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Income Tax - Case Laws
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2016 (5) TMI 1616
Dismissal of assessee's appeal in limine - none appeared on behalf of assessee nor any application has been filed for seeking adjournment - HELD THAT:- Notice of hearing was served upon the assessee twice but none appeared on behalf of assessee nor any application has been filed for seeking adjournment. This shows that the assessee is not interested in pursuing with his appeal.
Therefore, in view of the decision of Estate of Late Tukojirao Holkar [1996 (3) TMI 92 - MADHYA PRADESH HIGH COURT] and Multiplan India (Pvt.) Ltd. [1991 (5) TMI 120 - ITAT DELHI-D]we dismiss the appeal of the assessee in limine.
Assessee may, if so advised, file an application before this Tribunal for restoration of his appeal and hearing on merits by showing reasonable cause for not appearing before the Tribunal on the date of hearing. The Bench, if so satisfied, may recall its order and restore the appeal to its original number for hearing on merits.
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2016 (5) TMI 1615
Disallowance u/s 14A - in the quantum appeal, the Tribunal has deleted the said disallowance which was made by the AO over and above what the assessee has offered the disallowance u/s14A - HELD THAT:- In view of the aforesaid facts that in the quantum proceedings the Tribunal vide order [2014 (1) TMI 709 - ITAT MUMBAI] has deleted the disallowance made by the AO u/s 14A over and above what was suo moto disallowed by the assessee in its return of income, the penalty levied on such disallowance have no legs to stand. CIT(A) has deleted the penalty after following Tribunal order in the quantum proceedings. Accordingly, ground raised by the revenue is dismissed.
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2016 (5) TMI 1613
Maintainability of appeal against CIT(A) order - Addition of loan received by the assessee from its 100% subsidiary as deemed dividend - debenture redemption reserve within the meaning of Explanation 1(b) of section 115JB - CIT(A) deleted addition made u/s 2(22)(e) and holding that the debenture redemption reserve is not a ‘reserve’ within the meaning of Explanation 1(b) of section 115JB - Assessee submitted that the tax effect in this case is below 10 Lakhs and as per the CBDT Circular No. 21 of 2015, dated 10-12-2015, the present appeal is not maintainable.
HELD THAT:- DR fairly conceded that the tax effect in department’s appeal is below 10 Lakhs. We find that the issue raised in appeal does not fall under any of the exceptions specified in para 8 of the Circular. Since, it has been specifically clarified in the Circular aforesaid that the instruction will apply retrospectively to all the pending appeals, the present appeal filed by the revenue is not maintainable. We, therefore, dismiss the appeal in limine.
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2016 (5) TMI 1609
Unaccounted transactions regarding sale of land - Determination of correct income of the assessee - co-ownership in land sold - Assessee submitted that the AO had wrongly calculated the addition as the share of assessee was admittedly 1825.49 marlas being 43% and this fact was verifiable from copy of seized documents -
AR submitted that assessee alongwith other joint owners of certain land had sold such land and had claimed to be exempt from capital gains being the asset was agricultural land but the same was rejected by Assessing Officer and in the case of group companies they had agreed before the Settlement Commission for taxability of such income as business income and therefore in the present appeal the assessee is not on the issue of taxability of such profits as business income but he submitted that Assessing Officer had wrongly calculated the addition by including the share of Sham Lal one of the co-owner in the income of assessee which is highly unjustified
HELD THAT:- We are in agreement with the arguments of learned AR for the proposition that correct amount of taxes should be collected and AO should not misuse the lack of knowledge of the assessee.
As undisputed fact that the total area of land was 4245.43 marlas as noted in the seized document placed at (PB Page 843). It is also undisputed fact that share of assessee was 43% therefore, the share of assessee was only 1825.49 marlas. It is also undisputed fact that the rate for the purpose of calculation of income of the assessee has been taken from the seized document @Rs.18750/- per marla. The above fact is further fortified from para 20 of order of settlement commission where the settlement commission has also noted the share of the assessee at 43% out of total land of 4243.55 marlas and had also noted that said land was sold at Rs.18750 per marlas.
Assessee’s share was definitely 43% of the total land and the gross receipts from sale of such land @ Rs.18,750 per marla comes out of at Rs.34,22,7,938/- and therefore, the Assessing Officer should not have taken the value of sale consideration at Rs.4,65,09,900/-.
Contention of learned AR that Assessing Officer has included the share of Mr. Sham Lal also seems to be correct because of the fact that if the share of Mr. Sham Lal is included in the land holding of assessee, it will come out at about the same figure for which Assessing Officer had made the addition. However, on this account also the action of the Assessing Officer is not justified as per Mr. Sham Lal had already offered his share of income from land as business income before Settlement Commission.
CIT(A), has reduced the addition after reducing the cost price of the land as 35,41,391/- where as in our considered opinion the learned CIT(A) should have restricted the same to Rs.30,68,6,547/- (being correct sale value Rs.34227938/- purchase cost Rs.3541391/-). Therefore, we allow ground of assessee’s appeal and direct the Assessing Officer to restrict the addition confirmed by learned CIT(A) at Rs.42,95,9,509/-to Rs.30,68,6,547/- only.
