In a recent ruling, the Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal held that penalty under section 73(3) of the Finance Act, 1994 cannot be imposed on the assessee even after he pays the entire Service Tax collected at the earliest stage of the proceedings.
In the instant case, the assessee approached the CESTAT impugning the order of penalty passed by the assessing officer. According to the assessee, they are engaged in the business of construction. During the relevant period, the assessee collected service tax from the buyers for the construction of residential complex. They claimed that the said amount was not deposited by them with the Revenue under a bonafide belief that, as per the Circular Number 108/2/2009-ST dated 29.01.2009 the construction of residential complex till the execution of the sale date is in the nature of self services and would not attract service tax.Later, on receipt of the Show Cause Notice issued by the Department, the assessee paid the entire amount along with interest. Therefore, the assessee contended that penalty order passed under section 73(3) of the Finance Act is not sustainable.
While deleting the order of penalty, the Single Member observed that “it is seen that the appellant on being pointed by the officers immediately discharged their tax liability along with interest. In as much as the issue of taxability was the subject matter of the Honble High court of Bombay whereas the vires of the same was challenged it can be safely concluded that there was confusion in respect of the taxability of the same. In such a scenario the provisions of section 73B would come into play, thus not requiring any issuance of show cause notice. As such I find no justifiable reasons to impose penalty upon the assessee. Accordingly while confirming tax already paid along with interest I set aside the penalty imposed on the said count”.
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While confirming the deletion of the disallowance of amount spent on machine hire charges, the Income Tax Appellate Tribunal, Kolkata bench has ruled that TDS provisions are not applicable if the payee has included the receipt in its books of account and has offered for taxes. While allowing the claim of the assessee, the Tribunal emphasized that the amendment mae to section 201(1) of the Income Tax Act, 1961 have retrospective operation.
The assessee, in the instant case, is an individual is engaged in hiring of cranes, digging equipments and other equipments which are used in civil construction.The assessing officer completed the assessment by disallowing the expenditures claimed by him on account of the machine hire charges and transport charges by pointing out that TDS under section 194I of the Income Tax Act, has not been paid on such amount.
The first appeal preferred by the assessee was allowed by the Commissioner of Income Tax (Appeals) on ground that the above charges should be treated as the hire charges paid as items forming part of the trading accounts of the assessee.It was found that the above expenditure has been allowed by the Assessing Officer for the earlier assessment years. On this basis, the CIT(A) observed that “It was for the AO to prove that the provision of section 194I is attracted for invoking section 40(a)(ia) after ascertaining the facts and circumstances surrounding the appellant’s case.Mere assumption in the matter will not justify his action which needs to be corroborated with conclusive proof and reasoning to make out his case. In view of this the addition made by the AO to the tune of ₹1,90,32,520/- on account of disallowance made u/s. 40(a)(ia) read with section 194I treating the amount as rental payment is hereby deleted.”
Aggrieved by the above order, the Revenue approached the Appellate Tribunal for relief. The Tribunal found that the Amendment in Sec. 201(1) of the Act has been brought by the Finance Act, 2012 which is curative in nature. Therefore, it should be effective from the retrospective date.
The Tribunal noticed the decision Santosh Kumar Kedia vs. ITO in which it was held that the above Amendment has come into effect with retrospective date and as per the amended provision if the payee has included the receipt in its books of account and has offered for taxes then the disallowance on account of non-deduction of TDS will not arise.
Concurring with the findings of the CIT(A),the Tribunal observed that the assessee is not default for non-deduction of TDS.
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Supreme Court confirms Denial of Exemption to Tea under the Assam industries (Sales Tax Concessions) Act.
While confirming the denial of sales tax exemption to “tea” under the provisions of the Assam industries (Sales Tax Concessions) Act, 1987 the two-judge bench of the Supreme Court has categorically held that the benefit of the said Act cannot be available to “tea” since it is not a raw material. The apex Court confirmed the order of the High Court in which it was observed that, the appellant-company, who are engaged in the activity of mere blending and packing of tea cannot be treated as manufacturers of the said product.
The appellant company in the instant case, is engaged in the business of blending and packing tea. The grievance of the appellant was that sales tax concession declared by the respondent-State under the provisions of the Assam Industries (Sales Tax Concessions Act), 1987 has not been granted to them. As per the provisions of the said Act, certain new industries, subject to certain conditions, were to be given exemption from payment of sales tax but the exemption was not to be given in respect of certain commodities.According to them, they are eligible for the said concession as per the industrial policy fixed by the Government before the enactment of the said legislation. The respondent-State submitted that the benefit of the Act is not available to the appellant-company since their product “tea” is not a raw material which is not exempted under the Act. Further, they claimed that the appellant-Company was merely blending and packing tea and was not having any manufacturing activity. Though the appellant challenged this decision of the State before the High Court, they could not secure any relief.Therefore, the company approached the Apex Court for relief.
