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Income Tax - Case Laws
Showing 421 to 440 of 503 Records
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2013 (1) TMI 185 - ITAT MUMBAI
Payments to private parties liable to TDS - Non business expenditure - addition by AO as said sum of Rs.18.79 crores was not expended wholly and exclusively for the purposes business - CIT(A) deleted the addition - assessee’s claim of reimbursement of the said amount from its clients - Held that:- Assessee received the said payment of Rs.18,79,38,741 on account of reimbursement of expenses from its clients apart from agency commission and the agency commission has been considered as assessee’s income and the same is reflected in its profit and loss account. Assessee has adjusted reimbursement of the expenses received on behalf of its clients and, therefore, agreeing that the same do not constitute part of assessee’s income. As decided in Jay Kay Freighters Pvt Ltd (2013 (1) TMI 167 - ITAT NEW DELHI) that the amount mentioned in the bill raised by shipping companies on ultimate consumer were initially paid by the assessee and, thereafter assessee got reimbursed the said amount from its client including the charges of the assessee for service rendered. Therefore, assessee was not a person responsible for deduction of tax at source in terms of section 194C, accordingly, provisions of section 40(a)(ia) cannot be invoked - in favour of assessee.
Bad debts written off - disallowance as assessee could not demonstrate that debts which have been claimed as bad debts has actually become irrecoverable - Held that:- As per existing provisions of section 36(1)(vii), after amendment w.e.f. 1.4.1989, it is not necessary for the assessee to prove that the amount written off as bad debt is indeed bad for the purpose of allowance under section 36(1)(vii) as decided in TRF Ltd Vs CIT [2010 (2) TMI 211 - SUPREME COURT] - in favour of assessee.
Addition on account of share premium amount - AO on statement of Shri George Joseph and relying on the statement made u/s.133A at the time of survey considered the issuance of share capital as bogus and not genuine - Held that:- assessee filed copies of requisite details viz; copy of share application form from each of the above named four applicants’ along with copy of board resolution, their bank statement giving particulars of cheque nos. and the amount debited from their accounts, as also copy of confirmation letters. Assessee has also filed the copy of the income tax return of each of the applicants evidencing that they are assessed to tax establishing their identity. Assessee has also filed copy of the certificate of incorporation and the Memorandum and Article of Association in the paper book, thus not only proving the identity of the share applicants but also established the creditworthiness of the share applicants and the genuineness of the transactions.
The CBDT in its Instruction dated 10.3.2003 stated that confessions, if not based upon credible evidence, are later retracted by the concerned assessee and, therefore, such confession during the course of search and seizure and survey operations do not serve any useful purpose. The CBDIT also advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income tax Department. Also while recording statement during the course of search & seizure and survey operation, no attempt should be made to obtain confession as to the undisclosed income - as decided CIT vs. S.Khader Khan son (2007 (7) TMI 182 - MADRAS HIGH COURT) and Paul Mathew & Sons vs CIT (2003 (2) TMI 25 - KERALA HIGH COURT ) that no addition can be made or sustained simply on the basis of statement recorded at the time of survey/search. Therefore, there should be some material to co-relate the undisclosed income with such statement. Thus said statement made at the time of survey on 23.2.2006 cannot be the sole basis for making the addition by treating the issuance of share at a premium of Rs.8000 as bogus.
Thus as assessee has furnished details of share application with PAN No. and bank statement. Further, said share applicants have also filed confirmation letters mentioning bank details to make the payment to assessee company for allotment of shares it can be concluded that transactions are admittedly recorded in the books of account both by the assessee company as well as aforesaid share applicants - no addition on account of unexplained cash credit is warranted - the action of AO is contrary to the decision of Hon’ble apex Court in the case of Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA) - in favour of assessee.
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2013 (1) TMI 184 - ITAT MUMBAI
Disallowance of expenditure - Tribunal in the first round of the proceedings have already given its finding on the issue of allowability of expenditure relating to manufacturing activity and upheld the cutoff date 20.1.1996 - Held that:- So far as the Manufacturing expenditure incurred prior to the cut off date of 20 May of the Financial year is concerned, AR fairly quantified the same at Rs. 1,54,789/-. Therefore, despite the objection of the DR for bringing finality to the longstanding litigation (nearly 14 years), the argument of the Counsel should be accepted notwithstanding the assessee’s failure to produce any bills and vouchers for the reasons of ‘lost in transit’. To the extent of Rs 1,54,789/-, as consented by the Counsel, revenue succeeds and thus, relevant ground of the assessee is dismissed.
Genuineness of the general expenditure for the period subsequent to the cut off date 20.5.1996 - Held that:- Perusing the individual accounts of travelling expenses it is found that the spouse of Mr. D.C. Patil, incurred a sum of Rs. 1,00,523/- towards the foreign travel (from New York to London) in December, 1996 and incurred an expenditure of Rs.1,00,523/- and the business purposes of the same are not ascertainable. It is a trite law that the onus is on the assessee to discharge when a claim of deduction is made in the books of accounts, thus the said expenditure should not be held as the business expenditure.
