Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source

2011-TIOL-06-ITAT-KOL

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH 'B' KOLKATA

ITA Nos.991/Kol/2010
Assessment Year: 2006-2007

INCOME TAX OFFICER WARD-29(1), KOLKATA Vs NISHA SARAF
PAN NO:ACJPA0430Q
B R Mittal, JM and C D Rao, AM
Dated: December 10, 2010
Appellant Rep by: Shri P C Nayak, Sr.DR
Respondent Rep by: Shri Manish Tiwari

Income Tax - Section 194C(2) - Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source - Whether payment-wise reconciliation of TDS is necessary for proving that the provisions of TDS has been
properly complied with.

Appellant was contractor and made payments to subcontractors. Assessee deducted TDS at the rate of 2.24 percent in relation to job charges paid to the subcontractors - During the course of proceedings the AO observed that the assessee had not deducted any TDS on balance job charges and accordingly, disallowed the same - CIT(A) while observing that the assessee has deducted TDS @2.24% instead of 1% as prescribed under section 194C(2) took the view that extra deduction is sufficient to cover the balance job charges - On appeal of the revenue the DR
pointed out that the CIT(A) has allowed the appeal without matching the payments of balance job charges.

After hearing the parties the ITAT held that,

++ keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recoveryof TDS from the balance amount. As regarding the submissions of the Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which isamounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence ofthe details of the balance job charges of Rs.13,78,542/-, the CIT(A)is not justified to delete the entire disallowance by observing thatthe assessee has recovered excess TDS on Rs.1,49,69,028/-;

++ therefore, the issue is restored to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs.13,78,542/- to substantiatewhether the TDS is required to be deducted or not, before the AO.

Case remanded

ORDER

Per: C D Rao:

This appeal is preferred by the Revenue against the order of the C.I.T. (A)-XVI, Kolkata dated 18.11.2009 for the assessment year 2006-07.

2. The only issue taken by the Revenue in this appeal, is relating to deletion of Rs.13,38,542/- disallowed by the AO by applying provision of section 40(a)(ia) read with section 194C of the Income Tax Act.

3. Brief facts of this issue are that, while doing the scrutiny assessment, the AO has observed that the assessee debited job charges to the tune of Rs.1,63,47,570/- in the P&L a/c. and perusal of the details of job charges submitted revealed that the same was paid to 22 parties. The AO also observed that the assessee deducted TDS on job charges of Rs.1,49,69,028/- only @2.24% which is Rs.3,35,905/- and deposited the same to the govt. a/c. The assessee was asked to explain vide a show cause letter dated 11.11.2008 as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS and why the said amount should not be disallowed under section 40(a)(ia) of the Act for failure to deduct TDS, as per law. After considering the
submission of the assessee, the AO disallowed the same by observing as under:

"It appeared that the assessee is a job contractor within the purview of compulsory tax audit during AY 2005-06 and AY 2006-07, and thus falls within the purview of section 194C(2) of the Income Tax Act.
Hence, the assessee is liable to deduct tax at source from the payments/ credits made to parties in respect of job working expenses.

Hence, the explanation given by the A/R of the assessee is not tenable. Since the assessee has made default in deducting TDS on Rs. 1338542/-, the same is disallowed u/s 40(a)(ia) of the Act, and added back as income of the assessee."

Though the AO has pointed out that the assessee has not deducted TDS amounting to Rs.13,78,542/-, but he disallowed only Rs.13,38,542/-.

