The mistake which is otherwise rectifiable u/s.154 cannot be adjusted at the time of giving effect to appellate order u/s.250/254 particularly when that mistake is absolutely out of context and purview of appellate order.
Facts:
The assessee claimed deduction u/s.32AB in his return for A.Y. 1988-89 based on audit report. The AO wrongly allowed deduction of higher amount and also made addition on account of sales tax refund. The Tribunal deleted the addition of sales tax refund. While giving effect to Tribunal’s order AO rectified deduction u/s.32AB to the correct figure. The CIT(A) also held that ‘rectification was consequential of giving effect to the Tribunal’s order’ and upheld the addition in favour of AO. On an appeal to Tribunal, it was held that:
There are 2 types of orders of appellate authority. One is specific relief pertaining to specific ad-dition and the other is de novo assessment i.e. setting aside assessment and making a fresh assessment. In second case, AO has same powers as at the time of making fresh assessment.
‘When Tribunal sets aside the assessment and remands the case for making fresh assessment, the power of AO is confined to the subject matter of the appeal before Tribunal. He can not take up the questions which were not subject matter of appeal before the Tribunal even though no specific direction has been given by the Tribunal.’
The contention of CIT(A) is not correct because thetquaritum of deduction u/s.32AB is not linked with the assessed income. Rather it is based on the quantum of investment. Giving effect to the Tribunal’s order can not be equated with the regular assessment order.
Even though AO can make rectification of order u/s.154, he has exceeded his limits while giving effect to the order of the Tribunal.
Hence, it was held that even though a mistake is rectifiable u/ s.154, it can not be adjusted while giving effect to the order of Tribunal particularly when that mistake is absolutely out of context and purview of appellate order.
2. (2009) 119 ITD 13 (Mumbai) Smarttalk (P.) Ltd. v. ITO, Ward 8(3)(2), Mumbai A.Y. : 2001-02. Dated: 31-3-2008
Assessee co., a joint venture, took bank loan guaranteed by co-venturers – Payment by one of the venturers to discharge his obligation credited by company to capital reserve. Repayment taxed u/s. 10(3) – CIT(A) upheld addition u/s.28(iv)/41(1) – Since assessee has not claimed deduction of the amount originally, repayment of loan not taxable u/s.28(iv)/41(1). Also can not be taxed u/s.10(3) as S. 10 deals with income which does not form part of total income – Additions, therefore to be deleted.
Facts:
The assessee company was a joint venture between ‘M’ (holding 49%) and ‘B’ (holding 51% of shareholding). The company took a loan of Rs.7 crores from Bank of America which was guaranteed by eo-venturers in proportion to their shareholding. The agreement also restricted the right of the asses-see to enter into any merger, acquisition or sale without prior permission of bank. In A.y. 2002-03~ ‘ASC’ took over 51% shareholding of ‘B’ and’ AW’ took over 49% shareholding of ‘M’. The company had repaid the loan to the extent of Rs.2 crores. 49% of the balance loan was repaid by ‘M’ (i.e. Rs.2.45 crores) along with outstanding interest which was credited by assessee to capital reserve. The AO taxed the same u/s.l0(3). On appeal to CIT (A), it upheld the addition u/s.28(iv)/41(1). On appeal to Tribu-nal, it applied the ratio laid down by the Bombay High Court in Mahindra & Mahindra Ltd. v. CIT, and followed by the Third Member Bench in ITO v. Ahuja Graphic Machinery Ltd., holding that waiver of loan is neither covered u/s.28(iv) nor u/s.4l(l). As the assessee has not claimed deduction of loan taken, repayment of the same by eo-venturer cannot be taxed as cessation of liability u/s.4l(l). Further, the said sum can also not be taxed u/s.lO(3) as S. 10 deals with only such incomes, which are not to be included in the total incomes of the assessee. Hence, the appeal filed by the assessee is allowed.
3. (2009) 199 ITD 15 (Agra) (Third Member) ITO, Range 3(1), Gwalior v. Laxmi Narain Ramswaroop Shivhare A.Y.: 2001-02. Dated: 26-12-2008
S. 145 – A.Y. 2001-02 was the first year of business of the assessee – Aa rejected books of accounts on the ground that there were no support-ing vouchers for sales and all sales made in cash
– Applied different G.P. ratio on comparative basis – Since due to the nature of business of the assessee it is not possible to maintain proper sales bills, it cannot be said that books of accounts were defective – Therefore, books cannot be rejected and actual G.P. ratio to be considered.
Facts:
The assessee firm was engaged in the business of trading in country liquor and IMFL. The supplies of country liquor to the assessee were made through the Government warehouse on payment of duty and purchase of IMFL was made from other private parties in accordance with the permit given by the Government. The assessee got his accounts audited and furnished audit report in Form 3CD. However, he could not produce supporting vouchers in respect of sale of country liquor as the sales were recorded on the basis of daily sales records given by employees of the shops. AO rejected books of accounts on the ground that the sales were not subject to any independent evidence and applied G.P. ratio of 5% against actual G.P. ratio of 3.11%. On an appeal to CIT(A), he reduced G.P. ratio to 4%. On appeal before Tribunal, the Third Member held that:
The AO rejected books of accounts for want of sales bills and accepted sales value declared by the assessee. Hence, he has no reason to reject books of accounts.
