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2015 (4) TMI 261 - ITAT PANAJI

2015 (4) TMI 261 - ITAT PANAJI - TMI - Disallowance u/s 14A - CIT(A) deleted part addition - Assessee has investment of ₹ 5,93,02,505/- in mutual funds, shares/share application money and earned dividend amounting to ₹ 45,371/-. The Assessee has not made any disallowance in the computation - AO applied Rule 8D for estimating the disallowance - Assessee claims that out of interest expenditure of ₹ 2.60 crores, ₹ 1.63 crores has been paid for availing of packing credit and .....

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res. Out of the investment of ₹ 5.93 crores, sum of ₹ 1.80 crores constitutes share application money and ₹ 2.83 crores comprises of Bajaj Insurance, Aviva Insurance, ICICI Prudential, ING Vysya Life Insurance and investment in firm in which Assessee is not a partner which, in our opinion, does not fall within the ambit of Sec. 14A. Therefore, balance investment remains only ₹ 1.30 crores out of which disallowance @ 0.5% can be only of ₹ 65,000/- as per Rule 8D(2)(i .....

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of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the payment as there was no provision under Sec. 9(1), the income received by the non-resident as per the existing law at the time when the Assessee made the payment, in our opinion, was not taxable in India under the Income Tax Act. The legal position prevailing at the relevant time has to be considered when the payment was made by th .....

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ddition - Held that:- It in the case on hand, there are no pleadings or material brought on record to show that the case is governed by occasional shipping within the meaning of section 172 of the Act, 1961 and said section applies. The AO in view of the decision in the case of CIT vs. Orient Goa Co. (P) Ltd., 325 ITR 554 correctly took the view that the Assessee is liable to deduct TDS on the demurrage if DTAA is not in existence and therefore, disallowed the said amount of ₹ 68,67,067/-. .....

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pening stock, sales and closing stock as has been given in the Tax audit report has not been disputed by the AO. Sales have duly been accepted. Without making the purchases, in our opinion, the Assessee cannot make the sales. We are of the opinion that even the addition to the extent of 10% should have not been sustained by the CIT(A). In our opinion, it is a case where the whole of the addition made by the AO does not have any leg to stand. Since the Assessee has not come in appeal nor filed cr .....

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stands ceased or remitted. No legal enforcement cannot mean cessation of liability. We accordingly confirm the order of CIT(A). Thus, this ground stands dismissed. - Decided against revenue.

Inguine sales - addition on the ground that the sales to sister concern at rate lower than the rate adopted for valuation of the closing stock is not genuine and therefore he added the difference between the two rates - CIT(A) deleted the addition - Held that:- The addition has been made on accou .....

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on the basis of undervaluation of closing stock. We, therefore, hold that this is not a fit case which warrants our interference. We accordingly confirm the order of CIT(A) on this ground. - Decided against revenue.

Disallowance of stacking and handling expenses and blending and screening charges paid to sister concern - CIT(A) deleted the addition - Held that:- It is a fact that when ore is extracted from the mines in raw form it is known as Run of Mines. This block form needs to be .....

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eening charges. It is not a case where the AO has applied the provisions of Sec. 40A(2). We, therefore, do not find any illegality or infirmity in the order of CIT(A) deleting the addition of ₹ 2,19,49,850/-.- Decided against revenue.

Disallowance of charges incurred in cash for transportation of iron ore - as per AO the identity of the payees are not proved - CIT(A) deleted the addition - Held that:- Assessee has incurred expenditure on transportation to the extent of ₹ 8 .....

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extent of 3.6% of the total expenses. CIT(A), in our opinion, has given a finding of fact. No cogent material or evidence was brought to our knowledge which may compel us to take a view different from the view taken by the CIT(A)- Decided against revenue.

Disallowance of claim of commission - CIT(A) allowed the claim - Held that:- . Payment has been made through banking channels, TDS has been deducted and there is no allegation of any back flow of money. Assessee has filed confirmatio .....

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. Garasia JJ. For the Appellant : Jitendra Jain, Adv. For the Respondent : B. Balakrishna ORDER Per P.K. Bansal : 1. Both the above appeals have been filed by the Revenue against the common order of CIT(A) dt. 15.01.2014. Since the Assessees are husband and wife, therefore, due to applicability of provisions of Sec. 5A of the Income Tax Act common issues are involved as the income has to be divided among the husband and wife. The common grounds of appeal taken by the Revenue reads as under : 1. .....

