1. Winding up petition – IBC provisions vis a viz Companies Act

The Court held that in a conflict, the provisions of the IBC would prevail over the Companies Act. Further, the Court held that once a winding up petition was admitted, it should trump any subsequent attempt at revival of the company through petitions under Sections 7 or 9 IBC and that a petition under Section 7 IBC was an independent proceeding which must be tried on its own merits.

A Navinchandra Steels Private Limited v. SREI Equipment Finance Limited [2021] 125 taxmann.com 50 (SC) [01-03-2021]

2. Interpretation of statutes – noscitur a sociis – nature of proceedings under the Negotiable Instruments Act 1881- Sections 138, 141 of the Negotiable Instruments Act 1881, Section 8 IBC]

The question before the Court was whether proceedings under the Negotiable Instruments Act were hit by Section 14 IBC. The Court held that the exception in Section 14(3) to moratorium included transactions evidencing a debt or a liability, as was clear from the language of Sections 96(3), 101(3), and 14(3)(a)/(b) IBC. The Court also held that the word ‘or’ in Section 14(1)(a) in “the institution of suits or continuation of pending suits” must be read conjunctively. The Court also held that since the word proceedings is widened by the phrasing of “any judgment, decree or order” and “any court of law, tribunal…” and thus criminal proceedings under the CrPC would also be prohibited. When asked to use the noscitur a sociis rule of interpretation, the Court ruled that where a residuary phrase is used as a catch-all expression to take within its scope what may reasonably be comprehended by a provision, noscitur a sociis could not be used to colour an otherwise wide expression. The Court also reiterated that the purpose of the moratorium would be chipped away if quasi criminal proceedings which would deplete the assets of the corporate debtor were permitted. The Court ruled that a quasi-criminal proceeding under Chapter XVII of the NI Act would be a proceeding under Section 14(1)(a) and the moratorium would attach to such proceeding. Further, the Court ruled that such moratorium would only prohibit proceedings against the corporate debtor and proceedings under Section 141 NI Act could be continued against persons, such as the Director of the corporate debtor.

P Mohanraj & Ors. v. M/s Shah Brothers Ispat Pvt Ltd [2021] 125 taxmann.com 39 (SC) [01-03-2021]

3. Consumer Protection Act, – pecuniary jurisdiction NCDRC – change of forum

The consumer case was instituted on 18.06.2020 under the provisions of the Consumer Protection Act, 1986. Meanwhile, the material provisions of the Consumer Protection Act, 2019 were notified to come into force on 20.7.2020 and 24.07.2020. The NCDRC dismissed the consumer case on the ground that after the enforcement of the 2019 Act, its pecuniary jurisdiction has been enhanced from rupees one crore to ten crores. The Court, after a detailed consideration of the law on change of forum, set aside the NCDRC order, and held that all the proceedings instituted before 20.07.2020 under the 1986 Act shall continue to be heard by the fora corresponding to those designated under the 1986 Act, and not be transferred in terms of the new pecuniary limits established under the 2019 Act. In arriving at the aforesaid conclusion, the Court also took note of the financial hardship to the consumer and the delay that may accrue on account of transfer of pending cases to the lower fora.

Neena Aneja & Anr. v. Jai Prakash Associates Ltd. [Civil Appeal Nos. 3766-3767 of 2020, Dated : 16th March, 2021 (SC)]

1. S. 2(15) : Charitable Purpose – Cancellation of Registration already granted u/s.12AA – Cancellation merely on ground that cut–off specified in the proviso to section 2(15) has exceeded in a particular year held as not sustainable [second proviso 12AA(3)]

Assessee trust was granted registration w.e.f. 01.04.2002, and was carrying on its activities in accordance with its objectives and genuineness was also not disputed. The registration was cancelled on ground that cut-off specified in the proviso to section 2(15) has exceeded specified limit in year under consideration.

Tribunal held that, there was no case for cancellation of registration based on circular no 21 of 2016, and restored the registration on grounds that, as per the circular, it is not mandatory to cancel the registration already granted u/s 12AA, and further that the A.O was not barred by examining the benefits of exemption claimed/s 11 and 12 in terms of Sec 13(8) or sec 2(15) of the Act.

(ITA No. 418 (Vizag) 2012 dt. 13-03-2021)

Visakhapanam Port Trust v. CIT (2021) 87 ITR 27 S.N (Visakhapatnam)(Trib.)

2. S. 2(47) : Capital Gains – Agreement for Transfer and Registration in two different years – Possession handed over along with Agreement of Transfer – Registration done after 5 years – Held Capital gains chargeable in the year in which Agreement of Transfer took place along with handing over the possession and not in the year of registration. [S. 45]

Assessee entered into an Agreement for transfer of land on 06.05.200 and simultaneously handed over the possession on receiving the substantial part of sale consideration. The sale deed was registered on 03.08.2006. The case was re-opened and A.O during Assessment held that actual date of transfer i.e the date as per registered sale deed viz 03.08.06 is the real date attracting Sec 45 of the Act, as against assessee’s contention that transfer took place on 06.05.200 ie AY 2001-02, and not in the year under consideration viz A.Y 2007-08.

Tribunal held that on assessee’s handing over the possession, on receiving the substantial part of consideration in the year 2000, constituted the Transfer as contemplated u/s.2(47)(v)of the Act r.w.s.53A of the Transfer of Property Act attracting taxability of Capital gain in the AY 2001-02. (ITA Nos. 652,653 (Pune) of 2017 dt. 23-12-2020 (AY. 2007-08)

Vasant Laxman Khandge v. ITO (2021) 187 ITD 299 (Pune)(Trib.)/124 Taxmann.com 564

3. S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – Business of acquiring advertisement time (‘Airtime’) – Attribution of 30 percent of gross revenue from India is held to be not justified – DTAA–India 0 Mauritius [Art 5, 7]

Assessee-partnership firm, incorporated under laws of Mauritius, was engaged in business of acquiring and allotting advertisement time (‘Airtime’) and programme sponsorship in connection with programming via non-standard television from Mauritius. It entered into an agreement with Indian entity which was engaged in business of acquiring airtime from assessee and allotting it to various Indian advertising agencies. Assessing Officer held that said Indian entity constituted to be Dependent Agent Permanent Establishment (DAPE) of assessee as per Article 5(4) of India-Mauritus DTAA and attributed 30 per cent of gross revenue from India as profits to said Indian entity. Tribunal held that since said Indian entity was remunerated at arm’s length price by assessee, which was also accepted by TPO of both entities, no further attribution of profits was to be made. (AY. 2009-10, 2011-12)

ESPN Star Sports Mauritius v. ACIT (2021) 186 ITD 546/ 197 DTR 190 /209 TTJ 74 (Delhi) (Trib.)

4. S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – MFN Clause in one DTAA to be read in other DTAA – Leadership training is not FTS or consultancy or Technical Services – in absence of Permanent Establishment there can be no business profits.

Once two sovereigns have added Protocol to the DTAA between India and Sweden, which contains the Most Favoured Nation (MFN) clause, inter alia, qua Article 12, the sequitur is that the beneficial provisions contained in the DTAA between India and Portuguese is to be read in the DTAA between India and Sweden. Further, two striking dissimilarities can be noticed from the definition of fees for technical services as given in the DTAA between India and Portuguese vis-à-vis the DTAA. The first is that unlike the definition contained in India Sweden DTAA, the word ‘managerial’ is absent in the DTAA with Portuguese; and the second is that there is a ‘make available’ clause contained herein. It is because of the first distinction that the assessee has tried to make out a case that Training fee is in nature of consideration for ‘managerial’ services, so as to find an escape route from the definition of fees for technical services and the consequential taxation. The object of the training imparted by the assessee to SAPL employees was to develop leadership qualities leading to better management of SAPL affairs, it rendered managerial services, which are outside the purview of Article 12 of the DTAA read with the Protocol. Further, the leadership training provided by the assessee did not result in making available any technical knowledge, experience or skill etc. to the employees of SAPL. Therefore, the Revenue authorities were not justified in considering Training fee as a consideration for rendering Consultancy or Technical services within the meaning of Article 12(4)(b) of the DTAA between India and Portuguese. Further, the provisions of Article 7 of taxing the business receipts in India do not apply as the company does not have a PE in India and consequently the profits from receipts from SAPL cannot be taxed as ‘Business Income’.

M/S. Sandvik Ab (C/O. Sandvik Asia Private Limited) v. DCIT (IT) (2021) 187 ITD 0638 (Pune-Trib), (2021) 85 ITR (Trib.) 0593 (Pune), (2021) 210 TTJ 1019 (Pune)

5. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Payment made by assessee for market analysis, maintenance of online data, customer database, etc. – Matter remanded for reconsideration – DTAA-India-USA [Art 12]

Assessee-company was engaged in business relating to online advertising like internet based content, communications, etc. It claimed deduction on account of selling and marketing expenses paid to its US subsidiary for rendering services in nature of targeting new customers, carrying out promotional activities and participating in trade shows outside India on behalf of assessee. Assessing Officer held that impugned payments had been made for rendering of managerial, technical or consultancy services and payment was in nature of Fee for Technical Services. Commissioner (Appeals) held that payment for market analysis, maintenance of online data, customer database, etc., was in nature of royalty. Tribunal held that nature of services provided by US subsidiary had not been analysed by Commissioner (Appeals) and Commissioner (Appeals) had rendered decision without bringing on record supporting material. Accordingly the matter remanded to the Commissioner (Appeals). (AY. 2014-15 to 2016-17)

Adadyn Technologies (P.) Ltd. v. DCIT (IT) (2021) 186 ITD 690 (Bang) (Trib.)

6. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Sale of software to Indian distributors – Not in the nature of copy right – Not taxable as royalty – DTAA-India-Sweden [Art. 12]

Assessee was a company incorporated in Sweden. During year, assessee was in receipt of certain sum towards sale of software products from its Indian distributors who further sold same to end customers in India. Assessing Officer held that sale of software products by assessee was in nature of transfer of copyright and, therefore, consideration received for same was taxable in hands of assessee as royalty under section 9(i)(vi) as well as under article 12 of India-Sweden DTAA. CIT (A) affirmed the order of the Assessing Officer. On appeal the Tribunal held that sale of software products by assessee to its Indian distributors for further sale to end users was not in nature of transfer of copyright and, therefore, consideration received by assessee for sale of software was not taxable in hands of assessee as royalty’ under provision of section 9(1)(vi) and article 12 of India-Sweden DTAA. (AY. 2014-15)

Qliktech International AB v. DCIT (2021) 186 ITD 315 (Delhi) (Trib.)

7. S. 10(10C) : Public sector companies – Voluntary retirement scheme – Bank employee – Exit Option Scheme – Ex gratia amount – Tax deducted at source – Not entitle to exemption. [R. 2BA]

Assessee a bank employee, retired from service under Exit Option Scheme and received certain ex gratia amount and claimed exemption u/s 10(10)(c) of the Act. AO denied the exemption. Affirming the denial of the exemption the Tribunal held that that there was no reference regarding fulfilment of conditions prescribed under rule 2BA, assessee’s claim for benefit of exemption under section 10(10C) in respect of ex gratia amount was to be rejected. The Tribunal also held that the employer-Bank (SBI) has also deducted tax at source including the ex-gratia granted to the employee at the time of retirement. In the certificate also, the retirement scheme is mentioned as exit option scheme and there is no reference regarding fulfilment of conditions prescribed under Rule 2BA of the 1962 Rules, which stipulated the criteria for exemption under section 10(10C). (AY. 2008-09)

Krishnan Achary v. ITO (2021) 186 ITD 73/ 210 TTJ 399 (Cochin) (Trib.)

8. S. 10 (23C) : Educational institution – Demerger – Financial help to hospital – No violation of provision – Withdrawal of exemption is not justified [S. 10 (23)(vi)]

CIT (E) held that the assessee-society continued to divert funds towards non-educational activities by way of huge advances on which no interest was charged, same was against requirement of section 10(23C) and withdrew approval granted to assessee – It was found that RNMCS was earlier a part of assessee but was demerged from assessee due to adverse view taken by department. Allowing the appeal the Tribunal held immediately after demerger all transactions between original and demerged institution could not come to a standstill and, thus, there was nothing wrong if assessee provided funds to RNMCS as financial help for time being, since entire amount taken from assessee-society stood paid back order passed by CIT(E) under section 10(23C)(vi) was not sustainable. (AY. 2017-18)

Seth Ramjidas Modi Vidhya Niketan Society v. CIT (2021) 186 ITD 119/ 197 DTR 33/ 209 TTJ 118 (Jaipur) (Trib.)

9. S. 10B: Export oriented undertakings – Matter remanded by the Tribunal to the Assessing Officer examine the claim under section 10A of the Act – CIT (A) allowed the claim under section 10B – CIT (A) was not justified is allowing the deduction u/s 10A of the Act [S.10A, 254(1)]

Tribunal remitted back to Assessing Officer for de novo consideration of alternative claim for deduction under section 10A of the Act . Pursuant to order of Tribunal, fresh assessment order was passed by Assessing Officer denying exemption under section 10B as well as section 10A on ground that prescribed Form No. 56FF as per Rule 16DD was not filed. Commissioner (Appeals) allowed claim for deduction under section 10B. Revenue contended that there were no positive profits available before making addition which could be claimed as deduction under section 10A or 10B Allowing the appeal of the revenue the Tribunal held that since issue of allowability of claim under section 10B was neither alive nor it was permissible, as it amounted to overruling decision of Tribunal by Commissioner (Appeals), thus Commissioner (Appeals) was unjustified in directing Assessing Officer to allow claim for deduction of provision under section 10B. Order of CIT (A) was reversed (AY. 2009-10)

Dy. CIT v. Wayne Burt Petrochemical (P.) Ltd. (2021) 186 ITD 186 (Chennai) (Trib.)

10. S. 11 : Property held for charitable purposes – Exemption denied and income assessed as income from other sources – All incidental expenditures laid out by assessee wholly or exclusively for purpose of making or earning such income were also to be allowed under section 57(iii) [S. 10 (23C) (iiiab), 12A, 12AA, 57(iii)]

Assessee was a charitable educational institution. It filed its return of income showing gross total income at Rs.5.98 crores and claiming expenditure of Rs. 7.27 crores as an amount applied to charitable purposes. Thus, net income was claimed as a loss of Rs. 1.28 crores. Assessee also claimed that its income would any way be exempt under section 10(23C)(iiiab). The Assessing Officer denied exemption under section 10(23C) on ground that assessee was not registered under section 12A/12AA and its income was brought to tax under head income from other sources. However, while computing income, Assessing Officer did not allow above said expenditure claimed by assessee. CIT (A) allowed the Claim of the assessee. On appeal by revenue the Tribunal held that even if revenue brought to tax receipts during year as income from other sources, it was not justified in denying benefit of genuine claim of incidental expenditure under section 57(iii) being expenditure (not been in nature of capital expenditure) laid out by assessee institution wholly or exclusively for purpose of making or earning such income, accordingly expenditure was to be allowed under section 57(iii) of the Act. (AY. 2014-15)

DCIT v. Shri Vaishnav Polytechnic College Govn by VSK Market Tech Educational Society (2021) 186 ITD 378 (Indore) (Trib.)

11. S. 11 : Charitable Purpose – Exemption – Assessee had applied more than 85 per cent. of Total Income towards charitable purposes – Registration granted by commissioner validly in operation – Assessee entitled to exemption.

In the return of income for AY 2014-15, the assessee claimed profit (surplus) as exempt under the provisions of sections 11 and 12 of the Income-tax Act, 1961. The AO examined the activity of the assessee and concluded that its activities were in the nature of trade, commerce or business in view of the dominant activity of acquisition and sale of immovable properties, that they were being carried out with the motive for profit and thus the assessee was not entitled for exemption u/s. 11 of the Act. He, accordingly, assessed the surplus as income from business. Further, observed that certain amount received for infrastructure fund was directly credited to a separate account of fund, without crediting towards income of the assessee. Therefore, the said amount added to the total income. The AO further made an addition by way of disallowance for depreciation.

Tribunal held that (i) the activity of authority of developing of land was charitable in nature and eligible for registration u/s.12AA. The claim of the assessee for exemption u/s. 11 in order and observed that the assessee had applied more than 85 per cent. of the total income towards charitable purposes. The registration granted by the Commissioner u/s.12AA of the Act was validly in operation in the relevant year and thus, the assessee was entitled to exemption u/s.11 subject to fulfilling the conditions contained therein.(AY 2014-15)

Dy. CIT v. Aligarh Development Authority (2021) 87 ITR 82 (Del) (Trib.)

12. S. 11 : Charitable Purpose – Accumulation of Income – assessee produced prescribed form with request for carry forward of amount for utilization in subsequent years, requirement fulfilled. Entitled to exemption.

That exemption u/s. 11 is allowed, if 85 per cent of the funds received are applied for charitable purposes. The assessee had produced the prescribed form as laid down in the Rules, with the request for carry forward of the amount for utilization in subsequent years and, thus, had fulfilled the requirement as prescribed in Explanation 1 to section 11 of the Act. Assessee entitled to claimed exemptions. (AY 2014-15)

Dy. CIT v. Aligarh Development Authority (2021) 87 ITR 82 (Del) (Trib.)

13. S. 14A: No Exempt Income Earned By Assessee During Year, No Disallowance Called For (Rule 8D)

The AO made an addition under section 14A read with rule 8D of the Income-tax Rules, 1962, although the assessee-company had not earned any exempt income.

Tribunal held that there was a clear finding in the assessment order as well as by the CIT(A) that there was no exempt income earned by the assessee during the year. Hence, the disallowance was properly reversed deleted. Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Delhi) Applied. (ITA No.4959 /Delhi/ 2016 dt.8/4/2021 (AY 2011-12).

Dy. CIT v. Dee Development Engineers Ltd. (2021) 87 ITR 38 (Del)(Trib.)

14. S. 14A : Disallowance of expenditure – Exempt income – Interest free funds is more than investments made – No disallowance of interest can be made– Administrative expenses – Disallowance is restricted only to investments giving rise to exempt income. [R.8D]

Tribunal held that where assessee had interest free funds which is more than investments made giving rise to exempt income, no disallowance of interest expense could be made under section 14A read with rule 8D. Tribunal also held that disallowance under rule 8D (2)(iii) Should be restricted only to investments giving rise to exempt income (AY. 2009-10)

Tata Power Co. Ltd. v. PCIT (2021) 186 ITD 82 (Mum)(Trib.)

15. S. 14A : Disallowance of expenditure – Exempt income – Net interest could be disallowed – Book Profit– Computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section 14A read with rule 8D. [S.115JB, R.8D]

Tribunal held that purpose of applying factors contained in clause (ii) of sub-rule (2) of rule 8D, prior to its amendment with effect from 2-6-2016, amount of expenditure by way of interest would be interest paid by assessee on borrowings minus taxable interest earned during financial year . Tribunal also held that for computation under clause (f) of Explanation 1 to section 115JB (2) is to be made without resorting to computation as contemplated under section 14A read with rule 8D. (AY. 2012-13)

DCIT v. Edelweiss Commodities Services Ltd. (2021) 186 ITD 189/ 198 DTR 234/ 210 TTJ 914 (Mum) (Trib.)

16. S. 14A : Disallowance of expenditure – Investment company – once the assessee has been held as an investment company, then the interest expenses directly attributable to such investments required to be capitalized.

The Assessee, an investment company, borrowed certain funds and invested the same, the expenditure incurred with respect to processing fee and interest were capitalized by the Assessee by adding such amount to the value of investment. The AO held that the Assessee was entitled to claim interest expense only for 13 & 14.02.2014 and that interest expense post-acquisition of shares was revenue in nature which is again subject to disallowance u/s.14A against dividend income. The CIT(A) on one hand did not allow such interest expenditure to be treated as revenue in nature and on the other hand he has not allowed the same to be capitalized.

Held that once it is accepted that the assessee is an investment company then the interest expenses directly attributable to such investments are required to be capitalized. (ITA No.2053/Ahd/2017, 2417/Ahd/2017 Dt. 01.06.2021 AY 2014-15)

Addlife Investments Pvt. Ltd. v. DCIT (2021) 187 ITD 591 (Ahd)(Trib.)

17. S. 14A : Disallowance of expenditure – Exempt income – Non recording of dissatisfaction – addition deleted.

The tribunal held that as AO made disallowance u/s. 14A by applying rule 8D, over and above disallowance made by assessee for expenditure attributable to exempt income without recording dissatisfaction over amount determined by assessee, disallowance made by Assessing Officer was to be deleted. (ITA 1562/Mum/2019 dt.28/10/2020)(AY 2014-15)

Jt.CIT (OSD) v. M/s. Rare Enterprises (2021) 187 ITD 65 / (2020) 84 ITR 164 (Mum)(Trib.)

18. S. 14A: No disallowance can be made if no exempt income is earned

The assessee being a partner in a Partnership Firm had received a share of loss from the firm during the year under consideration. The AO invoked disallowance under section 14A of the Act. On appeal, the CIT(A) confirmed the disallowance by holding that even though the Partnership Firm returned a loss, it was a case of negative income and not Nil income.

On further appeal, the Hon’ble Tribunal held that there is no qualitative difference between two situations, first, where the exempt income is Nil and second, where there is negative income for the year. It was also held that the assessee has not earned any exempt income during the year and therefore no disallowance can be made. Reliance in this regard was made on the decision of Hon’ble Bombay HC in the case of Pr. CIT v. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Bom). (ITA No. 2977 (Pun.) of 2017 dt. 28-04-2021) (AY.2013-14)

Kumar Properties and Real Estate P. Ltd. v. Dy.CIT (2021) 87 ITR 69 (Trib) (S.N.) (Pune)

19. S. 22: Income from house property – Rent – From installation of Antenna Tower on the terrace.

The assessee is a cooperative housing society that entered into an agreement to rent out the terrace to install an antenna tower. The AO held that income earned will not fall under the head “income from house property” as the annual value of the property consists of building or land appurtenant and will be considered “income from other sources”. The Hon’ble Tribunal noted that the assessee had not provided any services by granting access to the terrace. Further, the Hon’ble Tribunal followed the Tribunal’s decision in Manpreet Singh (67 SOT 426), wherein the Tribunal noted that rent paid was for the roof to install the antenna. The roof was part of the building, and thus the revenue earned will be considered income from house property. (ITA No 1661/Mum/ 2019, dated 4 January 2021, AY 2014-15)

Maker Tower Premises Co. Op. Society Ltd. v. ACIT (2021) 187 ITD 0653 (Mum)(Trib.)

20. S. 22 : Income from house property – Deemed rent on unsold flats lying as inventory – not taxable if conditions under section 22 are satisfied cumulatively

The assessee is engaged in the business of development of properties and had in its inventory certain unsold flats/bungalows at the year end. The AO opined that deemed notional rental income on such vacant flats/bungalows should be taxed and accordingly taxed the same under Section 22 of the Act. The CIT(A) upheld the order of the AO.

On appeal before the Hon’ble Tribunal, the Tribunal held that 4 conditions must be satisfied so as to fall under the exclusion clause.

In relation to the first condition being that the property or its part should be occupied by the assessee as an owner, the Tribunal held that the word occupy has not been defined anywhere and hence relied on the meaning provided under the Oxford Dictionary of Law as the physical possession and control of land. Since there is no one other than the assessee having physical possession and control over such flats, the assessee is deemed to be the sole occupant and the first condition is thereby satisfied.

In relation to second condition being that any business or profession should be carried on by the assessee-owner, the Tribunal held that the assessee has returned income from its business under the head of PGBP and hence was engaged in the business of property development satisfying the second condition.

In relation to the third condition being that occupation of the property should be for the purpose of business or profession, The Tribunal observed that “purpose of occupation of the flats” means to hold them either for readying them for final sale or holding them during the interregnum from the ready stage to sale stage. The Tribunal held that this activity was performed by the assessee and thereby the third condition was also satisfied.

In relation to the fourth condition being that profits of such business or profession should be chargeable to income-tax, the Tribunal held that it is indisputable that the profits of the business of property development by the assessee are chargeable to income-tax the fourth condition is also satisfied

Therefore, the Tribunal noted that all the four conditions for exclusion from Section 22 of the Act are cumulatively satisfied in the present case. Further relying on the decision of Hon’ble Gujarat HC in the case of CIT v. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661 the Tribunal held that no income from house property can result in respect of unsold flats held by a builder at the year end. Further the amendment in Finance Act, 2017 w.e.f. 1 April 2018 is prospectively applicable from AY 2018-19 onwards. In view of the same the Tribunal deleted the addition made on account of deemed rent on unsold stock. (ITA No. 2977 (Pun.) of 2017 dt. 28-04-2021) (AY. 2013-14)

Kumar Properties and Real Estate P. Ltd. v. Dy.CIT (2021) 87 ITR 69 (Trib) (S.N.) (Pune)

21. S. 24 : Income from house property – Deductions – Interest on second loan to repay the first loan and interest on first loan – both deductible under section 24.

Where the assessee engaged in n the business of construction, development of real estate projects and renting of commercial building availed a loan from an individual to repay the loan of the bank. CIT disallowed interest paid to individual. Held that, the CBDT in Circular No. 28 dated 20-8-1969 has explained that when a loan is taken to repay loan taken for construction of a property interest paid on such loan is also deductible in computing under the head income from house property.

M/S. Indraprastha Shelters Pvt. Ltd. v. DCIT (2021) 187 ITD 0306 (Bang)(Trib),

22. S. 28 : Loss – loss on securities marked to market – unrealised foreign exchange loss – allowable.

The AO’s view that unrealized forex loss was neither an accrued loss nor an actual loss and it does not fit into any of the criteria prescribed for allowability of an expenditure or loss as per the provisions of the Act. Part D of the Chp IV of the Act prescribes provision for computation of income under the head profits and gains from business and profession. None of the provisions of Part D of the Act specified any allowances or deductions of the unrealized forex loss computed on MTM basis by the assessee and therefore, the AO added back to the total income of the assessee.

While allowing the appeal of the Assesee the CIT(A) and Tribunal held that loss on securities marked to market, unrealised foreign exchange loss is allowable. IT(TP)A No.6447/MUM/2016 dt.23/03/2021 (AY 2011-12)

Dy CIT v. M/s KEC International Ltd. (2021) 87 ITR 587 (Mum)(Trib.)

23. S. 28 : Income – provision for carbon credit – no sale of carbon credits during year – provision for carbon credits inadvertently included in taxable income, – remand report that provision written off in subsequent year and disallowed in assessment for that year – provision not taxable.

