TaxTMI 
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2019 (7) TMI 125
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....r Appeal by Dt. of CIT(A)'s order AO's order 1-2 1379 and 1380/Ahd/2009 Asstt.Year 2005-06 and 2006-07 Assessee 12.03.2009 12.03.2009 31.12.2017 24.12.2008 3-4 ITA No. 1661, 1662/Ahd/2009 2005-06, 2006-07 Revenue 12.03.2009 12.03.2009 31.12.2007 24.12.2008 5 1064/Ahd/2010 Asstt.Year 2007-08 Assessee 17.12.2010 31.12.2009 6 No.1825/Ahd/2010 Asstt.Year 2007-08 Revenue 17.2.2010 31.12.2009 7 172/Ahd/2012 Asstt.Year 2008-09 Assessee 16.11.2011 31.12.2010 8 No.322/Ahd/2012 Revenue 16.11.2011 31.12.2010 Asstt.Year 2008-09 9 135/Ahd/2015 Asstt.Year 2008-09 Assessee 13.11.2014 Penalty Order 31.12.2010 10 2365/Ahd/2012 Asstt.Year 2009-10 Assessee 22.08.2012 30.12.2011 11 No.2546/Ahd/2012 Asstt.Year 2009-10 Revenue 22.08.2012 30.12.2011 12 No.106/Ahd/2016 Asstt.Year 2010-11 Revenue 30.10.2015 22.02.2013 13 No.548/Ahd/2016 Astt.Year 2010-11 Revenue 30.10.2015 22.02.2013 14-15 116 and 117/Ahd/2016 Asstt.Year 2010-11 and 2011-12 Assessee 30.10.2015 19.11.2015 22.02.2013 14.03.2013 3. First we take appeal of the Revenue in A.Y.2005-06, ....
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....& 4563/Ahd/2007 (Asstt.Year 2003-04 and 2004-05). The ld.DR, on the other hand, relied upon the orders of the ld.AO. 6. On due consideration of the above facts, we are of the view that in order to earn goodwill of the people residing in the neighbor-hood area and to keep social relations with residents, assessee company has to incur certain expenditure, which would ultimately facilitate the assessee's business, otherwise there would be friction or law and order situation which would arise if it adopt continuous unfriendly approach with the residents residing in the surrounding areas. In order to show good gesture, it has repaired certain village roads and given donations during social occasions. To our mind, such incurrence of expenditure are essential in running factory smoothly and the ld.CIT(A) has rightly deleted disallowance. It is also pertinent to note that in the past similar expenditures were claimed, which have been allowed by the ld.CIT(A), and orders of the ld.CIT(A) were upheld by the ITAT. Taking into consideration this consistent approach in the past, we do not see any reason to interfere in the orders of the ld.CIT(A). This issue is decided against the Revenue. Al....
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....e has been no creation of any capital asset. On going through the income and expenditure account and balance-sheet of REGMA, the assets are mainly kept in the bank account and the expenses are for advertisement investigation charges, traveling etc., there is a positive balance left over which is kept in the bank account. The other members besides the assessee are SRF Ltd. of Delhi, M/s. Chemplast Sanmar Ltd. of Chennai, Naveen Flouorine Industries in Mumbai. In short, it is an association on the lines of trade association which look after the welfare of its members and takes up the issues relating to their activities. They call for contributions the basis of projected expense. For this, also correspondence was filed before the Ld. CIT(A) to show that these amounts are requested by circular letters after taking a decision during REGMA meetings. The amounts are duly paid by cheques to Gujarat Flurochemicals Ltd. the association which is based in New Delhi. The details in these correspondences show that the association which is a new one has put away Rs. 5 lakhs which is in a corpus fund and the balance has been kept for meeting earlier expenses back- log and current and projected exp....
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....t has to determine the loss or gain. It made reference to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Woodword Governor India P.Ltd., and Others to demonstrate that such claim was not notional or contingent, rather it was a determined loss/gain. The ld.AO did not accept this contention of the assessee and held that such claim by the assessee is notional one and does not allowable. On appeal, the ld.CIT(A) has allowed such claim of the assessee by following the order of the ITAT passed in earlier years. 13. The ld.counsel for the assessee, at the very outset submitted that the issue in dispute is covered by the order of the ITAT passed in 4563/Ahd/2007 (Asstt.Year 2004-05). He further relied upon the judgment of Hon'ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., 312 ITR 254 (SC). On the other hand, the ld.DR relied upon the orders of the Revenue authority. 14. We have duly considered rival contentions and gone through the record carefully. The issue is that at the end of the financial year, the assessee has prepared a re-statement of outstanding foreign exchange trading liabilities. This liability was in the revenue account. Thereafter, g....
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....ground no.3 in Asstt.Year 2008-09, 2009-10 and ground no.1 in the Asstt.Year 2010-11. The ld.counsel for the assessee, for buttressing his claim, relied upon the orders of the ld.CIT(A) form the Asstt.Year 2005-06 to 2007-08. On the other hand, the ld.CIT-DR relied upon the orders of the ld.CIT(A) from the Asstt.Year 2008-09 to 2011-12. 16. During the course of hearing, we have directed the ld.counsel for the assessee to compile details in tabular form indicating various factors required to be visualized for forming the opinion, whether activities of purchase and sales of shares is to be treated as business activity or simplicitor as investment. On our directions, the ld.counsel for the assessee filed such details in tabular form. The details are also on the record scattered in different orders of the Revenue authorities. They are also available in seven volumes of the paper book filed by the ld.counsel for the assessee. For the facility of reference, and taking into consideration the relevant details in more scientific manner, we have directed the assessee to submit such details in tabular forms. It is also pertinent to note that the facts on all vital points are common except v....
