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2016 (10) TMI 1337
Interpretation and application of Paragraph 7 of the DPCO 1995 and Paragraphs 8 and 9 of the DPCO 1995 - flexibility available to the Central Government in fixing the retail price and ceiling price of formulations and the rigidity expected by the statutory Order - Validity of Notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - notifications issued by the Central Government on 12th July, 2000, 12th July, 2001, 12th July, 2002 and 11th July, 2003 re-notifying the norms prescribed by notification dated 13th July, 1999 issued under Paragraph 7 of the DPCO 1995 - inclusion of the bulk drug Diosmin in the First Schedule to the DPCO 1995 - ceiling price fixed by the Central Government in the notification dated 20th July, 1998 of the Diosmin formulation - ceiling price of the Diosmin formulation could have been fixed under Paragraph 9 of the DPCO 1995 without first fixing the maximum sale price of the bulk drug Diosmin under Paragraph 3 of the DPCO 1995 - Alternative remedy.
HELD THAT:- The DPCO 1995 came into operation on 6th January, 1995. Ordinarily therefore the first notification under Paragraph 7 thereof ought to have been issued in July 1995, or soon thereafter. Perhaps the Masood Committee was constituted on 24th April, 1995 for this purpose and initially it was required to submit its Report on or before 30th June, 1995 but time was extended till 31st August, 1995 - Whatever be the position, the fact is that the Central Government did not notify the norms on a yearly basis for four years 1995-1996, 1996-1997, 1997-1998 and 1998-1999. We are really concerned with the default for this period. The NPPA was set up on 29th August, 1997 and the Jharwal Committee was set up on 8th October, 1998 more than two years and three years respectively after the DPCO 1995 was issued. The purpose of setting up the Jharwal Committee was to revise the norms applicable since 15th July, 1993. Pursuant to the Report of the Jharwal Committee the Central Government did issue a notification on 13th July, 1999 under Paragraph 7 of the DPCO 1995. On the issue under consideration, we are presently not concerned with the period 1999 onwards till 2004.
Paragraph 7 of the DPCO 1995 gives the formula for arriving at the retail price of a formulation. The application of the formula is undoubtedly mandatory and the Central Government cannot contend that the retail price of a formulation can be fixed de hors the formula. The question is whether the norms mentioned in Paragraph 7 of the DPCO 1995 are required to be prescribed every year even if there is no perceived qualitative or quantitative change in them - The purpose of determining and prescribing the norms every year is limited to the requirement of fixing the retail price of formulations in terms of the formula given in Paragraph 7 of the DPCO 1995. The Central Government set up the Masood Committee in April 1995 precisely for this purpose. However its work was stymied by the drug industry through its non-cooperation.
There are several reasons that can be culled out from the Report of the Masood Committee for the Central Government not determining and prescribing the norms in 1995 and thereafter for the next three years. Firstly, according to the Masood Committee the drug industry had been provided a sufficient cushion by the acceptance of the recommendations of the Sankaran Committee. Under the circumstances continuing with the norms for conversion cost and packing charges prescribed under the DPCO 1987 would not have disadvantaged the manufacturers/formulators in any manner - Secondly, the packing material ceilings had been recently upwardly revised from 7th July, 1994 and the manufacturers/formulators could take advantage of the cost of packing material on actuals. Surely, this was beneficial to them - Thirdly, according to the Masood Committee with high production levels and better capacity utilization as well as new technological processes, the process loss on raw materials and packing material ought to have come down. But since the drug industry did not provide necessary information through the questionnaire sent to the drug industry and the companies, an ad hoc reduction in the existing norm for process loss fixed by the Sankaran Committee was not recommended by the Masood Committee - Fourthly, the Masood Committee noted that there was a decrease in total formulation activity coming under price control from 70% under the DPCO 1987 to 50% under the DPCO 1995 and uniform MAPE of 100% under the DPCO 1995 as against 75% and 100% MAPE under the DPCO 1987. Even this was advantageous to the manufacturers/formulators.
We may recall that the Sankaran Committee had noted that the norms for cost of packing material were not prescribed from 1979 onward. Far from objecting to this, the drug industry had itself requested the Sankaran Committee to permit the cost of packing material to be taken on actuals. The Sankaran Committee accepted this suggestion while taking into account the inherent difficulty in prescribing any norm for cost of packing materials - The notification dated 15th July, 1993 prescribed norms only for conversion cost and packing charges. No manufacturer or formulator made any grievance or complaint regarding the failure of the Central Government to prescribe the cost of packing material as a norm.
