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Income Tax - Case Laws
Showing 21 to 40 of 584 Records
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2017 (6) TMI 1358 - ITAT MUMBAI
Validity of reopening of assessment u/s 147 - addition on account of actuarial surplus - change of opinion - Whether A.O. has not brought any tangible materials on record to indicate that there was an omission or failure on the part of the assessee company to disclose fully and truly all material facts necessary for the assessment - HELD THAT:- As during the assessment proceedings the assessee furnished actuarial report Form-I, which shows the negative reserve. The AO made the addition of ₹ 81,000/- during the original assessment proceeding on account of actuarial surplus. The negative reserve was a part of the documents furnished during the assessment. Thus, it cannot be said that there was non-disclosure of material fact relevant for assessment. The assessing officer while passing the assessment order, the AO referred the actuarial report as reflected in para-2 of assessment order passed under section 143(3) - thus, it is not the case where the assessing officer has not made inquiry in respect of negative reserve, which has been shown in report under Form-I (Actuarial Report).
After examining the Actuarial Report made the addition of ₹ 81,000/-, while passing the order of assessment. The assessment order was passed with due application of mind. The assessing officer has not brought any tangible material on record to show that there was any failure on the part of assessee to disclose fully and truly all material on record necessary for assessment. As per our considered view, it was merely a change of opinion of assessing officer.
On merit we have seen that similar issue arose in AY 2005-06 and the assessee filed appeal before Tribunal. The Tribunal on the basis of order of High Court in ICICI Prudential Life Insurance Co [2015 (7) TMI 1259 - BOMBAY HIGH COURT] remanded the issue to the file of AO - The AO in pursuance of order of Tribunal deleted the additions on account of negative reserve its order. - Decided against revenue.
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2017 (6) TMI 1357 - ITAT BANGALORE
TP Adjustment - Determination of ALP - transactions between related parties - computation of the location saving by the TPO - TPO proceeded to. make assessment on the basis of location saving available to the assessee being doing its research and trial activity in India in comparison to US - HELD THAT:- The location saving and advantage are universally accepted in cross border trade so far as the transactions are not entered into solely for the purpose of avoiding tax and particularly the transactions between the related party with motive to shift the benefit of location saving and advantage to the counter part where either there is no tax or very low tax is attracted. Therefore the concept of Base Erosion and Profit Shifting (BEPS) is relevant only in respect of the transactions which are entered into with the sole purpose of avoidance of tax and· treaty shopping.
To deal with such transactions between related parties the transfer pricing provisions has been introduced in the statute and are applied for determination of ALP. Therefore the location savings and advantages are very much relevant in the cross border transaction but for limited purpose of carrying out exercise of examination and investigation of the transaction and not as a basis for determining the ALP and consequently adjustment. We find that the Mumbai Bench of the Tribunal in the case of Watson Pharma Pvt. Ltd. Vs. DCIT [2015 (1) TMI 699 - ITAT MUMBAI] has dealt with this aspect and held that when the local comparables are available then instead of going to the location saving as a basis of adjustment, the TNMM shall be preferred.
The orders of the TPO and DRP are not sustainable as suffer from serious defect of considering the location saving as basis ·of adjustment. Further we find that the computation of the location saving by the TPO is purely based on some articles and not on the basis of actual cost in the US in comparison to India. Therefore the price/cost as computed by the TPO is not based on actual data but on presumption of accepting the article on the subject as the comparable cost.
Since the functional comparability of the companies selected by the assessee has not been examined by the TPO as well as no steps were taken to find out the other comparables of the assessee for determination of ALP therefore, the issue of determination of ALP and consequential adjustment, if any, is required to be examined and adjudication afresh at the level of TPO/A.O - As assessee is receiving its price in foreign currency therefore the comparable uncontrolled price shall also have atleast 75% of their revenue in foreign currency otherwise the price received from domestic market may not be acceptable when the assessee is receiving its 100% revenue in foreign exchange. Accordingly, the matter is set aside to the record of the TPO/A.O. for adjudication of the same afresh in the light of our above observations.Appeals allowed for statistical purpose.
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2017 (6) TMI 1356 - ITAT CHENNAI
Delayed employee’s contribution to Provident Fund - HELD THAT:- Section 43B of the Act will not override the provisions of Section 36(1)(va) of the Act with respect to employee’s contribution to provident fund. As pertinent to mention that though employee’s & employer’s contribution to P.F are remitted by the employer, they are separate and distinct for which independent provisions have been cast under the Act. Employee’s contribution to P.F., is nothing but appropriation of a portion of the salary which is legitimately due to the employee and remitted by the employer in the Government treasury on behalf of the employee in accordance with the provisions of the relevant P.F., Act.
Hence it is crystal clear from Section 36(1)(va) of the Act that with respect to remittance of employee’s contribution to recognized Provident Fund, deduction will be allowable to the assessee only if the same is remitted within the due date mentioned in the relevant P.F. Act and with respect to employer’s contribution to recognized Provident Fund, Section 43B of the Act makes it clear that deduction will be allowable if the remittance is made with in the due date of filing the return of income. For the above stated reasons we do not find any infirmity in the order of the Ld. Revenue Authorities. Accordingly, we confirm the Order of the Revenue Authorities on this issue.
