2014 (7) TMI 174 - BOMBAY HIGH COURT - Income Tax Rosy Blue (India) Ltd. Versus Deputy Commissioner of Income Tax & Others Reassessment u/s 148 of the Act – Bar of limitation – Held that:- The reasons recorded for issuing the notice specifically points out that commission paid to M/s.Bonas & Co.Ltd. (a foreign party) is not shown separately but added to the cost of purchase while commission paid on local purchase has been separately shown in the profit and loss account and not added to costs - there has been less than full and true disclosure of all material facts during the assessment proceedings for AY 2005-06 - This is for reason that if the commission paid to the foreign party was shown separately as in case of local purchase, the question of tax deduction at source would have become the subject matter of examination by the AO while assessing the Assessees income during regular assessment. The particular reason for reopening of the Assessment has not been dealt with by the petitioner in its objection to the reasons for reopening the assessment for AY 2005-06 furnished - it cannot be concluded that the notice dated 29.3.2012 is without jurisdiction - there was failure on the part of the assessee to fully disclose all material facts necessary for assessment – the reopening of the assessment by notice dated 29.3.2012 as well as the order dated 25.10.2012 rejecting the objections need not be interfered – Decided against Assessee. 2014 (7) TMI 173 - BOMBAY HIGH COURT - Income Tax Commissioner of Income Tax -21 Versus Devdas Naik Claim of deduction u/s 54 of the Act - Two flats acquired under different agreements though single kitchen and used as one single unit - Held that:- The Tribunal noted that the map of the general layout plan as well as internal layout plan in regard to flat Nos.103 and 104 indicate that there is only one common kitchen for both the flats - The flats were constructed in such a way that adjacent units or flats can be combined into one - the flats were converted into one unit and for the purpose of residence of the Assessee - the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence – Relying upon Income-tax Officer, Ward 19 (3) -4, Mumbai. Versus Ms. Sushila M. Jhaveri [2007 (4) TMI 289 - ITAT BOMBAY-I ] - so long as there is a residential unit or house, then the benefit or deduction cannot be denied - the unit was a single one - The flats were constructed in such a way that they could be combined into one unit – thus, no substantial question of law arises for consideration – Decided against Revenue. 2014 (7) TMI 181 - ITAT HYDERABAD - Income Tax United Online Software Development (India) Pvt. Ltd. Versus ITO, Ward 3(2), Hyderabad Transfer pricing adjustment – Selection of comparables - Accel Transmatic Ltd.- Held that:- The TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act - This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.06.2010 to the TPO – the company was developing software products and not purely or mainly software development service provider – thus, this company cannot be taken as comparable. Megasoft Ltd. – Infosys Technologies Ltd. - Held that:- The TPO has accepted the fact that the assessee is purely a software development service provider to its AE whereas Infosys is not a captive service provider like assessee - Infosys is engaged in diversified activities and also engaged in development of products consultancy and solution - That apart, the size, reputation and brand value of Infosys, in no way makes it comparable to a small captive service provider like assessee. Though the assessee has advanced detailed submissions for inclusion of the aforesaid companies, but, the DRP has simply brushed aside the same without considering in proper perspective - the assessee’s contention in respect of the companies requires reconsideration - so far as L&T Infotech Ltd. is concerned, this company is having a huge turnover of 790 crores and unlike the assessee it is not captive service provider - Therefore, the reasons for which Infosys Technologies Ltd cannot be treated as comparable to the assessee also equally applies to this company - except L&T Infotech Ltd., the comparability of the other companies selected by the assessee, but, rejected by the TPO is restored back to the file of the AO/TPO for fresh consideration. Exclusion of communication expenses – Held that:- The decision in CIT Vs. Gemplus Jewellery[ 2010 (6) TMI 65 - BOMBAY HIGH COURT] followed – a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover - Freight and insurance do not have an element of turnover - these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary – thus, the AO is directed to exclude the communication expenses from export turnover as well as total turnover while computing deduction u/s 10A of the Act – Decided partly in favour of Assessee. 