Year: 2014

Archive for 2014


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DATE: (Date of pronouncement)
DATE: February 6, 2014 (Date of publication)
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S. 14A disallowance has to be applied while computing book profits under clause (f) of Explanation to s. 115JA

The assessee’s contention that in view of the Proviso to s. 14A, the said provision could not have been invoked for AY 2000-01 in a revision u/s 263 is not acceptable because the assessment order was passed after the section was enacted (Honda Siel Power Products 340 ITR 53 (Del) (approved by SC) followed). The failure of the AO to invoke s. 14A had resulted in the order being erroneous and prejudicial to the interests of the Revenue. On the question of quantum of deduction to be made u/s 14A, the Tribunal has not gone into the said question of quantum. The deduction or quantum has to be decided in light of Maxopp Investment 347 ITR 272 (Delhi)

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DATE: (Date of pronouncement)
DATE: February 5, 2014 (Date of publication)
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S. 220: AO’s action of coercive recovery is illegal and shocks the conscience. The Tribunal cannot remain a silent spectator to such illegal action

The action of the AO is in defiance of the directions laid down in UTI Mutual Funds 345 ITR 71 (Bom) that no recovery of tax should be made before the expiry of the time limit for filing an appeal before the higher forum has expired. The Court also has directed that when the bank account has been attached the revenue would not withdraw the amount unless it has furnished a reasonable prior notice to the assessee to enable the assessee to seek recourse to a remedy in law. The action of the AO in not only attaching the bank account but withdrawing the money from the bank was before the expiry of the time limit for filing appeal was only with a view to foreclose the option of the assessee of obtaining a stay from the Tribunal. The assessee received the order of the CIT(A) only on 16.11.2013 and had 60 days time to prefer an appeal there from. However, the AO attached the bank account of the assessee on 18.11.2013 itself i.e. within two days of communication of the order of the CIT(A). Further, not only the bank account was attached but the amounts were forcibly withdrawn on that date itself from the bank so as to completely foreclose the remedy available to the assessee under the Act

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DATE: (Date of pronouncement)
DATE: February 5, 2014 (Date of publication)
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S. 40(a)(i): Disallowance of payment to Non-residents without TDS violates ‘deduction neutrality non-discrimination‘ clause in DTAA as there is no similar bar for residents as per Merilyn Shipping 136 ITD 23 (SB)

In Rajeev Sureshbhai Gajwani 137 TTJ 1 (Ahd)(SB) it was held that differentiation simplicitor is enough to invoke the non-discrimination clause. Consequently, it will be contrary to the deduction neutrality clause in non-discrimination in the tax treaties if the provisions for deduction of payments to non-residents are more onerous than those applicable for payments to residents. The payments made to residents of Ireland, Denmark and Austria are protected by the deduction neutrality clauses and any pre-conditions for deductibility, which are harsher than payments made to the residents are ineffective in law. However, payments to the residents of Belgian, UK, Italy and Spain will not be entitled to the same protection under the omnibus non-discrimination clause of Article 24(1) based on nationality (Herbalife International 103 TTJ 78 (Del) referred)

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DATE: (Date of pronouncement)
DATE: February 5, 2014 (Date of publication)
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No s. 40A(3) disallowance for cash payments even if Rule 6DD(j) exception does not apply if there is no dispute as to genuineness of payment and business compulsion

S. 40A(3) and Rule 6DD are not intended to restrict business activities. The terms of s. 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A (3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. On facts, though the case of the assessee did not fall within the exclusion clause in Rule 6DD (j), s. 40A(3) will not apply because (a) there is no doubt as to the genuineness of the payment nor the identity of the payee, (b) the assessee was compelled to pay cash owing to the insistence of its principal and if it had not abided by the direction, the business would have suffered & (c) the exceptions in Rule 6DD are not exhaustive and the rule must be interpreted liberally (Attar Singh Gurmukh Singh 191 ITR 667 (SC), Hynoup Food & Oil Industries 290 ITR 702 (Guj) & Harshila Chordia 298 ITR 349 (Raj) referred)

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DATE: (Date of pronouncement)
DATE: February 4, 2014 (Date of publication)
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S. 14A / Rule 8D disallowance cannot be made without showing how assessee’s claim/ computation is wrong

The AO disallowed the expenditure u/s 14A without first recording that he was not satisfied with the correctness of the claim as regards the claim that “no expenditure” was made by the assessee. The disallowance u/s 14A of the Income-tax Act, 1961 is plainly contrary to the provisions of the statute. The CIT allowed the appeal of the assessee and the Tribunal did not interfere. Challenging the order of the tribunal, the present appeal has been filed. We and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed.

