TaxTMI 
TaxTMI 
2005 (4) TMI 242
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.... it is submitted by the learned counsel for the assessee that this ground is of general nature and needs no separate adjudication. Accordingly, the same is rejected. 3. Ground No. 2 of the assessee's appeal reads as under:- "In law and in the facts and circumstances of the Appellant's case, the learned CIT(A) has grossly erred in confirming disallowance of Consultation Fees Rs. 2,95,000/- under section 40A(12) of Income-tax Act." 3.1 The facts of the case are that the assessee made the payment of professional charges of Rs. 3,05,000/- as under:- Fee to G K Chokshi & Co. Rs. 2,75,000/- Fee to K C Patel Rs. 25,000/- Fee to R D Shah & Co. Rs. 5,000/- Rs. 3,05,000/- 3.2 It was the claim of the assessee that the above payments were partly for income-tax matters and partly for other services which are not covered by section 40A(12). The assessee had worked out the disallowance under section 40A(12) at Rs. 88,750/- which was disallowed by the assessee itself while preparing computation of its income. However, the Assessing Officer considered the entire payments of Rs. 3,05,000/- to be covered within ambit of section 40A(12). He, the....
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....r under this Act is covered within the ambit of section 40A(12). However, the services for preparation of return is excluded from the purview of section 40A(12). Deduction permissible under section 40A(12) is only Rs. 10,000/-. Therefore, the adjudication of this ground would depend upon the nature of services rendered by M/s. G K Chokshi & Co. CAs, Shri K C Patel and R D Shah & Co. The Assessing Officer has considered entire services to be within the ambit of section 40A(12) while it is contended by the assessee that only part of the services were within the ambit of section 40A(12). The Assessing Officer as well as the CIT(A) has not discussed the exact nature of services being rendered by above persons. The assessee has not produced before us the bills issued by above professionals. In view of above, we set aside the orders of the authorities below and restore the matter back to the file of the Assessing Officer. We direct him to examine the nature of fees paid by the assessee to the above persons and thereafter re-adjudicate the matter as per provisions of section 40A(12). Needless to mention that the Assessing Officer will allow an adequate opportunity of being heard to the as....
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....f Asiatic Oxygen Ltd. v. CIT [1991] 190 ITR 328. 4.3 The learned DR, on the other hand, relied upon the orders of the authorities below and he submitted that since the facts are identical, the order of the Tribunal for assessment year 1991-92 should be followed. 4.4 We have carefully considered the arguments of both the parties and perused the material placed before us. The learned counsel has heavily relied upon the decision of the Hon'ble Calcutta High Court in the case of Asiatic Oxygen Ltd. The facts in that case were that the assessee incurred expenditure in the preparation of a feasibility report in connection with a project to produce raw materials required by him and claimed it as a revenue expenditure. The Income-tax Officer allowed the expenditure in the draft assessment order but the Inspecting Assistant Commissioner in the proceedings under section 144B disallowed it and added the amount to the income of the assessee. The Tribunal upheld the addition. On a reference: "Held, (i) that, in this case, in the draft assessment order, the amount claimed as expenditure was not disallowed by the Income-tax Officer. Therefore, the question of disallowance of th....
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....gains derived from the Industrial Undertaking, included in the gross total income of the assessee, is eligible for deduction at certain percentage as prescribed in section 80-I. The Hon'ble Apex Court has interpreted the meaning of words 'derived from' in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). In the case of Sterling Foods their Lordships held as under:- "There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus was not direct but only incidental. The industrial undertaking exported processed sea foods. By reason of such export, the Export Promotion Scheme applied. Thereunder, the assessee was entitled to import entitlements, which it could sell. The sale consideration therefrom could not be held to constitute a profit and gain derived from the assessee's industrial undertaking. The receipts from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80HH of the In....
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....the order of the CIT(A) are in appeal before us. The learned counsel for the assessee fairly admitted that the transport rent income is not the income derived from the Industrial Undertaking and therefore he did not press the assessee's ground of appeal claiming the deduction under section 80-I in respect of the transport rent income. The Revenue's ground against the direction of the CIT(A) to exclude only the net income shall be dealt with separately while disposing of the Revenue's appeal. Subject to this remark, we uphold the order of the CIT(A) disallowing the claim of section 80-I with regard to transport rent income. 6.4 The Assessing Officer has also held that the profit on sale of raw material amounting to Rs. 7,585/- is not the profit and gain derived from the Industrial Undertaking. The learned counsel for the assessee could not justify how the profit on sale of raw material has direct or immediate nexus with the Industrial Undertaking. Therefore, we uphold the order of the lower authorities in this respect and hold that the profit on sale of raw material is not the profit derived from the Industrial Undertaking for the purpose of section 80-I. Accordingly,....