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) erred in deleting the additions of ₹ 28,87,983/- u/s 40(a) under facts and circumstances of the case and failed to appreciate that destination sampling charges are in the nature of technical or consultancy services which come within the ambit of Explanation 2 to sec. 9(1)(vii) and CIT(A) failed to appreciate the Finance Act, 2010 amendment to section 9(1)(vii) according to which the income from technical services is deemed to accrue or arise in India whether the services are rendered wit .....

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a Pvt. Ltd., which held that the assessee is liable to deduct TDS on the demurrages paid and the facts of the assessee s case are exactly similar to the above case and the ITAT, Panaji Bench followed the above decision in the case of Sesa Goa Ltd., for the A.Y. 2008-09 in ITA No.89/PNJ/2012 dt.17.05.2013. 4. Whether CIT(A) is right in disallowing only 10% of unproved cash purchases of ₹ 60,28,080/- and allowing 90% of cash purchases without considering the fact that the onus is on the asse .....

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xports (P&H), 336 ITR 2 on the above issue. 5. The CIT(A) erred in deleting the additions made u/s 41(1) of ₹ 3,07,61,558/- where the assessee not filed any confirmations of trade creditors and not proved the existence of the liabilities and most of the liabilities are more than 4 years old and the CIT(A) failed to appreciate the decision of the ITAT, Bangalore Bench decision reported in 128 ITD 74 in the case of Sureshkumar T. Jain Vs. ITO which held that the onus is on the assessee t .....

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ock rate of ₹ 1,141 per M.T. under the facts and circumstances of the case where the assessee not proved that the stock transferred by way of journal entries is unscreened and no transportation charges are incurred on the stock transferred. 7. Whether the CIT(A) is right in deleting the additions of ₹ 1,44,99,8507- towards Staking and Handling expenses and Blending and Screening charges of ₹ 74,50,000/- paid to sister concerns by merely passing journal entries on 31.03.2010 whe .....

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Exports (P&H), 336 ITR 2 and CIT(A) failed to appreciate that bills raised in this regard are not genuine as these do not contain levy of any service tax or any other taxes which is normal feature of genuine bills. 8. The CIT(A) erred in deleting addition made on account of Transportation charges of ₹ 30,93,640/- paid in cash and these are not supported by any transport bills issued by the Transporters and assessee does not have any details such as names of transporters to whom the ca .....

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visions of Sec. 14A. The brief facts relating to this ground are that the AO disallowed sum of ₹ 24,71,566/- by applying the provisions of Sec. 14A read with Rule 8D. The AO noted that the Assessee has received Dividend amounting to ₹ 45,371/- claimed as exempt but did not disallow any expenditure u/s 14A. The AO noted that the Assessee has paid interest amounting to ₹ 2,06,70,112/- and Assessee has invested an amount of ₹ 5,93,02,505/- in mutual funds, shares/share appli .....

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following formula, namely:-[AxB]/C= A. Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year- ₹ 2,06,70,112 B The average of value of investment, income from which does not or shall not form part of the total income appearing in the balance sheet of the assessee on the first day and the last day of the previous year Rs.6,30,43,814 + ₹ 5,93,02,505/- = Rs.12,23,46,319 Average of the above = Rs.6,11,73,159 C .....

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t of the assessee, on the first day and the last day of the previous year. = ₹ 6,11,73,159 x .005 = ₹ 3,05,865/- 4.6 Accordingly, a sum of ₹ 24,71,566/- (21,65,701 + 3,05,865) is disallowed u/s 14A read with Rule 8D as expenditure incurred for earning the exempted income and same is added to the total income. The Assessee went in appeal before the CIT(A). Before the CIT(A) the Assessee contended that the Assessee has not incurred any expenditure to earn the dividend income, the .....

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O while rejecting the claim of the Assessee simply stated that he is not satisfied with the correctness of the claim but did not specify why the accounts are not reliable for the claim of no expenditure made by the Assessee. Alternately it was contended that the disallowance cannot exceed the exempt income i.e. ₹ 45,371/-, no disallowance was made in the preceding assessment year 2009-10 where investment of ₹ 6.30 crores was made which are reduced to ₹ 5.93 crores during the ye .....

