RBI to Banks : Levy SMS Charges on Actual Usage Basis
RBI/2013-14/381
DBOD. No. Dir. BC. 67/13.10.00/2013-14
DBOD. No. Dir. BC. 67/13.10.00/2013-14
November 26, 2013
All Scheduled Commercial Banks
(Excluding RRBs)
(Excluding RRBs)
Dear Sir/ Madam
Charges Levied by Banks for Sending SMS Alerts
Please refer to paragraph 37 of the Second Quarter Review of Monetary Policy Statement 2013-14 announced on October 29, 2013 (extract enclosed) on 'Customer Service- Charges Levied by Banks for Sending SMS Alerts'.
2. In this connection, a reference is also invited to our circular DBOD. No. Dir. BC. 56/ 13.03.00/ 2006-2007 dated February 2, 2007 on 'Report of the Working Group to Formulate a Scheme for Ensuring Reasonableness of Bank Charges' whereby banks were advised to identify basic banking services on the basis of broad parameters indicated by the Working Group constituted by Reserve Bank of India for the purpose and the principles to be adopted/ followed by them for ensuring reasonableness in fixing and communicating the service charges for the basic banking services.
3. Banks are required to put in place a system of online alerts for all types of transactions irrespective of the amounts involving usage of cards at various channels in terms of circular RBI/ DPSS No. 1501/ 02.14.003/ 2008-2009 dated February 18, 2009 and DPSS. CO. PD. 2224/ 02.14.003/2010-2011 dated March 29, 2011. Banks have accordingly put in place a system of SMS alerts so as to help customers in fraud mitigation and have been levying uniform service charges to various categories of customers.
4. Considering the technology available with banks and the telecom service providers, it should be possible for banks to charge customers based on actual usage of SMS alerts. Accordingly, with a view to ensuring reasonableness and equity in the charges levied by banks for sending SMS alerts to customers, banks are advised to leverage the technology available with them and the telecom service providers to ensure that such charges are levied on all customers on actual usage basis.
Yours faithfully,
(Rajesh Verma)
Chief General Manager
Chief General Manager
Encl: As above
For the purpose of determining the deduction under section 80IA, the eligible deduction in terms of section 80IA(5), has to be reduced from the total incomecomputed under the provisions of the Act, after setting off loss in another unit and if the total income is less than the eligible amount, deductionunder section 80IA has to be limited to such amount. Refer, CIT vs. Accel Trnasmatic Sysyems Ltd. 230 CTR 206 (Ker.
IT: Where purchases were not bogus but were made from parties other than those mentioned in books of account, not entire purchase price but only profit element embedded in such purchases can be added to income of assessee
■■■
[2013] 38 taxmann.com 385 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax
v.
Simit P. Sheth*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 553 OF 2012†
JANUARY 16, 2013
Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of Profits [Bogus purchases] - Assessment year 2006-07 - Assessee was engaged in business of trading in steel on wholesale basis - Assessing Officer having found that some of alleged suppliers of steel to assessee had not supplied steel to assessee but had only provided sale bills, held that purchases made from said parties were bogus - He, accordingly, added entire amount of purchases to gross profit of assessee - Commissioner (Appeals) having found that assessee had indeed made purchases, though not from named parties but other parties from grey market, sustained addition to extent of 30 per cent of purchase cost as probable profit of assessee - Tribunal however, sustained addition to extent of 12.5 per cent - Whether since purchases were not bogus but were made from parties other than those mentioned in books of account, only profit element embedded in such purchases could be added to assessee's income - Held, yes - Whether hence, order of Tribunal needed no interference - Held, yes [Paras 6, 7 & 9] [In favour of assessee]
CASE REVIEW
CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj.) and CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj.) (para 7)followed.
CASES REFERRED TO
Asstt. CIT v. Pawanraj B. Bokadia [Tax Appeal No. 2345 of 2009, dated 27-9-2011] (para 3), CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj.) (para 7), CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj.) (para 7) and Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.) (para 7).
K.M. Parikh for the Appellant.
JUDGMENT
Akil Kureshi, J. - The Revenue is in appeal against the judgment of the Income-tax Appellate Tribunal ("the Tribunal" for short) dated February 24, 2012, raising the following substantial question of law for our consideration :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in restricting the disallowance to the extent of 12.5 per cent of the bogus purchase, without appreciating the factual aspect and by ignoring the manifest evidence relied upon by the Assessing Officer and overlooking the ratio laid down by the hon'ble High Court in the case of Pawanraj B. Bokadia in Tax Appeal No. 2345 of 2009, dated September 29, 2011 ?"
2. Briefly stated facts are :
2.1 That the respondent-assessee is engaged in the business of trading in steel on wholesale basis. For the assessment year 2006-07, the assessee filed a return of income declaring total income of Rs. 1,95,500. The assessment was reopened by issuing notice under section 148 of the Income-tax Act on March 28, 2008.
2.2 During the course of the reassessment proceedings, the Assessing Officer noticed that some of the alleged suppliers of steel to the assessee had made their statements on oath to the effect that they had not supplied the steel to the assessee but had only provided sale bills. In turn, they were receiving a small commission.
2.3 The Assessing Officer pursued the issue further. In the assessment order, he recorded that the case of the three so-called suppliers, viz., Bhavna Trading Co., M/s. Minaxi Enterprise and Arun Industrial Corporation, there were no documents other than the delivery challans and sale invoices. There was no movement of goods. The Assessing Officer, therefore, concluded that the total purchases of Rs. 41,04,903 cumulatively made from the said three parties were bogus. He, thus, treated such purchases as bogus purchases and added the entire amount of Rs. 41,04,903 to the gross profit of the assessee. He also rejected the books of account and estimated the assessee's business profit at Rs. 5 lakhs.
