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Income Tax - Case Laws
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2016 (4) TMI 1460 - SC ORDER
Subsidy with respect to Sales Tax payable - Tribunal holding that the subsidy received by the assessee cannot be reduced from written down value for purpose of computing depreciation of wind mills - as per assessee subsidy was not linked to any capital asset and accordingly, the same should not be reduced from the cost of asset for the purpose of granting depreciation - As held by HC[2011 (6) TMI 853 - GUJARAT HIGH COURT] Tribunal committed no error as CIT (A) as well as Tribunal both concurrently found that subsidy was not for the purpose of acquisition of the assets but was by way of incentive for encouraging development of alternative source of energy. It had, in fact, come on record that windmills were acquired in the earlier years. The Sales Tax incentive was granted by the State Government during the year in question. It, thus, remains established that the incentive was not given for acquisition of the wind mills but for development of wind farm by way of alternative source of energy - HELD THAT:- The special leave petition is dismissed.
Application, if any, also stands disposed of.
Subsidy received - Tribunal holding that the subsidy received by the assessee cannot be reduced from written down value for purpose of computing depreciation of wind mills - Whether cannot be reduced from written down value for purpose of computing depreciation of wind mills? - as per HC [2011 (8) TMI 1189 - GUJARAT HIGH COURT] Tribunal committed no error. CIT (A) as well as Tribunal both concurrently found that subsidy was not for the purpose of acquisition of the assets but was by way of incentive for encouraging development of alternative source of energy. It had, in fact, come on record that windmills were acquired in the earlier years. The Sales Tax incentive was granted by the State Government during the year in question. It, thus, remains established that the incentive was not given for acquisition of the wind mills but for development of wind farm by way of alternative source of energy - HELD THAT:- Delay condoned. The special leave petition is dismissed.
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2016 (4) TMI 1456 - ITAT DELHI
TP Adjustment - Determination of ALP of royalty transactions at NIL against transaction value - AR submitted that TPO has determined the ALP holding that the taxpayer did not produce any cost benefit analysis at the time of entering into the agreement with its AE showing that the royalty rate is not fixed based on expected benefit - HELD THAT:- Assessee has entered into technical assistance agreement with Stanley Electric Company Japan on 01.04.2007 for grant of nonexclusive and nontransferable license without a right to sub-license, to manufacture and sale license product in India using the technical information of Stanley Electric Company. Since 1990 the royalty is being paid by the Assessee to Stanley @3% of sales.
During the period from 1990 to 1994 the two parties were unrelated party hence the royalty contract was made under uncontrolled conditions and the payment of royalty by the Assessee to AE can be considered as comparable uncontrolled price for the purpose of bench marking the royalty payment for the year.
Accordingly, Assessee in its TP Study report has said that the payment of royalty is at Arm’s length price as the agreement is in accordance with industrial policy of the Govt. In its TP study report assessee applying the TNMM method and submitted that the above transaction is also conducted at an ALP.
On the identical facts and circumstances in the case of the assessee in [2015 (10) TMI 2509 - DELHI HIGH COURT] has not admitted the appeal of the revenue with respect to the determination of ALP of royalty relying on the decision of CIT Vs. EKL Appliances Ltd. [2012 (4) TMI 346 - DELHI HIGH COURT] and CIT Vs. Sony Ericson Mobile Communication [2015 (3) TMI 580 - DELHI HIGH COURT] held that royalty payment cannot be disallowed on the basis of the so-called benefit test and the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm's length principle or not - we direct the ld. TPO/AO to delete the adjustment made on account of ALP of royalty payments.
Disallowance u/s 14A r.w.r. 8D - mandation of recording satisfaction - HELD THAT:- Recording of satisfaction on the correctness of claim of the assessee on disallowance u/s 14A before invoking rule 8 D of the Income tax rules 1962 is mandatory. The language of section 14A provides that AO must record a satisfaction if he was unsatisfied with any incorrect claim of the assessee. If he failed to record such a finding then it cannot be said that he rightly invoked provision of section 14A of the act for application of rule 8D. See Taikisha Engineering India Ltd [2014 (12) TMI 482 - DELHI HIGH COURT]
Also assessee had own funds far in excess of the amount invested in investments earning tax free income. In such a case presumption is that own funds have been used to finance the investment activities.
As in case of CIT Vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] has held that when interest free funds are available then the presumption would be that such interest free funds are invested or advanced as interest free loan. If the presumption is applied to the facts of this case then there cannot be any disallowance on account of interest expenditure. Therefore on two counts i.e. non-recording of satisfaction and interest free fund far in excess of investments, we do not incline to uphold disallowance made u/s 14A - Decided in favour of assessee.
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2016 (4) TMI 1453 - ITAT INDORE
TCS Credit to partnership firm - in intimation u/s 143(1) claim of TCS was restricted as reflected in the 26AS Form of the assessee - assessee is a partnership firm doing the business of liquor and all the partners are license-holders and they have formed partnership to carry on the business of liquor - HELD THAT:- From TCS Certificate, it is found that all these TCS certificates were in the name of the persons having their own PAN Numbers, TCS collected of such persons is allowed in the hands of the assessee partnership firm.
TCS was claimed in the name of different persons. The assessee is entitled to get credit of TCS.