2014 (7) TMI 180 - ITAT HYDERABAD - Income Tax Lanco Kondapalli Power Ltd., Hyderabad Versus Jt. Commissioner of Income-tax Jurisdiction of the CIT in invoking powers u/s 263 of the Act – Held that:- The CIT has considered the assessment order passed u/s 143 of the Act to be erroneous and prejudicial to the interests of the revenue for non-consideration of certain issues as raised in the show cause notice issued u/s 263 of the Act - the assessee has not only explained queries raised by the AO, but, has also substantiated it with necessary documentary evidence - the AO have conducted necessary enquiry and completed the assessment after applying his mind to the facts and materials on record, assessment order passed cannot be considered to be erroneous and prejudicial to the interests of the revenue as the condition precedent for invoking jurisdiction u/s 263 is not satisfied – Relying upon Malabar Industrial Co. Ltd. Versus Commissioner of Income-Tax [2000 (2) TMI 10 - SUPREME Court] - the assessment order passed cannot be considered to be erroneous and prejudicial to the interests of the revenue for subjecting it to revisional proceeding u/s 263 of the Act. Grant of deduction u/s 80IA of the Act - Gain derived from sale of carbon remission reduction certificates – Part of business income or not – Held that:- The amount received on sale of CERCs being capital in nature – Following The Commissioner of Income Tax – IV, Hyderabad Versus M/s. My Home Power Ltd. [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] - it cannot be treated as income of the assessee in the first place - the assessee has treated it as revenue receipt, receipt being in the nature of capital cannot be treated as income - even if AO has allowed the deduction on the amount u/s 80IA treating it as revenue income, no prejudice was caused to the revenue - one of the condition for invoking jurisdiction u/s 263 was not satisfied. Claim of reimbursement of taxes from AP TRANSCO – Computation of book profit u/s 115JB of the Act – Held that:- The Tribunal in the case of the same assessee has directed the AO to delete the addition - it cannot also be considered for the purpose of computing book profit of the assessee u/s 115JB of the Act as it does not accrue as income of the assessee for the assessment year - the AO taking note of the order passed by the Tribunal on the issue has added the income on protective basis only - since the amount was not treated as income in the books of account the same also cannot be considered under the provisions of section 115JB, which is to be computed based on P&L A/c of the assessee company. Only because the view taken by the AO does not appear to be correct to the CIT, it cannot be said that such view is erroneous and prejudicial to the interests of the revenue - though the CIT has observed that the view taken by the AO is not correct, but, he himself has not expressed in detail why he considers it to be incorrect - on going through the provision contained u/s 43A and relying upon CIT Vs. Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT] – the view taken by the AO is not one of the possible view - the CIT was not justified in treating the assessment order to be erroneous and prejudicial to the interests of revenue – Decided in favour of Assessee. 2014 (7) TMI 179 - ITAT DELHI - Income Tax Afsha Talwar Versus ACIT Circle-23(1), New Delhi Addition u/s 69 of the Act - Increase of amount of bank account – Deposit of tuition fee – Held that:- The assessee is a teacher has been receiving monthly salary from the Sanskriti School in all the relevant assessment years - the assessee has been filing returns and has been consistently claiming in the said return certain income as her tuition fee income for the assessment years - the returns were filed by the assessee regularly every year u/s 139(1) and the veracity of the claim of the assessee in respect to her certain income as tuition fee income has not been questioned in any of the AY’s – the addition of the tuition income, as income from undisclosed source is not permissible in the eyes of law particularly even in the year, sum has been declared and assessed as tuition income - There is no material to show that ₹ 3,41,000/- is from a source other than the tuition income – the addition made by the AO and later on confirmed by the CIT(A) in respect of tuition fee income, which the assessee has been consistently claiming cannot be said to be her income from undisclosed source; and her claim in the regular return filed in respect to tuition income being accepted and taxed by the predecessor AO cannot be discarded in the absence of any specific incriminating materials to suggest otherwise – Decided in favour of Assessee. Addition u/s 69B of the Act – Payment made to M/s Shah Construction out of her savings bank account with HDFC bank – Held that:- The reasoning of the CIT(A) cannot be sustained for the simple reason that the assessee was in receipt of tuition income which was regularly reflected by her in her duly returned income filed u/s 139(1); and regularly brought to tax and has been as a fact taxed in the hands of the assessee; and moreover we find that the assessee/ appellant had sufficient disclosed income in her saving banks accounts to finance the