Telephone expenditure on the telephone installed at director’s home and use of the car (repairs, fuel and depreciation) - Held that:- Assessee reliance on Sayaji Iron & Engg. Co. vs. CIT (2001 (7) TMI 70 - GUJARAT HIGH COURT) for no disallowance is not acceptable as case is distinguishable on the facts that cars in question were outsourced by the Company and placed them at the disposal of the Directors’ of that company. Whereas, in the present case, the car in question was owned by the assessee and use of the vehicles wholly and exclusively was not demonstrated with the help of log book to support the nature of use of the cars - the assessee does not have evidences in its possession as they are lost in transit and in effect, the assessee failed to discharge its legal responsibility before the AO.
No justification in making any disallowances on account of ‘remuneration and benefit’ as they relate to the employees’ account and they are needed for running of the business and conducting of business of earning commission income is undisputed in this case - disallowance @ 1/10th on the expenditure incurred on residential telephone at the premises of the assessee and also 1/10th of the motorcar expenses (for fuel, repairs and depreciation on car) will meet the both ends of the justice - appeal of the assessee partly allowed.
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2013 (1) TMI 183 - ITAT DELHI
Penalty u/s 271BA – Transfer pricing – Assessee failed to furnish Transfer pricing report u/s 92E by due date - form No. 3CEB - Under Rule 10E - Rule 12(2) of the Income-tax Rules, 1962 – Held that:- As per Sec. 92E it is clear that the report in Form 3CEB is to be filed by the specified date i.e. due date for filing the return. Nowhere in sec. 92E or Rule 10E it is mentioned that such report should be annexed with return of income. As per Rule 12(2), the return of income/Fringe Benefits shall not be accompanied by report of Audit. The report in form 3CEB from an accountant is not a report of audit. It is a report in respect of international transaction certifying the claim of the assessee. Therefore, the contention of the assessee that return of income in electronic form was not to accompany the report in Form 3CEB is not correct. In favour of revenue
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2013 (1) TMI 182 - ITAT MUMBAI
Club expenses - Disallowance as in the assessment year 1999-2000 Commissioner (Appeals) has confirmed the said disallowance - Held that:- As in assessee’s own case in the assessment year 1997-98 to 2000-01 the Tribunal after following the judgment in case of Otis Elevator Company (India) Limited Versus CIT (1991 (4) TMI 53 - BOMBAY HIGH COURT) held that the expenditure towards club expenditure are allowable as business expenditure and allowed the assessee’s claim - as there is no change in the facts and circumstances of the case in present AY direction to delete the disallowance - in favour of assessee.
Addition on account of unutilized MODVAT credit on the closing stock - Held that:- From the plain reading of the provisions of section 145A, it is evident that for the purpose of valuation of purchase and sale of goods and inventories, adjustment on account of tax, duty, cess or fee actually paid or incurred by the assessee has to be made. Excise duty component in the form of MODVAT in the raw materials has to be included while valuing the purchases and sales of goods and inventories, as it has a direct bearing on valuation of stock. Thus, that the matter needs to be restored back to the file of the Assessing Officer to carry out necessary valuation on account of MODVAT credit on purchases and inventories in accordance with the provisions contained in section 145A. The assessee will provide necessary details and working to the Assessing Officer to this effect, who will verify the same - the corresponding adjustment in the opening stock should also be made in view of the principles laid down in case of Mahalaxmi Glass Works P. Ltd. (2009 (4) TMI 182 - BOMBAY HIGH COURT)- partly in favour of assessee for statistical purposes.
Disallowance of interest and expenses u/s 14A r.w.r. 8D - assessee contested that no disallowance u/s 14A where no income is earned by the assessee - Held that:- Commissioner (Appeals) that Rule 8D is applicable in this year, cannot be sustained in view of the judgmentin the case of Godrej Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT), wherein it has been held that Rule 8D cannot be applied retrospectively i.e., prior to assessment year 2008-09 - unable to accept this contention of the assessee that funds in the form of accumulated depreciation should be treated as available funds because the actual figure, as given in the balance sheet has to be taken into account.
As it is noticed that the assessee has earned dividend income of Rs. 6,14,300 and it cannot be said that the assessee has no exempt income forming part of the total income. Secondly, the Delhi Special Bench of the Tribunal in the case of Cheminvest Ltd. Vs. ITO (2009 (8) TMI 126 - ITAT DELHI-B) wherin held that even if no income was received, expenditure incurred can be disallowed under section 14A - matter needs to be restore back to the file of the AO to examine the availability of assessee’s own funds and any other interest bearing funds in view of the principles laid down in Reliance Utilities & Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] that if the assessee has own funds and non-interest bearing funds, the presumption can be drawn that investments have been made from these funds - partly in favour of assessee statistical purposes.
Disallowance of prior period expenses - Held that:- The Tribunal for the assessment year 2000-01, in assessee’s own case, has given a direction to allow these expenditure in the assessment year 2000-01. In view of this fact that these prior period expenses have been directed to be allowed in the assessment year 2000-01, hence, the same cannot be allowed in this year.
