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S. 50 : Capital Gains – Depreciable Assets – Loss – Carry Forward and Set off of brought forward business loss
Income assessed by the assessee in the relevant year on sale of factory building, plant and machinery although not taxable as profits and gains of business or profession is an income in the nature of business though assessed as capital gains under section 50 and therefore, assessee is entitled to set off of brought forward business losses against the said capital gains.
Digital Electronics Ltd. vs. Addl. CIT (2011) 49 DTR 484/135 TTJ 419 (Mum.)(Trib.)

2011-TIOL-363-HC-DEL-IT

IN THE HIGH COURT OF DELHI

ITA No.1501 of 2010

DIRECTOR OF INCOME TAX

Vs

MODERN CHARITABLE FOUNDATION

A K Sikri and M L Mehta, JJ

Dated: May 18, 2011

Appellant Rep by : Ms. P.L. Bansal, Sr. Adv with Mr. Deepak Anand, Adv
Respondent Rep by : Mr. Bharat Beriwal, Adv

Income Tax - Whether additional evidence is to be accepted in appeal before CIT (A) when the assessee fails to produce the same in spite of number of opportunities granted to the assessee by the AO - Whether when the AO objects to the admission of the additional evidence, even if the same is to be admitted, opportunity should be granted to the AO to verify the same.

The assessee is a Charitable Trust registered under the Societies Registration Act XXI of 1860. It had filed the return for the relevant AY declaring the income at nil, which was accepted by the AO u/s 143(1)(a) of the Income Tax Act. However, thereafter, the assessment was re-opened by issuing notice u/s 148 of the Act, on the basis of the information received from the Director of Income Tax (Investigation) that the assessee had received certain accommodation entries in its account . After the re-opening of the case, the AO went through the records again and found that the assessee had taken donations in the sum of Rs. 53,52,900/- and unsecured loan of Rs. 1,14,58,500. The AO asked the assessee to give details in respect thereof. A numbers of opportunities were provided by the AO for this purpose but the assessee failed to avail the said opportunities and furnish the details . The AO passed re-assessment order treating the donations of Rs. 53,52,900/- and unsecured loan of Rs. 1,14,58,500 as undisclosed income and made the additions under Section 68 of the Income Tax Act.

The assessee filed an appeal before the CIT(A) and produced some documents/evidence for the first time before the CIT(A). On the evidence, the CIT(A) asked for remand report. The AO in his remand report objected to the admission of the additional evidence on the ground that the requirements of Rule 46A of the Income Tax Rules were not satisfied as the assessee had failed to produce the same before the AO in spite of various opportunities given and no reasons whatsoever were given by the assessee as to why such evidence could not be produced before the AO, which the assessee is sought to produce before the CIT(A). However, the documents which were produced were not verified by the Assessing Officer and, therefore, he did not furnish any comments thereupon. The CIT(A) admitted the evidence and allowed the appeal of the assessee on the basis of the said additional evidence holding that on the basis of this evidence, the assessee was able to point out the source of donations as well as loans and how the said donations and loans were duly applied for the objective of the assessee/society.The ITAT has upheld this order of the CIT(A).

On appeal, the HC held that,

++ the CIT (A) after admitting the evidence relied upon the same without any verification. No doubt, the remand report of the AO was called for and it was found that the AO did not go into to the veracity of the same and reproduced some facts from the assessment order. It was because of the reasons that the AO strongly felt that there was lapse on the part of the assessee in not producing the evidence before him when he had been given number of opportunities and therefore, he objected to the admission of the said evidence and did not do any further exercise to verify the same. At the same time, we also find that even the CIT (A) did not go into these documents and simply relied upon these documents and gave benefit to the AO. Therefore, in order to balance the equities, we are of the opinion that on one hand, the assessee be permitted to rely upon the additional evidence produced before the CIT (A), at the same time, the AO also be given opportunity to verify these documents.

++ accordingly, the issue is remitted back to the AO. The assessee shall also be entitled to show that the unsecured loans had been repaid. If the assessee is able to explain the donations as well as unsecured loans properly, the AO shall accept the same.

Case remanded

JUDGEMENT

Per: A K Sikri:

1. The assessee is a Charitable Trust registered under the Societies Registration Act XXI of 1860. It had filed the return for the assessment year 1999-2000 declaring the income at nil, which was accepted by the Assessing Officer under Section 143(1)(a) of the Income Tax Act. However, thereafter, the assessment was re-opened by issuing a notice dated 30.3.2006 under Section 148 of the Act, on the basis of the information received from the Director of Income Tax (Investigation) that the assessee had received certain accommodation entries in its account on 08.1.1999. After the re-opening of the case, the Assessing Officer went through the records again and found that the assessee had taken donations in the sum of Rs. 53,52,900/- and unsecured loan of Rs. 1,14,58,500. The Assessing Officer asked the assessee to give details in respect thereof. A numbers of opportunities were provided by the Assessing Officer for this purpose but the assessee failed to avail the said opportunities and furnish the details thereof to the following effect:-

(i) List of donors alongwith confirmations in respect of donation received, giving complete address, PAN, Ward No., mode of payment received with cheque No., DD No., Pay Order No., date & address of the bank.

(ii) Details of loans & liabilities alongwith confirmation of Rs. 1 lac and above.

(iii) Details of relief made to poor with evidence.

(iv) A copy of the bank statement for the relevant period.

(v) Books of accounts and vouchers for the period, under consideration.

2. In these circumstances, the Assessing Officer passed re-assessment order treating the donations of Rs. 53,52,900/- and unsecured loan of Rs. 1,14,58,500 as undisclosed income and made the additions under Section 68 of the Income Tax Act.

3. The assessee filed an appeal there against before the CIT(A) and produced some documents/evidence for the first time before the CIT(A). On the evidence, the CIT(A) asked for remand report. The Assessing Officer in his remand report objected to the admission of the additional evidence on the ground that the requirements of Rule 46A of the Income Tax Rules were not satisfied as the assessee had failed to produce the same before the Assessing Officer in spite of various opportunities given and no reasons whatsoever were given by the assessee as to why such evidence could not be produced before the Assessing Officer, which the assessee is sought to produce before the CIT(A). However, the documents which were produced were not verified by the Assessing Officer and, therefore, he did not furnish any comments thereupon. The CIT(A) admitted the evidence and allowed the appeal of the assessee on the basis of the said additional evidence holding that on the basis of this evidence, the assessee was able to point out the source of donations as well as loans and how the said donations and loans were duly applied for the objective of the assessee/society.

4. The ITAT has upheld this order of the CIT(A) by the impugned order dated 06.8.2009.

5. Challenging that order, present appeal is preferred under Section 260A of the Income Tax Act (hereinafter referred to as 'the Act'). The main plank of challenge is that there was no reason to admit the additional evidence when the assessee failed to produce the same in spite of number of opportunities granted to the assessee. In the alternative, it was submitted that since the AO had objected to the admission of the additional evidence, even if the same is to be admitted, opportunity should be granted to the AO to verify the same.

6. Learned counsel for the assessee, on the other hand, has contested the appeal by relying upon the orders of the CIT(A) as well as the Tribunal.

7. After hearing the counsel for the parties, we are of the opinion that at this stage admission of the additional evidence admitted by the CIT(A) be not interfered with. It is moreso when the assessee is a Charitable organization. We may also record the submission of the learned counsel for the respondent that insofar as unsecured loans are concerned, they were paid back in subsequent years, which shows that these were the genuine loans taken by the assessee. At the same time, we find that the CIT (A) after admitting the evidence relied upon the same without any verification. No doubt, the remand report of the AO was called for and it was found that the AO did not go into to the veracity of the same and reproduced some facts from the assessment order. It was because of the reasons that the AO strongly felt that there was lapse on the part of the assessee in not producing the evidence before him when he had been given number of opportunities and therefore, he objected to the admission of the said evidence and did not do any further exercise to verify the same. At the same time, we also find that even the CIT (A) did not go into these documents and simply relied upon these documents and gave benefit to the AO. Therefore, in order to balance the equities, we are of the opinion that on one hand, the assessee be permitted to rely upon the additional evidence produced before the CIT (A), at the same time, the AO also be given opportunity to verify these documents.

8. Accordingly, we remit the case back to the AO who shall go into the veracity of these documents. The assessee shall also be entitled to show that the unsecured loans had been repaid. If the assessee is able to explain the donations as well as unsecured loans properly, the AO shall accept the same.

9. This appeal stands disposed of in the aforesaid terms.

2011-TIOL-369-HC-DEL-IT

IN THE HIGH COURT OF DELHI

ITA No.6/2011

COMMISSIONER OF INCOME TAX, DELHI-I

Vs

CONSOLIDATED FINVEST & HOLDING LTD

A K Sikri and M L Mehta, JJ

Dated: May 10, 2011

Appellant Rep by : Ms. Prem Lata Bansal, Sr. Adv, with Mr. Deepak Anand, Adv
Respondent Rep by : Mr. Ajay Vohra, Ms. Kavita Jha & Mr. Somnath Shukla, Adv

Income tax - Whether when assessee acquires shares with the intention of holding them for a longer period but sells them in short span of time due to steep and unanticipated rise in stock market, the income arising from such transactions are to be treated as Capital gains or business income.

The assessee declared short-term capital gain on sale of 206828 shares of ONGC to the tune of Rs. 2,91,38,876.00. During the assessment proceedings, the Assessing Officer noticed that assessee had purchased 1,77,047 shares of ONGC on 29th March, 2004 and 31781 shares of ONGC on 17th May, 2004. The entire holding of shares of ONGC except 2,000 were sold by the assessee within a short span of 7 to 10 months. The assessee treated the surplus of Rs 2,91,38,876 as short-term capital gain. The Assessing Officer held the transactions to be of the nature of business transactions as assessee itself had stated that he was having the business of investments and dealing in shares and also most of shares were immediately sold after their purchase. Accordingly, the Assessing Officer treated the said profit as business income. The assessee challenged the order of the Assessing Officer before CIT(A) which held the profit to be capital gain and not business income. In appeal, the Tribunal maintained the order of CIT(A).

On appeal, the High Court held that,

+ the aforesaid shares of ONGC were purchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of accounts as investment and were booked under the head "non-trade" and not "trading" investment. The intention to acquire those shares as investment can be reflected from the fact that it was holding most of the shares of other companies since long period of time and was not entering into frequent business of sale and purchase of shares;

+ from the facts, the CIT(A) and the Tribunal arrived at a finding of fact that the acquisition of such shares in public issue with the intent of holding them for a long period of time to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by CIT(A) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was to be treated under the head 'capital gain' and not 'profit or gain of business and profession'.

Revenue's appeal dismissed

JUDGEMENT

Per: M L Mehta:

1. This appeal is directed against the impugned order dated 30th October, 2009 of the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal) whereby the appeal of the Revenue against the order of the CIT(A) was dismissed.

2. The assessee filed its return of the assessment year 2005-06 declaring income as Rs. 5.29 crore. Besides others, he also declared short-term capital gain on sale of 206828 shares of ONGC to the tune of Rs. 2,91,38,876.00. During the assessment proceedings, the Assessing Officer noticed that assessee had purchased 1,77,047 shares of ONGC on 29th March, 2004 and 31781 shares of ONGC on 17th May, 2004. The entire holding of shares of ONGC except 2,000 were sold by the assessee within a short span of 7 to 10 months. The assessee had treated the surplus of Rs. 2,91,38,876 as short-term capital gain. The Assessing Officer observed the transactions to be of the nature of business transactions as assessee itself had stated that he was having the business of investments and dealing in shares and also most of shares were immediately sold after their purchase. Accordingly, the Assessing Officer treated the said profit as business income. The assessee challenged the order of the Assessing Officer before CIT(A) which held the profit to be capital gain and not business income. In appeal, the Tribunal maintained the order of CIT(A). It is against this impugned order that the Revenue is in appeal.