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ely sustained the disallowance to the extent of ₹ 65,000/-. 3. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that the Assessee has investment of ₹ 5,93,02,505/- in mutual funds, shares/share application money and earned dividend amounting to ₹ 45,371/-. The Assessee has not made any disallowance in the computation. The AO since was not satisfied with the working of the Assessee, therefore, applied Rul .....

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R even though he vehemently relied on the order of the AO. The investment has been reduced during the impugned assessment year from ₹ 6.30 crores to ₹ 5.93 crores. Out of the investment of ₹ 5.93 crores, sum of ₹ 1.80 crores constitutes share application money and ₹ 2.83 crores comprises of Bajaj Insurance, Aviva Insurance, ICICI Prudential, ING Vysya Life Insurance and investment in firm in which Assessee is not a partner which, in our opinion, does not fall within .....

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to deletion of the addition of ₹ 28,87,983/- added by the AO u/s 40(a)(i). The AO noted that the Assessee has paid a sum of ₹ 28,87,983/- towards destination sampling charges to the parties of Hongkong and Singapore but Assessee has not deducted any TDS on the belief that the services are rendered outside India and India is having DTAA with China and Singapore, therefore, these charges are taxable in those countries. The AO did not agree in view of the Explanation 2 to Sec. 9(1)(vii .....

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e total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has rendered the services in India. The income arising to the non-resident agent on account of the commission payable to him is to be deemed to accrue or arise in India in respect of soliciting export order and is taxable in view of the specific provision of Sec. 5(2)(b) r.w.s. 9(1)(i) as the right to receive the commission has arisen in Indi .....

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n the contracting state in which they arise and according to the laws of that state. As per the Indian law, these fees are deemed to accrue or arise in India. Referring to Article 8 of the DTAA it was observed by the AO that the profit derived by an enterprise of a contracting state from operation by that enterprise of ships or aircraft in international territory shall be taxable only in that state. Thus, there is difference between Article 12 and Article 8 and in view of the specific provision .....

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o Zhao Long (Asia) Ltd., Hong Kong amounting to ₹ 17,43,033/- and Delong Mineral & Logistic PTE Ltd. of ₹ 11,44,950/-, payment to Zhao Long (Asia) Ltd. is for monitoring, supervision of discharged cargo, draft survey, joint sampling of discharged cargo, photographs, sample preparation and sealing of samples, analysis of grade etc. and payment to Delong Mineral & Logistic PTE Ltd. was for supervision of the vessel at the discharge port, the non-residents did not have any perma .....

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Act. Ultimately, the CIT(A) deleted the disallowance by observing as under : 6.4 I have gone through the assessment order and submission of the appellant. The admitted fact is that, the appellant is engaged in the business of export of iron ore. At the destination of export, again the sampling of exported ore has to be done, for which the payment has been made by the appellant. The appellant did not deduct any TDS because, (i) the consultancy firm was a foreign national, no part of whose income .....

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l service has been rendered. Nature of service rendered and source country of the payment is immaterial in this context. Second aspect of the issue is that no part of recipient s income is assessable in India. Therefore, in view of these undisputed facts, in my opinion, TDS was not deductible in this case and the disallowance made by the A.O amounting to ₹ 28,87,983/- is hereby deleted. This Ground of appeal of the appellant is allowed. 5. We heard the rival submissions and carefully consi .....

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s, analysis of the grades etc. Copies of the bills were placed at pg. 134-140 of the paper book. From all the bills it is apparent that these services were rendered in the People s Republic of China. Similarly, the Assessee has paid a sum of ₹ 11,44,950/- to De Long Minerals and Logistics Pte Ltd., Singapore for supervision of the vessel at the discharge port. The payment has been made through DBS Bank Ltd., Singapore. Details of the payments made are given at pg. 133 of the paper book. Fr .....

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sident has residence or place of business or business connection in India or the non-resident has rendered services in India. The destination sample charges are consultant/technical charges paid for gradation of the iron ore exported and due to explanation-2 to Sec. 9(1)(vii) fee for technical services means any consideration including any lump sum consideration for rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personne .....

