Saturday, January 3, 2015

Income tax - Whether benefits of Sec 80IA(4) are available only to a company and

 

Income tax - Whether benefits of Sec 80IA(4) are available only to a company and not to persons like HUF, firm and Individual - YES, rules ITAT

HYDERABAD, APR 02, 2012: THE issues before the Bench are - Whether benefits of Sec 80IA(4) are available only to a company and not to persons like HUF, firm and Individual and Whether when the assessee deploys its own fund and develops the infrastructure facility before handing over the same to the Govt, the assessee is to be treated as mere contractor and cannot be allowed Sec 80IA(4) benefits. And the verdict goes in favour of the assessee.

Facts of the case

Assessee Company claimed deduction under section 80IA of the Act as the profit and gains were from industrial undertaking engaged in infrastructure development. The same was denied by the lower authorities on the reason that the assessee had not developed any new infrastructure facility as required under section 80IA(4)(i)(b) of the Income-tax Act. According to the Revenue, the assessee had only taken up the renovation and modernisation of the existing net work/infrastructure facilities. It was also observed that as per the agreement, the assessee entered for building or constructing the whole or part of the project for which the entire investments were made by the Government and the assessee was paid `on running bill to bill' basis. Hence, there was no stipulation in any of the contracts that the facility built would be transferred or handed over back to the owner/employer. Being so, such contracts were not eligible for deduction under section 80IA of the Act.

On appeal, the ITAT held that,

++ the word "owned" in sub-clause (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clear that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like individual, HUF, Firm etc;

++ we also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility;

++ we find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract;

++ the assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer;

++ we find that the decision relied on by the learned counsel for the assessee in the case of CIT vs. Laxmi civil Engineering works [supra] squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or subcontract as distinct from the developer.
__,_._,___

ITR (TRIB)--Vol-37 Part-1 PRINT AND ONLINE EDITION

ONLINE EDITION
SUBJECT INDEX TO CASES REPORTED
International transactions --Arm's length price--Determination--Most appropriate method--Assessee paying commission to associated enterprises and unrelated domestic agents depending upon services rendered--Comparable uncontrolled price method cannot be applied for determining arm’s length price--Income-tax Act, 1961 s. 92C-- Amphenol Interconnect India P. Ltd. v. Deputy CIT (Pune) . . . 1

~----Arm’s length price--Determination--Most appropriate method--Comparable uncontrolled price method--Transactional differences with associated enterprises and third parties pertaining to similar products--Suitable adjustments cannot be made for volume, geographical, timing, risk and functional differences--Comparable uncontrolled price method not appropriate to determine arm’s length price--Additions to be deleted--Income-tax Act, 1961, s. 92C-- Amphenol Interconnect India P. Ltd. v. Deputy CIT (Pune) . . . 1

~Special deduction --Donation to charitable institution--Approval of institution--No allegation with regard to charitable object of assessee or genuineness of activities--Assumption that assessee had commercial intentions and utilised its funds outside India--Reasons for denial of registration irrelevant and extraneous--Refusal of registration not valid--Income-tax Act, 1961, ss. 12A, 80G(5)(vi)-- George Institute for Global Health v. DIT (Exemption) (Hyd) . . . 24
PRINT EDITION
Volume 37 : Part 1 (Issue dated : 5-1-2015)
SUBJECT INDEX TO CASES REPORTED

~Advance tax --Interest--Failure by payer to deduct tax at source--Interest cannot be imposed on assessee under section 234B--Income-tax Act, 1961, ss. 234B, 234C-- Fugro Geoteam AS v. Addl. DIT (International Taxation) (Delhi) . . . 46

~----Interest--Charging of interest under sections 234A, 234B and 234C mandatory and no discretion with Assessing Officer in that matter--Income-tax Act, 1961, ss. 234A, 234B, 234C-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~Appeals --Competency of appeal--Monetary limits for appeal by Department--Instruction No. 5 of 2014--Limits applicable to pending cases--Failure by Department to point out exceptional circumstances for filing appeal despite monetary limit--Appeal to be dismissed in limine--CBDT Instruction No. 5 of 2014, dated 10-7-2014-- Deputy CIT v. Chetan Prakash Mittal (Delhi) . . . 28

~Assessment --Estimate of income--Additions for suppressed sales--Failure by Assessing Officer to bring corroborative material to substantiate unaccounted sales--Additions to be deleted--Income-tax Act, 1961-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~Business expenditure --Disallowance--Payments liable to deduction of tax at source--Failure by assessee to deduct tax at source on payment--Expenditure to be disallowed--Scope of section 40(a)(i) and (ia)--Deduction to be allowed in accounting year in which tax has been paid--Income-tax Act, 1961, s. 40(a)(i), (ia)-- Termo Penpol Ltd. v. Asst. CIT (Cochin) . . . 87

~Capital gains --Full value of consideration--Sale agreement subjected to valuation for purpose of stamp duty payment--Section 50C applicable--Income-tax Act, 1961, s. 50C--Prakash Shantilal Parekh v. ITO (Mumbai) . . . 119

~----Long-term or Short-term capital gains--Capital asset--Agreement to transfer flat to be constructed in new building--No question of handing over of possession when structure not in physical existence--Right to get new flat alone transferred--Transfer of capital asset under agreement within period of 36 months from date of purchase--Short-term capital gain--Income-tax Act, 1961-- Prakash Shantilal Parekh v. ITO (Mumbai) . . . 119

~Capital or revenue expenditure --Expenditure incurred on renovation of leased premises--Assessee not acquiring new asset or income-earning apparatus--No enduring benefit to assessee--Expenditure revenue in nature--Income-tax Act, 1961-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~Charitable purpose --Charitable trust--Registration--Assessee undertaking limited activity--Nature of objects and genuineness of activities of trust to be appreciated--Failure by assessee to file activity report before Tribunal--Matter to be re-examined by Commissioner--Income-tax Act, 1961, s. 12AA-- Christian Women’s Association v. CIT (Cochin) . . . 30

~----Computation of income--Depreciation--Claim to depreciation on assets owned by it--Not a case of double deduction--Income-tax Act, 1961, s. 11-- ITO v. Ramananda Adigalar Foundation (Chennai) . . . 80

~----Registration of trusts--Assessee not having commenced any of charitable activities enumerated in trust deed--Not entitled to registration--Income-tax Act, 1961, s. 12AA--Progressive Educational and Charitable Trust v. CIT (Cochin) . . . 84

~Depreciation --Wind electric generators--Integral part of windmill unit--Entitled to higher rate of depreciation--Income-tax Act, 1961, s. 32-- Deputy CIT v. Lanco Infratech Ltd . (Hyd) . . . 95

~Exemption --New industrial undertaking in free trade zone--Profits of undertaking--Unabsorbed business loss--Depreciation--Deduction to be calculated before reducing unabsorbed loss and depreciation from profits of undertaking--Income-tax Act, 1961, s. 10A-- Canam International P. Ltd. v. Asst. CIT (Delhi) . . . 38

~Export --Exemption--Profits of undertaking--Share application money--Income from variation in rates of foreign exchange--Whether to be excluded from total income--Matter remanded--Income-tax Act, 1961, s. 10A-- Canam International P. Ltd. v. Asst. CIT (Delhi) . . . 38

~Income --Expenditure incurred in earning income not forming part of total income--Disallowance--Investments to incorporate special purpose vehicles for road projects--Investments not for earning dividend income--Expenses and interest not to be disallowed--Income-tax Act, 1961, s. 14A--Income-tax Rules, 1962, r. 8D(2)(iii)-- L & T Infrastructure Development Projects Ltd. v. ITO (Chennai) . . . 10

