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Income Tax - Case Laws
Showing 441 to 460 of 503 Records
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2013 (1) TMI 139 - KERALA HIGH COURT
Deduction u/s 80HHC - Assessment years 1990-91 and 1992-93 - Whether income from godown rent to be treated as export profit for computing the relief u/s 80HHC - Held that:- The assessee's claim relates to the use of its godown by other exporters for storing goods till despatch. This cannot at all be termed to be a profit derived by the assessee from the export of such goods or merchandise coming within Section 80HHC. In favour of revenue
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2013 (1) TMI 138 - KERALA HIGH COURT
Guest house expenses - Depreciation on guest house - Assessee claim was that the apartments were kept ready for stay by the touring officers due to the difficulties faced by such officers to get accommodation there - Held that:- Following the decision in case of Britannia Industries Limited (2005 (10) TMI 30 - SUPREME COURT) that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37. In favour of revenue
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2013 (1) TMI 137 - MADRAS HIGH COURT
Bogus Purchase – Block assessment had been made based on materials other than the seized materials - Assessee contended that the same cannot form part of an assessment relating to block assessment - Held that:- As concluding from the affidavit and facts of the case the assessee's contention that the subject matter of assessment in respect of genuineness of the newsprint purchase has to be excluded from the block assessment procedure and it can only be considered under the regular assessment. To that extent we agree with the assessee's contention. In favour of assessee
Block Assessment A.Y. 1987-88 to 1997-98 - Chapter XIV-B - Special Audit - Principles of natural justice - Opportunity to the assessee before appointing the Special Auditor – Assessment made hurriedly - Without granting the assessee an opportunity to place the materials – Held that:- The Revenue had referred the matter to the Special Audit and the Special Audit report was submitted on 24.2.1998. In the background of the filing of the Special Audit Report on 24.2.1998 and the assessee filing his objection on 25.2.1998, when we look at the next date of hearing, it fell on 5.3.1998 and immediately on 13.3.1998 the assessment order was made. We do not find from the order that sufficient opportunity was granted to the assessee on the materials gathered.
The Revenue should have afforded sufficient opportunity of hearing to the assessee to substantiate his case. In the absence of compliance of the principles of natural justice, setting aside the order of the Tribunal. Remand the matter back to the A.O.
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2013 (1) TMI 136 - MADRAS HIGH COURT
Computation of profit u/s 80IA - Whether reimbursement of tax paid by the assessee could be treated as part of the income for the purpose of deduction u/s 80IA or 80IB - Assessee is engaged in generation of electricity – Bulk Power Supply Agreement between assessee and State Electricity Boards - Notification dated 30.3.1992 provides the basis for working of the tariff for sale of electricity - Assessee had received was the price for the sale of energy on the tariff fixed by the Government in its notification and one of the components of the sale price was arrived at based on the grossed up tax or the actual tax assessed whichever is less
Held that:- Tax reimbursement is nothing but a component of price. The clause 6 of the agreement specifies the tax liability of assessee in respect of the income on generation of power, mining of lignite from Mine II for the purpose of generation of power, the amount of grossed up tax that is payable by assessee on the income streams mentioned at items (i) and (ii) were to be borne by the recipients. viz, the State Electricity Boards
The tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 80IA/80IB.
Therefore, the Commissioner committed serious error in dissecting the tariff to come to the conclusion that the tax component specified as part of the tariff is reimbursement of the liability of the assessee and hence it would not form part of the income. There will be no ground to sustain the plea of the Revenue that the relief to be granted u/s 80IA calls for exclusion of the tax component in the sale price of electricity. In favour of assessee
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2013 (1) TMI 135 - ITAT AHMEDABAD
Liability in respect of wages payable - Pursuant to Order dated 13-06-2003 of the Industrial Tribunal - Liability has not crystallized during the year – Held that:- Assessee has not made any provisions in the books of account during the present year and it is also stated that the orders passed by Commissioner / Industrial Tribunal were challenged before the Hon’ ble High Court. It could not be established that the liability has crystallized during the present year. In favour of revenue
Disallowance of Prior Period expense - salary, wages, bonus and welfare expenses and water expenses – Held that:- Assessee had failed to furnish any material to show that liability has crystallized during the present year. AO must have allowed the deduction to the assessee in that year to which this expenditure are pertaining to and hence, no deduction can be allowed in the present year. In favour of revenue
Computation of Book Profit u/s 115JB - Provision for take or pay lease rental charges - Provision for Wage Revision – Contingent Liability - Unascertained liability – Held that: - The provisions regarding take or pay lease rental charges and the provisions for wage revision is a contingent liability. This is also submitted by assessee that this provision was written back in A.Y. 2006-07. In favour of revenue
Computation of Book Profit u/s 115JB - Excess provision for doubtful advances – Held that:- It is seen that same amount was added in book profit but in view of the contradictory finding of A.O. in assessment order, we feel it proper that in the interest of natural justice, this matter should go back to the file of AO for fresh decision. Remand back to AO.