Disallowance of interest receivable written-off - assessee has written off this amount of interest in the account as irrecoverable as per the decision taken by the board of directors in resolution in May 2002 - whether the decision to write-off the amount after the close of the financial year can be done and treated to be written off in the accounts of the assessee for the previous year - Held that:- As decided CIT v/s United Bank of India [1990 (11) TMI 348 - CALCUTTA HIGH COURT] subsequent resolution by the board of directors approving the bad debt relates back to the date of finalization of accounts - in present case even the board resolution was passed in May 2002, with regard to the approval of writing–off the amount as irrecoverable in the accounts, it will relate back to that previous year in which it is being treated as irrecoverable and written off in the accounts of the assessee. There is no such condition in the said clause i.e., clause (vii) of sub– section (1) of section 36 that the decision for treating debt as bad or irrecoverable should be taken in the previous year itself. If the books of account are not closed and completed, it is permissible to make adjustments before being finally adopted - there is also a categorical finding by the Tribunal in assessment year 2000–01 that interest income has always been treated as business receipts by the AO, thus, once the interest income has been offered on accrual basis, which has been debited in the Profit & Loss account as business income and the same has been written off as irrecoverable in the accounts in this year, the same has to be allowed as bad debt fairly settled in the case of TRF Ltd [2010 (2) TMI 211 - SUPREME COURT] - in favour of assessee.
Disallowance of Inter Corporate Deposit (ICD) along with the interest written–off - Held that:- Assessee had shown interest on ICDs on accrual basis in the Profit & Loss account in the earlier years. Also the amount received under one time settlement with the companies, the assessee has adjusted the same against the principal amount first. The interest portion has mostly been written–off. Insofar as the Commissioner (Appeals)’s finding that the amount received should have been first adjusted against the accrued interest and then towards principal, cannot be upheld as there is no such law which permits that adjustment should be first made against the interest and not towards the principal amount unless the parties have agreed to otherwise - it is not disputed that in all these years, the assessee had shown accrued interest on ICDs in the Profit & Loss account and has been offered for tax as business income also been accepted by the Department, therefore, once interest income has been taxed as business income, Commissioner (Appeals) cannot say that lending of money in the form of ICDs was not part of the business activities. Once the assessee has written off this amount as irrecoverable, the same has to be allowed as bad debt under section 36(1)(vii) r/w section 36(2) as all the conditions laid down therein stands fulfilled - in favour of assessee.
Capitalization of interest expenditure in the books of account however claimed the same as deduction while computing its taxable income - AO has disallowed the said expenditure on the ground that proviso added to section 36(1)(iii) though brought in statute w.e.f. 1st April 2004 is clarificatory in nature - Held that:- This issue is now covered by the judgment of Core Health Care (2008 (2) TMI 8 - SUPREME COURT OF INDIA) that provision for capitalization of such interest is prospective in nature and will apply w.e.f. A.Y. 2005–06.
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2013 (1) TMI 180 - ITAT DELHI
CIT(A) entertained additional evidence u/r 46A of the ITR - revenue contested against ignoring the objections of the AO submitted in the Remand Report - Held that:- As decided in CIT vs Manish Build Well (P) Ltd [2011 (11) TMI 35 - DELHI HIGH COURT] whenever the assessee who is in appeal, invokes Rule 46A, it is incumbent upon CIT(A) to comply with the requirements of the Rule. As in the present case on perusal of remand report it reveals that the AO contended the admission of additional evidence but he did not examine and verify the additional evidence as required by Rule 46A(3) of the Rules. There is nothing in the order of the CIT (A) to show that the Assessing Officer was confronted with the confirmation letters received by the assessee - this issue deserves to be restored to the file of the CIT(A) for compliance of Rule 46A(3) - in favour of the Revenue by way of remand.
Addition under the head "Brand Value" - CIT(A) deleted the addition observing the additional evidence pertaining to expenditure & granted relief to the assessee by allowing the same as expenditure incurred for the business & directed the AO to disallow depreciation - Held that:- As the CIT(A) considered the additional evidence without following the procedure as stipulated in Rule 4CA(3) of the Rules and issue has been restored back to the file of CIT(A) for necessary compliance therefore the issue of verification of bills of Rs.16,09,348/- also deserves to be restored to the file of the CIT(A) - also CIT(A) has given contradictory findings as in para 8.6, he held that the expenditure for which no evidence was produced stood at Rs.24,65,795/- and he allowed the expenditure of Rs.16,09,348 for which additional evidence was admitted. In para 8.7 the CIT(A) held that since the amount is recorded in the books of accounts and the best depreciation cannot be allowed directed AO to delete the entire addition of Rs.40,75,143. Further, in para 8.8, he allowed the AO to disallow the depreciation on the amount of Rs.24,65,795 for which no evidence was produced but unable to see any finding that the same was allowed by the AO either as capital or as revenue expenditure. Thus the findings of the CIT(A) are self-contradictory and not sustainable - in favour of revenue.
Addition on account of cash balance - CIT(A) deleted the addition - Held that:- As the DR did not disputed that during the year under consideration the total withdrawal of cash from the bank was Rs.16,24,747 and opening cash balance was Rs. 1,70,856 and the closing cash balance was Rs.11,64,598. In this situation the finding of AO cannot be approved that the amount of cash withdrawals during the financial year be considered as assessee’s unexplained expenditure which was not recorded in the books of accounts. As the Assessing Officer has observed cash withdrawals during the year, at the same time, the fact should also be considered that a major amount of cash withdrawals has been found as cash balance at the end of the year - in favour of assessee.
Business promotion expenditure - CIT(A)restricted addition to 10% - Held that:- The DR did not dispute the fact that the expenditure as claimed by the assessee was allowed in the AY 2003-04 and in the appellate order dated 23.08.2006, the disallowance was restricted to 10% of the expenses incurred on business promotion. Thus no reason to interfere with the findings of the CIT(A).