In respect of the carbon credit amount being wrongly recorded as income, the assessee submitted before the CIT(A) that it could not get the credit certified from the concerned authority during the assessment proceedings and accordingly the management created a provision at the year-end which increased the net profit and closing stock by the amount. The certification report and calculation of carbon credits were placed before the CIT(A) and he deleted this addition.

The Tribunal held, that the assessee admitted that the provision of carbon credits was inadvertently included in the taxable income of the assessee, though it was not taxable under the Act. Besides no sale of carbon credits took place during the year under consideration. The calculation of provision, the basis therefor and the certification report were verified by the Assessing Officer. (ITA No.4959 /Delhi/ 2016 dt.8/4/2021 (AY 2011-12).

Dy. CIT v. Dee Development Engineers ltd. (2021) 87 ITR 38 (Del)(Trib.)

24. S. 28(i) : Business loss – Trading activities in stock and commodities – Provision for loss mark to market loss on trading in derivative – Allowable as business loss [S.37 (1)]

The assessee made provision for mark to market loss on trading in derivative instruments. Assessing Officer disallowed the said loss holding that mark to market loss at best could be an unascertained liability or a provision for loss which might or might not incur at time of settlement of contract at future date. Commissioner (Appeals) deleted the addition. The Tribunal held that even though loss was not finally crystallized as per prudent and regular system of accounting, loss had to be accounted for and, thus, same should be allowed. (AY. 2012 -13)

DCIT v. Edelweiss Commodities Services Ltd. (2021) 186 ITD 189/ 198 DTR 234/ 210 TTJ 914 (Mum) (Trib.)

25. S. 28(i) : Business income – Licence fee – To run Hotel – Business Income – Not rental Income

The license fee received by the assessee for licensing a fully furnished hotel along with license to run the hotel is a business receipt, which is assessable under the head ‘income from business or profession’ but not a rental income, which is assessable under the head ‘income from house property’.

M/S. Dodla International Ltd. v. ACIT (2021) 187 ITD 0693 (Chennai)(Trib)

26. S. 28(1) : Business Loss – Bad Debts – Business of Financing and investing – Giving Guarantees was one of the object – Borrowers for whom guarantee given, defaulted and assessee repaid the loan amount – Assessee recovered partial amount from borrowers and balance unrecovered amount W/off, was held allowable as business loss. [Sec 36(2)]

Assessee Company stood as guarantee by mortgaging its Land on behalf of borrower companies. On default by borrower companies assessee re-paid the loan amounts, but could recover only partial amount on settlement with borrowers. Assessee wrote off the balance unrecovered amount u/s 36(2). The A.O disallowed the claim stating that the conditions of section 36(2) are not fulfilled as the assessee had not received any guarantee commission from the borrower.

Held that, the entire transaction cannot be considered as a colourable device, as all the transactions were in the ordinary course of business undertaken with third parties through bank accounts and registered mortgage deeds spread over a period of 5 years. The balance w/off though may not fulfill condition of section 36(2), but is allowable as business loss suffered in carrying out its ordinary course of business. (ITA No 8218 (Delhi) 2019 dt. 10-03-2021 (AY. 2015-16)

WGF Financial Services Pvt Ltd. v. CIT (2021) 87 ITR 14 (Delhi)(Trib.)(SN)

27. S. 28(1): Business Loss vis-à-vis Capital Loss – Loss allowed as Business Loss in the Order u/s 143(3), after considering the details furnished & offering explanations during assessment proceedings – Order held not to erroneous nor prejudicial merely for non-mentioning of the reasons for allowing the claim as business loss. [S. 263]

Assessee’s case was selected under CASS to verify loss on sale of shares claimed as business loss. During Assessment proceedings A.O had asked assessee to furnish details of his share dealings and loss on shares. Assessment was completed making additions on other grounds, and allowing the loss on share dealings after considering explanation of assessee. Sec 263 was invoked on the ground that the order is erroneous and prejudicial to the extent that the loss arising on conversion of capital asset into stock in trade will be capital loss and cannot be allowed as business loss, and further the order does not mention any reasons for allowing the loss on shares as business loss.

Held that, the assessee during assessment proceedings had explained the nature of loss, and also the circumstances under which the said loss was incurred. Also it has been held in many cases that the A O may not record anything in the assessment order if he was inclined to allow the claim of assessee. Thus merely non-mentioning of the reasons for allowing the claim, will not make the assessment order erroneous, nor it can be held to be prejudicial to the interest of the revenue. (ITA Nos. 1119 (Hyd) of 2018 dt. 04-11-2020 (AY. 2013-14)

Yerram Venkata Subba Reddy v. ACIT (2021) 187 ITD 22 (Hyd)(Trib.)

28. S. 32 : Depreciation – written down value – assessee acquiring assets under scheme of arrangement with another company, depreciation is allowable on revalued amount instead of book value of assets.

Pursuant to a composite scheme of arrangement between the assessee and other companies, the entire movable and immovable assets and liabilities of the power transaction business of K were acquired by the assessee. The assessee got these revalued and started claiming depreciation on the enhanced revalued amount instead of the book value of the assets. The AO held that the assessee was entitled to claim depreciation on the written down value of the block of assets and not on the inflated value arrived after revaluation and he disallowed the excess claim of depreciation. The CIT(A) allowed the appeal of the assessee. Tribunal held that depreciation is allowable on revalue amount of assets instead of book value of assets.

29. S. 32: Capital or Revenue expenditure – Depreciation – if assessee’s claim allowed, claim to depreciation for following year would become infructuous.

The assessee had claimed expenditure incurred on software in the earlier assessment year as revenue expenditure. The AO treated it as capital expenditure and granted statutory depreciation at 25 per cent. The assessee claimed depreciation on the opening WDV. The CIT(A) refused to entertain the claim for the current year on the ground that the assessee had not accepted the Department’s stand in the matter for the earlier year and could not in the same breath claim depreciation on such disputed item of expenditure in the subsequent year.

Tribunal held that, Held, that the assessee had challenged the decision of the AO in earlier year and the appeal was pending. If so, in case the assessee’s claim was allowed, its claim on this issue would become infructuous. (AY 2012-13)

Dy. CIT v. Sisecam Flat Glass India Ltd. (2021) 87 ITR 1 (Kolk)(Trib.)

30. S. 35D : Expenditure incurred in connection with increase in authorized share capital was incurred before commencement of business – deduction u/s 35D is allowable – disallowance cannot exceed exempt income.

The AO allowed expenditure incurred by the Assesse at the time of incorporation by the way of fees paid to Registrar of companies, u/s 35D. But disallowed the deduction claimed on expenditure incurred in connection with the increase in authorized share capital, which was done in order to acquire shares of S. Company, which is a business activity of the assessee. This acquisition was the first investment made by the Assessee Company. The ITAT held that incorporation/registration of company and commencement of business is two different things. Business activities of the assessee company commences only after doing the transaction for which it was established. Thus in such a situation, activity of the assessee commenced upon the acquisition of the shares of the company as discussed above. Thus the expenses incurred by the assessee as specified under the provisions of section 35D, before the commencement of the business, are eligible for deduction.

The department has also challenged the order of CIT(A) in so far as it has deleted the disallowance u/s 14A in respect of expenses related to acquisition of shares and interest expenses as they were capable of giving rise to exempt income. The Tribunal agreed with the CIT(A) that there was nil exempt income received by the assessee in the relevant AY and since disallowance cannot exceed exempt income, it directed the AO to delete such disallowance. (ITA No.2053/Ahd/2017, 2417/Ahd/2017 Dt. 01.06.2021 AY 2014-15)

Addlife Investments Pvt. Ltd. v. DCIT (2021) 187 ITD 591 (Ahd)(Trib.)

31. S. 36(1)(iii) : Amount of revenue generation does not, in any manner, affect the claim of deduction under section 36(1)(iii)

The Tribunal held that Section 36(1)(iii) allows deduction of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. As per section 36(1)(iii) of the Act, any interest expense which has been incurred for the purpose of business is allowed as an expenditure under the head Business and Profession irrespective whether the assessee has generated any corresponding income or not. The AO himself had allowed the same for earlier year and thus following the rule of consistency and on merits of the case the disallowance was deleted.

(ITA No. 1194 (Jai.) of 2018 dt. 06-04-2021) (AY.2013-14)

M/s. TrimurtyBuildcon Pvt. Ltd. v. ITO (2021) 87 ITR (Trib) 0505 (Jaipur), (2021) 211 TTJ 0249 (Jaipur)

32. S. 37(1) : Business Expenditure – Capital or Revenue – Major renovation – Expenditure on repairs & renovation of Office Premises

Assessee Company had incurred expenses on expansion and renovation for 3 of its premises, out of which 2 were leased premises and 1 was owned premises. The expenses incurred were stated to be towards accommodating managing director and executive directors at one of its premises, at other premises it was towards reconfiguring the space to accommodate more employees, and were claimed under the head Repairs & maintenance expenses u/s 37(1). A.O held that the expenses were in the nature of capital expenditure leading to major renovation or erection of assets.

Held that the expenditure incurred for maintaining its business, for increasing its efficiency and for preserving its already existing asset, and thus revenue in nature, and allowable u/s 37(1).(ITA Nos. 3775 (Mum.) of 2016 dt. 16-03-2021 (AY. 2008-09)

UHDE India (P) Ltd. v. ACIT (2021) 211 TTJ 0339 (Mum.)(Trib.)

33. S. 37 (1) : Business expenditure – “interest rate hedging contract” – underlying transaction was interest payable on loan – loss or gain from interest rate swap arrangement is revenue.

Held that any loss or gain which arose from the interest rate swap arrangement was in the revenue field since the underlying transaction for such an arrangement was the interest payable on the loan which was a revenue item. Therefore, deletion the disallowance of loss on “interest rate hedging contract” is correct. (AY 2012-13)

Dy. CIT v. Sisecam Flat Glass India Ltd. (2021) 87 ITR 1 (Kolk)(Trib.)

34. S. 37(1) : Business Expenditure – investment In Shares Only 11 Per Cent of own funds, No Proportionate Disallowance Of Interest Warranted.

The assessee made investment in shares from which tax-free dividend income was earned. The assessee’s total investment in shares was 12 per cent. of the borrowed funds. Therefore, the Assessing Officer disallowed being the proportionate interest at the rate of 12 per cent. of the total interest paid. The Commissioner (Appeals) deleted the addition.

Tribunal held that CIT(A) had noted after perusal of the balance-sheet of the assessee for the assessment year 2004-05 that the assessee had own funds whereas investment in shares is 11 per cent. of the assessee’s own funds and therefore there cannot be disallowance based on the reasoning of AO. (ITA NO. 1433 /Kol/ 2018 dated 15/03/2021)(AY 2004-05).

Dy. CIT v. EIH Associated Hotels Ltd. (2021) 87 ITR 5 (Mum)(Trib.)

35. S. 37(1) : Business expenditure – advances given to subsidiary which was out of assessee’s own funds – advance made as a measure of commercial expediency – interest on the same is allowable.

The assessee had given interest-free advances amounting to its subsidiary company. The assessee filed a chart indicating the sources of funds for advances made to the subsidiary company in different years to support its view that the advance was given out of its own generated funds. The Assessing Officer did not accept the figures and disallowed proportionate interest on interest-free advances at 26 per cent. of the total interest paid on borrowings.

Tribunal held that, CIT(A) had noted that the advances were out of its own funds and it was given to its own subsidiary company which was in the same line of hotel business as a measure of commercial expediency. (ITA NO. 1433 /Kol/ 2018 dated 15/03/2021)(AY 2004-05).

Dy. CIT v. EIH Associated Hotels Ltd. (2021) 87 ITR 5 (Mum.)(Trib.)

36. S. 37(1) : Business expenditure – expenditure on advertisement – details furnished in respect of two out of three units – disallowance restricted to 2 per cent. of estimate.

The assessee only furnished details in respect of the Agra and Udaipur units, and not in respect of the Jaipur unit. The AO made a disallowance of 10 per cent of the total expenditure. The CIT(A) deleted the disallowance.

Tribunal following the earlier order of Tribunal in own case restricted disallowance on 2 % of the advertising expenses. (ITA NO. 1433 /Kol/ 2018 dated 15/03/2021)(AY 2004-05).

Dy. CIT v. EIH Associated Hotels Ltd. (2021) 87 ITR 5 (Mum)(Trib)

37. S. 37(1) : Business expenditure – staff welfare expenses, staff recruitment expenses, expenses pertaining to employees meals on duties, medical expenses, medical insurance, uniform expenses are incidental to carrying on business – expenditure wholly and exclusively for purpose of business is allowable.

During Assessment the AO noted that a substantial part of the expenses booked by different units of the assessee-company related to employees’ meals on duty, medical expenses, mediclaim insurance, uniform expenses, recruitment expenses, employees’ relation expenses. According to him, recruitment expenses and employees’ relation expenses did not relate to staff welfare, nor were expenses on account of festival gift. Therefore, he disallowed certain expenditure out of the purported staff welfare expenses. The CIT (A) deleted the additions.

Tribunal held that staff recruitment expenses were incurred only exclusively for the purpose of business and hence allowable expenditure. The expenses on account of employees’ relation expenses was incurred for efficient functioning of the business which pertained to employees meals on duties, medical expenses, medical insurance, uniform expenses, etc., and these expenses were incidental to carrying on the business which was crucial in the hotel industry. It was expended wholly and exclusively for the purpose of business and thus allowable under section 37(1) of the Act. (ITA NO. 1433 /Kol/ 2018 dated 15/03/2021)(AY 2004-05).

Dy. CIT v. EIH Associated Hotels Ltd. (2021) 87 ITR 5 (Mum)(Trib)

38. S. 37(1) : Business expenditure – contributions to provident fund and employee’s state insurance – contributions made late but before filing return – allowable.

The assessee did not deposit the employees’ contribution to the Provident Fund and Employee’s State Insurance Corporation within the due date prescribed under the statute but it paid them before filing of the Income-tax return. The AO disallowed the payments, but the CIT(A) reversed the disallowance.

Tribunal held that, legislative intent and objective was not to treat belated payment of employees’ provident fund and Employee’s State Insurance Scheme as deemed income of the employer under section 2(24)(x) of the Income-tax Act, 1961. When two judgments are available giving different views then the judgment which is in favour of the assessee shall apply. And therefore contributions made late but before filing return is allowable under section 37(1). (ITA No.4959 /Delhi/ 2016 dt.8/4/2021 (AY 2011-12).

Dy. CIT v. Dee Development Engineers Ltd. (2021) 87 ITR 38 (Del)(Trib.)

39. S. 37(1) : Business Expenditure – sales promotion and diwali expenses are allowable

The AO disallowed expenses claimed by the assessee under the head sales promotion and Diwali expenses on the ground that they were personal in nature.

Tribunal held that assessee had given details as to how these expenses were related to the business. The AO not justify the reasoning that the sales promotion expenses and Diwali expenses were personal in nature. (ITA No.4959 /Delhi/ 2016 dt.8/4/2021 (AY 2011-12).

Dy. CIT v. Dee Development Engineers ltd. (2021) 87 ITR 38 (Del)(Trib.)

40. S. 37(1) : Business Expenditure – corporate social responsibility expenditure, change of law – expenses prior to amendment prohibiting deduction not to be disallowed. (Expln. 2)

The assessee incurred expenditure for community development and corporate social responsibility. The assessee submitted a note stating that it had incurred expenses on account of scholarship and tuition fees for girl children of junior employees since financial year 2009-10 and provided scholarships to 48 girl children in financial year 2011-12. The AO disallowed the expenses, CIT(A) allowed.

Tribunal held that, that Explanation 2 to s.37(1) was inserted with effect from April 1, 2015 and could not be construed to the assessee’s disadvantage in respect of the period prior to this amendment. The expenses were allowable. (ITA No.4959 /Delhi/ 2016 dt.8/4/2021 (AY 2011-12).

Dy. CIT v. Dee Development Engineers ltd. (2021) 87 ITR 38 (Del)(Trib.)

41. S. 37(1) : Business expenditure – Repairs – Replacement – no increase in productivity – allowable.

Assessee had incurred Expenditure on replacement of Gripper which was part of robotic arms forming part of high pressure die casting machines. It was held by the tribunal that as only a part was replaced and necessity of replacement had arisen as part became old and there was no increase in productivity or capacity after replacement as a result of said expenditure, thus, expenditure incurred on replacement of Gripper should be allowed as revenue expenditure u/s 37. [ITA 2149/Pune/2017 dt.04/01/2021) [AY 2010-11]

Jaya Hind Industries Limited v. Dy. CIT (2021) 187 ITD 659 (Pune)(Trib.)

42. S. 37(1) : Business expenditure – difference & interest on delayed Sales tax payment – not in nature of penalty for contravention of law – allowable expenditure.

Where the assessee company was required to deposit the sales tax amount at normal rate as against concessional rate of tax, resultantly, the differential amount was deposited by the assessee company. Such amount of tax deposited by the assessee company is not in the nature of penalty for contravention of any law.

M/s. Gem Electro Mechanicals Pvt. Ltd. v. ACIT (2021) 187 ITD 0361 / (2020) 84 ITR 1 (Jaipur) (Trib.)

43. S. 37(1) : Business expenditure – Expenditure incurred by the Managing Director in his individual capacity – not wholly and exclusively for the purpose of business of the assessee – disallowed.

The Ld. AO disallowed a sum incurred on account of supply of Alcohol to Embassy of Ireland as one of the Directors of the assessee-company was Honorary Counsel of Ireland. It was held that, there was no evidence to establish the involvement of the assessee-company in the said expenditure. The claim of the assessee that the expenditure in question incurred on organizing an event to celebrate the Ireland National Day in India by its Managing Director in his individual capacity was wholly and exclusively incurred for the purpose of business of the assessee-company and the same, was rightly disallowed by the authorities below.

M/s. MKJ Enterprises Limited v. DCIT (2021) 187 ITD 678 / (2020) 83 ITR 224 (Kol.)(Trib.)

44. S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Commission payment – Mere rendering of service of procurement of export orders by a non–resident company for Indian company does not fall in category of managerial/consultancy services – Not liable to deduct tax at source – DTAA-India-Japan [S. 40(a)(1), 195]

Assessee-company being into export business paid certain amount of commission to TEI, Japan for procuring order for supplying, installing and successful commissioning of cold rolling mill to a Kenyan company. The Assessing Officer disallowed the amount for failure to deduct tax at source. Commissioner (Appeals) affirmed the order of the Assessing Officer. On appeal the Tribunal held that mere rendering of service of procurement of export orders by a non-resident company for Indian company does not fall in category of managerial/consultancy services as explained in Explanation 2 to section 9(1)(vii). Accordingly – disallowance made under section 40(a)(i) of commission paid by assessee was unjustified. (AY. 2016-17)

Digi Drives (P.) Ltd. v. ACIT (2021) 186 ITD 459 (Delhi)(Trib.)

45. S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – payment for purchase of software without deducting TDS – not affected by subsequent court ruling.

The tribunal held that where assessee had not deducted tax on payment for purchase of software as the financial year in question fell prior to date of decision of the Karnataka High Court in the case of CIT v. SAMSUNG ELECTRONICS CO. LTD. [2012] 345 ITR 494 holding tax was deductible at source, no disallowance for earlier year based on subsequent development of law was called for. (ITA No. 491 /Bang/ 2018 and ITA (TP) A. No.1156 /Bang/ 2018 dt. 11/12/2020)(AY 2011-12).

Infosys Bpm Ltd. v Dy. CIT (2021) 87 ITR 193 (Trib)(Bang)

46. S. 40(a)(i) : Amounts not deductible – Deduction at source – Non-resident – Deduction not claimed – No disallowance. [S.195].

During the relevant previous year, the assessee advertising agency had made certain payments to Facebook Ireland Limited towards the cost of advertisements, carried by facebook, for its clients. Being agent it had not claimed the expenses. Assessing Officer disallowed these payments to Facebook Ireland Limited, in computation of business income, under section 40(a)(i). The tribunal held that section 40(a)(i) acts as a restriction on deductibility of expenses under sections 30 to 38, and, as a corollary to this legal position, when related expenditure is not claimed as deduction under sections 30 to 38, this disallowance cannot be pressed into service at all. [ITA No. 3130 (MUM.) OF 2019 dtd 1/12/2020] [AY 2015-16]

Interactive Avenues Private Limited v. Dy. CIT (2021) 187 ITD 463 / (2020) 208 TTJ 945 / (2020) 196 DTR 249 (Mum)(Trib.)

47. S. 40(a)(ii) : Education cess is an allowable expenditure

The Tribunal admitted the additional ground filed by the appellant on the premise that it is only a pure question of law. Further, following the decision of Jurisdictional HC in case of Sesa Goa Lt. v. JCIT (2020) 423 ITR 426 (Bom.), the deduction of education cess and secondary and higher education cess was allowed.

(ITA No. 265 (Pun.) of 2018 dt. 15-03-2021) (AY.2014-15)

Kalyani Steels Ltd. v. DCIT (2021) 87 ITR 3 (Trib.) (S.N.) (Pune)

48. S. 40(a)(ia) : Business expenditure – monitoring fees paid to german bank is “interest” – not liable to tax under act – No disallowance warranted for failure to deduct tax at source. (S.195)(Double Taxation Avoidance Agreement Between India And Germany, Art. 11(3)(B))

The AO passed an order determining the total income of the assessee at a loss under normal provisions, inter alia, making disallowances of loss on interest rate (hedging contract) and monitoring fees for failure to deduct tax at source u/s. 40(a)(ia).

Tribunal held that the monitoring fees paid by the assessee to DEG Bank, Germany qualified as “interest” both under the Act as well as the Double Taxation Avoidance Agreement between India and Germany and the payment made in question was not liable to tax under the Act in terms of the specific exemption granted under article 11(3)(b) of the DTAA. Hence, no deduction of tax at source was required to be made u/s. 195 of the Act. No violation of s.195, the disallowance made u/s.40(a)(ia) of the Act.(AY 2012-13)

Dy. CIT v. Sisecam Flat Glass India Ltd. (2021) 87 ITR 1 (Kolk)(Trib.)

49. S. 40(a)(ia): Amounts not deductible – Deduction at source – Transportation charges – Hiring cabs from cab owners – Liable to deduct tax at source – Payment made to petrol pumps not liable to deduct tax at source. [S.194C]

Assessee received an amount from its customers and made payments to these cab owners on account of hire charges. Tribunal held that since cab owners had received payments from assessee towards hire charges, presumption would be that there was a contract for hiring of vehicles and; therefore, if assessee had made payment for hiring vehicles, provisions of section 194C were applicable. Tribunal also held that amount customers towards petrol and diesel charges, since assessee paid said amount received directly to petrol pumps instead of paying same to cab owners, assessee was not liable to deduct TDS under section 194C on same.

Sri Balaji Prasanna Travels. v. ACIT (2021) 186 ITD 534 / 199 DTR 209/ 210 TTJ 970 (Bang)(Trib.)

50. S. 40(a)(ia): Amounts not deductible – Deduction at source – Fees for technical services – services are not rendered by foreign agent to the assessee in India but to foreign buyers – tax, if at all, on such income is payable by such overseas agents in their own countries where they are working for gains – not covered under the ambit of fee for technical services u/s 9 or 195 of the Act.

Assessee claimed commission expenses in respect of commission paid to overseas agents. This was disallowed because as per the AO, the Assessee did not deduct TDS on such foreign commission remittances as there existed a direct business connection between the Assessee and the overseas agent. Services were rendered by the overseas agent in foreign countries and commission was also received by them in their respective foreign country. Following the decision rendered by Delhi High Court in DIT v. Panalfa Autoelektrik Ltd. (2014) 272 CTR 117 (Delhi), the ITAT observed that the overseas agent received their commission for rendering services not to the assessee in India but to the foreign buyers and if at all foreign agents are liable for making payment of income-tax, they are liable to pay the same in their own countries where they are working for gains and earned their income by way of commission from the assessee. Therefore the addition made u/s 40(a)(ia) is deleted as it is not covered under the ambit of fee for technical services u/s 9 or 195 of the Act. (ITA No.4215/Del./2017 Dt. 29.01.2021 AY 2014-15)

Assistant CIT v. M/s. Kapoor Industries Ltd. (2021) 187 ITD 603 (Delhi)(Trib)

51. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Commission – Brokerage – No disallowance on non-deduction of TDS on commission paid by assessee for immovable property.

Section 40 clearly stipulates that “Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”. Hence it is evident that the provisions of Section 40(a)(ia) is applicable while computing income chargeable under the head “Profits and gains of business or profession” and it is not applicable to any other heads of income. The disallowance made under section 40(a) will only go to enhance the business profit of an assessee whose income is assessable under section 28 and not otherwise.

M/S. R. K. Associates v. ITO (2021) 187 ITD 0827 (Bang)(Trib.)

52. S. 40(a)(ii) : Business Expenditure – Education cess and higher and secondary education cess – Allowable as deduction in computing the income from business or profession as same being not a tax as covered u/s 40(a)(ii).

Assessee filed an additional ground of Appeal and claimed the liability incurred on account of Education cess and higher and secondary education cess on income tax paid as an allowable deduction.

During appeal the Tribunal admitted and allowed the additional ground filed rejecting the plea of D.R, that additional ground is filed after 4 years of filing the main Appeal. The tribunal admitted the same for adjudication, on the ground that the issue taken up as additional ground is after the order of the Hon’ble Bombay High court in Sesa Goa dt 28.02.20, and also decided the matter in favour of assessee allowing the deduction claimed. (ITA Nos. 3775 (Mum.) of 2016 dt. 16-03-2021 (AY. 2008-09)

UHDE India (P) Ltd. v. ACIT (2021) 211 TTJ 0339 (Mum.)(Trib.)

53. S. 40(b) : Amounts not deductible – Partnership – Remuneration payable to partners. Partnership Deed not specify manner of computation. Disallowance accepted.

Assessee debited Rs. 2,88,000/- as remuneration to partners. AO and CIT(A) disallowed basis section 40(b). Assessee claimed within limits under S.40(b)(v). On appeal, Tribunal accepted the disallowance as partnership deed did not specify any quantum or procedure to quantify remuneration to partners. AO and CIT(A) order confirmed. (ITA No. 2815/Del/2019, 23 March 2021, AY 2015-16)

Quality Traders v. ITO (2021) 87 ITR 26 (Trib) (S.N.)(Del)

54. S. 40(b)(v) : Amounts not deductible – Partner – Remuneration – interest income – included for computation of Book profit – for computing partner’s remuneration.