2.4. The assessee thereupon preferred an appeal before the Commissioner (Appeals). The Commissioner (Appeals) though confirmed the view of the Assessing Officer that the purchases were not made by the said three parties, viz., Bhavna Trading Co., M/s. Minaxi Enterprise and Arun Industrial Corporation, but believed that the appellant-assessee had made the purchases from other parties in the open market. Thereupon, he retained 30 per cent of the purchase cost as the probable profit of the assessee. The Commissioner (Appeals) reduced the additions from Rs. 41,04,903 to Rs.12,31,471 and deleted the balance of Rs. 28,73,432. While doing so, he deleted the addition of Rs. 5 lakhs as made by the Assessing Officer on the ground that since the addition on account of bogus purchases had already been made the same cannot be formed the basis for books of account and estimating the income.
2.5 Such order of the Commissioner (Appeals) gave rise to two appeals one by the assessee and another by the Revenue. Such appeals came to be disposed by the Tribunal by a common judgment dated February 24, 2012. The Tribunal was of the opinion that twelve and half per cent of the disputed purchases should be retained in the hands of the assessee as business profit. In the result, the Tribunal partially allowed the assessee's appeal. In the final conclusion though the Revenue's appeal was also partly allowed, we fail to see in what manner.
3. It is this judgment of the Tribunal which is in challenge before us at the hands of the Revenue. Learned counsel, Mr. Parikh, vehemently contended that the Commissioner (Appeals) and the Tribunal both committed a serious error in overturning the Assessing Officer's decision to make full addition of Rs. 41,04,903 when the purchases are found to be bogus. There was thereafter no question of retaining only a portion thereof for addition to the income of the assessee. Counsel heavily relied on the decision of a Division Bench of this court in the case of Asstt. CIT v. Pawanraj B Bokadia [Tax Appeal No. 2345 of 2009, dated September 27, 2011], wherein this court was pleased to allow the Revenue's appeal and reinstate the entire additions of the bogus purchases made by the Assessing Officer.
4. In the present case, however, we notice that before the Commissioner (Appeals), the assessee pointed out that the assessee was trading in steel. Once his sale of "x" quantity of steel is accepted, the purchases of the same quantity had to be believed. It was canvassed that the assessee had made sales of 1,10,786 metric tons of steel. Therefore, there had to be a matching quantity of purchase of steel also. It was argued that since the Assessing Officer accepted the sales of the steel, equivalent of purchase also must be believed. It was in this background that the Commissioner (Appeals) made the following observations :
"4.3 I have considered the submissions of the authorized representative and the order of the Assessing Officer. It has been admitted that there was a regular arrangement for providing accommodation sales bills. The appellant has not been able to provide a confirmation from the supplier that the goods where indeed supplied to the appellant. It is an established fact that the onus lies on the appellant to prove that the purchases are genuine. The appellant has made the payments in cheque and the sales made by the appellant have been accepted in toto by the Assessing Officer. Hence, it is to be presumed that though the bills made have been given by M/s. Bhavna Trading Co., M/s. Minakshi Enterprises and M/s. Arun Industrial Corporation the actual purchases have not been made for them. It can, therefore, be concluded that the appellant has made purchases from persons in the open market. Taking into account all the relevant facts of the case I hold that 30 per cent of the purchase cost would be a reasonable amount to be confirmed, to cover the profits of the appellant. Hence, the addition to the extent of Rs. 12,31,471 is confirmed and the balance of Rs. 28,73,432 is directed to be deleted."
5. We are broadly in agreement with the reasoning adopted by the Commissioner (Appeals) with respect to the nature of disputed purchases of steel. It may be that the three suppliers from whom the assessee claimed to have purchased the steel did not own up to such sales. However, the vital question while considering whether the entire amount of purchases should be added back to the income of the assessee or only the profit element embedded therein was to ascertain whether the purchases themselves were completely bogus and non-existent or that the purchases were actually made but not from the parties from whom it was claimed to have been made and instead may have been purchased from grey market without proper billing or documentation.
6. In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account.
7. That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. [2013] 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Fab (P.) Ltd. [2013] 355 ITR 290 (Guj). The view taken by the Tribunal in the case of Vijay Proteins Ltd. v. Asstt. CIT [1996] 58 ITD 428 (Ahd.) came to be approved.
8. If the entire purchases were wholly bogus and there was a finding of fact on record that no purchases were made at all, counsel for the Revenue would be justified in arguing that the entire amount of such bogus purchases should be added back to the income of the assessee. Such were the facts in the case of Pawanraj B. Bokadia (supra).
9. This being the position, the only question that survives is what should be the fair profit rate out of the bogus purchases which should be added back to the income of the assessee. The Commissioner adopted the ratio of 30 per cent of such total sales. The Tribunal, however, scaled down to 12.5 per cent. We may notice that in the immediately preceding year to the assessment year under consideration the assessee had declared the gross profit at 3.56 per cent of the total turnover. If the yardstick of 30 per cent, as adopted by the Commissioner (Appeals), is accepted the gross profit rate will be much higher. In essence, the Tribunal only estimated the possible profit out of purchases made through non-genuine parties. No question of law in such estimation would arise. The estimation of rate of profit return must necessarily vary with the nature of business and no uniform yardstick can be adopted.
10. In the result, the tax appeal is dismissed.
USP†Arising out of order of ITAT, dated 24-2-2012.
