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Wednesday, June 26, 2013

Improper Affidavit For Condonation Of Delay Is A 'Waste Paper': ITAT Mumbai

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

Kunal Surana vs. ITO (ITAT Mumbai)

Requirements of a valid affidavit in support of delay condonation application set out

 

The assessee filed an appeal before the CIT(A) which was delayed by 4 months. The delay was explained to have been caused by the fact that the assistant of the Authorized Representative kept the papers in a drawer and overlooked them till a penalty notice was received. The CIT(A) declined to condone the delay and dismissed the appeal. The assessee filed an appeal before the Tribunal and also filed an affidavit of the Authorized Representative in support of the application for condonation of delay. HELD by the Tribunal dismissing the application and the appeal:

 

The affidavit produced by the AR is not a valid affidavit because there is no verification appended on it and there is no mention as to which of the paras are true to the knowledge of the deponent and which of the paras of the affidavit are true to his belief. The affidavit is also not a duly sworn affidavit as required under Rule 10 of the ITAT Rules 1963 because it has not been properly endorsed by the notary regarding the oath of affirmation before him by the executant of the affidavit. The notary has put his signatures under his name seal but there is no mention whether the oath was administered to the signatory or if done so, when and where it was administered. Even words "Sworn before me" are missing. If the affidavit does not certify or endorse the fact that oath has been administered, it remains a waste paper. On merits, the case is one of gross negligence and inaction on the part of the assessee and the AR. The explanation that the AR's assistant kept the papers in his drawer and failed to take necessary action is vague and evasive and not sufficient cause for condonation. There is also no general principle saving the party from all mistakes of its counsel. There is also total inaction and gross negligence on the part of the assessee for not inquiring the status of the appeal from the AR. Though courts adopt liberal view while condoning delay on the principle that technicalities should not prevail over the cause of justice, litigants should not take the courts for granted.

 

Contrast with the approach in Bombay Mercantile Coop Bank 332 ITR 87 (Bom) & Ujagar Singh (SC)


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Constitution Of The Bombay High Court's Tax Bench w.e.f. 10.06.2013



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revise the remuneration payable to the statutory central and branch auditors of public sector banks from the year 2012-13

Dear Members,

The RBI vide its letter dated 25th June, 2013 (Ref.DBS.ARS.No.BC. 08/ 08.92.001/ 2012-13) communicated to "The Chairman & Managing Director, all Nationalised Banks and the Managing Director, Associate Banks of SBI"; regarding the revised rate of Remuneration payable to the Statutory Central and Branch Auditors of Public Sector Banks from the year 2012-13.

 

It has been decided to revise the remuneration payable to the statutory central and branch auditors of public sector banks from the year 2012-13 as per said communication.

 

I've got the letter from www.casansaar.com and also confirmed about the news from Central Statutory Auditors of one of Public Sector Bank.

The letter is hosted at following link:

https://docs.google.com/file/d/0B8GyRsbVIg8gMHg4X0NJaGdIMjQ/edit?usp=sharing\

 


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CHARTERED ACCOUNTANTS
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Tuesday, June 25, 2013

How to Face Hawala Purchase Cases?? Purchase from Suspicious Dealers

With the enactment of the Maharashtra Value Added Tax Act, 2002 ("MVAT Act") effective from 1 April 2005, there is now a multi-point levy of sales tax as opposed to the single-point levy of sales tax earlier. Under the new system sales tax or VAT is payable by each seller on the sale price charged by him (sections 3 and 4 of the MVAT Act). The primary liability to pay VAT is therefore that of the seller. However, under section 48 of the MVAT Act, the seller gets set-off of the VAT paid by the dealer from whom he has purchased the goods, upon fulfillment of the conditions laid down in section 48(2) of the MVAT Act. This is with a view to eliminate the cascading effect or double taxation. Effectively, the scheme of the law operates in such a manner that each dealer pays tax on the proportion of his own margin.


1.2    Under section 48(2) of the MVAT Act set-off of the VAT paid on the purchases made is granted to the dealer upon fulfillment of the following conditions: (a) the claimant dealer produces a tax invoice, containing a certificate that the registration certificate of the selling dealer was in force on the date of sale by him and the due tax, if any, payable on the sale has been paid or shall be paid; and (b) such certificate is signed by the selling dealer or a person duly authorized by him. Section 48(5) of the Act lays down, in effect, that the set-off shall not exceed the amount of tax actually paid. The Sales-tax Department has taken the stand that even if the dealer has produced a certificate to the above effect, if the person issuing the certificate has not actually paid the tax due, set-off will be denied to the purchasing dealer. Thus, instead of chasing the person who has not paid the tax due, the Sales-tax Department has chosen the easy route of denying the set-off and recovering the tax from the poor purchasing dealer, though he has fulfilled the conditions of section 48(2) by producing the requisite certificate. ( There is case law on this)


2.1    Several issues arise here in the context of the income-tax assessment:

 

(i)       Can mere appearance of the name of the dealer on the website of the sales tax authorities be sufficient to treat purchases from him as bogus for income-tax purposes?

 

(ii)      Can mere voluntary payment of differential VAT (and interest and penalty, if any, thereon) by the assessee by revising the VAT return and withdrawal/denial of the set-off under section 48 of the MVAT Act ipso facto tantamount to "admission" or "confession" of the purchases as bogus for income-tax purposes?

 

(iii)     Would the position be different if, instead of the assessee voluntarily revising the VAT return, there is an assessment order by the Sales–tax Department denying the set-off and demanding the differential VAT and interest and penalty?

 

(iv)     Can a copy of the statement made by such dealer before the sales tax authorities passed on to the AO be sufficient to hold purchases from such dealer as bogus in the assessee's hands for income-tax purposes?

There are various case laws in favour of assessee to deal with these cases.


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CA.C.V.PAWAR
PATIL DAWARE GIRASE PAWAR & ASSOCIATES
CHARTERED ACCOUNTANTS
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Change In Constitution Of Bombay High Court’s Tax Bench w.e.f. 24.06.2013

Dear Subscriber,

Change In Constitution Of Bombay High Court's Tax Bench w.e.f. 24.06.2013

The Hon'ble Bombay High Court has announced that there will be a change in the Constitution of the Tax Bench w.e.f. 24.06.2013


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S. 56(2)(vii)(b): Controversies Arising After Amendment By Finance Act 2013


Modifications In Transfer And Posting Orders By CBDT

Dear Subscriber,

Modifications In Transfer And Posting Orders By CBDT

The CBDT has carried out a series of modifications to the earlier transfer and posting orders.

 

Vide Order No. 109 of 2013 dated 20.06.2013, Order dated 106/ 2013 dated 14.06.2013 (CsIT, DsIT) has been modified.

 

Vide Order No. 112 of 2013 dated 21.06.2013, Order No. 87/2013 (Addl/ Joint CsIT) has been modified.

 

Vide Order No. 113 of 2013 dated 21.06.2013, Order No. 113/2013 dated 21.06.2013 (Dy CsIT/ACsIT) has been modified.

 

Vide Order No. 114 of 2013 dated 21.06.2013, Order Nos 71/2013, 83/2013, 86/2013 and 94/2013 (Dy CsIT/ACsIT) have been modified.