Contention of the assessee that the asset should have been treated as capital asset - We do not find any force in the grounds of appeal as Mr. Sham Lal and his group companies has already admitted before the settlement commission that the same may be treated as business income, therefore, ground Nos. (i) to (iii) are dismissed.
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2016 (5) TMI 1604
Loss on account of embezzlement by the employee - HELD THAT:- We find the assessee has lodged a complaint before the police authorities to the extent of Rs. 25 lakhs only. After the settlement was arrived on 08-09-2009 Shri E. Srinivas, Ex-employee of the assessee paid Rs. 25 lakhs to the assessee company. Since the assessee could not substantiate the claim of embezzlement of Rs. 40,28,270/- and has filed police complaint only to the extent of Rs. 25 lakhs, therefore, we do not find any infirmity in the order of the CIT(A) disallowing the claim of Rs. 15,28,270/- which remained unsubstantiated.
Assessee before us also could not point out any mistake in the order of the CIT(A) nor could he give the proof of embezzlement of Rs. 15,28,270/-. We therefore do not find any infirmity in the order of the CIT(A) and uphold the same. The first issue raised by the assessee in the grounds is accordingly dismissed.
Short Income in comparison to the figures in Form 26AS - difference between the ITS data and details in Form 26AS - HELD THAT:- As in the instant case although the deductor has stated to have paid more amount to the assessee and since the assessee was unable to show that such income has been offered to tax either in this year or in the preceding or succeeding year, therefore, the office memorandum of the CBDT is not applicable to the facts of the present case. In view of the above discussion, we uphold the order of the CIT(A) and the ground raised by the assessee on this issue is dismissed.
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2016 (5) TMI 1603
Validity of reopening - Addition u/s 14A r.w. Rule 8D - HELD THAT:- We agree with assessee’s argument that this tribunal in its own appeal against regular assessment involving section 14A disallowance has already decided that the same does not apply in a cooperative society case enjoying section 80P deduction.
We find that the AO has reopened the said assessment thereby apply gross interest computation formula instead of netting for computing rule 8D disallowance. The law is very well settled by law that Rule 8D is not applicable in the impugned assessment year. A co-ordinate bench of the tribunal in DCIT vs. Trade Apartments [2012 (3) TMI 421 - ITAT KOLKATA] has already rejected Revenue’s contentions against netting formula - Decided in favour of assessee.
Contribution made to ARDA(Anand Research Development Association) for dairy development - claimed as revenue expenditure - HELD THAT:- The assessee is fair enough in pointing out that the above stated tribunal’s decision has rejected its identical plea in earlier assessment years. We appreciate this fair stand to uphold the CIT(A)’s findings under challenge. This second substantive ground fails.
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2016 (5) TMI 1602
Addition of capital gains against the security deposit received by one member of AOP - amount received by the assessee pursuant to the said Joint Venture agreement - HELD THAT:- The share of the assessee in the said gross sale proceeds was to the extent of 3.5%. Under clause 16 of the Joint Venture agreement, it was agreed between the parties hereto that the capital required for the construction of the project other than that of land should be brought in by the party of Third Part. As per clause 17, the party of the Third Part had agreed to give interest free advance of Rs.1 crore to the parties of the First and Second Part each and the said amount had to be adjusted against final payment of revenue share.
Besides the other terms agreed upon between the parties, as per clause 33, it was reiterated that the agreement of Joint Venture related to efficient pooling of the resources and neither parties was transferring to other any kind of right, interest in the said properties and as such the document was exempted from registration under the provisions of Indian Registration Act.
The issue arising before us is with regard to the amount received by the assessee pursuant to the said Joint Venture agreement. The claim of the assessee was that it had received the said security deposit from the developer of the plot in order to safeguard themselves against any charges levied for violation of any provisions. The case of the Department on the other hand, is that as per the AO, the amount has been received on account of transfer of property and as per the CIT(A), the said amount is assessable in the hands of assessee u/s 45(3) of the Act by way of transfer of the said asset to the AOP.
The perusal of Joint Venture Agreement entered into between the assessee and others reflected that the First Part had contributed certain lands and also TDR rights and the assessee had contributed the land to the AOP for development only.
It was not the case of transfer of land to the AOP, but was the case of joint pooling of resources by three different parties, wherein the party of the First Part was to contribute TDR rights, the party of Second Part i.e. assessee was to make available the land, on which the development had to be undertaken and the party of Third Part had to overseas the construction and also contribute funds for the construction of the said project.
In such scenario, where the asset held by the assessee has not been transferred to the AOP, there is no question of charging any income from capital gains in the hands of assessee in this regard under section 45(3) of the Act. The security deposit received by the assessee is not chargeable to tax.