Understanding deductions of section 80-IA & IB with Latest Case Laws
Chapter VIA of the Income Tax Act, 1961 covers only deductions available to assessee under section 80 of the Income tax act, 1961. The assessee by some act as mentioned can reduce its taxable under this provisions. Amongst number of sub-sections of chapter VIA, the most important is section 80-IA and 80-IB as this relates to the deductions on the profit made oninfrastructures projects and also the most litigated sections. In case you claim deductions under this section, 90% chances are that AO will dispute your claim and then the process of litigation begins. Hence, it is very important and crucial to understand this sections with the help of latest judicial decisions in this regard, which are given below.
· In the case of Excel Cotspin (India) P. Ltd. v. Dy. CIT, Chennai ITAT held that TheElectricity Board purchased power produced by assessee who was manufacturer of Yarn and had installed windmill for the purpose. Where electricity generated by assessee was collected by Electricity Board at lower rate and released to assessee whenever required, it was held that profits of the eligible undertaking were to be determined on the basis of the annual loading cost of electricity purchased by assessee from Electricity Board.
· To qualify for deduction under Section 80IB(4) of the Act, one of the essential requirement is that the industrial undertaking should have begun to manufacture or produce articles or things on or before March 31, 2004. It was held that where the assessee had not even applied for a factory licence before 31 March 2004, the necessary condition under Section 80IB was not fulfilled. However, where application for licence was already made before 31 March 2004, but licence was obtained shortly thereafter, such lapse must be viewed as purely technical. The grant of licence would not relate back to the original date of application. Refer, CIT v. Jolly Polymers, 342 ITR 87 (Guj.) (High Court).
· The quantum of deduction u/s 80 IA is not dependent upon the assessee claiming or not claiming depreciation , because u/s 80 IA the quantum of deduction has to be determined by computing total income from business after deducting allowable u/s 30 to 43D. Refer, Plastibends India Limited Vs Add CIT, ITA No. 1282/Mum/2007 dated 16-10-2009.
· Interest on margin money deposits cannot be considered as income derived from the business for the purpose of granting deduction u/s 80-IB . Refer, Avanti Feeds Limited V DCIT, ITA Nos. 1170 & 1153/Hyd/ 04 dated 23-1-09.
· Assessee having constructed Wing "E" after obtaining commencement certificate in 2002 and 2003 though similar certificates had been obtained prior to 1998, in respect of A, B, C, and D wing, Wing E was a separate housing project and same having been completed before 31st March 2005, the assessee was entitled deduction under section 80IB(10) in respect of "E" Wing. Refer, Vandana Properties vs. ACIT, 128 TTJ 89 (Mum.)(UO).
· Additional income surrendered by the assessee firm having been added to the income of the business itself, it is to be considered while working the deduction under section 80IB. Refer, CIT vs. Allied Industries, 229 CTR 462.
· Exchange rate difference arises out of and is directly related to sale transaction involving export of goods of the industrial undertaking and, therefore, the difference on account of exchange fluctuation is entitled to deduction under section 80IB., Refer, CIT vs. Rachna Udhyog, 230 CTR 72.
· Interest received by an assessee on overdue payments from customers is eligible for deduction under section 80IA. Refer, CIT vs. Advance Detergents Ltd, 188 Taxman 15.
· Initial assessment year for the purpose of section 80IA is the assessment year relevant to the previous year in which the commercial production is started and not the assessment year in which there was only a trial production. Refer, CIT vs. Nestor Pharmaceuticals Ltd, 36 DTR 200.
· For the purpose of determining the deduction under section 80IA, the eligible deduction in terms of section 80IA(5), has to be reduced from the total incomecomputed under the provisions of the Act, after setting off loss in another unit and if the total income is less than the eligible amount, deduction under section 80IA has to be limited to such amount. Refer, CIT vs. Accel Trnasmatic Sysyems Ltd. 230 CTR 206 (Ker.)
· Kolkata ITAT in the case of DCIT v. Tide Water Oil Co.(I) Ltd, ITA No. 20151/Kol/10 dated 20-1-2012.BCAJ Pg. 27, Vol. 43 B Part 5, held that return of income, nor was it filed in the course of assessment proceedings, the assessee is not making any fresh claim for deduction u/s. 80IB but merely furnishing the documents to substantiate its claim made during the course of assessment and even reassessment proceedings and hence deduction to be allowed.
· The assessee which is involved in manufacturing activities and selling of additives on commission basis , claimed deduction under section 80IB on service income, interest on deposits interest received from employees, commission received , compensation from sundry debtors for delayed payments and income on imported materials. Though the assessee preferred appeal against all the issues the court has admitted the appeal only in respect of service income and commission received. The court held that section 80IB and 80IA are code by themselves. As the finding has been given by the Tribunal that the income is not derived from industrial undertaking , deduction under section 80IB is not eligible. Order of Tribunal confirmed. Refer, Indian Additives Ltd v. Dy. CIT, 67 DTR 389.
· Mumbai High Court in the case of CIT v. Beta Cosmetics, P 31 -683 (2012)43-B BCAJ (Bom) (High Court), held that assessee is engaged in the business of production of perfumed hair oil using coconut oil and mineral oil as per the requirement of Hindustan Lever Ltd . The assessee claimed the deduction under section 80IB.The Assessing Officer rejected the claim. In appeal before the Tribunal the Tribunal allowed the claim of assessee. On appeal by revenue the Court following the ratio of supreme Court in CCE v. Zandu Pharmaceutical Works Ltd (2006) 12 SCC 453,wherein it has been held that addition of perfume to coconut oil to produce perfumed oil constitute a manufacturing process, hence decision of Tribunal holding that the assessee is engaged in manufacturing activity is justified . The appeal of revenue was dismissed.(A.Y. ITA no 5779 of 2010 dt 30-11-2011 ).