~International transactions --Arm’s length price--Determination--Administrative and management support services--Selection of comparables--Companies having related party transactions to extent of 88.23 per cent. cannot be considered as comparable--Functionally dissimilar companies excluded and functionally similar to be included--Foreign exchange gain to be included in operating income--Matter remanded to Transfer Pricing Officer to recompute arm’s length price after affording opportunity of being heard--Income-tax Act, 1961--CISCO Systems (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 133

~----Arm’s length price--Determination--Service of replacement of spares to customers--Matter remanded to Transfer Pricing Officer to determine arm’s length price in light of directions of Tribunal for assessment year 2006-07--Income-tax Act, 1961-- CISCO Systems (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 133

~----Arm’s length price--Determination--Software development services--Transactional net margin method--Selection of comparables--Companies having export turnover less than 75 per cent. of total sales to be excluded--Functionally different companies cannot be treated as comparable--Functionally similar companies to be included--Matter remanded to Transfer Pricing Officer for decision afresh--Income-tax Act, 1961, s. 92CA-- CISCO Systems (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 133

~----Arm’s length price--Determination--Transactional net margin method--Selection of comparables--Computation of operational profit to total cost--Non-operative items of income and expenses to be excluded--Income-tax Act, 1961-- Deputy CIT v. Exxon Mobil Gas (India) P. Ltd. (Delhi) . . . 22

~Non-resident --Presumptive tax--Income from exploration of mineral oils--Income from service of 3D seismic data processing--Income taxable only under section 44BB and not as fees for technical services--Income-tax Act, 1961, s. 44BB-- Fugro Geoteam AS v. Addl. DIT (International Taxation) (Delhi) . . . 46

~----Presumptive tax--Income from exploration of mineral oils--Reimbursement of mobilisation and demobilisation charges outside India--Taxable--Income-tax Act, 1961-- Fugro Geoteam AS v. Addl. DIT (International Taxation) (Delhi) . . . 46

~Penalty --Concealment of income--Non-inclusion of allowances in return of income--Allowances in form of reimbursement cannot be treated as income in hands of assessee--No concealment of income--Penalty cannot be levied--Income-tax Act, 1961, s. 271(1)(c)--Soumya Prakash Pattnaik v. Asst. CIT (Cuttack) . . . 35

~----Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Assessee furnishing details regarding deduction--Penalty cannot be levied on estimated addition--Income-tax Act, 1961, ss. 80-IC, 271(1)(c)-- Octave Exports v. Deputy CIT(Chandigarh) . . . 100

~----Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Small-scale industrial unit--Assessee furnishing details regarding deduction--Assessee not guilty of filing inaccurate particulars of income--Penalty cannot be levied--Income-tax Act, 1961, ss. 80-IB, 271(1)(c)-- Deputy CIT v. Parabolic Drugs Ltd. (Chandigarh) . . . 16

~Reassessment --Income escaping assessment--Reason to believe--Purchase of property and entering into sale agreement--Failure by assessee to file return and disclose fully and truly all material facts necessary for assessment--Valid reason to believe income chargeable to tax escaped assessment--Income-tax Act, 1961, ss. 147, 148-- Prakash Shantilal Parekh v. ITO (Mumbai) . . . 119

~Revision --Commissioner--Condition precedent--Order erroneous and prejudicial to Revenue--Both conditions to be satisfied--Industrial undertaking--Special deduction--Assessing Officer including receipt from sale of carbon credits in eligible profits--Order not prejudicial to Revenue--Income-tax Act, 1961, ss. 80-IA, 263-- Subhash Kabini Power Corporation Ltd. v. CIT (Bangalore) . . . 106

~Search and seizure --Assessment in search cases--Undisclosed income--Business expenditure--Disallowance--Once assessment reopened Assessing Officer can determine total income and pass assessment order--Section 153A does not prohibit Assessing Officer from disallowing expenditure--Income-tax Act, 1961, ss. 132, 153A-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~Wealth-tax --Net wealth--Transfer of assets--Wife of assessee purchasing residential house and jewellery out of interest-free cash loan given by assessee--Cash loan not “asset†--No transfer of asset--Amount cannot be added to net wealth of assessee--Wealth-tax Act, 1957, s. 4(1)(a)(i)-- Shah Rukh Khan v. Asst. CWT (Mumbai) . . . 1

~SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

~Income-tax Act, 1961

~S. 10A --Exemption--New industrial undertaking in free trade zone--Profits of undertaking--Unabsorbed business loss--Depreciation--Deduction to be calculated before reducing unabsorbed loss and depreciation from profits of undertaking-- Canam International P. Ltd. v. Asst. CIT (Delhi) . . . 38

~----Export--Exemption--Profits of undertaking--Share application money--Income from variation in rates of foreign exchange--Whether to be excluded from total income--Matter remanded-- Canam International P. Ltd. v. Asst. CIT (Delhi) . . . 38

~S. 11 --Charitable purpose--Computation of income--Depreciation--Claim to depreciation on assets owned by it--Not a case of double deduction-- ITO v. Ramananda Adigalar Foundation (Chennai) . . . 80

~S. 12AA --Charitable purpose--Charitable trust--Registration--Assessee undertaking limited activity--Nature of objects and genuineness of activities of trust to be appreciated--Failure by assessee to file activity report before Tribunal--Matter to be re-examined by Commissioner--Christian Women’s Association v. CIT (Cochin) . . . 30

~----Charitable purpose--Registration of trusts--Assessee not having commenced any of charitable activities enumerated in trust deed--Not entitled to registration-- Progressive Educational and Charitable Trust v. CIT (Cochin) . . . 84

~S. 14A --Income--Expenditure incurred in earning income not forming part of total income--Disallowance--Investments to incorporate special purpose vehicles for road projects--Investments not for earning dividend income--Expenses and interest not to be disallowed-- L & T Infrastructure Development Projects Ltd. v. ITO (Chennai) . . . 10

~S. 32 --Depreciation--Wind electric generators--Integral part of windmill unit--Entitled to higher rate of depreciation-- Deputy CIT v. Lanco Infratech Ltd . (Hyd) . . . 95

~S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Failure by assessee to deduct tax at source on payment--Expenditure to be disallowed--Scope of section 40(a)(i) and (ia)--Deduction to be allowed in accounting year in which tax has been paid-- Termo Penpol Ltd. v. Asst. CIT (Cochin) . . . 87

~S. 40(a)(ia) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Failure by assessee to deduct tax at source on payment--Expenditure to be disallowed--Scope of section 40(a)(i) and (ia)--Deduction to be allowed in accounting year in which tax has been paid-- Termo Penpol Ltd. v. Asst. CIT (Cochin) . . . 87

~S. 44BB --Non-resident--Presumptive tax--Income from exploration of mineral oils--Income from service of 3D seismic data processing--Income taxable only under section 44BB and not as fees for technical services-- Fugro Geoteam AS v. Addl. DIT (International Taxation)(Delhi) . . . 46

~S. 50C --Capital gains--Full value of consideration--Sale agreement subjected to valuation for purpose of stamp duty payment--Section 50C applicable-- Prakash Shantilal Parekh v. ITO(Mumbai) . . . 119

~S. 80-IA --Revision--Commissioner--Condition precedent--Order erroneous and prejudicial to Revenue--Both conditions to be satisfied--Industrial undertaking--Special deduction--Assessing Officer including receipt from sale of carbon credits in eligible profits--Order not prejudicial to Revenue-- Subhash Kabini Power Corporation Ltd. v. CIT (Bangalore) . . . 106

