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Income Tax - Case Laws
Showing 21 to 40 of 645 Records
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2016 (10) TMI 1361 - ITAT MUMBAI
Assessment u/s 153A - valid initiation of search - assessee has challenged execution of warrants and also whether valid search was initiated in this case? - HELD THAT:- Search will be deemed to be concluded on the basis of last panchnama drawn in relation to the person in whose case the warrant of authorization has been issued and in the instant case , we have observed that no panchnama was drawn against the assessee so it can be concluded that search against the assessee got vitiated as no panchnama was ever prepared against the assessee. The search is a serious invasion into the privacy of the person infringing on fundamental rights as enshrined in Article 21 of the Constitution of India and the same cannot be lightly carried out by the State in an casual or lax manner. The Revenue has prepared the Panchnama in the name of ‘Manoj B Punmia and group’ while there is no concept of word ‘group’ in the Act in context of search proceedings.
Incidentally in the instant appeal , there is no panchnama drawn by the Revenue against the present assessee which is an admitted position. Keeping in view the facts and circumstances of the case, we are of considered view that the search proceedings in the case of present assessee got vitiated due to non-preparation of the panchnama in the name of the assessee which evidences conclusion of the search and which effectively decides against whom the Revenue has conducted search so much so further actions are required to initiate assessment proceedings u/s 153A of the Act for the last six years against the person so searched within the time stipulated u/s 153B.
Thus, in the absence of panchnama being drawn against the assessee, no incriminating material having been found pertaining to the assessee and also the premises searched did not belonged to the assessee, it could be concluded based on the cumulative effect of all the above-stated relevant facts that no valid search was conducted against the assessee and the assessment u/s 153A of the Act is bad in law hence liable to be quashed. Why, despite a ‘search’, we observe a ‘notice’ u/s 153C as well as a survey being conducted on the assessee in the present case.
Disallowance made on account of unexplained purchases to 50% - Since, we have declared the proceedings u/s 153A as null and void, these appeals for impugned assessment years have also remained for academic interest only. Since, the basis for making the assessment/reassessment has been declared as null and void, therefore, the same ratio will be applicable to the appeals of the Revenue also, consequently, dismissed, therefore, these appeals are also decided in favour of the assessee.
Incriminating material found during the course of search or not? - The assessee company had filed return of income on 20-10-2004 u/s 139(1) of the Act. The time limit for service of notice u/s 143(2) of the Act for the said relevant period was till the expiry of twelve months from the end of the month in which the return is furnished i.e. up-to 31-10- 2005. The search was initiated on 31-10-2009 and hence the period with in which Revenue could have issued notice u/s 143(2) of the Act to frame assessment under Section 143(3) of the Act has already expired and hence the assessment for the impugned assessment year is a concluded assessment as stipulated u/s 153A of the Act on the date of search on 31- 10-2009. Thus, as per mandate of Section 153A of the Act the concluded assessment can be re-opened for framing assessment u/s 153A of the Act provided there is an incriminating material found during the course of search. Since, in the instant case no incriminating material was during the course of search against the assessee company for the impugned assessment year, no additions can be sustained. - Assessee appeal allowed.
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2016 (10) TMI 1360 - ITAT CHENNAI
Disallowance under section 14A r.w.r 8D towards expenditure incurred for earning exempt income while computing tax under section 115JB - computing the “book profit” of the company under section 115JB of the Act which is a section with fiction another provision with fiction such as section 14A cannot be imported - HELD THAT:- As relying on M/S. BEACH MINERALS COMPANY PVT LTD [2015 (8) TMI 1031 - ITAT CHENNAI] held that while computing the “book profit” of the company under section 115JB of the Act which is a section with fiction another provision with fiction such as section 14A cannot be imported - we hereby hold that in the case of the assessee provisions of section 14A cannot be invoked for the purpose of computing tax under section 115JB of the Act. Thus, this ground raised by the assessee is held in its favour.
Disallowance being the compensation paid for delayed commissioning of windmills - HELD THAT:- For the relevant assessment year, it appears that the assessee had promised compensation to its sister concerns which are loss making concerns. The apprehension of the Revenue is that the assessee had promised such payments to its clients who are its sister concerns in order to shift its profit to those companies which are loss making companies. Therefore in order to ascertain the genuineness of the promised payment, we hereby remit the matter back to the file of the learned Assessing Officer who shall verify the parameters considered by the assessee while paying compensation to its client M/s. Indonet Global Ltd., for the assessment year 2006-07 [2016 (10) TMI 1358 - ITAT CHENNAI] and if the same falls in parity in the case of the assessee for the relevant assessment year, then allow the claim of deduction though the compensation has been shown only as payable, otherwise pass appropriate orders as per law & merit.
Disallowance being the expenses related to issue of FCCB - foreign currency convertible bonds issue expenses - as submitted that the expenditure is allowable under section 37 of the Act because these expenses related to obtaining loan - HELD THAT:- From the facts of the case, we find that the entire expense is incurred by the assessee during the previous year 2006-07 relevant to the assessment year 2007-08. Further, this is an expense incurred for either raising loan or for raising capital. If the expense is incurred for raising loan then the same will be allowed as deduction spread over evenly for the period of loan extended because it is an expenditure related to the financial charge. However, if the amount is incurred for raising capital, then the same will not be allowed as deduction by virtue of the decision of the Hon’ble Apex Court in the case of Brooke Bond India Ltd. Vs. CIT [1997 (2) TMI 11 - SUPREME COURT] Therefore, we hereby remit back the matter to the file of the learned Assessing Officer for fresh consideration in the light of our observations made herein above.
Disallowance being difference in depreciation as per Companies Act - HELD THAT:- It appears that the assessee had claimed higher depreciation than what is prescribed by the Companies Act while computing book profit for the purpose of tax under section 115JB of the Act, the difference of which being Rs.1,36,56,865/-, though the facts are not clearly emerging out of the order of the learned Assessing Officer or the learned Commissioner of Income Tax (Appeals). Since the facts are not clear, we remit back this issue to the file of the learned Assessing Officer for de novo consideration. We also direct the learned Assessing Officer to consider the decision rendered by us in the Revenue’s appeal [2016 (10) TMI 1358 - ITAT CHENNAI] in the case of the assessee’s own case, and if the facts are identical on the issue as discussed of the above said order then pass appropriate in the light of the same.