· Mumbai High court in the case of CIT v. Vandana Properties held that multiple housing projects on the one acre plot is eligible for deduction under section 80-IB.
· Mumbai ITAT in the case of Maju Gupta (Smt) v. Asst. CIT held that Date of commencement of development and construction of housing project was date when assessee actually started and carried out the work of development and not when the project was first approved. Residence flats sold to company was let out by company for commercial use, exemption to assessee cannot be denied. Two flats exceeded 1000 square feet each , exemption can be allowed proportionately after excluding profits from two flats.
· Ahemdabad ITAT in the case of DCIT v. Parshwanath Reality P.Ltd, BCAJ –January -2012-477, held that The assessee has entered into 'Development agreement' with Kalpataru Park Millenium Co-Operative Housing Society Ltd for the purpose of developing the housing project .The Assessing Officer has rejected the claim under section 80IB(10),holding that the assessee is not the developer. The Commissioner (Appeals) held that the assessee is entitled to deduction . On appeal by the revenue the Tribunal held that the developer had all dominant control over the project and developed the land at his own cost and risks . All transactions pertaining to the project have been entered in entirety in the books of account of the assessee . The Co-operative Society did not account for any eceipts or expenditure in connection with the building of house .The Tribunal has analysed various clauses in the agreement and come to the conclusion that the assessee is the developer. The Tribunal also held that the decision of Apex court in K.Raheja Development Corporation is dealing with Karnataka Sale Tax Act, hence ratio can not be applied to interpret the provisions of section 80IB (10). Accordingly the Tribunal held that the assessee is eligible for deduction under section 80IB (10) ,accordingly the appeal of revenue was dismissed.
· Loss of earlier year set off cannot be considered. only the loss from the initial assessment year to be brought forward. Refer, Asst.CIT v. Eveready Spinning Mills Ltd, 14 ITR 491.
· Assessee which is in the business of producing of TV sets by purchasing and assembling items like cabinet, chassis, IC, Picture tube, etc., could be held to be manufacturing activity and entitled to deduction under section 80IC. Refer, CIT v. I. Tech Electronics, 341 ITR 533.
· Assessee in the return of income claimed the excess depreciation due to mistake. The same was rectified and revised chart was filed due to which claim under section 80IA was increased. The Tribunal held that assessee is entitled to deduction as per revised chart. Assessee maintained separate books of account, and also allocated the expenses. The Assessing Officer allocated the expenses in "total turn over ratio". The Tribunal held that when the assessee maintained a separate books of account apportioned of expenses on the basis of "total turn over ratio" was not proper and dismissed the appeal of department. Refer, ACIT v. P. I. Industries, 144 TTJ 353.
· Despite "Dependence" on Old unit, unit can be "New Industrial Undertaking" and entitled deduction. Refer, Gujarat Alkalies & Chemicals Ltd. v. CIT.
· Assessee which is engaged in the business of manufacturing and sale of cotton hosiery goods, claimed deduction under section 80I in respect of dry cleaning charges. The Court held that dry cleaning charges do not constitute income derived from industrial undertaking, hence, not eligible for deduction. Refer, Nahar Spinning Mills Ltd. v. CIT, 66 DTR 257.
· One unit of the assessee is eligible for deduction under section 80IC, where as other two units are not eligible for deduction under section 80IC. The Assessee has filed a consolidated statement without substantiating individual items as to how why they should not be considered for the purpose of allocation of common expenses. The Court held that allocation of financial expenses to the eligible unit has to be in the ratio of turnover of the eligible business to the total turnover for the purpose of computing deduction under section 80IC. Refer, Controls & Switchgear Co. Ltd, 66 DTR 161.
· Assessee is a builder is engaged in construction and development of residential units. For the relevant years the assessee filed its return of income declaring nil income after claiming deduction under section 80IB(10). The Assessing Officer rejected the claim on the ground that completion certificate was issued on later date by Municipal Authorities and covered area /built up area of residential units was more than prescribed limit. Tribunal found that as the housing project was approved by local authority on 22‐3‐2001 (Before 1stday of 2004), same had to be completed on or before 31‐3‐2008. As per the clarification issued by Municipal corporation date of completion of project was 27‐2‐2008. When the launch of project the Income‐tax Act did not define the 'built up area' As per M.P. Nagar Grah Nirman Adhiniyaam and M.P.Bhumi Vikas Niyam, 1984, which were applicable to assesse's case, built up area was less than prescribed limit of 1500 sq. ft. Refer, Global Reality v. ITO, 134 ITD 407.
