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II. Direct Taxes Case Laws:
1. CIT Vs. M/S. Meghalaya Steels Ltd., Civil Appeal No. 7622 of 2014, Date of Pronouncement: 09.03.2016, Supreme Court of India
Issue:
Whether
an assessee is eligible for claiming deduction under section 80-IB of
subsidy received, inter-alia, transport subsidy, interest subsidy and
power subsidy from the Government?
Held-Yes
Brief Facts:
The assessee company is engaged in the business of manufacture of
Steel and Ferro Silicon in the state of Meghalaya. It declared an income
of Rs. 2,06,970 for A.Y. 2005-06 after claiming the deductions for
transport subsidy (Rs. 2,64,94,817), interest subsidy (Rs. 2,14,569),
power subsidy (Rs. 7,00,000) u/s 80IB of the Act. The AO disallowed
these deductions claiming it to be revenue receipts and therefore not
qualified under the quoted section. CIT(A) upheld the order of AO while
ITAT reversed the same. High court also decided the case in the favor of
the assessee. Therefore, revenue carried the matter to SC.
Held:
Hon’ble Supreme Court held that deduction under section 80-IB is
admissible only in respect of profit and gains derived from the
business. The profits and gains originate from the business and also
subsidies from Government.
In this
case, all subsidies were revenue receipts, which were reimbursed to the
assessee for elements of cost relating to manufacture or sale of their
products. Therefore, there was a direct nexus between profits and gains
of the industrial undertaking or business, and reimbursement of such
subsidies.
Hence,
assessee would be entitled to claim deduction under Section 80-IB in
respect of all subsidies received from the Government as same were
granted in relation to manufacture and sale of the products of the
undertaking and not in relation to post- manufacturing activity.
The appeal of the revenue stands dismissed.
(Please click here for judgment)
2. Mohd Tehseen Vs. ITO, I.T.A. No. 4563/Del/2014, Date of Order: 11.03.2016, ITAT - Delhi
Issue:
Whether the AO has rightly adopted the rate of 15% of the Net
Profit on the unaccounted sale against 6% of Net Profit shown by the
assessee?
Held: No
Brief Facts
The assessee filed his return of income showing income of
Rs.1,59,972/– and found that assessee has deposited Rs. 92,93,900/- in
his 3 bank accounts. Assessee was asked to explain the reasons and
source of this deposit as assessee has disclosed sales of
Rs.30,66,200/-only and against this cash deposit in the bank account is
Rs.92,93,900/-. Assessee contended that he was required to show turnover
to the banker because a cash credit limit of Rs.15 Lacs was sanctioned
and, therefore, to justify the bank limit the turnover was shown. The
assessee has filed his return of income showing net profit at the rate
of 6% of the turnover as per provisions of section 44 AF of the income
tax act. However, the AO treated the difference of Rs. 62,27,700/– as
unexplained sales of the assessee and on which he applied a net profit
rate of 15% and made an addition of Rs.9,34,155/-. The ld CIT(A)
confirmed the addition of Rs.9,34,155/-.
Held
We have
carefully considered the rival contentions. It is undisputed that
assessee has shown income at the rate of 6% of net profit on the
turnover of Rs.30,66,200/- only whereas an amount of Rs.92,93,900/- is
found deposited in various bank accounts. The assessee could not offer
any satisfactory explanation about excess deposit of Rs.62,27,700/-
compared to its sales. Therefore, we confirm the action of assessing
officer of determining unaccounted sales of Rs.62,27,700/-. However, now
the issue arises is whether the assessing officer has rightly adopted
the rate of 15% of the net profit on this unaccounted sale against 6%
net profit shown by the assessee. According to us, rate of 15% is an
arbitrary rate and without any comparable cases. This rate is also
higher against the rates provided by provisions of section 44AF of the
Income Tax Act, which is 5%. Therefore, we are of the view that in
absence of any comparable cases for adoption at such a high rate, which
is almost 2.5 times of the net profit rate shown by the assessee, is not
justified.In the result we direct the assessing officer to adopt net
profit rate of 6% on unaccounted sales and restrict the addition to that
extent only.
(Please click here for judgment)
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