Research Team

194. S. 2(1A) : Agricultural Income – denial of exemption and taxation of income under head “income from other sources”, remanded back to the AO for furnish details filed before CIT(A) and admitted as additional evidence,(10(1))

The Tribunal remanded back to the AO observing that, it was the plea of the assessee that most of the details could not be furnished during the assessment proceedings since the CBI, in relation to the matter of S Ltd., in which the assessee was a director, had seized the entire record maintained at the office premises, where the records pertaining to the assessee were also maintained. However, the same was furnished during appellate proceedings, though the CIT (A) treated these details as additional evidence, and he did not call for a remand report from the AO. Thus, none of the authorities have properly examined the evidence furnished by the assessee in respect of the claim of exemption of agricultural income. The AO shall have the liberty to call for or summon any party from whom the assessee claimed to have purchased products in respect of its agricultural activity and to conduct a field visit to verify the claim of cultivation of agricultural products by the assessee.(AY.: 2011-12 to 2014-15)

Shankar Namdeo Kashid v. Dy. CIT (2023) 105 ITR 16 (Trib) (S.N.)(Mum)

195. S. 2(14)(iii)(b): Capital asset – Sale of agricultural land – land situated within the jurisdiction of municipality limit prescribed under Sec. 2(14)(iii)(b) – Chargeable to capital gain tax

The assessee’s land was outside municipal limits at distance of 4 kms measured aerially and population of local municipality in 2011 was 1,51,677 as per provisional report of Census of India. The Tribunal held that agricultural land in India, not being land situated within jurisdiction of municipality and which municipality has population of not less than ten thousand is to be read together, for Sec 2(14)(iii)(a), which is not the case of the assessee. Further, population of local municipality, and not village panchayat, is to be considered for Sec 2(14)(iii). Accordingly, the assessee’s land was covered by Sec 2(14)(iii) (b) and not by Sec 2(14)(iii)(a), hence the AO has rightly charged land to capital gain tax.

Precot Ltd. v. ACIT (2023) 103 ITR 0082 (Trib) (S.N.) (Chen)

196. S. 2(15) r.w.s 11 and 13(8): Charitable purpose – Trust formed under statute to bring about improvement

The objects and activities of the assessee-trust were to bring about improvement in the town of Sangrur by providing streets, housing facilities, development of parks, development of roads and other infrastructure, providing drinking water, etc. The Assessing Officer observed that the activities of the assessee-trust with regard to the acquisition of land and development of the land and sale thereof in the shape of plots, flats and commercial booths at market rates, after calling for applications from the public with some registration fee could not be treated as charitable activities under “general public utility”, that the assessee was involved in business, like a builder, to earn money. Therefore, the assessee was not eligible for exemption u/ss. 11 and 12 of the Act.

Held, allowing the appeal, that the assessee was established for the purpose of advancement of an object of general public utility, and the entire Act in general indicated this to be the basis of the establishment of the assessee-trust. Sale of plots and premises by the assessee was incidental and ancillary to its main purpose of “town improvement”, that mere profit making on account of such incidental or ancillary activity did not disentitle the assessee to the exemptions under the Act, that profit was not the predominant motive of the assessee, that even where the plots were developed and premises were constructed and sold at market price, the activity was not a commercial or business venture per se, but one necessitated on account of implementation of the provisions of the assessee-trust, through statutory schemes. The trusts have been formed for the purpose of dealing with and satisfying the need for housing accommodation, planning, development or improvement of cities, towns and villages, regulating, or regulating and developing, any activity for the benefit of the general public, or regulating any matter, for the benefit of the general public, arising out of the object for which it has been created. Therefore, the second proviso to section 2(15) and, consequently, section 13(8) of the Act were not applicable to the assessee’s case, and the assessee was entitled to exemption u/s. 11 of the Act. (AY.: 2016-17)

Improvement Trust, Sangrur v. Asst. CIT (2023) 105 ITR 502 (Trib)(Chand)

197. S. 2(24)(x), 36(1)(va) r.w.r. 8(1): Employees contribution to Provident Fund – allowable only on actual payment made within due date under respective Act- Assessee in business of tea plantation – Addition u/s. 2(24)(x) to be made prior to apportionment of 60% as agricultural income and 40% as business income. (Rule 8)

Assessee engaged in the business of growing and manufacturing tea. As per Rule 8, income of the assessee is to be apportioned in the ratio 60:40 whereby 60% is treated as agricultural income and 40% is treated as business income. In light of the judgment of Hon’ble SC in the case of Checkmate Service P. Ltd. v. CIT [2022] 448 ITR 518 (SC), deduction allowable only on actual payment made within due date under respective Act. On appeal, it was held that disallowance of EPF has to be first added before computing 60:40. Thereby, only 40% of amount to be added in business income. (AY 2019-20)

Hanuman Plantations Ltd. v. ITO (2023)104 ITR 78 (Trib)(Kolk)

198. S. 5: Scope of total income – passing of entries in books of account not conclusive to determine income – entries in books representing notional income – such notional income is not taxable.

It has been held by the Hon’ble Appellate Tribunal that it is a settled law that passing of entries in the books of account is not conclusive to determine the income under the provisions of the law. Whether an amount is to be considered as income or not is to be determined on the basis of the Income-tax law and not on the basis of the entries made in the books of account. No tax can be charged on an amount which is not earned. Since the necessary entries made in the books of account of the assessee represented only hypothetical or notional income although it followed the mercantile system of accounting, the amounts as brought to tax by the AO did not represent the income of the assessee. (A.Y.: 2016-17)

Asst. CIT v. Gravita Metal Inc. [2023] 105 ITR 10 (Amritsar – Trib)

199. S. 9(1)(i) : Income deemed to accrue or arise in India- PE in India – sales transaction on principal-to-principal basis for resale – transaction between parties was accepted to be at arm’s length by TPO – attribution of profit to PE in India could not be sustained

Assessee based at Singapore was engaged in the business of manufacturing and sale of scientific research instruments and peripheral. The products sold by assessee required maintenance, calibration, which involved servicing, repairing and supply of spares. Assessee earned revenue of Rs. 8,96,73,757 under Annual Maintenance Contract (AMC), however, did not offer any income in India. AO treated DHR Holding India Ltd. as assessee’s PE in India and thus attributed profit to PE.

Three sets of agreements, i.e., sales commission, Distribution and marketing support services agreements read together or even on standalone basis did not in any manner give impression that DHR India was habitually concluding contract on behalf of assessee so as to make it a PE under article 5(8). The allegation of AO that assessee utilized premises of DHR India as a warehouse to stock its goods and sales outlet was not borne out from the materials on record. Assessee’s employees had never visited India. Direct sales to Indian customers were made from Singapore through shipment. The sales effected by DHR India were on its own independent status. Therefore, products purchased by DHR India under Distribution Agreement and kept in its inventory could not be considered to be the products belonging to assessee, as, they were sales transaction on principal-to-principal basis for resale by DHR India to Indian customers. Further, clause 11.1 and 11.2 of Sales Commission Agreement made it clear that any replacement of products/ spares under warranty/maintenance had to be provided by DHR India out of its own inventory and DHR India would have the right to either get a replacement from assessee or cross charge the cost to the assessee. Therefore, assessee did not have a warehouse or sales outlet in India to constitute a fixed place PE in India. Thus, there cannot be any PE under Article 5(8) and 5(9) of DTAA between India-Singapore. Even more assuming that assessee had a PE in India, no further attribution of profit could be made to PE as transaction between assessee and DHR India was accepted to be at arm’s length by TPO, both in case of assessee and DHR India. Accordingly, additions made by AO by way of attribution of profit to PE in India could not be sustained. [AY 2013-14 to AY 2016-17 & AY 2020-21]

AB Sciex Pte Ltd v. ACIT, Central Circle- International Taxation [ITA No.406 to 410/ Del/2023, dated 17/03/2023; Delhi Bench : D].

200. Sec 9(1)(vii): Non-resident – Subscription fees receipt from India – Online Database – Taxed as Fees for Technical Service – Article 7 of India-US DTAA – Business Income – Not taxable in absence of permanent establishment in India

The Tribunal held that receipt from subscription fees does not fall within the ambit of fees from technical service defined u/s. 9(1)(vii). Further, by placing reliance of the order passed in case of group company viz. Elsevier Information Systems GmbH (ITA No. 1683/Mum/ 2015), held that receipt from online database is in the nature of business profit, therefore, the same is not taxable in India in absence of permanent establishment in India under Article 7 of India- US DTAA.

Relx Inc. v. ACIT (2023) 103 ITR(Trib) 0054 (Delhi) (SN)

201. S. 9, 40A(2)(b), 44BBB, 92BA, 144C: Transfer pricing – Arm’s length price – Profits attributable to PE – Business Profits – AO failed to discharge onus under 40A(2)(a) but invoked the provisions of Section 40A(2)(b) – Assessee submitted audited financial statements, ledgers, invoices, necessary documents before AO and DRP – AO failed to demonstrate as to how payments / expenditure was unreasonable / more than FMV – violation of principle of natural justice – Applicability of Section 44BBB – Profits in case of turnkey projects approved by Central Government – assessee not engaged in turnkey project – provisions not applicable –Sec. 44BBB(2) overrides 44BBB(1) – assessee maintains books of accounts u/s. 44AA which are audited – AO could not have estimated NP @10% – 44BBB(1) not applicable.

Assessee a non-resident corporate entity incorporated in Italy and tax resident of Italy. Project office in India, which constitutes Permanent Establishment in India as per Article 5 of DTAA between India and Italy. As per Article 7 of India- Italy DTAA business profits taxable in India. As per Rule 10 profits attributable to PE should be at arm’s length profit. AO estimated profit @10% of gross receipts stating that assessee did not furnish any benchmarking analysis significant financial transactions disclosed in related party transactions. Reference to 40A(2)(b) omitted in S. 92BA w.e.f. 01.04.2017 Assessee not under obligation to furnish benchmarking analysis in relation to specified domestic transactions. Assessee submitted relevant documents including invoices, ledgers, audited financial statements before AO and DRP No reference made to Transfer Pricing Officer (TPO) by AO . Therefore, it has to be assumed that AO accepted the arm’s length nature of transaction. AO failed to demonstrate as to how the expenditure / payments to related parties was unreasonable / excessive. AO estimated profit @10% of gross receipts which is in violation of principles of natural justice without considering that assessee has maintained books of accounts which have been audited. Further, provisions of Section 44BBB(1) not applicable to the assessee and assessee setup PE for expansion of oil refinery project and not related to turnkey project approved by Central Government. Even otherwise, if assumed that 44BBB(1) applicable, then 44BBB(2) overrides 44BBB(1). Where assessee had maintained books of accounts as per 44AA and audited as per 44AB, then provisions of S. 44BBB(1) not applicable. AO could not have estimated net profit @10%. Addition made by AO deleted. (AY 2019-20)

Technip Energies Italy v. DCIT (2023) 104 ITR 592 (Trib)(Del)

202. S. 9: DTAA between India and U.S.A. – Royalty – Assessee granting access to database and earning subscription fee – Income not taxable in India

The assessee, a non-resident, received amounts from customers in India for providing access to an online database created by it. The assessee contended that while granting access to the online database, it had not transferred any copyright or licence and that the amount was not in the nature of royalty either under the Income-tax Act, 1961 or under the Double Taxation Avoidance Agreement between India and the United States of America. The Assessing Officer held that the assessee had transferred the use of or the right to use a copyright and that the amount would fall under the definition of “royalty” under article 12(3) of the Agreement.

Held, that there was no dispute that the assessee collated data relating to healthcare from the public domain and put it in one place creating a database. The content on the database was not created by the assessee but was created by third parties. The only improvement the assessee made was analysis, indexing, description, appending notes for facilitating easy access to the customers, etc. For a subscription fee, customers were only granted access to the contents of the database. They were not permitted to copy, print, reproduce, modify, translate, adapt or create derivative works based on the licensed products. Thus, neither was the assessee the creator of the content, nor had it transferred any such non-existent right. It could not be said that in terms of article 12(3) of the Agreement, the assessee had transferred the right to use any copyright of literary, artistic or scientific work or any other secret formula or process or information concerning industrial, commercial or scientific experience. The amount received did not fall within the ambit of royalty as defined under article 12(3) of the Agreement and could not be brought to tax in India. The addition was to be deleted. (AY 2016-17)

Uptodate Inc. v. Dy. CIT (International Taxation) (2023)105 ITR 707 (Trib)(Del)

203. S. 9(1)(v) : r/w article 7 & 11 of Indo-Swiss DTAA – Hypothetical independence of PE and the head office cannot be extended to computation of profit of the head office and the same is restricted only for computation of profit attributable to PE

The Assessee is a company incorporated in Switzerland and is a tax resident of Switzerland. The Assessee had a branch in India through which banking operations were undertaken. The Indian branch constituted a PE of Assessee in India, and its income was offered to tax under article 7 of the Indio-Swiss DTAA. During the relevant AY, the Indian branch of the Assessee paid certain interest towards loans procured from the Assessee’s Singapore and London branch. The said interest was not offered to tax by the Singapore branch on the basis that Assessee and the branches are one and the same enterprise by relying on the decision of Sumitomo Mitsui Banking Corporation v. DDIT [2012] 145 TTJ 649 (Mum) (SB). The interest payment was however claimed as deduction while computing business profits of the Indian branch. Assessment proceedings were initiated against the Assessee. The AO was of the view that Explanation to section 9(1)(v) was specifically inserted to overcome the decision in Sumitomo Mitsui (supra) and therefore the concept of payment to self is not an income is no longer valid. Accordingly, the AO classified such interest payments to be income attributable to the head office under article 7(2) of the DTAA and sought to tax the same in the hands of the Assessee.

The Hon’ble Tribunal followed the judgment of the coordinate bench of the Tribunal in the case of BNP Paribas v. ACIT [ITA No. 1076/ Mum/2021 and 1670/Mum/2022] held that fiction of hypothetical independence of PE and the head office/overseas branch cannot be extended to the computation of profit of the head office/ overseas branch and the same is restricted only for computation of profit attributable to PE. It was also observed that though Explanation to section 9(1)(v) of the Act can be said to have overcome the findings in Sumitomo Mitsui (supra), however, the independent fiction and separate entity approach under article 7 of the DTAA is only for the purpose of determining profit attributable to the PE and not for the enterprise as a whole. (AY 2016-17 & -2017-18)

Credit Suisse AG v. DCIT; (2023) 103 ITR 38 (Trib) (S.N.) (Mumbai)

204. S. 9(1)(v) : Income deemed to accrue or arise in India – Interest – India-Netherlands DTAA – assessee- bank is a subsidiary of Netherlands company – head office and overseas branches disbursed loans to Indian companies and interest thereon was directly paid by Indian companies to head office or overseas branches deducting TDS at 10% – assessee did not claim credit in respect thereof – matter remanded to AO for examining applicability of DTAA– interest paid by Indian branch not taxable in hands of head office or overseas branches – change of law with effect from 1-4-2016 not be applicable prior to AY: 2016-17

The assessee was an Indian branch of a company incorporated in the Netherlands and had approval from the RBI to commence its branch banking activities in India. For the AYs 2013-14, 2014-15 and 2015-16, it was observed that there was a difference between income appearing in form 26AS vis-a-vis the profit and loss account in the return of income filed by the assessee. The assessee submitted that the tax credit was not claimed by the assessee, that the assessee had various branches around the world, which operated independently and had separate business units conducting, inter alia, lending, and other business activities independently, that the head office and overseas branches of the assessee had disbursed loans to Indian companies and earned interest thereon which was directly paid by the Indian companies to the head office or overseas branches and the taxes in respect of the income was borne by the Indian companies. It further submitted that the income earned by the head office or overseas branches had been subjected to tax deduction at source at 10% under the India-Netherlands DTAA and the tax had been deposited to the Revenue using the PAN of the assessee. The assessee submitted that since the income did not pertain to the operations of the Indian branch, the credit in respect thereof was not claimed in the return of income filed by the assessee. On a without prejudice basis, the assessee proposed to add back the income as reported in form 26AS to the total income of the assessee, but requested that the tax be levied at the rates prescribed under the DTAA and credit for taxes deducted at source as reflected in form 26AS be granted. The ITAT observed that though the AO and the CIT(A) held that the interest income was includable in the hands of the assessee, they did not analyse the applicability of the provisions of the DTAA. During the assessment proceedings, the assessee merely requested that the income be taxed at the rates prescribed under the DTAA of 10% in terms of Article 11(2) of the DTAA, but had not proved the beneficial ownership of the interest. Therefore, this issue was remanded to the file of the AO for adjudication de novo after examining the applicability of the DTAA. It was further held that the interest paid by the Indian branch was not taxable in the hands of the head office or overseas branches, all being the same entity. Further, the amendment to S. 9(1)(v) of the Act by the Finance Act, 2015 with effect from 01.04.2016, would not be applicable to the years under consideration and would only be applicable to the AY 2016-17 and onwards. Therefore, it was held that the CIT(A) was right in deleting the addition made by the AO in respect of interest received by head office and overseas branch from the assessee. (AY.2013-14 to 2015-16)

Dy. CIT (International Taxation) v. Co-Operative Rabobank U. A. (2023) 103 ITR 89 (Trib) (S.N.) (Mum)

205. S. 10(13A) : Rent paid by husband to his wife – house was registered in wife’s name- rental income was shown by wife in ITR – Held that – deduction of House Rent Allowance shall be allowed

The Hon’ble ITAT observed that it is evident from the ITR of the wife that she has declared apart from rental income, income from business and profession and income from income from other sources. The Hon’ble ITAT rejected the CIT(A)’s contentions that husband cannot pay rent to the wife. The ITAT observed that the rent paid by the assesse has been included by the wife in her total income, which has been accepted by the revenue conforming payment of taxes. Further, the house is registered in the name of the wife and she is also paying interest and loan instalments. Therefore, the rent paid by the assessee to his wife cannot be doubted and thus deduction of HRA u/s. 10(13A) shall be allowed. Appeal was decided in favour of assessee.

Aman Kumar Jain v. ITO [ITA No. 267/Del/2023 dt. 30.06.2023] (AY: 2020-21) (Delhi)(Trib.)

206. S. 10(20): Local authority – Change of law – Amendment to definition in 2003 – For years prior to and subsequent to AY in question assessee treated as “local authority” – To be assessed as local authority for year in question – Not as artificial juridical person

For A.Y. 2014-15, the assessee filed its return declaring taxable income at NIL, it being a a local authority. However, in view of the amendment effected in section 10(20) of the Act with effect from April 1, 2003, the A.O. treated the assessee as an “artificial juridical person” and held that the assessee had failed to furnish the audit report, balance-sheet, profit and loss account and details of the expenses claimed in the return. Hence, the A.O. Considered the commission income of Rs.80,61,086 received from sugar mills and interest income of Rs. 2,26,759 received from bank as taxable income of the assessee. The Commissioner (Appeals) affirmed this. On appeal, the Tribunal held that for the AY 2017-18 in the assessee’s own case the A.O. and CIT (A) had accepted the stand of the assessee that it was a Local Authority for the AYs 2015-16 and 2016-17. Therefore, on identical facts, which had attained finality, the assessee was to be assessed as a local authority and its receipts were not chargeable to tax. (AY: 2014-15)

Cane Development Council v. ITO (2023)104 ITR 12 (Trib) (S.N.)(Del)

207. S. 10(23C)(iiiad): Educational Institute – Claim exemption u/s. 11 without registration u/s. 12AA –– Filed rectification application claiming deduction u/Sec 10(23C) – Application Rejected -–Held – Eligible for deduction u/Sec 10(23C) – Annual receipt not to include voluntary donation forming part of corpus

The Trust filed ‘Nil’ return claiming exemption u/s 11. The exemption claim u/s.11 was denied on the ground that the assessee was not registered u/s 12AA. Subsequently, the assessee filed application u/s. 154 claiming exemption u/s.10(23C) (iiiad) on the ground annual receipt is less than Rs. one crore. The AO, noted that the gross receipt is Rs. 1,21,82,696 (including corpus donation of Rs. 72,18,000) exceeding the prescribed limit of Rs. One crore and denied the exemption claimed u/s.10(23C)(iiiad). Further, rejected the application treating that there is no mistake apparent on record. The NFAC upheld the order passed by the AO.

The Tribunal held that donation towards corpus would not form part of income of the assessee. Thus, the assessee was entitled for exemption u/s.10(23C)(iiiad) and this would constitute mistake apparent from records. [AY 2014-15, AY 2015-16]

Sathyam Educational & Charitable Trust v. Income Tax Officer (NFAC) 103 ITR (Trib) 0050 (Chennai) (SN)

208. S. 11/12 r.w.s 12AA– When order withdrawing registration was set aside by Tribunal, exemption under section 11 or 12 cannot be denied to assessee.

The Assessee is a charitable trust and had obtained registration under section 12AA of the Act. The Ld. PCIT withdrew the registration granted to Assessee u/s 12AA since inception on the ground that Assessee is allegedly involved in nefarious activities. Upon being challenged by the Assessee, the Tribunal held the order of the PCIT to be legally invalid. Thereafter, reassessment proceedings were initiated against the Assessee in which exemption under section 11/12 of the Act was denied on the ground that Ld. PCIT had cancelled the registration of Assessee. The said reassessment orders are under challenge presently.

The Hon’ble Tribunal held that the reassessments made by the AO on the ground that PCIT withdrew the registration of Assessee will not stand. The Tribunal thereby set aside the reassessment orders passed by the AO and restored the assessments to file of AO for denovo assessments in light of the Tribunal order restoring the registration u/s 12AA of the Act. (AY 2009-10 to 2013-14)

Gian Sagar Educational & Charitable Trust v. ACIT; (2023) 103 ITR 88 (Trib) (S.N.)(Del)

209. S. 11 and Form 10B: Charitable trust – benefit of section 11 cannot be denied merely on the ground that the Form 10B is not filed with the return

The assessee is a charitable trust and filed its return of income for the AY 2014-15. The assessee exceeded the basic amount not chargeable to tax, the assessee was required to file the audit report in Form 10B along with return which remained to be filed. The CPC denied the benefit of section 11.

The ITAT observed that the omission to file the Form 10B was on account of oversight. The ITAT perused the decisions of jurisdiction. High Court in cases “CIT v. Kalavani Mandal (P) Ltd (2014) 41 Taxmann.com 184 and Sarvoday Charitable Trust v. ITO” (2021) 125 Taxmann.com 75 and observed that the jurisdictional High Court has held that if a charitable trust substantially satisfies the conditions for seeking an exemption u/s 11 of the Act, the benefit cannot be denied merely on the ground of delay in filing form 10B. The ITAT observed that the Form 10B was available with the CIT(A) and the benefit of section 11 ought to have been granted by him. The ITAT allowed the appeal of the Assessee.

Trinity education trust v. ITO (ITA:669/SRT/2018) (AY 2014-15), dated 28/02/2023.

210. S. 11 and 143(1)(a): Charitable trust– Prima facie adjustments – Covid pandemic -No intimation given to assessee filing return and form 10B beyond due date mentioned under Act – Supreme Court extending limitation in respect of all judicial and quasi- judicial proceedings

The Assessing Officer before making adjustment or disallowance to the returned income according to the return filed by the assessee was duty-bound to intimate the assessee either in writing or in the electronic mode. However, no such intimation had been given to the assessee either in writing or in electronic mode before making the adjustment or disallowance. The Assessing Officer had not followed the mandate of the first proviso to section 143(1)(a) of the Income-tax Act, 1961 and consequently, the order passed u/s. 143(1) of the Act had to be quashed.

For the AY. 2020-21, the assessee filed its return in form ITR 7 u/s. 139(4) on March 31, 2021 and filed form 10B on March 30, 2021 whereas the extended due date for filing the return was February 15, 2021. The Assessing Officer disallowed the exemption claimed u/s. 11 of the Act on the ground that the Income-tax return and form 10B were filed late. Held, that the covid pandemic had spread all over the country and the entire country was brought to a standstill. Considering all these practical difficulties for making compliances, the Supreme Court had extended the period of limitation with respect to judicial or quasi-judicial proceedings. There was no delay in filing the return or form 10B. Therefore, the order of the Commissioner (Appeals) was set aside and the Assessing Officer was to allow exemption claimed u/s. 11 of the Act. (AY 2020-21)

Kalyan Educational Society v. Asst. CIT (2023)105 ITR 694 (Trib)(Kolk)

211. Ss.11, 11(2) and 12AA: Charitable trust- Business Loss – Embezzlement of funds – Loss to be treated as revenue loss CBDT Circular No. 35d (X1, Vii-20) [F. No. 10148/65-It (Al). Charitable purpose – Adjoining land purchased for purpose of extending college building – Form 10 filed not specifically mentioning object for which funds accumulated – Not reason to deny benefit

For the AY. 2015-16, the assessment was completed by making additions and disallowances on account of difference between the interest income as declared by the assessee and that reflected in form 26AS, the amount remaining unutilised out of accumulated funds in terms of provisions of section 11, the amount claimed as embezzlement expenses and anonymous donations. The assessee had recovered out of the embezzled funds, and subsequently offered to tax.

The principle laid down in Central Board of Direct Taxes Circular No. 35D (X1, VII-20) [F. No. 10148/65-IT (AL) would be squarely applicable to the facts and circumstances of the case inasmuch as the embezzlement had occurred during the course of day-to-day carrying out of charitable activities by the assessee-trust. Undisputedly, the funds were embezzled on account of manipulation made by the employees of the society. Therefore, the loss was a revenue loss and was to be allowed. That the adjoining land was purchased for the purpose of extending the college building. The purchase of land adjoining the college for the purpose of extending the scope of activities of the college was in furtherance of the objects of imparting of education. Though form 10 filed by the assessee did not specifically mention the object for which the funds were being accumulated, it could not be said that the condition of section 11(2) of the Act had not been fulfilled. (AY 2015-16)

Gurudwara Godri Sahib Baba Farid Society v. Dy. CIT (Exemptions) (2023)105 ITR 570 (Trib)(Chand)

212. S. 12AA rws 263: Charitable trust – Revision – Assessee society registered u/s. 12AA – assessee has shown corpus donation of Rs. 1 Crore from one donor- – Assessment completed after due verification / examination by AO of corpus donation including bank statements, balance sheet and confirmation of donation from donor which was also registered u/s. 12AA – Order could not be treated as erroneous and invoking provisions of Section 263 was unjustified.

Assessee is a society registered u/s. 12AA of the Act. Corpus donation of Rs. 1 Crore was received by society from one donor. Assessee has mentioned details of corpus donation of Rs. 1 Crore in computation of income. Even in the balance sheet forming part of tax audit report reflects corpus donation. Corpus of Rs. 1 Crore was duly reflected in bank statement of donor. The donor itself was a charitable trust / society registered u/s. 12AA and therefore, there can be no doubt regarding the genuineness of the donor. Thus, allegation of CIT is contrary to the material available on record. Even otherwise, if the corpus donation is assumed to be general donation, then also the assessee society has utilized more than 85% of the income. Thus, no tax liability will arise on the assessee society and as such, the revision proceedings would be tax neutral. Thus, on overall analysis, it was held that AO had passed order after conducting required inquiry and applying his mind with due diligence, such assessment order cannot be considered to be erroneous and prejudicial to the interest of Revenue. Accordingly, Order u/s. 263 of the was quashed and Order of AO was restored. (AY 2015-16)

Reliable Educational Alliance Society v. CIT (Exemptions) (2023) 104 ITR 448 (Trib)(Del)

213. S. 14A read with Rule 8D: Disallowance of expenditure cannot exceed exempt income earnedby the assesse

The assessee during the year had earned dividend of Rs. 11,600 and suo motu disallowed a sum of Rs. 11,600 u/s. 14A of the Act. The Assessing Officer applied the provisions of section 14A of the Act read with rule 8D of the Income-tax Rules, 1962 and computed the expenditure relatable to the exempt dividend income at Rs. 3,05,471. The Commissioner (Appeals) held that the disallowance u/s. 14A of the Act read with rule 8D of the Rules could not exceed the exempt income, and restricted the disallowance to that extent. The Tribunal upheld the order of the Commissioner (Appeals).

ABCI Infrastructure P. Ltd. v. Asst. CIT (2023)104 ITR 95 (Trib) (Guwahati).

214. S. 14A: Disallowance of expenditure relating to exempt income – No fresh investments towards mutual funds made in current year – Disallowance under section 14A not sustainable.

The Appellate Tribunal held that for the immediately preceding Assessment Year 2015- 16, the Ld. CIT(A) had decided the issue in favour of the assessee by holding that since the investments in mutual funds were made out of non-interest bearing funds in the form of share capital. As the investment in mutual funds which yielded dividend income were made out of non-interest bearing funds in the financial year 2014-15 and no fresh investments towards mutual funds were made in the financial year 2015-16, the disallowance under section 14A read with rule 8D(2)(ii) of the Rules was not sustainable for the year under consideration. (A.Y. 2016-17)

DCDC Health Services P. Ltd. v. Asst. CIT [2023] 105 ITR 60 (Delhi – Trib)

215. S. 14A: Disallowance cannot exceed exempt income earned – No disallowance in absence of exempt income – Amendment introduced by Finance Act, 2022, is prospective

The assessee issued fresh share of Rs. 10 each at premium of Rs. 490 per shares. The Tribunal noted that the assessee submitted sufficient documents discharging the primary onus cast upon him by the AO to explain the source of funds received. Further, the assessee also established source of source of the transactions. Accordingly, the order of the CIT(A) was set- aside and addition made u/s. 68 was deleted.

The Tribunal held that disallowance under section 14A cannot exceed exempt income earned by noting that amendment introduced by the Finance Act, 2022, is prospective. Accordingly, no disallowance can be made in absence of exempt income earned.

Radison Projects Pvt. Ltd v. ITO (2023) 103 ITR (Trib) 0017 (Kolkata) (SN)

216. S. 14A: Disallowance of expenditure relating to exempt income – Absence of any exempt income earned during year – Disallowance not called for.

In respect of the disallowance made u/s 14A of the Act by the AO, the ITAT observed that the assessee has not earned any exempt income during the year and therefore, in absence of any exempt income disallowance under section 14A was uncalled for. PCIT v. Era Infrastructure (India) Pvt Ltd 141 Taxmann.Com 289 (2022)

ACIT (LTU) v. Tamilnadu Petroproducts Ltd. (2023) 103 ITR 92 (Trib) (S.N.) (Chen)

217. S. 14A: Disallowance – amendments to section 14A by Finance Act, 2022 – No retrospectiveeffect

The amendments to section 14A introduced by the Finance Act, 2022 shall apply from assessment year 2022-23 and onwards, and shall not have retrospective effect. In view of this, the order of CIT(A) was upheld. [A.Y.: 2015-16]

DCIT v. M/s Welspun Steel Ltd. [ITA No. 2137/ Mum/2021; dated 03/08/2022]

218. S. 23(4)(i) : No addition maintainable on account of deemed rent on unsold flats held as stockin trade.

The Assessee had shown 9 unsold flats as closing stock in its books on which the AO sought to make some additions on account of deemed rent under section 23(4) of the Act. The Hon’ble Tribunal by following the judgement in the case of M/s Cosmopolis Constructions [ITA No. 191/Pun/2022] held that no addition is justified under deemed rent on unsold flats which are treated as stock in trade. (AY 2015-16)

Dugad Properties v. DCIT; (2023) 103 ITR 65 (Trib.) (S.N.) (Pune)

219. S. 23(5): No Deemed or Notional Rental Income for the properties held as Stock in Trade. The object of the Assessee company is to purchase property develop them if required via builders/contractors, and sell it. For AY 2014-15, the assessee company has not been able to make any sale of the properties. The Assessing officer has treated Properties as deemed Rental Property and assessed income from House properties.

The Hon ITAT observed that, the amendment has been brought in the statute in S. 23(5) where in respect of unsold stock of properties held as ‘stock in trade’ for a period of two years from the date of obtaining the completion certificate from the competent authority, the annual value of the such property would be determined as ‘Nil’. There would be no addition towards deemed rental income in respect of unsold stock of properties held as ‘stock in trade’ for a period of two years from the date of obtaining the completion certificate from the competent authority. This specific provision has been brought in the statute from A.Y.2018-19 onwards. Hence, prior to A.Y.2018- 19, there is no provision provided in the Act to tax the deemed rental income on unsold stock of properties lying as ‘stock in trade’ under the head ‘income from house property’. Considering the same held that, no addition on account of deemed rental income could be made in respect of unsold stock of flats held as ‘stock in trade’ up to A.Y.2017-18. (AY 2014- 2015)

Modern Abodes Pvt. Ltd. v. ITO, ITA NO.2735/ MUM/2022 dt.03/04/2023 (Mum)(Trib.)

220. S. 28: Business Income – difference between receipts stated in form 26AS and income shown in profit and loss account cannot be brought to tax in the hands of the assessee.

The appellate tribunal held that assessee is engaged in the business of equipment renting based on Residual management capabilities. Any customer who would like to have certain equipment’s will contact the assessee for purchase of those assets. Based on the requirement, lease of assets is entered into between Customer and assessee by a Master Rental Agreement fixing rental schedules. Assessee solicits the financier who can finance the purchase of the assets to be rented out. Such financier subsequently pays to the assessee and in turn assessee assigns the lease rentals receivable from the customer to the financier. From the financier, assessee receives discounted value of lease rentals. Based on this, assessee pays purchase price to the vendor from whom the equipment’s/assets are purchased. Customer directly makes payment of lease rentals to the Financier because the lease rentals receivable by the assessee are already assigned to the financer. Naturally when lease rents are paid, tax is required to be deducted by the customer. If lease rent is paid after deducting tax at source, assessee is supposed to reimburse to the extent of tax deduction at source to the financer. The customer issues tax deduction at source certificate in the name of the assessee because master rent agreement was between assessee and the customer. On completion of the tenure of the lease, assets are returned. Those assets are sold at the end of the tenure to the respective purchaser of those assets. The assessee offers investment in unguaranteed residuary account upfront. Therefore naturally, the income of the assessee is not the rental income but the income earned in the business of acquiring and dealing in unguaranteed residuary interest in assets rented to the customers. Thus, the income offered by the assessee is such income and not the rental income appearing in form number 26AS. (AY 2014-15)

Dy. CIT v. Connect Residuary P. Ltd. [2023] 105 ITR 46 (Mumbai – Trib)

221. S. 28: Assessee highlighting the error of misclassification of income into the head – “Income from other Sources instead of “Income from Business and Profession” in the return of income. (r.w.s.32 & 56)

The central contention of the appeal was the non-allowance of depreciation on Fixed Assets. The assessee is a trust engaged in providing educational services to students at Montessori, primary, and high school levels under the name “Red Caramels.” It was registered as a public charitable trust. The only source of income for the Assessee is the fee collected and interest of banking deposits. While filing the return of income, the assessee declared the entire income under the head – ‘‘income from other sources’’.