· The assessee entered into a 'development agreement' with the owner of the land pursuant to which it agreed to develop the land. Deduction under section 80‐IB(10) in respect of the profits arising from the said activity was claimed on the ground that it was "derived from the business of undertaking developing and building housing project approved by the local authority". The Assessing Officer & CIT(A) rejected the claim on the ground that the assessee was not the "owner" of the land and that the approval of the local authority to, and the completion certificate of, the "housing project" was given to the owner and not to the assessee. However, the Tribunal allowed the claim. On appeal by the department to the High Court, HELD dismissing the appeal: Section80IB(10) allows deduction to an undertaking engaged in the business of developing and constructing housing projects. There is no requirement that the land must be owned by the assessee seeking the deduction. Under the development agreement, the assessee had undertaken the development of housing project at its own risk and cost. The land owner had accepted the full price of the land and had no responsibility. The entire risk of investment and expenditure was that of the assessee. Resultantly, profit and loss also accrued to the assessee alone. The assessee had total and complete control over the land and could put the land to the agreed use. It had full authority and responsibility to develop the housing project by not only putting up the construction but by carrying out various other activities including enrolling members, accepting members, carrying out modifications engaging professional agencies and so on. The risk element was entirely that of the assessee. The assessee was a "developer" in common parlance as well as legal parlance and could not be regarded as only a "works contractor". The Explanation to section 80IB inserted w.r.e.f. 1.4.2001 has no application as the project is not a "works contract". Further, as the assessee was, in part performance of the agreement to sell the land, given possession and had also carried out the construction work for development of the housing project, it had to be deemed to be the "owner" under section 2(47)(v) r.w.s. 53A of the TOP Act even though formal title had not passed (Faqir Chand Gulati vs. Uppal Agencies(2008) 10 SCC 345 distinguished) Refer, CIT v. Radhe Developers, 204 Taxman 543.
· Excise income and insurance claim received for shortage of material is entitle to deduction under section 80IB. Refer, ITO v. Electro Ferro Alloys Ltd, 13 ITR 594.
· Department has not challenged the decision of Tribunal in the case of assessee for earlier years holding that the assessee is engaged in manufacturing activity and thus entitled to deduction under section 80IB. High Court refused to entertain the question applying the rule of consistency. Refer, CIT v. Arts & Crafts Exports, 66 DTR 85.
· Deduction u/s. 80IA is available to a developer and not to a contractor, assessee doing only contract works of insitu cement lining for water supply project of the Gujarat Water Supply and Sewerage Board is not a developer, hence not eligible for deduction u/s. 80IA. Refer, Indwel Linnings (P) Ltd., 122 TTJ 137.
· Assessee doing job work in its industrial undertaking by utilizing the very same Machinery and labour, conversion charges in connection with such job work have a direct nexus with the manufacturing activity of assessee, hence "derived from" industrial undertaking eligible for relief u/s. 80IB. Refer, Biotech Medicals (P) Ltd., 121 TTJ 858.
· Assessee having filed the names of casual workers as well as the details of payments made to the casual workers and the total number of workers being more than ten relief u/s. 80IB could not be denied on the basis of number of employees recorded in the attendance register which did not include the names of casual workers. Refer, Rajesh Kapila & Ors, 22 DTR 569.
· Section 80IA(4)(iii), only postulate that section would apply to any undertaking which develops, develops and operates or maintains and operates an industrial park notified by Central Government in accordance with a scheme framed for a period beginning on 1-4-1997 and ending with 31-3-2006. Section does not contain a condition to effect that industrial park must commence operation by 31-3-2006. The Court held that stipulation in para. 3 of Industrial Park Scheme, 2002, that industrial park should be developed, developed and operated or to be maintained and operated for period beginning on 1-4-1997 and ending on 31-3-2006 must be read harmoniously with Para. 9 of scheme which contemplates a situation where commencement of any industrial park is delayed by more than one year from date indicated in application in which a fresh approval has to be granted. Refer, Silver Land Developers (P) Ltd v. Empowered Committee, 203 Taxmann 529.
· Assessee had two undertakings i.e. undertaking engaged in business of generation and distribution of electricity and other one was a steel division. Steel division drew the electricity from the undertaking which generated the electricity. The income of Electricity division is exempt under section 80IA.The assessing found that the assessee has charged more rate than it has charged to State Electricity Board (SEB). The assessing Officer took the view that the assessee has inflated the profit of eligible undertaking and deflated taxable profits of steel undertaking hence invoked the provision of section 80 IA (8). The Tribunal held that price at which SEB supplied to its consumer to be considered as market price in respect of electricity drawn for captive consumption of assessee's steel division for the purpose of section 80IA(8) and not price at which electricity was sold by assessee to SEB, accordingly upheld the order of Commissioner (Appeals). Assessee was engaged in business of generation of and sale of electricity. Flash ash was a by product generated out of production of electricity. Assessee used Fly ash in making fly ash bricks. Assessee claimed that profit earned on sale of fly ash bricks is also eligible profits for the purpose of claiming of deduction under section 80IA. The Tribunal held that brick making unit of assesee was a separate unit with a distinct set up and process , separate technology and manpower etc, profits derived from manufacture and trade of bricks , could not constitute "operational income" of" Power generating unit" of assessee , therefore assessing officer was justified in rejecting asseseee's claim.
· Manufacturing activity was carried out at the factory premises of the assessee with the help of permanent employee and job workers. The total number of workers employed by the assessee directly and those hired through a contractor in the manufacturing activity being more than ten condition set out in section 80IB (2) (iv) stood complied , even though the workers employed by the assessee directly were less than ten. Assessee was held to be entitled to deduction under section 80IB. Refer, CIT v. Jyoti Plastic Works (P ) Ltd, 339 ITR 491.
· Assessee engaged in business of manufacturing activity of ginning and processing of cotton, cannot claim deduction under section 80IB with regard to excess cash, interest credited and income earned from weigh bridges , as said items of income could not be said to have been derived from or have nexus with eligible industrial undertaking. Refer, Maa Vaishno Devi v. ITO, 48 SOT 399.