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2013 (1) TMI 179 - KARNATAKA HIGH COURT
Interest on loan - disallowance as the assessee had not utilized the loan amount in the course of its business activity and the same had been utilized by its sister concern - CIT (appeals) allowed the appeal of assessee in part and further rectified in respect of the remaining disallowed part of the expenses - revenue filed two appeal one against initial order of CIT(A) & then rectified order - revenue filed an application under Order 6 Rule 17 r/w section 151 of the Code of Civil Procedure seeking for substitution of the appeal numbers in cause title by making a reference to the order of the Tribunal passed related to not allowing the entire interest and also for suitable amendment in the Memorandum of Appeal - Held that:- It is not necessary to opine on the scope of Order VI Rule 17 of the Code of Civil Procedure being applicable in a proceeding of this nature particularly as it relates to amendment of pleading and the Court is now examining an appeal under section 260-A the question would be more relevant within the scope of section 260-A. Allowing the application of this nature at this point of time and also to permit the revenue to agitate such question by further alteration of the Memorandum of Appeal etc., is not a feasible course of action at this point of time. However, it is open for the revenue to agitate the matter separately and in a manner permitted in law and if they are so desirous to pursue the question.
Maintainability of this appeal is not allowed at this point of time as the revenue involved is not more than Rs. 2,00,000/- and therefore, in terms of board Circular No. 2/05, dated 24.10.2005 the appeal should not be entertained.
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2013 (1) TMI 178 - JAMMU AND KASHMIR HIGH COURT
Deduction u/s 80-IB – Whether the assessee is entitled to deduction u/s 80IB on interest earned by him on FDRs kept as guarantee with Electricity Department and the Bank for securing bank limits - Interest earned on Fixed deposit (FDR) - Business income of an Industrial Undertaking or Income from other sources - Profits and gains derived from such industrial undertakings or profits and gains derived from any business
Held that:- No, interest income on FDRs declaring it as income from the business of the industrial undertaking, cannot be said to be an income flowing from the business activity of industrial Undertaking, thus, cannot be computed for deduction u/s 80-IB.
Section 80-IB(4) would reveal that reference made to 'profits and gains derived from such industrial undertakings' and not to 'profit and gains derived from any business of the industrial undertaking'. A conjoint reading of Section 80-IB(l) and 80-IB(4) would reveal that the expression 'profits and gains derived from any business' is to be read as 'profits and gains derived from the industrial undertaking' and the scope and ambit of Section 80-IB(1) is not in any manner wider than that of 80-IB(4). A holistic view of Section 80-IB would reveal that what is intended by the Law Makers to qualify for deduction is 'profits and gains derived from the industrial undertaking'. 'There is, therefore, no reason to bring within the fold of 'profits and gains derived from industrial undertakings' any income beyond the activities of the industrial undertakings on the ground that the words 'any business' finds expression in 80-IB(l). In favour of revenue
Whether interest income allowed to set off against the interest paid – Held that:- Following the decision in case of Dr. V. P. Gopinathan (2001 (2) TMI 10 - SUPREME COURT) that the interest paid by the assessee as interest on overdraft facility cannot be set off against the interest received on the FDRs pledged by him with the Bank so as to avail any deduction under the head 'Income from other sources'. Hence set off not allowed. In favour of revenue
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2013 (1) TMI 177 - DELHI HIGH COURT
Reopening of assessment - excessive allowance of the deduction under Section 80HHC - sale proceeds of the quota cannot be considered as export turnover but represented business income covered u/s 28(iv) and had to be reduced to the extent of 90% from the business income as per section 80HHC(baa) - Held that:- The eligibility of the assessee for the deduction under Section 80HHC in respect of premium on sale of quota was covered in favour of the assessee by the order of the Tribunal in the earlier years as well as the orders passed by his predecessor in the assessee's case for the assessment years 2000-01 and 20001-02 and accordingly upheld the assessee's stand.
There was no fresh material which came to the notice of the Assessing Officer after the original return was processed under Section 143(1) and having regard to the orders of the Tribunal(supra) and the instruction of the CBDT dated 23rd February, 1998 regarding the treatment to be given to the premium received on transfer of quotas, there was no escapement of income and thus the notice was without jurisdiction.
As decided in CIT vs. Kelvinator of India Ltd.[2010 (1) TMI 11 - SUPREME COURT OF INDIA] AO has no power to review, he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer.The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely subjective satisfaction of the assessing authority; the reason be held in good faith and cannot merely be a pretence.
The reasons disclose that the AO reached the belief that there was escapement of income “on going through the return of income” filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the AO both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the AO in the present case do confirm apprehension about the harm that a less strict interpretation of the words “reason to believe” vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147 - substantial question of law answered in favour of the assessee.
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2013 (1) TMI 167 - ITAT NEW DELHI
Disallowance of freight charges in terms of section 40(a)(ia) - Non deduction of TDS - CIT(A) deleted the addition - Held that:- As from the various details filed by the assessee and nature of the assessee’s business of clearing and forwarding agents, it is found that the assessee is nothing but an intermediary between the exporters and the shipping lines. The assessee facilitates the contract for carrying goods for and on behalf of its client i.e. exporters or importers, and the principle contract for carrying goods is between the exporter/importer and the shipping lines. As decided in Commissioner of Income Tax vs. Cargo Linkers (2008 (3) TMI 619 - DELHI HIGH COURT) from the nature of the contract between the parties concerned it was found as a matter of fact that the contract was actually between the exporter and the airline, and the assessee was only an intermediary. It was, therefore, held that the assessee is not a person responsible for deduction of tax at source in terms of sec. 194C.