3. We have heard the learned counsel for the Revenue and also the assessee and perused the records. There is no dispute that the shares which were acquired were sold within a short span of 7 to 10 months by the assessee. There is also no dispute that the assessee had also asserted to be non-banking financial company having business of investments and dealing in shares. However, the facts which were noted by the CIT(A) and also the Tribunal are worth considering. The assessee was, in fact, engaged in manufacture of photographic goods having manufacturing units at different places prior to the de-merger of the photographic goods business into separate company w.e.f. 1st April, 2004 on the scheme of de-merger of the company approved by the High Court of Uttaranchal. Though the de-merger took place w.e.f. 1st April, 2004, the assessee continued to carry on the photographic goods manufacturing until the date of the order of the High Court of Uttaranchal approving scheme of the de-merger on 1st November, 2004. The assessee also held long-term investments in various other shares. The aforesaid shares of ONGC were purchased by the assessee when it was a manufacturing company and the aforesaid shares were not purchased as part of any business activity of dealing in shares at the time of purchase. The assessee was neither in the business of investments nor dealing in shares, though it held shares of different companies at the beginning of the relevant previous year. The assessee had acquired those shares in a public issue and had, in fact, shown them in the books of accounts as investment and were booked under the head "non-trade" and not "trading" investment. The intention to acquire those shares as investment can be reflected from the fact that it was holding most of the shares of other companies since long period of time and was not entering into frequent business of sale and purchase of shares. From the facts, the CIT(A) and the Tribunal arrived at a finding of fact that the acquisition of such shares in public issue with the intent of holding them for a long period of time to achieve long-term appreciation and the mere fact that the shares were sold in a short span of time of its acquisition due to steep and unanticipated rise in stock market does not mean that the intention of the assessee at the time of purchase of shares was not to hold them for a long period of time or to deal in them. This was a pure question of fact arrived at by CIT(A) and the Tribunal, and rightly so that the profit arisen from sale of shares of ONGC during the relevant previous year was to be treated under the head 'capital gain' and not 'profit or gain of business and profession'.

4. No question of law arises, the appeal is hereby dismissed.

2011-TIOL-349-HC-DEL-IT

IN THE HIGH COURT OF DELHI

ITA No. 620 of 2011

COMMISSIONER OF INCOME TAX

Vs

SHRI RAJIV SHUKLA

A K Sikri and M L Mehta, JJ

Dated: April 8, 2011

Appellant Rep by: Ms Prem Lata Bansal, Sr Adv with Mr Deepak Anand, Adv
Respondent Rep by: Mr Piyush Kaushik, Adv

Income Tax - Sections 50, 54F - Whether the assessee is entitled to benefit of deduction u/s 54F on the ground that it utilised the capital gains arising out of sale of property for purchase of a new property.

The assessee declared long term capital gain on sale of property and also claimed benefit of deduction u/s 54F on the ground that it had purchased a property in Mumbai from the said long term capital gain. The AO rejected the claim of the assessee on the ground that the assessee had not produced any evidence showing investment in Capital Deposit Account Scheme u/s 54F and that the flat sold by him was a depreciable asset. As per provisions of Section 50, the capital gain arising from transfer of depreciable asset shall be deemed to be the capital gain arising from transfer of short term capital asset and, therefore, deduction u/s 54F was not available and made an addition under the head Short Term Capital Gain. In appeal, the CIT(A) deleted the addition and order of the CIT(A) was confirmed by ITAT.

On Appeal, the HC held that,

++ on perusal of the order of the Tribunal, it has relied upon the judgment of Bombay High Court in the case of CIT v. ACE Builders Pvt. Ltd. (2005-TIOL-107-HC-MUM-IT). This decision of the Bombay High Court was followed by the same Court in CIT v. M/s Delite Tin Industries in ITA 1118/2008 dated 26th September, 2008. No reason to take a different view.

Revenue's Appeal dismissed

JUDGEMENT

1. In the assessment year 2007-08, in the return filed by the assessee, herein, had shown long term capital gain on sale of property and also claimed benefit of deduction under Section 54F of the Income Tax Act on the ground that it had purchased the same property in Mumbai from the said long term capital gain. The details in this respect are as under:-

The assessee had sold one flat at Defence Colony, New Delhi for a consideration of Rs.1,04,00,000/-. The said flat was purchased on 17.12.1999 for Rs.20 lakhs, stamp duty of Rs.1,60,000/- was paid on 14.08.2006 when the Sale Deed was executed and the said flat was used as an office on which, depreciation was claimed year to year. As on 31.03.2006, WDV was declared by the assessee at Rs.10,62,882/-. The Assessing Officer further noticed that the assessee had declared the capital gain at Rs.91,77,118/- (Rs.1,04,00,000-Rs.10,62,882-Rs.1,60,000) and had claimed deduction under Section 54F treating the capital gain as Long Term Capital Gain, stating that he had booked one flat with Chamber Constructions Pvt. Ltd., Mumbai for a sum of Rs.2,71,55,555/-, the possession of which was given on 11.09.2008. It was further stated that the assessee had paid a sum of Rs.1crore through cheque to M/s Chamber Constructions (P) Ltd. Assessee also stated that the capital gain of Rs.91,77,118/- was eligible for deduction under Section 54F as the amount had been invested in Capital Gain Deposit Account Scheme under Section 54F.

2. However, Assessing Officer rejected the claim of the assessee under Section 54F on the ground that the assessee had not produced any evidence showing investment in Capital Deposit Account Scheme under Section 54F and that the flat sold by him was a depreciable asset. As per provisions of Section 50, the capital gain arising from transfer of depreciable asset shall be deemed to be the capital gain arising from transfer of short term capital asset and, therefore, deduction under Section 54F was not available. Accordingly, AO made an addition of Rs.91,77,118/- under the head ?Short Term Capital Gain.

3. In appeal, the CIT(A) deleted the addition and order of the CIT(A) is confirmed by ITAT. On perusal of the order of the Tribunal, we find that it has relied upon the judgment of Bombay High Court in the case of CIT v. ACE Builders Pvt. Ltd. 281 ITR 210 = (2005-TIOL-107-HC-MUM-IT). This decision of the Bombay High Court was followed by the same Court in CIT v. M/s Delite Tin Industries in ITA 1118/2008 dated 26th September, 2008. Against the order passed in Delite (supra) proceedings, Revenue had preferred Special Leave Petition which has also been dismissed by Supreme Court 21st August, 2009.

4. We have gone through the judgment of Bombay High Court in the aforesaid two cases. Learned counsel for the respondent has also submitted that even Gauhati High Court has taken identical view in CIT v. Assam Petroleum Industries (P.) Ltd. (2003) 262 ITR 587.

5. We do not find any reason to take a different view. In these circumstances, we are of the opinion that no substantial question of law arises for consideration.

6. Accordingly, the present appeal is dismissed.

A company ourchased certain shares and held it as investment for three years. Subsequently company A amalgamated with company B. Company B sold those shares after holding it for four months? The assessee cliamed that the profit on sale of these shares is long term capital gain as per section 10(38) because period of holding of A company would also be included for recokned the period of holding. However Assessing Officer does not agree with the contention. He says it is short term capital gain as shares were held by company B for 4 months only. Kindly advise with relevantt case laws? i am nit clear on the issue.

2011-TIOL-247-HC-KOL-IT

IN THE HIGH COURT AT CALCUTTA

ITA No.319 of 2003

BALARAM SAHA

Vs

COMMISSIONER OF INCOME-TAX, KOLKATA-IV

Bhaskar Bhattacharya and Sambuddha Chakrabarti, JJ

Dated : April 19, 2011

Appellant Rep. by : Mr. R Bharaddwaj
Respondent Rep. by : Mr. Prabir Kumar Bhowmick

Income Tax - Sections 131, 133A, 148 - Whether assessee is eligible for set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey.

A survey u/s 133A was conducted on the business premises of the assessee and some books of accounts and documents were impounded u/s 131(3). The assessment for the A.Y 1995-96 was reopened u/s 148, and after scrutinizing the impounded books, the AO found that there was suppression of sales to the tune of Rs.27,36,906/-. The AO applied the gross profit ratio of 5.25% thereon and made an intangible addition amounting to Rs.1,43,688/-. The CIT (A) and the Tribunal confirmed the addition.

Similarly, in respect of the A.Y 1996-97, the AO made estimated addition on account of gross profit to the tune of Rs.8,19,704/- and the appellate authority reduced the gross profit addition of Rs.8,19,704/- made by the AO to Rs.2,84,699/- thereby giving relief of Rs.5,35,005/-. In respect of the A.Y in question, the AO found the total suppressed sales at Rs.1,23,98,705/- and applied the gross profit ratio of 7% thereby making an addition of Rs.8,67,910/- as estimated gross profit on suppressed sales. The CIT(A) reduced the addition on suppressed sales from Rs.8,67,910/- to Rs.7,77,400/- and allowed the set-off of the same against the unexplained investment in stock. The Tribunal dismissed the appeal.

Appeal was filed in the High Court where Assessee Counsel raised a pure question of law regarding non-consideration of set-off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey and contended that neither the appellate authority nor the Tribunal considered the question of set-off for those periods. Revenue Counsel contended that both the Tribunal below and the CIT(A) rightly turned down the claim of the assessee as in respect of reassessment in the years 1995-96 and 1996-97, the assessee has accepted such reassessment. Therefore, the same cannot be reopened.

Having heard the parties the High Court held that,

++ undisputedly in the previous two A.Y's, there was reassessment and the undisclosed income of the assessee was disclosed and the assessee made payment of tax on those undisclosed incomes. There is substance in the contention of assessee. While considering the assessment for the year 1997-98, it was the duty of the AO to consider the question of set-off on account of intangible additions made in the past against unexplained income of the assessee over which he paid tax. It appears that the Tribunal did not consider the aforesaid aspect of the matter at all;

++ the order passed by the Tribunal set aside and the AO directed to give effect to the principle of set-off on account of intangible additions after considering the final reassessment of the previous two A.Y. The assessee has paid tax on the undisclosed income detected by way of survey for those two A.Y, while considering the assessment of the subsequent A.Y, the AO should consider the question of set-off of the amount which has been legalized by payment of tax.

Assessee's Appeal allowed

JUDGEMENT

Per: Bhaskar Bhattacharya:

This appeal under Section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated July 21, 2003 passed by the Income-tax Appellate Tribunal, "D" Bench, Kolkata, in Income-tax Appeal No.132/Calcutta/2001 relating to the Assessment Year 1997-98 thereby confirming the order passed by the Commissioner of Income-tax (Appeals).

Being dissatisfied, the assessee has come up with the present appeal.

A Division Bench of this Court, at the time of admission of this appeal, formulated the following substantial questions of law:

"a) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in not obtaining the set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey.

"b) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in holding that there is no infirmity in the offer of the CIT(A) in confirming the discrepancy accounted for through disclosure of unaccounted stock as well as unaccounted sales on the ground that the calculation of stock as well as sales pertaining to the assessment year 1997-1998 has been worked out in details."