We find that as per Rule 37BA, which has been amended from 1.4.2009, in above situation, the person to whom the payment has been made or credit has been given on the basis of information relating to deduction of tax furnished by the Deductor to the income of tax authorities or the persons authorized by such authority.
Rule 37BA provides that where any income on which the tax has been deducted at source is assessable in the hands of persons other than deductee, the credit for tax deducted at source, as the case may be, shall be given to the persons and not to the deductee.
We find that in this case, the assessment was made u/s 143(1). Therefore, in the interest of justice and fair play, we are of the view that the matter requires verification. AO is directed to give credit of this tax, which is effective from 01.04.2009 and the new rule has been amended from 2011. Therefore, the credit may be given for 24.10.2011 to the assessee after verifying whether the credit has been claimed or not in the hands of partners. If the partners have not claimed TCS certificate, the credit may be given to the partnership firm as per the decision of Bhooratnam & Company, [2013 (1) TMI 478 - ANDHRA PRADESH HIGH COURT] - Appeal of the assessee is allowed for statistical purposes.
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2016 (4) TMI 1452 - ITAT MUMBAI
Revision u/s 263 - issue of lack of application of mind of AO to the figures relating to purchase price and sale price of “beneficial interest” qua its market rate of Rs. 6.83 Crs - HELD THAT:- Principal CIT should clearly demonstrate the errors and revenue loss and not tax loss alone. Principal CIT is not allowed to assume jurisdiction u/s 263 under the guise of AO’s failure to conduct adequate inquiries. In principle, the aspect of AO’s failure is an unending process and it is difficult to find end to it. AO has to stop his inquiries somewhere given the time restrictions imposed on him for completing the assessment. Principal CIT cannot invoke the amended provisions of Explanation-2 (a) to section 263 of the Act to justify his order.
We dismiss the Ld CIT-DR’s reliance on the order of the ITAT in the case of Crompton Greaves Ltd. [2016 (2) TMI 169 - ITAT MUMBAI] we find the same constitutes obiter dicta only and has no binding nature. In any case, we find that it is not a case of completing regular assessment “without making inquiries or verification, which should have been made” [clause (a) of Explanation-2 to section 263(1) of the Act is relevant].
The clause (a) reads as - 'The order is passed without making inquiries or verification which should have been made'.
The above provisions apply only to the cases of orders passed by AO without making inquiries or verification at all, which should have been done. Unlike in the case of Marigold Nariman Pvt Ltd [2015 (8) TMI 174 - ITAT KOLKATA] heavily relied by the AO, in the instant case, AO made inquiries on the matter of transactions leading to short term capital loss. Therefore, in our opinion, the order passed u/s 263 of the Act on this issue is invalid.
Generation of long term capital gains and assessee’s claim of the same u/s 10(38) - Assessee became the owner of such shares resultantly. These shares were traded involving the SE platform electronically and de-mat accounts of the parties involves evidences the same. There is no sustainable unfavourable finding of the fact by the Principle CIT on the rates / shares involved and payments. The allegation of the Principal CIT and Ld DR is that the AO should have done more probing into the transactions and the allegation of collusive / synchronous transactions.
We also find that the AO undertook the cross verification exercise in order to verify the claims with broker. The proceedings initiated by the AO u/s 133(6) of the Act evidences the same. In our opinion, it is very clear that allegations by the Principal CIT are based on suspicion, which is unsustainable in law. There is no iota of evidence against the assessee that supports the collusiveness. Regarding as based allegations, we find that the principles of probability should take care. As such, we find there is no sustainable revenue loss reported by the Principal CIT. Actually, assessee gained in the process. In our opinion, as per the claim of assessee u/s 10(38) of the Act cannot constitute a revenue loss as it is otherwise a legitimate one. Thus, it is a case of suspicion of the Principal CIT rather than any allegations with substance. Therefore, we dismiss the finding of the Principal CIT and hold that the CIT has wrongly assumed jurisdiction.
Long term capital loss on sale of shares - We find that the inquiries of the AO cannot be considered “perfunctory or inadequate”. We need to consider the time limitation to the AO / the work load on any AO of this period. On merits also, it is not the case of Principal CIT that preferential shares of RPG-CITHL are sold below price. There were sold at face values. Of course, after indexation benefits were claimed, the capital losses are reported. Regarding shares of Saregama, we find that they are “quoted shares” and the sale price are competitive even if they are “off-market transactions”. Prevailing price of the shares on Bombay Stock Exchange are placed on record.
Regarding shares of CFL also, we find that the relevant financial statements reveals that the capital of company is eroded its worth and Chartered Accountants also certified this fact in their Annual Reports of the company. Regarding, purchase prices, we find that issue is not relevant to the year consideration. Reasons for the same includes that the shares in question were acquired in the earlier AYs and there are no new purchases in the year under consideration.
We are of the opinion, the AO conducted reasonable inquiries into the basic facts material to the making of the assessment. It is obviously not the case of “lack of inquiries” by the AO during the assessment. The documentation cited above in this order suggest the above finding. We cannot understand why the AO should travel into zone of “purchase price” of the shares of CFC, Saregama RPGCITHL as they were acquired in the past.