Addition being the impairment losses charged to P&L A/c as per Accounting Standard-28 for the purpose of determining book profit under section 115JB - CIT-A deleted the addition - HELD THAT:- Section 2(11) (3A) of the Companies Act provides that the profit and loss account and balance sheet of the company shall comply with the accounting standards.
Accounting Standard-28 states that an asset is said to be impaired when carrying amount of the asset is more than the recoverable amount. It further states that such impairment loss on the asset is to be accounted and the asset should be shown in the balance sheet at its cost less depreciation less impairment loss. Precisely the impairment loss has to be written off in the books of accounts by debiting to profit & loss account and crediting to asset account. This is mandatory as per Accounting Standard-28, which every company has to follow while preparing its statement of affairs.
As held by the learned Commissioner of Income Tax (Appeals) there is no whisper in the provisions of section 115JB of the Act for adding back the impairment loss to the profit & loss account of the assessee while computing “book profit” & tax under section 115JB of the Act. Therefore, we do not find it necessary to interfere with the orders of the learned Commissioner of Income Tax (Appeals) on this issue. - Decided against revenue.
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2016 (10) TMI 1358 - ITAT CHENNAI
Disallowance of bad debts to the extent of 4/5th u/s 35D - HELD THAT:- From the facts of the case, it is apparent that the loss arising due to the non recoverability of the advances made to M/s. Cicon Environment Technologies Ltd., pertains to the expansion program of the current business of the assessee. Section 35D(1) of the Act clearly stipulates that where the assessee after commencement of its business in connection with the extension of its undertaking or in connection with its setting up of a new unit incur any expenditure after 31st day of March, 1998 towards preparation of feasibility report, preparation of project report and for conducting market survey, then the assessee will be entitled to deduction for an amount equal to 1/5th of such expenditure for each of the five successive previous years. But in the case of the assessee the loss is due to non recoverability of advances made and not for any expenditure incurred by the assessee. Therefore, we are of the considered view that the assessee deserves deduction for the entire loss instead of amortization under section 35D of the Act. Hence, we hereby direct the learned Assessing Officer to treat the amount as business loss and grant deduction provided the debt is written off in the books of accounts of the assessee. Thus, this issue is allowed in favour of the assessee as indicated hereinabove.
Disallowance of compensation payment made for delayed commissioning of windmills - HELD THAT:- We find merit in the contention of the learned Authorized Representative. The amount of Rs.65.00 lakhs paid by the assessee to its client was due to the delay in commissioning of the project and in order to compensate for the loss of profit. Further, the assessee had also received an amount of Rs.3.00 crores as interest free advances for the execution of the project which is also required to be compensated. Considering all these facts and as a result of mutual agreement between the assessee and its client, the assessee had paid Rs.65.00 lakhs as compensation. Such compensation no doubt falls in the revenue field and therefore it has to be allowable as deduction as per section 37 of the Act. Hence, we hereby direct the learned Assessing Officer to delete the addition made on account of the disallowance of Rs.65.00 lakhs in the hands of the assessee. Thus this issue is allowed in favour of the assessee.
Claim of bad debt in respect of advances made to M/s. Soprano Holdings Pvt. Ltd. - HELD THAT:- Assessee's claim of bad debt written off, on account of advance made to M/s. Soprano Holdings P. Ltd., is allowable u/s.28 of the Act. The Assessing Officer is directed to allow the same.
Bad debts allowed to the extent of 1/5th of the total claim - HELD THAT:- Since in the assessee’s appeal herein above, we have allowed the entire deduction of Rs.65.00 lakhs claimed by the assessee, provided it is written off in the books of accounts of the assessee for the relevant assessment year, this ground raised by the Revenue is also disposed off accordingly.
Disallowance of bad debts written off being land advance given to M/s.Wipro Finance Ltd. - HELD THAT:- We are of the considered view that the assessee has incurred loss during the course of its regular business and therefore it is entitled to claim the same as business loss. Therefore, we hereby direct the learned Assessing Officer to delete the addition in the hands of the assessee.
Addition being rupee fluctuation loss on foreign currency convertible bonds - CIT-A ) held that the assessee would be only entitled for deduction on account of rupee fluctuation losses on the FCCBs in the year of actual redemption/ conversion - HELD THAT:- Accounting Standard 11 clearly stipulates that the monetary items such debtors, creditors and loans should be converted at the closing rate and reported as such in the balance sheet by charging the same to the profit & loss account. Accounting Standards are nothing but tools to determine the actual profit or loss incurred by the assessee during the relevant year - in the case of CIT Vs. Woodward Governor India Pvt. Ltd. [2009 (4) TMI 4 - SUPREME COURT] has clearly held that an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any differences, loss or gain arising on conversion of such liability at closing rate should be recognized in the profit & loss account for the reporting period. Therefore, we are of the considered view that the assessee would be entitled for deduction towards the loss incurred provided the provisions of section 43A of the Act relating to change in rate of exchange of currency is not applicable in the case of the assessee. Hence, we hereby direct the learned Assessing Officer to examine the applicability of section 43A of the Act in the case of the assessee and if the same is not applicable allow the claim of deduction or such proportionate amount on which section 43A of the Act is not applicable. It is ordered accordingly.
Additional depreciation - As per AO higher claim of depreciation more than what is prescribed by the Companies Act is not allowable while computing the book profit under section 115JB - HELD THAT:-The circular No.2/89 issued by the Finance Ministry clearly states that any company is entitled to provide higher depreciation in the books based on risk like technological risks perceived by the management, genuine realizable value according to market practice etc.In the case of the assessee, the genuineness of the additional claim of depreciation by the assessee is not disputed.
There is no bar under the Companies Act to charge higher depreciation other than what is recommended under the Companies Act. The Assessing Officer is barred from making any adjustments on the book profit for the purpose of computing tax under section 115JB of the Act other than what is specified in the Act.