The situation has not changed at all over the years. The silence of the drug industry continued as is evident from the fact that even 15 years later a notification was issued by the Central Government on 11th August, 2004 under Paragraph 7 of the DPCO 1995 prescribing the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion and packing) and process loss of packing materials in packaging - but not for cost of packing material as a norm. Despite this, we were told by learned Counsel appearing for the parties that there has been no dispute about price fixation since 2004 due to the absence of a norm for cost of material - it does appear to us that the drug industry was content with being allowed to take the cost of packing material on actuals rather than insisting on the Central Government issuing a notification prescribing the norms for cost of packing material.
Thus, the ceiling price fixed by the BICP on 7th July, 1994 and thereafter revised by the NPPA in February 1998 in respect of packing materials has not been questioned (let alone challenged) by anybody.
The action of a repository of power is also amenable to judicial review if it is contrary to or violates the mandatory requirement of a subordinate legislation. Therefore, if the Central Government does not adhere to the formula given in Paragraph 7 of the DPCO 1995 and fixes the retail price or ceiling price of formulations without following the formula laid down, the notification issued by the Central Government under Paragraph 8 or Paragraph 9 of the DPCO 1995 (as the case may be) is liable to quashed as being contrary to law. However, no instance has been pointed out to us compelling us to use our power of judicial review and quash the notifications under consideration.
Alternative remedy - HELD THAT:- We have no doubt that if any manufacturer or formulator had taken the trouble of preferring a revision or review application, all necessary material would have been made available to the complainant for an effective representation. We are satisfied that none of the parties before us was precluded by circumstances from preferring a revision or review for corrective measures in relation to the retail price or ceiling price of any particular formulation - in fact, we are told by the learned Solicitor General that some of them did - Strictly speaking, in view of the availability of an alternative and efficacious remedy available under the DPCO 1995 read with the decision of this Court in Cynamide India Ltd. the writ petitions filed by the manufacturers and formulators before us ought not to have been entertained by the concerned High Courts, but we leave it at that.
In matters where public interest is involved, the Court ought to be circumspect in granting any interim relief. The consequence of an interim order might be quite serious to society and consumers and might cause damage to public interest and have a long term impact. We make it clear that it is not our intention to suggest to any Court how and in what circumstances interim orders should or should not be passed but it is certainly our intention to make it known to the Courts that the time has come when it is necessary to be somewhat more circumspect while granting an interim order in matters having financial or economic implications.
Various questions raised, are answered as below:
Validity of Notification dated 13th July, 1999 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - the notification prescribed the norms for conversion cost, packing charges and process loss of raw materials (other than packing materials in conversion) and packing and process loss of packing materials in packaging - whether the notification was issued mechanically and without any application of mind or is it valid in law? - HELD THAT:- The notification is valid and that the notification was not issued mechanically or without any application of mind.
Notifications dated 12th July, 2000, 12th July, 2001, 12th July, 2002 and 11th July, 2003 issued by the Central Government under Paragraph 7 of the Drugs (Prices Control) Order, 1995 - the notifications re-notified the norms prescribed on 13th July, 1999 - whether the notification were issued mechanically, without any application of mind and without re-determining the norms every year as required by the Drugs (Prices Control) Order, 1995? - HELD THAT:- The notifications are valid and were not issued mechanically or without any application of mind and that it was not necessary to re-determine the norms every year.
Various notifications issued by the Central Government fixing the retail price or ceiling price of formulations under Paragraphs 8 and 9 (as the case may be) of the Drugs (Prices Control) Order, 1995 - whether the notifications did not determine the norm for cost of packing material as required by Paragraph 7 of the Drugs (Prices Control) Order, 1995 are valid in law? - HELD THAT:- Answered in the affirmative.
Whether fixing the retail price of a formulation under Paragraph 8 of the Drugs (Prices Control) Order, 1995 without first fixing the sale price of a bulk drug under Paragraph 3 of the Drugs (Prices Control) Order, 1995 utilized in the manufacture of a formulation is valid in law? - HELD THAT:- Answered in the affirmative.
The appeals filed by the Union of India are allowed.