This was processed by disallowing depreciation under section 143(1)(a) of the IT Act. Against this order the assessee filed rectification application before the Assessing officer.

The Assessing Officer (AO) did not allow depreciation, observing that the assessee was not eligible for exemption u/s 10(23C) (iii)(ad) since the gross receipt exceeded Rs. one crore. He further observed that there is no provision for allowance of depreciation under the head ‘income from other sources’ unless the income earned is from let out/leased assets which wasn’t the case of the assessee. Further the CIT(A) observed that allowing depreciation is not a mistake apparent from the record and is a debatable issue. Hence held that 143(1) does not come under the purview of sec. 154 of the Act.

The Hon’ble Tribunal noted that the assessee’s activities fell under “Profits and gains of business or profession” and that the Assessee had wrongly offered the income under the head – “Income from Other sources”. That the income of the assessee should be computed under the head profit and gains of business & profession as per under Chapter IV D. Therefore, the assessee should be eligible for depreciation on Fixed Assets as per section 32 of the Act. The Hon’ble Tribunal remitted the issue back to the AO to determine the eligibility of the claimed depreciation. (AY 2017-18)

Muwahhid Educational Foundation v. CIT(A); (2023) 103 ITR 26 (Trib) (S.N.) (Bang)

222. S. 32 (i): Depreciation if allowed in the initial year, the claim cannot be disturbed in the subsequent years.

Assessee had appointed an entity as its distributor who was earlier the distributor of competing product from which it had built large customer base. Assessee had forgone a substantial amount due from the entity which was by way of deposits collected on behalf of Assessee. The said amount so foregone by Assessee was considered as consideration towards acquisition of rights to access the customer data base available with the said distributor. The said amount was considered as capital expenditure towards acquisition of intangible asset being customer data bank and claimed depreciation on the same. The AO allowed the depreciation for the first year and for the subsequent years, disallowed the depreciation on the ground of non-production of agreement with the bottler. The Hon’ble Tribunal held that it is a settled position in law that if in the initial year of claim the depreciation, is allowed, the claim cannot be disturbed in the subsequent years. On the said ground depreciation claim of the Assessee was allowed.

M/s. Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib) (S.N.) (Del)

223. S. 32: Depreciation on property held for charitable purposes – depreciation is to be allowed at the rate prescribed for ‘plant and machinery’. [S. 11]

Hon’ble appellate tribunal held that the assessee is eligible to claim depreciation at the rate prescribed for “plant and machinery” under the provisions of section 32 of the Act as the assessee is promoting public objects which are activities in the nature of trade, commerce or business but without commercial motive. (A.Y. 2015-16)

Dy. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2023] 105 ITR 24 (Ahm – Trib)

224. S. 32: Depreciation – Intangible asset – the cost of acquisition of customer’s/ bottler’s list was treated as capital asset – Depreciation allowed in initial year of claim – cannot be disturbed in later years – allowed.

With respect to claim of depreciation by the assessee, they had appointed a distributor which was previously a distributor of a competing product from which it had built a large customer base in Chennai. The assessee forwent a substantial amount due from S Ltd., by way of deposits collected on behalf of the assessee, as consideration for acquisition of right to access the customer database available with the distributor and treated it as capital expenditure towards acquisition of an intangible asset being customer data bank and claimed depreciation. The said claim was allowed in AY 2003-04 being first year but this was disallowed in the subsequent years on the ground that the copy of agreement with the bottler was not furnished. It was held that though the assessee did not furnish the agreement with distributor in the subsequent AYs but the fact of allowance of the depreciation in AY 2003-04 was not disputed. Therefore, it was held that it is a settled proposition of law that if in the initial year of claim the depreciation is allowed, the claim cannot be disturbed in the subsequent years. Therefore, depreciation was allowed.

Hindustan Coca-Cola Beverages P. Ltd. v. Dy. CIT (2023) 103 ITR 67 (Trib) (S.N.)(Del)

225. S. 32: Depreciation – Income From generation of power and sale of such power accepted to tax as business Income In Preceding Year – Rule of consistency – Depreciation On Windmill Allowable – S. 14A Disallowance – allowed for earlier AY being Investments made Out of Assessee’s own funds – Order upheld by Tribunal and High Court – Disallowance properly deleted.

The assessee, an NBFC, claimed depreciation on investment made in windmills, which was not its main business objects. The income earned by the Assessee from generation of power and sale of such power was allowed as business income of the assessee in the preceding AY. However, the AO on the principle of Res-Judicata did not treat the same as business income of the assessee for the present AY. Held, principle of res-judicata is subject to the expectation of consistency where there are no fresh facts.

A disallowance u/s 14A of the Income-tax Act, 1961 was also made. The CIT(A) had deleted the disallowance u/s 14A of the Act made in the AY 2010-11 holding that the investments yielding exempt income were out of the assessee’s own funds and no borrowed funds. This order was upheld by the Tribunal and the High Court. The ITAT followed the same in the present AY. (AY.2011-12)

Dy. CIT v. PTC India Financial Services Ltd. (2023) 103 ITR 15 (Trib) (S.N.)(Del)

226. S. 32(1)(iia) : Balance of additional depreciation w.r.t asset put to use in previous year can be claimed in the subsequent year

The Assessee filed its return of income at Nil claiming various deductions including additional depreciation on fixed assets put to use in the previous year. Assessment under section 143(3) of the Act was completed. Subsequently, show cause notice under section 263 of the Act was issued seeking to disallow additional depreciation claimed on the ground that 3rd proviso to section 32(1) was inserted only w.e.f. AY 2016-17 and therefore additional depreciation relating to fixed assets put to use during PY 2014-15 is to be disallowed.

The Hon’ble Tribunal placing reliance on the judgment of the jurisdictional High Court in the case of M/s Brakes India Ltd. v. DCIT [TCA No. 551 of 2013] allowed the claim of the Assessee. While doing so, it was held that the claim is allowable retrospectively and thereby directed the order under section 263 to be quashed. (AY 2015-16)

Craftsman Automation Ltd. v. ACIT (2023) 103 ITR 31 (Trib)(S.N.)(Chennai)

227. S. 32(1)(iia): Additional depreciation permissible on new plant or machinery or plant acquired or installed

In accordance with the provisions contained u/s. 32(1)(iia) of the Act, the additional depreciation was permissible in the case of an assessee engaged in the business of manufacturing or producing any article or thing. On the other hand, depreciation at a higher rate is different from the claim of additional depreciation. Since, the Assessing Officer had proceeded on a wrong footing, treating the claim of depreciation at a higher rate as a claim to additional depreciation, the disallowance was not legally sustainable. Since the issue of excess depreciation was covered by the decision of the Tribunal in the assessee’s own case for other years, there was no infirmity in the finding of the Commissioner (Appeals) deleting the disallowance of excess depreciation of Rs. 3,23,72,494/-.

ABCI Infrastructure P. Ltd. v. Asst. CIT (2023)104 ITR 95 (Trib) (Guwahati).

228. S. 35: Scientific Research – Weighted Deduction – Application For Approval Of In-House Research And Development Facility was filed Before End Of FY – Held, Period Mentioned In Form 3CM is Not Relevant – Approval Would Relate Back To Beginning Of FY In Which the Application is Filed.

During the relevant AY assessee claimed a 200% deduction u/s 35(2AB) of the Act on account of expense incurred on in-house Research & Development facility amounting to Rs. 2,68,23,495/- relating to Revenue expenditure and Rs. 1,87,94,736/- relating to Capital expenditure in relation to in-house scientific research. The AO observed that the Assessee applied for approval of in house R&D facility u/s 35(2AB) only on 29.03.2012 and the facility was approved in the Form 3CM from 16.03.2012 to 31.03.2014 and held that the assessee was entitled for deduction for the relevant FY 2011- 12 only from 16.03.2012 till the end of the year and not for the period before that. The ITAT upheld the order of the CIT(A) who relied on the decisions of Hon’ble Delhi High Court in Maruti Suzuki India Ltd.(supra) and Gujrat High Court in Sandan Vikas (India) Ltd and CIT v. Claris Life Sciences Ltd. (2008) 174 Taxman 113 (Guj) and held in its opinion the period mentioned in the approval is not relevant and would relate back to the beginning of FY in which the application is filed. It was therefore, held that the assessee was entitled for weighted deduction for AY 2012-13 u/s 35(2AB).

Dy. CIT v. Hanon Climate Systems India P. Ltd. (2023) 103 ITR 60 (Trib) (S.N.) (Del)

229. S. 35D- International Transactions – Arm’s Length Price –Determination – Purchases From AE – Sales by AE to Non-related Parties in one Month at Price Significantly Higher than in other months – Difference in Prices due to Qualitative Difference between ingots sold by AE to Assessee and those sold to third Parties – Substantial Evidence to Prove Quality of Products Sold – No Rationale In Making Adjustment only for one Month – Reversal of Adjustment Proper – Capital or Revenue Expenditure – Expenditure in Connection with Increase in authorised Capital – Not allowed as Revenue Expenditure – Assessee Cannot Capitalise it and Claim Depreciation thereon – Mercantile System of Accounting – Interest to be taxed on accrual basis

The assessee-company was engaged in the manufacture of thermo mechanically treated bars and purchased mild steel ingots from its AE. Where for the AY 2014-15, the AO accepted the purchases made by the assessee in the months of December 2013, February, 2014 and March, 2014 but disputed the purchases made in January, 2014 on the ground that the sales made by the AE to non-related parties was at a price significantly higher in comparison with other months. The ITAT noted that the CIT(A) had categorically observed that there was a qualitative difference between the mild steel ingots sold by the AE to the assessee as compared to those sold by the AE to third parties. Further, as the TPO had accepted the contention of the assessee for the months of December, 2013, February, 2014 and March, 2014 there was no rationale in making the adjustment only for the month of January, 2014. Accordingly, the order of CIT(A) was upheld.

Further with respect to expenditure incurred in connection with increase in authorised capital. The assessee claimed that such expenditure was incurred prior to commencement of commercial production and was transferred to the asset account along with the financial charges. The AO disallowed the same on the ground that once expenditure was capitalised, the depreciation would be indefinitely claimed by the assessee and the assessee was required to charge such expenditure as revenue expenditure which he disallowed. The ITAT upheld the CIT(A) order wherein he has partly allowed the assessee’s appeal holding that the AO cannot compel the assessee to compute such expenditure as revenue expenditure and thereby make disallowance, when the assessee had capitalised the expenditure in its books of account. However, since the assessee had admitted that such expenditure was treated as part of fixed assets and depreciation had been claimed in respect thereof, since expenditure was not allowed as revenue expenditure on increase in authorized capital, the assessee could not claim such expenditure by capitalising it and claiming depreciation thereon. (AY.2014-15)

Dy. CIT v. H. K. Ispat P. Ltd. (2023) 103 ITR 12 (Trib) (S.N.)(Ahm)

230. S. 36(1)(va): Employees’ Contribution To Provident Fund – Disallowance For Late Deposit Beyond Due Date – upheld – Checkmate Services (P.) Ltd. 143 taxmann.com 178 (SC)

The AO made a disallowance u/s 36(1)(va) on account of late deposit of employees’ contribution to the provident fund beyond the due date. The ITAT upheld the disallowance as being proper by virtue of decision of the Hon’ble Apex Court in CHECKMATE SERVICES P. LTD. v. CIT [2022 448 ITR 518 (SC). (AY.2012- 13)

Dy. CIT v. Hanon Climate Systems India P. Ltd. (2023) 103 ITR 60 (Trib) (S.N.) (Del)

231. S. 36(1)(va): Employees’ contribution to provident fund – Deposit beyond due date prescribed under relevant Act –Deduction not allowable

The assessee was a private limited company, engaged in the business of providing micro loans for micro business to its customers. The return was processed u/s. 143(1) by the Assessing Officer making addition on account of delayed payment of employees’ contributions to provident fund and Employees’ State Insurance Corporation.

Held, that the deposit of employees’ contribution to Employees’ State Insurance Corporation was well before the due date prescribed under the relevant Act and the deduction was to be allowed. But the employees’ contribution to provident fund was deposited beyond the due date prescribed under the relevant Act, and therefore had been rightly disallowed by the Commissioner (Appeals). (AY. 2018-19)

Swatantra Microfin P. Ltd. v. Centralised Processing Center (2023) 105 ITR 181 (Trib)(Mum)

232. S. 37(1): Business Expenditure – Capital or Revenue Expenditure – Non- Compete Fee Paid By Assessee – In the First AY of Payment, Proportionate Deduction Disallowed Holding the same as Capital Expenditure – Rule of Consistency – Ruling For Earlier AYs followed.

The assessee acquired running businesses of various bottling companies restricting them from sharing their knowledge and know-how in relation to the acquired business for a specified period. The assessee claimed deduction of the non- compete fee paid to them as deferred revenue expenditure on amortised basis over the period of non-competition. In the assessment order for the AY 2001-02 , being the first year of payment, the AO disallowed the proportionate deduction on the ground that the non-compete fee was capital expenditure, resulting in benefit of enduring nature. The CIT(A) upheld the order of the AO. Similar findings were given in AY 2002-03. The ITAT following the rule of consistency and dismissed this ground of the assessee.

Hindustan Coca-Cola Beverages P. Ltd. v. Dy. CIT (2023) 103 ITR 67 (Trib) (S.N.)(Del)

233. S. 37: Business Expenditure – club membership fees –club membership used by representatives of assessee for entertaining present and prospective customers – thus, the same is in the nature of commercial expediency and is allowable expenditure.

It has been held by the Hon’ble Appellate Tribunal that the club membership had been obtained in the name of the assessee and the representatives of the assessee used the club for entertaining present and prospective customers. This was certainly meant for the purpose of business of the assessee and to be construed as an expenditure incurred as a measure of commercial expediency. Hence, AO was not justified in treating the expenditure on club membership as personal in nature. (A.Y. 2014-15)

Cherry Hill Interiors P. Ltd. v. Add. CIT [2023] 105 ITR 34 (Delhi – Trib)

234. S.37: Business expenditure – joint venture – Payment towards engineering and development cost each year dependent upon volume of production. Intellectual property rights remaining with companies, Payment not resulting in intangible asset capable of capitalization, said payment for use of technology revenue in nature.

The assessee was a joint venture between a Mauritius corporation, and a company in Japan, and engaged in the manufacture and sale of seats for passenger cars. The assessee claimed deduction towards engineering and development costs. The assessee furnished a copy of the engineering and recovery agreement under which such payment was made. The AO held that the amount paid was capital expenditure and hence, not deductible. The AO treated it as an intangible asset and allowed depreciation at 25 per cent. after capitalisation, which resulted in a disallowance.

The Tribunal held that, the relevant clauses of the engineering recovery agreement clearly mentioned the license to the assessee to use the engineering development work done by the two joint venture companies was non-exclusive, payment by the assessee towards engineering and development cost each year was directly dependent upon the volume of production in such year using the technology, there was no obligation on the assessee to make any payment dehors the production in any later year in the eventuality of closing down of its business notwithstanding the fact that the two joint venture companies initially determined the amount payable per unit of production on the basis of aggregate targeted volume over the life of the project, similarly, the assessee was not eligible for any exemption from payment after a specific period on recoupment of costs by the two joint venture companies. It was manifest that the assessee did not have any dominion and control over the intellectual property rights of the technology developed by the Mauritius and Japanese companies, which was simply licensed to it on non-exclusive basis. Thus, the payment did not result in acquiring and owning the engineering and development technology for it to be characterised as an intangible asset capable of capitalisation. The payment in the nature of royalty for the use of such technology, being an item of revenue nature. Disallowance was not sustainable. (AY.2012-13)

Lear Automotive India P. Ltd. v. Asst. CIT (2023) 105 ITR 4 (Trib) (S.N.)(Pune)

235. S. 37: Business Expenditure – Assessee carrying on business in veterinary pharmaceuticals – Products registration expenses – Allowable as revenue expenditure

The assessee-company, engaged in the business of manufacture, trading and marketing of healthcare products especially for veterinary needs, was in the business of veterinary pharmaceuticals since 2002. For the A Y. 2017-18, the Assessing Officer disallowed the products registration expenses to the tune of Rs.47,21,095 claimed by the assessee. The Commissioner (Appeals) dismissed the appeal of the assessee.

On appeal the Tribunal held, that the products registration expenses were allowable as revenue expenditure and the finding of the Commissioner (Appeals) was to be set aside. (AY.2017-18)

Ashish Life Science P. Ltd. v. Asst. CIT (2023)103 ITR 557 (Trib)(Mum)

236. S. 37(1): Bogus Purchases and Condonation of Delay- Entire bogus purchase cannot be added

Bogus purchases Information received from investigation wing purchases of assessee are bogus. Purchases through brokers and payment through banking channel Entire bogus purchase cannot be added Addition restricted to 12.5% of alleged bogus purchases.

Insolvency proceedings initiated against assessee and Taxation Manager could not hand over Order to Chartered Accountant due to inadvertent oversight , facts supported by Affidavit of Taxation Manager. Held there exists sufficient cause for condonation of delay.

237. S. 37(1): Business Expenditure – insurance premium of director paid by Company – not incurred wholly and exclusively for the purpose of business – not allowable u/s. 37(1).

The assessee is engaged in business of development and construction of residential units. Taxation manager of the assessee company did not informed CA about Order due to inadvertent oversight and the same was supported by an affidavit from Taxation Manager. Further, insolvency proceedings before NCLT. There exists sufficient cause and delay of 177 days was to be condoned.

AO made addition by disallowing entire purchases of Rs. 94.02 Lakhs. Notice u/s. 133(6) to supplier returned “unserved”. Assessee contended that purchases were made through brokers. Payments made through banking channel. CIT(A) relied on judgement of Hon’ble SC in NK Proteins (SLP No. 759/2017 dated 16.01.2017) and upheld entire addition. On appeal ITAT held that without purchase of construction material, business could not have been carried out. Therefore, disallowance was restricted to 12.5% of the alleged bogus purchase. Judgement of Bombay HC in the case of PCIT vs Paramshakti Distributors Ltd. (ITA No. 413/2017 dated 15.07.2019) relied upon.

Insurance premium of director paid by Company was personal liability of directors. Not incurred wholly and exclusively for business. Therefore, not allowable u/s. 37(1). (AY 2010-11, AY 2011-12)

Lokhandwala Kataria Construction Pvt. Ltd. v. DCIT (2023)104 ITR 84 (Trib)(Mum)

238. S. 37: Business expenditure: Income from undisclosed sources – Bogus purchases: Expenditure on commission paid

On the basis of information received from the Investigation Directorate that the assessee- company had made bogus payment of Rs. 10.32 crores to RA and RS which were paper companies engaged in providing accommodation entries or sending bogus foreign remittances to entities based in Hong Kong and the U. A. E. in the guise of bogus import purchases.

The Assessing Officer stated that the assessee had failed to produce the parties as well as the new address of that party and therefore no independent verification could be done and hence the purchases were unproved.

Similarly, commission paid to four parties, which were not traceable at the addresses given in the return of income, the assessee submitted copies of the ledger account, the bills, invoices, debit notes and the bank statement to show the payment. Three parties did not respond. Accordingly, the Assessing Officer disallowed commission paid to all four parties.

With respect to the commission expenditure, the Commissioner (Appeals) held that the Assessee had submitted the debit notes, details of tax deducted at source, bank statements and financial statements along with the income tax return of those parties, that in all cases of the recipients of the commission, the commission income had been accepted. The Commissioner (Appeals) further noted that even in the proceedings initiated u/s. 24 of the Prohibition of Benami Property Transactions Act, 1988 initiated against the recipients of the commission these entities were not held bogus and accordingly deleted the addition of Rs. 83,15,211/-.

On appeal to the Tribunal, challenging the reversal of the additions on account of bogus purchases of Rs. 11.66 crores on account of accommodation entries and the addition on account of commission expenditure or Rs.82,15,211/- it was held that there was no infirmity in the finding of the Commissioner (Appeals). Even if it was held that the purchases from these parties were bogus, the proper course would be to determine the profit arising from the purchases by looking at the corresponding sales. If the alleged bogus purchases showed a gross profit higher than the regular gross profit shown by the assessee, no further addition was required to be made in the hands of the assesse.

[Applied: CIT vs. Sundaram Gems P. Ltd. (I. T. A. No. 6785 of 2010, dated November 30, 2011) (Bom)]

That all the four entities who received commission were assessed by the same Assessing Officer, who, in scrutiny assessments, had taxed the commission income as income from other sources, in their hands. All these parties had responded to the notice issued u/s. 133(6) of the Act, submitted the ledger confirmation reflecting the details of the transactions with the assessee as well as the debit note of the working of the commission with their return of income.

The assessee had produced details of other commission expenditure incurred by the assessee which were also identical. There was no infirmity in the order of the Commissioner (Appeals) in deleting the disallowance of Rs.83,15,211 of commission expenditure.(Ay: 2012-13)

Dy. CIT v. Asian Star Co. Ltd. (2023)104 ITR 639 (Trib) (Mum)

239. S. 37: Non-compete fee being a capital expenditure resulting in enduring benefit cannot be allowed as revenue expenditure.

Assessee Company is a manufacturer and trader of non-alcoholic beverages. Assessee had acquired running business of various bottling companies and restricted them from sharing their knowledge and know-how in relation to the acquired business for specified period. Assessee claimed deduction for such payment as deferred revenue expenditure on amortized basis over the period of non-competition. The AO disallowed the proportionate deduction on the ground that non-compete fee was capital expenditure, resulting in enduring benefit and therefore not allowable as revenue expenditure. The CIT (A) upheld the order of the AO. Given the fact that for AY 2002-03, the said view was upheld by the Tribunal and following the rule of consistency, the Hon’ble Tribunal upheld the order of the CIT (A) in the present case as well.

M/s. Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib)(S.N.)(Del)

240. S. 37(1): Explanation 2, disallowing CSR expenditure is not retrospective in nature.

Assessee incurred CSR expenditure on activities like installation of handpumps, distribution of shoes, uniform etc. to school students, drought relief measures etc. The AO disallowed such expense on the ground that Explanation 2 to section 37(1) of the Act though inserted w.e.f 01.04.2015, to be clarificatory in nature. On appeal the Hon’ble Tribunal by referring to various other decisions held that the Explanation was retrospective.

M/s. Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib)(S.N.)(Del)

241. S. 37(1) : Expenditure incurred on ice boxes being made for acquiring or bringing into existence an asset for enduring benefit of business was of capital nature.

The Assessee had incurred expenditure on sign board, ice boxes etc. provided to vendors which were accounted under the head “marketing expenses”. The CIT (A) allowed the claim of sign board as revenue expenditure, however, treated the ice boxes as part of plant and machinery and allowed depreciation in assessee’s own case for AY 2002- 03. Upon appeal, the Tribunal also disallowed the expenses on the ground that expenditure was being made for acquiring or bringing into existence an asset for enduring benefit of business and therefore was capital in nature for the AY 2002-03. The Hon’ble Tribunal followed the decision of the coordinate bench decision for AY 2002-03 and disallowed the expense in the present case. (AY 2004-05 to 2007-08)

M/s Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib) (S.N.) (Del)

242. S. 37(1): Explanation 2, disallowing CSR expenditure is not retrospective in nature.

Assessee incurred CSR expenditure on activities like installation of handpumps, distribution of shoes, uniform etc. to school students, drought relief measures etc. The AO disallowed such expense on the ground that Explanation 2 to section 37(1) of the Act though inserted w.e.f 01.04.2015, to be clarificatory in nature. On appeal the Hon’ble Tribunal by referring to various other decisions held that the Explanation was retrospective.

M/s. Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib)(S.N.)(Del)

243. S. 37(1) : Expenditure incurred on ice boxes being made for acquiring or bringing into existence an asset for enduring benefit of business was of capital nature.

The Assessee had incurred expenditure on sign board, ice boxes etc. provided to vendors which were accounted under the head “marketing expenses”. The CIT (A) allowed the claim of sign board as revenue expenditure, however, treated the ice boxes as part of plant and machinery and allowed depreciation in assessee’s own case for AY 2002-03. Upon appeal, the Tribunal also disallowed the expenses on the ground that expenditure was being made for acquiring or bringing into existence an asset for enduring benefit of business and therefore was capital in nature for the AY 2002-03. The Hon’ble Tribunal followed the decision of the coordinate bench decision for AY 2002-03 and disallowed the expense in the present case. (AY 2004-05 to 2007-08)

M/s Hindustan Coca-Cola Beverages Pvt. Ltd. v. DCIT; Order dated 12.04.2023; (2023) 103 ITR 67 (Trib) (S.N.) (Del)

244. S. 37: Depreciation cannot be claimed on expenditure incurred towards increase in authorized share capital

Assessee incurred certain expenditure in connection with increase in authorized capital prior to commencement of production. The same was capitalized in the books and depreciation thereon was claimed by Assessee. The AO disallowed such expenditure on the ground that the Assessee was required to charge such expenditure as revenue expenditure. In appeal the CIT(A) partly allowed the Assessee’s appeal by holding that the AO cannot compel the Assessee to record such expenditure as revenue expenditure and thereby make disallowance, when the Assessee had capitalised expenditure in its books of accounts. Further, the CIT(A) was of the view that since expenditure on increase in authorized capital cannot be allowed as revenue expenditure, the Assessee cannot claim such expenditure by capitalising the same and claiming depreciation thereon. The Hon’ble Tribunal upheld the order of CIT (A).

DCIT v. M/s H.K Ispat Pvt. Ltd. (2023) 103 ITR 12 (Trib) (S.N.)(Ahm)

245. S. 37: Business Expenditure –ad hoc disallowance of 10% on charges paid to third parties for packing and processing– failure of suppliers/third parties to appear not to discredit expenditure otherwise established from books and mode of payment – corporate social responsibility – provision introduced in 2014 making expenses ineligible for deduction – not retrospective – expenses allowable – expenditure on ice-boxes provided to vendors – held capital in nature – expenses were not allowable.

In relation to packing and processing work outsourced to third parties. The assessee claimed processing charges during the relevant previous years which were disallowed on ad hoc basis. The claim of the assessee was that there was no variations in the details of processing charges furnished during the course of assessment proceedings with the amount debited in the books of account and that the amounts were made through banking channels. On appeal the ITAT restored the issue to the AO with a direction to examine the issue of processing charges on the basis of evidence made available by the assessee showing genuineness of the payments made to the suppliers. The non- availability of the suppliers or their failure to appear at the behest of the assessee was not to discredit the expenditure otherwise established from books and mode of payment.

In relation to expenditure on corporate social responsibility for AY 2004-05, incurred on activities like installation of hand pumps, distribution of shoes and uniforms to school students, drought relief measures. The CIT(A) held that the Explanation 2 to S. 37(1) of the Act inserted by the Finance (No. 2) Act, 2014, with effect from 1.04.2015 to be clarificatory in nature and applicable to the present AY 2004- 05. The ITAT held, that the Explanation was not retrospective and that the expenses were allowable.

In relation to disallowance of expenses incurred on Ice-Boxes. The assessee incurred expenditure on sign boards and ice-boxes provided to vendors which were accounted under the head “marketing expenses”. The expenses incurred on ice- boxes were disallowed on the basis of grounds in the AYs 2006-07 and 2007-08 . The Commissioner (Appeals) allowed the expenses on sign boards as revenue expenditure, but treated the expenses on ice-boxes as part of plant and machinery and allowed depreciation. Held, that in the assessee’s own case for the AY 2002-03 the Tribunal disallowed the expenses holding them capital in nature. The nature of expenditure having once been examined by the Tribunal could not be interfered with without there being substantial basis to disagree. The expenses were not allowable.(AY.2004-05 to 2007-08)

Hindustan Coca-Cola Beverages P. Ltd. Dy. CIT (2023) 103 ITR 67 (Trib) (S.N.)(Del)

246. S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Payment of Licence Fee to Holding Company – Assessee submitted Certificate From Chartered Accountant And Return and Computation of Income of Payee which Showed that Payee had Disclosed Payment in its Return and Paid Taxes thereon – held, as per Indo- Israel DTAA Income in Question Not Chargeable to Tax in India in Hands of Non-Resident – No Disallowance.

The assessee-company was a wholly owned subsidiary of C Ltd. of Israel. During the assessment proceedings, for AYs 2016-17, 2017- 18 and 2018-19 it was found that the assessee- company had paid licence fee to C Israel. The AO held that the payment made by the assessee to C Israel was in the nature of royalty taxable in India and since, the assessee had not deducted tax at source while making the said payment, he disallowed the sum under section 40(a)(i) of the Act. The ITAT observed that the assessee had filed the certificate from the chartered accountant in form 26A, ROI and computation of income of the payee before the CIT(A) in support of its submission that C Israel had disclosed the payment in its return of income and paid the taxes due thereon. The ITAT followed the decision of the ITAT in the assessee’s own case for AY 2014-15 to the effect that that the payee had declared the income and claimed refund of the withholding tax because the income earned by the payee was not chargeable to tax in India as per the Indo- Israel DTAA. Thus, there was no infirmity in the order passed by the CIT(A). (AY.2016-17, 2017-18, 2018-19)

ACIT v. Celltick Mobile (India) P. Ltd. (2023) 103 ITR 77 (Trib) (S.N.)(Mum)

247. S. 40(a)(ia): Amounts not deductible – Deduction at source – Commission – Sale of prepaid sim card at discounted price to distributors – difference between maximum retail price and discounted price not commission on which TDS is required – disallowance of discount not justified. [S. 194H]

In the present case the assessee sells the prepaid SIM Card with available talk time worth Rs.100/- at a discounted price of Rs. 70/- to the distributors. The discount charges of Rs 30/- (100-70) were disallowed by the AO on the ground that relationship between the assessee and its distributors would be that of Principal and the Agent. Accordingly, difference between the maximum retail price and discounted price i.e., Rs.30/-, amounts to commission warranting deduction of tax at source in terms of section 194H of the Act. Since, no tax was deducted on the said transaction, the AO treated the discount charges on prepaid SIM Card as not allowable in terms of section 40(a)(ia) of the Act. On the order hand the assessee contended that its relationship with the distributors is that of Principal to Principal. Accordingly, no tax would be deductible on the said discount charges.

It has been held by the Hon’ble Appellate Tribunal that the provisions of section 194H are not attracted to the discounts given to distributors. Hence, section 40(a)(ia) would not be applicable. Hence, disallowance of discount is not justified. (AY 2013-14 & 2014-15)

Asst. CIT v. Bharti Haxacom Ltd. [2023] 105 ITR 74 (Delhi – Trib)

248. S.40(a)(ia): CIT(A)’s deletion of additions made by Assessing Officer for non-deduction of TDS on Labour Contract Expenses, accepting that subcontractors had declared and paid taxes on the income stands ratified.

The appeal is against the order of the CIT(A) by the revenue. The primary issue is the deletion of addition made by the Assessing Officer under section 40(a)(ia) of the I.T. Act due to the assessee’s failure to deduct TDS on Labour Contract Expenses and secondly, the restriction of the adhoc disallowance of expenses to 10% from the proposed 20% by the Assessing Officer.

The assessee is a firm engaged in construction. They filed a return for A.Y. 2013-14. The Assessing Officer noted discrepancies in the assessee’s expenses and income declarations, especially regarding contract expenses. The CIT(A) accepted the assessee’s contention that the sub-contractors had declared the income in their returns and paid taxes on it. The CIT(A) observed that return of income had been filed by 9 out of 11 subcontractors and the CIT(A) deleted the additions made in these cases. As regards two subcontractors, they hadn’t filed returns due to income being below the taxable limit and the death of one of them. Without prejudice, the assessee proposed that the addition on their payments (two cases) be restricted to 30% of sub-contract payment in view of amendment to first proviso to Section 40(a)(ia) by the Finance Act, 2014 which has been held as retrospective. The CIT(A) directed the deletion of the addition for these two subcontractors as well.

Upon appeal by the revenue, The Hon’ble Tribunal observed that the Assessing Officer based on adverse remark in audit report by the auditor that no TDS was made on such subcontract payment, disallowed the entire expenses. However, considering the decision of the CIT(A) which was based on the remand report furnished by the Assessing officer, the Hon’ble Tribunal affirmed the decision of the CIT(A) as far as cases where returns of income were filed and the income was declared and taxed paid. Further as regards the two cases where returns of income weren’t filed, assessee’s alternate plea to restrict the addition to 30% was found acceptable bringing about modification to CIT(A)’s order to this extent. (AY 2013-14)

ITO v. M/s. Satyam Enterprise; (2023) 103 ITR 56 (Trib) (S.N.) (Surat)

249. S. 40(b)(v) : Remuneration to partners cannot be disallowed in the hands of a partnership firm merely on the reason that supplementary deed providing for higher remuneration is entered into subsequently with retrospective effect.

The assessee had paid a remuneration of Rs. 2,70,60,662/- to the partners during the year and had furnished the deed of partnership in support of its claim. The A.O. relied on the clause 7 of the deed and reached the conclusion that the remuneration payable to the partners was not in accordance with the terms of deed of partnership dated 01.08.2005.

The ITAT observed that the assessee vide registered partnership deed dated 01.08.2005 was entitled to deduction with regard to the remuneration payable to partners. Sec. 40(b) (v) got amended and the amended provision provided for higher remuneration. The assessee would get the benefit of the amended provision for higher remuneration from 01.04.2010. However, the only lacuna was the supplementary deed was executed subsequently on 16.03.2021 but with a retrospective effect. The ITAT referred to the decision of the Allahabad High Court in CIT v. Alison Singh & Co. [2013] 358 ITR 458 wherein it has been held that as the subsequent deed is executed in accordance with the primary deed, there would be no objection in giving retrospective effect to the subsequent deed. The ITAT also observed that the said claim was allowed in the earlier years without change in facts. On the observation, the ITAT allowed the appeal of the assessee.

Jetkool Exports India v. NFAC – ITA No. 2596/ Mum/2022, dated 09/03/2023

250. S. 43CA (1): Benefit of proviso available retrospectively, Addition to be determined on the basis of fair market value determined by DVO.

The Assessee is a builder and promoter. Assessment proceedings were initiated, in the course of which AO made certain addition under section 43CA of the Act on account of sale consideration being less than the stamp duty value w.r.t 9 properties. The AO passed the assessment order, pending DVO report in respect of fair market value.

The Hon’ble Tribunal perused the difference between sale consideration and stamp duty value and proposed to restrict the additions made only to those properties in which the difference exceeded 10% in terms of proviso to section 43CA(1) of the Act. For doing so, the Tribunal referred to the judgements in the case of V.K.Developers [ITA No. 923/Pun/2019] and Sai Bhargavanath Infra [ITA No. 1332/ Pun/2019], wherein it was held that proviso to section 43CA(1) would have retrospective effect. However, upon request of the Assessee, the matter was remanded to AO for determination of addition in terms of fair market value determined by DVO.