The facts giving rise to filing of this appeal may be summed up thus:

a) A survey under Section 133A was conducted in the business premises of the assessee on January 09, 1997 and some books of accounts and documents were impounded under Section 131(3) of the Act. The assessment for the Assessment Year 1995-96 was reopened under Section 148 of the Act and after scrutinizing the impounded books, the Assessing Officer found that there was suppression of sales to the tune of Rs.27,36,906/-. The Assessing Officer applied the gross profit ratio of 5.25% thereon and made an intangible addition amounting to Rs.1,43,688/-.

b) Being dissatisfied with the said order of the assessment, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) objecting to the addition of Rs.1,43,688/- made by the Assessing Officer as gross profit ratio. The Commissioner of Income-tax (Appeals), however, confirmed the said order of addition.

c) Being dissatisfied, the assessee preferred an appeal before the Income-tax Appellate Tribunal and the said Tribunal has dismissed the appeal of confirming the order of the Commissioner of Incometax (Appeals).

d) Similarly, in respect of the Assessment Year 1996-97, the Assessing Officer made estimated addition on account of gross profit to the tune of Rs.8,19,704/- and on an appeal being preferred, the appellate authority reduced the gross profit addition of Rs.8,19,704/- made by the Assessing Officer to Rs.2,84,699/- thereby giving relief of Rs.5,35,005/-.

e) In respect of the Assessment Year in question, i.e. the Assessment Year 1997-98, the Assessing Officer found the total suppressed sales at Rs.1,23,98,705/- and applied the gross profit ratio of 7% thereby making an addition of Rs.8,67,910/- as estimated gross profit on suppressed sales.

f) Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) reduced the addition on suppressed sales from Rs.8,67,910/- to Rs.7,77,400/- and allowed the set-off of the same against the unexplained investment in stock.

g) Being aggrieved by the said order of the Commissioner of Income-tax (Appeals) for not allowing the full set-off of the G.P. additions on suppressed sales sustained in the Assessment Years 1995-96 and 1996-97 amounting to Rs.1,43,688/- and Rs.2,84,699/- respectively, against the unaccounted stock disclosed or found, the assessee preferred an appeal before the Income-tax Appellate Tribunal and by the order impugned herein, the said Tribunal dismissed the appeal.

h) Being dissatisfied, the assessee has come up with the present appeal.

Mr. Bharaddwaj, the learned Advocate appearing on behalf of the appellant, has taken a pure question of law regarding non-consideration of set-off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey. According to Mr. Bharaddwaj, in this case, for the survey in the office of the assessee, there being reopening of the assessment for the previous Assessment Years 1995-96 and 1996-97 and the Assessing Officer having imposed tax and penalty for the alleged undisclosed income, those undisclosed incomes became lawful property of the assessee in view of payment of tax and as such, it was the duty of the Assessing Officer and the authorities below to allow deduction of the amount on account of intangible additions made in the past against unexplained cash of the assessee. Mr. Bharaddwaj contends that neither the appellate authority nor the Tribunal below considered the question of set-off for those periods. According to Mr. Bharaddwaj once the secret profit had been assessed to tax in respect of two previous Assessment Years, it would be open to his client to bring those profits into the books and distribute them, or what remained after the payment of tax subject to the provision of the Act. Mr. Bharaddwaj contends that having assessed the assessee on a large sum as its undisclosed income, it could not in the same breath be said that those profits did not, in fact, exist because they did not appear from the assessee's books of account. Mr. Bharaddwaj contends that there is no escape from the proposition that the secret profit or undisclosed income of the assessee earned in an earlier Assessment Year may constitute a fund and even though concealed, from the said amount, the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.

Mr. Bhowmick, the learned counsel appearing on behalf of the Revenue, has, on the other hand, opposed the aforesaid contention of Mr. Bharaddwaj and has contended that both the Tribunal below and the Commissioner of Income-tax (Appeals) rightly turned down the claim of the assessee as in respect of reassessment in the years 1995-96 and 1996-97, the assessee has accepted such reassessment. Therefore, the same cannot be reopened.

After hearing the learned counsel for the parties and after going through the materials on record, we find that undisputedly in the previous two Assessment Years, viz. 1995-96 and 1996-97, there was reassessment and the undisclosed income of the assessee was disclosed and the assessee made payment of tax on those undisclosed incomes. Once such fact is established and is not in dispute, we find substance in the contention of Mr. Bharaddwaj, the learned Advocate appearing on behalf of the assessee, that while considering the assessment for the year 1997-98, it was the duty of the Assessing Officer to consider the question of set-off on account of intangible additions made in the past against unexplained income of the assessee over which he paid tax. It appears that the Tribunal did not consider the aforesaid aspect of the matter at all.

In such view of the matter, we set aside the order passed by the Tribunal and direct the Assessing Officer to give effect to the principle of set-off on account of intangible additions after considering the final reassessment of the previous two Assessment Years, viz. 1995-96 and 1996-97. If it appears that the assessee has paid tax on the undisclosed income detected by way of survey for those two Assessment Years, while considering the assessment of the subsequent Assessment Year, viz. 1997-98, the Assessing Officer should consider the question of set-off of the amount which has been legalized by payment of tax.

We, thus, allow the appeal and set aside the order of the Tribunal and pass the aforesaid direction to the Assessing Officer.

We, thus, answer both the formulated questions in the negative against the Revenue and in favour of the assessee.

In the facts and circumstances, there will be, however, no order as to costs.

Associated Capsules Pvt Ltd vs. DCIT (Bombay High Court)
Monday, January 10th, 2011
(291.1 KiB, 609 DLs)
 

S. 80-IA(9) cannot be interpreted to mean that s. 80-IA deduction has to be reduced for computing s. 80HHC deduction




S. 80-IA (9) inserted w.e.f. 1.4.1989 provides that where any amount of profits and gains of an undertaking is claimed and allowed under s. 80-IA for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI-A (C) and shall in no case exceed the profits and gains of such eligible business. The Court had to consider whether the deduction allowed u/s 80-IA had to be reduced from the profits for computing deduction u/s 80HHC. HELD dissenting from Rogini Garments 108 ITD 49 (Che)(SB), Hindustan Mint & Agro Products 119 ITD 107 (Del) (SB), Great Eastern Exports (Del) & Olam Exports (India) Ltd 184 TM 373 (Ker) & deciding in favour of the assessee:



(i) The argument of the Revenue that s. 80IA(9) mandates that the deduction u/s 80HHC has to be computed by reducing the amount of profits and gains allowed as deduction u/s 80IA(1) is not acceptable. S. 80IA(9) uses the words 'shall not be allowed' and not the words 'shall not qualify' or 'shall not be allowed in computing deduction'. Accordingly, the restriction in s. 80IA(9) relates to the allowance of deduction and not computation of deduction. The manner of computation of deduction u/s 80HHC(1) is set out in s. 80HHC(3). S. 80IA(9) does not disturb the mechanism of computing the deduction provided u/s 80HHC (3). S. 80IA(9) comes into operation only at the stage of allowing the deduction computed u/s 80HHC so that the combined deduction u/s 80IA and 80HHC does not exceed the total profits of the business of the undertaking. S. 80IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading 'C' of Chapter VIA;



(ii) The reasonable construction of s. 80IA(9) is that where deduction is allowed u/s 80IA(1), then the deduction computed under other provisions under heading 'C' of Chapter VIA has to be restricted to the profits of the business that remains after excluding the profits allowed as deductions u/s 80IA, so that the total deduction allowed under the heading 'C' of Chapter VIA does not exceed the profits of the business.

I woul dlike to bring this amendment to the notice of the learned members. This section was inserted just to give legal sanctinity to the Judgement of 5 members Bench in case of HINDUSTAN MINT & AGRO PRODUCTS (P) LTD . 123 TTJ 577(DELHI).However neither Delhi High Court nor Bombay High court took note of this section. The reason being it was not pointed out by any body. So , for A.Y/ 2003-04 and 2004-05 , i think the position is clear.
Inserted w.e.f 01/04/2003
80A[(4) Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C—Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
The comments are solicited.

Income-tax : Section 94(7) does not provide time limit of 90 days and it provides time limit of three months



    l  Where assessee purchased certain units on 25-11-2003 and sold same on 25-2-2004, three months period as contemplated by section 94(7) would complete on 24-2-2004, therefore, loss arising therefrom could not be disallowed by invoking section 94(7)



[2011] 9 taxmann.com 181 (AHD. - ITAT)

ITAT, AHMEDABAD "B" BENCH

ITO

v.

Ashish Navnitlal Shah

ITA NO. 2843/AHD/2007

MARCH 26, 2010



ORDER

G.D. Agarwal (Vice-President) — This is the Revenue's appeal against order of the Commissioner of Income-tax (Appeals)-XIV, Ahmedabad dated April 27, 2007 for the assessment year 2004-05. The only ground raised in this appeal is as under :

"1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in deleting the addition of Rs. 21,65,988 on account of loss claimed in respect of Tata Mutual Fund (Tata Index Nifty Plan)."

2. At the time of hearing before us, it is submitted by the learned Departmental representative that as per the provisions of section 94(7) of the Income-tax Act, as it stood at the relevant time, if the assessee sold a unit within the period of three months after its purchase, the loss arising therefrom is to be disallowed ; that the assessee purchased the unit on November 25, 2003 and sold the same on February 25, 2004. Thus, the sale was within the period of three months from the date of purchase ; that the Commissioner of Income-tax (Appeals) held that the sale was after 92 days from the date of purchase and therefore it was not within the period of three months, is not the correct view, because, section 94(7) does not pro-vides time limit of 90 days and it provides time limit of three months. Therefore, if the units are sold before the three months from the date of purchase, the loss is to be disallowed. Therefore, she submitted that the order of the Commissioner of Income-tax (Appeals) should be reversed and that of the Assessing Officer should be restored. Learned counsel for the assessee, on the other hand, stated that under the Income-tax Act the word "month" is not defined, but it is interpreted by several courts. The Hon'ble Allahabad High Court in the case of CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285 held that the word "month" is to be taken as a period of 30 days. Similarly, the hon'ble Calcutta High Court has held that the term "month" denotes a period terminating with the day of succeeding month numerically corresponding to the day of its beginning less one ; that the RBI has also clarified in respect of calculation of interest on the securities that each month is to be taken as the period of 30 days. He, therefore, submitted that if a month is taken as 30 days, three months would be 90 days. The assessee has sold the unit after 92 days from its purchase. If the definition of the month is taken as taken by the hon'ble Calcutta High Court, then also three months would be completed on February 24, 2003 while the assessee has sold the unit on February 25, 2003. He, therefore, submitted that either way the conditions prescribed under section 94(7) are not satisfied and the Commissioner of Income-tax (Appeals) rightly deleted the disallowance of the loss.

3. We have carefully considered the arguments of both sides and perused the material placed before us. The Commissioner of Income-tax (Appeals) has discussed the facts and legal issues as under :

"Counsel for the appellant further relied on the following definition of 'month' as interpreted in judicial pronouncements and law lexicon :

   (i)  The word 'month' occurring in section 271(1)(a) must be taken to mean a period of 30 days CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97 ITR 285

  (ii)  The term 'month' refers to span of time between two dates of two continuous months and not a calendar month. Mistty Bhikhalal Bhovan v. Sunni Vora Noormamad Abdul Karim, AIR 1978 Guj. 149

(iii)  The 'month' whether employed in modern statute or contracts and not appearing to have been used in different sense, denotes a period terminating with the day of succeeding month numerically corresponding to the day of its beginning less one. If there be—no corresponding day of succeeding month, it terminates to the last day thereof (36 CAL 516)

(iv)  Counsel also relied on FAQs on the Debt Markets as per the clarification issued by the Bombay Stock Exchange Ltd. and the clarification as per the Reserve Bank of India's Bulletin, wherein it has been opined that 'month is to be taken as having 30 days'."