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ted the tax. We are not going on the merits of the taxability of the payments made by the Assessee to the non-resident company as, in our opinion, once the payments made by the Assessee to the non-residents are of the nature of technical fee, the legal position in view of the retrospective amendment w.e.f. 1.6.1976 in Sec. 9 brought out by the Finance Act, 2010 is indisputably that the said income will be deemed to accrue and arise in India whether or not the non-resident has residence or place .....

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India. Similar view has been taken by the co-ordinate Mumbai bench of this Tribunal in the case of Ashapura Minichem Ltd. vs. ADIT, 40 SOT 220 (Mum.) in which it was observed as under : 9. The legal proposition canvassed by the learned counsel, however, does no longer hold good in view of retrospective amendment with effect from 1-6-1976 in section 9 brought out by the Finance Act, 2010. Under the amended Explanation to section 9(1), as it exists on the statute now, it is specifically stated th .....

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ation of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 10. The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income earned within i .....

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es an income sourced from a tax jurisdiction to be taxed in this jurisdiction, and residence rule of taxation requires income, earned from wherever, to be taxed in the tax jurisdiction in which earner is resident. In the US tax system, this residence rule is further stretched to cover US taxation of all its citizens irrespective of their domicile, and the source rule is also concurrently followed. It is this conflict of source and residence rules which has been the fundamental justification of m .....

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rent clash of source and residence rule, to a taxpayer is relieved only through the specified relief mechanism under the treaties and the domestic law. It is thus fallacious to proceed on the basis that territorial nexus to a tax jurisdiction being sine qua non to taxability in that jurisdiction is a normal international practice in all tax systems. This school of thought is now specifically supported by the retrospective amendment to section 9. 6. It is an undisputed fact that the Finance Act, .....

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he non-resident has rendered services in India. It is not disputed by the ld. DR that the non-resident did not have residence or place of business or business connection in India. The non-resident has also not rendered services in India. The source of the income in the hands of the non-resident was outside India. Even the place of business which earned the income was also outside India. Since the technical fees was not deemed to accrue or arise in India at the time when the Assessee made the pay .....

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royalty and technical/consultancy fees may also be taxed in the contracting state in which they arise or accrue according to the laws of the state. Prior to the insertion of explanation to Sec. 9(1) by the Finance Act, 2010 with retrospective effect, the professional and consultancy services even though rendered outside India were not deemed to accrue or arise in India irrespective of the fact whether the party who rendered the services is having place of residence or place of business in India. .....

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ordance with the law which was brought into the statute book much after the point of time when the tax deduction obligation was to be discharged. In this regard, we perused the decision of the co-ordinate bench in the case of Channel Guide India Ltd. vs. ACIT, 139 ITD 49 (Mum.) as relied by the ld. AR. We noted that in this decision the co-ordinate bench of ITAT held as under : 25. In our opinion, the issue involved in the present case however, is relating to disallowance made u/s.40(a)(i) for n .....

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and it was held by the Tribunal that it was impossible for the assessee to deduct tax in the financial year 2003-04 when as per the relevant legal position prevalent in the financial year 2003-04, the obligation to deduct tax was not on the assessee. The Tribunal based its decision on a legal Maxim lex non cogit ad impossiblia meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform and relied on the decision of Hon'ble Supreme Court in the .....

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SSA and there was no question of disallowing the said amount by invoking the provisions of sec.40(a)(i). In that view of the matter, we delete the disallowance made by the AO u/s.40(a)(i) and confirmed by Ld. CIT (A) and allow ground no.1 of the assessee's appeal. The ld. DR even though vehemently contended but did not deny that the Finance Act, 2010 got the assent of the President on 8.5.2010 much later than the date when the Assessee had made the payment to these parties. Even the ld. DR .....

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de. We accordingly confirm the order of CIT(A) deleting the addition though on a different ground pleaded by the ld. AR. Thus, this ground stands dismissed. 7. Ground no. 3 relates to deletion of the addition made by the AO u/s 40(a)(i) amounting to ₹ 68,67,067/- as Assessee has not deducted any TDS on the demurrage paid. The brief facts of the case are that the AO noted that the Assessee has paid Demurrage amounting to ₹ 68,67,067/- to various parties but the Assessee did not deduct .....