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2016 (10) TMI 1336
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
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
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
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
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
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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2016 (10) TMI 1330
TDS u/s 194C - payment made by AOP to the subcontractors - as per revenue assessee had given the contract work to AOP without deduction of tax - disallowance under section 40(a)(ia) - AO of the view that execution of contract was the responsibility of assessee and this sub-contracting of the work to one of the members of the AOP cannot be considered as revenue sharing arrangement - HELD THAT:- We find the ld. CIT(A) while deleting the addition had noted that the facts of the present case are identical to that of Swapnali RDS Joint Venture [2014 (12) TMI 320 - ITAT PUNE] and he had followed the decision of predecessor in assessee’s own case for assessment year 2009-10 [2014 (12) TMI 347 - ITAT PUNE]. We find that the Co-ordinate Bench of the Tribunal in assessee’s own case for assessment year 2009-10 has decided the issue in favour of the assessee
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2016 (10) TMI 1329
Disallowance of deduction claimed under the head “provision of leave encashment” u/s 43B(f) - HELD THAT:- As identical issue was considered by the Coordinate Bench of the Tribunal in assessee’s own case relating to A.Y. 2007- 08 [2016 (2) TMI 889 - ITAT MUMBAI], restored this matter to the file of the Assessing Officer with the direction to decide the issue in the light of the decision rendered by Hon'ble Supreme Court in the case of M/s. Exide Industries Ltd. & Another [2009 (5) TMI 894 - SC ORDER]
Even though the assessing officer did make a reference to the above said order of Hon’ble Supreme Court, the Ld A.R submitted that the assessee should be given benefits as observed by the Hon’ble Apex Court in the matter of interest and penalty. Accordingly, consistent with the view taken by the Coordinate Bench in assessee’s own case relating to A.Y. 2007-08, we restore this matter to the file of the Assessing Officer with the direction to examine this issue afresh
Disallowance of employees contribution to ESIC and Labour welfare fund - HELD THAT:- We are of the view that the claim of the assessee is required to be allowed in view of the binding decision GHATGE PATIL TRANSPORTS LTD. [2014 (10) TMI 402 - BOMBAY HIGH COURT] since the assessee has paid the employees contribution before the due date for filing return of income. Accordingly, we set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to allow claim of the assessee.
Characterization of income - Excise duty refund” received by the assessee - revenue or capital receipt - HELD THAT:- According to Ld A.R, this issue is squarely covered by the decision rendered by Hon’ble J & K High Court in the case of Shree Balaji Alloys [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT]. However, the Ld D.R submitted that there is some confusion about the quantum of deduction and also the parity of facts between the assessee’s case and the case of Shree Balaji Alloys (supra) need to be examined. We find merit in the submissions of Ld D.R. Accordingly, in our view, this issue requires fresh consideration at the end of the Assessing Officer in order to find out parity of the facts between the assessee’s case and the case of the Shree Balaji Alloys that was decided by Hon'ble J&K High Court. Accordingly, we set aside the order passed by learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer with the direction to examine the parity of the facts
Disallowance Relating to mark to market loss - assessee provided for loss arising on the outstanding derivative contracts on foreign exchange on account of valuation done as at the year end - in respect of provision made for loss on account of valuation, the AO took the view the same is not allowable in view of the Instruction No.3/2010 dated 23/3/2010 and accordingly rejected the claim of the assessee - HELD THAT:- Having heard rival submissions, we are of the view that there is merit in the submissions made by the Ld A.R. The forward contract in foreign exchange has been held to be the business activity and the assessee has entered into the forward contracts upon receipt of orders from its foreign clients. Since the export bills have not been raised as on the date of Balance Sheet, the assessee was required to value the outstanding forward contracts, which is in accordance with the requirements of accounting standards and accounting principles. Accordingly, we are of the view that the loss claimed on valuation of outstanding forward contracts is allowable as deduction. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee.
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2016 (10) TMI 1328
The appeal involves a substantial question of law and is admitted in the terms that:-
“Whether the Customs, Excise & Service Tax Appellate Tribunal is justified in allowing the appeal of assessee, irrespective of the fact that the assessee did not fulfil the conditions of the Notification No. 41/2007-S.T., dated 6-10-2007?”