"25. Q. What are the contentions followed for the calculation of accrued interest ?"

A. The day count convention to be followed for the calculation of accrued interest in case of transactions in G-section is 30/360, i.e., each month is to be taken as having 30 days and each year is to be taken as having 360 days, irrespective of the actual number of days in the month. So, months like January, February, March, May, July, August, October and December are to be taken as having 30 days." (FAQs on the Debt Markets - By BSE Debt Segment, Bombay Stock Exchange Ltd. (BSE)]"

2.3 I have gone through the observations of the Assessing Officer as contained in the assessment order and also considered the submissions made on behalf of the appellant. On a careful consideration of the same, I find favour with the contention of the appellant that the Assessing Officer was not justified in invoking the provisions of section 94(7) on the facts of the case and resultantly disallowing the loss of Rs. 21,65,988 claimed by the appellant in respect of redemption of Units of Tata Mutual Fund (Tata Index Fund Nifty Plan). It is not a matter of dispute that the period of holding of the units between the record date (the date of declaration of dividend) and the date of redemption is 92 days. The question for consideration is whether said period of 92 days should mean 'the period of three months' as referred to in section 94(7). The learned authorised representative has rightly pointed out that as the provisions of section 94(7) stood for the assessment year 2004-05, the loss is required to be ignored only if the units are transferred within the period of three months from the record date. The Assessing Officer himself has allowed the loss in regard to the schemes of J.M. Balanced Fund—Growth Plan and IL and FS Index Fund—Nifty Plan, though the period of holding in these two cases is 92-94 days respectively."

4. After considering the arguments of both sides and facts and circumstances of the case, we entirely agree with the finding of the Commissioner of Income-tax (Appeals). The assessee purchased the unit on November 25, 2003 and the same was sold on February 25, 2004, which was after 92 days from the date of purchase. Even if month to month basis is to be considered then the three months after the date of purchase would complete on February 24, 2004. The units were sold on February 25/2004 which was not within the period of three months from the date of the purchase, i.e., November 25, 2003. In view of the above, we uphold the order of the Commissioner of Income-tax (Appeals) and dismiss the appeal filed by the Revenue.

5. In the result, the Revenue's appeal is dismissed.

6. The order pronounced in the open court on 26th March, 2010.

nn

The recent order of the Income-tax Appellate Tribunal affirming the order of the Assessing Officer (AO) asking the alleged Bofors middleman, the late Win Chadha, to cough up tax on the commission received by him abroad has stirred an hornet's nest. It has brought back attention on a matter that was given up, sadly due to lack of in-house forensic skills sharp enough to follow the trails leading to distant shores and due to lack of cooperation from nations whose banks are alleged to have harboured the the alleged kickbacks. There is a view, however, that the tribunal order does not say anything new on the issue and therefore the Opposition's 'I-said-so' triumphalism is unwarranted and out of place.

The Piara Singh case

The income-tax proceedings against Win Chadha are a throwback to a very old case involving a gold smuggler, Piara Singh, decided by the apex court long ago. Piara Singh was caught along the Indo-Pak border and was found in possession of gold for which he had no explanation. The Customs authorities confiscated the gold and handed him over to the income-tax authorities who in turn asked him to pay tax on the unexplained income. Under the law, any asset for which there is no explanation as to its source is deemed to be arising out of unexplained income. Piara Singh successfully convinced the apex court that he might have fallen foul of the Customs law, but not of the income-tax law because in computing one's income, all expenses must be allowed. The apex court saw merit in his submissions and held that dispossession of one's asset (gold confiscated by the tax authorities) is allowed as a loss incidental to one's business or trade. This verdict has been dissected and discussed ad nauseam in knowledgeable tax forums and many have questioned allowance of confiscation under law as a legitimate expenditure because there is a vast difference between money lost by a bank through a dacoity (Nainital Bank's case decided by the Supreme Court in favour of the bank) and goods lost through confiscation for wrong-doings; but one has to concede that calling upon a person to pay income-tax on an asset/income he has been dispossessed of would be a double-whammy for him.

Retrospective amendment

One wonders whether Piara Singh would be twice as lucky if the Department were to reopen the case in the light of a retrospective amendment made to Section 37 (1) vide insertion of Explanation 1 by the Finance (No.2) Act, 1998 which reads as follows: For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The point, however, is not whether the Piara Singh case should be revisited by the Department. The point is about two Departments of the Government acting in tandem. Those who contemptuously shrug off the tribunal verdict in Win Chadha's case should at least concede that whatever evidence unearthed by the assiduous AO should be examined afresh by the investigating agencies, including the Central Bureau of Investigations (CBI) which has been in a tearing hurry to close the file for lack of evidence and lack of cooperation from abroad.

Ultimate authority

That the tribunal has upheld the findings of the AO bolsters the case of the department given the fact that under the law the tribunal is the ultimate fact-finding authority and its views can be challenged only on the grounds of misinterpretation of law. Win Chadha evidently was a resident and ordinarily resident of India in the financial years for which the tax demand was raised, making him liable to pay tax in India on his global income. It would be instructive and illumining for the investigating agencies to learn from the income-tax files so that they can nail a larger lie, if any. Of course, this is assuming the CBI has not already done so. The point is if the Customs authorities could hand over Piara Singh to the their income-tax counterparts, there is no reason why the income-tax authorities should not hand over Win Chadha papers to the Enforcement Directorate and the CBI halted in its tracks by the allegedly complicated web of money transfers that cloud and obfuscate evidence as to the ultimate beneficiaries of the payoffs. Chadha's assessment orders could provide vital clues to the investigating authorities and it would be churlish to shrug off the tribunal verdict as being of no consequence to the main case. While the dead don't come back to life to spill the beans, an attempt can be made to link the income assessed to the larger issue of kickbacks. If Chadha and his estate have not been able to adduce satisfactory evidence of foreign income or expenditure incurred by Chadha giving rise to the inference of undisclosed income, that could be a pointer to a larger malaise overlooked either by design or by accident. – www.thehindubusinessline.com

2011-TIOL-06-ITAT-KOL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' KOLKATA

ITA Nos.991/Kol/2010
Assessment Year: 2006-2007

INCOME TAX OFFICER
WARD-29(1), KOLKATA

Vs

NISHA SARAF
PAN NO:ACJPA0430Q

B R Mittal, JM and C D Rao, AM

Dated: December 10, 2010

Appellant Rep by: Shri P C Nayak, Sr.DR
Respondent Rep by: Shri Manish Tiwari

Income Tax - Section 194C(2) - Whether deduction of tax at source at higher rate than the one prescribed as per the provisions will suffice short deduction of tax at source - Whether payment-wise reconciliation of TDS is necessary for proving that the provisions of TDS has been properly complied with.

Appellant was contractor and made payments to subcontractors. Assessee deducted TDS at the rate of 2.24 percent in relation to job charges paid to the subcontractors - During the course of proceedings the AO observed that the assessee had not deducted any TDS on balance job charges and accordingly, disallowed the same - CIT(A) while observing that the assessee has deducted TDS @2.24% instead of 1% as prescribed under section 194C(2) took the view that extra deduction is sufficient to cover the  balance job charges - On appeal of the revenue the DR pointed out that the CIT(A) has allowed the appeal without matching the payments of balance job charges.

After hearing the parties the ITAT held that,

++ keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recovery of TDS from the balance amount. As regarding the submissions of the Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which is amounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence of the details of the balance job charges of Rs.13,78,542/-, the CIT(A) is not justified to delete the entire disallowance by observing that the assessee has recovered excess TDS on Rs.1,49,69,028/-;

++ therefore, the issue is restored to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs.13,78,542/- to substantiate whether the TDS is required to be deducted or not, before the AO.

Case remanded

ORDER

Per: C D Rao:

This appeal is preferred by the Revenue against the order of the C.I.T.(A)-XVI, Kolkata dated 18.11.2009 for the assessment year 2006-07.

2. The only issue taken by the Revenue in this appeal, is relating to deletion of Rs.13,38,542/- disallowed by the AO by applying provision of section 40(a)(ia) read with section 194C of the Income Tax Act.

3. Brief facts of this issue are that, while doing the scrutiny assessment, the AO has observed that the assessee debited job charges to the tune of Rs.1,63,47,570/- in the P&L a/c. and perusal of the details of job charges submitted revealed that the same was paid to 22 parties. The AO also observed that the assessee deducted TDS on job charges of Rs.1,49,69,028/- only @2.24% which is Rs.3,35,905/- and deposited the same to the govt. a/c. The assessee was asked to explain vide a show cause letter dated 11.11.2008 as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS and why the said amount should not be disallowed under section 40(a)(ia) of the Act for failure to deduct TDS, as per law. After considering the submission of the assessee, the AO disallowed the same by observing as under:

"It appeared that the assessee is a job contractor within the purview of compulsory tax audit during AY 2005-06 and AY 2006-07, and thus falls within the purview of section 194C(2) of the Income Tax Act. Hence, the assessee is liable to deduct tax at source from the payments/ credits made to parties in respect of job working expenses. Hence, the explanation given by the A/R of the assessee is not tenable. Since the assessee has made default in deducting TDS on Rs.1338542/-, the same is disallowed u/s 40(a)(ia) of the Act, and added back as income of the assessee."

Though the AO has pointed out that the assessee has not deducted TDS amounting to Rs.13,78,542/-, but he disallowed only Rs.13,38,542/-.

4. On appeal, the Ld. CIT(A) has disallowed the same by observing as under:

"6. During the course of appellate proceedings, it was submitted by the appellant that as per tax audit report appellant has deducted tax of Rs.3,35,905/- u/s. 194C of the I. T. Act which consist of T.D.S. of Rs.3,33,366/- on the payment of Rs.1,63,47,570/- as labour charges to 22 different parties. The tax of Rs.2,542/- was deducted on the payment of Rs.1,24,550/- to one party for Saree Dying Charges. It is an admitted fact that the appellant was a contractor and made payment to subcontractors amounting to Rs.1,63,47,570/- on account of job charges. Therefore, the appellant was required to deduct the tax @ 1% u/s. 194C(2) of the I. T. Act. Out of the total payment of Rs.1,63,47,570/- the payment of Rs.1,37,59,392/- was paid to four parties exceeding Rs.1O,00,000/- and hence as per the provisions of section 194C(2) the tax @ 1.12% on this payment comes to Rs.1,54,380/-. The balance amount of Rs.25,88,178/- was paid to 18 different parties and u/s. 194C(2) the tax © 1.02% on this amount comes to Rs.26,399/-. Therefore, as per the provisions of section 194C(2) of the Act the appellant was required to deduct total tax u/s 194C(2) at Rs.1,80,779/- (Rs.1,54,380 + Rs.26,399) on total payment of Rs.1,63,47,570/- on account of labour charges. In fact, the appellant has deducted and paid much more amount than required as per the provisions u/s.194C(2) of 'the Act i.e. the appellant has deducted and paid T.D.S. of Rs.3,33,366/- in place of T.D.S. of Rs.1,80,779/- required to be deducted and payable to the Govt. Treasury. It was contended by the appellant that the A.O. was not justified to invoke the provisions of section 40(a)(ia) on the payment of Rs.13,38,542/- without appreciating the facts of the case. On careful consideration of facts of the case, I am of the opinion that though A.O. has correctly held that in the case of appellant provisions of section 194C(2) were attracted on the payment of labour charges, however, he was not justified in making the disallowance of Rs.13,38,542/- u/s. 40(a)(ia) by calculating the tax u/s. 194C(2) @ 2.24%. I find force in the submission of the appellant that she has deducted and paid more amount of tax than as required under the law. Under the circumstances, no disallowance could be made by invoking the provisions of section 40(a)(ia). The A.O. is directed to delete the disallowance of Rs.13,38,542/-. The ground nos. 1 & 2 are allowed."

