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Income Tax - Case Laws
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2016 (11) TMI 1751
Nature of expenses - Right to use technical know-how - Disallowance of claim u/s 37(1) and allowing only 1/6th u/s 35AB - HELD THAT:- As decided in own case [2013 (1) TMI 1057 - ITAT MUMBAI] there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee - there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because an expenditure is in the nature of donation, or, to use the words of the CIT(A), 'promoted by altruistic motives', it does not cease to be an expenditure deductible under section 37(1).
Even if the contributions by the assessee is in the forms of donations, but if it could be termed as expenditure of the category falling in section 37(1), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be defined. What is material in this context is whether or not the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under section 37(1) cannot be declined - Decided in favour of assessee.
Provision towards post retirement medical benefit - Disallowance u/s 37(1) - HELD THAT:- As decided in [2013 (1) TMI 1057 - ITAT MUMBAI] for AYs 2000-01, 2001-02 and 2002-03 wherein held leave encashment is not a contingent liability. Taking the same cue, that post retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, we hold that the revenue authorities erred in disallowing the provision under this head. Having held so in principle, neither we have been able to gather the year wise breakup of the Actuarial valuation made by the Actuary as un 31.03.1997, nor the Senior Counsel, was able to apprise us on the valuation, pertaining to the year under consideration.
Taking into account the above reason, we deem it fit to restore the issue to the file of the AO, who shall call for the year wise valuation and then allow the claim accordingly. We, therefore, set aside the order of the CIT(A) on this issue and direct the AO to allow the claim of provision after verification of the Actuary's report pertaining to the current year. Thus we set-aside the matter to the file of AO to verify the Actuarial Valuation Report and then allowed the claims of assessee in accordance with the order supra
Notional disallowance u/s 14A against Income earned from an AOP - CIT(A) while considering this ground of appeal observed that while passing order for AY 1999-2000 confirmed the disallowance @ 3% of tax free interest - HELD THAT:- The assessee received exempt income from AOP, the assessee was required to associate with the activities of PIL (AOP) to spend its resources for its successful functioning, therefore, section 14A is squarely applicable but the CIT(A) descended regarding the interest expenditure attributable to earn exempt income and concluded that assessee invested out of composite fund and associated in functioning of AOP with its resources and granted the partial relief. We have seen that during the year, the assessee has received an amount of Rs. 1,62,85,873/- as a share of profit from PIL. PIL is being assessed separately as per the provisions of section 86 and as per proviso of section 86, the share of Member shall not be included in the total income as the AOP is charged at the maximum marginal rate, thus, no disallowance for earning from AOP/PIL was warranted, thus, we direct the AO to delete the entire addition.
Disallowance of deduction claimed u/s 80M - HELD THAT:- The assessee has made no expenses in relation to dividend income. Neither the AO nor the CIT(A) brought on record the actual expenditure, if any incurred by assessee in relation to dividend income. The assessee is claiming throughout that the amount of investment was out of surplus available with them, thus, considering the peculiarity of the case, the disallowance made by AO and sustained by ld. CIT(A) are deleted. In the result, this ground of appeal raised by assessee is allowed.
Correct head of income - Surrender of Tenancy rights treated as Income from other sources instead of capital Gain - HELD THAT:- There is no dispute that the assessee was in possession of a Flat in Alt View Co-op. Housing Society and the possession of assessee was protected under the provisions of Rent Control Act. The assessee received a sum on account of surrender of Tenancy right to its owner. It is settled legal position that amount received on account of surrender of tenancy right is a Capital Gain and not to be taxed as business receipt. Thus this ground of appeal is also allowed in favour of the assessee.
Nature of expenses - Expenditure on Railway Siding facilities - Disallowance u/s 37(1) - HELD THAT:- The Hon’ble Guwahati High Court in CIT vs. Bongaigon Refinery & Petro Chemicals P. Ltd. [1996 (6) TMI 64 - GAUHATI HIGH COURT] while dealing with almost on similar grounds base on similar facts held that expenditure as incurred on construction of Railway Track and siding is revenue expenditure and not a Capital expenditure. Thus, respectfully following the decision of Hon’ble Gujarat High Court, this ground of appeal is allowed in favour of assessee.
Denial of interest claimed u/s 36(1)(iii) - assessee argued that though the section was amended only from AY 2004-05 and was not applicable for the order under consideration and relied upon the decision of CIT vs. Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT] - CIT(A) while considering this ground concluded that capitalized interest is an integral part of cost of capital work-in-progress and sustained the disallowance - HELD THAT:- The Hon’ble Supreme Court in DCIT vs. Core Health Care Ltd. [2008 (2) TMI 8 - SUPREME COURT] held that section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether capital is borrowed in order to acquire a revenue asset or a capital asset, because all that the section requires is that the assessee must borrowed the capital for the purpose of his business. This dichotomy between the borrowing of a loan and actual application thereof in the purchase of a capital asset, seems to proceed on the basis that a mere transaction of borrowing does not, by itself bring any new asset of enduring nature into existence, and that it is the transaction of investment of the borrowed capital in the purchase of a new asset which brings that asset into existence. The transaction of borrowing is not the same as the transaction of investment. Thus assessee is entitled for deduction u/s 36(1)(iii).
Establishment expenditure - Disallowance u/s 37(1) - AO has treated the Administrative Expenses incurred on Engineering Project and the ld. CIT(A) while considering this ground of appeal concurred with the finding of AO - HELD THAT:- Hon’ble Supreme Court in Tuticorin alkali Chemicals and Fertilizers Ltd. v. Commissioner of Income-Tax [1997 (7) TMI 4 - SUPREME COURT]] held that when the question is whether a receipt of money is taxable or not, or whether certain deduction from receipt are permissible in law or not. The question has to be decided according to the principle of law and not in accordance with the Accounting practice.