It is abundantly clear that for the purpose of section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book profit. Therefore, the interest income earned by the assessee-firm from the fixed deposit receipts should. not be ignored for the purpose of working-out the book profit to ascertain the ceiling of the partners’ remuneration. For the purpose of ascertaining such ceiling of the partners’ remuneration on the basis of book profit, the profit shall be in the profit and loss account and is not to be classified in the different heads of income under section 40 of the Act. The interest income, therefore, cannot be excluded for the purposes of determining the allowable deduction of remuneration paid to the partners under section 40B of the Act.

Mac Industries v. ITO (2021) 187 ITD 322 (Surat)(Trib)

55. S. 40A(9): Where amount was paid for welfare of employees of assessee and not as contribution to any fund, trust, etc., provisions of section 40A(9) were not applicable [S. 40A(9), S.37]

The Assessee-company had paid a certain sum to two concerns for purpose of festival celebration and general welfare of its employees. AO disallowed the same by invoking section 40A(9) of the Act as these concerns were not approved funds/trusts. The Tribunal held that in the present case amount was paid for the welfare of the employees of the assessee and not as contribution to any fund, trust, etc., and therefore, provisions of section 40A(9) were not applicable and the amount was allowable under section 37. (ITA Nos. 1074 & 1334 (Bang.) of 2017 dt. 14-08-2020) (AY.2011-12)

Karnataka State Infrastructural Development Corporation Ltd v. Dy.CIT(2020) 120 taxmann.com 215 / 83 ITR 0386 / 211 TTJ 0362 (Bang.)(Trib.)

56. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Purchaser w/off Advance paid as bad debts – Advance received is taxable.

Assessee received Rs 10 crores as Advance from ILC for supply of iron Ore. Assessee paid Rs 5.60 crores to its suppliers and should ILC as creditor for Rs 4.17 crores. ILC refused to take delivery. ILC wrote off advanced paid to Assessee as bad debts. Assessing Officer treated Rs 4.17 crores as income of Assessee u/s 41(1). The tribunal held that the amount of Rs. 10 crores had been received by the assessee for business purposes, i.e., for supply of iron ore fines by the assessee and for purchase of iron ore from ILC by the assessee. When the money was received by the assessee in the course of carrying on of business, even if it was treated as a loan at the time of receipt, it was in the nature of revenue, and on the waiver it became the assessee’s own money, though it was not taken into the profit and loss account. The money had been received in the course of day to day affairs of the assessee. There was no purchase of any capital asset. The loans received by the assessee from ILC were for circulating capital and not for fixed capital. Since the advance was taken in the course of normal business affairs of the assessee and it was unclaimed amount and not required to be returned by the assessee it would be its trade receipts. Though the amount received originally was not of income nature, the amount remained with the assessee for a long period unclaimed by ILC and became a definite trade surplus and was to be treated as taxable income. The amount changed its character when the amount became the assessee’s own money because of having been written off by ILC in its books of account and there was no contractual obligation on the part of the assessee to perform its obligation and it should be treated as income of the assessee. The amount of Rs. 4,17,71,395 was income of the assessee under section 41 of the Act.[ITA No.541/ Bang/ 2019 dt.25/3/2021](AY 2011-12).

Hothur Traders v. Asst. CIT (2021) 87 ITR 20 (Trib) (S.N.)(Bang)

57. S. 43A : Rate of exchange – Foreign currency – Adjustment of realised loss against realised profit – allowable

Assessee-company purchased fixed assets by taking loan in foreign currency and suffered foreign exchange loss of Rs. 2.16 crore. Against this, foreign exchange gain of Rs. 53.06 lakhs against capital work-in-progress was adjusted and balance of Rs. 1.63 crores was added back in computation of income. Assessing Officer/DRP sought to add said Rs. 53.06 lakhs to income of assessee. It was held that foreign exchange loss on acquisition of fixed assets was not allowable as an expenditure in view of section 43A; thus, foreign exchange gain of Rs. 53.06 lakhs was to be adjusted against loss; and net amount of Rs. 1.63 crores was to be offered to tax and since same is offered no further disallowance in the hands of the assessee is warranted. [ITA NO.7714/ Delhi / 2017][AY 2012-13]

Honda Motorcycle and Scooter India Pvt. Ltd. v. Dy.CIT (2021) 187 ITD 264 (Delhi)(Trib),

58. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – business contingency – payment genuine – not disallowable. [Rule 6DD]

Assessee was running a travel agency and it made payments in cash exceeding Rs. 20,000 to two entities on account of purchase of flight tickets for his clients. Assessing Officer disallowed such payment by invoking provisions of section 40A(3). It was held by ITAT that from records it was found that Assessing Officer had not questioned genuineness of payment or credential of receivers and further, these entities had insisted for cash payment for arranging tickets and this amounted to business contingency for assessee. Hence, since genuineness of said transactions were not disbelieved by revenue and assessee made out a case of business contingency, impugned payment could not be disallowed under section 40A(3) [ITA No.4111/Delhi/ 2015 dtd. 9/12/2020] [AY 2011-12]

ITO v. M/s. Suresh Kumar (2021) 187 ITD 311 (Delhi)(Trib)

59. S. 43B : Certain deductions only on actual payment – certain interest expenses claimed were not deposited before the due date of filing return of income – no documentary evidence of payment made – disallowed–S. 40(a)(ia)– Amounts not deductible – Deduction at source – Interest, Commission, Brokerage – whether proviso to section 40(a)(ia) inserted by Finance Act, 2012 is prospective or retrospective nature – In Ansal Landmark Townships (P) Ltd. 279 CTR 384 (Del), the Delhi High Court has held that second proviso to Section 40(a)(ia) is declaratory and curative and has retrospective effect from 1st April 2005 inserted via Finance (No. 2) Act, 2004 – benefit granted

As the assessee was unable to produce any documentary evidence with respect to deposit of interest payments made on its borrowings, such amount was disallowed by the AO, and it was upheld by the Tribunal.

The AO further observed that the assessee has made certain interest payments but did not deduct TDS as per section 194. The question before the Tribunal was whether proviso to section 40(a)(ia) by the Finance Act, 2012 is prospective or retrospective in nature. The ITAT observed that Assessee has furnished Certificates from Chartered Accountant (CA) in Annexure -A to Form 26A in respect of interest payment to NBFCs which was not disputed by the lower authorities, however they denied the benefit of second proviso to section 40(a)(ia). Following the precedent laid down by the Delhi High Court in CIT v. Ansal Landmark Township where it has held that second proviso to Section 40(a)(ia) is declaratory and curative and has retrospective effect from 1st April 2005, i.e. when sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004, the ITAT allowed the benefit of such proviso to the assessee for the transactions and payment made by it during financial year 2011-12. (ITA No. 109/CTK/2020 Dt. 22.01.2021 AY 2012-13)

ARSS Infrastructure Project Ltd. v. DCIT (2021) 187 ITD 0727 (Cuttack-Trib.)

60. S. 44AD : Unverifiable cash deposits and bank withdrawals – Duty on assessee to prove – Addition accepted. Limited scrutiny – extendible within threshold.

Assessee, a dealer and broker of old cars made bank deposits and had cash receipts. Assessee claimed deposits were advance payments, subject to refund if deal did not go through. Duty on assessee to prove. Failing which, AO treated 15% of cheque deposit as income. Tribunal accepted. Additional ground that assessment raised for limited scrutiny to verify cash deposit could not estimate income on cheque deposits. Ground allowed following NTPC (229 ITR 383). Ground rejected on merit following Circular No. 20/2015, permitting AO to take up additional issue in limited scrutiny of less than Rs. 10 lakhs. (ITA No. 1818/Bang/2019, 7 April 2021, AY 2016-17)

Mohammed Sharaq v. ITO (2021) 87 ITR 41 (Trib) (S.N.)(Bang)

61. S. 45 : Capital gains – Transfer – Sale agreement registered on 26-8-2011 and possession was also handed over on the said date – Capital gains assessable in assessment year 2012-13. [S. 2(47), 54F]

Assessee sold an agricultural land which was inherited through her father. Assessing Officer held that since date of transfer of asset was on 26-8-2011, capital gains should be assessed in assessment year 2012-13. The assessee contended that as major portion of sale consideration were realized on 7-4-2012 and 14-7-2012 respectively, capital gains should be assessed in assessment year 2013-14. Tribunal held that since sale agreement was registered on 26-8-2011 and at same time possession of property was also handed over to purchasers on said date itself, capital gain arising from such sale was to be assessed in year under consideration, i.e. assessment year 2012-13. Since assessee neither purchased one residential house within period of one year before date of transfer or after two years of date of transfer nor constructed house within a period of three years, exemption as claimed by assessee under section 54F was liable to be denied. (AY. 2012-13)

Jayshree Shankar Done. (Smt) v. ITO (2021) 186 ITD 257 (Pune)(Trib.)

62. S. 45 : Long Term Capital Gain taxed under the head “Business Income” and denied the benefit of deduction u/s 54EC and 54F – The CIT (Appeals) allowed the appeal and granted the benefit of exemption u/s 54F of the Act accepting the image of Google Map as cogent evidence – The Revenue challenged before the ITAT for the limited issue of eligibility for claiming benefit of exemption u/s 54F of the Act – The ITAT Held that the authenticity of Google image is not verifiable and cannot be taken as evidence and accordingly set aside the CIT (Appeals)’s order for the further verification to the file of the AO.

The assessee declared the income in the return of income filed for the income earned under the head “Long Term Capital Gain” arising out of selling of sub-plotting of the plot of land and claimed the benefit of deduction u/s 54EC and 54F of the Act. Rejecting the assessee’s claim, the AO treated the LTCG as business income. Being dissatisfied, the assessee filed the appeal before the CIT (Appeals), who allowed the appeal in toto accepting the income under the head LTCG.

On appeal by the Revenue challenging on limited issue of benefit allowed u/s 54F of the Act by CIT (Appeals), the Hon’ble ITAT found from the records that the assessee was not able to show that a residential house was constructed on the said land within the period of three years from the sale of capital assets. The Hon’ble ITAT observed that the assessee should have placed on records some other cogent evidences to show the alleged construction of boundary wall, septic tank and other civil structure on the said land and the benefit of deduction u/s 54F of the Act merely on the basis of google map image granted by the FAA is without any authenticity of such image and therefore, the same cannot be taken as evidence to substantiate construction of a residential house and resultantly, the appeal has been set aside for the limited issue to the file of the AO and the appeal of the Revenue is allowed for statistical purposes. (ITA No. 510/PUN/2016, dtd. 10-05-2019)(A.Y. 2012-13)

Dy. CIT v. Pratima C. Joshi (2021) 187 ITD 615 (Pune)(Trib.)

63. S. 50C : Capital gains – Full value of consideration – Stamp valuation – Sale Consideration – third proviso – Retrospective.

The assessee sold her flat for Rs 75 lakhs, and the capital gain was computed and offered to tax. The valuation of the property for the purpose of stamp duty was Rs 79,91,000/-. The AO applied section 50C and adopted the stamp duty valuation to compute the capital gains.

The Tribunal noted that the third proviso to section 50C was inserted by the Finance Act 2018, providing a tolerance band of 5 percent for the variation between actual sale consideration vis-à-vis the stamp duty valuation with prospectively effect from 1 April 2019. The Finance Act 2020 increased the tolerance band from 5 percent to 10 percent. The Tribunal held that the amendment accepts that these variations could be based on various factors while affecting genuine variations, creating a difference in sale consideration and stamp duty value. Thus, the amendment was to provide a safeguard in a bonafide transaction, are curative amendment that applies retrospectively and not prospectively. (ITA No. 4850/Mum/2019 dated 15.01.2021, AY 2011-12)

Maria Fernandes Cherly v. ITO (International Taxation) 198 DTR 0137 / (2021) 187 ITD 738/ (2021) 85 ITR 674 / (2021) 209 TTJ 850 (Mum)(Trib.)

64. S. 50C : Merely because stamp duty value higher than sale consideration would not trigger S. 50C when value more than DLC.

Assessee was owner of 1/4th portion of agricultural land. Along with co-owners sold land which was valued by the District Level Committee (DLC) at 3.66 crores. Sale was declared at 4.92 crores. However, stamp duty was assessed basis 150% of the value of sale deed. AO under S. 143(3) added the difference between stamp duty value and sale consideration as income under S. 50C. Relying on K.P. Varghese (131 ITR 597) Tribunal rejected addition as transaction genuine and sale consideration more than DLC. No justification to deem income.

(ITA NO. 1393/JP/2019, 3 August 2020, AY 2015-16)

Om Prakash Agarwal v. DCIT [2021] 187 ITD 499 (Jaipur)(Trib.)

65. S. 50C r.w.s. 147: Long Term Capital Gain assessed on the assessee acting as General Power of Attorney Holder on sale of residential property – mere non production of the owner of the property could not, per se, cast liability of tax upon the assessee – the assessee has discharged the onus upon her – Held: the GPA holder has no right in the property and the GPA holder is only the agent under the Contract Act, the addition made for the Long Term Capital Gain on the assessee (GPA) deleted.

The AO issued the notice u/s 148 of the Act on the basis of the information for the sale of residential property. The residential property in question was purchased by the owner “T” the sister of the assessee. ‘T’ gave a General Power of Attorney to the assessee, which was registered with Sub-Registrar. By virtue of the valid and alive General Power of Attorney, the conveyance deed for the sale of the property in question has been executed by the assessee as Power of Attorney Holder on 23-09-2009.

During the course of assessment proceedings, in discharge of the onus under the law, the assessee furnished and placed on the records of the AO all the cogent and corroborative documentary evidences demonstrating therein the fact that the assessee is only General Power of Attorney Holder and not the owner of the house property in question. Instead of conducting further inquiry by exercising power u/s 131 of the Act calling the owner ‘T’ for necessary examination, the AO insisted the assessee to produce the owner ‘T’ and merely non production or attendance of owner ‘T’ the AO inferred that the assessee is liable for taxability u/s 45 of the Act and accordingly, passed the order making addition of Rs. 9,22,312/– in the hands of the assessee for the alleged Long Term Capital Gain. Being dissatisfied, the assessee filed the appeal before the CIT (Appeals), but could not succeed.

On further appeal before the ITAT, the Hon’ble ITAT observed that the AO has failed to conduct any inquiry and to bring any material or fact to establish anything contrary to the materials/explanations given by the assessee. Following the ratio laid down by the Supreme Court in the case of Shiv Kumar & Anr. v. Union of India vide Civil Appeal No. 8003 of 2019 arising out of SLP No. 24726/2019 D.N 25495 of 2019 and the judgment of the coordinate Bench in the case of Shri Gyan Chand Saini v. ITO (ITA No. 87/JP/2019 dtd. 25–11–2019) having the similar issue, the addition made by the AO in the hands of the assessee has been held unwarranted, without jurisdiction and the same is directed to be deleted. (ITA No.815/JP/2019, dtd.
05-04-2021)(AY 2010-11)

Smt. Devender Kaur v. ITO (2021) 87 ITR 49 (Jaipur)(Trib.)(SN)

66. S. 54 : Capital Gains – Exemption u/s 54 claimed against Gain arising out of sale of two Flats and Invested by buying one Flat was held allowable.

Assessee owned two flats in Mumbai and had converted two flats as one residential unit. Assessee sold said two residential units through two separate transfer deeds, and in turn purchased one residential flat at Delhi, within the permitted time, and claimed exemption u/s 54. A.O allowed exemption u/s 54 against sale of one flat and disallowed exemption in respect of Gain from second property. A.O was of the view that as per Sec 54 exemption will be in respect of sale of a residential house and purchase of a residential house. As per A.O there is no restriction on sale of any number of houses, but, there must be a purchase of a corresponding house for which exemption can be claimed. Thus there must be a set of sale and purchase of one residential house to claim exemption u/s 54.

On appeal the Tribunal held that the expression used in Sec 54 “transfer of a long term capital asset being the residential house” refers to a residential house which may comprise of more than one building or buildings structure, and the same being used as a single residential house, it would be considered as residential house u/s 54, and thereby there is no bar on investing capital Gains arising from sale of more than one residential house in one residential house, and exemption u/s 54 cannot be denied. (ITA Nos. 4210/Delhi/2019 dtd.07-07-2020 (AY. 2009-10)

Vijay Kumar Wanchoo v. ITO (2021) 187 ITD 283 (Delhi)(Trib.)

67. S. 54: Capital gains – Profit on sale of property used for residence – Construction of house within period of three years from the transfer of original asset – Non availability of occupation certificate cannot be the ground to deny the exemption [S.45]

Assessee sold residential property and claimed deduction under section 54 on basis that it had within a period of 3 years from date of transfer of original asset, constructed a residential house. Assessee had filed a photograph of property to substantiate its claim that it constructed a residential house. Assessing Officer denied the exemption on the ground of non-availability of occupation certificate. CIT (A) also affirmed the order of the Assessing Officer. On appeal the Tribunal held that CIT (A) had ignored other evidences on record which proved construction and completion of construction of a residential house. Further, absence of occupation certificate would not be a ground to deny claim of assessee for deduction under section 54 as other evidence filed by assessee sufficiently demonstrated that assessee had constructed a residential house within period stipulated by law. Accordingly exemption was allowed. Followed CIT v. Sardarmal Kothari (2008) 302 ITR 286 (Mad) (HC).(AY. 2010-11)

Estate of Late Dr. S. Zakaulla Masood v. ITO (2021) 186 ITD 326/ 199 DTR 243/ 210 TTJ 779 (Bang) (Trib.)

68. S. 54 : Capital gains – Profit on sale of property used for residence – Where assessee claimed in return deduction under section 54F but on date of transfer of original asset more than one residential house was owned by him and claim of deduction actually meant for deduction under section 54, deduction would be allowable under section 54 [S. 54F, S.263]

Assessee and his deceased wife were co-owners of a property which was sold in the year under dispute. Assessee declared long-term capital gain on sale of property and claimed deduction under section 54F which was allowed in the assessment completed under section 143(3) of the Act. The Commissioner observed that assessee owned more than one residential house other than new asset on date of transfer of original asset and further no proper inquiries were made by the AO on the claim for deduction under section 54F. Thus, the Commissioner invoked section 263 to set aside the order of AO allowing deduction to the assessee under section. 54F of the Act and also on the issue of quantum of capital gain for de novo assessments by the AO. The present appeal is against the order under section 263 of the Commissioner.

Tribunal observed that before concluding the assessment proceedings, the AO did not make any enquiries with regard to the deduction under section 54F of the Act. However, in the note attached to assessment order, there was a reference to the claim of Assessee having been examined under section 54 of the Act and the factum of having verified all sale deeds and purchase deeds. Since the office note was not clear about what enquiries were made by AO before concluding the assessment, Tribunal upheld the findings of the Commissioner that the AO had not made adequate and proper enquiries and thereby Commissioner was justified in invoking jurisdiction under section. 263 of the Act.

On merits of the case, Tribunal noted that from the description of the property in the sale deed, it was clear that there was a house. However, whether the same could be considered as a residential house for the purpose of section 54 of the Act, was matter that required examination. Tribunal held that the assessment order became erroneous because such an inquiry was not made and not because there was anything wrong with the order. Thereby Tribunal concluded that as far as whether the house can be considered as residential, the Assessee should be allowed to substantiate his claim for deduction under section 54 of the Act, because the tax liability depends on the provisions of law and facts of a case and not on the basis of any admission or incorrect claim made by an Assessee.

(ITA Nos. 293 & 292 (Bang.) of 2019 dt. 14-10-2020) (AY.2013-14)

Lokesh M v. Pr.CIT (2020) 124 taxmann.com 201 / 187 ITD 0342 (Bang.) (Trib.)

69. S. 54F : Capital gains – Investment in a residential house – One house – Property was acquired for Metro Rail Project compensation paid within a period of one year – Purchase of two different houses – Not entitle to exemption [S. 45, 54, 54F (1)(ii)]

The assessee has computed long term capital gain after deducting cost of acquisition and claimed exemption u/s.54F of the Act for purchase of two residential properties amounting to Rs. 83 lakhs and Rs.69 lakhs. The assessee further stated that claim of exemption u/s.54F of the Act was in accordance with law, because before amendment to section 54F by the Finance Act, 2014 w.e.f. 1-4-2015, benefit of section 54F will be applicable to more than one residential house and hence, even if the assessee has purchased two different houses, exemption cannot be denied u/s.54F of the Act. The Assessing Officer was not convinced with the explanation furnished by the assessee and according to him, as per provisions of section 54F of the Act, the assessee is not eligible for exemption u/s.54F, because he has purchased another residential house other than the new asset, within a period of one year after the date of transfer of the original asset and accordingly, rejected the exemption claimed u/s.54F of the Act and recomputed the long term capital gains from transfer of property. CIT (A) affirmed the order of the Assessing Officer. Tribunal held that the assessee is not entitled for exemption u/s.54F of the Act for purchase of two residential houses at two different locations on two different dates. The position remains same even after amendment to section 54F by the Finance Act, 2014 w.e.f. 1-4-2015. Accordingly the order of CIT (A) is affirmed. Tribunal also observed that as per provisions of section 54, assessee can buy multiple houses, when he sold a residential house and reinvest sale consideration for purchase of another residential house, but there is restriction for purchasing more than one residential house under section 54F. AY. 2013-14)

M.S. Amaresan v. ACIT (2021) 186 ITD 715/ 210 TTJ 986 (Chennai)(Trib.)

70. S. 56 : Income from other sources – Agricultural land situated outside 8 km of municipal area is not a capital asset, within the meaning of sec 2(14) of the Act, and therefore the provisions of section 56(2)(vii)(b) are not applicable – The addition made to the Income chargeable as Gift on account of difference of DLC value and purchase consideration was thus deleted. [Sec 2(14)]

Assessing Officer added the difference between the purchase price of Agricultural Land and the DLC value as Income from other sources in terms of section 56(2)(vii)(b).

Tribunal held that immovable property being land or building or both should be capital asset for applying sec 56(2)(vii)(b). Furthermore, the clause (iii) of sec 2(14) specifically excludes agricultural land which are outside 8 km of the municipal limit and are not to be held as a capital asset, the addition made was thus deleted as provisions of section 56(2)(vii)(b) are not applicable. (ITA Nos. 300 to 302 (JP) of 2019 dt. 18-01-2021 (AY. 2015-16 & AY. 2016-17)

Yogesh Maheshwari v. DCIT (2021) 187 ITD 618 (Jaipur)(Trib.)

71. S. 56 : Income from other sources – Share premium – adoption of different method without examining share valuation report – Set aside and remanded back.

Where the AO has proceeded to determine the value of shares by adopting different method (NAV method) without scrutinizing the valuation report furnished by the assessee under DCF method. Set aside and restored back to the Ld. AO to examine this afresh as per the directions given by the co-ordinate bench in the case of Innoviti Payment Solutions (P.) Ltd. v. ITO [2019] 175 ITD 10 (Bang)(Trib.)

M/s. Innaccel Technologies Private Ltd. v. ACIT (2021) 187 ITD 0441 (Bang)(Trib.)

72. S. 56 : Income from other sources – Share premium – Preference shares to residents – AO cannot change method but – can make a fresh valuation – Set aside and remanded back.

Relying on Judicial precedents laid down by the Hon’ble Bombay High Court in the case of Vodafone M-Pesa Ltd. and the Hon’ble ITAT (Bangalore) in the case of Innoviti Payment Solutions it was held that AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. Matter remanded back.

M/S. Signure Technologies Pvt. Ltd. v. ACIT (2021) 187 ITD 368 / (2020) 83 ITR 521 (Bang)(Trib.)

73. S. 68 : Cash credits – Agriculturist – Cash deposited – Sale deed – Matter remanded – Tax authorities should not take an easy route and place an impossible burden upon assessee – Duty of tax authorities to assist tax compliance which means giving correct advice and following best practices and to attempt collecting tax on basis of ignorance of citizen is not expected from a tax administration. [S.119]

Assessee, an illiterate agriculturist, sold his agricultural land and deposited said amount in his bank account. Assessing Officer held that registration of land was done for a lesser value treated difference between sum deposited in bank and that shown in sale deed as unexplained cash credit. CIT (A) affirmed the order of the Assessing Officer. Matter remanded to the Assessing Officer. Tribunal also observed that Tax authorities should not take an easy route and place an impossible burden upon assessee and it is duty of tax authorities to assist tax compliance which means giving correct advice and following best practices and to attempt collecting tax on basis of ignorance of citizen is not expected from a tax administration. (AY. 2011-12)

Mahinder Singh v. ITO (2021) 186 ITD 331 (SMC)(Chd) (Trib.)

74. S. 68 : Cash credit – Share capital/loans received by the Assessee from investors/lenders – proper documentary evidences produced – funds routed through proper banking channels – no addition warranted on the basis of third party statements. [S. 68,131]

During year, Assessee Company received unsecured loan and share application money from six corporate entities. During the course of assessment proceedings, AO considered these funds as non-genuine and added these amounts to income of assessee under Section 68 of the Act on the ground that summons issued to these entities were returned back with remarks like not known/incomplete address and assessee was unable to produce any of these parties. The AO also relied on information received from DGIT(Inv) that few of the aforesaid entities were engaged in providing accommodation entries. Aggrieved by the same, the assessee preferred an appeal before CIT(A). The CIT(A) also upheld the addition made by the AO. Aggrieved by the same, the assessee preferred an appeal before the Tribunal.

The Tribunal held that the primary need of establishing the creditworthiness and genuineness of the transaction with the entities was duly discharged by furnishing of the relevant documents such as copy of confirmation of accounts by lender/investor, copy of PAN Card, bank statement, ITR acknowledgement etc. Assessee was not required to prove the source for this year. Therefore, the onus was on revenue to rebut these evidences by bringing on record cogent material to dislodge assessee’s evidences. The Tribunal further noted that all funds were transferred to assessee through proper banking channels and there were no immediate cash deposits. Further it was also held that so far as information of DGIT (Inv.) is concerned, these were merely third-party statements which were never confronted to the assessee and those statements on standalone basis could not form the basis of making additions in the hands of the assessee. It was accordingly held that, it is trite law that no additions could be based merely on doubts, conjectures or surmises and therefore,the additions as made by Ld. AO under section 68 is not sustainable in the eyes of law.

