ITR (Trib) HIGHLIGHTS ISSUE DATED 05-09-2011 Volume 11 Part 2

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

ISSUE DATED 05-09-2011

Volume 11 Part 2

APPELLATE TRIBUNAL ORDERS

- >>Non-availability of creditor and lack of any correspondence with them will not obliterate debt, debts subsisting, ss. 41(1) and 28(iv) not applicable : Kaps Advertising v. ITO (Delhi) p. 113

- >>Capital gains : Cost of acquisition would be market value of lease rights for sixty years as on date of lease : Atul G. Puranik v. ITO (Mumbai) p. 120

- >>Valuation of land based on past payments to prospective sellers before purchases fructified, penalty cannot be levied u/s. 271(1)(c) : S and S Foundations P. Ltd. v. Asst. CIT (Chennai) p. 136

- >>Rectification of mistake : Power to rectify only to determine sum payable by or refund due to assessee on basis of returned income : Anshul Singal v. Asst. CIT (Delhi) p. 143

- >>Loss on account of transaction in derivatives in accounting year relevant to AY 2005-06, speculative loss : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Splitting of expenditure on basis of turnover justified : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Provision for diminution in value of asset to be added to book profit : ITO v. TCFC Finance Ltd. (Mumbai) p. 153

- >>Assessee not guilty of furnishing inaccurate particulars of income in respect of debatable claim, penalty cannot be leviable : Asst. CIT v. Perfect Forgings (Chandigarh) p. 166

- >>Where no material to show assessee received capitation fees, donations not taxable : Asst. CIT v. Balaji Educational and Charitable Public Trust (Madras) p. 179

- >>Trust running educational institutions and fulfilled all requisite conditions entitled to registration u/s. 12AA : St. Mary's Christian Charitable Trust v. ITO (Chennai) p. 205

MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms

 

MNCs Finding it Hard to Avoid Taxmans GlareThe leading trio of foreign IT firms with a presence in India IBM, Accenture and Capgemini have 30% of their global workforce in the country, but record just 5% of their revenues from here. In 2009-10, the Indian subsidiary of France-registered Capgemini recorded a profit per employee of.Rs.1. 5 lakh about a third of TCS, the largest homegrown IT firm. Gaps like these which arise because of the discretion available to the foreign parent to price its transactions with its subsidiary, leading to under-reporting of revenues in India and thus tax avoidance are being examined with greater vigour by the Income-Tax Department. In 2010-11, the department forced the Indian arms of foreign companies to increase their revenues by.Rs.22, 800 crore. This amounts to a 130% year-on-year increase in transfer pricing adjustments, and almost equals the sum of all such adjustments since 2000-01, when India introduced transfer pricing rules. The spike reflects government posturing on transfer pricing, an active tax-avoidance channel for foreign companies. At a tax seminar nine days before Budget 2010, Finance Minister Pranab Mukherjee had said: The tendency to shift profit from India would be prominent as it is among the few countries exhibiting higher growth, leading to a greater opportunity for profitability than other countries. He added the department was going to crack down on such practices. Transfer pricing provisions are triggered when, say, IBM India provides services to its parent in the US. The basic premise of rules governing such transactions is that the price at which IBM India provides the service to its parent should be similar to what it would have charged an unrelated party. When companies undervalue related-party transactions, it is called mis-pricing. According to the department,Rs.22, 800 crore was the quantum of mis-pricing reported by multinationals in 2010-11. IT multinationals are reported to be the worst offenders. There is no firm estimate, says Rohan Phatarphekar, head of transfer pricing at KPMG. But IT and ITES (IT-enabled services) companies accounted for between one-third and half of these adjustments last year. - www.economictimes.indiatimes.com

Whether when assessee stands convicted for two AYs and complaint filed for 3rd u/s 276

 

Whether when assessee stands convicted for two AYs and complaint filed for third u/s 276B, any revision of compounding guidelines and intimation to assessee in this regard would mean that assessee is entitled to compounding even after complaint being filed - NO: Delhi HC

NEW DELHI, : THE issue before the Bench is - Whether when assessee has already been convicted for two AYs and the complaint filed for the third year u/s 276B, any revision of the compounding guidelines and an intimation to the assessee in this regard would mean that compounding is allowable even afer the compalint is filed. NO is the HC's answer.

