TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 745
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....08, 18210, 18209, 18211, 18213, 18212, 18214, 18215 to 18218 of 2019 in W.P.(MD).Nos.21537, 21538 and 21540 to 21544 of 2019 wherein the directions were as under:- 6.After having heard both sides and upon perusal of the documents filed in the form of typed set of papers, it could be seen that without adducing any reason, the second respondent (ITAT) has passed the order impugned herein, that too without extracting the relevant portion of the earlier judgment of the coordinate Bench of the Tribunal in RMKV Fabrics v. DCIT (cited supra). Though the Tribunal is empowered to pass any order in the stay applications, it has to consider each and every issue independently and render its findings with proper reasonings, since reasoning is the heartbeat of every conclusion. Without following this rudimentary principle of law, the second respondent has passed the impugned order, merely referring to the case number of the earlier judgment of the co-ordinate Bench of the Tribunal. Such course adopted by the Tribunal, in the opinion of this Court, cannot be countenanced. 7.In such view of the matter and also in the light of the admitted facts that the petitioner has already paid a substantia....
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....efly stated facts are that the assessee company V.V.V. & Sons Edible Oils Ltd., is formed as a public limited company during the previous year 2008-09 w.e.f. 30.04.2008 i.e. relevant to assessment year 2009-10 on conversion of assessee group partnership firm V.V. Vanniaperumal & Sons, Virudhunagar. The partnership firm V.V. Vanniaperumal & Sons, Virudhunagar carried on the business of manufacturing of gingelly oil under the registered brand name of 'Idhayam' and selling the same all over India and also involved in exports of the same. The promoters of the partnership firm i.e., partners, and the directors and shareholders of the present assessee company, are in the same line of family business / group business for more than six decades. Before conversion of partnership firm V.V. Vanniaperumal & Sons into public limited company V.V.V & Sons Edible Oils Ltd., the transferor partnership firm valued all its assets and liabilities at net realizable value and transferred the same to assessee company vide agreement dated 30.04.2008 entered into between V.V. Vanniaperumal & Sons, a partnership firm and V.V.V & Sons Edible Oils Ltd., a company incorporated under the Companies Act, 1956, whe....
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....ship firm assessee's V.V. Vanniaperumal & Sons is not acquired by the business entity and brand value is nothing but a self-generated asset which was created in the books of accounts by the erstwhile firm. The assessee company claimed depreciation in respect of brand value for the financial year 2011-12 relevant to assessment year 2012-13 to till date but the same was not allowed for the reason that no consideration was paid to the partnership firm bythe assessee company for acquiring the said brand value. Therefore, the AO estimated the cost of acquisition of brand value for the assessee company at 'nil'. For this, he noted the reason that all the assets and liabilities available in the books of accounts of the erstwhile partnership firm was succeeded by the assessee company and no consideration has been paid by the assessee company for brand value. He also noted that though the assessee company claims that the shares were allotted to the partners of the erstwhile partnership firm in lieu of alleged transfer of brand value, it does not have any material effect as there is no real asset exists in either of their hands. The AO noted that the exercise undertaken by the erstwhile part....
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....ilities of the erstwhile firm V.V. Vanniaperumal & Sons taken over by the present assessee company V.V.V & Sons Edible Oils Ltd., for an agreed consideration of Rs.86,97,13,000/- for which consideration was said to have been paid by way of allotment of 1.49 crores equity shares of nominal value of Rs.10 at a premium of Rs.48.37 per share to the partners of the firm. The AO noted that the assessee company had taken over the entire business of the firm as a going concern without any consideration qua brand value and moreover the assessee company paid only by issuing shares to the partners of the erstwhile firm which is again only a book entry in the books of the assessee company. Therefore, according to AO, the consideration paid by the assessee company in term of issuance of equity shares cannot exceed the actual value of the assets transferred and hence, the AO estimated the goodwill of the assessee company as on 01.04.2009 at Rs.14,56,16,817/- and allowed depreciation at the rate of 25% relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Smifs Securities Ltd., 348 ITR 302(SC)and also Coordinate Bench of ITAT in the case of DCIT vs. Toyo Engineering India Ltd., ....
