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Category: In the High Courts: Part A-Reported Decisions

Appellate : Powers in matters remitted by High Court restricted to directions by High Court.

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56 Appellate Tribunal : Powers in matters
remitted by High Court : Powers restricted to directions by the High Court.


[Harsingar Gutkha (P) Ltd. v. ITAT, 176 Taxman 137
(All.)]

In an appeal filed by the assessee against the order of the
Tribunal the Allahabad High Court remanded the matter back to the Tribunal to
redecide the case on the basis of the material on record. Thereafter, by its
order dated 25-7-2008 the Tribunal directed the Assessing Officer to record the
statements of D and G to ascertain certain facts.

On a writ petition filed by the assessee challenging the said
order of the Tribunal, the Allahabad High Court held as under :

“(i) We are of the view that it was not open for the
Income-tax Appellate Tribunal to take fresh material on record by the impugned
order dated 25-7-2008. The Tribunal has directed the Assessing Authority to
record the statements of Shri Dinesh Singh, ACA and Shri G. L. Lath,
chartered accountant, which will amount to additional evidence/material in
the case. By the judgment and order passed by this Court, the Tribunal was
directed to adjudicate the matter afresh on the basis of the material on
record.

(ii) When a direction is issued to an Authority or Tribunal
to do a thing in certain manner, the thing must be done in that manner and no
other manner. Other methods of performance are necessarily forbidden.

(iii) In the instant case, the matter was remitted to the
Tribunal by this Court with certain directions and it was not open for the
Tribunal to take fresh evidence in the matter, as no such direction was issued
by this Court. The impugned order by which a fresh direction has been issued
by the Tribunal to the Assessing Officer is legally not sustainable.”


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Appeal to Tribunal : Powers of Single member : S. 255(3) : Income computed by AO less than Rs.5 lakhs : CIT(A) enhanced it to more than Rs.5 lakhs : Single member can decide appeal.

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21 Appeal to Tribunal : Powers of Single
member : S. 255(3) of Income-tax Act, 1961 : A.Y. 1996-97 : Income computed by
AO less than Rs.5 lakhs : CIT(A) enhanced it to more than Rs.5 lakhs : Single
member can decide the appeal.


[CIT v. Mahakuteshwar Oil Industries, 298 ITR 390
(Kar.)]

The assessee was a manufacturer of edible oil. For the A.Y.
1996-97, it had declared the total income of Rs.8,660 in the return of income.
The Assessing Officer computed the total income at Rs.2,27,614. The Commissioner
enhanced the income to Rs.13,89,795. In appeal before the Tribunal, the Single
Member of the Tribunal decided the appeal and granted relief to the assessee.

 

In the appeal preferred by the Revenue, the following
questions were raised :

“(i) Whether the single member of the Tribunal had
jurisdiction to decide the appeal when the subject matter of appeal was
exceeding Rs.5,00,000 ?

(ii) Whether the Tribunal was justified in reversing the
findings of the Appellate Commissioner, when the assessee failed to discharge
the burden of proof as required u/s.68 of the Income-tax Act ?

 


The Karnataka High Court upheld the decision of the Tribunal
and held as under :

“(i) A single member of the Tribunal can exercise powers if
the income computed by the Assessing Officer is less than Rs.5 lakhs, even
though the same has been enhanced by the Commissioner (Appeals) in excess of
Rs.5 lakhs.

(ii) The Tribunal had given a categorical finding that the
assessee was willing to examine the creditors as its witnesses to prove that
it had availed of loans from them. No records were produced to show that the
assessee had not made such a statement either before the Assessing Officer or
before the Commissioner (Appeals). When the Revenue had got the records to
show whether the assessee was willing to examine any of the witnesses or not,
when such documents were not placed before the Court, one would have to draw
an adverse inference against the Revenue.”