Belated remittance of Employees contribution towards ESI - HELD THAT:- Since with respect to employee’s contribution to ESI, provisions of Section 36(1)(va) of the Act apply by virtue of Section 2(24)(x) of the Act, the decision with respect to employee’s contribution towards PF supra will hold good. Accordingly, this issue is also held against the assessee.
Professional consultancy charges paid without deducting TDS - HELD THAT:- We remit back the matter to the file of the Ld.AO to decide the issue in the light of the decision of ANSAL LAND MARK TOWNSHIP (P) LTD. [2015 (9) TMI 79 - DELHI HIGH COURT] after duly verifying the return of income filed by M/s. Manohar Chowdhry Associates and M/s. SAP BPO Services Pvt. Ltd which shall be produced by the assessee before the Revenue Authorities with all requisite particulars. This issue is accordingly disposed off.
Deduction u/s.10B of the Act with respect to interest income - HELD THAT:- We merit in the submission of the assessee because the interest income will neither form part of export turnover nor total turnover as it has to be taxed under the head ‘Income from other sources’. Therefore the ratio laid down in the case Pentasoft Technologies Ltd. [2010 (7) TMI 75 - MADRAS HIGH COURT] will apply in the case of the assessee - We hereby direct the Ld.AO to delete the interest income from the export turnover and total turnover if the same is so included in the export turnover &/or total turnover, while computing deduction u/s.10B.
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2017 (6) TMI 1355 - ITAT BENGALURU
Assessment of HUF - Addition in the hands of individual member OR HUF - individuals have inherited certain properties through partition of Krishna Reddy, HUF - Income derived from these properties is assessed in individual capacity of the respective persons by the AO - HELD THAT:- It is undisputed fact that in the immediately preceding assessment year i.e. 2003-03, the Hon’ble High Court that this property belongs to HUF of the appellant. Therefore, should be assessed only in the hands of the HUF of the appellant. Hence, the grounds of appeal filed by the assessee are allowed.
For the assessment year 2004-05 unexplained investment on account of cost of construction in residential complex - CIT(A) was not justified in rejecting the same merely on the ground that this property does not find a place in the partition deed. It is always possible that property can be acquired out of nucleus of the funds of the HUF in which event, property always belongs to HUF. Therefore, income arising out of the property should be assessed only in the hands of the HUF. - Appeal of assessee allowed.
Assessment of annual value of property at Renuka Bangalore, in the status of the individual of the assessee - contention of the assessee that it belongs to joint family and therefore, should be assessed in the status of HUF - HELD THAT:- There is no bar under law to throw individual property into common hotchpot of HUF, even if the contention of the assessee that this property was purchased out of funds received on partition under partition from erstwhile HUF of his father to be disbelieved. In the circumstances, we hold that annual value of property is to be assessed in the hands of the HUF. Thus ground No.2 is allowed.
Assessment of annual value at No.1198, Renuka Nilaya, HAL III Stage, Bangalore - As claimed that purchase of site and construction of building thereon have been made out of sale consideration received from assessee’s share of flats in Krishna Apartment which are identified as HUF property - HELD THAT:- We are of the considered opinion that in absence of contrary evidence, explanation tendered in support of source of acquisition of property should be accepted. Therefore, we hold that annual value of property should be assessed only in the individual capacity.
Addition on account of assessment of short term capital gain on sale of property at survey No.39/3, Doddanakundi, Bengaluru - HELD THAT:- It is trite law that in absence of any contrary evidence, explanation tendered by the assessee should e accepted. There is nothing on record to disbelieve the explanation tendered by the assessee. We hold that short term capital gains should be assessed only in the hands of HUF.
Whether assessment can be made on disrupted HUF which is not hitherto assessed to tax? - HELD THAT:- This issue has come up before the Hon'ble jurisdictional High Court in the case of CIT vs. Lakkanna & Sons [2005 (5) TMI 684 - KARNTATAKA HIGH COURT] wherein it was held that where HUF has not been assessed earlier, enabling provisions of section 171 of the Act cannot be applied to assess after partition in status of HUF - Since HUF of respective parties is already disrupted, there cannot be any assessment. Therefore, assessments framed in the present case are cancelled.
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2017 (6) TMI 1354 - ITAT CHENNAI
Application of second proviso to section 40(a)(ia) - Retrospective or prospective effect - whether the second proviso to section 40(a)(ia) of the Act takes effect from 01.04.2013 is applicable to the assessee or not? - diversified views - HELD THAT:- Since there exists two contradictory decisions, we are of the considered opinion that the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT] has held that the decision favourable to the assessee have to be acted upon.
in the case of Star Investments Pvt. Ltd. [2016 (6) TMI 1428 - ITAT CHENNAI] wherein the decision of Rajeev Kumar Agarwal [2014 (6) TMI 79 - ITAT AGRA] has been followed, which was affirmed by case of Ansal Landmark Township Pvt. Ltd. v. Addl. CIT [2014 (9) TMI 194 - ITAT DELHI] as subsequently confirmed by the Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Township Pvt. Ltd. [2015 (9) TMI 79 - DELHI HIGH COURT] and the same was not reverted by the High Court. Thus held that second proviso to section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005 - Decided against revenue.
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2017 (6) TMI 1353 - ITAT DELHI
Addition u/s 68 - Bogus share application money - HELD THAT:- There is no doubt about the identities of the companies. However, the genuineness of the transaction of the share application is proved by the confirmation and bank account. The confirmations have been submitted and the transaction has been made through Axis Bank vide different cheques and the copy of Bank Account has been furnished. The assessee even furnished before the AO the set of Balance sheet, the copy of acknowledgment of Income Tax Return and the copy of share application, the copy of the Board Resolution for the application for shares.