Dugad Properties v. DCIT; (2023) 103 ITR 65 (Trib) (S.N.) (Pune)

251. S.44AD, 44ADA: Presumptive taxation, Dissolution of partnership firm: Partnership firm dissolved – Partner of firm carried on business in capacity as proprietor. Assessee submitted dissolution deed before AO. However, AO taxed entire amount in the hands of partnership firm without considering that partner already offered said income in individual income tax return. Matter set aside to AO for verification of facts.

Partnership firm dissolved w.e.f. 01.04.2005 vide dissolution deed dated 31.03.2005. Partner filed affidavit stating that he has been carrying out business of erstwhile partnership firm as proprietor. AO taxed entire amount on which TDS deducted and made addition of Rs. 33.50 Lakhs. On appeal, CIT(A) rejected the claim that showing such income in the individual capacity cannot absolve the appellant from filing its own ITR when it is receiving amount in the same PAN. However, directed the AO to treat 50% of the gross receipts u/s 194J of the Act and 8% of the gross receipts u/s 194C of the Act as appearing in Form 26AS of firm as income of the appellant in congruence to provisions of Sec. 44ADA and 44AD of the Act. Before ITAT, appellant submitted that CIT(A) rejected claim of assessee without considering reconciliation statement and applied provisions of S. 44ADA, which was not applicable in AY 2011-12. In view of the fact that dissolution deed was submitted before AO, ITAT remitted back the matter to AO for fresh verification. (AY 2011-12)

 Mathur Ugam and Associates v. ITO (2023)104 ITR 442 (Trib)(Del)

252. S.44AD: Tax on presumptive basis – condonation of delay – unexplained cash deposits during demonetisation period – cash deposits explained – Held, addition declared unsustainable.

The assessee missed an order passed by the Commissioner (Appeals) as it was recieved in the “spam” folder. The delay in filing appeal was condoned because the assessee was a small business woman, not privy to technicalities. For the A.Y. 2016- 17 and 2017-18, the assessee earned her income from taking tuitions and running a beauty parlour. She declared her return of income of Rs. 34,130 upon which was called to disclose her sources of income, copy of bank statements and sources of various cash deposits made during the demonetisation period. The AO noticed several cash deposits of demonetised currency and proceeded to make an addition of Rs. 10,00,000 as unexplained money u/s 69A of the Act. The Commission (Appeals) confirmed the addition. The same was challenged before the Tribunal.

The held that the assessee had sufficient funds in her account. The assessee properly explained that the money in her possession came from her profession as a tutor and owner of a beauty salon. The Assessing Officer and the Commissioner (Appeals) had access to all the material, but the authorities ignored it without looking it over and went forward with the addition. The addition made was not sustainable because the assessee’s cash deposit of demonetization currency was properly declared and explained. (AY.2017-18)

Mrs. Sanjana R. Jain v. ITO (2023)103 ITR 546 (Trib)(Mum)

253. S. 45: Capital Gains – Capital or revenue receipt – entertainment tax subsidy is capital receipt not exigible to tax.

Where the object of the entertainment tax subsidy scheme of the State Government was to encourage development of multiple theatre complexes, such incentive is capital in nature and not a revenue receipt. Hence, subsidy amount received by the assessee on account of entertainment tax exemption is a capital receipt and not liable to be taxed. (A.Y. 2012-13)

ACIT v. Inox Leisure Ltd. [2023] 105 ITR 3 (Ahmedabad – Trib)

254. S. 45: Taxability of Gains arising from Share Swap Transaction

Appellant acquired 100% shareholding in Sigrun Realities Limited (SRL) in exchange of issue of its shares to the existing shareholders of SRL i.e. by way of share swap transaction. The exchange ratio was determined on the basis of independent valuation was 1 equity share and 1 Optionally Convertible preferences Share (OCPS), both, having face value of INR 10 each and issued at a premium of INR 78.25 for 7 shares of SRL valued at INR 25.25 per equity shares of SRL. Therefore, the Assessing Officer brought to tax INR 9,09,63,631/- [INR 0.25 per share of SRL x 36,38,54,524 shares of SRL] as short- term capital gains.

There is no sale of any capital asset. Further, it is noted that when the valuations of shares and allotment of shares are done as per SEBI guidelines and certified by an independent person and the shares have been issued and exchanged at that value, then there is no germination of any capital gain. It is further noticed that in the appellant’s financial statements, the value of investments in SRL and the value of shares issued are at the same value on the assets and liabilities side, thus, there is no question of earning of any capital gain.

The ITAT further observed that the facts and circumstances for AY 2010-11 and AY 2009-10, with the only difference that the swap ratio in the preceding year was in favor of shareholders of SRL and in this year it is in favor of the appellant. It is strange that the AO has chosen to make addition in both the years on these transactions, which are financially opposite in nature to each other, which is incorrect.

ITO v. M/s Sigrun Holdings Ltd. [ITA No.234/ Mum/2021, dated 25/05/2023]

255. Sec 50C: Capital Gains – Sale of Property – Difference in stamp duty value and consideration – Reference to District Valuation Officer – Determined value higher than consideration but less than stamp duty value – Remanded to the AO to re- determine the fair market value with specific directions

The Assessee sold a property for a consideration lower than stamp duty value of the property. The Assessing Officer made a reference to the District Valuation Officer (‘DVO’) wherein the fair market value of the property was estimated at lower value than stamp duty value but higher than the consideration. The assessee objected to the valuation since highest sale instance was considered ignoring the other three sale instances noted by the DVO. Also, value of car parking was separately added wherein no separate consideration was received by the assessee for car parking. The Tribunal remanded the matter back to the Assessing Officer to take into consideration the average of three instances in the valuation report and also add the fair market value of the covered car parking instances while estimating the fair market value of the property.

Shrim Software P. Ltd. v. ACIT (2023) 103 ITR 28 (Trib) (S.N.)(Del)

256. S. 54: Long-term capital gains – deduction claimed for purchasing property – AO deputed inspector for inspecting the property – AO made the deduction as per the inspector report and added the rest income to be taxed – assessee contented that the two units were not independent – Held, the two units were separated residential houses.

The assessee after selling two immovable property, purchased another property which consisted of five floors. The ground and first floor was let out and the rest was used as his residence. According to Section 54 of the Income Tax Act of 1961, the assessee claimed an exemption on the proportionate capital gains exemption of Rs. 78,19,945. The Assessing Officer noted that the third and fourth floors were two independent residential units, with the third floor being kept for the assessee’s usage and the fourth floor being rented out after recording the inspection officer’s statement. In light of this, the Assessing Officer determined the amount that qualified for a deduction under Section 54 of the Act and rendered the remaining amount subject to tax. There was also an indexed cost of improvement assessed by the AO and after examining the bills, it was restricted at Rs. 2,46,888. The Commissioner (appeals) confirmed the same and the assesee appealed against the order.

The tribunal held that the assessee had failed to establish how the third and fourth floor were not independent and the AO had restricted the deduction u/s 54 correctly. With respect to the indexed cost of improvement, the tribunal held that it was common to do basic repair and maintainance work with respect to masonry work. Therefore, the payments for cost of improvements should be allowed. (AY.2015-16)

Mohamed Ibrahim v. ITO (International Taxation) (2023)103 ITR 329 (Trib)(Chen)

257. S. 54B: Capital gains – sale of agricultural land and purchase of new land – documents on basis of which assessee purchased land valid and enforceable in law, disallowance of exemption for want of registration of land not sustainable.

The Honourable Tribunal allowing the appeal, held that, the registration of the purchased land was pending for court permission because two of the co-sellers were minor at the time of purchase of the land but both parties upon attaining majority had executed notarized declarations of accepting the transactions and confirmed the enforceability of the documents in form of the sale agreement and possession letter signed by their guardians on their behalf. Hence, the documents on the basis of which the assessee had purchased the land were valid and enforceable in law. Hence, the claim u/s. 54B was allowable as the transaction was enforceable in the eyes of the law for the amount already paid for the purchase of new agricultural land. (AY. 2016-17)

Kristina Nathabhai Krichchan v. Dy. CIT (2023)105 ITR 44 (Surat) (Trib) (S.N.)

258. S. 54F: Long-term capital gains from residential property – deduction claimed from selling flats – transfer for reversal of such deduction made after three years – matter remanded to see if there was double taxation

The assessee entered into an agreement with a Mr. N to construct 52 flats on a sharing ratio of 65:35. He failed to file his return of income for A.Y. of 2012-13 in respect of the 52 flats. In addition to the 29 flats that were already sold in the assessment year 2014–15, the assessee sold and transferred 23 of his 52 apartments to developer N under new agreements of sale with an irrevocable general power of attorney with possession in the A.Y. 2015–16. He did not file his return for this assessment year as well. Finally, a notice u/s 148 was issued the assessee filed his return of income. The AO assessed the income from the flats in the A.Y. 2016-17 to which the assessee objected saying that the same should be added to the A.Y. 2015-16. After the AO rejected the said objects, the same was referred to a dispute resolution panel who partly allowed the assessee’s objection and also upheld the additions by the AO. The AO calculated the assessee’s total income after deducting short-term capital gains from the sale of 23 apartments before the end of the three- year period and adding back the deduction the assessee was given under section 54F for this sale. The assessee challenged the said order contending that there was double taxation.

The tribunal held that since the proceeds from the sale of the apartments were subject to tax in the assessment year 2014– 2015, adding the same amount in the year under examination would have resulted in an illegitimate double addition. The AO was also directed to verify if the said amount had been brought to tax in the A.Y. 2014-15 and if yes then delete it from the A.Y. 2015-16. The tribunal further observed that the AO, while passing the final order, ignored the direction of the panel to take into account the cost of acquisition to the assessee. The Assessing Officer reversed the deduction that had been given to the assessee under section 54F for the sale of 23 apartments during the assessment year 2012–2013 on the grounds that the assessee had sold the apartments within three years. However, the transfer was made only after a period of three years—on March 24, 2015—and the joint development agreement was signed on January 13, 2012; as a result, the Assessing Officer was not justified in proposing to revoke the deduction under section 54F. (AY.2015-16)

Madhu Kumar Patel v. Asst. CIT (International Taxation) (2023)103 ITR 112 (Trib) (Hyd)

259. S. 56: Income From Other Sources – shortfall in sale consideration for transaction of Sale Of Equity Shares – burden of proof on assessee to explain reason for shortfall – professional fees paid for sale transaction claimed during year of sale – genuineness of expenditure not in doubt and facts narrated by assessee found correct – not to be disallowed merely because paid in earlier year

AO had disallowed the shortfall in the sale consideration of sale of shares by the assessee and brought this sum to tax. He also disallowed the sum paid as cost incurred for effecting sale of equity shares on the ground that the major portion of the professional fees was paid in the preceding year and could not be allowed during the year under appeal. The CIT(A) deleted the disallowances. The ITAT observed that clause (viia) to section 56(2) of the Act inserted with effect from 1.06.2010 deals with the consideration received against sale of equity shares below the fair market value or without consideration and if it exceeds the said consideration such excess amount is subjected to tax. The fact remained that there had been a change in the sale consideration, as what was received was less than what was agreed. The transaction having entered through an agreement, there must have been some correspondence between both the parties to agree to the rate of Rs. 16.93 per share. It further noted that the assessee failed to file any documentary evidence to explain the reason for the shortfall. The CIT(A) had placed the burden of proof on the AO which was not justified. Thus, it was held that this issue of addition regarding shortfall of receiving sale consideration from sale of equity shares was restored to the AO for examination afresh for which necessary details shall be filed by the assessee so as to enable the AO to decide in accordance with law.

It was further held that the expenditure towards professional fees paid for the sale transaction had been rightly claimed during the year under appeal, because the genuineness of the expenditure was not in doubt and the facts as narrated by the assessee were found to be correct. Therefore, the findings of the CIT(A) allowing the claim of cost incurred for effecting transaction of sale of equity shares was to be confirmed. (AY.2013-14)

ACIT (LTU) v. Tamilnadu Petroproducts Ltd. (2023) 103 ITR 92 (Trib) (S.N.) (Chen)

260. S. 56 : Income from Other Sources – Rent Received from builders on account of redevelopment for alternate accommodation – Hardship allowance – Not taxable as income from other sources During the assessment proceedings, AO observed from the capital account that assessee has shown a receipt as a capital accounts receipt from the builders. It was submitted that such amount is a monthly rental compensation from the builder for rent of alternate accommodation as his building has gone for redevelopment.

The ITAT observed that the assessee has received Rs. 3,73,191/- from the builder for alternate accommodation. However, assessee has not utilized these funds for any accommodation. However, he adjusted and lived with his parents. It clearly indicates that even though assessee has not utilized the rent received for his accommodation, however, assessee has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period. Coordinate Bench in case of Smt. Delilah Raj Mansukhani v. ITO (ITA No. 3526/Mum/2017) was also relied upon. It was concluded that receipt of compensation for hardship is in the nature of capital receipt and accordingly addition was deleted.

Ajay Kothari v. ITO [ITA No. 2823/ Mum/2022 dt. 03/04/2023 (Mum)(Trib.) (AY 2013-2014)

261. S. 56(2)(viib) with Rule 11UA: Income from other sources– Share premium – Valuation of shares– Share premium reflected in balance- sheet – Figures reflected in books of account or in balance-sheet prepared in accordance with Companies Act, 1956 – AO does not have power to disturb – Share premium to be included in “reserves and surplus” – AO under “liability approach” ignoring share premium in balance-sheet under “reserve and surplus” – Under “asset approach”, treating share premium as liability – Both workings flawed – Net asset value method adopted by assessee recognised method – Taxation of share premium u/s. 56(2)(viib) of the Act is only by way of deeming fiction – Addition unsustainable

The assessee, incorporated in 1999 and engaged in computer industry, had issued 50 lakhs shares of Rs. 20 per share comprising of face value of Rs. 10 and share premium of Rs. 10 each. However during the previous year relevant to the AY 2013-14, the assessee received only Rs. 10, which included share premium of Rs. 7.50 per share and face value of Rs. 2.50 per share. Accordingly the subscribed share capital of the assessee-company increased from 8,67,000 shares to 58,67,000 shares. The paid-up share capital increased from Rs. 86,70,000 to Rs. 2,11,70,000 resulting in an increase of Rs. 1,25,00,000 (50 lakhs shares Rs. 2.5 per share). The A.O. valued the shares of the assessee-company using the net asset value method as on March 31, 2012 by ignoring the share premium figure of Rs. 62 lakhs reflected in the “reserves and surplus” on the premise that the assessee had no active business and derived only interest income. Accordingly, he determined the fair market value of the shares of the assessee-company at Rs. 14 as against the issue price of Rs. 17.50 per share and brought the excess of Rs. 3.50 per share to tax as income u/s. 56(2)(viib) of the Income-tax Act, 1961. This action was upheld by the Commissioner (Appeals). On appeal, the Tribunal deleted the addition made by the A.O. The Tribunal held that the A.O. had under the “liability approach” ignored share premium of Rs. 62 lakhs lying in the balance- sheet as on March 31, 2012 under “reserve and surplus”. Under the “asset approach”, the A.O. treated the share premium of Rs. 62,00,000 as a liability and computed the net asset value. Both workings of the A.O. were completely flawed as they were neither in consonance with the mandate of the Companies Act, 1956 , nor the provisions of rule 11UA of the Rules. Since no mistake was found in the valuation adopted by the assessee, the addition made by the A.O. would have no basis. In any case, the net asset value method adopted by the assessee was one of the recognised methods provided in rule 11UA of the Rules. Accordingly, the addition made by the A.O. in the sum of Rs. 1,75,00,000 u/s.56(2)(viib) of the Act, was unsustainable. Rule 11UA does not prohibit inclusion of share premium as part of reserves and surplus. Even if the recipient company does not justify receipt of share premium, the share premium reflected in the balance-sheet cannot be ignored. Taxation of share premium u/s. 56(2)(viib) of the Act is only by way of deeming fiction. In any case, what is required for the purpose of valuation of shares is the figures reflected in the books of account or in the balance-sheet prepared in accordance with the Companies Act, 1956 which the A.O. does not have power to tinker with. Only any reserve that has been set apart towards depreciation would not get included under “reserves and surplus”. In other words, such reserves set apart for depreciation would partake of the character of a liability for the purpose of determination of fair market value of shares. Hence, the share premium would be included in the “reserves and surplus” even under rule 11UA of the Rules. It is wrong on the part of the A.O. to ignore it while valuing the shares of the assessee-company both under the “liability approach” and considering the same as a liability under “asset approach”. (AY: 2013-14)

Cnr Leading Softek P. Ltd. v. ITO (2023)104 ITR 26 (Trib) (S.N.)(Del)

262. S. 56(2)(viib) : Income from Other Sources – Property Purchased – Agreement Value less than Stamp Duty Value – No reference to DVO – Not valid – Addition to be deleted.

Assessee has purchase a property of Rs. 19,50,000/-. The AO noted that the circle rate of the flat in question (as per the Stamp Valuation Authority) was Rs. 41,34,330/-. Hence, assessee was required to submit reasons as to why the difference should not be brought to tax as per the Section 56(2)(vii)(b) of the Act.

The ITAT observed that the flat in question is situated in a slum area and the flat has been constructed as a slum rehabilitation project. Rate of flats cannot be compared with that of assessee because it is located in slum area; and even if other flats of nearby locality may fetch higher price that doesn’t mean that assessee has purchased the flat in question at a higher price and therefore circle rate cannot be applied in assessee’s case. Copy of the report from registered valuer of the flat was also submitted. Before making addition applying provision of section 56(2) (vii)(b) of the Act, AO ought to have referred the matter to the Valuation Officer (DVO), since the Assessee objected for the value to be taken according to the stamp valuation authorities. AO has made addition under section 56(2)(vii)(b) without making reference to the valuation officer as required by proviso under sub clause (c) of section 56(2)(vii)(b) of the Act. The Tribunal observed that the Ld DR’s request to restore the matter back to AO for referring the valuation of flat to DVO cannot be accepted, because that will tantamount to condoning the erroneous action of AO and consequently allowing a second inning for no fault of assessee and would tantamount to breathing fresh life to an order which on the facts on records exposes the arbitrary and whimsical action of AO and so is unsustainable in law. Therefore, the addition made by AO to the tune of Rs. 21,84,330/- u/s 56(2) (vii)(b) is directed to be deleted.

Manohar M Paliwal v. ITO [ITA No. 51/Mum/2023 dt. 31/03/2023 (Mum) (Trib.)(AY 2018-2019

263. S. 56 : Income from Other Sources – Assessee’s plant at pre-operation stage, interest accruing on fixed deposits after business set up, deposits linked with projects would not alter character of income after business set up. (S. 28)

The Tribunal dismissed the appeal and held that, there was a difference between setting up of business and commencement of business. Once the business is set up though it may not have yet commenced, the assessee would be eligible to claim the business expenditure as revenue expenditure. Any income arising after setting up of the business would be revenue in nature and assessable to tax. The interest income had accrued on fixed deposits made by the assessee and had accrued after the business has been set up. In fact, the assessee itself had offered a part of the interest income to tax but claimed to set off the remaining interest from capital work-in- progress on the reasoning that deposits were linked with the project. When the assessee had generated business income and claimed revenue expenditure including finance cost, mere fact that the deposits were linked with projects would not alter the character of the income after the business has been set up.

The interest arose only because of creation of fixed deposits which was assessable only as income from other sources. (AY. 2011-12, 2012- 13, 2014-15)

RKM Powergen P. Ltd. v. Asst. CIT (2023)105 ITR 68 (Trib) (S.N.)(Chennai)

264. S. 56(2)(viib), 68 and 263: Income from other sources – Receipt of consideration for shares in excess of fair market value –Share premium received from 100 per cent. holding company – Deeming provision cannot be applied – Order passed by AO accepting the returned income was not prejudicial to the interest of the revenue – Revision not sustainable

During previous year relevant to A.Y. 2014-15 the assessee had issued to 5,13,978 shares at Rs. 1,284.10 per share against the face value of Rs. 10 each and received a premium to the tune of Rs. 65.48 crores from its holding company. The details thereof had been submitted to the A.O. during the assessment proceedings which was completed u/s. 143(3) accepting NIL return filed without making adjustment in respect thereof. Subsequently, the CIT invoked provisions of section 263 and directed the A.O. to revise assessment for failuure of the A.O. to carry out necessary examination on justification of the share premium and the creditworthiness of the subscriber to whom shares had been allotted on such a huge premium. On appeal Tribunal held that the section 56(2)(viib) of the Act is wholly inapplicable for transactions between a holding company and its subsidiary company where no income can be said to accrue to the ultimate beneficiary, i. e., the holding company. Fair market value of shares issued was duly supported by the independent valuer’s report and there was no change in interest or control over money on issuance of shares. The A.O. was thus also satisfied with the parameters of section 68 of the Act towards such nature and source of such credits in the post-revision proceedings.

In this backdrop, the extent of inquiry on the purported credibility of premium charged did not really matter as no prejudice could possibly result from the outcome of such inquiry. The chargeability of deemed income arising from transactions between holding and subsidiary or vice versa militates against the object of section 56(2)(viib) of the Act. The revision by the Principal Commissioner in the context of the facts of the case was wholly unjustified and without meeting the jurisdictional requirement of section 263 of the Act.

Note : – Dy. CIT v. Ozone India Ltd. [2022 94 ITR (Trib) 609 (Ahd) applied. KBC India P. Ltd. v. ITO (I. T. A. No. 9710/Delhi/2019, dated November 2, 2022) approved.

BLP Vayu (Project-1) P. Ltd. v. Pr. CIT (2023)104 ITR 72 (Trib) (S.N.)(Del)

265. S. 56(2)(viii), 154 – Section 96 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 – Rectification application filed by assessee for compensation received from National Highways Authority of India in FY 2014- 15 – Exempt as per Section 96 of RFCTLARR Act, 2013 – CBDT Circular No. 36 of 2016 dated 25.10.2016 being clarificatory in nature shall be applicable on compensation received in FY 2014-15 – Rectification application was to be accepted and claim of exemption in FY 2014-15 was to be allowed

Assessee received compensation for compulsory acquisition of commercial land from National Highways Authority of India (NHAI) for compulsory acquisition of land under RFCTLARR Act, 2013. Compensation for both agricultural and non-agricultural land exempt under RFCTLARR Act. However, assessee filed its return of income for AY 2015-16 declaring compensation received taxable as capital gain without taking exemption as per Section 96 of RFCTLARR Act, 2013. Assessee filed rectification application before AO for rectification of mistake apparent from record after considering the CBDT Circular No. 36 of 2016 dated 25.10.2016 and to allow exemption to the assessee in view of CBDT Circular. However, AO rejected the application. On appeal, ITAT held that clarificatory circular was issued by CBDT subsequent to the date of filing return and assessee therefore was eligible to file rectification application, claim of exemption of assessee under RFCTLARR Act was to be allowed by the AO. (AY 2015-16)

Satish Kumar and Smt. Urmila Garg v. ITO (2023)104 ITR 694 (Trib)(Chand.)

266. S. 57(iii): Income from other sources – Interest earned on fixed deposit – Nexus between expenditure incurred and the income earned

According to the provisions of Section 57(iii) of the Act, all the expenditure laid out or expended wholly and exclusively for the purpose of making or earning income has to be allowed as deduction.

The Assessing Officer noted that the assessee had earned interest amounting to Rs.1,03,23,788 on fixed deposits receipts. Out of the interest on fixed deposits receipts, the assessee claimed expenses of Rs. 46.76 lakhs which the Assessing Officer disallowed and this was confirmed by the Commissioner (Appeals).

Held, (i) that the income of the assessee fell under the head “Income from other sources”.

(ii) That there should be a nexus between the expenditure incurred and the income earned. The employee remuneration, salary, legal expenses, board meeting expenses, director sitting fees were not attributable to the interest earned from the fixed deposits. The order of the Commissioner (Appeals) was justified. (A.Y.: 2015-16)

Avantha Consulting Services Ltd. v Dy. CIT (2023) 104 ITR 723 (Trib.) (Del.)

267. S. 68 : Cash credits – share capital and share premium received from companies – replies of all companies to notice u/s. 133(6) filed – burden of proof – source of source of investors provided – genuineness of transaction satisfied – credits not to be taxed as unexplained income.

Dismissing the appeal of the department the tribunal held that, the assessee filed replies of all companies to the notice issued u/s. 133(6) to substantiate the identity of the companies, the assessee also furnished Income-tax returns filed by these companies for the year under consideration as well as placed on record the assessment orders passed u/s. 143(3) of some of these companies. Further, in three companies in whose case notices issued u/s. 133(6) were returned, and scrutiny proceedings u/s. 143(3) were concluded either in the preceding or subsequent years. Moreover, despite the return of the notices, the AO did not raise any other objection or doubt questioning the identity of these investors. The companies that have invested in shares of the assessee had not been shown to have led to the manipulation and the identity of such directors had not been questioned. No evidence or material had been brought on record by the Department. The assessee has placed on record the source of funds received by all companies for investing in the shares of the assessee. The funds were received, inter alia, from the sale of equity shares of some other companies by these investors or from the refund of advances for the purchase of shares. Thus, the assessee had proved the source of source of the investors to satisfy the test of the creditworthiness of the investor and the genuineness of the transaction. (AY. 2010-11)

ITO v. Albatross Share Registry P. Ltd. (2023)105 ITR 20 (Mum)(Trib)(S.N.)

268. S. 68: Cash Credits – Burden of Proof discharged by producing Lenders sworn statement admitting granting of loan, turnover alone could not be considered source of loan, credits could not be taxed.

The Tribunal allowing the appeal of the Assessee, held that, the assessee had discharged its primary onus of fulfilling the three important ingredients of s. 68. The lender, in a sworn statement, admitted the fact of granting of loan, burden is discharged. In the absence of such a fact-based finding to prove that the assessee’s own money was routed through banking channels in the garb of loan, the addition is not sustained in law.

Sasi Enterprises v. Dy. CIT (2023) 105 ITR 29 (Trib) (S.N.)(Chennai)

269. S. 68: Cash Credits – receipt of Share Application Money –Assessee is A Listed Company – Assessee Submitting Confirmations, Bank Statements, Returns of Income and Allotment Advice of the Allottees Before AO – Primary Onus on Assessee to Establish Identity, Genuineness and Creditworthiness of Creditors Proved Beyond Doubt – Assessee also Provided Source of Source of Investments – held, Question of Invoking Section 68 does not Arise.

During the FY relevant to AY 2013-14, the assessee received share application money from four parties. To verify the genuineness of the share application money, summons were issued to the above parties. The ITAT observed that the first proviso to S. 68 was introduced by the Finance Act, 2012 w.e.f. 1.04.2013 which specifically says “where the assessee is a company, not being a company in which public are substantially interested”. Therefore, the CIT(A) had clearly held that the assessee was a listed company in which public were substantially interested and invocation of section 68 was not applicable. Further the assessee submitted confirmations, bank statements, returns of income and allotment advice, before the AO. Thus, the primary onus that lay on the assessee to establish the identity, genuineness and creditworthiness of the assessee was proved beyond doubt by the assessee. Further, the assessee also proved the source of the source of the investment made by the three parties. The AO could not disprove this with necessary evidence. Therefore, the question of invoking section 68 did not arise. There was no illegality in the order passed by the CIT(A) deleting the addition made under section 68 of the Act. (AY.2013-14)

ACIT v Lesha Industries Ltd. (2023) 103 ITR 76 (Trib) (S.N.)(Ahm)

270. S. 68: Income From Undisclosed Sources – Sundry Creditors – reason for outstanding amount explained, consideration not in doubt and no evidence that parties paid from undisclosed sources, outstanding amount cannot be treated as bogus sundry creditors. Not always necessary that creditors should remain present in assessment of debtors, no reason to sustain addition to that extent. Non- receipt of confirmation could not result in addition. [S.133(6)]

The Tribunal allowing the appeal of the Assessee held that, a sale deed of agricultural land was entered into for purchase of land by the assessee at a total consideration from nine different parties. All those parties were agriculturists. As the assessee was a builder and agricultural land was required to be converted into non- agricultural land, a sum was paid at the time of the sale agreement and the balance amount was to be paid at the time of sale deed. All sellers had put their thumb impressions, on their photograph, identified themselves by producing their identity cards and also appeared before the sub-registrar. The AO had no case that the amounts outstanding against their names was bogus. Non reply to enquiry letter u/s.133(6) could not result into an addition in the hands of the assessee, when the parties were identified, the transaction of purchase of land was accepted, and the reason for the outstanding amount was explained, the consideration for the land was not in doubt, there was no evidence that parties had been paid from undisclosed sources. No addition for undisclosed income is sustainable for bogus sundry creditors.

Sudarshan Nirman Co. v. ITO (2023)105 ITR 6 (Trib) (S.N.)(Mum)

271. S. 68: Undisclosed income – Cash deposit – Demonetisation period – cash sales – Books not rejected – Genuineness of Sales not doubted – Addition deleted

The Assessing Officer made an addition to the declared income of the assessee u/s. 68 of the Act holding that the cash deposited by the assessee in his bank account during the demonetisation period was undisclosed income under the garb of cash sales.

Held:

It was not the case of the Assessing Officer that the assessee did not have sufficient stocks for making the sales. It could not be said that the figures of sales and purchases were not supported by quantitative details. The Assessing Officer neither brought any material on record to establish that the sale bills were bogus nor provided any evidence to show that such sales were bogus. The assessee had duly substantiated his claim with documentary evidence. The Assessing Officer had not rejected the books of account of the assessee as no material was available with him so to do. Section 68 of the Act is not applicable to sale transactions recorded in the books of account as such sales would already be a part of the income credited to the profit and loss account. The Assessing Officer was not justified in making the addition. The addition was rightly deleted by the Commissioner (Appeals) (A.Y.: 2017-18)

ACIT v. Chandra Surana (2023)104 ITR 503 (Trib) (JP)

272. S. 68: Cash Credits – share capital and share premium – relevant documentary evidence of the companies in the form of replies to the notices issued under section 133(6), income tax returns as well as assessment orders furnished – addition made under section 68 not justified.

In the present case, Hon’ble appellate tribunal held that the assessee had furnished replies to the notices issued under section 133(6) of the Act as well as income tax returns and assessment orders passed for the respective companies who had invested in the assessee company. The AO has not raised any doubt with respect to the documentary evidences furnished by the assessee. Thus, the assessee had discharged the onus cast upon it to prove the genuineness of transaction and therefore, addition made under section 68 of the Act is not justiifed. Hon’ble appellate tribunal further held that an isolated transaction by one of the alleged entry operators in one of the investor companies would not taint the entire share transaction in the assessee-company in the absence of corroborative material. The funds were received, inter alia, from the sale of equity shares of some other companies by these investors or from the refund of advances for the purchase of shares. Thus, the assessee had also proved the source of source of the investors to satisfy the test of creditworthiness of the investor and genuineness of the transaction. (AY 2010-11)

ITO v. Albatross Share Registry P. Ltd. [2023] 105 ITR 20 (Mum -Trib)

273. S. 68: Cash Credits – Credit balance in the name of the company – amount received through banking channels – assessee furnished account confirmation – treating the said amount as income from undisclosed sources unjustified.

In this case the assessee reflected credit balance of Rs. 45 lakhs in the name of the company. During the course of assessment proceedings, the assessee filed reply only for Rs. 15 lakhs. Hence, the AO added the remaining credit balance to the income of the assessee. The Ld. CIT(A) deleted the addition. On further appeal, the Hon’ble appellate tribunal held that the amount of Rs.15 lakhs as accepted by the AO has similarly been received by the assessee through banking channels by cheques. Hence, there is no reason why the remaining amount is to be considered as unexplained cash credit. The assessee had also placed account confirmation from the party. Therefore, the addition made by AO is unjustified. (AY.: 1996-97)

Dy. CIT v. Smt. N. Sasikala [2023] 105 ITR 25 (Chennai – Trib)

274. Sec 68: Cash Credits – Filed details during the CIT(A) proceedings – Called for remand report – CIT(A) failed to examine the objections of the AO – Matter remanded to the AO for fresh adjudication

The case of the assessee was re-opened on account of receipt of huge share premium from 8 parties. The AO made addition of Rs. 8,95,44,000 under 68 as unexplained cash credit. The CIT (A) granted relief of Rs.8,82,03,600 and upheld addition of Rs. 19,80,000 as not explained. The Tribunal noted that the CIT(A) granted partial relief for certain parties, however, failed to adjudicated objections made by the AO in the remand report. The Tribunal restored the matter to file of the AO for de novo adjudication after examining and necessary verification of the issues noted in the appeal.

ITO v. RTG Exchange Ltd. (2023) 103 ITR 45 (Trib) (Mum)(S.N)

275. S. 68 and 115BBE: Unexplained money – Cash deposit during demonetisation – Cash sales – Books of accounts accepted – No defect pointed out

For the A.Y. 2017-18, the Assessing Officer made addition u/s. 68 read with section 115BBE of the Act of the large cash deposit of demonetised currency made by the assessee, treating it as his undisclosed income.

Tribunal held that it was apparent from the summary of the assessee’s cash book that the cash balance was generated from cash sales and such sales were part of the total sales credited in the trading account, the income wherefrom had already been offered by the assessee by reducing the cost of sales from the sales.

The Assessing Officer had not pointed out any defect in the cash books and other books of account. The sales were duly supported by the sale bills and invoices and duly verifiable from the books of account including the stock register. Further, the availability of stocks in hand showed that the sales made by the assessee were genuine and duly recorded in the books of account.

Moreover, the cash sales conformed to the assessee’s own previous history and trend, indicating an increase over the previous year of 14.89 per cent., which was quite reasonable. Additions rightly deleted by the CIT(A).

ACIT v. Mahendra Kumar Agarwal (2023)104 ITR 455 (Trib)(Jaipur)

276. S. 68: No addition can be made on account of cash deposits, if the AO cannot prove why the explanations offered by assessee are incorrect

The Assessing Officer found cash deposits of Rs. 1,05,55,000/- during the demonetization period. The assessee submitted that the cash deposit was actually the cash which withdraw before two months of demonetisation for purchase of land.

The ITAT held that the assessee has shown withdrawals for cash deposits during demonetization period and discharged the burden cast upon him. If at all, the AO doubted the source for the cash deposits, he should have found through detailed enquiry that the withdrawals are not deposited in the same bank of the assessee. However, in this case, no such enquiry has been carried out and moreover; the AO has not doubted the genuineness of the transactions. It was held that, the assessee had explained the source of cash deposits sufficiently and addition is to be deleted as AO cannot prove why the explanations offered by assessee are incorrect.

Emgee Integrated Logistics Private Limited v. ACIT [ITA No. 982/ Chny/2022], dated 24/03/2023.