construction - the amount of ₹ 3,90,000/- has been paid by cheque from HDFC Bank account on 21st December 2005; and M/s. Shah Construction has confirmed that it has received ₹ 3,90,000/- from assessee – thus, the addition is liable to be set aside – Decided in favour of Assessee. Addition u/s 69C of the Act – Held that:- The assessee has made an expenditure of ₹ 3.1,989/- for the AY - The tuition income of the assessee in regular return is ₹ 3,45,000 - The amount incurred for construction has been paid by the appellant by cheque for ₹ 3,90,000/- to Ms. Shah Construction and it has been confirmed by the receipt - the AO did not take into consideration, the fact of payment of ₹ 3,90,000/- to M/s. Shah Construction vide cheque No. 400185 dated 21st December, 2005 for the construction at Noida and though the AO has accepted that an amount was withdrawn by the assessee from the bank for the relevant AY - the AO has erroneously stated that ₹ 3,90,000/- was invested in the construction of house at Noida from cash in hand, whereas the assessee has made the said transaction through cheque bearing no. 400185 dated 21st December 2005 – thus, the addition sustained by the CIT(A) is to be set aside – Decided in favour of Assessee. Addition of interest income – Held that:- The assessee has shown income from other sources which include interest on FDR and as interest on saving bank - the total interest income as per the computation and also as per the capital account is shown – the AO has worked out the interest income as such there is a difference of ₹ 812 – thus, the deletion of addition of ₹ 10,200/- and add only ₹ 812/- is directed to the income of the assessee - Decided in favour of Assessee. 2014 (7) TMI 172 - ITAT KOLKATA - Income Tax DEPUTY COMMISSIONER OF INCOME TAX Versus M/s GLOSTER JUTE MILLS LTD Interest subsidy received under the Technology Upgradation Fund Scheme – Revenue receipt or not – Held that:- The decision in Commissioner of Income-tax Versus Sham Lal Bansal [2011 (1) TMI 409 - PUNJAB AND HARYANA HIGH COURT] followed - interest subsidy received under TUF Scheme is capital in nature - assessee is engaged in manufacture and sale of woolen garments - It received subsidy for repayment of loan taken for building, plant and machinery under the Credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme (TUFS) of Ministry of Textiles, Government of India - the objective of the subsidy scheme was to enhance the technology apparatus of the assessee by assisting in acquiring machinery and further that the subsidy so received was utilized for repayment of loans taken by the assessee to set up the new unit, as was the intention of the subsidy. The purpose of scheme under which the subsidy is given id to sustain and prove the competitiveness and overall long term viability of the textile industry, the concerned Ministry of Textile adopted the TUFS scheme, envisaging technology upgradation of the industry - For determining whether subsidy payment was ‘revenue receipt’ or ‘capital receipt’, character of receipt in the hands of the assessee had to be determined with respect to the purpose for which subsidy is given by applying the purpose test - in order to sustain competitiveness in the domestic as well as international markets and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry - the subsidy received in this regard falls into capital field – Decided in favour of Assessee. Set off of unabsorbed depreciation - Unabsorbed business from 100% EOU – Held that:- CIT(A) rightly followed the decision of the Tribunal of the same assessee in the earlier assessment year, the business loss and depreciation loss in respect of the 100% EOU unit shall be set off against the profits of other units – Decided against Revenue. 2014 (7) TMI 171 - ITAT DELHI - Income Tax LUXMI CHAND GOEL Versus INCOME TAX OFFICER Payment of freight u/s 40A(3) – Cash payment towards truck transport charges - Expenses below limit – Held that:- The AO had made addition on the ground that the assessee had made payment on account of freight and cartage on different dates to the transporters - out of which the aggregate of sums of were paid in contravention of provisions of section 40A(3) of the Act as the payments made exceeded ₹ 20,000/- to a single person on a single date - each payment made to the transporter is a single payment which does not exceed ₹ 20,000/- and as such, provision of section 40A(3) is not applicable - assessee has not been able to substantiate its claim for further relief in as much as relief allowable to the assessee has already been granted by the CIT(A) – there was no reasonable basis to give any further relief, as such – the order of the CIT(A) is upheld – Decided against Assessee. 