CIT(A) has rightly relied upon the judgment of Lovely Exports Pvt. Ltd [2008 (1) TMI 575 - SC ORDER] as referred by the Ld. AR of the assessee before him and hence, rightly deleted the addition of ₹ 3,00,00,000/-, which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue - Decided in favour of assessee.
Addition of gross receipts to the overall returned income - Addition to total profit @9% of receipts - HELD THAT:- CIT(A) after considering the affidavit of the Managing Director of the company and also the submissions of the AR had observed that there is no doubt about the intentions of the assessee as they had agreed for the addition of 9% of the receipts of the work contract. Hence, Ld. CIT(A) has rightly directed the AO to take the profit at 9% of gross receipts and account for the profit already shown in the P&L Account, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the ground no. 2 raised by the Revenue. We further note that since the Assessee has not filed any Application under Rule 46A of the I.T. Rules, 1962, hence, the question of contravention of Rule 46A does not arise. - Decided against revenue.
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2017 (6) TMI 1352 - ITAT CHENNAI
Deduction u/s. 54 - assessee has not appropriated towards construction of new residential house as it was not completed - HELD THAT:- In our opinion as held by Hon’ble Karnataka High Court in the case of CIT vs Smt. V.S. Shantha Kumari [2015 (8) TMI 274 - KARNATAKA HIGH COURT] completion of construction within three years was not mandatory and it was necessary that construction should be commenced, it should be proved by the assessee that construction is for residential house. The Hyderabad Bench of the Tribunal in the case of Muneer Khan vs. ITO,[2010 (8) TMI 752 - ITAT HYDERABAD] had held that assessee may use borrowed funds for construction of new residential property and deduction u/s.54 of the Act denied on the reason that assessee used some fund other than consideration received on transfer of capital asset - on that reason deduction u/s.54 of the Act cannot be denied - we remit the entire issue in dispute with regard to Sec. 54 of the Act to the file of the ld. Assessing Officer with a direction to the ld. Assessing Officer to verify whether assessee has actually made investments in construction of new residential property, though it was not completed and decide thereupon.
Enhancement of assessment - unexplained investments - payments was not made with reference to the construction of residential house - HELD THAT:- Whether payments made towards construction to other parties on the instruction of assessee’s contractor, it is to be examined by enquiring those parties and it should be seen that it is properly reflected in their books of accounts as per law. Without examining them, it is not possible for us to sustain the addition on this count - are inclined to remit this issue also back to the file of the ld. Assessing Officer for further enquiry. This ground is also remitted to the file of the ld. Assessing Officer for fresh consideration.
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2017 (6) TMI 1351 - ITAT DELHI
Unexplained cash deposits - assessee explained that amount was contributed by his brother for marriage of two daughter and out of sale proceedings of popular plants etc. - HELD THAT:- The assessee has been making deposits in the bank account during the entire year. Therefore, explanation of assessee that amount was contributed by his brother for marriage of two daughter and out of sale proceedings of popular plants etc. has no relevance to the matter because assessee has been continuing in making deposit in his bank account. The source of the bank deposit has not been explained. At one stage assessee explained that withdrawals have been made out of the bank account for the purpose of incurring marriage expenses.
When amounts were withdrawn for the purpose of marriage, there is no question of redeposit of the same amount in the bank account of the assessee as is contended by assessee - assessee failed to explain source of the cash deposit in the bank account to the satisfaction of the authorities below. AO has already extended sufficient benefit to the assessee for the purpose of making the addition on this issue - Assessee submitted that it being an old case, it is difficult for assessee to produce evidence or material on record to explain entire deposits in the bank account, therefore, on the face of the same submission it is clear that assessee is not in a position to explain the source of the cash deposit in the bank account. The appeal of assessee itself has no merit same is therefore dismissed.
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2017 (6) TMI 1347 - ITAT DELHI
Maintainability of appeal - low tax effect - HELD THAT:- CBDT has issued Circular No. 21 of 2015 dated 10.12.2015 with retrospective effect, revising the monetary limit to ₹ 10,00,000/- for not filing appeals before the Tribunal. Learned CIT(DR) could not controvert the fact that tax effect involved in the appeal is less than ₹ 10,00,000/-.
From para 10 of the above Circular, it is palpable that the Instruction is applicable to the pending appeals also with retrospective effect and there is a clear-cut direction to the Department to withdraw or not press such appeals filed before the ITAT, wherein tax effect is less than ₹ 10,00,000/-.
Going by the prescription of the afore-noted Circular, we are of the view that the Revenue should have either not filed the instant appeal before the Tribunal or withdrawn the same as the tax effect in this appeal is admittedly less than the prescribed limit i.e. ₹ 10,00,000/- for not filing the appeal. Accordingly, we dismiss the instant appeal without going into merits of the case. However, the Department is at liberty to file the Miscellaneous Application, if the tax effect is found to be more than the prescribed limited of ₹ 10 lacs or otherwise. Appeal of the Revenue stands dismissed.