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.... Nil as already confronted to the appellant as per letter referred above. It cannot be so that under one head the cost of acquisition of the property is computed at Nil and the under the other head it is otherwise. That can never be the intent of the legislature. The interpretation attempted by appellant would mean double benefit to the appellant. First getting exempted from capital gains tax and then taking benefit of depreciation under the Head of profits and gains from business. There has to be harmonious interpretation of the provisions of law. 6.6.2. The appellant's second assertion is that the claim of benefit of depreciation u/s 32, section 43 is very clear. This contention of the appellant is not correct. Here it would be worthwhile to refer to the fifth proviso of section 32 that deals with depreciation. The same is extracted below- .............. ............. The perusal of the above provision shows that in case of succession envisaged under section 47 (xiii) i.e the transfer under which the present appellant has got the goodwill and brand value transferred the depreciation is to be allowed as if the succession had not taken place Had the succession not taken....
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......... It can be seen that the explanation 2 to section 43 above is discussing the actual cost of an asset tangible or intangible in case of inheritance that is when asset is transferred from one entity to the other or is gifted by one entity to the other. The actual cost is such situation has to be the actual cost of the previous owner. It needs to be mentioned here that section 49 also discusses the similar situation of inheritance along with succession where assets are transferred as per the circumstances and situation envisaged in section 47(xiii). This can be seen from the section 49 quoted below for ready reference:- ............................ ............................ On the basis of above similarity of situations contemplated in section 49 and explanation 2 to section 43 it can safely be interpreted that the actual cost in such situation when a capital asset is transferred from one entity to the other the actual cost has to be cost of the previous owner. .............................. .............................. The above explanations are contemplating situations of transfer of assets in case of transfer of assets from holding company to a subsidiary co....
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....conclusion that the authorized representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration: that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assesseeCompany stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT' for short]. We see no reason to interfere with the factual finding. [unquote] Thus ratio in the case of above judgment would not apply to the present case. 4.8 Further, the CIT(A) on merits directed the AO to take the nil value of goodwill or brand value and no depreciation should be allowed to the assessee even on tangible assets and for this, he gave his final finding in para 11 as under:- "11. From the perusal of the facts and legal provisions enlisted and elaborated in the foregoing paras it is clear that the issue did emanate from search and seizur....
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....ess for more than six decades. Before conversion of partnership firm V.V. Vanniaperumal & Sons into public limited company V.V.V & Sons Edible Oils Ltd., the transferor partnership firm valued all its assets and liabilities at net realizable value at Rs.86,97,13,000/- including the brand valued at Rs.60,24,10,640/- being intangible assets i.e. patents, trademarks and brand value registered in the name of 'IDHAYAM' and transferred the same to assessee company vide agreement dated 30.04.2008 entered into between V.V. Vanniaperumal & Sons, a partnership firm and V.V.V & Sons Edible Oils Ltd., a company incorporated under the Companies Act, 1956. The erstwhile partnership firm V.V. Vanniaperumal & Sons transferred all its assets and liabilities to the new company i.e., the assessee V.V.V & Sons Edible Oils Ltd., by way of an unregistered deed. As per this agreement, the consideration for the same has been paid in the form of allotment of fully paid equity shares issued by the assessee company to the partners of the transferor firm V.V. Vanniaperumal & Sons. The relevant agreement is enclosed in assessee's Paper BookI in the case of V.V. Vanniaperumal & Sons vs. PCIT for assessment year....
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.... been paid in the form of allotment of fully paid up equity shares of Rs.1.49 Crs. on the face value of Rs.10/- at a premium of Rs.48.37 per share issued to partners of the firm in the same ratio of capital contribution in the firm, who ultimately became the Directors or the shareholders of the assessee's company. 6.3 The first dispute between the assessee and the department is the brand value introduced in the balance sheet by the assessee's firm before conversion into a Public Limited Company w.e.f.30.04.2008. The assessee's contention was that before undertaking the conversion of the partnership firm into public limited company, the transferor partnership firm valued all its assets and liabilities at net realizable value i.e. Fair Market Value (FMV). The firm being family business for such a long period and their registered brand name 'IDHAYAM' is internationally known name for its independent identity of the product 'IDAYAM' Gingelly Oil. The firm valued the registered brand name including the brand value for a sum of Rs.60,24,10,640/-. The assessee contended that this brand was valued through independent and scientific method of valuation as per the internationally accepted s....