 


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Scientific Research and Development Expenditure : S. 35 : Whether machine being used for R&D purpose or for manufacturing, AO not authority to decide but prescribed authority u/s.35(3)

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10 Scientific Research and Development Expenditure :
Deduction u/s.35 of Income-tax Act, 1961 : A.Y. 1999-00 : Axial machine and
computers : Whether machine being used for research and development purposes or
for manufacturing activity : Assessing Officer not an authority to decide :
Matter to be referred to prescribed authority u/s.35(3)


[CIT v. Deltron Ltd., 297 ITR 426 (Del.)]

The assessee incurred an expenditure of Rs.87,22,447 on
purchasing an axial machine along with machinery spares and computers. For the
A.Y. 1999-2000, it claimed the expenditure as a research and development
expenditure u/s.35(1) of the Income-tax Act, 1961. The Assessing Officer looked
at the brochure of the machine and came to the conclusion that the machine was
not used for research and development work and disallowed the claim. The
Commissioner (Appeals) held that the AO could not have disallowed the
expenditure without following the procedure prescribed u/s.35(3). Thereafter,
the Revenue could have made an attempt to find out the actual use of the
machine, but it did not do so. The Tribunal confirmed the view taken by the
Commissioner (Appeals).

The Delhi High Court dismissed the appeal filed by the
Revenue and held as under :

“(i) The prescribed authority in this case was not the
Assessing Officer and he could not determine whether the machinery was used by
the assessee for research and development purposes or not.

(ii) Even assuming that the Assessing Officer had the
authority, the least that would have been expected from him was to confirm
physically whether or not the machine was being used for research and
development purposes. No conclusion could be arrived at by the Assessing
Officer by merely looking at the brochure. Therefore, there was no error in
the order passed by the Tribunal.

(iii) Moreover, since there was a gap of so many years, it
would not be appropriate to remand the matter to the Assessing Officer to
refer the matter to the prescribed authority to decide the question whether
the machinery was used for research and development purposes or not.”




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Penalty : S. 271B r/w. ss. 44AB and 80P of I. T. Act, 1961 : Failure to get accounts audited within prescribed time : No tax payable by assessee society in view of s. 80P : Penalty u/s. 271B not to be imposed

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  1. Penalty : S. 271B r/w. ss. 44AB and 80P of I. T. Act,
    1961 : Failure to get accounts audited within prescribed time : No tax payable
    by assessee society in view of s. 80P : Penalty u/s. 271B not to be imposed.



 


[CIT vs. Iqbalpur Co-operative Cane Development Union
Ltd.; 179 Taxman 27 (Uttarakhand)].

The income of the assessee co-operative society was
exempted u/s. 80P of the Income-tax Act, 1961. The assessee society failed to
get its accounts audited u/s. 44AB of the Act within the prescribed time.
Therefore, the Assessing Officer imposed penalty u/s. 271B of the Act. The
Tribunal cancelled the penalty.

On appeal by the Revenue, the Uttarakhand High Court upheld
the decision of the Tribunal and held as under :

“i) There appeared no intention on the part of the
assessee to conceal the income or to deprive the Government of revenue as
there was no tax payable on the income of the assessee, in view of the
provisions of section 80P. Thus, it was not necessary for the Assessing
Officer to impose penalty u/s. 271B.

ii) On going through the impugned order passed by the
Tribunal, no sufficient reason was found to interfere with the satisfaction
recorded by the Tribunal as to the finding of fact that the assessee had no
intention to cause any loss to the revenue and as such, the penalty was not
necessarily required to be imposed by the Assessing Officer.

iii) Agreeing with the view of the Tribunal, it was to be
held that though an assessee is liable to penalty u/s. 271B for failure to
comply with the provisions of section 44AB but since in the instant case, no
tax was payable by the assessee in view of the provisions contained in
section 80P, the Tribunal had commited no error of law in setting aside the
penalty imposed by the Assessing Officer”.

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Refund : Interest u/s.244A of Income-tax Act, 1961 : A.Y. 2001-02 : TDS certificates submitted during assessment proceedings : Delay on refund not attributable to assessee : S. 244A(2) not attracted : Assessee entitled to interest u/s.244A.

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Reported :


27. Refund : Interest
u/s.244A of Income-tax Act, 1961 : A.Y. 2001-02 : TDS certificates submitted
during assessment proceedings : Delay on refund not attributable to assessee :
S. 244A(2) not attracted : Assessee entitled to interest u/s.244A.