Commissioner of Income Tax (Appeals) after considering all these facts has rightly held the issue in favour of the assessee. Therefore, we do not find it necessary to interfere with the order of the learned Commissioner of Income Tax (Appeals).
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2016 (10) TMI 1356 - ITAT MUMBAI
Eligible for claim of exemption u/s 10(38) with respect to gain/loss on sale of investments - HELD THAT:- It is pointed out that in Assessment Year 2004-05 also the Tribunal vide its order [2013 (10) TMI 1130 - ITAT MUMBAI] followed its earlier decision [2012 (11) TMI 587 - ITAT MUMBAI] and allowed the claim of the assessee. Similarly, in Assessment Years 2005-06 and 2006-07, the Tribunal has upheld its earlier order - It has also been pointed out that in Assessment Year 2007-08 also, the Tribunal vide [2015 (2) TMI 1372 - ITAT MUMBAI] has decided the issue in favour of the assessee. Apart therefrom, the learned representative for the assessee pointed out that the view of the Tribunal is also in consonance with the clarification issued by CBDT vide Circular dated 21.02.2006, which has indeed been referred by the CIT(A) in the impugned order.
Eligible for claiming exemption u/s 10(15) - HELD THAT:- It is seen that the CIT(A) allowed the plea of assessee by referring to the clarification issued by CBDT dated 21.02.2006 whereby it is clarified that exemption available to any other assessee under any of the clauses of Sec. 10 of the Act shall also be made available to a person carrying on non-life insurance business. Apart therefrom, at the time of hearing the learned representative for the assessee has referred to the decision of Tribunal in the case of assessee for Assessment Year 2007-08 2015 (2) TMI 1372 - ITAT MUMBAI] wherein similar issue has been decided in favour of the assessee following precedents in the case of ICICI Prudential Insurance Co. Ltd. [2012 (11) TMI 13 - ITAT MUMBAI] and New India Assurance Co. Ltd. [1967 (10) TMI 16 - BOMBAY HIGH COURT] - Decided in favour of assessee.
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2016 (10) TMI 1355 - ITAT AHMEDABAD
Disallowance u/s 40A(3) for Freight Outward Expense and for freight Inward Expense - HELD THAT:- It is an undisputed fact that the genuineness of the payments have not been doubted by the revenue authorities. It is also an admitted fact that the assessee has deducted tax at source from the applicable rates and the TDS has been deposited in the government account. It is also an admitted fact that the nature of business of the assessee is such that it has to hire transport operators for the movement of its goods, raw material as well as finished.
We have no hesitation to hold that in the present case also neither the genuineness of the payment nor the identities of the payee were in any case doubted. Considering the totality of the facts qua the business of the assessee, we do not find any merit in the additions made u/s. 40A(3) of the Act. We, accordingly, set aside the findings of the ld. CIT(A) and direct the AO to delete the impugned additions. - Decided in favour of assessee.
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2016 (10) TMI 1354 - ITAT AMRITSAR
Withdrawal of the appeal - HELD THAT:- Keeping in view the request made by the assessee in the aforesaid application, the present appeal is dismissed as withdrawn. In the result, the appeal is dismissed as withdrawn.
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2016 (10) TMI 1351 - ITAT AHMEDABAD
Addition on account of guest fees and hire charges - HELD THAT:- As decided in own case [2013 (1) TMI 1031 - ITAT AHMEDABAD] Revenue has not brought any contrary binding decision in its support nor has placed any material on record to demonstrate that the decisions of the Tribunal in assessee’s own case for AY 200-07 has been set aside by Hon’ble Jurisdictional High Court. We further find that reliance placed by the Revenue in the case of Sports Club of Gujarat Ltd. vs. CIT [1987 (10) TMI 21 - GUJARAT HIGH COURT] are on different facts and, therefore, the ratio of the judgement is not applicable to the facts of the present case. In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A) and thus the ground of Revenue is dismissed.
Disallowance of deduction claimed from income from other sources u/s 57(iii) - disallowance on account of 'income from other sources' u/s57 which Assessee failed to prove to have been incurred wholly & exclusively for the purpose of earning such interest income - HELD THAT:- As from A. Y. 1989-90 onwards, the issue had become settled i.e. the interest income would be charged as income from other sources and 10% of the same would be allowed as deduction for concerned expenses. In the A. Y. 2010- 11, the AO is raking up the controversy after 20 years on the issue which has not been agitated by either of the side. This is not the new issue to my mind, therefore, the principle of consistency required to be followed as has been held in various below mentioned case laws DCIT Vs. Sulabh International Social Service Organisation [2011 (3) TMI 526 - PATNA HIGH COURT] CIT Vs. Ranganathar & Co. [2007 (8) TMI 338 - MADRAS HIGH COURT] Gopal Purohit [2010 (11) TMI 222 - SC ORDER] Thus disallowance made by the A. O. is hereby deleted.
Looking to the facts of the present case we find that assessee has been claiming 10% of the interest income and the same has been consistently allowed for last so many years. Therefore, we find no reason to interfere with the order of ld. CIT(A). We uphold the same. This ground of Revenue is also dismissed.
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2016 (10) TMI 1350 - ITAT KOLKATA
Correct head of income - short term gain v/s business income - whether the STCG on transaction of purchase and sale of units of mutual funds and shares undertaken by the assessee during the previous year is to be assessed under the head ‘income from business’ as claimed by the revenue or income under the head ‘capital gain’ as contended by the assessee? - HELD THAT:- It is not in dispute that the shares and mutual funds that were sold during the previous year, which resulted in the income in question, were held by the Assessee as “Investments” and not as “Stock-in-trade”. The assessee during the previous year had entered into 490 transactions of purchase and 646 transactions of sale of shares, units of mutual funds. Out of the above in respect of 207 transactions the sale was made within 30 days of purchase. The question is as to whether the volume and frequency can for the basis for drawing an inference that the Assessee was engaged in business. The Hon’ble ITAT Mumbai Bench i
In the case of Janak S.Rangwala Vs. ACIT [2006 (12) TMI 261 - ITAT MUMBAI] has held that magnitude of the transaction does not alter the nature of the transaction. As we have already seen it is not in dispute that the Assessee had treated the shares and units as investments in its books of accounts. Similar transactions have been accepted by the revenue in assessments for AY 2005-06 as giving raise to capital gains and not as business income in the assessment completed u/s.143(3) of the Act after scrutiny. There was no borrowing by the Assessee out of which investment in shares and units were made.