277. S. 68 r.w.s. 115BBE – Cash credit – Cash deposited during demonetisation period – Cash sales The assessee- company derived income from manufacture and trading of jewellery. The Assessing Officer reduced the sum of Rs. 12,17,48,500 deposited in the demonetisation currency out of the total sales of Rs. 2,09,09,94,399 declared by the assessee and treated the sum of Rs. 12,17,48,500 as unexplained cash credit of the assessee u/s. 68 of the Act and taxed it according to the provisions of section 115BBE of the Act.

The Commissioner (Appeals) deleted the addition of Rs. 12,17,48,500, upheld the rejection of books of account and the estimation of net profit at the rate of 2.59 per cent. as against 2.36 per cent. declared by the assessee.

On appeal by the Assessee and Department, the Tribunal held that all the details required to prove the sales made by the assessee were provided in the assessment proceedings. As regards the receipt of cash from customers such amount standing in the books of account of the assessee would not attract section 68. There was no fault in the detailed reasoned finding in the order of the Commissioner (Appeals).

[Relied on: Smt. Harshila Chordia v. ITO [2008 298 ITR 349 (Raj)]

Further, observed that the rejection of the books of account on the basis of insignificant defects in all respects, was not justified and the books of account deserved to be accepted. It was apparent from records that all the amounts realised from debtors and received as advance from customers during the period November 3, 2016 to November 8, 2016 were genuine and verifiable from the accounts and there was no cogent reason to treat them as not genuine (A.Y. 2017-18)

Asst. CIT v. Motisons Jewellers Ltd. (2023)104 ITR 304 (Trib)(JP.)

278. S. 68, 69A and 133(6): Cash credits – Unsecured loans and advances – On failure to substantiate with evidence and on failure to make representation, the order of the CIT(A) confirming the addition made by the A.O. u/s. 68 of the Act and deleting the protective addition was upheld by the Tribunal.

The A.O. caused enquiry related to credits of Rs.19,35,39,366 appearing in the assessee’s books by issuing notices u/s. 133(6) of the Act to bank that apart from the assessee, five other concerns are operating from the same address but the Ward Inspector upon a field visit reported that none of them were found to be operating from the addresses. Notices issued to three parties u/s. 133(6) of the Act returned unserved. During the assessment proceedings, the assessee was repeatedly asked to provide details of the Indian clients to whom the services of ad or film shooting, were provided by the overseas entities but the assessee did not provide any details in this regard to substantiate its claim establishing the genuineness of the receipts from Indian clients. Therefore, for failure of the assessee to provide necessary details in support of credits appearing in the books, bank statements and other issues like deposits in cash during demonetization, the A.O. completed the assessment by making additions u/s. 68 and 69A of the Act. Except for the protective additions made in the hands of the assessee, the CIT(A) upheld the additions made by the A.O. On further appeal, for want of representation and failure to lead any evidence in support of credits appearing in the books, the Tribunal upheld the additions sustained by the CIT(A). (AY. 2017-18)

5th Element Digital Media Solutions P. Ltd. v. ITO (2023)104 ITR 49 (S.N.) (Mum) (Trib)

279. S. 68: Unexplained cash credit – Bogus long-term capital gain

The Assessing Officer observed that it had been established beyond doubt that unaccounted income had been routed back to the assessee camouflaged as long-term capital gains which had been proven to be bogus. These sums were thus added to the assessee’s income as unexplained cash credits u/s. 68 of the Act. The Assessing Officer also added commission paid in lieu of these allegedly bogus entries on the basis of admissions of various persons.

Held that:

  1. With respect to the allegedly bogus long-term capital gains, the transactions of purchase and sale undertaken by the assessee had been fully substantiated by the assessee through legally acceptable third party evidence.
  2. The observations of the Assessing Officer that the transactions were bogus was solely dependent on the report of the Investigation Wing with no specific reference of the assessee’s transactions. The evidence of the assessee was third-party evidence which could not be said to have been manipulated. The Assessing Officer did not state that cash from the assessee was received and routed back to the assessee through the bank account. Under the circumstances, no addition could have been made to the income of the assessee, specifically when the entire basis of the addition was the investigation report, which was never confronted to the assessee, and the statements of persons, who were neither examined by the Assessing Officer nor permitted to be cross- examined by the assessee although a request was made for copies of the report as well as of the statements of those persons.
  3. The addition of commission paid for the accommodation entries was consequential to the issue of bogus long-term capital gains. Considering that the purchases and sales of shares and the consequential long-term capital gains could not be treated as bogus, the addition on account of notional commission would not be sustainable either (A.Y.: 2014-15)

Dy. CIT v. Vigyan Lodha (2023)104 ITR 210 (Trib) (JP)

280. S. 68 and S. 115BBE: Bogus expenses

The assessee was engaged in the business of carrying out painting of pavements, roads and runways on job work as a sub- contractor. The Assessing Officer reopened the assessee’s assessment on receiving information from the Joint Commissioner following a search action taken u/s. 132 of the Income-tax Act, 1961 on a D group company during which it was gathered that D had generated unaccounted money by way of booking bogus expenses on sub- contractors and materials. The assessee was one of the entities who was shown to have received amounts against sub-contractor expenses by D. The Assessing Officer taxed the assessee’s receipts in terms of section 68 read with section 115BBE.

Tribunal held that the Assessing Officer had not cross-verified the averments of the assessee with the relevant organisation but instead made the addition to the assessee’s total income based merely on the information gathered from the search, which was of a general nature. The records produced by the assessee were neither disputed nor tested for their correctness. A decision could not be made merely based on some information based on which no grounds were discussed, nor the assessee confronted. The assessee had demonstrated that the work order was issued by D and to be carried out at the military organisation wherein entry and attendance were strictly monitored. There was no reason to believe, nor could the Revenue prove, that the work had not been carried out.

As regards the estimation of the assessee’s profit, in the case of a civil contractor declaration of profit at 8 percent was considered reasonable and, hence, the addition made by the Assessing Officer was to be vacated as the assessee had already declared profit at 8% of the receipt.

Deepak Jain v. ITO (2023)104 ITR 61 (Trib)(JP)

281. S. 68: Cash credits – Addition made on mere conjectures and surmises – Unsustainable

The assessee had made large cash deposits in its bank accounts amounting to Rs. 73,15,000. The Assessing Officer found that the cash book contained entries of cash of Rs. 20,000 or below, credited against the names of a number of parties. The assessee could establish the identity of only a few parties. There was no cash balance either in the books, or cash withdrawal from the bank accounts to justify any alternative source of cash and that most of the credits were shown squared off by repayment in cash. The assessee failed to produce sale bills, copies of receipts and any other supporting documents for the sales and also did not give any reasons for failure to produce these sale bills. The Assessing Officer did not accept the submissions of the assessee, on the ground that the confirmations of the creditors, wherever filed, were photocopies and not originals, which the assessee had failed to furnish.

Held, that the order under appeal was a result of mere conjectures and surmises and not sustainable in the eyes of law and the addition made by the Assessing Officer was to be deleted:

a) the accounts of the creditors which appeared in the ledger were produced before the Assessing Officer. The Assessing Officer was well within his powers to ask for verification of the transactions from the parties. This, however, was not done, though the assessee had specifically stated that the deposits were on account of advances of cash by the customers, who were direct customers, and only a few of them were dealers, for the supply of goods to them. The Assessing Officer had himself admitted in the assessment order that the identity of some persons had been provided by the assessee.

b) It had also not been disputed that the goods dealt in by the assessee were of fluctuating rates. It would be a normal business practice for customers to book goods in advance, so as to secure supply of the goods at the rates prevailing on a particular date.

c) Some of the persons had furnished confirmations, admitted having advanced the money to the assessee for the supply of the goods. The accounts, in these cases, were settled by supplying the goods, or otherwise. The books, bills and vouchers were produced before the Assessing Officer and were test checked. No defect therein had been pointed by the auditors and the Assessing Officer had admitted that the goods were supplied to the customers, against which, the advances were received, and there was only a small amount of advance which remained outstanding and adjusted at the end of the year.

d) The Assessing Officer observed that the assessee had no money in hand to make the deposits in its bank accounts and deposits were made out of the advances received from the customers. No attempt had been made to establish the source of the money to make the deposits, without refuting the receipts of the amounts as trade advances. (AY 2012-13)

Girish Kumar and Sons v. ITO (2023) 105 ITR 424 (Trib)(Chand)

282. S. 69/ 69A : Unexplained investments/ Unexplained money – Marriage Expenses Of Daughter – Source of Funds for Purchase of Agricultural land – Gold Jewellery – restriction of disallowance thereof – S. 132

A search and seizure operation was conducted at the business and residential premises of the assessee u/s 132 of Act, during the course of which, inter alia, certain loose papers, which contained details of expenses of the marriage function of the assessee’s daughter amounting to Rs. 45,91,720 were found and seized. The AO treated the assessee’s share of marriage expenses at Rs. 22,95,860 as unexplained expenses and brought the balance sum to tax. The CIT(A) restricted the disallowance to 50% being unexplained expenses. On an appeal being filed, it was held that the cash flow statement filed along with ROI showed that there was a debit of Rs. 13,49,875 towards drawings and marriage expenses. As noted by the CIT(A), there was a further gift confirmation from the assessee’s father and brother, who apparently gifted a sum of Rs. 2,00,000 each. Thus a sum of Rs. 17,49,875 was explained. Therefore, only the remaining unexplained money of Rs. 5,45,985 alone was added to the total income of the assessee.

Further, the AO asked the assessee to explain the source of the sum of Rs. 10 lakhs and mode of payment for agricultural land purchased in the year 2017. The assessee could not file any supporting evidence and therefore, the AO added a sum of Rs. 10,21,000 towards unexplained investments for purchase of agricultural land. The ITAT, on appeal, held that the assessee explained that she held sufficient opening cash balance as on 1.04.2016 amounting to Rs. 7,46,464 and apart from that the assessee disclosed income of Rs. 7,28,080. The assessee’s sources were to the tune of Rs. 14.70 lakhs, if the cash- in-hand of Rs. 7,46,464 was included, apart from current year’s income. Hence, the assessee could explain the source of purchase of agricultural land at Rs. 7.50 lakhs. The balance Rs. 2.61 lakhs remained unexplained and was added.

Lastly, in respect of the disputed gold jewellery of 316 gms. seized, the CIT(A) had not taken into consideration that 75 sovereigns were received by the assessee from her parents. Hence, the gold jewellery of 316 gms. was explained and the addition therefore, was deleted. (AY.2016-17, 2017-18, 2018-19)

Smt. Balusamy Manimekalai v. ACIT (2023) 103 ITR 10 (Trib) (S.N.)(Chen)

283. S. 68, 132 and 153A: No discovery of incriminating material – Assessment on basis of third-party statement

The Assessing Officer made addition u/s. 68 on account of unexplained deposits and unsecured loans from Z and disallowed interest paid on the unexplained deposits apart from making addition on account of unrecorded sales. The assessee had discharged its onus of proving the genuineness of the loans, that the adverse material relied upon by the Assessing Officer for making the addition of unaccounted sales receipts pertained to some other transaction of the assessee. The Commissioner (Appeals) applied a net profit rate of 17.5 per cent. of the assessee’s turnover for estimating the profits based on the disclosure made by other group entities. On appeals by the Revenue and the assessee:

Held that in the absence of any incriminating material remained unchallenged by the Revenue there was no reason to reject the book results and make an estimation of the net profit rate. Accordingly, the addition made on account of the net profit was directed to be deleted. Dismissing the Revenue’s appeal and the assessee’s cross-appeal and allowing the assessee’s appeal that the order of the Commissioner (Appeals) was in conformity with the proposition laid down by the jurisdictional High Court. Therefore, the Revenue’s contention was to be dismissed. (AY. 2012-13 to 2014-15)

Dy. CIT v. Heaven Associates (2023) 105 ITR 186 (Trib) (Ahm)

284. S. 68 r.w.s. 115BBE – Cash Credit: Large Cash deposited during demonetization period – Assessee claimed that cash deposited from sale proceeds. Bill wise details submitted, books of accounts accepted, each sale bill less than Rs. 2 Lakhs. Addition cannot be made merely because bills did not contain name of customers. Addition u/s. 68 deleted.

Assessee is engaged in business of sale of gold and silver ornaments and deposited Rs. 84 Lakhs in bank account. Cash transactions are duly recorded in books of accounts. Stock register produced before AO. Sales made in cash are out of stock in trade and complete quantitative details maintained by assessee. Books of accounts of the assessee are audited by an independent chartered accountant. Where assessee has admitted the sales as revenue receipts, there is no case for making addition u/s. 68 or to tax the same u/s. 115BBE. Addition u/s. 68 of Rs. 80 Lakhs made by AO without rejecting books of accounts u/s. 145(3) deleted. (AY 2017-18)

Mahesh Kumar Gupta v. ACIT (2023)104 ITR 519 (Trib)(Jaipur)

285. S. 68, 115BBE, 143(3), 144, 145(3): Books of accounts rejected u/s. 145(3) without issuing any Show Cause Notice and framing assessment u/s. 143(3) and not u/s. 144 indicates that assessment is bad in law. Purchases verified by AO and found to be genuine and purchases correctly recorded in books of accounts and stock register, books of accounts cannot be rejected – Cash sales and cash deposited in bank was held to be genuine and where assessee maintains proper books of accounts audited by CA, stock register, CIT(A) was not justified by estimating income by applying NP Rate and books of accounts were to be accepted. [Section 115BBE]

Assessee is engaged in manufacturing and trading of jewellery. The assessee-company derived income from manufacture and trading of jewellery. Books of the assessee were audited by an independent chartered accountant and the audit report and statement of profit and loss account were filed by the assessee. Assessee had deposited cash of Rs. 12.17 Crores during demonetization period. Assessee claimed that cash deposited out of cash sales, realisation from debtors and advances from customers. During assessment – AO rejected the books of accounts and made addition of Rs. 12.17 Crores by treating the same as unexplained cash credit u/s. 68 r.w.s. 115BBE of the Act. In first appeal, CIT(A) deleted the addition of Rs. 12.17 Crores made by the AO u/s. 68 of the Act. However, upheld the rejection of books of account and the estimation of net profit at the rate of 2.59% as against 2.36% declared by the assessee. The AO had verified the purchases, assessee had submitted stock records, all the details required to prove the sales made by the assessee were provided in the assessment proceedings. As regards the receipt of cash from customers such amount standing in the books of account of the assessee would not attract section 68 . There was no fault in the detailed reasoned finding in the order of the Commissioner (Appeals). No Show Cause Notice u/s. 144 / 145 of the Act was issued to the assessee and assessment was completed vide Order u/s. 143(3) and not u/s. 144. Further, rejection of the books of account on the basis of insignificant defects in all respects, was not justified and the books of account deserved to be accepted. the CIT(A) had examined the genuineness of purchases from parties and found it to be genuine. Thus, when all the purchases were genuine which have been verified by the AO u/s. 133(6) and which have been correctly recorded in the books of account as well as the stock register, the books of account could not have been rejected under section 145(3) of the Act. Before invoking the provisions of section 145(3) of the Act, the Assessing Officer has to bring on record material on the basis of which he has arrived at the conclusion with regard to correctness or completeness of the accounts of the assessee or the method of accounting employed by it. The instant was not a case where the assessee had not followed either the cash or mercantile system of accounting. The assessee maintained proper books of account audited by a chartered accountant and the profits could have been derived from the audited books of account. (AY 2017-18)

ACIT v. Motisons Jewellers Ltd. (2023)104 ITR 304 (Trib)(Jai)

286. S. 68: Jewellery/gold cash sales – Cash deposited during demonetisation – Assessee provided PAN and complete address of buyers, with stock register – Lack of inquiry by AO u/s. 131 or 133(6) – Held that addition ought to be deleted as nothing proved against assessee

The Hon’ble ITAT observed that none of the documents submitted by assessee have been denied by the lower authorities and that cash sales register and stock register are completely matching. It was also observed that the AO has failed to show that gross profit shown by the assessee is abnormally high or low and that cash sales have resulted in profit to the assessee which was offered to tax. The nature and source of cash sales have been explained by the assessee. The AO has not made any further inquiry with the customers of assessee by issue of summons u/s. 131 or inquiry u/s. 133(6). It was held that addition cannot be made in the hands of assessee merely for the reason that those customers have not transacted with the assessee post or pre demonetization. This could be the trigger point for investigation, but the AO, despite having complete address and PAN of customers did not make any such inquiry.

DCIT v. Mangal Bullion Pvt. Ltd. [ITA No. 1407/Mum/2021 & ITA No.331/Mum/2022] dt.14.07.2023 (Mums.) (Trib.) (AY: 2017- 18)

287. S. 68: Cash deposited during demonetization period – with regard to the availability of stock and quantity of items shown in the stock register and the corresponding sales, no addition can be made.

The Hon’ble ITAT observed Addition u/s.68 on account of cash deposits cannot be made simply on the reason that during the demonetization period, cash deposits vis-a-vis cash sales ratio is higher. If the parties during the period of demonetization has purchased huge quantity of jewellery on cash which has been duly recorded in the books of accounts of the assessee and also tallying with the quantity of stock, then simply because there was a huge cash sales in that particular month cannot be the reason for treating it as undisclosed income from undisclosed sources. The parties to whom notices u/s. 133(6) were issued have confirmed the purchases but also filed the purchase bills. The ld. AO cannot disbelieve the purchases made from the assessee simply on the ground that those parties could not submit the source of their funds which is not the requirement of the assessee to prove specifically when assessee is a retail seller of jewellery and even law does not prohibit any cash sales or there is any requirement to seek any further detail. For this compliance assessee has also filed Form 61A before the ld. AO. Once, it has been established that sales representing outflow of stocks is duly accounted in the books of accounts and there are no abnormal profits during the year, then there is no justification why AO should treat the deposits made in the bank account out of cash sales to be income from undisclosed sources.

ACIT v. M/s Ramlal Jewellers Pvt. Ltd. [ITA. 1600/M/2023 & CO. 63/M/2023 Dated 26/07/2023 (Mum-Trib.)] A.Y. 2017-18

288. S. 68: Cash credit – Addition Share Premium and Share application

The assessee has received the share application money from M/s Empower Industries Ltd and due to search u/s 132 of the Act on the group, the statements were recorded by the investigation wing that they are only providing accommodation entries and no business activity is conducted. The A.O based on the statements recorded in the course of the search of the group, has made addition of share capital including premium in the hands of the assessee and estimated unexplained expenditure. The A.O over looked the various documentary evidences filed by the assessee in support of investments including the confirmation letter, PAN Card, Audited financial statements, bank statement reflecting the transactions, copy of share application form, copy of Form .No 2 filed with the R.O.C. etc. In spite of assessee filing all the details, prima- facie the A.O has not conducted any investigation or enquiry in respect of the information submitted by the assessee and relied only on the information of a third party whose statement was not cross examined or tested. Remand report was called. The assessee prima-facie has complied with the ingredients required u/s 68 of the Act of genuineness, identity and creditworthiness. The A.O has failed to make further enquiries and relied only on statement of the key person, which was retracted subsequently.

ITO – Ward 5(1)(1), v. AMS Trading & Investment ITA 1863/M/2021 Dt: 25/08/2023, (Mum-Trib).

289. S. 68: The Tribunal considering gaps in the assessee’s documentation for the share premium being treated as unexplained income by the Assessing officer, remands for fresh examination.

The appeal is against the order of the CIT (A). The primary contention is regarding the addition made by the Assessing Officer under section 68 of the Income Tax Act, 1961.

The Assessing Officer noted that the assessee company issued shares of face value Rs.10 at a premium of Rs.90/- during a period where the company had no business income. Despite multiple notices and summons, there was a lack of compliance on the part of the assessee.

The Assessing Officer, based on the available records, treated the share capital along with share premium as unexplained income. The CIT (A) upheld the Assessing Officer’s decision, noting that the share capital subscribing company did not have any financial credibility. The assessee argued that the investor company’s source was from the sale proceeds of shares, but no such details were provided to the lower authorities.

The Hon’ble Tribunal decided that the entire issue needs to be re-examined by the Assessing Officer, offering the assessee an opportunity to present its case. (AY 2012-13)

MK and SK Medicare (P.) Ltd v. ITO; (2023) 103 ITR 58 (Trib.)(S.N.)(Kol.)

290. S. 68: Considering the lapses on establishing creditworthiness of the investors by the Assessee and verification of the year of payment by the Assessing Officer, the Tribunal remanded the matter to the file of the Assessing Officer for de-novo adjudication.

The cross-appeal challenges the order passed under section 250 of the Income Tax Act, 1961 by the CIT (A). The primary contention is regarding the addition made by the Assessing officer under section 68 of the Income Tax Act, 1961. The Assessing officer observed that the assessee company had received share premium during the year under consideration.

Further reassessment proceedings were initiated based on the information received and a notice was issued under section 148 of the Act. The Assessing Officer treated the entire amount of share premium and share capital as bogus and unexplained cash credit, adding the aggregate amount to the total income of the assessee under section 68 of the Act.

The CIT (A) granted partial relief to the assessee, directing the deletion of significant portion as genuine share application money and further held certain amount as unexplained. The Assessee raised an objection against the CIT (A)’s decision in confirming the addition on account of unsecured loans, stating that the said sum was received by the assessee in earlier years and not during the year under consideration.

The Hon’ble Tribunal observed discrepancies in the submissions and evidence provided by the assessee and the Assessing Officer’s findings. The Tribunal thus remanded the matter back to the Assessing Officer for a fresh examination and verification. (AY 2009-10)

ITO v. RTG Exchange Limited; (2023) 103 ITR 45 (Trib) (S.N.)(Mum)

291. S. 69: Undisclosed Investment – Excess Stock found during course of Survey – Taxable as business income and not as undisclosed income

Survey action 133A of the Act was carried out on the business premises. AO in assessment noted that, during the course of survey proceedings, inventory of stock was prepared and as on the date of survey, in books of account the stock was shown at Rs.2,82,400/-. However, the stock as per the physical inventory was arrived at Rs.25,21,196/- Thus, there was stock discrepancy of Rs. 22,38,769/-, which assessee accepted and offered for taxation as business income. However, AO taxed the excess stock as undisclosed investment u/s 69 and subsequently u/s 115BBE. CIT(A) confirmed the action of AO. Being aggrieved with the same, appeal before ITAT is filed.

The Tribunal observed that there was difference of stock in books and the physical stock found during the survey and such difference was Rs.22,38,769/-. Assessee offered the difference for taxation as business income, because the excess stock was said to be purely purchase of material for making sweets during the course of the business. If assessee is carrying on business and has some undisclosed stock then same is taxable as an undisclosed business income. It cannot be held it is a case of undisclosed investment. Neither during the course of survey neither in the statement it was found nor has assessee ever stated that there is some undisclosed investment representing in the form of undisclosed assets. It is a case of excess stock found during the carrying of the business and stock is generated out of business income and therefore, the provision of section 69 on the facts of the case has no applicability.

Govind Gidomal Lulla v. ITO [ITA No. 2285/ Mum/2022 dt. 11/04/2023 (Mum)(Trib.) (AY 2019- 2020)

292. S. 69: Unexplained investment – cash paid to the developer for purchase of land – during the course of survey action developer accepted the receipt of on money and details of the same was provided – in the absence of providing the source, the AO is justified in treating the payment as income from undisclosed sources.

It has been held by the Hon’ble Appellate Tribunal that the developer admitted during the course of survey that it has received on- money from various persons, which was kept outside the books of account. The name of the assessee specifically appeared in such a list. It was not only a mere admission by the developer, but corresponding record in this regard was also found, which duly recorded the name of the assessee with the amount of on-money. Thus, it is proved that the assessee has paid on-money to the developer for purchase of land and therefore, the lower authorities are justified in making the addition. (AY 2011-12)

Anoop Gopikishan Jaju v. Asst. CIT [2023] 105 ITR 22 (Pune-Trib)

293. S. 69A: Unexplained money – Cash deposits of specified bank notes during demonetisation period – AO accepting explanation of assessee that receipts from business – however, treating the deposits as unexplained solely on the ground that notes ceased to be legal tender – unjustified.

The Appellate Tribunal held that the AO, having accepted the explanation of the assessee with regard to source of cash deposits found during the course of search, made the additions only on the ground that legal tender of specified bank notes from November 9, 2016, is illegal. Hon’ble Appellate Tribunal further held that for the purpose of section 69A of the Act, there cannot be any distinction between generation of such money through legal tender or ceased legal tender inasmuch as in the context of the provision of the Act, this is not restricted to a legal source alone. Therefore, the reasons given by the AO to make addition towards cash deposits during the demonetisation period in light of the notification of Ministry of Finance and Reserve Bank of India, is not correct. (A.Y. 2017-18)

Eagle Fleet Services v. Asst. CIT [2023] 105 ITR 78 (Chennai – Trib)

294. S. 69A: Unexplained money – Ownership of cash found in premises – Protective and substantive assessment pending for determination – Matter remitted to AO

The assessee, HL, was the erstwhile father-in- law of another assessee A. Search was conducted by the Central Bureau of Investigation and cash was found in the premises of the assessee, HL. The assessment was completed by making additions of Rs.5,50,000/- and Rs. 26,40,100/-. HL explained that the sum of Rs.26,40,000/- related to his son-in-law. Accordingly, a statement and an acceptance letter were submitted by the son-in-law. With regard to addition of Rs.5,50,000/- the assessee explained that the amount originated from the sale of house property. The Assessing Officer made a substantive assessment in the hands of the assessee HL and a protective assessment in the hands of another assessee. Later, A retracted his statement and submitted that cash of Rs. 26,40,100 seized from HL related to his elder son-in-law, AB. The Commissioner (Appeals) rejected the appeal of the assessee on the ground that the ownership was yet to be determined by the High Court.

Held, that the issue had not yet matured for determination of the ownership of the cash in the case of both assessees. The substantive assessment and protective assessments were alive for determination. Both assessees had filed new documents before the Tribunal which had not yet been verified by the Assessing Officer. Therefore, the issue was remitted back to the Assessing Officer for further adjudication considering the final determination by the High Court. (A.Y. 2001-02)

Hira Lal Kadlabju v. Asst. CIT and Anish Bhan v ITO (2023)104 ITR 608 (Trib)(Amrit)

295. S. 69A: Unexplained money – Difference between sale consideration shown in registered deed and that deposited in bank account – Appeal arising out of lack of verification – Matter remitted to Assessing Officer for adjudication de novo

The assessee deposited cash in the bank account amounting to Rs. 90,17,000 and claimed that the amount was received from sale of property.

The Assessing Officer assessed the amount as unexplained cash deposit on the ground that that the registered deed showed the sale consideration of Rs. 24,65,000 and confirmed the addition u/s. 69A of the Income-tax Act, 1961. During the assessment, further addition was made on undisclosed interest income amounting to Rs. 60,996 with the total income of the assessee.

The appeal arose out of lack of verification by the Department. With consent of both the parties, the matter was remitted to the Assessing Officer for further adjudication de novo after providing reasonable opportunity of being heard to the assessee in the set aside proceeding. (AY 2011-12)

Hari Chand v. ITO (2023) 105 ITR 610 (Trib) (Amrit)

296. S. 69A: Huge deposits during demonetisation period – added as undisclosed income – Held that transaction backed by all evidences – Not taxable as undisclosed income – Addition deleted.

The Hon’ble ITAT held that huge withdrawals were made from assessees’s accounts since FY 2010-11 and that assessee’s only source of income was from his salary remitted from Qatar to his account held in India and pension received after retirement. It was held, after relying on certain co-ordinate benches decision, that revenue cannot contend that the assessee should have explained how he utilised the cash withdrawn and whether the same was still available with assessee or not and that addition is not sustainable and directed to be deleted.

Abbasali Chinikamwalla v. ITO, ITA No. 917/M/2023, dt. 10.07.2023, (Mum)(Trib.)

297. S.80C with Rule 46A: Income from undisclosed sources – Commissioner (Appeals) on basis of documents presented before him granting relief to assessee without getting remand report from the A.O. by deleting additions and also granting deduction u/s. 80C – Matter restored to CIT(A) for adjudication of issue afresh after obtaining remand report from A.O.

S. 145, 145A(ii) ; Method of accounting — Assessee explaining methodology of accounting in respect of sales and value added tax — Commissioner (Appeals) allowing relief — Cognizance of section 145 read with section 145A(ii) and relevant income computation and disclosure standard IV for revenue recognition not taken into consideration — Matter remitted to Commissioner (Appeals) for adjudication afresh taking into consideration section 145 read with section 145A(ii) and Income Computation and Disclosure Standard IV:

The assessee derived business income from his proprietary business in distributorship and wholesale trade of branded tobacco items. The A.O. completed the assessment based on the discrepancies noticed during the course of the survey conducted at the premises of the assessee in previous year relevant to A.Y. 2017-18. Before the CIT(A), the assessee explained the discrepancies related to VAT, cash, credits appearing in the books , and stock based on the additional evidences filed and the books of account of the assessee without calling for remand report. The Commissioner (Appeals) also allowed the deduction u/s. 80C of the Income-tax Act, 1961 upon the assessee furnishing the relevant documents before him. On appeal, the Tribunal accepted the arguments of the Department objecting to reliefs granted based on additional documents produced during the appellate proceedings without granting sufficient opportunity to the A.O. to refute the same. The Tribunal, in the interest of justice, restored the issues to the file of the CIT(A) for fresh adjudication with direction to grant reasonable opportunity to A.O. examine and verify these documents and records and obtain a remand report before disposing of the appeal giving relief to the assessee. The Tribunal also noted that the CIT(A) had granted relief without considering relevant Income Computation and Disclosure Standard IV for revenue recognition which had become applicable from the AY 2017- 18 and hence, held that in the interest of justice and fair play, the matter was to be remitted to the Commissioner (Appeals) to adjudicate on this issue afresh after taking into consideration the provisions of section 145 read with section 145A(ii) and relevant Income Computation and Disclosure Standard IV.( AY: 2017-18)

Asst. CIT v. Rishav Dutta (2023)104 ITR 65 (Trib) (S.N.)(Pat)

298. S. 80AC r.w.s. 153A: Deduction not to be allowed unless return furnished

For the purpose of making an assessment u/s. 153A of the Act, it is mandatory for the Assessing Officer to allow the legally tenable deductions, allowances, claims of expenses, which have been claimed by the assessee in the returns of income filed u/s. 153A of the Act, even though these may not have been claimed by the assessee in its original return of income u/s. 139(1) of the Act.

A return of income filed in response to notice u/s. 153A of the Income-tax Act, 1961 is to be considered a return filed u/s. 139 of the Act and for all other provisions of the Act, the return u/s. 153A of the Act will be treated as the original return u/s. 139 of the Act. Once the Assessing Officer accepts the return filed u/s. 153A of the Act, the original return u/s. 139 of the Act abates and becomes non-est.

Where the audit report in form 10CCB is furnished on or before the time allowed for filing return of income in the notice issued u/s. 153A of the Act, form 10CCB is to be taken as filed on or before the time permitted u/s. 139(1) of the Act and thus deduction shall be allowed within the time u/s. 80-IA(7) read with Section 80AC of the Act. Followed: Shrikant Mohta v. CIT [2019 414 ITR 270 (Cal)

ABCI Infrastructure P. Ltd. v. Asst. CIT (2023)104 ITR 95 (Trib) (Guwahati).

299. S. 80-IA: Deduction in respect of profits and gains from industrial undertakings – Infrastructure development –Department should take consistent stand in each assessment year:

In order to avail of a deduction in terms of section 80-IA(4) of the Act, the assessee could either (i) develop, or (ii) operate and maintain, or (iii) develop, operate and maintain the facility. The requirements of developing, maintaining and operating an infrastructure facility are not cumulative, even prior to the amendment to section 80-IA of the Act by the Finance Act, 2001. Thus, the assessee is entitled to deduction u/s. 80-IA(4) of the Act in respect of development of infrastructural facility alone, irrespective of whether it operates and maintains such facility.

The fact that the assessee was a “developer” of infrastructural projects and eligible for deduction u/s. 80-IA(4) of the Act in respect of infrastructural facilities developed by it, having been decided in the assessee’s favour in the past, the Department was not entitled to take inconsistent stand in respect of each assessment year on the same set of facts. Moreover, no appeal had been preferred by the Department against the allowance of deduction u/s. 80-IA(4) (i) of the Act qua A Y. 2020-21.

ABCI Infrastructure P. Ltd. v Asst. CIT (2023)104 ITR 95 (Trib) (Guwahati)

300. S. 80IA: Deduction to be allowed even if the Form 10CCB not filed with return of income. The filing of form is directory and not mandatory.

The appellant filed return for AY: 2017-18 after claiming deduction u/s. 80IA of the Act. The Tax Audit report and Income Tax return were filed within the due dates, however the report of accountant as required u/s. 80IA – Form no. 10CCB was e-filed late after the due date.

The Hon’ble ITAT relied upon the decision of Apex Court in case of GM Knitting Industries Pvt Ltd. (376 ITR 456) where it has been held that that even if the form is not filed with return, but if it is filed before the completion of assessment proceedings, the deduction should be allowed. Based on this decision and various other decisions at HC and ITAT level, the appeal was allowed in favour of the assessee ruling that deduction should be allowed even if the form has not been filed along with return of income.

Marudhamalai Sri Dhandapani Spinning Mills v. DCIT, CPC [ITA No. 11/Chny/2023] dated 06/04/2023.

301. S. 80G (5)(iii) : Special Deduction – Registration – selecting of wrong section code while filling the application for registration on provisional basis, not ground to deny permanent registration. Matter remanded back as CIT (A) duty-bound to cross-verify details submitted by assessee at time of issuance of provisional certificate, and issue notice pointing out wrong selection of section code and Grant permission to rectify mistake and consider application for grant of permanent registration.

The Tribunal allowing the appeal of the Assessee Society held that, the assessee being a society was registered even prior to March 31, 2021 and thereafter had applied for registration on provisional basis. Though the assessee had committed a mistake in selecting the wrong section code 11 while making an application at the first instance, for such a mistake, the permanent registration could not be denied. The CIT (Exemptions) was duty-bound to cross- verify the details, submitted by the assessee at the time of issuance of provisional certificate and should have issued a notice pointing out the wrong selection of section code. Thus, the assessee as well as revenue were both at fault. Hence, appropriate to remand the matter to the CIT (Exemptions) with a direction to to rectify the mistake in submitting the application form and with a further direction to consider the application of the assessee for grant of permanent registration. (AY 2023-24)

Telangana State Chapter Indian Radiological And Imaging Association v ITO (Exemptions) (2023)105 ITR 13 (Trib) (S.N.)(Hyd)

302. S. 80G: Donation to charitable institutions – unaccounted income from deemed sales – direct cost – total cost – held, AO to revise computation of estimated profit – AO to verify deduction under section 80G.

