Month: January 2012

Archive for January, 2012


Nandi Steels Ltd vs. ACIT (ITAT Bangalore Special Bench)

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DATE: (Date of pronouncement)
DATE: January 11, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
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S. 72 (1) allows brought forward business loss to be set-off against the “profits & gains of any business or profession” of the subsequent year. The expression “profits & gains of business” means income earned out of business carried on by the assessee and not just income connected in some way to the business or profession carried on by the assessee. The land & building were fixed & capital assets used by the assessee for its business purposes. The gains arising there from were assessable as capital gains and were not eligible for set-off against the brought forward business loss u/s 72 (Express Newspapers 53 ITR 250 (SC) followed; Cocanada Radhaswami Bank 55 ITR 17(SC) distinguished; Steelcon Industries reversed)

Delmas, France vs. ADIT (ITAT Mumbai)

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DATE: (Date of pronouncement)
DATE: January 11, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

In order to constitute a PE under Article 5(1) & 5(2), three criteria are required to be satisfied viz; physical criterion (existence), functionality criterion (carrying out of business through that place of physical location) & subjective criterion (right to use that place). There must exist a physical “location”, the enterprise must have the “right” to use that place and the enterprise must “carry on” business through that place. An “agency” PE will not satisfy this condition because the enterprise will not have the “right” to use the place of the agent. Under Article 5(6) of the India-French DTAA (which is at variance with the UN & OECD Model Conventions), even a wholly dependent agent is to be treated as an independent agent unless if it is shown that the transactions between him and the enterprise are not at arms’ length. The Department’s argument that as the AO had not examined whether the transactions were done in arm’s length conditions, the matter should be restored to him is not acceptable because the onus was on the Revenue to demonstrate that the assessee had a PE. The onus is greater where the very foundation of DAPE rested on the negative finding that the transactions between the agent and the enterprise were not made under at arms length conditions. A negative finding about transactions with the dependent agent not being at ALP is sine qua non for existence of a DAPE under the India-France DTAA. The AO could not be granted a fresh inning for making roving and fishing enquiries whether the transactions were at arm’s length conditions or not

M/s Veer Gems vs. ACIT (Gujarat High Court)

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DATE: (Date of pronouncement)
DATE: January 10, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

The AO has jurisdiction to make a reference to the TPO only if there is an “international transaction”. Though the question as to whether there is an “international transaction” may be disputed, the AO is not obliged to grant hearing to the assessee, invite and consider the objections with respect to the question whether there was an “international transaction” before making a reference to the TPO. The AO’s opinion has to be based on available material and would have “ad-hoc” finality. The power cannot be exercised arbitrarily or at whims or caprice. S. 92C (1) has inbuilt safeguards to ensure that the reference is made only in appropriate cases with approval of the higher authority. At the stage of framing the assessment in terms of the TPO’s report the AO is entitled (despite the amendment to s. 92CA(4)) to consider the objections of the assessee that in fact there had been no “international transaction”. If the assessee succeeds in establishing such fact, the AO would have to drop the entire transfer pricing proceedings. Even the DRP has the power to consider whether there was an international transaction or not and it can annul the computations proposed on the basis of the TPO’s order. However, the TPO has no jurisdiction to decide the validity of any such reference and his task is only to determine the ALP. On facts, as the parties were closely related and the assessee had accepted in the preceding year that the transactions were subject to transfer pricing, the AO’s reference could not be interfered in writ proceedings

M/s. Radials International vs. ACIT (ITAT Delhi)

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DATE: (Date of pronouncement)
DATE: January 10, 2012 (Date of publication)
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CITATION:

In a Portfolio Management Scheme, the choice of securities and its period of holding is left to the portfolio manager and the assessee has no control. Only the portfolio manager can deal with the Demat account of the assessee. While, at the time of depositing the amount, the assessee will make entry in his books of account as investment in PMS, he is not aware of the transactions in the shares being entered into by the portfolio manager on his behalf as his agent. Since the assessee comes to know about the purchase and sale of shares under PMS after the expiry of the quarter, the accounting treatment in the books of the assessee in respect of shares purchased/sold by the portfolio manager under PMS cannot be entered in the books of the assessee. It is at the end of the year the shares available in the DEMAT account can be entered. Therefore, at the time of deposit of amount, the intention of the assessee was to maximize the profit. As the purchase and sale of shares under PMS is not in the control of the assessee at all, it cannot be said that the assessee had invested money under PMS with intention to hold shares as investment. The portfolio manager carried out trading in shares on behalf of his clients to maximize the profits. Therefore, it cannot be said that shares were held by the assessee as investment. The fact that the transactions were frequent and its volume was high indicated that the portfolio manager had done trading on behalf of the assessee. The fact that the shares remaining at the end of the year were shown under the head ‘investment’ makes no difference. Even the LTCG is assessable as business profits and s. 10(38) exemption is not available. The fact that the AO took a contrary view in the preceding year is irrelevant. There is no difference between similar transactions carried out by an individual in shares and the transactions carried out by portfolio manager. There is, however, a difference between investment in a mutual fund and PMS