Expenditure on the release of water and discharge of effluent and pollution control – Revenue or Capital expenditure – Held that:- Following the decision in case of Hooghly Mills Company Limited (2006 (11) TMI 137 - SUPREME COURT) that this expenditure did not result in the creation of any specific asset, without appreciating that the expenditure gave an advantage of enduring nature and fell in the capital field, and, for being capital expenditure, it is not always necessary that it results in creation of a new, depreciable asset for the assessee. In favour of assessee
Expenditure on acquiring fire-fighting equipments – Capital or revenue expenditure – Held that:- Following the decision in case of Ballimal Naval Kishore (1997 (1) TMI 3 - SUPREME COURT) that these expenses were necessary for complying with the Government regulations and did not result in the creation of any asset, without appreciating that these are not the relevant considerations for determining the capital vis-à-vis revenue nature of an expenditure and the expenses, being in capital field and giving an advantage of enduring nature, constitute capital expenditure. In favour of assessee
Disallowance u/s 14A - Expense incurred in relation to exempted income - Assessee could not establish that the investment was made out of own fund and no borrowed funds have been utilized for making such investments – Held that:- The own fund is much higher than investment and therefore, it cannot be said that interest bearing borrowed funds were used for making investments in shares and therefore, no disallowance u/s. 14A is required in respect of interest expenditure. Confirm the disallowance of Rs. 5 lakh in respect of administrative expenses. Partly allowed
Disallowance of corporate debt restructuring expenses – Revenue or capital expenditure – For waiver of loans - spreading it over a period of 6 years – Held that:- Following the decision in case of Madras Industrial Investment Corporation Limited (1997 (4) TMI 5 - SUPREME COURT) that such expenditure is an revenue expenditure. In favour of assessee
Remission or cessation of liability u/s 41(1) - Waive of principal loans - Loan taken and benefit has arisen because of restructuring of loan in which part amount of principle loan was waived – Held that:- Following the decision in case of Chetan Chemicals Pvt. Ltd. (2001 (10) TMI 12 - GUJARAT HIGH COURT) that if the assessee is not carrying money lending business and earlier the loan do not give a benefit arising out of business than remission of the same cannot be taxed u/s. 41(1) of the Act or u/s. 28(iv). In favour of assessee
Book profit u/s. 115JB – Provision for gratuity - On the basis of actuarial valuation - Unascertained liability – Held that:- It is submitted that this issue is squarely covered in favour of assessee by the Tribunal’s decision in assessee’s own case in A.Y. 2003-04. In favour of assessee
Computation of book profit u/s. 115JB – Provision for diminution in the value of assets - Provision for bad debts – Held that:- As the retrospective amendment was made by (Finance Act, 2002) with effect from 1-4-2001 as per which the amount set aside for a provision for diminution in the value of any asset is to be added back in book profit. In favour of revenue
Computation of book profit u/s. 115JB – Deduction u/s 80 HHC – Held that:- Following the decision in case of Bhari Information Tech Systems (P) Ltd. (2011 (10) TMI 19 - SUPREME COURT OF INDIA) that that deduction claimed by the assessee u/s 80HHE has to be worked out on the basis of adjusted book profit u/s 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. In favour of assessee
Penalty u/s 271(1)(c) - Tax payable as per MAT u/s 115JB - Taxable income was nil as per the regular provision - The tax was payable by the assessee on book profit u/s 115JB - Out of these two additions long term capital loss and depreciation on co-generation power unit for which penalty was imposed by A.O - No addition was made in computing book profit by the AO - There is no impact on tax payable by the assessee – Held that:- Following the decision in case of Vijay Mistry Construction & Rajakamal Builders Pvt. Ltd. (2013 (1) TMI 97 - GUJARAT HIGH COURT) and NALWA SONS INVESTMENTS LTD. (2010 (8) TMI 40 - DELHI HIGH COURT) that Even after making these two additions in regular assessment, income-tax payable by the assessee remained the same being on book profit. When the computation was made u/s 115JB, alleged concealment has no role to play on tax payable and therefore, the concealment did not lead to tax evasion at all and by making this observation, penalty was deleted. In favour of assessee
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2013 (1) TMI 134 - ITAT AHMEDABAD
Unexplained cash deposits - Genuineness and source of cash creditor – Held that:- The assessee has received Rs. 1.59 crore from Praful L. Shah for which written submission made by the assessee on 14.03.2002 and explain the source. The assessee filed a copy of ITR for A.Y. 98-99 before CIT(A). Shri Praful L. Shah was cash creditor in the book of account of the assessee who is assessed to tax with ITO Ward 1 (6), Palanpur. Shri Hemendra L. Shah has given cash to assessee Rs. 45 lakh but source of cash in the hand of cash creditor was Rs. 20 lakh from Parth Mercantile Inc. and Rs. 25 lakh from Shri Dilip Atmaram Modi HUF. The cash creditor is the book account of the assessee is Hemendra L. Shah who had explained cash deposited up to Rs.25 lakh remaining amount had been shown from Parth Mercantile Inc. Therefore, cash credit to the tune of Rs.20 lakh has not explained. We have considered view that genuineness and source of cash creditor has not proved by the assessee in case of Hemendra L. Shah. Accordingly, confirm the addition of Rs.20 lakh.