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2017 (6) TMI 1346 - ITAT PUNE
Disallowance u/s 14A r.w.r. 8D - HELD THAT:- Admittedly, the year under appeal is assessment year 2005-06 i.e. the year when the provisions of Rule 8D of the Rules were not on Statute. The Hon’ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] had held the said provisions to be prospective in nature, hence the same were not applicable to the year under appeal. Accordingly, the findings of CIT(A) in para 2.8.11 needs to be reversed. The CIT(A) himself though in the paras thereafter have admitted that the provisions of Rule 8D of the Rules are not applicable and in view of the provisions of section 14A of the Act, disallowance of ₹ 1 lakh was made. We uphold the said disallowance of ₹ 1 lakh under section 14A of the Act. Accordingly, the ground of appeal No.2 is decided as indicated above.
Disallowance of Excise duty on obsolete stock - HELD THAT:- The assessee had made provision of Excise duty which as per the assessee, was included in the closing stock and was also paid before the due date of filing the return of income. We find that similar issue of provision of Excise duty on obsolete stock arose before the Tribunal in assessment year 2004-05 [2015 (12) TMI 1742 - ITAT PUNE] wherein as held that the assessee is entitled to the claim of deduction under section 43B of the Act as the aforesaid amount admittedly, was paid before the due date of filing the return of income for the instant assessment year, as certified by the Auditor in the audit report in Annexure 7 attached to the Form No.3CD, wherein it has been certified that the amount of Excise duty paid up to date of filing the return of income.
Adhoc addition by valuing the stock of scrap as on 31.03.2005 - assessee explained that it was its policy not to value any scrap at the close of the year and the said policy was consistently followed from year to year - CIT(A) restricted the addition by revaluing the stock @ ₹ 5 per Kg., estimated on adhoc basis - HELD THAT:- The assessee is consistently following the method of accounting, wherein whenever scrap was sold by the assessee, the receipts from the sale of such scrap were accounted for in the books of account. However, scrap which was available at the end of year had not been shown as part of the closing stock. The estimated value of the stock which has been upheld by the CIT(A) is also ₹ 75,000/- as against the same, the assessee during the year under consideration had sold scrap for about ₹ 18 crores, which has been included as receipts of the business for the year under consideration by the assessee. In view thereof, where a consistent approach has been followed by the assessee, we find no merit in the inclusion of value of scrap as on the close of the year at ₹ 75,000/- as part of income of assessee. - Decided in favour of assessee.
TP Adjustment - MAM Selection - benchmarking the transaction of manufacturing of wires - adjustment made on account of arm's length price of the manufacturing division i.e. export of wire - assessee had applied TNMM method with net profit margin as the Profit Level Indicator (PLI) in order to benchmark the arm's length price - TPO had applied the CPM method and had considered the rate of GP as comparison in order to benchmark the arm's length price of international transactions - HELD THAT:- We find merit in the plea of assessee that where transactions under the same segment are inter-linked, then they are to be aggregated in the hands of assessee. This plea of aggregation has been accepted and adopted in the hands of assessee in the earlier years and even in the later years. Accordingly, the same merits to be applied in the year under consideration also.
TNNM method is the most appropriate method to be applied to benchmark the international transactions of exports to associated enterprises. The assessee aggregated all the international transactions under this division and applied TNNM method and found the transaction of exports to associated enterprises at arm’s length. However, the Assessing Officer is directed to verify the said claim of assessee by applying single year’s data and compute the adjustment, if any, in the hands of assessee after affording reasonable opportunity of hearing to the assessee.
Export of Seamless tubes and pipes - Since the facts of the present case are identical to the facts in earlier and subsequent years, we find no merit in the said stand of the TPO. Where the transactions are inter-linked, then aggregation approach is to be applied as held by us in the paras hereinabove in respect of division of manufacturing of wires. The said aggregation approach has been applied by the TPO himself in assessee’s own case in both the preceding and succeeding years except the year under consideration. Since there is no difference in the factual aspects, we find no merit in the approach adopted by the TPO. Once the aggregation approach is to be applied, then thereafter, CUP method cannot be applied because both the activities having controlled transactions of import of service charges, management fees, etc. and hence, are tainted. See RACOLD THERMO LIMITED [2015 (10) TMI 1747 - ITAT PUNE] and JOHN DEERE INDIA PVT. LTD., (JOHN DEERE EQUIPMENT PVT. LTD.) [2015 (3) TMI 318 - ITAT PUNE]
Accordingly, we allow the claim of assessee in this regard. The TPO is directed to apply the TNNM method on single year’s data and compute the adjustment, if any, in the hands of assessee. Reasonable opportunity of hearing shall be given to the assessee in this regard.
Adjustment made to international transactions of management service fees - Receipt of management services from Sandvik group entities - HELD THAT:- We find merit in the claim of assessee and in view of gamut of evidences filed by the assessee establishing its claim of receipt of management support services from Sandvik entities, which in turn, was as per terms of agreement, then there is no merit in making any adjustment on account of payment of management fees. Upholding the order of CIT(A), we reverse the findings of the TPO in this regard as the same are without any basis, in view of specific covenants of the agreement entered into by the assessee with Sandvik AB, Sweden.
Where the management services have actually been rendered, may be, by Sandvik entities, then the arm's length price of such a transaction cannot be taken at Nil. The assessee has applied TNNM method to determine the arm's length price of payment of management fees by aggregating the transactions at Nil. Accordingly, we hold that no addition is merited in the hands of assessee on account of transfer pricing adjustment on the transaction of payment of management services to Sandvik AB, Sweden.