The CIT(A) has reduced G.P. ratio and has given a finding that there was no significant defect in the books.
The nature of business of the assessee is such that it is not possible to maintain proper bills.
Hence, the books of accounts can not be rejected and actual results declared by the assessee be accepted.
4. (2009) 119 ITD 49 (Ahd.) ITO, Ward-4(2), Ahmedabad v. Krishnonics Ltd. A.Y. : 1996-97. Dated: 19-12-2007
Held 1:
Provisions of S. 2(22)(e) are not applicable when loan is advanced in the course of normal money lending business – Further, in determining ‘sub-stantial part of business’, income criteria is not relevant but objects and deployment of funds are relevant factors.
Held 2:
Foreign travelling expenses incurred for the purpose of business are allowable expenditure especially when they are proved to be incurred for the purposes of business.
Facts 1 :
The assessee company took loan of Rs.37,77,475 from ‘I’ Ltd. which was claimed to be engaged in the business of money lending. ‘I’ Ltd. also advanced the loan of Rs.1,08,099 to G Ltd. a third party not connected with any of the above parties. It was found that one of the directors of assessee was holding more than 10% of share-capital in ‘I’ Ltd. and more than 20% capital in assessee company. The AO invoked the provisions of S. 2(22)(e) on the ground that ‘I’ Ltd. derived more income from dividend than from interest income. On appeal to CIT(A), it deleted the addition. However, Revenue preferred an appeal to Tribunal. The Tribunal held that as per S. 2(22)(e)(ii) ‘substantial income’ is not the relevant criteria for determining substantial part of business but objects and deployment of funds are relevant. As money lending business was one of the six objects of assessee company and it carried on that object in preference to others it was engaged in the business of money lending and hence provisions of S. 2(22)(e) are not attracted.
Facts 2:
The assessee company claimed expenses on account of travelling of managing director to Taiwan. It was claimed that the expenditure was incurred to find out the possibility of expanding export sales and to acquaint company regarding latest automation machinery concept. The AO disallowed the expenditure on the ground that assessee did not prove it to have been incurred for the purposes of business.
The CIT(A) allowed the claim of assessee. However, department preferred an appeal to Tribunal. It was shown that as a result of the visit to Taiwan, assessee was able to make exports to Taiwan which was not contested by AO. Hence, Tribunal allowed the appeal in favour of assessee and upheld the decision of CIT(A).
5. (2009) 119 ITD 62 (Kolkata) (TM) Shanti Ram Mehta v. ACIT, Circle-3, Asansol A.Ys.: 2000-01 and 2003-04 Dated: 11-11-2008
Additions u/s.69C for unexplained expenditure cannot be made on ad hoc basis or on presumptions.
Facts:
The assessee mainly dealt in two products namely Kerosene Oil and Fertilizers. During A.Ys. 2000-01 and 2003-04, assessee made purchases from different parties. He was to bear some expenses relating to transportation charges. However, he submitted to AO that the purchases were made in bulk. Regard-ing kerosene oil it was submitted that supplying dealers redirect the Tankers to assessee’s business place hence no charges were incurred towards trans-portation. However, AO accepted the contention of assessee only in respect of Kerosene oil and added transportation charges of Rs.50,OOOon estimated basis in respect of purchase of fertilizers as they were purchased in small quantities in a day which was revealed from books of accounts. On an appeal to C!T(A), he upheld the addition. On appeal before the Tribunal, the Tribunal held that 5. 69C is applied when assessee is unable to explain the source of any expenditure however ‘the AO has to first find the evidence of incurring the expenditure. S. 69C cannot be applied on mere presumption or suspicion’. In the present case, the’ AO didn’t bring on record any evidence of incurring transportation charges. Consequently, the Tribunal deleted the addition of Rs.50,OOOalleged to have been incurred towards transportation charges.
6. 2009 TIOL 526 ITAT Mum. Livingstones Jewellery (P) Ltd. v. DCIT ITA No. 187/Mum./2007 A.Y. : 2003-04. Dated: 12-5-2009
S. 10A – All the profits which have nexus with the business of the undertakingqualify for deduction u/s.10A – Interest income on FDRs given by the assessee to the Bank for obtaining credit facilities has nexus with the business of the undertaking and qualifies for deduction u/s.10A.
Facts:
The assessee having its business of manufacturing and export of studded and plain jewellery of gold and platinum filed its return of income for A.Y. 2003-04 declaring total income after claiming deduction u/s.10A. Interest of Rs.9,OO,961 received on fixed deposits was netted against the interest payment of Rs.1,04,37,835 and net interest of Rs.95,36,873 was debited to its P&L account. The AO held that interest income on FDs with bank cannot be said to be derived from export of goods and merchandise. He, denied the deduction u/s.10A of this amount of interest on FDs.
The CIT(A) did not allow any relief to the assessee.