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....le shares of Rs. 4.9 crore were purchased -Tribunal found that assessee had regularly dealt in purchase and sale of share which indicated period of holding to be very short and that he earned only a meager amount of dividend of Rs. 21,952 while gains from sale of shares was Rs. 65.45 lakh - whether Tribunal. After analyzing turnover of shares, nature of transactions i.e. duration ot holding, proportion of income derived as dividend to investment made, had rightly held that income arising from sales of shares was assessable as business income - Held, yesfparas 7 & 8] [infavour of revenue]. 2). New Jehangir Vakil Mills Co.Ltd. Vs. CIT [49 ITR 137 (Supreme Court)] Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - chargeable as - Assessment year 1945-46 - Whether extent to which a decision given bv ITO for one assessment year affects or binds a decision for another year, doctrine of res judicata or estoppels by record does not apply to such decisions - Held, yes - Whether circumstance that in earlier assessment relating to 1943 assessee was treated as investor, would not estop assessing authorities fr....
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....under head 'Profits and gains of business or profession' - Held, yes, Whether merely because shares were acquired by assessee from primary market and assessee had to wait for two to three months for allotment process, transaction could be held to be a non-business transaction - Held, no -Whether fact that shares purchased from secondary market were transferred in name of assessee, would make transaction as non-business transaction - Held, no 6. Smt.Harsha N.Mehta Vs. DCIT [ 43 SOT 332 (Mumbai)] Section 28(i), read with section 45, of the Income-tax Act, 1061 - Business income - Chargeable as - Assessment year 2005-06 - During relevant assessment year, assessee filed her return showing income from sale and purchase of shares under head 'Capital Gains' - Assessing Officer did not agree with treatment given by assessee and treated said income as business income - On appeal, Commissioner (Appeals) partly accepted assessee's claim - On instant appeal, it was seen that during relevant period assessee had made 37 transactions in 35 scrips - It was also noticed that shares were held for a few days and in very few cases for a few months but in no case period of hol....
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....s of purchase and sale of shares as speculation business. It is true that S.73 relates losses but legislative intention is clear that purchase and sale of shares by a company (other than excluded categories) has to be treated as speculation business. Accordingly, there cannot be dispute to treat impugned transactions as business. 3. Keeping in view above mentioned judicial pronouncements, in light of facts of the extant case as discussed in the assessment order and more so, in view of Explanation to S.73, it immensely transpires that the action of the A.O. to treat impugned shares/mutual fund transactions as business activity is justified. Accordingly, it is humbly prayed that action of the A.O. may kindly be confirmed." 16. On the other hand, apart from the details compiled in tabular form, the ld.counsel for the assessee has also relied upon a large number of decisions in support of his contentions and copies of such decisions are being placed in the paper book from pages 100 to 187. He has also placed on record CBDT circular No.6 of 2016 at page no.150 to 151. 17. With the assistance of the ld.representatives, we have gone through the record. The issue whether gain from s....
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....e substantial transaction in that item, if would indicate trade. Habitual dealing in that particular item is indicative of intention of trade. Similarly, ratio between the purchases and sales and the holdings may show whether the assessee is trading or investing (high transactions and low holdings indicate trade whereas low transactions and high holdings indicate investment). (4) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation its value? Former will indicate intention of trades and latter, an investment. In the case of shares whether intention was to enjoy dividend and not merely earn profit on sale and purchase of shares. A commercial motive is an essential ingredient of trade. (5) How the value of the items has been taken in the balance sheet? If the items in question are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value (whichever is less), it will indicate that items in question are treated as stock-in-trade. (6) How the company (assessee) is authorized in memorandum of association/articles of association? Whether for trade or for in....
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....on of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline. (b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently. (c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive. (d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation. ....
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.... Rs.NIL Rs. 31,565/- 2007-08 Rs. 27,58,400/- - 2008-09 Rs. 10,19,61,651/- Rs. 27,58,400/- 2009-10 Rs. 2,68,08,789/- Rs. 10,19,61,561/- 2010-11 Rs. 15,59,83,907 Rs. 2,68,08,789/- 2011-12 Rs. 60,75,000/- Rs. 15,59,83,907/- 22. It is further submitted that the assessee has made the investment without having recourse to borrowed funds. The entire funding for shares/securities has been made out of capital reserves and surplus available from time to time. 23. So far as frequency of purchase and sale of securities are concerned, it is submitted that the following details demonstrate bifurcation of total investment, purchase and sales in respect of shares and mutual funds etc. in the respective assessment years. (Rs.in crores) Investment in Total Investm ent Purchases of Total Purchas e Sales of Total Sales Asstt. Year Mutual funds & bonds Strategic Investment Shares Mutual Funds And Bonds Shares Strategic purchase Mutual fund & Bonds Strate gic invest ment Shares 2005-06 124.79 76.91 23.01 224.71 507.03 45.31 552.35 551.35 5.19 51.92 608.48 2006-07 164.15 78.01 45.53 ....
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....3.07 crores, Rs. 4.60 crores, Rs. 6.47 crores, Rs. 5.40 crores, Rs. 3.15 crores for the Asstt.Years 2005-06 to 2009-10 respectively. 26. It is submitted that during the year, the company has earned capital gains from mutual funds, strategic investment and equity shares etc. Bifurcation of such capital gain is as under: (Rs.in crores) Asstt. Year Gain from Mutual Fund Gain/Loss from Strategic investment Gain from Equity shares Total capital gain 2005-06 24.32 (including LTG Rs. 10.17) 7.61 2.98 19.69 2006-07 3.47 (including LTG Rs. 1.22) 52.81 8.07 64.63 2007-08 11.46 (including LTG Rs. 2.73) - 26.67 38.12 2008-09 11.87 (including LTG Rs. 7.64) - 48.04 59.91 2009-10 During the year, the company has incurred loss of Rs. 7.33 cores on sale of investments. 2010-11 6.29 (including LTG Rs. 6.29) - (-) 6.01 Capital loss 0.28 2011-12 37.37(including LTG Rs. 32.59) - 5.67 43.04 27. The ld.counsel for the assessee submitted that in the books of accounts, the assessee has valued the shares/securities at cost and not at lower of cost or market value. It is submitted that the main objects of the memorandum of....