Accounting Practices cannot be override section 56 or any other provisions of the Act. The assessee incurred expenses on various personnel/ employee in the project for supervision and monitoring the various project and marketing allocation and refineries which is certainly allowable as business expenditure u/s 37(1) of the Act. Expenses were made on account of salary, Dearness Allowance (DA), Conveyance Expenses, postal charges, bank charges, rent for housing accommodation, Motorcar etc. which is certain of revenue expenditure. Thus, the Ground No.8 raised by the assessee is allowed.
Levy of interest u/s 234D - assessee argued that the assessee is entitled to interest u/s 244A on the excess tax paid @ ½ % per month from 1st day of April to the date on which refund is granted - HELD THAT:- We have seen that section 234D was introduced w.e.f. 01.06.2003. Thus, the assessee is entitled for the interest as per section 234D w.e.f. 01.06.2003. Thus, the AO is directed to calculate the interest in accordance with the provisions of section 234D of the Act. Thus, this ground of appeal is allowed for statistical purpose
Deduction u/s 35(1)(ii) Contribution to LERC - HELD THAT:- As decided in [2013 (1) TMI 1057 - ITAT MUMBAI] identical grounds of appeal was allowed in favour of assessee directing the AO to examine the issue and allowed the claim in accordance with the provisions of law. Thus, this ground of appeal is allowed as mutatis mutandis passed by Tribunal. In the result, this ground of appeal is allowed for statistical purpose.
Admission of additional ground - Deduction u/s 37(1) towards Detailed Feasibility study expense - assessee argued that the assessee omitted to claim the relief in return of income - HELD THAT:- We have seen that the similar grounds of appeal was raised by the assessee in AY 2001-02 by way of additional ground and the same was not admitted in [2013 (1) TMI 1057 - ITAT MUMBAI]. Thus, keeping in view the order of earlier years, this ground of appeal is not admitted. Thus, this ground of appeal is rejected as un-admitted.
Nature of expenses - payment to club membership - HELD THAT:- This Ground of Appeal is no more res-integra on the basis of series of judgment on various High Courts held that Club Membership Fees for employees incurred by assessee is Business Expenses u/s 37 - Decided against revenue.
Adoption of value of power generated by the concerned captive power plant for the purpose of calculating deduction u/s 80IA - AO was not satisfied with the explanation held that APSEB would not be power at the rate from power producer and thereafter presumed margin @ 15% on the sale price of Rs.3.60 per unit charged by APSEB and accordingly reduced 15% from the value of electricity shown by assessee - HELD THAT:- CIT(A) while considered this Ground of Appeal, concluded that AO has not disputed that APSEB sales powers to its customer @ 3.60 per unit as assessee has deleted the rate to the value of power generated and consumed internally, there is no reason for the AO to doubt the assessee and the AO has needlessly made the exercise for estimating the profit of 15%.
CIT(A) further concluded that assessee has reasonably adopted the rate of value of power generation by assessee whereby and cancelled the same and direct the AO to adopt the value of power generated by assessee as disclosed by it for the purpose of calculating the deduction. We have seen that the order of ld. CIT(A) is based on sound reasoning and does not require our interference thus, we affirmed the order of ld. CIT(A). In the result the Ground of Appeal raised by Revenue is dismissed.
Deduction on Leave Encashment u/s 43B - lower authorities has not considered the claim of the assessee holding that the claim was filed without filing the revise return of income - HELD THAT:- Hon’ble Apex Court in Goetz India Ltd. [2006 (3) TMI 75 - SUPREME COURT] held that whenever the assessee makes a mistake or omitted to lodge a legitimate claim , the appellate authority be it first appellate authority or the second appellate authority, has vide power to entertain the new grounds of appeal. Respectfully following the decision of Hon’ble Apex Court which has a binding precedent by virtue of Article 141 of the Constitution of India, we admits the grounds of appeal raised by the assessee and restore this ground of appeal to the file of AO to reconsider it afresh and pass order in accordance with law.
Valuation of raw-material on an eligible business u/s 80IB (9) - assessee has given sufficient documentary evidence in support of their claim for the cost of VGO considered by them for inter-unit product purchased cost which was much higher as compared to market value of VGO - HELD THAT:- As decided by CIT(A) since the market price is lower than the value adopted by the appellant there is no reduction of cost resulting in inflation of the profit of the eligible unit and thereby a claim of deduction under section 80I. In fact by adopting the value which is substantially higher than the market price, the appellant has increased its cost, reduced the profits of eligible unit and thereby has claimed a lesser reduction under section 80 IA then what could have been calculated if market price of the product was adopted. In such a scenario there was no region for the AO to disturb the calculation made by the appellant
We have seen that the ld Commissioner (Appeals) granted the relief after considering the entire fact related with the claim of assessee. We do not find any reason to differ with the finding of learned Commissioner (Appeals). Thus this ground of appeal is dismissed.
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2016 (11) TMI 1750
Revision u/s 263 - interest not offered to tax on accrual years - as submitted interest was offered to tax by the assessee during this A.Y. 2011-12 in spite of the fact that the same advance made by the assessee still exist as outstanding - HELD THAT:- We noticed that in this case there is a history of interest receipt which is a huge amount in the preceding year on the similar advances made by the assessee and inspite of this the AO had not made any inquiry and verification that no such interest was shown as accrued in the year under consideration in spite of the fact that the advance is still remained outstanding during this Assessment Year. AO has not made any enquiry on this issue during the course of assessment proceedings and even during the course of proceedings u/s. 263 the assessee failed to furnish any relevant supportive evidences and agreement to justify that such interest was not be charged during the year under consideration.