Facts of the case

The Petitioner is the MD of M/s Anil Batra and Associates Private Limited. During the AY 1982-83, TDS by the company was deposited beyond the period prescribed by law. Similarly, during AY 1983-84 and 1984-85 also, the company deposited the tax beyond the period prescribed by law. That being so, the I.T Department filed complaints against the Company & Directors u/s 276B before the Court of CMM for all the three A.Y. The complaint for the A.Y 1982-83 was still at trial stage. As regards the complaints for the years 1983-84 and 1984-85, the ACMM convicted the two Directors of the company. Against this order, the Department filed a revision petition for enhancement of sentence, and the petitioner has filed appeal against the conviction, both of which were pending before the Addl. Session's Judge, Delhi. Two months after the complaint was filed by the I.T Department the petitioner moved an application before the department for compounding of offence u/s 276B, which was rejected by the CBDT. On 29.07.2003, the CBDT issued a Circular whereby Guidelines for Compounding were reviewed in the light of past experiences and future needs. The petitioner received a letter dated 25.09.2003 and copy of guidelines. The petitioner replied the same vide letter dated 29.09.2003, expressing his willingness to compound the offence and requesting the Department to communicate the amount of compounding fees so that the same could be deposited at the earliest. The petitioner, however, received no reply from the department in this regard. The petitioner thereafter filed two petitions before this court. This court disposed of the same with observation regarding compounding of offence. However, the competent authority vide its detailed order rejected the compounding petition of the petitioner.

Before the HC the petitioner contended that the CCIT was under an obligation to compound the offence in view of the order dated 28.07.2005 passed by this Court directing the CIT to adjudicate as to what amount was payable by the petitioner. He also contended that in view of the amended guidelines, the offences being technical in nature were eligible for compounding. He also contended that the proceedings for compounding of offence were proposed by the respondent itself vide its letter dated 25.09.2003. On the other hand, respondent counsel submitted that the offences were not compoundable since the complaints had already been filed against the petitioner and in two of those the petitioner stood convicted by the competent court.

On appeal, the HC held that,

++ with regard to the contention of the Petitioner's counsel that the CCIT has violated the order dated 28.07.2005 in failing to comply the terms and adjudicate as to the amount of compounding fee, it is seen that this order came to be passed by this Court on the submissions made by Petitioner counsel for the petitioner that the TDS amount has already been deposited and that the petitioner was ready and willing to deposit any additional cost and compounding fee that may be imposed. That order cannot be construed to mean that the terms were to be effected and compounding fee charged, even if the offence was not compoundable. The order also states that the Commissioner is to pass appropriate orders regarding compounding of the offence. This cannot be interpreted to mean that the Commissioner was directed to compound the offence without considering if the same was compoundable or not;

++ letter dated 25.09.2003 was nothing more than intimation to the petitioner regarding revision of guidelines for compounding of offences. The interpretation of the Clause as presented by Petitioner counsel is erroneous and misplaced. The plain and literal interpretation of the Clause would only mean that the amendments made in the existing guidelines on 29.07.2003 would be applicable to the future as well as to the cases pending at any stage and that the offences already compounded shall not be reconsidered. In other words it would mean that it was the applicability of the amendments to the future as also to the cases pending and not that the compounding would be allowed even after the filing of the complaint or where the person has already been convicted by a competent court. The conditions stipulated for compounding of a technical offence being very clear and unambiguous, compounding of such an offence was not permissible after filing of the complaint. Undisputedly, three complaints have already been filed against the petitioner and in two of those, the petitioner stands convicted by the competent court. The revisions for enhancement of punishment have been filed by the Department and the appeals against the conviction have also been filed by the petitioner. Those revisions and the appeals are pending before the Appellate Court. One of the complaints is also still pending trial before the ACMM. That being the factual matrix, offence could not be said to be compoundable at this stage. In that fact situation, the competent authority was not bound to effect compounding in violation of the mandatory prohibitions prescribed therefor. In view of all this, no directions can be given by this Court to the competent authority to affect compromise or adjudicate compounding fee. 