As we have already seen that the AO in AY 05-06 accepted similar income as capital gain. Even for AY 2006-07 the AO accepted the claim of the Assessee and it was only pursuant to the order u/s.263 of the Act, the AO took a different view. It is not disputed by the revenue that the facts and circumstances in the AY 05-06 and the present AY 2006-07 are identical. Though the rule of res judicata is not applicable in income tax proceedings but the principle of consistency will definitely apply and on that basis the claim of the Assessee should be held to be proper. - Decided against revenue.
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2016 (10) TMI 1349 - ITAT KOLKATA
Deduction u/s.80IA - HELD THAT:- A coordinate Bench of this Tribunal in the case of Assessee’s own case in respect of AY 2003-04 confirmed the finding of the learned CIT(A) to the effect that the Assessee is entitled to the deductions under section under section 80-IA of the Act. Rule of consistency, as laid down in CIT Vs. N.P.Mathew [2005 (5) TMI 13 - KERALA HIGH COURT] demands that the department should adopt consistent approach on an issue in respect of the same Assessee in different years. While respectfully following above we find that the findings of the learned CIT(A) on this aspect are proper and legal. No need to interfere with the same. Hence these grounds are dismissed.
Disallowance of the expense u/s. 14A - HELD THAT:- These appeals relating to the assessment years 2004-05 and 2005-06 to which years Rule 8D of the Rules has no application. Rule of consistency, as laid down by the Hon’ble Kerala High Court in CIT Vs. N. P. Mathew [2005 (5) TMI 13 - KERALA HIGH COURT] demands that the same approach should be adopted in respect of the same assessee in different years. While respectfully following the decision of the coordinate bench of this Tribunal referred supra, we hold that the findings of the Ld. CIT(A) in the impugned orders on this ground needs no interference.
Disallowance of the telephone expenses to an extent of 5% - Addition by the AO on the ground that the expenses on account of personal calls by the employees of the company were debited and also the expenses for residential phones and mobile phones were claimed - HELD THAT:- On this aspect, the assessee relied on the decisions reported in Sayaji Iron & Engg. Co. [2001 (7) TMI 70 - GUJARAT HIGH COURT] and Intersil India Ltd. [2004 (10) TMI 595 - ITAT MUMBAI] and it is submitted that since the assessee is a corporate entity, there cannot be any personal expenditure. It is further submitted that in respect of AY 2005-06 the Ld. CIT(A) deleted such an addition based on ad hoc disallowance in the telephone expenses and the department has not preferred any appeal against such finding. On a careful consideration of the orders of the authorities below the judgments cited by the assessee and also in view of the fact that as against the deletion of the disallowance of a portion of telephone charges the department preferred no appeal, we find that the order of the Ld. CIT(A) is consistent with the judgment of the Hon’ble Kerala High Court in N. P. Mathew, supra and we uphold the same. This ground is dismissed accordingly.
Allowability of club expenditure - HELD THAT:- As balance amount relating to club services may be allowed as business expenditure. In view of the decision of Hon’ble Supreme Court in CIT Vs. United Glass Manufacturing Co. Ltd. [2012 (9) TMI 914 - SUPREME COURT] the membership expenses of the club incurred by the assessee are allowable as deduction u/s. 37(1) - AR fairly conceded that club membership is to the individual whereas the expenditure relating to club services and entrance fee are for business purpose. In these circumstances, we uphold the disallowance of the expenditure relating to the club membership for both the assessment years. However, disallowance in respect of the club services are the entrance fee are relatable to the United Glass Manufacturing Co. Ltd., [2012 (9) TMI 914 - SUPREME COURT] we delete the disallowance relating to the club services and entrance fee. To this extent these two grounds of cross objections of assessee are allowed in part.
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2016 (10) TMI 1348 - ITAT HYDERABAD
Revision u/s 263 - as per CIT AO has allowed (i) depreciation @ 60% on additions made to computers and its peripherals in the depreciation schedule and also (ii) depreciation on intangible asset, though the asset was not completed and still is in the state of progress i.e. pre-operative stage - HELD THAT:- As during the assessment proceedings u/s 143(3) of the Act, the AO had issued a notice u/s 143(3) along with a questionnaire wherein item Nos.3 & 4, the assessee was directed to furnish the bills/invoices for additions made to computers and vehicles along with the bank a/c statement and fixed asset schedule and the composition of the capital work in progress and also as to when the capital was used for business purposes and the sources for the purchase of the capital work in progress. W
Assessee has given the schedule of fixed assets wherein the capital work in progress was shown as ₹ 1.65 crores. These details are also available at page 28 of the paper book wherein break-up of the details of capital work in progress was given. Thus, it is seen that the AO had called for details and the assessee has furnished the same before the AO. Therefore, the presumption to be drawn is that the AO has applied his mind to the said details, but has not mentioned anything in the assessment order
In the case before us the CIT, though has found the assessment order to be erroneous on the ground that the AO has not made further inquiries, has not given a finding as to how the assessment order has caused prejudice to the interest of the Revenue. For initiating the revision proceedings u/s 263 CIT should be satisfied that the assessment order is both erroneous as well as prejudicial to the interests of the Revenue. After going through the material on record, we find that the assessee has provided all the details and the AO has applied his mind to the said details and therefore, and the assessment order is not erroneous and there is no prejudice caused to the Revenue. As both the conditions for revision are not satisfied, the revision order is not sustainable and hence set aside. - Decided in favour of assessee.
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2016 (10) TMI 1346 - ITAT MUMBAI
Deduction under section 80IB(10) - date of 'commencement’ of the housing project for the purposes of the claim of deduction - HELD THAT:- This aspect of the controversy stands covered by the decision of the Tribunal [2014 (6) TMI 1060 - ITAT MUMBAI] on the basis of the earlier approval obtained by M/s. Gas Property Developers, which has already lapsed, and the expenses were on account of repair of boundary wall the project cannot be stated to have been commenced before 01.10.1998. Therefore, we find no infirmity In the findings recorded by the learned CIT(A) that the AO was wrong in holding that the housing project of the assessee had commenced before 01.10.1998. We uphold his order.