The said security deposit has been refunded by the assessee by cheque to M/s. Shriram Constructions i.e. party of the Third Part in financial year 2014-15. The assessee has also placed the copy of bank account on record, wherein there is debit of Rs.8,50,000/- and Rs.16,50,000/- totaling Rs.25 lakhs.
While completing the assessment in the hands of Parmanand A. Kriplani, who had received 16.67% as against 8.33% received by the assessee, was completed by the AO vide order passed u/s 143(3) - As where the transaction as such has been accepted in the hands of one of co-owners, no adverse view could be taken in the hands of other persons.
While registering Joint Venture Agreement, the market price of the property was fixed and was taken at Rs.2 crores - We find no merit in the said claim of Revenue. The assessee along with others had pooled in their resources i.e. by way of availability of land and TDR rights and finance, respectively and where the property as such has not been transferred to the AOP, there is no question of assessing the value of security deposit as gain arising on the transfer of land in the hands of assessee. Accordingly, we delete the addition made by the AO on account of income from capital gains. The ground of appeal No.1 raised by the assessee is thus, allowed.
Disallowance of transport charges paid by the assessee - The said disallowance was made since the expenses were claimed on self made vouchers and was also paid in cash. AO also noted certain discrepancies in the bills produced by the assessee. In the totality of the above said facts and circumstances, we restrict the disallowance to Rs.25,000/-. The ground of appeal raised by the assessee is thus, partly allowed.
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2016 (5) TMI 1600
Dismissal of appeal for non-prosecution - HELD THAT:- As on the date fixed on 12/05/2016, none appeared on behalf of the assessee. It therefore appears that assessee is no more interested in prosecuting the appeal therefore appeal of the assessee is liable to be dismissed. The law aids those who are vigilant, not those who sleep upon their rights. This principle is embodied in well known dictum, “VIGILANTIBUS ET NON DORMIENTIBUS JURA SUB VENIUNT’.
Considering the facts and keeping in view the provisions of rule 19(2) of the Income-tax Appellate Tribunal Rules as were considered in the case of CIT vs. Multiplan India Ltd. [1991 (5) TMI 120 - ITAT DELHI-D] we treat this appeal as unadmitted.
Their Lordships of Hon’ble Supreme Court in the case of CIT vs. B. Bhattachargee & Another [1979 (5) TMI 4 - SUPREME COURT] held that the appeal does not mean, mere filing of the memo of appeal but effectively pursuing the same.
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2016 (5) TMI 1599
Addition u/s 68 - unexplained share application money and undisclosed cash deposit - HELD THAT:- Assessee has received share application money through account payee cheques and through normal banking channels. It is not the case of the revenue that the share application was not made from the bank account of the applicant companies and the share applicants were also produced before the AO.
As it is not the case of the revenue that the shares were allotted to the subscribers are matter of records of ROC and confirmed by annual return and return of allotment as filed with ROC but the AO has not made any verification with respect to bank vis-a-vis respective companies nor has been called for any records of the respective companies. AO has accepted the genuineness of these companies and receipt of share application money as well as share premium. This is a genuine share application money and CIT(A) has rightly deleted the addition basing his decision on remand report of the AO.
Undisclosed cash deposit - We find that the assessee has co-related the withdrawals made with that of cash deposit and also cash sales made during the period 02.04.2005 to 28.05.2005. Assessee has filed complete summary of cash withdrawals and cash deposit and cash sales which is co-related to the cash deposit with the bank account and/or treated as undisclosed. CIT(A) has deleted the addition based on the remand report of the AO, who admitted that these cash deposits are explained by the assessee in remand proceedings. Decided against revenue.
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2016 (5) TMI 1598
Additional income offered in survey conducted - whether this cash is relatable to the business of the assessee, in accordance with ‘Kim Pharma P. Limited’ (2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT] and if so, whether it is not a business income? - HELD THAT:- As rightly contended AO has accepted this income of the assessee as business income. The profit & loss account of the assessee for the period from 04.02.2011 to 31.03.2011. shown Palace income the details of which are, given. Therefore, the grievance of the assessee in this regard is correct and the same is accepted.
In keeping with ‘Kim Pharma P. Limited’ (supra), as relied on in ‘Gaurish Steels P. Limited’ (2015 (11) TMI 631 - ITAT CHANDIGARH] this income has been considered as the assessee’s business income and not as deemed income u/s 69A of the Act. As such, the business losses incurred by the assessee during the year can be set off against the income surrendered. As per the requirement of section 71 of the Act, the AO is directed to act accordingly. Thus, Ground Nos. 1 to 3 are accepted.
