1. 4 : Charge of income-tax – Mesne profit– Arbitral award – damages from tenant for unauthorized occupation of let out property, amount so received being in nature of ‘mesne profit‘ was a capital receipt, not liable to tax [S. 22]

Assessee owned a property which was given on sub-lease to PSIDC. PSIDC did not vacate premises after determination of sublease. Matter was thus referred to arbitrator who passed an award in terms of which assessee received damages for unauthorised occupation of property by PSIDC. AO held that amount so received was nothing but unrealized rent and should be taxed as ‘income from house property. Tribunal held that on facts, damages received by assessee were in nature of mesne profits which were not chargeable to tax being in nature of a capital receipt. (AY. 2010-11)

Talwar Bro. (P.) Ltd. v. ITO (2019) 178 ITD 818 (Kol) (Trib.)

  1. 4 : Charge of income-tax – Development and operation of multipurpose port terminal – Share capital in form of foreign inward remittance – Unutilised funds – FDR interest – Capital receipt – Interest income is a capital receipt and is not taxable at all both under the normal provisions of the Act as well as under S. 115JB of the Act [S.56, 115JB]

The assessee-company was incorporated to develop, operate multipurpose port terminal. For the purpose of the port terminal project, the assessee raised share capital as foreign inward remittance from its holding company (P.) Ltd. Cyprus. The IPO was raised for the specific purpose of developing multipurpose port terminal facility and logistics facility at Karanja Creek. However, the port terminal could not be developed as envisaged and planned as it was delayed for various reasons beyond the control of the assessee and therefore the unutilized funds as received from the IPO were put in fixed deposits and ICDs with banks and non-Banking finance companies till the resumption of development work of the port terminal and other facilities at Karanga Creek. The assessee, treated the said interest as capital in nature and did not file any return of income for the instant year. AO assessed the income as income from other sources. CIT (A) confirmed the order of the AO. Tribunal held that the interest income received by the assessee from the FDRs/ICDs made out of funds are inextricably linked to the development of port terminal and other infrastructure which was yet to be completed and commissioned. These funds could not be used for the development work of the port due to late issuance of permissions / clearances by the Government authorities and also due to some local issues. Therefore, the interest income is a capital receipt and is not taxable at all both under the normal provisions of the Act as well as under S. 115JB of the Act. (AY. 2013-14 to 2015-16)

Karanja Terminal & Logistics (P.) Ltd. v. DCIT (2019) 178 ITD 659 / 71 ITR 390 (Mum) (Trib.)

  1. 4 : Charge of income-tax – Capital or revenue – Compensation for termination of lease – Loss of source of income – Capital receipt not to chargeable to tax [S. 45]

Assessee-company owned a godown. This property was already given on long term lease of 99 years. The lessee sold the property. The assessee entered into MOU with lessee in terms of which assessee received compensation of ₹ 4.65 crore towards termination of long-term lease. The AO treated the compensation as sale consideration. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that compensation received was towards loss of source of income; same could not be treated as revenue receipt, and it was capital receipt not liable to tax. Referred Karam Chand Thapar and Bros. (P.) Ltd. v. CIT (1971) 80 ITR 167 (SC), Kettlewell Bullen & Co. Ltd. v. CIT (1964) 53 ITR 261, (SC) (AY. 2012-13)

Butterfly Marketing P. Ltd. v. DCIT (2019) 179 ITD 431 (Chennai) (Trib.)

  1. 9(1)(i) : Income deemed to accrue or arise in India – Permanent establishment – Liaison office of assessee did not constitute PE – Income is not chargeable to tax in India [Art. 5]

Assessee is a company incorporated in Japan and has opened a Liaison office in India seeking RBI approval. Assessee declared nil income in its return of income. AO held that assessee’s LO constituted a PE under Article 5 of India-Japan DTAA as it had a full fledged office with employees and staff. AO also referred to an agreement between assessee’s LO and LG Chemicals Ltd. Korea for granting exclusive and non-transferrable right to distribute chemicals products on commission basis. Tribunal noted that the agreement was valid up to December 1996 and it did not pertain to the year under consideration. Further, the co-ordinate bench of the tribunal in its own case for earlier years held that LO did not constitute a PE of the assessee in India and the LO was performing activities in accordance with permission granted by RBI. Hence, relying on the earlier year order it was held that LO did not constitute PE of the assessee under Article 5 of India-Japan DTAA. (AY. 2002-03)

Nagase and Company Ltd v. ADIT (2019) 109 taxmann.com 288 / 180 DTR 1 (Mum.)(Trib.)

  1. 10(4) : Non-resident – Stayed in India for 283 days for taking up employment – Not entitled to exemption [S.6, 10(14(iii), Foreign Exchange Management Act, 1999, S. 2 (v)]

The assessee had an NRE account in an Indian bank. The assessee claimed exemption under
S 10(4)(ii) on the interest income earned from NRE FD account amounting to ₹ 1.10 crores. The AO rejected the claimand taxed the interest amount on the grounds that though the assessee was a non-resident earlier he became a person resident in India during the current year as per section 2(v) of the FEMA Act, 1999. CIT (A), upheld the order of the AO. On appeal the Tribunal held that since, the assessee has come and stayed in India in the financial year 2014-15, the CIT(A) held that the assessee was a Resident and Ordinarily Resident in India for both income tax purpose and also under FEMA and therefore, he is not eligible for exemption under S. 10(4)(ii) as he does not fulfil the condition required under proviso to the said section, that is, he was a resident outside India in the relevant previous year 2014-15 under FEMA. Since the assessee has come and stayed in India during the financial year 2014-15 for 283 days, his residential status under FEMA is a ‘person resident in India’ only. Therefore, the assessee is not entitled for the deduction under S. 10(4)(ii) of the Act. (AY. 2015-16)

Baba Shankar Rajesh. v. ACIT (2020) 180 ITD 160 (Chennai) (Trib.)

  1. 10(26) : Exemption to member of a Scheduled Tribe – Allowability – Individual vis-a-vispartnership firm – Since partnership firm is not a member of a scheduled tribe – Such firm not entitled to exemption under S. 10(26) – but its partners are eligible for the same [General Clauses Act, 1897, S.13]

Dismissing Assessee’s appeal the Tribunal held that:

1) The specified member of a scheduled tribe only is covered under Art. 366 of the Constitution of India for enjoying the benefit of exemption of income. Hence, the benefit of exemption is available only to a member of Schedule tribe (i.e. individual not partnership firm of such individuals). In such a situation, benefit of doubt in relation to an exemption provision in tax laws goes in favour of the Revenue and not to the taxpayer.

2) Further, the Income-tax Act being a special legislation and complete code in itself, provisions of S. 13 of the General Clauses Act, 1897 (containing masculine and singular expression in central regulations to be inter-changeable as famine gender, plural expression, etc), are of no avail. (Civil Appeal No. 3327 of 2007, dt. 30th July, 2018) relied on. (AY. 2013-14 to 2015-16)

Hotel Centre Point v. ITO (2019) 182 DTR 297 / 201 TTJ 913 (Gau)(Trib)

  1. 10A : Free Trade Zone – Loss in unit situated outside the Software Technology Park (STPI) not adjusted against units within the STPI – Income enhanced – Deduction claimed u/s. 10A to be enhanced – Expenses excluded from export turnover – Consequential exclusion from total turnover

Assessee is engaged in the business of providing solutions to the Railways. It had units both within and outside the Software Technology Park (STPI). In its return of income, it claimed deduction u/s. 10A for income earned from STPI unit. The lower authorities set- off the loss of non-STPI unit against profits of the STPI unit before giving the deduction u/s. 10A. Further, it made various disallowance/addition to returned income filed by the assessee. The authorities restricted deduction u/s. 10A as claimed in the return of income and not assessed income. The lower authorities excluded certain expenses from the export turnover and not from the total turnover while computing deduction u/s. 10A.

The Tribunal held the loss of the non-STPI unit shall not be adjusted against the profits of the STPI unit before computing deduction u/s. 10A. The disallowance/addition made during the assessment proceedings increases the profits of the assessee, thereby the deduction u/s. 10A should also be enhanced. Export turnover is part of total turnover. While computing deduction amount of deduction u/s 10A, expenditure excluded from export turnover were also to be excluded from total turnover. (AY. 2008-09 to 2010-11)

McMl Systems Pvt. Ltd. v. ACIT (2019) 75 ITR 656 (Bang) (Trib)

  1. 10AA : Special economic zones – Determination of profits where profits disclosed by assessee higher than ordinary profits – No arrangement between assessee and comparable companies to enable assessee to earn super normal profits – Concept of applying profit level indicators applied in determination of arm’s length price of international transactions not applicable for determination of profits for computation of exemption – AO is directed to allow entire deduction. [S. 10A(7), 10AA(9), 80IA(10), 92CA]

The assessee provided various services in the field of engineering, information technology enabled services and business support services to its associated enterprises and claimed the exemption under S. 10AA of the Act. The AO in the draft assessment order proposed an addition of ₹ 2.53 crore alleging that the assessee had claimed excess exemption under S. 10AA of the Act, on the ground that operating profit to operating cost of the assessee was 150.55 per cent as against 27.72 per cent operating cost of the comparable companies. The Dispute Resolution Panel upheld the reduction of exemption under S. 10AA of the Act. On appeal, Tribunal held that the Transfer Pricing Officer had accepted the profit level indicator shown by the assessee at 150.55% when compared with the mean margins of the comparable companies at 27.72%. The Assessing Officer’s view that the assessee showing such high operating profit had earned super normal profits when compared with the margins of comparable companies was not tenable as the concept of profit level indicator, and the operating profit which had been adopted by the Assessing Officer was relevant for comparability for transfer pricing analysis and could not be used for holding the assessee to have earned super normal profits in carrying on its business. The officer had to look at the net profit shown by the assessee, which in the present year was 63% only. The basic condition for application of the provisions of section 10AA of the Act was an arrangement between the parties to enable the assessee to earn super normal profits. Neither the TPO nor the AO or the DRP had pointed out any such arrangement between the assessee and the comparable companies. In the absence thereof, the provisions of S. 10AA(9) read with S. 80-IA(10) of the Act were not attracted. There was no merit in invoking the provisions of S. 10AA(9) read with S. 80-IA(10) of the Act in the case of the assessee. The TPO having accepted the transactions to be at arm’s length and where the assessee was raising invoices on man hour basis, in line with the third party agreement and where the net profit was shown by the assessee at 63%, the concept of operating profit/operating cost could not be the basis for benchmarking the profits of any business. Hence, the AO was directed to allow the deduction claimed under S. 10AA of the Act in entirety. (AY. 2012-13)

Eaton Technologies Pvt. Ltd. v. Dy. CIT (2019) 75 ITR 675 (Pune)(Trib.)

  1. 11 : Property held for charitable purposes – Failure to file return – Return is filed in pursuance of notice u/s 148 – Entitle to exemption as applicable to charitable Trust – Failure to produce evidence in support of its claim of electricity expenses – Such amount had to be excluded while considering application of income – S.40(a)(ia), 40A(3) and S. 43B falls in Chapter IV-D which are applicable for computing profits and gains of business or profession and Chapter IV-D is not applicable in respect of charitable trust or institution whose income is to be computed under S 11 and 12 falling under Chapter-III. S. 37(1), Explanation is not applicable to charitable trust. Capital expenditure is to be allowed as application of income. [S. 12, 37(1), 40(a)(ia) 40A (3) 43B, 139, 139(4A), 147, 148]

Tribunal held that failure to file return under S. 139(4A) cannot be interpreted to mean that income cannot be computed in case of a charitable trust under S. 11 of the Act. Once return has been filed in response to notice issued under S. 148, provisions of Act shall apply as if such return were a return required to be furnished under S. 139 and, thus, return filed under section 148 is treated as return filed under S. 139. which will include S. 139(4A) of the Act. Oce such return is treated as return filed under S. 139, then all provisions of Act shall apply which will include S. 11. A new clause (ba) which has been inserted in section 12A by Finance Act, 2017 to put a further condition w.e.f 1-4-2018 of furnishing return within time allowed under section 139(4A) has been made applicable from assessment year 2018-19 on wards. Failure to produce evidence in respect of electricity expenses, amount to be excluded while computing application of income. S. 40(a)(ia), 40A(3) and S. 43B fall in Chapter IV-D which are applicable for computing profits and gains of business or profession and, thus, they are not applicable in respect of charitable trust or institution whose income is to be computed under Chapter-III and, accordingly, no disallowance or adjustment can be made while determining income of society under S. 11 and 12 of the Act. Penalty was levied by bank for mortgaging a property without permission of prescribed authority on assessee-society by invoking Explanation to S. 37 is not applicable to charitable Trust since provisions of Chapter IV-D, i.e., S28 to 44D are applicable while computing income of business or profession and these provisions are not applicable in respect of charitable institution whose income is to be computed under S 11 and 12 falling under Chapter III of the Act As per section 11, income of a eligible institution to extent of which such income is applied to charitable purpose in India is not to be included in total income and application of income towards charitable purposes include application towards acquisition of assets, i.e., capital expenditure. (AY. 2006-07, 2009-10)

United Educational Society v. JCIT (2019) 74 ITR 11 / 178 ITD 716 (Delhi) (Trib.)

  1. 12A : Registration – Trust or institution – Object clause – Registration cannot be refused on the ground that the Trust Deed does not contain “dissolution clause” and not registering with the Registrar of Societies [S.2(15), 11, 12AA]

On reference to third member,the third member held that, the only requirement for granting registration is that the objects of the society should be charitable in nature and activities are genuine (i) A trust may be of a public charitable nature even if the control of the trust property is not vested in the public but is retained by the settlors, (ii) Registration u/s. 12A cannot be declined on the ground that the Trust Deed does not contain “dissolution clause”. This is totally irrelevant & beyond the scope of enquiry contemplated u/s. 12A. of the Act, (iii) Registration cannot be refused for non furnishing of registration with the Registrar of Societies. Registration with the Registrar of Societies is not a precondition for granting registration u/s. 12A. (ITA No. 53/ASR/2017, dt. 08.01.2020)

Shri Dhar Sabha Vaishno Devi v. CIT(E) (TM) Amristar) (Trib.), www.itatonline.org

  1. 12AA : Procedure for registration – Trust or institution – No defects in the object of the society or doubted the genuineness – Denial of registration is held to be not valid [S. 2(15), 11],

The Assessee was carrying on social, spiritual, & charitable activities of operating a homeopathy dispensary and organizing camps for blood donation & sermons. The Commissioner denied the registration u/s. 12AA applied by the Assessee by giving certain general remarks. On Appeal, the Tribunal held that the commissioner has to consider the twin requirement (i) objects of the assessee-society, and (ii) the genuineness of its activity. When the commissioner has not pointed out any defect in the object of the society or doubted the genuineness of its activities, the registration u/s. 12AA cannot be denied. (AY. 2017-18)

Acharya Shri Tulsi Kalyan Kendra (Regd.) v. CIT(E) (2019) 72 ITR 14 (Amritsar)(Trib)

  1. 28(i) : Business income – Letting out shopping mall/business centres by providing host of services/facilities/amenities – Income derived assessable as business income and not as income from house property [S.22]

The main object of the assessee company was carrying on the business of letting out its commercial properties. The assessee company constructed a shopping mall/business centre and had let out the said property. Further assessee company maintained and provided necessary service for proper upkeep of such properties in order to earn income by letting and/or leasing thereof income. The AO held that income derived from letting out of house property would always be taxable under the head ‘income from house property’. The CIT(A) deleted the said addition treating the same as Business Income. Tribunal while allowing the appeal held that, income is attached to immovable property, cannot be sole criteria for such income as income from house property, to find out that what is primary object of assessee while exploiting such property, assessee-company had developed shopping malls/business centres on properties owned by it and had let out same to various users by providing host of services/facilities/amenities in said malls/business centres, it could be said that basic intention of assessee was commercial exploitation of its properties by developing them as shopping malls/business centres and, therefore, income derived from such activities are business income’ and not as income from house property. (AY. 2012-13, 2013-14)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati)(Trib.)