As assessee pointed out that housing project consisted of seven buildings and in respect of A,B,C,D,E,F and G wings occupancy certificates were obtained and possession handed over to flat purchasers who started residing in the allotted flats. It is pointed out that the occupancy certificate issued by the Local Authorities clearly proves that the work in respect of the habitable area of the housing project was complete in all respects. All these facts have not been controverted before us, and the same have been duly considered and accepted by the Tribunal in its order dated 23/9/2016(supra) for assessment year 2011-12.
In view of the precedent in the case of assessee for assessment year 2009-10(supra) and assessment year 2011-12(supra), wherein identical situation in relation to the very same project has been considered, we find no reason to interfere with the decision of the CIT(A) in allowing the claim of the assessee, which is in line with the aforesaid precedents. As a consequence, on this aspect also, the order of the CIT(A) is affirmed and Revenue fails.
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2016 (10) TMI 1343 - ITAT MUMBAI
Unexplained expenditure u/s. 69C - hawala purchases - CIT-A deleted the addition - HELD THAT:- AO not discussed in its order the contention of the assessee, the evidence of purchases, delivery of goods and the payment made through Banking transaction as well as the stock register. Before the CIT(A), the similar contention was raised by the assessee. Ld. CIT(A) reproduced the submission of assessee in its order.
As relying on SHRI HIRALAL CHUNILAL JAIN VERSUS INCOME TAX OFFICER WARD 14 (1) (4) , MUMBAI. AND VICA-VERSA [2016 (1) TMI 1089 - ITAT MUMBAI] where the AO has not disputed the use of material nor disputed the stock of the assessee, hence we do not find any illegality or infirmity in the order of Ld CIT(A) - Decided in favour of assessee.
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2016 (10) TMI 1341 - ITAT MUMBAI
Reopening of assessment u/s 147 - Eligibility of reasons to believe - non-disclosure of additional income which was offered to tax by the assessee company during the survey proceedings - HELD THAT:- It is an admitted fact that the impugned income has already been included by the assessee in the return filed originally. The only difficulty with the AO was that from perusal of the return he was not able to make out whether the impugned income has been included in the return or not. Even if we appreciate the difficulty faced by the Assessing Officer, then also, the same was clarified by the assessee by way of his reply submitted during the course of re-assessment proceedings. The facts and evidences were brought on record showing that the impugned income has been included in the return filed by the assessee. Thereafter, no doubt was left and, therefore, no further query was asked by the Assessing Officer in this regard. It was so confirmed by the AO when he made no addition in this regard in the assessment order
Re-assessment order passed by the Assessing Officer is not valid in the eyes of law. Assessing Officer was bound to drop the re-assessment proceedings - AO was of course at liberty to record fresh reasons and initiate re-assessment proceedings in case any another escaped income was found by him, as permitted under the law. But once the Assessing Officer was of the view that the escaped income as alleged in the reasons recorded by him was not the income actually escaped, but already included in its taxable income and offered to tax by the assessee, it was not legally permissible for him to continue with the reassessment proceedings.
There must be existence of some tangible material indicating escapement of income - AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara’s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the concept of finality of litigation. Therefore, an invalid reopening done in the casual manner and without following parameters of law may cause undue hardship to the taxpayers.
Nature of expenses - Disallowance of professional fees paid by the assessee for issuing fresh shares - Expenditure revenue or capital in nature - HELD THAT:- CIT(A) has not carefully analysed the alternate submission of the Ld. Senior Counsel wherein it was submitted that the entire amount of fee paid did not belong to consultancy rendered for valuation / issuance of shares. It was reiterated before us that the assessee company regularly seeks information on various matters and expenses incurred for other routine matters would fall in the revenue field and, therefore, wrongly disallowed. We find force in the argument of the Ld. Senior Counsel and, therefore, we send this issue back to the file of the Assessing Officer for verifying these facts. The assessee shall submit requisite details to show for what purposes consultancy fees was paid by the assessee.
Addition on account of provision for leave encashment while computing book profit u/s 115JB - HELD THAT:- It is not the case of the lower authorities that Profit & Loss Account of the assessee company has not been prepared in accordance with provisions of Parts II & III of Schedule VI of the Companies Act, 1956. Under these circumstances, the Assessing Officer is not permitted to make any adjustment in view of well settled position of law as has been clarified in the case of Apollo Tyres Ltd [2002 (5) TMI 5 - SUPREME COURT]. As noted that reliance by the lower authorities upon the provisions of section 43B is misplaced here. Thus, the lower authorities have misunderstood and misapplied the provisions of law on the facts of the case before us. In our view, provision for leave encashment debited by the assessee in its P&L Account cannot be added while computing book profits u/s 115JB in the given facts of the case and, therefore, the same is directed to be deleted. - AO is directed to re-compute the income u/s 115JB after excluding the aforesaid amount. This ground is allowed.
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2016 (10) TMI 1340 - ITAT CHENNAI
Addition towards Service Commission, yet to be paid to the dealers, which is only a provision - CIT-A deleted the addition - main contention of the D.R is that the Service Commission is only a provision made in the books of accounts and it was not actually incurred - A.R submitted that the assessee has been following the same system of book keeping consistently from year to year and this Sales Commission embedded to the sales - HELD THAT:- Whenever assessee makes the sales corresponding liability attached to the assessee to maintain air conditioners in a better condition of operations for a particular period and for which the assessee is providing free maintenance warranty, which involves the cost to be borne by the assessee for which the assessee is making the provision in the books of account of assessee. Further, he submitted that when the assessee recognized the income on the sale of the air conditioners at the same time on provisional basis, provision towards services created by the assessee. According to him, the Department cannot disturb the consistent method of accounting followed by the assessee.