Thus the present assessee, who is carrying on the business of clearing and forwarding agents, is not a person responsible for deducting the tax at source in terms of sec. 194C as the assessee is only an intermediary between the exporters and the shipping lines and it merely facilitates the contract for carrying the goods - provisions of sec. 40(a)(ia) cannot be invoked - in favour of assessee.
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2013 (1) TMI 162 - DELHI HIGH COURT
Jurisdiction of AO u/s 158BD - Undisclosed income of any other person - search under Section 132 - AO treated the claim of the assessee regarding receipt of service charges as income from house property Whether the notice of Search & Seizure dated 28.10.1997 satisfied the requirement of Section 158BD? - Held that:- As decided in MANISH MAHESHWARI and INDORE CONSTRUCTION P. LTD. Versus COMMISSIONER OF INCOME-TAX [2007 (2) TMI 148 - SUPREME COURT OF INDIA] the conditions precedent for invoking the provisions of Section 158-BD are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132-A of the Act.
There is no recording of any satisfaction that any undisclosed income belongs to the respondent/assessee. The communication dated 28.10.1997 merely indicates that books of accounts pertaining to the respondent assessee/assessees were seized and were lying in the custody of the Assessing Officer in respect of the Mody Group of cases. It was further indicated in the communication that since the AO at New Delhi had jurisdiction over the assessee, it was proposed that necessary proceedings may be adopted against the assessee in accordance with the provisions of chapter XIVB of the said Act. There is no satisfaction recorded by the said AO of the Mody Group of companies that any undisclosed income belonged to the assessee. As such the very first mandatory condition precedent for assuming jurisdiction under Section 158BD and subsequently under Section 158 BC has not been satisfied. This failing on its own would render the entire proceedings to be without jurisdiction - in favour of assessee.
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2013 (1) TMI 161 - KERALA HIGH COURT
Waiver of interest u/s 220(2A) - assessee not produce any proof that he had no other business or source of income - Held that:- It is an admitted case of the respondents that the entire properties of the petitioner are under attachment and that the interest liability of the petitioner was satisfied from out of the compensation amount remitted by the Corporation of Cochin. These facts, prima facie substantiate the case of the petitioner that he had no business or source of income and that payment of interest as demanded, would cause genuine hardship.
Default committed in complying with the conditional waiver order and the instalment facility was for the reason that he had no source of money to comply with the same - orders rejecting the waiver application quashed.
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2013 (1) TMI 160 - DELHI HIGH COURT
Reopening of assessment - proceedings initiated after a period of four years - disallowance of the royalty paid as capital expenditure - assessment years 2002-03 and 2003-04 - Held that:- The assessing authority cannot keep improving his case from time to time and that the reassessment proceedings have to stand or fall on the basis of what was stated in the reasons recorded u/s. 148(2) and nothing more. No failure to furnish full and true particulars relating to the royalty payments, including the failure to file the relevant agreements, has been alleged in the reasons recorded. If anything, the reasons are an admission that it was the assessing officer who did not draw the inference that the royalty payments were capital in nature. It was for him to draw the appropriate inference and not for the assessee to tell him what inference of fact or law should be drawn from the primary facts furnished. See Calcutta Discount Co. Ltd., (1960 (11) TMI 8 - SUPREME COURT) - thus the reassessment notices for the assessment years 2002-03 and 2003-04 are quashed .
Reopening “based on information received from Revenue Audit” - Assessment year 2004-05 - within the period of four years - Held that:- It is difficult to sustain the notice issued u/s. 148 as the audit objection is only an inference that the royalty payment resulted in a capital benefit, such an opinion expressed by the audit cannot constitute tangible material on the basis of which the assessment can be reopened. As decided in Indian Eastern and Newspaper Society v. CIT, (1979 (8) TMI 1 - SUPREME COURT) information as to correct legal position must come from a formal source or body which is competent to pronounce upon the issue and that revenue audit is not competent to pronounce on issues of law.
The alleged non-deduction of tax from the royalty which would authorise the disallowance under section 40(a)(i) is a fact that is mentioned for the first time in the counter-affidavit and it does not find place in the reasons recorded. As noted earlier, it is impermissible to look into any record other than the reasons recorded to judge the validity of the reopening of the assessment. Further, the statement in the counter- affidavit that the facts relating to the past years disclosed that the petitioner was wholly dependent on the parent company for the technical inputs goes against the revenue, in the sense that it was always known to the revenue that the petitioner did not develop any technology of its own but was dependent on the technology from the parent company. Moreover, it is not for the petitioner to advise the assessing officer as to what inference he should draw as to nature of the expenditure – whether it is revenue or capital in nature. thus the notice issued u/s. 148 for the AY 2004-05 is also without jurisdiction & be quashed - appeal in favour of assessee.