  1. 28(i) : Business income – Compensation – Amount received towards professional goodwill – Management of the Company was vested in the Board of Directors – AO failed to establish that person receiving the amount is managing whole or substantially the whole of the affairs of the Company – Cost of such managerial right being indeterminate, computation provisions fails – amount not taxable as capital gains [S. 4, 28(ii)(a), 55(2)]

Dismissing Revenue’s appeal, Tribunal held that since the AO has not established that assessee was the person who was managing the whole or substantially the whole of the affairs of the Company, the amount received towards professional goodwill was not chargeable under S. 28(ii)(a) of the Act. Further, AO has not ascertained as to what was the cost of ‘management right’ for computing capital gains and S. 55(2) does not specify such cost to be taken as Nil (no deemed cost of acquisition provided in the statute), hence computation mechanism fails and no capital gains can be computed in present case.
(AY. 2009-10)

DCIT v. Dr. Sandeep Dave (2019) 201 TTJ 683 / 182 DTR 109 (Raipur) (Trib)

  1. 28(i): Business loss – Real estate business – Advance to parties – Amount written off for commercial reasons – Loss is allowable as business loss

Tribunal held that advance given to parties were written off for commercial reasons,
hence the loss is allowable as business loss (AY. 2012-13).

ACIT v. Bhosale Builders and Developers P. Ltd. (2019) 74 ITR 67 (SN) (Pune) (Trib)

  1. 36(1)(iii) : Interest on borrowed capital – Interest paid to relatives and non-relatives – Difference between rate of interest charged by private money – lender and that charged by bank bound to exist – Assessee paying interest after deducting tax at source – AO failed to show that assessee utilised loan for purpose other than business – Interest expenses is held to be allowable

The Tribunal held that the assessee paid interest at 18% to relatives as well as to non-relatives. There was bound to be a difference between the interest charged by the bank and the interest charged by a private lender as for obtaining loans from bank, the assessee needed to maintain a margin and there were other expenses charged by the bank in the form of bank charges, penalty, etc. Therefore, the basis for disallowance made by the authorities was not correct. The assessee had made payments of interest after deducting tax at source and it was not the case of the authorities that the loans were not utilised for business purposes. Therefore, disallowance deleted. (AY. 2014-15)

Anurag Rastogi v. ITO (2019) 75 ITR 8 (Luck) (Trib)

  1. 36(1)(vii) : Bad debt – Non furnishing of TDS certificate amounts to amount due – Allowable as bad debt – Cannot be disallowed on ground that it was not within time prescribed under S. 155(14) of the Act
    [S. 37(1), 155(14)]

Assessee claimed the non receipt of TDS certificate as revenue expenditure. The AO held that the write off of TDS could not be allowed to the assessee. Further, he observed, non-furnishing of TDS certificate could not be treated as debt due to the assessee from the persons who had deducted tax at source. Therefore, provision of S. 36(1)(vii) could not be applied. On appeal, the CIT (A) held that that withholding of tax by the deductor amounted to debt owed by him to the deductee and in the event of non-receipt of such debt, deduction would be eligible to the assessee under S. 36(1)(vii) as the conditions prescribed therein are fulfilled. However, he held that assessee’s claim could not be allowed in view of the provisions of S. 155(14), since assessee had not claimed the deduction in the computation of income filed along with the return of income. Accordingly, he disallowed assessee’s claim. On appeal the Tribunal held that, though, tax was deducted at source in earlier assessment years, however, the assessee could not get credit of such TDS amount due to non-furnishing of TDS certificate by deductors. Undisputedly, the TDS amount is nothing but a part of income accruing to the assessee. It is also a fact that the assessee has offered the gross income including TDS in the respective assessment years. Therefore, to that extent, non-allowance of TDS credit to the assessee due to non-receipt of TDS certificates amounts to loss of income. Relied on CIT v. Shreyans Industries Ltd. [2008] 303 ITR 393 (Punj. & Har.) (HC). The decision of the P & H High Court in the aforesaid case with regard to write off of TDS was not a subject matter of dispute before the Supreme Court, therefore, the contention of the revenue that the decision of the P & H High Court, has been reversed by the Supreme Court, is not correct interpretation of the legal position, as the subject matter of dispute before the Supreme Court was on a different issue. In view of the aforesaid, the AO is directed to allow assessee’s claim of write off of TDS. (AY. 2005-06 to 2009-10)

DCIT v. AGC Network Ltd. (2020) 180 ITD 204 (Mum) (Trib.)

  1. 37(1) : Business expenditure – Disallowance – Providing gifts to Medical practitioners by pharmaceutical companies – CBDT circular on prohibition of acceptance of gifts by medical practitioners – AO made ad hoc addition – Providing gifts in lieu of sales promotion expenses – CBDT circular silent about pharmaceutical companies – Circular had no retrospective effect – Disallowance deleted

During assessment proceedings, AO noticed that assessee had debited an amount to P&L account towards gift/sales promotion expenses. The expenditure incurred was for providing gift to Doctors/Medical Practitioners. As per CBDT circular No. 5/2012, Medical Practitioners were prohibited from accepting gift, travel facility, hospitality, cash or monetary grant from pharmaceutical companies as per Indian Medical Council Regulation. The AO made addition on ad-hoc basis considering 40% to have been spent for presenting gift articles to doctors in India. The CIT(A) confirmed AO’s action. The assessee contended that said gift items bearing assesses name and logo were only for sales promotion. The reason for making an ad-hoc disallowance of 40% was, CBDT Circular No. 5/2012, wherein, prohibition imposed by IMC with regard to acceptance of gift by medical practitioner/doctor which was imposed w.e.f. 10th December 2009. The prohibition imposed by IMC did not talk about pharmaceutical companies. CBDT Circular referred to by Departmental Authorities would not apply retrospectively. Allowing the assesses ground, the tribunal deleted the disallowance made.

ACIT v. J. B. Chemicals & Pharmaceuticals Ltd. (2019) 177 DTR 378 (Mum)(Trib.)

  1. 37(1) : Business expenditure – Self made vouchers – Ad hocdisallowance is not justified [S.145]

While allowing the appeal of the Assessee, the Tribunal held that, when the telephones were used in the business premises of the assessee and the expenses were verifiable from the telephone bills the expenses could not be disallowed on mere suspicion. Similarly, the AO had not doubted the travelling expenditure incurred by the assessee and if the expenses were not found to be excessive having regard to the nature of business and volume of business of the assessee such an ad hoc disallowance on personal element was not justified. Further, in the case of building repair and maintenance expenses, the expenditure was incurred in cash and the assessee had produced only self-made vouchers and in the absence of supporting documentary evidence, the 10 per cent disallowance of expenditure was justified. If office expenses were paid in cash and supported by the self-made vouchers. If the expenditure was not found to be excessive and it was inevitable for the business of the assessee petty expenses were incurred by the assessee on day-to-day basis in cash and without any vouchers. Once the expenditure was not found to be excessive having regard to the nature of business and volume of the business of the assessee the ad hoc disallowance was not justified.
(AY. 2012-13)

Swastik Oil Industries v. Dy. CIT (2019)76 ITR 392 (Jaipur)(Trib.)

  1. 37(1) : Business expenditure – Levy of interest for withholding payment of VAT – Compensatory interest u/s. 30(2) – For delay in payment of additional tax under MVAT – Penal interest u/s 30(4) – Concealment or furnishing of inaccurate particulars of income – Paid by assessee to buy peace and end litigation with MVAT authorities – AO asked to bifurcate these payments – Compensatory interest allowed – Penal Interest disallowed [VAT S.30(2) 30(4)]

During assessment proceeding, AO noted from Tax Audit Report that assessee had paid a penalty which was not disallowed by it while computing income chargeable to income tax. Assessee submitted that such penalty was paid to avoid litigation with Sales Tax Department on an amount of tax for bogus purchases. AO held that such amount was a penalty levied by Sales Tax Department for violation of law committed by assessee which need to be disallowed u/s. 37 and which also was certified by CA in tax audit report. AO completed assessment after making disallowance in this regard. CIT(A) allowed assesses claim. The tribunal held that interest u/s. 30(2) was compensatory in nature for delay in payment of additional tax under MVAT computed from original due date of payment of the MVAT liability due to availment of wrong ITC, on alleged bogus purchases, till said additional tax liability of VAT was paid to the authorities. Whereas, levy of interest u/s 30(4) of MVAT Act had germane to detection of short payment of VAT by way of concealment or furnishing of inaccurate particulars of income in original return of VAT filed with MVAT Department due to infraction of law, which is detected after commencement of such special events such as audit, inspection, survey, search under MVAT Act. The AO was directed to bifurcate payments of interest made u/s 30(2) and 30(4) of MVAT Act, allowing only the compensatory interest u/s. 30(2) of MVAT Act. Penal interest u/s. 30(4) of MVAT Act was disallowed. Revenues appeal was partly allowed.
(AY. 2009-10, 2012-13)

ACIT v. Gini & Jony Ltd. (2019) 178 DTR 114 (Mum)(Trib.)

  1. 37(1) : Business expenditure –Compensation for not complying with terms of contract – Civil consequence for not complying with certain terms of contract and had nothing to do with any offence – No violation of law – No disallowances can be made by applying the explanation 1

The AO held that the expenditure as penalty levied on it for not complying with the terms of the contract, such penalty paid for violation of the contract in the course of the conduct of business could not be regarded as a deductible expenditure. The CIT (A) deleted the addition. On appeal the Tribunal held that the contract between the assessee and the buyers was clear in its terms that there was a specification as to the quality of coal that had to be supplied and should there be any variation in such quality, the price would be adjusted accordingly. In the case of supply of coal with the high moisture under low grass calorific value, the buyer would make deduction on such account. Further, the case of the assessee had been that it did not pass on the liability incurred on this count to its sellers. The Assessing Officer should have considered this aspect as to the possibility of the assessee passing on such liability to its sellers, which was not possible in the case of the penalty paid for an offence or infraction of law. The inability to meet the contractual obligation by the assessee could not be termed as an offence or infraction of law so as to deny the claim of the assessee by invoking Explanation 1 to S. 37(1). Merely because the assessee categorised the claim under “penalty levied on it for not complying with the terms of the contract”, it was not permissible to conclude that such penalty was in respect of any offence or infraction of law committed by the assessee so as to invoke the provisions under Explanation 1 to section 37(1). The expression “penalty was levied on the assessee for not complying with the terms of the contract”, clearly indicated that it was a civil consequence for not complying with certain terms of contract and had nothing to do with any offence. (AY. 2012-13)

Dy. CIT v. Mahavir Multitrade P. Ltd. (2020)77 ITR 165 (Delhi) (Trib)

  1. 37(1) : Business expenditure – fine/penalty levied upon it by European commission for violating European union competition laws by way of accepting non-compete settlement amount from a European company – Payment could not be disallowed as per Explanation 1 to S. 37(1) of the Act – Allowability of claim as business loss – Matter remanded for verification. [General Clauses Act,1897, S.3(38), Indian Evidence Act, 1872, S. 57(1), Art. 13]

Assessee-company paid fine/penalty levied upon it by European Commission for violating European Union Competition laws by way of accepting non-compete settlement amount from a European company, such payment could not be disallowed as per Explanation 1 to S.37(1) of the Act. The Tribunal held that what has to be disallowed under Explanation 1 to S.37(1) of the Act is a payment made for contravention of laws in force in India and not of any foreign country. The laws are specific to each of the countries according to their rules and regulations and an offence in one country may not be so in another country. Accordingly addition confirmed by the CIT (A) is deleted. As regards whether allowable as business loss as the income was offered in the earlier year, the matter remanded to the file of AO for verification. (AY. 2014-15)

Mylan Laboratories Ltd. v. DCIT (2020) 180 ITD 558 (Hyd) (Trib.)

  1. 37(1) : Business expenditure – Festival expenditure – Books of account not rejected – Disallowance of 25% of festival expenses cannot be disallow when books of account were duly audited and no discrepancy was found [S.145]

Tribunal while dismissing the appeal of the revenue held that books of account had been duly audited and no discrepancy was found by revenue authorities, further observed that there was increased turnover and also increased profit during year, hence, increase in festival expenditure could not be treated as disallowable expenditure. (AY. 2012-13)

ACIT v. HAL Offshore Ltd. (2019) 178 ITD 272 (Delhi)(Trib.)

  1. 37(i) : Business expenditure – Parking fees – Ad hoc disallowance of 20% disallowance – Books of account not rejected – Disallowance is held to be not valid [S.143(3)

Dismissing the appeal of the revenue the Tribunal held that disallowance of 20 per cent ad hoc disallowance of parking fee, without rejecting books of account not permissible.
(AY. 2012-2013, 2013-2014)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati)(Trib.)

  1. 37(1) : Business expenditure – Ad-hocdisallowance of 10% of total expenses – Books of account not rejected – Submitted the details of expenses – Ad-hoc disallowance is held to be not justified [S.145]

Allowing the appeal of the assessee the Tribunal held that since assessee had submitted complete details of these expenses and no defects in books of account were brought on record by revenue, ad hoc disallowance of these expenses to tune of 10 per cent by AO is held to be not justified. (AY. 2011-12)

TUV India (P.) Ltd. v. DCIT (2019) 75 ITR 364 / 179 ITD 238 (Mum) (Trib.)

  1. 40(a)(ia) : Amounts not deductible – Deduction at source – Non-resident – Copy editing, indexing and proof reading requiring only knowledge of language and not expertise in subject matter of text – Services rendered by non-residents not technical services – Tax deduction is not required – No disallowance can be made [S. 9(1)(1), 195 (6)]

The Assessee, had hired the services of a non-resident foreign entity, which mainly consisted of language translation. The services rendered involved copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text. Thus during the assessment year 2011-12, assessee made payments to the non-resident entity of ₹ 2,95,31,708/- without deducting tax at source, on the ground that services rendered were not technical in nature and therefore no tax was liable to be deducted under section 195 of the Act. The AO disallowed the payments on the ground that tax was required to be deducted on payments made to non-residents for services rendered.

The CIT(A) found that since the non-resident entity did not have any permanent establishment or a business connection within the meaning of S. 9(1)(i) in India. Therefore he held that since the present case was not hit with the provisions of S. 9(1)(i) the payments received by the non-resident entity was not to be assessed as business income in India. However, he found that the services rendered by non-resident entity was technical in nature.