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.... others in the case of Alembic Ltd. Vs. DCIT, order dated 9.12.2016 (ITAT, Ahmedabad.) viii) Gajjala Madhusudhan Reddy Vs. ITO, 39 taxmann.com 157 (ITAT, Hyderabad) ix) DCIT Vs. UMIL Share & Stock Broking Services Ltd., 96 taxmann.com 168 (Kol-Trib.) x) PCIT Vs. Bhanuprasad D. Trivedi, HUF, 87 taxmann.com 137 (Gujarat) xi) PCIT Vs. Bhhanuprasad D. Trivedi HUF, 94 taxmann.com 114 (SC) He has placed on record copies of the above decisions. 30. We have duly gone through all these details. In the first test i.e. how to find out intention of the assessee that it has purchased shares for investment purpose, the assessee has pointed out that in the books of accounts, it has treated these shares in the investment account. It has not valued the shares at the end of the year at cost or market value whichever is less, rather it has valued them at the cost of acquisition. This treatment in the account is being given when the shares are being purchased in investment account. The assessee has also pointed out that provisions made for diminution in value of investment has been added back in the computation of income. While taking note of the assessee's submissions submitted in ta....
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....ed in the light of Hon'ble Bombay High Court decision in the case of CIT Vs. Reliance Utilities & Powers Ltd., 313 ITR 340 (Bombay), then it would reveal that one has to draw an inference that the assessee must have made investment out of its own funds. The ld.CIT(A) cannot reject this argument simply for the reason that the assessee has incurred interest expenditure of Rs. 27.64 cores. But this expenditure is attributable to manufacturing activities also. The ld.CIT(A) ought to have visualized the complete details of funds before assigning this reasoning for differing with the ld.CIT(A) in other assessment years. 32. Next reasons which emerges out from the order of the ld.CIT(A) in the Asstt.Year 2008-09 is that there were large number of share transacted by the assessee including in terms of scrip as well as in terms of transactions. The ld.CIT(A) also observed that if weighted average holding period is taken into consideration, then for the purpose of short capital gain it is 86 days. The ld.CIT(A) also took note of the purchases made by the assessee in the Asstt.Year 2003-04 to 2008-09. He observed that since there is a rising trend in purchase of the shares, it shows that th....
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....ses have already been considered by us. Therefore, the ld.CIT(DR) could not buttress the reasoning of the ld.CIT(A) in the Asstt.Year 2008-09 which has been followed in subsequent years with help of these case laws. We have considered specific reasons assigned by the ld.CIT(A) for differing with conclusions of his predecessor in earlier years. In view of the above discussion, we hold that gain arising on sale of shares or mutual fund is to be taxed in all these years as long term capital gain/short term capital gain. Orders of the ld.CIT(A) in the Asstt.Year 2005-06, 2006-07 and 2007-08 are upheld, whereas the finding of the ld.CIT(A) in the Asstt.Year 2008-09 upto the Asstt.Year 2011-12 are set aside. The finding of CIT(A) in Asstt.Year 2008-09, 2009-10 and 2010-11 that on sale of mutual funds, capital gain is to be assessed in the hands of assessee, is upheld, and ground of Revenue i.e. ground no.3 in Asstt.Year 2008-09, 2009-10 and ground no.1 in the Asstt.Year 2010-11 are rejected. Similarly, all the grounds of Revenue in the Asstt.Year 2005-06 to 2007-08 challenging the finding of the ld.CIT9A) on this issue are rejected; whereas all the grounds of assessee in all the remain....
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....- on account of interest expenses. He observed that if at any appellate stage the same is held taxable under the heading "capital gain" then disallowance under section 14A should require to be made and this disallowance would be worked out accordingly. The ld.CIT(A) has held that profit on share transaction is to be assessed as capital gain. We have upheld this finding of the ld.CIT(A) while rejecting the ground of appeal taken by the Revenue in the above discussion. Therefore, we are required to adjudicate what amount ought to be disallowed under section 14A of the Act. A perusal of the record would indicate that the ld.AO has made disallowance under two heads; (a) out of professional fees, and (b) out of interest expenses. As far as out of professional fee of Rs. 62,56,732/- is concerned, this disallowance has been confirmed by the ld.CIT(A) at Rs. 60 lakhs. It has been challenged by the assessee in ground no.4 of ITA No.1379/Ahd/2009. We have discussed this issue while dealing with the issue, whether the assessee was indulged in share trading or its activities were of investments. We have confirmed this disallowance, after taking note of the submissions made by the ld.counsel fo....
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....t of Hon'ble Bombay High Court in the case of Reliance Utilities and Powers P.Ltd. (supra) on the basis that the assessee was having more interest free funds, than the investment. In this situation, part expenditure cannot be culled out unless a direct nexus has been demonstrated. It is neither discernible in the assessment order nor in the CIT(A)'s order. We have extracted relevant finding of the ld.CIT(A). In view of the above discussion, we are of the view that this disallowance is not discernible. Consequently, ground of appeal raised by the Revenue is rejected, whereas ground of appeal raised by the assessee is allowed. The disallowance of Rs. 19,83,858/- stands deleted. No other ground remained in the appeal of the Revenue for the Asstt.Year 2005- 06. Therefore, ITA No.1661/Ahd/2009 stands dismissed. 40. Now we take remaining grounds of assessee's appeal i.e. ITA No.1379/Ahd/2009 for the Asstt.Year 2005-06. 41. In the first ground of appeal, the assessee has pleaded that the ld.CIT(A) has erred in confirming the addition of Rs. 17,86,644/- which according to the ld.Revenue authorities accrued on account of interest on refund. 42. The ld.counsel for the assessee raised a....