In our opinion, if the Service Commission is directly attached to sales made by the assessee and as soon as sales are accounted corresponding service charges/commission to be incurred by the assessee to be booked in the books of account of assessee. Accordingly, we are inclined to remit the issue to the file of AO to verify the books of accounts of assessee whether the Service Commission is debited when the sales made and if the assessee charges service commission as soon as the sales is made, the claim of assessee is to be allowed, as it is related to the sales of air conditioners. With this observation, we remit the issue to the file of AO for fresh consideration.
Disallowance u/s.14A - HELD THAT:- In this case the undisputed facts are that the assessee not able to show that sources of funds, which were diverted into investment in shares, which has not yielded any dividend income, even if assessee earned dividend income, it is exempted u/s.10(33) of the Act from the tax liability and the same cannot be computed under the head “income from other sources”. The expenditure incurred to earn exempted income is not liable for deduction in view of Sec.14A - the jurisdictional High Court in the case of CIT Vs. Seshasayee Paper And Boards Ltd. [1984 (4) TMI 17 - MADRAS HIGH COURT] wherein held that the borrowing has not been made exclusively and wholly for the purpose of earning interest, in which case alone it should be taken as income, which should be deducted from the interest receipts. Further, Hon’ble Karnataka High Court in the case of Pradeep Kar Vs. ACIT [2009 (6) TMI 331 - KARNATAKA HIGH COURT] wherein held that dividend income being exempt u/s.10(33) and not assessable to tax, assessee was not entitled to deduction for interest in view of Sec.14A of the Act. Accordingly, this ground of the Revenue is allowed.
Disallowance of trade discount given to the sister concerns - HELD THAT:- In our opinion if the expenditure is debited to the P&L A/c and claim it as an expenditure in computing the income of assessee, provisions of the section 40A(2) of the Act is applicable. Before us, ld.A.R submitted that it is only the deduction in the sales value made to the sister concerns, and it is not claimed as expenditure in the books of account of assessee and discount was passed by the assessee while making the sale itself, and there is no separate discount was claimed by the assessee - we find that this fact has not come from the orders of the lower authorities. In our opinion, unless the entire facts are brought on record, we are not in a position to appreciate the findings of the Ld.CIT(A), so in the interest of justice we remit the issue to the file of AO whether the trade discount is given to the sister concern in the sales bills itself or separate credit has been given after the sales has been effected. If the separate sales discount is given after the sales, then the provisions of the section 40A(2) be applied. With this observation, we remit the issue to the file of AO for fresh consideration.
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2016 (10) TMI 1336 - ITAT CHENNAI
Taxation of income earned by the assessee from investment made in Malaysia - DTAA between Union of India and Government of Malaysia - HELD THAT:- As rightly submitted by the Ld. D.R., this Tribunal examined the issue for assessment year 2000-01 and found that there was no permanent establishment in Malaysia. The Malaysian branch of the assesseecompany invested in M/s Goldman Sachs on the basis of the decision taken at Chennai. This Tribunal found that M/s Goldman Sachs invested in various bonds and shares.
The Malaysian branch of the assessee-company was, in fact, operated from Chennai. This Tribunal, for the assessment year 2000-01, examined entire nature of investments made by the assessee7 company in Malaysia and found that the interest / income earned by the assessee from investments in Malaysia has to be construed as “income from other sources”. The loss suffered by the assessee on sale of shares and investments cannot be allowed to set off against the capital gain. This Tribunal further found that the income earned by the Malaysian branch of the assessee-company is taxable in India and not taxable in Malaysia. In view of the decision of this Tribunal in the assessee's own case for the assessment year 2000- 01, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Expenditure incurred by the assessee in Malaysian branch - HELD THAT:- This Tribunal found that the income from Malaysian branch has to be classified as “income from other sources” and it cannot be said to be arising from business, therefore, there cannot any question of allowing the expenditure against the business income. In view of this order of the Tribunal, the CIT(Appeals) is not justified in allowing the claim of the assessee. In fact, this order of the Tribunal was not brought to the notice of the CIT(Appeals).
Interest under Section 234B - HELD THAT:- Payment of advance tax was increased due to inclusion of income of Malaysian branch in India. The assessee claims that there was a bona fide belief that the Malaysian income would not form part of total income of the assessee in India.
The assessee-company is not making investments in any another companies. The other company M/s Goldman Sachs was doing business. The decision to make investment was taken in India, therefore, the Malaysian branch cannot be construed a permanent establishment. In those factual circumstances, this Tribunal found for the assessment year 2000- 01, in the assessee's own case, that the income earned on investments by Malaysian branch of the assessee-company is taxable in India. The taxability of income at Malaysian branch is not because of any legislative change brought in subsequently. Therefore, it cannot be said that the assessee was under the bona fide belief. This is the case of levy of tax on the income. Since there was no legislative change brought in by the Parliament, this Tribunal is of the considered opinion that the judgment of Madras High Court in Revathi Equipment Limited [2007 (6) TMI 154 - MADRAS HIGH COURT]may not be applicable to the facts of the case. Therefore, when the assessee admittedly paid advance tax, which is less than 90% of assessed tax, the assessee is liable to pay interest under Section 234B of the Act. Therefore, this Tribunal is unable to uphold the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.
Levy of interest under Section 234D - claim of the assessee before the lower authorities was that no interest could be chargeable under Section 234D of the Act prior to assessment year 2001-02 - HELD THAT:- The Madras High Court in Infrastructure Development Finance Co. Ltd.[2011 (9) TMI 591 - MADRAS HIGH COURT] found that Section 234D of the Act came into force with effect from 01.06.2003. When the regular assessment was completed after the provisions of Section 234D of the Act came into force, the assessee was liable to pay interest on the excess amount refunded as contemplated under Section 234D of the Act. In this case also, the regular assessment was admittedly made on 21.01.2009 after Section 234D of the Act came into operation. Therefore, the assessee is liable to pay interest under Section 234D of the Act on the excess amount refunded.