On Appeal, the Tribunal held that, language translation was not a technical service. The copy editing, indexing and proof reading required only knowledge of the language and did not require necessary expertise in the subject matter of text. Thus, the services rendered by the non-residents were not technical services and the payment received by the non-residents from the assessee was not taxable in India. S. 195(6) requires the assessee to furnish information but did not require the assessee to deduct tax at time of payment. Hence, there was no question of disallowance under S. 40(a)(ia) for consideration in the appeal. (AY. 2011-12)

Dy. CIT v. Integra Software Services Pvt. Ltd. (2019)76 ITR 491 (Chennai) (Trib)

  1. 40(a)(ia) : Amounts not deductible – Deduction at source – Failure to deduct tax at source – Filing Forms 15G and form no 15H before CIT(A) – Addition is unsustainable – CIT(A) ought to have verified from the banks – AO is directed to delete the addition [S.251]

AO disallowed interest paid to two persons for failure by the assessee to deduct tax at source on the payments. The assessee filed form 15G and form 15H before the CIT(A) but the latter did not consider them. On appeal the Tribunal held that the assessee had filed form 15G or form 15H. The CIT(A) should have considered the evidence supplied by the assessee and if he was not satisfied, got it verified from the bank. The AO is directed to delete the addition. (AY. 2008-09)

Hiralal Jain v. ITO (2020)77 ITR 333 (Indore) (Trib)

  1. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Sub-contractor – PAN of transporters at the time of payment – No disallowances can be made [Ss.194C(6), 194C(7)]

Dismissing the appeal of the revenue the Tribunal held that all that was required for non-deduction of tax at source on payment to transporters was that the latter furnishes his PAN to the person responsible for paying or crediting the amount to him. The primary onus was thus on the recipient to furnish his PAN to the payer and the payer, on receipt of such PAN, was under a statutory obligation not to deduct tax at source on such payments. Further, the payer was under a statutory obligation to furnish the information in prescribed forms to the Income tax authority. As far as the Assessee’s non-compliance with S. 194C(7) of the Act were concerned, there were separate penal provisions in terms of S. 234E and S. 271H of the Act. In the instant case, once the Assessee was in receipt of PAN and had not deducted tax at source, it had complied with the first statutory obligation cast upon it and could not penalized for non-deduction of tax at source u/s. 40(a)(ia) of the Act. Merely because there was a failure by Assessee to furnish the prescribed information to the income tax authorities, Assessee should not suffer thirty percent of disallowance of expenditure u/s. 40(a)(ia) of the Act. (AY. 2015-16)

ACIT v. Arihant Trading Co. (2019) 72 ITR 11 (SN) (Jaipur) (Trib.)

  1. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – No addition can be made if AO has not brought any evidence to show that liability has ceased to exist – No additions can be made unless liability has not been written off in books of account [S.145]

The AO has made additions under section 41(1) of the Act stating that the liability has been outstanding since a long time and no transactions have been occurred since then. The Tribunal relied on the Gujarat High Court ruling the case of Bhogilal Ramjibhai Atara (43 taxmann 313) which has held that even if the liability is found to be non-genuine from the inception then also 41(1) of the Act was no solution for it. The Tribunal held that revenue authorities has not shown that the liability has ceased to exist and the assessee has not written back and continue to show the same in liabilities outstanding in the balance sheet. Hence, following the above decision of the Gujarat High court in the case of Bhogilal Ramjibhai Atara (43 Taxmann 313), the Tribunal deleted the adjustment made under section 41(1) of the Act. (AY. 2013-14)

Shivacid India Private Ltd. v ITO (2019) 76 ITR 76 (SN) (Ahd) (Trib)

  1. 45: Capital gains – Transfer – Conversion – AOP converted in to a company limited by shares – New company never remained in existence simultaneously –
    Not liable to capital gain tax [S.2(47)]

During the year, assessee-society was converted into a company limited by shares. AO held that there was transfer of assets owned by assessee to another legal entity within meaning of S. 2(47) which would attract capital gain tax under S 45 (1) of the Act. CIT (A) held that that there was no transfer within meaning of S 45 (1) of the Act because there were no two parties transferor and transferee, accordingly he deleted addition made by the AO. On appeal by the revenue the Tribunal held that till date of conversion, assessee-AOP remained in existence and moment conversion took place, company came into existence. However, AOP and company never remained in existence simultaneously. As per S. 45(1) transfer of capital asset was possible only when there was simultaneous existence of transferor and transferee. in absence of two entities at same time, consideration could not pass from transferor to transferee and, as a result, provisions of S.45 (1) were not applicable. Accordingly the order of CIT (A) is affirmed. (AY. 2001-02)

ACIT v. Escorts Heart Institute & Research Centre. (2019) 178 ITD 362 (Delhi) (Trib.)

  1. 45 : Capital gains – Taxable in the hands of owner and not in the hands of General Power of Attorney holder [S. 2 (47)

Assessee holding GPA for certain persons sold certain immovable property belonging to them during relevant assessment year. He did not offer capital gains tax on said transaction contending that he had executed sale deed as a General Power of Attorney Holder (GPA) and he had not received any amount from transaction. The AO held that the assessee had sold the plot to his daughter not only as a GPA holder, but also as a owner of the property and had earned the capital gain therefrom. He accordingly brought the capital gains to tax. On appeal, the CIT(A) confirmed the order of the AO Tribunal held that since the assessee was not owner of property, capital gain could not be brought to tax in his hand. Followed Suraj Lamps & Industries (P.) Ltd v. State of Haryana (2012 340 ITR 1 (SC) (AY. 2008-09)

Veerannagiri Gopal Reddy v. ITO (2019) 72 ITR 578 / 179 ITD 305 (Hyd.) (Trib.)

  1. 45 : Capital gains – Gains from equities – Entire documentary evidence not disputed and no rebuttal to explanation of assessee – no adverse materials against assessee – No proper enquiry conducted on documentary evidence filed – Assessee entering into genuine transaction of sale and purchase of shares – Entitled to exemption [S.10(38), 68, 115BBE].

The Assessee had entered into a transaction of sale of shares held in a company. The sale took place through Stock Exchange via a registered Stock Broker after payment of Securities Transaction Tax. Assessee claimed exemption under S. 10(38) in respect of the said sale transaction. During the assessment proceeding, the assesse submitted all the relevant documents supporting the purchase of shares made in cash, with sale contract notes and bank statements and dematerialised statements. However, the price of shares skyrocketed without the essential parameters for increase in price. Hence the AO held such transaction to be a sham transaction in the Assessment order passed. The AO treated the gains as unexplained cash credit under S. 68 and taxed the same at 30 per cent under S. 115BBE in the hands of the Assessee. The CIT (A) upheld the AO’s order. The Tribunal, on appeal held – Documentary evidence provided cannot be brushed aside on probabilities and suspicions without pointing out the defect therein. Prices of shares depend upon innumerable factors. Reliance placed upon the statement of Investigation Wing cannot be applied to all the cases blindly. Securities and Exchange Board of India in a subsequent decision, absolved the companies involved in artificial rigging of price of shares, this fact vitiates the revenues case. Held that the Assessee is entitled to claim exemption under S. 10(38) of the Act. (AY. 2014 -15)

Asha Luthra (Ms.) v. ITO (2019) 76 ITR 432 (Delhi)(Trib.)

  1. 45(3) : Capital gains – Transfer of capital asset to firm – AOP – BOI – Full value of consideration – Stamp valuation – Deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as a full value of consideration – Provision of
    S. 50C is not applicable – Special provision of S.45(3) override the general provision of S.50C of the Act. [S.45, 48, 50C]

The assessee transferred an immoveable property as a capital contribution in to ATL Hospitality. The assessee while computing the capital gain on transfer of land in to partnership has taken the value as recorded in the books of the firm as per provision of S.45(3) of the Act i.e. ₹ 5.60 crore as the full value of consideration deemed to have been received or accrued as a result of transfer of capital asset to the partnership firm. The AO applied the provisions of S.50C and valued at ₹ 9,41,78,500,being the value determined by the Stamp Valuation Authority at the time of registration of the supplementary partnership deed. The CIT (A) up held the order of the AO. On appeal the Tribunal held that a plain reading of provisions of S. 45(3) makes it clear that it comes in to operation only on a special cases of transfer between partnership firm and partners and in such circumstances, a deemed full value of consideration shall be considered for the purpose of computation of capital gain as per which the amount recorded in the books of account of the firm shall be taken as a full value of consideration. Though the provision of S.45(3) is not specific provision overrides the other provisions of the Act. Importing a deeming fiction provided in S. 50C of the Act cannot extended to another deeming fiction created by the statute by way of S. 45(3) to deal with special case of transfer. Accordingly the finding of the CIT (A) is reversed and appeal of the assessee is allowed. (ITA No. 6050/M/2016 / ITA No 1614 / Mum/2016 dt 29-12-2017 (AY. 2012-13)

(Editorial : decision in Carlton Hotel Pvt. Ltd. v. ACIT (2009) 122 ITTJ 515 (Luck) (Trib) is distinguished, High Court set aside the order of the Tribunal, CIT v. Carlton Hotel Pvt. Ltd. (2017) 399 ITR 611 (All) (HC), SLP of the assessee is dismissed, Carlton Hotel Pvt Ltd v. ACIT (SC). Followed CIT v. Moon Mills Ltd (1966) 59 ITR 574(SC), also refer, Shri Sarrangan Ashok v. ITO, ITA No 544 /Chny/ 2019 dt 19-08 -2019 (AY. 2015 -16), D. R. Yadav v R. K. Singh (2003) 7 SCC 110, ACIT v. Moti Ramnanad Sagar, ITA NO 2049/Mum/ 2017 / 1690 /Mum/ 2017 dt 28-02-2019 (AY. 2012 -13) ITO v. Chiraayu Estate & Dev Pvt. Ltd. ITA No. 263/Mum/2010 dt. 24 -08, 2011 (AY. 2006-07) ITO v. Sheila Sen, ITA No. 554 /Kol/2016 dt 7-09-2018 (AY. 2006-07) Navneet Kumar Thakkar v. ITO (2008) 110 ITD 525 (Jodhpur)(Trib))

Amartara v. DCIT (Mum) (Trib) (UR)

  1. 48 : Capital gains – Computation – VAT payment made by assessee at time of transfer of trademark is allowable as deduction [S.45 48]

The assessee had sold one of its registered trademark for certain consideration and paid VAT to State Government on sale consideration. Since VAT was paid wholly and exclusively in connection with ‘transfer’ of trademark, said amount was claimed as deduction under S. 48 of the Act. AO held that cost of such capital asset was to be deemed as ‘NIL’ and, therefore, expenditure on VAT could not be allowed as deduction while computing capital gains. CIT (A) deleted the addition. Tribunal held that since assessee had to mandatorily pay statutory levy at time of ‘transfer of intangible to transferee, said expenditure was incurred wholly and exclusively in connection with transfer of capital asset and was allowable as deduction. (AY. 2008 -09)

Bata India Ltd. v. DCIT (2020) 180 ITD 464 (Kol) (Trib.)

  1. 54 : Capital gains – Profit on sale of property used for residence –

Exemption can be claimed on transfer of any number of residential houses provided the capital gain arising thereon is invested in a proper manner within the prescribed time limit. [S.45]

The Assessee had purchased three flats on the same floor of the building by three separate agreements. Subsequently, the three flats were combined into a single residential flat. During the relevant previous year, the Assessee had sold the combined residential flat under three sale agreements on account of legal requirements. The Assessee had claimed deduction under S. 54 of the Act for the long term capital gains arising on sale of the aforesaid combined residential flat. However, the AO held hat the Assessee had sold three flats by way of three separate agreements and accordingly, allowed deduction under S. 54 of the Act only on sale of one flat and taxed the long term capital gains arising on sale of the balance two flats. On appeal, the CIT(A) held that the three adjoining flats were merged and made into one residential unit and the Assessee also used it as one residential house. There is one electricity meter in respect of the three flats. Further, the CIT(A) observed that there is no restriction under S. 54 of the Act that exemption is allowable only in respect of sale of one residential house. Accordingly, the CIT(A) held that even if the Assessee sells more than one residential houses in the same year and the capital gain is invested in a new residential house, the claim of deduction cannot be denied if the other conditions of S. 54 are fulfilled. On appeal by the Department, the Tribunal upheld the findings of the CIT(A) relying on the decision of the Hon’ble Bombay High Court in the case of CIT v. Devdas Naik (2014) 366 ITR 12 (Bom) (HC). (AY 2011-12)

ACIT v. Bipin N. Sagar (2019) 70 ITR 16 (SN) (Mum) (Trib)

  1. 54 : Capital gains – Profit on sale of property used for residence – No requirement that residential house should be constructed in a particular manner – Only requirement is residential use as against commercial use – Assessee constructing ground floor, first floor and second floor – Assessee keeping rights of ground floor and second floor with roof rights of first floor – Entitled to exemption [S. 54F]

The assessee entered into a collaboration agreement with one Mr. K for dismantling an old building and construction of ground floor, first floor and second floor. In terms of the collaboration agreement, the assessee kept the rights of ground floor and second floor with roof rights of the first floor. The assessee declared the fair market value of the property at ₹ 1,25,10,000 for the assessment year 2016-17. After reducing the indexed cost of acquisition at ₹ 21,16,515, he declared long-term capital gains at ₹ 1,03,93,485. The assessee then claimed exemption under section 54 of the Income-tax Act, 1961 at ₹ 1,24,50,000 on the long-term capital gains. The Assessing Officer did not accept the claim of exemption under section 54 on the ground that the assessee had sold the rights of the first floor to the builder and kept the ground and second floors to himself under the collaboration agreement. Therefore, he treated the long-term capital gains on proportionate sale value of the first floor which came to ₹ 34,64,495 (one-third of the long-term capital gains as calculated by the assessee at ₹ 1,03,93,485) as the deemed long-term capital gains on transfer of rights of the first floor to Mr. K and taxed it in the hands of the assessee. The Commissioner (Appeals) enhanced the income. On appeal :

Held, that sections 54 and 54F use the expression “a residential house” which is not “a residential unit”. Sections 54 and 54F require the assessee to acquire a “residential house” and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which requires the residential house to be constructed in a particular manner. The only requirement is that it should be for residential use and not for commercial use. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction under section 54 or section 54F. It is neither expressly nor by necessary implication prohibited. Thus, the assessee was entitled to exemption. (AY 2016-17)

Vinod Kumar Sharma v. ITO (2019) 76 ITR 72 (SN) (Delhi) (Trib)

  1. 54EC : Capital gains – Investment in bonds –Transferable Development Right (TDR) – Acquisition of immovable property is capital asset- Period of holding of TDR was to be calculated from date of acquisition of assessee’s property by municipality [S 2(14), 43(5), 45, 48]

In 1986, assessee’s immovable property was acquired by municipal corporation. Assessee got a right in Transferable Development Right (TDR) in lieu of acquisition of his immovable property. No TDR was allotted for long. On 17-8-1996, assessee entered into an MoU with third party for transfer of right in TDR though there was no TDR in hand Surplus derived from transfer of TDR rights had been assessed under head capital gains. In 2004, said MoU was cancelled because purchaser was not willing to wait anymore because of delay in allotment of TDRs by competent authority. The ssessee got a new buyer for right in TDR and, accordingly, one more MoU was entered into and right in TDR was transferred. The assessee invested the amount in capital gain bonds and claimed exemption u/s 54EC of the Act. The AO held that the transfer of right in the TDR is held to be short term capital gain and denied the exemption u/s 54EC of the Act. On appeal the CIT (A) held that gain on sale of TDR is speculative gain and assessed u/s. 43(5) of the Act and denied the exemption u/s. 54EC of the Act. On appeal the Tribunal held that as TDR was inextricably linked with immovable property and it flew from transfer of immovable property, TDR was a capital asset within meaning of S 2(14) of the Act. Accordingly the surplus from transfer of TDR would be capital gains; not speculative business profit. The fact that assessee had derived right in TDR by virtue of acquisition of immovable property by municipal authorities in year 1986 and such right was conferred on assessee from date of acquisition of property, subsequent cancellation of sale of TDR to third party could not be considered as purchase of TDR from a third party and, therefore, for purpose of determination of period of holding, period of holding of asset from date of acquisition of property by municipal authorities had to be considered, and date, when MoU was cancelled in year 2004 was not to be considered. If investments were made in NABARD Capital Gain Bonds, exemption claimed by assessee under S. 54EC was to be allowed. (AY. 2005-06)

Adi D. Vachha v. ITO (2019) 179 ITD 356 (Mum) (Trib.)