The case of Commissioner of Income Tax vs. Arihant Avenues & Credit Ltd (2014 (10) TMI 790 - GUJARAT HIGH COURT) relate to the facts where borrowed money without interest was given as interest free advance. In view of the above facts and findings, the ratio of the judgments quoted are not applicable to the facts of the assessee’s case. We considered that the AO has passed the order without making inquiry and verification as to why no interest has been offered to tax on accrual years.
Deduction claimed u/s. 80IA - We find that assessee has started to operate the eligible business from 12-03-2007 relevant to AY 2007-08 and assessee has not claimed any deduction u/s. 80IA of the Act before A.Y. 2010-11 when he has opted consequent ten years out of fifteen years for claim of deduction u/s. 80IA. These informations and facts are available in the assessment record of the assessee. We are not inclined to uphold the order of the Ld. Pr. Commissioner of Income Tax on the second issue regarding deduction u/s 80IA(5) of the act.
Assessee’s appeal is partly allowed.
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2016 (11) TMI 1748
TP Adjustment - comparables selection - functinall similarity - HELD THAT:- Bodhtree Consulting Ltd. - Since the Tribunal has examined the profile and datas of Bodhtree Consulting Ltd. and has come to the conclusion that this company cannot be taken as good comparable for computing the ALP, we find no justification in re-examining the issue again. Accordingly, exclusion of Bodhtree Consulting Ltd. from the list of comparables upheld.
Exclusion of this company i.e., Exensys Software Solution Ltd. from the list of comparables considering the fact that unusual profits arose out of an extra ordinary event of amalgamation.
Syassaris Software P. Ltd. engages itself in products and services as well as software training, it cannot be considered as a comparable of the Appellant.
Thirdware Solutions Ltd. be excluded as information furnished by the said company that though the said company is also into product development, there are no software products that the company invoiced during the relevant financial year and the financial results are in respect of services only. Thus, it is clear that there is no sale of software products during the year but the said company might have incurred expenditure towards the development of the software products.
Geometric Software Solutions Company Ltd. issue should also go back to the TPO to adjudicate the justification of its exclusion on the point of RPT filter.
Tata Elxsi Ltd. cannot be included in the list of comparables as it is functionally different and has incomparable size to that of the assessee.
iGate Global Solutions Ltd., Flextronics Software Systems Ltd., L&T Infotech Ltd., Satyam Computer Services Ltd. and Infosys Technologies Ltd., be excluded as their turnover exceeds 10 times of the turnover of the assessee.
Four Soft Ltd. - Tribunal in the aforesaid order has applied RPT filter and excluded this company from the list of comparables, but RPT of this company was not mentioned in the order. Therefore, in the absence of complete details, it is not proper to follow the order of Tribunal blindly. We therefore set aside this issue to the file of TPO/AO to examine the justification of its inclusion/exclusion by applying the RPT filter in the light of available datas of this company.
VJIL Consulting Ltd. - In the absence of clear details, the TPO rejected this comparable. Now the details of this comparable are available and the CIT(A) has included the same in the list of comparables without confronting the audit report and datas to the TPO. We therefore find it proper to remit the matter to the TPO to reconsider the inclusion of this comparable in the list of comparables in the light of the order of the Tribunal in the case of Qualcomm India Pvt. Ltd. (supra). Accordingly adjudication of this comparable is restored to the TPO.
Melstar Information Technology Ltd - We restore the matter to the file of AO/TPO to examine the claim of inclusion of this comparable in the light of annual report and other details.
Deduction u/s. 10A in respect of Unit–II custom bonding licenses were obtained only on 29.1.2002. - CIT(A) allowed deduction - HELD THAT:- We have carefully examined the order of CIT(Appeals) on this issue and we find that the CIT(Appeals) has examined this issue in the light of various judicial pronouncements of different Benches of the Tribunal and finally having relied upon the order of Tribunal in assessee’s own case for the AYs 2002-03 to 2004-05, the CIT(Appeals) has held that the company is eligible to claim deduction u/s. 10A in respect of Lara Unit income and allowed the relief. Since the CIT(Appeals) has decided the issue following the order of Tribunal which was later on confirmed by the jurisdictional High Court [2014 (11) TMI 1277 - KARNATAKA HIGH COURT] we find no infirmity in the order of CIT(Appeals), accordingly we confirm the same.
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2016 (11) TMI 1744
Income taxable in India - sum received by the assessee from the Indian customers - to be taxed as ‘royalty’ in India or not? - assessee company is engaged in the business of providing international communication network connectivity/ facility to various telecom operators around the world and earned revenue from the Indian customers, mainly from providing the “Voice Services” outside India - as per AO assessee not mainly providing standard facility but it is actively providing the usage of its typical hardware and software proprietary product to facilitate and leverage the core business of its customers. Thus, the usage of such facilities amounts to usage of actual proprietary rights - HELD THAT:- As decided in assessee own case [2016 (4) TMI 520 - ITAT MUMBAI] in the AY 2009-10 merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc. are made available to the person purchasing the service. As to what are the connotations of 'making the technology available to the recipient of technical services', as is appropriately summed up in protocol to Indo-US DTAA, "generally speaking, technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology." In the case before us, no services are made available in the sense that the recipient of service is enabled to apply the technology, and do the same work without recourse to the service provider. There is no transfer of technology here, and in that sense technical services are not made available.
The authorities below were in error in holding that the receipts from Indian entities on account of connectivity charges, are taxable in India. We direct the Assessing Officer to delete the same - Decided in favour of assessee.
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2016 (11) TMI 1742
Determination of quantum of suppressed production / sale of TMT bars - estimating gross profit @ 4% on suppressed sale - HELD THAT:- As in the absence of any evidence collected by the AO of alleged removal of goods without payment of Excise duty, merely on the basis of estimation of alleged suppressed production in earlier years, there is no merit in making any addition in the hands of assessee.