4. On appeal, the Ld. CIT(A) has disallowed the same by observing as under:

"6. During the course of appellate proceedings, it was submitted by the appellant that as per tax audit report appellant has deducted tax of Rs.3,35,905/- u/s. 194C of the I. T. Act which consist of T.D.S. of Rs.3,33,366/- on the payment of Rs.1,63,47,570/- as labour charges to 22 different parties. The tax of Rs.2,542/- was deducted on the payment of Rs.1,24,550/- to one party for Saree Dying Charges. It is an admitted fact that the appellant was a contractor and made payment to subcontractors amounting to Rs.1,63,47,570/- on account of job charges. Therefore, the appellant was required to deduct the tax @ 1% u/s. 194C(2) of the I. T. Act. Out of the total payment of Rs. 1,63,47,570/- the payment of Rs.1,37,59,392/- was paid to four parties exceeding Rs.1O,00,000/- and hence as per the provisions of section 194C(2) the tax @ 1.12% on this payment comes to Rs.1,54,380/-. The balance amount of Rs.25,88,178/- was paid to 18 different parties and u/s. 194C(2) the tax © 1.02% on this amount comes to Rs.26,399/-. Therefore, as per the provisions of section 194C(2) of the Act the appellant was required to deduct total tax u/s 194C(2) at Rs. 1,80,779/- (Rs.1,54,380 + Rs.26,399) on total payment of Rs. 1,63,47,570/- on account of labour charges. In fact, the appellant has deducted and paid much more amount than required as per the provisions u/s.194C(2) of 'the Act i.e. the appellant has deducted and paid T.D.S. of Rs.3,33,366/- in place of T.D.S. of Rs.1,80,779/- required to be deducted and payable to the Govt. Treasury. It was contended by the appellant that the A.O. was not justified to invoke the provisions of section 40(a)(ia) on the payment of Rs.13,38,542/- without appreciating the facts of the case. On careful consideration of facts of the case, I am of the opinion that though A.O. has correctly held that in the case of appellant provisions of section 194C(2) were attracted on the payment of labour charges, however, he was not justified in making the disallowance of Rs.13,38,542/- u/s. 40(a)(ia) by calculating the tax u/s. 194C(2) @ 2.24%. I find force in the submission of the appellant that she has deducted and paid more amount of tax than as required under the law. Under the circumstances, no

disallowance could be made by invoking the provisions of section 40(a) (ia). The A.O. is directed to delete the disallowance of Rs. 13,38,542/-. The ground nos. 1 & 2 are allowed."

5. Aggrieved by this, the Revenue is in appeal before us.

6. At the time of hearing, the Ld. D.R., appearing on behalf of the Revenue, has pointed out that the AO has mentioned in the assessment order categorically that the assessee was asked to explain as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS, the assessee has not mentioned anything against that. The contention of the assessee is only that she has deducted the TDS on an amount of Rs.1,49,69,028/- at 2.24% i.e. Rs.3,35,905/- and deposited the same to the government a/c. However, the Ld. CIT(A), without contradicting this finding, has given relief, simply by accepting the submissions of the assessee that the assessee deducted and paid more amount to the tax authorities, than as required under the law. Therefore, he requested to reverse the order of the Ld. CIT(A)1 and restore that of the AO.

7. On the other hand, the Ld. Counsel, appearing on behalf of the Assessee, has reiterated the submissions made before the revenue authorities and further contended that since the assessee has already recovered more amount than required under section 194C, therefore, he requested to uphold the order of the Ld. CIT(A). On query from the Bench, whether the TDS has been recovered on the balance amount of Rs. 13,78,542/-, the Ld. Counsel for the Assessee has submitted that this

amount is not subjected to TDS. However, he has not furnished details in support of this submission.

8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recovery of TDS from the balance amount. As regarding the submissions of the Ld. Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, we observe that in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which is amounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence of the details of the balance job charges of Rs.13,78,542/-, we are of the view that the Ld. CIT(A) is not justified to delete the entire disallowance by observing that the assessee has recovered excess TDS on Rs. 1,49,69,028/-. Therefore, we set aside the same and restore this issue to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs. 13,78,542/- to substantiate whether the TDS is required to be deducted or not, before the AO.

9. In the result, the appeal of the Revenue is allowed for statistical purposes.

(Order pronounced in the court on 10.12.2010.)

ITR (TRIB) Volume 7 Part 1 dated 03.01.2010

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

Volume 7 : Part 1 (Issue dated : 3-1-2011)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Appeal to Appellate Tribunal --Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order--Income-tax Act, 1961, ss. 153A, 254(2)-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

Best judgment assessment --Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable--Income-tax Act, 1961, ss. 144, 145(3)-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

Business expenditure --Disallowance--Payments in cash exceeding prescribed limit --Payments by distributor to service provider--No expenditure incurred since no purchases of goods or services on acceptance of delivery of SIM cards or service products--Transaction of principal to agent--Section 40A(3) not applicable--Income-tax Act, 1961, s. 40A(3)-- S. Rahumathulla v. Asst. CIT (Cochin) . . . 41

----Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted--Income-tax Act, 1961, ss. 40(a)(ia), 194C-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