  1. 54F : Capital gains – Investment in a residential house – Developer failed to delivered possession – Delay in construction is not attributable to the assessee –Entitled to exemption [S.45]

Tribunal held that as per the agreement with the developer, the developer was supposed to hand over the possession of plot within 18 months from the date of the allotment letter. However, the developer did not deliver possession. Since the delay was not on the part of the assessee but on the part of the developer which is beyond the control of the assesse. Exemption is allowed to the assessee. (AY. 2013-14)

Abodh Borar v. ITO (2019) 76 ITR 30 (SN) (Delhi) (Trib.)

  1. 54F : Capital gains – Investment in a residential house – The words “in India” cannot be read into section 54F when Parliament in its legislative wisdom has deliberately not used the words. The assessee is entitled to exemption of the Act though he has acquired house property in a foreign country – The amendment to s. 54F by the Finance Act, 2014 w.e.f. 2015 is applicable only prospectively [S.45]

The assessee is an individual. He sold a site and claimed deduction u/s. 54/54F of the Act on the capital gain on sale of the property as he invested the capital gain in purchase of a residential house in Texas on 12.7.2013. The AO denied the exemption. On appeal the Tribunal held that The words “in India” cannot be read into section 54F when Parliament in its legislative wisdom has deliberately not used the words. The assessee is entitled to exemption of the Act though he has acquired house property in a foreign country- The amendment to S. 54F by the Finance Act, 2014 w.e.f. 2015 is applicable only prospectively. (ITA No 2015 of 2019 dt 10 -1 2020) (AY. 2013-14)

Rajasugumar Subramani v. ITO (Bang) (Trib) www.itatonline.org

  1. 54F: : Capital gains – Investment in a residential house – Letting out property on rent – Two adjacent bungalows – Two registered deed- Used as one unit – Entitle to exemption [S.22,45]

The assessee purchased two adjacent bungalows and claimed exemption u/s. 54F of the Act. AO allowed the exemption in respect of only one bungalow which was affirmed by the CIT(A). On appeal the Tribunal held that 2 units bearing separate numbers which were purchased by the assesee out of long -term capital gain income. Both the units are adjacent to each other and the same are single residential unit. Accordingly exemption was granted though there were two registries of the properties. Followed CIT v. Shri D.Anand Basappa (2009) 309 ITR 329/ 180 Taxman 4 (Karn) (HC) (ITA No. 1797 /Ahd/ 2018 dt
6-1-2020) (AY. 2015-16)

Mohammadanif Sultanali Pradhan v. DCIT (Ahd) (Trib) (UR)

  1. 54F: Capital gains – Investment in residential house – Purchase – Constructed in phased manner and payments was linked to stage of construction, it is a purchase and not construction of new asset – Exemption is allowable [S.45]

The assessee claimed u/s. 54F in respect of capital gains on sale of shares in respect of apartment buyer’s agreement entered with SEPL for purchase of a new residential apartment as per which the assessee was required to make a payment which was paid by assessee on various dates. The AO held that assessee had not purchased the new flat but had made payment towards instalment to the builder for construction of the property, therefore, as the new asset was constructed then time limit is there, i.e., the date of sale of original asset till the expiry of 3 years thereafter applied. The assessee had started investing in the new asset from 3 years and 11 months before the date of sale. Around 90% of the total investment in the new asset was made before the date of sale of the original asset. The AO held that assessee was not eligible for deduction u/s. 54F of the Act. Tribunal held that, assessee had sold shares, entered into an agreement with a builder for purchase of new residential flat which was constructed by builder in phased manner and payment of which was linked to stage of construction, it was a case of purchase and not construction of new asset hence eligible for deduction. (AY. 2011-12)

Kapil Kumar Agarwal v. DCIT (2019) 178 ITD 255 / 72 ITR 353 (Delhi)(Trib.)

  1. 54F : Capital gains – Investment in a residential house – Purchase of flat from builder – Date of allotment to be taken as date of acquisition of property – House consisted of several independent units – Exemption cannot be denied – New house need not be purchased exclusively in the name of the assesee – Invested prior to date of filing of return u/s. 139 (4) – Eligible for exemption [S.45, 139 (1), 139(4)]

Allowing the appeal of the assessee the Tribunal held that,while determining claim for deduction under S. 54F in respect of purchase of flat from builder, date of issuance of allotment letter by builder has to be taken as date of acquisition of property. In respect of purchase of a residential house, mere fact that said house consisted of several independent units could not be a ground for denying the exemption. For claiming exemption the new house need not be purchased by assessee in his own name exclusively. In order to claim deduction under section 54F, new residential house need not be purchased by assessee in his own name or exclusively in his name. Sale proceeds utilised in acquisition of new residential house prior to filing of return u/s 139 (4) is eligible for exemption. (AY. 2011-12)

Kamal Murlidhar Mokashi. (Mrs.) v. ITO (2019) 179 ITD 265 (Pune) (Trib.)

  1. 54F : Capital gains – Investment in a residential house – Payments towards purchase of house property – Deduction is available up to date of filing of return of income prescribed u/s. 139(4) [S.45, 139(1), 139(4)]

Allowing the appeal of the assessee the Tribunal held that in respect of payments made to purchase of residential house the deduction is available up to date of filing of return prescribed u/s 139 (4) of the Act. (AY. 2012-13)

Vatsala Asthana (Smt.) v. ITO (2019) 179 ITD 297 (Delhi) (Trib.)

  1. 56: Income from other sources – Share premium – Valuation of shares – Fair Market Value – Valuation considers various factors and not only balance sheet – Evidence on valuation. [S.56 (2) (viib), R11UA]

Assessee issued 70 lakh equity shares of ₹ 10/- each at a premium of ₹ 5 per share, receiving a total premium of ₹ 3.5 Crores. A.O. invoked the provisions of S. 56(2)(viib) and determined the fair market value of each share at ₹ 6.65/-. The premium received was added back to the total income of the assessee. The CIT(A) rejected the valuation of the assessee and A.O and applied rule 11UA to determine the value at ₹ 10.05/-. The assessee challenged the order before the Tribunal.

The assessee submitted that it had obtained the permission of the competent authority for the change of land use from agricultural to institutional for art, culture and convention centre. The total area of the land was 51366.94 sq. yards, while the circular rates of the institutional area were ₹ 22,000/- per sq. yard. The total value of land would come to ₹ 113 crore. After adding the total assets (9.18 lakh) and reducing the total liability of ₹ 46.56 crore, net asset value comes to ₹ 66.54 crore. If the net asset value is divided by the number of equity shares issued (10.10 lakh), the value of each share is ₹ 658.83.

The Tribunal accepted the assessee submissions, held the valuation of the shares should be made based on various factors and not merely on the financials/balance sheet as done by lower authorities. Further, it held that valuation could not be rejected, where it demonstrated the fair market value of the asset is more than the value of the balance sheet. (AY. 2014-15)

India Convention and Culture Centre Pvt. Ltd. v. ITO (2019)75 ITR 538 / 111 Taxmann.com 252 (Delhi) (Trib)

  1. 56 : Income from other sources – Definition of relative – Includes Adopted child – “blood relative” is not mandatory [S.56(2) (vi)]

It was the case of the assessee that out of his natural love and affection the donor has gifted amount to the assessee from his income/capital. The gifts were not liable to income tax in his hands under Income Tax Act as they were ‘capital receipts’. S. 56(2)(vi) also exclude gifts from individuals from certain specified relatives including ‘brother-in-law’ from the purview of taxation. Since the donor resides in Mumbai, it was not possible for him to come down to Baroda before the AO within such short notice. Although It was categorically mentioned in the said reply that the donor was a regular tax payer and is regularly assessed to tax for these years, the AO added ₹ 5,00,00,000/- in the hands of the assessee. The Learned CIT(A) deleted the addition. The Department contested that, the assessee is not a blood relative of Mr. N. It was submitted by the assessee that the assessee is an adopted child under the Hindu Law, mainly Hindu Adoption and Maintenance Act, 1956 the assessee is having same status as of the own child of a spouse in this case. Tribunal held that as the details of the donor starting from PAN number, capital gain statement, bank statement and others is annexed to the paper book, which was duly placed before the authorities below. It appears that when Shri NS not brought to the Learned AO by the assessee no further enquiry was conducted by him, no record against the assessee was also brought. Apart from that, the creditworthiness and/or genuineness of the transaction though doubted by the Learned AO, the same has not been proved by any cogent document in favour of the revenue. Further that, whether the gift so received by the assessee from his brother-in-law is exempted from tax under S. 56 of the Act has been considered on a wrong notion. Instead of relative as provided by the statute, “blood relative”. Hence, the Revenue’s appeal is dismissed. (AY. 2008-09, 2009-10)

Dy. CIT v. Arvind N. Nopany (2019) 174 DTR 313 (Ahd.)(Trib.)

  1. 56 : Income from other sources – Share premium – Two share holders – Brothers – Excess benefit was passed on to assessee was out of shareholding held by his brother-Provisions of S. 56(2)(viii)(c)(ii) would not apply-Balance sheet – Previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. [S.56(2)(viii) (c) (ii), R.11U, 11UA].

Assessee acquired certain shares of a company at face value of ₹ 10 per share. As cost of acquisition of shares appeared to be much lesser than Fair Market Value (FMV), AO estimated FMV as per previous year balance sheet of company, and worked out taxable income under S 56(2)(vii)(c)(ii), as per rules 11U & 11UA. CIT deleted the addition. On appeal by revenue the Tribunal held that since prior to allotment of shares, existing shareholders, were only assessee and his brother, and whatever excess benefit was passed on to assessee was out of interest of shareholding held by his brother, provisions of S. 56(2)(viii)(c) (ii) would not apply. In case balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under S. 56(2)(vii)(c)(ii), previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. In case balance sheet is not drawn up on date of allotment, for arriving at FMV of shares under S 56(2)(vii)(c)(ii), previous Balance Sheet which is audited and approved in AGM has to be taken into consideration, before allotment of shares. (AY. 2014-15)

ACIT v. Y. Venkanna Choudary (2020) 180 ITD 166 (Vishakha) (Trib)

  1. 56 : Income from other sources – HUF – Gift – Amount received as gift from ‘HUF’, being its member, is a capital receipt not liable to tax – Revision is held to be not valid. [S. 4, 10(2), 56 (2) (vii), 263]

The assessee received a gift of ₹ 5,90,000/- from his ‘HUF’. The AO held that since the amount of said gift was more than ₹ 50,000/-, hence, the same was exigible to tax as ‘income from other sources’ under S 56(2)(vii) of the Act.

Subsequently, in course of reassessment proceedings, assessee submitted that ‘HUF’ being a group of relatives, hence, the gift by the ‘ ‘HUF’ to an individual is nothing but a gift from group of relatives and as per the exclusion clause 56(2)(vii) a gift from relative was not exigible to taxation. The AO accepted the contentions raised by the assessee and accordingly assessed the income of the assessee at the returned income. CIT set aside the order passed by the AO and held that the ‘HUF’ did not fall in the definition of relative in case of an ‘individual’ as provided in Explanation to clause (vii) to section 56(2) as substituted by Finance Act, 2012 with retrospective effect from 1-10-2009. That though, the definition of a relative in case of a ‘HUF’ was extended to include any member of the ‘HUF’, yet, in the said extended definition, the converse case was not included that is to say in the case of individual, the ‘HUF’ had not been mentioned in the list of relatives. The Commissioner thus formed a view that though a gift from a member thereof to the ‘HUF’ was not exigible to taxation as per the provisions of section 56(2)(vii), however, a gift by the ‘HUF’ to a member exceeding a sum of ₹ 50,000/- was taxable. Accordingly set aside the order of the AO and directed the AO to make assessment afresh. On appeal the Tribunal held that the property of the ‘HUF’ neither cannot be said to belong to a third person nor can be said to be in ‘corporate entity’, rather, the same is the property of the members of the family. It is because that the share of each of the individual member in the property or income of the ‘HUF’ is not determinate, hence, the family, as such, is treated as separate entity for taxation purposes. ‘HUF’ otherwise is not recognized as a separate juristic person distinct from the members who constitute it. A member of the ‘HUF’ has a pre-existing right in the family properties. A Coparcener has a pre-existing right and interest in the property and can demand partition also, however, the other members of the ‘HUF’ have right to be maintained out of the ‘HUF’ property. On division, the share in the estate/capital of the ‘HUF’ cannot be treated as income of the recipient, rather, the same will be a capital receipt in his hands. Accordingly the amount received by the assessee from the ‘HUF’, being its member, it is a capital receipt in his hands and is not exigible to tax. (AY. 2011-12)

Pankil Garg v. PCIT (2019) 178 ITD 282 (Chd.) (Trib.)

  1. 56 : Income from other sources – Share premium – Approved valuer report was furnished – Addition is held to be not valid. [S. 56(2)(viib), R, 11UA]

The assessee company charged premium on issue of shares. The AO treated the difference between the share premium received in excess of valuation as determined under Rule 11UA of the Act amounting to ₹ 16 x 57,477 (Shares issued to resident shareholders namely Sh. Kamal Batra, Sh. Pankaj Sudan and Sh. Pravin Jain) = ₹ 9,19,632/- was treated as income of the assessee as per the provisions of section 56(2)(viib) of the Act and added the same to the income of the assessee as income from other sources u/s. 56(2)(viib) of the Act. CIT(A) confirmed the order of the AO. On appeal the Tribunal held that, the legislative intent is to apply S. 56(2)(viib) where unaccounted money received in garb of share premium. The AO has not made out a case that stated money is not clean money. Also, the assessee has given approved valuer (CA) report justifying share premium raised based on valid and prescribed method being DCF and said report is in accordance with ICAI norms. AO has not countered the said report by substitute valuation. Also, if the shares are sold in next FY at much higher amount, the premium cannot be said to be excessive (Lalithaa Jewellery Mart Pvt Ltd v ACIT (2019))178 ITD 503 (Chennai) (Trib) followed) (ITA No. 2222/Del/2019, dt. 03.01.2020)(AY. 2014-15)

Clearview Healthcare P. Ltd. v. ITO (SMC) (Trib)(Delhi), www.itatonline.org

  1. 56 : Income from other sources – Shares at premium – Valuation of shares – FMV of shares was estimated after considering intangible assets like goodwill, know-how, patents, copyrights, trademarks, licences, franchises, etc – Re valuation of shares by the AO is held to be not justified. [S.52(viib)]

Assessee issued shares having face value of ₹ 10 per share at premium of ₹ 1,590 per share. The AO held that, share premium was much higher than value estimated under rule 11UA and therefore he determined excess amount as income of assessee u/s. 56(2)(viib) of the Act. On appeal Tribunal held that, FMV of shares was estimated after considering intangible assets like goodwill, know-how, patents, copyrights, trademarks, licences, franchises, etc. AO had not found any specific fault in valuation of shares made by assessee. When the AO has not found any defect or error in the valuation of shares by the assessee-company, it may not be necessary to apply the method of valuation prescribed under rule 11UA. Hence, revaluation of shares by the AO under rule 11UA was unjustified. (AY. 2013-14, 2015-16)

Lalithaa Jewellery Mart (P.) Ltd. v. ACIT (2019) 178 ITD 503 / 73 ITR 532 (Chennai)(Trib.)