5. Aggrieved by this, the Revenue is in appeal before us.

6. At the time of hearing, the Ld. D.R., appearing on behalf of the Revenue, has pointed out that the AO has mentioned in the assessment order categorically that the assessee was asked to explain as to why the balance job charge expenses of Rs.13,78,542/- was not subjected to TDS, the assessee has not mentioned anything against that. The contention of the assessee is only that she has deducted the TDS on an amount of Rs.1,49,69,028/- at 2.24% i.e. Rs.3,35,905/- and deposited the same to the government a/c. However, the Ld. CIT(A), without contradicting this finding, has given relief, simply by accepting the submissions of the assessee that the assessee deducted and paid more amount to the tax authorities, than as required under the law. Therefore, he requested to reverse the order of the Ld. CIT(A)1 and restore that of the AO.

7. On the other hand, the Ld. Counsel, appearing on behalf of the Assessee, has reiterated the submissions made before the revenue authorities and further contended that since the assessee has already recovered more amount than required under section 194C, therefore, he requested to uphold the order of the Ld. CIT(A). On query from the Bench, whether the TDS has been recovered on the balance amount of Rs.13,78,542/-, the Ld. Counsel for the Assessee has submitted that this amount is not subjected to TDS. However, he has not furnished details in support of this submission.

8. After hearing the rival submissions and on careful perusal of the materials available on record, keeping in view of the specific observations made by the AO that the assessee has not recovered any TDS in respect of balance amount of Rs.13,78,542/- and the assessee's submission that the assessee has recovered more amount than the required amount under section 194C of the Act on Rs.1,49,69,028/-, it will not compensate the short recovery of TDS from the balance amount. As regarding the submissions of the Ld. Counsel for the Assessee that the balance amount is below the TDS limits i.e. Rs.50,000/- for the impugned assessment year, we observe that in respect of only two parties i.e. Sk. Bagbul Islam and Vipra Beriwal which is amounting to Rs.30,625/- and Rs.48,600/- respectively is below Rs.50,000/-, out of the 22 parties mentioned by the AO. In the absence of the details of the balance job charges of Rs.13,78,542/-, we are of the view that the Ld. CIT(A) is not justified to delete the entire disallowance by observing that the assessee has recovered excess TDS on Rs.1,49,69,028/-. Therefore, we set aside the same and restore this issue to the file of the AO with a direction to verify whether the balance job charges of Rs.13,78,542/- was really subjected to TDS as per law or not, after giving reasonable opportunity of being heard to the assessee. The assessee is also directed to furnish the details of Rs.13,78,542/- to substantiate whether the TDS is required to be deducted or not, before the AO.

9. In the result, the appeal of the Revenue is allowed for statistical purposes.

(Order pronounced in the court on 10.12.2010.)

It is high time for all professional to be alert regarding TDS and also to advise their client properly.

2010-TIOL-723-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'J', MUMBAI

ITA No.6547/Mum/2009
Assessment Year : 2006-07

PREM ASSOCIATES ADVERTISING & MARKETING
SPAN CENTRE 7th FLOOR, LINKING ROAD
RAMAKRISHNA MISSION MARG
SANTACRUZ (WEST), MUMBAI-400054

Vs

JOINT COMMISSIONER OF INCOME TAX
RANGE-19(2), MUMBAI

R V Easwar, President and Pramod Kumar, AM

Dated : September 17, 2010

Appellant Rep by: Shri Vijay Mehta
Respondent Rep by: Shri Jitendra Yadav

Income Tax - Section 43(5)(d) - Whether the loss incurred by the assessee in 'futures and options' transactions in National Stock Exchange of India or in Bombay Stock Exchange, on a date prior to 25th January 2006 [i.e. the date of their being notified as 'recognized stock exchange'] for the purpose of Section 43(5)(d), can be treated as a transaction covered by the said provision, and, accordingly, excluded from the definition of 'speculative transaction' .

Assessee has incurred loss in respect of 'future and options' transactions entered through National Stock Exchange of India on 17th, 23rd and 24th January 2006, which was claimed to be a normal business loss in view of the exception carved out by insertion of clause (d) of Section 43(5) brought to statute w.e.f 1st April 2006. The claim was rejected by the authorities below on the ground that, as on the date of transactions, the stock exchange was not notified for the purposes of Section 43(5)(d), and, therefore, even though clause (d) came into force with effect from 1st April 2006, the impugned transactions did not satisfy the requirements of Section 43(5)(d) to the effect that transactions should be entered into in a recognized stock exchange. CIT (A) affirmed the order of the AO.

After hearing the parties the ITAT held that,

++ it is undisputed position that the stock exchanges, on which the impugned transactions were carried out, were duly notified on 25th January 2006, and that in accordance with the views of the co-ordinate bench in the case of Anand Buildwell, as also with the views of Hon'ble Gujarat High Court in the case of Claris Lifesciences (supra), once the approval is granted in the relevant previous year, and in the absence of anything indicated to the contrary, the approval has to be taken as effective from the beginning of the relevant year. The issue is thus covered, in favour of the line of reasoning adopted by the assessee, by decision of the coordinate bench in the case of Anand Brothers (supra) and by Hon'ble Gujarat High Court's judgment in the case of Claris Lifesciences (supra). Qe Respectfully following these decisions, we uphold the grievance of the assessee and hold that the derivate transactions, entered into by the assessee at the recognized stock exchanges even prior to the date of notification in the relevant previous year, are to be treated as covered by the exclusion clause set out in Section 43(5)(d).

Assessee's appeal allowed.

ORDER

375. S. 10A : Exemption – Export Oriented Unit – Computation – Brought
forward loss and Unabsorbed Depreciation
Brought forward loss and unabsorbed depreciation of earlier years to
be set off before allowing deduction under section 10A.
Intellinet Technologies India P. Ltd. vs. ITO (2010) 5 ITR 96 (Bang.)
(Trib.)
376. S. 10B : Exemption – Computation – Set off of Unabsorbed
Depreciation
Benefit of section 10B has to be allowed to the assessee before
setting off of brought forward unabsorbed depreciation.
Patspin India Ltd vs. CIT (2010) 42 DTR 550 (Coch.)(Trib.)
There are many judgements including special bench in case of Specfic
Atlanat which have held that exemption under section 10A/ 10B are
units specfic. Hence loss from non EOU/STPI unit cannot be adjusted
against the profits of 10A/10B units.
On the contrary there are judgements including Bombay High court in
case of Hindustan unilever v/s DCIT.191 taxman 119(2010) which have
held that loss from 10A/10B units can be set off against the normal
business income.
Thus , assesse is put in a very benficial position in both the stage.
If he has loss from 10A/10B , same will be set off against the normal
business income.
On the other hand , if he has profit from 10A/10B units , he will
claim deduction independently on units without setting off the loss if any from the normal business.
Absurd situation. But that how is the section has been interpreated by
the appellte authorities.The assessee has been benfitted in both the situations
I request all of you to explain the reason for the same. I am not able to understand the reason for the same.

 

The Finance Minister (FM), in his Budget speech for the year 2003-04, said that one of his priorities concerning search and survey operations is that no confessions shall be obtained during search proceedings. Judicial opinion also is that admissions recorded during survey operations are invalid. Yet, this is being freely done and the latest decision of the Delhi High Court (HC) pronounced on October 4 in the case of Dhingra Metal Works supports this conclusion. In this decision, the court has said that Section 133A of the Income Tax Act, 1961 (Act), concerning survey, does not empower the I-T authority, carrying on the survey, to administer oath and record sworn statement. Hence, Earlier, this issue has been deliberated by other courts also. The Madras High Court in the case of S. Khadar Khan (2008) 300 ITR 157 (Mad), had laid down the following principles on the matter. According to the court: *An admission is an extremely important piece of evidence, but it cannot be said that it is conclusive and it is open to the person, who made it, to show it has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts. *A statement u/s 133A is not given any evidentiary value because the officer, taking the statement, is not authorised to administer an oath and record a sworn statement. *The materials found in the course of the survey could not be the basis for making any addition in the assessment. The word 'may' used in section 133A(3)(iii) viz. "record the statement of any person, which may be useful for or relevant to, any proceeding under the Act" makes it clear that the material collected and statement recorded during the Survey u/s 133A are not conclusive piece of evidences by itself.

By TIOL News Service

NEW DELHI, DEC 17, 2010: THE issue before the Larger Bench of the Apex Court is - Whether for the purpose of calculating interest under sections 234A,B&C, MAT credit available as per Sec 115JAA should first be set off against tax payable of the year. And the answer is YES.

Facts of the case

There are dozens of assessee-respondents in this case. Titan is one of them. It filed its returns for assessment year 2001-02. The total income declared in the return was Rs. 23,48,68,460/-. The assessee claimed a refund of Rs. 10,60,394/-. The A.O. initially processed the return under Section 143(1) and accepted it. Subsequently, the A.O. rectified the alleged mistake and charged interest under Section 234B of Rs. 1,10,67,561/-. The A.O. further charged interest under Section 234C of Rs. 40,18,170/- and the claim of refund got converted into a demand of Rs 1,50,58,707. This conversion from refund to demand took place because while computing interest under Sections 234B and C the A.O. computed the shortfall of the tax payable without taking into account the set off of MAT credit. Since Revenue lost the case before the HC it moved the Supreme Court.

Held that:

++ Section 115JA enacts a deeming fiction by deeming 30% of book profits to be the "total income" chargeable to tax. The amount of tax paid under Section 115JA is held to be a "tax" payable under the Act, as defined in Section 2(43). When tax is paid by the assessee under Section 115JA, then the assessee becomes entitled to claim credit of such tax in the manner prescribed. Such a right gets crystallized no sooner the tax is paid by the assessee. The said credit gets limited to the tax difference between tax payable on book profits and tax payable on income computed under the normal provisions of the Act in year one. Such credit is, however, allowable for a period of five succeeding assessment years, immediately succeeding the assessment year in which the credit becomes available. However, MAT credit is available for set off against the tax payable in succeeding years where the tax payable on income computed under the normal provisions of the Act exceeds the tax payable on book profits computed for that year.

++ at this stage, the statute envisages under Section 115JAA "credit in respect of tax so paid" because the entire tax is not an automatic credit but has to be calculated in accordance with sub-section (2) of Section 115JAA. Sub-section (4) to Section 115JAA allows "tax credit" in the year tax becomes payable. Thus, the amount of set off is limited to the tax payable on the income computed under the normal provisions of the Act less the tax payable on book profits for that year. The tax credit to be allowed is the function of the tax payable on book profits and the tax payable on income computed under the normal provisions of the Act, in year one. The difference of the two is the amount of tax credit to be allowed. The A.O. may vary the amount of tax credit to be allowed pursuant to completion of summary assessment under Section 143(1) or regular assessment under Section 143(3) for year one, in terms of Section 115JAA(6). As a consequence of such variation the tax credit to be allowed for year one is liable to change. Thus, the tax credit allowable can be set off by the assessee while computing advance tax/ self-assessment tax payable for years 2 to 6 limited to the difference between the tax payable on income computed under the normal provisions and tax payable on book profits in each of those years, as per assessee's own computation.