Addition u/s 68 - Identity of the party - Genuineness of the transaction - Source of the deposit – Held that:- assessee had submitted the confirmation and payments are account payee cheques, therefore, the assessee has discharged his primary onus to prove the genuineness of transaction, identity of person in above cash creditors. Cash credit of Rs.70000/- in case of Speedwell Properties Ltd. including interest has not been disclosed by the cash creditor in its balance sheet. No confirmation of Rs. 21,397/-. Therefore, (70000 + 21397) addition of Rs. 91397/- is confirmed by the CIT (A), is justified.
Addition on account of bank charges and commission – Held that:- As concluding from the facts of the case debit entries as mentioned in books of accounts pertained to interest not bank charges and commission. The CIT(A) has not given any opportunity to the A.O. before admitting the evidence. Remand back to AO.
Addition on account of bills discounting charges – Expense not explained – Held that:- Assessee has given details of discounting charges and claimed that total turnover was Rs. 12.07 crore and gross profit was at Rs. 25.25lacs. The bills discounting charges were pertained to Banks. The CIT(A) has not given any opportunity to the A.O. Therefore matter remand back to AO
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2013 (1) TMI 133 - ITAT MUMBAI
Addition on account of cash credits u/s 68 - Credit worthiness and genuineness of transactions - Assessee had taken fresh loans during the year from seven agriculturists – Held that:- The AO had also failed to examine the issue in detail by either summoning the creditors or for calling for further details. CIT(A) who has power co-terminus with AO in such matters has also failed to examine the issue in detail as he proceeded to make addition on agreed basis. Credit worthiness of the parties was not proved, without giving any further opportunity to the assessee to explain the credit. Remand back to AO
Disallowance of bogus purchases and sub-contract charges - Purchases were not properly substantiated – Assessee submit wrong P.A number – Assessee declared net profit @ 6.5% - Disallowance on account of purchases and sub-contract charges aggregating to Rs. 725 lakhs - Held that:- Disallowance mad by AO result into abnormally high net profit rate of 34.43%. Assessee had done the contract work and had shown total contract receipts of Rs. 2114 lakhs. The business cannot be done without purchases and other expenses, and therefore, the entire claim cannot be disallowed. Profit calculated by AO is highly abnormal cannot be considered as reasonable.
Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. Estimation of net profit rate of 8% by CIT(A) is justified. In favour of revenue
Addition on account of penal charges u/s 37(1) - Delayed execution of contract work - AO had treated the payment as penalty for infraction of law – Held that:- The payment was not for infraction of law cannot be faulted with. Any payment for violation for contractual obligation has to be allowed as normal business expenditure. In favour of assessee
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2013 (1) TMI 132 - ITAT BANGALORE
Shipping business of non-residents - Charterers of the ship - Beneficiary of the freight - India-Netherlands tax treaty – DTAA - Income from operation of ships - Freight beneficiary
Who is the freight beneficiary - In the charter party executed by the owner of the ship (Iranian entity) and the charterer of the ship (Netherlands entity) - If the charterer (Netherlands entity) is the freight beneficiary, the relief under DTAA between India and Netherlands is available - Whereas there is no such benefit if the freight beneficiary is the owner of the Vessel, the Iranian party
Held that:- As concluding from the fact of the case and Clause 14 & Clause 13 that the risk and liabilities undertaken by the charterer M/s Puyvast is only in the event of the tonnage being less than 19500 tonnes. Rising of invoice by the charterer and charging 49 Euros per m.tonn is of no relevance, since substantial portion of the freight is paid to the owner of the ship namely, the Iranian entity. Therefore, the substantial freight beneficiary is the owner of the ship, the Iranian entity and the conclusion of the revenue authorities that relief under DTAA is not allowable is justified. In favour of revenue
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2013 (1) TMI 131 - GUJARAT HIGH COURT
Assessee in default u/s 220 – Validity of demand notice u/s 156 - Service of demand notice - Initiation of Penalty proceedings before issuing order of penalty – Held that:- Section 156 provides for a vital step to be taken by the A.O. without which the assessee cannot be termed a defaulter. The use of the term 'shall' in section 156 implies that service of demand notice is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings. As no notice of demand has been served upon the petitioner. In the absence of service of a demand notice u/s 156 on the petitioner, prior to initiating recovery proceedings, which is mandatory, the very foundation of the recovery proceedings stands vitiated and as such, the same cannot be sustained. In favour of assessee
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2013 (1) TMI 130 - ITAT CHANDIGARH
Undisclosed income - Unaccounted sums of money - Unexplained investment in the purchase of property – Purchase consideration as per sale deed was Rs. 3.70 lakhs whereas sale consideration as per seller was Rs. 38 lakhs – Seller filled revised return on 31.3.2001 in which sale consideration was declared at Rs. 38.00 lakhs – Held that:- Following the decision in case of Shashi Kiran (2010 (8) TMI 767 - PUNJAB AND HARYANA HIGH COURT) and concluding from the facts that the seller has given a categorical statement during cross examination that they had received a sum of Rs. 38.00 lakhs as total consideration including Rs. 35.30 lakhs as cash in addition to Rs. 3.70 lakhs stated in the sale deed. Further this amount has been duly declared by the seller in their revised return and the assessee has not been able to controvert this evidence. In favour of revenue
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2013 (1) TMI 129 - ITAT COCHIN
Disallowance loss on amortization of premium - Purchase of government securities – A.O. argued that the premium given at the time of purchasing “permanent category of investment” is capital in nature – Held that:- Following the decision of Tribunal in assessee’s own has considered an identical issue and delete the disallowance. In favour of assessee
Addition of unclaimed balance of bank deposits - Unclaimed or Overdue deposits – A.O argue that assessee stands enriched by the unclaimed deposits – Held that:- Unclaimed deposits are form part of the bank deposits as reflected in the Balance sheet and have not been appropriated towards profits or income of the bank in the P&L A/c. It cannot be treated as income of the bank unless it has accrued to the bank or has it been received by the bank as its income. Same view has been taken by Tribunal in an identical issue in the assessee’s own case in the order passed for assessment year 2005-06. In favour of assessee
Addition of surplus realised on sale of jewellery - Unjust Enrichment - The assessee bank is advancing money on the security of gold - When the borrower fails to liquidate the loan, the assessee-bank auctions the pledged gold and uses the proceeds to recover the amount lent by it - The excess amount so realised by the bank over and above the outstanding loan amount was shown as its liability under the head “surplus realisation on sale of jewellery” – AO argue that assessee has enriched itself by the surplus amount and accordingly, treated the same as income of the assessee – Held that:- The excess amount on sale of jewellery has neither accrued nor has been received by the bank as its income u/s. 5 of the I.T. Act. It continues to be an ascertained liability of the bank to be returned to the owner. Tribunal has considered an identical issue in the assessee’s own case relating to the assessment year 2005-06. In favour of assessee
Disallowance made u/s. 40(a)(ia) – Late deposit of TDS – Held that:- All the deducted amounts except two small amounts of Rs. 550/- and 400/- had been remitted to the Central Government on or before the last day of the previous year. The above said two amounts which were deducted on 02.06.2005 and 04.08.2005 respectively were remitted into the Government account only on 04.04.2006, i.e., after the expiry of the financial year. Accordingly, the Ld. CIT(A) granted relief in respect of the amounts represented by the TDS which were remitted on or before the end of the relevant year. In favour of assessee