Where assessee invested its own funds in shares which were held by it for a

 

IT : Where assessee invested its own funds in shares which were held by it for an average period of 300 days and, moreover, those shares were shown as investment in books of account, it was to be held that transactions in shares were made by assessee as an investor and, thus, profit earned from sale of shares was to be treated as capital gain

[2011] 12 taxmann.com 321 (Mum. - ITAT)

IN THE ITAT MUMBAI BENCH 'E'

Deputy Commissioner of Income-tax, 8(3), Mumbai

v.

Securities Capital Investment India Ltd.*

P.M. JAGTAP, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 211 (MUM.) OF 2010
[ASSESSMENT YEAR 2006-07]

Whether when donor has capacity to borrow funds, not based only on annual

Whether when donor has capacity to borrow funds, not based only on annual income but also total assets owned, genuineness of gift cannot be doubted - Delhi HC grants major relief to Mayawati

NEW DELHI: THE questions before the Bench are - Whether when donor has the capacity to borrow funds, not based only on annual income but also the total assets owned, the genuineness of gift cannot be suspected and whether a gift is to be treated as genuine when the assessee discharges the onus cast on it for proving the identity, creditworthiness and relationship of the donor and the donee. And the verdict goes in favour of the assessee.

Facts of the case

The Income Tax return for the Assessment Year 2003-04 was filed by the assessee on 06.08.2003 declaring total income of Rs.13,29,090/-. The Assessee earned income from salary, house property and other sources. The AO, on perusal of the return, found that during the year under consideration, the assessee had received gifts from the certain persons vide cheques and also received immovable assets from Ashok Jain and Veena who were the husband and wife. Pankaj Jain, from whom the assessee received the cheque of Rs. 200000/- was nephew of Ashok Jain. Ashok Jain was an Advocate by profession and Pankaj was a practicing Chartered Accountant and a partner of M/s P.Jain & Co.

The AO wanted to examine the genuineness of the aforesaid gifts. For this purpose he summoned the donors. He recorded the statement of Veena Jain on 26.12.2004. The AO recorded his observation on the creditworthiness, it was seen that she herself had taken loan for purchase of property as she was not having sufficient funds for this purpose. She had sold her jewellery for purchase of the house. Therefore, he opined that the creditworthiness of the donor was not proved.

Summons u/s 131 of the Act was issued to Ashok Jain. In compliance, Ashok Jain, Advocate appeared before the AO and his statement was recorded by him. The AO observed that there was no relation between the donor and the donee and the genuineness and creditworthiness was not proved.

The AO also recorded the statement of Pankaj Jain. After going through the facts, he found that during the Assessment Year 2003-04 he had gifted a sum of Rs.17 lacs to her and the family members of the assessee. He had also made gift of Rs.2 lacs in the Assessment Year 2000-01 and in the Assessment Year 2004-05 made a gift of Rs.5 lacs to the assessee. As observed by the Assessment Officer that the entire case made by him was out of amount received from M/s Blue Bell Finance Co.

The AO recorded in his assessment order that it was surprising that the assessee had gifted the amount out of loan taken from this concern M/s Blue Bell Finance Co. Since there was no occasion for making the gift; the gifted amount was more than the income of the assessee; that there was no relation between the donor and the donee, and the AO held that it was only an arranged gift and an accommodation entry.

In nutshell the AO did not accept the claim of the assessee in respect of the two immovable properties namely C-57, Inderpuri, New Delhi and C-58, Inderpuri, New Delhi and added the same to the income of the assessee u/s 69 of the Act. He also did not accept the gift of Rs.2.00 lac of Pankaj Jain and made addition of this amount also to the income of the assessee u/s 69 of the Act. In the final assessment order dated 30.03.2006, total income of the assessee was assessed at Rs.79,03,390/-.

The assessee preferred an appeal against the above order passed by the AO. As regards applicability of Section 69, the CIT (A) was of the opinion that it was not the assessee who had made the investment. The donor had paid the stamp duty twice, the assessment of the donor had not been disturbed, and the donor and donee both accepted the factum of gift. Further the gift was also evidenced by documentary evidences like gift deeds, sworn affidavits, declaration before AO etc. The donor also gave an explanation for immediate source of gift. Therefore, keeping the aforesaid discussion into view the CIT (Appeal) was of the opinion that the donee had discharged not only the burden but also the onus cast on her. Accordingly, the addition of Rs. 40,68,450/- was deleted.

