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DATE: September 30, 2011 (Date of publication)
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The Tribunal has side tracked the main issue. It was obvious that conversion of the land into investment just before the sale of the property was made to avoid payment of full taxes. Though the AO accepted the conversion, the assessee’s claim that the gains was a LTCG amounted to furnishing inaccurate particulars of income. The issue was not debatable as held by the Tribunal. Though the appeal was admitted by the High Court, the Tribunal glossed over a very important and fundamental fact that the appeal was admitted and dismissing the appeal on the same. Accordingly, when the order of the AO in quantum proceedings was sustained by all successive authorities and the High Court also dismissed the appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable.

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DATE: (Date of pronouncement)
DATE: September 28, 2011 (Date of publication)
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The argument that as the AO had called for the details of Rs. 1.66 crores and confined the addition only to Rs. 19.66 lakhs, the reopening is on a “change of opinion” is not acceptable. The question of change of opinion arises when the AO forms an opinion and decides not to make an addition and holds that the assessee is correct. Here, though the AO had asked specific and pointed queries with regard to the sundry creditors of Rs. 1.66 crores, he had made an addition of only Rs.19.86 lakhs and there was no discussion, ground or reason why addition of Rs. 32.97 lakhs was not made in-spite of the assessee’s failure to furnish conformation and details to that extent. The argument that when the assessment order does not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the AO and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance (Consolidated Photo vs. ACIT 281 ITR 394 (Del) followed)

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DATE: (Date of pronouncement)
DATE: September 24, 2011 (Date of publication)
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Under Rule 10B(1)(e)(ii), “the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transaction is computed having regard to the same base;” The term “uncontrolled transaction” is defined in Rule 10A(a) to mean “a transaction between enterprises other than associate enterprises, whether resident or non-resident”. The result is that in applying the TNMM, the net profit margin realized from a comparable uncontrolled transaction is to be taken into consideration. The conditions require that a case should not only be comparable but also have uncontrolled transactions. These twin conditions need to be cumulatively satisfied. If a case is only comparable but has controlled transactions or vice-versa, it falls outside the ambit of the list of comparable cases

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DATE: (Date of pronouncement)
DATE: September 23, 2011 (Date of publication)
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The assessee has regularly employed the cash system of accounting in recording its day today business transactions. It is not a case where the assessee has been maintaining its accounts of day to day business under the mercantile system of accounting and thereafter prepares accounts in accordance with cash system of accounting for income tax purposes. Section 209(3) of the Companies Act, 1956 does not override s. 145 of the Income-tax Act. There was also no valid basis for the AO’s action in rejecting the books of account and system of accounting followed by the assessee.Further, since the department has accepted the assessee’s system for the past several years, the principles of consistency apply and there should be finality and certainty in litigation in the absence of fresh facts to show that the assessee’s system of accounting is arbitrary or perverse (Amarpali Mercantile 45 ITD 386 (Del) distinguished, Chennai Finance 81 ITD 7 (Hyd) followed)

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DATE: (Date of pronouncement)
DATE: September 21, 2011 (Date of publication)
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U/s 92A(1)(a) & (b), if one enterprise controls the decision making of the other or if the decision making of two or more enterprises are controlled by same person, these enterprises are required to be treated as ‘associated enterprises’. Though the expression used in the statute is ‘participation in control or management or capital’, essentially all these three ingredients refer to de facto control on decision making. The assessee had “de facto control” over the CBU as the CBU was wholly dependent on the use of trade-marks in respect of which the assessee had exclusive rights. Further, the entities from which the CBU imported the raw materials were affiliates of the assessee and controlled by the common parent Diageo Plc. Accordingly, the assessee, the CBU and its Diageo group supplier of raw materials were “associated enterprises” as they were de facto controlled, directly or indirectly or through intermediaries, by the same person i.e. Diageo PLC. Further, as the costs incurred by the CBU for purchase of the raw materials was borne by the assessee, the transaction was actually between the assessee and the Diageo group concerns supplying the raw material to the CBU and constituted an “international transaction

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DATE: September 21, 2011 (Date of publication)
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Transfer Pricing: Important Principles of Cost Plus, CUP & TNMM Explained The assessee, engaged in the business of manufacture and export of studded diamond and gold jewellery, imported & exported diamonds and exported jewellery to associated enterprises. For transfer pricing …

ACIT vs. Tara Ultimo Private Limited (ITAT Mumbai) Read More »

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DATE: (Date of pronouncement)
DATE: September 20, 2011 (Date of publication)
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U/s 144C (5), the DRP can issue directions only in respect of the objections raised by the assessee and the objections are to be in terms of the variation proposed in the draft order. S. 144C (8) restricts the powers of the DRP to “confirm, reduce or enhance the variations proposed in the draft assessment order“. Hence, the DRP’s directions have to be with reference to the objections to the variations proposed in the draft order. In the context of the erstwhile s. 144B, it was held by Courts that the IAC’s review powers were limited to the additions proposed by the AO and that he had no jurisdiction to give instructions which were beyond the purview of the draft order and objections. This principle applies to s. 144C as well. (GE India Technology Centre vs. DRP followed)

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DATE: (Date of pronouncement)
DATE: September 15, 2011 (Date of publication)
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A cost contribution arrangement has to be consistent with the arm’s length principle. The assessee’s share of overall contribution to costs must be consistent with the benefits expected to be received, as an independent enterprise would have assigned to the contribution in hypothetically similar situation. The TPO’s objection that the cost should be shared in the ratio of actual use of services and should be charged as per Indian employee costs is not acceptable. There is no objective way in which the use of services can be measured and as is the commercial practice even in market factors driven situation, the costs are shared in accordance with some objective criterion, including sales revenues and number of employees. The question of charging as per domestic employee costs cannot be a basis of allocating the costs because such an allocation will deal with some hypothetical pricing whereas the allocations are to be done for the actual costs incurred

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DATE: (Date of pronouncement)
DATE: September 13, 2011 (Date of publication)
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S. 271(1)(c) imposes “strict civil liability“. It is not understandable how a CA firm can have any doubt about the receipt being clearly a professional receipt. If it is so, it is not understandable how the assessee can discharge its role as a professional consultant. It is unimaginable that a professional firm will have any doubt on such a simple proposition of professional receipt. The advance tax payment is an indication of the mindset of the assessee

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DATE: (Date of pronouncement)
DATE: September 12, 2011 (Date of publication)
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The amendment to s. 40(a)(ia) by the FA 2010 was made retrospectively applicable only from AY 2010-11 and not earlier. It is nowhere stated that the amendment is curative or declaratory in nature nor is such an intention discernible. Ordinarily, a substantive provision is “prospective” in operation and courts cannot give it “retrospective effect” except in limited circumstances where, say, the amendment makes explicit what was earlier implicit or where the amendment was to remove unintended consequences in the existing provison and to make it workable. A provision giving relief cannot be regarded as retrospective only because the original provision caused hardship to the assessee. S. 40(a)(i) caused “intended difficulty” with the object of discouraging non-compliance with the TDS provisions. A partial relaxation in its rigor, inserted with prospective effect, cannot be treated as “retrospective