~S. 80-IB --Penalty--Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Small-scale industrial unit--Assessee furnishing details regarding deduction--Assessee not guilty of filing inaccurate particulars of income--Penalty cannot be levied-- Deputy CIT v. Parabolic Drugs Ltd. (Chandigarh) . . . 16

~S. 80-IC --Penalty--Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Assessee furnishing details regarding deduction--Penalty cannot be levied on estimated addition-- Octave Exports v. Deputy CIT (Chandigarh) . . . 100

~S. 92CA --International transactions--Arm’s length price--Determination--Software development services--Transactional net margin method--Selection of comparables--Companies having export turnover less than 75 per cent. of total sales to be excluded--Functionally different companies cannot be treated as comparable--Functionally similar companies to be included--Matter remanded to Transfer Pricing Officer for decision afresh--CISCO Systems (India) P. Ltd. v. Deputy CIT (Bangalore) . . . 133

~S. 132 --Search and seizure--Assessment in search cases--Undisclosed income--Business expenditure--Disallowance--Once assessment reopened Assessing Officer can determine total income and pass assessment order--Section 153A does not prohibit Assessing Officer from disallowing expenditure-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~S. 147 --Reassessment--Income escaping assessment--Reason to believe--Purchase of property and entering into sale agreement--Failure by assessee to file return and disclose fully and truly all material facts necessary for assessment--Valid reason to believe income chargeable to tax escaped assessment-- Prakash Shantilal Parekh v. ITO (Mumbai) . . . 119

~S. 148 --Reassessment--Income escaping assessment--Reason to believe--Purchase of property and entering into sale agreement--Failure by assessee to file return and disclose fully and truly all material facts necessary for assessment--Valid reason to believe income chargeable to tax escaped assessment-- Prakash Shantilal Parekh v. ITO (Mumbai) . . . 119

~S. 153A --Search and seizure--Assessment in search cases--Undisclosed income--Business expenditure--Disallowance--Once assessment reopened Assessing Officer can determine total income and pass assessment order--Section 153A does not prohibit Assessing Officer from disallowing expenditure-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~S. 234A --Advance-tax--Interest--Charging of interest under sections 234A, 234B and 234C mandatory and no discretion with Assessing Officer in that matter-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~S. 234B --Advance tax--Interest--Failure by payer to deduct tax at source--Interest cannot be imposed on assessee under section 234B-- Fugro Geoteam AS v. Addl. DIT (International Taxation) (Delhi) . . . 46

~----Advance-tax--Interest--Charging of interest under sections 234A, 234B and 234C mandatory and no discretion with Assessing Officer in that matter-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~S. 234C --Advance tax--Interest--Failure by payer to deduct tax at source--Interest cannot be imposed on assessee under section 234B-- Fugro Geoteam AS v. Addl. DIT (International Taxation) (Delhi) . . . 46

~----Advance-tax--Interest--Charging of interest under sections 234A, 234B and 234C mandatory and no discretion with Assessing Officer in that matter-- Nandini Delux v. Asst. CIT (Bangalore) . . . 52

~S. 263 --Revision--Commissioner--Condition precedent--Order erroneous and prejudicial to Revenue--Both conditions to be satisfied--Industrial undertaking--Special deduction--Assessing Officer including receipt from sale of carbon credits in eligible profits--Order not prejudicial to Revenue-- Subhash Kabini Power Corporation Ltd. v. CIT (Bangalore) . . . 106

~S. 271(1)(c) --Penalty--Concealment of income--Non-inclusion of allowances in return of income--Allowances in form of reimbursement cannot be treated as income in hands of assessee--No concealment of income--Penalty cannot be levied-- Soumya Prakash Pattnaik v. Asst. CIT (Cuttack) . . . 35

~----Penalty--Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Assessee furnishing details regarding deduction--Penalty cannot be levied on estimated addition-- Octave Exports v. Deputy CIT (Chandigarh) . . . 100

~----Penalty--Furnishing inaccurate particulars of income--Industrial undertaking--Special deduction--Small-scale industrial unit--Assessee furnishing details regarding deduction--Assessee not guilty of filing inaccurate particulars of income--Penalty cannot be levied--Deputy CIT v. Parabolic Drugs Ltd. (Chandigarh) . . . 16

~Income-tax Rules, 1962

~~R. 8D(2)(iii) --Income--Expenditure incurred in earning income not forming part of total income--Disallowance--Investments to incorporate special purpose vehicles for road projects--Investments not for earning dividend income--Expenses and interest not to be disallowed-- L & T Infrastructure Development Projects Ltd. v. ITO (Chennai) . . . 10