Disallowance of revaluation of loss in unquoted shares - loss on revaluation of shares – Held that:- We set aside the order of the Ld. CIT(A) on this issue and restore the same to the file of the A.O. with the direction to examine this issue in the light of the decision of the Hon’ble High Court of Kerala in assessee’s own case. Remand back to AO
Disallowance made u/s. 14A - Disallowance of proportionate interest - proportionate administrative expenses – Held that:- This issue needs re-examination as per Hon’ble High Court of Kerala in the assessee’s own case at the end of the A.O. Remand back to AO
Addition of excess cash - The cashier of all branches has to tally the receipts and payments of cash of each day with the record maintained by the Accountant. Sometimes, it so happens that the cash balance physically available with the cashier may exceed the cash balance that should be available with him - customer might have remitted more than what was actually mentioned in the challan or the cashier might have disbursed lesser amount than that mentioned in the cheque leaf – banks usually treat the “Excess cash” as its liability, as the bank may receive claim from the concerned party at any point of time - Held that:- As the Tribunal in its order dated 11-02- 2011 passed in the assessee’s own case in I.T.A. No. 10/coch/2009 relevant to the assessment year 2005-06 has upheld the addition of excess cash found with the assessee. In favour of revenue
Disallowance of bond issue expenses - expenses incurred in expanding the capital base is capital expenditure – Held that:- Following the decision in case of East India Hotels Ltd. (2001 (8) TMI 102 - CALCUTTA HIGH COURT) that claim of the assessee that the expenses incurred on issuing debentures is revenue expenditure. Therefore, the expenditure incurred in connection with the issue of debentures, in the facts and circumstances of the instant case, has to be treated as revenue expenditure only. In favour of assessee
Disallowance of claim of depreciation on “Held to maturity” investment – Held that:- This issue is covered by the decision of the Hon’ble High court of Kerala in the assessee’s own case in I.T.A. No. 38/2010 dated 24-02-2011. Restore the same to the file of the AO
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2013 (1) TMI 114 - ITAT AGRA
Addition of business advances to the book profit for the calculation of MAT u/s 115JB - assessee contested as nothing can be added to book profit to calculate MAT except those items which are mentioned in clauses (a) to (g) of explanation (1) of section 115JB - Held that:- The net profit after making addition comes to Rs. 18,80,627/- (15,10,627 + 3,70,000(loans & advances). This amount of Rs. 18,80,627/- is required to be considered as net profit as per the Profit & Loss account shown by the assessee.
Contention of the assessee that only specified adjustment is required to be made is agreeable but the facts of the case under consideration are different because agreed addition before the A.O. is a part and parcel of net profit as shown by the assessee in Profit & Loss Account and, therefore, this is not a part of adjustment. There is no restriction in calculating correct net profit as per Profit & Loss account which includes agreed addition where assessee stated having no business relationship with those persons and as was pre occupied by some personal work was unable to produce persons & in order to buy peace of mind and having assurance not to impose penalty, offer the amount which he has received from those persons be treated as their income.
Thus when the net profit of the assessee is the net profit shown in the Profit & Loss account plus agreed addition, that will be the net profit as per the assessee and in the light of the fact, that the A.O. did not make any extra adjustment. The AO has made correct net profit accepted by the assessee therefore no infirmity neither in the order of A.O. nor in the order of CIT(A) - against assessee.
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2013 (1) TMI 113 - ITAT BANGALORE
Interest u/s 234C - assessee is in the business of real estate development - search action u/s 132 - Held that:- The assessee has claimed to have earned the business income only at the fag end of the financial year by the delivery of possession of the property and that this delivery of possession is as per the agreement between the assessee and the developer. The decision of the Tribunal in the case of Jindal Irrigation Systems (1995 (8) TMI 97 - ITAT HYDERABAD-A) is very much applicable to the facts of the case as the claim of the assessee that the income has accrued to the assessee on 28.3.2008 has not been examined by the authorities below - remand the issue to the file of the AO with a direction to examine the claim of the assesee and if it is found that the income has in fact accrued to the assessee on 24.3.2008, then no interest u/s 234C shall be charged.
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2013 (1) TMI 112 - ITAT BANGALORE
Exemption u/s.10-B - Income of eligible units entitled to exemption u/s.10-B will not form part of the total income under Chapter-III of the Act - disallowance of set off of income of non-eligible unit against the loss of the eligible unit - Held that:- As decided in CIT v. Yokogawa India Ltd [2011 (8) TMI 845 - KARNATAKA HIGH COURT] it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee & not after computing the gross total income. Also when there is positive income of the eligible unit then the same should be allowed deduction u/s. 10B without setting of the loss of non-eligible unit but when the eligible unit incurs loss than that will have to be set off against income if any of the non-eligible unit. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise.
The expression "Deduction" and "shall be allowed from the total income of the Assessee" used in the provisions was considered by the Hon'ble High Court and it held that the expression "shall be allowed from the total income of the Assessee" does not mean total income as defined u/s. 2(45) but that expression means "profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit." Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. Therefore unable to accept the plea of the Assessee that the Hon'ble Karnataka High Court has only held that income of the Sec. 10B unit has to be excluded before arriving at the gross total income and not after computing the gross total income.