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2016 (5) TMI 1595
TP Adjustment - DRP directed the AO to restrict the adjustment to the cost relating to import of raw material from AE, which was 33% of material cost and 16% of total operating cost - As argued this direction was not implemented by AO - HELD THAT:- As, seen from the draft order, the TP adjustment proposed was Rs. 8,98,90,000/-whereas the final adjustment made was Rs. 8,80,08,000/- It seems AO has implemented only other direction of adopting average OP/sales Of comparable companies at 8.23% as against 8.51% proposed as directed - The direction of DRP in para 3.1.3 has not been implemented. To that extent, AO's order is not in compliance with the directions of DRP. AO is directed to modify the adjustment as per the direction of the DRP on the issue. Ground No. 2 of assessee is accordingly allowed
Adjustment for capacity utilisation - Assessee capacity utilization was at 78% of total capacity there by cost of overheads is more, has not been considered - HELD THAT:- In principle we are in agreement with the contentions raised by assessee, as GP over sales can eliminate the difference in claim of depreciation due to age of machinery rate at which it was claimed and method of claims like straight line or written down value. We accordingly direct the AO/TBO to adopt the comparison of profitability ratios adopting GP over sales.
Since the details of capacity utilization of the comparable companies and rate of depreciation could not be analysed as commented by DRP, it would be better if GP analysis was undertaken taking sales less cost of raw material as basis (excluding other cost including Depreciation, interest etc) so that auto components profitability could be analysed so as to consider whether the import" of raw material from AE has effected the profitability of assessee under the TP provisions. Accordingly, we set aside the impugned orders of the Revenue authorities on this issue and restore the matter to the file of AO/TOP to carry out the exercise as stated above. Assessee should be given due opportunity. However, we make it clear that if any adjustment is required' to be made the same is to be restricted, as directed by DRP above. The matters which have attained finality are not be reopened. AO/TPO is directed accordingly. Ground No. 3 is allowed for statistical purposes.
MAT credit objected to by assessee was not adjudicated by the DRP even though AO in the draft assessment order has determined the tax liability without giving appropriate MAT credit and so assessee is aggrieved - HELD THAT:- AO is directed to give MAT credit as per the provision and facts on record. Assessee is directed To furnish necessary details to the AO. Ground is allowed.
Interest u/s. 234BC and 234C are consequential In nature and does not require separate adjudication. However, AO is directed to furnish the working of calculation of 'interest in the order so that assessee can object if there are any omissions/commissions in the levy.
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2016 (5) TMI 1592
Disallowance of provisions made on account of leave encashment under section 43B - HELD THAT:- Undisputedly, the deduction claimed by the assessee is only a provisions and no payment was actually made by the assessee during the relevant previous year. Therefore, in terms of section 43B(f), it is not allowable. However, in the case of Exide Industries Ltd. [2007 (6) TMI 175 - CALCUTTA HIGH COURT], the Hon’ble Calcutta High Court had struck down the provisions of section 43B(f) as unconstitutional. However, the Department being aggrieved of the said judgment had preferred appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court while admitting the appeal of the Department in Special Leave to Appeal (Civil) [2009 (5) TMI 894 - SC ORDER] had directed the assessee to pay tax as if section 43B(f) is in the statute book, however, the assessee permitted to claim the deduction in the return of income.
We restore the matter back to the file of the Assessing Officer with a direction that assessee will pay the tax as if section 43B(f) is on the statute book. However, till the decision of the Hon'ble Supreme Court is rendered in case of CIT v/s Exide Industries Ltd. (supra), the Department will not recover the penalty and interest which may accrue till the decision of the appeal in the case of Exide Industries Ltd. (supra). It would be open to the Department to recover the outstanding interest payment once the appeal in the case of Exide Industries Ltd. (supra) is decided in favour of the Department. Ground no.1, is allowed for statistical purposes.
Disallowance of revenue sharing - HELD THAT:- As found from the record that this is recurring dispute between the assessee and the Department right from the assessment year 2000–01. However, in a series of decisions in assessee’s own case, the Tribunal has decided the issue in favour of the assessee holding that the amount paid to DOT towards revenue sharing license fee as revenue expenditure.
There being no material difference in facts and no contrary decision has been brought to our notice by the learned Departmental Representative, respectfully following the consistent view of the Tribunal in assessee’s own case we allow assessee’s claim of deduction on account of revenue sharing license fee
Depreciation claim on revenue sharing license fee - Since we have allowed assessee’s claim of deduction in respect of revenue sharing license fee by holding it as revenue expenditure, this ground raised by the Department has become infructuous.
Disallowance of interest expenditure towards interest free loan given to the subsidiary - HELD THAT:- As relying on assessee own case [2015 (4) TMI 92 - ITAT MUMBAI] there was direct commercial expediency in advancing funds to subsidiaries have not been controverted by the Revenue by bringing any positive material on record. We therefore do not find any reason to interfere with the order of ld. CIT(A) deleting the disallowance of interest attributable to funds advanced to subsidiaries. - Decided against revenue.
Deduction towards club fee - Allowable revenue expenses or not? - HELD THAT:- On a perusal of the order of the Tribunal for the assessment year 2004–05 and 2005–06held that expenditure was incurred was revenue in nature as held by the Hon’ble High Court, we do not find any infirmity in the order of ld. CIT(A) deleting the disallowance of Club fees paid by the assessee company.