Reopening of assessment u/s 147 - assessee is challenging the reopening of assessment on the ground that the Malaysian branch of the assessee-company constitutes a permanent establishment in Malaysia, therefore, the income does not escape from assessment - HELD THAT:- This Tribunal for assessment year 2000-01, in the assessee's own case, found that the Malaysian branch of the assessee-company cannot constitute a permanent establishment and the assessee’s Malaysian branch is not doing any business other than making investments. Therefore, income from Malaysian branch is taxable India. In view of the finding of this Tribunal for assessment year 2000-01 that the income escaped assessment, therefore, the Assessing Officer has rightly reopened the assessment under Section 147 of the Act. On identical situation, for assessment years 2002-03 and 2003-04, this Tribunal confirmed the order of the Assessing Officer for reopening assessment. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Classification of interest income and dividend income - assessee, submitted that the business of the assessee is investment, therefore, the interest income earned by the assessee from investments and dividend income have to be classified as “income from business” - HELD THAT:- It is not in dispute that the assessee has invested in one M/s Goldsman Sachs through its Malaysian branch. The assessee has not done any other business other than making investment in M/s Goldsman Sachs. In those circumstances, this Tribunal is of the considered opinion that the income by way of interest and dividend income received from M/s Goldsman Sachs have to be classified as income from other sources and not as income from business. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Unrealised gain on currency translation - HELD THAT:- The gain on foreign currency translation from various international currencies is notional one. The Uttarakhand High Court in ONGC case [2007 (3) TMI 204 - UTTARAKHAND HIGH COURT]examined this issue and found that the gain is only a notional one and it is not taxable in the hands of the assessee. Since the CIT(Appeals) has followed the judgment of Uttarakhand High Court, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Provision for diminution in the value of current investment - HELD THAT:-As rightly submitted by the Ld.counsel for the assessee, the assessee continuously valuing the current investments at cost or market price, whichever is lower Therefore, as on the last day of the financial year, the quantum of diminution in the value of current asset can be ascertained. Hence, as rightly submitted by the Ld.counsel for the assessee, it is not a provision. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Diminution in the value of stocks - DR submitted that the profit on sale of investments was found to be a capital gain by this Tribunal for assessment years 2002-03 and 2003-04. Therefore, diminution in the value cannot be allowed as deduction - HELD THAT:- The investment made by the assessee has been continuously valued either at market price or at cost, whichever is lower, as per the provisions of Section 145 of the Act. Therefore, the diminution in the value of investment is ascertainable at the end of the financial year. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Disallowance u/s 14A - HELD THAT:- As rightly submitted by assessee, Rule 8D of Incometax Rules, 1962 is not applicable for assessment year 2007-08. This Tribunal is uniformly taking a view that 2% of the exempt income has to be taken as expenditure for earning that income. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Expenses incurred on bank guarantee - HELD THAT:- It is not in dispute that the assessee borrowed loan from HDFC Bank on the basis of the bank guarantee given by M/s Goldsman Sachs. It is also not in dispute that the assessee has paid lower rate of interest. Therefore, the expenditure incurred by the assessee in giving bank guarantee is for business purpose. Therefore, the CIT(Appeals) has rightly allowed the same. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
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2016 (10) TMI 1335 - ITAT DELHI
TP Adjustment - arm’s length price of the international transactions made by the AO on account of corporate expenses - HELD THAT:- In the present case, it is an admitted fact that the assessee could not procure summary of the invoices raised on it by its AE and could not furnish the specific details or complete break-up of how the cost had been allocated, during the proceeding before the TPO/DRP. Therefore, this issue was set aside to the file of the TPO/AO in the appeal relating to the assessment year 2008-09 and the said order has been followed by the ITAT [2016 (2) TMI 1306 - ITAT DELHI].
Since the facts for the year under consideration are identical to the facts involved in the preceding years. So, respectfully following the earlier order [2014 (9) TMI 517 - ITAT DELHI] the issue under consideration is set aside to the file of the AO/TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
Adjustment on account of payment of royalty - HELD THAT:- As decided in own case [2016 (2) TMI 1306 - ITAT DELHI] TPO proposed the transfer pricing adjustment with Nil ALP of the international transaction of `Payment of royalty’ on the ground that no such payment was warranted and further no cost benefit analysis on this count was brought to his notice and as such the payment of royalty was not required.
AO in his final assessment order has taken the ALP at Nil on the basis of recommendation of the TPO without carrying out any independent investigation in terms of the deductibility or otherwise of such payment in terms of section 37(1) of the Act. As per the ratio decidendi of Cushman & Wakefield India (P.) Ltd.[2014 (5) TMI 897 - DELHI HIGH COURT] the TPO was required to simply determine the ALP of this transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount u/s 37(1) of the Act. Thus we set aside the impugned order on this score and remit the matter to the file of AO/TPO for deciding it in conformity with the law laid down above.
Ad-hoc disallowance on account of advertising and sales promotion expenses incurred by the assessee - assessee submitted that the AO had not brought any evidence on record to substantiate that the sales promotion and advertising expenses was not incurred by the assessee for the business purposes - HELD THAT:- AO made the impugned disallowance without pointing out any specific instances where expenses were not incurred for the business purposes. He made a general remark that the disallowance on ad-hoc basis was required to prevent leakage of revenue but no basis has been given to make the disallowance @ 5%. In the instance case, the DRP confirmed the action of the AO by observing that the onus lies on taxpayer to adduce evidence in support of claims of expenditure - no cogent reason has been given that the ad-hoc disallowance @ 5% made by the AO was justified, particularly when nothing is brought on record to substantiate that the expenses incurred by the assessee were not related to its business - in the absence of any specific item pointed out by the AO for non-business purposes out of the expenses incurred during the course of carrying on the business on account of sales promotion and advertising of the products, the ad-hoc disallowance @ 5% was not justified - we delete the ad-hoc disallowance.
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2016 (10) TMI 1334 - ITAT DELHI
TP Adjustment on account of corporate expenses - HELD THAT:- In the present case, it is an admitted fact that the assessee could not procure summary of the invoices raised on it by its AE and could not furnish the specific details or complete break-up of how the cost had been allocated, during the proceeding before the TPO or DRP. Therefore, this issue was set aside to the file of the TPO/AO in the appeal relating to the assessment year 2008-09 and the said order has been followed by the ITAT [2016 (2) TMI 1306 - ITAT DELHI] .for the assessment year 2009-10.