ITA Nos. 952 (Mum.) of 2019 dt. 03-12-2020) (AY.2012-13)

Abhijavala Developers Pvt Ltd v. ITO (2021)124 Taxmann.com 72 / 187 ITD 0222 (Mum)(Trib.)

75. S. 68 : Cash credits – Unsecured Loans – Low profit in Return of Income doesn’t mean no creditworthiness – addition deleted.

Assessing Officer made addition of unsecured loan u/s 68 from three parties on the ground that Assessee failed to prove creditworthiness & genuineness. The tribunal held that the assessee had filed confirmations of all the creditors supported by their computation of income, acknowledgment of filing of the returns, copies of their balance-sheets, ledger account of the assessee in their books and bank statements. All the creditors were assessed to tax and had given loans to the assessee through banking channels. The name of the assessee appeared in their balance-sheets as debtor. Their capital and assets were sufficient to give small loans to the assessee. There were no cash deposits found in the bank accounts of the creditors. All entries were through banking channels. The assessee had also furnished details of their capital and assets before the Commissioner (Appeals) which had not been disputed by the authorities. Thus, all the evidence on record clearly indicated that the assessee had received genuine loans from all the three parties and in the case of one party the amount had even been returned in previous year relevant to the assessment year under appeal which had not been doubted by the Assessing Officer. Thus, the initial burden upon the assessee to prove the identity and creditworthiness of the creditors and the genuineness of the transaction had been discharged by the assessee. It was well settled law that the assessee need not to prove the source of the source. The Assessing Officer had not conducted any enquiry on the documentary evidence filed by the assessee and had merely disbelieved the entries in the bank accounts of the creditor without any justification. The low income declared in the return by the creditors was not a ground to reject the explanation of the assessee because their creditworthiness was proved by the assessee beyond doubt. [ITA No. 3800 /Delhi/ 2017 dt.03/12/2020](AY 2010-11).

Hindon Forge (P.) Ltd. v. Dy. CIT (2021)87 ITR 258 (Trib)(Del)

76. S. 68 r.w.s. 115BBE : Onus u/s 68 of the Act discharged by the assesse – Assessee is a habitual investor – Transactions of sale of shares are genuine and not sham transaction – Long Term Capital Gain on sale of shares held exempt

The assessee is the habitual investor in shares of Companies, showing investments in shares and Capital Gain on sale of shares continuously from the preceding years in the books of accounts as also in the return of income filed. These facts are accepted by the department in all the preceding years.

During the year, the assessee claimed LTCG exempt on sale of shares of LDPL Heavily relying upon the report of the Investigation Wing, the AO formed a belief that the LTCG earned by the assessee was through entry providers, that the sale transaction is not genuine and the assessee has deliberately got involved in this modus operandi of generating unaccounted income in his books of accounts, without paying any taxes and denied to allow the benefit of exemption claimed on LTCG on sale of shares of LDPL and invoked the provisions of Section 68 r.w.s. 115BBE of the Act. The AO further presumed the payment of commission at the rate of 2% by the beneficiaries to the assessee and further made addition of Rs. 12,24,880/–. Being dissatisfied, the assessee filed the appeal before the CIT (Appeals), but without any success.

On further appeal, the ITAT found and held that the assessee is the investor on regular basis, being assessed and accepted by the department. It is further found that the AO chose only one script of LDPL out of several for treating it as bogus, while accepted all the transactions of Short Term and Long Term Capital Gain other than those of LDPL. The assessee has discharged the initial burden to justify his returned income, but the AO has failed to perform his duty to observe the principles of natural justice to the assessee by allowing him to confront the evidences gathered by him and thus, failed to observe the provisions of Section 142(3) of the Act. The Hon’ble ITAT further found that neither the assessee nor his brokers are named as illegitimate beneficiaries to bogus Long Term Capital Gain in any of the alleged statements of the operators/broker or reports/orders of the SEBI or the Investigation Wing. Perusal of the statements of accounts, it was established that LDPL is not a shell Company nor any fact of irregular movements in share prices neither there was any warning issued by the SEBI in the case of LDPL.

The Hon’ble ITAT held that the assessee has successfully discharged the onus cast upon him by provisions of Section 68 of the Act and on facts, further held the Long Term Capital Gain on sale of shares of LDPL as genuine and resultantly, directed the AO to delete both the additions.

Judgments relied upon:

1. Pr. CIT v. Adamine Construction Pvt. Ltd. (2018) 99 taxmann.com 45 (SC),

2. CIT v. Odeon Builders Pvt. Ltd. (2019) 110 taxmann.com 64 (SC)

3. Deepak Nagar v. ACIT (2019) 73 ITR (Trib.) 74 (Delhi)

4. Shri Anup Jain, the husband of the assessee (in ITA No. 6703/DEL/2019),

(ITA No. 9358/DEL/2019, Order dtd. 04–12–2020)(AY 2015–16)

Smt. Ritu Jain v. ACIT (2021) 187 ITD 671 (Del)(Trib.)

77. S. 69: Income from undisclosed sources – information coming to assessing officer of bank accounts in switzerland relating to assessee – interest on balance in accounts computed and treated as undisclosed income – tribunal for earlier year holding assessee not owner of amount in accounts and interest cannot be added in assessee’s hands.

The AO took note that information had been received which related to the assessee having accounts in a bank in Geneva. The assessee in his statement recorded during the course of search, replied in the negative to a specific query whether the assessee had maintained any bank accounts abroad. The AO took the view that it was evident from the records that the assessee had opened or operated accounts in a bank in Switzerland, and that there were four such undisclosed accounts linked to the assessee, and computed the interest income from these four bank accounts for the year and brought it to tax u/s.69 of the Income-tax Act, 1961 as undisclosed interest income. The CIT(A) deleted the addition.

Tribunal held that for AY 2014-15, if the assessee was not owner of the amount lying in the bank account, the interest income could not be added in the hands of the assessee and that even otherwise if the Department got any information with respect to the ownership of the money lying in the bank account with the bank in Geneva, the provisions of Expl 2(d) to s.148 enabled the interest income to be added in the hands of the assessee and the time limit available was 16 years. (AY 2012-13)

Dy. CIT v. Anurag Dalmia [2021] 87 ITR 51 (Del)(Trib.)

78. S. 69: Unexplained investment on account of cash deposited in bank account – The assessee has discharged her onus by producing corroborative documentary evidences to establish the identity of the donors, genuineness of gift transactions and creditworthiness of the donor – additional evidences filed before the CIT (Appeals) – in the remand report, the AO accepted the genuineness of the gifts – CIT (Appeals) not concurring with the AO – Held: Once the AO has examined the document so produced by the assessee and recorded his satisfaction regarding the identity of the donors, genuineness of the gifts and sources of such gifts, the assessee has discharged the necessary onus cast on her and the addition directed to be deleted.

The assessee lady was working with ICICI since 2005 and deposited the cash for the aggregate amount of Rs. 17,25,000/– in her bank accounts with HDFC Bank Ltd. and PNB, out of availability of opening cash balance with her and cash withdrawal of Rs. 5,00,000/– from one of her bank accounts. The assessee had not filed the return of income for the relevant year u/s 139 of the Act. The AO passed the order u/s 143(3) r.w.s. 147 of the Act for the assessed income at Rs. 6,90,460/–, whereby the addition of Rs. 5,00,000/– made towards undisclosed investments on account of cash deposited in bank account.

During the course of hearing, the assessee-lady furnished and placed on the records the copies of the gift deeds along with the copies of the IDs of the donors, copy of marriage certificate, bank statements, etc., but the AO merely on doubts and whims, the explanations substantiated with corroborative evidences furnished explaining the cash gifts of Rs. 5,00,000/– received by the assessee from her grandmother-in-law and great grandmother-in-law, disbelieved arbitrarily stating that the donors are not taxpayers and do not have any source of income and also do not maintain any bank account. The AO did not even issued a show cause notice before taking such inferences against the assessee.

Before the CIT (Appeals), the assessee-lady filed the additional evidences in the form of gift deeds from the donors and their custodian, in support of the explanations offered towards the cash gifts received at the time of marriage before the AO. The CIT (Appeals) forwarded the same to the AO for a remand report and the AO accepted the genuineness of the gifts made. However, the CIT (Appeals) dismissed the appeal.

On further appeal, while referring the decision of the Delhi High Court in the case of CIT v. Shiv Dhooti Pearls & Investment Ltd. (2015) 64 taxmann.com 329 (Delhi), wherein it has been held that in terms of Section 68, the assessee is liable to disclose only source(s) from where he has himself received credit and it is not burden of assessee to show source(s) of his creditor nor is it burden of assessee to prove creditworthiness of source(s) of sub creditors, the Hon’ble ITAT noted that the assessee had discharged initial onus placed on her with the production of gift deed and identity of the donors and the genuineness of the transaction of gift on marriage.

The ITAT further held that the document is to be read as a whole and it is not open to the authorities to accept the particular content and to reject the other, to suit its purpose. The Hon’ble ITAT has also referred the ratio laid down by the Apex Court in the case of Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC) and in the case of Behari Lal Ram Charan v. ITO (1981) AIR 1585 as also the decision on the similar lines rendered by the Delhi High Court in the case of CIT v. Silver Streak Trading Pvt. Ltd. (2010) 326 ITR 418 and the decision of Allahabad High Court in the case of L. Sohanlal Gupta v. CIT (1958) 33 ITR 786.

The Hon’ble ITAT held that once the AO has examined the documents so produced i.e. the original affidavits of the donors and their custodian and recorded his satisfaction regarding the identity of the donors, the genuineness of the gift and the source of such gift, the assessee has discharged the necessary onus cast on her and accordingly, the addition of Rs.5,00,000/– is directed to be deleted.

(ITA No.202/JP/2020, dtd. 08-04-2021)(A.Y. 2010-11)

Smt. Shweta Goyal v. ITO (2021) 87 ITR 57 (Jaipur)(Trib.)

79. S. 69: Unexplained investments – NRI purchasing property in India – Gave satisfactory explanation of source of fund – even if explanation was not satisfactory no addition can be made.

The assessee was a non-resident Indian individual and acquired two properties in Mumbai for a total consideration of Rs. 16,63,21,060. The purchase consideration was discharged by the assessee partly by way of direct remittance from abroad to the vendor and partly through banking channels from the Bank of Baroda, Dubai account held by the assessee to the SBI NRE SB Account. The assessee explained that the sources for deposit in the Bank of Baroda were sale proceeds of gold bars to two companies namely, SJ and VG, Dubai and maturity proceeds of fixed deposits belonging to a company owned by the assessee and his wife. The Assessing Officer disbelieved the explanation of the assessee on the ground that the activity of selling gold in Dubai was unusual and there was no proof of existence of stock of gold in Dubai and rejected the certificates as not reliable since they were not signed by the director. The tribunal held that the conclusion reached by both the Assessing Officer and the Commissioner (Appeals) was based on conjectures, surmises and presumptions. The assessee had filed copies of the certificate of incorporation of the company in 2007 and of the certificate from the Bank of Baroda certifying that an amount of AED 99,83,455 equivalent to Rs. 16,97,18,735 was credited to the account of assessee and his wife. The assessee had discharged the primary onus upon him, by explaining the sources of the deposits, credits in the bank from where the remittances were brought to India by evidence such as confirmation from the Bank of Baroda, Dubai that the deposits represent maturity proceeds of fixed deposits held in the name of the company and purchase invoices of gold by the two companies and as well as copies of cheques issued in favour of the assessee. Both the Assessing Officer as well as the Commissioner (Appeals) had merely rejected the explanation without giving any cogent reasons and without rebutting the evidence led by the assessee. Therefore, it could not be said that the assessee had failed to render a plausible and credible explanation as to the source of money for the acquisition of the two properties. Even if, in the opinion of the Assessing Officer the explanation given by the assessee was not satisfactory, no addition could be made.[I.T.A. No. 187 /Panaji/ 2019 dt 12/3/2021] (assessment year 2014-15).

Iqbal Ismail Virani v. ITO (International Taxation) (2021) 87 ITR 654 (Trib)(Panaji)

80. S. 72 : Carry forward and set off of business losses – legitimate claim of set-off of unabsorbed losses cannot be rejected even when assessee omits to claim same in return [S. 10A, 72(1)(1), 154]

Assessee company filed its return and declared ‘Nil’ business income. Subsequently, assessee filed a rectification application before Assessing Officer seeking set-off of unabsorbed losses . Assessing Officer held that fresh claim of deduction could not be considered since assessee had omitted to file such with original return. CIT (A) affirmed the order of the Assessing Officer. On appeal Tribunal held that in view of provision of section 72(1)(i) whether or not assessee has set-off losses in return of income, income tax authorities are required to give effect to section 72(1)(i) and set-off such losses . Accordingly the Assessing Officer was to be directed to consider assessee’s claim of set-off of unabsorbed losses/depreciation against declared income. (AY. 2005-06 to 2008-09)

Mistral Solutions (P.) Ltd. v. DCIT (2021) 186 ITD 399/ 211 TTJ 163 (Bang) (Trib.)

81. S. 72 : Carry forward and set off of business losses – AO to allow set off of losses – even if not claimed in the return

Where the assessee had filed application u/s 154 of the I.T. Act, immediately after the assessment order, praying for set off of business losses/unabsorbed depreciation against the total income, which was disallowed. It was held that as per section 72(1)(i) of the Act, business loss of an earlier year, if it cannot be set off against income under other same head or different head, as per section 70 and 71, shall be carried forward and set off against the profits and gains of any business in the subsequent year. Thus, section 72(1)(i) mandate set off of business loss with business income of a subsequent year. It is a statutory compulsion. It does not give any option to assessee to set off or not to set off. In other words, whether or not the assessee has set off the losses in the return of income, the income tax authorities are required to give effect to section 72(1)(i) and set off such losses.

M/s. Mistral Solutions Pvt. Ltd. v. DCIT (2021) 186 ITD 399 / (2021) 211 TTJ 163 (Bang)(Trib.)

82. S. 80G : Donation – Hospital and school – Denial of approval is held to be not valid – Remanded to pass a speaking order – Amendment in section 80G is effective from 1-10-2009; thus, approval granted on or after 1-10-2009 would be governed by amended law.[S. 12AA, R.11AA]

The assessee charitable institution ran hospital and school. CIT(E) denied approval under section 80G on ground that assessee was generating huge surplus as it was receiving Medical and Education associate share for use of its facility by associate concerns and also held that rental income and were not from any charitable activity . Tribunal held that CIT(E) did not raise any specific issue with regard to nature of transactions in questions and did not take matters to logical end. Accordingly directed the CIT (E) to pass a speaking order. Tribunal also held that amendment in section 80G omitting time limitation to which an approval was subjected, is effective from 1-10-2009; thus, approval granted on or after 1-10-2009 would be governed by amended law accordingly the approval granted before this date would be governed by extant law and same would, on expiry, be subjected to renewal and once so renewed, approval would extend in perpetuity. Matter remanded.

Mannulal Jagannath Das Trust Hospital v. ACIT (2021) 186 ITD 247 / 201 DTR 98/ 210 TTJ 518 (Jabalpur) (Trib.)

83. S. 80-IA : Deduction disallowed for interest on delayed payments – bore no nexus to the industrial activity of power generation – disallowed.

Assessee and revenue appeal. First, assessee claimed wrongful disallowance under S. 80IA. Surcharge in the form of interest for delayed payments to assessee in dispute. Tribunal held interest received is simipliciter basis the contract. Thus, cannot be considered as income from business operations merely because received from supplied and so is not eligible u/s. 80IA. Second, is addition towards surcharge recoverable from Electricity Boards. Tripartite agreement where surcharge bore specific mention, thus taxable under accrual basis. Revenue’s appeal covered by assessee’s own case and dismissed. (ITA No. 952-53/CHNY/2018, dtd. 8/02/2021)(AY 2013-14 & 2014-15).

NLC India v. DCIT (2021) 87 ITR 121 (Chennai)(Trib.)

84. S. 80IB: Industrial undertakings – Real estate developer – Sale of opening stock – Estimate of profit to reduce the claim is held to be not justified – Revenue could not use concept of reasonable profit which is subject matter of section 80IA, for purpose of section 80-IB, as object of sections 80IA and 8IB are different [S.80IA]

Assessee was a real estate developer and their book of account was audited by a Chartered Accountant. During year under consideration, assessee did not incur any cost and only opening stock was sold . Assessee, thus, claimed average profit at rate of 62.03 per cent. Though opening stock was not proved to be wrong, or sales invoices were doubted, Assessing Officer estimated average profit at 16.02 per cent and Commissioner (Appeals) estimated assessee’s average profit at 38.40 per cent. On appeal the Tribunal held that since Assessing Officer worked out unreasonable profit without pointing out any defect in opening stock, which was sold during relevant assessment year, estimation of average profit by Assessing Officer without noting any defect in opening stock, was not justifiable, therefore estimation of average profit was not in accordance with law, addition made by lower authorities was to be deleted. Revenue could not use concept of reasonable profit which is subject matter of section 80IA, for purpose of section 80-IB, as object of sections 80IA and 80IB are different. (AY. 2009-10)

Vipul Park v. DCIT (2021) 186 ITD 628 (Surat) (Trib.)

85. S. 80IB: Profits and Gains from industrial undertaking – Research Development activities – Assessee claimed deduction under section. 80IB(8) – Technology availed from foreign company and royalty paid – Role of assessee for carrying Research and development activity was not clearly established – Matter remanded to examine afresh. [S.80IB]

Assessee-company was engaged in a business of research in hybrid seeds and entered into a sub-license agreement with Mahyco Monsanto Biotech (I) Ltd. (“MMB”), to acquire Monsanto Technology to test, produce and sell insect tolerant cotton planting seeds. The AO disallowed the claim of deduction under section 80-IB(8A) on the grounds that since assessee was having an agreement with MMB to whom payment was made for use of their technology and assessee was not actually carrying out any research activities and was only passing on technology of MMB to different parties from whom royalty was being received. On appeal to CIT(A), the CIT(A) confirmed the AO’s order. Aggrieved by the same, the assessee filed an appeal before the Tribunal.

The Tribunal stated that the role of the assessee carrying out the activity was not established further no patent or copyright had ever been developed by assessee during last 5-6 years. The AO as well as CIT(A) had not carried out any fact-finding exercise to bring on record if laboratory testing and marketing of Hybrid Cotton Seeds were done by assessee-company on basis of technology availed. The Tribunal remitted the matter back to AO to examine afresh if assessee had carried out any scientific research and development activities independent of the technology obtained from MMB after considering the specific directions of the Tribunal.

(ITA Nos. 6112 (Del.) of 2014 & ITA No.1836 (Del.) of 2016 dt. 24-02-2020) (AY. 2010-11, 2011-12)

DCM Shriram Consolidated Ltd v. ITO (2021)120 Taxmann.com 348 / 201 DTR 0013/185 ITD 0596/211 TTJ 0292 (Del.)(Trib.)

86. S. 80-IC : Special category states – Substantial expansion – Considered “initial assessment year” – eligible for deductions.

The assessee initially set up a manufacturing unit eligible for deduction under section 80-IC on 1.04.2007 and started claiming 100 per cent deductions. Subsequently, the assessee undertook substantial expansion in the AY 2012-13. For the AY 2015-16, the assessee claimed 100 per cent deduction for the expanded unit, as it constitutes the “initial assessment year”. The AO disallowed the claim but allowed a deduction only to 25 percent. The Hon’ble Tribunal followed the Supreme Court decision in PCIT v. Aarham Sofronics 412 ITR 623 (dealing with identical issues). The Tribunal noted that a new unit would be entitled to a deduction at the rate of 100 percent for the first five years and 25 percent for the subsequent five years. However, there is substantial expansion undertaken in the previous year, then the year itself becomes “initial assessment year”, and thus, the assessee would be entitled to 100 percent deduction for the total period of 10 years. (ITA No 935/Bang/2019, dated 22 January 2021, AY 2015-16)

Quantum Power Systems v. ACIT (2021) 187 ITD 523 / (2021) 86 ITR 9 (Bang)(Trib.)(SN)

87. S. 80P(2)(a)(i) : Assessee is the registered Co-operative Society under the State Co-operative Societies Act, engaged in the business of providing credit facilities to its members – by virtue of the Bye Laws, the assessee society accepts deposits from members only and provide credit facilities exclusively to its members – The activity of providing credit facilities to members does not fall within the meaning and expression “Banking” as per the Banking Regulations Act, 1949 – Does not fall within the definition of “Co. operative Bank”, primary Co-operative Bank as defined u/s 5(cci) and u/s 5(ccv) of the Banking Regulations Act, 1949 – Held: the assessee is to be assessed under the status “Co-operative Society” and not the Co-operative Bank under the provisions of Section 80P(4) of the Act and entitled to the deduction u/s 80P(2)(a)(i) of the Act

Section 271D – Assessment Year 2007-08 – Penalty levied u/s 271D of the Act, deleted by the CIT (Appeals) – Later on, realizing the mistaken interpretation made by the then CA before the CIT (Appeals), the assessee Co-operative Society filed the appeal before the ITAT – Affidavit of the then CA and the assessee’s bonafide intent explained – The orders of the ITAT for the Assessment Year 2008-09 and 2012-13 decided against the assessee on the issue of deduction u/s 80P(2)(a)(i) of the Act are found factually distinguishable – ITAT remanded back to the file of the CIT (Appeals) for de novo adjudication in accordance with law.

The assessee is the registered Co-Operative Society engaged in the business of providing credit facilities exclusively to its members. The Bye Laws of the assessee does not permit to accept the deposit money from any non-members / general public and also does not permit it to lend it by way of loans to general public other than its members. The assessee Co-operative Society filed its return of income for the relevant years claiming deduction u/s 80P(2)(a)(i) of the Act, but invoking the provisions of Section 80P(4), the AO denied the claim. On appeal, the CIT (Appeals) observed that the assessee had already taken one particular stand in the course of penalty proceedings u/s 271D of the Act to treat it as Co-operative Bank and not as the Co-operative Society, that the revenue has not preferred an appeal before the Tribunal and matter has attained finality and dismissed all the appeals of the assessee.

On further appeal before the ITAT, in appreciation of the factual matrix of the case, the ITAT held that the assessee falls within the meaning and status of Co-operative Society and could not be denied benefit of deduction u/s 80P(2)(a)(i) of the Act by erroneously invoking the provisions of Section 80P(4) of the Act. The ITAT further observed that for invoking the provisions of Section 80P(4) of the Act, the Revenue is required to see and interpret the relevant provisions of the Banking Regulations Act, 1949 as categorically provided in Explanation below 80P(4) of the Act and not to rely upon the provisions of the State Co-operative Societies Act. Hence, the assessee being a Co-operative Society fall within the ambit of Section 80P(2)(a)(i) of the Action and hence, would be eligible for deduction thereon.

Cases referred:

1. Quepem Urban Co. operative Credit Society Ltd. v. CIT 377 ITR 272 (Bom.)

2. CIT v. Shri Biluru Gurubasava Pattina Sahkari Sangh Niyamitha Bagalkot (2014) 269 ITR 86 (Karnataka)

3. Abdul Qayume v. CIT 184 R 404 (All)

4. Mayank Poddar v. ITO 262 ITR 633 (Cal.)

5. SAIL DSP VR Employees Association 1998 v. UOI and ors. 262 ITR 638 (Cal.)

(ITA Nos. 4296/Mum/2016, 403/Mum/2018, 4211/Mum/2018, 4297/Mum/2016 and 5983/Mum/2016)(AY: 2007–08, 2010–11 and 2013–14)

The Thane Zilla Madhyamik Shikshak Sangh Sahakari Parpedhi Maryadit vs. ACIT (2021) 197 DTR 81 / (2021) 187 ITD 201 (Mum)(Trib.) / (2021) 209 TTJ 571 (Mum)(Trib.)

88. S. 90 : Countries where agreement exists – Allowability of Foreign Tax Credit (FTC) as per treaty – where no DTAA exists – the FTC will be computed in accordance with section 91 of the Act. [S.90, S.91]

The assessee-company specializing in signal processing application, media processing and communication claimed FTC in respect of taxes withheld on royalty/ license fee income in USA, Germany, and Japan and Korea in AY 2013-14 and additionally in Taiwan in subsequent AY i.e. AY 2014-15. Assessee claimed entire FTC paid in aforesaid countries since effective tax rate in respect of income tax outside India worked out to be lower than the effective tax rate in India. The AO observed that the effective tax rate outside India was calculated by assessee on receipts whereas the effective tax rate payable in India was calculated on income. The AO opined that as per DTAA, relief must be calculated based on income of that resident and not receipts and thereby reduced relief to amount of tax paid in India in respect of receipts from outside India. On appeal, CIT(A) computed the income component in the gross receipts and granted partial relief to assessee.

Tribunal observed that there was a difference in FTC available to assessee on taxes paid in USA, Japan and Germany vis-a-vis Korea. It was noted that the DTAA with USA, Germany and Japan, allowed FTC in India to the extent of tax paid in these countries. Accordingly, relying on Karnataka HC ruling in Wipro Ltd (ITA No.879 of 2008), Tribunal granted the assessee FTC credit in full, for taxes paid in USA, Japan and Germany. In case of Korea, Tribunal noted that as per Article 23(a)(i) of India-Korea DTAA, FTC was limited to taxes payable on doubly taxed income in India and thus restricted the FTC to taxes actually paid in Korea or payable in India on doubly taxable income, whichever is lower. Regarding Taiwan, Tribunal held that section 91 should be applied to compute FTC as no DTAA existed with Taiwan.

ITA Nos. 2464 & 2465 (Bang.) of 2017 dt. 13-01-2021) (AY.2013-14 & 2014-15)

ITTIAM Systems Pvt Ltd (2021) 86 ITR (Trib) 0611 (Bangalore), (2021) 211 TTJ 0367 (Bang.) (Trib.)

89. S. 92B : Transfer Pricing – Whether corporate guarantee is not international transaction prior to amendment of section 92B with effect from 1-4-2012 [S.14A, S.115JB]

The TPO made an addition by charging corporate guarantee fees @ 1.75% towards corporate guarantee provided in respect of the AE’s. The Tribunal on going through the facts stated that the assessment year under consideration was 2011-12 i.e. prior to the amendment of section 92B and that the amendment would have a retrospective effect. Accordingly, Tribunal held that corporate guarantee is not an international transaction prior to the amendment of section 92B, and it would come into effect from 1st April 2012.