[CIT v. Larsen & Toubro
Ltd., 235 CTR 108 (Bom.)]

For the A.Y. 2001-02, the
assessment was completed by an order dated 31-3-2003 passed u/s. 143(3) of the
Income-tax Act, 1961. TDS certificates were filed in the course of the
assessment proceedings. Interest u/s.244A was denied on the ground that the TDS
certificates were not furnished with the return of income. The Tribunal found
that tax was deducted and deposited in the exchequer in time and that the
proceedings resulting in refund, has not been delayed for reasons attributable
to assessee. The Tribunal accordingly directed the Assessing Officer to pay
interest u/s. 244A for the period from
1-4-2001 to the date of refund.

On appeal by the Revenue,
the Bombay High Court upheld the decision of the Tribunal and held
as under :

“(i) S. 244A(2) provides
that in the event the proceedings resulting in refund has been delayed for
reasons attributable to the assessee, the period of delay so attributable
shall be exclude from the period for which the interest is payable. In the
present case, S. 244A(2) is clearly not attracted. The proceedings resulting
in the refund was not delayed for reasons attributable to the assessee.

(ii) Though the TDS
certificates were not submitted with the return and were filed during the
course of the assessment proceedings, the Tribunal has noted that tax was in
fact deducted at source at the right time. In the circumstances, the Tribunal
was correct in holding that since the benefit of TDS has been allowed to the
assessee, interest u/s. 244A could not be denied only on the ground that the
TDS certificates were not furnished with the return of income. Tax was
deducted and deposited in the exchequer in time.

(iii) S. 244A(2) is not
attracted. The appeal, therefore, does not raise any substantial question of
law and is dismissed.”

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Transfer pricing: A. Y. 2006-07: The Assessing officer cannot substitute the method of ‘cost plus mark up’ with the method of ‘cost plus mark up on FOB’ value of exports without establishing that assessee bear significant risks or AEs would enjoy geographical benefits

46. Transfer pricing: A. Y. 2006-07: The Assessing officer cannot substitute the method of ‘cost plus mark up’ with the method of ‘cost plus mark up on FOB’ value of exports without establishing that assessee bear significant risks or AEs would enjoy geographical benefits:

Li and Fung India (P.) Ltd. vs. CIT; [2013] 40 taxmann.com 300 (Delhi):

The assessee, ‘LFIL’, entered into an agreement with its associate enterprise (‘AE’) for rendering sourcing support services for the supply of high volume, time sensitive consumer goods, for which it was remunerated at cost plus mark-up of 5 %.; During the course of Transfer Pricing assessment, the assessee contended that such a transaction was at Arm’s Length Price (‘ALP’) on an application of the TNM method. The Transfer Pricing Officer (‘TPO’) observed that assessee was performing all critical functions, had assumed significant risks and it had used both tangible and unique intangibles developed by it over a period of time, which had given an advantage to the AE in form of low cost of product, quality and had enhanced the profitability of AE. Thus, it held that the compensation of cost plus mark up of 5 % was not at ALP and applied a mark-up of 5 % on the FOB value of exports made by the Indian manufacturer to overseas third party customers. Therefore, the Assessing Officer made addition on the basis of order passed by TPO, which was further affirmed by the Tribunal

On appeal by the assessee, the Delhi High Court reversed the decision of the Tribunal and held as under:

“i) The impugned order had not shown how and to what extent assessee bore significant risks, or that the AE enjoyed such location advantages, so as to justify rejection of the Transfer pricing exercise undertaken by assessee.

ii)    Tax authorities should base their conclusions on specific facts, and not on vague generalities, such as ‘significant risk’, ‘functional risk’, ‘enterprise risk’, etc., without any material on record to establish such findings. If such findings are warranted, they should be supported by demonstrable reasons, based on facts and the relative evaluation of their weight and significance.

iii)    Where all elements of a proper TNMM are detailed and disclosed in the assessee’s reports, care should be taken by the tax administrators and authorities to analyse them in details and then proceed to record reasons why some or all of them are unacceptable;?

iv)    The impugned order, upholding the determination of certain margin over the FOB value of the AE’s contract, was an error in law. Therefore, the TPO’s addition of the cost plus 5 % markup on the FOB value of exports was without foundation and was to be deleted.”