We delete addition made in the hands of assessee by the CIT(A) to the extent of 4% of the said alleged production. Accordingly, ground of appeal raised by the assessee against confirming the addition made on account of suppression of production by applying GP rate of 4% on the alleged production of sale are allowed. Further, the ground of appeal raised by the Revenue against the order of CIT(A) in quantifying the suppressed production @ 4% and deleting the addition of working capital is dismissed.
Whether any further expenses on account of manufacturing and administration are to be allowed against unaccounted production worked out? - There is no merit in the ground of appeal raised by the Revenue in this regard as no addition on estimate basis is upheld in the hands of assessee. The ground of appeal No.2 raised by the Revenue is thus, rejected.
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2016 (11) TMI 1741
Validity of assessment u/s 153A - incriminating material was found or not? - HELD THAT:- We find from the copy of the Panchnama that lot of loose papers marked as per Bundle No.1 were found from the premises of the assessee. Apart from the above a pendrive was also found. Therefore, it cannot be said that no incriminating documents were found during the course of search.
Assessee also could not justify that no incriminating documents were found. Under these circumstances, we find no merit in the additional ground raised by the assessee. Accordingly, the additional ground raised by the assessee is dismissed.
Validity of the assessment order passed u/s.153A - period of limitation - HELD THAT:- Assessee has filed return in response to notice u/s.153A . He has also given a finding that the order has been made prior to the end of 21 months period as envisaged in section 153(1)(a) of the I.T. Act. The assessee has failed to demonstrate during the appeal proceedings that the said assessment order has not been made prior to 30-12-2011. No concrete evidence in this regard was produced before the CIT(A) to justify that the despatch of the order have been made after 30-12-2011. Nothing was brought before us to take a contrary view than the view taken by the Ld.CIT(A) while dismissing the ground raised by the assessee on this issue. Under these circumstances we find no merit in the above ground raised by the assessee.
Undisclosed income of the assessee - unaccounted generation of cash - reliance on statement as recorded u/s. 132(4) of C&F Agent - element of threat or coercion while recording the statement u/s. 132(4) - as argued denial of principles of natural justice as the copy of the statement u/s.132(4) recorded of Shri Sohan Raj Mehta [ C&F agent] was not supplied to the assessee and opportunity to cross examine Shri Sohan Raj Mehta was also not given - HELD THAT:- No addition can be made in the hands of the assessee on the basis of papers found in the premises of third party. Assessee being a small taxpayer, some evidence should have been found from the office or residence of the assessee to show that in fact he has received such huge amount. Similarly, the statement of Mr. Rasiklal M. Dhariwal [Company owner where Shri Sohan Raj Mehta, C&F agent employed] is contrary to the finding of the Department. It is also the submission of the Ld. Counsel for the assessee that different Benches of the Tribunal under identical facts and circumstances have deleted the addition made by the Assessing Officer on the basis of notings found from the premises of Mr. Sohan Raj Mehta.
We find identical issue had come up before the Tribunal in the case of Shri Vinit Ranawat [2015 (6) TMI 608 - ITAT PUNE] as deleted the addition as held he search party during the course of search at the premises of the assessee has not found any evidence whatsoever to substantiate that the assessee has in fact received any amount either party. No unaccounted asset, investment or loose paper evidencing such huge receipt has been found - the query raised during the course of search that the authorised officer has treated the same as “short term advance” given to the assessee. Therefore, we find some force in the submission of assessee that if the amount is a short term advance the question of the same constituting income in the hands of the assessee does not arise. Decided in favour of assessee.
Addition made to income from house property - determining the annual value of Mahabaleshwar property - HELD THAT:- After claiming the statutory repairs u/s. 24 and municipal taxes he determined the Annual value of the Mahabaleshwar house property - We find the Ld.CIT(A) following his order for A.Y.2005-06 deleted the addition made by the AO and thereby allowed the ground raised by the assessee determining the annual value at Rs. 25,000/-. Since the Ld.CIT(A) while deciding the issue has followed his order for A.Y. 2005-06 on the very same property and since nothing contrary was brought to our notice against the order of the CIT(A) for A.Y. 2005-06. Therefore, we find no infirmity in the order of the CIT(A) on this issue. Accordingly, the same is upheld and the ground raised by the assessee is dismissed.
Deduction u/s. 80IA(4) - project "Sai Trinity" - preconditions for claiming deduction under Industrial Park Scheme 2002 - assessee admitted to withdrawn the claim during search action - HELD THAT:- As considering the amendment of rule 18C of the Rules made w.e.f. 01.08.2008 where an undertaking begins to develop an Industrial Park is also eligible for the deduction so long as the development is otherwise complete within the period specified in the Scheme as well as it fulfills the conditions envisaged in the Scheme.
There is no justification for the denial of deduction nu/s 80-IA(4)(iii) of the Act in the instant assessment year with regard to the profits earned by the assessee from Industrial Park - we set-aside the order of the CIT(A) and direct the AO to allow the deduction made u/s 80IA(4)(iii).
Addition on account of cash seized from the appellant - AO had rejected the appellant’s sworn affidavit explaining the source and the evidence supporting withdrawal from his bank account summarily - CIT rejected the claim of the assessee trust on the ground that the same was an afterthought since no explanation was furnished during 132(4) statement - HELD THAT:- Nothing plausible was brought to our notice to substantiate with the source of Rs. 33 lakhs so as to take a contrary view than the view taken by the CIT(A). The assessee in our opinion has miserably failed to substantiate with cogent evidence that the amount belong to the trust and the amount of Rs. 10,24,000/- drawn from the Cosmos bank account was available with him. Similarly, nothing was brought to our notice to substantiate the availability of Rs. 74,000/- with the assessee and his family members. We find the Ld.CIT(A) has given valid and cogent reasons while dismissing the ground raised by the assessee on this issue. Under these circumstances and in absence of any contrary material brought to our notice, we do not find any infirmity in his order on this issue. Accordingly, the same is upheld and the ground raised by the assessee is dismissed.