While upholding the order of the High Court, the Court held that “tea” is not a raw material and therefore n exemption can be claimed by the appellant in respect of such product. Further, the Court pointed out that the appellant is not entitled to the benefit provided under the Act since no certificate of authorization has been granted to them by the state.
Read the full text of the Judgment below.
The division bench of the Bombay High Court, in a recent decision, held that the loss suffered on foreign exchange transactions entered into for hedging business transactions must be considered as revenue loss since they are not in the nature of speculative or notional.While upholding the orders of the lower authorities, the High Court observed that the amount of loss on the same must be deducted from the total income under section 37 of the Income Tax Act, 1961.
The assessee in the instant case,is engaged in the business of import and export of diamonds. The assessee, while filing returns for the relevant year has claimed loss on account of having entered into hedging transactions to safeguard variation in exchange rates affecting its transactions of import and export by entering into forward contracts. The assessing officer rejected the claim by holding that it is a notional loss of a contingent liability debited to Profit and Loss account.Accordingly, an order of assessment was passed against the assessee disallowing the said amount.
Both the appellate authorities, i.e, the Commissioner of Income Tax (Appeals) and the Appellate Tribunal accepted the contentions of the assessee and held that the loss incurred by the Respondent Assessee was a revenue loss and not connected with any speculation activities. Therefore, the Revenue preferred an appeal before the high court impugning these orders by relying upon the decision in S. Vinodkumar Diamonds Pvt.Ltd. vs. Addl.CIT.
Concurring with the findings of the appellate authorities, the Court noted that the impugned transactions made by the assessee were not speculative in nature. Further, the Revenue has no objection to the contention that the assessees’ activity of entering into forward contract was in the regular course of its business only to safeguard against the loss on account of foreign exchange variation. The Court found that the claim of the assessee was rejected by the officeronly on ground that it is notional.
The Court further noticed that the decision in S. Vinodkumar Diamonds Pvt.Ltd. vs. Addl. CIT was overruled by the Court in CIT vs. Badridas Gauridas (P) Ltd, in which it was held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. In view of the above, the impugned orders were upheld.
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In a recent decision, the division bench of the Punjab & Haryana High Court has held that the guarantee commission paid by the assessee for acquiring an asset on installment terms is revenue expenditure which is deductible under section 37(1) of the Income Tax Act.
In the instant case, the assessee, Haryana State Road &Bridges Development Corporation Ltd has filed its income tax returns by claiming deduction in respect of commission paid by it to the State of Haryana in respect of a guarantee issued by the State of Haryana in favour of the Housing Urban Development Corporation Limited (HUDCO). The assessing officer disallowed the above claim of deducting guarantee fee by treating it as capital expenditure. The officer further disallowed certain payments claimed by the assessee by invoking Section 40(a)(ia) and observed that no TDS is paid on such amount.
While examining the nature of “guarantee fee”, the Court cited the decision in Sivakami Mills Ltd. Vs Commissioner of Income Tax, in which the Madras High Court refused to treat the guarantee fee as capital expenditure.The same view was subsequently, upheld by the Apex Court.
Following the above decision, the Court arrived at a conclusion that the claim of deduction of ‘guarantee fee’ as claimed by the assessee is eligible to be deducted from theirtotal income.in this connection, it was observed that “It is clear, therefore, that the Supreme Court held that the guarantee commission paid by an assessee is a revenue expense and, therefore, allowable as a deduction in computing the total income. It is important to note that even in that case, the Madras High Court came to the conclusion that the purchase of machinery was a capital expenditure, but the guarantee commission stands on a different footing. We will assume that in the case before us also the guarantee was issued in respect of loans taken for acquiring capital assets. In view of the judgement of the Supreme Court, it would make no difference as far as the guarantee commission is concerned. As we mentioned earlier, the guarantee was issued by the State of Haryana at the assessee’s request in favour of HUDCO.”
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The ITAT, Kolkata bench has recently ruled that TDS provisions are not applicable to payments made to a Government organization if the payee has included the same in its receipt.
The Tribunal observed that if the assessee proves the same with receipts, then they should have given the benefit of 40(a)(ia which has been inserted vide Finance Act, 2012 with retrospective effect.
The assessee- Company is engaged in the manufacturing business of railway products.The assessee filed return for the relevant assessment yearby claiming deduction of expense in respect of Inspection fee. The assessing officer rejected the claim under section 40(a)(ia)for the reason that TDS was not paid on such amount. The Commissioner of Income Tax (appeals) confirmed the said order on first appeal. Therefore, the assessee approached the Appellate tribunal on second appeal.