Any addition on the account of purchase price in this year is unsustainable in law. It is a settled legal principle. Any addition relating to investment should be made in the year of investment. Regarding sale price also, the same are competitive qua the prices quoted in BSE and the financials, as the case may be. No adverse data is placed by the CIT on records. CIT also failed to demonstrate the “loss of revenue” as required when he assumes jurisdiction u/s 263 - We also noticed that both the Principal CIT and CIT-DR have not listed / elaborated the meaning of the expression “all aspects” used by them while commenting on the AO’s failure to carryout inquiries.
Thus, it is the case of AO conducting the inquiries during the regular assessment proceedings, forming an opinion in the matter with due application of his mind and not making any addition after due inquiries. With so much of evidence on records in support of the above, we cannot hold AO failed to make “meaningful inquiries”. Thus, we dismiss the arguments of Ld DR and allow the views of the Ld Counsel for the assessee. Accordingly, we hold, Principal CIT erroneously assumed jurisdiction on this issue too.
Principal CIT cannot resort to “hit and run” approach. He is under legal obligation to enlist the details of inquiries not done by the AO, the manner of conducting such inquiries etc and quantify or demonstrate the revenue in clearly expressed language in his order. Therefore, on the facts of the present case and the settled legal propositions in force, we are of the opinion that the Principal CIT wrongly assumed jurisdiction u/s 263 on all these issues raised by him. Considering the inquiries done by the AO clearly made out in the records above, we are of the opinion that this is not the case of “inadequate inquiry or improper inquiry or perfunctory inquiry”. Therefore, we restore the order of the AO originally passed on 19.3.2014. Accordingly, ground nos.1 to 3 raised by the assessee are allowed.
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2016 (4) TMI 1448 - BOMBAY HIGH COURT
Deduction u/s 80IA(4) - Tribunal held that the condition provided in clause (b) of Section 80IA(4)(i) is not mandatory, and therefore, the assessee is entitled to get deduction under Section 80IA(4) - HELD THAT:- Revenue very fairly states that the questions framed herein stands concluded by the decision of this Court in the Commissioner of Income-Tax vs. All Cargo Global Logistics Pvt. Ltd. [2015 (5) TMI 656 - BOMBAY HIGH COURT] in favour of the respondent – assessee.
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2016 (4) TMI 1447 - ITAT DELHI
Characterising of service end commission activities of the assessee company - Performing trading activity for its AE Japan or worked as a service provider? - HELD THAT:- As decided in assessee own case [2015 (8) TMI 922 - ITAT DELHI] determining the issue in favour of the assessee that the assessee company has performed routine, preparatory and ancillary activities in nature and have not created any intangibles as its role was limited to that of a routine coordination and support service provider. So, the ld. TPO/DRP have erred in recharacterizing the service end commission activities of the assessee company as equivalent to its trading segment.
Inflation of total cost by TPO/DRP - The said value was recorded sale/purchase by the AEs and was never a cost to the assessee - HELD THAT:- In view of what has been discussed above and by following the order passed by the coordinate Bench in assessee’s own case on identical facts qua the AYs 2007-08 and 2008-09, we are of the considered view that the adjustment made by the AO in compliance to the order passed by TPO/DRP for benchmarking the international transaction qua AYs 200910 and 2010-11 is not sustainable in the eyes of law as
(i) TPO/DRP have illegally and arbitrarily included the cost of sales incurred by the assessee company’s AE, for which the assessee company has rendered support services to work out the profit for determination of the ALP;
(ii) Identical and similar issue has been decided by the Tribunal in case of Mitsubishi Corporation India P Ltd. [2014 (10) TMI 702 - ITAT DELHI] by following the judgment rendered in case of Li and Fung India Pvt. Ltd. [2014 (1) TMI 501 - DELHI HIGH COURT] and held that the TPO was not justified in re-characterizing the transaction as trading transaction and it has also been held that cost of sales incurred by the AE cannot be included to work out the profit for determination of the ALP;
(iii) Nature of services rendered by the assessee company to its AE since 2003 are the same and it has been consistently benchmarking its international transaction relating to the business support services using TNMM as the most appropriate method as OP/TC as PLI, as has been used in the instant case;
(iv) As has been discussed in the preceding paras and as has been held by the coordinate Bench of the Tribunal in assessee’s own case qua the AYs 2007-08 and 2008-09 that when the FOB value of the goods on which commission/ service income is earned amounting to Rs. 4005.37 crores for AY 2009-10 and Rs. 5057 crores for AY 2010-11 is not to be added to the cost base of the assessee’s international transaction, the assessee’s international transactions computed by using TNMM as the most appropriate method and PLI selected is GP/OC i.e. berry ratio, the international transaction in question are at arm’s length;
(v) Comparables chosen by the TPO to determine the arm’s length price of the international transaction entered into by the assessee company are not correct one because all the comparables are of trading company and not of support services provider as in the case of assessee company. Decided in favour of the assessee.
Disallowance u/s 14A - HELD THAT:- By applying the law laid down in judgment cited as Cheminvest [2015 (9) TMI 238 - DELHI HIGH COURT] in the similar facts and circumstances of the case, when assessee has not earned any exempt income during the years under consideration, as is evident from the documents lying i.e. profit & loss account and audited balance-sheet, section 14A would not be applicable in the instant case. Hence, the disallowance confirmed by the DRP is not sustainable in the eyes of law.