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of the total price adjustment on the final bill. Therefore, no TDS was deductible. The AO in view of the decision in the case of CIT vs. Orient Goa Co. (P) Ltd., 325 ITR 554 took the view that the Assessee is liable to deduct TDS on the demurrage if DTAA is not in existence and therefore, disallowed the said amount of ₹ 68,67,067/-. When the matter went before the CIT(A), CIT(A) deleted the addition by observing as under : 7.4 I have gone through the assessment order and written submissio .....

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se set of facts, it is not important, whether these countries, have a DTAA with India or not. It is enough that these parties are foreign buyers and no part of their income is assessable in India. The payment relates to normal sale-purchase transaction and therefore, it cannot be said that the payment relates to an income, that arose or accrued in India. Facts of M/s Orient Goa are completely different and AOs reliance on this decision is clearly misplaced. In view of the above facts, the disall .....

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No. 89/PNJ/2012 in the case of Sesa Goa. It is a case where as per the decision of the jurisdiction High Court in the case of CIT vs. Orient Goa Co. (P) Ltd., 325 ITR 554 (supra) the Assessee was bound to deduct TDS on the sum of ₹ 68,67,067/-. Therefore, u/s 40(a)(i) of the Income Tax Act the disallowance has to be made in respect of full sum of ₹ 68,67,067/- as the said sum has been claimed by the Assessee as deduction. In the case of CIT vs. Orient Goa Co. (P) Ltd., 325 ITR 554 ( .....

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on by the learned Senior Advocate Mr. Usgaonkar for the respondent-assessee is in the matter of CBDT v. Chowgule & Co. Ltd. [1991] 192 ITR 40 (Kar.). There the learned Division Bench observed that "The question for consideration is whether demurrage payable to a non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the Income-tax Act". We have seen the facts obtaining in that case. In our view .....

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Act 1961 is carefully considered by us. Chapter XV titles as "Liability in special cases". We have no concern with sections, starting from section 159, till section 171 from this Chapter XV. Section 172 comes under sub-title "H.-Profits of non-residents from occasional shipping business". Title of section 172 is "Shipping business of non-residents." For bringing a case under Chapter XV- H of the Act 1961, one has to establish a case of profits of non-residents from .....

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i.e., "Residence in India". In short, respondent-assessee cannot be said to be non-resident. The present appeal pertains to the respondent-assessee. In our view, in the facts of the present case, the respondent-assessee cannot lay fingers on section 172, since we are not dealing with profits of non-residents. The other aspect is that such profits of non-residents should be from occasional shipping business. It is not the case that the respondent-assessee has earned some profit from oc .....

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asional shipping, part of para 3 from the Judgment of the learned Commissioner of Income-tax has been pointed out to us. His observations are in very few lines. We may reproduce the said portion herein below. " 3. We have heard the rival submissions in the light of material placed before us. Assessee claimed deduction of ₹ 1,08,53,980 being the amount of demurrage payable to Mitsui Co. Ltd., Japan. The Assessing Officer opined that since the assessee did not deduct tax at source, as s .....

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rvations of the learned Vice President of Income-tax Appellate Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of section 172 or section 195. Crucial point is as to how section 172 applies to the facts of the present case wherein the respondent-assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of t .....

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earned Counsel appearing for the parties pertaining to the Circular No. 723, dated 19-9-1995 by CBDT (Annexure "C"). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems to have been issued by the CBDT, clarifying the scope of sections 172, 194C and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para .....

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Supreme Court. It has been held by the Hon'ble Supreme Court that the circulars issued by Commissioner of Sales Tax not binding on assessee or Court, however, binding on the Department. In the case on hand, in our view, learned Commissioner of Income-tax (Appeals) and the learned appellate Tribunal have wrongly interpreted the Circular dated 19-9-1995 issued by the CBDT. This circular, in our opinion, cannot be considered in the facts and circumstances of the present case, in aid to the resp .....

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e, Gosalia Shipping (P.) Ltd., a company incorporated under the provisions of the Indian Companies Act, 1956 indulged at the relevant time in business of clearing and forwarding and as steamship agents. Gosalia Shipping (P.) Ltd., had acted as the shipping agent of "Aluminium Company of Canada Limited" which was a non-resident company. That non-resident company had chartered a ship "M.V. Sparto" belonging to a non-resident company called Sparto Compania Naviera of Panama. The .....