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2016 (10) TMI 1327
Fraudulent Preferential allottees and pre-IPO transferees - Restriction Accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions - noticees forming part of Trading Group acted as buyers to the pre IPO transferees/ preferential allottees thereby creating artificial demand for the supply of shares from preferential allottees/ pre IPO transferees - Trading Group are connected among themselves and provided hugely profitable exit to the pre IPO transferees/ preferential allottees in such scrips that hardly had any credential in the market - HELD THAT:- Noticees were acting in concert with other entities named in the interim order towards a common objective that has been brought out in the interim order. The investment made by the preferential allotees (including the noticees) cannot be termed as a rational investment behaviour and such investment, as in this case, could be possible only if the preferential allotees (including the noticees) had nexus with the companies, their promoter /directors and the issue of such shares was under a prior arrangement between them for an objective other than for providing equity capital to the company. The trading data also reveals that most of the shares sold by the preferential allotees and pre IPO transferees were bought by the entities of the Trading Group - this cannot be termed as a coincidence especially when sellers have nexus with the company, as mentioned in the interim order. As brought out in the interim order, ultimate beneficiaries of the whole scheme in question are the preferential allottees and Pre IPO Transferees. It is beyond reason to hold that the company, its promoters/directors, Trading group and Funding group would devise the impugned plan/scheme for the benefit of the entities who are neither party to the plan/scheme nor have any complicity in the plan with others. As, the noticees, who are the preferential allottees, are the ultimate beneficiaries, they cannot pretend to be oblivious to the scheme/plan.
The facts and circumstances of this case, strongly indicate that the issue of these shares was under a prior arrangement between them for the ulterior motive or the end objective of the scheme that has been brought out explicitly in the interim order.
Accordingly, find that the preferential allottees, pre IPO transferees acting in concert with Funding Group and Trading Group have used the stock exchange system to artificially increase volume and price of the scrip for making illegal gains and to convert ill-gotten gains into genuine one. The whole scheme could not have been possible without the involvement/ connivance of companies and their promoters and directors.
5 noticees (covered under this order), have failed to give any plausible reasoning/explanation, at this stage, for their acts and omissions as described in the interim order and have not been able to make out a prima facie case for revocation of the interim order. I, therefore, in this case, reject the prayers of noticees for setting aside the interim order or for complete removal of restraint imposed by it. I, therefore, do not have any reasons to change or revoke the ad interim findings as against them in the interim order.
Activities on account of ban and consequent freezing of their demat accounts - These entities have pleaded for removal of the restraint imposed vide the interim order or at least allow them partial relief of permitting trading in securities other than those involved in this case and also allow them to deal in cash and F&O segment. It is worth mentioning that the case in hand is peculiar as large number of entities have been restrained and the ongoing investigation in the matter may take time in completion. I have been conscious that the restraint order should not cause disproportionate hardship or avoidable loss to the portfolio of the noticees. That is why several relaxations, such as allowing investment in mutual fund units, permission to liquidate existing portfolio and keep the proceeds in escrow account and even utilize 25% of the proceeds for meeting exigencies, etc. have been made in the past. Now at this stage, considering the facts and circumstances of this case and submissions/oral arguments made before me, I deem it appropriate to make further relaxations so as to address the issues of the personal and business exigencies or other liquidity problems.
In exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide the ad interim ex parte order dated June 29, 2015 read with Corrigendum Order dated January 04, 2016 as against the noticees except that they can:-
(a) enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and/ or S&P BSE 500 scrips;
(b) subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed;
(c) deal in Debt/Government Securities;
(d) invest in ETF
(e) avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc.;
(f) tender the shares lying in their demat account in any open offer/delisting offer under the relevant regulations of SEBI.
Considering business and personal exigencies and liquidity problems submitted by the noticees I allow further relaxations/reliefs to the noticees as under:-
(a) They are permitted to sell the securities lying in their demat accounts as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange and the shares of the four scrips in the SME segment covered under this order, in orderly manner under the supervision of the stock exchanges so as not to disturb the market equilibrium and deposit the sale proceeds in an interest bearing escrow account with a Scheduled Commercial bank.
(b) They may deal with or utilize the sale proceeds lying in the aforesaid escrow account under the supervision of the concerned stock exchange as provided under:-
i. the sale proceeds may be utilised for investments permitted in para 38;
ii. upto 25% of the value of the portfolio as on the date of the interim order or the amount* in excess of the profit made /loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and/or for meeting any other exigencies or address liquidity problems.
* The amount will include the value of portfolio in the demat account
Explanation: For the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account/s (individual and joint both) on the date of the interim order after excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered.
(c) The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The stock exchanges may use the existing mechanism available for implementing the similar interim relief earlier granted to some of the entities.