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....eedings examined this issue in depth and held that there was neither goodwill nor brand value existed and hence, disallowed the claim of deduction in regard to depreciation on both of these non-existent intangible assets i.e. either 'Goodwill' or 'Brand Value'. According to him, the ld.CIT(A) upheld the disallowance of depreciation on brand value by invoking the 5th proviso to sec.32(1)(ii) of the Act. 7.1 The ld.CIT-DR stated that the provisions of Sec.32(1)(ii) of the Act, deals with deprecation on know-how, patent, copyright, trademark, licences, franchises, or any other business or commercial rights of similar nature being intangible assets acquired on or after first day of 1998. This section got an amendment by the Finance Act, 2021 w.e.f. 01.04.2021 and depreciation on goodwill of a business of a profession was excluded. 7.2 The ld.CIT-DR also contested the brand valuation report of the partnership firm prepared by the Chartered Accountant disputed the working, methodology, turnover and projections. According to him, the entire estimation of future sales to be achieved, is without any basis and also disputed the profitability. He stated that the expected turnover like in 20....
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....Ltd. v. ACIT [2010] 4 ITR (Trib.) 738 (Ahmedabad ITAT) (TM), wherein, the Tribunal has considered the issue of actual cost in terms of explanation-3 to Sec.43(1) and the relevant Paras of the order (majority order passed by Third Member) 14 to 18 reads as under: 14. I have carefully examined above circumstances/reasons, arguments and case law in support of application of Expln. 3 to s. 43(1) in this case. I have already commented upon circumstance (i) and on "satisfaction" of the AO that main purpose of transaction was to claim higher depreciation on transferred assets in the hands of the assessee. Yet the main purpose of Expln. 3, in my view, is to empower the AO to determine actual cost of assets where the assessee is wrongfully claiming depreciation on enhanced cost of such assets. What is actual cost ? How is it to be determined ? Actual cost of an asset to the assessee is always question of fact governed and depending upon the circumstances of the case. However, application of principles for the determination of actual cost is a question of law [see decision of Supreme Court in the case of Jogta Coal Co. Ltd. vs. CIT (supra) cited above]. The actual cost normally means real ....
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....t be any fancy or imaginary figure. This is clear from use of strong words like "determine" and check in the provision on arbitrary exercise of power by the AO. The AO is required to determine the actual cost with the previous approval of the Jt. CIT. Therefore, the AO has to satisfy Jt. CIT that exercise of determination of cost has been carried in a reasonable and proper manner. The provision of approval by the Jt. CIT is for the benefit of the Revenue and the assessee. It is to prevent the AO from taking any amount as "actual cost". 16. It has been contended on behalf of the Revenue that actual cost is not market value but is WDV of assets in the hands of the transferee, particularly on the facts of the case when value of hoarding and of goodwill/trade name was nil in the books of the erstwhile firm. The assessee company, after acquisition claimed depreciation on cost of assets which was arbitrarily fixed without any basis. Reliance, as noted above, has been placed on proviso (c) to s. 47(xiii), s. 32(1) and s. 43(6) of the IT Act. 17. After careful consideration of above provisions and facts and circumstances of the case, I am unable to accept the stand of the Revenue. As n....
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....ends, conditions and life of assets transferred etc. in the exercise of determination of cost of assets. It is true that cost shown in the transfer is primarily the cost to the transferee and such cost therefore, is a piece of good evidence. But cost shown is not final and AO is empowered under Explanation to revalue the asset and determine its actual cost. He has to determine the cost on some good and acceptable basis. In the present case, actual cost of hoardings and of goodwill has been taken at nil merely because such assets were not shown as an asset in the accounts of the erstwhile firm and no depreciation was claimed. This action of the AO endorsed by higher authorities and in the proposed order of learned AM, in my view has no legal support. As already discussed, provisions of s. 47(xiii) or of s. 43(6) are not attracted here as these provisions have very different purposes to serve. These deemed provisions cannot be read in the Expln. 3. 17.2 The plain language of the provision [Expln. 3 to s. 43(1)] leaves no amount of doubt that it is AO who has to record satisfaction relating to main purpose of the transaction to the assessee (reduction of liability to income-tax). It....
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....anguage that "AO is obliged"; "duty cast on AO" to determine actual cost of assets to the assessee, in the present case, the burden has been placed on the assessee to prove that actual cost of asset was the value it had claimed for the purpose of the depreciation. No attempt whatsoever was made by the AO or by the CIT who approved of his action or by CIT(A) to collect any material or to take any steps to determine the actual cost of the assets. The evidence produced by the assessee before the AO in the shape of valuation report was wrongly rejected and on reasons which are totally unsustainable. In support of value (cost of hoardings at Rs. 4,77,96,000 and of goodwill at Rs. 3 crores), the reports of the registered valuer were placed before the AO. The AO did not consider above reports, although it was incumbent upon him to dislodge them. The learned CIT(A) in the order for asst. yr. 2005-06 rejected the report of valuation of hoardings as on 1st April, 2003 as the report was dt. 3rd Oct., 2004 and held it to be got prepared to suit the assessee's requirement. The learned AM in his proposed order, took a similar view and cast burden on the assessee with a general observation that a....