As regards the gift of property No. C-58, Inderpuri, the CIT(A) did not agree with the assessment order passed by the AO and addition made by the AO of Rs.22,03,850/- was deleted. The basis of this conclusion were almost as in the case of gift made by her husband Ashok Jain regarding the property No. C-57, by Ashok Jain.

As regards the gift of Rs. 2 lacs received by the assessee from Pankaj Jain by provision he was a Chartered Accountant and assessed to tax since last so many years. The CIT (A) found that he had placed details of his income tax assessment and bank account and also filed affidavit certifying the above gift. He appeared before the AO for statement on oath where he confirmed giving the gift. He also established that he had been meeting the assessee, and his family members on family functions since so many years. The CIT (A) also found that the gift vide A-C payee cheque no. 17186 dated 17.12.2002 drawn on Andhra Bank for Rs. 2 lacs.

The CIT (Appeal), thus, accepted the genuineness of gift inasmuch as the identity and capacity of the donors were proved and came to the conclusion that factum of gift stood established. He thus, partly allowed the appeal of the assessee. The ITAT confirmed the order of the CIT(A).

On further appeal, the High Court held that,

++ there is substance in the contention of the counsel for assessee that there are pure findings of facts recorded by the two authorities below on the basis of evidence adduced which was sufficient to discharge the onus as well as burden caused upon her by proving the identity of donors, their creditworthiness as well as genuineness of the gifts. It has been established that the assets of Ashok Jain as on 31.03.2003 including movable/ immovable assets were of Rs.1.25 crores, whereas the liability owned by Ashok Jain was only Rs.11.88 lacs less Rs.10.78 lacs. Keeping the assets owned by Ashok Jain, the court was of the considered view that he had the capacity to make gifts in question. Therefore, there is no force in the arguments of the ASG that Ashok Jain had no capacity to do the same;

++ further in the case of Veena Jain, details of assets proved on record show that the total assets of Veena Jain were of Rs.1.34 crores & the liabilities were only of Rs.2.11 lacs. We have perused the assets owned by Mrs.Veena Jain and found that she had capacity to borrow first, and then to gift as per her desire. The capacity does not mean what you are earning monthly or annually. The capacity includes how much total assets a person owns. So is the case of Veena Jain here, she had an asset of Rs.1.34 crores, definitely could borrow Rs.20 or 25 lacs easily. Second plea regarding Veena Jain is that if a person buys any property for her personal use, she will definitely not make the gift for the same. Here on perusal of the record it is revealed that she has stated before the Department that the assessee is a Rakhi sister of her husband and she is great admirer of the assessee because she is working for the upliftment of the down trodden and poor persons of the society. Sometimes a person does not have to be related to a particular trust or a charitable institution, but in their view that trust or institution is doing a great service to the particular section of the society. Therefore, there is no force in the arguments advanced by the counsel for the Revenue. Further, it is also not necessary that a person should be a habitual donor. It depends from person to person, thinking to thinking and situation to situation. Sometimes a person keeps donating throughout their life and sometimes he donates once and sometimes during the last stage of his life. Therefore, the arguments advanced by the counsel for the Revenue cannot be agreed with;

++ counsel for the Assessee has vehemently argued that the Revenue has relied upon the judgments not relevant in the facts and circumstances of the instant case. In the case of Sajan Dass and Sons vs. Commissioner of Income-Tax, the donor was not found related to the assessee, however, in the present case the donors have 15 years old relationship with the assessee as has been proved by the evidence, affidavits on oath and photographs. Therefore, the aforesaid case does not hold for the Revenue Department;

++ another case of Anil Kumar (2007-TIOL-210-HC-DEL-IT) has also no relevance because in the said case the assessee was asked to explain the capacity and genuineness of the donor, however, the assessee did not appear before the Department. But, in the present case the assessee herself submitted all the relevant documents before the Revenue. That apart, all the donors appeared, confirmed and filed affidavits on oath. Therefore, this case of Anil Kumar is not relevant in the present situation;

++ so is the case of Rajeev Tandon (2007-TIOL-413-HC-DEL-IT) wherein, the donor was complete stranger, but in the present case all the donors have 15 years old relationship with the assessee as has been proved by evidence, documents and their statements;