~Wealth-tax Act, 1957

~~~~S. 4(1)(a)(i) --Wealth-tax--Net wealth--Transfer of Assets--Wife of assessee purchasing residential house and jewellery out of interest-free cash loan given by assessee--Cash loan not “asset†--No transfer of asset--Amount cannot be added to net wealth of assessee-- Shah Rukh Khan v. Asst. CWT (Mumbai) . . . 1


Friday, April 18, 2014

Some Ccase Laws

 
ITAT's Guidelines to AOs for making additions under section 68 - IT : (A) No additions in respect of loan repayments can be made under section 68; additions cannot exceed new loans/credits received during year

[2012] 20 taxmann.com 87 (MUM. - ITAT)

IT: Payments made by transport contractor for hiring tankers to use them in transport contract business is not liable to TDS under section 194C

[2012] 20 taxmann.com 86 (KOL. - ITAT)

IT : Where assessee-contractor hired machinery to be used in contract business and payment was made on basis of measurement of work done, assessee was not liable to deduct tax of source under section 194C

[2012] 20 taxmann.com 81 (MUM. - ITAT)

IT : Since trust is an artificial judicial person and has to act through trustees or anybody authorized by trustees, acts of trustees or person so authorized have to be considered as acts on behalf of trust

[2012] 20 taxmann.com 80 (MUM. - ITAT)

IT/ILT : Transfer Pricing - Where rate charged by assessee for supplying food to AE running airlines business on per passenger basis was found to be highest, no adjustment could be made to arm's length price disclosed by assessee in respect of said transaction

[2012] 20 taxmann.com 79 (MUM. - ITAT)

IT/ILT : Transfer Pricing : Where exclusion of wrongly included comparable in transfer pricing study resulted in bringing mark up price shown by assessee within 5 per cent range of arithmetic mean of comparables, impugned adjustment made to arm's length price was to be set aside

[2012] 20 taxmann.com 90 (MUM. - ITAT)(SB)

3 new questions, after TM's orders, referred by AM to president would be unlawful - IT : After reasoned order of Third Member agreeing with JM, AM (minority) order referring 3 new questions to President, ITAT would be an unlawful order

[2012] 20 taxmann.com 78 (INDORE - ITAT)

Cost indexation of assets, acquired on partition of HUF, is computed from year in which HUF acquired same - IT : Where assessee acquires property on partition of HUF, index cost of acquisition is to be computed with reference to year in which HUF has acquired property and not year in which property came to assessee on partition

[2012] 20 taxmann.com 68 (CHENNAI - ITAT)

IT/ILT : No penalty could be levied under section 271G where assessee had substantially filed information required by TPO and finally arm's length price adopted by assessee was accepted by Assessing Officer

[2012] 20 taxmann.com 63 (PUNE - ITAT)

IT : Replacement of ring frames and balancing machines in textile mills is capital expenditure

[2012] 20 taxmann.com 56 (CHENNAI - ITAT)

Section 153C notice invalid if Assessing Officer not sure to whom seized materials belongs to - IT : Notice issued under section 153C is invalid if no satisfaction is recorded as to whom seized materials belonged

[2012] 20 taxmann.com 54 (CHENNAI - ITAT)

Tax actually deducted considered for section 234A while it is tax deductible for sections 234B & 234C - IT : Interest under section 234A is to be computed by excluding amount of tax actually deducted while interest under sections 234B and 234C are to be charged by excluding tax, which was deductible

[2012] 20 taxmann.com 57 (COCH. - ITAT)

IT : An order under section 254(2) does not have existence de hors the order under section 254(1), so that it recall is impermissible under section 254(2)

[2012] 20 taxmann.com 76 (COCH. - ITAT)

TDS under section 194-I in case of mere hiring of vehicle without any work by contractor - IT : Mere hiring of vehicle/plant or machinery/equipment where contractee is to only make available vehicle etc. and not required to do any work would attract TDS under section 194-I and not under section 194C

[2012] 20 taxmann.com 75 (AHD. - ITAT)

Exemption upto Rs. 1 crore available under section 54EC - Jaipur ITAT's holding otherwise not cited - IT : Assessee entitled to Rs. 1 crore deduction under section 54EC if he transfers capital asset after 30th September of a financial year and makes capital gain of Rs.1crore or more and invests Rs. 1 crore in specified bonds within 6 months of transfer-Rs.50 lakhs in financial year of transfer and Rs.50 lakhs in next financial year

[2012] 20 taxmann.com 43 (DELHI - ITAT)

Notice pay recovered from employees serving for a shorter period is eligible for Sec. 10A deduction - IT : Amount of notice pay received by assessee from its employees working in software units was to be treated as income derived from its eligible business of export software and, thus, deduction under section 10A was to allowed on said income

[2012] 20 taxmann.com 42 (CHD. - ITAT)

Method of stock valuation, being arbitrary, has to be rejected even if it is being followed regularly -

IT : Arbitrary valuation of closing stock-in-trade, disregarding recognised practice of valuation either at cost or market price, whichever is lower, deserved to be rejected, even if same was being adopted uniformally year after year

[2012] 20 taxmann.com 44 (AHD. - ITAT)

IT/ILT : Transfer Pricing - Where royalty was paid in a continuous and phased manner and there was no comparable and no finding about ordinary profits, there would not be application of ALP

[2012] 20 taxmann.com 47 (DELHI - ITAT)

IT : As amended provisions of section 80HHC(3) had restricted deduction under section 80HHC, Assessing Officer was justified in initiating reassessment proceedings on said basis.

[2012] 20 taxmann.com 22 (MUM. - ITAT)


IT/ILT : Royalty paid by assessee in order to acquire right to use technical information and trademark for manufacture and sale of fabrics, is to be allowed as business expenditure

[2012] 20 taxmann.com 21 (DELHI - ITAT)


IT : Payment received by assessee, an insurance broking firm of UK, from Indian Insurance Companies for advising them about selection of reinsurer in international market cannot be treated as fees for technical services

[2012] 20 taxmann.com 39 (DELHI - ITAT)


TP : PLIs are ratios that measure relationship between profits and costs or resources - IT/ILT : Profit Level Indicators (PLIs) are ratios that measure relationship between profits and costs or resources

[2012] 20 taxmann.com 4 (BANG. - ITAT)

No penalty under section 272A if return not filed by charitable trust under bona fide belief that it is to be filed after getting approval under section 80G - IT: Where charitable trust was under a bona fide belief that return is to be filed only after securing recognition under section 80G, no penalty under section 272A was to be levied for delay in filing return

[2012] 20 taxmann.com 3 (DELHI - ITAT)

Section 194C and not section 194-I applicable in respect of payment made to transporters for pick and drop facility - IT : Payments made by assessee to transporters providing vehicles and driver to pick and drop employees is liable to TDS under section 194C and not section 194-I

[2012] 20 taxmann.com 2 (CHD. - ITAT)

Reference to TPO is issue-specific and not entity-specific, only referred transaction can be dealt by TPO - IT/ILT : In absence of reference being made by Assessing Officer to TPO, suo motu action taken by TPO in working out arm's length price of a particular international transaction, not referred to him by Assessing Officer, is not warranted under provisions of section 92CA

[2012] 20 taxmann.com 32 (CHENNAI - ITAT)

Commercial establishments/complexes exempt from WT even if not used by owner himself for carrying on his business - WT : Any property in nature of commercial establishments or complexes is exempt from Wealth-tax in terms of item (5) of section 2(ea)(i) of Wealth-tax Act,1957

[2012] 20 taxmann.com 31 (DELHI - ITAT)

ITAT on interpretation of expressions used in DTAA-'shall be taxed', 'may be taxed' and 'may also be taxed' - IT/ILT : In sphere of international taxation, there are two fundamental systems of taxation, one is based on residency of taxpayer and other is based on source of income

SC/HC
[2012] 20 taxmann.com 146 (DELHI)

IT : Participation by assessee in assessment proceedings on receipt of copy of notice can be deemed to be service of notice within ambit of section 148(1)

[2012] 20 taxmann.com 145 (BOM.)

IT : Application for stay of demand should be decided by Commissioner (Appeals) after taking due note of submission which had been made by assessee regarding additions made by Assessing Officer

[2012] 20 taxmann.com 144 (DELHI)

IT: Assessee having followed a reasonable basis of valuation of closing stock, which had been regularly followed and accepted by department in earlier years and in subsequent year and GP rate declared by it being higher than GP rate declared in immediate preceding year, addition made in assessee's hand on account of undervaluation of closing stock was not justified