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2016 (10) TMI 1326
Capital gain computation - Consideration for de-merger of the telecom undertaking - value of consideration adopted for computation of capital gain - as per AO revaluation of assets e taken as a consideration for transfer of undertaking - HELD THAT:- Full value of consideration has to be taken based on the price that has been commercially agreed between the parties and cannot be imputed on a notional basis.
In case of transfer of a capital asset, what can be taxed in the hands of the seller under the Act is real or actual gain that accrues/ arises from transfer of the assets and hence, in absence of any sale consideration (and resultant profit from such transfer) no notional gain can be imputed in the hands of the seller to tax such transfer.
The other two only Sections (Le. Section 50C and Section 50D of the Act), which provide for imputation of consideration are also not applicable to the present case and hence, no consideration can be imputed in the instant case.
Wherever considered appropriate, the legislature has inserted specific provisions for assumption of sale consideration for transfer of assets in specified cases. It is therefore unjust and unwarranted to impute/ assume consideration in cases which clearly do not fall within the ambit of such specified Provisions.
Allegation of AO for taking the revaluation of assets as a consideration for transfer of undertaking, the learned AO has failed to understand that the Business Restructuring Reserve created in the books of the assessee was merely an accounting entry passed in the books of the Appellant on account of revaluation of its investment and that, the amount representing an accounting entry could not be deemed to be the value of consideration for transfer of the telecom undertaking by the assessee. The fair valuation of the investments by the assessee in its books cannot by any stretch of imagination be considered as a consideration received by the assessee from ICL for de-merger of its telecom undertaking.
The creation of such a reserve only represents an accounting entry passed by the assessee in its books of account and does not represent any consideration whatsoever received from ICL or any third person towards transfer of the telecom undertaking to ICL. Further, in case of any consideration being received or paid, there have to be atleast two parties and given that in the instant case the reserve was created on account of a unilateral action by the assessee, the same cannot be treated as a consideration received from ICL. It is unimaginable to assume that creation of reserve in the books of the assessee on account of revaluation of its own investments is the consideration paid by ICL. The Business Restructuring Reserve merely represented a notional reserve created to bring the value of the investment held in Indus to its fair value and does not in any manner represent any consideration received by the assessee.
In the instant case, there is no nexus between transfer of telecom undertaking by the assessee and revaluation of the investment in Indus except that both the transactions are independent transactions arising from the same Scheme of Arrangement. Hence, as no consideration has accrued to the assessee on account of the said de-merger, no profit or gain can be said to have accrued or received by the assessee. Accordingly, on the short ground of no consideration having been accrued or received by assessee, AO was not justified in computing capital gain on the transfer of undertaking. We therefore, set aside the order of AO on this issue.
As we are going to allow this ground of assessee‟s appeal regarding no capital gains in absence of any consideration for de-merger of the telecom undertaking, we are not going to deal with the other arguments of learned AR.
Denial of amortization of telecom licence fees under section 35 ABB (2) is restored back to the file of AO for deciding afresh keeping in view our above observation of no capital gains on demerger of telecom undertaking to ICL. We direct accordingly.
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2016 (10) TMI 1325
Seeking winding up of the respondent company - no reply to the statutory notice and thus the presumption that the respondent company is unable to pay debts as and when they arise in the usual course of business - HELD THAT:- The fact that the option under clause (6) was exercised or at least is deemed to have been exercised is evident from the correspondence which demands payment of monies. In the circumstances, it is not open for the company to now contend that the petitioner could have sought performance of the alleged agreement. There is some doubt as to whether the agreement was entered into or at all. It is conceded by Mr. Khandeparkar that the agreement is presently not available and in any case not registered. The agreement for sale is not relied upon in the petition which would normally have been the case. However, the fact remains that the cheques have been issued there is no explanation forthcoming from the respondent company as to why these cheques have been issued. The controversy relating to the agreement for sale is something that can gone into in appropriate proceedings.
The cancellation agreement on the basis of which the petitioner has proceeded is dated 2nd April, 2014. The first of the cheque issued pursuance to the agreement is also dated 2nd April, 2014 - However, the petitioner waited for over almost 6 months to deposit the cheque and admittedly first cheque was deposited only on 18th August, 2014 well beyond its validity and therefore the bank returned the instrument for the reason that the instrument was out of date/stale. Thus, what remains to be seen is whether the second cheque was deposited in bank and why the same was not honoured. Exhibit H to the petition is a copy of the dishonour memo received by the petitioner from their bank along with the copy of the cheque dated 15th June, 2014.