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....Assessing Officer for assessment year 1990-91. The CIT(A) sustained the finding of the Assessing Officer following his own order for assessment year 1991-92. 9.2 At the time of hearing before us, it is pointed out by the learned counsel that this issue is considered by the Tribunal for assessment years 1990-91 and 1991-92. The Tribunal, vide order dated 21-9-1999 in ITA Nos. 2116 and 4936/Ahd/94 and others, in para 10 held as under:- "10. The next ground of appeal is regarding deduction under sections 80HH and 80-I in respect of Mandali Unit. The authorities below refused relief to the assessee on the ground that no production was effected during the year under consideration. After hearing both the sides, we find that while deciding the issue of depreciation, we have already decided that the assessee has started manufacturing activity during the year. Therefore, the claim of deduction under selection 80HH and 80-I has to be allowed for the reasons mentioned in earlier paragraphs. This ground of appeal is allowed." That the disallowance of deduction under section 80HH for the year under consideration was only consequential to the disallowance made by the Revenue in as....
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.... learned CIT(A) has grossly erred in confirming withdrawal of interest under section 244 of Income-tax Act." Ground No. 11 of the assessee's appeal was not pressed at the time of hearing. Accordingly, the same is rejected. 13. Ground No. 12 of the assessee's appeal reads as under:- "Your Appellant reserves the right to add, alter, amend or vary all or any of the above Ground of Appeal as may be decided from time-to-time." Ground No. 12 of the assessee's appeal is of general nature and which was not pressed at the time of hearing. Accordingly, the same is rejected. ITA No. 5131/Ahd/95 - Revenue's Appeal:- 14. In this appeal by the Revenue, the following grounds are raised:- 1. The ld. CIT(A) has erred in law and on facts in- (i) deleting the disallowance made under Rule 6B (ii) deleting the disallowance out of interest (iii) deleting the disallowance made under section 40A(2)(b) (iv) directing to allow deduction under section 80-I as guide line laid down in the order (v) directing to allow deduction under sections 80HH and 80 separately (vi) deleting the addition on account of with....
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....ction of the day of the withdrawal and the subsequent day which is deposited in the same account is considered, the same would be sufficient for withdrawal for payment of income-tax. It was pointed out by the learned counsel that the facts are identical in the case under consideration before us. The entire income of the assessee which is Rs. 14.69 crores as per the income returned is deposited in the same bank account. Out of such income, which is deposited in the same bank account, the withdrawal for payment of income-tax was made. The withdrawal is much less than the income deposited during the year under consideration. He also pointed out that the above income is net returned income after various deductions under section 80-I and depreciation, etc., and therefore, cash income is even more. That the withdrawal for income-tax is much less than the above income deposited in the bank account. The above statement made by the learned counsel is not controverted before us. Since the assessee has deposited its entire income in the same bank account from where the withdrawal for payment of income-tax is made, therefore, we accept the assessee's claim that the withdrawal for payment o....
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.... an individual any relative of the assessees; (ii) where the assessee is a company, firm, association of persons or Hindu undivided family any director of the company, partner of the firm, or member of the association or family, or any relative or such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, ....
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....he service charges were only Rs. 13 lakhs while it has increased to Rs. 40 lakhs in the year under consideration. Reasons for such increase is not given at any stage. In view of above, we deem it proper to set aside the order of the authorities below and restore the matter back to the file of the Assessing Officer. We direct him to examine (i) whether Nirma Management Services falls within the category of persons specified under section 40A(2)(b); and (ii) The nature of services rendered by Nirma Management Services and then arrive at the conclusion whether the payment of service charges is excessive or unreasonable having regard to the fair market value of such services rendered to the assessee. (iii) The reasons for increase of service charges from Rs. 13 lakhs last year to Rs. 40 lakhs in the year under consideration. After examining above facts, he will re-adjudicate the matter in accordance with law. Needless to mention that the Assessing Officer will allow adequate opportunity of being heard to the assessee. 18. The next ground of Revenue's appeal is against the direction of the CIT(A) to allow deduction under section 80-I on certain incomes. The facts of the case are ....
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....Harsiddh Specific Family Trust. While the Revenue had not challenged this ground before the High Court in the case of Norma Detergents (P.) Ltd. He further submitted that in the case of Nirma Specific Family Trust and K Kacharadas Patel Specific Family Trust, the Hon'ble Jurisdictional High Court in IT Reference Nos. 61, 59 and 59A of 1993 held that the excess of recoveries of advertisement expenses is eligible for deduction under section 80-I. The learned counsel for the assessee also relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Mayank Electro Ltd., wherein their Lordships rejected the Department's appeals holding that no substantial question of law arises against the order of the Tribunal. He also relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Madras Motors Ltd. [2002] 257 ITR 60, wherein their Lordships held the interest received on bank deposit to be not eligible for deduction under section 80-I but the interest received from the customers on belated payment to be eligible for deduction under section 80-I. The learned counsel has further contended that the Tribunal is bound to follow the solida....