Assessing Officer had disallowed the claim was that the payment was in the nature of dividend. Once the amount has been taxed in the hands of recipient i.e. Sandvik AB, Sweden, as income on account of rendering of management services, there is no merit in the said stand of Assessing Officer in treating the said payment to be dividend and accordingly, the same is dismissed. The grounds of appeal No.2a and 2b raised by the Revenue are thus, dismissed.
Nature of expenditure - software application as revenue expenditure - HELD THAT:- In view of the ratio laid down in assessee’s own case in earlier years [2015 (12) TMI 1742 - ITAT PUNE] and the facts being similar, we uphold the order of CIT(A) in allowing the expenditure incurred on software application. The ground of appeal No.3 raised by the Revenue is thus, dismissed.
Addition on account of closing stock of obsolete inventory - HELD THAT:- As relying on own case [2015 (12) TMI 1742 - ITAT PUNE] we uphold the order of CIT(A) in deleting addition made on account of value of obsolete inventory as part of closing stock.
Allowing set off of losses suffered by the newly set up EOU unit against its other business income - HELD THAT:- As relying on own case [2015 (12) TMI 1742 - ITAT PUNE] we hold that the assessee is entitled to set off of losses of EOU unit against the other business income, if any, assessed in the hands of assessee for the captioned assessment year. Balance loss, if any, would be carried forward to the succeeding years to be adjusted as per the provisions of the Act. Ground of appeal raised by the Revenue is also dismissed.
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2017 (6) TMI 1345 - ITAT CHENNAI
Disallowance of interest u/s.36(1)(iii) - disallowing entire interest on term loans/working capital loans paid to banks/others treating them to be capital in nature on the assumption that all these loans were utilized for investment in its wholly owned foreign subsidiary i.e. Aban Holdings Pte Limited - HELD THAT:- As decided in own case [2016 (10) TMI 807 - ITAT CHENNAI] we are inclined to remit the issue to the file of AO on similar direction. Further, we direct the AO to verify whether the investment is made in subsidiary to have a controlling interest, or to avoid the dilution of controlling interest, or to keep the controlling interest intact as per object clause of Memorandum of Association of the assessee company and to decide thereupon. Hence, this ground is partly allowed for statistical purposes.
Disallowance u/s.14 A - assessee accounted an amount as dividend income from mutual funds / shares during the year and claimed the same as exempt u/s.10(34) - HELD THAT:- As decided in own case [2016 (10) TMI 807 - ITAT CHENNAI] AO has to consider the assessee’s own fund i.e. capital and reserves as available on the date of investment which yields exempted income and thereafter he shall apply the Formula in Rule 8D and also exclude investments in subsidiaries.
With this observation, we remit the issue relating to disallowance u/s.14A r.w.r.8D to the file of AO for fresh consideration. Hence, this ground is allowed for statistical purposes.
TDS u/s 195 - expenditure incurred on account of management fees and consultancy charges paid outside India -Disallowance u/s.40(a)(i) - HELD THAT:- The Explanation incorporated in section 9 declares that “where the income is deemed to accrue or arise in India under clause (v),(vi) and (vii) of sub-sec.(1), such income shall be included in the total income of the non-resident, whether or not be resident as a residence or place of business or business connection in India”. The plain reading of the said provisions suggests that criterion of residence, place of business or business connection of a non-resident in India has been done away with for fastening the tax liability. However, the criteria of rendering service in India and the utilization of the service in India to attract tax liability u/s.9 (i)(vii) remained untouched and unaffected by the Explanation to Sec.9 of the Act and outside India. Therefore, the twin criterion of rendering of services in India and utilization of services in India become evidently necessary condition to deduct tax However, in respect of said payments, the rendering of services being purely off shore and outside India, the whatever paid towards said services does not attract tax liability.
We inclined to remit the issue to the file of Assessing Officer to examine the issue afresh in the light of above order along with concerned DTAA and decide thereupon. The issue is partly allowed for statistical purposes.
Disallowance of depreciation u/s.32 for non deduction of TDS - assessee has claimed depreciation @ 20% towards Dry Docking Expenses, which was capitalized for which the assessee should have deducted TDS u/s.195 - HELD THAT:- We are of the opinion that the depreciation cannot be disallowed which is to be granted on the cost of capital assets on which there is no question of TDS. See M/S. CRESCENT CHEMSOL PVT. LTD. VERSUS THE ACIT 10 (1) , MUMBAI. [2011 (3) TMI 1808 - ITAT MUMBAI]
Admission of additional ground - Disallowance of FCCB expenditure - claim of premium on FCCB in the return or revised return - assessee has taken a plea before the DRP to consider this issue, but refused to entertain it on the reason that it was not before the TPO/AO - HELD THAT:- As all the facts are available on record and assessee made a claim, it is appropriate to remit the issue to the file of AO for his consideration. In view of the judgement of Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1996 (12) TMI 7 - SUPREME COURT], wherein it was held that a legal ground can be raised at any stage of appeal.
Thus this issue is remitted back to the file of AO, if require, the AO should call for remand report from the TPO and decide the issue in accordance with law and on merit, we refrain from commenting on merits as the lower authorities to decide it. Hence, this ground is remitted to the file of AO for fresh consideration.