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...., efforts of the partner etc. and thereafter its value is determined. As per information placed on record, sales effected by the firm and the company are available at p. 73 of the paper book. The turnover of the firm in the last year of its business i.e. in financial year 2002-03 is shown at Rs.8,58,26,749. In the earlier two years also, it is more than Rs. 8 crores. It jumped upto Rs.11,67,00,000 in the first year of company's business and thereafter it jumped to Rs. 14,38,00,000. These turnover figures are not in dispute. Based on above turnover figures, the registered valuer who without a doubt is an expert, determined the value of goodwill/trade name at Rs. 3 crores. Detailed calculations are given in the valuation report. It was open to the AO to examine those calculations and to arrive at its own conclusion. Such exercise was not undertaken. Merely because goodwill acquired by the firm was not shown as an asset or was shown at slightly less figure and no depreciation was claimed by the firm, its value was taken at nil. How could value of goodwill or trade name for a concern making high profit and in business for several years, be nil ? What the AO has done is quite contrary t....
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....lso not satisfied. No case for taking action under Expln. 3 to s. 43(1) has been made out. On facts and circumstances of the case, there was no justification to remand the matter back to the AO to have another innings and determine actual cost of goodwill/trade name and of buildings at Rajkot and Surat. 26. I have also gone through the decision of Hon'ble Madras High Court in the case of CIT vs. Sekar Offset Press (1995) 214 ITR 516 (Mad). In that case, the assets were transferred at the market value between partners. The Court held that Expln. 3 to s. 43(1) had no application to the case as the main purpose of the transfer of assets was not reduction of tax liability. The decision is relevant. The other decision of the Tribunal in the case of Unimed Technologies Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 25 : (2000) 73 ITD 150 (Ahd) is also considered relevant as in above case, valuation report furnished by the assessee in support of cost of the assets acquired was accepted by the Tribunal, as AO did not appoint his own valuer nor thought it necessary to examine assessee's valuer. In the absence of any other valuation report and there being no other evidence to show that the report wa....
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....tely 42% of the total actual results / actual value made by the company, which clearly illustrates the actual performance was well ahead of the projection considered for the calculations.The relevant details are available in assessee's brand valuation report submitted by G.Sekar and Associates Chartered Accountants at pages 161 to 199. In the given case of VVV & Sons, the firm, the discount rate is computed on the basis of the following workings:- Particulars 2008 2007 2006 Fixed Assets 224,661,921 252,760,989 209,061,906 Current Assets 389,251,829 260,178,717 271,169,571 Total Assets - [A] 613,913,750 512,939,706 480,231,476 Less : Current Liabilities 410,121,294 284,126,660 288,243,459 Net Assets 203,792,456 228,813,046 191,988,017 Net Profit 43,084,972 29,194,480 73,348,325 Return on Capital 21% 13% 38% Weight (More weights for Latest Year) 3 2 1 Weighted Average Return 21% Less Tax @ 35% (7%) Post Tax Return on Capital 14% Add : Risk Premium @ 100% 14% Net Discount Rate 28% 8.4 The assessee submitted that 10% error in Estimation has to be considered. T....
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.... details from the data provided by assessee. Once the Revenue could not point out any defect in the valuation or the estimated data provided and actual performance of the assessee, we could not interfere in the brand valued by the assessee, which is on the basis of scientific estimation and on the basis of material placed before the valuer. 9. The case laws cited by the ld.Counsel for the assessee of Hon'ble Supreme court in the case of CIT v. Smifs Securities Ltd. [2012] 348 ITR 0302 (SC), the Hon'ble Supreme Court has considered the explanation-3 to Section 32(1) and interpreted the words, 'any other business or commercial rights of similar nature' in clause-b of explanation-3 indicates that could be fall and the expression any other business or commercial right of similar nature. The Hon'ble Supreme Court has held as under: 6. In the present case, the assessee had claimed deduction of Rs.54,85,430/‐ as depreciation on goodwill. In the course of hearing, the explanation regarding origin of such goodwill was given as under: "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly sanctioned by Hon'ble High Courts ....