The amount of ₹ 5.90 crores at least appears to be due and in the light of the above facts the respondent must be put to terms - The respondent company shall deposit a sum of ₹ 5.90 lakhs within six weeks from today - In the event deposit is made and if a suit is filed by the Petitioner, the amounts so deposited will be transferred to the suit account and and to be invested initially for a period of one year to be followed by further renewals.
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2016 (10) TMI 1324
Penalty u/s. 271(1)(c) - addition made in the quantum order framed by the AO - HELD THAT:- We find that in assessee’s own case the ITAT, Delhi Bench in quantum proceedings has decided the issue in favour of the assessee and against the Revenue by quashing the assessment.
Thus we find that in assessee’s own case the ITAT, Delhi Bench in quantum proceedings has decided the issue in favour of the assessee and against the Revenue by quashing the assessment. - Decided in favour of assessee.
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2016 (10) TMI 1323
Disallowance of the provision for Leave Encashment - HELD THAT:- We find that the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. & Others vs. Union of India & Others [2007 (6) TMI 175 - CALCUTTA HIGH COURT] has struck down section 43B(f) being arbitrary, unconscionable and de hors the Apex Court decision in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT]. This judgment was duly brought into the notice of the ld. CIT (A). However, the ld. CIT (A) without taking note of the ratio laid down by the Hon’ble Calcutta High Court proceeded to sustain the finding of the AO. The ld. CIT (A) has recorded the fact that the AO has disallowed the claim as per provisions of section 43B(f) of the Act and it has been struck down by the Hon’ble Calcutta High Court. In our considered view, the ld. CIT (A) was not justified and acted beyond his jurisdiction. Therefore, the order of ld. CIT(A) on this issue is set aside. The AO is directed to delete the disallowance - Assessee's Ground no. 1 and 1.1 are allowed.
Disallowance invoking the provisions of section 14A r.w.r. 8D - HELD THAT:- AO has made disallowance by invoking the provisions of Rule 8D of the IT Rules, 1962 towards interest. There is no dispute with regard to the provisions. If the assessee uses its own non-interest bearing funds, in that event it would not be open to the AO to make disallowance in respect of the interest by invoking the provisions of rule 8D of the Income Tax Rules. The ld. Counsel for the assessee has made reliance on the judgment of the Hon’ble Bombay High Court rendered in the case of CIT vs. K. Raheja Corporation P. Ltd. [2011 (8) TMI 148 - BOMBAY HIGH COURT] wherein held that in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning the dividend income, the decision of the Income Tax Appellate Tribunal in deleting the disallowance of interest under section 14A cannot be faulted. In the present case both the authorities below have proceeded merely on the basis of presumption which is not supported by any material.
Computation of book profit under section 115JB in respect of the amount of disallowance made under section 14A - HELD THAT:- We have already allowed ground no. 2 of the assessee’s appeal by directing the AO to delete the disallowance made under section 14A. Accordingly, the AO is directed to re-compute the book profit in view of our decision in ground no. 2. This ground of the assessee is allowed for statistical purposes.
Deduction u/s 80IB on the Miscellaneous Income - HELD THAT:- As per section 80IB, the deduction is available in respect of the profits and gains derived from any business referred to in sub-section 3 to 11, 11(A) and 11(B) of section 80IB of the Act. The assessee is required to demonstrate that the amount represents the profit derived from the eligible business. In the present case the amount represents unclaimed security deposit written back in the book. In our considered view, the security deposit although might have received in the normal business transaction, however, the writing off the same cannot be the profit derived from the eligible business. Therefore, we do not see any merit in the ground of the assessee and the same is hereby dismissed.
Interest income earned from regular business activities of the assessee company - Business income or Income from Other sources - Disallowing deduction u/s 80IB - contention of the assessee is that the assessee has no other alternative but to deposit the amount in the form of FDRs as per the terms of agreement and the earning out of this fund deposited in the fixed deposits under the term of contract, which was lying idle at some point of time would certainly be the income derived from the eligible business - HELD THAT:- We find some merit in the contention of the ld. Counsel for the assessee, but the fact whether there was such term of contract forcing the assessee to deposit the amount in the form of FDR requires to be verified at the end of the AO. Therefore, we set aside the order of ld. CIT (A) on this issue and restore the issue to the file of the AO for decision afresh. This ground of the assessee’s appeal is allowed for statistical purposes.
