Mrs Amisha B Koradia v ITO (ITA No.03/Mum/2011 dtd 19.04.2013) Mumbai ITAT Background: The assessee is a beneficial shareholder in M/s Koradia Construction Pvt Ltd, and has 50% of share-holding. During the course of assessment proceedings, the AO noted that the assessee has taken loan of Rs. 78,10,000/- various dates from this company which has accumulated profit of Rs. 8,00,97,861/-. In the absence of explanation, the AO treated the loan as deemed dividend u/s 2(22)(e) of the Act and added Rs. 78,00,000/- to the income of the assessee. The assessee filed an appeal before the CIT(A) and argued that the AO ignored the fact that the said sum includes remuneration of Rs 2 lacs, opening debit balance of Rs 5,32,396, other debit balances of Rs 4,75,000 amounting to Rs 12,10,396. Further, it includes a sum of Rs. 58 lacs represents advance received from the company towards purchase of flat which ultimately could not go through and the amount was later on refunded. The CIT(A) granted relief to the extent of Rs 12,10,396 and confirmed the balance addition.
Yearly Archives: 2013
Smt Sriram Indubal v ITO (ITA No: 1950 MDS of 2012 dtd 31.01.2013) – Chennai ITAT Background: The assessee had sold a property comprising of land and building for a consideration of Rs. 3,46,50,000. Sale proceeds were invested by the assessee in 54EC bonds in two instalments i.e. first Rs. 50 lakhs in REC Bond on 27.2.2008 and second Rs. 50 lakhs in NHAI Bond on 27.06.2008. The AO held that investments under section 54EC had to be made within six months from the date of transfer of capital asset. Since the statute pegged the investment for which exemption was allowable in an assessment year to Rs. 50 lakhs, the second sum of Rs. 50 lakhs invested on 30.6.2008 was not eligible for deduction under Section 54EC of the Act.
54EC allowed to the extent of Rs 1 crore if split equally between 2 financial ...
CIT v M.D. Jakir Hossain Mondal (ITA No 31 of 2013 dtd 04.04.2013) (Calcutta High Court) Background: The assessee incurred expenditure of Rs. 31 lakhs on freight but did not deduct TDS thereon u/s 194C. The AO held that as there was a failure to deduct TDS, the expenditure could not be allowed as a deduction u/s 40(a)(ia). However, the CIT(A) allowed the claim on the ground that the freight charge was a part of the price of the goods and there was no contract between the assessee and the transporter.
Merilyn Shipping case on 40(a)(ia) distinguished by Calcutta High Court
DCIT vs. Vikas Oberoi (ITAT Mumbai) Background: The assessee was a beneficial shareholder of two companies named Kingston Properties P Ltd. (KPPL), New Dimensions Consultants P Ltd (NDCPL) & R. S. Estate Developers P Ltd (RSEDPL). NDCPL & RESEDPL advanced various sums of money to KPPL towards “share application money”. However, some of the advances were returned by KPPL while some were adjusted towards allotment of shares. The AO held that the transaction was a “colourable device” and a “loan and advance” which fell within the ambit of s. 2(22)(e). The said “loan and advance” was assessed as “deemed dividend” in the hands of the assessee – beneficial shareholder – following Universal Medicare 324 ITR 264 (Bom). The CIT(A) reversed the AO. On appeal by the department to the Tribunal HELD dismissing the appeal:
Share application money not subject to deemed dividend u/s 2(22)(e) – Mum ITAT
Cotton Naturals (I) Pvt. Ltd. v DCIT (I.T.A. No. 5855/Del/2012 dtd 8/2/2013) Delhi ITAT Background: The assessee is a company engaged in the business of manufacturing & export of Ready made Garments. The assessee had entered into international transactions with with its associated enterprise (‘AE’) during the year 2007-08. It had provided loan amounting to USD 10,50,000 to its AE at the rate of 4%. As per Form 3CEB, CUP method was chosen to bench mark the interest received on loan. The assessee has contended that since it has received interest at a rate of 4% which is comparable with the export packing credit rate obtained from independent Banks in India, the interest is at arm’s length price. The TPO by making comparison with uncomparables like government bonds and the amount advanced by the Indian banks in foreign currency to entities in India and by making arbitrary additions of transaction cost, security and risk etc. to such rate determined the arm’s length rate of interest at 17.26% per annum and proposed an addition of RS.68,02,619. The assessee carried the matter to DRP. The DRP ignored all the contentions and held that loan is in Indian currency hence LIBOR is not the relevant rate and ordered that PLR (Prime Lending Rate of RBI for FY 2007-08 be applied. AO accordingly applied the PLR of 13.25%..