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2016 (11) TMI 1739
Applicability of Section 35ABB to license fee and spectrum charges - HELD THAT:- Issue is covered by the decision of the ITAT Delhi Bench in assessee’s own case in respect of A.Y. 2008-09 [2016 (5) TMI 34 - ITAT DELH] wherein held that the expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable upto 31st July, 1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 15th August, 1999 should be treated as revenue expenditure. Thus capital expenditure is qualified for deduction as per Section 35ABB of the Act in the said case as per the finding of the Hon’ble High Court. Thus the said issue is decided in favour of the assessee.
Lease rent paid to IBM - HELD THAT:- This issues covered in favour of the assessee by the decision of the ITAT Delhi Bench in assessee’s own case for A.Y. 2008-09 [2016 (5) TMI 34 - ITAT DELH] wherein the Tribunal held that the service cum lease agreement between the assessee and IBM as well as Nortel clearly lays liability on IBM and substance of the transaction suggests that the beneficial ownership remained with IBM and not with assessee and therefore the assessee had rightly claimed the entire lease rent paid by it to IBM.
TDS u/s 194H - discount allowed to distributors on the sale of prepaid cards which carry “Right to Use of Airtime” - HELD THAT:- Addition under Section 40(a)(ia) has to be deleted as the assessee was not in default u/s 201 of the Act in respect of applicability of Section 194H - The Assessee company was carrying out telecom business in the Rajasthan Circle and NESA. The Jaipur Bench of ITAT held that the assessee is not in default in Assessment Year 2004-05 to 2008-09 and Assessment Year 2009-10.
Similarly in the case of assessee itself has held that assessee to be not in default u/s 194H of the Act. Thus no tax was determined as deductible under Chapter XVIIB. Computational provisions of Section 40(a)(ia) cannot operate if machinery provisions of Chapter XVII-B – Section 201 read with Section 194H of the Act are not applicable.
TDS u/s 194J - Payment made by the assessee company for roaming charges to other telecom service providers - HELD THAT:- Jaipur Bench of ITAT recorded a finding in [2015 (7) TMI 175 - ITAT JAIPUR] held that these charges are not fees for rendering any technical services as envisaged in Section 194J - Once the order u/s 201(1) of the Act is set aside then the issue related to Section 40(a) (ia) does not sustain. Thus the disallowance under Section 40(a)(ia) of the Act in respect of free airtime to distributors and roaming charges by the Assessing Officer does not sustain - Decided in favour of assessee.
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2016 (11) TMI 1735
Determination of tax in certain special cases - tax on LTCG u/s 112(1) - Invocation of proviso to Section 112(1) in applying the lower tax @ 10% - foreign exchange benefits - AO turned down the assessee’s claim and imposed a higher rate of tax @ 20% - as submitted that in this case, the assessee did benefit from the foreign exchange fluctuations and was therefore barred from claiming benefit under Section 112(1) - ITAT applying the lower tax @ 10% - HELD THAT:- This Court notices that the assessee’s claim was examined by the ITAT which based its decision entirely on the judgement in CAIRN UK HOLDINGS LIMITED VERSUS DIRECTOR OF INCOME-TAX [2013 (10) TMI 430 - DELHI HIGH COURT] - This Court examined the interface between Section 48 and Section 112(1) of the Act and concluded the case in favour of the assessee that, like in the case of Cairn UK Holdings Ltd. that despite deriving foreign exchange benefits, the main benefit under Section 112(1) of the Act could not be denied. Since there is a previous ruling by this Court which we have disinclined to disagree with the impugned order, no question of law arises. The appeal is therefore dismissed.
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2016 (11) TMI 1734
TP Adjustment - research and development support services provided by the assessee to its associated enterprises - Comparable selection - HELD THAT:- Assessee provided assistance to its associated enterprises in conducting and co-ordinating testing, trials and experiments; interpretation of results of various such trials; assistance in literature search and any other services required by the associated enterprises with respect to the above. It is also emerging from record that in order to perform such functions, assessee is maintaining laboratory premises and employing necessary infrastructure suitable for such research and analytical testing., thus Companies functionally dissimilar with that of assessee need to be deselected.
Addition of interest on delay in realisation of dues from associated enterprises - HELD THAT:- As decided in assessee own case [2013 (1) TMI 60 - ITAT MUMBAI] we find that the assessee has no interest liability and it does not have any external borrowings. Even if the payments have been made by the A.E. beyond the normal credit period, there is no interest cost to the assessee. Moreover, there is no such agreement whereby interest is to be charged on such a delayed payment.
From the summary of payment submitted it is seen that the billing is done on quarterly basis and, accordingly, the payment is being received. Therefore, the delay is not wholly on account of late payment by the A.Es only. Moreover, the T.P. adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income. Thus, on the facts and circumstances of the case, we are of the opinion that addition an account of notional interest relating to alleged delayed payment in collection of receivables from the A.Es, is uncalled for on the facts of the present case and is, accordingly, deleted.
Addition of foreign travel expenses - HELD THAT:- As entire disallowance is based on mere conjectures and surmises. In fact, what the DRP records that the details of expenses are “inadequate and not fully satisfactory”. In our considered opinion, the aforesaid inference of the DRP is not based on any factual support and, in fact, not even a single instance has been brought out which would show non-business purposes of the expenditure.