Disallowance of expenditure on account of leased rent, staff welfare and commission income adjustment relates to prior period - AR contended that the assessee had in fact never claimed the said amount as deduction in the return of income - HELD THAT:- A perusal of the audited profit & loss account statement apparently shows that assessee has never claimed prior period expenses during the year under consideration in Income-tax return and as such, the question of disallowing the same does not arise. So, we hereby decide this ground in favour of the assessee.
Addition u/s 37 (1) - expenditure on account of payment of service fee paid abroad - expenditure has not been incurred wholly and exclusively for the purpose of business and on the ground that the assessee has merely submitted copies of the agreement of the assessee with the aforesaid companies and no evidence is available on the file - HELD THAT:- Keeping in view the fact that in the succeeding year, AY 2011-12, the DRP has decided this issue in favour of the assessee and deleted the entire addition of service fee paid to the same parties to whom this fee was paid. So in view of the matter, this issue is required to be restored to the AO to decide afresh in the light of the order dated 14.12.2015 passed by DRP qua AY 2011-12 in assessee’s own case after providing an opportunity of being heard to the assessee. Consequently, this ground is determined in favour of the assessee.
Expenditure on logistic and warehousing support service - Addition u/s 37 (1) on the ground that the same has not been incurred wholly and exclusively for the purpose of business and the assessee has failed to offer any justification for making the aforesaid payment on account of commercial expediency nor the assessee has furnished copy of agreement with M/s. Panasonic India Pvt. Ltd. and nor placed on record detailed computation of losses - HELD THAT:- AR, contention, that the amount in question has been incurred under terms of the outsourcing agreement with respective agencies, and placed on record the copy of agreement, lying at pages 7 onwards of the paper book has been overlooked by the AO as well as DRP and as such, we are of the considered view that this issue is also required to be restored to the AO to decide afresh after providing an opportunity of being heard to the assessee to adduce evidence in this regard. So, this ground is also determined in favour of the assessee.
TDS u/s 195 - Purchase from PE in India - HELD THAT:- Undisputedly, this issue is covered by the order passed by the DRP in assessee’s own case qua AY 2011-12 as held that no TDS is applicable u/s 195 on offshore supplies. When the assessee company has no PE in India it is not liable to deduct tax at source. So in the light of the facts and circumstances of the case and the fact that this issue has been decided by the ld. DRP qua the subsequent AY 2011-12 in favour of the assessee, this issue is also restored to the AO to determine afresh.
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2016 (4) TMI 1446 - ITAT AMRITSAR
Survey proceedings - Excess stock of Narma was found - method of weighment - survey party drew inventory of the said excess stock, on the basis of weighment of the Narma - grievance of the assessee is that such weighment was not done in accordance with the provisions of the Standards of Weights and Measures Act, 1976, by any standardized scale using standard weights and measures, but by adhoc weighing of the Narma by using cartons - HELD THAT:- The mandate of the section 133A(1) is that it is the surveying Authority who is to 'require' the person attending to or helping in the business carried on at the premises under survey to be afforded the necessary facility to check or verify the stock found during the survey. It is only on such requirement having been expressed by the surveying Authority, that the said authority shall essentially be afforded such facility for checking or verification of the stock found in the survey.
Income-tax Authorities must help the assessees, not otherwise. The Authority cannot withhold such legal requirement from the assessee prejudicially and then, on the contrary, hold the assessee liable for not making good such legal requirement. Even the DBCT, in its Circular no.l4(XI-35) of 1995, dated 11.4.55, has directed that: "Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing relief and in this regard the officers should take the initiative in guiding a tax payer where the proceedings or other particulars before them indicate that some refund or relief is due to them."
CIT(A) has remained oblivious of the above extant provisions of law and has, therefore, erroneously put the shoe on the wrong foot.
CIT(A) has illegally rest the burden on the assessee by observing that it was the assessee who did not provide the requisite facility of weighment under the Standards of Weights and Measures Act, 1976 to the surveying Authority, whereas, as discussed hereinabove, the position is quite diametrically opposite.
So, it was the surveying Authority who arbitrarily never required the assessee to provide him with the weightment facility and it was not the assessee who refused to do so. Per contra, the assessee in fact did not have any occasion whatsoever to make such a refusal.
Remarkably, it was the assessee who objected, at ground zero itself, against the action of the survey Authority, of weighing the Narma not as per the provisions of the Standards of Weights and Measures Act, 1976 , but by using cartons. This objection, however, was overruled. This fact has also not been repudiated by the Department, though it is patent on record. Therefore, the reasoning adopted by the ld. CIT(A) is unsustainable in law, for which, the addition could not have been made and the same cannot be upheld. The same, accordingly, is deleted. Ground Nos. 1 to 3 are, hence, allowed.
Disallowance of various expenses - HELD THAT:- As there has been no dispute on the part of the assessee that as observed by the ld. CIT(A), there was no mechanism for verifying the purported expenses being recorded in the books of the assessee. The only grievance raised is that the relief granted is less. As to how it is so, nothing has been brought on record. Therefore, this action of the ld. CIT(A) is justified and is confirmed. As such, Ground no.4 is rejected.