As during the period when the eligible unit enjoys exemption u/s.10B if it suffers a loss then the same will be quarantined and carried forward to the assessment years immediately following the last of the assessment years for which the Assessee is entitled to claim exemption u/s.10B, for being set off in accordance with law as if it were any other loss to be dealt with in accordance with Sec.70 to 72 and 32(2). It is also clear that the loss suffered by the eligible unit u/s.10-B during the period it claims exemption without opting out of those provisions will only remain in suspension to be revived immediately after the tax holiday period. Therefore the set off of the eligible unit loss against income of non eligible unit during the tax holiday period when the Assessee has not opted out of the incentive provisions for this year cannot be allowed and has been rightly not allowed by the Revenue authorities. If the claim of the Assessee is accepted then that would mean that the Assessee will have two benefits u/s.10B first being an exemption of the commercial profits during the tax holiday period on a stand-alone basis without the threat of being set off against loss of any other undertaking & second that its losses during the tax holiday period can be set off against the income of the non-eligible undertaking. As the second benefit is not available during the tax holiday period and the provisions of Sec.10B(6) allow them to be kept in suspense to be set off after the tax holiday period the claim of the Assessee in the present case was rightly not accepted by the revenue authorities - against assessee.
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2013 (1) TMI 111 - DELHI HIGH COURT
When can it be said that the business commenced for the purpose of determining its tax liability? - Held that:- As decided in CWT v. Rama Raju Surgical Cotton Mills Ltd [1966 (10) TMI 41 - SUPREME COURT] A unit cannot be said to have been set-up unless it is ready to discharge the function for which it is being set-up. It is only when the unit has been put to such a shape that it can start functioning as a business or a manufacturing organization that it can be said that the unit has been set-up.
Reasoning given by the AO in his order for the assessment year 1998-99 is clear and conclusive that heavy expenditure incurred by the assessee to create an infrastructure for facilitation of future business, hence, benefit of enduring nature was imposed to be derived. It accepted the assessee's contentions with regard to having commenced business with effect from 01.01.1997. It was only on the basis of such a fundamental premise that income was assessed and certain disallowances were made. In these circumstances, it would be unfair for the revenue to contend for each successive assessment year that the assessee had to establish that it "commenced business." The evidence on record clearly shows that substantial services were being rendered and salaries etc. were disbursed even though on reimbursement basis. The mere fact that other service charges are meager in nature would not, in any way, influence the decision as to whether business was commenced.
Furthermore, in line with the decision of this Court in ESPN Software (P.) Ltd. (2008 (3) TMI 90 - DELHI HIGH COURT) the question of date of commencement of business is one of fact. It is setting-up of business and not commencement that is to be considered. Having regard to these circumstances, it is held that the findings of the Tribunal in the impugned common judgment and order are sound and do not call for interference. The question of law is accordingly answered in favour of the assessee.
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2013 (1) TMI 110 - ITAT BANGALORE
Deduction under section 10A in respect of Bangalore unit (STPI unit) - assessee company had two units, one in Bangalore[STPI unit] and another in Mumbai (Non STPI Unit) - brought forward losses of STPI unit without setting off the carry forward losses as well as the loss of the current year pertaining to Non-STPI unit OR after setting off the unabsorbed loss of the same unit and the current year’s loss of the non-STPI unit - Held that:- As decided in CIT Versus Yokogawa India Ltd. [2011 (8) TMI 845 - KARNATAKA HIGH COURT] deduction u/s 10A/10B is allowable without setting off the non-STPI unit - As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit u/s 72.
Exclusion of telecommunication expenses and travelling expenses incurred in foreign currency from the export turnover & not from the total turnover while calculating deduction u/s 10A - Held that:- As decided in CIT v M/s Tata Elxsi Ltd. & Others [2011 (8) TMI 782 - KARNATAKA HIGH COURT] while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator.
When the statute prescribed a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same - Thus CIT(A) was justified in directing the AO to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while computing deduction under section 10A - in favour of assessee.