  1. 57 : Income from other sources – Deductions – Co-Operative Housing Society – Administrative expenses are allowable against the interest on fixed deposit [S.56]

Allowing the appeal of the assessee the Tribunal held that, the interest income is to be adjusted against the expenditure incurred by the assessee during the year, accordingly the professional fees paid to its chartered Accountant is held to be allowable as deduction. Interest on deposit is not per se a separate source of income and must be taxed only after allowing administrative expenses of a society. Followed Nivedita Garden Condominium v ITO (ITA No. 120/PN. 2009 (ITA No 1390 /Pun/2019s, dt 21-01-2020 (AY. 2014 -15)

Maharashtra Police Mega City Co-Operative Society Ltd v. ITO (Pune) (Trib) (2020) CTCJ-Feb- P.122

  1. 57 : Income from other sources – Deductions – Interest paid on borrowed money – Advanced to earn interest – Though no interest is earned on money lent, interest paid is allowable as deduction.[S.56, 57(iii)]

The assessee borrowed funds and utilised them for lending money to various parties. AO disallowed the interest paid. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that, interest paid by assessee on money borrowed was to be allowed under S. 57(iii) even if it did not earn interest income on money lent by it. Followed CIT v. Rajendra Prasad Moody (1978) 115 ITR 519 (SC). (AY. 2015 -16)

Akash Goyal v. ACIT (2020) 180 ITD 551 (Agra) (Trib.)

  1. 68 Cash credits – Share Application money – Identity and Creditworthiness of the share applicant – Genuineness of the transactions – Burden of Proof – Initial onus on assessee – Discharged – Onus shift to Revenue – Addition based on suspicion is held to be invalid. [S. 133 (6)]

The assessee credit the books of accounts on share capital and share premium to the tune of ₹ 2,40,00,000/-. During the assessment proceedings, the A.O. requested the assessee to provided details of identity and creditworthiness of the share applicant. Further, it requested the directors of the share applicant company to appear before him. The A.O. drew an adverse inference as the director failed to appear and the similarity on documentation filed by all parties showed the entire transaction is a sham. Further, it stated that the share applicants showed little or no tangible asset in their financial. It noted that the assessee failed to show the creditworthiness of the investors and genuineness of the transaction. He brought the entire amount as income u/s 68 of the Act. On appeal, the CIT(A) granted part relief to the assessee. On cross-appeal to the Tribunal.

The Tribunal held the duty is cast upon the assessee to explain the nature, and source of credit in books of account. The assessee has to prove 3 ingredients, i.e. identity of the share applicant, genuineness of the transaction and creditworthiness of the share applicant. To prove these ingredients, the assessee furnished the name, address, permanent account number (PAN), balance sheet and income tax return. On verification of share applicants’ financial statements, it was noticed that they had crores of rupees and the investment made was a small part of their capital. The transactions reflected in the share applicants balance sheet. The share applicants have confirmed the amount in the responses to the notice u/s. 133(6) issued by the A.O. If the assessee has discharged the initial onus, the burden shift to the A.O. to rebut by showing contra evidence. The assessee is not required to prove the source of source. If there is doubt about the creditworthiness of the investor, the A.O. should have carried out an enquired without which no adverse inference can be drawn. In the absence of investigation and gathering of evidence, the addition could not be sustained merely on suspicion or conjectures.
(AY. 2012-13)

ITO v. Paras Surti Products Pvt. Ltd. (2019) 75 ITR 137 (Kol) (Trib)

  1. 68 : Cash credits – Bank statement – Books of account – credit in bank statement not credited in books of account, no cash deposits recorded in books of account – Transactions outside books of account – Addition as cash credit is held to be not justified

Tribunal while allowing the appeal of the Assessee held that, though the assessee had maintained books of account, the cash deposits made in the bank account were not found credited in the books of account. The entire transactions were made outside the books of account. In the absence of any finding with regard to the cash deposits recorded in the books of account of the assessee, the additions made u/s. 68 in respect of cash deposits in the bank account were unsustainable. (AY. 2011-12)

Asha Sanghavi (Smt.) v. ITO (2019) 76 ITR 17 (SN) (Vishakha (Trib)

  1. 68 : Cash credits – Unsecured loan received substantiated by substantial documentary evidence – No proof by AO that loan emanated from coffers of assessee – Lenders corporate entities assessed to tax, making unsecured loans through banking channels – Complete details and evidence of lenders submitted by assessee – Addition is deleted [S.133(6)]

Unsecured loans from 15 persons had been taken during the year 2015-16. Notice under section 133(6) was issued to all the parties. Only two parties confirmed the transactions but refused to accept that they provided any unsecured loan to the assessee. Therefore, the Assessing Officer treated the loans as income under section 68. The Commissioner (Appeals) partially sustained the addition. On appeals by the assessee and Department, the Tribunal held that it is for the AO to pursue a creditor particularly once the assessee had duly furnished the complete particulars of the person from whom monies have been received by the assessee. In the absence of such a burden having been discharged, the Assessing Officer could not have mechanically proceeded to make the addition. Non-compliance with the notice issued under section 133(6) of the Income-tax Act, 1961 to all the entities giving unsecured loan cannot be a basis to make addition under section 68 of the Act. The Tribunal observed that the unsecured loans received by the assessee had been fully substantiated by substantial documentary evidence, copy of the audited financial statement, acknowledgment of return, confirmation from the lender, bank statement of the lender. Such sum could not in law or on fact be held to be unexplained cash credit under section 68 of the Act. No material had been led by the Assessing Officer to even allege that such amount emanated from the coffers of the assessee. The lenders were corporate entities duly assessed to tax and had made unsecured loans through banking channels, which fact had neither been denied nor rebutted in the assessment order, which was also duly confirmed by each of the lender. The assessee had furnished complete details and evidence to discharge the burden in respect of unsecured loan. Therefore, addition was liable to be deleted. The Tribunal followed Earthmetal Electrical (P) Ltd. v. CIT (CA No. 6181 of 2010 dated July 30, 2010) (SC) and CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC). (AY. 2015-16)

Radius Industries v. ACIT (2019) 75 ITR 547 (Delhi)(Trib))

  1. 68 : Cash credits – Share application money – Share premium – Name, address, PAN of share applicants together with copies of their balance sheets and returns and, amount received by account payee cheques out of sufficient bank balances maintained – Addition is held to be not valid

Assessee received share capital along with share premium from various investors. The AO held that assessee failed to prove identity, genuineness and creditworthiness of share subscribers, added the amount as cash credits. CIT (A) deleted the addition. On appeal by the revenue the Tribunal held that, for proving identity of share applicants, assessee had furnished name, address, PAN of share applicants together with copies of their balance sheets and returns, with regard to creditworthiness of share applicants, applicant companies were having capital in several crores of rupees and investment made in assessee was only a small part of their capital. As regards genuineness of transactions, monies had been directly paid to assessee by account payee cheques out of sufficient bank balances maintained by share applicants. Accordingly the addition is held to be not valid. (AY. 2012-13)

ITO v. Axisline Investment Consultants (P.) Ltd. (2019) 178 ITD 402 (Kol)(Trib.)

  1. 68 : Cash credits – Share application money – Premium – Confirmation filed – Mode of investment is explained – Addition is held to be not justified.

The assessee received a certain amount from one Investor as an investment towards share capital and share premium. The AO noticed that neither DML nor assessee produced any documentary evidence that said amount was deposited DML. Hence, made additions u/s. 68 on account of bogus share capital and share premium. CIT (A) deleted the addition. Dismissing the appeal of the revenue the Tribunal held that, the investor, has proved the identity beyond doubt and that notices, summons etc. were duly served upon her at her address provided by assessee. Investors was a woman having considerable financial strength and capacity who had a substantial annual income further she had investments in many immovable properties. Investor has confirmed investment made by her in shares of assessee-company and had also explained mode of investment with substantiated reasons as well as justification for making investments in shares of assessee. Addition is held to be not valid. (AY. 2012-13, 2013-14)

DCIT v. ATC Realtors (P.) Ltd. (2019) 178 ITD 293 (Guwahati) (Trib.)

  1. 68 : Cash credits – Share transactions – Accommodation entries – Unaccounted money – denial of exemption is held to be justified [S. 10 (38), 45

Assessee filed the return declaring long-term capital gain on sale of shares as exempt under S. 10(38) of the Act. AO held that the amount received as unexplained cash credit on the ground that the assessee failed to discharge burden of proof and explain nature and source of transaction and huge profit in all shares traded by assessee against human probability. CIT (A) also affirmed the order of the AO. On appeal the Tribunal held that the assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc.. Moreover, fact that prices of all shares purchased by assessee went up, that too without any corresponding profit or prospects of company, and not even in single case price of share came down, was against human probabilities and impugned year was an isolated year of such profits with no such profits made in earlier or subsequent years. Accordingly as the assessee failed to prove genuineness of transaction and long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted money and thus, exemption claimed under S. 10(38) on sale of shares had rightly been disallowed. (AY. 2015-16)

Satish Kishore v. ITO (2019) 179 ITD 333 (Delhi) (Trib.)

  1. 69: Unexplained expenditure – Bogus purchases – Sales accepted – The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. [S.68]

The assessee is in the business of diamonds. The AO made addition of ₹ 14, 37 867 as alleged bogus purchases. CIT(A) restricted the addition to extent of 12.5 % of such purchases. On appeal following the decision in Mohammad Haji Adam & Co. ITA No. 1004 of 2016 dt 11-02-2019 www.itatonline.org and Judgement of Mumbai Tribunal in Shri Rameshkumar Daularaj v. ITO (ITA No 4192 /Mum/ 2018 dt 07-05-2019 directed that in case of bogus purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases. (ITA No. 6483/Mum/2018, dt. 06.12.2019)(AY. 2008-09)

Hemant M. Mehta HUF v. ACIT (SMC) (Mum)(Trib), www.itatonline.org

  1. 72 : Carry forward and set off of business losses – Discontinued business – Entitle to set off the loss against business income of the current year. [S. 28(i), 71, 72(1), 176(3A)]

The assessee was engaged in the business of manufacturing of textile garments. It filed return for relevant year, declaring total income at Rs. Nil.

The AO held that as the business was discontinued the assessee was not entitle to set-off against the brought forward business losses of the earlier years. CIT (A) allowed the claim of the assessee. Tribunal affirmed the order of the CIT (A) by holding that S. 72(1)(i) does not mandate that business or profession should have been carried on by assessee during relevant previous year as a pre-condition for set off of brought forward business losses and, therefore, in case there are profits and gains of any business or profession carried on by assessee, which are assessable in its hands during relevant year, it would be entitled to set off its brought forward business losses against same. Referred CT v. Jaipuria China Clay Mines (P) Ltd (1966) 59 ITR 555 (SC) (AY. 2011-12)

DCIT v. Regency Property Investments (P.) Ltd. (2019) 179 ITD 584 (Mum) (Trib.)

  1. 73 : Losses in speculation business – Business in trading in shares – Business loss – Delivery based transactions – Derivates transactions in futures and options segment – Explanation to section 73 does not differentiate between ‘delivery based transactions’ and ‘derivative transactions in F&O segment’ and same applies to entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based and, whether there is profit or loss from such business [S.28(i)]

The assessee-company which is engaged in the business of trading in shares on its own account, derivative transactions and share broking activity. It incurred loss in respect of the business of purchase and sale of shares on its own account and the same was claimed to be a normal business loss. The AO held that the loss incurred from the said activity was liable to be treated as a deemed speculation loss in terms of Explanation below S. 73 and rejected the claim. CIT (A) up held the order of the AO. On appeal the Accountant Member accepted the claim of the assessee that the loss incurred from the business of purchase and sale of shares on its own account constituted a normal business loss. The Judicial Member did not agree with the view taken by the Accountant Member and proceeded a pass a separate order taking a different view. He held that the assessee-company during the year under consideration was engaged in a systematic business activity of purchase and sale of shares of other companies on its own account and the loss suffered in the said activity was liable to be treated as speculation loss in terms of Explanation to section 73. In view of difference of opinion between the members of the Tribunal, the matter was referred to the Third Member, Third member held that the business carried on by the assessee during the year under consideration remained the same and it was continued to be of trading in shares on its own account, derivative transactions and share broking activity as admitted by the AO himself in the assessment order. As categorically observed by the AO, there was no material difference or any deviation in the nature of business carried on by the assessee during the year under consideration, vis-a-vis the preceding year. This position gets further fortified from the gross income earned by the assessee from the different activities. The legal position that emanates from various judicial pronouncements is that the Explanation to section 73 does not differentiate between ‘delivery based transactions’ and ‘derivative transactions in F&O segment’ and same applies to the entire business of purchase and sale of shares, whether such trading is delivery based or non-delivery based, whether there is profit or loss from such business. In the present case, the assessee-company has treated the entire activity of purchase and sale of shares, which comprised of both the delivery based and non-delivery based trading as one composite business and, accordingly, claimed set off of the loss incurred in delivery based trading against profit derived from derivative trading. If the ratio of earlier judicial pronouncements is applied to the facts of the assessee’s case, it follows that the aggregation of the share trading loss and profit from derivative transaction should be done before application of Explanation to section 73 and where there was surplus profit on such aggregation, Explanation to section 73 would not be applicable. Therefore, the view taken by the Accountant Member is correct. (AY. 2009-10)

Lohia Securities Ltd. v. DCIT (2020) 180 ITD 1 (TM) (Kol) (Trib.)