The assesee revised its return for assessment years in 2011-12 to 2013-14 and declared a lower income. The assessee entered into a development project with a co-operative housing society for construction of residential buildings which was later on cancelled and the power of attorney of the assessee was revoked. According to the orders by the ICAI, the Assessing Officer applied the appropriate percentage of profits for the year to the unaccounted income from deemed sales to determine the total income. He also estimated a profit percentage of 12% rather than 10% on the assessee’s declared gross receipts. He also decreased the assessee’s capital work-in- progress. The Commissioner (Appeals) deleted the addition and asked the AO to apply the completion method to derive profits. In addition to asking for review of the valuation of unsold apartments at cost and the disallowance of the deduction claimed under section 80G, the assessee requested revision of the projected cost of repairs and renovations due to project delay and building damage.

The tribunal, on appeal, held that in order to account for the direct costs spent for the purchase of transferable development rights, stamp duty, Municipal Corporation fees, etc., the assessee was justified in adjusting the anticipated project cost upward. Administrative costs were to be removed from this because they could not be included. The latter had to be taken out of the saleable area because it was the portion that had been demolished. It was necessary to calculate both the project’s net profit and the proportion of construction that had been finished. The cumulative profit might be calculated for the assessment years 2012–2013 and 2013–2014 while taking into account the project’s delay and the rising cost of the renovations. The AO was directed to adopt the percentage completion method to arrive at the net profit. ASST. CIT v. S. S. ENTERPRISES (I. T. A. No. 2649/Mum/2018, dated October 28, 2019) relied on.

The Tribunal observed that the estimated cost of repairs and renovation hasdarisen due to a delay in a period subsequent to the assessment year in consideration and the estimates could only be made in the year subsequent to the year under consideration. The increase in the estimated cost of construction had arisen due to the changed in circumstance which cannot be overlooked. The Tribunal sustained the proposed figure of 22 per cent by the Commisisoner (appeals). (AY.2011- 12 to 2013-14)

Sandhu Builders v. Asst. CIT (2023)103 ITR 130 (Trib)(Mum)

303. S. 80-IC, 139(1): Industrial undertaking – Special deduction – Interest from fixed deposits in entities on account of power and electricity connection – Interest derived from eligible business and eligible for deduction – Interest received on insurance claim not derived from eligible business and not eligible for deduction.

Condition precedent — Audit report in form 10CCB and tax audit report in form 3CB/3CD filed within prescribed due date but return claiming deduction filed belatedly — Assessee entitled to deduction.

For the AY 2015-16, the A.O. denied the assessee the benefit of deduction u/s. 80-IC of the Act on the ground that the assessee had filed its return of income beyond time prescribed u/s. 139(1) of the Act. Deduction u/s. 80-IC of the Act was denied in respect of (1) interest earned from fixed deposits kept (a) in four entities on account of power and electricity connection taken to run the factory, (b) for guarantee given to the Uttarakhand Environment Protection and Pollution Control Board to get permission to run the plant, (c) for opening a letter of credit for import of goods and (2) interest recovered from customers for credit term allowed against letter of credit and bills were discounted on which interest were also paid. The CIT(A) affirmed the order passed by the A.O. On appeal, the Tribunal held that the assessee was entitled to claim deduction u/s. 80-IC of the Act in respect of the amount of interest was derived from eligible business and was eligible for deduction u/s. 80-IC of the Act. However, the sum of Rs. 54,680 being interest received on insurance claim could not be held derived from eligible business thus the sum was to be reduced for the claim u/s. 80-IC of the Act. The Tribunal also held that the assessee had filed the audit report in form 10CCB and tax audit report in form 3CB/3CD within prescribed due date but filed the return claiming deduction u/s. 80-IC of the Act belatedly. Therefore, even though the return was filed beyond the prescribed time- limit provided under section 139(1) of the Act, the assessee was entitled to claim deduction u/s. 80-IC of the Act. (AY. 2015-16)

Canadian Specialty Vinyls v. ITO (2023)104 ITR 76 (Trib) (S.N.)(Del)

304. S.80ID: Industrial Undertaking – Special Deduction – Assessee, in Business of Hotel Services – Revenue Sharing Agreement – Business to be run by Parties in Co-Ordinate Manner and Receive Respective Shares of Income – Agreement having Clauses of Inclusion and Exclusion of Some of the Revenues Contractually Agreed between Parties For Sharing of Income – Cannot Be Interpreted as Letting of Property – Assessee Submitting Certifying that it had satisfied all Conditions for claiming Deduction under Section 80-Id – No Adverse Comment in this regard made by Assessing Officer – Revenue Accepting Claim of Assessee in earlier years – Finding of Commissioner (Appeals) that Income shown assessable as Income from Business and an allowable Deduction

The assessee company used to provide hotel services to different hotels. The assessee was required to prove its claim of deduction of Rs. 44,54,647 under section 80-ID of the Act for the period of September 21, 2013, to March 31, 2014, during the assessment. The assessee’s explanation was not deemed adequate by the AO. According to the AO, the assessee only got rental revenue from the subletting of its assets after taking the hotel property on rent and subletting it to H. Because the prerequisites outlined in sub-section (2) of section 80-ID were not met, he dismissed the assessee’s request for a deduction under that provision of the Act, concluding that simple approval was insufficient. Hence an income of Rs.1,74,00,000 was treated as income from under source. The assessee appealed further after getting an unfavorable order from the Commissioner (Appeals).

The tribunal held that according to the agreement between the assessee and the hotel, both parties were responsible for running the business and getting their share of income from the hotel’s gross revenue. The revenue sharing agreement contained clauses for the inclusion and exclusion of specific revenues as contractually agreed upon between the parties for sharing of the income from the hotel. Since these clauses were based on the total revenue from the hotel and its services, they could not be interpreted to mean that the hotel was being rented out. Additionally, the assessee had submitted a form 10CCBBA with a report from a chartered accountant attesting that the assessee had complied with all requirements for claiming a deduction under section 80-ID of the Act. The Commissioner (Appeals) did not make any negative statement on this aspect. (AY.2015-16)

ITO v. Vg Properties P. Ltd. (2023)103 ITR 38 (Trib)(Del)

305. S. 80JJAA: Industrial undertaking – Special deduction in respect of employment of new workmen – Gross total income of assessee after setting off brought forward losses nil – Deduction under Chapter VIA not claimed – Disallowance set aside and matter remanded to A.O.

S. 115JB : Company — Book Profits — A.O. without discussion computing book profits at higher figure than that computed by assessee — Difference representing provision for current tax — Assessee declaring net amount instead of reporting each item separately — Order set aside and matter remanded to AO for adjudication afresh

For the AY 2018-19 the gross total income of the assessee after setting off brought forward losses was nil and hence, no deduction under Chapter VI-A of the Income-tax Act, 1961 was claimed. However, the A.O. quantified such deduction and disallowed the same. The CIT(A) upheld disallowance on the ground that the assessee had filed belated return. On further appeal, the Tribunal restored the matter to the file of the A.O. to examine the contentions of the assessee and to decide in accordance with law after providing adequate opportunity of being heard.

The A.O. assessed book profit of the assessee at Rs. 14,94,84,614 as against book profits disclosed at Rs. 11,99,54,253 in return of income u/s. 115JB of the Act without discussing it in computation sheet. The difference between the amount computed by the A.O. and that computed by the assessee represented the provision for current tax. The CIT(A) upheld the view taken by the A.O. On further appeal, the Tribunal held that since, there was no examination by the A.O. and no discussion in the assessment order on this issue, the matter was to be restored to the A.O. for examining the contentions of the assessee and adjudication afresh after providing adequate opportunity of being heard to the assessee. (AY: 2018-19)

Denso Ten Minda India P. Ltd. v. Asst. CIT (2023)104 ITR 42 (Trib) (S.N.)(Del)

306. S. 80P(2)(d): Interest from deposits in Co-operative Banks – Deduction allowed by AO in limited scrutiny assessment to examine “Deduction under Chapter VI-A”. PCIT invoked revision proceedings u/s. 263. Where AO has taken one plausible view and PCIT did not pin pointed any enquiry which was required to be made by AO – Revision was bad in law.

Return was selected for limited scrutiny to examine “Deduction under Chapter VI-A”. Returned income was accepted and no additions / disallowances were made. PCIT invoked the provisions of Section 263 and held that assessment order was passed by allowing deduction u/s. 80P(2)(d) of the Act whereas 80P(2)(d) deduction allowable only on deposits with co-operative society and not cooperative bank. On appeal, ITAT held that where AO has taken one plausible view and, on this issue, there is a specific finding and reference in assessment order regarding deduction claimed in return of income. There was no defect found in the enquiry. AO collected the information based on upon which he has allowed the claim to assessee and has verified the point raised in the limited scrutiny. Further, PCIT did not pin pointed any enquiry which was required to be made by AO. Merely because the AO did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order “erroneous and prejudicial to the interest of the revenue”. Order u/s. 263 quashed. (AY 2007-08)

Shri Keshoraipatan Sahkari Sugar Mills Ltd., Kota v. PCIT, Udaipur (2023) 104 ITR 566 (Trib) (Jaipur)

307. S.80P: Co-operative society-Denial on the ground of filing of belated return under section 139(4)

Assessee claimed deduction under section 80P. AO disallowed deduction on the ground that return was not filed within due date under section 139(1) but within due date under section 139(4) of the Act.

The ITAT held that Return of income was filed under section 139(4) and provisions of section 143(1)(a)(ii) do not provide for denial of deduction under section 80P even when the return of income is not filed within the time limit as per section 139(1) and, therefore, denial of deduction under section 80P vide intimation under section 143(1) was not valid in law.

Ambaradi Seva Sahkari Mandali Ltd. v. The DCIT (CPC) [ITA No. 186/Rjt/2022; dated 10/02/2023; Rajkot Bench ] [A.Y.: 2019-20]

308. S. 90: Double Taxation Avoidance Agreement between India and China – assessee non-resident – agreement with group entity in India – assesee supplying material as per agreement – roles of every member of the consortium agreed upon – assessee did not carry out operations in India – Held, Sums not taxable in India.

The assessee argued that because it did not have a permanent establishment in India, the terms of article of the Agreement did not permit taxation of the assessee’s revenue in India. The AO determined in a draft assessment order that the assessee formed a consortium with its Indian linked firm to fulfill its contractual obligations. The AO viewed this consortium as an association of individuals under section 2(31) of the Act and determined that the contracts with the two parties were indivisible and composite agreements that could not be divided for supply and commissioning. The AO held that the association could not get the benefit of the Agreement. Additionally, he claimed that the sale was completed in India because the products were delivered there and the assessee had made the offshore supplies on a cost-insurance-freight basis at the Indian port of disembarkation. The Assessing Officer then taxed 5% as income from composite contracts. The dispute resolution panel upheld the addition but held the no assessment finding of the AO as pre mature. The same was appealed.

The Tribunal held that the consideration received in India by the enterprise was already put to tax. The Tribunal observed that even though he treated the consortium as an association, the income was tax only in the hands of the assessee. The property in the items passes to the buyer at the port of shipment when an assessee makes an offshore supply of equipment on a cost-insurance-freight basis. All risks of loss or damage to the goods after they leave the port of shipment are assumed by the buyer. India may only tax the portion of revenue that can be linked to business activities there. The assessee’s income was not taxable in India since it did not conduct any operations related to the scope of its work there. (AY.2018-19, 2019-20)

Schindler China Elevator Co. Ltd. v. Asst. CIT (International Taxation) (2023)103 ITR 567 (Trib) (Mum)

309. S. 92: Arm’s length price – Most appropriate method – Acquisition of bundle of sports broadcasting rights – No comparable uncontrolled transaction prices available – Unique intangible asset – “other method” more appropriate

ESS, a United States based entity having a branch office and headquarters in Singapore, was engaged in the business of owning and operating sports channels in certain territories in Asia including India. Under agreements with third parties (international sports bodies) for various sports events, it held broadcasting rights for sports events for certain number of years with a well-defined year-wise consideration payable each year on the happening of the sports events. The assessee, acquired, the bundle of sport broadcasting rights held by ESS. To substantiate the agreed price of 1211 USD million, the assessee furnished a report of an independent valuer determining the total value of the bundle of sport broadcasting rights considering the finite period value at 663 USD million and the terminal value at 548 USD million adopting the discounted cash flow method. The assessee claimed deduction of Rs. 1013.26 crores on this score for the AY. 2014- 15. It applied the comparable uncontrolled price method for demonstrating that the international transaction of acquiring the bundle of sport broadcasting rights was at arm’s length price. For doing so, the assessee adopted the comparable uncontrolled transaction of ESS acquiring such bundle of sport broadcasting rights for a total sum of 1388 USD million. Since the overall purchase price of 1211 USD million agreed between ESS and the assessee was 9.5 percent less than the agreed price between ESS and third parties (international sport bodies), the assessee claimed that the international transaction was at arm’s length. The Transfer Pricing Officer determined the arm’s length price of the international transaction at 411 USD million taking the arm’s length price of the terminal value at nil; and the arm’s length price of the finite period at 411 USD million. The Tribunal held that valuation of the bundle of sport broadcasting rights was a highly technical matter, which could be done only by a person having expertise in the field. It, therefore, set aside the assessment order and remitted the matter with a direction to the Revenue to ascertain the correctness of the assessee’s valuation reports by getting the valuation done through an expert in the field. For the AY. 2015- 16, the assessee claimed deduction towards the value of international transaction of “purchase of the bundle of sport broadcasting rights” at Rs. 3075,24,15,714. The assessee had adopted the “other method” in its transfer pricing study report as the most appropriate but argued for adoption of the comparable uncontrolled price before the authorities and the Tribunal. The question was referred to a Special Bench:

As there were no comparable uncontrolled transaction prices available, the comparable uncontrolled price method was not the most appropriate method. There was a transfer of bundle of sports broadcasting rights as per master rights agreement, which was a unique intangible asset, and the “other method” would be more appropriate to value those rights at different point of time based on changes in economic conditions and market situations. The fortiori is that the “other method” should be considered as most appropriate only when none of the other five specific methods is found to be capable of application. The comparable uncontrolled price method would prevail provided the comparable uncontrolled data required for it is available. The mandate of the comparable uncontrolled price method follows that the benchmark price is the actually transacted price in a comparable uncontrolled situation and the benchmark property is the same property transferred, whereas the “other method” covers the price transacted or the price that would have been transacted under same or similar uncontrolled conditions.

Star India P. Ltd. v. Asst. CIT (2023)105 ITR 1 (Trib)(Mum)

310. S. 92C: No further adjustment required of interest on outstanding receivables where working capital adjustment takes the same into account while benchmarking the main international transaction

The Assessee is engaged in the business of providing call center and business process outsourcing services. During the relevant AY, the Assessee had international transactions with its Associated Enterprises (AEs). On a perusal of the invoices raised, it was noted by the Transfer Pricing Officer that there was an excess delay beyond the credit period in relation to payment made (i) by AE to Assessee towards the sale invoices; and (ii) payment by Assessee to AEs towards outstanding payables. Consequently, adjustment for interest to be charged on the outstanding receivables and payables was proposed by Transfer Pricing Officer resulting in a net adjustment of interest receivable.

The Hon’ble Tribunal relied on the decision of the Hon’ble Delhi High Court in the case of ACIT v. Kusum Health P. Ltd. [2018] 99 taxmnn.com 431 (Delhi) and certain other ITAT decisions wherein it was held that where working capital adjustment takes into account the impact of outstanding receivables, no further adjustment is required of interest on outstanding receivables of AEs beyond the agreed credit period if the margin of the assessee is comparable to that of external comparables. The Tribunal in the instant case thereby held the adjustments made to be unwarranted and unjustified. The following facts were noted by the Tribunal in coming to the said conclusion (i) the international transaction of the Assessee with its AEs was bench marked by adopting TNMM which the Transfer Pricing Officer had accepted to be at ALP; (ii) the Assessee had made working capital adjustments to the margin earned while computing TNMM for determining ALP (iii) the difference in operating margin on the international transactions was within the permissible range of 5% of adjusted profits of comparable companies. (AY 2012-13)

Effective Teleservices P. Ltd. v. DCIT; (2023) 103 ITR 74 (Trib) (S.N.)(Ahm)

311. S. 92C: (i) Insurance claim and foreign exchange fluctuation gain related to raw material consumed by assessee in operation of business is to be added to operating revenue of assessee to arrive at ALP of international transaction. (ii) Adjustment of PLI of comparables should be made at transaction level and not entity level

The main issue revolves around a transfer pricing adjustment made to the international transaction of import of machine parts. The appellant company is involved in the manufacturing of filling and packing equipment for various industries.

The appellant challenges the operating sales figure adopted by the department. It is the claim that the revenue has overlooked the amounts of insurance claim receipt and foreign exchange fluctuation gain. The appellant also contends that the adjustment should have been made at the transaction level and not at the entity level with the necessary backing of various judicial precedents. The Hon’ble DRP in total disregard to the contention of the Assessee has given no directions.

The Hon’ble Tribunal concurring with the appellant’s contentions regarding the adjustment to be restricted to the transaction level, directed the Assessing Officer to verify the computation accordingly. Further also held that the department having not controverted the upward revision of the operating revenue, the same is to be added to the operating revenue of the assessee for the purpose of arriving at arm’s length price of the international transaction. (AY 10-11)

KHS Machinery (P.) Ltd v. DCIT; (2023) 103 ITR (Trib) (S.N.) 72 (Ahm)

312. S. 92C: Adhoc addition made by the Transfer Pricing Officer on account of ‘Price Penetration Adjustment’ by the assessee, treating the same as income is without jurisdiction.

The primary contention is regarding the addition made to the “Price Penetration Adjustment” made to its own margin by the Assessee. The assessee company manufactured polypropylene compound resins. The Assessee followed a price penetration policy, selling products to unrelated parties at a reduced price. The Transfer Pricing Officer made adjustment equivalent to the amount of price penetration adjustment by disregarding the contention of the assessee. The CIT(A) confirmed the assessing officer’s assertion by sustaining the transfer pricing adjustment, holding that the Assessee’s International Transaction does not satisfy the Arm’s Length Principle. Before the Hon’ble Tribunal the assessee contended that there was no dispute regarding the method and margin adopted for benchmarking the international transaction. That the only dispute was of ad-hoc adjustment made by the Transfer Pricing Officer. Further the Assessee also demonstrated before the Hon’ble Tribunal, the margins, before and after the disputed adjustment.

The Hon’ble Tribunal observed that the margin of the assessee is at “Arm’s Length” without the price penetration adjustment. That there was no dispute regarding the method and margin adopted for benchmarking the international transaction. Further held that any ad hoc determination of the arm’s length price by the Transfer Pricing Officer under section 92 dehors section 92C (1) of the Income-tax Act, 1961 would be unsustainable in law. The Hon’ble Tribunal thus allowed the appeal filed by the assessee and directed deletion of the addition made by the A.O. and upheld by the CIT (A). (AY 2013-14)

Mitsui Prime Advanced Composites India P. Ltd. v. DCIT; (2023) 103 ITR 35 (Trib) (S.N.) (Del)

313. S. 92C: Prices of comparable products on their respective invoice/ shipment date as considered in customs valuation would yield a more reliable result in absence of any differences arising out of contract terms and product quality

The primary contention revolves around the Transfer Pricing Officer’s enhancement of the appellant’s income. This was based on the assertion that international transactions related to the import/export of Agri-commodities with Associated Enterprises did not satisfy the Arm’s Length Principle.

The Ld. Transfer Pricing Officer rejected the Comparable Uncontrolled Price (CUP) analysis undertaken by the appellant, which was based on industry reports and independent broker quotes. The Dispute Resolution Panel (DRP) upheld the Transfer Pricing Officer’s findings but directed certain adjustments based on the provisions of the Income-tax Act.

The final assessment order, made a Transfer Pricing (TP) adjustment, resulting in an income, compared to the returned loss. The appellant’s contention is that the rates published on commodities exchanges are actual prices, which vary daily and that the Transfer Pricing Officer had arbitrarily selected prices from the multiple prices of the commodity available on the same date of the Bill of Entry and that the data shared by the Customs Department does not specify the quality and price variations of the commodities in particular.

The Hon’ble Tribunal observed that the customs data at the port of shipment/delivery would better reflect the price of the commodity as it includes various costs as followed by the revenue. Further that the tariff value notified by customs, based on international prices, constituted a credible arm’s length benchmark under CUP. The Hon’ble Tribunal thus dismissed assessee’s objection against the use of customs data under CUP. (AY 2016-17)

Louis Dreyfus Company India (P.) Ltd v. DCIT; (2023) 103 ITR 6 (Trib) (S.N.) (Del)

314. S. 92C: When assessee was able to prove the difference in price was due to quality of products sold, no transfer pricing adjustment was warranted.

Assessee Company was engaged in the business of manufacturing TMT bars for which it purchased mild steel (MS) ingots from its AE. During the course of transfer pricing assessment, the Transfer Pricing Officer noted that the AE was charging higher price from the assessee than prices charged by it from non-related parties. The Assessee submitted before the Transfer Pricing Officer that material purchased by it from the AE was of a higher quality as compared to sales made by AE to non- related parties. This argument of the Assessee was accepted by the AO for certain months. However, the AO disputed the purchases made only for the month of January 2014 and thereby made a downward adjustment. On appeal before the CIT(A), the CIT(A) accepted the submissions of the Assessee and thereby deleted the adjustment.

The Hon’ble Tribunal upheld the order of the CIT(A) on the following grounds viz. (i) the CIT(A) has categorically observed that there is qualitative difference between the MS ingots sold by the AE to the assessee as compared to those sold by AE to third parties; (ii) Assessee was able to produce substantial evidence to prove the difference in prices is due to the quality of products sold; (iii) no rationale in making adjustment only for the month of January 2014 when the contention of the Assessee was accepted for the rest of the months.

DCIT v. M/s H.K Ispat Pvt. Ltd. (2023) 103 ITR 12 (Trib) (S.N.)(Ahm)

315. S. 92C: Computation of Arm’s length price – Payment made to non-resident for maintenance of a project under a service agreement – recomputation of Arm’s length price – held, claim by the assessee genuine as no such computation was done for previous years.

The Transfer Pricing Officer, during the assessment proceedings, noticed that the assessee had a technical services agreement for the upkeep and maintenance of their project and payment of Rs. 1,46,71,277 was paid to that accord. The Transfer Pricing Officer claimed that because CP, USA provided both the know-how and the technical assistance, and the nature of the services under both agreements was similar, the payments for royalties and technical assistance were closely related, that the assessee received only nominal services as a result of which the services were covered by the royalty agreement, that the arm’s length price for technical assistance fee claim was excessive, and that as a result, recompense was required. In light of this, the claim for Rs. 1,46,71,277 was denied.

After getting an unfavorable order by Commissioner (appeals), the assessee appealed in the tribunal The tribunal that There was no arm’s-length price adjustment for comparable payments made for the assessment years 2001–2002, 2002–2003, and 2003–2004, and the

relief given on this issue by the Commissioner (Appeals) for the assessment year 2004–2005 was uncontested. In most cases, it would not be proper to upset a factual finding that was uncontested and undisputedly maintaining a certain position. As a result, the relevant year’s arm’s length price adjustment is being removed. (AY.2005-06)

Ss Oral Hygiene Products P. Ltd. v. Dy. CIT (2023) 103 ITR 691 (Trib) (Mum)

316. S. 92C: Transfer Pricing – Arms’ Length Price – AO drawing an adverse inference without providing an opportunity to explain the working of allocation is in violation of principals of natural justice. [S. 144C]

The Appellate Tribunal held that the AO having not asked the assessee for the working of the allocation, drawing an adverse inference without giving the assessee a chance to explain is in gross violation of principals of natural justice. Hon’ble Appellate Tribunal restored the matter back to TPO to decide the issue afresh after giving the assessee proper and reasonable opportunity of being heard. (A.Y. 2014-15)

Dassault Systems India P. Ltd. v. Add. CIT [2023] 105 ITR 9 (Delhi – Trib)

317. S. 92CA (3), 133A, 142(1): Income-Tax Survey – International Transactions – Assessment – Notices issued to Assessee Calling For Evidence and Explanation With Respect to Transfer Pricing Adjustment Proposed By Transfer Pricing Officer – Failure to Furnish Details Before Assessing Officer – Failure by Assessee to Comply With Notices Issued In Spite Of Several Opportunities – Opportunity May Be Provided To Assessee to Present Its Case Before Assessing Officer – Assessee to Pay Costs

The assessee was an airline company providing for transportation of passengers, cargo and other allied services. The assessee was issued a notice u/s 142(1) of the Act and asked to submit details, documents, evidence, and explanation in respect of its international transactions, with the copy of order under section 92 CA (3) of the Act of the Transfer Pricing Officer proposing a transfer pricing adjustment. The assessee failed to present itself in front of the AO and sent a letter stating that it was undergoing insolvency proceedings hence, the assessment proceedings should be kept in abeyance. When determining an adjustment, the Assessing Officer/Transfer Pricing Officer benchmarked the domestic transactions of the Assessee against specific overseas transactions. Following that, the sum was added to the assessee’s overall income, and penalty proceedings were also started. The Assessing Officer passed a draft assessment order under section 143(3) read with section 144C(1) of the Act making the addition. The income computed under section 115JB of the Act, where the income under the normal provisions was considered for computing the assessee’s tax due, was less than the addition made by the Assessing Officer of Rs. 42,46,81,14,783.

The said order was challenged and it was held that the assessee (resolution professional) had failed to comply with the notices issued by the AO on account of the insolvency proceedings. Hence a last chance must be given to the assessee to present its case. However, since the exchequer had taken considerable time and effort to conduct the proceedings, the assessee was directed to pay costs of Rs. 25,000 in each appeal within 30 days and was further directed to be present from here on in the fresh proceedings. (AY.2016-17, 2017-18)

Jet Airways (India) Ltd. v. Dy. CIT (2023) 103 ITR 323 (Trib)(Mum)

318. S. 92CA, 144C and 153: International transactions – Arm’s length price – Determination – Order of Transfer Pricing Officer – Limitation – Period of sixty days to be counted from day prior to date on which period of limitation for assessment expires – Order barred by imitation by one day – Order non est – Assessee ceases to be eligible assessee – Draft assessment order and assessment order void ab initio:

Tribunal observed that the Transfer Pricing Officer can pass an order u/s. 92CA of the Act at any time before sixty days prior to the date on which the period of limitation u/s. 153 expires. Sixty days are to be counted prior to the last date of the period of limitation u/s. 153. In a case where a reference is made to the Transfer Pricing Officer u/s. 92CA(1), the time limit for completion of the assessment is three years. In the case at hand, in terms of section 153, the time limit for completing the assessment for the A Y. 2012-13 was March 31, 2016. The time limit for passing the order u/s. 92CA of the Act was on or before January 30, 2016, because, if one day prior to the date of limitation u/s. 153 was considered, then sixty days were to be counted from March 30, 2016. The time limit for passing the order u/s. 92CA expired on the midnight of January 30, 2016. The order was passed on January 31, 2016 and was clearly barred by limitation by one day and was to be quashed. It was to be reckoned as if there was no order of the Transfer Pricing Officer and consequently, the entire transfer pricing adjustment proposed by the Transfer Pricing Officer on the international transaction became non est and liable to be quashed.

Tribunal also observed that the assessee was an Indian company and, thus, resident in India u/s. 6 of the Act. Thus, the second condition u/s. 144C(15)(b)(ii) of the Act for qualifying as an eligible assessee, that the assessee be a non-resident not being a company or a foreign company, was not met. The first condition u/s. 144C(15)(b)(i) of the Act applies where there is a transfer pricing variation arising from an order of the Transfer Pricing Officer u/s. 92CA(3) of the Act. In the case at hand, there was no transfer pricing variation arising as a consequence of an order of the Transfer Pricing Officer as the order was time-barred, non est and void ab initio. There, thus remained no transfer pricing variation arising as a consequence of such an order. The consequence was thus that the assessee could not be said to be an eligible assessee u/s. 144C(15)(b)(ii) of the Act. Accordingly, the very foundation to pass the draft assessment order did not survive.

Consequently, Tribunal held that the draft assessment order passed became legally invalid. All consequential proceedings on the basis of that order failed. Any lapse in treating an assessee as an eligible assessee where it is otherwise not one and vice versa is a jurisdictional defect. The final assessment order passed on January 31, 2017 was beyond the prescribed period of limitation u/s. 153 of the Act which expired on March 31, 2016 and was to be quashed. (AY.2012-13)

Atos India P. Ltd. v. Dy. CIT (2023)103 ITR 296 (Trib) (Mum)

319. S. 115BBE: Unexplained income – Rate of tax – Assessee did not maintain proper books of account – Excess stock and receivables on account of unaccounted sales and cash generated on account of unaccounted sales was found in survey – Assessee’s explanation accepted by survey party – Additional income surrendered by assessee not from unexplained source but from business proceeds – Under peculiar facts surrendered income to be taxed at normal rate applicable to business income and not at higher rate of sixty per cent

The A.O. assessed the income of the assessee based on the discrepancies noticed during the survey conducted at the premises of the assessee on 23.10.2018. In the statement recorded, the assessee admitted undisclosed income of Rs 40.05 lakhs which was brought to tax by the A.O. by applying income-tax rate @60%. The CIT(A) confirmed the order of the

A.O. On further appeal, it was contended before the Tribunal that assessee had booked the said income and paid due taxes as applicable for business income. The survey team noted that the assessee, being small businessman, had not maintained proper books of account and did not doubt about the nature and source of additional income. The A.O. did not rebut it during the assessment proceedins. Considering the facts and circumstances of the case, the Tribunal accepted the contentions of the assessee. The Tribunal held that there was no justification for applying the provisions of section 115BBE of the Act to the surrendered business income of the assessee. [The Tribunal made it clear that its findings were based on the peculiar facts of the case and would not be a binding precedent.] ( AY: 2019-20)

Gurdeep Singh Ubhi v. Dy. CIT (2023)104 ITR 79 (Trib) (S.N.)(Chand)

320. S. 119 and 263 Expl. 2(c): International transactions – Arm’s length price – Determination – Requirement of reference to Transfer Pricing Officer – Return of income of assessee selected under “transfer pricing risk” parameter – Failure by AO to make reference or record satisfaction for not doing so – Instruction of Board not followed – Order erroneous and prejudicial to revenue – Revision justified – CBDT Instruction No. 3 Of 2016, Dated 10-3- 2016

For the AY 2018-19 the assessee had entered into several international transactions amounting to Rs. 2,79,457.28 crores. The Commissioner (International Taxation) noticed that the A.O. had not referred the matter of determination of the arm’s length price of international transactions to the Transfer Pricing Officer as required by Central Board of Direct Taxes Instruction No. 3 of 2016, dated March 10, 2016 ([2016 382 ITR (St.) 36). Accordingly, he initiated revision proceedings under section 263 of the Act, set aside the assessment order and directed the A.O. to make a reference to the Transfer Pricing Officer as stipulated in Instruction No. 3 of 2016 and passed an assessment order in respect of the international transactions based on the order of Transfer Pricing Officer as per law. Being aggrieved, the assessee filed appeal before Tribunal who upheld the revision. The Tribunal held that in terms of clause (c) of Explanation 2 to section 263 , the order passed without complying with the Instruction issued by the Board u/s. 119 of the Act would render the order erroneous and prejudicial to the interests of the Revenue. In view of the Instruction No. 3 of 2016, it was mandatory for the A.O. to refer the matter of determination of arm’s length price of the assessee’s international transactions to the Transfer Pricing Officer after obtaining approval from the Principal Commissioner or Commissioner, if the return of income of the assessee had been selected under “the transfer pricing risk” parameter. The A.O. having failed to follow the instructions, there was no infirmity or illegality in the revision order passed by the Commissioner (International Taxation).( AY: 2018-19)

DBS Bank India Ltd. v. CIT(International Taxation) (2023)104 ITR 31 (Trib) (S.N.) (Mum)

321. S. 115O/115P r.w.s. 115Q: Complete Code – Machinery provision for recovery – Benefit of DTAA

Where dividend is declared, distributed or paid by a domestic company to a non-resident shareholder, which attracts additional Income- tax (tax on distributed profits) u/s. 115-O of the Income-tax Act, 1961, such additional Income- tax payable by the domestic company shall be at the rate mentioned in Section 115-O of the Act and not at the rate of tax applicable to the non-resident shareholder as specified in the relevant Double Taxation Avoidance Agreement with reference to such dividend income. Nevertheless, the sovereign has the prerogative, through mechanism of Double Taxation Avoidance Agreements, to extend protection to domestic companies paying dividend distribution tax. Thus, only where the contracting states to a Double Taxation Avoidance Agreement intend to extend protection to the domestic company paying dividend distribution tax, can the domestic company claim benefit of the Double Taxation Avoidance Agreement, if any.

Sections 115-O, 115P and 115Q an additional Income-tax was levied on the company itself on the sum distributed by way of dividend. The tax paid thereunder was treated as the final tax on dividends and dividends were exempt from any further incidence of tax in India in the hands of shareholders. The additional Income-tax u/s. 115-O is referred to as “tax on distributed profits” commonly referred to as “dividend distribution tax”. It is not a tax on “dividend distributed”. The point of time at which the additional Income-tax is payable by the domestic company is laid down in section 115-O, viz., within fourteen days from the date of (a) declaration of any dividend; or (b) distribution of any dividend; or (c) payment of any dividend, whichever is earliest. The person liable for payment of such additional tax is the “principal officer of the domestic company and the company”. The payment has to be made to the credit of the Central Government.

The dividend distribution tax is neither paid on behalf of the shareholder nor is it a payment of liability of the shareholder, discharged by the domestic company paying dividend distribution tax. The charge u/s. 115-O of the Act of dividend distribution tax is a tax on the distributed profits of a domestic company and is a tax.

Sections 115P and 115Q provide for machinery provisions for recovery. Chapter XII-D is a complete code in itself on dividend distribution tax. They provide for discharge for the payer on payment to the credit of Central Government of the amounts due to the payee. In the event the payer pays excess over and above what he has to pay the payee, he gets a right to recover the tax deducted or collected at source and gets rights of subrogation. Such provisions are absent in the entire scheme of Chapter XII-D of the Act. These features are again an indication that dividend distribution tax is a charge to tax on the profits of the company and not a charge in the hands of the shareholder or tax paid on behalf of the shareholder by the domestic company. These provisions also show that shareholder does not enter the domain of dividend distribution tax at all.

Dy. CIT v. Total Oil India P. Ltd. (2023)104 ITR 1 (Trib.) (Mum) (SB)

322. S. 132/153C/143 : In case of concluded assessment, addition can only be made on the basis of an incriminating material

The ITAT held that there was no perversity in the finding of the CIT(A) and noted the fact that the time limit to issue a notice u/s 143(2) had expired. The ITAT also observed that in the case of PCIT v. Saumya Construction P.Ltd. (2016) 387 ITR 0529 (Guj), the High Court has held that in the case of search, the concluded assessment could be disturbed only to the extent of incriminating material. The ITAT noticed that the revenue has not showed as to how the additions made by the AO and deleted by the CIT(A) were based on the incriminating material except mentioning the revenue has not accepted the decision of the Gujarat High Court. On the observation, the ITAT dismissed the appeal of the revenue.