Educational Institution: Exemption u/s. 10(23C)(iiiad): A. Ys. 2000-01 to 2005-06: The assessee society running 25 educational institutions claimed exemption u/s. 10(23C)(iiiad) in respect of institutions satisfying the conditions: Denial of exemption on the ground that the aggregate receipts of all institutions exceeded limit of Rs. 1 crore: Denial of exemption not proper: Assessee entitled to exemption:

35. Educational Institution: Exemption u/s. 10(23C)(iiiad): A. Ys. 2000-01 to 2005-06: The assessee society running 25 educational institutions claimed exemption u/s. 10(23C)(iiiad) in respect of institutions satisfying the conditions: Denial of exemption on the ground that the aggregate receipts of all institutions exceeded limit of Rs. 1 crore: Denial of exemption not proper: Assessee entitled to exemption:

CIT vs. Childrens Education Society; 358 ITR 373 (Karn):

The assessee society was running around 25 educational institutions. In the relevant assessment years the assessee claimed exemption u/s. 10(23C)(iiiad) of the Income-tax Act, 1961 in respect of the educational institutions which satisfied the relevant conditions. The Assessing Officer denied exemption on the ground that the aggregate of the receipts of all the institutions run by the assessee was more than Rs. 1 crore which is the condition prescribed u/s. 10(23C)(iiiad) of the Act. The Tribunal allowed the assessee’s claim and held that the assessee was entitled to exemption us. 10(23C)(iiiad) for each of the institutions the annual receipts of which were less than Rs. 1 crore.  

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

“The Tribunal was correct in holding that the exemption in terms of the provisions of section 10(23C)(iiiad) was available to the assessee as annual receipt of each of the institutions of the assessee was less than the prescribed limit under the provision.”

Turnover and value of stock adopted by Sales Tax Authorities is binding on Income-tax Authorities: Addition merely on basis of statement of third parties is not proper:

20. Assessment:  A.  Y.  1998-99  to  2002-03:

Turnover and value of stock adopted by Sales Tax Authorities is binding on Income-tax Authorities: Addition merely on basis of statement of third parties is not proper:

CIT vs. Smt. Sakuntala Devi Khetan: 352 ITR 484 (Mad):

The assessee was a trader in turmeric. For the relevant assessment years the Assessing Officer made additions on the basis statement of third parties. The Tribunal directed the Assessing Officer to adopt the figures of turnover finally assessed by the Sales Tax Authorities and apply the GP rate accordingly.

On appeal by the Revenue, the following question was raised before the Madras High Court:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the turnover and profit of the assessee for the assessment year under consideration could not be computed in the reassessment on the basis of information received in the course of search conducted in certain cases on the sole ground that the Sales Tax Authorities have accepted the assessee’s purchases, sales and closing stock?”

The High Court upheld the decision of the Tribunal and held as under:

“i)    Unless and until the competent authority under the Sales Tax Act differs or varies with the closing stock of the assessee, the return accepted by the Commercial Tax Department is binding on the Income -tax Authorities and the Assessing Officer has no power to scrutinise the return submitted by the assessee to the Commercial Tax Department and accepted by the Authorities. The Assessing Officer has no jurisdiction to go beyond the value of the closing stock declared by the assessee and accepted by the Commercial Tax Department.

ii)    The assessee had placed the sales tax returns before the Assessing Officer in respect of the A. Ys. 1998-99 to 2001-02. Therefore, sufficient materials were placed before the Assessing Officer in respect of those assessment years and accepted by the Authorities.

iii)    The Tribunal rightly found that the Department could not have made the addition merely on the basis of the statement of third parties and, consequently, set aside the order of the Commissioner (Appeals) and directed the Assessing Officer to adopt the figures of turnover finally assessed by the sales tax authorities and apply the gross profit rate accordingly.”