[2012] 20 taxmann.com 143 (KER.)
IT : Explanation 10 to section 43(1) is prospective in nature applicable to depreciable assets after 1-4-1999

[2012] 20 taxmann.com 142 (KAR.)

IT : Expenditure incurred by assessee-company for maintenance of accommodation provided to its employees on rental basis cannot be treated as fringe benefit and hence fringe benefit tax cannot be levied on same

[2012] 20 taxmann.com 85 (KER.)

IT : Where there were two sale agreements available for sale of assessee firm, one supported by evidences should be adopted and sale consideration mentioned therein is to be accepted

[2012] 20 taxmann.com 84 (KER.)

IT : Where assessee while disclosing income under VDIS 1997 did not comply with condition of scheme and failed to remit tax, Assessing Officer could reopen assessment and taxed same under section 69A

[2012] 20 taxmann.com 83 (MAD.)

IT : Prior to 1-4-1988, in view of exclusion provided in section 47(ii), distribution of assets on dissolution of AOP does not attract capital gain

[2012] 20 taxmann.com 69 (DELHI)

IT : Assessing Officer being satisfied with explanation of assessee in original assessment proceedings that payment made for consultancy services outside India were not chargeable under Act as per clause (vii) of sub-section (1) of section 9, he could not re-open assessment for taxing payment on mere change of opinion

[2012] 20 taxmann.com 67 (KAR.)

IT : Without providing assessee opportunity to cross-examine payee, who made statements during search in his cases, business expenditure could not be disallowed

[2012] 20 taxmann.com 64 (MP)

IT : Amount paid in advance for purchase of machinery, would be treated as an investment deposit for purpose of section 32AB and assessee would be entitled for deduction of said amount

[2012] 20 taxmann.com 55 (MAD.)

Section 12AA does not distinguish between trust with charitable purpose and religious purpose - IT : Section 12AA does not make any difference between trusts created with object of charitable and religious purposes

[2012] 20 taxmann.com 58 (PUNJ. & HAR.)

IT : Where assessee engaged in construction business in foreign countries used cars of foreign make for its business and claimed depreciation on said cars, disallowance of claim for depreciation relying upon second proviso to section 32(1)(ii) was wrong

[2012] 20 taxmann.com 74 (SC)

IT : SC Stays Madras HC's ruling ([2011] 16 taxmann.com 399) that President of ITAT has no power to write ACRs of members

[2012] 20 taxmann.com 46 (AP)

IT : In view of failure of assessee to file application seeking exemption under section 10(23C) within prescribed time period, Commissioner was justified in denying exemption by invoking fourteenth proviso to section 10(23C)(vi)

[2012] 20 taxmann.com 45 (DELHI)

IT : Penalty under section 271(1)(c) could not be levied where due to bona fide doubt as to assessability of income in hands of assessee-AOP under section 167B(2), a return showing nil taxable income was filed.

[2012] 20 taxmann.com 41 (ALL.)

Paucity of liquidity restricts usage of assets but depreciation is still allowed - IT : AO not justified in disallowing depreciation on plant and machinery on ground that mill had remained closed due to lack of liquid funds

[2012] 20 taxmann.com 40 (ALL.)

In case of co-owners of a property, the threshold limit for TDS under section 194-I applies to each co-owner - IT : Where property in question leased out to a bank was owned by various co-owners and each owner was having a definite and ascertainable share in property, threshold limit for purpose of deduction of tax at source under section 194-I would apply to each of co-owners separately

[2012] 20 taxmann.com 48 (KER.)

IT : A self-serving retraction, without anything more cannot dispel statement made under oath under section 132(4)

[2012] 20 taxmann.com 26 (KAR.)

IT/ILT : Consideration paid for transfer of right to use software/computer programme is royalty under section 9

[2012] 20 taxmann.com 19 (DELHI)

IT : Where assessee was shareholder of a company, but it was not beneficial owner of these shares, on advance made by said company to assessee, no deemed dividend would arise

[2012] 20 taxmann.com 10 (GUJ.)

IT : Where assessee during previous year had participated in development of its main and ancillary objects, it could not be said that business of assessee was not set up during previous year

2012-TIOL-235-HC-DEL-IT + Superior story

CIT Vs Superior Crafts (Dated : March 6, 2012)

Income tax - 40A(2), (3), 142(2A) - Whether when the stock of finished goods is taken for different number of days for closing stock as compared to preceding year as per the export of goods, the same cannot be treated as change in the method of valuation of stock - Whether when the assessee joins hands with AEs to place bulk orders for purchase of raw materials at competitive price and transfers the same to them at cost or lesser price, any addition is warranted on such a ground - Whether section 40(A)(2) comes into play when there is no provision for making any addition on account of lower sale consideration as compared to the market value - Whether when the explanation of the assessee is sought for specific disallowance u/s 40A(2) and 40A(3), no disallowance can be made u/s 37 as no opportunity was given to the assessee to explain the same . - Revenue's appeal dismissed: DELHI HIGH COURT

2012-TIOL-173-ITAT-RAJKOT

Vrundavan Ceramics Pvt Ltd Vs DCIT, Rajkot (Dated : September 9, 2011)

Income Tax - Sections 28, 145 - Whether suppression of turnover is sufficient to reject books of accounts, and there is no need to point out specific defect in books - Whether rejection of books and estimation of profit are two different things - Whether before framing an assessment on estimated basis the results of other comparable are to be considered. - Assessee's appeal partly allowed: RAJKOT ITAT

2012-TIOL-172-ITAT-KOL

Kapil Dey Vs ITO, Kolkata (Dated : November 25, 2011)

Income Tax - Sections 44AF, 147, 148 - Whether there is any requirement of maintaining books of accounts when the income is computed / estimated u/s 44AF - Whether any addition u/s 69C is permissible vis-a-vis bank deposits which have direct nexus with the receipts of business. - Assessee's appeal allowed: KOLKATA ITAT

Areva T & D India Ltd Vs DCIT (Dated : March 30, 2012)

Income tax - Sections 32(1)(ii), 143(3) - Business or commercial rights of similar nature - Whether when assessee pays for business and commercial rights like business claims, business records, contracts and skilled employees in a slump sale of a running business, such rights are akin to a licence, eligible for depreciation u/s 32(1)(ii) as intangible assets. - Assessee's appeal allowed: DELHI HIGH COURT

2012-TIOL-233-HC-DEL-IT

Pal Enterprises Vs CIT (Dated : March 26, 2012)

Income Tax - Sections 28(iiid), 80HHC(3), 148 - Whether premium earned on sale of DEPB is to be treated as profit chargeable to tax u/s 28(iiid). - Assessee's appeal allowed: DELHI HIGH COURT

2012-TIOL-232-HC-MUM-IT

M/s De Souza Hotels Pvt Ltd Vs CCIT, Goa (Dated : March 29, 2012)

Income Tax - Writ - Sections 119(2), 234B, 234C - Whether the Petitioner is entitled for waiver of interest under Sections 234B and 234C when paragraph 2(d) of the Order F. No. 400/29/2002-IT(B), issued u/s 119(2)(a) does not apply to sections 234B and 234C. - Writ Petition dismissed : BOMBAY HIGH COURT

2012-TIOL-171-ITAT-KOL

Machinery Agencies (India) Vs DCIT, Kolkata (Dated : February 17, 2012)

Income tax - Sections 143(3), 263 - Whether revisionary powers can be invoked on the ground that the AO did not take the DVO's report into consideration as the same was received after the passing of the assessment order - Whether the sale consideration of a property can be substituted by market price by invoking the powers u/s 263. - Assessee's appeal allowed: KOLKATA ITAT

2012-TIOL-170-ITAT-KOL

M/s MD Muslim Sheikh Vs ITO, Murshidabad (Dated : November 29, 2011)

Income Tax - Sections 69, 145 - Whether method of accounting consistently followed by the assessee can be discarded without proving that the method followed by the assessee results in distorted profits - Whether any addition under section 69 is permissible even where the linkage of payments made to agent and material purchased has been established. - Assessee's appeal partly allowed: KOLKATA ITAT

¬¬¬¬¬¬¬¬¬

2012-TIOL-169-ITAT-MUM + Cybertech story

Cybertech Systems & Software Ltd Vs CIT, Mumbai (Dated : March 2, 2012)