LIBOR to be considered for benchmarking intra-group loan transactions – Delhi ITAT
Petro Araldite P Ltd v DCIT (IT APPEAL NO. 6217 (MUM.) OF 2012 dtd 18.1.2013) Mumbai ITAT Background: Assessee is a concern engaged in the manufacture of `Specialty Chemicals’. Its main product is Epoxy Resins. The chemicals manufactured by it are used in the industries operating in Paints, Civil engineering applications, Structural composites, Electrical insulation material, Adhesive and Tooling material. The assessee followed Transactional Net Margin Method (TNMM) to benchmark its international transactions in a composite way for all such transactions taken together. It adopted Profit Level Indicator (PLI) as Operating Profit / Sales which was shown at 4.20%.
TP Update: Mumbai ITAT lays down rules for functional comparability
CIT v M/s Chelslind Textiles Ltd (ITA No: 361/2009 dtd 04/03/2009) – Karnataka HC Background: Assessee claimed deduction u/s 10B amounting to Rs.4,75,30,724/- on the business income of Rs.5,36,70,676. During the course of assessment proceedings, the AO allowed the deduction claimed by the assessee. The Commissioner of Income-tax observed that the AO allowed the deduction without setting-off unabsorbed depreciation amount of Rs.4,26,23,711. Therefore, the CIT in his jurisdiction under Section 263 of the Income Tax Act was of the view that the same resulted in excess deduction allowed under Section 10B of the Act and incorrect determination of loss was carried forward. Therefore, he set-aside the said order and directed the Assessing Officer to re-compute the total income after setting-off the unabsorbed depreciation. Further,the question arose as to whether an assessee incurring losses in the 10A unit has an option to opt out of the benefit under section 10A(8) and make inter-source and inter-head set-off u/s 72.
An assessee can opt out of 10A/10B exemption in the year of loss – Karnataka ...
Sunil Sachdeva v ACIT (IT APPEAL NO. 4179 (DELHI) OF 2011) Delhi ITAT Background: During the course of assessment proceedings, Assessing Officer noticed that assessee sold shares of M/s Capital Advertising Pvt. Ltd. for a sale consideration of Rs. 5,62,87,500/-. Assessee claimed deduction of Rs. 1,22,23,250/- u/s. 54F of the I.T. Act. The assessee has invested Rs. 1,22,23,250/- on 31.7.2008 in the special gain account maintained with the Syndicate Bank. The CIT(A) made an enhancement by holding that assessee is not eligible for deduction u/s. 54F(1) on the payment of Rs. 55,70,800/-. This has been denied on the ground that the payment was made by M/s Capital Advertising Pvt. Ltd. wherein the assessee was Director and not by the assessee himself.
Reimbursement of cost of property entitled to 54F deduction – Delhi ITAT
Zavata India Pvt Ltd v ITO [IT APPEAL NO. 628 (HYD.) OF 2008 dtd 31-01-2013] Hyd ITAT Background: Assessee is in the business of rendering back office processing services in the field of health-care administration. Its services are not akin to call centre services, wherein tele-communication expenses constitute more than 24%. The assessee’s service centre is registered under the Software Technology Parks of India and provides services exclusively to Samsung Data Corporation USA (SDC US), its Associate Enterprise (AE). The SDC US markets services in USA. The revenue sharing policy was determined at the ratio of 85:15 on the gross receipts received from third parties. For the financial year 2003-04, i.e. AY 2004-05, the assessee filed return of income and claimed deduction under S.10A to the extent of Rs. 3,15,69,530.