Proportionate deduction claimed u/s 35DD on legal fee - HELD THAT:- As is evident, in the impugned assessment year the assessee had not claimed the expenditure in the return of income. He put forward his claim for deduction under section 35DD only at the stage of first appellate proceedings, that too, by raising an additional ground and the learned Commissioner (Appeals) dismissed the ground of the assessee for the reason that the issue was not examined by the Assessing Officer. Therefore, on over all consideration of facts and material on record, we are inclined to restore this issue to the file of the Assessing Officer for deciding afresh after providing due opportunity of being heard to the assessee. Ground no.2, is allowed for statistical purposes.
Depreciation on revenue sharing license fee carried over by BTA Cellular Ltd. in continuation of amalgamation with the assessee - HELD THAT:- Commissioner (Appeals) having found that neither BTA nor the assessee have claimed deduction under section 35ABB directed the Assessing Officer to verify the fact and allow assessee’s claim of depreciation. We do not find any infirmity in the aforesaid direction of the learned Commissioner (Appeals). As already held by us, revenue sharing license fee paid to DOT is otherwise allowable as revenue expenditure.
Since the BTA was claiming depreciation on revenue sharing license fee after treating it as intangible asset after capitalization the assessee continued with the same accounting principle after merger of BTA insofar as revenue sharing business fee paid by BTA which was acquired as a part of block of asset. In the aforesaid facts and circumstances, assessee’s claim of deduction being legally valid has to be allowed. Therefore, we uphold the order of the learned Commissioner (Appeals) on the issue by dismissing ground no.2, raised by the Department.
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2016 (5) TMI 1591
Assessment proceedings u/s 143(3) r.w.s.143(2) - addition u/s 68 - Admission of additional evidences - HELD THAT:-Voluminous documents as additional evidences have been placed by the assessee in the paper book filed before the Tribunal and a prayer has been made by the assessee that proper and adequate opportunity was not given by the authorities below before completing the assessment and during the first appellate proceedings as set out above and it was submitted before the Tribunal that these additional evidences be admitted under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, in the interest of substantial justice as the assessee was not accorded adequate, sufficient and proper opportunity by the Assessing Officer to file these additional evidences and the Commissioner of Income- tax (Appeals) did not admit these additional evidences during the first appellate proceedings as set out above, the appeal be decided by the Tribunal on the merits after admitting and considering these additional evidences on the merits.
Thus in the interest of substantial justice, these additional evidences needs to be admitted to advance substantial justice in accordance with rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, for the reasons and discussions as detailed above and the matter is set aside and restored to the file of the Assessing Officer for de novo determination of the matter on the merits after examination and verification of these aforestated additional evidences filed before the Tribunal - Appeal filled by assessee allowed for statistical purposes.
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2016 (5) TMI 1590
Belated payment of employees’ contribution to PF and ESI in contravention of the provisions of section 36(1)(va) - HELD THAT:- There is no dispute to the fact that the assessee in the instant case has deposited the employees’ contribution to PF and ESI before the due date of filing of the return of income although the same were deposited after the due date prescribed under the relevant Act.
The Coordinate Benches of the Tribunal following the decisions of the Hon’ble Bombay High Court in the case of Ghatge Patil Transports Ltd.[2014 (10) TMI 402 - BOMBAY HIGH COURT] and in the case of CIT Vs. Hindustan Organics Chemical Ltd. [2014 (7) TMI 477 - BOMBAY HIGH COURT]are consistently taking the view that employees’ contribution to PF and ESI, if paid on or before the due date of filing of the return of income, is an allowable deduction. Since the assessee in the instant case has admittedly deposited the employees’ contribution to PF and ESI before the due date of filing of the return, a fact submitted before the AO as well as CIT(A) and not controverted by the revenue, therefore, we are of the considered opinion that no disallowance on account of such delayed payment is called for. We accordingly set aside the order of the CIT(A) and direct the AO to delete the addition. Grounds raised by the assessee allowed.
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2016 (5) TMI 1589
TP Adjsutment - Addition in respect of advertisement expenditure incurred by the assessee at overseas - HELD THAT:- There is no agreement or documents produced by the assessee to show the assessee is liable to incur this expenditure - assessee is getting only mark-up on the cost of manufacture of the goods supplied to the AE and it is nowhere connected with the sales of the AEs. All the risks associated with the sales of AEs, is to be borne by AE only. In such circumstances, assessee is not required to incur any expenditure towards sales. More so, when there is no stipulation by way of any agreement between the assessee and the AE, it is to be borne in mind that if the assessee had sold similar goods to other non-AE, assessee would not have incurred such expenditure.