The Tribunal noticed the fact that, the payee is a government organization and the AO should have confirmed the same before making the disallowance of the expense claimed by assessee for inspection charges. It was further found that certificate, which pertains to the financial year beginning from 2008-09 to 2011-12, has been obtained by assessee from MRL certifying that the payee has included in its income the inspection charges paid by assessee. While remanding the matter back to the assessing officer in order to ensure whether the payee has included in its receipt the payment made by the assessee in its total income,the Tribunal directed that “To this point, Ld. DR raised no objection if the matter restore back to the file of AO for fresh adjudication as per law. In this connection, we also find that there is amendment of proviso to Sec. 40(a)(ia) of the Act r.w.s 1st proviso to Sec. 201, wherein, if any payee has paid the taxes by offering / disclosing the said receipt in its return of income, then the payer (the assessee herein) should not be treated as assessee in default.Accordingly no disallowance u/s. 40(a)(ia) of the Act could operate in that scenario. The said proviso though inserted by the Finance Act 2012 w.e.f. 1-4-2013 has been held to be retrospective in operation by recent decision of the Hon’ble Delhi High Court in the case of CITv. Ansal Land Mark Township (P) Ltd.”
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While quashing an order for re-assessment under section 148 of the Income Tax Act, 1961, the Bombay High Court held that recording of reason for re-assessment is an essential requirement though there is a presumption that the assessee is well-aware of such reasons. The Court emphasized that such an order passed by the officer is without jurisdication.
Instant case, the assesee challenged the order for re-assessment on ground that the assessing officer has failed to note the reasons for the same.The assessee, relying upon the decisions in Siesta Steel Construction (P.) Ltd. vs. K.K. Shikare, CIT vs. Fomento Resorts and Hotels Ltd.and in Tata International Ltd. vs. DCIT, contended that the order is liable to be quashed for the reason of non-supply of reasons. On appeal, the Commissioner of Income Tax (appeals) confirmed the said order. However, the Income Tax Appellate Tribunal allowed the second appeal preferred by the assessee and held that the order is invalid.
The division bench observed that “We find that the question as framed proceeds on the basis that the Respondent Assessee was aware of the reasons for reassessment. The only basis for the aforesaid submission is the submission made by the Revenue before the Tribunal that the Respondent Assessee is a public sector institution who was aware that search action has been initiated on certain lessees in respect of transactions with IDBI i.e. Respondent-Assessee.
On the basis of the above, it is to be inferred that the reason for reassessment was known to the Respondent Assessee. The supply of reason in support of the notice for reopening of an assessment is a jurisdictional requirement. The reasons recorded form the basis to examine whether the Assessing Officer had at all applied his mind to the facts and had reasons to believe that taxable income has escaped reassessment. It is these reasons, which have to be made available to the Assessee and it could give rise to a challenge to the reopening notice. It is undisputed that the reasons recorded for issuing reopening notice were never communicated to the Respondent Assessee in spite of its repeated requests. Thus, the grievance of the Revenue on the above count is unsustainable.”
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In a recent decision, the single bench of the Kerala High Court has opined that under Rule 58(16) of KVAT Rules, using double-side carbon is a mandatory requirement while filing delivery notes. Therefore, dealers/sellers of Kerala are bound to follow such condition.
In the instant case, the officer imposed penalty on the assessee for the reason that on verification of the accompanying documents, double side carbon has not been used while filling the delivery note.Consequently, the vehicle was detained and passed an order of penalty against the assessee on ground of evasion of payment of tax. Without availing the statutory relief, the assessee approached the High Court impugning the order.
The single bench observed that the use of double side carbon in Kerala is because of an amendment made to sub rule (16) of Rule 58 of KVAT Rules whereas in Tamil Nadu, there is no such rule for use of double side carbon. If the Kerala Rules prescribe a particular format, transporters/dealers are bound to comply with the same. The imposition ofpenalty is justified if it had been imposed on that basis.
However, the petition was dismissed with a direction to the assessee to avail statutory remedy.
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The single bench of the Kerala High Court, while deleting an order of penalty under the provisions of Kerala Tax on Luxuries Act, 1976, held that penalty cannot be levied for non-bifurcation of VAT and luxury Tax considering the fact that the same was not deliberately done by the assessee. Since it was merely a mistake without any intention to evade the payment of tax and the Government had not suffered any loss in the revenue, the penalty was held as not justifiable.
The sole issue before the Court was that whether penalty can be imposed for not having bifurcated the assessment to tax with reference to VAT and luxury tax for the relevant assessment years. Briefly explaining the facts of the case, the petitioners are engaged in the business of hotel services.They, without noticing the amendment in the in the Kerala Tax on Luxuries Rules,paid VAT for the usage of Banquet Hall and Poolside area for serving food as well as conducting other services are concerned. As per the said amendment, Rule 3 was incorporated mandating rough estimate with respect to the services rendered while serving food, drink and other services in a hotel, hall, auditorium and other similar places, as per which 25% of the total charges has to be treated as eligible for luxury tax. Both assessment and penalty proceedings were initiated against the assessee for not bifurcating the luxury tax component, value added tax (VAT). The assessment proceedings were completed as per the directions of the High Court. The pending issue was the legality of penalty proceedings against the assessee.