DCIT v. Heaven Associates: IT(SS)A.No.245/ Ahd/2017, 86/Ahd/2018 & ITA No.716/Ahd/2018; Asst.Year : 2012-13, 2013-14 & 2014-15; Bench “B”, dated 24/03/2023 (Ahm-Trib).

323. S. 132 r.w.s 69A : Source of the Jewellery found during the Search/ Seizure Operation – Benefit of instruction No.1916 dated 11.05.1994 issued by CBDT

During the search and seizure action jewellery valuing Rs.8,15,796/- and cash of Rs.21,200/- were found but not seized. The gold jewellery of 281.200 gms was found along with one diamond jewellery and silver 2.51 kg. In the course of search during the statement recorded, assessee stated that jewellery belongs to her and family members which has been received on various occasions including marriage.

The ITAT held that the Instruction No.1916 dated 11.05.1994 issued by CBDT lays down guidelines for seizure of jewellery and ornaments in course of search. Point No. (ii) from the same reads that “In the case of a person not assessed to wealth- tax gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms. per unmarried lady and 100 gms per male member of the family need not be seized.” Relying on the above instruction and decisions of various High Courts Hon’ble ITAT deleted the entire addition and observed that “unless anything contrary is shown it can safely be presumed as the source of the Jewellery is explained.

Tara Kabra v. DCIT, CC-1(3) [ITA No. 1319/ Mum/2021; dated 31/05/2023] [A.Y.: 2017-18].

324. S. 133A : Power of survey – Information From Investigating Agency – Loss In Share Trading – Misuse of Client Code Modification To Book Losses To Evade Tax – Failure of the Assessee To Establish That He Was Not Involved In Client Code Modification – Held, Disallowance of loss is Justified

This decision consists of 3 appeals involving the same facts. The assessee’s case was reopened by notice u/s 148 of the Act pursuant to information received from the Investigation Directorate gathered from surveys conducted u/s 133A of the Act at the premises of several share brokers that the Client Code Modification (CCM) facility was being misused by various clients, which included the name of the assessee, for tax evasion in connivance with the broker by shifting out profits or shifting in losses to reduce the taxable income. The assessee was asked to explain the misuse of CCM facility to book the contrived losses of Rs. 29,76,903. The ITAT observed that contrary stands were taken by the assessee before the AO and the CIT(A), before whom the assessee submitted the ledger account obtained from the Broker. The submissions of the assessee that the assessee never claimed loss in this year with the supporting return of income and the audit report would not justify that the assessee has not benefited from CCM. Besides this the assessee had not given details as to the shares and scrips through which broker of the assessee had traded. The assessee had also furnished her regular bank statement instead of her demat account statement. Thus, the assessee was not able to substantiate her non-involvement in the misuse of the CCM facility. Thus, the AO and the CIT(A) was right in adding Rs. 29,76,903 to the income of the assessee. (AY 2009-10)

Charuben Jitendrarai Mehta and Bimal Jitendra Mehta v. ITO (2023) 103 ITR 29 (Trib) (S.N.)(Ahm)

325. S. 139(9): Return filed showing tax payable without payment of self-assessment tax – Return not accompanied by the proof of self- assessment tax, if claimed to have paid, is to be treated as defective return after following procedure

The AO computed interest u/s. 234A from due date of filing original return to date of filing return under section 148, treating the belated return filed by the assessee as defective return. The Tribunal held that the return can be considered as defective return only if there is self-assessment tax claimed to have been paid as per Explanation (c)(i) to Sec. 139(9). In absence of the same, the belated return cannot be treated as defective and accordingly, interest u/s. 234A have been rightly computed till the date of filing of belated return.

Shri Nakul Machindra Mhaske v. Income Tax Officer (2023) 103 ITR (Trib) 0037 (Pune) (SN)

326. Ss. 143(1) and 246A: Appealable orders – Deduction of tax at source – Credit – Intimation denying credit for tax at source – Appealable

The assessee had executed conveyance in the previous year relevant to A.Y. 2019-20 and hence offered the income arising from transfer of asset in earlier years as income for A.Y. 2019-20 and claimed credit for tax deducted at source in earlier year. However, while processing return u/s. 143(1) of the Act, the credit claimed for tax deducted in earlier year was not allowed. The appeal filed by the assessee was dismissed by the CIT(A) on the ground that no adjustment to the income had been done in the section 143(1) intimation. On further appeal, the Tribunal held that section 246A cannot be read in a manner so as to only include those cases where adjustments have been made to the “income” of the assessee and exclude adjustments made in the intimation issued u/s. 143(1) , which have an impact on the “amount of tax determined”. Accordingly, the matter was set aside to the file of the CIT (A) to hear the appeal of the assessee on the merits, after giving due opportunity of hearing to the assessee, in accordance with law. (AY: 2019-20)

D And C Phoenix v. Asst. DIT (2023)104 ITR 55 (Trib) (S.N.)(Ahm)

327. S. 143(1): Assessment – family trust – notification of assessing taxes without giving basic exemption and slab benefits to taxpayers who fall under certain associations of people or trust – using basic exemption and slab benefit, the assessing officer will redetermine tax liability

As a family trust, the assessee was liable to file its return in form 5 and its return in Form 7. According to section 143(1) (a) of the Income- tax Act of 1961, the assessee received notice that, in the absence of information regarding a section 12A registration, the assessee’s income was subject to taxation as an association of persons or body of persons and that tax was assessed without providing basic exemption and slab benefits. In response to this notification, the assessee submitted a request for correction under section 154 to the Assessing Officer. The application was denied by the Assessing Officer. The commissioner (Appeals) rejected the appeal of the assessee on technical grounds. The assesee appealed further.

The tribunal held that the trust was incorporated for the benefit of Smt. L’s kin. The trust’s beneficiaries’ shares were calculated, and the chart for the assessment years 2016–17 to 2019– 20 submitted by the assessee demonstrated that the assessee–family trust satisfied the requirements set forth as per the provisions of the Act for claiming basic exemption and slab benefit. The AO was directed to reassess the same after giving the exemption and slab benefits as per the law. The assessee was directed to cooperate with the AO for filling the required information and verify certain claims. (AY.2014-15, 2015-16)

Lajwanti Manchanda Trust v. ITO (2023)103 ITR 647 (Trib)(Mum)

328. S. 143(1): Adjustment – on account of ‘contingent liabilities’ mainly in the nature of corporate guarantee – no opportunity has been given to the assessee – violation of express proviso to Section 143(1) – Principles of natural justice.

The Hon’ble ITAT consider it expedient to remit the matter back to the file of the Assessing Officer for taking into account the submissions made on behalf of the assessee. Where it is found as a matter of fact that the contingent liability in question do not form part of the P&L account and has not been taken into account while determining the income chargeable to tax, it will be incumbent upon Assessing Officer to reverse the disallowance carried out in the intimation under Section 143(1) in question. It shall be open to the assessee to adduce documents and explanations before the Assessing Officer in support of its contentions. Issue towards disallowance of contingent liabilities is restored back to the file of the Assessing Officer for fresh determination in accordance with law.

Knowledge Infrastructure Systems Pvt. Ltd. v. DCIT, ITA 635/Del/2023 dt: 01/08/2023 (Del-Trib.)

329. S. 142A : Assessing officer not assigning reasons why he considered assessee’s valuation high so as to necessitate reference, detailed comments on district valuation officer’s valuation report not controverted by AO nor reason assigned why report of district valuation officer accepted. FMV determined by assessee’s registered valuer in cases of assessee’s co-owners accepted in their assessments, addition in case of assessee not warranted.

The Tribunal allowing the appeal held that, the AO had not assigned any reasons why he considered the valuation of the assessee to be high. The AO could not invoke the provisions of s. 142A without assigning tangible basis giving rise to doubt on the fair market value adopted by the assessee on the basis of the report of the registered valuer. When the assessee offered detailed comments on the District Valuation Officer ’s valuation report asserting that no deficiency in the report of the registered valuer had been pointed out by the District Valuation Officer, that the District Valuation Officer failed to consider the specific features of the property commanding higher value, that the District Valuation Officer did not provide copies of sale deeds of the properties on the basis of which he worked out the average price to be the fair market value as on April 1, 2001, and that the fair market value as on April 1, 2001 as declared on the basis of the assessee’s valuation report had been accepted in the case of her two other joint co-owners in assessment orders framed u/s. 143(3). Moreover, the AO had accepted the fair market value as determined by the registered valuer of the assessee in the cases of the assessee’s co-owners, her brother and sister. Therefore, the addition in the case of the assessee was not warranted, when the same fair market value had been accepted in the cases of other co-owners.( AY. 2019-20)

Madhurittu Puri, United Kingdom v. Dy. CIT (International Taxation) (2023)105 ITR 66 (Trib) (S.N.) (Del)

330. S.143(2): Assessment – Jurisdiction – Condition precedent – Service of noticeu/s. 143(2) – No proof regarding service of notice u/s. 143(2) – Assessment order liable to be quashed for want of jurisdiction

The Tribunal observed that the assessment record did not contain any proof regarding service of notice u/s. 143(2) of the Act to the assessee. Accordingly, Tribunal held that the assessment order framed by the Assessing Officer was liable to be quashed for want of jurisdiction. However, liberty was given to the Revenue to seek recall of order in accordance with law, if found subsequently that there was proper service of notice u/s. 143(2) of the Act. (AY.2007-08)

Arun Kanhaiya Gupta v. ITO (2023)103 ITR 650 (Trib)(Mum)

331. S.143(2) : Assessment order – Validity – Amalgamation of companies – Effect – Fact of amalgamation brought to Assessing Officer’s notice during assessment proceedings – Assessment proceedings against amalgamating company after approval of amalgamation void ab initio – Amalgamated company’s participation in proceedings not an estoppel against law – Revenue’s appeal against order Of commissioner (appeals) infructuous.

The assessee-company, BSS, was amalgamated with BTC by order of the National Company Law Tribunal and came to be known as BGS. The return of income for the AY. 2014-15 was filed in the name of the amalgamating company since the process of amalgamation was not completed. During the course of the assessment proceedings, the assessee- company had brought the factum of amalgamation to the notice of the Assessing Officer, who, however, passed the assessment order in the name of the amalgamating company making disallowance of the excess deduction claimed by the assessee u/s. 10AA of the Income-tax Act, 1961 . The Commissioner (Appeals) granted partial relief but dismissed the assessee’s objection holding that notice u/s. 143(2) was issued in the name of the amalgamating company much before the amalgamation had come into effect. On appeals by the Revenue and the assessee the Tribunal allowed the assessee’s appeal and observed that there was no dispute that the factum of amalgamation was brought to the notice of the Assessing Officer during the course of assessment proceedings. Despite knowing very well that the amalgamating company was not in existence at the time of passing the assessment order, the Assessing Officer had chosen to pass an assessment order in the name of the amalgamating company, BSS. Consequent to the amalgamation, BSS ceased to exist and, therefore, could not be regarded as a “person”. The fact that the assessee had participated in the assessment proceedings could not operate as estoppel against law. The assessment order passed by the Assessing Officer in the name of a non-existent entity was null and void ab initio. Accordingly, the assessment order was quashed. As a result, the Revenue’s appeal became infructuous.( AY.2014-15)

Dy. CIT v. Barclays Global Service Centre P. Ltd. (2023)103 ITR 100 (Trib)(Pune)

332. S. 143(3): Assessment – scope of scrutiny – AO’s jurisdiction is not limited to just valuing the closing stock but also determining the project cost, project revenue and closing WIP at the end of reporting period – Thus, AO is justified in making addition by revaluing the stock. [S. 145]

In the present case Hon’ble appellate tribunal held that the under the limited scrutiny the scope of enquiry is not limited to verifying whether the assessee had followed the percentage completion method or not. Rather the scope of the limited scrutiny was to determine whether the assessee had followed the percentage completion method and secondly, how the method had been actually followed while accounting for the real estate transactions undertaken by the assessee during the relevant assessment year. Therefore, the AO had not exceeded the scope of enquiry under the limited scrutiny assessment. Thus, the AO is justified in making addition on revaluation of stock. (A.Y.2015-16)

Aman City Developers P. Ltd. v. Asst. CIT [2023] 105 ITR 53 (Chand. – Trib)

333. S. 143(2): The Tribunal quashes assessment order, citing non-issuance of mandatory notice as a pivotal procedural lapse.

The appeal challenges the order of the CIT(A), National Faceless Appeal Centre (NFAC), Delhi. The primary contention is regarding the validity of the assessment framed u/s 143(3) read with section 147 of the Income Tax Act, 1961, concerning the mandatory issuance of notice u/s 143(2) of the Act.

The Assessee received a notice issued under section 142(1) of the Act, which was the only notice received. The return of income was filed in response to this notice. The Assessment order was passed without issuing any notice under section 143(2) of the Income Tax Act.

The Hon’ble Tribunal observed that the Assessing Officer proceeded with the assessment without issuing the mandatory notice u/s 143(2) of the Act. Further referring to the Supreme Court’s decisions in ‘Hotel Blue moon’ and ‘CIT v. Laxman Das Khandelwal’, which emphasized the mandatory nature of the notice u/s 143(2) of the Act, the Hon’ble tribunal concluded that the assessment order is invalid due to the non- issuance of the mandatory notice u/s 143(2) of the Act and quashed the assessment order. (AY 2012-13)

Manjit Kaur v. ITO; (2023) 103 ITR 40 (Trib) (S.N.)(Chand)

334. S. 144: Best Judgment Assessment – Liquor Business – Average Net Profit in this line of of business which varied from 1 to 3 per cent. And applying net profit rate of 2 per cent is correct. No comparative data brought to rebut finding of AO in retail liquor business. (S.145)

The Tribunal dismissed the appeal of the Assessee and held that, the AO had taken the average of net profit which varied from one to three per cent. In the assessee’s line of business which was retail sale of liquor and had applied a net profit rate of 2 per cent. The Assesee has not brought on record to rebut the findings of the AO in terms of net profit prevailing in the retail liquor business in terms of any other comparative third party data. The AO had rightly applied the reasonable average of net profit for the business of business assessee. (AY.2017-18)

Satwinder Kaur Balachor v. ITO (2023)105 ITR 14 (Trib) (S.N.)(Chandigarh)

335. S.144: Natural Justice – Cash Credits – Best Judgment Assessment – statements of witnesses relied upon without providing opportunity to cross-examine the witnesses, assessment not sustainable. (S.68, 131, 144)

The Tribunal allowing the appeal held that, the statements of persons were recorded by the AO u/s.131 behind the assessee’s back and used against him without granting an opportunity of cross-examination of these witnesses in the ex parte assessment order u/s. 144. The observation of the CIT(A) that failure to provide cross-examination was not a fatal flaw as they were witnesses of the assessee and not independent unrelated parties was in gross violation of principles of natural justice. The matter set as side to AO to decide afresh after granting opportunity of cross-examination of the witnesses whose statements were recorded u/s.131. (AY. 2017-18)

Raj Dev v. ITO (2023)105 ITR 65 (Trib) (S.N.) (Amritsar)

336. S. 144: Best Judgment Assessment – AO estimating profits at 8 per cent., CIT(A) observed that turnover above turnover limit for presumptive taxation but restricting profits to 5 per cent. Matter remanded back to AO stating that Authorities bound to disprove claim with corroborative documentary evidence after granting assessee adequate opportunity of being heard.

The Tribunal remanded matter to the AO, as the CIT (A) had observed that the case did not fit into scheme of presumptive taxation as his turnover was well above the turnover limit for presumptive taxation, he had restricted the profits to five per cent. Without analysing the book results vis-a-vis past history and comparable cases to justify the applicability of the correct net profit rate in the case of the assessee. The matter restored to pass assessment de novo after considering the submission and evidence filed on record. (AY. 2018-19)

Mohammad Sidiq Mushtaq Ahmed v. Add. CIT (2023)105 ITR 63 (Trib) (S.N.)(Amritsar)

337. S. 145: Method of accounting – non accounting of expired stock as part of opening stock – no evidence of sale of obsolete stock – notional estimation of profit for not showing the obsolete stock as part of opening stock unjustified. [S. 37]

Department having accepted the fact that the stock purchased by the assessee in earlier years was expired and incapable of being sold to the customers, notional estimation of profit for not showing the said obsolete stock as part of opening stock of the year under consideration is unjustified. Further, such stock is destroyed or returned would also not impact the profitability of the assessee, as the assessee has not claimed any loss on account of writing off of such stock, which the assessee is entitled to. (AY 2012-13)

Abhinav Malik v. ITO [2023] 105 ITR 62 (Chandigarh – Trib)

338. S. 145: Accrual system of accounting – Interest income received during the relevant AY to be taxed in the said AY when assessee follows accrual system of accounting

Assessee received interest income during AY 2014-15. However, the same was not offered to tax in the return of income and therefore, the same was added to the total income of assessee by the AO. Before the CIT (A), Assessee contended that since interest income was offered to tax in the subsequent AY, taxing the same in the current AY would result in double taxation. CIT (A) dismissed the appeal of the Assessee on the basis that since Assessee was following mercantile system of accounting, interest income is required to be taxed on accrual basis. Hon’ble Tribunal upheld the order of the CIT (A) and held that the interest income should have been offered to tax in AY 2014-15 itself with consequential relief if said interest income is offered to tax in subsequent AY. (AY 2014-15)

DCIT v. M/s H.K Ispat Pvt. Ltd. (2023) 103 ITR 12 (Trib) (S.N.)(Ahm)

339. S. 147: Reassessment proceedings- initiated basis perusal of case records itself is a clear case of change of opinion and is liable to be quashed.

The Assessee has challenged the validity of reassessment proceedings initiated under section 147 stating it to be a change of opinion without any fresh material coming to the possession of AO.

The Hon’ble Tribunal perused the provisions of section 147 as applicable for the relevant period and pointed out that no notice can be issued under the said section unless any income chargeable to tax had escaped assessment. Further, it was noted that the AO had doubted upon the assessment only from the perusal of case records itself. Accordingly, it was held that it was a clear case of change of opinion and the reassessment was liable to be quashed. (AY 2008-09)

M/s Glen Propbuild Pvt. Ltd. v. DCIT; (2023) 103 ITR 71 (Trib) (S.N.)(Del)

340. S.147: Reassessment – original assessment made on scrutiny – no tangible material coming into possession of AO for formation of belief that income had escaped assessment, Reassessment on materials is impermissible.

The Tribunal allowing the appeal held that, original return of income was scrutinised u/s.143(3). The reopening was challenged stating that the AO had not referred to any tangible material coming into his possession which would lead to formation of a belief that certain income had escaped assessment. The reassessment had been initiated on the same set of materials as available before the AO during the original assessment proceedings. The reassessment proceedings would be nothing but a review of the order which was impermissible. (AY.: 1997-98, 2001-02)

Sasi Enterprises v. Dy. CIT (2023)105 ITR 29 (Trib) (S.N.)(Chennai)

341. S. 147: Reassessment – on the basis of information received from CBI and assessment completed by AO after making addition that assessee has sold its product on a rate higher than invoice price – Assessment completed without verification of books of accounts as the same were impounded by CBI was in violation of natural justice – Matter remanded back to AO

Reassessment proceedings u/s. 147 of the Act were completed by the AO after making addition on the basis of loose slips and report of CBI that assessee – a manufacturer of pharmaceutical products, has sold products in market at rates higher than invoice price. Addition was made by AO without verification of books of accounts as the same were impounded by the CBI. The assessee filed affidavit under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 before the bench which were never be filed before any of the lower authorities. Thus, the matter was remitted back to the AO for further verification. (AY 2005-06 to AY 2007-08)

Gold Star Pharmaceutical Pvt. Ltd. v. ITO (2023) 104 ITR 630 (Amritsar)(Trib)

342. S. 147: Reassessment – AO called for information – international transactions involved – case transferred to transfer pricing officer – AO observed escapement of income – verification of records – Held, reopening of assessment bad in law.

The assessee was engaged in a shipping business. Assessee completed its assessment for A.Y. 2012-13 and the same was accepted u/s 143(3). The AO reopened the assessment u/s 147 and issued notice for the same. The AO transferred the matter related to international transactions to a Transfer Pricing Officer. The assesee filed its objection against the draft assessment order to the Dispute Resolution Panel. Finally, the total income calculated as per the provisions of the Act exceeded the book profits, the AO demanded tax on the total income. The validity of reopening the assessment was challenged.

The Tribunal held that the assessment had been reopened after the expiry of four years from the end of the assessment year. There was no failure on the part of the assessee in disclosing all material facts relevant to the computation of income fully. When the assessee had duly furnished all the material facts before the Assessing Officer, it was for the Assessing Officer to decide the manner of examining those details. If there was failure on the part of the Assessing Officer, that could not be a ground for reopening the assessment after the expiry of four years from the end of the assessment year, when the original assessment was completed under section 143(3) of the Act. Hence the order of the AO is liable to be quashed. (AY.2012-13)

SAI Shipping Co. P. Ltd. v. ITO (2023)103 ITR 677(Trib)(Mum)

343. S. 147: reassessment of return of income – benefit of accommodation entries – information by investigation wing – assessee failed to prove whole purchases as genuine – held, profit element to be added in purchases.

For the assessment years 2009–2010 and 2011– 2012, the assessments were reopened u/s section 147 of the Act, 1961, on the grounds that the assessee received accommodation entries from a number of dealers who were alleged to be providing accommodation entries without the transportation of any goods. The assessee was asked to provide proof of the validity of the purchases made from numerous vendors during the reassessment process. The Assessing Officer classified the purchases as non-genuine because he was dissatisfied by the assessee’s arguments, in light of the fact that the assessee failed to present the parties and because the parties remained improbable. The Commissioner (appeals) sustained the AO’ action of estimation the gross profit at 12.5 per cent.

On further appeal, the Tribunal held that the sales out of the purchases had been treated as genuine which was an undisputed fact. When the sales had been accepted as genuine the entire purchases could not be treated as non-genuine. There should be an estimation of the profit element from these purchases which should be estimated reasonably as the assessee could not conclusively prove that the purchases made were from the parties in the absence of any confirmations from them. The AO was directed to estimate the profit element at 5 per cent for the non-genuine purchases. The disallowance of purchases was also to be restricted to 5 percent and the income was to be computed accordingly. (AY.2009- 10, 2011-

12)

Sawailal Surtaram Bhatti v. ITO (2023)103 ITR 262 (Trib)(Mum)

344. S.148: Reassessment proceedings taken prior to expiry of assessment year void ab initio

For the AY. 2014-15, the assessee filed its return belatedly u/s. 139(4) of the Income-tax Act, 1961 on October 6, 2015. The return was not selected for scrutiny by the Assessing Officer. But the Assessing Officer issued notice u/s. 148 of the Act on January 22, 2015 itself, prior to the date of filing of return by the assessee. The reassessment proceedings framed by the Assessing Officer were void ab initio because:

a. The Assessing Officer was entitled under the statute to issue notice us. 142(1) calling for the return of income when the return was not filed within the due date prescribed u/s. 139(1) of the Act. The due date for filing the return was available in terms of section 139(4)

b. Nothing prevented the Assessing Officer to select the return filed by the assessee on October 6, 2015 for scrutiny and frame the assessment in accordance with law. Reopening of an assessment was not an alternative to selecting a case for scrutiny. There should be conscious formation of belief based on tangible information that income of an assessee had escaped assessment. (AY 2014-15)

Uttrakhand Poorv Sainik Kalyan Nigam Ltd. v. ITO (2023)105 ITR 435 (Trib)(Dehradun)

345. S. 148: Reassessment – Notice – Reassessment proceedings initiated solely on basis of information received: Income from undisclosed sources – Bogus purchases – Assessing Officer not pointing out any defect in maintenance of books of account:

The issue of notice u/s. 148 was held to be erroneous, illegal and impermissible under the law and deserved to be quashed because:

a. the Assessing Officer without making any independent enquiry started proceedings merely on the basis of information received from the other ITO.

b. in the reasons recorded, neither was there any discussion nor had anything been brought on record to show which particular transactions relating to purchases made by the assessee were not genuine or bogus.

c. That the Assessing Officer did not make any comment on the contents of the reply of the assessee and had solely passed his order on the basis of the report of the ITO and proceeded to make the addition. All the purchases were fully vouched, payments had been made through account payee cheque and the details had been duly submitted and no fault or defect pointed by the Assessing Officer. The accounts of the assessee were duly audited. The closing stock as reflected in the balance-sheet had been duly accepted. The Assessing Officer had not pointed out any defect in the maintenance of the books of account. Therefore, on the merits also, the addition was not sustainable and was to be deleted. (AY 2010-11)

R. K. Machine Tools Ltd. v. ITO (2023) 105 ITR 73 (Trib)(Del)

346. S. 150: Direction to reopen cases of beneficiary and forward information to other investigating agencies

Looking at the magnitude of the operation of money laundering carried on by the assessee along with the several other persons and the number of beneficiaries who have availed the services of the assessee in converting that unaccounted income in long-term exempt capital gain, short term capital gain or business losses, [the learned assessing officer has mentioned that there are 32,855 persons who have been identified in several scripts of those listed entities]

The Hon’ble ITAT passes the following direction to AO to intimate the respective AO of 30000+ assessee. To intimate the above money- laundering activities carried out by all those persons along with the names of the persons, companies and the beneficiaries to the respective authorities for examination of applicability of The Prevention Of Money-Laundering Act, 2002 as per paragraph 11 of schedule of that Act.

Intimate the name of companies involved whose share prices are rigged on stock exchange supported by fictitious turnover and shell structure to MCA/ Registrar of companies to take necessary action/ inquiry in accordance with the law.

Naresh Manakchand Jain v. ACIT Cir-2(1) ITA- 1945&1946/M/2023 Dated 31/08/2023 (Mum-trib.)

347. S. 153 : Assessment – International Transactions – Orders Passed by TPO Beyond limitation period – therefore, Assessee is Not an “Eligible Assessee” as per 144C(15) (b) of the Act – extended time period of 12 months not available – as a consequence thereof, Regular Assessment Order was also barred by Limitation and not Sustainable.

The provisions of section 92CA(3A) of the Act prescribes the date for passing an order u/s 92CA(3) as “any time before 60 days prior to the date on which the period of limitation referred to in s. 153 expires”. According to the provisions of s. 153(1) r.w.s. 153(4), the time limit for passing of the order for under s. 153 was available up to 31.03.2015. Thus, the time limit for passing order u/s 92CA(3) was expiring on or before 29.01.2015. Held, (i) that the TPO for the AY 2011-12 had passed the order u/s 92CA(3) of the Act on 30.01.2015. For AY 2012-13 also, the limitation for passing an assessment order u/s 153 expired on 24 months from the end of the AY, i. e., on 31.01.2015. The extension of 12 months was granted as a reference was made u/s 92CA and therefore the limitation period was further extended from 31.3.2015 to 31.3.2016. The 60-day period after counting the one day in the month of January, 29 days of February being a leap year and 31 days of March 2016, expired on 31.1.2016. Therefore, the outer time limit for passing the order of the TPO was up to 30.1.2016. The order of the TPO was passed on 31.01.2016. For AY 2013-14 , the TPO passed an order u/s 92CA(3) on 01.11.2016. Based on this the draft assessment order u/s 143(3) r.w.s. 144C(1) was passed on 31.12.2016. The assessee filed objections before the DRP and directions were issued on 27.09.2017. Based on this the final assessment order u/s 143(3) was passed on 31.10.2017. According to S. 153(1) the assessment order should have been passed within 21 months from the end of the AY in which the income was first assessable. Therefore, the time-limit for passing the assessment order expired on 31.12.2015. However, as there was a reference made to the TPO for passing an order under section 92CA a further period available for completion of the assessment was to be extended by 12 months. Thus, the time- limit for passing order under section 143(3) was available up to 31.12.2016. According to S. 92CA(3A) the TPO should have passed the order at any time before 60 days prior to the date on which the time-limit for making the order of the assessment expires. The time of 60 days was available till 31.10.2016. The order of the TPO was passed on 1.11.2016. Therefore, the orders passed by the TPO for all three years were beyond the time-limit and were not sustainable. PFIZER HEALTHCARE INDIA P. LTD. v. JT. CIT [2021 433 ITR 28 (Mad) followed.

(ii)That if the order passed by the TPO was beyond prescribed time-limit, the assessee would not remain an “eligible assessee” in terms of S. 144C(15)(b) of the Act and hence the extended time of 12 months was also not available. Therefore, even the regular assessment order passed by the AO u/s 143(3) read with S. 144C(13) of the Act dated 15.02.2016 also became barred by limitation and was not sustainable.( AY.2011-12, 2012-13, 2013-14)

Colgate-Palmolive (India) Ltd. v. ACIT (2023) 103 ITR 51 (Trib)(S.N.)(Mum)

348. S. 153A: No addition can be made in case of completed or abated assessments in absence of incriminating material

Assessee was one of the parties of the group which was searched u/s. 132. The AO assessed sale proceeds of capital asset sold as bogus and the same were added u/s. 68 as unexplained cash credit.

The Hon’ble ITAT on the legal grounds on incriminating material, relied upon the Bombay High Court decision in case of Continental Warehousing Corporation Ltd. (374 ITR 645) and Gurinder Singh Bawa (70 taxmann.com 398) where in it was categorically held that when the assessments are abated (concluded) as on the date of search, the addition in such assessments has to be restricted only to the incriminating material found during the search proceedings. In the case of the assessee, the time limit to issue notice u/s. 143(2) was passed as on the date of search and therefore the assessments were considered to be abated. The ITAT also referred and relied upon the recent decision of Supreme Court in case of PCIT v. Abhisar Buildwell P Ltd. (Civil Appeal No. 6580 of 2021 dated 24th April, 2023) wherein the Apex Court held that it is in complete agreement with the decision of various High courts taking the view that no addition can be made in respect of completed assessments in absence of incriminating material.

Late Hiraben Kantial Shah v. DCIT CC-6(3) and others (ITA Nos: 904- 905- 573/Mum/2023 & C.O. No. 107- 108/Mum/2022).

349. S. 153A, 153D: Search and seizure – Assessment in search cases – Sanction of prescribed authority – Income from other sources – Addition made under head “Income from other sources” on ground Assessee could not explain source and details of investment made – Approval given by Joint Commissioner as formality without application of mind – No clarification whether or not assessment record seen by Joint Commissioner – Approval invalid and liable to be quashed

Allowing the appeal, Tribunal held, that the Assessing Officer had sought approval from the Joint Commissioner before passing the assessment order. On perusal of the approval, it was found that the Joint Commissioner, without looking into the complex facts of the search, had given approval, only on the basis of presumption that the Assessing Officer after giving proper opportunity to the assessee had thoroughly verified the seized material and proposed the addition. The Commissioner (Appeals) also had overlooked this technical error in the assessment order. Further, it was not clarified whether or not the assessment record had been seen by the Joint Commissioner. Therefore, the approval granted by the Joint Commissioner was merely a technical approval to complete the formality and without application of mind. The orders of the authorities below were liable to be quashed. (AY.2013-14)

Akshata Realtors P. Ltd. v. Asst. CIT (2023)103 ITR 652 (Trib) (Raipur)

350. Sec 153C: Appeal before the CIT(A) – Assessee sought for additional time for written submission – Not given reasonable opportunity – Matter remanded back to the AO for pass a denovo order

The CIT(A) disposed-off the appeal without considering the request of the assessee seeking additional time for filing written submissions and granting personal hearing. The Tribunal, on request of the assessee, restored all the issues to the file of the AO with the direction to pass a denovo order after providing reasonable opportunity to the assessee.

Raj Kumar Chawla v. DCIT (2023) 103 ITR (Trib) 0062 (Delhi) (SN)

351. S. 153C: Search – Assessment of income of any other person: Additional Ground – Legal issue – Admitted – Validity of assessment u/s. 153C

The assessee raised an additional ground that the assessment ought to have been made u/s. 153A of the Income-tax Act, 1961 and not u/s. 143(3) of the Act and therefore, the assessment made by the Assessing Officer was bad in law and invalid.

Held, that the additional ground raised being a legal issue and no fresh investigation of fact being required, it was to be admitted for adjudication. The ITAT relied on National Thermal Power Co. Ltd. v. CIT [1998 229 ITR 383 (SC)]

Validity of assessment u/s. 153:

The Assessing Officer issued notice u/s. 153C of the Act in respect of the A Ys. 2011-12 to 2016-17 and the assessments were completed u/s. 153C of the Act for the A Ys. 2011-12 and 2012-13.

Tribunal held that for the purpose of section 153C of the Act, six years had to be reckoned prior to the date of receipt of seized material by the Assessing Officer of the other person. In the case of the assessee the period of six years had to be reckoned from the A Ys. 2013-14 to 2018-19. Therefore, the assessment proceedings completed for the AYs 2011-12 and 2012-13 u/s. 153C of the Act were not in accordance with law and were to be quashed. (A.Y.: 2011-12, 2012-13)

ACIT v. Dr. D. Y. Patil Education Society (2023)104 ITR 296 (Trib)(Mum)

352. S. 153C: Assessment of income of any other person – Additional Grounds

The assessee raised an additional ground that the assessment ought to have been made u/s. 153A of the Income-tax Act, 1961 and not u/s. 143(3) of the Act and therefore, the assessment made by the Assessing Officer was bad in law and invalid. Held, that the additional ground raised being a legal issue and no fresh investigation of fact being required, it was to be admitted for adjudication. [Relied: National Thermal Power Co. Ltd. v. CIT [1998 229 ITR 383 (SC).]

The assessee-trust ran various educational institutions. A search and seizure operation was conducted at organisations related to the assessee. Pursuant to the information pertaining to the assessee found during the course of search, the cases of the assessee were reopened invoking section 153C of the Act. The search in the case of other entities was concluded on July 29, 2016 and therefore, the assessment in the case of the person in respect of whom search conducted were reopened for the period from the A Y. 2011-12 to the A Y. 2016-17. The information relating to the assessee was passed on and relevant seized documents were handed over to the Assessing Officer of the assessee on September 18, 2018. The Assessing Officer issued notice u/s. 153C of the Act in respect of the A Ys. 2011-12 to 2016-17 and the assessments were completed u/s. 153C of the Act for the A Ys. 2011-12 and 2012-13. On appeals by the assessee and the Department:

Tribunal Held, that for the purpose of section 153C of the Act, six years had to be reckoned prior to the date of receipt of seized material by the Assessing Officer of the other person. In the case of the assessee the period of six years had to be reckoned from the A Ys. 2013-14 to 2018-19. Therefore, the assessment proceedings completed for the A Ys. 2011-12 and 2012-13 u/s. 153C of the Act were not in accordance with law and were to be quashed.( Ay: 2011-12, 2012-13)

ACIT v. Dr. D. Y. Patil Education Society (2023)104 ITR 296 (Trib.)(Mum)

353. S. 154: Rectification of mistake apparent from records – Assessee claimed Excise duty refund and Interest subsidy as revenue receipts. Assessee filed rectification application u/s. 154 pursuant to Jurisdictional High Court judgment treating Excise duty refund and Interest subsidy as capital receipts – Rejected by AO. ITAT held that CIT(A) right in directing AO to carry out necessary rectification.