· Assessee entered in to an agreement for jointly developing a housing project on its land ,undertaking the responsibility of obtaining all statutory clearance permissions, etc for putting up the housing project on the land as well as responsibility to remove all structures and unauthorized occupants of the land, and agreeing to share the gross sale proceeds the housing project with the other company in an agreed ratio, the activities undertaken by the assessee are activities relating ti development of housing project and therefore are activities relating to development of the housing project and, therefore , it is to be treated as a developer entitled to deduction under section 80IB (10). Refer, Asstt CIT v. Bombay Real Estate Development Company ( P ) Ltd, 64 DTR 137.
· When as per the approved plan the assessee has sold each flat under separate agreement which are less than 1000 sg. Ft. deduction under section 80IB can not be denied to the assessee merely because some of the purchasers have purchased more than one flat and combined the same and area of such flats is more than 1000 sg. ft. of built up area. The definition of "Built up area" as given in sub section 14 (a) of section 80IB is inserted by the Finance (No 2 ) Act 2004 w.e.f. 1st April 2005 and therefore the same is applicable only in respect of the projects approved after 1st April, 2005 and consequently, balcony / terrace cannot be included in the built up area of the flats in the hosing projects approved prior to 1st April 2005. Refer, Haware Constructions (P ) Ltd v. ITO, 64 DTR 251.
· Assessee having purchased land and developed a housing project consisting of residential flats having built up area of less than 1500 sq.ft each by incurring all expenses and taking all the risk involved therein and received entire sale consideration from the buyers after completion of the housing project in its own right , deduction under section 80IB(10) could not be denied on the ground that the permissions and approvals by the local authorities were in the name of the housing society (Land owner) and not in the name of the assessee. As per the definition given in section 80IB (14)(a), built up area means, inner measurement of the residential unit at the floor level including the projections and balconies as increased by the thickness of the walls but does not include the common areas shared with other residential units. Open terrace is open to sky would not be part of the inner measurement of the residential unit at any floor level. The Assessing Officer was not justified in rejecting the assesee's claim by taking the open terrace , the built up area of each of the 110 units less than 1500 sq.ft ,therefore the claim of assesse was allowed. Refer, Amaltas Associates v. ITO, 64 DTR 329.
· Conversion proprietorship in to a partnership was nether a case of amalgamation nor transfer of capital asset attracting the provisions of section 45 (3) for charge of capital gains tax, the assessee would not be denied the deduction s under section 80IC for remaining unexpired period after such conversion. Refer, 203 Taxmann 236.
· In appeal against the order of Tribunal, the High Court set a side the order of Tribunal , against the Order of the High Court the assessee filed an SLP before the Supreme Court. On 5th Jan 2011 the apex court permitted the department to proceed with reassessment ,without prejudice to rights and contention of parties. Assessing Officer passed the order disallowing the deduction under section 80IA. Considering the peculiar facts the Apex Court set a side the matter to the file of CIT (A) to decide a fresh uninfluenced by the earlier order of CIT under section 263 as well as impugned order passed by High Court. Refer, Teknika Components v CIT, 202 Taxman 623 (SC).
· Electricity generated by assessee, collected by Electricity Board and releases to assessee when ever required. Assessee neither selling nor buying as far as captive consumption of power is concerned. Assessee paid consumption of power more than contribution. Market value to be taken for consumption. Under section 80IA (8) market value means the value determined by market forces. In the captive consumption of power generated by the assessee company no market force was operating. Market forces came in to the picture only when the assessee bought power from Tamil Nadu Electricity Board like any another consumer. The value paid for such consumption was the market value and in the present case it was 3.50 per unit. Therefore the contention of the assessee was to be accepted and the assessing authority was to recomputed the profit and gains of the eligible unit for the purpose of section 80IA on the basis of the unit price of electricity generated by the assessee company at 3.50 per unit. Refer, Sri Velayidhaswamy Spinning Mills P. Ltd v Dy CIT, 12 ITR 353.
· Bangalore ITAT in the case of Anil Lad held that In AY 2006-07 the assessee installed a windmill, the profits of which were eligible for 100% deduction u/s 80-IA. Owing to depreciation and loss, the assessee did not claim s. 80-IA deduction in AY 2006-07 & 2007-08 and set-off the loss and depreciation against other income. In AY 2008-09, the assessee earned profits from the windmill and claimed deduction u/s 80-IA. The AO & CIT (A) relied on the Special Bench decision in ACIT vs. Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 and held that in view of s. 80IA(5), the loss and unabsorbed depreciation of the eligible unit, though set-off against the other income, had to be "notionally" carried forward for set-off against the profits of the eligible undertaking. On appeal by the assessee, HELD allowing the appeal: Though in Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 it was held that in view of s. 80IA(5), the eligible unit had to be treated as the only source of income and the profits had to be computed after deduction of the notionally brought forward losses and depreciation of the eligible business even though they were in fact set-off against other income in the earlier years, the Madras High Court held in Velayudhaswamy Spinning Mills P. Ltd. v. ACIT 38 DTR 57 held that such a notional exercise was not contemplated by s. 80IA (5). It was held that the fiction in s. 80-IA (5) that the eligible unit is the only source of income begins from the "initial assessment year" which is not the same thing as the year of commencement of activity. The law contemplates looking forward to a period of ten years from the initial assessment and does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off has taken place in an earlier year against the other income, the Revenue cannot rework the set off amount and bring it notionally. The fiction in s. 80-IA(5) is for a limited purpose and does not contemplate to bring set off amount notionally. The judgement of a constitutional court has overriding effect.