On behalf of the petitioners, it was argued that penalty is not leviable since it was not an intentional act and the Government has not suffered any revenue loss due to non-bifurcation of the tax.
The single bench observed that “it is true that there is deficiency on the part of the assessee in bifurcating the luxury tax as well as VAT, even after the Rule had been amended. However, it is to be noticed that when the entire VAT amount has been paid for the total amount received which includes the rent for Banquet Hall or the Poolside, there is no deliberate attempt to evade payment of VAT or luxury tax.”
“Though it was contended by the learned Senior Government Pleader that there is suppression, I do not think that the facts involved in the present case would demonstrate a case of suppression. It is apparently a mistake being committed by the assessee while imposing tax and insofar as no loss has been caused to the Government in that regard, I am of the view that there is no necessity to impose any penalty on the petitioner. If at all there is any deficit in the collection of tax, the same can be recovered by assessment proceedings.”
Read the full text of the Judgment below.
Net revenue collections up to September, 2016 stood at Rs 4.08 lakh crore which is 52.5% of the Budget Estimates of Indirect Taxes for Financial Year 2016-17.
The figures for indirect tax collections (Central Excise, Service Tax and Customs) up to September 2016 in the current Financial Year 2016-17 show that net revenue collections are at Rs 4.08 lakh crore which is 25.9% more than the net collections for the corresponding period last year i.e. 2015-16. Till September 2016, 52.5% of the Budget Estimates of indirect taxes for Financial Year 2016-17 has been achieved.
As regards Central Excise, net tax collections stood at Rs.1.83 lakh crore during April-September, 2016 as compared to Rs.1.25 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 46.3%.
Net Tax collections on account of Service Tax during April-September, 2016 stood at Rs. 1,16,975 crore as compared to Rs. 95,780 crore during the corresponding period in the previous Financial Year, thereby registering a growth of 22.1%.
Net Tax collections on account of Customs during April-September 2016 stood at Rs. 1.08 lakh crore as compared to Rs. 1.03 lakh crore during the same period in the previous Financial Year, thereby registering a growth of 4.8%.
The Mumbai bench of the Income Tax Appellate Tribunal recently confirmed the deletion of addition made by the assessing officer on account of unaccounted sales on the basis of diary entries.
While quashing the assessment order, the tribunal observed that it is not justifiable since it was levied merely on the basis of the diary entries which is not a valid proof withosut any corroborative evidence.
Coming to the facts of the case, in consequent to a search conducted on the place of the assessee, the assessing officer passed an order making addition on account of unaccounted sales on the basis of entries in the diary seized during the search action.On appeal, the Commissioner of Income Tax (Appeals) deleted the addition on ground that there was no valid evidence to prove that the assessee has suppressed sales.Therefore, the Revenue impugned the order before the Appellate Tribunal.
The Tribunal upheld the order of the first appellate authority by observing that each and every entry in the diary seized during the course of search proceedings could not be treated as unaccounted sales especially when the assessee has duly explained each and every entry in the diary as estimates worked out with respect to various customers’’ queries by the assessee as he is in the business of painting, art work and interior decoration work. In the absence of any other materials found by the search team which corroborate the entries to be unaccounted sales, the Tribunal confirmed the deletion of addition made in the assessment order.
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The Ahmedabad bench of the Income Tax Appellate Tribunal, recently upheld the order of the Commissioner of Income Tax (Appeals) who, vide its order, set aside the penalty order against the assessee by holding that the appellant is deemed to have fulfilled the first two conditions for availing of immunity from penalty proceedings u/s 271AAA of the income Tax Act. Relying on the decision of the Gujarat High Court in the case of Mahendra C. Shah, the CIT(A) had deleted the penalty imposed against the assessee. The said order was challenged by the Revenue before the Appellate Tribunal in which the Tribunal confirmed the same.
Coming to the facts of the case, the assessee has admitted his undisclosed assets found during the course of search as well as earning of undisclosed income on the basis of entries made in the seized papers. The Officer, however, initiated penalty proceedings against assessee on ground that the admission may be treated as disclosure made as per statement u/s 132(4) of the Act only, for the reason that proper scrutiny of seized material is always not possible for making disclosure during the course of search.