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.... of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee‐Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee‐Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal ['ITAT', for short]. We see no reason to interfere with the factual finding. 9.1 Even, this issue has been considered by the Hon'ble Gujarat High Court on the issue of valuation of intangible and applicability of explanation-3 to Section 43 of the Act, in the case of Ashwin Vanaspati Industries v. CIT 255 ITR 26(Guj), which has been reproduced in para 8.1 of this order. 10. From the above, we are of the view that the above transaction of transfer of brand after valuing the same and transfer of business as a going concern between one taxable entity to another taxable entity and for which, consideration has been paid in the form of allotment of fully paid up eq....
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....ining two assessment years the assessee by oversight has not claimed depreciation on brand value. But contended that even assessee has not claimed depreciation as per provisions of section 32, the AO should allow depreciation as per law. We find that even if the assessee does not claim depreciation on assets, the AO should allow depreciation in accordance with provisions of section 32 of the Act and thus, we direct the AO to allow depreciation on brand value from the year in which the assessee is entitled for such depreciation. 12. The next two common issues in all these 7 appeals of assessee are as regards to addition of construction expenses in regard to Anbu Illam Thulir School and RJ Mantra Thulir School and consequent interest disallowance on the same. The facts and circumstances are same all the years and lead year involved is 2010-11. Hence, we will take the facts from assessment year 201011 and will decide the issue. The relevant ground raised by assessee reads as under:- 2. COST OF CONSTRUCTION OF BUILDING AT ANBU ILLAM the MEMIORANDUM of the Company contains A The Main Objects of the Company B The Incidental or Ancillary Objects and C Other Objects not included in A an....
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....penses of V.V. Vanniaperumal Anbu Illam of Rs.8,01,050/- and construction expenses of Tulir School building at Rs.10,70,673/-. Aggrieved assessee preferred appeal before CIT(A). 13.2 The CIT(A) confirmed the action of the AO in regard to disallowance of construction expenses of Anbu Illam by observing as under:- 14.1......... ........................... During the appellate proceeding the appellant did not deny that the expenditure had been incurred by it. It did not give the details of cement and steel also. The appellant only reiterated the argument made before the A.O. The expenditure was to establish and carry on educational institutions as provided in the MOU of the company. The expenditure was towards construction of building for ANBU ILLAM and VV Vanniaperumal Primary School. However, these are Trust properties of M/s Vanniaperumal Charities Virudhunagar. Thus apparently this expenditure is done by appellant on behalf of somebody else - a related party. The assessing officer has held that this not for the business of the company. The appellant company is engaged in business of selling of gingerly oils etc. it is not in schooling business, nor it is establishing a scho....
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....e children of the labourers who are working in the organization it was created to take care of full expenses of the children and to give education, stay, food, etc., upto Vth standard of those children if either they lost any one of the parents or both. In 1961, not even one primary school was there in 2 km radius of the town Virudhunagar. In order to make the society to have basic education, primary education is being provided in local Tamil language. The business of the assessee is labour oriented and they have to carry the minimum weight of 50 kgs to 75 kgs of the raw materials as well as finished products while working in the organization. To support the families of the labourers and the children who lost either of their parents, this 'Anbu llam' is functioning. This unit has been visited and appreciated by so many V.I.P.s including Late K Kamaraj, former Chief Minister of Tamil Nadu, Late R Venkataraman, former President of India, etc. It is only a labour welfare measure which has been started almost 60 years ago to take care of the children who lost their parents. It is worth to note that there are about 540 labourers who are covered under ESI and about 500 employees and ....
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....red expenditure towards construction of classrooms by modifying the rented godown premises. The company has not claimed any depreciation benefit on the above. However, due to lack of sanction from the statutory authorities to run the school within the factory premises, being an industrial area, the school was shifted to other place. Even now, the said premises is under the occupation of the company and it is used as godown for the business of the company. The lease rental payments made by the company to the owner of the land is also offered as income in the hands of the owner. 14.2 We have also considered the arguments made by ld.CIT-DR, Dr. S. Palanikumar as he referred to Form No.3CA for all the AYs i.e., 2010-11 to 2016-17 reflecting the nature of business carried out by the assessee company and he argued that once the assessee is in the business of edible oils, it is not the business of the assessee to run a school and accordingly, construction expenditure at the best can be held to be capital in nature. For this, ld.CIT-DR relied on the case laws of Hon'ble Supreme Court in the case of A.V. Thomas and Co. Ltd., vs. CIT, [1963] 48 ITR 67(SC) and CIT vs. Amalgamation (P) Ltd., ....