DIT vs. Rio Tinto Technical Services (Delhi High Court)

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DATE: (Date of pronouncement)
DATE: January 8, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
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The income received by the assessee, though not assessable as “fees for technical services” under the DTAA, is “fees for technical services” under Explanation 2 to s. 9(1)(vii) because it is for providing technical information and does not arise from a “project”. Consequently, s. 44D, which provides that no deduction shall be admissible while computing income of the nature of “fees for technical services” shall apply

Girnar Investment Ltd vs. CIT (Delhi High Court)

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DATE: (Date of pronouncement)
DATE: January 8, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

S. 220(2) provides for levy of interest if the demand is not paid within 30 days of the service of notice u/s 156. A distinction has to be drawn between a case where the assessee pays up the entire demand raised pursuant to the assessment order within the period specified in s. 156, wins in appeal and the amount is refunded and subsequently loses in further appeal and has to repay the taxes. In such a case, as the assessee is not in default in the first instance, no interest u/s 220(2) is payable for the period when the favourable verdict of the appellate authority was operative . However, if the assessee has not paid up the entire tax within the specified period, it is liable to pay interest u/s 220(2) from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest. On facts, as the assessee had paid only a part of the demand at the first stage, it was held liable to pay interest for the entire period including the period when the favourable CIT(A)’s order was operative though no interest was payable on the s. 244A interest (Vikrant Tyres Ltd 247 ITR 821(SC), S.M.S. Schloemann Siemag 250 ITR 97 (AP)(FB) distinguished; New United Construction Co 270 ITR 224 (Jhar) not followed)

Genisys Integrating Systems vs. DCIT (ITAT Bangalore)

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DATE: (Date of pronouncement)
DATE: January 6, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

While Rule 10D(4) requires that the information should be “contemporaneous” and exist latest by the “specified date”, there is no “cut-off date” upto which only the information available in public domain can be considered by the TPO. Even data that becomes available in the public domain after the specified date can be considered. If the TPO collects information u/s 133(6), he is not required to inform the assessee about the process used by him nor is he required to furnish the entire information to the assessee. However, the assessee must be given proper hearing if any information is proposed to be used against it

CIT vs. SPL’s Siddhartha Ltd (Delhi High Court)

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DATE: (Date of pronouncement)
DATE: January 6, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

S. 152(2) requires the sanction to be accorded by the Joint/Additional CIT. The AO sought the sanction of the CIT. Though the file was routed through the Addl. CIT, the latter only made an endorsement “CIT may kindly accord sanction”. This showed that the Addl. CIT did not apply his mind or gave any sanction. Instead, he requested the CIT to accord approval. This is not an irregularity curable u/s 292B

SRL Ranbaxy Ltd vs. ACIT (ITAT Delhi)

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DATE: (Date of pronouncement)
DATE: January 4, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

To fall within s. 194-H, the payment must be by a “person acting on behalf of another person“. The element of “agency” has necessarily to be there. If the dealings between the parties is not on a “principal to agent” basis, s. 194-H does not get attracted

Ranbaxy Laboratories Ltd vs. CIT (Delhi High Court)

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DATE: (Date of pronouncement)
DATE: January 3, 2012 (Date of publication)
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FILE: Click here to view full post with file download link
CITATION:

Though s. 92CA enables the AO to refer an international transaction to the TPO if he considers it “necessary or expedient” to do so, Instruction No. 3 dated 25.5.2003 makes it mandatory for the AO to make a reference to the TPO if the aggregate value of the international transaction exceeds Rs. 5 crores. This Circular, having been issued u/s 119, is binding on the AO. The AO ought to have referred the matter to the TPO having regard to the fact that Specialized Cell was created to deal with complicated and complex issues arising out of the transfer mechanism. The AO’s omission to follow the binding Circular amounted to making assessment without conducting proper inquiry and investigation and resulted in the order becoming “erroneous and prejudicial to the interest of the Revenue”. The observations in Sony India 288 ITR 52 (Del) (while upholding the constitutional validity of the aforesaid Circular) that the said Circular was a “Guideline” which did not take away the discretion of the AO was made in a different context

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