Income tax - Sections 10B, 10BB, 80HHE, 80-O, 234B, 234C - Whether as per Sec 10BB, the meaning of computer programme also includes a 'process' or 'management of electronic data' - Whether human resource service rendered in the course of development of software programme also falls within the meaning of computer programme as per amended Sec 10B and also Sec 10BB - Whether engagement of programmer and imparting training to them in the process of development and customisation of software programme is also eligible for Sec 10B benefits. - Assessee's appeal allowed: MUMBAI ITAT

2012-TIOL-168-ITAT-MUM

ADIT, Mumbai Vs India Itme Society (Dated : December 12, 2011)

Income Tax - Sections 10(23C)(vi), 147, 253(4) - Income Tax Appellate Tribunal Rules - Rule 22 & 27 - Whether delay of five years in filing cross objections can be condoned on the ground that the assessee was not conversant with the technicalities of the proceedings before the ITAT - Whether a legal plea de hors of the filing of cross objections can be raised at any time - Whether assessment order for one year constitutes material for reopening for other years - Whether approval u/s 10(23C)(vi) once granted has to be followed blindly and the AO has no power to examine the activities of the assessee under scrutiny assessment. - Revenue's appeal partly allowed: MUMBAI ITAT

2012-TIOL-167-ITAT-MUM

Sunidhi Consultancy Services Ltd Vs DCIT, Mumbai (Dated : January 11, 2012)

Income Tax - Section 73 - Whether in terms of provisions of explanation to section 73, loss or profit on account of valuation of shares, in the case of Company carrying on trading of shares, is speculative in nature - Whether expenses incurred on higher education of director's son, who was not taken as an employee of the company, can be claimed as business expenditure. - Assessee's appeal dismissed: MUMBAI ITAT

2012-TIOL-166-ITAT-MUM

ACIT, Mumbai Vs M/s Tarak Chemicals Pvt Ltd (Dated : December 30, 2011)

Income Tax - Section 28(v)(a) - Whether amount received upon complete termination of business operations is taxable as `Capital gain' particularly when right to manufacture is also abandoned. - Revenue's appeal dismissed: MUMBAI ITAT

2012-TIOL-165-ITAT-MUM

M/s Trinetram Consultants Pvt Ltd Vs DCIT, Mumbai (Dated : December 16, 2011)

Income Tax - Section 28 - Whether contention that the shares were held as investment gets diluted when there is no evidence to show that the transactions of shares were delivery based. - Assessee's appeal dismissed : MUMBAI ITAT




SERVICE TAX SECTION

2012-TIOL-385-CESTAT-MUM + Union story

Union Bank Of India Vs CCE & ST (LTU), Mumbai (Dated : March 7, 2012)

Payment made by Union Bank of India to Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) for transfer of funds to member Banks is liable to Service tax under `Banking and other Financial Services' on reverse charge basis – no prima facie case in favour. – Pre-deposit ordered ( Para 2): MUMBAI CESTAT

2012-TIOL-384-CESTAT-DEL

M/s G S Sondh Fabricators Vs CCE, Ludhiana (Dated : February 2, 2012)

Service Tax - Commissioning and Installation - Demand - Service provider claims he is not in receipt of show cause notice, is eligible for exemption for small unit and did not get opportunity to argue his case either before the adjudicating authority or the appellate authority. Matter remanded to the adjudicating authority to decide the case afresh. (Para 3) - Matter remanded:DELHI CESTAT

2012-TIOL-383-CESTAT-DEL

Vandana Travels & Tours Vs CCE & ST, Allahabad (Dated : January 25, 2012)

Service Tax - Rent-a-cab Service - Demand - Service provider claims he is not in receipt of show cause notice, is eligible for exemption for small unit and did not get opportunity to argue his case before the adjudicating authority. Partial pre-deposit ordered. Matter remanded to the adjudicating authority to decide the case afresh. (Para 7) - Matter remanded: DELHI CESTAT

CENTRAL EXCISE SECTION

CIRCULAR

excircular964

Clarification regarding classification of structural components of Boiler and admissibility of CENVAT credit on these structural components – reg.

CASE LAWS

2012-TIOL-230-HC-MAD-CX + Visaka story

M/s Visaka Industries Ltd Vs CESTAT, Chennai (Dated : February 14, 2012)

Central Excise – Stay / Pre-deposit – Grant of Stay Pending disposal of case – though discretion is available, same has to be exercised judiciously – Followed the decision of Apex Court in the case of Ravi Gupta Vs. Commissioner of Sales Tax, Delhi - 2009-TIOL-47-SC-CT - Ordered for furnishing of Bank Guarantee for Rs.4.5 Crores (Para 30). - Appeal Partly Allowed: MADRAS HIGH COURT

2012-TIOL-382-CESTAT-DEL

CCE, Jaipur Vs Vansthali Textile Industries Ltd (Dated : November 22, 2011)

Central Excise - 100% EOU - Exemption Notification - Whether furnace oil is 'consumable' - Contention of Revenue is that furnace oil is not a "consumable" as given in the Import Export Policy and that furnace oil is not consumed in the manufacture of terry towels.

HELD - Steam is required for manufacture of terry towels and furnace oil obtained was used for producing steam and steam was consumed in manufacture of terry towels. Hence, furnace oil is to be considered as "consumable" and benefit of exemption notification is allowed. Appeal dismissed. (Para 8): DELHI CESTAT

CUSTOMS SECTION

NOTIFICATION

dgft10not110

Validity of extension for export of 6,50,000 tons of wheat products upto 31.03.2013

CASE LAWS

2012-TIOL-381-CESTAT-BANG

P M Abdul Nazer Vs CC, Cochin (Dated : August 11, 2011)

Customs – Seizure of foreign origin gold biscuits resulting in absolute confiscation and levy of penalty – Gold biscuits found covered with cellophane tapes and kept concealed inside a long cylindrical cloth cover tied around abdomen of the carrier – No valid documents produced to prove licit import of foreign origin gold biscuits resulting in seizure – Carrier deposed under s. 108 of Customs Act, 1962 that appellant provided money for purchase of gold biscuits, which was also admitted by appellant in his statement under s. 108 ibid – Evidence on record indicates that carrier was carrying gold biscuits only at the instance of the appellant for a monetary consideration – Appellant could not adduce evidence of licit nature of goods – No evidence of any valid claim by the carrier or anybody else on the gold biscuits – Absolute confiscation of goods under s. 111(d) ibid upheld – Penalty of Rs. 3.6 lakhs disproportionate vis-à-vis value of goods determined by authorities – In the facts and circumstances of the case, quantum of penalty reduced to Rs. 1 lakh – Sections 108, 111(d), 112, 121 and 125 of Customs Act, 1962 - Appeal disposed of :BANGALORE CESTAT

Wednesday, April 16, 2014

Amount of wife deposited in the assesses account with can not be treated as unex

 

Amount of wife deposited in the assesses account with can not be treated as unexplained

Facts, in brief, as per relevant orders are that on the basis of information received from the office of Addl.DIT (Investigation), Ghaziabad that the assessee deposited cash in his bank account No.785 in Punjab National Bank, BB Nagar, Ghaziabad during the period April, 1998 to March, 2000 while he did not file his returns for the relevant assessment years, a notice u/s 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act) was issued to the assessee on 24th August, 2005 for the AYs 1999-2000 to 2000-2001, after recording reasons in writing. The assessee did not furnish any return even in response to the said notice nor responded to the said notice. Accordingly, a notice dated 27.03.2006 was issued u/s 142(1) of the Act. None responded to \this notice also. Later, the ld. AR on behalf of the assessee appeared before the Assessing Officer [AO in short] on 19th April, 2006 when he was again requested to file the return of income and explain the source of cash deposited in the bank account during the year under consideration. However, on the adjourned date of hearing, none appeared. Subsequently, in response to summons issued u/s 131 of the Act on 19.10.2006, the assessee appeared and his statement was recorded on oath on 30.10.2006,wherein he admitted, inter alia, having purchased house no. SI-23,Shastri Nagar,Ghaziabad in the FY 1999-2000. The assessee also stated that his only source was salary income from the service in Railways and that his household expenditure was Rs. 5,000/- to Rs. 6,000/- pm. In the FYs 1998-99 & 1999-2000. Since the assessee did not explain the source of cash deposited in his bank account in the year under consideration with any cogent evidence despite sufficient opportunity allowed as detailed in the assessment order nor explained sources of investment in house purchased for Rs. 3,00,700/- , the AO added amount of ` 1,36,500/- on account of cash credited in bank and `3,00,000 on account of unexplained investment in house

INCOME TAX APPELLATE TRIBUNAL, DELHI

ITA No.5482/Del/2010 - Assessment year: 2000-01

Sh. Sanjay Srivastava V/s. Income Tax Officer

Date of pronouncement 12-03-2012

O R D E R

A.N.Pahuja:- This appeal filed on 06.12.2010 by the assessee against an order dated 20th July, 2010 of the learned CIT(A)-XXVII, New Delhi, raises the following grounds:-