Assessee received Excise duty of refund of Rs. 6.82 Crores and Interest subsidy of Rs. 13.86 Lakhs and offered the same as revenue receipts in return of income. Regular assessment completed after making addition of petty expenses. Assessee filed rectification application u/s. 154 to reduce Excise duty refund and Interest subsidy and to treat the same as capital receipt in view of the judgment of Jurisdictional J&K High Court in the case of Shree Balaji Alloys (2011) 333 ITR 335 (J&K). On appeal, ITAT held that CIT(A) was right in allowing the appeal of assessee by directing the AO to carry out necessary rectification. Section 154 has been enacted to enable the authorities to rectify the mistake whether the mistake is done by assessee or by AO. A liberal construction of the statute has to be made else the object of the legislation shall be forfeited. (AY 2007-08)

DCIT v. Kashmir Steel Rolling Mills (2023)104 ITR 684 (Trib) (Amritsar)

354. S. 154: Rectification of mistake apparent from record S. 154 has been enacted to enable the authorities to rectify the mistakes whether the mistake is done by the assessee or by the Assessing Officer. The legislative intent in section 154 is not to allow a mistake to continue. A liberal construction of the statute has to be made else the object of the legislation shall be forfeited.

For the AY. 2007-08, the assessee filed its return declaring excise duty refund and interest subsidy as revenue receipts and the return was processed u/s. 143(1). The assessee moved an application u/s. 154 for treatment of excise duty refund and interest subsidy as capital receipts, but the application was rejected by the Assistant Commissioner.

Tribunal held that there was a mistake apparent from record which was rectifiable u/s. 154 of the Act and directed the Assessing Officer to carry out the necessary rectification (A.Y.: 2007-08)

Dy. CIT v. Kashmir Steel Rolling Mills (2023)104 ITR 684 (Trib) (Amrit)

355. S.194 J: Sums not taxable as fees for technical services – Double taxation avoidance agreement between India and Singapore, art. 12(4)(a), (b)

The Tribunal allowing the appeal held that with respect to taxability of management support cost, the services provided by the assessee did not make available any technical knowledge, skill, know-how to the recipient. While the licence agreements for user of brand name were with various third party hotels in India, the agreement for provision of management support services was with the Indian subsidiary. Therefore, the amount received from provision of management support services was not ancillary and subsidiary to the licence agreement.

Inter-Continental Hotels Group (Asia Pacific) Pte. Ltd. v. Dy. CIT (2023)105 ITR 39 (Trib) (S.N.)(Del)

356. S. 199: Entitled for credit for tax deducted at source

The Tribunal held that, the assessee was entitled for credit for tax deducted at source in accordance with the provisions of s. 199. (r.w.rule 37BA (2)) (AY. 2015-16, 2016-17)

Inter-Continental Hotels Group (Asia Pacific) Pte. Ltd. v. Dy. CIT (2023)105 ITR 39 (Trib) (S.N.)(Del)

357. S. 199: Deduction at source – Credit for tax deducted – income declared on accrual basis when the software was sold – assessee is eligible to claim TDS in the year when income was offered for tax.

It has been held by the Hon’ble Appellate Tribunal that the assessee had raised invoices during the year under consideration and had also shown revenue from the invoices as income during the year under consideration itself. The deductors may have deducted tax in subsequent assessment years, however as the assessee had shown income from sale of software during the year under consideration, the assessee had every right to get credit for the tax deducted at source in the impugned year itself. (AY 2019-20)

BAE Systems Information and Electronic Systems Integration Inc. v. Add. CIT (IT) [2023] 105 ITR 18 (Del – Trib)

358. S. 199: Once the TDS has been deducted on a particular income, the assessee should get credit even if the income is not directly offered for tax

The assessee had developed customised software in field of medical prescription data. The development of the software was completed during the year under consideration. During the process of development of software, some software patches were developed on which some revenue was earned and tax was deducted thereon by the parties from whom such revenue was received. The assessee used to reduce revenue so received from cost incurred to develop and claimed credit in those year when it was deducted. However, TDS credit was denied in the earlier assessment years because revenue was reduced from capitalised cost. Therefore, entire TDS credit was claimed in the current AY when the software was complete. The entire capitalised cost net of revenue was transferred to intangible assets. The lower authorities did not allow TDS on the ground that assessee should follow AS 7 and revenue should be recognised on percentage completion method.

The ITAT relied upon the decision of Chennai ITAT case in case of Supreme Renewable Energy which had based its rationale on SC decision of Karnal Co-op Sugar Mills Ltd (243 ITR 2), where it was held that, when an income is not directly liable for tax as the same is incidental to the cost or to the installation and acquisition of an asset, the tax deducted on such income shall be refunded to the assessee or is entitled to take credit of the same. Government cannot benefit itself from the taking advantage of legal technicalities. Reducing the income from the cost of the asset is indirectly offering the same for assessment and taxation. Accordingly, the appeal was allowed in favour of the assessee by allowing the due TDS credit.

Trikaal Mediinfotech Pvt. Ltd. v. DCIT (ITA No: 5989/Mum/2019), dated 21/03/2023.

359. S.234E r.w.s 200A(1): Interest under Sec 234E – Not leviable for TDS deducted prior to 1 June 2015 – NFAC is bound by the binding decision of the jurisdictional High Court

The AO rejected the application for non-levy of fee u/s. 234E for TDS deducted prior to 1.6.2015 by placing reliance on the decision of non-jurisdictional High Courts, which was further upheld by the NFAC. In this context, the Tribunal noted that the Hon’ble Karnataka High Court in the case of Fatehraj Singhvi [2016] 73 taxmann.com 252 (Kar. HC) held that fee u/s. 234E of the Act could not be computed at the time of processing of return u/s. 200A of the Act for return filed for TDS deducted prior to 1.6.2015 since amendment for levy of fees in the intimation came into effect only from 1.6.2015. Further, the Tribunal held that decision of the jurisdictional High Court would be binding on the ITAT / NAFC / AO within the jurisdiction of the Court whereas in absence of the jurisdictional High Court and decisions of non-jurisdictional High Courts are conflicting, the authorities must take the view which is in favour of the assessee.

Nagesh Consultants v. Deputy Commissioner of Income Tax (2023) 103 ITR (Trib) 0024 (Bangalore) (SN)

360. S. 234E: Interest -If the TDS is paid within the time limits prescribed, interest u/s. 234E should not be levied merely for delay in the filing of TDS return

The assessee was a senior citizen and had purchased a house property from two non- resident co-owners. Since the sellers were non- residents, TDS on the sale consideration was deducted and paid as per section 195 of the Act. Tax was deducted on the same day when the sale consideration was paid and the same was also deposited to the Central Government on same day without any delay.

The ITAT observed that the assessee was a senior citizen and due to old age, forgot to file the return of TDS by error and that is a procedural error with no malafide intention of being non cooperative to income tax compliances whereas the dept. representative argued that since section 234E provides for mandatory filing of TDS statement, the levy of fees is correct and should be levied. It was held by the Hon’ble ITAT that, assessee being a senior citizen has deposited amount immediately after sale consideration was received and there was no lapse in payment. Merely on the ground that assesee could not file form 27Q within the time frame, cannot be the criteria for levying fees u/s. 234E and seeing the circumstances, the levy of fee was deleted.

Kanta Govind Singh v. ACIT, CPC TDS [ITA No. 127/Ahd/2022] dated 17/05/2023.

361. S. 244A: Interest on Refund – Directed the AO to recalculate refund.

The Tribunal held that, calculation table given by the assessee gave a clear picture as to the correct amount of refund of principal and interest to be taken into account. Therefore, the AO directed to recalculate the refund with interest u/s. 244A of the Act up to the date of issue of refund.

Minor Baku Dineshbhai Amin Oral Specific Deferred Family Trust v. ITO (2023)105 ITR 55 (Trib) (S.N.) (Ahmedabad)

362. S. 244A: Interest on Income Tax Refund to be calculated till the Grant of Refund and not till the date of Order

The Appellant filed return of income claiming a refund. Assessment order under section 143(3) was issued by the AO on 30 December 2018 along with the computation sheet determining refund. Interest under section 244A of the Act was granted by the AO which was calculated from 1 April 2016 to 31 October 2018 i.e. for a period of 31 months. The refund was received by the appellant only on 4 June 2019 in its bank account i.e. after 6 months of passing of assessment order.

The Court held that the CBDT vide Circular No. 20-D (XXII-22) of 1968, dated 20 August 1968 clarified that in cases where interest is payable by the Central Government to assessee under section 243 of the Act, such interest is to be calculated up to the date of issue of the refund voucher. The language used in section 244A of the Act is similar to language used in section 243 of the Act and therefore reliance can be placed on the above Circular issued by the CBDT.

Girnar Software Pvt. Ltd. v. ACIT, [ITA No.428 to 430/Jp/2022, dated 05/04/2023] [AY 2016-17 to AY 2018-19]

363. S. 248: Appeal by deductor denying liability to deduct tax – appeal is maintainable (r.w.s. 2(37a), 90, 115a, 195, 206aa)

During the financial year 2015-16, the assessee had made payment of USD 61,200 to a U. S. A. company for training of pilots. Under the arrangement between the foreign entity and the assessee, the taxes, if any, payable on training of pilots were to be borne by the assessee. Since the services were in the nature of technical services, the applicable rate of tax u/s. 115A of the Act was 10 per cent. However, in the absence of the permanent account number of the deductee, the assessee deducted TDS u/s. 195 r.w.s. 206AA at 25.94 per cent. being grossed up rate of 20 per cent u/s. 195A. However, after making payment of the taxes, the assessee filed an appeal before the CIT (A) u/s.248 contending that the deductee, being a tax resident of the U. S. A. and the Double Taxation Avoidance Agreement between India and U.S.A. are applicable to the transaction in question. Under article 12 of the Double Taxation Avoidance Agreement, the rate of tax on “fees for included services” shall not exceed 15 per cent. The CIT (A) dismissed the appeal as not maintainable on the ground that s. 248 states that an appeal would lie only where a person claimed that no tax was required to be deducted on such income and not where the assessee sought a reduced rate of tax to be deducted.

However, Tribunal held that, appeal is maintainable and the Assessing Officer was directed to apply the rates in force which was the applicable rate of tax in accordance with law. (AY. 2016-17)

Reliance Commercial Dealers Ltd. v. CIT (2023)105 ITR 57 (Trib) (S.N.) (Mum)

364. S. 250: Appeal to CIT(A) – Delay of 9 years in filing appeal – Order sent to E-mail ID of accountant who had left job – Assessee came to know when refund of AY 2019-20 was proposed to be adjusted against demand of AY 2010-11 – Assessee filed affidavit. Sufficient cause for not filing appeal within time. Matter remanded back to CIT(A) to pass order on merits, denovo.

Assessee’s claim u/s. 80-IB denied by CPC vide Intimation u/s. 143(1) dated 15.03.2011. Assessee filed appeal before CIT(A) on 30.01.2020 after delay of 9 years. CIT(A) was dismissed and delay was not condoned. Delay due to Intimation sent on E-mail ID of accountant who had left job and did not informed assessee about such Intimation. Assessee came to know about outstanding demand when assessee received Notice u/s. 245 for adjustment of refund of AY 2019-20 with demand of AY 2010-11. Delay unintentional and without any fault on the part of assessee. “Sufficient cause” under Sec. 5 of Limitation Act should be liberally construed so as to advance substantial justice when no negligence or any inaction or want of bona fides is imputable to a party; that is, the delay in filing an appeal should not have been for reasons which indicate the party’s negligence in not taking necessary steps which he could have or should have taken. Matter remitted back to CIT(A) for adjudication on merits.

M.K. Hotels & Resorts Ltd. vs. ACIT (2023)104 ITR 204 (Trib)(Amritsar)

365. S. 250(6): Appeal to commissioner – ex parte order passed before commissioner (Appeals) due to miscommunication – bona fide reason of assessee for miscommunication – matter restored to AO and providing opportunity for hearing.

An addition to the income of the assessee was made by the AO due to unexplained money in the bank account of the assessee. The assesee explained how the amount was received for a land acquisition by the government and after withdrawal, he could not deposit it because of demonetisation. The matter remained unrepresented before the Commissioner (Appeals) because of a miscommunication and an order was passed ex parte.

The tribunal held that on examining form 35, it was discovered that the assessee had accurately stated that the email address listed there was that of his acquaintance. The assessee’s claim that he was misinformed and did not appear before the Commissioner (Appeals) due to notices not being delivered to his authorized agent therefore seemed to be true. The assessee had only sent one letter outlining the source of cash deposits to the assessing officer, and no follow-up correspondence was filed. As a result, the assessee’s argument that his case had not been adequately presented to and understood by the Assessing Officer was valid. A fresh opportunity must be given to the assessee for making his case. (AY.2017-18)

Kishoresinh Hemantsinh Chudasama v. Dy. CIT (2023)103 ITR 391 (Trib) (Ahm)

366. S. 250(6) : Exparte order – In case of failure of assessee to reply to any notices, the CIT(A) is dutybound to adjudicate on available data instead of dismissal of appeal

The assessee did not reply to any appeal notices issued by the CIT(A). The CIT(A) in turn dismissed the appeal of the assessee on the grounds of non-prosecution of appeal by the assessee. The assessee filed appeal arguing that the actions of CIT(A) of dismissing the appeal ex-parte qua the assessee without adjudicating the grounds of appeal filed in Form 35 and the submissions is violation of principles of natural justice.

The Court held that in case CIT(A) proceeds to adjudicate the appeal on non-compliance by the assessee, the CIT(A) is still duty bound to adjudicate on all grounds of appeal by taking into consideration the assessment order as well as evidences and explanations filed by the assessee before the AO during the assessment proceedings. Dismissing the appeal in a cryptic manner without considering material on record, is a case of not giving opportunity of hearing to the assessee and against the natural justice. The appeal was restored back to the file of CIT(A) for denovo consideration without being influenced by the first CIT(A) order.

Dura Line India Private Ltd. v. ACIT [ITA No. 1757/Del/2020] dated 23/03/2023.

367. S.251(1)(a): Appeal To Commissioner (Appeals) – Power Of Commissioner (Appeals) – Scope Of Section 251 – Claim Of Deduction Under Section 54F – Commissioner (Appeals) Directing Assessing Officer To Verify And Allow Claim – Not Tantamount To Setting Aside Or Remanding Matter To Assessing Officer – No Violation Of Section 251(1)(A) – Order Of Commissioner (Appeals) Upheld

The AO observed that aside from purchasing land jointly with K, he bought vacant land from his spouse, sold some of the land, and bought a brand-new house, the assessee had claimed an exemption under section 54F. The AO denied the exemption because the assesee failed to produce documents for the same transactions and he also owned other properties. Since the property was sold when possession was transferred on receipt of full consideration and the Assessing Officer had not taken into account that on the date of transfer, the other property was only landed property, the Commissioner (Appeals) allowed the assessee’s claim, subject to the Assessing Officer’s verification of documents. This did not disqualify the assessee’s claim of deduction. The Revenue contends that the Assessing Officer did not have the authority under section 251(1) (a) to set aside or reexamine the Commissioner (Appeals’) directive to the Assessing Officer to check and approve the assessee’s claim of deduction.

On several appeals by both, the final decision stands as follows. Rejecting the Revenue’s appeal and granting the Assessee’s, it was determined that (i) the Commissioner (Appeals) had simply instructed the Assessing Officer to review the supporting documentation and had only, in theory, approved the claim of deduction under section 54F. This was not the same as putting the matter on hold or returning it to the Assessing Officer. No infraction of section 251(1)(a) occurred. It was observed that it was not clear as to how the AO had given enough chances to the assessee to prove its claim and furnish the document. As a result, the assessee was given one more chance to produce documents on various counts. (AY.2012-13 to 2014-15)

Asst. CIT v. Justice N. Kannadasan (2023)103 ITR 590 (Trib)(Chen)

368. S. 253: Appeal to Appellate tribunal – Delay in filing – Condonation of delay – No allegation that appeal deliberately not filed within time – Fit case for condonation of delay

Sec 68, 115BBE: Cash Credit – Accountant inadvertently filed return declaring income u/s. 44AD and cash balance as at end of year – Onus upon department to disprove contention of assessee —No Material Brought On Record To Show Cash Generated By Assessee From Other Activity Subject To Tax – Order Bringing Cash To Tax As Unexplained Cash Credit Unsustainable

The Tribunal held that advancement of substantial justice is the prime factor while considering the reasons for condoning the delay. Further, there was no allegation from the Revenue that the appeal was deliberately not filed within the time.

Accordingly, the delay in filing the appeal by the assessee deserved to be condoned.

The assessee filed a return of income for the first time declaring an income of Rs. 2,66,710 under section 44AD of the Act and also disclosing a closing cash balance at Rs. 7,81,648 as on March 31, 2015. The assessee, however, claimed that the accountant had inadvertently filed the return under section 44AD, that the assessee being an agriculturist was not under obligation to file the Income-tax return. However, the AO treated the amount of Rs. 7,81,648 shown as closing cash balance as unexplained cash credit under section 68 of the Act. The Tribunal deleted additions as there was no evidence available on record to indicate that the case of the assessee was covered under the provisions of section 44AD except that in the Income-tax return the income was disclosed under the provisions of section 44AD. The Department failed to discharge the onus imposed upon it to disprove the contention of the assessee. Thus, whatever cash was available with the assessee was out of agricultural activity carried out in earlier years. Accordingly, the finding of the authorities was not sustainable.

Shailesh Popatbhai Katrodiya v. ITO (2023) 103 ITR 63 (Trib) (S.N.)(Ahm)

369. S. 254: Appeal to Appellate Tribunal – Recall of order –Affidavit filed already placed on record – Failure to cross-examine deponent of affidavits – Assessing Officer to delete addition sustained by Commissioner (Appeals)

For the A Y. 2013-14, the Assessing Officer made addition of Rs. 4,00,000 on the ground that the assessee had produced the Jamabandi and Girdawari but no bills of sale of agricultural products were produced. The Commissioner of Income-tax (Appeals) confirmed the addition of Rs. 2,00,000 and balance amount of Rs. 2,00,000 was deleted. The Hon’ble Tribunal considering the totality of facts, they were of the view that the amount seized from the assessee did not belong to the assessee, but belong to Lux Industries Ltd. Therefore, the Hon’ble Tribunal deleted the additions.

Amar Singh Saharan v. ITO(2023)104 ITR 195 (Trib)(Jodh)

370. S.254: Appeal to Appellate Tribunal – Powers of Tribunal – Recall of order – Speaking order of Tribunal – Recall of observations – Beyond jurisdiction of Tribunal

Held, that recalling the observations of a speaking order of the Tribunal was beyond the jurisdiction of the Bench. Therefore, the miscellaneous application of the Revenue was dismissed. (AY.2013-14)

ACIT v. Anthony F. R. Madassar (2023)103 ITR 175 (Trib)(Amrit)

371. S. 254(2):Appeal to Appellate Tribunal – Rectification of mistake – Tribunal adjudicated appeal on merits – Failure to adjudicate legal ground – Mistake apparent from record – Miscellaneous application filed by Assessee allowed

Allowing the miscellaneous application, Tribunal held that failure to adjudicate the legal ground was a mistake apparent from record as it went to the root of the matter. Therefore, the order passed by the Tribunal was to be recalled and the miscellaneous application filed by the assessee allowed. (AY.2013-14)

Amar Singh Saharan v. ITO (2023)103 ITR 388 (Trib)(Jodh)

372. S. 263: Revision – Business Expenditure – payment to director – AO enquired remuneration paid to directors and taking well-informed decision after considering submissions made by the Assessee and restrict payment to one director. Revision by Pr. CIT on ground payment to another director should also have been restricted, not justified.S 263 (r.w.s. 40a(2)(B))

The Tribunal allowing the appeal of the assessee held that, it was not the allegation of the Pr. CIT that no or inadequate enquiries were made by the AO. The Pr. CIT had not disputed the fact that the AO during the course of assessment proceedings had enquired into the aspect of remuneration paid to directors u/s.40A(2)(b) of the Act. The AO had taken a well-informed decision after considering the submissions on this issue placed on record by the assessee during assessment proceedings. This was not a case where there was an omission on the part of the AO to examine this aspect of disallowance u/s. 40A(2)(b) of the Act at all. The AO had put a specific question during the course of assessment and taken its reply on record. Further, the AO also discussed this aspect as part of the assessment order. So this was not a case where no enquiry had been made by the AO during the course of assessment proceedings. It was also not the case of the Pr.CIT that the AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. There was no error in the order of the AO, no initiation of 263 proceedings by the Principal Commissioner.( AY.: 2011-12 to 2014-15)

Shanti Multilink P. Ltd. v. Pr. CIT (2023)105 ITR 49 (Trib) (S.N.) (Ahmedabad)

373. S.263: Revision – Difference in estimation yield in respect of Tomatoes – Set aside the assessment order – Reason to set-aside is erroneous – No prejudice caused to the interest of the revenue merely on difference in estimation

The AO completed assessment u/s. 144 estimating agricultural income of Rs. 33,16,600/- on the basis of data obtained from National Horticultural Board. The PCIT noted that the AO estimated higher yield in respect of Tomatoes ignoring fact that the assessee itself has estimated lower yield of Tomatoes and set- aside the assessment order. The Tribunal held that the PCIT cannot exercise power conferred u/s. 263 and set aside assessment order only on the ground that the estimation made by the AO on a particular crop is higher than the estimation made by the assessee.

Sai Organic Farms vs Principal Commissioner of Income -Tax (2023) 103 ITR (Trib) 0041 (Chennai) (SN)

374. S.263, 35(2AB): Revision – PCIT held that order passed by the AO is erroneous and prejudicial to the revenue – Claim of deduction u/s. 35(2AB) – Assessee submitted Form 3CM and Form 3CLA – Claim cannot be rejected in absence of intimation to Department in Form 3CL – No lack of inquiry by the AO – Dismissed the order passed by the PCIT

The Tribunal noted that that the Assessing Officer had made detailed inquiries into the claim to deduction of the assessee under section 35(2AB). Further, the assessee had duly filed Form 3CM and Form 3CLA. Further, Form 3CL was issued by the prescribed authority after passing of the assessment order. Accordingly, it was held that there was no lack of inquiry on the part of the Assessing Officer. Further, merely because the authority failed to send intimation to the Department in Form 3CL, that would not be reason to deprive the assessee of the deduction under section 35(2AB) of the Act.

Schaeffler India Ltd. v. Pr. CIT (2023) 103 ITR 19 (Trib) (S.N.)(Ahm)

375. S.263, 56(2)(viib): Revision – PCIT held that order passed by the AO is erroneous and prejudicial to the revenue – Issue of share at premium u/s. 56(2)(viib) – the AO conducting specific enquiries relating to receipt of share premium – On merits – Determining fair market value basis the net asset method – Order not erroneous and prejudicial to revenue warranting revision

The Tribunal noted that the AO had conducted specific enquiries relating to receipt of share premium, the basis for the fair market value and the applicability of provisions of section 56(2) (viib). Further, the assessee furnished valuation of a subsidiary company also supported by the valuation certificate issued by a chartered accountant on the basis which the fair market value was determined. Accordingly, it was held that the assessee had duly justified the fair market value before the AO and therefore, the order passed was neither erroneous nor prejudicial to the interests of the Revenue. Therefore, the revision order under section 263 of the Act was quashed.

Star Health Investments P. Ltd. (Dissolved) v. Pr. CIT (2023) 103 ITR 8 (Trib) (S.N.)(Chen)

376. S.263: Revision – PCIT held that order passed by the AO is erroneous and prejudicial to the revenue – The AO failed to make reference to transfer pricing officer for examining issue of specified domestic transactions – Also, allowed huge loss on commodity transactions without proper inquiries

The Tribunal noted that the AO did not make reference of the specified domestic transactions to the TPO. Further, the AO not enquiring into how the transaction of commodity exchange loss on NCX & NCDEX qualified as speculative transactions in terms of section 43(5) with necessary evidence. Accordingly, it was held that the same tantamount to the assessment order being erroneous causing prejudice to the Revenue.

Shree Ganesh Intermediary P. Ltd. v Pr. CIT (2023) 103 ITR 86 (Trib) (S.N.) (Ahm)

377. S. 263: Revision – Proper inquiry – Surrendered income – No inquiry by Principal CIT to arrive at a contrary finding

The Principal Commissioner issued a show- cause notice u/s. 263 on the ground that the Assessing Officer had passed the assessment order without conducting proper inquiry and taking cognisance of the amended Finance Act, 2016 in respect of surrendered income and set aside the matter to the Assessing Officer to pass a fresh order in accordance with law and after providing reasonable opportunity to the assessee.

On appeal the Tribunal held, that the Principal Commissioner without taking into consideration the examination conducted by the Assessing Officer during the course of assessment proceedings had recorded a finding that the deeming provisions read with the provisions of section 115BBE were applicable. Where the Principal Commissioner disputed the nature of surrender or the findings of Department’s own survey team as well as those of the Assessing Officer, he had to lead positive evidence to arrive at a contrary finding. Nothing had been brought on record in this regard. Therefore, the order of the Assessing Officer could not be held erroneous in nature and that of the Principal Commissioner was to be set aside. (Assessment Year: 2017-18)

Ved Parkash and Durga Dass Surender Kumar v. Pr. CIT (2023)104 ITR 613(Trib)(Chand)

378. S. 263: Revision – Erroneous and prejudicial to revenue – Cash deposits during demonetisation period

The assessment proceedings were completed in the assessee’s case accepting the returned income. From the details of the assessment records, the Principal Commissioner noticed that the total sales during the period October 1, 2016 to November 8, 2016 came to Rs. 33,95,55,859 and total sales in the preceding six months had been shown at Rs. 29,25,42,304. He was of the view that the Assessing Officer failed to examine the issue of unexplained inflated sales post-demonetisation and held that the assessment order was erroneous and prejudicial to the interests of the Revenue and set it aside and restored the matter to the Assessing Officer

Held that the assessment order had been passed by the Assessing Officer. The issue had been thoroughly examined by the Assessing Officer during the course of assessment proceedings and the Principal Commissioner had not stated how the finding recorded by the Assessing Officer accepting the cash sales and resultant declaration of profits under the Scheme was erroneous in so far as prejudicial to the interests of the Revenue. The order of the Principal Commissioner was set aside and that of the Assessing Officer was sustained. (AY 2017-18)

Kays Jewels P. Ltd. v. Pr. CIT (2023)105 ITR 324 (Trib)(Luck)

379. S. 263: Revision – Erroneous and prejudicial to revenue

Assessment was completed u/s. 153A read with section 143(3) making an addition of Rs. 59,16,628 on account of unexplained cash credit found in the books of account. During the pendency of the assessee’s appeal before the Commissioner (Appeals), the assessee opted for Direct Tax Vivad se Vishwas Scheme, the appeal was withdrawn and form 5 was issued by the competent authority upon payment of taxes determined under the Scheme. Principal Commissioner set aside the assessment order with the direction to the Assessing Officer to decide the issue afresh after giving sufficient opportunity of being heard to the assessee.

Held, that the order of the Assessing Officer could not be held erroneous and prejudicial to the interests of the Revenue because:

a) It was not a case where there were just two entries or for that matter, the account was dormant. The credits in the bank account of Loan Creditor had arisen on account of receipt of compensation from the Railways on acquisition of his land. The bank statement of the creditor was submitted by the assessee during the course of assessment proceedings as well as revision proceedings and necessary explanation regarding credit of Rs. 2 crores in the bank account was also submitted. Failure by the creditor to file the return could not be held against the assessee. In any case, once the permanent account number of IS had been submitted by the assessee, the Revenue had all the resources available at its disposal to enquire further regarding the tax return and filing status.

b) the assessee had submitted the copy of cash book as well as the cash flow statement during the course of assessment proceedings with necessary explanation in terms of opening cash in hand. Therefore, the findings of the Principal Commissioner that cash payment of Rs. 25 lakhs was not accounted for in books of account was incorrect. Further, the assessee would still be eligible to claim availability of funds to the extent of intangible additions of Rs. 59,16,628 which had suffered taxation and also attained finality given that the assessee’s application under the Vivad se Vishwas Scheme had been accepted by the competent authority on payment of due taxes. Therefore, the findings of the Principal Commissioner were to be set aside.

c) the matter had been duly enquired into by the Assessing Officer and the explanation of the assessee had been accepted by the Assessing Officer and in view thereof, the findings of the Principal Commissioner that proper and complete enquiry had not been conducted by the Assessing Officer is incorrect. (AY 2013-14)

Meet Pal Singh v. Pr. CIT (2023) 105 ITR 584 (Trib)(Chand)

380. S. 263: Revision – Order of revision on account of difference of opinion – not sustainable

For the AY. 2011-12, the assessment in the assessee’s case was completed by the Assessing Officer after making an addition of Rs. 1,75,322 on account of undisclosed interest on savings or deposits. The Principal Commissioner observed that the assessee had deposited cash of Rs. 60,00,000 in her savings bank account maintained during the FY. 2010-11 and that the Assessing Officer failed to examine and inquire into the facts in the light of the submissions of the assessee to determine the correctness of the claim of the assessee which was the very purpose of assessment. Held, that the revision proceedings were not sustainable because:

a)  the assessee had filed documents required by the Assessing Officer in the form  of bank statements and a copy of the sale deed of the agricultural land to explain the disputed cash deposits in her bank account.

b) the source of cash deposits in the assessee’s bank account had been duly accepted by the Assessing Officer

c) there was a direct nexus between the transaction of sale and the cash deposited in the bank account of the assessee and the cash was also deposited by the assessee on the same date. Further, the Assessing Officer had accepted the deal of sale of agricultural land with a conscious and independent application of mind. (AY 2011-12)

Smt. Satvir Kaur v. Pr. CIT (2023)105 ITR 387 (Trib)(Amrit)

381. S. 263 : Revision: Assessment selected for limited scrutiny on Issue of high ratio of refund to credit of tax deducted at source – Section 263 invoked by PCIT – Where assessee had furnished response alongwith evidences in assessment proceedings – AO recorded specific finding that books of accounts produced were examined on test check basis – AO even disallowed certain expenditure in assessment proceedings – Order could not be treated as erroneous – Order u/s. 263 set aside.

Assessee engaged in construction activities. Filed return of income declaring total income of Rs. 60.45 Lakhs. Return selected for limited scrutiny on issue of high ratio of refund to credit of tax deducted at source. Assessment proceedings were completed and total income was assessed at Rs. 62.95 Lakhs after making certain additions / disallowances. PCIT issued Show Cause Notice u/s. 263 alleging that (i) AO did not verified whether ICDS followed for allocation of contract cost and contract revenue, (ii) due to high refund – expenses were to examined and verified minutely through third party inquiry which was not undertaken and (iii) AO made addition and was required to initiate penalty proceedings u/s. 270A. However, in 263 Order, PCIT stated that AO was to examine financial statements of the assessee as to whether profit declared was correct or not, no documents filed with respect to increase in unsecured loans, advances given by the assessee – whether interest received or not ?, substantial increase in trade payables, confirmations from trade receivables, VAT / sales tax / service tax returns. Assessee alleged that said points were not mentioned in initial Show Cause Notice u/s. 263 and thus, assessee never got opportunity to file any documents in its defence. In revision proceedings – powers of PCIT are not limited to the matters contained in the initial show- cause notice, and therefore, during the course of revisionary proceedings, PCIT is empowered to enquire about other issued and pass appropriate orders and all that is required is that before recording any findings where are adversial in nature and which result in unsettling the position which has been accepted in the past, the assessee be put to notice and be allowed a reasonable opportunity to put forward its defence. However, the allegations raised by PCIT were linked to initial Show Cause Notice and it could not have been contended that PCIT did not provide sufficient opportunity of being heard. Further, during assessment, AO had verified costs and other expenses and AO had called relevant details alongwith supporting documentary evidences which were submitted by the assessee. AO passed Order holding that assessee did furnished some hand made bills, vouchers and even disallowed some expenses. Assessee had duly furnished ledger accounts of unsecured loans. Even in the assessment order, the AO has stated that books of accounts produced examined on test check basis. Thus, assessment order was passed after proper examination and verification and thus, Order u/s. 263 was set aside. (AY 2017-18)

Ruhela Construction Co. Pvt. Ltd. v. PCIT (2023) 104 ITR 426 (Trib) (Luck)

382. S. 263, 133A, 115BBE: Revision Assessee, a general commission agent – surrendered income of Rs. 90 Lakhs during survey in the form of unexplained cash and unexplained advances to farmers – AO issued Show Cause Notice during assessment for taxing surrendered income u/s. 115BBE and not as “Business income” – AO completed assessment after considering survey statement, issued specific notice in this regard during assessment – assessee filed explanation – Order of AO could not be held erroneous

A Survey u/s. 133A of the Act was conducted upon assessee, a general commission agent. During the course of survey, assessee surrendered additional income of Rs. 90 Lakhs. Rs. 9.80 Lakhs in the form unexplained cash and Rs. 80.20 Lakhs in the form of advances to farmers recorded in packet note book but not accounted for in books of accounts. Assessee Company included the same in its return of income as business income and paid tax at normal rate. During assessment, AO had taken cognizance of findings of survey team, documents found during the survey, surrender letter and return of income and explanations of assessee against specific Show Cause notices during the course of assessment proceedings and after examination thereof and due application of mind, income has been rightly assessed under the head “business income”. Surrender is excess cash arising out of past business dealings and advance given to farmers against procurement of agriculture produce regularly dealt with by the assessee in normal course of its business and which have not been recorded in the books of accounts. – View of AO taken after due application mind. Order of AO cannot be held to be erroneous. Order of Ld. PCIT u/s. 263 set aside and that of Assessing Office sustained. (AY 2017-18)

Ved Parkash and Durga Dass Surender Kumar v. PCIT (2023)104 ITR 613 (Trib)(Chand)

383. S. 263: Revision of orders – Assessment filed by the retailer approved by the AO – purchase of lose diamonds not practical according to AO – Finding Of Principal Commissioner That Enquiry Or Verification Not Done Not Justified.

The assessee’s return of income for the assessment year 2017–18 was chosen for scrutiny due to cash deposits of Rs. 2,65,44,000 made during the post–demonetisation period, and the Assessing Officer accepted the returned loss after issuing a questionnaire and taking the assessee’s submission into account. The Principal Commission on the proposal of the AO observed that the AO did not examine the cash deposits properly and passed an erroneous order.