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Transfers And Postings Of Joint/ Additional CITs (Mumbai)


Section 14A/ Rule 8D: ITAT Lays Down Important Law On Applicability/ Computation

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

REI Agro Ltd vs. DCIT (ITAT Kolkata)

No s. 14A disallowance if satisfaction not recorded with reference to A/cs. Under Rule 8D(2)(ii) loans for specific business purposes cannot be included. Under Rule 8D(2)(ii) & (iii) investments which have not yielded income cannot be included

 

In AY 2008-09, the assessee invested Rs.103 crores in shares on which it earned tax-free dividends of Rs. 1.3 lakhs. The assessee claimed that though its borrowings had increased by Rs. 122 crores, the said investments were funded out of own funds like capital and profits. It claimed that no expenditure had been incurred to earn the dividends and no disallowance u/s 14A could be made. The AO applied Rule 8D and computed the disallowance at Rs. 4 crore. On appeal by the assessee, the CIT(A) reduced the disallowance to Rs. 26 lakh. On cross appeals, HELD by the Tribunal:

 

(i) When the AO does not accept the assessee's claim regarding the non-applicability/ quantum of disallowance u/s 14A, he has to record satisfaction on that issue. This satisfaction cannot be a plain satisfaction or a simple note. It has is to be done with regard to the accounts of the assessee. On facts, as there is no satisfaction by the AO, no disallowance u/s 14A can be made (Balarampur Chini Mills 140 TTJ (Kol) 73 (included in file) followed);

 

(ii) Rule 8D(2)(ii) is a computation provision in respect of expenditure incurred by way of interest which is not directly attributable to any particular income or receipt. This clearly means that interest expenditure which is directly relatable to any particular income or receipt is not to be considered under rule 8D(2)(ii). The AO has to show that the interest is not directly attributable to any particular income or receipt. In the assessee's case, the interest has been paid on loans taken from banks for business purpose. There is no allegation that the loan funds have been diverted for making investment in shares or for non-business purposes. The loans are for specific business purposes and no bank would permit the loan given for one purpose to be used for making any investment in shares. Also, the assessee has substantial capital & reserves. Accordingly, the interest on the loans cannot be included in Rule 8D(2)(ii);

 

(iii) Further, in Rule 8D(2)(ii), the words used in numerator B are "the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year". The AO was wrong in taking taken into consideration the investment of Rs.103 crores made during the year which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. The term "average of the value of investment" is used to take care of cases where there is the issue of dividend striping;

 

(iv) Under Rule 8D(2)(iii), what is disallowable is an amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). This has to be calculated on the same lines as mentioned earlier in respect of Numerator B in rule 8D(2)(ii). Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income.


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Modifications In Transfer And Posting Orders By CBDT


ITR (TRIB) VOL 24 PART 4


 

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

 

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Exemption --Export oriented undertaking--Computation of exemption--Expenses reduced from export turnover should also be reduced from total turnover--Income-tax Act, 1961, s. 10A-- 3i Infotech Ltd. v. ITO (Chennai) . . . 1

International transactions --Arm̢۪s length price--Determination--Profit or loss in respect of domestic transactions--To be excluded--No legal requirement that segment-wise working should be audited by chartered accountant before submission to Transfer Pricing Officer--No specific defect in working of assessee pointed out--Profit level indicator of assessee not to be rejected--Profit level declared by assessee in respect of associated enterprise transactions more than profit level of comparable cases found by Transfer Pricing Officer--No adjustment warranted--Income-tax Act, 1961, s. 92C-- 3i Infotech Ltd. v. ITO (Chennai) . . . 1

 

PRINT EDITION

Volume 24 : Part 4 (Issue dated : 24-6-2013)

SUBJECT INDEX TO CASES REPORTED

Advance tax --Interest--Assessee, a non-resident--Duty cast on payer to deduct tax at source--Failure of payer to do so--No interest chargeable from assessee under section 234B--Income-tax Act, 1961, s. 234B-- Lloyds Register v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 579

Appellate Tribunal --Judicial propriety--Must adhere to decision of Tribunal in assessee̢۪s own case--That appeal against order of Tribunal was pending in High Court--Not ground to disregard order-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

Business expenditure --Accrued or contingent liability--Provision for service warranty--Allowable-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

----Corporate agent of life insurance company--Expenditure on certified data purchase, salary and referral fees--Data purchased from sister concern--Assessee maintaining complete details of data purchased--Return of income filed by sister concern showing receipt from assessee--No doubt as to business activities of that concern--No specific defect in any data purchased shown--Disallowance unjustified--Copies of Form 16 filed to show genuine payments of salary to staff--Complete details of salary payments maintained--No disallowance out of salary expenses in preceding and subsequent years--Expenditure reasonable looking to percentage and volume of business receipts--No inflation of expenses--No adverse material brought against assessee--No justification for disallowance of 30 per cent. of salary expenses--Evidence for referral fees filed in form of vouchers, Form 16A and permanent account numbers--Some persons appearing and confirming receipt--No disallowance on account of referral fees for preceding assessment year--Present year expenditure at lower percentage than for other years--No inflation of expenses--No specific defect in books of account pointed out--Assessing Officer accepting expenses substantially incurred for business--Disallowance of 30 per cent. not justified--Disallowance under referral fees alone at 5 per cent. of total expenses--Income-tax Act, 1961, s. 37-- Recent Insurance Services Ltd. v. Deputy CIT (Agra) . . . 551

----Disallowance--Contribution by State Warehousing Corporation to Karmachari Welfare Fund--Payment falling within expression â€Å“required by or under any other law†--Not to be disallowed--Income-tax Act, 1961, s. 40A(9)-- Maharashtra State Warehousing Corporation v. Deputy CIT (Pune) . . . 595

----Lease rent--Dredgers--Monthly payments not hire charges but sale instalments--Not allowable as deduction--Non-residents hiring dredgers in India not entitled to contend they had no business connection in India--Payments in any case to be disallowed under section 40(a)(i) for failure to deduct tax at source--Order of Commissioner (Appeals) set aside--Income-tax Act, 1961, s. 40(a)(i)-- Dharti Dredgers and Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 538

Capital gains --Exemption--Sale of agricultural land and investment in purchase another agricultural land--Assessee unable to use land for agricultural purposes due to vagaries of nature and non-availability of resources--Exemption cannot be denied--Income-tax Act, 1961, s. 54B-- Assistant CIT v. N. Raghu Varma (Hyderabad) . . . 616

Capital or revenue receipt --Sales tax exemption--Assessee collecting sales tax as part of dealers̢۪ price--At year end bifurcating sales tax portion--Exemption notification issued by State Government not authorising assessee to collect sales tax and retain it--Collection of sales tax as part of dealers̢۪ price constituted trading receipt-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

Charitable purposes --Registration of trust--Assessee-trust established by State under Urban Development Act for developing urban areas in State--Object of general public utility--Entitled to registration under section 12A--Income-tax Act, 1961, s. 12A-- Urban Improvement Trust v. CIT (Jodhpur) . . . 622

----Registration--Denial of registration on ground that object not to benefit public at large--Finding that objects clause was amended--Order of Commissioner based on pre-amended clause--Application to be reconsidered in light of amended clause--Matter remanded--Income-tax Act, 1961, s. 12A-- Vyapari Vyavasayi Ekopana Samithi Welfare Society v. CIT (Cochin) . . . 528

Deduction of tax at source --Payment made by assessee to bus owners for hire of vehicles to provide pick-up and drop facility to school students--Not a case of hire of machinery but of service rendered by bus owners to assessee--Tax to be deducted under section 194C--Income-tax Act, 1961, ss. 194C, 194-I-- Assistant CIT (TDS) v. Delhi Public School (Delhi) . . . 531

Depreciation --Condition precedent--Assets must be owned wholly or partly by assessee--Assessee not owner of dredgers either wholly or partly--Not entitled to depreciation--Income-tax Act, 1961, s. 32-- Dharti Dredgers and Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 538