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2013 (1) TMI 109 - ITAT HYDERABAD
Provision for CISF security expenses - liability is in the nature of a contingent liability and cannot be allowed as a deduction for the AY 2007-08 - Held that:- Perusal of records depicts that the liability to share the expenses for the security provided by NFC is an accrued liability. In fact, NFC had raised bills and assessee paid for the same for the first two quarters for the relevant previous year but for the last two quarters, for whatever reason, the NFC has not raised bills and assessee therefore had to make a provision for the said expenditure. Similar expenditure has been claimed and allowed by the ITAT in assessee's own case for the AY 2003-04 following the decision of the Apex Court in case of Bharat Earth Movers v. CIT [2000 (8) TMI 4 - SUPREME COURT] wherein held that once a liability has accrued, then even if such liability can be quantified and settled only at future point of time, is allowable deduction in the year in which the liability has accrued. Similarly Supreme Court in the case of Rotork Controls India (P.) Ltd. v. CIT [2009 (5) TMI 16 - SUPREME COURT OF INDIA] had held that a provision made for warranty expenses, even though will be actually expended at a later point of time, is an allowable expenditure in the year of sale of product for which such warranty has been given
The liability to pay security expenses to NFC accrued during the financial year and it was not contingent upon any other happening. The mere fact that it was not quantified during the year by way of raising of bills by NFC could not alter the fact that such liability even though on an estimated basis is an accrued and allowable liability. In the present case there is no dispute that the liability to share the expenses for security provided by NFC has accrued and pertains to the year under appeal. Therefore, the estimated liability for such expenses provided for in the books of account by the assessee is an allowable expenditure - appeal of the Assessee regarding disallowance of ₹ 69 lakhs out of the provision made for their share of security expenses is allowed.
Weighted deduction u/s.35(2AB) - Held that:- As per the provisions of sec 35(2AB) as applicable to the relevant AY, the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as ₹ 3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35(2AB) - Uphold the decision of lower authorities in restricting the weighted deduction u/s.35(2AB) to ₹ 46,89,03 lakhs and disallowing sum of ₹ 1,69,73,987 out of the claim made by the assessee.
Disallowance of provision for wage revision arrears - Held that:- As held in the assessee's appeal (supra) the liability to share the expenses for the security provided by NFC is an accrued liability. Hence the entire amount of ₹ 2,62,42,012 claimed by the Assessee is an allowable expenditure.
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2013 (1) TMI 108 - ITAT NEW DELHI
Penalty u/s 271D & 271E - search and seizure - unaccounted accepting & repayment loans and deposits - defaults within the meanings of section 269SS and section 269T - Held that:- A detailed enquiry was made from Shri Yogesh Gupta, directors/partners of the assessee and the group concerns in respect of various papers seized from him and in respect of not a single paper, he has stated that the noting on the paper is relating to borrowing by the assessee. In respect of each and every paper, he explained the nature of transaction and in most of the cases also explained the name of the group concern to which such paper belonged. In respect of only few papers he mentioned that these papers belonged to M/s Home Developers (P) Ltd., i.e., the assessee. He stated that these papers are relating to purchase of property No.A-9/33, Vasant Vihar, New Delhi in respect of which cash payment of Rs.54 lakhs was made and which was offered as additional income.
The Hon’ble Jurisdictional High Court has also considered his statement while deciding the Revenue’s appeal for AY 2001-02, 2002- 03 & 2003-04 and has recorded the similar finding that with regard to the loose papers, Shri Yogesh Gupta had stated that these were unaccounted transactions in cash. In his statement, he also surrendered the income of Rs.13 crores in his name and in the name of the group concern & the Revenue was fully satisfied by the surrender made and closed their investigation. The above finding of the are squarely applicable to the year under appeal also because in this year also, the Revenue has brought no other material on record to establish that as per the loose papers, any amount was borrowed by the assessee. They have not even examined the person whose name is claimed to have been mentioned on the loose papers. In the loose papers, no where it is mentioned that they belonged to the assessee i.e. M/s Home Developers (P) Ltd. which is a company.
All the entire addition is based upon the presumption of the AO. On the loose papers, there is noting of dates and amounts without any narration. The total of such amount is Rs.2,40,000/- & not as presumed Rs.2,40,00,000/-. The noting is relating to loan taken by the assessee & the loan was repaid during the accounting year relevant to the assessment year under consideration alongwith interest at the rate of 20%. On these series of presumptions, he not only made huge additions running into crores of Rupees but also levied penalties under Sections 271D & 271E. His finding is neither based upon the noting on the loose papers nor any corroborative evidence brought on record during the course of assessment proceedings - thus when it is not established that the assessee had taken loan or deposit, the question of further presumption that such loan or deposit was repaid during the year under consideration was without any basis or material on record - the penalties levied u/s 271D and 271E cancelled - in favour of assessee.