Claim of withholding tax u/s.90 - HELD THAT:- As decided in own case [2016 (10) TMI 807 - ITAT CHENNAI] we are inclined to hold that once the interest income subject to tax in any manner in the hands of the assessee, the corresponding tax credit to be given. Accordingly, this ground is remitted to the AO to examine the issue in the light of our above findings.
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2017 (6) TMI 1344 - ITAT CHENNAI
Validity of notice u/s.143(2) belatedly - notice issue beyond prescribed time - validity of revised return filed - notice beyond the statutory period of six months from the end of the financial year - HELD THAT:- Admittedly, the last revised return filed by the assessee on 26.02.2014. This was admittedly a valid revised return. The AO has also not rejected the revised return. The assessee has also given his Explanation for filing the said revised return. In fact, after the said revised return was filed, notice u/s.142(1) has been issued on 10.12.2014 and show cause notice have been issued on 23.12.2014 and on 12.03.2015. In response to the show cause notice issued by the AO on 23.03.2015, intimating the assessee to provide his response by 27.03.2015, the assessee has intimated that the notice u/s.143(2) has not been issued on the assessee within the prescribed time. In fact, before the show cause notice being issued by the AO, the assessee never had an opportunity to intimate the AO that notice u/s.143(2) had not been issued.
A perusal of the provisions of Sec.143(2) shows that the said notice is not assessment year specific but it is return specific.
Its time limit is computed from the end of the financial year in which the return is furnished. It is mandatory for the issuance of notice u/s.143(2) in the event that the AO proposes to make assessment u/s.143(3).
In the present case, the AO having not issued notice u/s.143(2) in respect of a valid revised return filed on 26.02.2014 and more so, the said return have not been treated as invalid, the consequential assessment is bad in law, in view of the principles laid down in the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon reported in [2010 (2) TMI 1 - SUPREME COURT]. Further, in view of the position in law that if a revised return is filed u/s.139(5) and if such return is a valid return then the assessment can be completed only on the basis of such revised return as has been held in the case of Orissa Rural Housing Development Corporation Ltd. [2011 (12) TMI 230 - ORISSA HIGH COURT] the assessment is liable to be annulled. - Decided against revenue.
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2017 (6) TMI 1343 - ITAT MUMBAI
Bogus purchases - applying peak credit theory - AO received specific information from the Director General of Income Tax, Mumbai that the Sales Tax Department, Government of Maharashtra has found that the assessee is involved in taking accommodation entries of bogus purchases - HELD THAT:- It is settled legal position that once the assessee has filed all the necessary details before the AO , it is for the AO to disprove the evidences submitted by the assessee and point out further defects in the books of account before making addition on account of bogus purchases. In the instant case before us, the whole conclusion has been drawn by the revenue authorities merely on conjectures, surmises and presumption that the assessee might have taken the hawala entries from the hawala operators and the cash so generated was used for making purchases from the gray market.
No concrete findings with the necessary evidences were given by the revenue authorities for making the addition/enhancement. We are not in agreement with the conclusion drawn by the FAA that the addition as made by the AO u/s 69C was correct with the further enhancement by the ld.CIT(A). Accordingly, we set aside the order of the ld.CIT(A) on this issue and direct the AO to delete the additions.
GP estimation - AO observed that the GP of the assessee in the current year was 6.02% as compared to 6.36% in the immediate preceding year - AO was not convinced with the contention of the assessee that the fall in GP is due to overall market conditions and also that the sales of the assessee increased to ₹ 6,30,62,994/- as compared to ₹ 6,09,13,726/-/- in the immediate preceding year and made addition at the rate of 0.5% - HELD THAT:- CIT(A) acted primarily on the conjecture, surmises and presumptions by coming to the conclusion the assessee saved taxes from 4 to 12% by purchasing goods from gray markets and accordingly, enhanced the addition by 4% of the tainted purchases of ₹ 2,73,65,128/-. CIT(A) has not given any concrete basis but generalised that 4 to 12% were generally saved when the purchases were made from gray market. It is pertinent to note the fact that the assessee has also paid amount of sales tax which the so called hawala operators should have paid who provided accommodation entries to the assessee as the assessee was forced to pay the sales tax by VAT authorities. The enhancement of income is unreasonable and uncalled for in view of the facts and discussion made hereinabove. We do not find any justification or reasons for enhancement by applying GP of 4% on the bogus purchase of ₹ 2,73,65,128/- as against 0.50% by the AO. We do agree with the ld.CIT(A) on the issue of confirming the GP addition in order to equalize the GP on tainted amount of purchases which is made at the rate of 0.50% on bogus purchases which comes to ₹ 1,36,825/-/- - Decided partly in favour of assessee.
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2017 (6) TMI 1342 - ITAT PUNE
Disallowance made in respect of payment to unapproved gratuity fund - Assessee paid sum by way of contribution towards gratuity to a trust which was created for the benefit of employees of the assessee company - AO noted that the said gratuity fund scheme was not approved by the CIT - AO and the CIT(A) thus, invoked the provisions of section 36(1)(v) of the Act to disallow the said claim of assessee as the amount was not paid to an approved gratuity fund - HELD THAT:- As relying on Tata Iron & Steel Co. Ltd. [1975 (2) TMI 22 - BOMBAY HIGH COURT] amount which has been paid by the assessee towards an unapproved gratuity fund is duly allowable as deduction under section 37(1) of the Act though the assessee is not entitled to claim the deduction under section 36(1)(v) of the Act. Accordingly, the ground of appeal No.1 raised by the assessee is allowed.