Export --Special deduction--Computation--Assessee maintaining separate sets of books of account for each division--Profits of divisions clubbed while calculating deduction--Not proper--Income-tax Act, 1961, s. 80HHC-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

International transactions --Arm̢۪s length price--Indian subsidiary and Korean parent company sharing contribution for sponsorship of cricket world cup tournament in ratio of 40 : 60--Benefits of advertisement would accrue only to entities in cricket-playing nations--Considering sales of entire group not appropriate basis to apportion benefits--Agreement leading to significant cost saving for assessee--Assessee̢۪s sales increasing by 35.04 per cent. during year--Assessee deriving commensurate benefit and contribution not excessive--Apportionment of contribution in respective gross profit ratio of assessee and Korean holding company not correct--Income-tax Act, 1961, ss. 92(1), 92CA(1)-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

----Transfer pricing--Computation of arm̢۪s length price--Royalty--Transactional net margin method--Assessee to adopt arm̢۪s length price within variation of 5 per cent. from price determined by Transfer Pricing Officer--Declaration of net profit margin within permissible variation--Assessee justified to claim under section 92C(2)--Income-tax Act, 1961, s. 92C(2)-- Assistant CIT v. Reebok India Co. (Delhi) . . . 599

Medical institution --Exemption--Society formed by State Government to implement public health programmes--Wholly or substantially funded by Government of India or State Government--Exemption automatic under section 10(23C)(iiiac)--Income-tax Act, 1961, s. 10(23C)(iiiac)-- The District Health and Family Welfare Society v. Deputy CIT (Bangalore) . . . 604

Non-resident --Permanent establishment in India--Head office expenditure--Work undertaken by permanent establishment not completed without direct and substantial involvement of head office--No co-relation between actual expenditure incurred by head office and that recovered from branches--Profit element in recovery from branches--Work done by head office separate and distinct from that done by Indian branch--Head office did not merely recover costs incurred from Indian branch--Sum neither allowable as deduction in hands of Indian branch nor be considered as income in hands of head office--No question of application of section 40(a)(i) to such expenditure--Assessee as non-resident entitled to benefits of Double Taxation Avoidance Agreement--Matter remanded to compare liability to tax in respect of income of permanent establishment under domestic law and Double Taxation Avoidance Agreement--Liability to be on lower of two computations--Income not chargeable to tax in hands of head office under domestic law--No question of examining taxability of amount under Double Taxation Avoidance Agreement--Income-tax Act, 1961, ss. 40(a)(i), 90(2)-- Lloyds Register v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 579

Penalty --Furnishing inaccurate particulars of income--Disallowance of miscellaneous expenses--Assessee failing to produce relevant documents sought by Assessing Officer since records lost or misplaced during shifting of its office--No bogus expenses relating to its business--Penalty not justified--Income-tax Act, 1961, s. 271(1)(c)-- Dresser-rand India P. Ltd. v. Deputy CIT (Mumbai) . . . 610

----Furnishing inaccurate particulars of income--Expenses incurred towards plant and machinery and repairs to building--Disallowance of expenses and imposition of penalty treating expenses as capital in nature--Allowing depreciation on expenses showed that genuineness not disputed and expenses related to business--Penalty not justified--Income-tax Act, 1961, s. 271(1)(c)-- Dresser-rand India P. Ltd. v. Deputy CIT (Mumbai) . . . 610

Precedent --Conflict of decisions--View in favour of assessee to be adopted-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

SECTIONWISE INDEX TO CASES REPORTED

Income-tax Act, 1961 :

S. 10(23C)(iiiac) --Medical institution--Exemption--Society formed by State Government to implement public health programmes--Wholly or substantially funded by Government of India or State Government--Exemption automatic under section 10(23C)(iiiac)-- The District Health and Family Welfare Society v. Deputy CIT (Bangalore) . . . 604

S. 12A --Charitable purposes--Registration of trust--Assessee-trust established by State under Urban Development Act for developing urban areas in State--Object of general public utility--Entitled to registration under section 12A-- Urban Improvement Trust v. CIT (Jodhpur) . . . 622

----Charitable purposes--Registration--Denial of registration on ground that object not to benefit public at large--Finding that objects clause was amended--Order of Commissioner based on pre-amended clause--Application to be reconsidered in light of amended clause--Matter remanded-- Vyapari Vyavasayi Ekopana Samithi Welfare Society v. CIT (Cochin) . . . 528

S. 32 --Depreciation--Condition precedent--Assets must be owned wholly or partly by assessee--Assessee not owner of dredgers either wholly or partly--Not entitled to depreciation-- Dharti Dredgers and Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 538

S. 37 --Business expenditure--Corporate agent of life insurance company--Expenditure on certified data purchase, salary and referral fees--Data purchased from sister concern--Assessee maintaining complete details of data purchased--Return of income filed by sister concern showing receipt from assessee--No doubt as to business activities of that concern--No specific defect in any data purchased shown--Disallowance unjustified--Copies of Form 16 filed to show genuine payments of salary to staff--Complete details of salary payments maintained--No disallowance out of salary expenses in preceding and subsequent years--Expenditure reasonable looking to percentage and volume of business receipts--No inflation of expenses--No adverse material brought against assessee--No justification for disallowance of 30 per cent. of salary expenses--Evidence for referral fees filed in form of vouchers, Form 16A and permanent account numbers--Some persons appearing and confirming receipt--No disallowance on account of referral fees for preceding assessment year--Present year expenditure at lower percentage than for other years--No inflation of expenses--No specific defect in books of account pointed out--Assessing Officer accepting expenses substantially incurred for business--Disallowance of 30 per cent. not justified--Disallowance under referral fees alone at 5 per cent. of total expenses-- Recent Insurance Services Ltd. v. Deputy CIT (Agra) . . . 551

S. 40(a)(i) --Business expenditure--Lease rent--Dredgers--Monthly payments not hire charges but sale instalments--Not allowable as deduction--Non-residents hiring dredgers in India not entitled to contend they had no business connection in India--Payments in any case to be disallowed under section 40(a)(i) for failure to deduct tax at source--Order of Commissioner (Appeals) set aside-- Dharti Dredgers and Infrastructure Ltd. v. Assistant CIT (Hyderabad) . . . 538

----Non-resident--Permanent establishment in India--Head office expenditure--Work undertaken by permanent establishment not completed without direct and substantial involvement of head office--No co-relation between actual expenditure incurred by head office and that recovered from branches--Profit element in recovery from branches--Work done by head office separate and distinct from that done by Indian branch--Head office did not merely recover costs incurred from Indian branch--Sum neither allowable as deduction in hands of Indian branch nor be considered as income in hands of head office--No question of application of section 40(a)(i) to such expenditure--Assessee as non-resident entitled to benefits of Double Taxation Avoidance Agreement--Matter remanded to compare liability to tax in respect of income of permanent establishment under domestic law and Double Taxation Avoidance Agreement--Liability to be on lower of two computations--Income not chargeable to tax in hands of head office under domestic law--No question of examining taxability of amount under Double Taxation Avoidance Agreement-- Lloyds Register v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 579

S. 40A(9) --Business expenditure--Disallowance--Contribution by State Warehousing Corporation to Karmachari Welfare Fund--Payment falling within expression â€Å“required by or under any other law†--Not to be disallowed-- Maharashtra State Warehousing Corporation v. Deputy CIT (Pune) . . . 595

S. 54B --Capital gains--Exemption--Sale of agricultural land and investment in purchase another agricultural land--Assessee unable to use land for agricultural purposes due to vagaries of nature and non-availability of resources--Exemption cannot be denied-- Assistant CIT v. N. Raghu Varma (Hyderabad) . . . 616