Quite clearly, even the adhoc disallowances are also required to be founded on certain specific discrepancies, an aspect which is conspicuous by its absence in the orders of authorities below for the year under consideration. Therefore, in our view, no disallowance can be upheld in this year on the basis of the order of Tribunal for Assessment Year 2009-10, which has been rendered in the background of specific findings of the lower authorities in that year. In the absence of any specific discrepancy/infirmity having been brought out by the lower authorities, the adhoc disallowance of 25% of foreign travel expenses is untenable - Decided in favour of assessee.
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2016 (11) TMI 1732
TP Adjustment - filters adopted by the TPO - HELD THAT:- From the above finding of the DRP, it is very clear that the order of the DRP is very cryptic and without any reasoning and therefore, we find force in the submissions of the assessee that the entire issue should be restored back to the file of the AO/TPO/DRP for fresh decision. Hence, we set aside the order of the AO and restore the matter back to his file for a fresh decision after allowing adequate opportunity of being heard to the assessee.
No adjudication is called for on merit of any of the issues involved in this appeal. Appeal of the assessee is partly allowed for statistical purposes.
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2016 (11) TMI 1730
Disallowance u/s 14A r.w. Rule 8D - disallowance pertaining to proportionate interest and administrative expenditure - HELD THAT:- As held in Morgan Stanley India Securities Pvt [2014 (1) TMI 1412 - ITAT MUMBAI] interest disallowance is to be computed on net interest figure instead of the gross one. The Revenue does not dispute this legal position. We thus find force in assessee’s contention on this limited aspect of interest disallowance and direct the AO to proceed on net interest basis only. We agree with ld. CIT(A)’s findings in principle and remit the issue back to the Assessing Authority to re-compute the impugned interest disallowance afresh after affording adequate opportunity of hearing to the assessee. The assessee’s only substantive ground as well as its appeal partly succeeds for statistical purposes.
Nature of expenditure - business development expenditure - HELD THAT:- Both the ld. Representatives are ad idem that this tribunal’s order in assessee’s own case for AYs 2005-06 to 2009-10[2016 (2) TMI 1353 - ITAT AHMEDABAD] follows yet another decision in its case pertaining to AY 2001-02 holding identical business development expenditure to be Revenue in nature. Ld. Departmental Representative fails to point out any distinction on the relevant facts involved. We thus find no reason to interfere in the CIT(A)’s conclusion under challenge. The Revenue fails in its first substantive ground.
Addition of outstanding creditors liability - AO invoked the above statutory provision for the reason that the assessee had been showing the impugned liabilities for a time period exceeding three years - HELD THAT:- The case file indicates that this tribunal in AY 2009-10 [2016 (2) TMI 1353 - ITAT AHMEDABAD] follows hon’ble jurisdictional high court’s decision in CIT vs. Nitin S. Garg, [2012 (5) TMI 30 - GUJARAT HIGH COURT] to hold that such a reason in absence of any evidence proving remission or cessation of liability is not sustainable. The Revenue does not point any exception thereto in facts of the instant case. We accordingly follow judicial consistency to uphold the CIT(A)’s findings under challenge. This latter ground as well as Revenue’s appeal is declined.
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2016 (11) TMI 1728
Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether it is for concealment of income or for furnishing of incorrect particulars of income? - HELD THAT:- In New Sorathia Engg. Co [2006 (1) TMI 71 - GUJARAT HIGH COURT] it has been held that ‘where penalty order and order of Commissioner (Appeals) showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished, order of penalty could not be sustained.
In CIT vs. Smt. Kaushalya [1995 (1) TMI 25 - BOMBAY HIGH COURT] has held that ‘The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.’
We hold that the notice issued by the AO u/s 274 r.w.s. 271 for the AY 2003-04 for initiating penalty proceeding u/s 271(1)(c) of the Act in the present case is invalid. The order of the CIT(A) directing the AO to impose penalty u/s 271(1)(c) is thus set aside. Appeal filed by the assessee is allowed.
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2016 (11) TMI 1727
Penalty u/s 271(1)(c) - Defective notice u/s 274 - whether it is for concealment of income or for furnishing of incorrect particulars of income? - HELD THAT:- In New Sorathia Engg. Co [2006 (1) TMI 71 - GUJARAT HIGH COURT] it has been held that ‘where penalty order and order of Commissioner (Appeals) showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished, order of penalty could not be sustained.
In CIT vs. Smt. Kaushalya [1995 (1) TMI 25 - BOMBAY HIGH COURT] has held that ‘The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.’
We hold that the notice issued by the AO u/s 274 r.w.s. 271 for the AY 2003-04 for initiating penalty proceeding u/s 271(1)(c) of the Act in the present case is invalid. The order of the CIT(A) directing the AO to impose penalty u/s 271(1)(c) is thus set aside. Appeal filed by the assessee is allowed.
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2016 (11) TMI 1724
Validity of order passed u/s.143(3) r.w.s.153B(1)(b) - there was a search at the premises of the assessee, wherein incriminating documents and jewellery were found - addition was made by the AO on account as alleged to be received by assessee on account of payment from Natvar Parikh & Co. in addition to consideration mentioned in settlement deed for transfer of shares of NPCL - AR raised an additional ground to the effect that amount of capital gain so offered by the assessee was received out of family settlement, therefore, not liable to tax - CIT- A deleted the addition - HELD THAT:- These jewellery were acquired by the assessee out of drawings. Considering the withdrawals made by the assessee during the year amounting to Rs.43,14,569.30 towards personal expenses and the income declared by the assessee amounting to Rs.2,81,83,911/-, we do not find any merit for the addition of Rs.74,565/- so made by AO.