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DATE: (Date of pronouncement)
DATE: February 4, 2014 (Date of publication)
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Employees’ PF/ ESI Contribution is also covered by s. 43B & allowable as a deduction if paid by “due date” of filing ROI. ITC Ltd 112 ITD 57 (Kol) (SB) impliedly reversed

The only issue involved in this appeal is as to whether the deletion of the addition by the AO on account of employees’ contribution to ESI and PF by invoking the provision of s. 36(1)(va) read with s. 2(24)(x) of the Act was correct or not. In CIT vs. Alom Extrusion Ltd 390 ITR 306 the Supreme Court has held that the amendment to the second proviso to s. 43(B) as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of s. 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal

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DATE: (Date of pronouncement)
DATE: February 3, 2014 (Date of publication)
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Expenditure on discounting/factoring charges is not in the nature of interest for purposes of TDS u/s 194A or disallowance u/s 40(a)(ia)

The term “interest” relates to a pre-existing debt, which implies a debtor creditor relationship. Unpaid consideration gives rise to a lien over goods sold and not for money lent as held in Bombay Steam Navigation Co. Pvt. Ltd. Vs. CIT (1963) 56 ITR 52 (SC) where interest on unpaid purchase price was not treated as interest on loan. It is clear from the definition that before any amount paid is construed as interest, it has to be established that the same is payable in respect of any money borrowed or debt incurred. According to us, discounting charges of Bill of Exchange or factoring charges of sale cannot be termed as interest. The assessee in the present case is acting as an agent. Now what is this is to be seen. A Del Credere is an agent, who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons for whom he can stand guarantee. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for his undertaking is a guarantee. A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract, for example, if the buyer refuses to take delivery. In the present case before us the assessee has assessed the income as Del Credere being trading in goods and merchandise and also dealing in securities and which is assessed as income from business and not income from other sources. The expenditure incurred is also on account of business expenditure and not interest expenditure in the nature of interest falling u/s. 194A of the Act. Accordingly, these discount/factoring charges do not come within the purview of section 194A and assessee is not liable to TDS on these charges

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DATE: (Date of pronouncement)
DATE: February 3, 2014 (Date of publication)
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Transfer Pricing: Law for applying Profit Split Method as per Rule 10B (1) (d) explained

The Profit Split Method as provided under Rule 10 B(1)(d) is applicable mainly in international transactions: (a) involving transfer of unique intangibles; (b) in multiple international transactions which are so interrelated that they cannot be valuated separately. The method specified in clause (ii) of Rule 10 B(1)(d) that the relative contribution made by each of associated enterprise should be evaluated on the basis of FAR analysis and on the basis of reliable external data. Thus, bench marking by selection of comparables is mandatory under this Method. The profits need to be split among the AEs on the basis of reliable external market data, which indicate how unrelated parties have split the profits in similar circumstances. For practical application, we are of the view that, bench marking with reliable external market data is to be done, in case of residual profit split method, at the first stage, where the combined net profits are partially allocated to each enterprise so as to provide it with an appropriate base returns keeping in view the nature of the transaction. The residual profits may be split as per relative contribution of the Associated Enterprise. In our view at this stage of splitting of residual profits, no bench marking is necessary, as it is not practicable. Nevertheless, for splitting the residuary profits a scientific basis for allocation may be applied

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DATE: (Date of pronouncement)
DATE: February 3, 2014 (Date of publication)
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Bar in s. 80P(4) applies only to credit co-operative banks but not to credit co-operative societies

From CBDT circular No.133 of 2007 dated 9.5.2007 it can be gathered that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a cooperative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue’s contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative banks. In the present case, respondent assessee is admittedly not a credit co-operative bank but a credit co-operative society. Exclusion clause of sub-section (4) of section 80P, therefore, would not apply

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DATE: (Date of pronouncement)
DATE: January 31, 2014 (Date of publication)
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Prosecution for offence u/s 276CC for failure to file ROI can be initiated during the pendency of assessment proceedings. The statement in the individual returns of the partners that the firm has not filed a ROI as its’ accounts are not finalized does not absolve the firm of prosecution for non-filing of ROI

The offence u/s 276CC is attracted on failure to comply with the provisions of s. 139(1) or failure to respond to the notice issued u/s 142 or s. 148 within the time limit specified therein. The contention that pendency of the appellate proceedings is a relevant factor for not initiating prosecution proceedings u/s 276CC is not acceptable. S. 276CC contemplates that an offence is committed on the non-filing of the return and it is totally unrelated to the pendency of assessment proceedings except for second part of the offence for determination of the sentence of the offence, the department may resort to best judgment assessment or otherwise to past years to determine the extent of the breach. The language of s. 276CC is clear so also the legislative intention. If it was the intention of the legislature to hold up the prosecution proceedings till the assessment proceedings are completed by way of appeal or otherwise the same would have been provided in s. 276CC itself. Therefore, the contention that no prosecution could be initiated till the culmination of assessment proceedings, especially in a case where the appellant had not filed the return as per s. 139(1) of the Act or following the notices issued u/s 142 or s. 148 does not arise