Depreciation claimed on road/on road construction, while treating it as a building in nature - HELD THAT:- the issue is squarely covered in favour of the assessee by the decision of Coordinate Bench of the Tribunal in the assessee’s own case in Revenue’s appeal [2014 (9) TMI 163 - ITAT JAIPUR] for the assessment year 2008-09. Therefore, he prayed that ground no. 1 of the revenue’s appeal be rejected.
Deduction u/s 80IB on sale of scrap - HELD THAT:- As scrap has been generated in the normal course of business of operation and maintenance of the toll highway and is a normal business transaction which in any case could not be held as non-business receipt. The scrap include the metal crash barriers, pedestrian guard rails etc. which are fixed on the toll road and got damaged in the accidents taken place and being not remained for use as such become scrap. Had there been no business of operating and maintaining of the toll highway, there would be no question of generation of any such scrap, thus the income from sale of scrap is normal business income and therefore is eligible for deduction u/s 80IB - Decided against revenue.
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2016 (10) TMI 1322
Suppressed sales/unaccounted sales - clubbing turnover of Swastik Polymers with the assessee firm - on the basis of information received from Central Excise Department with regard to suppressed sales there were two proprietorship firms out of which one named M/s Subham Polymers owned by Shri Ashokkumar C. Dharewa HUF, (the assessee) and the other named M/s Swastik Polymer, owned by Shri Bimalkumar Chainroop Dharewa (brother of Shri Ashok Chainroop Dharewa) Karta of HUF - HELD THAT:- Excise Department has mainly clubbed the gross turnover of two concerns M/s Subham Polymers and M/s Swastik Polymers and have taken the clearance value of ₹ 1,52,38,813/- as against total turnover of ₹ 1,52,43,382/- (turnover of Subham Polymers ₹ 87,76,159/- + turnover of Swastik Polymers ₹ 64,67,823/-) as shown in their respective audited financial statements.
No case against the assessee of suppressed sales or unaccounted sales, when the turnover as calculated by Excise Department has been shown in separate books of account and they are part of audited books of account and income-tax return furnished.
AO has grossly erred in taking the excise limit of ₹ 1.5 crores whereas for the year under appeal excise limit was at ₹ 1 crore. During the course of hearing ld. AR has relied on the judgment of President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] wherein it has been held that sale proceeds itself cannot be treated as undisclosed income rather the net profit embedded in the sale should be treated as undisclosed income.
CIT(A) while adjudicating the appeal of assessee has rightly given effect to the judgment of President Industries (supra) and has taken the net profit of ₹ 2,27,573/- shown by M/s Swastik Polymers in the audited profit and loss account placed as an addition to the income of assessee at the place of addition towards suppressed sales of ₹ 1,13,24,749/- taken by ld. Assessing Officer. We, therefore, find no reason to interfere with the order of ld. CIT(A) - Decided against revenue.
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2016 (10) TMI 1321
Distribution of profit - payment of rate difference after the closure of the accounting year - commercial expediency - Whether amount to be paid was not out of the profits ascertained at the Annual General Meeting ? - HELD THAT:- It is an agreed position between the parties that the issue raised herein stands concluded by the decision of this Court in Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. [2009 (4) TMI 19 - BOMBAY HIGH COURT] in favour of the Respondent-Assessee - question as framed does not give rise to any substantial question of law as the impugned order has merely followed the binding decision of this Court. Thus, not entertained.
Depreciation on fixed assets on project - Non deducting subsidy received from the National Dairy Development Board, ignoring the provisions of section 43(1) and Explanation 10 to section 43(1) - HELD THAT:- Revenue is unable to points out whether or not any appeal on the issue raised herein, has been filed by the Revenue. In fact, the order of this Court in Kolhapur Zilla Sahakari Dudh Utpadak Sangh Ltd. (supra), appears to be an appeal by the Revenue in respect of the very orders which are being relied upon by the impugned order (as evident from paragraph 14 of the order of the CIT(A)). However, the issue raised herein was not even an issue raised therein.
Question as framed does not give rise to any substantial question of law as the impugned order of the Tribunal has merely followed its own orders for the earlier Assessment Years, which have been accepted by the Revenue.