----Disallowance--Securities transaction tax--Rebate--Securities transaction tax paid and share trading income assessed under profits and gains of business--Disallowance under section 40(a)(ib)--Not bar to allow rebate under section 88E--Evidence of payment furnished during assessment not rebutted by Department--Sufficient compliance with provision--Direction to allow rebate proper--Income-tax Act, 1961, s. 88E-- ITO v. Chunilal T. Mehta (Kolkata) . . . 50

----Sales commission--Evidence regarding receipt of commission by assessee--Commission retained by assessee offered for taxation--No evidence regarding retention of money involved in payment of commission to sub-agent--Failure on part of Department to prove payments to sub-agents against public policy--Disallowance not justified --Income-tax Act, 1961, s. 37-- Deputy CIT v. Satya Prakash Arora (Delhi) . . . 95

Capital gains --Exemption--Sale of property--Capital Gains Deposit Scheme--Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption--Income-tax Act, 1961, ss. 54F(4), 139-- P. Thirumoorthy v. ITO (Chennai) . . . 10

Deduction of tax at source --Commission--Payments to concessionaires for sale of milk products--Transaction between assessee and concessionaires principal to principal --Payments not commission--Tax not to be deducted at source--Income-tax Act, 1961, s. 194H-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

----Payment made for purchase of printed packing material to suppliers--No work involving skill or secrecy--Sale--Section 194C not attracted--Income-tax Act, 1961, s. 194C-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

Depreciation --Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation --Income-tax Act, 1961, ss. 32, 36(1)(xi), Expln . -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

Double taxation avoidance --Capital gains--Long-term capital gains on sale of shares in Indian company--Assessee claiming to be Mauritius based company--Whether effective place of management of assessee in Mauritius--Authenticity and relevance of documents relating to board meetings in Mauritius to be examined--Evidence to be brought on record--Matter remanded--Double Taxation Avoidance Agreement between India and Mauritius, arts. 4, 13--Income-tax Act, 1961-- SMR Investments Ltd. v. Deputy Director of Income-tax (Delhi) . . . 23

Industrial undertaking --Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Income-tax Act, 1961, s. 80-IB(8A), (14)(c)--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself--Income-tax Act, 1961, s. 80-IB(8A)--Income-tax Rules, 1962, r. 18DA(1)(e)-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Special deduction--Computation of --Royalty and lease rent to be excluded from profits of business --Only balance net interest income to be excluded from profits of business if nexus between interest income on deposits and interest expenditure on borrowings established--Matter remanded--Income-tax Act, 1961, s. 80-IB-- Videotex International P. Ltd. v. Asst. CIT (Chandigarh) . . . 32

Penalty --Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted --Penalty cannot be imposed--Income-tax Act, 1961, ss. 269SS, 271D-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified--Income-tax Act, 1961, ss. 269SS, 271D-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

Words and phrases --"Computer system"-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART
Double Taxation Avoidance Agreement between India and Mauritius :

Arts. 4, 13 --Double taxation avoidance--Capital gains--Long-term capital gains on sale of shares in Indian company--Assessee claiming to be Mauritius based company--Whether effective place of management of assessee in Mauritius--Authenticity and relevance of documents relating to board meetings in Mauritius to be examined--Evidence to be brought on record--Matter remanded-- SMR Investments Ltd. v. Deputy Director of Income-tax (Delhi) . . . 23

Income-tax Act, 1961 :

S. 32 --Depreciation--Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 36(1)(xi), Expln. --Depreciation--Higher depreciation--Computers--Specialised machines manufactured by specialists used in printing activity--Not "computers"--Assessee not entitled to higher depreciation -- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 37 --Business expenditure--Sales commission--Evidence regarding receipt of commission by assessee--Commission retained by assessee offered for taxation--No evidence regarding retention of money involved in payment of commission to sub-agent--Failure on part of Department to prove payments to sub-agents against public policy--Disallowance not justified-- Deputy CIT v. Satya Prakash Arora (Delhi) . . . 95

S. 40(a)(ia) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

S. 40A(3) --Business expenditure--Disallowance--Payments in cash exceeding prescribed limit--Payments by distributor to service provider--No expenditure incurred since no purchases of goods or services on acceptance of delivery of SIM cards or service products--Transaction of principal to agent--Section 40A(3) not applicable-- S. Rahumathulla v. Asst. CIT (Cochin) . . . 41