  1. 80IB : Industrial undertakings – Profit derived from new oil wells – Law does not require separate accounts to be maintained as if the undertaking itself is a distinct business – Oil wells come into existence after digging the earth through rigs – usage of old plant and machinery in those undertakings no ground to disallow the claim

Held that the assessee is eligible for deduction under S. 80-IB in respect of profits derived from new oil wells, as assessee’s oil wells are distinctly identifiable as per their respective production and also that it has maintained production-wise records and drilling cost well-wise in separate books of account. Further, there is no merit in the Revenue’s argument that assessee’s each oil well ought not to be treated as a separate eligible undertaking. (AY. 2003-04 to 2006-07)

ACIT v. Oil India Ltd. (2019) 182 DTR 25 / 201 TTJ 545 (Gau)(Trib)

  1. 80IB : Industrial undertakings – Eligible undertaking – Each oil well can be treated as a separate eligible undertaking – Not required to maintain separate account for each undertaking [S. 80IC]

Dismissing the appeal of the revenue the Tribunal held that for claiming deduction under S. 80IB, law does not require such separate accounts to be maintained as if undertaking itself is a distinct business. For purpose of deduction each oil well can be treated as a separate eligible undertaking. (AY. 2003-04 to 2006-07, 2007-08)

ACIT v. Oil India Ltd. (2019) 179 ITD 455 (Guwahati) (Trib.)

  1. 80IB(11A) : Undertaking – Business of processing, preservation and packing of fruits or vegetable eligible – Business of extraction of oil from oil palm by different processes and preservation of oil under adjusted temperature and then packaging of oil in large containers or tanks, could be said to be from business of processing, preservation and packing of fruits or vegetable eligible for deduction

Allowing the appeal of the assessee the Tribunal held that, Profits from assessee’s business of extraction of oil from oil palm by different processes and preservation of oil under adjusted temperature and then packaging of oil in large containers or tanks, could be said to be from business of processing, preservation and packing of fruits or vegetable eligible for deduction. (AY. 2012-13 to 2014-15)

3F Oil Palm Agrotech (P.) Ltd. v. ACIT (2019) 178 ITD 319 (Hyd) (Trib.)

  1. 80IC : Special category States – Oil exploration activity can be taken as manufacture or production – Eligible for deduction. [S.80IB, 80IC (7)]

Dismissing the appeal of the revenue the Tribunal held that the assessee is not required to maintain its books of account qua each undertaking to be treated as separate unit in section 80IC(7) of the Act. Oil exploration activity could be taken as manufacture or production as prescribed in section 80IC(2)(b) of the Act, hence eligible for deduction. (AY. 2003-04 to 2006-07, 2007-08)

ACIT v. Oil India Ltd. (2019) 179 ITD 455 (Guwahati) (Trib.)

  1. 80JJAA : Employment of new workmen – Rendering software development services – Regarded as an industrial undertaking engaged in manufacture of article or thing – Eligible for deduction

Tribunal held that rendering software development services is regarded as an industrial undertaking engaged in manufacture of article or thing. Accordingly the software professional who were employees of assessee-company could be considered as workman, hence eligible for deduction. Followed ESI Corpn. v. Reliable Software Systems (P.) Ltd. [2012] 5 AIR Bom. R 795 (para 12] ACIT v.. Texas Instruments (India) (P.) Ltd. [2009] 27 SOT 72 (URO)(Bang) (Trib). The Tribunal held that Software Industry has also been notified as Industry for the purpose of Industrial Disputes Act, 1947 by the State of Karnataka and that the employees employed in software development industry render technical services and not services in the nature of supervisory or management character. (AY. 2012-13)

Manhattan Associates (India) Development Centre (P.) Ltd. v. DCIT (2020) 180 ITD 257 (Bang) (Trib.)

  1. 92A(2) : Transfer pricing- Arm’s length price – Associated enterprises – Two enterprises can be treated as associated enterprises – Judgements of non jurisdictional High Courts are binding on the Tribunal – Addition is deleted. [S.92C]

The law in Diageo India Pvt Ltd v. Dy CIT (2011) 47 SOT 252 (Mum) (Trib) that the definition of “Associated Enterprises” in section 92A(1)(a) & (b) is the basic rule which is unaffected by the specific instances referred to in s. 92A(2) is not good law in view of the amendment by the FA 2002 and CBDT Circular No. 8 dated 27.08.2008. The correct law as held in Veer Gems 95 taxmann.16 (Guj) is that S. 92A(2) restricts the scope of S. 92A(1) and it is only when the criterion specified in sub section (2) is satisfied, two enterprises can be treated as associated enterprises. Judgements of non jurisdictional High Courts are binding on the Tribunal. Tribunal held that the relationship between assessee and KES was not AEs and accordingly no arm’s length price adjustments could be made on the transactions between these two entities. Addition is deleted.(ITA No 2165/Mum/15, dt. 28.02.2020)(AY. 2007-08)

Kayee Pvt. Ltd. v. ITO (Mum)(Trib),www.itatonline.org

  1. 115JAA : Book profit – Deemed income – Tax credit – Demerger of SEZ units – Tribunal Order – MAT credit needs to be allowed to the assessee – not to the demerged company (SEZ units) even though the same arose on account of SEZ units.

Dismissing Revenue’s appeal, Tribunal held that even though no specific provision is provided in the Act in respect of carry forward and set off of MAT credit in respect of demerger, the credit for such MAT credit needs to be allowed to the assessee, and not to the demerged Company (SEZ units).
(AY. 2014-15)

DCIT v. TCS E-Serve International Ltd. (2019) 182 DTR 273 / 201 TTJ 997 (Mum)(Trib)

  1. 132 : Search and seizure – No search warrant – Search declared as invalid – Block assessment is also invalid [S.158BC, 158BD]

A search and seizure operation under section 132 of the Act was conducted in the business and residential premised of the assessee. In the course of the search, books of account were seized. The AO completed the assessment under s. 158BC rws 143(3) rws 158BD of the Act. CIT(A) observed that notice under s. 158BC issued is invalid and the order u/s 158BC was after limitation & cancelled the order of the AO. Tribunal held that the CIT(A) has also observed that since there is no search warrant issued in the name of the assessee in the assessment records. Therefore, once the search was to be declared as invalid and, on that ground, that impugned block assessment was also declared as invalid. Hence the order of the CIT(A) is confirmed. (BP 01-04-1989 to 08-11-1999)

Seema Sen (Dey) (Smt.) v. ACIT (2019) 177 DTR 205 (Ctk)(Trib.)

  1. 139: Return – Invalid return – Failure to enclose the report from Chartered Accountant in Form No 3CEB – AO must give an opportunity to rectify the defect with in specified time- Reassessment is quashed on the ground of change of opinion.[S.92E, 139(9), 147, 148, 271BA ITAT R. 27]

Dismissing the appeal of the revenue the Tribunal held that the AO cannot hold the return as invalid for failure to enclose the report from Chartered Accountant in form No 3CEB. AO must give an opportunity to rectify the defect with in specified time. The Tribunal entertained the Rule 27 application of the responded in respect of validity of the re assessment. Following the judgement in CIT v Kelvinator of India Ltd (2010) 320 ITR 561 (SC) the reassessment proceeding was quashed. (AY. 2008-09)

DCIT v. Husco Hydraulics (P.) Ltd. (2019) 179 ITD 559 (Pune) (Trib.)

  1. 143(2) : Assessment – Notice – Notice issued to wrong address – Department acknowledging mistake and serving notice by affixture at correct address – Service by affixture not permissible and could not be taken into account – Notice invalid and assessment is void ab initio [S.143(3), 282, 292BB]

Allowing the appeal of the assessee the Tribunal held that, the notices were never issued to the correct address. The Department itself had acknowledged its mistake by substituting service of notice by way of affixation by mentioning the correct address but this could not be taken into account as there was no effort whatsoever on the part of the Department to get the service effected through ordinary course. Notice by way of affixation was only to be served when the correct address was not available or the assessee had refused to accept the service of notice. Consequently, the assessment framed under S. 143(3) is void ab initio. (AY. 2013-14)

Tourism India Management Enterprises (P.) Ltd. v. Dy. CIT (2020)77 ITR 311/185 DTR 361 / 203 TTJ 509 (Delhi) (Trib)

  1. 143(2) : Assessment – Service of notice – Notice served on assessee which was not as per addresses as specified in rule 127(2) of 1962 Rules, assessment based on said notice is not valid assessment. [R.127(2)]

Before the CIT(A) the assessee contended that in absence of valid service of notice u/s. 143(2), assessment done u/s. 143(3) was null and void. CIT (A) allowed the partial relief on merit. The assessee filed an appeal in respect of issue of notice u/s. 143(2) of the Act. Tribunal held that, notice issued at a wrong address cannot be said to be a valid service of notice, since address which had been mentioned in notice u/s.143(2) was none of addresses as specified in rule 127(2), therefore service of notice could not be regarded as proper or valid service and, thus, consequent assessment made on basis of such invalid. (AY. 2009-2010)

ITO v. Ajay Raj (2019) 178 ITD 379 (Delhi)(Trib.)

  1. 143(3) : Assessment – Books of account – TDS return – Difference in income as per 26AS and books of accounts – No additions can be warranted [S.28(i), Form, 26AS]

Assessee received income for some contract work done for Kuvempu University. The Kuvempu university in its TDS Return has recorded higher amount as compared to that recorded by the assessee in its books of accounts. Thus, the AO has made addition based on difference in Form 26AS and books of accounts of the assessee which was also confirmed by CIT(A). On appeal the Tribunal relying on the decision of Hon’ble Mumbai ITAT in case of TUV India Pvt. Ltd. (2019) 75 ITR 364 (Mum) (Trib.) which has similar facts as that of assessee and has held that:

  • Addition to total income cannot be made due to discrepancy in receipts as shown in 26AS;

  • There is difference in accounting policy followed by assessee and clients who have deducted TDS or the TDS have been deducted by the clients on inclusive of service tax whereas the income reflected by assessee is exclusive of service tax;

  • The assessee does not have control over the data base of the Income tax Department as reflected in Form 26AS and at the best it can obtain bona fide explanations for this difference;

  • The Department has all the information in its possession and control and thus, should have conducted necessary enquiries to unravel the truth but asking the assessee to do is not warranted.

Thus, no addition can be made on the difference between the income as per Form 26AS and as that reflected in books of accounts. (AY. 2010-11)

Roopa Electricals v. ITO (2019) 57 CCH 501/ 76 ITR 39 (SMC) (SN) (Bang.)(Trib.)

  1. 145 : Method of accounting – Survey – Estimation of income on the basis of estimated gross profit on sales – Rejection of books of account without any reason – Addition is held to be not valid.[S.133A, 144]

The assessee is in the e business of dealing in precious metals and ornaments. During the course of this survey, certain diaries were found indicating unaccounted credit sales. These diaries were impounded by the authorities. On the basis of the entire material and the books of account, the assessee offered to tax additional income on account of stock difference of gold, silver and diamond on account of stock. The assessee filed return accepting this additional income. However the AO made addition on account of estimated gross profit on estimated sales. CIT (A) confirmed the addition. On appeal the Tribunal held that the AO made addition made in respect of the unaccounted sales are far in excess of the actual sales made by the assessee, when the income voluntarily offered to tax on the basis of material on record is far more than income, strictly speaking, legally justified on that basis, there cannot be any good reasons to make separate additions on the basis of the same material. In these circumstances, separate addition on account of income, as profit or as seed capital or for any other related factor, is clearly unwarranted. Accordingly deleted the addition. (AY. 2011-12)

Mayankkumar Natwarlal Soni. v. ACIT (2019) 179 ITD 444 (Ahd) (Trib.)

  1. 147: Reassessment – After the expiry of 4 years – No scrutiny assessment – Reopening solely based on information from Investigation Wing – No independent application of mind – Reassessment invalid.

The assessee filed return of income, but no scrutiny assessment was carried out. There was information obtained from the Principal Directorate of Income – Tax (Investigation Wing). The information provided that the modification of client code in the stock exchange by brokers was misused for manipulative activities, including tax evasion. On investigation by SEBI and Investigation Directorate Ahmedabad, the assessee name appeared in the list of beneficiaries. A.O. based on information held it has reasons to believe that income of the escaped assessment.

According to the Tribunal, the reassessment is invalid, as it was based on the information from the investigation wing without making independent verification and application of mind by the A.O. (ITA. No 4558/Del/2019, dated 11/09/2019, AY 2009-10)

Magan Behari Lal v. DCIT (2019)75 ITR (Trib) 322 (Delhi) (Trib)

  1. 147: Reassessment – Reasons recorded and additions made – CIT(A) deleted some additions which formed part of reasons –other additions not part of reasons survived- held no other addition could survive in respect of which reasons are not recorded [S.148]

The assessee is a government contractor and its assessment under Section 143(3) of the Act was completed by AO after making certain additions. Thereafter, reopening proceedings were initiated by issuing notice under Section 148 of the Act. After recording reasons, the AO made certain additions in the reassessment order of which some were part of reasons for reopening and some did not form part of reasons for reopening. These additions were challenged before the CIT(A) and the CIT(A) deleted those additions which were part of the reasons for reopening and confirmed the other additions. Aggrieved by the same, the assessee preferred an appeal before the Tribunal. The Tribunal relying on the various judicial precedents in case of Adhunik Niryat Ispat Ltd. (ITA No. 2090 of 2010) and Ranbaxy Laboratories Ltd v. CIT (2011) 242 CTR 117 (Delhi) (HC) held that when the additions in respect of which reasons were recorded are deleted, the additions made on account of the items other than the items in reasons recorded, cannot survive. Hence the AO was directed to delete the additions accordingly. (AY. 2009-10)

Naresh Kumar Garg, Prop. Grag Electricals v. ACIT (2019) 76 ITR 18 (SN) (Delhi)(Trib.)

  1. 147 : Reassessment – Notice – Notice was neither served upon assessee nor sent at proper address – Reassessment is held to be not valid [S.148]

Tribunal held that the assessee was regularly assessed to tax, Since the AY 2003-04, he had been regularly filing the returns up to the AY 2018-19, at Kanpur and the address mentioned was a Kanpur address. If in the Income-tax records and in the permanent account number data base, the assessee’s address and the jurisdiction of the AO had been categorically given, then without verifying the address, the ITO could not issue a notice at a wrong address. The case was reopened mentioned wrong address on which notice had been sent, which, as brought out by the assessee was not an address at all. Tribunal held that, neither the notice u/s. 148 been served upon the assessee nor had been sent at the proper address. Accordingly in absence of any valid service of notice u/s. 148 which is the condition precedent for assuming the jurisdiction for reopening the case u/s. 147, the entire proceedings were void ab initio and to be held as null and void. (AY. 2009-10)

Vikrant Tiwari v. ITO (2019)76 ITR 310 (Delhi)(Trib.)