Further an addition was made under section 14A of the Act, on account of exempt income, the Tribunal relying on the decision of Hon’ble Supreme Court in the case of CIT (Central) v. Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250/257 Taxman 2, gave the decision in the favor of assessee, wherein it was confirmed that, where there is no exempt income earned by the assessee, no disallowance under section 14A shall be made.

As regards disallowance under section 14A read with section 115JB of the Act, the Tribunal relying on the Special Bench decision of Asstt. CIT v. Vireet Investment (P.) Ltd. (162 ITD 27) (Delhi SB) held that no disallowance under section 14A was permitted while computing the income under section 115JB of the Act.(ITA Nos. 212 (Hyd.) of 2016 dt. 17-12-2020) (AY.2011-12)

Vivimeds Labs Limited v. Dy. CIT (2021)125 Taxmann.com 78 / 187 ITD 0665 (Hyd)(Trib.)

90. S. 92B : Transfer Pricing – International Transaction & determination of Arm’s Length price – In absence of any evidence of existence of international transactions between assessee & its foreign associated enterprise arising out of advertisement & marketing promotion determination of Arm’s length price does not arise requiring no transfer pricing adjustment.

During Assessee Company’s Assessment, on matter being referred to Transfer Pricing officer, an adjustment on account of international transaction namely ‘creation of marketing intangible in favor of the associated enterprise’ arising out of the advertisement and marketing promotion was proposed and A.O made the adjustment in the final Assessment Order.

On Appeal Tribunal held that, there being no material to prove existence of an international transaction involving advertisement and marketing promotion expenses, which led to enhancement of brand value and creation of intangibles in favor of associated enterprise, the addition cannot be made, more so when similar adjustment were deleted in earlier years. (ITA No 1088 (Delhi) 2016 dt.19-10-2020)(AY. 2011-12)

Xerox India Ltd v. CIT (2021) 87 ITR 209 (Delhi)(Trib.)

91. S. 92C : Transfer pricing – Arm’s length price – Fully Compulsorily Convertible Debentures (FCCDs)– Interest adjustment – Interest should be market determined interest rate applicable to currency in which loan has to be repaid i.e. SBI Prime Lending Rate and not LIBOR based interest rate

Assessee-company issued Fully Compulsorily Convertible Debentures (FCCDs) to its foreign based Associated Enterprise (AE) . It made payment towards interest on FCCDs denominated in Indian Rupee to said AE. TPO applied LIBOR based interest rates to benchmark aforesaid international transaction of payment of interest. Tribunal held that interest should be market determined interest rate applicable to currency in which loan has to be repaid. Therefore lending rate was SBI Prime Lending Rate and, therefore, TPO was unjustified in using LIBOR based interest rate.

Assotech Moonshine Urban Developers (P.) Ltd. v. DCIT (2021) 186 ITD 600 (Delhi) (Trib.)

92. S. 92C : Transfer pricing – Arms’ length price – Pro–rata adjustment considering only associated enterprises.

In transfer pricing proceedings, TPO made adjustment to entire segment of manufacturing activity instead of making adjustment for only international transaction. ITAT held that TPO was not justified in making adjustment to entire segment of manufacturing activity and remanded matter back to TPO to verify and decide value of adjustment by taking appropriate revised margin rate. (ITA No. 7738/Mum/2012, 4771/Mum/2015 (Cross Objection No.234/Mum/2014, 149/Mum/2015) Dt. 08.04.2021 AY 2008-09 & 2009-10)

Additional CIT & Anr. v. Bunge India Pvt. Ltd. & Anr. (2021) 87 ITR 34 (Trib)(S.N.)(Mum)

93. S. 92C : Transfer Pricing – Comparable – Engaged in diversified activities with no segmental information about revenues from sale; not meeting revenue filter – Not comparable.

Assessee is a subsidiary of a US parent. Using TNM Method, the assessee declared a margin of 10.83%. The TPO revised it to 23.19% basis 13 comparables. On appeal, the Tribunal rejected comparables for not meeting the revenue filter. Following Saxo India (P.) Ltd. ([2016] 67 taxmann.com 155), the Tribunal rejected the other comparable as there was no segmental information available. The comparable was engaged in software development and sale of products whereas the assessee was engaged only in software development. Comparable excluded. (ITA No. 411/Bang/2016, dated 5 January 2021, AY 2011-12)

Maxim India Integrated Circuit Design Pvt. Ltd. v. Dy CIT (2021) 187 ITD 0547 (Bangalore-Trib), (2021) 86 ITR 26 (Bang)(Trib.)

94. S. 92C : Transfer Pricing – Assessee engaged in software development services, comparable engaged in wide variety of services – Not comparable without segmental analysis. TPO bound by the directions of the DRP (S. 144C and S. 92CA)

Assessee is a subsidiary of a US Parent. Using TNM Method, the assessee declared a Profit Level Indicator (PLI) of 16.57%. TPO shortlisted 9 comparable and arrived at a margin of 28.18%. While rejecting these comparable on appeal, the Tribunal held three things. First, comparable was engaged in variety of segments unlike the assessee. In the absence of segmental data, the comparable was rejected. Second, PLI of comparable in dispute. DRP agreed with assessee calculation of comparable’s PLI. AO/TPO cannot overlook (S. 144C). Further, where DRP held entity to be functionally comparable, not for TPO to reject comparable basis other filters as it jeopardises the direction of the DRP. (S.92CA). (ITA No. 741/Pune/2017, dt. 27 /11/2020)(AY 2012-13)

Netscout Systems India Private Limited vs. Dy. CIT (2021) 187 ITD 773 (Pune)(Trib)

95. S. 92C : Transfer pricing – Arms’ length price – Functionally dissimilar companies cannot be taken as comparable.

The tribunal held that while determining arm’s length price functionally dissimilar companies cannot be taken as comparable. (ITA No.4035 /Delhi / 2016 dt.14/10/2020) (AY 2010-11).

Intercontinental Hotels Group (India) Pvt. Ltd. v Dy. CIT (2021) 87 ITR 573 (Trib.)(Del)

96. S. 92C : Transfer pricing – Arms’ length price – Determination of comparable – same business – same financial year – non–segmental information cannot be accepted.

The assessee is a captive entity (i.e. risk mitigated entity) mainly engaged in providing Information Technology (IT) enabled services in the nature of call center and low end back office support to its associated enterprises (AE) and billing them at cost plus 15%. It was held that a company engaged in the call center business is a comparable company with that of the assessee. Further, comparable companies should be compared for the same financial year. Further, a leading company without segmental information cannot be accepted as a comparable.

M/s. Ocwen Financial Solutions Private Limited v. ACIT (2021) 187 ITD 861 (Pune)(Trib.)

97. S. 92C : Transfer Pricing – if a company was otherwise functionally similar – it could not be excluded only on ground of having a different financial year ending.

Assessee Company was engaged in rendering marketing support services (MSS) to its Associated Enterprises (AEs). It was also providing Microsoft consultancy services and product support services. The AO excluded two comparable company namely R Systems International and Helios & Matheson Information Technology Limited selected by assessee on ground that said company had a different financial year ending. The Tribunal relying on the Delhi HC decision in the case of CIT v. Mckinsey Knowledge Centre India (P.) Ltd. [IT Appeal No. 217 of 2014, dated 27-3-2015] held that if a company is otherwise functionally similar, then, it cannot be excluded only on the ground of having a different financial year ending.

The TPO had applied a filter of the related party transaction of 25%based on which a comparable namely Sonata Software Limited was included. However, the related party transactions of the comparable worked out at 53.83%. The Tribunal held that since the related party transactions in company are more than 50% of sales, company does not pass related party filter applied by TPO and accordingly directed to exclude the said company as comparable.

The TPO also denied working capital adjustment on the grounds that the same was not be allowed in the case of service industry. The Tribunal following the decisions of Bangalore Tribunal in the case of Goldman Sachs Services (P.) Ltd. v. Jt. CIT [2020] 115 taxmann.com 286/182 ITO 189 wherein such adjustment was granted by the co-ordinate bench and accordingly allowed working capital adjustment.(ITA Nos. 1760 & 1889 (Delhi) of 2015 dt. 12-10-2020) (AY.2010-11)

Microsoft Corporation (India) Pvt Ltd. v. Dy.CIT (2021) 123 taxmann.com 123 / 187 ITD 0094 (Delhi)(Trib.)

98. S. 92C : Capacity utilization adjustment – allowed as the assessee is in the initial years of operation

The assessee submitted that the present year being the second year of manufacturing, assessee was not in a position to fully utilise the equipments purchased be cause of which an adjustment for under capacity utilisation is warranted. However, the TPO and DRP did not allow such adjustment. The Tribunal, by relying on the decision of Hon’ble Bangalore Tribunal in the case of SKF Technologies India (P.) Ltd. v. Dy. CIT [IT(TP) Appeal No. 341 (Bang.) of 2014, dated 15-2-2019], held that the capacity utilization adjustment was to be granted. Also, in light of the observations made by the Hon’ble Delhi Tribunal in case of Dy. CIT v. Claas India (P.) Ltd.[2015] 62 taxmann.com 173, the issue was remitted back to the TPO for re-examination.

M/S Sigma Aldrich Chemicals Pvt. Ltd. And Anr. vs. Deputy Commissioner of Income Tax And Anr. (2021) 187 ITD 0374 (Bangalore-Trib.)

99. S. 92C : Treatment of depreciation as operating expense – Depreciation held as operating expense for R&D segment considering interlink with manufacturing segment

During the year, the assessee asked for treating depreciation as operating expense. However, the TPO disregarded the same. On further appeal, the DRP allowed the adjustment as the assessee was in the 2nd year of operation in contradistinction to the comparable resulting in higher impact of depreciation on profitability. On appeal by the department before the Tribunal, the Tribunal held that there was no infirmity in the order of the DRP. Further relying on the decision of Hon’ble Hydrabad Tribunal in case of BA Continuum India (P.) Ltd. v. Asstt. CIT [2013] 40 taxmann.com 311

(IT(TP)A No.155 & 203/Bang/2014 dt. 15-09-2020) (AY.2009-10)

M/s Sigma Aldrich Chemicals Pvt. Ltd. and Anr. vs. Deputy Commissioner Of Income Tax And Anr. (2021) 187 ITD 0374 (Bangalore-Trib)

100. S. 92CA(3) r.w.s. 263: TP order is a part of assessment order and is thus amenable to revision under section 263 of the Act

The Tribunal, after referring to the provisions of section 263, noted that any order passed by the AO can be revised by the CIT and since the order of the TPO under section 92CA was based on the reference of the AO, therefore, it was also part of the assessment record and can be revised by the CIT under section 263. Relying on the decision of Kolkata Tribunal in the case of Philips Ltd. (ITA No. 1142/Kol/2016 dt. 27-03-2019) wherein it was held that the directions given by the DRP and incorporated in the assessment order can be a subject matter of revision under section 263, the Tribunal held that where the direction of the DRP have been held to be part of the assessment order, then, there can be no doubt that TP order is also part of assessment order and thus amenable to jurisdiction of the CIT under section 263 of the Act and particularly on the issues which were not considered by the TPO and DRP. (ITA No. 775 (Hyd.) of 2016 dt. 17-12-2020) (AY.2010-11)

M/s. Agro Tech Foods Ltd. v. DCIT (2021) 187 ITD 763 (Hyderabad – Trib.)

101. S. 115JB : Minimum Alternate Tax – For purpose of computing book profit under section 115JB – no addition will be made in respect of disallowance under section 14A [S.14A, Rule 8D]

The Tribunal, relying on the decision of Asstt.CIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com 415/165 ITD 27, held that for the purpose of computing book profit under section 115JB of the Act, no addition will be made in respect of disallowance under section 14A read with rule 8D.

Karnataka State Infrastructural Development Corporation Ltd v. Dy.CIT(2020) 120 taxmann.com 215 / 83 ITR 386 / 211 TTJ 0362 (Bang.)(Trib.)

102. S. 115JB – Minimum Alternate Tax – Benefit of clause (i) of Explanation 1 to section 115JB (2) will not be available to assessee if the book profit was not increased by the amount of provision made in the year of making the provision for whatever reason

The assessee had written back the provisions for bad debt, created in earlier years, during the year under dispute and reduced the same from book profits computed under section 115JB for the year under dispute. The AO made an addition of the written back provision which was reduced by the assessee from the book profits and rejected assessees contention that the years in which the said provisions were created, the assessee had no liability to income tax under MAT regime and consequently the question of adding back the amount of provisions in those years was immaterial for the year under dispute.

The Tribunal observed that as per the proviso below clause (i) below explanation 1 to section 115JB(2), the benefit of clause (i) of Explanation 1 to section 115JB(2) will not be available to the assessee if the book profit was not increased by the amount of provision made in the year of making the provision for whatever reason. Thus, the contention of assessee that in the year of creation of provision for Bad Debt, book profit was not required to be computed because there was no requirement to compute book profit was rejected. Tribunal held that if any provision was made by the assessee after 1-4-1997 and the same is withdrawn in the present year, then book profit has to be reduced by the amount of provisions written back but such reduction from book profit is not allowable if in the year of creation of provision, it was not added back to book profit.(ITA Nos. 1074 & 1334 (Bang.) of 2017 dt. 14-08-2020) (AY.2011-12)

Karnataka State Infrastructural Development Corporation Ltd v. Dy.CIT (2020) 120 taxmann.com 215 / 83 ITR 386 / 211 TTJ 0362 (Bang.)(Trib.)

Note: Also, please referthe Mumbai Tribunal decision in case of Goldman Sachs (India) Pvt. Ltd. (ITA No. 830/Mum/2019) dated 27 May 2021

103. S. 124: Jurisdiction of Assessing Officer – reassessment order passed by the ITO after the transfer under section 27 to Dy.CIT – required to be set aside – reassessment order originally framed by ITO was without jurisdiction. [S.127, S.263, S.147]

The ITO passed a reassessment order under section 147/143(3) in case of assessee by making an addition of nominal amount as against assessees income. Thereafter, the assessees case was transferred under section 127 from ITO to Dy. CIT. Later on, Pr. CIT invoked his revisionary jurisdiction under section 263 requiring to set aside such reassessment order originally framed by ITO under section 147/143(2) and directed de novo assessment. Thereafter, the ITO (the erstwhile AO) gave effect to order of Pr. CIT and set aside such earlier order passed by him under section 147/143(3) and framed fresh assessment. The assessee challenged the said fresh assessment order challenging the jurisdiction of the AO, as the erstwhile AO passed the said order did not have jurisdiction over the assessee on the said date as the jurisdiction lied with the Dy. CIT to whom the order was transferred vide order under section 127.

The Tribunal noted, from plain reading of order under section 127 it was clear that jurisdiction over assessee’s case was transferred from ITO to Dy. CIT. The Tribunal following the Calcutta HC ruling in the case of M/s. Ramshila Enterprises Pvt. Ltd. (68 Taxmann.com 270), held that since the jurisdiction was divested of the ITO by virtue of transfer order, he ceased to be Assessing Officer after the date of transfer. As a result, the assessment order passed by the ITO (i.e. the erstwhile AO) was legally unsustainable and therefore null in the eyes of law and thereby quashed.

(ITA Nos. 1909 (Kol.) of 2017 dt. 03-12-2020) (AY.2008-09)

OSL Developers Pvt Ltd. v. ITO (2021)125 Taxmann.com 98 / 187 ITD 0559 (Kol)(Trib.)

104. S. 132(4) : Search and seizure – introduction of undisclosed income as share capital of company – statement of assessee –transactions made by him in FY 2009-2010 and including amount in return for AY 2010-11. AO accepting admission but bringing sum to tax in 2009–10. Sum could not be taxed in AY 2009-10

During the course of search, the Department came upon information that the company had issued equity shares of face value Rs. 10 at a price of Rs. 100 each, that is, at a premium of Rs.90. The total issued capital comprised share capital of Rs.2.75 crores and share premium of Rs. 24.75 crores. In a statement recorded u/s. 132(4), the assessee admitted undisclosed income and stated that he would declare sum as his undisclosed income in the return for the assessment year 2010-11 which was yet to be filed. Accordingly, for the AY 2010-11, he included amount in his returned income. While making assessment the AO for AY 2009-10 observed that since the capital was introduced in the previous year relevant to the AY 2009-10, the assessee must have arranged the cash to the entry providers in the financial year 2008-09, and this income deserved to be assessed in the assessment year 2009-10 instead of assessment year 2010-11. He made an addition on protective basis in the AY 2010-11, because the amount was returned by the assessee. The AO made an addition in the AY 2009-10 assuming that the assessee has incurred expenditure of two per cent. to four per cent. for the purpose of obtaining entry of introduction of share capital. The CIT(A) reduced the estimated commission income in the AY 2010-11, to one per cent. as against estimated by the AO at two per cent.

Tribunal held that, partly allowing the of the assessee (i) that the assessee had made disclosure in his individual capacity and stated that the transaction between him and the alleged paper companies and payment of cash and making such investment were made by him in the FY 2009-10 relevant to the AY 2010-11, and therefore, the assessee had rightly included the amount in the return for the AY 2010-11, which was according to the statement made u/s. 132(4). The AO should have considered the statement made by the assessee under section 132(4) of the Act. The basis for the addition was merely the statement of the assessee and nothing else. The mere investment in the share capital made in the AY 2009-10, ipso facto did not suggest that the assessee had income in that year, in the absence of any concrete material evidence to prove accordingly. Moreover, the amount having suffered tax in the AY 2010 – 2011 the AO had not given credit therefor, while assessing the amount in the AY 2009-10, which amounted to double taxation. The deletion of the addition for the AY 2009-10 called for no interference. ITA (SS) 239 and 306 /Ahd/ 2014 dt.12/04/2021 (AY 2009-10 and 2010-11)

Dy. CIT v. Babuprasad Ramdayalji Shah (2021) 87 ITR 54 (Ahm)(Trib.)

105. S. 132(4) and 153C: Addition in the hands of third person based on information obtained during search and seizure proceedings – primary onus on revenue to prove falsehood of the assessees submissions – no addition can be made merely on basis of suspicion – cogent material required to make addition

A search action was conducted on purchaser of a land parcel, Mehul G. Patel (MGP) where a loose paper was found which made reference to the appellants who are the sellers of the said land parcel. Proceedings under section 153C were initiated against the appellants. The Appellants sellers asserted that the sale transactions have been carried out through banking channel and has been duly recorded in books and accounted for the purposes of determination of tax liability and denied having received any unaccounted money over and above recorded transactions towards sale consideration. The AO disregarded the explanation offered and taxed unaccounted income in proportion to the respective holdings of these sellers.

On appeal, the CIT(A) did not find merit in the plea of the assessee and upheld the action of the AO. The CIT(A) also disregarded the sworn affidavit of MGP that no amounts were paid to the Appellants.

On appeal to the Tribunal, it was observed that the amounts written in the said loose paper does not bear any objective details on identity of recipients and is quite vague and muted. There is no post search enquiry conducted after the statement of MGP. The Tribunal further observed that the AO is not entitled to make pure guesses while making an assessment just on the basis of bare suspicion and the presence of a clinching evidence is necessary to make any addition under section 153C

Thus, the Tribunal quashed the additions of amounts unaccounted cash receipts in the hands of the assessee.(IT(SS)A No. 155 and 156 (Ahd.) of 2019 dt. 08-12-2020) (AY.2013-14)

Kantibhai P. Patel and Anr. v. DCIT (2021) 211 TTJ 0187 (Ahd.)

106. S. 143(3) : Assessment – overlap of Article 12, 14 of the Indo–Japanese Tax Treaty with respect to definition of fees for technical services vis-a-vis professional fees – when the interpretation of the residence country about the applicability of a treaty provision is not the same as that of the source jurisdiction about that provision, and yet the source country has levied taxes – the Assessee firm is entitled to foreign tax credit.

The Tribunal observed that the definition of ‘Fees for Technical Service’ under article 12(4) which covers technical, management and consultancy services vis-a-vis definition of ‘income from independent personnel services’ which cover professional services had some over-lapping areas. It stated that a tax treaty is required to be interpreted as a whole, and implied the rule of harmonious construction. The ITAT observed that exclusion clause under article 12(4) covered only payments made “to any individual for independent personal services referred to in article 14” and since the assessee was a partnership firm, it is not hit by article 12(4). Therefore it stated that the Japanese Tax Authorities concluded correctly in directing tax withholding from payments made to the assessee by its Japanese clients. It referred to the Canadian Federal Court ruling and OECD commentary and observed that “when the interpretation of the residence country about the applicability of a treaty provision is not the same as that of the source jurisdiction about that provision, and yet the source country has levied taxes whether directly or by way of tax withholding, the tax credit cannot be declined” and therefore ruled in favour of the Assessee. (ITA No. 2613/Mum/19 Dt. 18.12.2020 AY 2014-15)

Amarchand & Mangaldas & Suresh A Shroff & Co. v. ACIT (2021) 85 ITR 49 (Mum)(Trib.)(SN)

107. S. 143(3) : Value of asset includes the amounts paid to discharge any liability on the asset.

Assessee sold asset (Luxe Cinema) by slump sale to Jazz Cinemas for a consideration of which part consideration was paid directly to the creditors. Balance was only paid to assessee, which filed a short term capital loss. AO disagreed stating that the amount of liability discharged by the buyer must be reduced from the sale consideration, thus leading to a gain. The Tribunal disagreed stating that the value of the asset must include the consideration paid directly to the creditor for removing encumbrances on the property. (ITA No. 2311/Hyd/2018, 4 January 2021, AY 2015-16)

PVR Limited v. ACIT (2021) 197 DTR 372 / (2021) 211 TTJ 132 (Hyd)(Trib.)

108. S. 143, 120, 124,1127,129: Transfer of jurisdiction – Notice under section 143(2) – Assessment order passed without issue of notice under Section 143(2)– Assessment order invalid. [S. 143(2), 143(3) and 120, 124, 127, 129]

The assessee-firms case was selected for scrutiny and notice under section 143(2) was issued upon it by Income Tax Officer (ITO), Shillong. However, case of assessee was then transferred from ITO, Shillong to Assessing Officer, Guwahati as assessees principal place of business was at Guwahati and, thus, jurisdiction would lie with Income Tax Authorities at Guwahati. The AO, Guwahati framed assessment order under section 143(3) without issuing fresh notice under Section 143(2) of the Act. Aggrieved by the said assessment order, the assessee filed an appeal before CIT(A). CIT(A) brushed aside the jurisdictional issue raised by the assessee by simply stating that since the assessee has not objected to the jurisdiction when it received the notice under Section143(2) notice within thirty days or completion of assessment whichever is earlier, he dismissed the legal issue raised. Aggrieved by the same, the assessee raised an appeal before Tribunal. The Tribunal relied upon the Hon’ble Supreme Court decisions in Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 and CIT v. Laxman Das Khandelwal [2019] 108 taxmann.com 183/266 Taxman 171/417 ITR 325 wherein it was held that issue of a legally valid notice under section 143(2) was mandatory for usurping jurisdiction to frame scrutiny assessment under section 143(3) of the Act and absence of such a notice would result in such order being passed, under section 143(3), as legally unsustainable. Thus, the Tribunal held that since no valid notice under section 143(2) was issued by the AO who held jurisdiction over the case of the assessee, therefore consequent order passed under section 143(3) dated 24-3-2014 was legally unsustainable and therefore is null in the eyes of law and therefore quashed. ITA Nos. 354 (Gau.) of 2018 dt. 13-11-2020) (AY.2011-12)

Balaji Enterprises v. Asstt CIT (2021) 124 Taxmann.com 78 / 187 ITD 0111 / 211 TTJ 0213(Gau.)(Trib.)

109. S. 144C – Transfer Pricing – Adjustment on account of Notional Income in respect of interest on delayed receivables was directed to be deleted on verifying the same with the credit period in master service agreement, and also verifying whether the same is subsumed in the working capital adjustments.

During Assessee Company’s Assessment, on matter being referred to Transfer Pricing officer, an adjustment on account of notional income in respect of interest on delayed receivables based on actual realizations on each invoices was proposed and A.O made the adjustment in the final Assessment Order.

On Appeal Tribunal directed to rework the adjustment made based on credit period as stated in master service agreement which was 90 days as against 30 days considered in the adjustment made in the Order. In the event if it exceeds 90 days, but if found to be subsumed in working capital adjustments than no adjustment be made. In case any trade payables that falls outside 90 days period and not subsumed, than adjustment should be restricted to Libor + 300 basis points. (ITA No 2573 (Bangalore) 2019 dt. 23-03-2021 (AY. 2015-16)

Zynga Game Network India Pvt Ltd. v. CIT (2021) 87 ITR 352 (Bang)(Trib.)

110. S. 144C : Reference to dispute resolution panel – Form no 35A not verified properly – Directed DRP to accept the original form and decide on merit. [Form No. 35A No Rule 34(5)]

The assessee a resident of Mauritius invested in Share capital of Indian Companies. The Assessing Officer issued draft assessment order wherein he treated the loss as non-genuine and not allowed to carry forward. The assessee filed an appeal before the DRP. The DRP dismissed the appeal on the ground that verification was not done properly hence dismissed the appeal. On appeal the Tribunal directed the DRP to accept the original form No 35A filed by the assessee and to proceed with the matter upon giving an opportunity of hearing and to pass an order in accordance with law. (AY. 2015-16)

Rivendell PE Ltd v. ITO (2021 ) 186 ITD 266 (Mum) (Trib)

111. S. 144C : Reference to dispute resolution panel – Draft Assessment Order – Cannot be assumed to be final assessment [S. 143 (3)]

Tribunal held that when Assessing Officer had specifically stated that order was passed under section 144C and had given heading of order as Draft Assessment Order it would be legally incorrect to hold that order was actually a Final Assessment Order passed under section 143(3) merely on the basis of attachment of an invalid and non-est notice of demand in Form No. 7 and notice of penalty under section 274 of the Act, especially when no appeal is filed before the CIT (A). (AY. 2011-12)

Pricewaterhouse Coopers (P.) Ltd. v. DCIT (2021) 186 ITD 88/ 210 TTJ 419 (Kol) (Trib.)