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d, there are no pleadings or material brought on record to show that the case is governed by occasional shipping within the meaning of section 172 of the Act, 1961 and said section applies. 12. Having considered the submissions of the learned Counsel appearing for the parties, in our view, the facts of the present case, are governed by section 40(a)(i ) of the Act 1961. Order passed by the Assessing Officer, in our view, is legal, proper and in accordance with the Scheme of Act 1961. In view of .....

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the Hon'ble Jurisdiction High court we set aside the order of the CIT(A) and restore the order of the AO. Thus, this ground stands allowed. 9. Ground no. 4 relates to disallowance on account of cash purchases. The AO disallowed unproved cash purchases of ₹ 60,28,080/- on the ground that the Assessee has not proved the identity of the sellers. The Assessee went in appeal before the CIT(A). CIT(A) reduced the addition to ₹ 6,02,808/- being 10% of the cash purchases by observing as .....

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, the claim of cash purchases are treated as non-genuine and the addition was made by the A.O. On the other hand, it is the contention of the assessee, that during the year under consideration, it has a total purchases of ₹ 29.97 crores, and cash purchases are ₹ 60.28 lakhs only which is a paltry 2% of total purchases. Each purchase is less than ₹ 20,000/- and purchases have been made for commercial expediency. The appellant had charged VAT on these purchases and obtained Form .....

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y narrow view, regarding the decision, relied upon by him. Indeed, the primary onus, of proving genuineness of the expenses claimed, is on the assessee but at same time, if one is not able to produce the party, does not mean that he has failed to discharge its onus. There are other means and evidences to prove the genuineness of such transactions. In my opinion, the A.O. jumped to the conclusion prematurely without examining other cogent evidences available with the assessee in forms of entries .....

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cash purchases and preparing cash vouchers, it could have obtained the addresses of these parties which could have helped in obtaining the confirmations of these parties. By not maintaining records of such parties, in fact, the appellant stopped the A.O. or rather created obstackle in carrying out further investigation. In view of these facts and taking overall view of all the facts, 10% of cash purchases needs to be disallowed which works out to ₹ 6,02,808/-. Addition to the extent of &# .....

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are only around ₹ 60,28,080/- which is around 2% of the total purchases. It is not a case where the provisions of Sec. 40A(3) have been applied by the AO. It is also not a case where the books of accounts of the Assessee were rejected. The books of accounts were duly audited. The Assessee has paid the VAT and obtained Form H. We find force in the submission of the ld. AR that small sellers use to come and negotiate with the Assessee for selling iron ore and these sellers are generally min .....

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rchases, in our opinion, the Assessee cannot make the sales. We are of the opinion that even the addition to the extent of 10% should have not been sustained by the CIT(A). In our opinion, it is a case where the whole of the addition made by the AO does not have any leg to stand. Since the Assessee has not come in appeal nor filed cross objection, we confirm the order of CIT(A) sustaining the addition to the extent of ₹ 6,02,808/-. Thus, this ground stands dismissed. 11. Ground no. 5 relat .....

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missions as filed before the AO. CIT(A) deleted the addition by observing as under : 9.4 Perusal of assessment order shows that the A.O. has made this addition in a summary manner only on the ground that the appellant did not file balance confirmation. The A.O. has made addition U/S 41(1) saying that the liability to pay back had ceased to exist and has placed reliance on the decision in the case of SureshKumar T. Jain Vs ITO, reported in 128 ITD 74, ITAT, Bangalore. There are a member of judici .....

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41(1) in a summary manner cannot be sustained. Entire addition amounting to ₹ 3,07,61,558/- is hereby deleted and this ground of appeal of the appellant is allowed. 12. Before us, the ld. DR relied on the order of the AO while the ld. AR submission that Sec. 41(1) is applicable only if there is remission or cessation of the liability and there is no material on record or finding that the liability ceased to exist. Acknowledgement of the Assessee in the balance sheet itself demonstrates th .....