S. 54F(4) --Capital gains--Exemption--Sale of property--Capital Gains Deposit Scheme--Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption-- P. Thirumoorthy v. ITO (Chennai) . . . 10

S. 80-IB --Industrial undertaking--Special deduction--Computation of--Royalty and lease rent to be excluded from profits of business--Only balance net interest income to be excluded from profits of business if nexus between interest income on deposits and interest expenditure on borrowings established--Matter remanded-- Videotex International P. Ltd. v. Asst. CIT (Chandigarh) . . . 32

S. 80-IB(8A) --Industrial undertaking--Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

----Industrial undertaking--Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

S. 80-IB(14)(c) --Industrial undertaking--Special deduction under section 80-IB--Determination of initial assessment year for purposes of section 80-IB--Period of ten years to be reckoned from date of approval by prescribed authority--Circular No. 794, dated August 9, 2000-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80

S. 88E --Business expenditure--Disallowance--Securities transaction tax--Rebate--Securities transaction tax paid and share trading income assessed under profits and gains of business--Disallowance under section 40(a)(ib)--Not bar to allow rebate under section 88E--Evidence of payment furnished during assessment not rebutted by Department--Sufficient compliance with provision--Direction to allow rebate proper-- ITO v. Chunilal T. Mehta (Kolkata) . . . 50

S. 139 --Capital gains--Exemption--Sale of property--Capital Gains Deposit Scheme --Sale consideration deposited in scheme--Purchase of house property by availing of loan against deposit scheme--Sale consideration deposited in specified account before date for furnishing return--House property purchased within time-limit--Assessee entitled to exemption-- P. Thirumoorthy v. ITO (Chennai) . . . 10

S. 144 --Best judgment assessment--Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

S. 145(3) --Best judgment assessment--Estimation of income--Accounting--Rejection of accounts--No estoppel against acceptance of net profit rate by assessee--Assessing Officer applying net profit rate without considering past history where lower net profit rate approved--Direction of Commissioner (Appeals) to apply net profit rate at 8 per cent. considering past history reasonable-- Asst. CIT v. Kanhiya Lal Choudhary (Jaipur) . . . 61

S. 153A --Appeal to Appellate Tribunal--Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

S. 194C --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Small fraction of total expenditure representing labour charges--Not a contract for services or labour--Disallowance deleted-- S. T. Reddiar and Sons v. Deputy CIT (Cochin) . . . 1

----Deduction of tax at source--Payment made for purchase of printed packing material to suppliers--No work involving skill or secrecy--Sale--Section 194C not attracted-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

S. 194H --Deduction of tax at source--Commission--Payments to concessionaires for sale of milk products--Transaction between assessee and concessionaires principal to principal--Payments not commission--Tax not to be deducted at source-- ITO v. Mother Dairy Food Processing Ltd. (Delhi) . . . 16

S. 254(2) --Appeal to Appellate Tribunal--Powers of Tribunal--Rectification of mistake--Tribunal holding that assessee cannot be permitted to claim benefit of closing stock by changing method of valuation in assessment proceedings under section 153A--Not a mistake apparent from record--Application under section 254(2) not maintainable--No power to review its order-- Charchit Agarwal v. Asst. CIT (Delhi) . . . 35

S. 269SS --Penalty--Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted--Penalty cannot be imposed-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Penalty--Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

S. 271D --Penalty--Acceptance of loans or deposits in cash exceeding prescribed limit--Assessee facing acute financial difficulties and in exceptional and unavoidable circumstances forced to accept cash deposits--All entries either trade entries or general voucher entry for squaring off accounts of trade and not a loan or deposit--Section 269SS not attracted--Penalty cannot be imposed-- Asst. CIT v. Western India Ceramics P. Ltd. (Ahmedabad) . . . 69

----Penalty--Cash loans exceeding prescribed limit--Cash loans for purpose of disbursing salary to employees--No material by Department to prove contrary--Deletion of penalty justified-- Deputy CIT v. Rupen Das (Kolkata) . . . 55

Income-tax Rules, 1962 :

