of the assessee - in favour of assessee.
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2012 (9) TMI 767 - DELHI HIGH COURT
Change of opinion - Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment - Held that:- As decided in CIT Versus Kelvinator Of India Limited [2002 (4) TMI 37 - DELHI HIGH COURT] an assessment order passed under section 143(3) must be presumed to be one passed after full scrutiny and formation of opinion on the points raised in the return and in the course of the assessment proceedings. It has been observed that section 114(e) of the Evidence Act comes into operation and it must be presumed that the AO had performed his duty in the manner expected of him, that is, after examining and forming an opinion on all aspects of the return, though he has not been articulate about it in the assessment order. It has also been held that if such a presumption is not drawn, that would amount to putting a premium on a perfunctory discharge of duties by the assessing authority and permitting him to take advantage of his own wrong.
The first proviso to section 147 can be resorted to only if the assessee has not discharged the duty. Where the assessee has discharged his duty and the assessment completed under section 143 (3) is reopened within the period of 4 years from the end of the assessment year, the assessing officer has to either show that the disclosure is not full and true or he has come into possession of some "tangible material", to borrow with respect the expression used by the Supreme Court in Kelvinator (supra), to come to the conclusion that there is escapement of income. The material must have a live link with the formation of the belief regarding escapement of income. When there is no failure on the part of the assessee to furnish full and true particulars and there is no tangible material on the basis of which the assessing officer can allege escapement of income, the only consequence would be that the assessing officer was exercising the power of review on the very same materials which he is presumed to have examined. This would amount to abuse of the power to re-assess and has to be checked.
When the assessing officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion, notwithstanding that the assessee had made a full and true disclosure and notwithstanding that the assessment was completed under section 143 (3) and to further hold that it would be a case of "no opinion", would be to fly in the teeth of the two rulings. It is not even open to the revenue to urge such a proposition - Thus the assessment proceedings cannot be validly reopened under section 147 even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3), thus the issue is concluded by the judgment of the Full Bench of this court in Kelvinator (supra).
So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed under section 143(3) it matters little that the assessing officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Again the answer to this question stands concluded by the judgment of the Full Bench of this court in Kelvinator (supra). It is that section 114(e) of the Evidence Act can be applied to an assessment order framed under section 143(3) provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion.
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2012 (9) TMI 766 - ITAT DELHI
Transfer pricing ('TP') adjustment u/s 92CA(3) - as assessee performs the functions of a risk bearing agent and therefore, cost plus PLI adopted by the assessee for ALP determination is not the most appropriate - Held that:- No supporting material has been brought on record that assessee GIS India has borne any business risks arising from its activities with GAP USA. There are no adverse facts, material or evidence on the basis whereof Ld. TPO has made arrived at such a conclusion. The TPO has not given any examples or comparables whatsoever to demonstrate which major business risks much less any risk are borne by GIS India and how. In a sweeping manner it has been held that as functions follow risks, and since, in his wisdom GIS India undertakes key functions, therefore it must also be bearing the consequent risks. The observation is flawed as from the handbook and guidelines it clearly emerges that assessee had no wisdom or discretion in these terms.
As it is common trend in garment that goods are generally supplied on credit based which the suppliers have to extend to GAP, USA entities and assessee bears no risk. The assessee' role, functions and activities are limited to scrupulously follow the handbook and other instructions provided by the parent group. These facts and circumstances indicate lack of authority or discretion with assessee in deviating or changing from the policies and procedures prescribed by the parent company. Therefore, it is unable to be agreed with the view that assessee incurred any significant risk in its functions.
Development of substantial human resources intangibles by assessee - Held that:- There is no supporting material available on record to hold it against assessee. Except generalized assertions nothing reliable is placed on record to support these observations - Assessee had 230 employees on its payroll engaged in execution of preordained support nature activities as per the guidelines. Department has failed to demonstrate that any or few of employees were any acclaimed personalities or indispensable in garment procurement trade so as to constitute any human intangibles as alleged. With no decision making or entrepreneurial role embedded in their work profiles, it is not clear how the TPO or DRP can arrive at such a conclusion that these routine activities led to creation/development of any valuable supply chain or human asset.