++ all the donors appeared before the Department, submitted material including affidavits on oath, confirms the gifts made, established their old relations with the assessee and proved their capacity to make the gifts. We have noted that in earlier years also they had made gifts to the assessee and her family members, which were accepted by the Revenue. We have also noted that two gifts made by Ajay Aggarwal and O.P.Khadaria, Advocate were of Rs.10 lacs and Rs.1 lac respectively have been accepted by the Department. The donors are persons of sufficient means. The assessee has fully discharged her legal obligations by disclosing the identity of all the donors. Further, donors have proved their genuineness and capacity to make a gift. All assessee as well as the donors had appeared before the Registrar and the gifts are duly registered. All gifts are absolute and without any lien of anyone. There is no evidence on record to prove that the assessee has favoured the donor in any manner whatsoever by acquiring the gifts in question. The capacity of any person does not mean how much they earn monthly or annually, but the term capacity has vided term and that can be perceived by how wealthy he is. All the formalities, as per law are met by the assessee and donors as well. All the donors have admitted that they are great admirer of the assessee as she is working for the upliftment of poor people;

++ the issue raised by the Revenue in the instant appeal cannot be said to involve any question of law, much less a substantial question of law. A question of fact becomes a question of law, if the finding is either without any evidence or material, or if the finding is contrary to the evidence, or is perverse, as was held in the case of Mahavir Woolen Mills;

++ in the light of above facts and circumstances, no substantial question of law arises from the instant appeal. Therefore, the judgment passed by the ITAT was confirmed and the instant appeal of the Revenue was dismissed.

JV execute works awarded by State Govt, "a" not entitled for ded 80IA(4)

Whether, when two partners of JV execute works awarded by State Govt, assessee is even then not entitled to avail benefits of Sec 80IA(4) as contract was awarded to JV, an independent legal entity - NO, assessee is eligible: ITAT

THE question before the Bench is - Whether when, for all practical purposes, the two partners of a JV execute the infrastructural work awarded by the State Government, even then the assessee, one of the partners, is not entitled to avail the benefits of Sec 80IA(4) as the contract was awarded to the JV, an independent legal entity. And the verdict goes in favour of assessee.

Facts of the case

Assessee, a company, formed a joint venture named "Navayuga Transtoy (JV)" which bid for the contract. The Irrigation Department of Andhra Pradesh awarded the contract to the JV. As per the terms of the JV, the assessee was to execute 40% of the work in Navayuga, the other constituent partner was to execute 60% of the works. Assessee was to execute work worth Rs. 265.80 crores, out of which works valued at Rs.18.12 crores were executed during the A.Y. 2006-07. Both the partners raised bills on JV for quantity of work as certified by technical consultant appointed by the State Government. In turn, the JV raised a consolidated bill on the Irrigation Department without making any additions. Payments were made to the JV, which shared the payment in accordance with the bills raised by each partner. JV filed its return without claiming any deduction u/s 80IA(4).

Assessee also formed a consortium along with one M/s `CT' Moscow, with an understanding that the assessee would execute 100% of the works which were awarded to the consortium. Assessee executed works valued worth Rs.31.09 crores and claimed deduction u/s 80IA(4) on the profits derived out of the aforesaid works. AO disallowed the claim stating that the work was not awarded to the assessee.

In appeal before CIT (A), the assessee contended that the JV or the consortium was formed only with an object to obtain a contract from the Government but in fact the work was executed by the constituents of the JV i.e. the assessee and the other constituent. Deduction was to be allowed to those enterprises, which were engaged in the business of developing, maintaining and operating any infrastructure facility. Therefore, the assessee was entitled for deductions on profit earned from the aforesaid activities. However, CIT (A) confirmed the dis-allowance made by the AO.

Before ITAT, the assessee contended that the JV or the consortium had not offered any income/profit out of the work contract awarded to it and also did not claim any deduction u/s 80IA of the Act. Deduction u/s 80IA was to be allowed to those enterprises which were carrying on the business of developing, maintaining and operating any infrastructure facility. It was agreed at the time of formation of JV that whatever work was awarded to it, it would be executed by its constituents and they would be solely responsible for the responsibilities and liabilities of the execution of the work.

Revenue contended that the work contract was awarded to the joint venture and not to the assessees. The Bills were raised by the joint venture and payments were also made to the joint venture by the Government bodies. Therefore, in all respects, the work contract was executed by the joint venture and not by the assessees. Joint venture was an independent identity and was assessable to tax. It was totally irrelevant whether joint venture claimed any deduction u/s 80IA or not. Non-claim of deduction u/s 80IA by the joint venture would not make the assessee entitled to claim deduction u/s 80IA for the work executed by him.