As assessee has not filed any revised return with regard to the capital gains originally offered in the return of income, the AO has declined to consider assessee’s claim of amount having been received under family settlement and not liable to tax. By the impugned order the CIT(A) confirmed the action of AO. From the record we found that during the year assessee sold shares of NPCL to the company itself, under a family arrangement scheme, endorsed by Company Law Board's order dated 30.03.2006, 13.04.2006 & 26.02.2007. Long term Capital gain arising out of said sale is Rs.16,23,94,604/-. Assessee invested the same in house property u/s 54F and residual amount of Rs.2,08,64,396/- was offered for capital gain and paid taxes accordingly. Assessee filed its return of income for the present year under assessment on 01.08.2007 declaring a total income of Rs. 2,81,83,911/- which includes the said capital gain. The said return was filed voluntarily by the assessee u/s 139 (1). No revised return has been filed by the assessee till date.
In view of the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. [1996 (12) TMI 7 - SUPREME COURT] we accept the additional ground raised which is purely legal in nature. All the related facts are already on the record of the lower authorities, therefore, there is no hesitation in accepting the legal ground.
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2016 (11) TMI 1723
TDS u/s 194J OR 194C - ‘assessee in default’ in terms of section 201 and interest u/s 201(1A) - non-deduction of tax at source for payments made towards interconnect charges (including port charges, access charges, roaming charges and pass through charges) - HELD THAT:- As relying on own case [2015 (9) TMI 1358 - ITAT KOLKATA] for carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under section 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term 'work' is defined in section 194C of the Act. The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have already held that the payment of roaming charges does not require any human intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of section 194C are not applicable to the impugned issue.
We find that there is no dispute on the non-applicability of provisions of section 194I of the Act in the instant case. We also draw support of our finding from the decision of Delhi Tribunal in the case of Bharti Airtel Limited & Anr [2016 (3) TMI 680 - ITAT DELHI] wherein they have held that the subject mentioned payments do not fall under the ambit of ‘fee for technical services’ or under ‘royalty’ u/s 194J of the Act.
We hold that there is no obligation to deduct tax at source for the assessee payer in terms of section 194C or 194J of the Act and hence the assessee cannot be treated as ‘assessee in default’ u/s 201 of the Act. Hence consequentially the interest u/s 201(1A) of the Act cannot be charged on the assessee in the instant case - Assessee appeal allowed.
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2016 (11) TMI 1722
Deduction u/s 80P - HELD THAT:- While dealing with Tax Case Appeal [2016 (9) TMI 952 - MADRAS HIGH COURT] a Division Bench of this Court to which one of us (Nooty. Ramamohana Rao, J) is a member, had occasion to consider the very same substantial questions of law which have fallen for consideration in this appeal and those substantial questions of law were answered in favour of the Assessee and against the Revenue, as the Assessee is a mere Co-operative Society but not a Co-operative Bank.
We have not found any error committed by the AO the Appellate Authority and the Tribunal in coming to the conclusions to which they have arrived at. We subscribe to the same reasoning and accordingly, we dismiss this Tax Case Appeal.
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2016 (11) TMI 1721
Exclusion of subsidy from the deduction claimed u/s. 80IA - assessee has received subsidy from the State Government in respect of the Capital Assets acquired on or before 31.03.2003 - very purpose of sanction of capital subsidy was to meet the project cost to set up Solid Waste Disposal Project and complete the project - HELD THAT:- As relying on case MEGHALAYA STEELS LTD [2016 (3) TMI 375 - SUPREME COURT] the subsidy received from the State Government is nothing but the recoupment of the cost and hence eligible for the deduction u/s. 80IA of the Act. Common Grievance No. 1 is accordingly allowed.
Exclusion of interest income from the deduction claimed u/s. 80IA - HELD THAT:- A perusal of the financial statements vis-à-vis the computation of income shows that the only head of income shown in the return is “profits and gains of business or profession”.A.O. has also proceeded by computing the assessed income taking the figure from “profits and gains of business or profession”. This means that the A.O. has admittedly accepted the miscellaneous income under head “profits and gains of business”.
As explained that the appellant-company had set aside the amount for expenditures to be incurred for inherent cost relating to the maintenance of the pits. Therefore, the interest income has a direct nexus with the business activity of the assessee, therefore eligible for deduction u/s. 80IA. As in the case of Empire Pumps Pvt. Ltd. [2014 (11) TMI 563 - GUJARAT HIGH COURT] held that interest income is held to be eligible for deduction u/s. 80IA.
Disallowance of provision for Pit Covering Expenses - assessee explained that the liability to incur expenditure on pit covering arises as soon as the pits were dug and the pits are required to be covered after each pit is completely filled as per guidelines issued by GPCB - A.O. denied the contention of the assessee on the ground that the pit is closed immediately and, therefore, the difference between the provision and the amount actually spent could not be explained properly - HELD THAT:- We direct the A.O. to allow the provision for pit covering expenses in totality.
Computation of book profit u/s. 115JB - Hon’ble Supreme Court in the case of Appollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME COURT] held that “while determining the “book profits” u/s.115J, the Assessing Officer could not recompute the profits in the profit and loss account by excluding provisions made for arrears of depreciation”. Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its account in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the recruitments of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.
Disallowance of Post Closure Expenses - HELD THAT:- As in the light of the stipulation of Gujarat Pollution Control Board and the Scientific Working we direct the A.O. to allow the post closure expenses. Common grievance is allowed.
Disallowance of deduction u/s. 80IA on account of land and pit construction expenses - HELD THAT:- As the company is in the new line of business, there is no established practice of determining exact expenses incurred on the process of treatment of solid waste. Accordingly, in the beginning year, the company has estimated expenses in relation to the treatment of Solid Waste Management by applying available best parameters and accordingly charged of the expenses to Profit and Loss account of the respective years. Gradually, the company developed scientific method of estimation of expenses and accordingly the company has revised its working to arrive with the exact expenses.