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ced on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Jain Exports Pvt. Ltd., 35 Taxmann.com 540. 13. We heard the rival submissions and carefully considered the same alongwith the order of the tax authorities below. We noted that a similar issue had arisen in the case of the Assessee for the A.Y 2009-10 and when the matter reached to this Tribunal, the Tribunal vide its order in ITA Nos. 15 & 16/PNJ/2013 and C.O Nos. 16 & 17/PNJ/2013 dt. 14.8.2013 confirmed the .....

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of that, the AO made the addition in the income of the Assessee u/s 41(1) on the basis that there has been cessation of liability as the Assessee has not made the payment of the Sundry Creditors over a period of 3 years. Sec. 41(1) is applicable only where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the Assessee has obtained, whether in cash or in any .....

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r fiction that if the amount was obtainable or receivable during the previous year, it must be deemed to have been obtained or received during the year. Merely that the Assessee has not made the payment for the last 3 years, it cannot be said that the liability has ceased to exist. We noted on the facts of the case that the addition has been made by the AO in respect of unpaid liabilities which were in existence as on 31.3.2011, not the liability which were in existence as on 31.3.2009 and had n .....

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at there exists no liability or they have waived the liability. The onus, in our opinion, lies on the revenue to prove that there is a cessation of liability. The liability is subsisting but no legal enforcement cannot amount to be cessation of liability. This view has been taken by the Hon'ble Gujarat High Court in the case of CIT v. Silver Cotton Mills Co. Ltd. [2002] 125 Taxman 741 (Guj.). Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Hotline Electronics Ltd. .....

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r the liability. From the chart of the Sundry Creditors which has been filed before us and is available in the paper book, we also noted that the Assessee has made the payment in respect of some of the liabilities in the subsequent year. Therefore, under the facts and circumstances of the case, we are of the firm view that there is no cessation of liability in terms of Sec. 41(1) of the Income Tax Act. We, accordingly, confirm the order of CIT(A) deleting the addition. Thus, this ground stands d .....

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than the rate adopted for valuation of the closing stock is not genuine and therefore he added the difference between the two rates. The Assessee went in appeal before the CIT(A). CIT(A) deleted the addition by observing as under : 10.4. The A.O. has made addition to the value of closing stock. The A.O. has himself said that, the stock was transferred by way of sale to the sister concern. When stock was already transferred, how can any addition be made to the value of non-existing stock. The ap .....

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the sister concern and the same has been assessed by the Department. While passing the order, the A.O. placed reliance on many judicial pronouncements, wherein it has been held that, "Dealings involving funds transfer to near and dear ones need to be looked into with care and caution and necessary inferences drawn if there are abnormalities attaching to such transactions." Having relied on these decisions, the A.O. adopted a casual approach instead of showing any care or caution and wi .....

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ts letter dt. 13.2.2013 explained to the AO that it is on account of transportation but the AO has not recorded in his order nor has he referred the same in his order. It was also stated in the said letter that the iron ore sold to M/s. Karishma Impex was not screened and sales price is lower. It is submitted that the closing stock was screened ore and therefore the cost of screening had to be added to the closing stock thereby increasing the value of the closing stock. In this regard, our atten .....

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at has been recorded. The closing stock of iron ore was lying at jetty and Assessee had to incur transport cost to bring it to jetty thereby increasing the cost at which the goods are brought upto the jetty. Same being direct cost has to be added while valuing the closing stock. Since M/s. Karishma Impex has purchased the goods from store yard therefore the value was less to the extent of the transport and loading and unloading cost which was around ₹ 250-300/MT. The Assessee has also rece .....

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ly considered the same alongwith the order of the tax authorities below. We noted that the addition has been made on account of undervaluation of the closing stock. It is not denied that the Revenue has accepted the sale. The Assessee has explained to the AO that the ore sold to the sister concern did not have screening and transport cost loaded on it while the closing stock was inclusive of the transport cost as well as screening cost as the iron ore which was in stock was screened ore. In our .....

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concern. The AO noted that the Assessee has paid stacking and handling charges of ₹ 1,44,99,850/- to M/s. Karishma Goa Mineral Trading Pvt. Ltd. and blending and screening charges of ₹ 74,50,000/- to M/s. Karishma Impex. The AO was not satisfied with the explanation of the Assessee and was of the opinion that these expenses have not been genuinely incurred. Therefore, he disallowed the same. When the matter went before the CIT(A), CIT(A) deleted the disallowance by observing as under .....