S. 80HHC --Export--Special deduction--Computation--Assessee maintaining separate sets of books of account for each division--Profits of divisions clubbed while calculating deduction--Not proper-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

S. 90(2) --Non-resident--Permanent establishment in India--Head office expenditure--Work undertaken by permanent establishment not completed without direct and substantial involvement of head office--No co-relation between actual expenditure incurred by head office and that recovered from branches--Profit element in recovery from branches--Work done by head office separate and distinct from that done by Indian branch--Head office did not merely recover costs incurred from Indian branch--Sum neither allowable as deduction in hands of Indian branch nor be considered as income in hands of head office--No question of application of section 40(a)(i) to such expenditure--Assessee as non-resident entitled to benefits of Double Taxation Avoidance Agreement--Matter remanded to compare liability to tax in respect of income of permanent establishment under domestic law and Double Taxation Avoidance Agreement--Liability to be on lower of two computations--Income not chargeable to tax in hands of head office under domestic law--No question of examining taxability of amount under Double Taxation Avoidance Agreement-- Lloyds Register v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 579

S. 92(1) --International transactions--Arm̢۪s length price--Indian subsidiary and Korean parent company sharing contribution for sponsorship of cricket world cup tournament in ratio of 40 : 60--Benefits of advertisement would accrue only to entities in cricket-playing nations--Considering sales of entire group not appropriate basis to apportion benefits--Agreement leading to significant cost saving for assessee--Assessee̢۪s sales increasing by 35.04 per cent. during year--Assessee deriving commensurate benefit and contribution not excessive--Apportionment of contribution in respective gross profit ratio of assessee and Korean holding company not correct-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

S. 92C(2) --International transactions--Transfer pricing--Computation of arm̢۪s length price--Royalty--Transactional net margin method--Assessee to adopt arm̢۪s length price within variation of 5 per cent. from price determined by Transfer Pricing Officer --Declaration of net profit margin within permissible variation--Assessee justified to claim under section 92C(2)-- Assistant CIT v. Reebok India Co. (Delhi) . . . 599

S. 92CA(1) --International transactions--Arm̢۪s length price--Indian subsidiary and Korean parent company sharing contribution for sponsorship of cricket world cup tournament in ratio of 40 : 60--Benefits of advertisement would accrue only to entities in cricket-playing nations--Considering sales of entire group not appropriate basis to apportion benefits--Agreement leading to significant cost saving for assessee--Assessee̢۪s sales increasing by 35.04 per cent. during year--Assessee deriving commensurate benefit and contribution not excessive--Apportionment of contribution in respective gross profit ratio of assessee and Korean holding company not correct-- Assistant CIT v. LG Electronics India P. Ltd. (Delhi) . . . 634

S. 194C --Deduction of tax at source--Payment made by assessee to bus owners for hire of vehicles to provide pick-up and drop facility to school students--Not a case of hire of machinery but of service rendered by bus owners to assessee--Tax to be deducted under section 194C-- Assistant CIT (TDS) v. Delhi Public School (Delhi) . . . 531

S. 194-I --Deduction of tax at source--Payment made by assessee to bus owners for hire of vehicles to provide pick-up and drop facility to school students--Not a case of hire of machinery but of service rendered by bus owners to assessee--Tax to be deducted under section 194C-- Assistant CIT (TDS) v. Delhi Public School (Delhi) . . . 531

S. 234B --Advance tax--Interest--Assessee, a non-resident--Duty cast on payer to deduct tax at source--Failure of payer to do so--No interest chargeable from assessee under section 234B-- Lloyds Register v. Deputy Director of Income-tax (International Taxation) (Mumbai) . . . 579

S. 271(1)(c) --Penalty--Furnishing inaccurate particulars of income--Disallowance of miscellaneous expenses--Assessee failing to produce relevant documents sought by Assessing Officer since records lost or misplaced during shifting of its office--No bogus expenses relating to its business--Penalty not justified-- Dresser-rand India P. Ltd. v. Deputy CIT (Mumbai) . . . 610

----Penalty--Furnishing inaccurate particulars of income--Expenses incurred towards plant and machinery and repairs to building--Disallowance of expenses and imposition of penalty treating expenses as capital in nature--Allowing depreciation on expenses showed that genuineness not disputed and expenses related to business--Penalty not justified-- Dresser-rand India P. Ltd. v. Deputy CIT (Mumbai) . . . 610

 


Friday, June 21, 2013

VOL 354 PART 5


 

INCOME TAX REPORTS (ITR)--PRINT AND ONLINE EDITION

  (Issue dated 24-6-2013)

Subject index  

High Courts

Amalgamation of companies --Date of amalgamation--Amalgamation sanctioned by court--Date mentioned in scheme would be date of amalgamation--Income-tax Act, 1961-- Torrent P. Ltd . v . CIT (Guj) . . . 34

----Effect--Dividend distributed by amalgamating company to amalgamated company after date of amalgamation--Company cannot pay dividend to itself--Deposit of dividend distribution tax--Amount to be refunded--Income-tax Act, 1961, s. 115-O-- Torrent P. Ltd. v. CIT (Guj) . . . 34

Appeal to High Court --Competency of appeal--Monetary limits--Instruction No. 2 of 2005, dated 24-10-2005 providing limit of net tax effect Rs. 4 lakhs for appeals by Department--Appeal filed by Revenue dismissed on ground net tax effect less than monetary limit prescribed under Instruction--Instruction No. 2 of 2005, dated 24-10-2005--Income-tax Act, 1961, s. 260A-- CIT v. Parimala Enterprises (Karn) . . . 57

Assessment --Scrutiny assessment--Appellate order--Must be given complete effect--Assessee filing return and declaring certain income--Appellate order deleting several disallowances--Assessment at a figure lower than returned income--No need to restrict to returned income--Income-tax Act, 1961-- CIT v . Milton Laminates Ltd .
(Guj) . . . 58

Business expenditure --Disallowance--Payments on which tax deductible at source--Language of provision clear--Even genuine and admissible expenses to be disallowed in case of omission to deduct tax at source--Provision meant to secure compliance--That it is harsh not ground to restrict scope of disallowance--Disallowance cannot be restricted to money which is yet to be paid--That Legislature used â€Å“credited or paid†in Bill and â€Å“payable†in provision as finally enacted of no relevance--Income-tax Act, 1961, s. 40(a)(ia)-- CIT v . Crescent Export Syndicate (Cal) . . . 1

Capital gains --Long-term or short-term capital gains--Scope of section 50--Transfer of land and building thereon--No depreciation allowed on land--Section 50 not applicable--Gains were long-term capital gains--Investment in specified securities--Assessee entitled to exemption--Income-tax Act, 1961, ss. 2(11), 32(1), 50(2), 54EC-- CIT v. I. K. International P. Ltd . (Delhi) . . . 64

Capital or revenue receipt --Non-compete fee--Insertion of section 28(va) with effect from 1-4-2003--Receipt of non-compete fee prior to 1-4-2003 not taxable--Income-tax Act, 1961, s. 28(va)-- CIT v. Bilagu Chandrashekar (Karn) . . . 54

Company --Dividend--Deemed dividend--Loan received by assessee-company from another company--Assessee not shareholder of company which gave loan--Shareholders common in both companies--Loan cannot be treated as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- CIT v . AR Magnetics Pvt. Ltd. (Delhi) . . . 52

----Dividend--Dividends of private companies--Scope of section 115-O-- Torrent P. Ltd. v. CIT (Guj) . . . 34