2014 (7) TMI 170 - ITAT MUMBAI - Income Tax Dr. (Mrs) Asha Hemant Shah Versus The Income Tax Offier Treatment of income - Sale of shares as Business Income instead of Capital Gains – Held that:- The transactions entered into by the assessee cannot be treated to be transactions giving rise to income under the head “profit and gains from business or profession” - The shares have been shown under the head “investment” – revenue has accepted LTCG shown by the assessee in respect of similar transactions giving rise to income under the head capital gain - gain earned by the assessee from transactions of shares upon which assessee has earned gain of ₹ 2,08,775/- cannot be assessed as income under the head “profit and gains of business or profession ” – Decided in favour of Assessee. 2014 (7) TMI 169 - ITAT MUMBAI - Income Tax Deutche Bank AG. Versus Asstt. Director of Income Tax (International Taxation) TDS on interest paid to Head Office/Overseas branches – Principle of mutuality - Disallowance u/s 40(a)(i) of the Act - Held that:- The decision in Sumitomo Mitsui Banking Corporation Versus Deputy Director of Income-tax, (IT), Rg. 2(1), Mumbai [2012 (4) TMI 80 - ITAT MUMBAI] followed - where any Indian branch of a foreign bank passing interest to its head office and other overseas branches of the said foreign bank on advance received by it, the interest is neither deductible in the hands of the Indian branch nor chargeable to tax in the hands of the head office and overseas branches, as all being single entity - In the domestic law, such an income cannot be taxed. The issue has been decided by the Special Bench, in favour of the assessee, by holding that interest paid to the head office of the assessee bank by its Indian Branch which constitutes its P.E. in India, is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit to the P.E. which is taxable in India as per the provisions of article 7(2) and 7(3) because, it amounts to payment to self which is not taxable under the domestic law - Thus, the “principles of mutuality” were invoked for non–deduction of tax - no disallowance u/s 40(a)(i) can be made on the payment of interest paid to the head office / overseas branches as the same is not taxable, being payment to self on the ground of principles of mutuality and no TDS was required to be deducted – Decided in favour of Assessee. 2014 (7) TMI 168 - ITAT DELHI - Income Tax Assistant Commissioner of Income Tax Versus M/s. Yamaha Motor India Pvt. Ltd. Rejection of books of accounts on account of estimated profits – Held that:- As it has also been decided in assessee’s own case for the earlier assessment year, the Form 3CEB filed before the AO was found to be not about the number of motorcycles produced by the assessee during the period - it was found to be concerning the royalty paid by the assessee company during the relevant quarter - the assessee had furnished a complete reconciliation before the AO, as also incorporated in the assessment order - This reconciliation had been arbitrarily rejected by the AO. Average sales of motorcycles – Held that:- The AO had not pointed out any error in respect of any sale - It was on the basis of this, that the CIT(A) observed that there was no justification for the AO to make an assumption that the sale price charged by the assessee during the year was lower than that in the preceding year - merely since the realization per motor cycle for the year under consideration was low as compared to that in the preceding year, this by itself cannot lead the AO to assume that the sale price charged by the assessee company was under-stated and the AO evidently erred in making such assumption - unless there is material evidence to disprove the contention of the assessee, the sale stated in the books of account needs must be accepted. Losses incurred by it as compared to the profits earned by other competitors – Held that:- Nothing has been brought to support this action of the AO - profit can only be made when there is ability to do so - The factors pointed out by the assessee for not being able to make sales, have not been refuted - in the presence of the factors, without a doubt, the losses suffered by the assessee cannot be said to be either bogus, or inflated - The AO did not prove otherwise - No discrepancy was pointed out in the books of account of the assessee company concerning the expenditure incurred and claimed by the assessee - Nothing was brought to establish that the assessee had been charging a sale price higher than that noted in the books of account – Decided against Revenue. Royalty payment to 100% subsidiary – Held that:- It cannot be said that any expenditure incurred wholly and exclusively for the purposes of business is an allowable expenditure - the payment is made to a 100% shareholding company of the payer - u/s 40A(2) of the Act, it is only the fair value of such expenditure, which is allowable – AO proceeded merely on assumptions, surmises and conjectures which, undeniably, can never substitute hard evidence, which is entirely absent here - Neither Section 40(a)(i) nor Section 2(22)(e) of the Act are applicable – the order of the CIT(A) is upheld - Decided against Revenue. Set off of brought forward business losses and unabsorbed depreciation – Held that:- When an assessee furnishes an explanation on a specific query, the same is treated as accepted unless some