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2017 (6) TMI 1340 - BOMBAY HIGH COURT
Maintainability of appeal - low tax effect - HELD THAT:- As appellant submits that the tax effect involved in the present appeal is less than ₹ 20 lakhs and as per the CBDT Circular No.21 of 2015 dated 10th December, 2015, the department has taken a policy decision not to prosecute the appeals wherein the tax effect is less than ₹ 20 lakhs.
In view of the above, the learned Counsel for the appellant seeks leave to withdraw the appeal. The appeal stands disposed of as withdrawn.
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2017 (6) TMI 1339 - ITAT CHENNAI
Assessment of income - purchase of the assessee has been treated/added as unaccounted expenditure, and also total turnover of the assessee as unaccounted profits - Assessee argued that the AO while completing the assessment giving effect to the order of the Tribunal had not provided adequate opportunity to the assessee - HELD THAT:- The fact that the total income of the assessee for the AYs 2000-01 to 2006-07 has come down from ₹ 125 Cr. to ₹ 18.5 Cr. on the basis of the mere evidences which have been produced before the AO itself given ground to grant the assessee one more opportunity to produce further evidences, if any, before the AO.
.CIT(A) has dismissed the assessee’s appeals on the basis of the letter filed by the assessee dated 11.06.2014, reading of which clearly shows the frustration of the assessee on account of his ill-health and predicament also gives reason that the issues in the appeal must be restored to the file of the AO. Not only this, the fact that the total purchase of the assessee has been treated/added as unaccounted expenditure, and also total turnover of the assessee as unaccounted profits – a practical impossibility, which would need readjudication. This being so, the fact that the Ld.AR of the assessee has admitted that he has been able to compile all the details in respect of the additions made in the assessment and that he would be in a position to explain all the additions, in the interest of natural justice, the issues in this appeal are restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate his case. Appeals filed by the assessee allowed for statistical purposes.
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2017 (6) TMI 1337 - GUJARAT HIGH COURT
Estimation of income - bogus purchases - assessee making unaccounted production out of its shown purchases and selling them through their sister concerns and showing bogus purchases in hand of that sister concern - HELD THAT:- Assessee, who is in the business of manufacturing polymer, was found to be making undisclosed sales. For the assessment year 2007-08, therefore, the Assessing Officer added a sum of ₹ 1.13 crores to the total income of the assessee by way of suppressed sale which was treated as unaccounted for undisclosed income of the assessee.
In the appeal, the CIT(A) reduced the addition on the premise that not the entire unaccounted sale but only the profit element embedded in such sale can be brought to tax in the hands of the assessee. This issue was confirmed by the Tribunal relying on the judgement of this Court in case of Commissioner of Income Tax vs. President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT]
We are in broadly agreement with the view of the Tribunal. No question of law arises
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2017 (6) TMI 1336 - ITAT MUMBAI
Taxability of interest received u/s 244A - HELD THAT:- So far as taxability of interest Under Section 244 is concerned, under Article 11(4) of India Singapore Treaty, the same is now covered by the decision of the Hon'ble Special Bench in the case of ACIT vs Clough Engineering Ltd [2011 (5) TMI 562 - ITAT, DELHI] -Accordingly, we hold that so far as the issue of taxability of interest u/s 244A in the hands of the assessee, we decide the same in favour of the assessee.
Not granting Credit for TDS, Advance Tax and Self-Assessment Tax - HELD THAT:- We direct the Assessing Officer to grant credit for TDS, Advance Tax and Self-Assessment Tax after due verification.
Income accrued in India - whether the Ld. DRP was correct in holding that the entire liability was extinguished if the payment in question was made at Arm’s Length? - HELD THAT:- This issue has been decided in favor of the assessee in the case of M/s. Set Satellite (Singapore) Pte. Ltd v. Dy.DIT (International Taxation) [2008 (8) TMI 96 - BOMBAY HIGH COURT] wherein it was held that advertisement revenue received by resident of Singapore is not taxable in India. It was held that sales were made on principle to principle basis.
Distribution revenue earned - HELD THAT:- As decided in own case [2015 (9) TMI 793 - ITAT MUMBAI] so far as the issue relating to addition on account of ‘advertisement revenue’ and ‘distribution revenue’ the same stands decided in favor of the assessee by the Tribunal, which has been affirmed by the Hon’ble High Court in Assessment Year 1999-2000 and also in subsequent years. As regards the issue of ‘distribution receipts’ treated as ‘royalty income’, we find that this has been treated as business income and such a finding or conclusion now have attained finality, as pointed out by the Ld. Senior Counsel. Thus, finding of the CIT(A) on both the issues are affirmed and ground no. 1 & 2 are dismissed
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2017 (6) TMI 1335 - BOMBAY HIGH COURT
Admit substantial question of law - income exempt under section 10 considered for purposes of computing the 85% application of income - whether Tribunal was right in holding that the shares of TCS received in the year 200102 were held in breach of section 13(1)(d) ? - whether Tribunal was right in holding that the sale proceeds arising from the sale of bonus shares of TCS were required to be converted into asset/investment permissible under Section 11(5) and hence, clause (iia) of the proviso to section 13(1)(d) would not apply ?