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2016 (4) TMI 1444 - ITAT CHANDIGARH
TDS u/s 195 - payment of web hosting charges to US company - addition under section 40(a)(ia) - CIT-A deleted addition - CIT-A deleted addition - As per DR clause (iva) to Explanation-2 to Section 9(1)(vi) the use or right to use any industrial, commercial or scientific instrument would fall within the definition of "royalty", therefore, ld. CIT(Appeals) should not have deleted the addition - HELD THAT:- The word 'use' or 'right to use' in clause (iva) of Explanation-2 below Section 9(1)(iva) of of the Act is regarding use of equipment in actual sense. In the present case, it was found that assessee had nothing to do with the equipments and had only made use of facilities created by the service provider who were the owners of entire infrastructure and related equipments. The assessee company is neither in possession of equipments nor it uses the equipment solely for its own purpose. The equipments are used by the Non Resident Inc to provide service to the assessee and others, therefore, assessee has no control over the equipments as well as operating system.
When the payments are not in the nature of 'Royalty" as per Explanation-II (via) of Section 9(1)(vi) of the Act, then recipient of the said payments, being non resident, having no PE in India, is not liable to tax in India. Therefore, payments in the hands of M/s Pugmarks Inc & Others are not taxable in India and consequently, no tax required to be deducted under section 195 on such payment/remittance by the assessee. Such payments, therefore, cannot be termed as 'royalty' - as found that services are rendered outside India by non-resident and paid outside India, then the provisions of Section 195 do not apply in case of such payments. As the company who had provided web hosting services, was located outside India and the server was also located outside India, income that had arisen is not taxable in India.
We find that the issue is also covered in favour of the assessee by judgements in the case of People Interactive (I) Pvt.Ltd. [2012 (2) TMI 534 - ITAT MUMBAI], Yahoo India Pvt. Ltd. [2011 (6) TMI 162 - ITAT, MUMBAI] and decision in the case of Dell International Services (India) Pvt. Ltd. [2008 (7) TMI 9 - AUTHORITY FOR ADVANCE RULINGS] No infirmity in the order of the ld. CI T(Appeal s) have been pointed out. - Decided agaianst revenue.
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2016 (4) TMI 1440 - ITAT JAIPUR
Addition u/s 40A(3) - return of income was filed by the assessee on presumptive basis u/s 44AF - HELD THAT:- Respectfully following the decision in the case of Gopalsingh R Rajpurohit vs. ACIT, [2004 (7) TMI 271 - ITAT AHMEDABAD] hold that once the assessee has filed his return u/s 44AF, no further disallowance can be made u/s 40A(3) of the Act. It is noteworthy that in this case no trading irregularity was found and addition has been sustained only on technical issue of Section 40A(3) of the Act. The presumptive system of tax u/s 44AF starts with non-obstante clause and overrides other provisions. In view thereof, there is no justification in making the addition which is deleted. Since the addition is deleted on merits, there is no need to go into alternative ground. Thus the appeal of the assessee is allowed.
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2016 (4) TMI 1439 - CALCUTTA HIGH COURT
Challenge to certificates of demand of tax, interest, penalty, the consequent steps taken by the Revenue in treating him as an assessee in default to auction his property, the sale proclamation and the auction sale notice - Tax Recovery Officer had made a statement giving particulars of reserve prices against individual plots - HELD THAT:- The omission has caused accrual of a right in favour of the assessee inasmuch as such rectification proceeding cannot be initiated today. Hence, the actual aggregate demand for the said assessment year is also wrong. All this has been taken into account for the purpose of declaring his client as an assessee in default to proceed to sell his properties. There is no indication as to how such separation of valuations attributed to individual plots was made by the Recovery Officer, either from the documents of valuation on record or from the statement itself.
Petitioner submits that there should be interference by reason of both counts of challenge being upheld. The appropriate reliefs should be granted to the petitioner.
Mr. Bhattacharyya, learned advocate appearing on behalf of the auction purchaser who is the petitioner wants to make his submissions. His submissions will be heard after submissions made on behalf of the Revenue are heard and in the event this Court forms the opinion that the challenge cannot be upheld. Mr. Bhattacharyya informs this Court that in the event the assessee is successful, his client would want an adjudication regarding interest to be paid on the refund thereby becoming due to them.
List these writ petitions on 18th April, 2016.
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2016 (4) TMI 1438 - ITAT DELHI
Reopening of assessment u/s 147 - information received from the Investigation Wing of the Department that there was credit shown in the bank account of the assessee coming from the account of Rubik Exports Ltd. - HELD THAT:- Admittedly, the material and statements of some persons on the basis of which the Investigation Wing of the Department claimed to have arrived at a conclusion that the assessee had taken accommodation entry, despite request of the assessee made to the AO, were not supplied to the assessee nor any opportunity to cross examine those persons whose statements were used against the assessee was afforded to the assessee. Even approval of the competent officer has not been obtained as a token of his satisfaction on the reasons recorded by the AO for initiation of reopening proceedings in the manner prescribed under sec. 151 - We thus respectfully following the ratios laid down in the above cited recent decisions in the cases of G & G Pharma India Ltd. [2015 (10) TMI 754 - DELHI HIGH COURT] and Signatures Hotel P. Ltd. [2011 (7) TMI 361 - DELHI HIGH COURT] hold that initiation of reopening proceedings in the present case, merely based on the vague information received from the Investigation Wing of the Department, without application of mind by the Assessing Officer thereupon and in absence of obtaining of approval in the manner provided u/s 151 of the Act, was not valid and the assessment in question framed in furtherance thereto is held void-ab-initio and is accordingly quashed. The ground Nos. 1.1 and 2 are thus allowed.