Deemed dividend --Deposit received from company in which assessee not a shareholder--Cannot be treated as deemed dividend--Income-tax Act, 1961, s. 2(22)(e)-- CIT v . Daisy Packers Pvt. Ltd . (Guj) . . . 80

Interpretation of taxing statutes --Appellate Tribunal--Cannot supply casus omissus-- CIT v . Crescent Export Syndicate (Cal) . . . 1

----Comparison between draft law and law as enacted not permissible to regulate meaning-- CIT v . Crescent Export Syndicate (Cal) . . . 1

Penalty --Concealment of income--Survey detecting suppression of sales based on search conducted by excise authorities--Central Excise Settlement Commission waiving penalty--Return filed before issue of notice and tax due with interest paid--No concealment of income--Imposition of penalty not justified--Income-tax Act, 1961, s. 271(1)(c)-- CIT v. Vega Auto Accessories Pvt. Ltd. (Karn) . . . 48

Reassessment --Income escaping assessment--Commission paid to directors allowed as business expenditure in original assessment--Order of Tribunal for later year that commission was in lieu of dividend and not allowable--Notice on basis of order--Not a mere change of opinion--Notice valid--Reasons for reopening recorded and notice issued by same Assessing Officer--Notice fixing hearing issued by succeeding Assessing Officer--Not to vitiate proceedings--Income-tax Act, 1961, s. 36(1)(ii), 37, 129, 147, 148-- Dalal and Broacha Stock Broking Pvt. Ltd . v. Asst. CIT
(Bom) . . . 25

Refund --Effect of section 237--Income-tax Act, 1961, s. 237-- Torrent P. Ltd . v. CIT (Guj) . . . 34

Revision --Powers of Commissioners--Commissioner cannot reject application under section 264 and decide the case on merits thereafter--Income-tax Act, 1961, ss. 263, 264-- Torrent P. Ltd. v. CIT (Guj) . . . 34

Search and seizure --Block assessment--Search in premises of firm and partners--Documents discovered disclosing agreement to sell firm--Capital gains not disclosed includible in block assessment--Income-tax Act, 1961, s. 158BC-- CIT v . Kamadhenu Milk Products (Ker) . . . 73

----Block assessment--Surcharge can be levied--Income-tax Act, 1961-- CIT v . Kamadhenu Milk Products (Ker) . . . 73

Volume 354 Part 5 (Issue dated 24-6-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

HIGH COURTS

Assessment --Enquiry--Notice--Co-operative societies--Person--Definition--Includes co-operative society--Notice under section 142(1) to co-operative societies within jurisdiction--Difference between notices issued under sections 133(6) and 142(1)--Income-tax Act, 1961, ss. 2(31), 133(6), 142(1)-- Mangalam Service Co-operative Bank Ltd . v . ITO
(Ker) . . . 601

Business expenditure --Commission--No evidence of services by some of agents--Disallowance of part of commission--Justified--Income-tax Act, 1961-- CIT v . Suzlon Energy Ltd . (Guj) . . . 630

----Del credere selling agent--Brokerage--No necessity to engage service of sub-brokers--No money paid to sub-brokers for years together--No discharge of onus by assessee--Disallowance of brokerage justified--Income-tax Act, 1961, s. 37-- Gyan Chand Jain (Decd.) v . CIT (Raj) . . . 662

Capital gains or business income --Non-compete fee--Insertion of section 28(va) with effect from 1-4-2003--Receipt of non-compete fee prior to 1-4-2003 not taxable--No transfer of any capital asset--No transfer of any right to produce or manufacture any article--Receipt of consideration is for covenant not to compete--Section 55(2) not applicable--Income-tax Act, 1961, ss. 28(va), 55(2)-- CIT v . Sunil Kini K . (Karn) . . . 623

Exemption --Educational institution--Conditions precedent--Educational institution formed by assessee society after rejection of its application by CBSE--Assessee taking premises belonging to institution with infrastructure on lease to run school and paying rent to institution--No prohibition that institution should not receive royalty from assessee--Royalty is necessary to secure use of trade name and infrastructure--No diversion of funds--Assessee entitled to exemption--Income-tax Act, 1961, ss. 11, 13-- Chirec Education Society v . Asst. DIT (AP) . . . 605

Income --Business income--Remission or cessation of liabilities--Finding that there was no cessation of liabilities--Section 41 not applicable--Income-tax Act, 1961, s. 41(1)-- CIT v . Ravjibhai Becharbhai Dhameliya (Guj) . . . 533

----Computation--Disallowance of expenditure relating to non-taxable income--Interest expenses and administrative expenses on investments in subsidiaries--Finding that in respect of part of investment dividends were taxable and in respect of balance assessee had sufficient interest-free funds of its own--No disallowance could be made under section 14A--Income-tax Act, 1961, s. 14A-- CIT v . Suzlon Energy Ltd.
(Guj) . . . 630

Industrial undertaking --Special deduction--Computation of profits for purposes of deduction--Interest on late recovery of sale proceeds--Not deductible from profits--Income-tax Act, 1961, s. 80-IB-- CIT v . Suzlon Energy Ltd . (Guj) . . . 630

----Special deduction--Infrastructure facility--Disqualification where mere works contract undertaken--Authority entering into contract with assessee for repairs and maintenance to infrastructure by construction of permanent bank protection measures to water canals for a period of three years--Assessee to provide bank guarantee for mobilisation advance--Not a case of investment of money by assessee in development of infrastructure or operating and maintaining an infrastructure--Works contract--Assessee not entitled to deduction--Income-tax Act, 1961, s. 80-IA-- Yojaka Marine Pvt. Ltd . v . Asst. CIT (Karn) . . . 530

International transactions --Transfer pricing--Arm̢۪s length price--Allocation of overhead expenses between two segments--No dispute that expenses incurred--No dispute that bifurcation of indirect expenses on basis of revenue appropriate allocation key--Tribunal finding expenses no relation with transfer pricing and not considering while computing arm̢۪s length price--Finding of fact--Income-tax Act, 1961-- Marubeni India Pvt. Ltd. v . DIT (Delhi) . . . 638

----Transfer pricing--Arm̢۪s length price--Amendment to section 92C by insertion of sub-section (2A) with retrospective effect from 1-4-2002--Tribunal finding benefit of 5 per cent. range not available to assessee--Finding of fact--Income-tax Act, 1961 s. 92C(2A)-- Marubeni India Pvt. Ltd . v. DIT (Delhi) . . . 638

----Transfer pricing--Arm̢۪s length price--Closure of business--Compensation received on account of closure of Indian units--No impact on transfer pricing or in fixing of arm̢۪s length price--Income-tax Act, 1961-- Marubeni India Pvt. Ltd. v. DIT
(Delhi) . . . 638

----Transfer pricing--Arm̢۪s length price--Interest earned on deposits made out of surplus funds whether includible in operating income--Nature of business of assessee to be considered--Memorandum of association allowing assessee to earn interest by making investment--No relevance for purposes of transfer pricing regulations--Tribunal finding interest cannot be considered to be its operating income--Finding of fact--Income-tax Act, 1961, s. 92CA(3)-- Marubeni India Pvt. Ltd . v . DIT
(Delhi) . . . 638

----Transfer pricing--Arm̢۪s length price--More than one price determined by most appropriate method--Arm̢۪s length price to be arithmetical mean of such prices--Income-tax Act, 1961, ss. 92, 92C(2)-- CIT v . Mentor Graphics (Noida) Pvt. Ltd.
(Delhi) . . . 586

Interpretation of taxing statutes --Construction that would render a part of statute devoid of any meaning should be avoided-- Chirec Education Society v. Asst. DIT
(AP) . . . 605