R. 18DA(1)(e) --Industrial undertaking--Special deduction--Assessee engaged in business of scientific research and development--Approved by Government of India for benefit of deduction under section 80-IB(8A)--Conditions under section 80-IB(2) need not be fulfilled--Assessee entitled to deduction of income derived from transfer of technology developed by itself-- Asst. CIT v. S. K. Dynamics Pvt. Ltd. (Delhi) . . . 80--
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Income-tax : Any inaccuracy made by assessee in its books of account or otherwise which results in keeping of or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income.

l Where assessee was maintaining two sets of books, one was meant for showing income-tax authorities and the other for himself, that modus operandi did indicate that it was not the case of simplicitor estimation of the income by disbelieving the books of account or other details submitted by an assessee during the course of assessment proceedings; the department was able to lay its hands on the documentary evidence exhibiting the conduct of assessee for avoiding tax and carrying out the business activity out of the regular books. - [2010] 8 TAXMAN 275 (New Delhi - ITAT)

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Income-tax : In case of a company, notice under section 148 is to be served on its Principal Officer for making a valid assessment under section 147.

l Where the notice under section 148 was not served upon the Principal Officer of the assessee-company but on a person who was not empowered to receive the notice, the service of notice under section 148 was not a valid service, and the assessment completed under section 147 in the absence of a valid service was bad in law. - [2010] 8 TAXMANN.COM 266 (LUCKNOW - ITAT)

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Instruction to improve assessment made u/s 144

Instruction No. 6/2009 [F.NO. 225/11/2006/ITA.II], dated 18-12-2009

For past sometime the Board has been concerned about the need for
improving general quality of scrutiny assessments on a sustainable
basis. In this connection, reference is invited to Board's instruction
No. 2/2006 dated 27.04.2006 which required monitoring of scrutiny
assessments by Range Heads under the powers available to them under
section 144A of Income tax Act. Instructions have also been issued
from time to time for strengthening the machinery for review of
assessments and inspection of assessment charges. However, it is felt
that there is significant scope for improving the quality of scrutiny
system. The matter came up for discussion during 25th Annual
Conference of Chief Commissioner of Income tax held in August 2009. A
presentation was made by CCIT Chandigarh outlining a scheme for
improving quality assessments implemented in NWR Region. After taking
into account various suggestions, it was decided to devise a similar
scheme with appropriate flexibility for country-wide implementation.


2. Accordingly, it has now been decided that the following scheme for
improving quality of assessments shall be implemented from calendar
year 2010 onwards,

(i) At the beginning of each calendar year i.e. in the month of
January, the Range Head in consultation with the concerned Assessing
Officer would identify at least 5 pending time-barring assessment
cases in respect of each Assessing Officer of his Range for monitoring
These should normally include cases taken up for scrutiny with the
permission of CCIT. The selection should be done jointly by the Range
Head and the concerned Assessing Officer. Cases of PSUs and loss-
making concerns should normally not be identified for this purpose.
This exercise should also include those Ranges which are held as
additional charge by a Range Head in January.

(ii) The Range Head would issue directions u/s 144A in the identified
cases for the guidance of the Assessing Officer regarding the course
of investigation to enable him to complete these assessments in a
proper manner. This should be done at the earliest available
opportunity so as to allow the Assessing Officer to have sufficient
time to complete the assessment proceedings. A copy of the directions
issued by the Range Head would also be endorsed to the CIT. The Range
Head should also monitor the subsequent developments in the assessment
proceedings in these cases.

(iii) On completion of the assessment the Assessing Officer shall send
a copy of the assessment order to the Range Head and the CIT,

(iv) In the event of a Range Head holding more than one Range the
concerned CCIT may appropriately relax the requirement for Issue of
directions under section 144A in respect of the cases of the Range(s)
held as additional charge.

(v) For the purpose of this instruction, a quality assessment would be
one in which issues arising for consideration are clearly identified,
investigation of basic facts in respect of these issues is carried
out, adequate opportunity to rebut adverse evidence is given to the
assessee, the rival evidence are suitably analysed and evaluated in
the light of correct interpretation of law, and these efforts result
in substantial addition to the returned Income, The benchmark for the
quantum of addition to the returned income, which may qualify for
being a quality assessment, may be decided by the concerned CCIT
depending upon the potential of the given Range/Charge. Normally, this
should not be less than Rs.5 lakh excluding additions on account of
recurring issues. It is expected that the selected cases will meet the
parameters for quality assessment

(vi) As regards the remaining scrutiny assessments, it. is expected
that 30% of assessments completed by the Range Head, 20% of the
remaining scrutiny assessments completed by DC/ ACIT and 10% by ITOs
will result in quality assessments. These benchmarks can be reviewed
once the scheme has been in operation for some time,

(vii) The parameters for determining whether an assessment is a
quality assessment should be decided by the concerned Chief
Commissioner in the light of the above and should be widely circulated
at the beginning of the calendar year i.e. in the month of January of
every year.