The benefit derived from the impugned expenditure is not at all for the assessee and it goes directly to the AE only. In our opinion, services in connection with such advertisement cost which was incurred in abroad, benefit accrued to AE and the assessee cannot claim any of such expenditure as the AE is in different tax jurisdiction constituted distinct and independent entity subject to the law of the respective countries and the parent company cannot claim the benefits of their AE’s business or may claim a beneficial ownership treating the AE as virtually non entities. This view is supported by the recent judgement of Supreme Court in the Vodafone International Holdings B. V. [2012 (1) TMI 52 - SUPREME COURT]
As held by Mumbai Bench in the case of Stream International Services Pvt. Ltd [2013 (9) TMI 339 - ITAT MUMBAI] that investment of expenditure to AE is very much a transaction as per section 92F(v) and consequently it is a international transaction as per sec.92B requiring consideration u/s.92 - argument of the assessee is that TIML is under losses and hence no TP adjustment is necessary on transaction which is not tenable in view of the decision of the Bangalore Tribunal in the case of 24/7 Customer.com Pvt. Ltd.[2013 (1) TMI 45 - ITAT BANGALORE]. Accordingly, this ground of the assessee is rejected.
TP addition on account of interest in respect of interest free advertisement advances made by the assessee - HELD THAT:- In this case, the assessee made interest free advances to the associate company, which includes the amounts spent for brand building, advertisement and related expenditures. As we discussed in the earlier para with reference to ALP of Advertisement expenses, the transaction between the assessee and the AE falls within the ambit of international transaction as per the provisions of the section 92B of the Act, then ALP with reference to the interest on such advances is to be computed. Accordingly, the TPO after considering the fact that assessee had adopted following rate of interest on its foreign currency loans to its AE in accordance with the bank rates prescribed by Reserve Bank of India.
Thus, the TPO/AO applied the same rate to determine the ALP of the advances made by it to its AE, TIML had worked out ₹ 1,20,41,897/-. Since the assessee has invested its funds in AE, thereby assessee had taken a risk of employee its working capital with the AE and if the assessee had no relation with that entity, it would not have incurred such expenditure on behalf of the assessee or advanced money to such an entity. Thus, non-charging of interest to such outstanding attracts Transfer Pricing provisions and it is appropriate to charge interest at least LIBOR plus 2% rate as held by Mumbai Bench of the Tribunal in the case of M/s.Aurinpro Solutions Ltd. [2013 (11) TMI 806 - ITAT MUMBAI] - Accordingly, we upheld the argument of the ld.D.R on this issue. If any difference in the rate of interest is charged by the TPO/AO as compared to LIBOR plus 2%, the same to be recomputed.
Computation of deduction u/s.80HHC of the Act with reference to DEPB receipts - exclusion of 90% of export incentives from the business profits under Explanation (baa) to sec.80HHC - AO was of the opinion that these export incentives received by the assessee did not fall in clauses (iiia), (iiib) and (iiic) of sec.28 - HELD THAT:- In our opinion, the issue is squarely covered by the decisions of the Supreme Court in the case of Topman Exports [2012 (2) TMI 100 - SUPREME COURT] wherein held that when the DEPB is sold by a person, his profit on transfer of the DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB and not the entire sum received by him on such transfer; DEPB is chargeable as income under clause-(iiib) of section 28 in the year in which such person applies for DEPB credit against the exports whereas the profits on transfer of the DEPB by that person is chargeable as income under clause –(iiid) of Sec.28 of the Act in his hands in the year in which he makes the transfer. Accordingly, we direct the AO to re-compute the deduction u/s.80HHC of the Act by applying Explanation(baa) of Sec.80HHC of the Act.
Allocation of head office expenses and consultancy expenditure while computing eligible profit from jewellery division on the basis of turnover for the purpose of Sec.80-IB - HELD THAT:- In our opinion, when expenses incurred at Head office cannot be identified with any single unit, apportioning the same on the basis of turnover is an appropriate method as held by the jurisdictional High Court in the case of M/S. TTK PHARMA LTD. [2011 (8) TMI 307 - MADRAS HIGH COURT]. Accordingly, this ground of assessee is dismissed. The same principle is applicable in respect of allocation of professional fees paid to MCKENSEY. Accordingly, this ground of assessee is also dismissed.
Non-granting of export incentives u/s.80-IB - HELD THAT:- This issue is squarely covered by the judgement of Supreme Court in the case of Liberty India Vs. CIT[2009 (8) TMI 63 - SUPREME COURT] wherein held that incentives which flow from the schemes formulated by Central Government or from Sec.75 of the Customs Act, 1962, hence, incentives profits are not profits derived from eligible business and therefore, such incentives do not form part of net profits of the industrial undertaking for the purpose of deduction u/s.80-IA/IB of the Income Tax Act,1961. Applying the above ratio, we reject the claim of assessee. Accordingly, this ground raised by assessee is dismissed.
Exclusion of deduction claimed and allowed u/s.43B while computing deduction u/s.80-IB - claim of deduction u/s.43B in the jewellery division vis-à-vis deduction u/s.80-IB - HELD THAT:- In this case, the ld. Assessing Officer computed the income of assessee after allowing the annual payment of bonus and commission in terms of Sec.43B of the Act and grated deduction u/s.80-IB of the Act. Since the profit of assessee to be computed for the purpose of Sec.80-IB of the Act after taking into account all the expenses claimed under sections 30 to 43D of the Act and there is no infirmity in the order of the lower authorities, the same is confirmed on this issue. Hence, this ground raised by the assessee is rejected.