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2013 (1) TMI 159 - ITAT MUMBAI
Unaccounted Cash Credit - survey u/s. 133A - computer back up files found on the system at the assessee's premises - could any addition be made in the hands of the assessee, the recipient or the beneficiary of these funds? - Held that:- The transactions of availing monies from 'P' having not been recorded in the assessee's books of account, section 68 could not be said to be applicable. However, that would be to no consequence, as the admission of the transaction/s itself implies of the corresponding amount/s in the assessee's hands in the form of cash on the relevant date/s and sections 69, 69A, etc., will apply. CIT(A) has relied on the decisions in the case of Sunil K. Malhotra v. CIT [1995 (7) TMI 60 - ALLAHABAD HIGH COURT] and Laxmi Narain Gupta v. CIT [1979 (10) TMI 41 - PATNA HIGH COURT].
The document to be considered as true, admittedly reflects the transaction/s of money being provided by 'P' for their use by, among others, the assessee. That is, it shows an effective or constructive receipt of money by or on assessee's behalf. Where it was used can only be explained by the assessee, and which it has chosen not to. The receipt of money by the assessee is manifest per the document, which is, rather, not denied by the assessee. The acquisition of money by the assessee as at the relevant date/s, thus, cannot be and, in any case, is not in question. The same (money, in the form of cash), which is covered by section 69A, being not recorded in the assessee's books of account, the said provision would apply to the transaction. Consider this a bank pass book of the assessee, which definitely does not form part of the assessee-bank account holder's books of account, is found during search/survey, reflecting deposit/s and/or credit/s therein. The amount/s may have been withdrawn subsequently, so that it cannot be said that a deposit/s is 'found' as on the date of search, yet it is so found on the relevant date/s (of deposit/s), so that the assessee is obliged to explain the same as to its nature and source, where not reflected in its regular books of account and the date/s fall in the year/s of assessment. Thus, find no legal hindrance or barrier to the invocation of the said sections, or s. 69A in the instant case.
It is only when both the nature and source of the money has been satisfactorily explained, that the assessee's obligation under the deeming provision stands discharged and which, thus, cannot be said to be in the facts and circumstances of the present case. The deeming of section 69A would, thus, be clearly applicable, and stand validly applied by the Revenue in the facts and circumstances of the case. However, the same shall only extend to the 'money' with the assessee, and cannot, by any account, extend to the money provided by 'P' for persons other than the assessee. Whether the assessee has any connection with them; it clearly with-holding facts, is irrelevant, as in any case they are separate persons, and their income, if so, cannot be assessed in the assessee's hands merely because a document is recovered from its premises. Accordingly, the assessee's income stands validly assessed to the extent of Rs. 5,61,000/-, and the balance Rs. 12.83 lacs stands to be deleted - partly in favour of assessee.
Addition u/s. 69 C effected on the basis of print-outs of computer back up file - CIT(A) deleted the addition - assessee's contested that its' name being reflected neither in the payments nor toward receipt of money - Held that:- Presumption u/s. 292C can only result in the document being read as what it would convey to a normal, un-interested person of ordinary prudence. Of course, in a given case, the reading may yield grotesque situations, as where the person/s stated in the document does not exist, or (say) the person/s stated to be providing the material resources is admittedly a man of no means, so that the document could not be considered as a valid piece of information. However, in such a case, the onus to show so would be on the person so alleging. The AO has done no such exercise. The Revenue has also not brought on record any interest of the assessee in the relevant properties. The document, as we see it, has no bearing on the assessee. The document may be true, and the assessee may well be in know of its contents, as it would only have been prepared by or under its supervision and knowledge, and only for some purpose. However, if the assessee doe not choose to divulge the same, it cannot be in consequence applied to it. Under the circumstances, CIT(A) had rightly deleted the impugned addition - against revenue.
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2013 (1) TMI 158 - UTTARAKHAND HIGH COURT
Benefit of Section 80IC - whether the assessee is involved in manufacturing activities in Uttarakhand from its industrial unit situate therein? - The Assessing Officer found that instead of bringing the flowers, thus purchased, on the basis of job work, assessee extracts the oil contents from the flowers at Uttar Pradesh and, thereafter, such oil is brought in the factory of the respondent assessee situate in Uttarakhand and with the help of the extracted oil, the essence is manufactured. The Assessing Officer felt that in the whole process, the most important part of the manufacturing activity is undertaken in the State of Uttar Pradesh and the minimal in the State of Uttarakhand and, as a result, respondent assessee is not entitled to the benefit of Section 80IC
Held that:- The distilled oil, which is used as a raw material in the processing unit of the assessee situate in Uttarakhand, is available in the market. To that, there is no dispute. Instead of buying the same from the market, assessee gets the same processed in the State of Uttar Pradesh. - Benefit u/s 80IC allowed - Decided in favor of assessee.
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2013 (1) TMI 157 - DELHI HIGH COURT
Delay in filing registration under Section 12A/ 12AA and 80G - whether ITAT erred in condoning delay - order passed by the DGIT (Exemption) u/s 263 set aside by ITAT - A.K. Sikri, its erstwhile treasurer responsible for the forgery of the certificate u/s 80G - Held that:- The evidence in the form of statement of A.K. Sikri, complaint to the police authorities (both by the assessee and also by the income tax department), investigation by the police and their reports, proceedings before the criminal courts, the bail application of Sikri are all evidence to show the complicity or involvement of Sikri in the alleged forgery or irregularities in the issue of the certificates of registration/ approval under sections 12A and 80G. The evidence contained Court proceedings and were complementary to each other and cannot be brushed aside as the DIT (Exemptions) has done, as having no evidentiary value. The Tribunal, therefore, held that the DIT (Exemptions) was not justified in refusing to take cognizance of those vital documents in coming to the conclusion that the assessee – society or its trustees/ governing body members connived or colluded with Sikri.
