dt status final 7th march21
TRANSCRIPT
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7th March 2012
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DIRECT TAX STATUS
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Contents
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Forthcoming Assessments
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AY
2010-
11
Time limit for issue of Notice u/s
143(2) is open till September 2012.
Scrutiny and Assessment will be
completed before December 2012.
Time limit for issue of Notice u/s
143(2) is open till September 2013. Scrutiny and Assessment will be
completed before December 2013.
AY
2011-12
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Tax Appeal Forum Hierarchy
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PendingAppeals
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Forward Contract Cancellation- AY 1993-94
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Background:A foreign currency loan was taken for1.672 Mn Pounds sterling from
Common Wealth Development Corporation to fund Capital expenditure
requirement, during 1990.
To mitigate the fluctuation risk, a forward cover with HSBC Bank wastaken on entire loan amount with interest and the cover was rolled over
on a six monthly basis up to 1992.
Due to Downward slide of Pound Sterling, Forward Contract was
cancelled and the company earned a gain for Rs 21.9 Mn.
The same was treated as capital receipt not chargeable to tax in the
ROI.
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Facts:
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Loan Amount 1.672 MnContracted Amount 1.752 Mn
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Nature Of Dispute:
The AO treated the Gain as revenue income and taxed the
same.
On Appeal, ITAT allowed the issue in favour of the Company
(Ref: HC Judgement in the case of EID Parry Vs CIT, 1988)
IT Dept went to appeal to HC, Now the High court has
ordered the AO to examine the facts and circumstances of
the transaction to decide further.
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Computation of Dedn u/s 80 HHC- AY 2000-01
80HHC- Deduction in respect of profits retained for
export business.
Company filed NIL return of income under normal
provisions of IT Act after setting off of earlier years
losses and computed book profit u/s 115JA.
Deduction u/s 80 HHC has been claimed from the book
profits.
AO by passing rectification order u/s 154 has
disallowed the same.
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AO concludes that since the business income was NIL, company is
not entitled to any deduction u/s 80HHC while computing book
profit.
Appeal filed to CIT quoting the Decision of High court in case of CIT
vs Faizan shoes (P) Ltd ,
Deduction u/s 80HHC is required to be computed with reference to
book profit in terms of sec 155JA and not reference to Provisions ofnormal Income tax.
CIT contented that, it was not a mistake apparent on record, a
legally debatable issue.
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Brought forward loss of TROR- AY 04-05 Company claimed brought forward loss of the
amalgamating company, TRW Rane Occupant & Restraints
Ltd.
CIT vide his order u/s 263 directed the AO to verify the
allowability of the loss amounting to Rs.11,73,41,000/- and
allow the same.
Return of income/assessment orders of amalgamating
company, submitted to the AO and the AO allowed the loss to
the extent of Rs.8,03,05,896/-
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At time of Assessment completion, AO erronously
disallowed the b/f loss of Rs. 4,70,34,840 as excess
claimed, where as the actual amount of Returns not
submitted was only Rs. 3,70,34,840. Subsequently order
u/s 154 was passed by AO revising the amount.
Rectification petition filed to the AO to allow the balance
loss of Rs.3,70,34,840/- based on the assessment order of
TROR for AY1997-98 and1998-99.
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Disallowance under Section 14A
Dividend income from Mutual Funds earned by the
Company is exempt from tax u/s 10(34).
Section 14A Meaning: "For the purposes of computing the
total income under this chapter, no deduction shall be
allowed in respect of expenditure incurred by the assessee
in relation to income which does not form part of the total
income under this Act.
The Company claims that it has not incurred any
expenditure in earning the dividend income and does not
have any borrowed funds.
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AO asserts that, Assessee would have spent labour, time
and money towards earning the dividend income. In fact,
earning dividend income in crores requires investment
decisions at the highest management levels. Thus such
expenditure has to be disallowed.
AY 2007-08
AO has arbitrarily computed notional expenditure of 5%
and added back the same while computing taxable income.
Company claims that 5% is high and arbitrary.
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Inception of Rule 8D from 01.04.2008
Rule 8D prescribes the Computation methodology of
disallowance u/s 14A.
Applicability
(a) Where the AO is not satisfied with the correctness of the
claim of expenditure made by the assessee; or
(b) Where the assessee claims that no expenditure has been
incurred in relation to income which does not form part of
the total income.
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Computation Methodology:
Rule 8D(2), the expenditure in relation to income which does
not form part of the total income shall be the aggregate offollowing amounts
(I) The amount of expenditure directly relating to income
which does not form part of total income; (which should be
disclosed in Tax audit report)
(II) Indirect Interest expenditure;
(III) 0.5% of the average of the value of investment.
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Indirect Interest expenditure is computed in accordance
with the following formula
=A X B/C
Where A = amount of expenditure by way of
interest.
B= the average of value of investment
C = the average of total assets as appearing in the
Balance Sheet.
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Note:
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AY 08-09 and 09-10AO has applied Rule 8D and disallowed.
Company claims,
AO has applied Rule 8D without any prejudice . No reason is stated for disallowance made by company iswrong.
AO also erred in invoking the Rule8D for arriving the
expenditure, without considering the disallowance made by the
company.
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Disallowance u/s 40(a)
Sec 40(a)- Disallowance of Expenditure incurred without
deduction of TDS.AY 2007-08
AO disallowed the following two payments u/s 40(a)(i),
TRW Automotive, US- Company paid $21,236.25 to TRW
Automotive for HSE Compliance Audit Programme which is not
taxable as per DTAA between India and USA.
Tech Centre Dusseldorf- Company paid 23,800 for testingcharges of L90 PRP gears to Tech Centre, Dusseldorf after
deducting 15% withholding taxes.
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AY 2008-09
AO disallowed the following two payments u/s 40(a)(i), viz
Consultancy Services to Mr. Kazuyuki Suzuki, Japan Payment of 200,000 is made to Mr. Suzuki for
providing training on Reliability Engineering without
deducting taxes considering it as services rendered byIndividual personal services, which is exempt from tax.
(article 15 of DTAAbetween India and Japan)
Expenditure on software licenses- Company purchased
various software license (8 Instances) like VISTA, MS
Office, Engg Design Catia, etc amounting to Rs 8,08,403.
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AY 2009 10
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AY 2009-10
AO disallowed the following u/s 40(a)(i), viz
Company paid for consulting fees and reimbursement of
expenses to professionals, viz Mr. Hiroto Iwata, Mr.
Suzuki and Mr. Martin Wright to the tune of Rs. 16,11,536
considering the same as services rendered under
Individual capacity.
Expenditure on software licenses- Company purchased
various software license amounting to Rs 27,30,437.
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Disallowance u/s 35(2AB)
AO disallowed certain portion of deduction u/s 35(2AB)
stating the entire expenditure was not fully approved by
competent authority. (Dept of Scientific and Industrial
Research)
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Wealth tax
Inclusion of factory land amounting to Rs.
1,33,53,000/- used for purpose of business and cash
on hand amounting to Rs. 99,000/- computation of
Net Wealth.
Factory land and cash used for the purpose of
business and as such the same would not form part of
the taxable assets
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End Of Presentation
Thank You
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