After hearing both the parties, the ITAT held that,

++ undisputedly the joint venture or the consortium was formed only to obtain the contract from the Government bodies. At the time of execution of the joint venture or the consortium, it has been made clear that work/project awarded to the joint venture would be executed by the joint venturers or the constituents. As per mutually agreed terms and conditions between them, it was also agreed that each party shall be responsible for the provisions of without limitation on resources required for the purpose of fulfillment of the scope and also solely responsible for the performance of its scope of work and shall bear all technical, commercial and facing risk involved in performing its scope of work. It was also agreed that none of the party shall assign its rights and obligations to any other party without written consent of other party. It is evidently clear that the joint venture and the consortium was formed only with an object to bid contract. Once the project or contract is awarded to the joint venture or the consortium, it is to be executed by its constituents or the joint ventures in a ratio agreed upon by the parties. The assessee was entitled to execute the 40% of total work awarded to the joint venture and in case of a consortium it was agreed that the entire work is to be executed by the assessee itself. Therefore for all practical purposes, it was the assessee who executed the work contract or the project awarded to the joint venture. No doubt the joint venture is an independent identity and has filed its return of income and was also assessed to tax but it did not offer any profit or income earned on this project/works awarded to it nor did he claim any exemption/deduction u/s 80IA(4) of the Act. These facts clearly indicates that the joint venture was only a de-jure contractor but in fact the assessee was a de-facto contractor;

++ the benefit of exemption/deduction is to be allowed to any enterprise carrying on business of developing or operating and maintaining or developing, operating, maintaining any infrastructure facility subject to fulfillment of certain conditions. One of the condition is that the enterprise should be owned by a company registered in India or by a consortium of such companies or any other body established or constituted under any center or any state Act. The other condition is that it has entered into an agreement with the Central Government or a State Government or local authorities or any other statutory body for developing, operating and maintaining or developing, operating & maintaining a new infrastructure facility;

++ there is no dispute with regard to the fulfillment of other requisite conditions. The dispute was only raised that the contract was awarded only to the joint venture and not to the assessee and therefore assessee is not entitled for deduction. The benefit of deductions is to be given to an enterprise which carry on the aforesaid classified business. The legislature have also used the word consortium of such companies, meaning thereby the legislature was aware about the object of formation of consortium and joint ventures. Generally the joint ventures or consortiums are formed to obtain a contract from the Government body for its execution by its constituents. If the constituents do not want to execute the work, there was no need to form a consortium. Therefore, mere formation of consortium for obtaining a contract should not debar the enterprises who in fact carried on the aforesaid classified business from claiming the deduction or exemption u/s 80IA(4). The joint venture or the consortium was only a paper entity and has not executed any contract by itself. They have also not offered any income out of the work executed by its constituents, nor did they claim any deductions u/s 80IA(4). Therefore, in all practical purposes, the contract was awarded to the constituents of the joint venturers through joint venture and the work was executed by them. As per provisions of section 80IA(4), the benefit of deduction under this section is to be given only to the enterprise which carried on the classified business. Therefore, in the light of this legal proposition, the assessee is entitled for the deductions u/s 80IA(4) on the profit earned from the execution of the work awarded to JV and consortium.

__,_._,___

If AO has allowed s. 10A deduction, DRP cannot withdraw it

 

GE India Technology Centre Pvt Ltd vs. DRP (Karnataka High Court)

If AO has allowed s. 10A deduction, DRP cannot withdraw it

The assessee claimed deduction of Rs. 32.18 crores u/s 10A. The AO passed a draft assessment order u/s 144C in which he allowed s. 10A deduction though he reduced the quantum by Rs. 44.49 lakhs. When the assessee filed objections before the Dispute Resolution Panel ("DRP"), it took the view that the assessee was not at all entitled to s. 10A deduction as it was engaged in "research & development". On the alternative plea that the assessee was engaged in providing "engineering design services", the DRP directed the AO to examine the claim on merits. The assessee filed a Writ Petition claiming that the directions given by the DRP was beyond jurisdiction. This was dismissed by the single judge. On appeal by the assessee