Addition u/s 68 - We find substance in the above submission of the learned senior counsel that by furnishing all the primary evidences like confirmation of share applicant, a public limited company containing their address and PAN, their balance sheet and profit and loss account for the assessment year under consideration, their income-tax return acknowledgement and with this admitted position that the share application money of Rs. 5 lacs has been paid by the share applicant to the assessee through account payee cheque, the assessee had discharged its primary onus to establish the genuineness of the claimed receipt of share application money and the onus was thereafter shifted upon the AO to rebut the same. AO instead has made the addition merely on the basis of information received from the Investigation Wing of the Department alleging that the share applicant is entry provider, summons issued to the share applicant returned unserved and an amount was deposited in the account of the share applicant immediately before issuing cheque for the amount to the assessee. In absence of such discharging of onus shifted upon the AO, AO was not justified in making the addition in question and the Learned CIT(A) without appreciating the above material facts has also erred in sustaining the said addition. We thus while setting aside orders of the authorities below in this regard direct the AO to delete the addition questioned in ground No.1.
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2016 (4) TMI 1435 - ITAT MUMBAI
Allowable business expenses u/s 37(1) - expenses incurred for the running of the business of the assessee OR Income from house property - nature of advertisement expenses and business promotion expenses debited under the head “Administrative and Selling Expenses” - possibility of common expenditure - Revenue’s case is that, for earning of rental income, amount should be disallowed on the ground that, this much amount should be allocated for the earning of the rental income from the amount of expenses debited under the head “Administration & Selling Expenses” as appearing in Schedule “E” above - HELD THAT:- From the clear cut covenants and terms of the agreement, it is abundantly clear that the assessee does not have to incur any administrative expenditure for running and maintenance of the Mall and, therefore, in the light of these facts and background, it cannot be held that any administrative expenditure should be allocated for running of the Mall.
On a perusal of expenditure debited under Schedule E, as incorporated above, it is seen that the assessee has debited sum under the head “Advertisement” and under the head “Business Promotion Expenses”. Further, from a perusal of break-up of these expenses which was filed before the CIT(A), we find that certain amounts have been debited for “Mall Upkeep & Promotional receipt”.
If these expenditures are related for earning of income from Mall then, definitely it cannot be allowed as an expenditure under section 37(1) i.e. while computing the business income of the assessee, because admittedly, receipts from the Mall is in the form of lease rental which has been assessed under the head “Income from House Property” like in the earlier and subsequent years. This fact needs proper verification and examination by the AO which has not been done in the proper prospective.
This matter should be restored back only for the limited purpose of examining the nature of advertisement expenses and business promotion expenses debited under the head “Administrative and Selling Expenses” as enumerated in Schedule E of the Profit & Loss Account. If these expenditures directly attributable to earning of lease rental income then, appropriate disallowance can be made, if at all required. With this direction this issue is treated as partly allowed for statistical purposes.
Disallowance made u/s 14A - incurring of any expenditure in respect of earning of the exempt income - HELD THAT:- CIT(A) has referred to the earlier order of the CIT(A) and Tribunal for the assessment year 2008-09, however before us, nothing relating to A.Y. 2008-09 has been filed before us. In any case, we find that, assessee’s claim with regard to non-incurring of any expenditure for earning of exempt income has not been examined by the AO, as per the requirement of section 14A(2) and (3). The AO has blindly followed Rule 8D without complying with the mandatory requirement of section 14A(2) and (3). Therefore, in the interest of justice, we are restoring this issue to the file of the AO to examine the nature of accounts of the assessee and also the contentions raised before us that all these investments are strategic investment made in the subsidiary company and decide the issue afresh and in accordance with the law. Accordingly, ground as raised by the assessee is treated as allowed for statistical purposes.
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2016 (4) TMI 1433 - ITAT JABALPUR
Undisclosed investment in stock - excess stock found during the course of survey - HELD THAT:- As observed from the assessment order that on 07/01/2004, the assessee surrendered Rs. 3 Lac as income from undisclosed source as the assessee could not reconcile the difference in stock - AO has simply made the addition of the balance amount being excess stock found during the course of survey without considering the reconciliation submitted by the assessee before him. The addition was made merely on the basis of difference in stock found between the books of accounts and the physical tally of the stock.
AO was not justified in rejecting the explanation of the assessee submitted before him together with the reconciliation of the stock without verification and pointing out error therein. No material was brought on record by the Revenue to show that there was in fact any amount of undisclosed income in the form of excess stock more than Rs. 3 Lac disclosed by the assessee. In absence of the same, we find that the addition made by the Assessing Officer and sustained by CIT (Appeals) cannot be upheld. We, therefore, set aside the orders of the lower authorities and delete the addition and allow the ground of appeal of the assessee.
Disallowance under the head interest expenditure - AO found that the assessee had paid interest to three persons @ 18%, 20.52% and 19% which was excessive and according to him, the prevailing market rate of interest was 12% - HELD THAT:- We find that the disallowance has been made by AO on account of interest paid to relatives under sec. 40A(2) of the Act. We find that the Assessing Officer has brought no material on record to show that how the interest paid by the assessee was excessive by comparing it with the market rate of interest on loan on the date of taking of the loan by the assessee. In absence of the same, in our considered view, the disallowance made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) cannot be sustained in law, hence, delete the disallowance of interest expenditure and allow the ground of appeal of the assessee.