As the revised computation is scientific. We further find that the expenditures claimed in the earlier years were allowed by the revenue. Therefore, write back of the same has a direct nexus with the business activity of the assessee. Hence, the assessee is eligible for the deduction u/s. 80IA of the Act. Ground no. 1 is accordingly allowed.
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2016 (11) TMI 1720
Powers of the Commissioner (Appeals) - Deduction u/s 80IB(10) denied - income in respect of housing project namely, 'Kamdhenu Siddhi' being developed by the assessee at Kothrud, Pune - AO denied the claim of deduction on the ground that the assessee has not fulfilled the conditions prescribed in section 80IB(10) by not completing the project before the stipulated date - AO also disallowed the compensation paid to the flat owners on the ground that in the agreement done before the Sub-Registrar office it is nowhere written that if the assessee fails to give possession to the flat owners he will be liable to pay compensation - CIT(A) set aside the issue to the file of the Assessing Officer with certain directions - submission of the assessee that after the amendment by the Finance Act, 2001 to the provisions of section 251(1)(a) the CIT(A) has no power to set aside the issue to the file of the Assessing Officer for reconsideration - HELD THAT:- CIT(A) should have decided the issue himself instead of setting aside the matter to the file of the Assessing Officer since he has no power to set aside the matter to the file of the Assessing Officer in view of the amendment to provisions of section 251(1)(a) by the Finance Act, 2001 w.e.f. 01-06-2001. We therefore are of the considered opinion that the matter requires re-visit to the file of the CIT(A) who shall decide the issue himself after obtaining a remand report from the Assessing Officer, if necessary. He shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Grounds raised by the assessee as well as the revenue are accordingly allowed for statistical purposes.
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2016 (11) TMI 1719
Reopening of assessment u/s 147 - Submission of objections so made against reopening of assessment - HELD THAT:- In the light of the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd.[2002 (11) TMI 7 - SUPREME COURT] the petitioner/assessee is entitled to submit their objections to the reasons for reopening. It is only thereafter the respondent has to pass orders either accepting or rejecting the objections so made. Therefore, at this stage of the matter, the question of quashing the impugned notice does not arise in the light of the fact that after issuance of the impugned notice, by a communication dated 24.10.2016, the respondent communicated the reasons for reopening. Therefore, the petitioner has to comply with the directives of the Hon'ble Supreme Court in the decision in GKN Driveshafts and follow the procedure contemplated therein.
Writ petition is disposed of granting 15 days' time from the date of receipt of a copy of this order, to the petitioner to submit his objections to the reasons for reopening communicated by proceedings dated 24.10.2016. On receipt of the objections, the respondent shall consider the same and pass a speaking order on merits and in accordance with law, within a period of 10 days thereafter.
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2016 (11) TMI 1718
Rectification of mistake u/s 254 - excess addition on account of ‘on–money’ - whether the Tribunal is duty–bound to grant relief to the assessee as claimed during the hearing on the basis of the case eventually found by it, even if there is no specific ground of appeal raised before it in support of such relief.? - HELD THAT:- When an appeal from an assessment is brought before the Tribunal under Section 254(1) of the Act, all questions arising there-from, including questions which are incidental or consequential to such assessment, are open to be agitated before the Tribunal. The Tribunal is empowered to “pass such orders thereon as it thinks fit”. It is one thing to say that the Tribunal must confine itself to the subject matter of the appeal and not go beyond it, but quite another to say that whilst deciding such subject matter it cannot consider questions which are incidental to, or would follow as a consequence of, its determination. If the Tribunal rejects the assessee's case on a particular ground, and if such ground affords a certain relief to the assessee without his having to ever any new facts, such relief cannot be denied on the footing that the assessee never claimed it. If the assessee did not claim it, the Tribunal must grant it suo motu, as a matter of law, if the relief does follow as a legal incident.
Our Court held that the alternative submission did not amount to raising of an additional ground of appeal but the submission was a different facet of the same controversy; it was merely consequential to the finding of the tribunal against the assessee.
The submission would not arise in case the tribunal accepts the assessee’s contention for deduction of the amount as revenue expenditure; but where the tribunal turns down the assessee’s claim and holds it to be capital expenditure, “it is the duty of the Tribunal, even without an alternative submission, to pass necessary consequential orders, suo motu, to give further directions in the matter as the situation may warrant”.
We are of the view that the Tribunal was bound in law to consider the alternative plea raised by the assessee at the hearing of the appeals. The question now is, what relief should be granted on the applications before us. The miscellaneous application taken out before the Tribunal by the assessee clearly brings out an error apparent on record insofar as the original order passed by the Tribunal is concerned. It is particularly so since both the decisions in CIBA India [1993 (1) TMI 35 - BOMBAY HIGH COURT] and Mahalakshmi Textile Mills [1967 (5) TMI 4 - SUPREME COURT] were already available when the Tribunal considered the matter. We are, therefore, of the view that it would be more appropriate to allow the miscellaneous application and direct the Tribunal to consider the alternative plea of the assessee in the light of what we have stated above. Since the final order of the Tribunal on the appeal can only be crystallized after the plea is so considered by the Tribunal, the Reference may have to be returned unanswered.
The writ petition is, accordingly, allowed and the impugned order passed by the Tribunal on the miscellaneous application to the extent it relates to assessment years 1987-88 and 1988-89, is set aside and the miscellaneous application is allowed by directing the Tribunal to consider the alternative plea raised by the assessee in the light of what we have observed above. The Tribunal shall now decide the appeal on merits.
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