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2017 (6) TMI 1331 - ITAT CHENNAI
Assessment of trust - Determinate trust or indeterminate trust - Assessment in hands of the beneficiaries - Whether income from deposit was not correctly admitted in the hands of the beneficiaries or not admitted, it has to be assessed in the hands of the assessee trust? - DR argued that the assessee is a registered Venture Capital Fund and is a pass through Trust and can be extended only to the extent of income earned on VCU investments since the assessee being a SEBI registered VCU is squarely covered by the provisions of Sec.10(23FB) r/w Sec.115(U) - Whether the income is from investment in Venture Capital Undertaking or not makes no difference in the case of determinate trust? - HELD THAT:- In the instant case, the assessee has created a trust which was registered and the beneficiaries have been identified by the contribution agreement(PPM) and their shares are also ascertainable with respect to contributions and the units.
As in case M/S. P. SEKAR TRUST [2009 (4) TMI 38 - MADRAS HIGH COURT] considered the issue regarding identification of beneficiaries at the time of formation of the Trust and expressed view that even after execution of the trust deed if the beneficiaries are identifiable and their shares are ascertainable it is sufficient compliance to hold the trust as determinate Trust. In the assessee’s case the beneficiaries are identifiable with PPM and their shares are ascertainable as discussed earlier in this order. The facts of the case are similar to that of India advantage Fund [2014 (10) TMI 614 - ITAT BANGALORE] - we hold that the assessee’s Trust is a determinate trust and the appeal of the assessee is on this issue is allowed.
Whether interest income of the trust should be assessed in the hands of the beneficiaries but not in the hands of the assessee? - Section 115U mandates that the nature of income which is received by the VCC or VCF from the Venture Capital undertaking and further distributed to the investor shall be taxable in the hands of the investor by treating the same nature of income like long term capital gain, short term capital gains, dividend or other income such as interest etc., and accordingly be taxed as per the provisions as applicable under different heads of the income. Hence, section 115U prescribes the principle of pass through by treating the VCC or VCF as a pass through vehicle and further, grants some concession in the shape of non-applicability of provisions of Chapter XIV-D, XII E or XVII B.
Assessee is duty to bound to furnish the correct information regarding the income paid or credited to the beneficiary from each source which required to be included by the beneficiary under the same head as if the beneficiary has derived income from investment in venture capital under taking as per Rule 12C and Sec.115U of IT Act.
The assessee in the P&L account did not apportion the expenditure relating to other income and the income relating to venture capital income. It is necessary to bifurcate the expenditure incurred for various sources of income to include in the hands of the beneficiaries to club under the various heads correctly since expenditure relating to exempt income is not allowable.
Entire issue requires further verification from the assessing officer to compute the correct income under the head Interest income which required to be assessed as income from other sources and the dividend income and Long term capital gains. We set aside the entire matter back to the file of the assessing officer to examine the issue in the light of the above discussion and decide the issue afresh on merits. The assessee is also directed to collect information from the beneficiaries regarding the inclusion of income relating to the TSGF and submit the same to the AO for early completion of the assessment. Appeal of the assessee allowed for statistical purposes.
Set off of the proportionate amount of expenditure relating to interest income, in case the pass through status is not allowed with regard to interest income - HELD THAT:- We have set aside the issue of determining the income from other sources and allocation of expenses with regard to venture capital income in the earlier paragraphs. Therefore this issue also stands remitted to be file of the Assessing Officer to decide the correct income under the head Income from other sources to be passed on to the beneficiaries or to assessee in the hands of the assessee in the representative capacity. Therefore, this ground of appeal is allowed for statistical purposes.
Grant of credit for taxes deducted at source - HELD THAT:- It is the duty of the AO to allow the credit for taxes paid or collected by the Department. In this case, it appears that the AO has not allowed the credit for the taxes deducted at source. We direct the AO to allow the credit for taxes paid. This ground of appeal is allowed.
Rectification u/s 154 - CIT(A) has changed the determinate trust to indeterminate trust by u/s.154 - HELD THAT:- The debatable issues which require verification and legal interpretation are not permissible to decide under section 154 and only the mistakes apparent from the record are permitted to decide under section 154. The issue on hand is not mistake apparent from record and the issue of law which require verification of several aspects both on law and facts. Therefore, we set aside the order of the Ld CIT(A) and allow the assessee’s appeal. However, the issue relating to pass through of correct income is stands remitted to the file of the AO as discussed in earlier paragraphs.
Disallowance u/s 40A - assessee is a trust carrying on the business of Venture Capital Fund and appointed the TVS Investments Capital Funds Ltd. as the manager, and paid the above amount to TVS Capital Fund Investment, which is a sister concern of the assessee - HELD THAT:- In the assessee’s case, the income is only from three segments income from other sources, dividend income and capital gains. There is no income to be computed under the head profits and gains of business or provision. Therefore, we are of the considered opinion that the CIT(A) rightly held that the disallowance contemplated under Chapter-III of IT Act cannot be under taken while computing the income under Chapter-IV of the IT Act. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld.
Disallowance u/s.40(a)(i) - legal and professional fee for non-deduction of tax at source - HELD THAT:- As decided by us in the earlier paragraph, the AO cannot make disallowances contemplated by the Chapter-III of IT Act while computing the income under Chapter–IV of IT Act or in the income which does not form part of total income. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the Revenue on this ground is dismissed.
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