Disallowance of claim of deduction u/s.80-IB in respect of profits of Euro Watch division - AO found that the assessee claimed deduction u/s.80-IB at the rate of 30% of profits - HELD THAT:- Claim of deduction u/s.80-IB of the Act in respect of profits of Euro Watch Division cannot be denied on the ground that it is only notional profit, as assessee uses the products of Euro Watch Division for captive consumption of the assessee or for the reason that assessee has not earned actual profits. In our opinion, the profit from Euro Watch Division to be worked out on standalone basis by apportioning of necessary expenditure in proportionate to the turnover to this division and ascertained the true profit of the Euro Watch Division. The market value of product of the Euro Watch Division is to be determined on the average price to be paid, or paid by the assessee to the other parties in the open market, had it been purchased from the outsiders which would be in terms of Sec.80IA(8) r.w.sec.80-IB(13) of the Income Tax Act. Accordingly, the issue in dispute is remitted to the file of the AO for re-computation of the profit of Euro Watch Division and considered the claim of assessee for deduction u/s.80-IB in the light of order of Tribunal in the case of West Coast Paper Mills Ltd.2006 (4) TMI 184 - ITAT BOMBAY-I] - This issue is partly allowed for statistical purposes.
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2016 (5) TMI 1588
Reopening of assessment u/s 147 - Eligible material for reopening proceedings - assessee had incurred expenditure on Roka and Engagement functions of her daughter out of his unexplained income and income has escaped assessment for the period relevant to the assessment year 2005-06 - HELD THAT:- Assessee had made complaint to the SSP of Police, Ludhiana regarding Roka and Engagement functions solemnized on 29.8.2004 and expenditure of Rs.7 lacs was incurred on these functions. This observation is factually incorrect and it cannot be said that the Assessing Officer has formed a prima-facie belief that income has escaped assessment.
In the instant case notice was issued to the assessee on ground that he had made the complaint to the SSP of Police, which is factually incorrect. In fact, the assessee did not make any complaint to the SSP, Ludhiana. Secondly, the Assessing Officer has mentioned in the reasons recorded that information was received from DDIT (Investigation)-III, Ludhiana that the assessee and his daughter Ms.Sarika Jain had spent approximately Rs.37 lacs on her engagement and marriage ceremony. It is brought to our notice that no addition has been made in the hands of Ms.Sarika Jain. On the contrary, Smt.Sarika Jain alleged in her complaint made with the Police that the assessee had spent an amount of Rs.7 lacs at the time of Roka and Engagement functions. It is also observed that in this case the information was provided by DDIT (Investigation)-III, Ludhiana on the basis of Police Report, wherein the daughter of the assessee alleged that a huge amount has been spent on marriage and Roka ceremony. The complaint was made by Ms.Sarika Jain against her husband and in-laws. Shri S.K. Maingi, learned counsel for the assessee submitted that the said complaint was made by Ms.Sarika Jain in order to fetch money from her husband and in-laws. This contention of the learned counsel for the assessee has some force, which can not be ignored.
Division Bench of this Tribunal in the case of Shri Subhash Chander Goel [2016 (2) TMI 78 - ITAT CHANDIGARH] relating to assessment year 2006-07 held that statement recorded by the police officer under section 161 of CrPc, 1983 is neither given on oath, nor it is tested by cross examination and, therefore, such a statement cannot be treated as substantive evidence to reopen the assessment proceedings. In the instant case, the Assessing Officer had not examined and corroborated the information received from DDIT (Investigation)-III, Ludhiana before recording his satisfaction of the escaped income and initiating the re-assessment proceedings. In my opinion, the Assessing Officer has thus acted on the basis of suspicion and he has also not applied his mind before recording the reasons for reopening of the assessment.
statement made by Ms.Sarika Jain under section 161 of CrPc cannot be treated as relevant material for reopening proceedings under section 147 of the Act. Thus reopening of the assessment was not valid under the law - Decided in favour of assessee.
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2016 (5) TMI 1586
Applicability of section 44BB - services provided by NRC’s (non resident company) to ONGC - TDS u/s 195 - CIT-A held that since the activity pertains to mining, it is out of the purview of section 9(1)(vii) of the Act - HELD THAT:- The issue is no more res integra. The Hon’ble Supreme Court in the case of Oil and Natural Gas Corporation Ltd. [2015 (7) TMI 91 - SUPREME COURT] the assesee’s own case, held that the pith and substance of each of the contracts/agreements is inextricably connected with prospecting, extraction or production of mineral oil. The dominant purpose of each of such agreement is for prospecting, extraction or production of mineral oils though there may be certain ancillary works contemplated thereunder. If that be so, we will have no hesitation in holding that the payments made by ONGC and received by the non-resident assesses or foreign companies under the said contracts is more appropriately assessable under the provisions of section 44BB and not section 44D of the Act. On the basis of the said conclusion reached by us, we allow the appeals under consideration by setting aside the orders of the High Court passed in each of the cases before it and restoring the view taken by the learned Appellate Commissioner as affirmed by the learned Tribunal. Appeal of revenue dismissed.