· The assessee availed/set off Modvat credit of excise duty of earlier years amounting to Rs. 1.93 crores. The AO held that s. 80-IB deduction was not admissible on the said Modvat credit on the ground that the "source of the income was government policy imposing excise duty at differential rate" and it was not "derived" from the industrial undertaking. This was reversed by the CIT (A). On appeal by the department, HELD dismissing the appeal: The payment of central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufacturing activity. The issue of payment of Central excise duty would not arise in the absence of any industrial activity. There is, therefore, an inextricable link between the manufacturing activity, the payment of central excise duty and its refund. Consequently, it is "derived" from the industrial undertaking and eligible for s. 80-IB deduction (CIT vs. Meghalaya Steels 332 ITR 91 (Gau) and J.K. Aluminium vs. ITO (ITAT Delhi) followed. Refer, ACIT v The Total Packaging services (Mumbai ITAT).
· Mumbai High Court in the case of CIT v Tridoss Laboratories Ltd, 224 Taxation 382, held that After set off of carried forward losses, the income of the assessee for the A.Y was Rs.14,57,200/‐ while the profit from industrial undertaking were Rs 98.43 lacs . The Tribunal restricted the deduction to Rs 14,57,200. The High court up held the order of Tribunal.
· The word 'production' is wider in scope than 'manufacture' and would include by‐products and other residual products resulting during the course of manufacture. Hence the activity of converting boulder into grits/stone chips/powder may not be 'manufacturing' but would amount to 'production' and therefore the assessee would be entitled to deduction u/s. 80‐IB on the said activity. Refer, CIT v. Mallikarjun Georesources Associates, 201 Taxman 86 (Uttarakhand).
· Refund of Excise Duty has a direct nexus to the manufacturing activity of the assessee and hence the same qualifies for deduction under section 80‐IB. Transport subsidy & Interest Subsidy‐ Transport & Interest Subsidies received by the assessee, cannot be said to be derived from the industrial activity and the same would not qualify for deduction under section 80‐IB. Refer, CIT v. Meghalaya Steels Ltd., 201 Taxman 135.
· When the assessee has taken possession of land after the payment of full consideration and developed it, the assessee has fulfilled all the conditions laid down in section 80IB(10), therefore entitled to deduction under section 80IB. Refer, ACIT v. C. Rajini (Smt), 140 TTJ 218 (Chennai) (Trib).
· As per the scheme, what was required to be done by the petitioner was to provide for infrastructural facilities before last date envisaged under the scheme. There after there was no obligation on the part of the petitioner to ensure that industrial units on such plots must also come into existence and commence their production activities , therefore impugned show cause notice for withdrawal of approval of assessee's Industrial Park was quashed and the CBDT was directed to notify the same. Ordinarily Courts do not encourage litigation at the show cause notice state but where the show cause notice is based on premise which is legally not sustainable, writ petition held to be maintainable. Refer, Ganesh Housing Corporation Ltd v Padam Singh Under secretary, 61 DTR 1.
· Assessee entered into agreement for supply of power. Agreement providing that if power not required, compensation charges to be paid. Amount received for deemed generation of power is entitled to deduction under section 80IA as the compensation has direct nexus with the business of generation of power. Refer, Magnum Power Generation Ltd v Dy CIT, 11 ITR 493.
· Different parts of windmill when assembled get transformed in to an ultimate product which is commercially known as a "windmill" which amounts to manufacture or production with the meaning of section 80 IB (2) (iii). Refer, CIT v Chiranjeevi Wind Energy Ltd, 243 CTR 195.
· Assessee himself is making the final product ie. ,water purification system , it can not be said that he is not engaged in manufacture merely because , some material is readily purchased from the market and some raw material is got manufactured by outsourcing , assessee having employed twenty or more workers during the major part of the year , there is substantial compliance of the condition of employment of minimum number of workers and ,therefore assessee is entitled for deduction under section 80IB , more so when similar deduction has been allowed in the preceding years. Refer, P.L.Patel v ITO, 60 DTR 53.
· Assessee –HUF was engaged in manufacturing of moulds for ball pens and, supplying same to ball pen manufacturing concerns. It also provided services to buyers by way of repair and maintenance of moulds sold to them and charged job work charges ,which included receipt on account of sale of spare parts and repair and maintenance charges. The Tribunal held that income earned by assessee could not be from repairs and maintenance charges could not be equated at par with income from manufacturing and hence not eligible deduction in terms of section 80IB. Since in the absence of record of assessee it was not possible to decide how much was for repairs and how much for was job charges it was estimated at 50% of receipt as job work charges on which the assessee would entitled deduction under section 80IB and balance 50% as receipt on account of repair and maintenance charges on which the assessee would not be entitled to get deduction under section 80IB . Refer, Dy CIT v Rajesh kr. Drolia, 132 ITD 23.
· Commercial area of the residential plus commercial project did not exceed 8.8% of total area, further, deduction is eligible to housing project approved by the local authority as such or as "residential plus commercial project" having residential as well as commercial units to the extent permitted under the DC Rules .Assessee is entitled to deduction under section 80 IB (10). Refer, Bhumiraj Homes Ltd v Dy CIT, 60 DTR 65.
· Under pre amended section as long as a residential unit has less than specified area , is as per duly approved plans and is capable of being used for residential purposes on stand alone basis , deduction under section 80IB (10), can not be declined in respect of same merely because end user , by buying more than one such unit in name of family members has merged those residential units in to a larger residential unit of a size which is in excess of specified size. Amendment ,made to section 80IB (10) with effect from 1‐4‐2010, is prospective in nature. Refer, Emgeen Holdings (P) Ltd v Dy CIT, 47 SOT 98.
