Saturday, December 18, 2010

Unreported Tribunal Bench orders

1.Taxation of receipts pertaining to society formed for maintaining building constructed by Builder vis a vis BUILDER: Tirushri Builders & Developers Pvt. Ltd. ITA No. 5406/Mum/09 15th December, 2010: Held In any case, if at all some amount was left with the assessee out of society deposits received from the flat owners, the same was held by it as trustee of the flat owners till the society is duly registered and the same was liable to be transferred by the assessee to the society on its formation. In our opinion, the addition made by the A.O. on this issue thus was not sustainable either in the facts of the case or in law and the ld. CIT(A) was fully justified in deleting the same.

2. Mr. Peter Fernandes ITA. Nos. 3968 & 3969/Mum/2008 15th day of December, 2010. Assessee Builder followed Completed Contract Method : Held/Interalia

The Assessing Officer in our opinion has resorted to the estimation of income even though the assessee is following the project completion method and there is no finding that assessee has completed the project in the year under consideration. As seen from the details assessee has sold flats to the extent of Rs. 2.87 crores whereas work-in-progress was also shown at Rs. 2.37 crores. Estimation of income on the basis of Champion Construction Co. (supra) will arise only when the assessee has completed substantial part of the project. The total project cost was also not on record to examine this issue.

3. Securities Taxation: Capital Gains versus Business Income: Classification Dispute: Nehal V. Shah: ITA No. 2258/Mum/08: 15/12/2010:

We have considered the rival submissions and carefully perused the record and find force in the submissions of the learned Counsel for the assessee. It seems that number of transactions have not been calculated properly by the Assessing Officer because it may happen some time that a single transaction would be split by the computers trading of the stock exchanges into many smaller transactions, but, that does not mean that assessee has carried so many transactions. Let us say, if some one places an order for purchase of 1000 shares of 'X' company and the same is executed by the electronic trading system of stock exchange into 100 smaller transactions, it does not mean that this person has entered into 100 transactions. Assessee has carried out only 31 purchase transactions and 25 sale transactions which cannot be said to be a great volume of transactions. Further, assessee was holding shares worth Rs. 11.56 crores at the end of the year and market value of the same was about Rs.17.69 crores. If assessee was a trader, he would have definitely realised this huge profit of almost Rs. 6 crores immediately and not carried out the stock to the next year

4. Share Application Money: Delhi Benches orders 10/12/2010: in cases of M/s. Ajnara India Ltd & Funny Time Finvest Ltd.: I.T. A. No.3612/Del/2010 & I.T.A No. 1278/Del/09: Held resp: a) In the present case, it is not in dispute that the assessee has furnished permanent account number or copy of income-tax returns of all the share applicants and the same has not been found to be false or untrue by the Assessing Officer. The assessee has also produced the certificate of incorporation of company under the Companies Act along with their identification number. All these documents were duly furnished before the Assessing Officer and the Assessing Officer has not brought any material to the contrary. The AO has merely stated that the assessee has not been able to prove the identity of the creditors or share applicants because they were not found available at the given addresses by the Investigation Wing but that by itself is not sufficient to controvert the various documents or papers filed by the assessee such as Permanent Account No., copy of Income-tax return, copy of certification of incorporation and other details. The assessee has also produced the bank details of the share applicants which goes to indicate and establish that all the share applicants were existing account holders and were operating the bank account as per norms fixed by the bank. Therefore, identity of the creditors can said to have been proved by the assessee and department has not been able to rebut the same. In that case(Dwarkadhish), before the Hon'ble High Court, it has also been held that genuineness of the transactions can be proved by showing that the money in the books had been received either by account payee cheque or by draft or by any other mode, which condition is satisfied in the present case before us. It is not in dispute that the assessee has received the share application money by account payee cheque, and details of the bank account of share applicants as well as of the assessee have been duly furnished. Therefore, in the light of the above-referred decision of Hon'ble Delhi High Court, we hold that the assessee has been able to discharge its initial burden to prove the identity of the creditors and genuineness of the transaction. The same cannot be rejected merely because the creditors or share applicants could not be found at the address given and it would not give the revenue the right to invoke sec. 68 of the Act.