  1. 147 : Reassessment – Sale of agricultural land – Book profit – Erroneous application of law – Mechanical application of mind – Reassessment is held to be not valid [S. 2(14(iii), 115JB, 148, 151, 263]

The assessee has sold agriculture land which has resulted into gain of ₹ 13,98,46,990/-. As per the AO, the said land being located in rural area though does not form the part of the capital asset within the meaning of Section 2(14)(iii) of the Act, at the same time, while computing book profits U/s. 115JB of the Act, gain so derived on sale of agriculture land cannot be excluded while computing the book profits. For this reason, the assessment was re-opened and notice u/s 148 was issued. As per the AO such gain is not income derived from land but is the income derived from sale of the land which cannot be termed as agriculture income which can be claimed as exempt under S.10 of the Act. Accordingly applied the provision of S.115JB in the reassessment proceedings. On appeal the CIT(A) held that gain on sale of agriculture land is eligible for exclusion from book profits U/s 115JB of the Act. However, the assessee’s ground challenging the reopening of the assessment u/s 147 was decided against the assessee and in favour of the Revenue. On appeal by the revenue and cross objection by the assessee the Tribunal held that, if the AO has incorrectly or erroneously applied law and income chargeable to tax has escaped assessment, the Revenue should resort to s. 263 and revise the assessment and not reopen u/s. 147. When matter was referred to the CIT for seeking approval, instead of holding that the matter falls u/s. 263 and not u/s 148, has given approval u/s. 151 which shows non-application of mind and mechanical grant of approval. Therefore, the assumption of jurisdiction u/s. 147 cannot be sustained and is held as invalid in eyes of law. Accordingly the cross objection is decided in favour of the assesee. (ITA No. 237/JP/2019, dt. 23.12.2019)(AY. 2013-14)

Krish Home Pvt Ltd v. ITO (Jaipur)(ITO), www.itatonline.org

  1. 147 : Reassessment – Foreign bequest – Request to transfer is pending – Bequest received by assessee at Sri Lanka could not be recognized as income – Reopening is held to be bad on law [S. 2 (24)(iia), 5,11(2), 12AA, 143(3), 148, 160(1) (iv), 161(1)]

Assessee, a charitable trust exemption u/s. 11 is allowed in the original assessment proceedings. The assessment was reopened on the grounds that assessee had received UK based bequest of certain amount which was credited to assessee’s Sri Lanka based bank account and same was entitled to be treated as income of assessee as same was neither claimed for exemption under S. 11(1) nor set apart under S. 11(2). The Assessee contended that it was not in receipt of impugned sum since due permission seeking transfer of impugned sum to India was still pending and, therefore, above sum was wrongly treated as taxable income of assessee. Allowing the appeal the Tribunal held that the amount in question was lying in treasury of bank at Sri Lanka and the Assessee’s request seeking its transfer to India was pending till date. Accordingly London based bequest transfer to Sri Lanka of assessee could not be considered as income of assessee and, therefore, impugned reopening was unjustified. (AY.2007-08)

Mahabodhi Society of India v. ITO (2019) 74 ITR(T) 485 / 179 ITD 564 (Kol) (Trib.)

  1. 148 : Reassessment – Legal representatives – Notice issued in name of deceased assessee – No subsequent notice issued on legal heirs of deceased assessee – S. is 159 not applicable – Reassessment is not valid. [S. 147, 159]

The assessee had expired on November 26, 2008 as per the death certificate dated February 11, 2009 issued by the Jaipur Municipal Corporation. The reasons for reopening the assessment for the assessment year 2006-07 under S. 147 of the Income-tax Act, 1961 were recorded on March 15, 2013. A notice under S. 148 was issued in the name of the deceased assessee on March 20, 2013. Further, there was no subsequent notice under section 148 which had been issued by the AO on the legal heirs of the deceased assessee and therefore, the provisions of S. 159 could not be invoked. Therefore, the reassessment proceedings initiated by issuance notice on the deceased assessee were to be quashed for want of jurisdiction. (AY. 2006-07)

Bhura Ram (Late) v. ITO (2019) 76 ITR 681 (Jaipur) (Trib)

  1. 151 : Reassessment – Sanction for issue of notice – Approval of commissioner in a mechanical manner without due application of mind and mentioning only “yes” – Reassessment is not sustainable [S.147, 148]

Tribunal held that, PCIT while granting approval for issue of notice u/s. 148 had only mentioned “yes”, which established that the approving authority had given approval to the reopening of the assessment in a mechanical manner without due application of mind. Therefore, reassessment was not sustainable in the eyes of law and had to be quashed. AY. 2009-10)

Blue Chip Developers P. Ltd. v. ITO (2019) 76 ITR 58 (SN.) (Delhi) (Trib)

  1. 151 : Reassessment – Sanction for issue of notice – Sanction granted by the CIT under s. 151 by simply writing “Yes, I am satisfied” is also invalid. [S.147, 148]

Held by the Tribunal that:

(i) For re-opening, the condition precedent of ‘reason to believe’ that there escapement of income is sine qua non. Re-opening merely on the basis of information given by the Addl DIT (Inv.), without application of mind / independent enquires by AO is erroneous as it does not satisfy the jurisdictional fact and law for reopening. Hence, both the reopening and reassessment order are quashed

(ii) As the CIT has simply written ‘Yes I am satisfied’ on the same day on which AO has issued reasons recorded does not clear as to whether the senior officer / sanctioning authority has applied his mind before sanctioning, the sanction granted by the CIT under s. 151 is invalid and therefore, the notice under S. 148 is bad in law and quashed. (AY 2009-10)

Vinod Commodities v. ACIT (2019) 182 DTR 49 / 200 TTJ 273 (Jod)(Trib)

  1. 153A : Assessment – Search-Addition to income on account of receipt of share application money and premium – AO not referring to any seized material or other material found during course of search – Addition is unsustainable

Search and seizure operation was conducted upon the assessee. Pursuant to the search action, notice was sent to the assessee under S. 153A of the Act, requiring the assessee to submit its return. In reply to the said notice, assessee declared a net income of
₹ 84,740 as against the returned total income of ₹ 74,831. The Assessing Officer noted that the assessee had received share application money and premium totaling to ₹ 1,11,00,000 from three companies but the required documents evidencing creditworthiness, genuineness and identity of the investors were not furnished. The assessment was completed at an income of ₹ 1,11,84,740 after making an addition of ₹ 1,11,00,000 under section 68 on account of bogus share capital. The CIT (A) deleted the addition on the ground that the additions made by the AO were beyond the scope of S. 153C because no incriminating material or evidence had been found during the course of search so as to doubt the transactions. In the entire assessment order, the Assessing Officer had not referred to any seized material or other material for the year 2009-10 having being found during the course of search in the case of the assessee. Therefore the action of the AO was based upon conjectures and surmises and the addition made was not sustainable in the eyes of law. (AY. 2009-10)

Dy. CIT v. Madhyam Housing Pvt. Ltd. (2019)76 ITR 82 (Delhi) (Trib)

  1. 159 : Legal representatives – Assessment – Assessee is not the legal heir of the deceased – Assessment is held to be bad in law [S.142(1), Hindu Succession Act, 1956, S 8, 15]

Deceased assessee i.e. Rathindranath Bhattachrya while he was alive filed return declaring certain taxable income. After his death, a notice under section 142(1) was issued to Shri A. K. Chakroborty as alleged legal heir of deceased assessee. Subsequently, assessment was made in name of Smt Sumita Bhattacahrya (Das) as legal heir. CIT (A) deleted the addition on the ground that assessment in the name of Smt Sumita Bhattacahrya (Das) as legal heir is void. On appeal by the revenue Tribunal affirmed the order of CIT (A) and held that, when the assessee is not the legal heir the assessment is void and bad in law. (AY. 2014-15)

ITO v. Rathindranath Bhattacharya. (2019) 179 ITD 349 (Kol) (Trib.)

  1. 194B : Deduction at source – Winning from lottery – Lucky draw price coupons – Gratuitous distribution without any price being paid by customers – Not lottery – Not liable to deduct tax at source.[S. 2(24) (ix), 115BB]

The assessee had made purchases of cloth from a shop. He won one Kg. of gold in lucky draw. He was issued 600 grams of gold coins and balance was deducted under S. 194B being 40 per cent of the prize money. The 1 Kg. of gold coins was valued at
₹ 4.29 lakh and total tax deducted at source including surcharge was ₹ 1.89 lakh on the impugned amount. The AO held that the tax had been rightly deducted at source by the Trust authorities. CIT (A) confirmed the order of the AO. On appeal the Tribunal held that The term ‘lottery’ is required to be construed without the aid of Explanation. The Explanation was added with effect from 1-4-2002. Explanation is neither retrospective nor merely clarificatory in this case. The term ‘lottery’ is widened to bring within the ambit also price won without any contribution for participation. In other words the Explanation, added with effect from 1-4-2002, is not applicable to this appeal which relates to assessment year 2000-2001. Accordingly the essential ingredients of ‘lottery’ as it stood prior to the insertion of Explanation to S. 2(24)(ix) is absent in the facts and circumstances of the case and the same cannot be taxed as a ‘lottery’. Hence, the order of the CIT(A) is reversed.(AY. 2000-01)

Rajmohan V. V. Kumbalappalli v. ITO (2019) 179 ITD 288 (Cochin) (Trib.)

  1. 194C : Deduction at source – Contractors – Finance Act states that it would be applicable from a particular date – Section cannot be applied retrospectively [S. 40(a)(ia), 194(6), 263]

The assessee made payment of ₹ 5,00,000/- to a transporter for which no tax was deducted as source as it was exempt from TDS. However the AO disallowed the same under section 40(a)(ia) of the Act for non deduction of TDS under section 194C(6). The CIT(A) upheld this disallowance made by the AO. On appeal to the Tribunal, the Tribunal held that the amendment in respect of section 194C(6) has been inserted by Finance Act, 2015 w.e.f. 1.6.2015 wherein TDS was applicable on transporter. There was no reason whatsoever to apply the provisions with a retrospective effect in order to make a disallowance and thereby directed to delete the addition made by AO. (AY. 2011-12)

Oruganti Sowbhagyam v. DCIT (2019) 76 ITR 79 (SN) (Cuttack) (Trib.)

  1. 194H : Deduction at source – Bank guarantee commission – No principal-agent relationship – Not liable deduct tax at source [s. 2(28A) and 194A(3)(iii)]

The A.O. held the assessee is liable to deduct tax u/s 194H on the bank guarantee commission under the new scheme by Notification No 56/2012 which came into force on 01-01-2013. The Tribunal reversed the lower authorities order, as there is no principal-agent relationship between the bank and the assessee, which is a mandatory condition for invoking the provisions of section 194H. Further, it noted that the bank guarantee commission partook the character of interest u/s 2(28A), and the exemption provided u/s 194A(3)(iii) is available to assessee qua such payment. (AY. 2012-13)

Navnirman Highway Project Pvt. Ltd. v. DCIT (2019) 75 ITR 67 (Delhi)(Trib.)

  1. 194IA : Deduction at source –Immoveable property – Purchase through power of attorney holder for Consideration of 60.12 lakh – Each co-owners share is less than ₹ 50 lakh – Not liable to deduct tax at source – Addition confirmed by the CIT (A) is deleted [S. 201(1), 201 (IA)]

Assessee Purchased an Immovable Property from Power of Attorney holder of two joint owners of said property for consideration of ₹ 60.12 Lakhs. Share of each Co-Owner was ₹ 30-06 lakhhs. Assessee deducted one per cent TDS on sale consideration paid by it. AO held that TDS should have been deducted in name of actual owners and not in name of Power of Attorney holder and since the assessee had not mentioned PAN details of joint owners, tax at source was deductible at rate of 20 Per Cent of purchase consideration accordingly created a demand under S. 201(1) along with interest under S. 201(1A) of the Act CIT (A) confirmed the addition. On appeal the Tribunal held that,even though admitted position is that assessee buyer/ transferee had not deducted tax in hands of joint owners of property, still sub-Section(2) of S. 194IA provides an exception from deducting tax of 1 Per Cent of sale consideration, when sale consideration for transfer of an immovable property is less than ₹ 50 Lakhs. Since consideration for each transferor came to ₹ 30.06 Lakhs each, which was below prescribed limit of ₹ 50 Lakhs given by statute S. 194IA is not applicable and Assessee was not required to deduct tax at source while making payment for said purchase. Accordingly the addition confirmed by the CIT (A) is deleted. (AY. 2016-17)

Oxcia Enterprises (P.) Ltd. v. DCIT (2019) 178 ITD 520 (Jodhpur) (Trib.)

  1. 194J : Deduction at source – Fees for professional or technical services – Arbitration charges – Payments to arbitrators is in nature of professional services rendered by legal professionals liable to deduct tax at source [S.40(a)(ia)]

Assessee made payments to arbitration without deducting TDS u/s. 194J. Since services of arbitrators were in the nature of court procedure for out of court settlement, TDS was not required to be deducted on the payment made to them. The AO rejected explanation of the assessee to deduct TDS and disallowed same u/s. 40(a)(ia). Tribunal by rejecting the claim of the assessee held that, since amount paid is in nature of professional services rendered by legal professionals involved in profession/occupation/vocation of arbitration, same is liable to TDS as per provisions of S. 194J. Circular No 3 of 2015 dt 12-2 2015)(2015) 371 ITR 359 (St) (AY. 2012-2013)

ACIT v. HAL Offshore Ltd. (2019) 178 ITD 272 (Delhi) (Trib.)

  1. S 199 : Deduction at source – Credit to tax deducted – Point in time – Credit in the year in which income is assessable [R. 37BA]

Assessee is engaged in the business of providing software. It raised invoice on Ashoka Leyland, Chennai in March 2011. Ashoka Leyland deposited the tax in April 2011 (succeeding financial year). The A.O. denied the credit by applying Rule 37BA(1) of the Income Tax Rules, 1962. The assessee submitted that benefits of tax deducted at source (TDS) should be allowed in the year in which the corresponding income is recorded.

The Tribunal considered rule 37BA, that grants TDS credit to a person, to whom payment is made, or credit has been given, based on information furnished by the deductor. There is no denial to the TDS by Ashok Leyland. Rule 37BA(3) provides for the “point of time” at which the benefit of TDS is granted. It equivocally provides for credit on tax deducted at source in the year in which income is assessable. Applying the rule, it allowed the TDS credit. (AY. 2011-12)

Mahesh Software Systems P. Ltd. v. ACIT (2019) 75 ITR 100/ 112 Taxmann.com 354 (Pune) (Trib)

  1. 201 : Deduction at source – Failure to deduct or pay – Non – residents – Limitation period prescribed in sub-section (3) of section 201 would be equally applicable in respect of non-residents – Order held to be in valid [s.40(a)(ia), 195, 201 (3)]

The assessee company is engaged in the business of generation, purchase, transmission and distribution of electricity. The assessee had made a remittances to certain foreign parties without deduction of any tax at source. AO treated the assessee in default and passed the order u/s 201(1) and 201(IA of the Act. CIT (A) confirmed the disallowance. The assessee challenged the order passed by the CIT(A) on the grounds viz. that, as the order passed by the ITO(IT) – TDS, Range-2, Mumbai was beyond the period specified in the proviso to section 201(3) Act therefore, the same was barred by limitation. Tribunal quashed the order on the ground that limitation period prescribed in sub-section (3) of section 201 would be equally applicable in respect of non-residents. The Tribunal also held that the revenue had not taken any action against the payee viz. Entec U.K Ltd for non deduction of tax at source and also the time limit for taking such action against them us. 148 had expired, therefore, the order against the payer assessee under S. 201(1) & 201(IA) read with section 195 dt 31-10-2013 would be in valid. Accordingly the order passed ITO (TDS is also struck down. (AY. 2007-08)

Tata Power Co. Ltd. v. ITO (IT) (2019) 179 ITD 779 (Mum) (Trib.)