1. That on the facts and in circumstances of the case, the initiation of proceedings u/s 147 and consequently issue of notice u/s 148 is wrong and illegal as against the provisions of law contained u/s 149(1) of the Act.

2. That Assessing Officer and CIT(A) has failed to appreciate that out of the alleged cash deposits of Rs. rs. 1,36,500/- in his bank account. It includes the deposits also out of his salary income received in cash which was of about Rs. 7,500/- p.m. during the period, which comes to Rs. 90,000/-.

3. That the Assessing Officer and CIT(A) further failed to appreciate that the entire investment Assessee by Shri V.K. Sabharwal,AR Revenue by Ms/ Mamta Kochar , DR in the house was out of his accumulated funds available in his SB A/c, from declared and explained sources of himself and for his wife.

4. That the learned CIT(A) was furthr not justified and had erred in law to upheld the major portion of additions made by the Assessing Officer, without appreciating that the additional evidence failed under rule 46A, has not been adjudicated.

5. That the Assessing Officer and CIT(A) has further not appreciated that the Assessing Officer has charged the tax on the same receipts thrice a time, while finalizing the assessment proceedings, without adjudicating the information and documents filed and available with him.

6. That the interest charged u/s 234B and 234C is further illegal as against the law and to the facts of the case, as such, not tenable.

7. The assessee assails his right to amend, alter or change any grounds of appeal at any time, even during the course of hearing of this instant appeal.

2. Facts, in brief, as per relevant orders are that on the basis of information received from the office of Addl.DIT (Investigation), Ghaziabad that the assessee deposited cash in his bank account No.785 in Punjab National Bank, BB Nagar, Ghaziabad during the period April, 1998 to March, 2000 while he did not file his returns for the relevant assessment years, a notice u/s 148 of the Income-tax Act, 1961 (hereinafter referred to as the Act) was issued to the assessee on 24th August, 2005 for the AYs 1999-2000 to 2000-2001, after recording reasons in writing. The assessee did not furnish any return even in response to the said notice nor responded to the said notice. Accordingly, a notice dated 27.03.2006 was issued u/s 142(1) of the Act. None responded to \this notice also. Later, the ld. AR on behalf of the assessee appeared before the Assessing Officer [AO in short] on 19th April, 2006 when he was again requested to file the return of income and explain the source of cash deposited in the bank account during the year under consideration. However, on the adjourned date of hearing, none appeared. Subsequently, in response to summons issued u/s 131 of the Act on 19.10.2006, the assessee appeared and his statement was recorded on oath on 30.10.2006,wherein he admitted, inter alia, having purchased house no. SI-23,Shastri Nagar,Ghaziabad in the FY 1999-2000. The assessee also stated that his only source was salary income from the service in Railways and that his household expenditure was Rs. 5,000/- to Rs. 6,000/- pm. In the FYs 1998-99 & 1999-2000. Since the assessee did not explain the source of cash deposited in his bank account in the year under consideration with any cogent evidence despite sufficient opportunity allowed as detailed in the assessment order nor explained sources of investment in house purchased for Rs. 3,00,700/- , the AO added amount of ` 1,36,500/- on account of cash credited in bank and `3,00,000 on account of unexplained investment in house.

3. On appeal, the ld. CIT(A) upheld the aforesaid additions in the following terms:-

"10. Two main issues arise out of the additions made in the assessment.

Issue no.1: Addition of Rs. 1,36,500/- on account of cash credits into the bank account.

I have considered the findings of the Assessing Officer as well as submissions made by the Assessing Officer. The Assessing Officer at the time of survey had contacted the DDO of the assessee. The Assessing Officer observed as under:

"As the assessee informed that he has no information in his possession about the total salary received in financial year 1998-99 and 1999-2000 and he had not been issued salary details by his employer despite his request, therefore, a summon u/s 131 was issued to his DDO on 10.11.2006 and he was requested to furnish monthly payment of salary and other payment made to the assessee during the financial year 1998-99 to 1999-2000. The pay office of the assessee furnished salary statement of Shri Sanjay Srivastava on 20.11.2006, financial year 1998-99 and 1999-2000. As per the statement, the gross salary of the assessee for the assessment year 1998-99 was Rs. 79,504/- and after deduction of PF and insurance contributions, net salary paid to the assessee during the financial year 1998-99 was Rs. 75,148/-. Similarly, the gross salary for the financial year 1999-2000 was Rs. 92,996/- and after deduction of Rs. 4,520/- on account of PF and insurance net salary was Rs. 88,476/-."

10.1 This being the case, in his statement (vide question-13) the assessee was asked to explain the source of cash deposits in his bank account No. 785 amounting to Rs. 1,36,500/- for the present Financial Year. The assessee replied that "he has seen the copy of bank statement and he accepts there are cash deposits on various dates during the Financial Year 1998-99 and 1999-2000. He had stated that he might have some small amounts saving deposited in his said account. However, he further admitted that he was not above to substantiate any deposit having been made out of savings of his salary income and he also admitted that he could not explain the sources of deposits of Rs. .1,30,000/-. Similarly, he could not explain the sources of deposits ofRs. .1,36,500/- in the said bank account and could not substantiate the same for the financial year 1999-2000 as well."

10.2 In view of the above facts, the Assessing Officer assessed the sum of Rs. .1,36,500/- as income from unaccounted sources & out of undisclosed income. The onus was on the appellant to prove that such cash deposits made over & above his salary income is properly sourced. The appellant failed to establish this fact either during the course of assessment or during the course of appellate proceedings. I, therefore, find merit in the addition made by the Assessing Officer & accordingly the addition of a sum of Rs. .1,36,500/- is sustained.

Issue -2 : Addition of Rs. 3,00,000/- on account of unaccounted & undisclosed expenditure/investment of purchase of house.

11. The assessee made an investment of Rs. .3 lakhs in the purchase of house which was attributed to be out of loans from father & father-in- law. However, the appellant was unable to substantiate the same by way of evidence except merely filing certain self-serving affidavit to show that the appellant had sources for the investment made in the house.

11.1. The various submissions made by the appellant can be summarized as below:

"on the basis of information received from the office of Additional Director of Income Tax (Investigation), Ghaziabad, that the appellant has made cash deposits amounting to Rs .1,30,000/- only on different dates in his saving bank alc no.785 maintained in Punjab National Bank, B.B. Nagar, Ghaziabad, during the year 1998-1999 (relevant to assessment year 1999-2000) and Rs .1,36,500/- found to be deposited in the same bank account during the financial year 1999-2000 (relevant to assessment year 2000- 2001).

During the course of preliminary enquiries, the ADIT after having found not been satisfied with the information and explanation given, documents produced, referred the matter to the concerned Assessing Officer having territorial jurisdiction of this case, therefore, on the basis of said information, the Assessing Officer issued notice u/s. 148 to the assessee for the Assessment Year 1999-2000 and 2000-2001 respectively. Thereafter, the notices u/s. 142(1) followed, coupled with the summon u/s 131 of the Income Tax Act for 30.10.2006 and for 24.11.2006 respectively, which were complied by the assessee. During the course of his investigation, he explained that the funds deposited to the tune of Rs .1,30,000/- during the year 1998-1999 and Rs 1,36,500/- during the year 1999-2000 (Assessment Year 2000-01) in his saving bank a/c no.785 maintained with PNB, B.B. Nagar Branch, Ghaziabad were either from his past personal accumulated savings, re-deposits from the cash withdrawn earlier from the same bank a/c or from the contributions from his wife, who was having the tuition income at that time and from other family members (father and father in law). The appellant has further explained and elucidated with the evidence that being a Govt. servant, he was not having any other income except the salary income, which was not presumed to be escaped