Where FMV declared by assessee was more than FMV declared by DVO, estimatio

Where FMV declared by assessee was more than FMV declared by DVO, estimation of FMV as made by assessee was to be accepted - [2011] 10 taxmann.com 99 (Mum. - ITAT)

Activity of assembling wind mills would amount to 'manufacture' as well as

Activity of assembling wind mills would amount to `manufacture' as well as `production' of a thing or article as set out in section 80-IB(2)(iii) - [2011] 10 taxmann.com 81 (Mad.)

Payment made by Indian customers to Singapore Company for use of telecom ne

Payment made by Indian customers to Singapore Company for use of telecom network infrastructure is royalty for use of `process'

Income-tax : The payment made by the Indian customer to Singapore company for use of telecom network infrastructure is not royalty for the use of equipment, it is the royalty for the use of `process' [Section 90 of the Income-tax Act, 1961 read with Article 12(3) of the Indo-Singapore DTAA - Double Taxation Relief - Where agreement exists (Royalties and Fees for Technical Services)] - [2011] 10 taxmann.com 93 (Chennai - ITAT)

When Commissioner (Appeals) calls for remand report in a case.

When Commissioner (Appeals) calls for remand report in a case, Assessing Officer is under an obligation to place on record proper facts instead of merely challenging power of Commissioner (Appeals) to call for remand report - [2011] 10 taxmann.com 94 (Mum. - ITAT)

Exclusion of income up to date of search is permissible only if time for fi

Exclusion of income up to date of search is permissible only if time for filing return for relevant assessment year is not already over and income was found to be accounted for by assessee - [2011] 10 taxmann.com 111 (Ker.)

Types of frauds by promoters or companies.

Types of frauds by promoters or companies
Posted in Company Law Type: News on June 29, 2011

Methods or types of frauds by promoters or companies:

During the course of investigation by SFIO over the years, different types of frauds/fraudulent activities have been unearthed. Some of the types of frauds are illustrated below:

(a) Project Financing:

In one of the cases investigated by SFIO, it was noticed that an Indian company imported second hand plant and machinery from its parent company at a very high price. This over valued plant and machinery was used to obtain higher term loans from funding institutions. The loan amount thus obtained was transferred to parent company as payment liability against such plant and machinery. It was also noticed that the Indian company had received different invoices for majority of its machinery for submission to different Government agencies.

(b) Frauds during operations:

In one of the cases investigated by SFIO, it was noticed that an Indian company raised bills showing trading of diamonds among its various group companies in circular manner viz company "A" selling to "B", then "B" selling to "C" and again "C" selling back to "A". Thus, in this process, no goods were transferred and only sale and purchase bills were raised. These bills were discounted with banks and the company received huge amount of rupees as advance from banks against such bills. Initially the company complied in repayment of amount specified in the discounted bills after prescribed period. However, after sometimes, payment was stopped and main promoter of the company who was controlling all the affairs of the company fled the country and the company stopped functioning resulting into huge amount of bank funds becoming NPA.
In some cases investigated by SFIO, huge payments were shown to have been made to petty suppliers of steel items or to group companies during the period of construction of project by recording of supply of materials made by these entities. All these supplies were reflected in the books of account as work-in-progress, which was not verifiable, and during the course of investigation, these petty suppliers were found either nonexistent or not traceable. Group companies were also found to be either woundup or non-operational with no director of those companies being traceable. Funds transferred to these entities showing supply of material were found to have been taken out in cash by rotating through certain accounts or showing payments for certain non-verifiable expenses.

(c) Falsification of Financial Statements:

In some cases investigated by SFIO, it was found that, by following two accounting years, company was showing losses or very nominal profit in the Profit & Loss account filed to the Income tax department. However, huge profit was being shown in the Profit & Loss accounts filed with stock exchanges, ROC etc. The different amount of profits in the two sets of Profit & Loss Account for the same year was shown by resorting to valuation of stock at inflated value in the Profit & Loss Account that was filed with ROC, Stock exchanges following the accounting year other than financial year. In few cases, sales having heavy profit margin were recorded in those months, which were included in the accounting year followed for preparing the Profit & Loss Account filed with ROC and used for the purposes of investors or other stakeholders.