++ the entire scheme of Sections 115JA(1) and 115JAA shows that if an assessee is entitled to a tax credit as a consequence of the assessee making payment of tax in the year one, then, the set off of such tax credit follows as a matter of course once the conditions mentioned in Section 115JAA are fulfilled and the grant of such credit is not dependent upon determination by the A.O. save and except that the ultimate amount of tax credit to be allowed will be dependent upon the final determination of the total income for the first assessment year. There is no provision under Section 115JAA which postpones the right of the assessee to claim set off to the determination of the total income by the A.O. in the first assessment year. Entitlement/right to claim set off is different from the quantum/quantification of that right. Entitlement of MAT credit is not dependent upon any action taken by the Department. However, quantum of tax credit will depend upon the assessment framed by the A.O.

++ an assessee has a right to take into account the set off even while estimating its liability to pay advance tax on the "current income" in accordance with the provisions of Chapter XVII-C. Although Section 209(1)(d) does not make any specific provision either before or after the amendments carried out by the Finance Act, 2006 to the effect that an assessee is entitled to set off the tax credit that would be available in terms of Section 115JAA(1) while computing the quantum of advance tax that is to be paid it must follow that an assessee would be entitled to do so otherwise it results in absurdity, viz, that an assessee pays advance tax on the footing that it is not entitled to the credit and thereafter claims a refund of such advance tax paid as a consequence of the set off. Moreover, when an A.O. makes an intimation under Section 143(1) he accepts the return filed by the assessee to which the A.O. may make an adjustment and consequently makes a demand or refund. Section 143(1) makes it clear that whilst the A.O. determines the tax payable he has to give credit for all taxes paid either by way of deduction at source, advance tax, self assessment tax or tax paid otherwise which would include or which cannot exclude tax credit under Section 115JAA(1).

++ under section 234B, "assessed tax" means the tax on the total income determined under Section 143(1) or on regular assessment under Section 143(3) as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. The definition at the relevant time excluded MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand MAT credit was available for set off for five years under Section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because Section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 1 to Section 234B by Finance Act, 2006 w.e.f. 1.4.2007 to provide along with tax deducted or collected at source, MAT credit under Section 115JAA also to be excluded while calculating assessed tax.

++ any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz, that where the assessee on the basis of self computation unilaterally claims set off or MAT credit, the assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed was not lawfully available, the assessee would be exposed to levy of interest under Section 234B on the shortfall in the payment of advance tax.

++the Department's viewpoint cannot be accepted because it would mean that even if the assessee does not have to pay advance tax in the current year, because of his brought forward MAT credit balance, he would nevertheless be required to pay advance tax, and if he fails, interest under Section 234B would be chargeable.

++ the consequence of adopting the case of the Department would mean that MAT credit would lapse after five succeeding assessment years under Section 115JAA(3); that no interest would be payable on such credit by the Government under the proviso to Section 115JAA(2) and that the assessee would be liable to pay interest under Sections 234B and C on the shortfall in the payment of advance tax despite existence of MAT credit standing to the account of the assessee. Thus, despite MAT credit standing to the account of the assessee, the liability of the assessee gets increased instead of it getting reduced.

++ it is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time (i.e. before 1.4.2007), provided for set off of MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under Section 234B. This was directly contrary to a plain reading of Section 115JAA(4). Further, a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute.

(See 2010-TIOL-114-SC-IT-LB in 'Income Tax')

Income-tax : Amendments made in provisions of section 40(a)(ia) by the Finance Act, 2010 are remedial/curative in nature and the same would apply retrospectively w.e.f. Ist April, 2005 - [2010] 8 TAXMANN.COM 40 (MUM. - ITAT)

2009-TIOL-404-ITAT-MAD OR 126  ITD 442
( Also see analysis of the Order )
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' CHENNAI
ITA No.1602/Mds/2008
Assessment Year : 2003-04
THE INCOME TAX OFFICER (OSD)
COMPANY CIRCLE-1(4)
CHENNAI-600034
Vs
M/s DATA SOFTWARE RESEARCH COMPANY (INTERNATIONAL) PVT LTD
NO 6, SMITH ROAD, CHENNAI-600002
PAN NO : AAACD1285B
U B S Bedi, JM and Ahmad Fareed, AM
Dated : April 16, 2009
Appellant Rep by : Shri R Vijayaraghavan
Respondent Rep by : Shri P R More, Addl CIT
Minimum Alternative Tax (MAT) - carry forward is available for a total of six (1+5) years: There is no ambiguity in the language of sub-section (3) of 115JAA. The carry forward is available for a total of six (1+5) years. It appears that the confusion has arisen because of the language used in the CBDT Circular No.763 dated 18.2.1998.
It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two: The period of 'five assessment years', mentioned in sub-paragraph (2) contradicts with what is stated in sub-section (3) of section 115JAA. It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two. This position was reiterated by the Supreme Court in the case of Commissioner of Central Excise vs. Ratan Melting & Wire Industries (2008-TIOL-194-SC-CX-CB).
ORDER
Per : Ahmad Fareed :
This appeal by the department is directed against the order of CIT(A) dated 21.04.2008 for AY 2003-04.
2. The grounds raised by the department in this appeal are as under.
1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2.1 The learned CIT(A) erred in holding that the assessee is entitled for MAT credit for the assessment year under consideration.
2.2 The learned CIT(A) ought to have seen that circular no.763 dated 18.2.98 has made the intention of the statute very clear that the benefit of carry forward of MAT credit is restricted to only five assessment years immediately succeeding the assessment year in which the MAT was paid.
2.3 The learned CIT(A) erred in accepting the assessee's contention in this case that the assessment year 1998-99 should be counted as zero and assessment year 1999-00 as the first assessment year etc. to come to the conclusion that the MAT credit would be available to the assessee for the assessment year under consideration also in that method of accounting.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
3. The assessee was a private limited company engaged in the business of software development and consultancy activity. The return for AY 2003-04 was filed by the assessee-company on 28.11.2003 showing income of Rs.54,24,662. The assessment order was passed by the AO u/s 143(3) on 30.11.2005 which was subsequently revised u/s 154 of the Act on 30.04.2007 as under.
"The assessee company filed its Return of Income in 28.11.2003 admitting a net income of Rs.54,24,663. The return of income was processed u/s 143(1) on 09.02.2005 and later taken up for scrutiny and completed u/s 143(3) on 30.12.2005. While finalizing the assessment, the adv. Tax paid was given credit and the interest as applicable was levied. Then only the credit for MAT u/s 115JAAwas granted.
Further, it was noticed from the Memo of income that out of the MAT credit available u/s 115JAA for the AY 1997-98 to the tune of Rs.59,04,340, the balance sum of Rs.14,69,706 was set off during the AY 2003-04. As per sec 115JAA(3) the amount of tax credit determined under rule section (2) shall be carried forward and set off in accordance with the provisions of sub sec (4) and (5) but such c/f will not be allowed beyond the 5th AY immediately succeeding the AY in which the tax credit becomes allowable under sub-sec (1).
According to the above provision, the tax credit on account of 115JAA for the AY 1997-98 will be available for set off upto AY 2002-03 only and after that it can't be set off. Hence, tax credit of Rs.14,69,706 claimed and allowed for AY 2003-04 should be disallowed and brought to tax.
Hence, in order to withdraw the claim of MAT credit for AY 2003-04, a notice u/s 154 was issued to the assessee. The assessee company in its reply filed claimed that the tax credit shall be allowable for set off from the AY 1998-99 which succeeds AY 1997-98 in which tax credit was allowed for the succeeding 5 years i.e., from the AY 1999-00 upto the AY 2003-04.
But as per the provision stated above, the set off of tax credit can't be allowed beyond the 5th AY immediately succeeding the AY in which tax credit becomes allowable. In this case the 1st AY in which the tax credit was allowable was AY 1998-99 and as such including the AY 1998-99 the assessee was entitled for set off only till the AY 2002-03. Hence, the claim of tax credit u/s 115JAA for the AY 2003-04 to the tune of Rs.14,69,706 is disallowed.--------"
4. The CIT(A) allowed the assessee's appeal and his order has been challenged by the department in the present appeal.
5. Shri P.R.More, the learned DR, supported the order of the AO. He vehemently argued saying that the order of the CIT(A) be reversed and that of the AO be restored.
6. Shri R.Vijayaraghavan, the learned AR reiterated the arguments which were put forward on behalf of the assessee before AO and the CIT(A). He contended that under sub-section (3) of section 115JAA the carry forward of tax-credit is available upto the fifth assessment year immediately succeeding the assessment year in which tax credit became allowable under sub-section (1), that there was no ambiguity in the language of the statute, and that a circular which was contrary to statutory provisions had no existence in law.
7. We have considered the rival submissions in the light of material on record and the precedent cited. The short issue for adjudication in this case is: 'for how many years the carry forward is allowable u/s 115 JAA(3) of the Act'.
7.1 The scheme of levying Minimum Alternative Tax (MAT) on zero-tax companies was introduced by the Finance Act 1996 w. e. f. 01.04.1997. A new section 115JAA was also inserted to provide for a tax-credit scheme by which the MAT paid can be carried forward for set-off against regular tax payable during the subsequent years, subject to certain conditions. The sub-sections (1), (2) and (3) of section 115JAA read as under.
"115JAA (1) Where any amount of tax is paid under sub-section (1) of section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.
----------------
(2) The tax credit to be allowed under sub-section (1) shall be the difference of the tax paid for any assessment year under sub-section (1) of section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:
---------------
(3) The amount of tax credit determined under sub-section (2) shall be carried forward and set off in accordance with the provisions of sub-sections (4) and (5) but such carry forward shall not be allowed beyond the fifth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1).
8. In the present case the tax credit was allowed for the first time for AY 1998-99. The AO, in his rectification order passed u/s 154 on 30.04.2007, held that such a tax credit could be allowed only upto AY 2002-03, and that it was not allowable for AY 2003-04. The CIT(A) allowed the assessee's claim for the reasons given in paragraph 5 of his order as under.
"5. I have gone through the facts of the case and the submissions made by the appellant on this issue. The details of tax credit allowed as per the letter filed by the appellant on 14-08-06 with the Assessing Officer is as under:
Accordingly in our case tax credit shall be allowable for set off from asst.year 1998-99, which succeeds asst.year 1997-98 in which tax credit was allowed, for the succeeding 5 years i.e., from asst.year 1999-00 upto asst. year 2003-04 as given below.
Asst Year    Tax credit allowed u/s 115JA    Tax credit availed u/s 115JA    No of years allowed for c/f
1997-98   5904340      -
1998-99      1522   0
1999-00      48602   1
2000-01      0   2
2001-02      3237939   3
2002-03      1146571   4
2003-04      1469706   5
5.2 I have gone through the submissions made by the appellant. Section 115JAA clearly specifies that tax credit determined under sub section (2) shall be carried forward and set off in accordance with the provisions of sub-section (4) and sub section (5) but such carry forward shall not be allowed beyond the 5th assessment year immediately succeeding the assessment year in which tax credit become allowable under sub section (1). In the instant case the first year therefore commences from the asst.year 1999-2000 and ends in the asst.year 2003-04 and therefore the officer is hereby directed to allow the tax credit available for the asst. year 2003-04."
9. In our opinion the CIT(A) has rightly interpreted the sub-section (3) of section 115JAA of the Act. The sub-section (3) says, "-------such carry forward shall not be allowed beyond the fifth assessment immediately succeeding the assessment year in which tax credit became allowable under sub-section (1)".
9.1 There is no ambiguity in the language of sub-section (3) of 115JAA. The carry forward is available for a total of six (1+5) years. It appears that the above confusion has arisen because of the language used in the CBDT Circular No.763 dated 18.2.1998. The paragraph 45.4 of this Circular, dealing with 'Minimum Alternative Tax on companies', reads as under.
"45.4 The Act also inserts a new section 115JAB to provide for a tax credit scheme by which the MAT paid can be carried forward for set-off against regular tax payable during the subsequent five-year period subject to certain conditions, as under:
(1) When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company.
(2) MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit.
-----."
10. The period of 'five assessment years', mentioned in sub-paragraph (2) reproduced above, contradicts with what is stated in sub-section (3) of section 115JAA. It is trite law that statutory provisions prevail over a Circular in case of a contradiction between the two. This position was reiterated by the Supreme Court in the case of Commissioner of Central Excise vs. Ratan Melting & Wire Industries (2008) 220 CTR (SC) 98 = (2008-TIOL-194-SC-CX-CB). Therefore, we agree with the conclusions reached by the CIT(A). His order is, accordingly, upheld.
11. In the result the appeal filed by the department is dismissed.