inconsistencies are found by the AO on its vetting or the assessee fails to substantiate the same on being called upon to do so - If the Officer does not dispute the correctness of the specific explanation tendered by the assessee, the same is considered as correct and binding of the AO - It is totally impermissible to dub the explanation given by the assessee as a cooked up story without any evidence to the contrary - even if it is presumed without agreeing that the AO was under some misconception qua the assessee’s explanation during the assessment proceedings, he could have verified the same when remand reports were called for - revenue has brought no material on record to demonstrate any fallacy in the explanation tendered on behalf of the assessee – Decided against Revenue. 2014 (7) TMI 167 - ITAT DELHI - Income Tax Dy. Commissioner of Income Tax Versus M/s. Learning Universe Pvt. Ltd. Penalty u/s 271(1)(c) of the Act – Intentional claim of expenses though not allowable – Held that:- The first basis on which the CIT(A) has deleted the penalty and has been upheld by the Tribunal cannot be justified – the material fact has not been rebutted by the revenue that in support of the claimed expenditure there was full disclosure of the expenditure and about its treatment for accounting purposes was made known to the AO by the assesee - The expenditure was related to cost of website maintenance - only there is a definition of short term capital asset in clause (42A) of section 2 which provides that short term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer - there is nothing on record to suggest that the explanation furnished by the assesee against the claimed expenditure was not bonafide - there was no reason to arrive at the conclusion by the AO that there was concealment of particulars of income or furnishing inaccurate particulars thereof in relation to the claimed expenditure on the part of the assessee to attract penal provision u/s 271(1)(c) of the Act - CIT(A) has rightly deleted the penalty. If the assesee is able to furnish bonafide reason for the claim or the claim made was a debatable issue in view of the provisions of the law in that case penalty u/s 271 (1)(c) is not leviable - Such precaution is being taken within the provision of the law keeping in mind that the action u/s 271(1)(c) of the Act is penal in nature - When an assesee establishes and shows that he had acted bonafidely and all facts and material were disclosed by him, penalty should not be imposed as per clause B to Explanation 1to section 271 (1)(c) of the Act - mere submission of a claim which is incorrect in law would not amount to giving inaccurate particulars of income, hence penalty for concealment cannot be levied on the same. There is no doubt on the genuineness of the claimed expenditure, the only question was the treatment given by the assesee to those expenditure which was a debatable issue and further that there was no allegation that the assesee had not disclosed full facts relating to the claimed expenditure as it was disallowed by the AO only on the basis of those disclosures – the order fo the CIT(A) is upheld – Decided against Revenue. 2014 (7) TMI 166 - ITAT MUMBAI - Income Tax ACIT 12(1), Mumbai Versus M/s. Business India Disallowance of damaged paper stock – Held that:- The AO disallowed the claim of loss observing that the assessee had given a general explanation that the paper was damaged in the rain - the purchase of the stock of paper was of the year 1996 and it was observed by the AO that by the year 2005, the paper otherwise would have become scrap - CIT(A) also was of the view that the assessee failed to prove his claim with any cogent and convincing evidence – there is no infirmity in the order while making the disallowance – Decided against Assessee. Diminution in value of shares held as stock in trade – Held that:- The shares were investments and not stock in trade - The assessee in subsequent years could not have claimed the said shares as stock in trade as per its own will - assessee after the finding of the Income Tax Authorities that the shares were investments, had not made any attempt or action to convert the shares into stock in trade - the shares are required to be held as investments only and the assessee is not entitled to claim any diminution in the value of the said shares treating the same as stock in trade – Decided against Assessee. Disallowance u/s 14A of the Act – Investments made for earning tax free income - Held that:- The decision in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed - rule 8D of the Income Tax Rules is applicable for AY 2008-09 onwards - CIT(A) observed that the assessee had earned certain exempt income, the assessee had not appropriated any expenditure for earning the exempt income - the finding of the CIT(A) in directing the AO to make a reasonable disallowance after apportionment of the expenses out of the composite expenditure for earning taxable and tax free income is in accordance with the law and does not require any interference – Decided against Revenue. 