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....#39; case the interest paid is held to be an accretion to assessee's receipts and attributable to and incidental to the business carried by him and not de hors the business carried on by the assessee. It was therefore held to be not income from other sources. This is not the case near to the case of Cambay Electric Supply Industrial Co. Ltd. The question whether interest was derived from the execution of contracts was not there before the Supreme Court in this case. See also in this connection two decisions of the Supreme Court relating to levy of excise duty in the case of Government of India v. Madras Rubber Factory AIR 1995 SCW 2654 and in the case of VST Industries Ltd. v. Collector Central Excise, Hyderabad, AIR 1998 (SC) 1441 the observations wherein clearly show that when goods are sold on credit arid interest is received that does hot form part of the price on which excise duty is payable." 18.5 In the above case the Tribunal has clearly held that the direct and immediate source of interest is debt owed by the customer which is a degree away from the Industrial Undertaking. The sale consideration has a direct nexus with the Industrial Undertaking but not the interest....
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.... nexus with the Industrial Undertaking. If the amount of sale proceeds is not paid within the credit period allowed, the buyer has to pay interest on such delayed payment. The interest is not arising because of manufacturing of detergent powder/cake by the Industrial Undertaking but because the sale proceeds remained unpaid for a Stipulated period. The interest cannot be said to flow directly from the Industrial Undertaking. In the case CIT v. Raja Bahadur Kamakhaya Narayan Singh [1948] 16 ITR 325 (PC) a similar dispute arose before the Privy Council, In that case the assessee received the interest on the arrears of rent. It was the claim of the assessee that the character of the interest is similar to that of the rent of the agricultural land both should be treated as income derived from agricultural land. Similar is the case under appeal before us. The assessee has sold the product of the industrial Undertaking and since the sale proceeds was not paid within time, on the arrears of sale proceeds, interest is received. The Hon'ble Privy Council denied the assessee's claim and it was stated that in the genealogical tree, the interest is received from rent and the land appea....
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....ls Ltd. The learned counsel for the assessee has also relied upon the rejection of Department's Tax Appeals, by the Hon'ble Jurisdictional High Court in the cases of Nirma (P.) Ltd. and also Harsiddh Specific Family Trust. We find that in the case of Nirma (P.) Ltd. the Revenue has preferred the appeal raising five grounds which included allowability of deduction under sections 80HH and 80-I on interest from trade debtors. However, the Hon'ble Jurisdictional High Court admitted the appeal only on one ground, i.e., "whether the Appellate Tribunal is right in law and on facts in directing to allow separate relief under sections 80HH and 80-I of the Act". Thus, there is no decision by the Hon'ble Jurisdictional High Court on the allowability of deduction under sections 80HH and 80-I on interest from trade debtors. Similarly the Tax Appeal of Harsiddh Specific Family Trust was dismissed by the Hon'ble Jurisdictional High Court holding that no question of law much less a substancial question of law arises out of the impugned order of the Tribunal. 18.9 The question therefore is what is the effect of dismissal of a Tax Appeal by the High Court holding that no subst....
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....appeal shall thereafter as provided in sub-section (4) be heard on the question so formulated and at the time of hearing the respondent is also permitted to argue on the appeal that the case docs not involve such question without taking away or to abridge the power of the High Court to hear, for reasons to be recorded, the appeal on any other substancial question of law not formulated by it. Sub-section (5) of this section further provides that the High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. From these provisions, it is clear that an appeal lies to the High Court only where a substantial question of law is involved. In an appeal filed by the party, when the High Court dismisses the same by stating that no substantial question of law arises, it cannot, in our opinion, be said that it was a decision of the High Court on merits. What the High Court can be said to have observed is that they declined to entertain/admit the appeal in the absence of any substantial question of law, which is pre-requisite for assuming the jurisdiction of the High....
