PFA
| Transfer Pricing: Share application money cannot be treated as loan amount merely because there is a delay in issuance of shares |
(i) Though there was a delay in issuing the shares against the share application money given by the assesse to its AE, however, the assessee has duly explained the cause of delay and it was not a deliberate delay for using the money by subsidiary in the garb of share application money or by providing the fund by the assesse in the garb of share application money. The delay was due to obtaining necessary approval from the Securities and Exchange Commission, Phillipines. Finally, the shares were issued as per the share certificate dated 25.05.2008 which has been produced by the assesse as additional evidence. Since the document of issuance of equity shares in the name of the assesse by the subsidiary/AE vide share certificate were not before the authorities below, therefore, to the extent of limited purpose of considering the said document, we set aside this issue to the record of AO/TPO to consider the same. As far as the re-characterization of the share application money as loan, we note that the Hon'ble Jurisdictional High Court in the case of DIT Vs. Besix Kier Dabhol S.A. vide its decision dated 30th August 2012 in ITA No. 776 of 2011 has considered an identical issue. Accordingly, the share application money cannot be treated as loan amount merely because there is a delay in issuance of shares by the subsidiary in the name of the assesse, which was duly explained by the assesse.
(ii) The assesse had two STPI units eligible for claiming deduction u/s 10A of the Act. The assesse set off total profit from Domestic business against the loss from the non STPI unit and the balance loss was claimed as carry forward. The AO observed that the deduction u/s 10Aof the Act, should be restricted to the profit of the unit eligible for deduction u/s 10A of the Act and the total income have been shown at nil instead of claiming of loss. This issue is covered by the Judgment of Hon'ble Jurisdictional High Court in the case of Commissioner of Income-tax Vs. Black & Veatch Consulting (P.) Ltd (348 ITR 72), wherein it was held that Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in Hindustan Unilever Ltd v . Dy. CIT [2010] 325 ITR 102 / 191 Taxman 119 (Bom.). The deduction under Section 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses.
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- DCIT vs. Vikas Oberoi (ITAT Mumbai) Share application money or share application advance is distinct from 'loan or advance'. Although share application money is one kind of advance given with the intention to obtain the allotment of shares/equity/preference shares etc, such advances are innately different form the normal loan or advances specified both in section…
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PFA
| Growth mutual funds do not yield dividend and so s. 14A/ Rule 8D does not apply, (ii) S. 14A/Rule 8D disallowance for admin exp cannot exceed allocable exp debited to P&L A/c, (iii) ALP of funds lent to AE should be as per LIBOR, (iv) ALP of corporate guarantee to be at 0.5% |
(i) Growth mutual fund does not yield any dividend/exempt income, therefore, the provisions of section 14A would not apply on the investment in growth mutual funds.
(ii) As regards the disallowance of administrative expenses in respect of the investment yielding exempt income the computation made under Rule 8D cannot exceed the total allocable expenditure for earning the exempt income debited the P&L Account. Accordingly, the AO is directed to reconsider the disallowance u/s 14A by excluding the investment in the Growth mutual funds scheme and further to earmark and identify the item of expenditure debited by the assessee in the P&L Account which can be allocated in relation to earning the exempt income.
(iii) The ALP of loan granted by the assessee to its subsidiary, though from its internal accruals and without incurring any cost, has to be determined as per LlBOR and not the average yield rates considered by the TPO.
(iv) The transaction of giving corporate guarantee to the bank, though held not to be an international transaction in Bharti Airtel Ltd (ITA No 5816/Del/2013) dated 11 March 2014, the arm's length guarantee commission charges can be considered at the rate of 0.5% as held by the Tribunal in a series of other decisions.