2014 (7) TMI 165 - ITAT DELHI - Income Tax Lemon Tree Hotels Ltd. (Formerly Krizm Hotels Pvt. Ltd.) Versus Addl. CIT Range-5, New Delhi ESOP expenses u/s 37 of the Act - Sum debited to P&L account under ESOP –Reliance place on Circular No. 9 of 2007 dated 20.12.2007 - Chargeability of Fringe Benefit Tax on ESOP - Whether the assessees claim for deduction under the head ‘Employees Stock Option Cost (ESOP)’ is an allowable expenditure u/s 37 of the Act - Held that:- AO and CIT(A) has relied upon the circular issued by the CBDT NO. 9 of 2007, for refusal of the claim of the assessee - a perusal of the circular reveals that the subject it deals with is given as “Explanatory circular on Fringe Benefit Tax Arising on allotment or transfer of specified securities or sweat equity shares” – Relying upon Biocon Ltd. Vs. DCIT [2013 (8) TMI 629 - ITAT BANGALORE] - the discount on issue of Employee Stock Option is an allowable deduction in computing the income under the head ‘Profit and gains of business or profession’ - the liability to pay the discounted premium is incurred during the vesting period and the amount of such deduction is to be found out as per the terms of the ESOP scheme by considering the period and percentage of vesting during such period - AO directed to allow the expenditure – Decided in favour of Assessee. 2014 (7) TMI 164 - ITAT DELHI - Income Tax AAA Paper Marketing Ltd. Versus ITO Ward 1(1), New Delhi Reopening of assessment u/s 147/148 of the Act – Prima facie reason – Held that:- Reopening has been done on the basis of specific information in possession of AO from DIT investigation, New Delhi – the AO had prima facie reason to believe that income had escaped assessment – Decided against Assessee. Addition u/s 68 of the Act – Share application money – Amount received from debtor – Held that:- CIT(A) was primarily swayed by the consideration that assessee had returned loss of ₹ 9,792/- but the details as furnished by assessee particularly the details of sundry debtors, needs to be examined - if assessee’s claim is found to be correct then no addition is called for in current assessment year – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification of assessee’s claim of realization of amount due from MKM Finsac Pvt. Ltd. – Decided in favour of Assessee. 2014 (7) TMI 163 - ITAT DELHI - Income Tax Dy. Commissioner of Income Tax Versus M/s. AR. Airways Pvt. Ltd. Depreciation on aircrafts @ 40% - revenue granted depreciation considering the same as plant and machinery - Held that:- The decision in SRC Aviation (P) Ltd. Versus Deputy Commissioner of Income-tax, Circle 9(1) [2011 (8) TMI 749 - ITAT DELHI] followed - no justification in observations of CIT that the aircraft of the assessee should not be described as ‘aeroplane’ simply for the reason that ‘aeroplane’ is a machine much bigger, heavier and powerful than an aircraft which travels in the air more than an aircraft - the aircraft owned by the assessee cannot be thrown out of the category of ‘aeroplane’ and the aircraft owned by the assessee cannot be considered only as ‘Plant and Machinery’ which is a term distinct to such type of aircraft - aircraft as ‘aeroplane’ and granting depreciation to the respective assessees @ 40% - revenue has not been able to bring on record any of the cases wherein such aircraft has been considered by them eligible for depreciation under the head ‘Machinery and Plant’ - the AO had granted the depreciation to the assessee @ 40% in accordance with the provisions of the Rule - grant of depreciation cannot be considered to be a claim not supported by law, as the department cannot straightaway show that such claim of depreciation was not in accordance with the law and, in such, circumstances, the powers u/s 263 could not be invoked – Decided against Revenue. 2014 (7) TMI 162 - ITAT DELHI - Income Tax Sagar Fossil Fuel Technologies (P). Ltd. Versus ITO Ward-7(2), New Delhi Addition u/s 68 of the Act – Admission of additional evidence under Rule 46A of the Rules – Creditworthiness and genuineness of transactions not considered - Held that:- The initial statement of Shri Sudesh Joshi dated 30.12.2009 was in fact handed over to the assessee only during the appellate proceedings before the CIT(A), which was the sole basis of the impugned addition and the said Shri Sudesh Joshi has retracted his statement during remand proceeding - only the basis of a statement of a witness, which has been admittedly retracted and admittedly which has not been allowed to be cross-examined by the assessee, cannot be the sole basis on which the addition can be made - the authorities have not examined the credit-worthiness of Shri Sudesh Joshi in detail - His source of income for the earlier years, need to be brought out in detail and on record as to ascertain his taxable income; and effort should be made by the AO to verify his savings in his account before he lent the amount to the assesse - since this exercise has not been properly done, the order of the CIT(A) is set aside and the