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....w.Rule 8D(2) of the Income Tax Rules, 1962 made disallowance of expenses relatable to exempt income in each of the assessment years as under:- Assessment year Dividend Income (Rs.) Agricultural Income (Rs.) Disallowance made by AO (Rs.) 2010-11 16,065 - 2,47,369 2011-12 97,188 1,01,637 29,13,338 2012-13 2,78,519 - 17,53,803 2013-14 6,24,540 - 17,88,819 2014-15 17,39,763 - 38,77,026 2015-16 5,00,625 - 67,18,642 2016-17 44,16,250 - 91,47,700 Aggrieved, assessee preferred appeal before CIT(A) and the CIT(A) restricted the disallowance to the extent of exempt income and directed the AO accordingly in all these 7 assessment years. Aggrieved, assessee is in appeal before the Tribunal. 17. Now, the ld.AR for the assessee before us contended that he is not aggrieved by the order of CIT(A) and he is ready to accept the disallowance to the extent of exempt income in view of various decisions of Hon'ble High Courts and particularly the Hon'ble High Court of Madras in the case of CIT v. Chettinad Logistics (P) Ltd., (2017) 80 taxmann.com 221 and the Hon'ble Supreme Court in the case of Maxopp Investment Ltd., vs. CIT, (2018) 402 ITR 640 (SC). To this, the ld. ....
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.... its sister concern M/s. Rasathe Garments. The AO noted that the gingelly oil cake and groundnut oil cake sold by assessee to third parties through its sister concern M/s. Rasathe Garments but sister concern was only a bill preparing entity. He noted that sales of all the products including the oil cakes were managed by Sales Manager and Senior Sales Officer of the assessee company including the trade enquiries and purchase orders. The AO noted in his assessment order that the designated Sales Manager and Senior Sales Officers of the assessee company are i) Shri V. Murugan, ii) Shri Durairaj and iii) Shri Vadivel. We noted that the sales bills for the assessee company and its sister concern M/s. Rasathe Garments are generated on a pre-printed form in the system signed by one of the above persons. He noted that these personnel were either on the payroll of the assessee company or M/s. V.R. Muthu & Bros., and not the employee of the sister concern M/s. Rasathe Garments. The AO also noted one of the answer given by one of the partners of M/s. Rasathe Garments and also Director of assessee company Shri V.R. Thendral vide Question No.6 of sworn statement recorded during the course of se....
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.... company has shifted its profit to its sister concern and the reasons for performing this dubious method by the assessee company is to reduce its profit and restrict tax liability, to give better financial shape to its sister concern by minimizing its losses and to provide funds to its sister concern for its business activities in the guise of so-called oilcake business. Therefore, the AO also applied the decision of Hon'ble Supreme Court in the case of Mcdowell vs. CTO, (1985) 154 ITR 148 (SC). Hence, he treated the profit element of the credit sale made to its sister concern M/s. Rasathe Garments at Rs.1,71,76,214/- and treated the same as undisclosed income of the assessee. Aggrieved assessee preferred appeal before CIT(A). 19.2 The CIT(A) confirmed the action of AO simpliciter by observing in para 15.2 as under:- "15.2 During appellate proceedings assessee could not give any other reason to rebut the conclusion drawn by the Assessing Officer. The TP assessment relied upon by the appellant is not relevant in the present case as the same has been done without appreciating the documentary evidence in possession of the assessing officer. Moreover SDT provisions are applicable fo....
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....p on 17.11.2015. During the course of search various incriminating materials were found and seized by the Department that lead to detection of undisclosed income on various heads and it was assessed u/s.153A of the Act for the assessment years 2010-11 to 2016-17. One of the issues detected during the search was shifting of profit from assessee company to its sister concern M/s. Rasathe Garments. This issue was detected from assessment year 2012-13 onwards. The quantification of profit AYwise by the AO is as under:- AY Profit quantified (in Rs) 2012-13 1,71,76,214 2013-14 1,92,15,133 2014-15 43,58,694 2015-16 2,62,33,225 2016-17 2,73,17,518 During the search operation the investigation unit has detected that the appellant company had diverted substantial amount of sale of Ground nut oil cake and Gingelly Oil cake to its sister concern Rasathe Garments through book entries and on the same day it was subsequently sold to various customers by Rasathe Garments with profit. The AO had discussed the entire modus operandi in detail in the assessment order at paragraph 7.0. How the billings are managed is discussed at paragraph 7.3. At 7.4 the persons involved in these transact....