b) In the light of these observations, if we examine the material placed on record by the assessee as well as the finding of Ld. CIT(A) then it will reveal that assessee has discharged its onus. The AO has just made general observation. Whatever material he was possessing it was sufficient to start the investigation, but Ld. AO instead of collecting concrete material treated that half baked information as a conclusive proof for doubting the share application money received by the assessee in this year. As far as the decisions of the Tribunal relied upon Ld. DR are concerned we are of the view that in the case of Dhingra Global Credence Pvt. Ltd. Tribunal has made an observation on page 10 that all the papers are manufactured at the instance of assessee and do not depict the real transaction. We do not find any evidence collected by the AO in the present case for holding so.

5. Mumbai ITAT Shri S Ganesh: assessee is an Advocate: ITA No. 527/Mum/2010: 8th, day of Dec 2010.: AIR based assessment: Alleged unaccounted receipts etc: Facts: The assessee, vide letter dated 8.10.2008 submitted that all professional fees are received by way of cheques and all such cheques received are deposited in his HDFC account. It was further submitted that professional receipts disclosed by the assessee are more than the receipts shown in AIR information and accordingly, there is no discrepancy. The Assessing Officer noted that 40 items amounting to ` 47,37,000/- as per page 3 & 4 of the assessment order has not been disclosed as professional fees receipts in respect of the said parties. Since the assessee could not furnish party-wise details of professional fees received during the year and also could not reconcile with the AIR information, except by giving vague reply stating that the professional receipts disclosed by him are much more than the professional receipts shown in the AIR information and in the absence of any satisfactory explanation, the Assessing Officer made an addition of ` 47,37,000/- being professional fee not disclosed by the assessee as per AIR information HELD: We find sufficient force in the above submissions of the assessee. Admittedly, the revenue has not controverted the submissions of the assessee before the Assessing Officer during the assessment proceedings as well as remand proceedings that all professional fees received are by way of cheques and all such cheques have been deposited in his Oriental Bank of Commerce Account, South Extension Branch, New Delhi (vide letter addressed to Assessing Officer on 8.10.208). Therefore, in absence of any contrary material brought by the revenue authorities that the assessee has received amount more than the professional fees than what has been declared by him, no addition should have been made.

6. Delhi ITAT: M/s Subros Ltd., I.T.A. No. 3315/Del/2006 10/12/2010.: Prototypes: Revenue/Capital Expense: Held : Ld. Departmental Representative during the course of argument has also agreed that these prototypes keep on changing very frequently, as per the market conditions. Under such circumstances, in our considered opinion these payments for the prototypes i.e. application works cannot be said to be providing advantage of enduring benefit so as to fall in the capital field. In this regard, we place reliance upon the decision of the Hon'ble Apex Court in the case of the Empire Jute Co. Ltd. vs C.I.T. reported in 124 ITR 1. In this case it was held that deciding upon where the expenditure is capital or revenue what is the material to be considered the nature of the advantage in the commercial sense and it is only where the advance is under the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. We find that in the present case the prototypes developed by DENSO Corporation for the assessee are not everlasting. The keep on changing due to the development of new technology very frequently.

It is on these prototypes that the products are patterned by incurring such expenditure. Assessee is not acquiring any capital asset. The prototype only facilitates development of appropriate ACs comprising of compressor, condensers, evoparoters, cooling units. Thus these prototypes by themselves only facilitate the development of the new models of these air conditioners. Hence, in our considered opinion, this cannot be termed as capital expenditure.