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2016 (5) TMI 1585
Addition based on income surrendered - addition on the basis of statement recorded of Mr. DN Taneja wherein he surrendered the said amount on company’s account to buy peace of mind - Addition based on third party - assessee’s submissions that addition cannot be made on the basis of the statement recorded of third party and without providing opportunity of cross examination of the witness to the assessee - HELD THAT:- Addition was made by the AO on the basis of statement recorded on 7.1.2009 of Mr. DN Taneja wherein he surrendered the said amount on company’s account to buy peace of mind, in doing so, he ignored the basic fact that Sh. DN Taneja had no locus standi with respect to the assessee company, as he was never a Director nor a share holder in the assessee company and thus no reliance could have been placed on such general statement and as such, the reasons recorded by the AO were merely based on suspicion, surmises and conjectures and are hence not sustainable in the eyes of law. We find considerable cogency in the Ld. Counsel of the assessee’s submissions that addition cannot be made on the basis of the statement recorded of third party and without providing opportunity of cross examination of the witness to the assessee, in view of the Hon’ble Delhi High Court decision in the case of CIT vs. Pradeep Kumar Gupta & Anr. [2006 (11) TMI 184 - DELHI HIGH COURT]
We are of the considered opinion that the addition made on the basis of the statement in the present case is not sustainable in the eyes of law, because the right of cross examination to the assessee was not provided, hence, we delete the addition made by the AO and confirmed by the Ld. CIT(A) and allow the Appeal of the Assessee.
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2016 (5) TMI 1584
TP Adjustment - payment of the group charges to its AE - whether the issue as to the payment on account of other group charges made by the assessee to its AE for services rendered was to be determined by the TPO/DRP or it was to be determined by the AO u/s 37 (1) - HELD THAT:- TPO goes to prove that the TPO has decided the issue as to making payment of the group charges to its AE for rendering services, such as, OTO and support and application work in respect of various projects for which tenders were submitted. TPO returned the categoric finding that assessee has failed to demonstrate “as to whether the services were claimed to have been rendered by its AE were actually received” and as such failed “the benefit test” applied by the TPO, which amounts to assuming the powers of AO.
Identical issue has come up before the Hon’ble jurisdictional High Court in judgment cited as Commissioner of Income-tax-I vs. Cushman and Wakefield (India) (P.) Ltd. [2014 (5) TMI 897 - DELHI HIGH COURT]
TPO has exceeded his power by determining that the assessee has not received services from its AE, thus failed the benefit test and further held that the assessee had not furnished any evidence to any visit of the employee of its AE in connection with the services rendered entailing payment of group charges by the assessee. We are of the considered view that since the payment made by the assessee to its AE for services rendered was basically an expenditure incurred for the purposes of business, the same are to be determined u/s 37(1) of the Act, if allowable or not and this issue is in the exclusive domain of the AO to be determined.
Adverting to the assessment order passed by the AO which is in consonance with the direction issued by TPO/DRP vide which group charges have been treated as adjustment in the ALP - AO has neither examined nor returned any findings whatsoever if the payment made to the AE for availing services from its AE is an expenditure incurred for the purposes of business u/s 37 (1) rather passed the assessment order in mechanical manner in consonance with the directions issued by the TPO/DRP. Moreover, when the TPO has not disputed that the services were availed by the assessee from its AE, the question of determining the ALP of group charges to the tune of Rs.1,89,53,444/- does not arise because it was to be done by the AO only.
We are of the considered view that without entering into merits of the case, the matter is required to be restored to the AO to determine the issue as to the payment of group charges by the assessee to its AE afresh after providing an opportunity of being heard to the assessee in the light of the observations returned hereinbefore. Consequently, the present appeal filed by the assessee is hereby allowed for statistical purposes.
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2016 (5) TMI 1582
Nature of land sold - Capital asset or agricultural land - Whether land disposed of by the assessee was agricultural land and situated beyond 8 KMs radius of the municipal limit? - HELD THAT:- The assessee filed the return of income and claimed that he sold two pieces of agricultural land for an amount, by two sale deeds registered in the office of the Sub- Registrar, Neelankarai. The assessee appears to have produced copies of chitta-adangal maintained by the State Government, to establish that the land sold by the assessee is agricultural land. The Assessing Officer accepted the claim of the assessee without any discussion in the assessment order. The copies of chittaadangal said to be filed before the Assessing Officer are not available in the file of this Tribunal. Therefore, we are unable to examine classification of the land by the State Government.
Without knowing the classification of the land, this Tribunal is of the considered opinion that the matter cannot be adjudicated at this stage. Therefore, the classification of the land has to be examined after referring to the adangal or Village Account No.2 maintained by the State Revenue Department. In the absence of copies of the extract of adangal, this Tribunal is of the considered opinion that the matter needs to be examined by the Assessing Officer for better appreciation of the facts. Therefore, this Tribunal do not find any merit in the appeal filed by the assessee.
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