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....l Cake. It was a by-product of the appellant company and not manufactured by Firm Rasathe garments. For shifting of profit, VVS Sons Limited recorded the sale of by-product of Gingelly Oil Cake and Ground Nut Oil Cake in the accounts of loss making entity Rasathe Garments. 21.3 The ld.CIT-DR further submitted that on Analysis of P&L account, apart from the tax audit report the profit and loss account also obtained and it is placed in annexure-3 from page number 3253 of Revenue's Paper-book. It is evident that out of total sales or total turn-over of Rasathe Garments, the sale of Ground nut oil cake and Gingelly oil cake alone contributed around 95-96%. If the 95% of the volume of transaction was from trading activity, they ought to have reported different business code and not reported manufacturing as their main business. In Tax Audit report the nature of business was mentioned as Manufacturing under business code 0124 year after year. The sale of main goods like nighties, chutidhar, shirts, trousers, lungis, in skirts and garments contributed not more than 5% of the turn-over. This activity was started from AY 2012-13 onwards and not prior to that. This firm commenced its busine....
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....t reports in Form No.3CB for all these assessment years are filed. The assessee has also filed CST form and GST registration certificate of the assessee company as well as the partnership firm M/s. Rasathe Garments, to prove that these are separate entities. The ld.AR drew our attention to the transfer pricing order passed u/s.92CA of the Act in the case of assessee company as well as Rasathe Garment, wherein TP adjustment for assessment year in regard to transactions for purchase of gingelly oil cake and purchase of groundnut oil cake was accepted at Arm's length and no adjustment whatsoever was made by the AO. 22.1 We noted the facts of the case that there is nothing coming out of the order of the AO or the CIT(A) or argued by ld.CIT-DR now, that the price of the transaction entered into between these two parties is excessive and unreasonable and particularly in the hands of the firm in term of the provisions of section 40A(2)(a) of the Act. The provisions of section 40A(2) of the Act applies for making disallowance of expenses for payments, which have been claimed as deduction in computation of profit & loss account of business and it shall not apply for income or gains under a....
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....ee In a subsequent decision in T Sassoon J David and Co P Ltd vs CIT 1979 118 ITR 261 the Apex Court held that the three tests mentioned in the above Supreme Court case have to be read disjunctively Consequently if a payment satisfiesany of the three tests the same would be admissible 24. Brief facts are that the AO during the course of assessment proceedings noted that the assessee company has claimed foreign tour expenses incurred for their employees during the financial year 2011-12 relevant to this assessment year 2012-13 amounting to Rs.13,89,450/-. The AO required the assessee to explain the purpose of foreign tour expenses and the assessee explained that the expenditure in question was incurred wholly and exclusively for the purpose of business as the assessee's employees worked for the firm for more than 20 years and hence, the company permitted them to be taken on foreign tour. The assessee in its submissions submitted the following:- "2. We has formulated a plan for employees. The employees who had worked for more than 20 years in our company were permitted to be taken for a foreign tour. 6. The question is whether the said expenditure was expended wholly and exc....
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....one the delay and admit the appeal. 28. The only issue in this appeal of assessee is against the Revision order passed by PCIT revising the assessment framed by AO u/s.143(3) r.w.s. 147 of the Act accepting the brand value declared by assessee at Rs.60,24,10,640/-. For this, assessee has raised following grounds:- 2.1 Where an assessee valued its brand name on the basis of projected sale quantity after considering the discounting factor and the same is accepted by the Learned Assessing Officer and the company achieved the sale based on the above quantity after considering the discount. In his order, Learned Assessing Officer specifically mentioned that the allowability of depreciation on such brand value to the successor company shall be the decision of the Learned Assessing Officer of that respective company. Revision of that order by the Learned Principal Commissioner of Income Tax u/s 263 to reconsider the Brand Valuation in the hands of the Assessee Firm without considering the discount on the projected sale quantity. The act of the Learned Principal Commissioner of Income Tax is mere change in opinion and the order of assessing Officer u/s 143(3) r.w.s 147 is not erroneous ....