to charge any tax thereupon. The Assessing Officer without suggesting him to file further evidence in support thereto of his statement given and facts explained, he rather mis-interpreted and twisted the facts in order to make further additions in the hands of the appellant. The Assessing Officer has further not appreciated, that out of the said deposits, the appellant has further made investment for the purchase of property after withdrawing the funds from his said account for Rs .3,00,700/-, as such the amount could not be added twice in the hands the appellant to charge tax thereupon, which interalia confirm that the assessment order passed were laconic and ironic in nature, as such suffers from infirmity, therefore, not sustainable in the eyes of law. The orders passed are further frivolous and vexatious having no sanctity under the law, because no notice, if any, has ever been issued by the Assessing Officer u/s. 143(2) of the Act prior to complete the proceedings u/s. 147/144 of the Act. The Assessing Officer while passing the orders, no deductions allowable under the law have further been allowed towards the PF and GPS to the appellant, which proves the infirmity about the orders passed by the Assessing Officer. This apart, the deductions have further not been allowed to the appellant for the HRA drawn and spent for the said years. Therefore, the additions made in the declared income are frivolous and vexatious.

With regard to the deposits of a sum of Rs .1,36,500/- on different dates in his SB Alc No. 785 maintained with PNB, B.B. Nagar Branch, Ghaziabad, during the year, the assessee has prepared a cash flow statement on the basis of debit/credit entries reflecting in his said Bank account on date-wise from the perusal of which, it is clear that the mode of deposits pertains either to the receipt of monthly salary, amount received from his wife Mrs. Sarita Srivastava, who was not maintaining any separate bank etc at that time, or from the redeposit of cash in the same bank alc, which withdrawn earlie., Since the cash flow statement prepared for the period from 01.04.1999 to 31.03.2000 was a fresh evidence, therefore, the same was filed along with the Petition under Rule. 46A of the Income Tax Rules, 1962, with the request to afford an opportunity to the Assessing Officer for its examination and to submit his report immediately, but though a considerable period has been elapsed, and he has been contacted telephonically number of times but the same has not so far been sent, as such, an adverse inference may please be drawn against him and accept the documents filed by the appellant in view of the judgments decided on the identical issue in the case of: CIT Vs. Motor General Finance Ltd. Reported in 254ITR 449 Basically the orders passed by the Assessing Officer are wrong on facts and erroneous on the point of law, because the Assessing Officer was having information, only to the extent, that a sum of Rs 1,36,500/- has been credited by the assessee on different dates in his SB Alc for which he is having not any proper explanation thereof.

Though the assessee was having proper explanation with regard to the deposit of cash of Rs 1,36,500/- during the year in his SB A/c, out of his salary income, amount received from his wife Mrs. Sarita Srivastava, to be deposited in the bank because of not maintaining any separate bank account of her own, out of which the assessee has spent a sum of Rs .3,00,000/- for the purchase of house during the year, but the Assessing Officer has made double additions while finalizing the Assessment proceedings, one for the received of an amount of Rs .1,36,500/- and secondly the amount withdrawn from his said bank account and utilized for the purchase of property during the year of Rs .3,00,000/-, therefore, the order passed could not be sustained at all in the eyes of law. Besides the above, the officer failed to allow deductions of HRA, Contribution to the GP Fund etc. while finalizing the Assessment proceedings, which is also against the law and to the facts of the case. The Petition filed uls Rule 46A was also supported with the Affidavits of the wife of the appellant that she has handed over certain amounts out of her annual income to the appellant for depositing the same in his said SB A/c, as she was not maintaining any separate bank a/c of her own at that time. From the submissions made hereinabove, it is clear that the order passed by the Assessing Officer is against the law and to the natural justice, as such the additions made are frivolous and vexatious and liable to be deleted and may please be deleted accordingly.

The copy of Petition filed under Rule 46A coupled with cash flow statement prepared for the period 01.04.1999 to 2000 with copies affidavits filed by Mrs. Sarita Srivastava wife of the appellant along with the said Petition are again enclosed herewith for your honour's perusal and records."

12. Determination:

I have carefully gone through the submissions made by the appellant as well as the findings of the Assessing Officer. In the absence of evidence to the effect that the investment in the house purchase, a sum of Rs 3,00,000/- was brought to tax by the Assessing Officer. However, the Assessing Officer has not appreciated the fact that a sum of Rs. 1,36,500/- has already been taxed by him as unexplained deposits. It is the contention of the appellant that the investment in the house is partly out of such cash deposited and withdrawn. In the light of the submissions made by the appellant and facts and circumstances of the case, I find merit in the argument of the appellant that a reasonable part of such cash deposits has been invested in the purchase of house. Accordingly, the telescoping of such investment of a sum of Rs. 1 lac can be reasonably be accorded to the assessee having been made for investment in purchase of house. Therefore, the appellant is to be assessed at a sum of Rs. 2 lakhs instead of Rs. 3 lakhs added by the Assessing Officer."

4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, the ld. AR on behalf of the assessee while inviting our attention to an order dated 18th January, 2010 in assessee's own case in I.T.A. no.933/D/2009 for assessment year 1999-2000 contended that since similar issues in the preceding assessment year have been restored to the file of the AO , accordingly, the matter in the year under consideration may also be restored to his file for allowing sufficient opportunity to the assessee to explain his case. The ld. DR did not oppose these submissions of the ld. AR.

5. We have heard both the parties and gone through the facts of the case. We find that a co ordinate Bench while adjudicating a similar issue in the preceding assessment year 1999-2000 concluded in their order dated 18th January, 2010 as under:-

"3.5 We have carefully considered the submissions and perused the records. Rules of natural justice and fair play demand that the assessee should be given an opportunity to rebut the adverse inference drawn against him. In our considered opinion, in the interest of justice, it will be appropriate to remit the issue to the files of the Assessing Officer to consider the same afresh. Accordingly, we remit the issue on merits in this case to the files of Assessing Officer to examine the same afresh. Needless to add that the assessee should be given adequate opportunity of being heard."

6. Since facts and circumstances prevailing in the year under consideration are ,indisputably, similar to the facts and circumstances in the preceding year, following the view taken by a co-ordinate Bench in the preceding year , we consider it fair and appropriate to restore the issues raised in ground nos. 1 to 5 before us to the file of the AO for readjudication in accordance with law after allowing sufficient opportunity to the assessee. With these observations ground nos. 1to 5 in the appeal are disposed of.

7. Ground no.6 relates to levy of interest U/s 234B and 234C of the Act. The ld. AR on behalf of the assessee did not make any submissions on this ground. The levy of interest u/s 234B & 234C of the Act being mandatory [Commissioner Of Income Tax.vs Anjum M. H. Ghaswala And Others,252 ITR 1(SC), affirmed by Hon'ble Apex Court in the case of CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449(SC) and in the case of CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564(SC)], this ground is dismissed. However, the AO shall allow consequential relief ,if any, while giving effect to our aforesaid directions. With these directions ,ground no.6 is disposed of.

8. No additional ground having been raised before us in term of residuary ground no. 7 in the appeal , accordingly, this ground is dismissed.

9. No other plea or argument was made before us.

10. In the result, appeal is partly allowed but for statistical purposes.

Order pronounced in open Court
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