Reassessment --Notice--Cellular telecommunication services--Mercantile system of accounting--Pre-paid services--Revenue recognised only when customer actually used network and services actually rendered--Income received in respect of which services not rendered treated as advance in original assessment--Reassessment on ground payments towards recharges not advance but accrued income--Reassessment not valid--Income-tax Act, 1961, ss. 147, 148-- Vodafone West Ltd . v. Asst. CIT (No. 3 )
(Guj) . . . 572

----Notice--†Reason to believe†--Cannot have two meanings one applicable where assessment earlier made under section 143(3) and another applicable where intimation earlier issued under section 143(1)--Assessing Officer believing escapement of income on going through return filed by assessee after accepting return under section 143(1) without scrutiny--Review of earlier proceedings--Reassessment not valid--Income-tax Act, 1961, ss. 147, 148-- CIT v . Orient Craft Ltd. (Delhi) . . . 536

----Notice--Reopening to disallow loss on account of foreign exchange fluctuation and expenses on account of data usage charges but no addition on both items--No reasons recorded that arm̢۪s length price determined by assessee not correct--No addition could be made in reassessment--Income-tax Act, 1961, ss. 92CA, 147, 148-- CIT v. Cheil Communications India Pvt. Ltd. (Delhi) . . . 549

----Notice after four years--Conditions precedent--Commission paid to dealers on pre-paid sim cards and recharge vouchers without deducting tax at source--No dispute that tax was deducted at source and duly deposited with Government--Roaming charges paid to telecom service providers--Full details of such payments readily available with Assessing Officer--Amendment to section 115JB with retrospective effect, book profit to be reworked--Not a ground for reassessment after four years--Notice not valid--Income-tax Act, 1961, ss. 147, 148-- Vodafone West Ltd. v . Asst. CIT (No. 2 )
(Guj) . . . 562

----Notice after four years--Objections of assessee considered on merits--Assessee claiming deduction under section 10B in assessment year 2005-06--Admitting in 2008-09 that amount not yet realised in convertible foreign exchange--Non-disclosure of facts on part of assessee--Reassessment on ground assessee violating conditions of section 10B--Reassessment valid--Income-tax Act, 1961, ss. 10B, 147, 148-- Suntec Business Solutions P. Ltd . v. Union of India (Ker) . . . 657

Revision --Assessing Officer--Order passed to give effect to direction by Commissioner--Scope of section 263--Assessee maintaining two sets of accounts one for mentha business and another for cattle feed and green vegetable business--Accounts relating to mentha business audited--Revision confined to cattle feed and green vegetable business--Mentha business not subject matter of revision--Revision not an open remand order--Assessing Officer not justified in issuing questionnaires with view to passing fresh assessment order for mentha business--Income-tax Act, 1961, s. 263-- Smt. Shobha Govil v . Addl. CIT (All) . . . 668

 

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(31) --Assessment--Enquiry--Notice--Co-operative societies--Person--Definition--Includes co-operative society--Notice under section 142(1) to co-operative societies within jurisdiction--Difference between notices issued under sections 133(6) and 142(1)-- Mangalam Service Co-operative Bank Ltd . v . ITO (Ker) . . . 601

S. 10B --Reassessment--Notice after four years--Objections of assessee considered on merits--Assessee claiming deduction under section 10B in assessment year 2005-06--Admitting in 2008-09 that amount not yet realised in convertible foreign exchange--Non-disclosure of facts on part of assessee--Reassessment on ground assessee violating conditions of section 10B--Reassessment valid-- Suntec Business Solutions P. Ltd . v. Union of India (Ker) . . . 657

S. 11 --Exemption--Educational institution--Conditions precedent--Educational institution formed by assessee society after rejection of its application by CBSE--Assessee taking premises belonging to institution with infrastructure on lease to run school and paying rent to institution--No prohibition that institution should not receive royalty from assessee--Royalty is necessary to secure use of trade name and infrastructure--No diversion of funds--Assessee entitled to exemption-- Chirec Education Society v . Asst. DIT (AP) . . . 605

S. 13 --Exemption--Educational institution--Conditions precedent--Educational institution formed by assessee society after rejection of its application by CBSE--Assessee taking premises belonging to institution with infrastructure on lease to run school and paying rent to institution--No prohibition that institution should not receive royalty from assessee--Royalty is necessary to secure use of trade name and infrastructure--No diversion of funds--Assessee entitled to exemption-- Chirec Education Society v . Asst. DIT (AP) . . . 605

S. 14A --Income--Computation--Disallowance of expenditure relating to non-taxable income--Interest expenses and administrative expenses on investments in subsidiaries--Finding that in respect of part of investment dividends were taxable and in respect of balance assessee had sufficient interest-free funds of its own--No disallowance could be made under section 14A-- CIT v . Suzlon Energy Ltd. (Guj) . . . 630

S. 28(va) --Capital gains or business income--Non-compete fee--Insertion of section 28(va) with effect from 1-4-2003--Receipt of non-compete fee prior to 1-4-2003 not taxable--No transfer of any capital asset--No transfer of any right to produce or manufacture any article--Receipt of consideration is for covenant not to compete--Section 55(2) not applicable-- CIT v . Sunil Kini K . (Karn) . . . 623

S. 37 --Business expenditure--Del credere selling agent--Brokerage--No necessity to engage service of sub-brokers--No money paid to sub-brokers for years together--No discharge of onus by assessee--Disallowance of brokerage justified-- Gyan Chand Jain (Decd.) v . CIT (Raj) . . . 662

S. 41(1) --Income--Business income--Remission or cessation of liabilities--Finding that there was no cessation of liabilities--Section 41 not applicable-- CIT v . Ravjibhai Becharbhai Dhameliya (Guj) . . . 533

S. 55(2) --Capital gains or business income--Non-compete fee--Insertion of section 28(va) with effect from 1-4-2003--Receipt of non-compete fee prior to 1-4-2003 not taxable--No transfer of any capital asset--No transfer of any right to produce or manufacture any article--Receipt of consideration is for covenant not to compete--Section 55(2) not applicable-- CIT v . Sunil Kini K . (Karn) . . . 623

S. 80-IA --Industrial undertaking--Special deduction--Infrastructure facility--Disqualification where mere works contract undertaken--Authority entering into contract with assessee for repairs and maintenance to infrastructure by construction of permanent bank protection measures to water canals for a period of three years--Assessee to provide bank guarantee for mobilisation advance--Not a case of investment of money by assessee in development of infrastructure or operating and maintaining an infrastructure--Works contract--Assessee not entitled to deduction-- Yojaka Marine Pvt. Ltd . v . Asst. CIT (Karn) . . . 530

S. 80-IB --Industrial undertaking--Special deduction--Computation of profits for purposes of deduction--Interest on late recovery of sale proceeds--Not deductible from profits-- CIT v . Suzlon Energy Ltd . (Guj) . . . 630

S. 92 --International transactions--Transfer pricing--Arm̢۪s length price--More than one price determined by most appropriate method--Arm̢۪s length price to be arithmetical mean of such prices-- CIT v . Mentor Graphics (Noida) Pvt. Ltd. (Delhi) . . . 586

S. 92C(2) --International transactions--Transfer pricing--Arm̢۪s length price--More than one price determined by most appropriate method--Arm̢۪s length price to be arithmetical mean of such prices-- CIT v . Mentor Graphics (Noida) Pvt. Ltd.
(Delhi) . . . 586

