Search Results For: CA. H. N. Motiwalla


QUERY: The assessment of builder cum contractor has been completed on estimated basis after rejecting his books of account. However, while completing the assessment, the Assessing Officer has made certain disallowances in respect of cash payments under section 40A(3) of the Act as well as under section 40(a)(ia) of the Act, whether disallowances are justified?
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In Teja Construction vs. ACIT [39 SOT 13] the Hyderabad Tribunal has observed as under:

“Once the books of account are rejected, income is estimated, the Assessing Officer precluded from invoking any other provisions of the Income-tax Act to make further addition.

QUERY: Does the judicial precedent in case of Special Bench Merilyn Shipping & Transport [136 ITD 23 (JB)] still hold good on the issue of paid or payable?
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Yes, recently the Mumbai Tribunal in Jitendra Mansukhlal Shah Vs. DCIT [ITA Nos 2293 & 2294/Mum/2013 dated March 04,2015] has held that, the assessee having made the payment, section 40a(ia) cannot be attracted because it speaks of the amount “payable” and it does not cover the amount already paid. The ITAT Chennai Benches have taken into consideration the decision of the ITAT Special Bench in Merilyan Shipping & Transport (supra),

QUERY: A company, obliged to spend 2% of average net profits on Corporate Social Responsibility. Considering the fact that the mandates of the Companies Act on CSR specifies only expenditure specified in Schedule VII, which are not related to business. Further the CSR rules insist that the expenditure should not be in the course of business or undertaken for employees and families. Will this expenditure be allowed as business expenditure? Will it be treated on par with other statutory payments and be subject to 43B.
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Explanation 2 has been inserted in section 37(1) of the Act with effect from assessment year 2015-16 which reads as under:

“For the removal of doubts, it is hereby declared that for the purpose of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purpose of the business or profession”

QUERY: Explanation 2 to Section 37 provides that any expenditure incurred by an assessee on the activities relating to corporate social responsibility shall not be deemed to be an expenditure incurred by the assessee for the purpose of business. According to the Memorandum explaining the provisions of the Finance Bill 2014, such expense, being an application of income, is not incurred wholly and exclusively for the purpose of carrying on business and, hence, not allowable as deduction. It also says that CSR which is of the nature described in Section 30 to 36 of the Act shall be allowed under those sections subject to fulfilment of the conditions, if any, specified therein. Which types of expenses can be allowed under these sections?
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As it is evident from section 37 of the Act, that it is subject to the provisions of sections 30 to 36. Further, the Finance Minister has clarified that deductions specifically allowable under sections 30 to 36 of the Income-tax Act, 1961 could be availed. In effect, Section 30 of the Act can be used for availing deductions against the expenditure incurred on rent, repairs and insurance in respect of building. Section 31 in respect of repairs and insurance of machinery, plant and furniture used for CSR activities.

QUERY: Is there any restriction or limit on refreshment/ gift paid to members whoever attends an annual general meeting? Can it be questioned by the AO?
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In case of listed companies, SEBI prohibits giving gifts to the share holders in AGM. However SEBI permits light refreshment, tea, coffee etc. to share holders in AGM.

Generally, the AO allows the expenses incurred at AGM, if it is reasonable and for the purpose of business.

QUERY: A co-operative bank wants to take accident group insurance for its members. Whether premium paid on the insurance for members can be debited to Profit & Loss account of the bank? Will it be allowed by the Income Tax Department?
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The following conditions should be complied to claim deduction u/s. 37 of the Act.

i) The expenditure should not be of the nature described in sections 30 to 36.

ii) It should have been incurred in the accounting year.

QUERY: The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure:

(a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit.

(b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment?

(c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015.
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a) Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients. From the fact, it is clear that no old machinery would be transferred to new building/unit, hence, it would not be set up by splitting up or the reconstruction of a business already in existence.

QUERY: Please enlighten the rate of depreciation applicable to the following items of plant & machinery:–

(i) J.V.C. Machine

(ii) Road Roller

(iii) Crane

They are all movable like trucks run for the business, whether depreciation on block would be @30% or @ 15%?
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Item No. 3(ii) of Part III (Machinery and Plant) of New Appendix I prescribes higher rate @30% of motor buses, motor lorries and motor taxies used in a business of running them on hire.

QUERY: Mr. X has let out his residential flat to a prestigious company. As per the requirement of the company and as is customary in the area, the flat, which was not in proper condition, was required to be repaired and refurbished with modern decor. Mr. X also has to install air conditioners in all the rooms. Mr. X also had to pay one month rent as commission / brokerage to a broker who arranged the deal. Mr. X also had to pay society charges and other maintenance / contribution charges to the society. Besides, Mr. X also has to incur various administrative costs. The rent is one single amount. What amounts are deductible from the rent income in the hands of Mr. X?

Will there be any difference if:

(i) Instead of Mr. X, a company was owner with one of its objects being dealing in immovable properties?

(ii) Instead of one, say, dozen properties are let out to different persons.

(iii) In case the company is owner, the company has also to incur expenses on audit fees, ROC filing fees, director fees, etc.
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In Tube Rose Estates (P) Ltd., v. ACIT [123 ITD 498] the Delhi Tribunal has held that the brokerage payable by an assessee for renting out the premises could neither be deducted from the rent under section. 23 nor it was allowable as a deduction under section 24 of the Income-tax Act, 1961.

QUERY: Assessee is a developer of housing complex. He intends to sell all the flats in a building constructed. However later on instead of selling flats assessee gave them on the rent. Under which head of income such rental income would be taxable? Further it sells such flats after 7/8 years to same tenants. Whether sale proceeds be taxed as business income or capital gains?
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Under the Income-tax Act 1961, the income of an assessee is one and various sections direct the modes in which the income is to be charged. No one of those sections can be treated as general or specific for the purpose of any one particular source of income; they all are specific and deal with various heads in which an item of income of an assessee falls. These sections are mutually exclusive and where an item of income falls specifically under one head, it has to be charged under that head and no other.