On appeal, the Commissioner of Income Tax (Appeals)quashed the order observing that “However, so far as specifying and substantiating the manner in which income has been earned is concerned, there is nothing on record to suggest that any such question was asked to the appellant either in the statement recorded u/s 132(4) of the Act or even during the course of assessment proceedings. It is noted that the appellant has responded to all the questions asked u/s 132(4) of the IT Act relating to his financial affairs. Unless specific question is asked to the appellant either in the statement recorded u/s 132(4) or even during the course of assessment proceedings, it may not be proper to attribute the failure, if any, for not specifying and substantiating the manner in which income was earned, to the appellant.” Further, the CIT(A) held that “so far as the manner of earning the income and substantiating the same is concerned, the appellant has, in my view, not specified the manner of earning the undisclosed income as well as substantiated the same since no question as regards specification of manner of earning the undisclosed income and substantiation thereof was put forth in the statement recorded u/s 132(4) of the Act. There is nothing on record to suggest that the appellant has failed to respond to any of the questions relating to the manner of earning undisclosed income as well as substantiating the same even during the course of assessment proceedings. In view of this, the appellant is deemed to have fulfilled the first two conditions for availing of immunity from penalty proceedings u/s 271AAA of the Act. There is no dispute about the third condition as the appellant has paid tax with interest on the undisclosed income. Thus, the appellant has fulfilled all the conditions required for immunity from levy of penalty u/s 271AAA of the Act.”
Concurring with the above findings, the Appellate Tribunal noted the fact that during the course of search itself the assessee had accepted the above undisclosed income and explained the source thereof to be business operations of the assessee.
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The ITAT, Hyderabad bench, recently allowed deduction in respect of the amount of fee paid to NSDL/CDSL charges by holding that such charges are not subject to TDS under section 194J of the Income Tax Act, 1961. The Tribunal opined that since TDS provisions are not applicable to these charges, the Assessing Officer cannot disallow the same by invoking section 40(a)(ia) of the Act.
In the instant case, the assessee, a company engaged in the business of Registrar and Share Transfer Agent has debited the charges paid to NSDL/CDSL are debited to an account called ‘Settlement and Custody Fees’. The assessee maintained that the said transaction was neither in the nature of a contract and nor a professional/technical service. Therefore, TDS was not deductible and subsequently there was no applicability of Section 40(a)(ia) in the case of assessee. The Assessing Officer disallowed the claim by invoking section 40(a)(ia)and held that section 194J of IT Act is applicable in the instant case. The CIT(A) sustained the order of assessment, against which the assessee referred a second appeal before the Appellate Tribunal.
While allowing the above expenditure, the Tribunal observed that both the assessing officer and the Commissioner of Income Tax (Appeals) had committed an error in disallowing the charges.
The Tribunal further noted the decision of the Supreme Court in Kotak Securities Ltd., in which the Apex Court has categorically held that the transaction charges paid to the Bombay Stock Exchange by its members are not in the nature of ‘technical services’. In the opinion of the Court, such charges, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.
Before concluding, the division bench added that “Similarly, in assessee’s case also there is no human element and services are fully automated. Moreover, there is no exclusivity and the NSDL/CDSL renders service to many other clients. Since the facts are similar to the facts in the case of Kotak Securities Ltd decided by the Hon’ble Supreme Court, we are of the opinion that ‘settlement and custody’ fees paid to NSDL/CDSL are not covered by the provisions of Section 194J, as they cannot be considered as ‘technical services’. Consequently, there cannot be any disallowance on the reason that TDS was not made, u/s 40(a)(ia). Moreover, these companies have also treated these amounts as ‘incomes’ and offered to tax. The amendment brought to provisions of Section 40(a)(ia) do apply to the facts as well. In view of these reasons the disallowance made u/s. 40(a)(ia) is hereby deleted.”
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The Mumbai bench of ITAT, in recently directed the Assessing Officer to allow the claim of expenditure made by the assessee towards the payment of penalty levied by the customers for defective goods. According to the Tribunal, the same constitutes legitimate business loss which is duly covered under section 36 of the Income Tax Act, 1961.
In the instant case, the assessee’s claim for the said expenditure while filing the income tax return for the relevant assessment year was rejected by the assessing officer on ground that the assessee has not fulfilled any condition as laid down under section 36(1)(vii) read with section 36(2) of the Act. The Commissioner of Income Tax (appeals) on appeal preferred by the assessee, upheld the said order.
When the matter was brought before the Tribunal on second appeal,the Tribunal quashed the orders of the lower authorities by finding that the same constitutes a genuine business loss as claimed by the assessee. While accepting the contentions of the assessee, the Tribunal observed that “From the facts before us we find that the advances are given in the ordinary course of business and when the advances made remained unadjusted due to absconding of suppliers from the open market, the assessee has no other alternative but to write off the said advances as business loss. We are of the considered view that the same constitutes legitimate business loss incurred by the assessee. During the course of hearing the ld. Counsel submitted that it is business loss and therefore has to be allowed. Accordingly, we set aside the order of ld. CIT(A) and direct the AO to allow the claim of the assessee.”