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- Daga Global Chemicals Pvt. Ltd vs. ACIT (ITAT Mumbai) The assessee only received Rs.1,82,362 as dividend income, therefore, there is no question of disallowance of Rs.14,58.412 by invoking section 14A r.w. Rule 8D. Disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income.
pFA
I
| n applying the 'extrapolation' principle of Eusafali 90 ITR 271 (SC), the AO is entitled to make an estimation based on guesswork. However, the estimate must not be arbitrary and should be based on material |
The ratio of the Hon'ble Supreme Court judgment in the case of Commissioner of Income Tax vs. HM Eusafali HM Abdulala (1973) 90 ITR 271 (SC) has been explained in the later judgment of this Court in Commissioner of Income Tax vs. Dr. M.K.E. Memon 248 ITR 310 (Bom.). There also a professional has been dealt with and the Supreme Court's judgment in HM Eusafali HM Abdulala was followed. However, this Court cautioned as to how for a period of one year the estimation could not be made and it could be, therefore, arbitrary. An arbitrary method cannot be adopted. On facts, there is no arbitrariness. The Tribunal found that the additions have been made in the assessment years 2000 – 2001 and 2001 – 2002, the benefit of set off may be given. So far as assessment year 2000-2001 is concerned, the addition is sustained to the extent of Rs.20,00,000/- which was the payment made by the assessee to Shri Doke. So far the addition on account of suppressed profession receipts of Rs.14,30,225/- the Tribunal relied on the admissions and which can be gathered from the maintenance of a parallel record. The modus operandi was admitted. The addition as made by the AO were not confirmed in the absence of direct evidence. In the circumstances, when the Tribunal relied on the decision of the Supreme Court to not uphold the entire addition as made by the Assessing Officer, but sustained it to the extent of 10%, then no substantial question of law arises for determination and consideration. In the matter before this Court in Commissioner of Income Tax vs. Dr. M.K.E. Memon 248 ITR 310 (Bom.), the arbitrariness was writ large because there was a block assessment of ten years. The Supreme Court judgment must be read in the backdrop of the facts and that is clear. The finding of fact by this Court is that it is improbable that the rate of fees charged by a professional in 1983 would remain static for the entire block period of ten years. It is in these circumstances the proportionate amount of refund could not have been considered as static for ten years. With the other admitted facts and pertaining to the reduction of migration to Gulf countries on account of Gulf war that this Court found complete arbitrariness in the estimation by the assessee. At the same time, this Court held that it is open for the Assessing Officer to make an estimation and in that process there could be a certain guess work as well. That element cannot be discarded totally.
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- CIT vs. Mafatlal Dyes and Chemicals Ltd (Bombay High Court) In Hindustan Cocoa Products Ltd. v/s Commissioner of Income Tax, reported in 236 ITR 140, this Court observed that the benefit of section 80V would be available to the Assessee if the borrowings were taken for the purpose of payment of tax. In view of the factual findings…
Company law offences involving criminality, bookable under IPC; Special Court's jurisdiction upheld
SC, in a criminal appeal, sets-aside Andhra Pradesh HC order that held that Special Court did not have jurisdiction to take cognizance of offences u/s 628 of Companies Act (which penalises for false statements) and for criminal conspiracy and cheating (u/s 120B and u/s 420 of IPC respectively); HC had quashed Special Court order on the ground that complaint against any of the provisions of Companies Act could be filed only by Registrar, shareholder or Govt. as provided u/s 621 of Companies Act, and since complainant in instant case was promoter-director, complaint could not be tried; SC holds that HC did not commit any error in reading provisions of Companies Act, however, it overlooked the fact that allegations against accused company and its directors were with regard to violation of provision of IPC; Thus, SC holds, "It is surprising to see that the High Court has quashed the complaint against the accused persons on the ground of legal defects though no allegation containing such defects were made against the said accused persons.. there was no reason in law to quash a complaint against them on the ground that they were immune from prosecution under Section 628 of the Companies Act by virtue of Section 621 of that Act"; Refers to erstwhile AP Govt notification dated March 13, 1981 which empowers special Courts to try offences under specified enactments such as Companies Act, 1956, Income Tax Act etc, holds that, "it is the special court alone which would have jurisdiction to try all the offences based on the same transaction to avoid multiplicity of proceedings":SC
The ruling was delivered by division bench of Justice Jagdish Singh Khehar and Justice S.A. Bobde.
Advocates Vivek Singh and Lakshmi Raman Singh argued on behalf of the appellant. Respondents were represented by Advocates Ravi Kumar Tomar, M. A. Chinnasamy and V. N. Raghupathy.
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