7.Hyd Bench Shri Anil Agarwal, Hyderabad ITA No.22/Hyd/2010 30th November, 2010: Illegal Assessment Order: Held in facts: During the appellate proceedings, the assessee stated before the CIT(A) that neither the assessment order was passed nor served upon him in time. Further, stated that the served assessment order or demand notice bears no signature of the assessing officer and only unsigned copies of assessment order was certified by the successor of the assessing officer was served to him The CIT(A) after going through the file of the assessing officer found that there was neither order sheet attached nor record of assessment proceedings is available on the file of the assessing officer. The CIT(A) also found that there was no valid assessment order on record. Thus, he) came to the conclusion that the valid assessment order was not passed in this case. THAT: After hearing the both the parties, we are of the opinion that the learned DR was not able to controvert the findings of the CIT(A) wherein he held that there is no valid assessment order was passed in this case. In view of this, we are inclined to dismiss the grounds taken by the Revenue placing reliance on the judgement of Hon'ble Supreme Court in the case of Smt. Kilasho Devi Burman and Others Vs. CIT (1996) (219 ITR 214) (SC) wherein it was held that for an assessment order to be valid it has to be signed by the assessing officer. Section 153 of the Income Tax Act states that the order u/s 143 of the IT Act cannot be made after the expiry of two years from the end of the assessment year in which the income was first assessable.

8. Delhi Bench Concealment Penalty Section 14A Cases of addition: Held Nalwa Investments Ltd.: ITA No. 3805(Del)/2010: On careful consideration ofvarious cases relied upon by the assessee, it is found that three major propositions arise therefrom –(a) penalty proceedings are quasi-criminal in nature and, therefore, it is for the revenue to establish contumacious conduct on the part of the assessee; (b) if all facts in respect of a claim have been furnished fully and correctly and no falsity is found therein, then, the claim made on the basis of such facts does not lead to inference of concealment of income and (c) the penalty is not leviable when there is honest difference of opinion between the assessee and the authorities in respect of admissibility of a claim. In so far as proposition at (a) above is concerned, the same stands displaced by the decision of Hon'ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors (2008) 306 ITR 277. It has been held in this case that the penalty is levied for compensating the revenue on account of a wrong claim made by the assessee and it is civil in nature. Coming to the proposition at (b) above, claim of interest and expenditure finds a mention in the profit and loss account. As such no further facts have been furnished. No computation of disallowance was made u/s 14A as no disallowance was made in the return of income. However, the accounts have been audited and the return was accompanied by the tax audit report. The latter did not suggest any disallowance u/s 14A. Therefore, it can be inferred that all expenses were claimed in full as the auditors did not suggest disallowance of any part of the expenditure relating it to the dividend income. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the AO that there was any collusion between the auditor and the assessee to enhance the loss in the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide…

9. Mumbai ITAT Saif Properties & Multi Trading Pvt. Ltd. I.T.A. No.1108/Mum/2009 8th Dec, 2010.: Section 68 cash credits etc: We have considered the rival submission made by both the sides, perused the orders of the AO & the CIT(Appeals) and the paper book filed on behalf of the assessee. We find the AO made the addition of Rs.1,37,94,470/- being the loan taken from the director Mr. Sajjid Khan on the ground that the same is false and that the assessee company's own money has been introduced in the books in the guise of loan which is form undisclosed source…. As stated by the AO it is also a fact that the assessee company had not done any business during the year. Since, the company was incorporated only on 15.09.2004, therefore, there was no business in the past. Therefore, the presumption of the AO that assessee's own money introduced in the books of accounts, in the guise of loans which is from undisclosed sources, in our opinion is baseless.

10. Mumbai ITAT John Fowler (India) Pvt. Ltd. (Formerly known as John Fowler (India) Ltd.), Expenses on Buy Back of Shares; Prior Period Expenses : We find that the facts are not in dispute inasmuch as the assessee has incurred the expenses of Rs.11,56,818 on fees and other services, DD charges, advertisement and publicity, printing and stationary, traveling, telephone, sub-contract labour expenses, postage and filing fees to buy back its own shares and thereby increase in paid up capital. It is not the case of the revenue that the said expenses incurred by the assessee are not in relation with the such share capital or there is any flow of funds or increase in the capital employed. It is also not the case of the revenue that there is any increase in the assessee's assets or the company has acquired any right of revenue yielding nature….