Order of the Tribunal states that the assessee – society took the action immediately on receipt of the complaint from M. P. Mansinghka Trust of Mumbai referring to the confession of Sikri in the meeting of the governing body owning up responsibility for having misled the assessee – society by representing that the necessary application for registration were made in time, it has also referred to the action taken by the assessee – society against Sikri when it found that Sikri was not taking adequate steps to remedy the situation, police complaints filed by the assessee – society & income tax authorities against Sikri which indicated that they also viewed Sikri to be responsible for the mis-representation, fake certificates of registration, etc. Moreover, the Tribunal has taken note of the fact that the Metropolitan Magistrate, acting on the police complaint, remanded Sikri to custody and also referred to the fact that in the bail application, Sikri had again owned up responsibility for the fake certificates of registration. Thus Tribunal came to hold the view that it was because of the irregularities, illegalities and mis-representations of Sikri that the assessee – society was led to believe that appropriate applications were already filed with the income tax authorities for registration. The assessee – society was thus under the belief, though mistaken but honest, that there was no delay and once it came to know on 06.12.2005 about the irregularities on a complaint from M. P. Mansinghka Trust of Mumbai and on further enquiry conducted on 14.12.2005 by the governing body, it hastened to take remedial action by filing applications for registration both under section 12A and 80G, which were followed up by another set of applications filed directly with the DIT (Exemptions) on 21.12.2005; these applications were obviously delayed and the condonation application was filed on 14.03.2006 narrating the events that led to the delay.
Thus the Tribunal has, in making its decision, kept in mind the principles adumbrated in Esthuri Aswathiah v. CIT [1967 (4) TMI 14 - SUPREME COURT] that the Tribunal cannot make arbitrary decisions cannot found its judgment on conjectures, surmises or speculation. Between the claims of the public revenue and of the taxpayers, the Tribunal must maintain a judicial balance. Its order cannot, therefore, be branded as perverse or unreasonable or irrational - In Ram Nath Sao @ Ram Nath Sahu and Ors Vs. Gobardhan Sao and Ors., (2002 (2) TMI 1280 - SUPREME COURT) it was observed that acceptance of the explanation furnished should be the rule and refusal, an exception, more so when no negligence or inaction or want of bona fides can be imputed to the defaulting party. In the present case, the Tribunal has found that the assessee – society has taken prompt remedial action and put Sikri on the dock and he also admitted his fault, though he tried to shift the blame to his employee whose whereabouts were never known. Even in his bail application he had confessed to his role in the alleged irregularities and illegalities. There has been no want of bonafides on the part of the assessee, nor did it fail to take immediate action once it was apprised of the irregularities in its affairs by M. P. Mansinghka Trust of Mumbai. In these circumstances, the Tribunal committed no error in condoning the delay - in favour of the assessee.
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2013 (1) TMI 156 - ITAT BANGALORE
Payments towards services availed from HSL for operating and maintaining an integrated Steel plant - whether in the nature of reimbursement? - whether attracts the provisions of s.194J or not? - Held that:- As per SAA the share capital of Hospet Steel Ltd [HSL] was held by the assessee and Mukund Ltd [ML] in equal proportion and the investment in the said steel making facilities has been made by SAA constituents in the ratio of 41.38 and 58.62 by the assessee and ML respectively. As per the terms of SAA, the assessee and ML have reimbursed the expenses incurred by HSL in performance of its obligations. As rightly argued by the AR, the said reimbursement was on cost to cost basis and the same is evident from the P&L account and debit notes raised by HSL on the assessee and ML for the concerned assessment years. Therefore, the said payments did not comprise of any income component. Thus, the reimbursement of such expenses incurred by HSL cannot be categorized as in the nature of fees towards professional and technical services.
As decided in DECTA v. CIT [1996 (5) TMI 385 - AUTHORITY FOR ADVANCE RULINGS] the amount of contribution received/receivable to recover part of the cost of technical assistance provided by the applicant under the provisions of its aid programme to the companies assisted by it in India is neither income of the appellant under the provisions of the Income-tax Act nor fees for technical services. Thus taking into account the facts and circumstances of the issue the reimbursements of payment by the assessee and ML to HSL cannot be regarded as income in the hands of HSL.
Relying on CIT v. Expeditors International (India) (P) Ltd. [2011 (12) TMI 104 - DELHI HIGH COURT] the said payments being in the nature of reimbursements on cost to cost basis and thus, the said payments did not constitute income in the hands of HSL and, therefore, the assessee as well as ML were not liable to deduct tax at source u/s 194J - in favour of assessee..
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2013 (1) TMI 155 - ALLAHABAD HIGH COURT
Bogus cash credit - reopening of assessment - Held that:- No appeal is required to be filed when tax effect is less than Rs. 2 lakhs. The conditions mentioned in Clause-3 of the Circular dated 27.3.2000 i.e. where prosecution proceedings are contemplated against the assessee, are not attracted in this appeal. The circular has been issued by the Central Board of Direct Taxes and is binding upon the Department.