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....d in confirming the disallowance of Rs. 9,883/- which has been disallowed out of sundry balance written off. The ld.counsel for the assessee did not press this ground of appeal on account of smallness of the amount involved therein. Accordingly, it is rejected. 46. Ground No.4. In this ground, grievance of the assessee is that the ld.CIT(A) has erred in confirming the disallowance of Rs. 60 lakhs out of expenses of professional fees. This ground is inter-connected with ground no.2 of assessee's appeal i.e. ITA No.1380/Ahd/2009 for the Asstt.Year 2006-07. The grievance of the assessee in both the years relates to disallowance of Rs. 60 lakhs (each year) out of the expenses of professional fees. We have considered this issue while dealing with the ground agitated on the ground that profit on sale of shares is required to be assessed as capital gain or business income. We have upheld disallowance in the Asstt.Year 2005-06. Once capital gain is required to be assessed on sale of shares then expenses attributable to exempt income are required to be disallowed under section 14A of the Act. We have discussed this issue, while disposing of ground no.3 of the Revenue's appeal for the Asst....
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....the ld.CIT(A) has deleted this disallowance. We find that gross investment by the assessee in the Asstt.Year 2006-07 is of Rs. 53,081 lakhs. It has reserves & surplus of Rs. 71,153 lakhs. Thus, it has far more interest free funds than the investment. We find that the ld.CIT(A) has noticed the profit earned during the year at Rs. 97 crores. Compensation received under Montreal Protocol at Rs. 8.68 crores. The ld.CIT(A) thereafter made reference to the decision of Hon'ble Bombay High Court in the case of Reliance Utilities & Power P.Ltd. (supra) and observed that if the share capital and reserves & surplus including profit for the current year are higher than the amount of investment, no disallowance is required out of interest expenditure. We have upheld verbatim finding in the Asstt.Year 2005-06 in the foregoing paragraphs. Therefore, taking into consideration our discussion on this issue in the Asstt.Year 2005-06, we do not find any merit in this ground of appeal. It is rejected. No ground remained in the appeal of the Revenue in the Asstt.Year 2006-07. It is dismissed. 50. Revenue's appeal in the Asstt.Year 2007-08 i.e. ITA No.1825/Ahd/2010 and 1064/Ahd/2009 (cross appeals) 5....
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.... which according to the CIT(A) comes to Rs. 1,45,21,368/-. The ld.CIT(A) further found that the assessee itself has disallowed Rs. 25 lakhs under this head. She confirmed the disallowance of Rs. 1,20,78,214/-. 56. Before us, the ld.counsel for the assessee contended that the decision of Daga Capital Management P.Ltd., (supra) has been reversed by the Hon'ble Bombay High Court. It is reported in 228 ITR 81. Rule 8D has been made applicable from the Asstt.Year 2008-09 and not from retrospective effect. Thus, disallowance cannot be worked out on the basis of formula. When the ld.CIT(A) has decided the appeal, the decision of Hon'ble Bombay High Court has not come. He further contended that a perusal of suo motto disallowance made by the assessee would indicate that it has already disallowed a sum of Rs. 2,12,75,647/- which consisted of consultancy charges of Rs. 84,18,000/- and other expenses of Rs. 25.00 lakhs. The assessee has paid security taxes, PMS fees etc. On the other hand, the ld.DR relied upon the order of the AO. 57. We have duly considered rival submissions and gone through the record carefully. It has been demonstrated before us that gross investment made by the asses....
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.... for deduction, the quantum of deduction was to be worked out with reference to the market rate of electricity generated by the assessee, and not at the rate claimed by it. The assessee had claimed deduction amounting to Rs. 2,91,87,340/- on the basis of purchase price of power from GEB i.e. at the rate of Rs. 4.72 per unit. The AO has held that it was not entitled for deduction. In case it is to be held that deduction is admissible then, he reduced quantum by adopting the rate at Rs. 2.36 per unit of power, which according to the AO is the average rate at which GEB purchased power from different companies. 63. Dissatisfied with the disallowance the assessee carried the matter in appeal before the ld.CIT(A) and contended that similar disallowance was made in the case of CIT Vs. Alembic Ltd. and CIT Vs. Ahmedabad Manufacturing & Calico Printing Co. and others. The Tribunal has allowed deduction to the Alembic Ltd. in the Asstt.Year 2003-04. Copy of the order of the Tribunal was placed on record. The ld.CIT(A) has allowed deduction. 64. At the outset, the ld.counsel for the assessee contended that in assessee's own case for Asstt.Years 2012-13 and 2013-14, the Tribunal has allowe....
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....ra). It further rejected the contentions of the assessee that the identical issue was decided by the ld.CIT(A) in the assessment year 2011-12 and the matter is pending before the Tribunal. Thus, according to the DRP, the issue has not attained finality therefore, the deduction under section 80IA cannot be granted on the enhanced amount claimed by the assessee during the assessment proceedings. With regard to the assessment year 2013-14, the ld.DRP has observed that there is a little change in the statutory provision by virtue of section 80IA(8). The arm's length price of the goods sold by the assessee in the alleged captive power plant has to be determined. The ld.DRP thereafter observed that the TPO has determined value of the goods and services sold by its eligible units. According to the TPO captive power plant and electricity distributing companies are to be pitted at different pedestal. According to the DRP, there is a material difference between captive power plant as a seller and distribution/transmission entity. Thus, differences are both in terms of functions performed as well as asset used. In the case of distribution and transmission entities, apart from assets used f....
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....ld.DRP after putting reliance on the judgment of Hon'ble Supreme Court in the case of Geotze India Ltd (supra) did not accept the claim of the assessee in the assessment year 2012-13. It has been brought to our notice that such claim can be made even before the ld.DRP in the form of objection. A reference to the decisions of ITAT, Mumbai and Bangalore Benches have been made; Asian Paints Vs. DCIT, Mumbai 88 taxmann.com 677, and Himalaya Drug Co. Vs. DCIT, Bangalore, 48 taxmann.com 65 (2017). The ld.counsel for the assessee also put reliance upon the decision of the Hon'ble Gujarat High Court in the cases of Mitesh Impex, 270 CTR 66. This decision propounds that when the taxability of the assessee is going to be effected, then it can raise a fresh plea before the appellate authorities. Taking a leaf from this reasoning, ITAT, Mumbai and Bangalore have propounded that fresh claim can be made even before the DRP. Thus, respectfully following these decisions, we uphold that in the assessment year 2012-13, the DRP ought to have entertained the claim of the assessee. 31. So far as the issue on merit is concerned, the Hon'ble Gujarat High Court in the case of Gujarat Alkalies and Chemi....