Source: MCA

Bundle of case law

IT : Where pursuant to an agreement a US company, which had a global central purchasing unit (CPU) in USA allowed access to use of CPU to assessee and assessee made payment to said non-resident company on account of link charges, since manner in which services were provided could not be easily ascertained matter was to be remanded to lower authorities for deciding as to whether payment amounted to `royalty' or `fees for technical services' in order to bring it to tax in India - [2011] 11 taxmann.com 225 (Mum. - ITAT)

IT : By way of amendment made in section 43(5) with effect from 1-4-2006 legislature did not intend to take away brought forward losses of dealing in derivatives or make them ineligible for being set off against profits of same business in subsequent years - [2011] 11taxmann.com 231 (Mum. - ITAT)

IT : Assessing Officer after making enquiries has taken a permissible view on a issue while passing assessment order and if on same facts Commissioner has a different opinion, revisionary proceedings under section 263 cannot be initiated by him - [2011] 11 taxmann.com 230 (Ahd. - ITAT)

IT : Where financial data of three comparable companies were not before Assessing Officer/TPO at time of making assessment and they were not examined on their merit, it was considered fit and proper to restore matter regarding determination of arm's length price of international transactions entered into by assessee with AE to the file of Assessing Officer/TPO for fresh adjudication - [2011] 11taxmann.com 232 (Delhi - ITAT)

IT : Mere making of a claim by assessee in its return based upon ruling of AAR which it had subsequently revised voluntary as per latter ruling of AAR would not amount to concealment of income on part of assessee warranting levy of penalty under section 271(1)(c) - [2011] 11taxmann.com 226 (Mum. - ITAT)

IT : Section 44BB would be applicable to a non-resident-company who entered into turnkey basis contracts with ONGC even though it had bifurcated contract price into two segments one relating to supply of services and other relating to supply of spares - [2011] 11taxmann.com 229 (Delhi - ITAT)

IT : Where no opportunity was provided to assessee by way of issuing show cause notice prior to making order under section 92CA(3), matter was to be remanded back to file of Assessing Officer to comply with provisions of law and provide adequate and meaningful opportunity of being heard on issues and then decide matter afresh in accordance with law - [2011] 11 taxmann.com 228 (Delhi - ITAT)

IT : Where assessee-society advanced rupees five lakhs to one of its members allegedly for improvement and expansion of her building which accommodated school being run by assessee, but there was no evidence that amount had been utilized for purpose it had been lent, assessee was denied exemption under section 11 - [2011] 11 taxmann.com 234 (Patna)

IT : Where Commissioner noticed vital flaws in order of assessment entirely attributable to extremely dishonest and defiant approach of assessee, he was justified in setting aside assessment order by invoking powers under section 263 - [2011] 11 taxmann.com 237 (Patna)

IT : For initiating penalty proceedings under section 271(1)(c) recording of satisfaction about concealment of assessee's income is not necessary to be recorded in specific terms and words - [2011] 11 taxmann.com 236 (Cal.)

IT : Income from sale of scrap generated in course of extraction of rubber latex from trees, which is purely an agricultural operation, cannot be brought to Central Income-tax by applying rule 7A of Income-tax Rules - [2011] 11 taxmann.com 239 (Ker.)

IT : Grant of exemption to assessee-trust under section 11 would not effect assessee's right of claming depreciation - [2011] 11taxmann.com 242 (Punj. & Har.)

IT : Tax of non-resident recipient borne by Indian payer is nothing but deemed income of non-resident and same would not fall within definition of tax on income for disallowance under section 40(a)(ii) - [2011] 11 taxmann.com 268 (Mum. - ITAT)

: Notional interest on interest free security cannot be taken as determinative factor to arrive at fair rent - [2011] 11 taxmann.com 265 (Mum. - ITAT)

IT : Production of television and radio programmes for purpose of telecasting and broadcasting through assessee's own network or through network hired by it did not constitute advancement of any object of general public utility within meaning of section 2(15) - [2011] 11 taxmann.com 240 (Ker.)
2011-TIOL-387-HC-AHM-IT

Vinodbhai Arvindbhai Patel Proprietor Shakti Construction Vs ITO (Dated: May 3, 2011)

Income tax – Sections 147, 148, 149, 150 – Whether when assessment is framed as per remand order of the Tribunal, re-assessment can be initiated even after completion of six years from the end of the assessment. - Assessee's appeal allowed: GUJARAT HIGH COURT;

2011-TIOL-369-ITAT-COCHIN + depreciation story

Dy.DIT, Ernakulam Vs Adi Sankara Trust (Dated: June 16, 2011)

Income Tax - Sections 11, 12A, 32(1) - Whether when assessee, a charitable body, has already claimed deduction for acquisition of capital assets as application of money, the further claim of depreciation on the same assets would amount to double benefits. - Revenue's appeal allowed : COCHIN ITAT;

2011-TIOL-368-ITAT-MUM

The Tata Power Co Ltd Vs Addl.CIT, Mumbai (Dated: May 31, 2011)

Income Tax - Sections 54EC, 72, 74 - Whether when assessee has long-term capital gains, the stage of setting off of long-term capital loss comes only after grant of exemption u/s 54EC. - Revenue's appeal allowed: MUMBAI ITAT;