  1. 201 : Deduction at source –- Failure to deduct or pay – Limitation- Increased limitation of seven years with effect from 1-04-2014 shall not apply retrospectively – Order is barred by limitation [S 201(1) 201(IA)]

Allowing the appeal of the assessee the Tribunal held that, increased limitation of seven years under section 201(3) as amended by Finance (No. 2) Act, 2014, with effect from 1-4-2014 shall not apply retrospectively to orders which has already become time barred under old time limitation of two years as set out by unamended section 201(3)(i) and, hence, no order under section 201(1)/201(1A) deeming tax deductor to be assessee-in-default can be passed if limitation has already expired as on 1-10-2014. Accordingly order is barred by limitation. (AY. 2010-11, 2011-12)

Sodexo SVC India (P.) Ltd. v. DCIT (2019) 72 ITR 132 / 178 ITD 39 (Mum) (Trib.)

  1. 206C : Collection of tax at source – Failure to collect tax at source – Limitation – No limitation is prescribed –Reasonable period of limitation of four years from end of financial year in question was to be followed – order is quashed. [S. 201(3), 206C(6A)]

During the year, the assessee sold ‘scarp’ to various parties on which tax was not collected at source as contemplated u/s. 206C(1). The AO treated the assessee as in default u/s. 206C(6A) in respect of failure to collect tax.

Tribunal held that, the limitation prescribed under one provision of the Act cannot be applied straightway to some other provisions of the Act. The legislature, in its wisdom, inserted sub-section (3) under section 201 by the Finance (No. 2) Act, 2009 w.e.f. 2001 proposing time limit for passing orders u/s. 201 with reference to tax deduction at source. However, no limitation provision has been enacted with regard to tax collection at source as provided in s. 206C and in the absence of statutory time limit prescribed for passing order with reference to collection of tax, the reasonable time limit is followed to be four years from the end of the financial year for passing the order u/s. 206C. order of the AO is quashed.(AY. 2009 -10)

Adani Enterprise Ltd. v. DCIT (2019) 178 ITD 373 (Ahd)(Trib.)

  1. 251 : Commissioner (Appeals) – Dismissal of appeal in limine – CIT(A) cannot dismiss appeal in limine for non-prosecution without deciding same on merits – Order of CIT (A) is set aside. [S. 246A, 249, 250(6), 251]

The AO passed order by making certain additions / disallowances. The assessee filed an appeal before the CIT(A). The CIT(A) dismissed the appeal by holding it non-maintainable on the grounds that the impugned assessment order was not placed on record by the assessee; and that demand notice and challan for payment of appeal fee in compliance of section 249 had not been placed on record by the assessee. On appeal the Tribunal held that, u/s. 250(6) the CIT(A) was obliged to dispose of the appeal in writing after stating the points for determination and to then pass an order on each of the points which arose for consideration. Further he obliged to state the reasons for his decision on each such point which arose for determination. Thus, the CIT(A) was duty-bound to dispose of the appeal on merits. Accordingly the Tribunal held that the assessee has e-filed documents and other attachments, as well as other information submitted by assessee at time of e-filing of appeal before CIT(A) must be treated as part of record of CIT(A) and he should pass order on merits stating points for determination, decision thereon, and reasons for decision. Followed CIT v. Premkumar Arjundas Luthra (HUF) (2016) 240 taxman 133/ 297 CTR 614 (Bom) (HC) (AY. 2015-2016)

Pawan Kumar Singhal v. ACIT (2019) 178 ITD 390 (Delhi)(Trib.)

  1. 251 : Appeal – Commissioner (Appeals) – Powers – Direction issued by the CIT(A) to initiate reassessment proceedings for assessment year 2011-12 is held to be non- est direction hence invalid [S. 50C, 147, 148,149(1)(b) 150(2))

For the assessment year the CIT (A)by order dt 3-05-2019 annulled assessment order passed by the AO and directed the jurisdictional AO to execute remedial action u/s. 50C of the Act. On appeal the Tribunal held that since in terms of S.149(1) (b) in instant case notice u/s 148 could have been issued by end of assessment year 2018-19 and thus law did not permit initiation of proceedings u/s. 147 when the order was passed and direction was issued by CIT (A). As the order was not in accordance with law and was non est direction. (AY. 2011-12)

Anshuman Ghosh v. ITO (2019) 178 ITD 311 (Luck) (Trib)

  1. 251 : Appeal – Commissioner (Appeals) – Power of enhancement Not competent to enhance assessment by taking an income which income was not considered expressly or by necessary implication by AO [S. 45, 54F, 68, 147]

The assessee disclosed capital gain on sale of a residential house property and claimed exemption u/s 54F of the Act. The AO denied the exemption on the ground that two residential properties were sold by the assessee and the deduction under section 54F is only available if property other than a residential property is sold. The Assessee made alternative claim in revised computation which was also denied. On appeal CIT (A) enhanced the assessment by making addition u/s 68 of the Act. On appeal the Tribunal held that CIT (A) has exceeded his jurisdiction in enhancing the income of the assessee by considering the new sources of income not at all considered by the AO. consequently the ground of the appeal of the assessee is allowed. (AY. 2014-15)

Hari Mohan Sharma v. ACIT (2019) 179 ITD 310 (Delhi) (Trib.)

  1. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Order of Tribunal affirmed by High Court – Co-ordinate bench of Tribunal, subsequent to decision of High court could not have entertained miscellaneous application of assessee and recalled order originally passed by Tribunal. [S. 260A]

Assessee is carrying out business of advertisement, marketing and publicity for certain parties from whom it received money and against said receipts, expenses were made. All receipts and expenses were shown in Profit and Loss account, however, surplus of income over expenditure was not offered to tax. CIT (A) and Tribunal held that amount received by assessee towards contribution for advertisement marketing and promotion expenditure was not tainted with mutuality, thus, income of assessee was chargeable to income tax. Assessee preferred a Miscellaneous Application before co-ordinate bench recalling original order of Tribunal claiming that income was not taxable on ground of issue of diversion of income by overriding title which had not been considered. However prior to this, in appeal preferred by assessee against order of Tribunal, High Court had upheld order of coordinate bench and Supreme Court granted leave to assessee against order of High Court. Tribunal held that when a particular issue has been decided by higher forum, then, lower forum should always refrain from deciding any aspect of that matter which can disturb finding of higher judicial forum. Accordingly coordinate bench, subsequent to decision of High court could not have entertained miscellaneous application of assessee and recalled order originally passed by Tribunal. (AY. 2001-02]

Yum! Restaurants Marketing (P.) Ltd. v. ITO (2019) 179 ITD 480 (Delhi) (Trib.)

  1. 263 : Commissioner – Revision of orders prejudicial to the revenue – Commissioner required to decide the issue before determining the assessment order as erroneous and unsustainable in law – Order of Commissioner set aside [S.143(3)]

Commissioner invoked revisionary jurisdiction under S. 263 of the Act setting aside the assessment and directed AO to make a fresh assessment as he did not make an enquiry about the AIR information received regarding cash deposits made in the bank account of the assessee. Tribunal found that Commissioner had not concluded on the issue of inadequacy of cash in hand but required the AO to do so. Tribunal held that Commissioner required to decide the aspect one way or the other before he could determine that the assessment order was erroneous. The initiation of proceedings under S. 263 of the Act were inconsistent with the requirement of S. 263(1) of the Act and therefore set aside by the Tribunal. (AY. 2009-10)

Adishwar K. Jain v. CIT (2019) 201 TTJ 77 / 52 CCH 606 / 181 DTR 29 (Mum.)(Trib.)

  1. 263 : Commissioner – Revision of orders prejudicial to revenue – Commissioner should make independent enquiries to reach a conclusion that the assessment order was erroneous and prejudicial to the interests of the revenue – In absence of independent enquiry, CIT(E) order set aside. [S. 11, 12, 28(iii), 143(3)]

Assessee a non profit organization drives technology of services market by being a strategic advisor to IT industry. Assessee though registered under section 12A did not claim exemption under section 11 of the Act but claimed part of its income as exempt on the principal of mutuality. AO denied the benefit of mutuality. CIT(E) observed that assessee had not incurred any Global Trade Development (GTD) expenses in accordance with its objects and set aside the order under section 263. Tribunal held that CIT(E) did not make any independent enquiry with respect to admissibility of GTD expenses and did not undertake the exercise of required to reach a conclusion that the assessment order was erroneous. Hence, impugned order was quashed. (AY. 2010-11)

National Association of Software and Services Companies (‘Nasscom’) v. CIT(E) (2019) 201 TTJ 39 / 56 CCH 532 / 181 DTR 73 (Delhi.)(Trib.)

  1. 263 : Commissioner – Revision of orders prejudicial to revenue – limited scrutiny – PCIT cannot look into issue which the AO himself was barred from looking into in original assessment.[S.143(1)]

The assessee purchased a property for 41,50,000 against the stamp duty value of the property being ₹ 77,19,000. The case was selected for limited scrutiny in order to verify the source of funds used for purchase of property. The assessee explained the source of funds to the tune of 41,50,000, however the AO made an addition of 3,00,000 disbelieving the receipt of gift received from brother and explaining the explanation for the balance sources of money for purchase of immovable property. The PCIT later found that the AO had not enquired into the applicability of s. 50C and issued notice under section 263 of the Act. On appeal the Tribunal held that it is beyond the power of the AO to look into any other issue when the case itself was selected for limited scrutiny. Hence the PCIT also could not look into any other issue other then the limited issue on which matter was selected for scrutiny and the order u/s. 263 could not be sustained in the eyes of law. (AY. 2014-15)

Padmavathi (Smt) v. ITO (2019) 76 ITR 55 (SN) (Chennai) (Trib.)

  1. 263 : Commissioner – Revision of orders prejudicial to revenue – Revision based on proposal from AO impermissible – Without Application of mind – Revision not erroneous or prejudicial to revenue. [S.143(3)]

Assessees filed return of income and thereafter assesses case was selected for scrutiny and assessment was completed under section 143(3) of the Act. PCIT noticed that in course of assessment proceedings, certain additions and disallowances were not examined by the AO properly hence treated order erroneous as well as prejudicial to interest of revenue and directed AO to make fresh assessment.

On Assessees appeal to Tribunal, it was noted by the Tribunal that on perusal of PCIT’s order it was clear that PCIT had exercised jurisdiction under section 263 based on proposal received from AO. It was held that PCIT was using mind of AO to revise order which was not the scheme of section 263 of the Act. PCIT ought to apply his own mind to examine whether order passed by AO is erroneous and prejudicial to interest of revenue i.e. examine assessment records and assessment order made by AO to find out error. PCIT cannot take guidance from AO to revise the assessment order which is the revisional jurisdiction vested as per scheme of the Act. It was finally concluded by Tribunal that Revisional jurisdiction exercised by PCIT was not in accordance with law hence quashed order passed by PCIT allowing Assesses appeal. (AY. 2015-16)

Manish Chirania v. PCIT (2019) 76 ITR 7 (SN) (Kol.)(Trib.)

  1. 263 : Commissioner – Revision of orders prejudicial to revenue – Limitation – Delay of more than 9 months in service of the order passed is beyond time limit allowed under the Act, hence, unsustainable – Department failed to produce evidence to show that order passed and dispatched within reasonable time – Order is held to be barred by limitation.

Tribunal held that, department had failed to produce any evidence to show that the order had been passed and dispatched to the assessee as well as the AO within reasonable time. Delay of more than 9 months in service of the order passed is beyond time limit allowed under the Act, hence, unsustainable.
(AY. 2007-08)

Chebolu Lakshmi (Smt.) v. ITO (2019) 76 ITR 4 (SN.) (Vishakha) (Trib)

  1. 263 : Commissioner – Revision of orders prejudicial to revenue – Capital gains – Profit on sale of property used for residence – Revision is held to be valid as the conditions of S. 54(2) had been violated as the assessee had not invested the capital gain in purchasing a new residential house before the due date of filing of return under S. 139(1) of the Act – Judgement of jurisdictional High Court is followed. [S.45, 54, 139(1) 139(4), 139(5)]

The assessee sold a residential flat and derived long-term capital gain of ₹ 30.08 lakhs. The assessee filed his return of income under S. 139(1) on 17-7-2014 and claimed deduction under section 54 on account of purchase of new residential flat. The AO completed assessment under S. 143(3) and accepted income returned by the assessee. PCIT in revision proceedings held that the conditions of S. 54(2) had been violated as the assessee had not invested the capital gain in purchasing a new residential house before the due date of filing of return under S. 139(1). The assessee made first payment toward purchase of flat on 5-10-2015 and next on 15-2-2016 and had not deposited the unutilized capital gain in Capital Gain Account Scheme before the due date of furnishing return under S. 139(1). Thus, the assessee was not eligible for deduction under S. 54(1) of the Act. On appeal the Tribunal held that it cannot be said that the decision of the AO is in accordance with the legal position prevailing at the relevant point of time. The decisions cited by the assessee challenging the validity of exercise of jurisdiction under S. 263, would not help the assessee in view of the specific fact involved in the instant case. Thus, on overall consideration of facts and material on record and keeping in view the ratio laid down in the catena of decisions, including the decision of the jurisdictional High Court in Humayun Suleman Merchant v. CIT (2016) 387 ITR 421 (Bom) (HC), it is to be held that PCIT has correctly exercised his power under section 263 to revise the impugned assessment order. Accordingly, the order passed under S. 263 is to be upheld by dismissing the grounds raised by the assessee. (AY. 2014-15)

Rajan Gumba Telang v. PCIT (2020) 180 ITD 184 (Mum) (Trib.)

  1. 271(1)(c) : Penalty – Notice – No specific charge and limb under which penalty proposed – Concealment of income or inaccurate particulars of income – Notice void ab intio. [Section 271(1)(c)]

It is crystal clear that charge for which penalty proposed u/s 271(1)(c), whether for concealment of income or furnishing inaccurate particular of income should be mentioned explicitly in the show-cause notice. The law mandates that authority, who is proposing to impose the penalty, shall be certain as to the basis on which penalty is levied. The notice must reflect that specific reasons, so that assessee to whom such notice is given can prepare his defense to support his case. Show-cause notice not specifying the charge and limb under which the penalty imposed is bad in law. (AY. 2014-15)

Rajendra Kumar and Co. v. DCIT (2019)75 ITR 73 (Luck) (Trib)

  1. 271(1)(c) : Penalty – Concealment – Penalty Notice bad in law – If limb under which penalty has been initiated not specified [S.274]

AO had issued notice section 271(1)(c) read with section 274 of the Act for concealment of income or furnishing inaccurate particulars of income without specifying specific limb of section 271(1)(c) of the Act. CIT(A) confirmed the penalty levied.

On Assessees appeal, Tribunal held that penalty notice issued was bad in law as it did not specify which limb i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars, which was not sustainable in the eyes of law. The Tribunal after placing reliance on the decision in its own case and various other judicial pronouncements deleted the penalty levied by AO. (AY. 2005-06, 2006-07, 2008-09 to 2010-11)

Manjeet Kaur Sran (Mrs.) v. Dy. CIT (2019) 76 ITR 57 (SN) (Delhi)(Trib.)

  1. 271G : Penalty – Documents – International transaction – Transfer pricing – Unless and until a specific defect is pointed out in documents submitted, penalty cannot be levied. [S.92D(3), R.10D(i)]

Allowing the appeal of the assessee the Tribunal held that, Unless and until a specific defect is pointed out in documents submitted, penalty cannot be levied. (AY. 2012-13 to 2014-15)

Procter & Gamble Home products (P) Ltd v. Dy.CIT (2020) 180 ITD 194 (Mum) (Trib)

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