(viii) At the end of the financial year, the data regarding
assessments completed by Assessing Officers of the CCIT Region shall
be got evaluated by the concerned CCIT in the month of next April
according to the parameters decided earlier. The overall results will
be tabulated in the enclosed proforma and circulated in the CCIT (CCA)
Region for information. Separate performance ranking should be done
for Range Heads in respect of cases completed by them u/s 143(3) out
of the cases selected under Instruction 4 of 2007 dated 16.5.2007, and
those monitored by them under this instruction.

(ix) CCITs may also devise methods for commending good performance of
Assessing Officers in the area of quality assessments and reflecting
the same in the annual appraisals. Important cases involving large
successful additions may be reported to the Board in monthly D.O.
letters. These can be also be sent to DIT (RSP&PR) for inclusion in
the Annual Report of good assessment cases.

3. These instructions may please be brought to the notice of all
officers working in your Cadre Control region immediately for proper
compliance.

Proformae

Performance Ranking of Assessing Officers

CCIT    CIT     RANGE   NAME OF THE ASSESSING OFFICER   NO. OF ASSESSMENTS
COMPLETED       NO. OF QUALITY ASSESSMENTS OUT OF 2
1       2       3       4       5       6

Performance Rankings for Range Heads as Guides

CCIT    CIT     RANGE   NAME OF THE ADDL./JOINT CIT     NO. OF CASES IN WHICH
GUIDANCE GIVEN U/S 144A NO. OF QUALITY ASSESSMENTS OUT OF 2
1       2       3       4       5       6

MANAGEMENT OF SCRUTINY WORKLOAD

INSTRUCTION NO. 4/2007 [F.NO. 225/6/2007-ITA-II], DATED 16-5-2007

Kindly refer to above

2. Considering the increasing gap between workload and disposal of
scrutiny assessments, it has been decided to entrust the Range Heads
with the responsibility of making assessments in top revenue potential
cases of the Range to be selected on the basis of returned Income.

3. In this regard, targets for disposal of cases by the Range Heads
are prescribed as under:-

S. No.  Charge  Minimum number of cases to be disposed off per year
1.      Corporate       20
2.      Non-Corporate / Mixed / Salaries        30

However, the CCITs, considering the local circumstances and other
factors, may assign more cases to the Addl. CITs. / Joint CITs.

4. It is hereby clarified that the above targets are not applicable to
Central Ranges.

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Section 4(1)(a) is attracted only in a case where there is a monetary consideration for transfer and that consideration is less than market value of property; in such a case, difference in amount is treated as a deemed gift - [2010] 8 taxmann 242 (KA

Income-tax - Section 4(1)(a) is attracted only in a case where there is a monetary consideration for transfer and that consideration is less than market value of property; in such a case, difference in amount is treated as a deemed gift - [2010] 8 taxmann 242 (KAR.)

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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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ITR (Trib)):Volume 6 Part 8 ISSUE DATED 20-12-2010

TR'S TRIBUNAL TAX REPORTS (ITR (Trib))

HIGHLIGHTS

ISSUE DATED 20-12-2010

Volume 6 Part 8

 

 

APPELLATE TRIBUNAL ORDERS

-> Assessee furnishing note along with return disclosing all relevant material facts and explanation bona fide ; penalty cannot be imposed u/s. 271(1)(c), Expln. 1 : Mimosa Investment Co. P. Ltd. v. ITO (Mumbai) p. 789

-> Revision justified where deductions allowed on technical know-how fees and accrual of interest income on deposits without recording reasons for not considering disallowance in earlier years : Frick India Ltd. v. Dy. CIT (Delhi) p. 802

-> Festival expenses including advance payment to stage show not bad debt since assessee had not taken amount into account as income as required u/s. 36(2) : Dy. CIT v. Gymkhana Club (Delhi) p. 808