112. S. 144C : Reference to dispute resolution panel – Form no 35A could not be signed by Director – Scanned copy signed by director residing other country – Rejection of Form No 35A was quashed– Directed the DRP to decide the issue on merits. [S.143(3)]

Assessee, a resident of Mauritius, a draft assessment order, was passed under section 143(3), read with section 144C of the Act. Against said order, assessee preferred objection along with Form No. 35A . During course of proceedings before DRP, it was found that Form No. 35A filed by assessee was not verified as per procedure laid down since signature of person on verification page was a copy of original signature. Assessee submitted that Mauritius was hit by a cyclone leading to heavy rainfall at relevant time and thus, Director present in Mauritius was not available for signing and forwarding original objections ,thus, to meet deadline assessee got original objections signed by one of its directors available in USA and filed a scanned copy. DRP, however, rejected assesssee’s plea in limine. On appeal the Tribunal held that – It when concerned director was not available in Mauritius, assessee with bona fide intention got Form No. 35A signed from other director available in USA and filed scanned document on due date even if it was a defect in eyes of law, it was a procedural defect curable in nature . Accordingly the order of DRP rejecting Form No. 35A was to be quashed and, DRP was to be directed to proceed with matter in accordance with law. (AY. 2015-16)

Rivendell PE, LLD. v. ACIT (IT)(2021) 186 ITD 266 (Mum)(Trib.)

113. S. 145 : Ad hoc method of accounting – followed by AO and assessee. Held unacceptable – Remand. Fresh consequential grounds – Permissible.

Assessee included 15% of work in progress as income. During reassessment AO increased percentage by further 15%. Tribunal rejected holding that the AO ought to have guided the assessee to follow accepted method of accounting to declare profits. (Circular No. 14/1955 dt. 11.04.1955, followed). Followed British Paints India (188 ITR 44) where SC rejected use of unaccepted method of accounting. Remanded matter to AO to assess income basis recognised methods of accounting. Fresh consequential ground for not allowing TDS credit. Since no new facts required, grounds admitted, (NTPC, 229 ITR 383 and Jute Corporation, 187 ITR 688, followed). (ITA No. 1644-45/Bang/2018, dated 23 March 2021, AY 2011-13)

Monarch Plaza Comforts Pvt. Ltd. v ACIT (2021) 87 ITR 24 (Bang) (Trib) (S.N.)

114. S. 147: Reassessment–After the expiry of four years– no allegation about non–disclosure of full and true particulars in original assessment – Reopening is bad in law.

The original assessment was completed under section 143(3). Notice u/s 148 was issued after the expiry of four years from the end of the relevant assessment year. The tribunal held that as in the reasons recorded, there was no allegation made by the Assessing Officer that there was any such failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. This being a jurisdiction requirement and in absence of any such failure on part of the assessee, the Assessing Officer could not assume jurisdiction under section 147 of the Act. Thus, the notice issued under section 148 and consequent reassessment proceedings were to be set aside. [ITA No.960 /JP/ 2018 and CO. No. 5 /JP/ 2020 dt.22/1/2021] (AY 2008-09).

ITO (Exemption) v. Apollo Animal Medical Group Trust (2021) 87 ITR 168 (Trib.)(Jai)

115. S. 147 : Reassessment –beyond four years – report of investigation wing – reopening valid. [S.69C]

Assessee’s return was processed under section 143(1) accepting income declared by it. Subsequently, on basis of information received from investigation wing, Assessing Officer opined that assessee had made payments of business counseling charges to two companies which were not genuine. He thus initiated reassessment proceedings and disallowed said payments. Assessee filed instant appeal challenging validity of reassessment proceedings. Assesssee also raised objection to disallowance of payments made by Assessing Officer on merits – It was noted there was a clear nexus between reason recorded for reopening of investment and escapement of income and, such reason was based on fresh tangible material in form of report of investigation wing – Whether, on facts, validity of reassessment proceedings was to be upheld. [ITA No.1028 (MUM.) OF 2020 dt 29/7/2020][AY 2011-12]

Jaee Vishwas Joshi v. ACIT (2020) 184 ITD 112 / (2021) 211 TTJ 311 (Mum)(Trib)

116. S. 148 : Reassessment – Notice – specific information was received, acted upon, further investigated and then sent to the AO –application of mind – escapement of income – AO only has to reach a reasonable belief and not at final conclusion – Addition – undisclosed cash deposits in two bank accounts – action taken on the basis of concrete information by the department – assessee unable to substantiate any of its claim with material evidence – covered by mischief u/s 69A – salary income – addition by AO on the basis of submission of assessee, without relying on any conclusive evidence – addition deleted – S. 69A

The AO noticed that there was a difference in the sales amount as reported by the Assessee in its P & L statement and the amount reflected in the bank statement. Submissions of the Assessee were rejected by the AO as they were not supported by documentary evidence. Before the CIT(A) the Assessee challenged legality of the notice issued under section 148 and the merits. The CIT(A) observed that the specific information relating to the bank account, was received, acted upon, further investigated and then sent to the AO. He also observed that the Assessee has not disclosed this fact to the department as well as it failed to file its ROI for the relevant AY. Therefore it concluded that by recording his reasons and taking permission from the competent authority, the AO had good reasons to reopen the assessment. The Tribunal further upheld CIT(A) order.

In case of additions made u/s 69A, the CIT(A) observed that the two bank accounts which contained unexplained cash deposits were not disclosed by the Assessee to the department, neither did it disclose any business carried on other than what was shown in its books of accounts. The CIT(A) found that the department had not acted on some hearsay but proceeded on concrete and not vague information on not only the bank account nos., but also the quantum of cash deposits. Once again, the assessee made submissions without any documentary evidence in support thereof. Therefore, the additions were upheld by the CIT(A) and subsequently by the Tribunal.

Lastly, addition was made in respect of salary income of the assessee. The Assessee had submitted on oath that prior to starting its own business it worked for M/s Oldy Goldy Computers on a monthly salary. However no salary income was returned by the assessee in the relevant AY. The Tribunal observed that the AO did not make any enquiry from the employer about whether salary was actually paid to the assessee. Therefore it held that in absence of conclusive evidence it was unjustified on the part of the AO to make such addition. (ITA Nos. 349 to 351/Del/2017 Dt. 28.04.2021 AY 2009-10 to 2011-12)

Arpit Goel v. ITO (2021) 87 ITR 76 (Delhi)(Trib.)(SN)

117. S. 153A : Assessment – Search– Return filed after date of search – Assessing officer has the jurisdiction to make the assessment whether any incriminating materials were found /seized in the course of search– Failure to explain source of cash deposit in his account and account of minor son– Addition is held to be justified [S. 68, 132]

Affirming the order of the Assessing Officer the Appellate Tribunal held that where the assessee had filed original return after date of search, Assessing Officer had jurisdiction to make additions in assessment order under section 153A, regardless of whether any incriminating materials were found/seized in course of search action under section 132. Since assessee failed to explain sources, Assessing Officer treated source of cash deposits in bank accounts as being unexplained and made additions on account of unexplained credit – Before Commissioner (Appeals), assessee claimed that above amounts were received from his father who had made heavy withdrawals of cash during year under consideration. Commissioner (Appeals) held that if assessee’s plea that sources of deposits in his as well as his son’s bank account was out of withdrawals made by his father was accepted, then in that event his father with whom assessee was staying, was left with no sources to meet household expenses from April, 2006 to November, 2006, accordingly up held the addition. Appellate Tribunal also affirmed the order of CIT (A). (AY. 2007-08)

Amit Arora v. ACIT (2021) 186 ITD 289 (Delhi) (Trib)

118. S. 153A : Assessment – Search or requisition – only the AO was empowered to make reference to the valuation officer u/s 142A prior to introduction of S. 132(9D) via Finance Act, 2017 which came into effect on 01.04.2017 – addition made by AO on the basis of valuation report prepared on a reference made by DDIT/ADIT (Inv.), is unsustainable – addition made in case of unabated assessments – in absence of any incriminating material unearthed during the search, addition cannot sustain.

Assessing Officer made addition on the basis of difference in the valuation of immovable properties as declared by the Assessee and the Valuation Officer in his valuation report dated 18.12.2014. The Assessee challenged the jurisdiction of DDIT/ADIT (Inv.) (authorized officer) to make reference to the valuation officer when as per S. 142A only an AO is authorized to make such reference. When the valuation officer failed to submit another valuation report on the basis of valid reference, AO proceeded to make addition on the basis of the initial valuation report dated 18.12.2014.

The ITAT studied the history of introduction of s. 142A and s. 132(9D) in the light of Supreme Court decision in case of Smt. Amiya Bala Paul Vs. CIT 262 ITR 407 (SC). It noted that the authorized officer of the search, DDIT (Inv.)/ADIT (Inv.) has been empowered to make reference to the Valuation Officer only after 01.04.2017 i.e post introduction of sub-section 9D to S. 132 via Finance Act, 2017 which came into effect on 01.04.2017. Since, in the present case reference was made on 11.07.2014, the DDIT (Inv.)/ADIT (Inv.) did not have the power to make such reference to the valuation officer. Therefore, it concluded that such report is bad in law and could not have been relied upon for making addition. Accordingly, the report was set aside.

Further, the assessee raised a legal query challenging the sustainability of the additions made in assessments of the assessee trust which were un-abated on the date of search. The ITAT relied on certain judicial precedents and observed that, based on the facts of the case, the AO has not made reference to any incriminating material seized during the search to justify the addition in un-abated assessments other than the invalid valuation report. Therefore, such addition is not permissible. (I.T(SS).A. Nos. 42 to 47/Kol/2020 & I.T(SS).A. Nos. 07 to 12/Kol/2020 Dt. 05.02.2021 AY 2008-09 to 2013-14)

Assistant CIT and Anr. v. M/s. Narula Educational Trust (2021) 86 ITR 365 (Kol)(Trib)

119. S. 153C: Search and seizure – assessment of third person – setting aside assessment order on ground of lack of jurisdiction for failure by assessing officer of person in respect of who search conducted to record satisfaction note. Department challenged on merits of assessment without challenging jurisdiction. Appeal not maintainable.

Pursuant to search and survey operations, the AO passed an assessment order u/s. 153A r.w.s. 153C against the assessee making an addition u/s. 68 of the Act. The assessee challenged the assumption of jurisdiction. CIT(A) held that the proceedings u/s.153C were ab initio void as the satisfaction note was not recorded by the AO of the person in respect of whom search was conducted and did not consider the other grounds of appeal relating to the merits of this case.

Tribunal dismissing the appeal of the revenue held that in the grounds of appeal the Department had challenged the order of the CIT(A) in deleting the addition on the merits. No grounds had been raised by the revenue to challenge the no satisfaction note had been recorded in the case of the person in respect of whom search was conducted for invoking jurisdiction u/s. 153C of the Act. The appeal of the revenue on the merits would not be maintainable in the absence of any challenge to the findings of lower authority with regard to quashing of proceedings u/s.153C in the absence of any satisfaction note recorded by the AO in the case of the person in respect of whom search was conducted.(AY 2012-13)

Dy. CIT v. Aadyant Education Pvt. Ltd. [2021] 87 ITR 18 (Del)(Trib.)

120. S. 154 : Rectification of mistake – Tax on income referred in section 68, or section 69 or section 69B or section 69C or section 69D – Search – Surrender of income – Maximum rate of 60 % tax rate cannot be levied – Rectification order was quashed [S. 115BBE, 132]

Assessing Officer completed assessment in case of assessee under section 143(3) at assessed income of Rs. 41.78 lakhs which included income surrendered pursuant to search of Rs. 22.19 lakhs as current year’s business income offered to tax, by charging tax and interest at normal rates and raised nil demand. Assessing Officer issued notice under section 154 firstly, on ground that tax rate on surrendered income was to be charged as per provision of section 115BBE and secondly, during assessment proceedings, tax rate on surrendered income had been charged at 30 per cent, however, as per amended provisions of section 115BBE, it should have been charged at 60 per cent. Order of Assessing Officer is affirmed by the CIT (A). On appeal the Tribunal held that there was nothing stated in either pre-amended or post-amended provisions of section 115BBE that where assessee surrenders undisclosed income during search action for relevant year, tax rate has to be charged as per provisions of section 115BBE. Further there was no finding that provisions of section 115BBE had been invoked by Assessing Officer during assessment proceedings and tax rate had been charged at rate of 30 per cent on surrendered income under section 115BBE and thus, action of Assessing Officer in rectifying and increasing rate of taxation from 30 per cent to 60 per cent on undisclosed income in view of amended section 115BBE did not come within purview of section 154. Accordingly action of Assessing Officer in invoking jurisdiction under section 154 was not legally tenable. (AY. 2017-18)

Hari Narain Gattani v. DCIT (2021) 186 ITD 434/ 210 TTJ 771 (Jaipur) (Trib.)

121. S. 158BC : Block assessment – Procedure – amounts already disclosed in regular assessments are outside the purview of the definition of undisclosed income – addition deleted – Penalty – the very basis on which penalty was levied does not survive–penalty set aside

Subsequent to a search & seizure operation, the AO determined a certain amount as the undisclosed income, treating sales from agricultural activity to be unaccounted income from other sources of the assessee. The assessee submitted that such income was already disclosed in its regular return of income and therefore it should not be treated as undisclosed income during block period. Following various judicial precedents the ITAT held that the amounts already disclosed in such regular assessments are outside the purview of the definition of undisclosed income. It held that the AO lacked jurisdiction to make such addition u/s 158BC and therefore set aside the order passed by CIT(A). The ITAT further held that the very basis on which penalty was levied does not survive and therefore allowed assessee’s appeal against such levy. (IT(SS)A No.40/Del/2009, 15/Del/2011, 35/Del/2008 & ITA No.3845/Del/2009 Dt. 27.01.2021)(Block Assessment Period: 01.04.1995 to 18.03.2002 & Assessment Year: 2002-03)

Aerens Infrastructure & Technology (P) Ltd. And Ors. v. Assistant CIT (2021) 187 ITD 0699 (Delhi-Trib)

122. S. 184 : Firm – Registration – Partnership Deed on lesser value stamp paper – cannot be treated as AOP

Where the firm is already registered under the Assistant Registrar of Firm, Pune, Maharashtra, PAN has also been allotted as firm and even in the assessment order, the status of the firm is mentioned as that of the partnership firm. Therefore, the Department is accepting all the genuineness of existence of the partnership firm and only for this technical aspect of deed executed in the lessor denomination stamp paper has framed the assessment treating the assessee as AOP. The Revenue Authorities may call upon the assessee in due course for rectification of this technical defect. In the totality of facts and circumstances and on examination of this issue, the assessee is duly constituted partnership firm.

M/S. Kachhi Heritage v. ACIT (2021) 187 ITD 335 (Pune)(Trib.)

123. S. 194C: TDS – Person responsible for paying – It’s the user who is person responsible for paying, and not the intermediary – Intermediary in the instant case is an ‘aggregator’ and not a service provider and hence cannot be treated as assessee in default. [S. 201(1) & 204]

Assessee Company USIPL appointed by Uber B.V., under an Inter-company service agreement was providing support services viz to act as payment & collection service provider of Uber B.V. for a fixed monthly consideration. It was Uber B.V. who provided lead generation services to driver-partners who were interested in providing transport services to riders (users) through Uber App.

A.O held the assessee company would be a “person responsible for paying” within the meaning of Sec 194C r/w s. 204, and thus was treated as an ‘assessee in default’, ignoring the observations made in the order u/s 143(3), treating the assessee company as being engaged in business of providing marketing and support services to Uber B.V. and not as a transportation service provider, and passed Order u/s 201/201(1A).

On appeal the Tribunal considered the following facts viz:

1. Role of assessee company is limited to act as a payment and collection service provider of Uber B.V.

2. The assessee company does not have any agreement with the driver-partner.

3. As the transportation service is provided by driver-partner to users directly, for which user is making the payment, so it is the user who is the person responsible for paying and nit the assessee.

4. Also in a situation where user makes direct cash payment to driver-partner the assessee is not even made aware and making them liable for deducting Tax would result in impossibility of performance.

Based on above facts and reasoning it was held that the provisions of section 194C are not applicable and no order could be passed against assessee u/s 201/201(A)

(ITA Nos.5862 & 5863(Mum.) of 2018 dt. 04-03-2021 (AY. 2016 -17 & 2017-18)

Uber India Systems (P) Ltd v. JCIT (2021) 211 TTJ 1 / 188 ITD 362 (Mum.)(Trib.)

124. S. 194H : Deduction at source – Commission or brokerage – no agency relationship – No TDS.

The ITAT held that where assessee a pharmaceuticals company incurred expenses for providing travel, accommodation and equipment services and distribution of various articles/gifts/other facilities to persons associated with it such as stockist, field staff, distributors and doctors, since there existed no agency relationship between assessee and these persons, said expenses incurred for them could not be treated as commission liable for deducting tax at source under section 194H. [ITA No. 1269,1270,1271,1184,1185 AND 1197 (AHD) OF 2017 dtd 26/11/2020] [AY 2011-12 TO 2013-14]

Intas Pharmaceuticals Ltd. and another v. ACIT (2021) 186 ITD 642 / (2021) 85 ITR 60 / (2021) 211 TTJ 64 (Ahd)(Trib.)

125. S. 195 : Deduction at source – Non–resident – Reimbursement of demurrage charges paid by assessee to a non–resident shipping company – Provision is not applicable. [S.172]

Tribunal held that section 195 would not be applicable to reimbursement of demurrage charges paid by assessee to a non-resident shipping company and that same would be covered by section 172 of the Act. (AY. 2016-17)

Gokul Refoils & Solvent Ltd. v. DCIT (IT) (2021) 186 ITD 711 (Ahd) (Trib.)

126. S. 201 : Deduction at source – Failure to deduct or pay – Bank – Interest paid to customer – Shown in their respective return – Should not be treated as an assessee –in-default – Matter remanded [S.194A, 197A, 201(1), 201(1A), form no 15G, 15H]

Assessing Officer held that assessee-bank gave interest on deposits without deducting tax at source to its customers. He held that the assessee violated the provision of section 194A and declared assessee as assessee-in-default. CIT (A) affirmed the order of the Assessing Officer. On appeal the Tribunal held that if assessee-bank would file documents as required under first proviso to section 201 before Assessing Officer and Assessing Officer would be satisfied that customers had shown their interest income received from assessee-bank in their respective return of income and had remitted tax on it, then assessee should not be treated as an assessee-in-default and in case assessee would fail to file documents, Assessing Officer would be at liberty to pass order in accordance to law. Matter remanded. Followed Hindustan Coca Cola Beverages Ltd. v. CIT (2007) 293 ITR 226 (SC). (AY. 2014-15, 2015-16)

Union Bank of India v. ITO (2021) 186 ITD 761 (Kol) (Trib.)

127. S. 234E: Late fee for default in furnishing the statements prescribed u/s 200(3) or the proviso below Section 206C(3) – Clause (c) to (f) of Section 200A(1) was substituted by the Finance Act, 2015 w.e.f. 01-06-2015 – Held: no retrospective effect – Late fee u/s 234E could not be levied for TDS made for the Assessment Years prior to 01-06-2015

Delay in filing appeal before the CIT (Appeals) – bonafide and reasonable cause for delay explained – delay condoned

The assessee filed the statement of TDS in Form 24Q / 26Q for F.Y.: 201213 to 201516 (AY: 201314 to 2016–17). The statements of TDS were processed and levied the late fee u/s 234E of the Act vide intimation u/s 200A of the Act and accordingly, for the relevant years, the demand u/s 234E has been raised. The CIT (Appeals) dismissed the appeal on the ground of inordinate delay in filing the appeal.

Aggrieved by the order of the CIT(Appeals), the assessee has preferred an appeal before the Tribunal. While admitting the appeal, the Hon’ble ITAT found that the intimations u/s 200A for levy of fee u/s 234E of the Act were issued on the assessee on 14-11-2013, 14-03-2014, 15-02-2014, 07-08-2014, 19-06-2015, 14-06-2015 and 10-05-2016 respectively and the assessee has not paid the demand for the late fee. Section 234E of the Act inserted by the Finance Act, 2012 w.e.f. 01-07-2012 providing to levy fee for the sum of Rs. 200/– per day for the delay in filing the statements of TDS within the prescribed time as provided u/s 200(3) of the Act and the fee u/s 234E of the Act could be levied while processing the statements of TDS u/s 200(3) of the Act only by virtue of the provisions of Section 200A(1)(c), (d) and (f) of the Act, which came into force only from 01-06-2015 and therefore, the fee levied u/s 234E in respect of the statement of TDS filed prior to 01-06-2015 is without jurisdiction. The Hon’ble ITAT held that the levy of fee u/s 234E of the Act would be illegal for return of TDS in respect of the period prior to 01-06-2015.

The Hon’ble ITAT has, considering the reasons explained by the assessee for the condonation of delay and keeping in mind that technicality should not stand in the way of rendering substantive justice, condoned the delay in filing the appeal before the CIT (Appeals) and since the CIT (Appeals) has not decided the issue on merits, the order of the CIT (Appeals) is set aside and remanded to the CIT (Appeals) with a direction to decide the appeals of the assessee on merits in accordance with the law with due opportunity to the assessee of being heard.

Judgements relied upon:

1. Fatehraj Singhvi v. UOI (2016) 73 taxmann.com 252

2. M/s Banner International, Surat v. ACIT, Surat in ITAT No. 1829 to 1831/Ahd/2010

3. MSV IT Solutions Ltd. v. ITO in ITA Nos. 178 /Hyd/2018, Order dtd. 26-10-2018

4. Collector of Land Acquisition v. Mst. Katiji & Others AIR 1987 1353 (SC)

(ITA No. 385 to 390/Bang/2019, Order dtd. 10-03-2021 A.Ys.: 2013-14 to 2016-17)

M/s Solaron Sustainability Services Pvt. Ltd. v. ACIT (CPC) TDS (2021) 87 ITR (Trib.) (SN) 28 (Bang.-Trib.)

128. S. 234E : Fee – Default in furnishing the statements – Tax deducted tax at source and deposited same on 18-5-2015 i.e. prior to amendment to section 200A(1) on 1-6-2015 – Statement of TDS was filed on 23-6-2016 – late fees could not be as default was prior to amendment. [S. 195, 200A (1)]

Assessee deducted tax at source under section 195 and assessee deposited same on 18-5-2015 i.e., prior to amendment to section 200A (1), wherein clause (c) was inserted with effect from 1-6-2015 – Statement of TDS, was filed on 23-6-2016. Assessing Officer levied late fee for delayed filing of TDS statement. CIT (A) affirmed the order of the Assessing Officer. Allowing the appeal the Tribunal held that since default was prior to impugned amendment, there was no merit in charging late fee under section 234E since impugned amendment was prospective in nature. (AY. 2013-14 to 2015-16)

Franchise India Brands Ltd. v. CPC- TDS (2021) 186 ITD 338 (Delhi)(Trib.)

129. S. 234E : Fee – Default in furnishing the statements – Prior to 1-6-2015 – No fee can be levied [S.200A]

Tribunal held that no fee can be levied under section 234E in terms of section 200A where date of filing of TDS statement and date of intimation are much prior to 1-6-2015. (AY. 2014-15)

Govt. Girls Sr. Secondary School v. ACIT (2021) 186 ITD 24 (Delhi) (Trib.)

130. S. 251: Powers of Commissioner (Appeals) – Powers of enhancement – Commissioner has no power of enhancement, in respect of Matter which do not arise from the order of assessment, or are out of the proceedings before the AO u/s 251.[Sec 36(1)(iii)]

Assessment u/s 143(3) was completed by making addition on account of disallowance u/s 14A. On Appeal the entire disallowance was deleted. However Commissioner (Appeals) by invoking sec 251(1)(a), enhanced the income by disallowing interest u/s 36(1)(iii) on the ground that was totally different from the ground in show cause notice.

On appeal the Tribunal held that the enhancement was without jurisdiction and contrary to principles of natural justice, as no reasonable opportunity was given to assessee to rebut the reason because of which such enhancement was made. Tribunal also held that while taxing the Income from a new source which was not the subject matter of Assessment or has not been considered by A.O, the right manner to tax such new source would be by invoking section 147,148 or sec 263, since there is no such power available to commissioner u/s 251. (ITA No 1194 (JP) 2018 dt. 06-04-2021 (AY. 2013 -14)

Trimurti Buildcon Pvt Ltd v. ITO (2021) 87 ITR 505 (Jaipur)(Trib.)

131. S. 254(1) : Appellate Tribunal – Powers – Delay of 124 days was condoned – Mistake of counsel – Supported by affidavit – Delay was condoned – Ex parte order passed by the Commissioner (Appeals) was set aside and directed him to decide on merits [S.251]

Tribunal held that the assessee had demonstrated bona fide reasons and sufficient cause for non-filling of appeal within time limit, therefore, impugned delay of 124 days was to be condoned. CIT (A) has dismissed the appeal by observing that the assessee neither attended appellate proceedings nor filed any adjournment application. Tribunal held that since Commissioner (Appeals) did not pass order under challenge on merit, impugned order was to be set aside and case was to be remanded back to him for passing afresh decision on merits. (AY. 2013-14)

Kashmir Road Lines v. DCIT (2021) 186 ITD 454 (Amritsar) (Trib.)

132. S. 251 : CIT(A) cannot touch upon issues which do not arise from the order of assessment and was outside the scope of order of assessment.

The assessee preferred an appeal before the CIT(A) against the only issue in the assessment proceedings i.e. Section 14A disallowance. The CIT(A) deleted the said disallowance and instead enhanced the scope to make disallowance of interest under section 36(1)(iii).

On appeal before the Hon’ble Tribunal, the Tribunal noted that interest expenditure was not the subject matter of assessment by the AO. It further noted that the question of taxability of income from a new source is concerned, which had not been considered by AO, the right manner to tax such new source is by invoking Section 147/ 148 or Section 263 of the Act. Reliance in this regard was placed on the decision of the Hon’ble Kerala HC in the case of BP Sherafudin in [2017] 87 taxmann.com 330. Hence, the Tribunal concluded that the power of CIT(A) under section 251(1)(a) is limited to any matter arising out of the proceedings. Thus, if any matter is not arising “out of the proceedings” before the AO, ld. CIT(A) has no power of enhancement apropos such matters.

Further it also noted that the show cause notice under section 251(2) proposed to enhance the income as no business activities were carried out by the assessee. However, ultimately, when such expenses were disallowed, the reason given was that such interest expenses had no relation with the interest income earned by the assessee company, during the relevant previous year. The Tribunal noted that if a particular basis has been given by ld. CIT(A) in the Show Cause notice, the ld. CIT(A) has to stick to the same basis while ultimately making the enhancement. Ld. CIT(A) cannot “shift his goal posts” at his own will. It was also observed that any enhancement being made without giving the same basis in the Show Cause notice, would tantamount to no opportunity being given to the assessee, before making such enhancement and thus would be against the legal position set out in section 251(2). (ITA No. 1194 (Jai.) of 2018 dt. 06-04-2021) (AY.2013-14)

M/s. Trimurty Buildcon Pvt. Ltd. v. ITO (2021) 87 ITR (Trib) 0505 (Jaipur), (2021) 211 TTJ 0249 (Jaipur)

133. S. 251 : CIT(A) cannot touch upon issues which do not arise from the order of assessment and was outside the scope of order of assessment.