In view of the aforesaid circular, the appeal is not maintainable and is dismissed as such.
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2013 (1) TMI 154 - ALLAHABAD HIGH COURT
Deductions under Chapter IV and VI-A of the Income tax Act, 1961 claimed in regular assessment allowed while computing the undisclosed income under section 158BB(1) - Held that:- As earlier total income or loss was computed in accordance with Chapter IV, however the word 'Chapter IV' was substituted by the word 'the Act' by Finance Act, 2002 with effect from 1st July, 1995 and, therefore, while computing the undisclosed income or loss deduction under Chapter VI-A is admissible. The Tribunal had rightly held that the deduction under Chapter VI-A has to be given while computing total income or loss.
Goodwill received on retirement added as undisclosed income - Tribunal deleted the addition - whether Tribunal justified in holding that the income which was duly disclosed in original assessment could not form part of undisclosed income as defined in Section 158 B (b) - Held that:- Sum of Rs. 1,50,500/- received on assessee's retirement was disclosed in the regular return filed for the assessment year 1993-94 which has been taken into consideration while passing regular assessment order under section 143(3) therefore, the said amount cannot be included under sub-clause (b) of section 158B - The order of the Tribunal does not suffer from any legal infirmity.
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2013 (1) TMI 153 - DELHI HIGH COURT
Reopening of assessment - assessee has failed to disclose all material facts truly and fully - Held that:- Revised return of income for the assessment year 2002-03 in March 2004 and filing the return of income for the assessment year 2003-04 on 2.12.2003 that the loss of Rs.2,52,14,220/- was not claimed in the revised return of income for the assessment year 2002-03 and the reversal of the aforesaid loss in the books of account for the year ended 31.03.2003, relevant to the assessment year 2003-04 could not be subjected to tax for that assessment year. This was consistent with the position that neither the income nor the loss relating to the paper board division could be considered to belong to the petitioner on and after 01.10.2001.
The reduction of the income for the assessment year 2003-04 by the loss of Rs.2,52,14,220/- was therefore consistent with the memorandum of understanding, the petitioner had also reduced the income for the assessment year 2003-04 by the aforesaid loss. The ultimate position was that since the loss relating to the paper board division incurred between 01.10.2001 to 31.3.2002 was reduced from the loss of the petitioner company to show a reduced loss for that year, the profit shown for the year ended 31.3.2003 relating to the assessment year 2003-04 should correspondingly be reduced by the aforesaid loss. This position was duly informed to the assessing officer in the return and the documents and accounts accompanying it. The factual position thus show that the complete particulars relating to the memorandum of understanding and its impact on the profit and loss of the petitioner company was disclosed by the petitioner in its return of income. There was no failure on the part of the petitioner to disclose the primary facts causing no escapement of income - notice u/s 148 is therefore, without jurisdiction - in favour of assessee.
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2013 (1) TMI 140 - JHARKHAND HIGH COURT
Modus operandi for tax evasion - Sham transactions - Identities of the creditors – Genuineness & creditworthiness of the loan creditors – Assessee in a 3 days’ time contact 148 persons and took loan in cash - too in small amount of less than Rs.20,000/- and collected Rs. 25.97 lakhs in no time - that too, as interest-free loan and further to give it to a Company as interest free loan - Assessee was asked to file the details of the names and addresses of the persons from whom he had taken loan - A.O. demanded further proof from the assessee, who in turn, submitted the loan confirmation from creditors - A.O. issued summons u/s 131 to 26 person - Issued enquiry letters u/s 133(6) in 30 cases - Out of 26 cases, where summons under Section 131 were issued, two summons returned 'unserved' and in 15 cases, no reply to the summons was received
Whether in the taxation matter, there can be a test check method for finding out the “genuineness of the transaction” as alleged by the assessee which can be examined independent to even creditworthiness of the creditors
Held that:- If the A.O. would have proceeded further to enquire about the creditworthiness of those 148 persons, he may have found that all persons had capacity to advance a loan of Rs.20,000 in cash. In such fact situation, it is heavy duty of the A.O. and other authorities to find out all truth from the evidence which includes acceptance or rejection of evidence of independent or interested witnesses.
In three days, the assessee himself, who was having no worth, alleged that he borrowed Rs.25.97 lakhs from 148 persons as if every person was waiting for this person to come and demand the money and every person was ready to give him money. This type of modus-operandi can be adopted by many persons.
The test check method for the purpose of finding out the creditworthiness of individual creditor may not be a valid mode of proceeding in the other tax matter. But so far as to find out whether the transaction as a whole is absolutely unbelievable which may not be believed by a prudent man of slightest common sense, then in that situation, in addition to other facts and circumstances, test check can be the right mode so as to meet with the clever mode of avoiding the tax
Every officer, who is required to assess the evidence of any witness/deponent, is required to evaluate the evidentiary value of the evidence. In favour of revenue
Interest u/s 234A and 234B – Whether interest can be levied over the assessed income or it can be levied only on the income declared in the return - Held that:- Following the decision in case of Smt. Tej Kumari (2000 (9) TMI 52 - PATNA HIGH COURT) that the revenue can levy the interest only on the total income declared in the returns and not on the income assessed and determined by the A.O. to that extent. In favour of assessee
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