The relevant findings have been given [2014 (9) TMI 517 - ITAT DELHI] for the assessment year 2008-09 which says detailed break up of invoices on the basis of nature of services and the summary of the man hours spent by the various divisions of the AE in rendering technical, marketing and administrative service to Contitech group of companies. It is a case of the assessee that the above said specific details or complete break up of how the cost has been allocated could not be furnished before the completion of the proceedings before the TPO/DRP, since these details were to be obtained from its AE Germany. We find that the details now produced have an important bearing for resolving the transfer pricing dispute and therefore in the interest substantial justice and equity, we admit the same on record. Since the additional evidence is admitted on record the same needs to verify by the TPO/AO. Thus the issue under consideration is set aside to the file of the AO/TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
Adjustment on account of payment of royalty - HELD THAT:- As decided in own case [2016 (2) TMI 1306 - ITAT DELHI]for the assessment year 2009-10 as per the ratio decidendi of Cushman & Wakefield India (P.) Ltd. [2014 (5) TMI 897 - DELHI HIGH COURT] the TPO was required to simply determine the ALP of this transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount u/s 37(1) of the Act. Thus we set aside the impugned order on this score and remit the matter to the file of AO/TPO for deciding it in conformity with the law laid down above.
Adjustment of interest on account of delay in receipt of receivables from the associated enterprise and considering the same as unsecured loans - HELD THAT:- In the present case, it appears that the TPO considered the delay in receipt of receivables as unsecured loans advanced to the AE and charged the interest on the period of delay exceeding 45 days. However, he had not considered the payables due to the AE and also did not consider the amount received in advance from the AE while working out the interest on the delay in receipt of receivables from the AE. In the instant case, the TPO has not followed the directions of the DRP in right perspective.
Since the TPO has not worked out the net interest income on the basis of the direction given by the DRP. We, therefore, deem it appropriate to set aside this issue back to the file of the AO/TPO to be decided afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
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2016 (10) TMI 1333 - ITAT DELHI
Capital gain computation - calculation of FMV - adopting fair market value (FMV) value of the property instead as per sale deed of the property sold.- HELD THAT:- From the records available especially the orders passed by the revenue authorities alongwith case laws referred by the ld. Counsel of the assessee. We note that the Assessee has established the difference between the value adopted by the Stamp Valuation Authority and declared by the assessee is less than 10% and therefore, the issue is squarely covered by the decision of the Hon’ble Supreme Court of India in the case of CB Gutam vs. UOI & Ors. [1992 (11) TMI 1 - SUPREME COURT]
Also further find that the aforesaid decision of the Hon’ble Supreme Court of India has been followed by the various Benches of the Tribunal including the Jaipur Bench in the case of Smt. Sita Bai Khetan vs. ITO [2016 (11) TMI 955 - ITAT JAIPUR]
Since in the instant case such difference is less than 10 per cent and considering the fact that valuation is always a matter of estimation where some degree of difference is bound to occur, we are of the considered opinion that the AO in the instant case is not justified in substituting the sale consideration as against the actual sale consideration disclosed by the assessee. - Decided in favour of assessee.
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2016 (10) TMI 1332 - BOMBAY HIGH COURT
Income from other sources - surplus available in Share Holders Account - taxable at the normal corporate rate and holding that surplus from Share Holders Account was only part of income from insurance business arrived at after “combining” surplus available in Share Holders Account with the surplus available in Policy Holders Account and then taxing this 'net surplus' arrived at the rates specified u/s. 115B - Transfer from Share Holders Account to Policy Holder's Account and shown as part of 'surplus' in the “actuarial valuation” was only transfer of capital asset and not taxable u/s. 44 of the Act r.w. Rule 2 of the First Schedule” - HELD THAT:- As relying on ICICI PRUDENTIAL INSURANCE CO. LTD.[2015 (7) TMI 1259 - BOMBAY HIGH COURT] the proposed question does not give rise to any substantial question of law. Thus, not entertained.
Addition made on account of Provision made in share holder's account for incremental liability towards employees benefit pertaining to earlier years - HELD THAT:- It is agreed position between the parties that the issue arising herein stands concluded in favour of the Respondent Assessee and against the Revenue by the decision of Apex Court in LIC vs. CIT [1963 (12) TMI 5 - SUPREME COURT] - In the above view, as the question stands concluded by the decision of the Apex Court in LIC (supra), the question as proposed does not give rise to any substantial question of law. Thus, not entertained.
Whether Tribunal failed to appreciate that negative reserve has an impact of reducing the 'taxable surplus' as per Form1 and therefore corresponding adjustment for “negative reserve” need to be made to arrive at “taxable” surplus? - As relying on ICICI PRUDENTIAL INSURANCE CO. LTD.[2015 (7) TMI 1259 - BOMBAY HIGH COURT] it did not give rise to any substantial question of law. Thus, not entertained.
Appeal admitted on substantial questions formulated at Question Nos.(2),(3) (8), (11) and (12).
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2016 (10) TMI 1331 - ITAT DELHI
Deemed dividend u/s 2(22)(e) - amount received by the shareholder should be in the nature of loan or advance - HELD THAT:- There is running account of the company in the books of the assessee. There is regular receipt and payment of money between the assessee and the company.
For more than half of the year, the debit balance of the company in the books of the assessee was more than ₹ 2 crores. Up to 16th December, 2005, the debit balance of the company was more than a Crore and up to 10th January, 2006, in the running account, there was debit balance of the company. It is only at the end of January or in the beginning of February the credit balance of the company occurred and the highest credit balance remained ₹ 28,46,927/- for a period of 17 days.
As against this credit balance for a period of 17 days, we find that the debit balance of the company in the accounts of the assessee remained in Crores for months together. In the above circumstances, after considering the entirety of facts and the submission of both the sides, we agree with the assessee that there was a running account of the assessee with OCG and for most of the period, there was huge debit balance of the company and it is only for few days there was a meager credit balance of the company. In our opinion, such meager balance of the company for a few days in a running account wherein there was huge debit balance of the company for months together cannot be said to be loan and advance so as to attract provisions of Section 2(22)(e) of the Act. In view of the above, we hold that on the facts of this case, Section 2(22)(e) was wrongly applied - Appeal of the assessee is allowed.
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