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In a recent ruling, the Mumbai bench of ITAT held that Coursewares developed by the assessee are eligible for depreciation @60%under the head computer softwares as provided under section 32 of the Income Tax Act. While invalidating the order of the Commissioner of Income Tax (Appeals), the Tribunal found that the ESOP charges incurred by the assessee for the benefit of its employees are revenue in nature, and therefore, they are allowable expenditure.
The assessee in the instant case,approached the Tribunal impugning the order of the CIT(A) in which various claims of the both were rejected. The assessee- Company is primarily engaged in the business of imparting computer training and education on customized basis as per the requirements of the customers. The assessee, as part of its business developed various types of educational software/special courses. These were called as coursewares since it is designed and developed keeping in view of the requirements which varies from customer to customer, from industry to industry and these courses when combined with the software.The assessee was aggrieved with the orders of the lower authorities in which the Department disallowed 60% depreciation to such coursewares by holding that these courses are basically manual which are used by the assessee in training institutes and mere fact that these manuals were on software could not be taken to mean that these are computer softwares. The assessee claimed that there were given with 60% depreciation on the same during the past.
While accepting the above contentions, the Tribunal held that the coursewares developed by the assessee are eligible for 60% depreciation since the department cannot be allowed to take different view in the different assessment years qua the same assets. The Tribunal emphasized that the above assets are nothing but specialized software or customized training softwares which are eligible for depreciation at the rate of 60% as per the Income Tax Rules and the same was correctly depreciated at the rate of 60% by the assessee.
Further, the assessee claimed deduction of expenditure towards ESOP charges. The AO as well as the CIT(A) disallowed this claim on ground that they constitutes“capital expenditure since they are incurred for issue of equity shares which were issued to the eligible employees and hence, not allowable.
While rejecting the findings of the AO and the first appellate authority, the Tribunal observed that “We are not in agreement with the objection of the AO that the said expenditure was incurred by the company to increase share capital of the company and thus, constituted the capital expenditure nor with opinion and conclusion drawn by the ld.CIT(A) that the liability is contingent in nature, whereas the arguments advanced by the ld.AR are quite convincing that the scheme was floated to reward the employees of the company and the difference between the discounted price and prevailing market price was amortised over the vesting period. The case of the assessee finds strong support from the number of the decisions referred and relied upon by the ld.AR.
The Tribunal noticed the decision in the case of Biocon Ltd (supra), the Special Bench of the Bangalore Tribunal, in which it was held that discount on issue of shares to the employee stock option is allowable deduction in computing the income in the profit and loss account of business or profession and the same was on account of ascertained liability and not contingent liability. It was also held that by issuing shares at discounted price under the scheme ESOP is simply one of the motive to compensate the employees for their services and is part of the remuneration . Further, in the case of PVP Ventures Limited (supra), the Madras High Court has held that the assessee had to follow SEBI guidelines and by following such directions the assessee has claimed ascertained amount as eligible for deduction arising on account of Employees Stock Option Plan. The Tribunal also noted the decision of the Delhi High Court in the case of LEMON TREE HOTELS LTD the Court fully endorsed that ESOP was an allowable expenses. In view of the facts and the above judicial pronouncements, the Tribunal held that the assessee has rightly written off ESOP charges and the order of the ld. CIT(A) is wrong and not sustainable.
The assessee also challenged the disallowance of amount in respect of bad debts.They claimed that, as part of an agreement with the Directorate of Education and Directorate of Education, they raised bills against the above concern, who withheld certain payments on the ground of delayed installation of infrastructure, non-performance of infrastructure and faculty absenteeism etc.Both the lower authorities disallowed the same on ground that they werein the nature of contingent liability.
The Tribunal while invalidating the impugned orders, observed that “Considering the facts of the case that the Directorate of Education, Government of Delhi to whom the assessee rendered services of computer education , training and installation of infrastructure for imparting training denied the part payment of the billed amount for rendering the deficient services to customer and the said amount was never received by the assessee in subsequent years and no litigation was pending by the assessee against such customers in any court of law and therefore the said amount was not recovered as being denied by the customers for the reasons stated above. We find that the provision of rebate which is a kind of de-recognizing the revenue which was already credited in the books of accounts of the assessee as is clear from the ledger account of the Directorate of Education, New Delhi Government in the books of assessee. In our view provisions of rebate was rightly claimed by the assessee upon the same being denied by the person from whom it was receivable and also satisfies the conditions as laid down in section 36(1)(vii) of the Income Tax Act particularly when the similar deductions were allowed by the department in the earlier and succeeding years. We also find that the assessee’s case find strong support from the decisions cited above in which it has been held that merely showing all the bill is not accrual of income unless the bills amount are accepted by the customers.”
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In a recent decision, the High Court of Madras, while dismissing a writ petition filed by the assessee, held that the petition is not maintainable when it is clear that the assessee has an option to avail the statutory appeal for relief.