· Interest on delayed payment of sale amount is eligible for deduction under section 80IA , further , during the course of the business the assessee receives / pay liquidated damages for not honouring a contract for sale of products and therefore, such income is directly derived from the industrial undertaking, thus eligible for deduction under section 80IA. Refer, CIT v Prakash Oils Ltd, 58 DTR 279.
· Conditions as laid down for claiming deduction under section 80IA /80IB are to be complied within the initial year and not in all the assessment years in which the assessee is eligible for deduction. Once the assessee has complied with the conditions as laid down in sections 80IA / 80IB in the initial year, expansion or extension of the existing unit by acquiring assets of another units in a subsequent year does not disentitle the assessee to claim deduction under sections 80IA/80IB in respect of increased profit due to such expansion or extension of industrial undertaking. Refer, Aqua Plumbing (P) Ltd v Asst CIT, 46 SOT 366( Agra) (Trib).
· Whether deduction should be allowed in the case of flats having build up area not exceeding 1500 sq ft, even though some of the flats were exceeding 1500 sq ft. On reference to third member , the third member held that in view of order passed by Calcutta High Court in CIT v Bengal Ambuja Housing Development Ltd (IT Appeal no 458 of 2006 dated 5‐1‐2007 ) , assessee was entitled to deduction under section 80 IB (10) in respect of flats having built up area not exceeding 1500 square feet and not entitled for deduction in respect of those flats having their built up area exceeding 1500 square feet. The third member also held that in view of CIT v Brahma Associates ( 2011)197 Taxman 459 (Bom) (High Court) , finding of Vice president on the issue of fixing limit of 10 percent cap does not hold good. ( A.Ys. 2005‐ 06 & 2006‐07). Refer, Sanghvi & Doshi Enterprise v ITO, 131 ITD 151 ( Chennai) (TM ) (Trib).
· For claiming deduction under section 80IB , it is not necessary for assessee to compute entire project and even on partial completion of project , assessee would be eligible for deduction under section 80IB. Refer, Nagarjuna Homes v ITO, 46 SOT 287 (Hyd) (Trib).
· Deduction u/s. 80‐IB is allowable on profits of job work and also on miscellaneous receipts, rebate/discounts and balances written off‐. Refer, CIT V/s. Metalman Auto P. Ltd.199 Taxman 149 (P & H.) (Mag.)( High Court).
· Activity of forging which involves heat treatment of material to produce automobile parts is "manufacture " and therefore , labour charges and job work charges earned bythe assessee for doing the job of forging for customers are gains derived from industrial undertakings and the same are entitled for deduction under section 80IB. Saleof scrap which generated in the process of manufacturing activity and proximate there to constitute gains derived from Industrial undertaking for the purpose of computingdeduction under section 80IB. Refer, CIT v Sadhu Forgings Ltd, 57 DTR 194/242 CTR 158 ( Delhi) (High Court).
· Assessee having constructed multistoried buildings for the purpose of developing infrastructure facilities as approved by the Ministry of Industry and Commerce andleased out to five /four floors to some tenants who are carrying on their diverse operations as functionally independent units, each floor could be taken as independent unit, and deduction under section 80 IA (4) (iii) could not be denied on the ground that all the floors of the same building occupied by same tenant cannot be construed as oneunit and that it was not operating five units in asst year 2007‐08 and four units in the next year as stipulated in the approval granted by the said Ministry. Once the projects are approved and notifications are made by the appropriate authorities the approval and notification run back to the date of commencement of the activities and therefore,deduction under section 80IA (4)(iii) cannot be declined on the ground that the assessee has started functioning even before the formal order of approval and notification. Refer, Primal Projects (P) Ltd v Dy CIT, TTJ 233 ( Bang) (Trib) / 56 DTR 291.
· Transport subsidy received by the assessee under the scheme framed by the Central Government cannot be profits derived from the industrial undertaking and is not eligible for deduction under section 80 IA of the Act. Refer, CIT vs. Maharani Packaging (P) Ltd. 55 DTR 340 (HP)( High Court).
· Relying on the judgement of the Larger Bench in B. T. Patil & Sons 126 TTJ 577 (Mum), the assessee's claim for deduction u/s 80‐IA(4) was denied by the Tribunal on the
ground that the assessee was only a contractor and had not complied with all the conditions specified in sub‐clauses (a), (b) & (c) of clause (i) of s. 80‐IA(4). The order
was recalled pursuant to the assessee's MA claiming that the judgement of the B ombay High Court in ABG Heavy Industries Ltd 322 ITR 323 covered the issue in its favour. HELD deciding the issue afresh: The contractor who merely develops but does not operate or maintain the infrastructure facility is eligible for deduction u/s. 80IA(4). Harmonious reading of s. 80‐ IA(4) led to the conclusion that the deduction was available to an assessee who (i) develops or (ii) operates and maintains or (iii) develops, operates and maintains the infrastructure facility. The 2001 amendment made it clear that the three conditions of development, operation and maintenance were not intended to be cumulative in nature. A developer who is only developing the infrastructure facility cannot be expected to fulfill the condition in sub‐clause (c) which is impossibility and requiring it to be fulfilled will be an absurdity. (B.T.Patil & Sons Belgaum vs. ACIT 126 TTJ 577 (Mum) impliedly held not good law). Laxmi Civil Engineering Pvt. Ltd. vs ACIT.
Regards,
Pawan Singla
BA (Hon's), LLB
__._,_.___
No comments:
Post a Comment