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....ise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs. 5.32 ps. per unit as was done by the Revenue authority. 6. Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 7. We may notice that the Tribunal did not accept the contention of the assessee that the electricity is neither goods nor services and that, transfer of electricity, therefore, would not be covered under....
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..... To our mind sum of Rs. 4.51 per unit of electricity only represented cost of electricity generation to the assessee and not the market value thereof. It is not in dispute that the GEB charged Rs. 5 per unit for supplying electricity to other industries including non eligible unit of the assessee itself. Tribunal therefore, while adopting the said base figure and excluding excise duty therefrom to work out Rs. 4.90 as the market value of the electricity generated by the assessee, to our mind, committed no error. It can be easily seen that if the assessee were to supply such electricity or was allowed to do so in the open market, surely it would not fetch Rs. 4.51 per unit but Rs. 5 per unit as was being charged by GEB. Since the excise duty component thereof would not be retained by the assessee, Tribunal reduced the said figure by the nature of excise duty and came to the figure of Rs. 4.90 to ascertain the market value of electricity generated by the eligible unit and supplied to non eligible business of the assessee. No error was committed by the Tribunal. No question of law therefore, arises. Tax Appeal is dismissed." 5. Issue once again reached the Division Bench of this C....
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.... at the time of redemption at the end of the 5th year, i.e., in the FY 2011-2012, the shares would be redeemed at a premium of Rs. 35/- per share. Instead of carrying 5% dividend as earlier, the new preference shares carried 1% dividend and additional premium of Rs. 47- per share for every year during which the share was not redeemed. (ii) IGSL redeemed the 18,83,000/- preference shares of Rs. 100/- each at the face value for total consideration of Rs. 18.83 crores. (iii) This redemption was financed by the receipt of equivalent sum of Rs. 18.83 crores from the assessee as at (i) above. (iv) The appellant had paid Rs. 18.83 crores for subscribing the 5% preference shares in 2002 and during this previous year it received back the same amount of Rs. 18.83 crores by way of redemption. Thus, there was no gain or loss per se in the transaction. The only loss was on account of indexation of the cost of acquisition. (v) This long term capital loss has been carried forward to the subsequent years and not been set off against any taxable income." 67. The AO disallowed the claim of the assessee by observing that it holds 49.50% shares in Inox Global Services Ltd. and other grou....
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....hey have been redeemed by subscribing fresh cumulative redeemable preferential shares. In fact, there is no loss to the assessee-company except loss computed on account of indexation. In order to get the return on old investment, it has redeemed the shares by subscribing fresh shares with better return and term. It is decision for the benefit of the company. Simply because it is reducing taxable income does not mean that it will become bogus. After considering the finding of the ld.CIT(A), we do not find any error in it, and this ground of appeal raised by the Revenue is rejected. 69. Ground no.8: This ground is connected with ground no.2 of the assessee's appeal and ground no.4 of Revenue's appeal in Asstt.Year 2008-09. Revenue has pleaded in these ground that the ld.CIT(A) has erred in deleting addition of Rs. 77,23,66,644/- and Rs. 59,74,86,404/- in Asstt.Year 2007-08 and 2008-09 respectively. These amounts were added by the AO on account of disallowance of depreciation with aid of section 40(a)(ia) r.w.s. 194C of the Act. On the other hand, the assessee has pleaded that provisions of section 40(a)(ia) of the Act does not apply to the purchase of capital assets and consequenti....
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....ucted at source in respect of payment for the supply of such wind mills by the contractor M/s Vestas Wind Technologies (I) Pvt. Ltd (VWTIPL). The provisions of section 40a(ia) specify that certain amounts shall not be allowed as a deduction in computing the income chargeable under the head "profits and gains of business and profession", unless tax has been deducted from such payments at the prescribed rates. Such amounts include interest, commission, brokerage, rent, royalty, fees for professional or technical services, and amounts payable to resident contractor or a sub-contractor for carrying out any work on which tax was deductible at source under Chapter XVII-B. Chapter XVII-B deals with collection and recovery of tax. Part B of this chapter deals with deduction of tax at source. Section 194 C deals with payments to contractors. 12.3 In the instant case, clearly the impugned payments were not in respect of payment of interest, commission, brokerage, rent, royalty, fees, etc., but related to payments made to a supplier/contractor. Hence, the only applicable portion of the section would be in respect of "carrying out of any work by a contractor or subcontractor on which tax is....
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...., income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified person, where the ownership of such goods remains at all times with the Government or such person, will also fall within the purview of this section. The same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by the Government or any other specified person and the fabrication work is done by a contractor. (b) Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section. " 12.7 Thus, it has been clearly stated by the Board that the guidelines relating to the provisions of tax deduction at source u/s 194C would not cover contracts for sale of goods, but would only be confined to contracts for fabrication of article ....
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.... assessee before commencement of the erection contract and assessee had entered the same in its stock register before issuing the same for erection, it was a contract of sale not attracting s. 194C - Assessee having already deducted tax at source qua the erection portion, provisions of s.194C shall not apply to remaining sale portion " 12.9 Similarly, this issue was also considered by the ITAT Delhi Bench in the case of Haryana Power Generation Corporation. In that case too the issue related to whether TDS provisions were applicable in the case of a composite contract for supply of equipment and erection and commissioning of the equipment. The Delhi Bench held as under (Head notes) :- "TDS - Under s. 194C - Composite contract or separate contracts - Primary and dominant object of assessee being to purchase the material, i.e. two ESP s for its power plant, the contract for supply of material, freight, insurance and supply of spare parts constituted separate contract from, the. contract for civil work .of erection .and , .. commissioning of the plant though there is only one common purchase order - AO was not justified in treating the assessee-in-default by treating the two con....