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2016 (10) TMI 1320
Jurisdiction of Civil Courts - rejection of plaint on the ground that the jurisdiction of the Civil Court is barred under Order VII Rule 11(d) of the CPC which came to be allowed by the impugned order dated 12.11.2013 - HELD THAT:- The learned Trial Judge was not justified to come to the conclusion that the suit is barred in terms of Order 7 Rule 11 of the Civil Procedure Code. The jurisdiction of the Civil Court is not barred taking into account the relief sought by the Appellants which, prima facie, suggests that they are under the general law applicable to the facts of the case. The suit is also filed on on behalf of the Complainant who is the Appellant no. 1 herein. Whether the Company has been duly represented is a matter which has to be examined on its own merits in accordance with law and not while examining the application for rejection.
The question as to whether the suit itself is maintainable will have to be considered looking into the defence of the Respondents which exercise cannot be carried out whilst considering an application under Order 7 Rule 11. In such circumstances, the learned Judge was not justified to pass the impugned Order - Appeal allowed in part.
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2016 (10) TMI 1319
Correct head of income - gain on sale of property - capital gains or business income - HELD THAT:- The issue involved is essentially factual in nature. It is the case of the assessee that the land and other properties were no correction and acquired/purchased over several years and held as “capital asset” in the nature of investment. From the written submissions of the assessee as extracted by the CIT(A) in his order, we note that there a considerable time lag between the purchase and the sale of land and other properties. Simultaneously, the land/properties have been declared as “capital investment” by the assessee all along.
Some of the properties were let out and rent thereon was earned as a yield on such investments. Agricultural income has been consistently declared year-after-year on agricultural land so held before its sale. The non-agricultural land so held were shown as investment and subjected to wealth tax being capital asset.
On perusal of the written submissions as reproduced by the CIT(A) we note that the land/properties were purchased and held for several years in many cases before its sale. Coupled with this, we also take note of the fact that assessee has large capital of its own at its disposal which is far in excess of the corresponding investments made in land/properties over years. On cumulative reading of these glaring facts, we fail to comprehend the action of the Revenue in holding capital gains earned on sale as declared to be a business venture. It is manifest that the AO as well as CIT(A) misdirected themselves in law and on facts in holding the land/properties to be in the nature of trading asset merely on the ground that some of the agricultural land were converted into non-
Agricultural land and some agreements were entered for the development of the land in the year under appeal acquired and held for decades in many cases. We find considerable weight in the plea of the assessee that intention at the time of purchase to hold impugned land/properties as a capital asset is manifest on records. The balance-sheet filed by the assessee over years, wealth-tax returns filed by the assessee, adequacy of its own capital clearly underscore the intention of the assessee to hold land/properties as capital asset as claimed.
We also take note of the plea of the assessee that he is a co-owner of impugned land/properties holding certain percentage of ownership-rights therein and the claim of the land/properties as capital asset has been accepted by the Revenue in the hands of other co-owners in the assessment proceedings u/s.143(3) of the Act. This fact has remained uncontroverted. We also note that having regard to the facts noted above, the Coordinate Bench of the Tribunal in assessee’s own case relevant to AY 2004-05 has decided the issue in favour of the assessee. [2011 (6) TMI 994 - ITAT AHMEDABAD]
Thus land/properties were held by the assessee as capital asset before its sale and consequential gains arising on sale thereto is chargeable under the head of “capital gains”. AO is directed to consider the gains arising on sale of land/properties under the head “capital gains”. AO is further directed to de novo consider the relief as and where claimed by the assessee u/s.54B relevant to assessment years under appeals in accordance with law after affording requisite opportunity to the assessee. We accordingly set aside the issue towards eligibility of relief claimed u/s.54B of the Act back to the file of the Assessing Officer for fresh consideration.
Validity of assessment u/s 153A - HELD THAT:- On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. Legal issue stands adjudicated in favor of the assessee. Thus, in our considered view, the realignment of income from one head of income to another without reference to any incriminating material is not sustainable in law in the facts of the present case.
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2016 (10) TMI 1318
Revision u/s 263 - additions on account of TP adjustment in relation to transaction with AE - The order passed by the CIT u/s. 263 of the act has been challenged by the assessee before the Tribunal in 2016 (7) TMI 1587 - ITAT BANGALORE] quashed the order of the CIT passed u/s. 263 - HELD THAT:- Having carefully examined the order of Tribunal passed in appeal filed against the order of CIT u/s. 263 of act. We are the view that once the order of CIT passed u/s. 263 is quashed, consequential proceedings are not sustainable in the eyes of law. We therefore set aside the order of Assessing Officer as well as CIT(A). Accordingly the appeal of assessee is stands allowed.
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