Kindly review your assessment records of A.Y. 2006-07 and see if any benefit can be taken from this judgement.If need arises , you may resort to 154 also for claiming refund.

2010-TIOL-634-ITAT-MUM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'G' MUMBAI

ITA No.5667/Mum/2009
Assessment Year: 2006-07

M/s GIA EXPORTS
70/70A, LAKSHMI PREMISES
1 ST FLOOR, SHEIKH M STREET
ZAVERI BAZAR, MUMBAI-400002
PAN NO: AAGFG3116R

Vs

THE ACIT
CENTRAL CIRCLE-33
AAYAKAR BHAVAN, MUMBAI-400020

Pramod Kumar, AM and Asha Vijayaraghavan, JM

Dated: July 30, 2010

Appellant Rep by: Shri M B Singhvi
Respondent Rep by: Shri A K Nayak

Income Tax - Sections 10A, 271(1)(c) - Whether limitation of time under Section 10A(3) also applies to an SEZ unit.

The assessee firm is a manufacturer and exporter of gold ornaments. In the course of scrutiny proceedings, the note below Form No.56F was brought to the notice of the A.R. The note stated that the assessee has not realized US$ 17,19,530 i.e. Rs.7,67,08,233/- before 30.09.2006. The AO held that the assessee has not compiled with provisions of Sec 10A (3) and Explanation 1 and 2 thereto below as regards realization of Rupees 7,67,08,233/-. Accordingly, the profits corresponding to this non-realized amount shall not be eligible for deduction u/s 10A, only an amount of Rs.3,88,05,956/-  would be eligible for deduction u/s.10A, and further held that the assessee has, therefore, claimed excess deduction u/s.10A and therefore, penalty proceedings u/s.271(1)(c) are initiated separately for furnishing inaccurate particulars of his income. Before the CIT(A) the AR submitted that the assessee has not realized the export proceeds of US$ 1790530 before 30.09.2006. The AR further submitted that assessee made application to its Banker for extension from RBI on 10.10.2006. The payments were realized on 17.10.2006 and 18.10.2006, but the assessee has not received any proper extension from the RBI since the bank failed to make application to RBI assuming that the aforesaid payments are received and no extension is required. He further stated that the assessee has not received any extension of RBI although he has made request to its Banker for extension and since the amount has been realized after the due date, therefore the deduction u/s.10(A) should be allowed to the assessee. CIT(A) held that the AO has rightly not allowed deduction u/s.10A in respect of amount of RS.1,03,34,604/- and confirmed the AO's order.

On further appeal, the Tribunal held that,

++ limitation of time in Section 10A is not applicable in the case of the assessee as the competent authority RBI has notified in the Circular No. 91 dt. 1.4.2003 that limitation of time in Sec. 10A(3) would not be applicable in the case of unit situated in special economic zone;

++ in other words as long as amounts are realized in convertible foreign exchange, the benefit of deduction will be available.

Asessee's Appeal allowed.

ORDER

Per: Asha Vijayaraghavan:

This appeal preferred by the assessee is directed against the order dated 26.8.2009 passed by the ld. CIT(A)- for the Assessment Year 2006-07.

2. The assessee firm is a manufacturer and exporter of gold ornaments. In the course of scrutiny proceedings, the note below Annexure 'A' of Form No.56F was brought to the notice of the A.R. The note stated that the assessee has not realized US$ 17,19,530 i.e. Rs.7,67,08,233/- before 30.09.2006. The AR was asked to show cause why the proportionate amount corresponding to RS.7,67,08,233/- should be allowed u/s.10A of the I.T. Act.

3. The AO held as follows:

"In this regard, the assessee through the AR stated that the export proceeds of US$1719530 had not received before 30.09.2006 and that an application had been made by them to the bankers on 10.10.2006 for seeking extension from the Reserve Bank of India for this late realization of funds. It was further stated that the assessee firm had not received any formal extension from the Reserve Bank of India (competent authority) as their bankers had failed to make an application to the RBI (competent authority) presuming that the aforesaid payments had been received and no extension was required. However, till date the assessee has not submitted any authorization from the competent authority granting extension of time to the assessee for late realization of export proceeds of US$ 1719530. The assessee's AR has also not submitted any evidence that the said sale proceeds have been credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of RBI.

4. The AO further held as follows:

"The assessee has not compiled provisions of Sec.10A(3) and Explanation 1 and 2 thereto below as regards realization of US$ 1719530 corresponding to Indian Rupees 7,67,08,233/-. Accordingly, the profits corresponding to this non-realized amount shall not be eligible for deduction u/s.10A of the I.T. Act. The total turnover of the assessee being Rs.36,47,44,050/- and total deduction u/s.10A being Rs.4,91,40,560/-, the corresponding amount of deduction u/s.10A pertaining to the non-realized amount of Rs.7,67,08,233/- comes to Rs.1,03,34,604/-. Meaning thereby that only an amount of Rs.3,88,05,956/- (Rs.4,91,40,560 – Rs.1,03,34,604) would be eligible for deduction u/s.10A of the Act. The assessee has, therefore, claimed excess deduction u/s.10A of the Act and therefore, penalty proceedings u/s.271(1)(c) of the Act are initiated separately for furnishing inaccurate particulars of his income."

5. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A) the AR submitted that the assessee has not realized the export proceeds of US$ 1790530 before 30.09.2006. The AR further submitted that assessee made application to its Banker for extension from Reserve Bank of India on 10.10.2006. The payments were realized on 17.10.2006 and 18.10.2006, but the assessee has not received any proper extension from the Reserve Bank of India (competent authority) since the bank failed to make application to RBI (competent authority) assuming that the aforesaid payments are received and no extension is required. He further stated that the assessee has not received any extension of RBI although he has made request to its Banker for extension and since the amount has been realized after the due date, therefore the deduction u/s.10(A) should be allowed to the assessee.

6. The Ld. CIT(A) held as follows:

I have carefully considered the reply given by the appellant and perused the assessment order. This is admitted fact that the appellant has realized US$ 1790530 corresponding Rs.7,67,08,233/- after due date i.e. 30.09.2006 and no extension from the competent authority i.e. Reserve Bank of India has been filed either before the Assessing Officer or in appellate proceedings, therefore this is clear that the appellant has not complied provisions of section 10A(3) and Explanation 1 and 2 of thereto. Therefore, the Assessing Officer has rightly not allowed deduction u/s.10(a) in respect of amount of RS.1,03,34,604/-. Therefore the action of the Assessing Officer is confirmed.

5. Aggrieved, assessee preferred an appeal before us.

We find that Section 10(3) reads as follows:

"This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf."

6. On reading of Section we find that the time limit specified is within a period of six months from the end of the previous year or within further such period as the competent authority may allow in this behalf. The word may clearly spells that it is for the competent authority to determine the time within which convertible foreign exchange is to be brought within India. Therefore limitation of time in Section 10A is not applicable in the case of the assessee as the competent authority i.e. Reserve Bank of India has notified in the Circular No. 91 dt. 1.4.2003 has that the units situated in special economic zone, would not be borne by the time realization of exports. In other words limitation of time in Sec. 10A(3) would not be applicable in the case of unit situated in special economic zone. In other words as long as amounts are realized in convertible foreign exchange, the benefit of deduction will be available. Therefore we allow the assessee's appeal.

7. In the result, the appeal filed by the assessee is allowed.

(Order pronounced on this 30.7.2010)

2010-TIOL-605-ITAT-BANG

(Also see analysis of the Order )

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' BANGALORE

ITA No.592(BNG)/2010
Assessment Year: 2005-06

M/s HORIZON CAPITAL LIMITED
11/10, HAYS ROAD CROSS, RICHMOND TOWN
BANGALORE-25

Vs

INCOME TAX OFFICER
WARD 11(2), BANGALORE

P Madhavi Devi, JM and A Mohan Alankamony, AM

Dated: July 16, 2010

Appellant Rep by: Shri K S Ravishankar, Adv.
Respondent Rep by: Smt Preethi Garg, CIT

Income Tax - Section 115JB – Whether  section 115JB is a self-contained code - Whether assessee is entitled to claim deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year.

The assessee is a company which is engaged in the business of purchase and sale of shares. It filed its return of income for the A.Y 2005-06 declaring taxable income as NIL. The assessee had also made a payment of STT for the A.Y 2005-06. The AO thereafter issued a notice u/s 148 stating that certain income in respect of the A.Y 2005-06 had escaped assessment. The assessee filed its reply stating that the assessee had returned income of Rs.1,04,81,991 and after set off of the carry forward losses from the previous years to the extent of the profit in the year, the taxable profit was NIL and therefore although the credit for the amount paid as STT was available u/s 88E, no rebate has been claimed in view of the total taxable income returned being NIL. The assessee submitted its reply emphasising that the payment of tax of both TDS and STT put together exceeded the tax liability not only u/s 115JB but even the liability under regular tax, even if there were no carried forward loss to be set off. The assessee again received a notice u/s 154 to which assessee has submitted its reply along with the statement of total income and also MAT computation and therefrom the assessee claimed a rebate u/s 88E for the STT paid by it. The AO, however, rejected the claim of the assessee for rebate of STT paid and computed the tax liability against the income computed u/s 115JB CIT(A) and  confirmed the order of the AO.

Appeal was filed before the Tribunal where counsel for the assessee submitted that the term income tax has not been defined under the Act but the term tax has been defined under Clause 43 of Section 2 to mean income tax chargeable under the provisions of the Act and also super tax chargeable under the provisions of this Act and in relation to the A.Y commencing from 1.4.2006 and any subsequent A.Y includes the fringe benefit tax payable u/s 115WA and drew attention to section 87,88E, sub section (5) of section 115JB. According to him, the total income is to be computed under the regular provisions and also under the Companies Act and if the income tax payable is less than 7 ½% of its book profit then the book profit shall be deemed to be the total income of the assessee and the tax payable by it on such total income shall be the income tax @ 7 ½%.. Thus according to him as provided u/s 87, the assessee is entitled to rebate of the STT paid by him u/s 88E and drew attention to the Form 6 i.e. the format of the income tax return provided by the Department of Income Tax wherein the rebate u/s 88E is provided for after computation of the income tax under the regular provisions of the Act and also u/s 115JB. The DR submitted that section 115JB is a self-contained section and as long as it is not provided therein to give rebate to STT paid under the Act, it is not permissible to give such rebate. She submitted that the STT is not the mode of recovery of tax like advance tax or TDS but it is a special type of tax such as fringe benefit tax and therefore the rebate for payment of such tax cannot be given when IT is computed u/s 115JB.