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....on of customer by using material purchased from a person other than such customer. If an assessee failed to deduct TDS on payment pertains to such work, then the expenses will be disallowed under section 40(a)(ia) of the Act because the assessee failed to deduct TDS. The issue before us is, whether the assessee has entered into two independent contracts; one for supply of goods, and other for erection and commissioning of wind mills. The ld.CIT(A) has made reference to the order of the ITAT, Hyderabad Bench in the case of Power Grid (supra) and observed that facts of this case are akin to case on hand. A perusal of the definition of the "work" provided in the Act would indicate that if equipments are being manufactured as per design, engineering etc. supplied by the suppliers, which would not result in a work contract. Mores so, even if it is according to the design supplied by the assessee, but material was not purchased from the assessee, then also equipments supplied by the supplier would not fall in the work contract. The assessee has emphasised that it has purchased 14 numbers of wind turbine generators. These were not manufactured on the basis of supplies made by the assessee....
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....ar 2008-09. Therefore, we deem it appropriate to take note of finding of the CIT(A) in the Asstt.Year 2007-08, which read as under: "13.2 I have considered the submissions of the Id. AR and the facts of the case. I find that the AO has noted that the invoices raised by McKinsey & Co in respect of consultancy services provided by them were in the name of M/s Inox and not in the name of the asessee. However, it is seen that the appointment letter dt. 4.9.2006 by which McKinsey & Co were appointed as consultant for identifying suitable business opportunities for growth of the assessee company as well as the group company, has been signed by Shri Deepak Asher, Group Head (Corporate Finance) on the letterhead of the assessee company (GFL). The discussion papers were also addressed by M/s McKinsey & Co to GFL. The report was also submitted to GFL. Hence the conclusion of the AO that the consultancy was unrelated to the assessee (GFL) is not strictly speaking correct. The assessee's Group is known as Inox Group. Therefore., it would not be correct to say that the entire expenditure was unrelatable to the assessee company. Subsequent to the submission of the report by McKinsey & Co,....
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....essee, as a part of the study, it was also suggested by the "MC" that to strengthen the competitive advantage of setting up and operating wind farms, "GFL" may consider manufacturing of its own wind turbine generator sets. Now, the question before us is, how it is to be visualized that this consultancy report was not obtained by the assessee in connection with its business. The AO has assigned two reasons; the consultancy fees were paid towards a new business by another company of the assessee and did not relate to the present business of the assessee, and job assigned to "MC" was not complete in the present financial year. It is pertinent to note that except address of "Inox" on two invoices, there is no other material either discussed by the AO or by the CIT(A) exhibiting that this consultancy was meant for other companies of the group or they have commenced any line of business contemplated in the report. There is no evidence of payment of these charges by any other group company. The CIT(A) basically agreed with the assessee and held that AO is not correct in construing that this report is related to the assessee. There is no specific material with the AO nor he assigned any re....
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....penditure deserves to be artificially worked out for disallowance, because principal amount has been treated as for the purpose of business and permitted the assessee for capitalization of such expenditure being pre-operative expenditure. Therefore, in our opinion, the ld.CIT(A) has not committed any error while deleting the disallowance. ITA No.172/Ahd/2012 (Asstt.Year 2008-09): 81. Ground No.1: In this ground the assessee has pleaded that the ld.CIT(A) has erred in confirming the disallowance of long term capital loss of Rs. 1,75,31,935/-. 82. Brief facts of the case are that the assessee has entered into an agreement on 1-2-2008 with Humsay Information Services P.Ltd. (HISPL) for sale of 50.00 lakhs fully paid up equity shares and 18,83,000/- 1% cumulative preference shares of IGSL along with other entities. Out of the above, the assessee was owner of 24,74,930 equity shares (value at Rs. 10/-) and 18,83,000 preferential shares (face value of Rs. 100/- paid up value Rs. 64/-). The assessee had claimed a long term capital loss of Rs. 1,75,31,935/- on sale of shares of IGSL. The AO rejected its claim on the ground that though agreement to sell was executed on 1.2.008, but it....
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....008. Thus, the terms & conditions of the Share Purchase Agreement dt. 1.2.2008 were not complied with. In fact, the remaining conditions in this Share Purchase Agreement including schedule of transfer of balance shares and also receipt of additional amount of Rs. 97,97,500/- by way of revenue sharing arrangement (as per para 3.5 of the Share Purchase Agreement) etc. was also not adhered to and in fact, the Share Transfer Agreement was not given effect to in substance. Since, the contract of sale, i.e Share Purchase Agreement dated 1.2.2008 was not followed in substance and the IGSL shares were actually transferred in FY 2008-09 i.e. on 9.4.2008, the date of transfer cannot be accepted to be in FY 2007-08. It is held that AO was justified^ in not allowing capital gains loss in respect of shares of IGSL in AY 2008-09. 5.2.1 However, there is merit in appellant's contention that addition of Rs. 1,75,31,935/- under the head 'business income' was not required and instead long term capital gains are to be increased to the extent set off was claimed in this year i.e. Rs. 45,79,704/- and balance loss of Rs. 1,38,00,981/- is not allowed to be carried forward, due to transacti....
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....come of Rs. 13,47,01,641/- which was claimed as exempt from tax. It emerges that the assessee has shown gross investment of Rs. 51,861 lakhs in shares/mutual funds. This activity of the assessee has been upheld as investment which would give rise to long term capital gain or short term capital gain to the assessee on sale of shares/mutual funds/bonds. The AO sought explanation of the assessee to demonstrate expenses relatable to earning of such income have been disallowed by the assessee. The assessee has suo moto disallowed a sum of Rs. 2,59,75,022/-. Break-up of this amount has been given at page no.12 of the assessment order. It reads as under: Sr. No. Particulars Amount (Rs) I) Securities Transaction tax I2985I2S 2) Demat Charges 1423333 3) PMS fees 4994001 4) Consultancy Fees for Equity Research Services 1572760 5) Out of other expenses- As estimated by Management 5000000 TOTAL 25975022 88. The ld.AO was not satisfied with the calculation made by the assessee. He worked out disallowance of Rs. 16,04,08,332/-. Since the assessee itself has made disallowance of Rs. 2,59,75,022/- he added difference i.e. Rs. 16,04,08,332/- minus R....