The Court was considering a writ petition filed impugning a best judgment assessment passed by the Income Tax Officer. The assessee contended that the order was passed without affording a reasonable opportunity to the assessee.
Diving deeply into the facts of the case, the Court found that the notice has been duly served to the assessee and the he was heard through his representative, a Chartered accountant. By pointing out this, the single bench held that “if the petitioner is aggrieved by the impugned orders, he has to file Appeal before the Appellate Authority, and no grounds have been made out to bypass such remedy.”Accordingly, the Court directed the assessee to approach the appellate authority against the impugned order.
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The Ahmedabad bench of the Income tax Appellate Tribunal, in a recent decision held that the Tribunal, under the provisions of the Income Tax Act, 1961, has no power to give directions to the Assessing Officer in matters relating to granting interest on refund.
In the instant case, the assessee approached the Appellate Tribunal against the decision of the lower authorities who refused to grant interest to them on Refund allowed to them through the High Court order in connection with double payment of TDS. While disallowing interest, the first appellate authority pointed out that the appellant has suo-moto deducted TDS twice and deposited the same with the exchequer. Secondly, there is no provision in the Income tax 1961 to grant interest on refund of double deducted TDS amount . It was further noted that no such direction was passed by the High Court while allowing the refund to the assessee. Aggrieved with the order the assessee filed an appeal before the Tribunal praying for a direction to grant interest on the refund amount.
While rejecting the plea of the assessee, the Tribunal emphasized that “Authorities under the Income Tax Act, viz. Income Tax Officer, Commissioner of Income Tax or the Income Tax Appellate Tribunal are the creature of the Income Tax Act. They derive their source of power from the Income Tax Act only. The ld.Revenue authorities have declined the prayer of the assessee for the reason that it failed to bring any provision of the Act to their notice which authorizes authorities to exercise their power in favour of the assessee. During the course of hearing, I also put a query to the ld.counsel for the assessee as to how in the present proceedings assessee can enforce its right to interest. The ld.counsel for the assessee was unable to point out any provision in the Income Tax Act, which can empower the Tribunal to give directions to the AO for grant of interest on such refund.”
Based on the above findings, the Single Member dismissed the appeal by observing that “I have perused all the decisions referred by the ld.counsel for the assessee including the decision of the Hon’ble Gujarat High Court in the case of FAG Bearings India Ltd (supra). All these decisions were rendered while exercising power under Article 226 and 227 of the Constitution of India. These directions have not been given by enforcing of any provision of Income Tax Act. The Tribunal has no such power. It can only enforce violation of any provision which is subject to the appellate jurisdiction. Therefore, I do not find any merit in this appeal of the assessee.”
Read the full text of the order below.
In a recent decision, the High Court of Punjab & Haryana observed that if the appellate authority deems that the expenditures entitled to be deducted are computed under wrong head, the matter shall be remitted to the assessing officer by directing him to consider the matter afresh.In the instant case, the expenditure incurred to yield dividend under section 80M was deducted by the officer under section 56 instead of section 57(i)(iii) of the Act.The Court found that, the appellate Tribunal invalidated the assessment order without remanding the matter back to the Assessing officer.
In the instant case, the assessing officer passed an order against the assessee by making additions by disallowing certain expenses including the expenses on foreign travel of Director’s wives etc. The Officer further made addition on account of the proportionate management expenses allocated against dividend income for the purpose of computation of deduction u/s 80M.
Regarding taxability of expenses on foreign travel of Director’s wives, the assessee contended that the same constitutes business expenditure since it was incurred under the contractual obligations and under normal business practice.the CIT(A)rejected the contention of the assessee on the ground that no evidence was adduced before the authority in support of the said claim.The Tribunal, on second appeal, reversed this order by allowing the expenditure based on its earlier decisions in the case of the assessee. In the opinion of the court, the question whether the expenditure incurred is for the purpose of the business or not would depend on the facts of each case.While quashing the order of the Tribunal, the Court observed that “We are unable to uphold the decision of the Tribunal in this regard. The issue cannot be decided on the basis of the result of the assessment proceedings relating to the same question in another assessment year. Whether a Director’s spouse has traveled with him for business purpose or not, is essentially a question of fact not only in respect of each year but in respect of each tour. One visit may be for business purpose and another visit may not be for any business purpose whatsoever. The decision of the Tribunal, therefore, is incorrect for the nature and purpose of the visits that the Tribunal considered in respect of the assessment year 1990-91, would be different from the visits that the Tribunal had to consider in respect of the present assessment year.”
Further, the Court considered the validity of the order of the Tribunal deleting the proportionate management expenses allocated against dividend income for purpose of computation of deduction u/s 80M. The addition was deleted by the Tribunal mainly on ground that held that the Assessing Officer cannot be permitted to take a contrary stand while computing the income from dividend under section 56 and by allowing deductions under section 80M.