Having heard the parties the Tribunal has held that,

++ the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 does not differentiate between the total income computed under the regular provisions of the Act or u/s 115JB. Even though the sub section (1) of section 115JB starts with the non-abstante clause, it is only for the computation of the total income and the sub section (5) of section 115JB provides for a saving clause that the rest of the provisions of the Act relating to deductions, rebate, etc the other provisions of the IT Act shall apply;

++ the provision of sections 87 and 88A to 88E also apply after the total income is computed u/s 115JB and since the assessee's total income includes the income from the taxable Securities Transactions, the assessee is entitled to a deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year.

Assessee's Appeal allowed.

ORDER

Per: P Madhavi Devi:

The assessee filed this appeal for the Assessment Year 2005-06. In this appeal, though the assessee has raised voluminous grounds of appeal, the crux of the issue is non-granting of the rebate under section 88E of the Income Tax Act, 1961 with regard to the Securities Transaction Tax (STT) paid by the assessee from the income tax on the income computed under section 115JB of the Income Tax Act, 1961.

2. The brief facts of the case are that the assessee is a company which is engaged in the business of purchase and sale of shares for more than a decade. It filed its return of income for the Assessment Year 2005-06 on 31.10.2005 declaring taxable income as NIL. The assessee had also made a payment of STT for the Assessment Year 2005-06 of Rs.35,05,443. The Assessing Officer thereafter issued a notice under section 148 Dt.5.2.2008 stating that certain income in respect of the assessment year 2005-06 had escaped assessment. The assessee filed its reply stating that the assessee had returned income of Rs.1,04,81,991 and after set off of the carry forward losses from the previous years to the extent of the profit in the year, the taxable profit was NIL and therefore although the credit for the amount paid as STT was available under section 88E, no rebate has been claimed in view of the total taxable income returned being NIL. The assessee received a notice under section 143(2) Dt.28.4.2008 seeking details, relevant documents and other proofs. The assessee submitted its reply dt.18.6.2008 emphasising that the payment of tax of both TDS and STT put together exceeded the tax liability not only under section 115JB but even the liability under regular tax, even if there were no carried forward loss to be set off.

3. Thereafter, the assessee again received a notice under section 154 Dt.18.6.2009 to which assessee has submitted its reply along with the statement of total income and also MAT computation and therefrom the assessee claimed a rebate under section 88E of the Income Tax Act, 1961 for the STT paid by it. The Assessing Officer, however, rejected the claim of the assessee for rebate of STT paid and computed the tax liability against the income computed under section 115JB of the Income Tax Act, 1961. Aggrieved The assessee appealed before the first appellate authority i.e. CIT(A) who confirmed the order of the Assessing Officer and the assessee is in second appeal before us.

4. The learned counsel for the assessee reiterated the submissions made by the assessee before the authorities below and also took us through the legal provisions relating to the issue. He submitted that the term 'income tax' has not been defined under the Income Tax Act but the term 'tax' has been defined under Clause 43 of Section 2 of the Income Tax Act, 1961 to mean "income tax chargeable under the provisions of the Act and also super tax chargeable under the provisions of this Act and in relation to the assessment year commencing from 1.4.2006 and any subsequent assessment year includes the fringe benefit tax payable under section 115WA of the Income Tax Act, 1961." He also drew our attention to section 87 of the Income Tax Act, 1961 wherein it is provided that in computing the amount of income tax on the total income of an assessee with which he is chargeable for any assessment year, there shall be allowed from the amount of income tax (as computed before allowing the deductions under the Chapter VIII), in accordance with and subject to the provisions of [sections 88, 88A, 88B, 88C, 88D and 88E], the deductions specified in those sections." He also drew our attention to section 88E of the Income Tax Act, 1961 wherein it is provided that " where the total income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business or profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the STT paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year. He also drew our attention to the sub section (5) of section 115JB of the Income Tax Act, 1961 which provides that "save or otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus according to him, the total income is to be computed under the regular provisions of the Income Tax Act, 1961 and also under the Companies Act and if the income tax payable is less than 7 ½% of its book profit then the book profit shall be deemed to be the total income of the assessee and the tax payable by it on such total income shall be the income tax @ 7 ½%. He submitted that sub section (5) of section 115JB provides that save or otherwise provided in this section, all other provisions shall apply after computing the income under section 115JB of the Income Tax Act, 1961. Thus according to him as provided under section 87 of the Income Tax Act, 1961, the assessee is entitled to rebate of the STT paid by him under section 88E of the Income Tax Act, 1961. He also drew our attention to the Form 6 i.e. the format of the income tax return provided by the Department of Income Tax wherein the rebate under section 88E is provided for after computation of the income tax under the regular provisions of the Act and also under section 115JB of the Act. Thus according to him, the Assessing Officer and CIT(A) have erred in refusing to give a rebate of the STT paid by the assessee from the computation of income tax under section 115JB of the Act.

5. The learned Departmental Representative, on the other hand, supported the order of the authorities below and submitted that section 115JB is a self-contained section and as long as it is not provided therein to give rebate to STT paid under the Act, it is not permissible to give such rebate. She submitted that the STT is not the mode of recovery of tax like advance tax or TDS but it is a special type of tax such as fringe benefit tax and therefore the rebate for payment of such tax cannot be given when income tax is computed under section 115JB of the Act.

6. Having heard both the parties and having considered the rival contentions, we find that the only dispute is whether the rebate of STT paid by the assessee is allowable from the income tax computed against the total income computed under section 115JB of the Income Tax Act, 1961. The term 'total income' has been defined under the Income Tax Act, 1961 as "the total amount of income referred to in section 5, computed in the manner laid down in this Act." Section 5 of the Income Tax Act, 1961 defines the scope of the total income of a resident or a non-resident person. The total income of the assessee has to be computed under the regular provisions of the Income Tax Act, 1961 and in the case of a company it can be arrived at both under the regular provisions of the Income Tax Act and under the deeming provision under section 115JB of the Act. It has been provided that where the income tax payable by the assessee on the total income computed under regular provisions of the Act is less than 7 ½% of the book profit prepared in accordance with the Companies Act, the higher of the tax i.e. the book profit shall be deemed to be the total income of the assessee and tax payable by the assessee shall be the amount of income tax at the specified rate. When we look at the provisions of section 87 of the Income Tax Act, 1961, we find that the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 of the Income Tax Act, 1961 does not differentiate between the total income computed under the regular provisions of the Act or under section 115JB of the Income Tax Act, 1961. Even though the sub section (1) of section 115JB starts with the non-abstante clause, "Not withstanding anything contained in any other provision of this Act", we find that it is only for the computation of the total income and the sub section (5) of section 115JB provides for a saving clause that the rest of the provisions of the income tax Act relating to deductions, rebate, etc the other provisions of the Income Tax Act shall apply. Therefore it is clear that the provision of sections 87 and 88A to 88E also apply after the total income is computed under section 115JB of the Income Tax Act, 1961 and since the assessee's total income includes the income from the taxable Securities Transactions, the assessee is entitled to a deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year. The assessee's appeal is thus allowed and the Assessing Officer is directed to give rebate under section 88E for the STT paid by the assessee.

In the result the assessee's appeal is allowed.

(Pronounced in the open court on 16.7.2010.)

GOODWILL is covered by provision of section 32(1)(ii) entitling an assessee to depreciation on same.(kerala).www.taxmann.com

2010-TIOL-664-HC-KERALA-IT

IN THE HIGH COURT OF KERALA

ITA.No. 367 of 2009

THE COMMISSIONER OF INCOME TAX, COCHIN

Vs

M/s PLANT LIPIDS LTD

C N Ramachandran Nair and K Surendra Mohan, JJ

Dated : August 30, 2010

Appellant Rep. by : Sri P K R Menon, Sr Counsel
Respondent Rep. by : Sri Bechu Kurian Thomas

Income Tax - Sections 80HHC, 154 - Whether rectification made by AO, later declared as law by the apex court, is valid involving distillation charges earned from contract work by spices exporter, which were initially taken as business profits and allowed as an 80HHC exemption but later rectified and subjected to explanation (baa) to section 80HHC, that excluded from deduction, 90 per cent of income without nexus to export profits?

Assessee, a company in the business of production, marketing and export of spices and spices extracts, also undertook distillation work on contract for others. While claiming exemption on export profit under section 80HHC, assessee included the entire income from this contract work received as 'distillation charges'. The claim was allowed even though the assessee did not exclude 90 per cent of the distillation charges as provided by explanation (baa) to section 80HHC. Later, the assessing authority rectified the assessment under Section 154 of the Act thereby excluding 90 per cent of the distillation charges and allowed the eligible deduction on export profit.

The CIT(A) allowed the assessee's appeal.  On an appeal by the department, the Tribunal confirmed the CIT(A) order in favour of the assessee holding that rectification under section 154 was illegal and on merits too. The Tribunal further held that distillation charges received by the assessee formed part of business profits on which assessee was entitled to deduction under section 80HHC.

In its appeal to the High Court, the department contended that the issue was squarely covered against the assessee in a decision by the apex court. The Supreme Court had held in this case that the income from processing charges received by a cashew exporter, which had no nexus to the export profits should not be included in the total income, for the purpose of deduction under Section 80HHC.

Having heard both the parties and considered the SC decision, the High Court held that,

++ 'Distillation charges' received by the assessee were similar to 'processing charges' received by cashew exporter. The Supreme Court decision squarely applied to the assessee's case. Therefore exclusion of 90 per cent of these charges made by the assessing officer in rectification proceedings was in conformity with the apex court decision on the scope of explanation (baa) to section 80HHC. The Tribunal's order is on merits contrary to this decision of the Supreme Court;

++ following the SC decision, distillation charges received by the assessee for contract work done for other parties was in the nature of charges or any other receipt of a similar nature, thus responding to assessee's contention that by applying ejusdum generis distillation charges, which was income received on manufacture, could not be treated as charges of "any other receipt of a similar nature" referred to in explanation (baa)(i) to Section 80HHC;

++ the view taken by the assessing officer in rectification was later declared as law by the Supreme Court. Therefore, in view of the categoric pronouncement of law by the Supreme Court, the question raised by the assessee that an error established by a long drawn process of reasoning was not a mistake apparent from the record, which can be rectified under Section 154, was not capable of two opinions because "distillation charges" were received by the assessee on work done for others that had nothing to do with export or production of goods for export. The relief under section 80HHC had to be worked out by applying the explanation thereto on that part of the income unconnected with the export business.

++ the assessment, completed without reckoning explanation (baa) to Section 80HHC, was a mistaken order that could be corrected under Section 154 of the Act. The finding of the Tribunal and that of the first appellate authority on this issue was reversed.

++ in an appeal filed under Section 260A, the court could not consider any question which was neither raised before the Tribunal nor decided by it. Therefore it did not go into the question as to whether limitation was to be reckoned from the date of proceedings or from the date of service of order.

++ Orders of the Tribunal and the first appellate authority were reversed and the rectified assessment was restored.