Tribunal held that the AO has issued notices for the high sales for the month of October 2016 and therefore, saying that it missed the cash sales The Department was unable to refute the assessee’s factual assertion. Explanation 2 of Section 263 of the Act therefore could not be used against the assessee. It was held that the order of the Principal Commissioner was devoid of merit, did not hold any truth and was unjustified. As a result, the order was set aside. (AY.2017-18)

Kirti Diam v. Pr. CIT (2023)103 ITR 602 (Trib) (Mum)

384. S. 263: Revision– tax impact was nil – order passed by the AO could not be held erroneous or prejudicial to the interests of the revenue :An income tax survey was done at the business premises of the assessee under which certain discrepancies were found. The assesee surrendered a certain sum and later on showed nil income declaring a loss. The case was selected for scrutiny and the AO accepted the return after examining the requisite information. The Principal Commissioner assessed the same and observed that the nature of the additional income was nowhere specified. He concluded that the income offered could not be classified as business revenues subject to tax under section 115BBE of the Act in the absence of any inquiry and information provided by the assessee, and he set aside the Assessing Officer’s judgement in favour of issuing a new order in conformity with the law. The same was appeal by the assessee.

The Tribunal held that the tax impact was nil regardless of the head under which the income was listed. As a result, the order passed by the AO could not be held erroneous or prejudicial to the interests of the revenue. Furthermore, the tribunal held that the show-cause notice issued was subsequent to the CBDT’s circular which stated that the term “or set off of any loss” was specifically inserted by the Finance Act, 2016, with effect from April 1, 2017, and the assessee was entitled to claim set off for a loss against income determined under section 115BBE of the Act till the assessment year 2016-17. Hence, the notice issued by the Principal Commissioner was against the CBDT circular. (AY.2016-17)

Lakshmi Farms v. Pr. CIT (2023) 103 ITR 265 (Trib) (Chand)

385. S. 263: Revision – issue though not discussed in the assessment order was considered by AO during the proceedings and penalty proceedings were initiated with proper satisfaction of AO

The Assessee individual filed his return of income for the AY 2017-18. Scrutiny assessment proceedings were initiated for verification of cash deposits during demonetization period and mismatching receipts. The assessment was completed u/s 143(3) by making additions toward interest income received on fixed deposits from IOB & SBI. In the assessment order, the AO had discussed the issue of cash deposits during demonetization period and also interest received on fixed deposits in light of various evidence filed by Assessee. The AO also issued a show cause notice u/s 274 r.w.s 270A seeking to initiate penalty proceedings. However, the same was dropped after considering the relevant submissions of the Assessee. Subsequently, revisionary proceedings were undertaken and notice u/s 263 was issued to Assessee on two grounds viz. (i) the assessment order passed by AO is erroneous in so far as it is prejudicial to the Revenue as the AO had initiated penalty proceedings u/s 270A mechanically without recording satisfaction as required under the law;(ii) the AO completed the assessment without carrying out necessary enquiries he ought to have w.r.t the source of income for deposits made with IOB & SBI which rendered the assessment order to be erroneous as it was prejudicial to the interest of Revenue.

The Hon’ble Tribunal observed that before initiating revision proceedings u/s 263 of the Act, the PCIT must satisfy from the records that an erroneous order passed by the AO caused prejudice to the interest of the Revenue. The Tribunal quashed the order u/s 263 on the following grounds (i) it can be ascertained from the penalty show cause notice issued by AO that the penalty proceedings were initiated with proper satisfaction of the AO; (ii) the very purpose of scrutiny assessment was to verify the interest income, which was verified by the AO during the course of assessment proceedings. Thus, it is clear that the issue of fixed deposits with the banks was within the knowledge of the AO. Although the AO specifically did not discuss the issue of source of fixed deposits, he had considered the submission of the Assessee regarding source of the fixed deposits and accepted the same. (AY 2017-18)

Mr. Gopal Soundararaj v. PCIT; (2023) 103 ITR 33 (Trib) (S.N.) (Chen)

386. S. 263: Revision – Citing the possibility of multiple valid views on the assessment, the Order of PCIT is set aside.

The case involves four separate appeals by the assessee against four separate orders of the Pr. CIT, Central-1, Delhi for A.Y.2008-09 to 2011-12. The primary contention is on the assumption of jurisdiction u/s.263 of the Act by the Pr. CIT.

The assessee argues that the Pr. CIT wrongly assumed jurisdiction and deemed the assessment orders as erroneous and prejudicial to the interest of the revenue. A search and seizure operation were conducted, and the assessment was framed. The declared income vis-à-vis the income assessed carrying stark difference, the Pr. CIT issued a show cause notice and picked the issue regarding the assessee being a beneficial owner of shares in a private entity, invoking provisions of section 2(22)(e) of the IT Act.

The Pr. CIT dismissed the assessee’s claim that no incriminating material was found, and the decision in the case of Kabul Chawla 380 ITR 573 applied.

The Tribunal considering various decisions and views concluded that when two views were possible, the assumption of jurisdiction u/s. 263 of the Act is unwarranted. Following the Supreme Court’s decision in Malabar Industries Company 243 ITR 83, the Hon’ble Tribunal set aside the Pr. CIT’s order and restored the assessing officer’s order. (AY 2008-09 to 2011-12)

Moin Akhtar Qureshi v. PCIT; (2023) 103 ITR 84 (Trib) (S.N.) (Del)

387. S. 263: Revision – orders prejudicial to revenue – AO, without examining the matter, simply accepted the explanation of the assessee, which was erroneous and prejudicial to the interests of the Revenue – the issue was complicated and needed detailed verification of Accounting Standards followed & law applicable – Principal Commissioner directed the AO to verify and pass the assessment order afresh in accordance with law after affording an opportunity to the assessee – held, no reason to interfere with the order passed by the Principal Commissioner

The assessee-company was engaged in providing business process outsourcing services in the healthcare industry. For AYs 2013-14 and 2014-15, the assessment was completed u/s 143(3) r.w.s. 92CA of the Act without making any transfer pricing adjustment. The Principal Commissioner took the view that the hedge gain or loss of revenue items accounted for in reserves pertaining to forward contracts on highly probable forecast transactions had to be recognised for tax purposes in accordance with the accounting treatment in the year when the gain or loss was finally recognised in the profit and loss account. It was observed that by notice u/s 142(1) of the Act, the AO had asked the assessee to file details in respect of forward contract receivables shown under short-term loans and advances and the assessee also filed a reply stating that an amount of Rs. 1,01,08,500 was shown as “forward contract receivables’’ under short-term loans and advances and contra shown as “hedge reserve” under “reserves and surplus” and moreover, this amount was recorded both as asset and liability in the books, just to represent the ineffectiveness in hedging of forward contracts in accordance with the Accounting Standards prescribed by the Institute of Chartered Accountants of India. However, the AO had not called for any other details from the assessee or further explanation and had simply accepted the reply filed by the assessee. However, the issue was complicated and needed detailed verification with regard to the Accounting Standards followed by the assessee, and the law applicable to the subject matter. The AO, without examining the matter, had simply accepted the explanation of the assessee, which was erroneous and prejudicial to the interests of the Revenue. It was further observed that the Principal Commissioner had directed the AO to verify and pass the assessment order afresh in accordance with law after affording an opportunity to the assessee. It was therefore held that there was no reason to interfere with the order passed by the Principal Commissioner. (AY.2013-14, 2014-15)

AGS Health P. Ltd. v. ACIT (2023) 103 ITR 95 (Trib) (S.N.)(Chen)

388. S.269SS, 271D: Penalty – Received cash on sale of immovable property in AY 2016-17 – Deposited cash during demonetisation period – Levied penalty for contravention of Sec 269SS – Deleted penalty as Sec 269SS was violated in AY 2016-17 and not in AY 2017-18

During the scrutiny proceedings, the assessee explained that the cash deposited in the bank were out of the sale proceeds of property sold during AY 2016-17 and the assessee had also declared long-term capital gains in the return of income filed for AY 2016-17. The Assessing Officer accepted the explanation of the assessee, however, levied penalty u/s. 271D for contravention of the provisions of Sec. 269SS. The Tribunal held that initiation of penalty u/s. 271D for AY 2017-18 was void-ab-initio since provision of Sec. 269SS is not contravened in the assessment year under consideration.

Ramachandran Bandhuvula v. ITO (2023) 103 ITR 81 (Trib) (S.N.)(Hyd)

389. S. 270A: penalty for under- reporting or misreporting of income – concealment of income subject to conditions – search and seizure – held, AO cannot make an assumption that the assessee would not disclose income if the due date to file return has not expired based on previous record.

The assessee company, G underwent a search and seizure on its premises on April 30, 2019. The managing director, upon search admitted to not disclosing rental receipts for the assessment years 2017-18 to 2020-21. This led the AO to levying a penalty at 200 percent for assessment years 2017-18 and 2018-19. He also levied a penalty at 60 percent for the assessment years 2019-20 and 2020-21. The Commissioner (appeals) upheld the order of the AO and the same was challenged by the assessee.

The tribunal held that with respect to assessment years 2017-18 and 2018-19, the assessee has misreported its income because incriminating evidence to the tune of rental receipts not reported as income was found during the search. The same was also admitted by the managing director. The tribunal upheld the penalty levied by the AO.

With respect to assessment years 2019-20 and 2020-21, the tribunal held that the AO was wrong in levying a penalty because the due to file a return for the said years had not expired. Therefore, the AO could not come to the conclusion that the assessee would not disclose the income there as well. As a result, the penalty was deleted. (AY.2017-18 to 2020-21)

S. Manoharan v. Dy. CIT (2023)103 ITR 243 (Trib) (Chen)

390. S. 271(1)(c) : Penalty – AO should have asked assessee to show cause in assessment proceedings, no enquiry or evidence that there was concealment of income. Further factual analysis of claim of loss not made, notice not specifying under which limb of section notice issued, Penalty not sustainable.

The Honourable Tribunal while allowing the appeal of the Assessee held that, the AO had not made any enquiry to discredit the claim of loss and had accepted the plea of bargain of the assessee to be assessed at nil income instead of the declared loss. Plea of assessee was accepted without observing anything to the contrary on the condition laid by the assessee, but still the AO made an observation that penalty proceedings u/s.271(1)(c) were being initiated separately for concealment of income. At the same time there was no substance in the form of enquiry and evidence that there was a concealment of income. No such observations were made in the assessment order. Further held that when the notice issued was vague and ambiguous having not specified under which limb of s. 271(1)(c), the penalty notice had been issued, the penalty proceedings initiated not sustainable.(AY.: 2015-16)

Unitech Realty P. Ltd. v. Dy. CIT (2023)105 ITR 77 (Trib.)(S.N.)(Del)

391. S. 271(1)(c): AY 2013-14: Penalty Furnishing inaccurate particulars of income – Claimed exemption on bogus long-term capital gain in original return – Taxed as income from other sources in return filed in response to Sec. 148 – Penalty cannot be levied as no addition to income of the assessee – Explained source, mode and manner of earning of income

The assessee had filed return of income claiming long-term capital gain as exempted u/s. 10(38). Subsequently, in response to such notice under section 148, the assessee filed his return of income treating the long-term capital gain as income from other sources. The AO levied penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. The Tribunal deleted the additions by placing reliance on DCIT vs. Kulwant Sing reported in 104 taxmann.com 340 wherein it has been held that penalty cannot be levied as no tax sought to be evaded since there is no addition to income of the assessee as per Explanation 4 and the assessee duly explained source, mode and manner of earning of income in reported in return of income.

Sumit Chatterjee v. ITO (2023) 103 ITR 48 (Trib) (S.N.)(Ahm)

392. S.271(1)(c): Penalty – Non application of mind by the AO – Not specified penalty levied under which limb – Concealment of income or furnishing inaccurate particulars thereof – Penalty not sustainable

The Tribunal held that the AO failed to apply his mind at the time of recording his satisfaction at the time of framing assessment to initiate the penalty proceedings under section 271(1)(c) and specify the limb, furnished inaccurate particulars of income or concealed particulars of income, under which penalty is initiated. Accordingly, initiation of the penalty proceeding was not sustainable in the eyes of law for want of valid satisfaction recorded by the Assessing Officer.

Suresh Henry Thomas v. ITO (2023) 103 ITR 79 (Trib) (S.N.)(Mum)

393. S. 271(1)(c): Concealment of income or furnishing of inaccurate particulars of income – Assessee voluntarily depositing tax with computation of income before issue of notice

The notice u/s. 133(6) was issued on March 8, 2019 and immediately thereafter the assessee had voluntarily deposited the tax with the computation of income in response to the notice on March 25, 2019. The Assessing Officer issued the notice u/s. 148 on March 30, 2019. The assessee on her own after receiving notice u/s. 148 had voluntarily declared the income in her return and paid taxes thereon. The explanation given by the assessee was neither rejected nor held to be mala fide by the Assessing Officer and once the Assessing Officer had failed to take any objection in the matter, the offer from the assessee on her own was a voluntary offer, and this voluntary action of the assessee could not be considered equivalent to providing inaccurate particulars of income or concealing the particulars of income. Therefore, the levy of penalty was not sustainable. (AY 2012-13)

Pooja Upadhyay v ITO (2023)105 ITR 549 (Trib) (Jai)

394. S. 271(1)(c), 274: Concealment Of Income Or Furnishing Inaccurate Particulars Of Income – Assessing Officer Issuing Notice Without Specifying Particular Limb Under Which Penalty Proceedings Initiated – Non-Application Of Mind By Assessing Officer – Penalty Cannot Be Levied

When the assessee has disguised or provided false information about their income, they are subject to the penalty provisions of section 271(1)(c) of the Income-tax Act of 1961. The notion that the two limbs of section 271(1)(c) of the Act have various interpretations is widely acknowledged. Therefore, it is essential that the Assessing Officer define the pertinent limb in order to inform the Assessee of the allegation leveled against him and provide him with the opportunity to reply appropriately.

It was held that the AO had failed to identify the specific limb for which the penalty procedures had been started when issuing the notice under section 274 read with section 271(1)(c) of the Act. The warning had been provided in an unthinking, stereotypical manner that violated the law and could not be regarded as a proper notice adequate to impose a penalty. This ruling should not be interpreted as a prohibition against starting penalty proceedings from scratch in line with the law, if necessary, should the addition need to be made again in the future. The punishment was to be eliminated. (AY.2011-12)

K. World Developers P. Ltd. v. Asst. CIT (2023)103 ITR 552 (Trib)(Del)

395. S. 271(1)(c): penalty for concealment of income – Cash deposits in account – partly explained as agricultural income – claim rejected by Commissioner Appeals – Held, penalty deleted as there was sufficient evidence on record to believe the assessee’s explanation.

The AO, based on information from annual information returns observed that the assesee had cash deposits in his savings account. The AO stated that the assessee had failed to comply with two notices issued u/s 148 of the IT Act, 1961. AO passed an ex parte assessment order declaring the deposits as income from undisclosed sources u/s 69 of the Act. The Commissioner (appeals) observed that the landholdings by the family was used for agricultural purpose. Despite the evidence of the cold storage, the Commissioner (Appeals) denied the assessee’s claim that the income earned was from the sale of potatoes. On appeal:

The Tribunal held that the evidence indicating that the assesse owned the farmland alongside his family is undisputed. Therefore, it would be false to claim that the entire sale proceeds are in the possession of the assessee. The claim of agricultural income cannot be rejected when the assessee has provided information about its agricultural landholdings and established on record that it received money from the sale of agricultural products. It was further held that by investigating the issue of the family members’ shares in the income from potato cultivation on the land held in joint ownership, the Commissioner (Appeals) should have entered corroborating documentary evidence into the record. The Tribunal deleted the addition in full and the consequential penalty was hence deleted. (AY. 2009-10)

Ramandeep Singh Sidhu v. ITO (2023)103 ITR 1 (Trib)(Amrit)

396. S.271(1)(c): Furnishing Inaccurate Particulars Of Income – quantum and penalty proceedings are independent proceedings – no specific finding how disallowance constituted furnishing of inaccurate particulars of income by assessee – penalty not leviable merely based on confirmation of addition in quantum proceedings.

A public limited Company was engaged in the manufacturing business and also undertook construction contracts. During the assessment of the year 2014-15, various additions were made in the assessee company’s order as per section 143(3) of the Income-tax Act, 1961 along with section 14A read with rule 8D of the Income-tax Rules, 1962. On an appeal before the Tribunal, the addition made under Section 14A was restricted to Rs. 5,00,000 on an estimated and lump sum basis. Following that, the Assessing Officer issued an order under Section 271(1)(c) and assessed a penalty of Rs. 1,54,500 on the restricted addition of Rs. 5,00,000, concluding that the Assessee had provided false information on his or her income. Without giving any justification, the Commissioner (Appeals) confirmed the penalty’s imposition. The assessee appealed the same and the Appellate tribunal held that:

A. Neither of the authorities specifically stated how the disallowance made by the Assessing Officer and confirmed by the Tribunal—even if it was for a small amount— led to the claim that the assessee had provided false information about his or her income.

B. The AO did not show how he had come to the conclusion about the administrative expenditure of the assessee as there was no examination of the books of account.

C. Regarding the disallowance under rule 8D(2)(iii), the assessment order did not dispute the assessee’s assertion that it had not incurred any administrative costs for managing the investments. Instead, the Assessing Officer used the standard formula of 0.5 percent of the average investment value specified in the rules to calculate the disallowance and made the disallowance under rule 8D(2)(iii). The phrase used by the assessing officer to express satisfaction that “the assessee has furnished inaccurate particulars of income by charging capital expense to the profit/loss account.” Separate penalty actions are being taken under Section 271(1)(c) of the Act, which demonstrated that the satisfaction with regard to recording capital expense in the profit and loss statement had been recorded.

D. The disallowance specified in rule 8D(2)(iii) was primarily due to the deeming fiction and basis on which the amount was computed, and even this deeming fiction had not been applied strictly and had been held amenable to the unique facts and circumstances of the case. As a result, it was not possible to conclude that the assessee had provided inaccurate income information in the return that was submitted.

E. The charge of furnishing inaccurate particulars of income could be levied on the assessee without leading any positive evidence to that effect. The Assessing Officer did not find that incorrect information had been provided regarding investments that had produced or might produce exempt income in the future and that certain administrative costs had actually been incurred for managing these investments during the relevant year, neither during the assessment proceedings nor even during the penalty proceedings. (AY.2014-15)

Isgec Heavy Engineering Ltd. v. ITO (2023)103 ITR 152 (Trib)(Chand)

397. S. 271(1)(c) r.w.s 148 : Penalty – once the return filed in response to section 148 of the Act is accepted, no penalty can be levied. Observation of the AO must be specific and penalty cannot be levied for non-filing of original return u/s. 139(1)

The assessee failed to file an original return u/s 139(1) of the Act. However, the assessee voluntarily computed the income, paid the tax along with interest and intimated the same to the AO by filing a letter. Subsequently, the AO issued a notice u/s 148 of the Act. In response, the assessee filed a return of income showing the same income which was disclosed by her in the letter voluntarily filed. The AO accepted the return but levied the penalty u/s 271(1)(c) of the Act.

The ITAT observed that the AO did not make any addition but accepted the returned income of assessee and held that in the absence of any addition/disallowance resulting in enhancement of taxable income, no penalty u/s 271(1)(c) of the Act is leviable. The ITAT further observed that the AO initiated penalty u/s 271(1)(c) on the reason that the assessee had not filed return of income u/s 139(1) of the Act and held that the penalty u/s 271(1)(c) could be levied either for furnishing inaccurate particulars of income or concealing the income. The ITAT observed that the penalty u/s 271(1)(c) cannot be invoked for not filing the original return u/s 139(1). On the aforesaid observations, the ITAT deleted the penalty and allowed the appeal of the assessee.

Pushpa Jadhav v. ITO [ITA No. 201/ Mum/2023 dt. 15/05/2023 (Mum)(Trib.)

398. S. 271(1)(c): Penalty – Concealment Of Income – Assessee declared additional income in his ROI filed in response to S. 148 notice – the same was accepted by the AO without any variation – Held, Penalty was not leviable.

The AO reopened the case of the Assessee u/s 147 of the Act on the basis of information received from the Investigation Wing that the assessee had made transactions in penny stock scrips of T during the previous year. In response, the assessee filed his ROI declaring an additional income on account of income earned on transfer of shares of T. The AO passed a reassessment order accepting the ROI without any variation. He further initiated penalty u/s 271(1)(c) of the Act in view of the fact that had the proceedings u/s 147 of the Act not been initiated, the assessee would not have offered the correct income for taxation and levied penalty at 100% of the tax sought to be evaded. The CIT(A) upheld the order of the AO. The ITAT observed that the ROI filed by the Assessee, in response to S. 148 notice, included the income earned from transfer of shares of T. This ROI was accepted by the AO without any variation and hence, the AO was directed to delete the entire penalty u/s 271(1)

(c). (AY.2012-13)

Ashvin Narayan Bajoria (HUF) v. ITO (2023) 103 ITR 25 (Trib) (S.N.) (Surat)

399. S. 271(1)(c): Penalty – Concealment of income or furnishing inaccurate particulars of income – transfer pricing adjustment – application of filters and selection of comparables are debatable issues – not ground for levy of penalty – suo-moto disallowance of provision for doubtful debts – tribunal directed the ao to withdraw disallowance after verification – as addition did not survive – cancellation of penalty justified – denial of deduction u/s 10a – proposed in draft assessment order but deleted by drp – deduction allowed in full in final assessment order – penalty does not survive

The assessee was a subsidiary of a USA company. For AY 2006-07, based on the additions made in the draft assessment order, the AO initiated proceedings for imposition of penalty u/s 271(1)(c) of the Act alleging furnishing of inaccurate particulars of income and concealment of income and passed an order imposing penalty. On appeal against imposition of penalty, the CIT(A) held that the additions arising out of the transfer pricing adjustment based on change of filters and comparables being debatable issues , it could not lead to imposition of penalty u/s 271(1) (c) of the Act. Insofar as provision for doubtful debts was concerned, the ITAT observed that the assessee itself had disallowed the same in its computation of income and directed the AO to verify the same and withdraw the disallowance, therefore, the addition did not survive and hence the assessee could not be accused of furnishing inaccurate particulars of income.

For AY 2007-08, one of the grounds for imposing penalty u/s 271(1)(c) was transfer pricing adjustment, wherein the ITAT upheld its order passed for AY 2006-07 above. The ITAT further observed that though the addition on account of denial of benefit of deduction under section 10A of the Act was proposed in the draft assessment order, while considering the assessee’s objections on the issue, the DRP deleted the addition. In the final assessment order, the AO had allowed the entire claim of the assessee. Thus, the AO had imposed a penalty on a non-existent addition. Therefore, the ITAT held that there was no infirmity in the decision of the CIT(A) deleting the penalty imposed under section 271(1)(c) of the Act. ( AY.2006-07, 2007-08)

Add. CIT v AON Services India P. Ltd. (2023) 103 ITR 21 (Trib) (S.N.)(Del)

400. S. 271(1)(c): Penalty – for furnishing inaccurate particulars of income – CIT(a) observed that assessee was subjected to pay taxes u/s 115jb, even after taking into consideration additions made in assessment order – held, with reference to cbdt circular no. 25 of 2015, dated 31.12.2015 penalty was not leviable – order upheld.

The CIT(A) noted that even after the additions finally made by the AO, the assessee was subjected to pay taxes u/s 115JB of the Act. Further under Circular No. 25 of 2015, dated 31.12.2015 ([2016] 380 ITR (St.) 34), in the aforesaid circumstances, penalty u/s 271(1)(c) of the Act was not attracted in respect of the additions or disallowances made under the normal provisions of the Act. Held, there was no reason to interfere with the order of the CIT(A). (AY.2012-13, 2013-14)

Dy. CIT v. Havells India Ltd. (2023) 103 ITR 16 (Trib)(S.N.)(Del)

401. S. 271: Penalty for Concealment of Income – Sale of flat – assessee collecting sale proceeds and also purchasing for daughter’s wedding – failure on part of assessee reasonable – Words, “reasonable cause” and “Reasonable” to be taken into consideration as per 273B – Held, a penalty not to be imposed.

The assessee had sold a flat for the A.Y. 2017- 18, the sale proceeds of which were accepted in cash. Accordingly, a penalty was levied on her u/s 271D. The assessee filed a reply which was not accepted by the AO. The Commissioner (Appeals) confirmed the penalty order. The assesee appealed before the Tribunal.

The tribunal held that there was documentary evidence to support that the purchaser could not make full payment of the flat and hence the sale proceeds were given in instalments. The assessee had to travel to collect the same from Delhi and at the same time, she also made purchases for her daughter’s wedding. The issue to be decided under the umbrella provisions of Section 273B and not take the plea of ignorance. The assesee was successful in showing a reasonable cause for acting in such a manner. Hence, the penalty was to be quashed. (AY.2017-18)

Sonia Verma v. ITO (2023)103 ITR 282 (Trib) (Chand)

402. S.271B: Delay in filing audit report due to change of tax auditor – Reasonable cause for delay – Penalty cannot be levied:

For the AY. 2017-18, the audit report was drawn on September 3, 2017. But the report was furnished before the Revenue on January 24, 2018. Therefore, the Assessing Officer levied penalty u/s. 274 read with section 271B.

The delay in the submission of the tax audit report u/s. 44AB before the Revenue authority was due to change of the tax auditor and the delay was only for this AY. and not in any other AY.s. The assessee was not a habitual defaulter in the matter of filing the tax audit report. Therefore, the penalty u/s. 271B was to be deleted. (AY 2017-18)

Gill Rice Mill Guru Sar Sahnewala v. Dy. CIT (2023) 105 ITR 717 (Trib)(Amrit)

403. S. 271C: CIT (A) has failed to appreciate that the appellant had deposited TDS with interest in the government account – Reasonable cause

The Hon’ble court observed that it is an undisputed fact that the assessee has failed to deduct tax at source on interest payments made to DHFL. It was during survey action carried out at the premises of the assessee that the default in TDS on interest payment came to the fore. The AO initiated penalty proceedings u/s. 271C of the Act. In the meantime, the assessee deposited the entire amount that was required to be deducted as tax at source on interest payment to DHFL along with interest to the Government Exchequer. Since payments were made to NBFC, the omission to comply with TDS provisions was under bonafide belief that TDS was not required to be deducted. After coming to know of the default, paid the taxes and started deducting tax at source on future payment.

Kundan Industries Ltd. v. Jt.CIT, TDS Range [ITA 1729/1730/M/2022 Dt:09/08/2023, (Mum-Trib)]A.Y. 2017-18 & 18-19.

404. S. 271D and 275: Penalty could not be imposed after expiry of period of limitation

The assessment was completed on December 28, 2017 u/s. 143(3) at a total income of Rs. 4,19,430. However, no appeal was filed against the additional income. The Joint Commissioner issued a show-cause notice on November 6, 2018 u/s. 271D. The Joint Commissioner imposed penalty of Rs. 47,50,000.

Held the, u/s. 271D could not be imposed after the expiry of the period of limitation. During the course of assessment proceedings, the default of accepting cash over the prescribed limit was noted by the Assessing Officer and the assessment proceedings were completed on December 28, 2017. The related financial year ended on March 31, 2018. According to section 275(1)(c), the first time-limit expired on March 31, 2018. For the second time-limit, the period of six months had to be reckoned from the date of the assessment order and six months from the end of that month expired on June 30, 2018. Hence, the penalty was imposed much later on May 28, 2019. Hence, it was clearly barred by limitation. (AY 2015-16)

Jagdish Chandra Suwalka v. Jt. CIT (2023) 105 ITR 480 (Trib)(Jai)

405. S. 271-I: Penalty – Deduction of tax at source – remittances against import of goods – provision for withholding tax and requirement to furnish details not mandatory – forms 15CA and 15CB to be submitted only for payments chargeable to tax in India – penalty not attracted for failure to furnish forms.

In the present case it has been held that the remittance made by the assessee was against the import of goods and did not attract the provision of withholding tax and therefore the requirement to furnish the details under section 195(6) read with rule 37BB of the Income-tax Rules, 1962 was not mandatory. Further, Form 15CA/15CB was required to be submitted only for those payments which are chargeable to tax in India. The appellate tribunal further observed that there was a conflict between section 195 and rule 37BB regarding the compliance with form 15CA and that the Rules were amended with effect from December 16, 2015 in which the list of payments of specified nature mentioned in rule 37BB, which do not require submission of forms 15CA and 15CB, had been expanded from 28 to 33 of the Act. Hence, there was lack of clarification of words expressively in the provisions and therefore the amendment came into effect from December 16, 2015. In view of the above the penalty provisions under section 271-I of the Act would not be applicable in the case. (A.Y. 2016-17)

Asst. CIT v. Vinay Diamonds [2023] 105 ITR 31 (Surat – Trib)

406. S. 271(1)(c) and 271AAA: Penalty – Search – Addition on account of bogus purchases – Concealment of income or furnishing inaccurate particulars of income – Penalty in search cases cannot be levied u/s. 271(1)(c) for A.Y. 2012-13

The Tribunal dismissed the appeal filed by the Department against the order of the CIT(A) deleting the penalty of Rs. 79,16,580 levied by the A.O. for the AY 2012-13 u/s. 271(1)(c) of the Act in respect of the addition of Rs. 2,44,00,000 made on account of bogus purchases, which was deleted in quantum appeal, on the ground that the penalty had been levied u/s. 271(1) (c) of the Act instead of section 271AAA.(AY: 2012-13)

Dy. CIT v. Becon Constructions P. Ltd. (2023)104 ITR 74 (Trib) (S.N.)(Del)

407. S. 271(1)(c): Information from Sales Tax Department regarding bogus purchases made by assessee – AO made adhoc addition by applying GP Rate of 12.5% on bogus purchases – not a case of concealment of income for levying penalty u/s. 271(1)(c) and penalty not leviable on adhoc additions made on estimation basis.

The AO has made addition in the assessee’s case on the basis of information received from the sales tax authorities that the assessee had made purchases from various suspicious parties, i.e. bogus purchases. AO made addition by applying GP Rate of 12.% of the bogus purchases amount. ITAT reduced the addition by applying GP Rate of 5% in AY 2009-10 and AY 2011-12. Further, adhoc addition made by AO, i.e. addition made on estimate basis, cannot be treated as concealment of income so as to warrant penalty under section 271(1)(c). (AY 2009-10 to AY 2011-12)

Sawailal Bhatti v. ITO (2023)104 ITR 92 (Trib) (Mum)

408. S. 271(1)(c), 274: Penalty – Concealment of particulars of income of furnishing of inaccurate particulars of income – AO did not struck off irrelevant portion – Show Cause Notice not specifying limb of Section 271(1)(c) is defective – Penalty proceedings quashed

AO initiated penalty proceedings under section 271(1)(c) and issued Show Cause Notice u/s. 271(1)(c) r.w.s. 274 of the Act. The assessee furnished its response. The AO rejected the reply and explanations of the assessee and levied penalty u/s. 271(1)(c) . Before CIT(A), assessee contended that the SCN u/s. 274 had not specified as to penalty was being levied on which ground – whether for concealment of particulars of income or for furnishing inaccurate particulars of income. Irrelevant portion in the show-cause notice had not been struck off. CIT(A) rejected the contentions of assessee and held that no prejudice caused to assessee and upheld the penalty. ITAT held that Notice u/s. 274 should specifically state whether penalty is proposed for concealment of particulars or for furnishing inaccurate particulars. A printed form where all the grounds set out in section 271 are mentioned would not satisfy the requirements of the law. Initiating penalty proceedings on one limb and imposing penalty on another limb of section 271(1)(c) of the Act too would not be proper. The show-cause notice under section 274 of the Act was defective as it did not specify the ground on which the penalty was sought to be imposed. Penalty could not be levied (AY 2008-09)

Thomas Muthoot v. ACIT (2023)104 ITR 557 (Trib) (Coc)

409. Rule 27 of ITAT Rules, 1963: New ground – Not challenged before lower authorities – Cannot be raised

The Assessing Officer initiated section 148 / 147 proceedings against the assessee on the ground that the assessee’s taxable income liable to be assessed had “escaped assessment”. He made addition of Rs.6,56,89,219 in the hands of the assessee. The assessee invoking rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 challenged the validity of the reopening on the ground that not only the Assessing Officer had not recorded the appropriate reasons for reopening based on independent opinion but also the notice u/s. 148 had not been served on him. Tribunal held that the assessee’s arguments could not be allowed to be raised under rule 27 once he had not pressed them in the lower appellate proceedings. Relied: Commissioner of Customs v. Dilip Kumar & Co. [2018 6 GSTR-OL 46 (SC).

ACIT v. Ravi Sellappan (2023)104 ITR 289 (Trib) (Pune)

410. S. 254(1) – Tribunal – CIT (A) dismissed appeal for non-appearance of the assessee – Tribunal restored the matter to the file of the CIT (A) to decide afresh in the interest of natural justice.

The A.O. reopened the assessment for A.Y. 2011- 12 on the basis of information received that the assessee with other co-owners had sold a plot of land and had not offered to tax the capital gains arising on sale. During the assessment proceedings, the assessee filed a letter requesting the A.O. to refer to the District Valuation Officer. The A.O. referred to the District Valuation Officer u/s. 55A and 55C of Act for determination of value of the property. Pending receipt of the Valuation Report, the A.O. completed the assessment on protective basis by determining the share of the assessee subject to the outcome of the report of the District Valuation Officer with reference to the market value of the property on the date of transfer. The CIT(A) dismissed the appeal ex parte confirming the action of the A.O. On appeal, the Tribunal remanded to issue to the file of the CIT(A) for adjudication afresh providing the assessee adequate opportunity of hearing in view of the prayer that valuation report was not received before completion of assessment and that the assessee wanted to substantiate his case with evidence and information. (AY: 2011-12)

Arun Moreshwar Patil v. ITO (2023)104 ITR 53 (Mum) (Trib) (S.N.)

411. Direct Tax Vivad Se Vishwas Scheme, 2020: Appeal to Appellate Tribunal — Legacy Dispute Resolution — Assessee opting to settle dispute under Vivad Se Vishwas Scheme and obtaining Form 4 from Department — Withdrawal of appeal allowed — If dispute unresolved assessee shall be at liberty to approach Tribunal for reinstitution of appeal

Held, that the assessee had sought withdrawal of the appeal, opting to settle the dispute relating to the tax arrears for the A Y. 2011- 12 under the Direct Tax Vivad se Vishwas Scheme, 2020 and had obtained form 4 from the Department. In the absence of objection from the Department, the request was allowed. However, in case the dispute was unresolved in terms of the Scheme, the assessee shall be at liberty to approach the Tribunal for reinstitution of the appeal and the Tribunal shall consider such application appropriately in accordance with law. The Department had no objection with regard to the caveat.(AY. 2011-12)

AD Mega Structure India P. Ltd. v. ITO (2023)103 ITR 260 (Trib)(Del)