The assessee preferred an appeal before the CIT(A) against the only issue in the assessment proceedings i.e. Section 14A disallowance. The CIT(A) deleted the said disallowance and instead enhanced the scope to make disallowance of interest under section 36(1)(iii).

On appeal before the Hon’ble Tribunal, the Tribunal noted that interest expenditure was not the subject matter of assessment by the AO. It further noted that the question of taxability of income from a new source is concerned, which had not been considered by AO, the right manner to tax such new source is by invoking Section 147/ 148 or Section 263 of the Act. Reliance in this regard was placed on the decision of the Hon’ble Kerala HC in the case of BP Sherafudin in [2017] 87 taxmann.com 330. Hence, the Tribunal concluded that the power of CIT(A) under section 251(1)(a) is limited to any matter arising out of the proceedings. Thus, if any matter is not arising “out of the proceedings” before the AO, ld. CIT(A) has no power of enhancement apropos such matters.

Further it also noted that the show cause notice under section 251(2) proposed to enhance the income as no business activities were carried out by the assessee. However, ultimately, when such expenses were disallowed, the reason given was that such interest expenses had no relation with the interest income earned by the assessee company, during the relevant previous year. The Tribunal noted that if a particular basis has been given by ld. CIT(A) in the Show Cause notice, the ld. CIT(A) has to stick to the same basis while ultimately making the enhancement. Ld. CIT(A) cannot “shift his goal posts” at his own will. It was also observed that any enhancement being made without giving the same basis in the Show Cause notice, would tantamount to no opportunity being given to the assessee, before making such enhancement and thus would be against the legal position set out in section 251(2). (ITA No. 1194 (Jai.) of 2018 dt. 06-04-2021) (AY.2013-14)

M/s. Trimurty Buildcon Pvt. Ltd. v. ITO (2021) 87 ITR (Trib) 0505 (Jaipur), (2021) 211 TTJ 0249 (Jaipur)

134. S. 254(2): Appellate Tribunal –Rectification of mistake apparent from the record – Hearing concluded on 23-7-2019 and order was passed on 18-10-2019 – Monetary limit prescribed Circular Nos. 3 of 2018 dated 11-7-2018 i.e. 20 lkhs would apply and not circular No 17 of 2019 dated 18-8-2019 wherein the monitory limit of Rs 50 lakhs was fixed. [S. 268A]

Dismissing the petition the Court held that Tribunal, hearing was concluded on 23-7-2019 – Order was passed on 18-10-2019. Accordingly the monitory limit as per circular No. 17 of 2019 dated 18-8-2019 would not apply. On merit the Tribunal held that all submissions and explanations by assessee and department had been summarized and then a finding had been arrived at and, thus, issue had been decided by Tribunal after considering facts in entirety available on record and full opportunity had been given to assessee to make submissions, no mistake apparent from record being pointed out, rectification of Tribunal’s order was not warranted. (AY. 2004-05, 2005-06)

Dorf Ketal Chemical India (P.) Ltd. v. DCIT (2021) 186 ITD 681 (Mum)(Trib.)

135. S. 254(2A) : Stay – Paid more than 51 percent of disputed tax – Stay granted

The Tribunal has to see that the assessee has made payment of at least 20% of the disputed demand including interest, fee, penalty, etc. In the present case the payment already made by the assessee is about 51% of the total disputed demand of tax and interest Therefore, the amended provisions of first proviso to section 254(2A) of the Act is also satisfied. Stay Granted.

M/S. Goldman Sachs Services Private Limited v. DCIT (2021) 187 ITD 0488 (Bangalore-Trib.)

136. S. 254 (2) : Tribunal has no power to review its own order – right forum for redressal of grievance would be high court u/s.260A

The correctness of the decision recorded by the Tribunal cannot be challenged by the Revenue in garb of rectification petition u/s. 254(2) which is confined to rectification of mistakes apparent from the record which must be patent, self-evident, glaring, obvious, whose discovery is not dependent on argument or elaboration and does not require a complicated process of investigation, arguments or proof.

Tribunal Held, that there was no mistake apparent from the record, and therefore, the miscellaneous application moved by the Department was not maintainable. The Department was seeking to get the order passed by the Tribunal reviewed which was not permissible as the Tribunal has no power to review its order and the right forum for redressal of the grievance on any special question of law arising from the order of the Tribunal would be the High Court u/s.260A of the Act.

MA Nos. 31, 32, 33, 34, 35 and 36 /Chd/ 2020, I. T. A. Nos. 706, 707, 709, 712, 713, 715 /Chd/ 2018 (assessment years 2008-09, 2010-11 and 2012-13).

Dy.cit v. Sanjay Singal and Smt. Aarti Singal (2021)87 itr 468 (Chand)(Trib.)

137. S. 263 : Pr. Commissioner – Revision of orders prejudicial to revenue – remuneration to working partners– as per partnership deed, remuneration is paid as per the provisions of s. 40(b)(v) and taxed at 30% in the hands of individual partner, same as the assessee firm – assessment order framed is not erroneous and there is no prejudice to the interest of revenue.

PCIT found that the remuneration to the working partners of the Assessee Partnership firm was neither quantified nor quantifiable as per the Partnership deed. He relied on the CBDT circular no. 739 dated 25.03.1996 and observed that no deduction u/s 40(b)(v) will be admissible. He therefore invoked s. 263 holding that the assessment order passed is erroneous as well as prejudicial to the interest of revenue.

The Tribunal observed that clause 5 of the partnership deed proves that remuneration paid by the assessee firm to its working partners is as per the provisions contained u/s.40(b)(v) of the Act, out of the total income tax assessment of the firm in the relevant assessment year, out of the total income of remuneration so calculated to the partners shall be in equal proportions. Following judicial precedents and considering that revenue has not disputed the above facts, it held that the assessment order is not erroneous.

The Tribunal also held that remuneration paid to individual partners has been taxed at 30%, the same rate to which income of the assessee firm was to be taxed, the assessment order is therefore, not prejudicial to the interest of the Revenue. Order u/s 263 is not sustainable and appeal of the assessee is allowed. (ITA No.451/Del./2020 Dt. 23.03.2021 AY 2015-16)

M/S. Altmash Exports v. PCIT (2021 ) 87 ITR (Trib) 00 22 (Delhi) (SN)

138. S. 263 : Powers of revision – CIT(A) rectified computational error in AO’s order for short–term capital gain – AO’s view not incorrect and possible – CIT(A) exceeded powers under S. 263 – Order set aside.

Assessee claimed a Long-Term Capital Loss, disallowed by AO, but covered by assessee’s own case, hence allowed. Further, error in computing short-term capital gain arising from sale of flats without taking into stamp duty amount into consideration by AO was sought to be rectified by the CIT(A). Tribunal relying on R.K. Constriction Co. (313 ITR 65) found no error in the AO’s computation. CIT(A) order set aside. (ITA No. 892/Kol/2019, 19 March 2021, AY 2014-15)

The Peerless General Finance & Investment Company Limited v. DCIT (2021) 87 ITR 281 / (2021) 211 TTJ 823 (Kol)(Trib.)

139. S. 263 : Commissioner – Revision of orders prejudicial to revenue – PCIT invoked revision for non–submission of approval by DSIR for deduction under s. 35(AB) – The same was not required prior to 1.7.2016.

The Assessee’s in-house R & D facilities was approved by the DSIR, Govt. of India, Ministry of Science and Technology for AY 2012-13. Therefore, the condition for allowing deduction u/s.35(2AB) of the Act has been fulfilled by the Assessee. The claim of the revenue, however, is that the approval by the prescribed authority in form No. 3CM is not final and conclusive and the quantum of expenditure on which deduction is to be allowed is to be certified by DSIR in form No. 3CL. There is no statutory provision in the Act which lays down such a condition. Further, prior to 1-7-2016 there was legal sanctity for Form No. 3CL in the context of allowing deduction u/s. 35(2AB) of the Act.

M/s. Provimi Animal Nutrition India Pvt. Ltd. v. PCIT (2021) 187 ITD 214 / (2021) 85 ITR 9 (Bang)(Trib.)(SN)

140. S. 271(1)(c) : Penalty – Addition on basis of which penalty levied deleted.

Penalty proceedings for concealment of particulars of income or filing inaccurate particulars of such income were also initiated and penalty under section 271(1)(c). The Commissioner (Appeals) deleted the penalty.

Tribunal confirmed the view of the CIT(A) and deleted the penalty. (AY 2012-13)

Dy. CIT v. Anurag Dalmia [2021] 87 ITR 51 (Del)(Trib.)

141. S. 271AAA: Penalty – addition made on ad-hoc basis based on average gross profit rate, which does not relate directly to any undisclosed income unearthed during search – Penalty not sustainable.

Search & Seizure action u/s 132 and survey u/s 133A was conducted at business premises, residential premises and in other associated cases. It was found that there is a difference in stock when a physical inventory was taken as compared to the books of account of the Assessee. When the Assessee was asked to show cause as to why the addition should not be made, the Assessee submitted that the discrepancy was on account of technical problem in the new ERP software installed by the Assessee. The submission was not accepted by the AO who proceeded to make an addition by taking average gross profit rate at 3.68% for the last 3 years. Subsequently, penalty u/s 271AAA was levied, which was confirmed by the CIT(A). On appeal to the Tribunal, apart from the above facts, it was observed that the Assessee company had moved a petition before the Company Law Board to extend the date for adoption of audited accounts, which was accepted by the Company Law Board. Therefore sufficient explanation was provided by the Assessee. Also the amount of addition was not related to any undisclosed income unearthed during the course of search. Therefore the penalty is set aside. (I.T.A No.5431/Del/2016 Dt. 12.04.2021 AY 2010-11)

M/S Ace Steel Fab (P) Ltd. Kashyap & Co. v. DCIT (2021) 87 ITR (Trib) 0052 (Delhi) (SN)

142. S. 271C – Penalty – Failure to deduct at source – No mens rea– penalty deleted [S.273B]

Assessee, along with two persons entered into an agreement for purchase of immovable property valuing Rs. 75 lakhs. They deducted tax at source at rate of 1 per cent on gross sale consideration. Assessing Officer observed that seller was a non-resident Indian and, therefore, tax to be deducted at source on gross consideration should have been 20.6 per cent as provided in section 195. He considered assessee as assessee in default and initiated penalty proceedings under section 271C. The tribunal held that seller had not provided any documentary evidence to show that he was a Non-Resident Indian and assessee(s) prudently deducted tax at rate of 1 per cent under section 194(1A) and, subsequently, when it was brought to their notice that seller was an NRI, they immediately deposited correct amount of TDS and, thus, mens rea to evade tax was not appearing at any stage of proceedings on part of assessee. Thus, assessee was duly eligible to get benefit of provisions of section 273B and consequently penalty was to be deleted. [ITA No.500, 501 & 502 (IND) of 2018 dtd.14/10/2020][AY 2015-16]

Jitendra Sharma & Anr. v. Jt. CIT & ANR. (INTERNATIONAL TAXATION) (2021) 187 ITD 352 / (2020) 83 ITR 71 (Indore)(Trib.)

Research Team

1. S. 2(15) r.w.s. 11(4) : Charitable purpose – Exemption under s. 11 – Income from business or business held in trust – Assessee’s main object is for establishing, maintaining and running a hospital for philanthropic purposes and not for the purpose of profit

On appeal the High Court held that assessee-trust, carrying on business, was entitled to exemption in respect of income from the business of Chitty/Kurias such income was fully utilized for the purpose of ‘medical relief’, which is the main object of the assessee-trust, falling under the definition of ‘charitable purpose’.(IT Appeal No. 36of 2020, dt. 13-11-2020) (AY. 2012-13)

Bharathakshemam v. PCIT (2021) 320 CTR 198 / 199 DTR 113 (Ker.)(HC)

2. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Applicant, a Netherlands company, provides access to science database containing books/ journals / articles with a limited right of printing, making e-copies, and storing information to Indian subscribers – Consideration received not royalty but business income, as there is no transfer of any know-how or previous or new experience to subscriber [S. 90 – Double taxation relief – Article 7 & 12 – India-Netherlands DTAA, S. 195 – Deduction at source – Non-resident]

Applicant, a company based in Netherlands was engaged in business of providing electronic and print versions of books, journals, and online database solutions. It entered into two types of transactions, viz., (a) Pay per view transaction; and (b) Subscription agreements. An advance ruling was sought on whether receipt from Indian subscribers and customers for e-books / e-journals / e-articles is taxable as ‘royalty’ as per section 9(1) (vi) and Article 12 of India – Netherlands DTAA (‘DTAA’) or as ‘business income’ under section 28 of the Act and article 7 of the DTAA. The AAR held:

That the applicant merely compiles, collates various articles, journals and books on its web portal, which are accessible through publicly available search engines. This web based information is offered on a non-exclusive basis to the public. Content of the website remaining the property of the Applicant and protected by copyright and other intellectual property laws. There is neither there is any transfer of any know-how or previous or new experience to subscriber, nor does the subscriber get a copyright in books, journal or article, rather has a limited right of printing, making e-copies, and storing information for self-use. Therefore, receipt by Applicant from Indian subscribers and customers for e-books/e-journals/e-articles is not taxable as ‘Royalty’ as per article 12 of the DTAA but is in nature of business income. Thus, Indian subscribers are not required to withhold any tax on payment made to applicant under section 195 (AAR No. 1481 of 2013)

In Re: Elsevier BV, The Netherlands (2021) 432 ITR 251 (AAR)

3. S. 10(23C) : Educational institution – Exemption cannot be denied on ground that it does not have independent Memorandum of Association, Bye laws, etc.. [S. 10 (23)(vi)]

Dismissing the appeal of the revenue the Court held that so long as assessee adheres to parameters required to be satisfied under section 10(23C) to avail exemption, it is entitled to exemption and, therefore, unless findings of fact are given on basis of evidence that assessee does not meet parameters of section 10(23C), exemption claimed cannot be denied on ground that it does not have independent Memorandum of Association, Bye laws, etc. (AY. 2014-15)

CIT v. Sengunthar Matriculation Higher Secondary School (2021) 277 Taxman 252 (Mad.)(HC)

4. S. 10A : Free trade zone – Export turnover – Total turnover – Expenses incurred in foreign currency was to be excluded from both export turnover and total turnover for computation of deduction.

Dismissing the appeal of the revenue the Court held that, expenses incurred by in foreign currency was to be excluded from both export turnover and total turnover for computation of deduction. (AY. 2006-07)

PCIT v. Infosys BPO Ltd. (2021) 277 Taxman 320 (Karn)(HC)

5. S. 12A : Property held for charitable purposes – Registration – Trust or institution – Delay in filing Form 10B – There is no error or infirmity in the view taken by the CBDT or by the CIT for not condoning the delay of more than 365 days in filing Form No. 10B – Assessee advised to approach CBDT for special order to condone delay beyond 365 days (r.w.s 11)

On writ filed the High Court held that there was a delay in filing Form No. 10B beyond 365 days by the assessee-trust. Further, there was no error or infirmity in the view taken by the CBDT vide Circular No. 2 of 2020, dated January 3, 2020 or by the CIT while passing the impugned order fixing a period of one year’s delay i.e., 365 days for condonation of delay in filing Form No. 10B for AY 2018-19 and onwards cannot be said to be arbitrary or irrational. Having regard to the mandate of s. 119(2)(b), even at this stage, assessee may approach CBDT under the aforesaid provision seeking a special order to the CIT (Exemptions), to condone the delay in filing Form No. 10B for the asst. yr. 2018-19 which is beyond 365 days and thereafter to deal with the said claim on merit and in accordance with law. (Writ Petn No. 1061 of 2020 dt. 25-03-2020) (AY 2018-19)

Little Angels Education Society v. UoI & Ors* (2021) 320 CTR 331 / 200 DTR 289 (Bom)(HC)

*Also, C.F. Andrews Education Society (Regd) v. UoI & Ors

6. S. 12A: Registration – Trust – Benefit of exemption under section 11 should not be denied where registration certificate cannot be produced [S.11, 12A, 12AA and 143(3)]

The assessee did not have a copy of the registration certificate granted to it as the same was destroyed during floods of 1978. AO insisted on a copy of the registration certificate for granting benefit under section 11. A fresh certificate of registration was granted from AY 2017-18 onwards. However, department refused to grant exemption for AY 2013-14 to AY 2016-17 in absence of the registration certificate. The High Court held that the trust should not be denied the benefit of exemption under section 11 only on account of its disability to produce the necessary records which got destroyed during the floods. Further, the HC did not find anything suspicious with regard to the trust. HC directed assessee to produce entire records available with it to the department and directed the department to look into the same. (SCA No. 16039 of 2019 dt. 25-3-2021)(AY.: 2012-13)

Morbi Plot Jain Tapgachh Sangh v. CIT (2021) 433 ITR 1 / 110 CCH 217 (Guj.)(HC)

7. S. 12AA : Procedure for registration – Trust or institution-First application was pending – Second application was filed – Retrospective registration could not be granted based on the first application. [Rule, 17A, Form No 10A]

Assessee-trust filed application in Form 10A for grant of registration on 11-3-2009. Same remained pending; on 28-6-2011 assessee filed another application. Commissioner granted registration with effect from 1-4-2011. On appeal the Tribunal held that the assessee is deemed to have abandoned or waived their claim made in the first application dated 11-3-2009 owing to the fact that they made the second application dated 28-6-2011, which is a fresh application. On appeal the Court held that since assessee did not take any steps to dispose of first application from 2009 to 2011 and similar to first application, second application was also filed in Form 10A in accordance with rule 17A, second application was a fresh application and not merely a letter in continuation of first application and, thus, assessee would be deemed to have abandoned or waived off their claim made in first application . Accordingly Commissioner was justified in granting registration with effect from 1-4-2011 by taking into consideration second application and retrospective registration could not be granted in view of first application. (AY. 2012-13)

Carmel Educational and Charitable Trust v. ITO (2021) 277 Taxman 165 (Mad.)(HC)

8. S. 14A : Disallowance of expenditure – Exempt income – No expenditure was incurred directly or indirectly – No disallowance can be made.

Dismissing the appeal of the Revenue the Court held that , Tribunal on meticulous appreciation of evidence on record found that no expenditure was incurred by assessee directly or indirectly to earn exempt dividend income, no disallowance was to be made under section 14A. (AY. 2006-07)

PCIT v. Infosys BPO Ltd. (2021) 277 Taxman 320 (Karn)(HC)

9. S. 14A r.w.r. 8D: Sufficient interest free funds available – investment are presumed to be out of interest free funds –only those investments to be considered which yield exempt income for the purpose of calculation

The assessee made suo-moto disallowance under section 14A of the Act. However, the AO did not concur with the calculation of the assessee and made additional disallowance under Rule 8D(2)(ii) of the Act. The CIT(A) gave partial relief to the assessee.

On appeal before the Tribunal, it was held that when the assessee had sufficient owned (interest free) funds, it was to be presumed that the investments were made from such interest free funds. Hence, there was no scope to disallow interest under Rule 8D(2)(ii)of the Act. Reliance in this regard was placed on the decision of Hon’ble Bombay HC in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 which in turn followed the decision of Hon’ble Supreme Court in the case of East India Pharmaceutical Works Ltd. v. CIT (1997) 224 ITR 627.

Further, following the decision in the case of ACIT v. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB) it was held that while computing the administrative expenditure disallowance under Rule 8D(2)(iii)only such investments were to be considered which yielded exempt income.

Nandi Steels Ltd vs. ACIT (2021) 320 CTR 432 / 201 DTR 37 (Kar)(HC)

10. S. 14 r.w.s.72 : Heads of income – Carry forward and set off of business losses against capital gains – Assessee was entitled to set off of carried forward business loss against capital gain arising on sale of business asset used for the purpose of business

On appeal held by High Court that proviso to s.72(1)(i) was omitted by Finance Act, 1999 w.e.f. 1st April, 2000. Therefore, for the A Yin question i.e., 2003-04, Assessee was not required to have carried on the business for the purposes of set off of brought forward business loss. Any income from business though classified under any other head can still be entitled to the benefit of set off. Assessee was therefore entitled to set off of carried forward business loss against capital gain arising on sale of business asset used for the purpose of business(ITA No. 103 of 2012, dt. 23-02-2021) (AY. 2003-04)

Nandi Steels Ltd v. ACIT (2021) 320 CTR 432 / 201 DTR 37 (Kar)(HC)

11. S. 14A : Disallowance of expenditure – Exempt income – Disallowance not to exceed exempt income.

Disallowance under section 14A cannot exceed the exempt income earned during the year. (A.Ys. 2008-09 and 2009-10)

Principal Commissioner Of Income Tax v. M/s. EWS Finance & Investments Pvt Ltd. (2021) 433 ITR 23 (Mad)

12. S. 28(iiic) : Business income – Customs Duty or Excise Refund on Capital Assets – Project not operational – Reduction in the Cost of Project – Refund is not taxable as income. [S.4, 145]

Dismissing the appeal of the revenue the revenue the Court held that as the project was not in operation during said year and it lodged a claim for refund of excise duty with Director General of Foreign Trade as deemed export benefits, since amount of excise duty related to cost of acquisition of capital assets/project, refund of excise duty would ultimately reduce cost of project and could not be treated as business income. (AY. 2011-12)

PCIT v. Maithon Power Ltd. (2021) 124 taxmann.com 204 (Delhi) (HC)

Editorial : SLP of revenue is dismissed, PCIT v. Maithon Power Ltd. (2021) 277 Taxman 406 (SC)

13. S. 28(iv) : Business income – Value of any benefit or perquisites – Converted in to money or not – One time settlement with bank – No reply was received from bank in response to notice issued under section 133(6) – Failure to produce books of account – Matter remanded to the Assessing Officer [S. 41(1), 133(6)]

Assessee owed a sum towards loan to bank. Subsequently, in one time settlement programme said loan was waived off by bank. Assessing Officer held that waived amount was income of assessee under section 28(iv). Assessing Officer assessed the waiver amount as income. Order of the Assessing Officer is affirmed by CIT (A) and Tribunal. On appeal the Court held that

Assessing Officer had also called for information from bank under section 133(6) in this regard, however, no reply was received. Therefore in absence of any particulars pertaining to previous years books of account, it was difficult to arrive at a decision and, therefore, in order to grant one more opportunity to assessee for production of books of account to substantiate its case, matter was to be remanded back to Assessing Officer. (AY. 2004-05)

Kothari International Trading Ltd. v. ACIT (2021) 277 Taxman 644 (Mad.)(HC)

14. S. 32 : Depreciation – Assets leased – Search and seizure – Depreciation allowed is up held [S.132]

Dismissing the appeal of the revenue the Court held that the assessee has discharged the onus to prove genuineness of transaction by furnishing necessary documents viz., copies of sanction letter, lease agreements, invoices, inspection records on various dates and inspection reports pertaining to pre-search and post-search period in support of its claim. Order of Tribunal is affirmed. (AY. 1997-98)

CIT v. Canara Bank (2021) 277 Taxman 440 (Karn)(HC)

15. S. 32 : Depreciation – Machinery – Put to use less than 180 days – Additional depreciation – Allowable in subsequent assessment year [S. 32(1)(iia)]

Dismissing the appeal of the revenue when plant and machinery acquired by assessee in second half of financial year 2007-08 was put to use for less than 180 days 10 per cent of additional depreciation under section 32(1)(iia) is allowable in that year, balance additional depreciation of 10 per cent could be allowed on these assets in relevant subsequent assessment year 2009-10 (AY. 2009-10)

CIT v. Aztec Auto (P.) Ltd. (2021) 277 Taxman 273 (Mad.)(HC)

16. S. 36(1)(vii) : Bad debt – TDS payment – Sales promoters – Order of Tribunal allowing the claim as bad debt is affirmed. [S.260A]

Dismissing the appeal of the revenue the Court held that the debt was written off as irrevocable in accounts of assessee. Accordingly the Tribunal was justified in allowing claim of assessee towards bad debt on account of TDS payments on behalf its promoters. (AY. 2003-04)

CIT v. Shaw Wallace Distilleries Ltd. (2021) 277 Taxman 145 (Karn)(HC)

17. S. 37(1) : Business expenditure – Postage, stationery, courier charges, etc., cost of which were to be recovered from various clients – Allowable as business expenditure.