ITR (Trib) HIGHLIGHTS ISSUE DATED 29-08-2011 Volume 11 Part 1

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

ISSUE DATED 29-08-2011

Volume 11 Part 1

APPELLATE TRIBUNAL ORDERS

>> Search and seizure : Amounts disclosed in returns of third person additions not valid : Asst. CIT v. Bhagwan Prasad (Ranchi) p. 1

>> Interest awarded by High Court, capital receipt : Sushil Kumar Das v. ITO (Kolkata) p. 17

>> Where loan not out of accumulated surplus of accounting year, exemption cannot be denied u/s. 11 : Kanpur Subhash Shiksha Samiti v. Deputy CIT (Lucknow) p. 23

>> Where claim for loss on sale of units against other taxable income, relevant particulars and basic facts required u/s. 94(7) not disclosed in return, penalty leviable : Survidhi Financial Services Ltd. v. Asst. CIT (Delhi) p. 49

>> Modification of wooden partitions and work stations in premises taken on lease are temporary structure, eligible for 100 per cent. depreciation : Deputy CIT v. Win Medicare Ltd. (Delhi) p.66

>> Where assessee cannot be compelled to provide for depreciation in books of account, deduction of interest payment made to partners to be allowed : Swaraj Enterprises v. ITO (Visakhapatnam) p. 70

>> Tippers, vibrators, vibrator soil compactor are commercial vehicles, higher rate of 40 per cent. depreciation allowable : Deputy CIT v. Rakesh Jain (Chandigarh) p. 82

>> Question referred to Special Bench pending consideration before High Court not precluded from deciding reference : Deputy CIT v. Summit Securities Ltd. (Mumbai) [SB] 88

>> Where addition not made on basis of any evidence found during search, penalty cannot be imposed : Beena Rani v. Deputy CIT (Delhi) p. 106

NEWS-BRIEF

>> Dearth of a Central bank policy on overseas investments

The Reserve Bank of India which decides on overseas investments in investing companies on a case-by-case basis, has written to the North Block, highlighting its concern about multi-layered structures of investments of Indian companies as they make tracking funds flow difficult. The Central bank has raised objections which can be a systemic risk related to setting up of special purpose vehicles or SPVs likely to be used to make onward investments in other countries. One, these SPVs float opaque structures, such as trusts, in tax havens. Two, they leverage domestic assets to give guarantees without informing RBI as required under the Foreign Exchange Management Act. There have also been cases where the Indian parent gave guarantees to its subsidiary abroad to enable it to borrow from foreign banks.

Sources said the Central bank has already become strict with companies when they come for approval to invest overseas. In a specific case, it told a company to collapse its multi-layered structure into two tiers before approving its proposal.

In May, the RBI had mandated that the parent company should own more than half of step-down operating subsidiary to be able to offer guarantee. But a number of companies have tried to get around the rule by floating SPVs, or holding companies, instead of operating company.

The new Companies Bill seeks to bar investment companies from having more than two tiers of subsidiaries, but it is not clear if this proposal will apply overseas. Multi-layered structures, especially through SPVs in tax havens, have come under the scanner, particularly after the inquiry into the Indian Premier League revealed a complex web of companies to route funds. The Central Board of Direct Taxes has proposed a new regime called Controlled Foreign Corporations in the new Direct Taxes Code to ensure that tax due to the exchequer is not lost. Under this regime, the undistributed dividends of foreign corporations controlled or owned by Indian companies will be added to the parent's income and taxed in India. [Source : www.economictimes.com dated August 19, 2011]

>> CBDT chairman actively looking to improve the collection target

The Chairman of the Central Board of Direct Taxes (CBDT), has asked Income-tax (I-T) Department officials to work without "fear or favour" to achieve this fiscal's tax collection target of Rs. 5.32 lakh crore although the task of achieving the target was difficult, nothing was "impossible".

He further called upon every member of the Aayakar Parivar (I-T family) to take on the call of duty and put in their best efforts for the attainment of the revised target.

The CBDT Chairman said that being "futuristic and responsive" should be the hallmark of income-tax officials while dealing with taxpayers.

The Chief Commissioners (CCsIT) of each region are expected to be the pioneers for their action plan targets pertaining to their respective regions, he said.