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....an be drawn that such investments have been made out of surplus fund. Therefore, no interest expenditure is to be allocated for making disallowance under section 14A of the Act. 91. As far as disallowance under clause (iii) of Rule 8D on account administrative expenditure are concerned, the ld.AO has worked out 0.5% of the average investment at Rs. 2,69,25,307/-. This amount deserves to be set off against the expenses suo moto disallowed by the assessee at Rs. 2.59 crores; whereas the activity of the assessee is being treated as "investor" and on sale of shares profit is to be assessed under the head "capital gain", then all these expenditure viz. security transaction tax, consultancy fees and other expenditure will not be admissible. This amount can take care qua the administrative expenses. Therefore, we confirm the addition worked out by the AO at Rs. 2,69,25,307/-, but out of this expenditure a sum of Rs. 2,59,75,022/- be set off. This ground raised by the assessee is partly allowed. Ground No.5 92. This ground of appeal raised by the assessee is not in consonance with Rule 8 of the ITAT Rules. It has seven sub-grounds. In brief, the issue involved is, whether on valve po....
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....d. 98. In ground no.3: Revenue has pleaded that the ld.CIT(A) has erred in holding that adjustment made on account of disallowance under section 14A cannot be made in the book profit under section 115JB of the Act. The ld.counsel for the assessee at the very outset submitted that Special Bench of the Tribunal in the case of ACIT Vs. Vireet Investments P.Ltd., 165 ITD 27 (SB) has held that no adjustment on account of 14A disallowance can be made in the book profit for the purpose of section 115JB. It is also pertinent to note that we have dealt with this issue in the Asstt.Year 2012-13 and 2013-14. Following the decision of the Special Bench, we have held that no such amount can be included in the book profit. Therefore, we do not find any merit in this ground of and others raised by the Revenue. Hence, this appeal is rejected. ITA No.548/Ahd/2016: 99. This appeal is directed at the instance of the Revenue against order of the ld.CIT(A) dated 31.12.2015 passed for the Asstt.Year 2010-11. Originally, the ld.CIT(A) has decided the appeal of the assessee vide order dated 30.10.2015. Thereafter an application under section 154 of the Act was moved for rectification of certain appa....
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....ome or receipts, amounts as computed with the formula = A x B / C A Interest : Rs. 49,99,97,000/- B Average investment Rs. 526,10,38,500/- C Average assets Rs. 1794,35,02,000/- Rs. 49,99,97,000 x Rs. 526,10,38,500 : Rs. 14,65,99,223/- Rs. 1794,35,02,000 (iii) 0.5% of Average Investment (0.5% on Rs. 526,10,38,500/-) : Rs. 2,63,05,193/- Total Disallowance : Rs. 18,00,80,159/- Since the assessee itself disallowed an amount of Rs. 71,75,743/-, remaining disallowance of Rs. 17,29,04,416/- is added to the total income of the assessee." Asstt.Year 2010-11: 103. With the assistance of the ld.representatives, we have gone through the record carefully. As observed earlier while dealing with identical issue, we find that the assessee has placed on record details of gross-investments, dividend income as well as surplus interest free fund available with it. A perusal of these details would indicate that the assessee has made gross investment of Rs. 51,861 lakhs, Rs. 77,715 lakhs and Rs. 58,453 lakhs in the Asstt.Years 2009-10, 2010-1 and 2011-12 whereas it has surplus fund of Rs. 1,23,083 lakhs, Rs. 1,52,831 lakhs and Rs. 1,74,721 lakhs. It suggest....
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....of the assessee is that value of such power be calculated at the rate at which the assessee has been purchasing power from GUVNL. 108. We have dealt with this issue in earlier assessment years as well as Asstt.year 2012-13, 2013-14. These grounds of appeals are allowed in the same term and the AO is directed to follow order of the ITAT in the Asstt.Year 2012-13 and 2013-14. 109. In ground No.3 in the Asstt.Year 2009-10 (ITA No.2365/Ahd/2012) the issue agitated in this ground is, whether on sale of shares/ mutual fund capital is to be assessed as business income. 110. We have already decided this issue. 111. No other grounds have been pressed. Therefore, the appeal of the assessee is allowed partly. 112. In the remaining ground no.4 in ITA No.117/Ahd/2016 for the Asstt.Year 2011-12, the assessee has pleaded that receipt of proceeds on sale of carbon credit deserves to be treated as capital receipt and requires to be excluded from taxable income. This ground is common with additional ground of appeal taken by the assessee in the Asstt.Year 2007-08, 2008-09 and 2009-10. In the Asstt.Year 2007-08, 2008-09 and 2009-10, the assessee has moved an application for permission to ra....
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....ions, perused the material available on record and gone through the orders of the authorities below. The additional ground stands already admitted. The duty of the ITAT is to ensure that fair, just and proper assessment is made. Merely because the assessee was of the opinion that the receipt was Revenue in nature cannot act as an estoppels against it when the law as interpreted by Hon'ble High Courts takes a view at variance with the assessee. The law is settled that the Revenue cannot stand benefited from a tax which is not leviable in right earnest. We find merit in the contentions of the Id. Counsel for the assessee that the Hon'ble Karnataka High Court in the case of Subhash Kabini Power Corporation Ltd (supra) and the Hon'ble Andhra Pradesh High Court in the case of My Home Power Ltd (supra), have taken a view that the carbon credit realization is capital in nature. No contrary judgment is cited. Therefore, respectfully following these judgments, this additional ground of the assessee in respect of realization of carbon credit as capital receipt is allowed. Thus, this additional ground is accordingly allowed." 115. Against this order, Revenue went in appeal befor....