While rejecting the findings of the Tribunal, the Court held that “The deductions under section 80M must be computed in accordance with the provisions of section 80M. If the Appellate Authorities find that the expenses liable to be deducted have been considered under the wrong head, they must direct the Assessing Officer to rectify that error for all purposes. We have by our judgment passed today in ITA No. 52 of 2003 Commissioner of Income Tax (Central) Ludhiana v. M/sHero Cycles Ltd. Ludhiana, held that where income is considered under the wrong head in the computation of income, the Assessing Officer must be directed to pass a fresh assessment order after considering it under the correct head for all purposes including for the purpose of computation of income for deductions under section 80HHC. It would follow then that the same rule ought to apply also to expenses which are entitled to be deducted. They must be deducted qua/in respect of the correct head of income. In the present case the expenditure incurred to yield dividend under section 80M must be deducted under section 57(i)(iii) of the Act.”
Read the full text of the Judgment below.
Senior Indian Revenue Service Officer Sushil Chandra appointed as the next chairperson of the Central Board of Direct Taxes(CBDT).
The present chairman Rani Singh Nair will retire the end of this month. She was appointed as the chairperson last August.
The Chairperson, CBDT is the senior-most IRS civil servant in the Government of India. The Chairperson of Central Board of Direct Taxes is the ex officio Special Secretary to the Government of India
Sushil Chandra, a 1980 batch officer of Indian Revenue Service (Income Tax cadre), is currently Member (Investigation) of the CBDT.
While setting aside the impugned order, the High Court of Madras recently allowed the assessee a fresh opportunity considering the fact that they have reversed the Input Tax Credit wrongly availed by them for the relevant assessment year.
In the instant case, the assessee approached the High Court impugning the assessment order contending that inspite of the petitioner having given objections to the notice completed the assessment stating that the petitioner has not given any objections.They further produced the copy of the ‘Letter Delivery Book’ to substantiate the stand that the objections were given.
The Court, however, refused to consider the ‘Letter Delivery Book’ as a valid proof since it is not an authenticated proof, as there is no date seal or the seal of the Office of the respondent. Further, it was noticed that the petitioner have reversed the Input Tax Credit wrongly availed by them. In view of this fact, the Court directed the assessing officer to conduct a fresh assessment.
While quashing the recovery proceedings under the Tamil Nadu General sales Tax Act, 1959, the Madras High Court held that, if the property of the assessee was to be brought for sale after his demise, notice to all his legal heirs should have been issued. Further, it was observed that the excess money so collected cannot be set off against the alleged dues of the proprietorship concern having different registration, though it is owned by the assessee.
In the instant case, the Commercial tax Officer has initiated the revenue recovery proceedings against the assessee. When the assessee was expired, the property was brought for auction. After the auction, the excess amount was adjusted towards the amount due by the sole proprietorship concern of the assessee.
The assessee, through his legal heirs, challenged the order raising the following four grounds. Firstly, after the demise of the owner of the property, if the same was to be brought for sale, notice to all his legal heirs should have been issued. Secondly, the impugned auction proceedings itself is vitiated on account of the fact that there was no clear thirty days from the date of publication of the auction notice. Thirdly, it is contended that the first respondent namely, the Commercial Tax Officer is not competent to issue the impugned proceedings and it is only the Assistant Commissioner who is entitled to exercise such powers in terms of Section 29(1) of the Tamil Nadu General Sales Tax Act, 1959. Fourthly, it was contended that M/s.Lakshmi Traders is a separate entity having a separate registration and the amount said to have been recovered out of the sale proceeds from the purchaser could not have been adjusted to the alleged dues of the said proprietorship concern.
The court satisfied that there is no record placed before this Court to show that there was a delegation in the proper manner as required under the statute.Regarding the first ground, it was observed that “the property was owned by late A.K.Lala Lajapathy and admittedly, he was one of the partners of the firm. On his demise, when the property is brought for sale by exercising their rights under the provisions of the Tamil Nadu General Sales Tax Act, all the legal heirs of late A.K.Lala Lajapathy should have been issued notice. The contention raised by the respondent in the counter affidavit in page 3 that they need not inform all the legal heirs is an incorrect stands since the property which is individual property of late A.K.Lala Lajapathy is brought for sale and on the date when it is brought for sale, the owner of the property is no more and he has left behind his widow, two sons and nine daughters. This is also one other inherent defect.”
While accepting the contentions raised above by the assessee, the single bench pointed out that,‘if the property is sold for recovery of the tax dues of A.K.Sivaprakasa Mudaliar and sons, which is a registered dealer, then adjustment could have been made only as against the said dues and there is no jurisdiction for the respondents to adjust the balance amount towards the alleged dues payable by a proprietorship concern namely, M/s.Lakshmi Traders which was a separate entity having a separate registration.”
Read the full text of the Judgment below.