-> Disallowance of telephone expenses on estimate basis without any adverse material on record not proper : Dy. CIT v. Gymkhana Club (Delhi) p. 808

-> Failure on part of assessee to establish expenses incurred solely for protection and advancement of common interests of members, deduction u/s. 44A(1) or (3) not allowable : Dy. CIT v. Gymkhana Club (Delhi) p. 808

-> Notional provision for half yearly interest on account of cumulative deposit shown in general ledger reversed on next working day, amount credited had never accrued to payee, TDS not obligatory : Bank of Maharashtra v. ITO (Ahd) p. 824

NEWS-BRIEFS

 

-> Finance Minister appreciates Income-tax Department's professional competence to rescue telecom dues

The Department at present expects the Rs. 2,500 crore in tax collection for the Telecom major's case. At a review meeting held involving Chief Commissioner of Income-tax, Director-General of Income-tax (Inv.), Commissioners of Income-tax at Mumbai, and CBDT Chairman, the Finance Minister exhorted the tax officers to put their best foot forward to achieve the budget collection target fixed for the Mumbai region.

Advance tax in the Mumbai region has been growing at 18 per cent. and with the TDS collection now catching up and the Rs. 2,500 crore that the Department expects to collect in the Vodafone case, the budget collection target would be met from the Mumbai region, the Income-tax Chief Commissioner (Mumbai) said.

In the financial year 2006, the collection from the Mumbai region was Rs. 53,164 crore while this fiscal, the target is Rs. 1,50,480 crore. Now, the collection from the Mumbai region has been targeted to increase three-fold in a span of five years.

The Minister said the Mumbai region should not find it difficult to meet the collection target, given the high GDP growth trajectory into which the country's economy has catapulted itself. The Minister called upon the Income-tax Department to draw plans for training its manpower and for capacity-building so as to be able to implement the Direct Taxes Code in its true spirit.

Income-tax Department needs to reinvent itself to meet the challenges to be faced while implementing the Direct Taxes Code, he said. The Department should concentrate on its core functions of tax enforcement and recovery, taxpayer awareness and education, and on upcoming tools like data-mining, risk-profiling and risk assessment, he said. He exhorted the officers to maintain their efforts in this direction and directed that all appeals should be filed on time in the future. [Source : www.businessstandard.com dated December 12, 2010]

-> Trading firms, corporate investors get income-tax notice for "under-reporting" income

The Income-tax Department is learnt to have sent notices to over a dozen proprietary stock trading firms and corporate investors, for alleged "under-reporting" of taxable income for the assessment years 2006-07 and 2007-08.

The notices have been sent to entities which availed of the rebate against Securities Transaction Tax (STT) to reduce their tax liabilities to zero or pay very low taxes. The broking firms have been asked to pay the difference with an interest rate of 12%. Three broking firms, which received the notice confirmed the development. An official at the Income-tax Department too confirmed that the notices were sent, and many more are in the pipeline.

"Brokers have been asked to pay MAT, where the liability will be 15% of the book profit. It is applicable when you are showing a loss or your net profit is less than book profit", said an income-tax official, adding the notices were part of the reassessment exercise under which the earlier years' income-tax returns filings are randomly scrutinised to check for compliance with applicable rules. The move has rattled the large proprietary trading firms as they fear huge claims from the Income-tax Department in the coming days.

"The demand has been raised under section 271(1)(c) of the Income-tax Act, relating to concealment of income", said the chartered accountant of a broking firm that received the notice, adding, "the dispute here is about the calculation of tax, and not concealment of income".

The securities transaction tax was introduced by the then Finance Minister, P. Chidambaram, in the Union Budget 2004-05. Every share transaction - be it delivery based or non-delivery based - attracted tax. But proprietary trading firms and corporate investors could claim a rebate to the extent of the STT paid, on their business income.

Brokers say that many proprietary trading firms, which generated huge STT, helped corporate investors lower their tax liability, by "selling" them the excess STT for a fee. They did this by transferring some of their trades into the accounts of the corporate investors. That could have been the main reason for the Government scrapping the rule allowing brokers to claim a rebate against STT, in the Union Budget 2009-10. [Source : www.economictimes.com dated December 11, 2010]

 

 

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