Ao is directed to examine the transaction of Shri Joshi with the assessee de novo, and find out the credit worthiness of Shri Joshi and genuineness of the transactions – Decided in favour of Assessee. Addition by estimation of profit @10% of sale – Held that:- The appellant company for the instant year declared an income of ₹ 1,17,784/- on the basis of audited financial statements - CIT(A) has observed in a very casual manner that books of account cannot be relied upon and rejected it - there was no specific reason spelt out by him, from which it can be concluded that books of account cannot be relied upon and for the said reason, it was necessary for estimation of income was necessary - the audited accounts cannot be rejected unless glaring inconsistency or violation of the Act was brought on record – the AO has not made any adverse observation about the correctness and completeness of the accounts made by the AO as envisaged by Section 145 and neither AO has observed that the assessee has not been following the accounting standard as notified and there is no finding by the AO that the assessee was not following the accounting method regularly and there are no adverse finding by him as to the income of the assessee as provided u/s 145(3) of the Act. Relying upon Sanjeev Woolen Mills Vs. CIT [2005 (11) TMI 26 - SUPREME Court] - the decision of the AO to reject the audited books of account is vitiated without him spelling out the cogent reasons for doing so and has failed to satisfy the requirement of Section 145(3) before doing so and therefore the said decision to reject the books of account cannot be countenanced in the aforesaid facts and circumstances. Ad-hoc disallowance of 10% of the sales – Held that:- Simply because the assessee has engaged in a monopoly business where there is no competitor, cannot be a ground to make an ad-hoc addition of 10% without any basis - The audited account with details of sales and sale tax assessment shows that the sales purchases and expenses as well the net profit is verified by the auditors and cannot be interfered by the AO on surmises, presumptions or doubts - as the rejection of books of account was held as bad in law, the exercise of best judgment assessment in this case is also vitiated – Decided partly in favour of Assessee. 2014 (7) TMI 161 - ITAT MUMBAI - Income Tax Shri Gopal Kantana Shetty Versus Asstt. Commissioner of Income Tax Block assessment u/s 158BD of the Act – Quantification of assessment – Held that:- The decision in Commissioner of Income Tax – III Versus M/s. Calcutta Knitwears, Ludhiana [2014 (4) TMI 33 - SUPREME COURT] followed - the requirement of satisfaction for initiation of proceedings u/s 158BD is essential, however there is no bar on the AO in respect of the stage of the proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person - the existence of cogent and demonstrative material is germane to the AOs satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action u/s 158BD - the cardinal rule for initiation of proceedings u/s 158BD is the existence of cogent material which lead to detection of undisclosed income of the person other than the searched person. There is no mention of any particular document or material or any particular item of undisclosed income which was detected during the course of search in question or from the Books of Accounts or seized material – there is merit in the contention of the revenue that if the satisfaction is recorded or expressed by the AO in respect of the undisclosed income belonging to the person other than the searched person in the assessment order of the searched person passed u/s 158BC then the requirement of initiation of proceedings u/s 158BC will be regarded as satisfied - the AO has not made any addition of undisclosed income on account of such business conducting charge/rental income on the ground that the assessee has claimed expenses of only ₹ 15,000/- PM - when the AO has concluded in the assessment order that since the assessee has claimed only ₹ 15,000 PM on account of payment of rent and excess payment is not allowed - other than the rental charges neither the assessment order passed u/s 158BC nor the satisfaction recorded on 10.01.2003 disclosed any other undisclosed income detected by the AO from the Books of Accounts and other seized papers. At the time of recording satisfaction the AO should reach a clear conclusion that prima facie the material available establishes undisclosed income of third party - In the absence of existence of any cogent material which demonstrates the undisclosed income belonging to the person other than the searched person, the proceedings initiated u/s 158BD and consequent block assessment are invalid - it is clear that the AO has not brought out any record, Books of Accounts or seized material to demonstrate undisclosed income of the assessee - the initiation of the proceedings and consequential block assessment u/s 158BD are invalid
Posted on: Mon, 07 Jul 2014 01:22:23 +0000
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