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2016 (4) TMI 1432 - ITAT HYDERABAD
Exemption u/s 11 - grants/contribution received by the assessee from different organisations, are in the nature of tied-up grants and thus cannot be taken into consideration for the purpose of computing total income of the assesses u/s 11 - HELD THAT:- As tri - partied agreements clearly states the budgets sanctioned, the responsibilities of Resource, implementing and Facilitating Agencies in the case of projects which are meant to be implemented thru partner NGOs. Whereas the projects which are implemented through the Assessee, the agreements are entered into with Assessee as implementing Agency along with the budget proposals sanctioned. These co-operative documents are clearly demonstrate that these grants are sanctioned for the specific purpose and the Assessee and NGOs are required to submit the audit financials and progress reports to the Resource agency. These transactions are subject to ethical audits. Since these projects are driven in the direction of the resource agency and accordingly the grants are sanctioned, are clearly demonstrate that these are tied up grants. Since the tied up grants cannot be treated as the income of the society as per the ratio laid down in the case of Nirmal Agricultural Society [1998 (12) TMI 106 - ITAT HYDERABAD-B]
We are inclined to hold that the above grants are in the nature of tied up and Assessee has no control over the funds except facilitating to implement the projects. Hence Ground raised by the revenue are dismissed.
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2016 (4) TMI 1431 - ITAT CHENNAI
Ex-parte orders of the CIT(A) - denial of justice - whether CIT(A) has not given proper opportunity to the assessee and dismissed the appeals of the assessee ex-parte? - HELD THAT:- As all these appeals were dismissed by ex-parte orders of the CIT(A) observing that none appeared before him nor adjournment petition was filed - we restore all these appeals back to the file of the CIT(A). The CIT(A) shall decide the appeals after providing adequate opportunity to the assessee. The assessee shall co-operate with the appeal proceedings. With the above observation, the appeals are allowed for statistical purposes.
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2016 (4) TMI 1430 - SC ORDER
Reopening of assessment u/s 147 - Reasons to believe - ATM is a computer or ought to be treated as normal plant and machinery, attracting different rates of depreciation - reason for reopening being merely a change of opinion on account of the assessment being made for the subsequent years would not give the AO the jurisdiction to reopen - HELD THAT:- There is a delay of 234 days in filing this Special Leave Petition and we do not find any justifiable reason to condone this huge delay.
Special Leave Petition is, accordingly, dismissed on the ground of delay. However, the question of law is kept open.
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2016 (4) TMI 1429 - ITAT PUNE
Revision u/s 263 - Reopening of assessment u/s 147 order set aside by CIT - Disallowance u/s 40(a)(ia) towards payment made by assessee to one JD Fabricators and verify the claim of the assessee with regard to the payment made as claimed as purchase instead of professional charge - HELD THAT:- We are totally at loss to perceive such action of the CIT. AO in exercise of quasi judicial powers and on consideration of reply of the assessee on the issue which is subject matter of agitation, has categorically recorded that the disallowances have been correctly made and no discrepancy subsists. Thus, the very issue for which S. 147 was invoked was addressed to the satisfaction of the Assessing Officer on facts.
A communication by the Assessing Officer to the CIT captioned ‘final reply in respect of internal audit objection in the case of M/s Laxminarayan Associates A.Y 2005-06’ wherein it was explained to the CIT that the disallowance under S. 40(a)(ia) could not be invoked owing to its inapplicability citing objective facts
CIT has not demonstrated any perversity in such conclusion on facts while invoking powers under S. 263 of the Act. Needless to say, once an enquiry on the issue has been carried out and a conclusion thereon has been arrived at by the Assessing Officer, the same cannot be interfered with under S. 263 merely because the Commissioner wants it to be carried out in particular way.
Mere disagreement of the CIT with the order of the Assessing Officer would not in our view render such order erroneous. We find that it cannot be said that the Assessing Officer has acted perfunctorily while dropping the proceedings. Mere ipse dixit of the CIT is not the best foundation for invoking powers under S. 263 of the Act.
We find considerable merit in the arguments canvassed on behalf of the Assessee for cancellation of the order of CIT. - Decided in favour of assessee.
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2016 (4) TMI 1428 - ITAT JAIPUR
Disallowance on account of interest on unsecured loans paid in excess of 18% to the persons specified u/s 40A(2)(b) - assessee company has paid interest at the rate of 21% on unsecured loans to the persons specified u/s 40A(2)(b) - AO has found the same to be excessive and has disallowed interest paid in excess of 18% and made an addition HELD THAT:- What needs to be appreciated is that the AO and LD CIT(A) have failed to appreciate the distinction between a secured loan and an unsecured loan. The secured loan comparatively carried a lower risk element as compared to an unsecured loan and basis the risk assessment and other considerations, it typically carried a lower rate of interest.
In the instant case, the appellant has taken unsecured loan and an appropriate comparison would have been the rate prevalent in the market vis-a-vis unsecured loan. Apparently, the appellant has stated that the prevailing market rate of interest on unsecured loans was 24%. However, nothing has been brought on record by the AO to suggest what the appellant has stated to be incorrect or there is a better comparison which is available.