Aggrieved, assessee preferred an appeal to the Tribunal.
Held:
The expression ‘profits derived from export of articles or things or computer software’ as employed in 5s.(1) or 5s.(lA) has been given a specific meaning in 5s.(4). 5s.(4) states that the ‘profits derived from export of articles or things or computer software’ shall be the amount which bears to the ‘profits of the business of the undertaking’, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. By providing for considering the ‘profits of the business of the undertaking’, the position has been made clear that the restricted general meaning given to eligible profi ts as derived from the export of articles in 5s.(1) ha; been given a go by in 5s.(4) and the scope of the benefit has been expanded by extending to all the profits of the business carried on by the undertaking. The Tribunal noted that the wording of 5s.(4) as amended w.e.f. 1-4-2000 is on the pattern of 5. 80lA prior to its substitution w.e.f. 1-4-2000. It also noted that in the context of 5. 80IA the Arnritsar Bench of the Tribunal had in the case of Dy. CIT v. Chaman Lal & Sons, 3 50T 333 held that the benefit of deduction was available in respect of purchase and sale which was part and parcel of the business of the industrial undertaking. All the profits which have nexus with the business of the undertaking will qualify for deduction. The Tribunal noted since that the FDRs were given to obtain credit facility, interest income had nexus with the business of the undertaking and falls under the head ‘Income from Business’. It allowed the claim of deduction u/s.lOA in respect of interest income.
The appeal filed by the assessee was allowed.
7. 2009 TIOL 559 ITAT Mum. ITO v. P & R Automation Products Pvt. Ltd. ITA No. 2119/Mum./2007 A.Y.: 2003-04. Dated: 25-3-2009
32 – Machinery purchased and given to sister concern for manufacturing goods for the assessee, which in turn exports them, is utilised by the assessee for business – No part of depreciation can be disallowed on such machinery on the ground that spare capacity was utilised by the sister concern for manufacturing its own goods which were sold locally.
Facts:
As per the agreement entered into between the assessee and PAL (its sister concern) a CMG machine was purchased by the assessee and was installed at the factory premises of the sister concern. The sister concern was to use the machine at its premises for manufacturing goods by utilising its power, labour and other facilities and sell the goods so manufactured to the assessee at fair market price to meet the assessee’s export obligation. PAL was authorised to develop indigenous market for said products by using spare capacity. The total sales declared by PAL were Rs.2.28 crores out of which sales to the assessee were Rs.1.50 crores. 93% of the capacity of the machine had been utilised for goods sold to the assessee and spare capacity to the tune of 7% had been utilised for others. The assessee had not charged any rent or hire charges from the sister concern.
The assessee claimed depreciation on the machine on the ground that it was utilised by it for the purposes of its business. While assessing the total income of the assessee the Aa disallowed the claim of depreciation on this machine on the ground that the sister concern had also utilised the machine for manufacturing its own goods which were sold locally.
The CIT(A) relying upon the decision of the Madras High Court in the case of Indian Express Pvt. Ltd. 255 ITR 68 held that the assessee was entitled to deduction u/s.32 of the Act.
Aggrieved, the Revenue preferred an appeal to the Tribunal.
Held:
The Tribunal observed that u/s.32 an assessee is entitled to deduction by way of depreciation on machinery, if it is owned by the assessee and is used for the purpose of its business. The Tribunal noted the undisputed facts viz. that the assessee had purchased the machinery and the same was provided to the sister concern essentially to manufacture goods for the assessee and supplying the same at fair market price. The Tribunal held the conditions required to be satisfied for deduction u/s.32 as having been satisfied. It stated that its view is supported by the decision of the Madras High Court in the case of Indian Express Pvt. Ltd.
The appeal filed by the Revenue was dismissed.
8. 2009 TIOL 550 ITAT Mum. Popatlal Fulchand v. ACIT ITA No. 358/Mum./2008 A.Y. : 2004-05. Dated: 6-5-2009
s. 22. – Property owned by individuals and used by a firm, without paying any rent, whose partners are HUFs of the individuals owning the property can be said to be used for the purposes of business by such individuals and consequently its notional income is not chargeable.
Facts:
The assessee alongwith other individuals were owners of a property which was being used by M/s. F C International, a partnership firm, whose partners were HUFs of the assessee and other individual owning the property. The HUFs were partners through the individuals owning the property. The firm did not pay any rent for the property.
The assessee was of the view that annual value of this property is not chargeable to tax since the same is being used for the purposes of his business. The Assessing Officer (Aa) was of the view that the firm is a distinct entity than its individual partners and since the property has been utilised for the purpose of the business of the firm, the benefit of S. 22 cannot be given to individual partners.
The CIT(A) upheld the view of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal held that the assessee was not liable to tax in respect of the notional income of the house property used by the firm for its business without paying any rent to the owners of the property. It also observed that the issue under consideration is squarely covered by the decision of the Delhi High Court in the case of Cl’T v. H. S. Singhat & Sons, 253 ITR 653 (Del.). The Tribunal allowed the appeal filed by the assessee.