S. 92C(2A) --International transactions--Transfer pricing--Arm̢۪s length price--Amendment to section 92C by insertion of sub-section (2A) with retrospective effect from 1-4-2002--Tribunal finding benefit of 5 per cent. range not available to assessee--Finding of fact-- Marubeni India Pvt. Ltd . v. DIT (Delhi) . . . 638

S. 92CA --Reassessment--Notice--Reopening to disallow loss on account of foreign exchange fluctuation and expenses on account of data usage charges but no addition on both items--No reasons recorded that arm̢۪s length price determined by assessee not correct--No addition could be made in reassessment-- CIT v. Cheil Communications India Pvt. Ltd. (Delhi) . . . 549

S. 92CA(3) --International transactions--Transfer pricing--Arm̢۪s length price--Interest earned on deposits made out of surplus funds whether includible in operating income--Nature of business of assessee to be considered--Memorandum of association allowing assessee to earn interest by making investment--No relevance for purposes of transfer pricing regulations--Tribunal finding interest cannot be considered to be its operating income--Finding of fact-- Marubeni India Pvt. Ltd . v . DIT
(Delhi) . . . 638

S. 133(6) --Assessment--Enquiry--Notice--Co-operative societies--Person--Definition--Includes co-operative society--Notice under section 142(1) to co-operative societies within jurisdiction--Difference between notices issued under sections 133(6) and 142(1)-- Mangalam Service Co-operative Bank Ltd . v . ITO (Ker) . . . 601

S. 142(1) --Assessment--Enquiry--Notice--Co-operative societies--Person--Definition--Includes co-operative society--Notice under section 142(1) to co-operative societies within jurisdiction--Difference between notices issued under sections 133(6) and 142(1)-- Mangalam Service Co-operative Bank Ltd . v . ITO (Ker) . . . 601

S. 147 --Reassessment--Notice--Cellular telecommunication services--Mercantile system of accounting--Pre-paid services--Revenue recognised only when customer actually used network and services actually rendered--Income received in respect of which services not rendered treated as advance in original assessment--Reassessment on ground payments towards recharges not advance but accrued income--Reassessment not valid-- Vodafone West Ltd . v. Asst. CIT (No. 3 ) (Guj) . . . 572

----Reassessment--Notice--†Reason to believe†--Cannot have two meanings one applicable where assessment earlier made under section 143(3) and another applicable where intimation earlier issued under section 143(1)--Assessing Officer believing escapement of income on going through return filed by assessee after accepting return under section 143(1) without scrutiny--Review of earlier proceedings--Reassessment not valid-- CIT v . Orient Craft Ltd. (Delhi) . . . 536

----Reassessment--Notice--Reopening to disallow loss on account of foreign exchange fluctuation and expenses on account of data usage charges but no addition on both items--No reasons recorded that arm̢۪s length price determined by assessee not correct--No addition could be made in reassessment-- CIT v. Cheil Communications India Pvt. Ltd. (Delhi) . . . 549

----Reassessment--Notice after four years--Conditions precedent--Commission paid to dealers on pre-paid sim cards and recharge vouchers without deducting tax at source--No dispute that tax was deducted at source and duly deposited with Government--Roaming charges paid to telecom service providers--Full details of such payments readily available with Assessing Officer--Amendment to section 115JB with retrospective effect, book profit to be reworked--Not a ground for reassessment after four years--Notice not valid-- Vodafone West Ltd. v . Asst. CIT (No. 2 )
(Guj) . . . 562

----Reassessment--Notice after four years--Objections of assessee considered on merits--Assessee claiming deduction under section 10B in assessment year 2005-06--Admitting in 2008-09 that amount not yet realised in convertible foreign exchange--Non-disclosure of facts on part of assessee--Reassessment on ground assessee violating conditions of section 10B--Reassessment valid-- Suntec Business Solutions P. Ltd . v. Union of India (Ker) . . . 657

S. 148 --Reassessment--Notice--Cellular telecommunication services--Mercantile system of accounting--Pre-paid services--Revenue recognised only when customer actually used network and services actually rendered--Income received in respect of which services not rendered treated as advance in original assessment--Reassessment on ground payments towards recharges not advance but accrued income--Reassessment not valid-- Vodafone West Ltd . v. Asst. CIT (No. 3 ) (Guj) . . . 572

----Reassessment--Notice--†Reason to believe†--Cannot have two meanings one applicable where assessment earlier made under section 143(3) and another applicable where intimation earlier issued under section 143(1)--Assessing Officer believing escapement of income on going through return filed by assessee after accepting return under section 143(1) without scrutiny--Review of earlier proceedings--Reassessment not valid-- CIT v . Orient Craft Ltd. (Delhi) . . . 536

----Reassessment--Notice--Reopening to disallow loss on account of foreign exchange fluctuation and expenses on account of data usage charges but no addition on both items--No reasons recorded that arm̢۪s length price determined by assessee not correct--No addition could be made in reassessment-- CIT v. Cheil Communications India Pvt. Ltd. (Delhi) . . . 549

----Reassessment--Notice after four years--Conditions precedent--Commission paid to dealers on pre-paid sim cards and recharge vouchers without deducting tax at source--No dispute that tax was deducted at source and duly deposited with Government--Roaming charges paid to telecom service providers--Full details of such payments readily available with Assessing Officer--Amendment to section 115JB with retrospective effect, book profit to be reworked--Not a ground for reassessment after four years--Notice not valid-- Vodafone West Ltd. v . Asst. CIT (No. 2 )
(Guj) . . . 562

----Reassessment--Notice after four years--Objections of assessee considered on merits--Assessee claiming deduction under section 10B in assessment year 2005-06--Admitting in 2008-09 that amount not yet realised in convertible foreign exchange--Non-disclosure of facts on part of assessee--Reassessment on ground assessee violating conditions of section 10B--Reassessment valid-- Suntec Business Solutions P. Ltd . v. Union of India (Ker) . . . 657

S. 263 --Revision--Assessing Officer--Order passed to give effect to direction by Commissioner--Scope of section 263--Assessee maintaining two sets of accounts one for mentha business and another for cattle feed and green vegetable business--Accounts relating to mentha business audited--Revision confined to cattle feed and green vegetable business--Mentha business not subject matter of revision--Revision not an open remand order--Assessing Officer not justified in issuing questionnaires with view to passing fresh assessment order for mentha business-- Smt. Shobha Govil v . Addl. CIT
(All) . . . 668


Thursday, June 20, 2013

ITR (TRIB) VOL 24 PART 3

 

ITR'S TRIBUNAL TAX REPORTS (ITR (TRIB))

Volume 24 : Part 3 (Issue dated : 17-6-2013)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Business expenditure --Disallowance--Payments in cash--Expenditure on labour charges for land development--No evidence to establish genuineness of labourers--Assessee failing to produce vouchers for payment to supervisor and not showing veracity of payment to labourers--Disallowance justified--Income-tax Act, 1961, s. 40A(3)-- Metalcity Constructions Kovai P. Ltd. v. ITO (Chennai) . . . 424

----Foreign nationals working in India at managerial positions for purpose of business--Assessee bearing cost of their return journey to home countries--Assessee debiting expenditure under head legal and professional expenditure--Allowable--Income-tax Act, 1961, s. 37-- Sumitomo Corporation India P. Ltd. v. Deputy CIT (Delhi) . . . 385

Charitable purposes --Registration--Advancement of object of general public utility--Mention of charitable objects in memorandum of association does not render assessee a charitable institution--Assessee charging fee in addition to Government fee--Not qualified to be treated as charitable institution--Income-tax Act, 1961, ss. 2(15), 12A(a)-- Sukhmani Society for Citizen Services v. Commissioner of Income-tax (No. 2) (Amritsar) . . . 458