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of Accounts have not been rejected by the A.O. iv) The appellant has successfully explained as to why service charges were not charged to the sister concerns for services rendered. v) The A.O. has also not found out, whether amount paid for services received were reasonable or higher compared to prevailing market rates. vi) The sister concerns have received such payments in the immediately preceding year also from the appellant and the same has been accepted by the Department. vii) The sister c .....

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low. We noted that similar type of services has been rendered by sister concern to the Assessee in the earlier year and no such disallowance was ever made. M/s. Karishma Goa Mineral Trading Pvt. Ltd. had rendered similar type of services to M/s. Karishma Global Mineral Exports Pvt. Ltd. during A.Y 2010-11 and the said expenditure has not been disallowed in the assessment of M/s. Karishma Global Mineral Exports Pvt. Ltd. even though assessment has been completed u/s 143(3). This itself proves tha .....

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l Trading Pvt. Ltd. The Assessee has made similar payments to D.B. Mineral @ ₹ 80/ton but in the case of M/s. Karishma Goa Mineral Trading Pvt. Ltd. it is @ ₹ 95/ton. The Assessee has duly explained that the difference was due to loading and unloading on account of manual and mechanical operation. So far as non- charging of service tax is concerned, we noted that service tax has also not been charged by D.B. Mineral as there is no liability to service tax in respect of this type of s .....

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various impurities which need to be removed before exporting. This process of removing the impurities is known as screening. M/s. Karishma Impex has charged at the same rate to M/s. Karishma Exports towards crushing and screening charges. It is not a case where the AO has applied the provisions of Sec. 40A(2). We, therefore, do not find any illegality or infirmity in the order of CIT(A) deleting the addition of ₹ 2,19,49,850/-. Thus, this ground stands dismissed. 19. Ground no. 8 relates .....

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before the CIT(A), CIT(A) deleted the disallowance by observing as under : 12.4 I have gone through the assessment order and submission of the appellant. The A.O. has confirmed that each payment of transportation charges are recorded as less than ₹ 20,000/- and the appellant has not maintained addresses of these transporters. On the basis of these facts, the A.O. derived a conclusion that the appellant has not been able to prove genuineness of these transactions and disallowed entire amoun .....

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therefore, the same is verifiable. The cash transportation charges have been paid for goods received, which has been part of the stock and subsequently sold. The quantitative details of stock is a sufficient testimony of the fact that material has indeed been received for which transport charges have been paid. In my opinion, the appellant has maintained sufficient records and evidences to prove genuineness of these cash payments and A.Os. conclusion which is based on presumption and surmises c .....

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incurred in cash. It is not a case where the AO has invoked the provisions of Sec. 40A(3) i.e. in no case the expenditure incurred in cash does not exceed ₹ 20,000/-. CIT(A), we noted, has given a clear-cut finding of fact that on every voucher truck number is mentioned and the signature of the driver/cleaner has been obtained and the expenditure is clearly verifiable. Even we noted that the cash expenditure is only to the extent of 3.6% of the total expenses. CIT(A), in our opinion, has g .....

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the payment of the commission alongwith the agreement. Explanation given by the Assessee was not accepted by the AO and therefore commission and brokerage was disallowed. The Assessee went in appeal before the CIT(A). CIT(A) noted that the Assessee has made commission to following parties : i) S.G. Radhakrishnan ₹ 28,56,206/- ii) Arham M&M ₹ 5,25,629/- iii) Mr. Rane ₹ 15,00,000/- iv) Durga Sawkar ₹ 4,40,000/- Total ₹ 53,21,905/- CIT(A) after analyzing each of t .....

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orts Pvt. Ltd. Similarly, Arham Mines and Minerals has also rendered services to M/s. Karishma Impex and M/s. Karishma Goa Mineral Trading Pvt. Ltd. and payment of the commission was allowed as deduction. 22. We noted after hearing the rival submissions and considering the same that the Assessee has paid commission to the following parties : i) S.G. Radhakrishnan ₹ 28,56,206/- ii) Arham M&M ₹ 5,25,629/- iii) Mr. Rane ₹ 15,00,000/- iv) Durga Sawkar ₹ 4,40,000/- Total & .....

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