We have gone through the judgement of Ramesh Chand (HUF) [2013 (2) TMI 151 - PUNJAB & HARYANA HIGH COURT] wherein addition was made in appellant's case because of higher rate of interest paid by appellant to his mother as against market rate. The High Court confirmed the addition on the ground that since transaction in question was not a genuine and bona fide transaction, Tribunal was justified in confirming addition of interest paid on old loan at higher rate of interest by applying provisions of section 40A(2)(b) and no question of law arises. In the instant case, there is no such allegation or finding of the lower authorities that the subject loan transaction was not a genuine transaction. Hence, this decision is no help to the Revenue.
We have also gone through the decision of Aditya Medisales Ltd [2010 (5) TMI 823 - GUJARAT HIGH COURT] and finds that the same support the case of the appellant. In that case, the Court has noted that the interest on unsecured borrowings is always higher than the rate of interest paid to the banks or financial institution from where the loans raised are secured loan, and have accordingly accepted interest paid to Sun Pharmaceuticals at the rate of 24% to be reasonable.
We are of the view that CIT(A) was not justified in confirming the disallowance on account of interest paid by the appellant to specified persons u/s 40A(2)(b) of the IT Act. Hence, ground of the appellant is allowed.
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2016 (4) TMI 1427 - ITAT MUMBAI
Disallowing the provisions made in DMT division - assessee has not given details and these expenses pertains to earlier years or subsequent years - HELD THAT:- Assessee stated that this issue is covered against the assessee by the tribunal’s order in assessee’s own case for A.Y. 2003-04 [2015 (7) TMI 910 - ITAT MUMBAI] burden to prove its return, as well as claims preferred thereby, is only on the assessee, and which we find as not discharged to that extent. It may also be clarified here that the assessee had been extended sufficient opportunity to present its case. Needless to add, the assessee is a liberty to make a fresh claim for the subsequent year/s, even as it shall have to be shown by it that expenditure as claimed had arisen for those years, i.e., of payment, each year being independent. We may though clarify that we are not making any observation with regard to the deduction of the said expenditure for those years/s. We decide accordingly, dismissing the assessee’s ground.
Disallowance u/s. 14A r.w.r. 8D - assessee stated that these two assessment year are A.Ys. 2004-05 and 2005-06 and Rule 8D is not applicable in these two assessment years - HELD THAT:- As assessee stated that prior to the applicability of Rule 8D of the Rules, the disallowance should be restricted to a reasonable extent, i.e., 1% to 2% in view of the decision of M/s. Godrej Agrovet Ltd [2014 (8) TMI 457 - BOMBAY HIGH COURT] On query form the Bench, the ld. Sr. (DR) also conceded that of reasonable disallowance on this issue can be made and requested for estimation of disallowance of 2%. On this, the ld. Counsel for the assessee very fairly agreed for the same. In view of the above concession given by both the parties, we direct the A.O. to recompute the disallowance by estimating at 2% of the exempt income. The A.O. is directed accordingly.
Disallowance of deduction u/s. 80-HHC - Whether CIT(A) erred in holding that in case there is negative profit as per computation under clause (a), (b) and (c) of sub section (3) of section 80HHC, the appellant would not be entitled to deduction as per proviso of the section - HELD THAT:- As computation of the deduction u/s. 80HHC, and which was, at the very outset, again, admitted by the ld. AR to be squarely covered against the assessee by the decision of the Apex Court in the case of Ipca Laboratories Ltd. [2004 (3) TMI 9 - SUPREME COURT] We, accordingly, direct for computation of deduction u/s. 80HHC in terms of the said decision by the said hon’ble apex court.
Disallowance of expenses for earning exempt income u/s. 14A while computing income u/s. 115JB - HELD THAT:- As assessee stated that the additions to be restricted to the amount disallowed u/s. 14A of the Act by CIT(A) in the normal provisions because the Rule 8D of the Income Tax Rules will not apply in these two assessment years. In view of the above, we are of the view that the disallowance should be restricted to the extent amount already disallowed u/s. 14A of the Act and not exceeding the same. We order accordingly.
Disallowance of provision of expenses - HELD THAT:- We direct the A.O. to verify the fact of taxation of this provision of expenses in earlier year. In case these provisions in expenses have taxed in earlier years, the same when reversed should not be taxed. We direct the A.O. accordingly assessee’s appeals are partly allowed for statistical purposes.
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2016 (4) TMI 1424 - ITAT AHMEDABAD
Levy of late filing fees u/s 234E - assessee submitted that late payment u/s 234E was levied prior to amendment to section 200A - HELD THAT:- As provisions accepting levy of late filing fees under section 234E have indeed been brought to the statute w.e.f. 1st June, 2015 and the impugned order was passed much before that date.
As following the order of the Tribunal in the case of Dharti Associates [2015 (9) TMI 1428 - ITAT AHMEDABAD] which in turn followed the order of Sibia Healthcare P.Ltd. [2015 (6) TMI 437 - ITAT AMRITSAR] we allow appeal of the assessee and delete the levy of late fee imposed under section 234E for the quarter-2 in the F.Y. 2013-14. - Decided in favour of assessee.
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