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....uring the production of HCFC-22, waste gas called HFC-23 is generated. * For each ton of HCFC-22 produced, approximately 2.9% of HFC-23 is generated. HFC-23 is a greenhouse gas (GHG) which has Global Warming Potential of 11,700 of CO2 per ton of HFC- 23. * GFL's CDM project consists of incinerating HFC-23 instead of allowing it to be vented into the atmosphere, and thereby reducing GHG emissions * CERs awarded = Tones of GHG reduced *GWP of GHG * In the year 2005-2006, Gujrat Fluorochemicals Limited (GFL) has implemented a project for greenhouse gas emission reduction by thermal oxidation of the waste gas HFC-23 in India under Clean Development Mechanism of Kyoto Protocol. * GFL has installed, and operates and maintains a HFC-23 collection and thermal oxidation system (TO Plant) to incinerate HFC-23. The thermal oxidation system enabled GFL to avoid HFC-23 emissions (GHG emissions), which, in the absence of the project activity, would have been vented into the atmosphere. * Upon voluntary incineration of HFC-23, emission reduction is achieved and CERs are issued to GFL after complying with the specified monitoring plan approved by the UNFCCC. CERs are issued i....
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....cer on the issue. A copy of the said remand report was provided to us and we were asked to make our submissions on the said remand report. We have made our detailed submission dated 02-01-2015 to the CIT(A). The copy of the said submission is enclosed for ready reference in which we have provided our replies to the AOs observations in the remand report and the entire issue is discussed in detail. We rely on the same. Therefore, in view of the above it is requested that at the time of assessment, carbon credit revenue of Rs. 441.69 crores credited in the profit and loss account, net of expenses, may please by excluded, being a capital receipt and not liable to tax on the basis of various ITAT orders and High Court decision in the case of My Home Power Limited. Enclosures: 1. Note on Carbon Credit. 2. Copy of the remand report dated 25.11.2014 for A.Y. 2010-11 3. Copy of the reply dated 02.01.2015 submitted to CIT(A) in response to above remand report during appellate proceedings for A.Y. 2010-11. 24. Discussion and Direction of DRP; : 24.1 It is seen from draft order that issue is not discussed in the draft assessment order, since the claim was made by the asses....
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....e hands of the appellant, even if it is treated as a capital receipt then also it will be taxable in the hands of the appellant as income from capital gain on account of transfer ofCERs. This is due to the fact that in the case of the appellant, the cost of acquisition of CERS has already been determined. Thus, even if the appellant's contentions are accepted, it is to be held that these CERS are capital assets in the hands of the appellant and are having determined cost. Under such situation, the receipt received on account of transfer of such capital assets will be taxable in the hands of the appellant as short term or long term capital gain. Since, in the case of the appellant, all such CERS have been transferred within three years of date of acquisition of fire same, hence the entire sale consideration net of expenses is taxable as short term capital gain. Accordingly there will be no difference on the tax to be levied on the income of the appellant under such situation also. Thus in the alternate situation also, there shall be no change in the total income of the appellant. 11.3 On the basis of these discussions, it is held that the revenue earned by the appellant compa....
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....d therefore would not invite tax. This issue has been examined by two High Courts. The Karnataka High Court in the case of CIT Vs. Subhas Kabini Corporation Ltd., reported in (2016) 385 ITR 592 (Karn) and Andhra Pradesh High Court in the case of Commissioner of Income-tax Vs. My Home Power Limited reported in (2014) 365 ITR 82(A) have held that receipts of carbon credit are in the nature of revenue receipts. Following the decisions of said two High courts, this question is also not considered." It is to be noted here that the Hon'ble Gujarat High Court has thereafter issued a corrigendum in the above order in OJMCA/1/2018 in Tax Appeal No.553 of 2017 wherein the applicant pointed out an advertent mistake in paragraph-6. The Hon'ble Court rectified the typographic/inadvertent mistake vide order dated 9.3.2018. It reads as under: "Through this application, the assessee points out that in our judgment dated 28.08.2017, while dismissing Revenue's Tax Appeals, we had inadvertently recorded in Paragraph-6 that several High Courts have held "that receipts of carbon credit are in the nature of revenue receipts". This is clearly a typographical/ inadvertent error. The above quoted por....
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....n of litigation on this issue by the Legislature itself, which had made provision for taxation of such receipts at the rate of 10% from the assessment year 2018-19 as well as authoritative pronouncements of Hon'ble jurisdictional High Court, we are of the view that receipts received by the assessee on sale of carbon credit are to be treated as capital receipts and not liable to tax. The ld.DRP has assigned one more reasons for not entertaining claim of the assessee particularly in the assessment year 2012-13 is that such claim was not in the return of income, rather it was made during the course of assessment proceedings. On the strength of Hon'ble Supreme Court judgment in the case of Goetez India Ltd.(supra), we are of the view that the AO cannot entertain any claim for allowing deduction resulting in a reduction of total income returned, which is not claimed in the original return or a revised return. To this reasoning of the DRP, we are of the view that we have considered this aspect while dealing with the issue regarded enhancement claim made under section 80IA of the Act. We have made reference to the decision of the ITAT, Mumbai and Bangalore Benches as well as Hon'ble High ....
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....he assessee must have obtained benefit from this report to the extent of 20% and it was entitled to capitalize the expenditure to the extent of 20%. The assessee claimed depreciation on the capitalized amount of expenditure. That depreciation was disallowed to the assessee by the AO and penalty proceedings has been initiated. The ld.AO has imposed penalty on the ground for which depreciation has been disallowed and addition of Rs. 1,63,25,533/- was made. 119. Since in the foregoing paragraphs, we have allowed the appeal of the assessee qua capitalization of Rs. 5,10,17,289/-, we have held that this was expenditure incurred by the assessee for its business. It is a preoperative expenditure, and the assessee is entitled to capitalize it. Once the assessee has been directed to capitalize, then it is entitled for deprecation. 120. We find that sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and fur....
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....e times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits: Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act, (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 123. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them ....