TPO has theoretically relied on a Hindustan Times news paper report published in 2008 in respect of cost of procurement services in various countries which is not acceptable as this news paper report by itself cannot partake the character of a comparable data - Location savings to developing economy arise to the industry as a whole, there is nothing on record that assessee on standalone basis was sole beneficiary - The intent of sourcing from low cost countries for a manufacturer/retailer is to survive in stiff competition by providing a lower cost to its end-customers the advantage of location savings is passed onto the end-customer via a competitive sales strategy. The arm's length principle requires benchmarking to be done with comparables in the jurisdiction of tested party and the location savings, if any, would be reflected in the profitability earned by comparables which are used for benchmarking the international transactions. Thus no separate/additional allocation is called for on account of location savings.
Transactional Net Margin method ('TNMM') - use of Net Profit/Total Cost OR percentage of FOB value of goods procured by parent as PLI - Held that:- All the significant directions relating to procurement of goods from third party vendors in India, namely – (a) designs & trends of apparel (b) quality parameters of materials (c) terms & conditions for dealing with vendors, etc, are all provided by GAP US to the appellant through the voluminous vendor handbook & other correspondences which are placed on record and have not been controverted by the department. It emerges that assessee follows and executes them as a service provider. For such preordained support services, the assessee cannot be held to be entitled to remuneration in terms of Li & Fung case [2011 (9) TMI 204 - ITAT, NEW DELHI] on FOB value of goods procured by GAP US from third party vendors in India. In the case of Li & Fung India, assessee actually carried out significantly value added functions in India, which is not the case - thus the appropriate PLI will be net profit/total cost and not the % of FOB value of goods sourced by AE
Looking at the sweeping observations of the TPO and DRP which are neither based on any cogent reasoning nor factual reliability, the assessments as framed give an impression of being work of adversarial approach in tax liability determination - No hesitation to accept a candid proposal given by the assessee and hold that assessee TP adjustments be made by adopting the 32% cost plus mark up of the assessee for AY 2006-07 and 2007-08. The mark-up proposal of assessee is higher than mark-up over total cost earned by all comparables placed on record. The assessments should be framed accordingly.
Depreciation on computer peripherals, printers and UPS @ 15% instead of 60% as allowable under the Income Tax Rules - Held that:- Rate of depreciation it is by now settled that the computer peripherals are eligible for 60% depreciation which should be allowed to the assessee.
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2012 (9) TMI 765 - SUPREME COURT
Deduction u/s 37(1) - welfare expenses towards providing education to its employees' children & Payments to other educational institutions where the children of its employees were studying- Held that:- From the assessment order for AY 1985-1986 and from the Order of CIT (A) that the assessee has made payments to schools other than Sandur Residential School and Sandur Education Society, which fact has not been discussed either in the Order of ITAT or in the Order of the High Court.
The interpretation of Section 40A(9) clearly brings out a dichotomy between 'contribution' and 'reimbursement' - Section 40A(9) was inserted as a measure for combating tax avoidance - In the present case how the ITAT and the High Court have come to the conclusion that these payments made by the assessee constituted reimbursement. As for the AY 1985-1986, the AO records that an amount of Rs. 11,40,641/- has been incurred by payments to other educational institutions and not by way of payments made to school or the society promoted by the assessee. For each assessment year, therefore, the ITAT will have to record a separate finding as to whether the claim for deduction is being made for payments to the school promoted by the assessee or to some other educational institutions/schools and thereafter apply Section 40A(9) which has not been done in the present case - in favour of assessee.
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2012 (9) TMI 764 - ITAT DELHI
Interest paid on optionally convertible debenture - CIT(A) deleted the disallowance - Held that:- There was no contingency involved in the accrual of liability with reference to the interest on the debentures. CIT (A) has rightly observed that debentures, whether fully or partly or optionally convertible, are nothing but debt till the date of conversion and any interest paid on these debentures is allowable as normal business expenditure.
The only uncertainty in the optionally convertible debentures issued by the assessee is whether the debenture holder will go for conversion into shares or will continue to hold them as debentures. CIT (A) has rightly held that this uncertainty in no way impacts the assessee company's liability to pay interest till the date of conversion - in favour of assessee.
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