"In my task ahead, I will be consulting the CCsIT of each region who are the custodians of each region to find out ways and means to augment the revenue collection and render better taxpayer services", he added. [Source : www.businessstandard.com dated August 18, 2011]

>> Panel set up to scrutinise tax-related offences

"The Directorate of Income-tax (Criminal Investigation) is mandated to perform functions in respect of criminal matters having any financial implication punishable as an offence under any direct tax law", the Minister of State for Finance said in a written reply in the Lok Sabha.

The DCI, to be a part of the Central Board of Direct Taxes (CBDT), will seek and collect information about persons and transactions suspected to be connected with criminal activities "having cross-border, inter-State or international ramifications, that pose a threat to national security and are punishable under the direct tax laws", he said.

The Directorate will also investigate the source and use of funds involved in such criminal activities.

In a separate reply, the Minister said the tax department is in the process of collating data on the indirect tax evasion by pharmaceutical companies.

"Investigations are currently underway and as such it would not be appropriate in the interest of investigation to divulge details of cases at this stage", the Minister said. [Source : www.businessstandard. com, dated August 19, 2011]

>> GST gets IT criteria to reveal exposure to PAN as the unique identity

States have agreed to roll out the IT framework needed for the proposed Goods and Service Tax (GST), raising hopes for an early resolution to the deadlocked discussions on the Government's efforts to reform the indirect taxes regime.

The rollout of an IT framework will allow traders all over the country to use their permanent account number, or PAN, as the tax identification number for all direct and indirect taxes in the country. "For the first time PAN will become a kind of unique identity for all taxes paid across the country", the chairman of the empowered group on IT infrastructure for GST, said.

A common identification number benefits not just taxpayers but also helps authorities keep tab on transactions by establishing links with other tax payments. Taxpayers would be able to register using their PAN and also be able to file a common return form.

The chairman of the empowered group on IT infrastructure for GST said a pilot of IT framework has already been launched in 11 States including Maharashtra, Karnataka and Gujarat, and now it would be implemented countrywide after the final approval.

IT infrastructure is crucial for the success of the proposed GST, which will replace a plethora of indirect taxes including excise duty, service tax, value-added tax, octroi. "Without a well designed and well functioning IT system, the benefits of GST will remain elusive", the empowered group had said in its report.

The Empowered Committee of State Finance Ministers has appealed for more flexibility from the Centre to ensure timely implementation of GST. "The Central Government will have to be flexible and address all concerns of State Governments", the chairman of the Empowered Committee of State Finance Ministers told reporters after the meeting of State Finance Ministers here.

Mr. Modi, who was last month elected new chairman of the panel, said it had decided to ask for compensation for the loss on account of phasing out of Central Sales Tax for 2010-11 and 2011-12 fiscal. [Source : www.economictimes.com dated August 20, 2011]

.......

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Dear Friends : The emails are schedule to be posted in the blog (itronline.blogspot.com)and will sent to the group on various dates and time fixed. Instead of sending it on one day.

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Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

Honda Siel Power Products Ltd vs. DCIT (Supreme Court)

Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

For AY 2000-01, the assessee filed a return on 30.11.2000. As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001-02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (click here) (197 TM 415) dismissed the Writ Petition inter alia on the ground that "the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality". On appeal by the assessee to the Supreme Court, HELD dismissing the SLP:

In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it's contention on Section 14A of the Income Tax Act, 1961.

See also Mahesh G. Shetty vs. CIT 238 CTR 440 (Kar)

Related Judgements
1.Honda Siel Power Products Ltd vs. DCIT (Delhi High Court) The assessee has "accepted and admitted" that it has not given details with regard to proportionate expenses relatable to tax free income and argued that it was not required to disclose the same as s. 14A was not in the statute book when the ROI was filed. However, the…

2.Mahesh G. Shetty vs. CIT (Karnataka High Court) The Proviso to s. 14A which gives protection to the assessee with respect to AY 2001-02 & earlier years was inserted w.e.f. 11.5.2001. As the order of the CIT u/s 263 was passed earlier on 29.12.99, the protection under the Proviso is not available

3.Rallis India vs. ACIT (Bombay High Court) The retrospective amendment to s. 115JB was of no avail because it was enacted after the issue of the s. 148 notice. In Max India, the SC held in the context of s. 263 that the validity of the revision order had to be determined on the basis of…
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