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....ding of fact that the excess of expenditure over the recoveries had direct nexus with the activities of the Industrial Undertaking. The Hon'ble Jurisdictional High Court has decided the issue in the light of the aforesaid finding of fact recorded by the Tribunal. Therefore, the above decisions would be of no help to the assessee to adjudicate whether the interest from the debtors on the delayed payment of sale proceeds has a direct nexus with the Industrial Undertaking or not. 18.12 The learned counsel has also relied upon the decision of Hon'ble Madras High Court in the case of Madras Motors Ltd. However, we find that in the above decision also the decision of Hon'ble Apex Court in the case of Pandian Chemicals Ltd. was not considered. From the decision of Hon'ble Privy Council in the case of Raja Bahadur Kamakhaya Narayan Singh, decision of Hon'ble Apex Court in the cases of Pandian Chemicals Ltd. and Sterling Foods, it is clear that an income which has direct and immediate nexus with the Industrial Undertaking only is eligible for deduction under section 80-I/80HH. After detailed discussion, we have held in para 18.7 that interest from debtors, does not ha....
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....s by the assessee. The CIT(A) has rightly calculated the net income from transport business at Rs. 8,15,027/-. We therefore uphold the order of the CIT(A) on this point. 22. Regarding Sale of Bardana and Sale of Waste material: At the time of hearing before us, it is submitted by the learned counsel that sale of Bardana and Waste material has generated during the course of production of the Industrial Undertaking. Therefore, it has direct and immediate nexus with the Industrial Undertaking. The learned DR could not controvert the above statement made by the learned' counsel for the assessee. Moreover it was pointed out by the learned counsel for the assessee that the Hon'ble Jurisdictional High Court has decided identical issue in favour of the assessee in the case of Dy. CIT v. Harjivandas Juthabhai Zaveri vide. Since the Bardana Waste material has generated during the course of production of the Industrial Undertaking, we hold that it has a direct and immediate nexus with the Industrial Undertaking and therefore entitled to deduction under section 80HH/80-I. Accordingly, we uphold the order of the CIT(A) in this respect. 23. Mandali Unit: For the detailed discussion....
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....f hearing before us, it was vehemently contended by the learned DR that as per section 32AB(1) deduction is permissible (i) if the amount is utilised for purchase of new ship, new aircraft, new plant or new machinery; or (ii) if the amount is deposited in the Deposit Account maintained by the assessee with the Development Bank. That when the above amount deposited with the Development Bank is withdrawn, the same can be utilised for repayment of term loan taken from the Bank. It is contended by the learned DR that such term loan which is repaid by the assessee should have been taken by the assessee for the purchase of new ship, new aircraft, new plant or new machinery. That sub-section (4) of section 32AB provides that no deduction under sub-section (1) shall be allowed in respect of an amount utilised for purchase of any road transport vehicle. Therefore, if an assessee purchases trucks, the same will not be considered to be eligible for deduction under section 32AB(1). The amount withdrawn from the Deposit Account has been utilised by the assessee mainly for the repayment of loans which were taken for the purchase of trucks. Therefore, the amount has been utilised in violation of ....
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....revious year or before furnishing the return of his income, whichever is earlier; or (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in, a scheme 38 (hereinafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction 39 [(such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72)] of- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty per cent of the profits of 40[***] business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less: 41 [Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduc....
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....e includes income chargeable to tax under the head 'profits and gains of business or profession', may utilize- (a) the whole or any part of the amount deposited by him in a deposit account under clause (a) of sub-section (1) of section 32AB of the Income-tax Act, or (b) any amount out of such income, without depositing the same under clause (a) of sub-section (1) of section 32 AB of the Income-tax Act, in accordance with this Scheme, for any of the following purposes, namely:- (i) purchase of new ship or new aircraft or new machinery or new plant for the purposes of the business or profession carried on by the depositor; (ii) purchase of new computers to be installed either in the office or at a place where the depositor carries on business or profession; (iii) repayment of the principal amount of term loans contracted after the 31st March, 1986, and taken for a period of three years or more from a financial corporation which is engaged in providing long-term finance for industrial development in India or from a scheduled bank or from any such other institution as the Central Governments may, by notification in the Official Ga....
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....r opinion, in the year of withdrawal the only requirement is about the utilization of the amount as provided in the Scheme. In the year of withdrawal, the assessee is not required to utilize the amount again in conformity with sub-section (1) of section 32AB. As per the Scheme the amount withdrawn by the assessee can be utilised for purchase of new ship, new aircraft, new machinery or new plant or new computers. The amount can also be utilised for repayment of principal amount of term loan contracted after 31st March, 1986. The term loan must have been taken for a period of three years or more from the Financial Corporation which is engaged in providing long-term finance for industrial development in India or from a Scheduled Bank or from any other institution as the Central Government may notify. When the amount is utilised for repayment of term loan, there is no such requirement that the term loan was taken by the assessee for purchase of new ship, new aircraft, new machinery or new plant. This condition is imposed by the Assessing Officer which was not in the Scheme. It is not disputed by the Revenue that the assessee has fulfilled the conditions as provided in clause 9(1)(iii) ....