2011-TIOL-367-ITAT-CHD

M/s Vodafone Essar Ltd Vs Addl.CIIT, Chandigarh (Dated: April 7, 2011)

Income Tax - Sections 14A, 40(a)(ia), 80IA, 115JB, 143(3), 144C(13), 194C, 195, 220(6), 226(3) - Whether when Sec 80IA benefits are debatable, the Tribunal is right in granting conditional stay of high-pitch demand raised - Whether, to do justice to the cause of Revenue, Tribunal is right in directing the assessee to pledge its investments in subsidiaries as security with the AO for the balance demand. - Case disposed of: CHANDIGARH ITAT;

2011-TIOL-366-ITAT-MAD

M/s Rane Brake Lining Ltd Vs ITO, Chennai (Dated: April 21, 2011)

Income tax – Sections 14A, 80HHC, 80IB – Whether disallowance can be made u/s 14A for the interest on borrowed fund even if it is explained that the funds utilised for investments are not borrowed funds – Whether 90% of the rent recovered as sublet is to be excluded from the profit eligible for deduction u/s 80HHC while computing the deduction – Whether the deduction u/s 80HHC is to be allowed after reducing the deduction u/s 80IB. - Assessee's appeal partly allowed : CHENNAI ITAT;



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Where assessee submits details for loan taken

Dear Friend, while forwarding this mail , please keep the blog address link with it,(available at the bottom of this mail) so the receiver of the mail can see rest of the 140 home remedies. When ever he requires any information.

IT : Where assessee had taken loan from certain concern and had submitted confirmation of said concern along with their PAN, copy of bank statement as well as cash book, it could be said that assessee had proved genuineness of said loan and no addition could be made under section 68 - [2011] 12 taxmann.com 5 (Agra - ITAT)(TM)

Explanation 1 to section 271(1)(c) would be attracted in case assessee make

Explanation 1 to section 271(1)(c) would be attracted in case assessee makes a bogus claim - [2011] 10 taxmann.com 97 (Ahd. - ITAT)

ISSUES CONCERNING TAX TREATY WITH MAURITIUS

ISSUES CONCERNING TAX TREATY WITH MAURITIUS

T.N. PANDEY

EX-CHAIRMAN CBDT

In the span of merely few months, many irons have been put by the Government in the fire because of various pressures to check black money, tax avoidance and evasion. These, inter-alia, relate to Direct Tax Avoidance Agreements (DTAA for short), where the exercises relate to revision of existing DTAAs, entering into new ones and negotiations for new series of exchange of information agreements. Such exercises are part of broader strategy of checking corruption, black money and tax evasion. Almost every day there is mention about these in media either from the Government's side or from other forums.

** ** **

DTAA with Mauritius [`M' for short]

2. This agreement based on UN Model Convention, with certain departures, was notified on 6th December, 1983 and has been the most controversial agreement concerning Direct Taxes, benefiting `M' substantially as a consequence of which, Foreign Direct Investment (FDI) and portfolio investments in companies (nearly 40 & 50 percent of total inflow) are being routed through this island country. `M' has become a big centre for treaty shopping, leading to tax escapement/evasion/avoidance. The agreement is on usual lines based on UN Model, but deviating from it in some vital respects.

Tax on capital gains

3. In the DTAA with `M', the main irritant for India is tax on capital gains. The DTAA spares investors, resident in `M' from capital gain tax on the sale of shares of Indian companies. This is because the tax treaty provides that capital gains arising from sale of such shares by `M' residents would be taxed only in that country and since it does not tax capital gains, the tax becomes zero. Because of this, persons from third countries do treaty shopping, routing their investments through `M' to escape tax. `M' has no large companies and persons of its own origin, who can invest in big way in India and get the treaty benefit. A study needs to be done to support the view that `M' has become merely a centre (conduit) for saving tax to other countries at India's cost.

** ** **

Besides the capital gains, negotiations are necessary in regard to furnishing of information concerning tax matters of interest to India, assistance in investigation of tax delinquency/frauds, bank details, assistance in recovery and other allied matters.

Actually, it would be appropriate to have a consolidated approach – not single out `M' only for treaty reforms and have negotiations with other countries also like Cyprus, Singapore, Netherlands, etc. To have uniform approach, instead of having separate JWGs, it would be more useful to have a single body for negotiations from India's side – a commission or a committee, specially constituted for this purpose. Further, provisions in the DTC, like GAAR, need to be incorporated/strengthened in such a way that India can be in a bargaining position – not under pressure of losing foreign investments routed through countries like `M'. India now is in a position to attract FDI/FII on its own strength. The uncertainty need to be set at rest expeditiously.
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