ITO v SHASTHA PHARMA LABORATORIES PVT LTD [ ITA No.83/2007 ; ITA No.84/2007] – Karnataka High Court Background: The assessee, for the assessment years 1998-99 and 1997-98 disclosed the lease rent income of Rs.6,00,000/-. The assessee had received Rs.80,00,000/- as lease rent deposit. The AO held that the interest on deposit should be taken into account for computation of the rent received by the assessee. Therefore, he assessed the annual letting value of Rs.20,40,000/- which includes notional interest in respect of the deposit. The CIT(A) dismissed the appeal filed by the assessee by upholding the order of the Assessing Authority.
Yearly Archives: 2013
CIT v Jaimal Ram Kasturi [D.B. IT APPEAL NO.145 of 2006] – Rajasthan High Court Background: The assessee is engaged in liquor business and during the period relevant to assessment year 1991-1992, the income of the assessee was assessed at Rs.4,15,32,865/- as against the declared profit of Rs.3,87,66,937/- by adopting a net profit rate of 20.5% as against the declared rate of 19.13% after rejecting the books of accounts of the assessee, under Section 145 of the Act. The AO held that the profit of the country liquor business of the assessee had to be determined in comparison with other analogous assessee engaged in the same line of business because considering the stiff competition for acquiring monopoly rights, it could be reasonably presumed that the assessees were likely to have profit comparable with each other. The AO compared the case of the assessee with a contractor of the adjoining area, M/s Malu Khan & Party, Bikaner, who had shown the net profit at 22.70% for the period in question; and assessed the assessee by taking 20.5% net profit instead of 19.13% as declared by him.
Profit ratio of previous years of the assessee can be compared without recourse to third ...
CIT v Great City Manufacturing Co [ITA No: 461 of 2009 dtd 10.12.2012] – Allahabad High Court Background: The assessee is a partnership firm engaged in the business of manufacture and export/sale of brass art ware. The assessee filed its return of Income for AY 2005-06 on 31.10.2005 declaring a total income of Rs. 57,68,627. During the course of assessment proceeding the AO noticed that the assessee had paid remuneration to its partners to the tune of Rs. 39,31,965/- whereas it has paid total salary to its employees only Rs. 486918/-. The AO stated that the partnership deed does not specify the functions and duties in respect to working partners justifying the remuneration of Rs. 13,10,665/- to each of its partners when barely a total salary of Rs. 486918/- was paid to all its employee. The remuneration paid to working partners was highly excessive. On this point the Assessing Officer allowed the remuneration upto Rs. 4,00,000/- per annum to each of the partners.
Excessive remuneration to partners cannot be disallowed u/s 40A(2) if it is within limits of ...
ITO v Mittal Investment & Co. [IT Appeal No. 1951 (Delhi) of 2012] (Del ITAT) Background: The assessee, a partnership firm, was engaged in the business as agent of post office schemes, PPF, RBI Bonds, LIC, Mutual Funds etc. on commission basis. The assessee had claimed expenses of Rs. 20,85,695/- on account of commission expenses. During the course of assessment proceedings, AO required the assessee to furnish complete details of commission paid with proof of TDS deducted and deposited on the commission so paid. Since, no TDS was deducted u/s 194H, the AO disallowed the commission u/s 40(a)(ia) for non deduction of tax.