----Registration--Object of society to provide services to common people--Charging huge fees from public in addition to prescribed fee of Punjab Government--No charitable purpose involved--Application for registration to be rejected--Income-tax Act, 1961, s. 12AA-- Sukhmani Society for Citizen Services v. Commissioner of Income-tax (No. 1) (Amritsar) . . . 443

Depreciation --Rate of depreciation--Computer peripherals--Depreciation allowable at rate of 60 per cent.--Precedent-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

Income-tax --General principles--Res judicata--Not applicable to taxation-- Sumitomo Corporation India P. Ltd. v. Deputy CIT (Delhi) . . . 385

Industrial undertaking --Special deduction--Industries not eligible for deduction listed in Schedule XIII--Expansion of flour mill--Listed in Part B of Schedule XIII--Assessee not entitled to deduction--Income-tax Act, 1961, s. 80-IC-- Pooja Industries v. ITO (Chandigarh) . . . 433

International transactions --Arm’s length price--Determination--Necessity of detailed factual study of business model, FAR analysis and economic conditions--Transactional net margin method--Commission earned by assessee from its associated enterprises--Commission and trading transactions not comparable--Difference in risk profile of indent and trade transactions--Applying gross profit margin earned from trading transaction with non-associated enterprises on value of goods on which commission earned--Not proper--Service provider functioning as facilitator not exposed to risk--â€Å“Costs†not FOB value of goods--Assessee using network and intangibles of its associated enterprise--Performance of low risk activity of facilitator--No human intangibles created--Income-tax Act, 1961, ss. 92C(1), 92CA(3), 92D--Income-tax Rules, 1962, r. 10D-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

----Arm̢۪s length price--Determination--Two types of transactions, indent transactions earning commission and trading transactions--Nature of transactions different--Indent transactions with associated enterprise to be benchmarked with indent commission transactions with non-associated enterprises--Mere difference in turnover not sufficient for treating two transactions as not comparable--Commission percentage in associated enterprise segment to be compared with commission percentage in non-associated enterprise segment--Income-tax Act, 1961, s. 92C-- Sumitomo Corporation India P. Ltd. v. Deputy CIT (Delhi) . . . 385

----Arm̢۪s length price--Interest paid to non-resident--Determination of arm̢۪s length rate of interest--Transfer Pricing Officer computing interest at arm̢۪s length rate with associated enterprises as against determined by assessee and adding difference as transfer pricing adjustment--Matter remanded for fresh assessment after providing opportunity to assessee--Income-tax Act, 1961-- JP Morgan Chase Bank v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 428

Precedent --Principles decided in judgment--To be considered in context of facts-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Income-tax Act, 1961 :

S. 2(15) --Charitable purposes--Registration--Advancement of object of general public utility--Mention of charitable objects in memorandum of association does not render assessee a charitable institution--Assessee charging fee in addition to Government fee--Not qualified to be treated as charitable institution-- Sukhmani Society for Citizen Services v. Commissioner of Income-tax (No. 2) (Amritsar) . . . 458

S. 12A(a) --Charitable purposes--Registration--Advancement of object of general public utility--Mention of charitable objects in memorandum of association does not render assessee a charitable institution--Assessee charging fee in addition to Government fee--Not qualified to be treated as charitable institution-- Sukhmani Society for Citizen Services v. Commissioner of Income-tax (No. 2) (Amritsar) . . . 458

S. 12AA --Charitable purposes--Registration--Object of society to provide services to common people--Charging huge fees from public in addition to prescribed fee of Punjab Government--No charitable purpose involved--Application for registration to be rejected-- Sukhmani Society for Citizen Services v. Commissioner of Income-tax (No. 1) (Amritsar) . . . 443

S. 37 --Business expenditure--Foreign nationals working in India at managerial positions for purpose of business--Assessee bearing cost of their return journey to home countries--Assessee debiting expenditure under head legal and professional expenditure--Allowable-- Sumitomo Corporation India P. Ltd. v. Deputy CIT (Delhi) . . . 385

S. 40A(3) --Business expenditure--Disallowance--Payments in cash--Expenditure on labour charges for land development--No evidence to establish genuineness of labourers--Assessee failing to produce vouchers for payment to supervisor and not showing veracity of payment to labourers--Disallowance justified-- Metalcity Constructions Kovai P. Ltd. v. ITO (Chennai) . . . 424

S. 80-IC --Industrial undertaking--Special deduction--Industries not eligible for deduction listed in Schedule XIII--Expansion of flour mill--Listed in Part B of Schedule XIII--Assessee not entitled to deduction-- Pooja Industries v. ITO (Chandigarh) . . . 433

S. 92C --International transactions--Arm̢۪s length price--Determination--Two types of transactions, indent transactions earning commission and trading transactions--Nature of transactions different--Indent transactions with associated enterprise to be benchmarked with indent commission transactions with non-associated enterprises--Mere difference in turnover not sufficient for treating two transactions as not comparable--Commission percentage in associated enterprise segment to be compared with commission percentage in non-associated enterprise segment-- Sumitomo Corporation India P. Ltd. v. Deputy CIT (Delhi) . . . 385

S. 92C(1) --International transactions--Arm’s length price--Determination--Necessity of detailed factual study of business model, FAR analysis and economic conditions--Transactional net margin method--Commission earned by assessee from its associated enterprises--Commission and trading transactions not comparable--Difference in risk profile of indent and trade transactions--Applying gross profit margin earned from trading transaction with non-associated enterprises on value of goods on which commission earned--Not proper--Service provider functioning as facilitator not exposed to risk--â€Å“Costs†not FOB value of goods--Assessee using network and intangibles of its associated enterprise--Performance of low risk activity of facilitator--No human intangibles created-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

S. 92CA(3) --International transactions--Arm’s length price--Determination--Necessity of detailed factual study of business model, FAR analysis and economic conditions--Transactional net margin method--Commission earned by assessee from its associated enterprises--Commission and trading transactions not comparable--Difference in risk profile of indent and trade transactions--Applying gross profit margin earned from trading transaction with non-associated enterprises on value of goods on which commission earned--Not proper--Service provider functioning as facilitator not exposed to risk--â€Å“Costs†not FOB value of goods--Assessee using network and intangibles of its associated enterprise--Performance of low risk activity of facilitator--No human intangibles created-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

S. 92D --International transactions--Arm’s length price--Determination--Necessity of detailed factual study of business model, FAR analysis and economic conditions--Transactional net margin method--Commission earned by assessee from its associated enterprises--Commission and trading transactions not comparable--Difference in risk profile of indent and trade transactions--Applying gross profit margin earned from trading transaction with non-associated enterprises on value of goods on which commission earned--Not proper--Service provider functioning as facilitator not exposed to risk--â€Å“Costs†not FOB value of goods--Assessee using network and intangibles of its associated enterprise--Performance of low risk activity of facilitator--No human intangibles created-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474

Income-tax Rules, 1962 :

R. 10D --International transactions--Arm’s length price--Determination--Necessity of detailed factual study of business model, FAR analysis and economic conditions--Transactional net margin method--Commission earned by assessee from its associated enterprises--Commission and trading transactions not comparable--Difference in risk profile of indent and trade transactions--Applying gross profit margin earned from trading transaction with non-associated enterprises on value of goods on which commission earned--Not proper--Service provider functioning as facilitator not exposed to risk--â€Å“Costs†not FOB value of goods--Assessee using network and intangibles of its associated enterprise--Performance of low risk activity of facilitator--No human intangibles created-- Sojitz India P. Ltd. v. Deputy CIT (Delhi) . . . 474