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2013 (1) TMI 107 - ITAT LUCKNOW
Penalty u/s. 271B - Failure to get accounts audited u/s 44AB - assessee contented that its entire income being tax exempt u/s.80P accordingly there being no loss to the Revenue - A.Y. 2006-07 - Held that:- No reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited u/s. 44AB in view of its entire income being exempt u/s. 80P. Its' statutory audit was completed well in time, so that it was definitely in a position to obtain an additional report u/s. 44AB from a firm of Chartered Accountants, i.e., were it to be in its knowledge or been so advised. In fact, had its statutory auditors qualified to be Accountants under the Act, they would have themselves guided the assessee properly in this regard. The same, nevertheless, shows the assessee's bonafides in the matter, it getting its accounts audited as well as filing the return of income in time. Therefore, of the view that in the facts and circumstances of the case, there was sufficient cause for the AO not to levy penalty u/s. 271B for the first year (i.e., A.Y. 2006-07) in spite of the default in complying with the provision of s. 44AB, which the said (former) section seeks to penalize, and accordingly direct its deletion.
A.Y. 2006-07 - The return for the second year (i.e., A.Y. 2007-08) was filed on 24-09-2007, even as, the show-cause notice for the levy of penalty u/s. 271B for the first year (A.Y. 2006-07) stood issued to it on 13-06-2007. As such, ignorance of law, i.e., of it being required to get its accounts audited u/s. 44AB irrespective of the quantum and nature of its income, including the tax status, tax-exempt or otherwise, thereof, which forms the edifice of the assessee's case, completely breaks down for the second year, i.e., A.Y. 2007-08. Having been served with a legal notice for the levy of penalty u/s. 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year and, in any case, seek legal opinion in its respect. Rather, it could have, on its own, requested the AO not levy the penalty for that year (i.e., A.Y. 2006-07), explaining that the non-audit of its accounts u/s. 44AB stood caused only due to its ignorance of law, acting though in good faith, and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort, it goes ahead to file the return of income for the following year, after over three months, again in the same manner, i.e., without getting its accounts audited and obtaining a report u/s. 44AB, which it was mandatorily required to furnish. That is, the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of 'reasonable cause' would thus not obtain for the second year, and the levy of penalty u/s. 271B for the assessment year 2007-08 is accordingly upheld.
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2013 (1) TMI 106 - ITAT DELHI
Fee for Technical Services - whether the consideration received under the Buying Agency Services Agreement ('BAS') could be characterized as 'fees for technical services' u/s 9(1)(vii) and accordingly by taxed under the provisions of section 115A - penalty u/s 271AA - Held that:- It is evident that for a particular stream of income to be characterized as 'fees for technical services', it is necessary that some sort of 'managerial', 'technical' or 'consultancy' services should have been rendered in consideration. The terms 'managerial', 'technical' or 'consultancy' do not find a definition in the Income-tax Act, 1961 and it is a settled law that they need to be interpreted based on their understanding in common parlance.
In the case of Skycell Communications Ltd's case (2001 (2) TMI 57 - MADRAS HIGH COURT), it was held that the popular meaning associated with the word 'technical' is 'involving or concerning applied and industrial science'. The consultancy should be rendered by someone who has special skills and expertise in rendering such advisory.
Perusal of copies of the Buying Agency Services agreement depicts the nature of services have not been disputed. Department has only interpreted them to be amounting to 'Fees for Technical Services', but these are not technical services but routine services offered in the procurement assistance. The agreements demonstrate that the assessee was to receive commission for procuring the products of AIMPL and rendering incidental services for purchases. The primary services provided by the assessee to AIMPL in terms of the Buying Agency Services agreement are Co-ordinate between AIMPL and manufacturers for the purpose of buying the merchandise,assisting in negotiations,procurement of samples and sending them to AIMPL,maintaining relationship with the manufacturers and search for new manufacturers,supply credit reports and other marketing information concerning manufacturers and to provide translation services as required for communication between AIMPL and the manufacturers.
Applying these principles and as decided in Linde A.G. v. ITO [1997 (1) TMI 479 - ITAT MUMBAI ] to the facts of the present case, the services rendered by the assessee in this case were purely in the nature of procurement services and cannot be characterized as 'managerial' 'technical' or 'consultancy' services. Accordingly, the consideration received by the assessee was appropriately classified as 'commission' as against 'fees for technical services'.
Penalty u/s 271AA & 271BA - No separate proceedings have been initiated so far and the Grounds about levy of interest u/s 234B, 234D and 244A are consequential in nature. Ground regarding TDS credit will be verified by the AO in accordance with law - assessee's appeal is allowed on above terms.
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