TDS u/s 194H not applicable on sub-brokerage on securities – Del ITAT
ITO vs. LKP Securities Ltd (ITAT Mumbai) In AY 2008-09 the assessee collected employees’ contribution to the Provident Fund and ESIC but did not pay it within the due date prescribed by the relevant legislation. The amount was, however, paid before the due date of filing the ROI. The AO assessed the said amounts as income u/s 2(24)(x) but declined to grant a deduction u/s 36(1)(va) as the amount had been paid after the due date. The CIT(A), relying on Alom Extrusions 319 ITR 306 (SC) and AIMIL 321 ITR 508 (Del) held that the amounts had to be allowed as a deduction u/s 43B as they had been paid before filing the ROI. On appeal by the department to the Tribunal, HELD reversing the CIT(A):
Employees’ PF/ ESI Contribution is not covered by s. 43B – Mum ITAT
M/s WINDERMERE PROPERTIES PVT LTD v DCIT ITA No.7192/Mum/2010 (Mum ITAT) Background: The assessee claimed deduction of Rs. 11.05 crore towards interest u/s 24(b) of the Income-tax Act, 1961 in the computation of income under the head “Income from house property”. On perusal of its details, the Assessing Officer noticed that it comprised of the interest of Rs. 9.48 crore and prepayment charges of Rs. 1.56 crore. The Assessing Officer held that the prepayment charges of Rs. 1.56 crore would not fall u/s 24(b) of the Act. Resultantly, the deduction was denied for such amount. No relief was allowed in the first appeal.
Prepayment charges on foreclosure is akin to interest – Mum ITAT
M/s IFB AGRO INDUSTRIES LTD v JCIT (ITA No.114/Kol/2013) (Kolkata ITAT) Background: The assessee is a company engaged in the business of manufacture of rectified spirit and IMFL, marine products and trading of feed and beer. The assessee had received Inter-corporate deposits from M/s. IFB. Assessee held 18.82% of the shares of M/s. IFB. The AO treated the same as a loan received by the assessee from M/s. IFB. and invoked the provisions of section 2(22)(e) of the Act. An amount of Rs.17.5 cr. was deposited by M/s. IFB through RTGS in the bank account of the assesee but Rs.12 cr. out of the same was immediately returned as it was deposited without the assessee’s permission. On appeal, the CIT(A) had accepted the contention of the assessee that the Inter corporate deposit was only to an extent of Rs.11.20 cr. However, the CIT(A) had treated the Inter corporate deposits as a loan and had consequently treated the amount of Rs.11.20 cr. as deemed dividend u/s. 2(22)(e) of the Act.
Deemed dividend not applicable in case of inter-corporate deposits – Kol ITAT
Asst DIT v M/s Clifford Chance (ITA Nos. 5034/Mum/2004, 5035/Mum/2004, 7095/Mum/2004, 3021/Mum/2005 AND 2060-61/Mum/2008) (Mumbai Special Bench) Background: The assessee is a U.K. partnership firm of Solicitors. It is engaged in providing international legal services. During the years under consideration, it rendered legal consultancy services in connection with different projects in India. Although it did not have an office in India, some part of the work relating to the projects in India was performed in India by its partners and employees during their visits to India. For assessment years 1999-2000, 2000-01, 2001-2002 and 2003-04, the returns of income were filed by the assessee declaring NIL income on the ground that the aggregate period or periods of stay of its partners and employees during the said years did not exceed 90 days and its income therefore was not taxable in India in these years.
Linklaters ruling overruled by Mumbai Sp Bench in Clifford Chance
Marubeni India Pvt. Ltd. v DIT (ITA 1042/2011 dtd 25.04.2013) Delhi High Court Background: The assessee is a private limited company incorporated in India under the Companies Act, 1956. It is a 100% subsidiary of Marubeni Corporation, Japan(MCJ). It carries on mainly two types of business – agency and market research business. The assessee filed a return of income on 31.10.2002 declaring “nil” income for AY 2002-03. In the course of the assessment proceedings, the assessee’s case was referred to the transfer pricing officer (TPO). The TPO proposed an addition of Rs 2,60,49,881/- on the ground that the commission and service fees received by the assessee from MCJ did not represent arm’s length price. The TPO treated the interest income of Rs 1.72 crores received by the assessee as non-operating income. Because of this treatment accorded to the interest, the profits of the companies which were taken for comparison purposes were found to be more than the profits earned by the assessee. The TPO was further of the view that in respect of the services rendered by the assessee, it should be remunerated on a cost-plus basis and the total costs should be made the basis of computing its earnings and not merely the commission and fixed feespaid to it.