Applying the ratio of above decisions to the facts of the present case and keeping in view the rule of consistency, we hold that the expenditure incurred by the assessee on buy back of shares does not result in any advantage of enduring nature and accordingly the disallowance of expenses of Rs.11,56,868 made by the Assessing Officer treating the same as capital expenditure and confirmed by the learned CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed………. 27. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that the prior period expenses claimed by the assessee are in the nature of payment of overtime stipend, service charges, railway claim, commission, sales returns, club expenses, equipment maintenance, postage, courier charges, water charges, AMC charges, erection and commissioning, printing and license fees etc. The claim of the assessee is that it has incurred the said expenses at the fag end of the preceding financial year but the liability has been determined and crystallized in the year under consideration and in support the assessee has also filed vouchers………… we respectfully following the consistent view of the Tribunal (supra) hold that merely because the liability relates to the transaction of the earlier years does not mean that the same is not allowable in the absence of any material to show that the liability was not determined and crystallized in the year under consideration and accordingly the disallowance of Rs.5,33,782 made by the Assessing Officer and sustained by the learned CIT(A) is deleted. The grounds taken by the assessee are therefore allowed.

11. Alleged Bogus Loss in Share Transactions in Exit from Joint Venture: Indian Express Newspapers (Bom) Ltd: ITA No. 2258/Mum/08 It is observed that the reason for making an exit from the joint venture company by selling the shares held by it to the joint venture partners was explained by the assessee as its inability to infuse more funds in the said company. The said joint venture company was admittedly running into losses and as a result of accumulation of substantial loss, there was a requirement of infusing more funds for the survival of the said company. As a matter of fact, the assessee company and the joint venture partner had introduced some additional funds in the form of share capital in the said company on the earlier occasion. Since the assessee company was not in a position to infuse more funds in the joint venture company, an understanding was reached by it with the joint venture partner whereby the joint venture partner agreed to purchase the shares held by the assessee in the joint venture company at a lumpsum consideration of Rs. 1.76 crores. The terms and conditions of the said understanding were formalised in the form of an explicit agreement and the said agreement was approved by the FIPB. The A.O., however, doubted the genuineness of the transaction involving the transfer of shares of joint venture company by the assessee company and disallowed its claim for long term and short term capital loss arising from such transfer mainly for two reasons. Firstly, he held that the said transfer of shares was effected at a price of Rs. 5.64 as against Rs. 10/- per share paid by the assessee company itself while introducing additional funds just six months earlier. In this regard, it has been explained on behalf of the assessee company that there was an understanding between the joint venture partners to introduce the additional funds required by the joint venture company in equal proportion at a face value of Rs. 10/- per share. Moreover, the additional funds were introduced by the assessee company in the joint venture company by way of purchase of shares @ Rs. 10/- each for the survival and revival of the said company as an investor with no idea of making exit from the joint venture at that stage. The other objection of the A.O. was that the assessee failed to give any basis for the price of Rs. 5.64 per share at which the shares in the joint venture company were sold by it to the joint venture partner. However, as rightly submitted on behalf of the assessee before the authorities below as well as before us, the book value of the shares of the joint venture company at the time of transfer was only Rs. 2/- and this being the undisputed position, the price of Rs. 5.64 per share agreed between the assessee company and joint venture partner was quite favourable to the assessee. In our opinion, the reasons given by the A.O. for doubting the genuineness of the transaction of shares which was duly supported by an agreement as well as approval of FIPB to the said agreement were not tenable in the facts and circumstances of the case and the ld. CIT(A) was fully justified in accepting the said transaction as genuine and in allowing the claim of the assessee for short term and long term capital loss.

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