The assessee incurred postage, stationery, courier charges, etc., in the course of winding up proceedings. The expenses were incurred as per SEBI directions; change of address was to be communicated to individual investors both by advertisement in prominent newspapers and also by individual communications. Due to closure of business in 2000, efforts were made to recover all expenses and fee payable before handing over records; however, it could not recover expenses incurred. Assessee claimed deduction of such expenditure. Assessing Officer disallowed the expense which was affirmed by the Tribunal. On appeal the Court held that since incurring of those expenditures was not doubted or disproved by revenue authorities in hands of assessee, such expenditure was required to be allowed by assessing authority. (AY. 2001-02)

Share Aids (P.) Ltd. v. ITO (2021) 277 Taxman 517/ 319 CTR 177 (Mad.)(HC)

18. S. 37(1) : Business expenditure – expenditure incurred for public issue of shares is capital in nature – cannot be allowed under section 37(1). [S. 37(1)]

Assessee engaged in the business of running health farms and resorts claimed a deduction of Rs. 1,89,84,676/- for public issue as revenue expenditure. AO held the same to be capital expenditure and disallowed the claim which was confirmed by the CIT(A) and Tribunal. The HC confirmed the order of the tribunal and held that the assessee had failed to show that its case warranted reconsideration. (TC Appeal No. 535 of 2019 dt. 5-2-2021)(AY.:1994-95)

Tatia Sky Line & Health Farms Ltd. v. ACIT (2021) 432 ITR 123 / 126 taxmann.com 75 (Mad.)(HC)

19. S. 37(1) : Business expenditure – Set-up of business – Allowability of advertisement expenditure.

Where the assessee had executed lease deeds for its premises, obtained Importer Exporter Code, engaged senior employees and carried out local purchase and sale, it was to be held that its business had been set-up and expenditure incurred by it could not be disallowed as being pre-operative in nature. Further, expenditure incurred on advertisement, if incurred wholly and exclusively for the purposes of business will be allowable as long as no capital asset is created and the extent of the advertisement expenditure is irrelevant. (A.Y. 2010-11)

Principal Commissioner Of Income Tax v. Miele India Pvt. Ltd. (2021) 433 ITR 0286 (Delhi)

20. S. 41 (2) : Profits chargeable to tax – Business loss – Balancing charge – Block of assets – Winding up – Sale value less than written down value – Allowable as business loss [S.(2(11), 28 to 44DB, 50]

The assessee in the process of winding up sold some of its depreciable assets and suffered losses thereon as same were sold below written down value of those assets in books of account. The assessee claimed the said loss as business loss. Assessing Officer rejected assessee’s claim. On appeal the Tribunal held that section 41(2) is applicable only where sale value along with scrap value exceeds written down value and since in instant case, sale value realized was less than written down value, section 41(2) would not apply. On appeal the High Court held that even if sections 28 to 44DB talk only of taxability on excess received by assessee over written down value of assets, it cannot exclude or ignore minus figure or loss occurring on such sale transactions. Since certain assets of block of assets, not being immovable property of assessee, were sold during regular course of business, before it was wound up during relevant previous year, loss occurring on such sale at a figure less than written down value of assets should be treated as Business Loss under section 41(2) of the Act. (AY.2001-02)

Share Aids (P.) Ltd. v. ITO (2021) 277 Taxman 517/ 319 CTR 177 (Mad.)(HC)

21. S. 43(1) : Actual cost – Financial assistance for rehabilitation of tsunami damaged roads and bridges, ports and harbours – Interest free loan – Not to be reduced from actual cost. [S.32 43(1), Explanation 10]

Dismissing the appeal of the revenue the Court held that since Government Order clearly mentioned that what was sanctioned to assessee was a loan and not in nature of grant, Tribunal was right in granting relief to assessee by treating receipt in question viz. grants-received from Government, as interest free loans and allowing depreciation claimed against assets acquired from said receipts. (AY. 2014-15, 2015-16)

CIT v. Tamilnadu Martime Board (2021) 277 Taxman 15 (Mad.)(HC)

22. S. 54 : Capital gains – Profit on sale of property used for residence – Amount spent on construction – Mere non-compliance of a procedural requirement, exemption should not be denied – Order of single judge is affirmed by division Bench [S.45, 54(2)]

Assessee claimed certain sum spent on construction cost as deduction under section 54 of the Act. The Assessing Officer restricted exemption claimed under section 54 proportionately to amount deposited in Capital Gain Account Scheme as required under section 54(2). Assessee filed writ petition against order of revenue and same was allowed by Single Judge, holding that mere non-compliance of a procedural requirement under section 54(2) itself could not stand in way of assessee in getting benefit under section 54, if he was, otherwise, in a position to satisfy that mandatory requirement under section 54(1) was fully complied with within time limit infructuous. (AY. 2014-15)

CIT v. Venkata Dilip Kumar (2021) 277 Taxman 463/ 201 DTR 9 (Mad.)(HC)

23. S. 54EC : Capital gains – Investment in bonds – Amendment Restricting the investment to 50 lakhs is prospective in nature [S.45]

Dismissing the appeal of the revenue the Court held that amendment to section 54EC brought with effect from 01-04-2015 restricting investment in assets from sale consideration on sale of original asset to Rs.50 lakhs is prospective in nature, therefore prior to assessment year 2015-16, it was possible for assessee to claim deduction of Rs.1 crore by investing Rs.50 lakhs in each of financial years but within six months from date of transfer.

Circular No. 3/2008 (AY. 2009-10)

CIT v. Neena Krishna Menon (Smt.)(2021) 277 Taxman 211 (Karn)(HC)

24. S. 56 : Income from other sources – AO cannot question the valuation for the purposes of section 56(2)(viib).

Where shares were issued to unrelated investors by following DCF method which is prescribed under Rule 11UA, the AO could not doubt such valuation only on the basis that the projections did not match the actual results. The fact that shares were issued to unrelated investors also points towards the fact that the valuation was genuine. (A.Y. 2015-16)

Principal Commissioner Of Income Tax v. Cinestaan Entertainment Pvt. Ltd. (2021) 199 DTR 345 (Del), (2021) 320 CTR 381 (Del), (2021) 433 ITR 82 (Delhi)

25. S. 57 : Income from other sources – Deductions – Interest paid on loans from relatives – Matter remanded. [S.57 (iii)]

Assessee claimed the deduction of interest paid to relatives. Assessing Officer disallowed the interest which was affirmed by the Tribunal. On appeal the Court held that the assessee had given names of persons from whom he borrowed money and the interest paid was allowed as deduction from year to year and lenders were disclosed the interest in their return of income. High court remanded the matter to the file of Assessing Officer to allow the interest as per the law. (AY. 2011-12)

Rajendra Kumar Jain v. ITO (2021) 277 Taxman 236 (Mad.)(HC)

26. S. 68 : Cash credits – Long term capital gains from equities – Penny stock – Tribunal – Duties – Tribunal was not justified in remanding the matter to the Assessing Officer – Order of CIT (A) confirming the addition was affirmed – Order of Tribunal set aside [S. 10(38), 45, 254 (1)]

Assessing Officer after verification found that transaction of purchase of shares by assessee was a sham transaction and that assessee could not discharge onus cast upon her to prove genuineness of transaction by producing documentary evidence and accordingly refused to entertain claim made by assessee under section 10(38) towards sale proceeds and made addition u/s 68 of the Act. On appeal CIT (A) affirmed the order of the Assessing Officer. On appeal the Tribunal without finding an error in approach of Assessing Officer or Commissioner (Appeals) remanded the matter Assessing Officer for a fresh consideration of On appeal by the Revenue the Court held that Tribunal was required to record reasons as to why matter should be remanded and as to why Tribunal could not decide factual issue on available material .Accordingly the Court held that the assessee had not discharged the onus cast upon him to prove the genuineness of the transactions. The assessee had entered into engineered transaction to generate artificial long term capital gains and the Explanation offered by the assessee regarding the credit of Rs. 15,86,250/- in its book was found to be unsatisfactory and therefore, the Assessing Officer held the same as unexplained cash credit which was added to the total income of the assessee as per the provisions of section 68 of the Act and assessed under the head Income from other sources. Order of Tribunal set aside and order of CIT (A) is restored. (AY. 2012-13)

CIT v. Manish D. Jain (HUF) (Mrs.) (2021) 277 Taxman 604 (Mad.)(HC)

27. S. 68 : Cash credits – Purchase of scrap – Recalling the order is held to be justified – Deletion of addition is held to be justified [S.133(6), 254 (2)]

Assessee purchased scraps from two sundry creditors/sellers. Notice issued u/s 133 (6) of the Act to the sellers was returned UN served. The Assessing Officer treated the purchases as cash credits. The Tribunal up held the addition. On miscellaneous application considering the TIN number, PAN number, invoices, etc. to prove their identity and genuineness of transaction which was lost sight in the original order was lost sight hence passed the rectification order allowing the appeal. On appeal by the revenue the Court held there was a justifiable cause for rectification of its earlier order by deleting additions under section 68 of the Act. (AY. 2007-08)

CIT v. Shree Ganesh Ventures (2021) 277 Taxman 416 (Mad.)(HC)

28. S. 68 : Cash credits – Primary onus on the assessee.

The primary onus to demonstrate the nature and source of the credit is on the assessee. Only when such onus is discharged by the assessee, does it shift to the department. Where the assessee only filed a list of investors, which did not even contain their PAN numbers, it could not be said that the assessee had discharged its onus. (A.Y. 2006-07)

Principal Commissioner Of Income Tax v. M/S. SRM Systems And Software P. Ltd. (2021) 433 ITR 111 (Mad)

29. S. 68 : Cash credits – Bogus purchases – Trading in ferrous and non-ferrous metal – Stock register produced – Deletion of addition is held to be justified – No question of law [S.260A]

Assessee was engaged in business of trading in ferrous and non-ferrous metal. The Assessing held that Rs.66.76 lakhs as non-genuine. CIT (A) deleted the as submitting its stock register showing month wise purchases and sales and also by submitting confirmations from parties to whom sales had been made along with their VAT registration. Order of CIT (A) was affirmed by the Tribunal. Appeal of the revenue was dismissed by the High Court. (AY. 2011-12)

PCIT v. Sandeep P. Shah (2021) 124 taxmann.com 206 (Guj) (HC)

Editorial: SLP of revenue is dismissed, PCIT v. Sandeep P. Shah (2021) 277 Taxman 395 (SC)

30. S. 69A : Unexplained Money – Burden of proof – Cash found in assessee’s possession – Burden on assessee to prove that he was not owner of cash – No Satisfactory Explanation – Addition To Income Justified

During a raid by the CBI and Revenue authorities, the assessee was found to be the owner of the money. A statement on oath of the assessee was recorded under section 132(4) of the Act, wherein it was contended that the amount of Rs. 2 crores was received as advance for sale of agricultural land at Faridabad. Total area of the land was stated to be 50 acres and the agreed price for the sale was disclosed as Rs. 6 crores. He further stated that the amount was received from one Mr. Sharma and receipt against the advance of Rs. 2 crores was issued by the assessee, although at the time of the search, the assessee did not possess a copy of the same. During the assessment proceedings, the assessee submitted that he had received the cash amounting to Rs. 2 crores as advance from one Mr. Ahuja through the broker Mr. Sharma. Independent enquiries were conducted by the AO, notice under section 133(6) was issued to Mr. Ahuja, and documents were obtained from him, which included a copy of a memorandum of understanding dated April 12, 2010 purported to be executed between him and the assessee for purchase of the said agricultural land. Mr. Ahuja submitted that the payment of Rs. 2.01 crores was made to the assessee in cash, which was withdrawn from the bank account maintained by him. Later, the authorised representative of Mr. Ahuja orally stated that the latter had filed a suit for recovery of the advance of Rs. 2.01 crores against the assessee. In order to carry out further enquiry and verification in relation to the source of the cash found and seized, the AO recorded the statements of Mr. Ahuja and Mr. Sharma, pursuant to summons issued under section 130. Ultimately, the AO, after consideration of the testimonies and other evidence furnished, framed the assessment and added the amount of Rs. 2 crores to the income of the assessee. The CIT(A) and Income Tax Appellate Tribunal confirmed the addition of Rs. 2 crores.

On appeal, the High Court held that for an addition under section 69A, possession is evidence of ownership, and the presumption of ownership is the strongest in the case of cash, because its title can be transferred by mere delivery of possession, and thus, the onus is on the assessee to prove that he is not the owner of the currency in his possession. In the present case, the onus lay on the assessee to explain the “nature and source” of this amount. The explanation offered by the assessee had not been found to be satisfactory by the tax authorities in light of the discrepancies and anomalies in the statements of the assessee. These were purely findings of fact which had been concurrently accepted by the Commissioner (Appeals) as well as the Tribunal. The observations of the tax authorities were on independent examination of the case and not entirely resting on the case which had been set up by the CBI. As far as the Income-tax proceedings were concerned, since the explanation offered by the assessee had not been found to be satisfactory, the addition was in accordance with law. (ITA No. 16 of 2021) (AY 2011-12)

Jatinder Pal Singh v. DCIT (2021) 432 ITR 293 (Delhi)

31. S. 69C : Unexplained expenditure – Seized material – Department not provided the details of transaction – Deletion of addition is held to be justified – No question of law [S.132, 260A]

Department filed an appeal against the order of the Tribunal wherein the Tribunal deleted the addition of Rs. 739.04 lacs stating that payment by the assessee of the amount of Rs. 739.04 lacs had not been established from the seized material and therefore no addition could be made on this account ignoring the fact that the assessee never provided the details of the transaction either during the course of assessment proceedings or thereafter and the assessee was in the exclusive knowledge. High Court dismissed the appeal being question of fact.

PCIT v. Hassan Ali Khan (2021) 124 taxmann.com 208 (Bom) (HC)

Editorial: SLP of revenue is dismissed PCIT v. Hassan Ali Khan, (2021) 277 Taxman 398 (SC)

32. S. 70 : Set off of loss – Loss from eligible unit could be set off against profit of non-eligible unit – Income under the same head. Dismissing the appeal of the revenue the Court held that loss sustained by assessee company from its unit which was eligible for exemption under section 10A could be set-off against profit of its other unit which was not eligible for exemption under said section under same head of income. (AY. 2006-07)

PCIT v. Infosys BPO Ltd. (2021) 277 Taxman 320 (Karn)(HC)

33. S. 72 : Carry forward and set off of business losses – The head of income is not relevant while carrying forward and setting off business loss.

The assessee declared income in its return after setting off the brought forward business loss against income arising from the sale of undertaking which was offered to tax under the head capital gains. The CIT sought to revise the assessment under section 263 for the reason that brought forward business loss could not be set off against capital gains. The Tribunal allowed the set off to the extent of depreciation which had been claimed by the assessee in the preceding years on the undertaking on the ground that the sale consideration to that extent represented recoupment of depreciation which is in the nature of business income, though offered under the head capital gains. Held that the view of the Tribunal is correct in view of the judgements of the Supreme Court in the case of CIT v. Chugandas and Co. (1965) (55 ITR 17) (SC) and CIT v. Cocanada Radhaswami Bank Ltd. (1965) (57 ITR 306) (SC). (A.Y. 2011-12)

Principal Commissioner Of Income Tax v. M/s. Alcon Developers (2021) 432 ITR 277 (Bom)

34. S. 72 : Carry forward and set off of business losses – Export Oriented undertakings – Declaration in terms of section 10B(8) was to be treated as directory as provision of this section does not provide for any consequence by non-filing of declaration by time limit – Carry forward and set off of business losses was allowed. [S.10B(8)]

Assessee, a software company, filed its original return on due date in which exemption under section 10B was claimed. Thereafter, assessee withdrew said exemption before completion of assessment and filed revised return in which said exemption was not claimed and certain loss was declared. Assessing officer denied assessee’s claim of carrying forward of losses under section 72, however same was allowed by Tribunal. On appeal by revenue the Court held submission of declaration in terms of section 10B (8) was to be treated as directory as provision of this section does not provide for any consequence by non-filing of declaration by time limit. Since assessee had filed said declaration before completion of assessment, appeal filed by revenue was to be dismissed. Referred Sambhaji v. Gangabai [2008] 17 SCC 117, Rajendra Prasad Gupta v. Prakash Chandra Mishra [2011] 2 SCC 705 and Ramji Gupta v. Gopi Krishan Agrawal (D) AIR 2013 SC 3099. In State of Bihar v. Bihar Rajya Bhoomi Vikas Bank Samiti [2018] 9 SCC 472, it has been held that if infraction of procedural provision does not provide for any consequences, such a provision has to be construed as directory. In the instant case, section 10B of the Act does not provide for non-compliance of submission of declaration. (AY. 2001-02)

PCIT v. Wipro Ltd. (2021) 277 Taxman 309/ 318 CTR 340/ 197 DTR 349 (Karn)(HC)

35. S. 80P : Co-operative societies – Exemption under section 80P cannot be denied – issue covered by decision of SC in Mavilayi Service Co-operative Bank [S.80P]

Assessee a co-operative society engaged in the business of banking by providing credit facilities only to its members claimed exemption from income tax under section 80P(2)(a)(i). The AO denied the exemption under section 80P. The HC relied on the decision of Mavilayi Service Co-operative Bank Ltd (431 ITR 1)(SC) and held that the issue is no more res integra and allowed the exemption to the assessee. (ITA No. 136 of 2016 dt. 18-2-2021)(AY.:2010-11)

M/s Tellicherry Public Servants Co-operative Bank Ltd. (Rep. by its Secretary Shri Anandaprasad. M) v. CIT (2021) 433 ITR 60 / 110 CCH 210 (Ker.)(HC)

36. S. 92C : Transfer pricing – Arm’s length price – Exclusion of ten comparable – Finding of fact – No substantial question of law [S.260A]

Dismissing the appeal of the revenue the Court held that order of Tribunal upholding exclusion of ten comparable for purpose of determination of arm’s length price of international transactions involving is question of fact and does not involve any substantial question of law. (AY. 2008-09)

PCIT v. Evaluserve.Com (P) Ltd. (2021) 124 taxmann.com 210 (Delhi) (HC)

Editorial: SLP of revenue is dismissed , as there was delay of 359 days in filing said petition and explanation offered in support of prayer for condonation was not satisfactory , PCIT v. Evaluserve.Com (P) Ltd. (2021) 277 Taxman 392 (SC)

37. S. 92C: Transfer pricing – Arms’ length price – Writ – Alternative remedy – Remedies are available in the system and the Assessee ought to have approached the Tribunal before approaching this Court – But instead challenged the TPO’s order in this Court –Assessee is advised to approach the Tribunal.

Held by the High Court that It is not clear whether the assessee approached the DRP with objections against the draft assessment order. Further, Assessee ought to have approached the Tribunal against the final order of assessment. In such circumstances, remedies are available in the system and the assessee ought to have approached the Tribunal before approaching this Court, but instead challenged the TPO’s order in this Court. Even in the first instance the Assessee did the same thing by approaching the Tribunal against the final assessment made. As done by it earlier, certainly, all the issues can be agitated before the Tribunal. Therefore, this writ appeal is disposed of with liberty to the Assessee to approach the Tribunal within four weeks from the date of receipt of a copy of this order. (Writ Appeal No. 2104 of 2018 dt. 16-09-2020) (AY. 2008-09)

Hyundai Motor India Ltd v. DCIT (2021) 320 CTR 106 / 199 DTR 124 / 432 ITR 306 / 276 Taxman 156 (Mad)(HC)

38. S. 92CA : Reference to transfer pricing officer to verify details which AO was not competent to check – such reference is valid in-spite of being a case of limited scrutiny. [S. 92CA and 92D]

Assessee’s case was picked up for limited scrutiny for the purpose of verifying value of international transaction shown as per Form 3CEB and return of income. Assessee challenged the reference to the TPO as well as the draft order passed under section 144C. The HC held that since the AO was not competent to check the aforesaid facts and provide proper reasons for such reference. Hence, the reference made to the TPO was justified and upheld. (WA No. 1133 and 1134 of 2020 dt. 17-02-2021) (AY.:2016-17)

Transsys Solutions (P.) Ltd v. ACIT (2021) 432 ITR 375 / 126 taxmann.com 164 (Mad.)(HC)

39. S. 92CA(3) : Reference to transfer pricing officer – order passed by TPO on 1-10-2019 for AY 2016-17 barred by limitation by one day [S. 92CA(3), 92CA(3A) and 153]

Assessee filed its return for AY 2016-17 and TPO passed an order on 1-11-2019. The assessee filed a writ petition challenging the TPO order passed under section 92CA(3) being barred by limitation by one day. Limitation under section 153 expired on 31-12-2019 and period of 60 days prior to the last date on which period of limitation referred to in section 153 for making assessment expires is 1-11-2019 and hence ‘any date prior thereto’ would mean 31-10-2019 or before and thus the impugned order are held to be barred by limitation. (WP Nos. 32669, 33751, 34174, 34389, 34568 & 32703 of 2019 dt. 07-09-2020) (AY.:2016-17)

Pfizer Healthcare India (P.) Ltd. v. JCIT (2021) 433 ITR 28 / 124 taxmann.com 536 (Mad.)(HC)

40. S. 92CA r.w.s 143(3) & 144C : Reference to transfer pricing officer – Draft assessment order – Once the case was remitted back to the first respondents (AO) by Tribunal, it was incumbent on the part of the AO to have passed a draft assessment order – It was not open for the AO to bypass the statutory safeguards prescribed under the Act and thereby deny the right of the assessee to approach the DRP –Impugned order is quashed and case is remitted back to the AO to pass a draft assessment order.

Held by the court that once the case was remitted back to the respondents by Tribunal, it was incumbent on the part of the first respondent (Assessing Officer) to have passed a draft assessment order under S.143(3) r.w.s. S.92CA(4) and S.144C(1). Impugned order is quashed and case is remitted back to the first respondent to pass a draft assessment order.(Writ Petn. No. 32751 of 2017 and Writ Misc. Petn. No. 36089 of 2017, dt. 27-05-2021) (AY 2009-10)

Durr India (P) Ltd. v. ACIT(2021) 433 ITR 48 (Madras) (HC)

41. S. 115WB : Fringe benefits – Assessee paid FBT in respect of contribution towards superannuation fund – Tribunal held that assessee was not liable to pay such FBT – Application filed for refund of FBT paid – Rejection by Principal Commissioner of claim for refund in view of circular issued by CBDT – Assessee permitted to file application before Board – Limitation – Not to be barred by limitation since section 119 does not have limitation

Assessee, a banking company, filed its FBT return declaring fringe benefit value of certain amount. It contended that value of statutory contribution made to superannuation fund could not be considered as a perquisite and, therefore, could not be regarded as fringe benefit. Same was denied by the AO. Accordingly, assessee paid FBT in respect of contribution towards superannuation fund. On an appeal, the Tribunal held that statutory contribution made to superannuation fund was outside ambit of FBT and accordingly, assessee filed an application under section 264 for refund of amount of such FBT paid by it. The PCIT rejected the same on grounds of being barred by limitation. On a writ petition filed by the assessee the court remitted the matter to the Principal Commissioner to pass orders afresh under section 119. But once again the assessee’s request for refund was rejected. On a writ petition :

Held, that the contention of the Department that Circular No. 9 of 2015, dated June 9, 2015 which stated that a claim for refund would not be entertained beyond six years from the end of the assessment year for which the claim was made was binding on the Principal Commissioner, and that the claim could have been considered only by the Board and not by the Principal Commissioner were sustainable. However, the Principal Commissioner had not taken note of the spirit of the court’s order dated June 12, 2019, wherein it had stated that if the assessee was not liable to pay any fringe benefits tax, then, the Department ought to have refunded it. The Income-tax Department being an arm of the State was bound by the constitutional mandate enshrined in article 14 of the Constitution of India and the principles of fairness and reasonableness. Though any taxing statute would have to be construed strictly and there was no scope for applying equitable principles, the assessee’s case was not one of tax liability. According to the legal position prevailing, the assessee was not liable to have made any payment of fringe benefits tax in respect of contribution towards superannuation fund. Circular No. 9 of 2015, dated June 9, 2015 issued by the Board was no doubt binding on the authorities including the Principal Commissioner, but a court was not bound by such a circular. Section 119 did not have any limitation. The assessee was permitted to file an appropriate application before the Central Board of Direct Taxes. Since as on date there was no tax liability on the part of the assessee the application would be entertained by the Board without reference to limitation and orders passed. If any refund was ordered in the pending appeal by the Department the question of paying any interest by the Department would not arise. (W. P. (MD) No. 20806 of 2019)

Karur Vysya Bank Limited v. PCIT [2021] 432 ITR 622 (Mad)

42. S. 119 : Central Board of Direct Taxes – Instructions – Delay to be condoned in cases of genuine hardship.

Where the CBDT rejected the Petitioner’s application for condonation of delay in filing of return of income for the A.Y. 2018-19 and the single judge remanded the matter for reconsideration after recording that delay should be condoned in cases of genuine hardship, the division bench of the High Court held that such judgement was in accordance with law. (A.Y. 2018-19)

Principal Commissioner Of Income Tax And Ors. v. M/s. Navanidhi Vividhoddesha Sahakara Sangha Ltd. (2021) 433 ITR 177 (Karn)

43. S. 132 : Search and seizure – Warrant of authorization – Search and seizure action is held to be valid though the petitioner resigned from said company four years ago – Writ petition was dismissed [Art. 226]

Petitioner filed writ petition challenging warrant of authorization and consequential action of conduct of search and seizure operation to be illegal, unauthorised and ultra vires provisions of section 132 of the Act on the ground that the petitioner having resigned from said company four years ago he had nothing to do with it. Dismissing the petition the Court held that writ court cannot go into sufficiency and adequacy of reasons recorded in note of satisfaction in terms of section 132 and power of High Court is limited only to assessing whether relevant reasons were recorded while initiating proceedings. Since satisfaction note was clearly concerned with tax evasion activities conducted by various companies and persons mentioned therein and same had been relied upon by authority to initiate proceedings under section 132, search and seizure operations carried out in terms of section 132(1) could not be said to be illegal and ultra vires statute .

Ajay Kumar Singh v. DGI Bihar (2021) 434 ITR 352 / 277 Taxman 633 (Patna)(HC)

44. S. 132 : Search and Seizure – Writ – Cash seized from assessee – Application for release of cash under investigation – Writ could not be issued to direct release of cash [Article 226 of Constitution of India]

Held, that the assessee claimed that it was a registered public charitable trust, running educational institutions and was exempted from payment of tax under section 12AA of the Income-tax Act, 1961. It was the case of the assessee that on 12th March, 2019, when its managing trustee was proceeding to his bank to deposit a sum of Rs. 68,14,000 belonging to its school, he was intercepted by the Flying Squad which took custody of the cash of Rs. 68,14,000 and issued a receipt. The assessee applied for release of the cash. It could be seen from the counter affidavit and also from the submissions made by the assessee, that the Respondents had not admitted that they were liable to release the seized cash back to the assessee. It was their case that the request of the assessee for releasing of the cash was under investigation. In such view of the matter, the court could not issue a positive direction for release of the cash to the assessee.

Leo Charitable Trust, (Rep. by its Managing Director, Antony Xavier) v. PDIT (Inv) and Ors. (2021) 432 ITR 286 (Mad)

45. S. 132B : Search and seizure –Authorisation under s. 132(1) – Seizure of cash by Police vis-a-vis validity of search warrant – Intimation by the Police to the tax dept would not confer jurisdiction on the tax dept to detain and withhold cash – that too by issuance of an invalid search warrant having no place of search mentioned – No basis for the tax dept to invoke the provisions of ss. 132, 132A and 132B since there is no ‘reason to believe’ that the petitioner has violated any provision of law–Dept directed to refund the cash along with interest [r.w.s. 132(1) & 131(1A)]

Held by the High Court that the cash from petitioner’s employee was seized by police and handed over to the income-tax department on August 27, 2019 and therefore search warrant dt. August 28, 2019, that too not mentioning the place to be searched, was a fabricated document. Further, intimation by the Police to the income-tax department on August 27, 2019 would not confer jurisdiction on the income-tax department to detain and withhold cash, that too by issuance of an invalid search warrant under S. 132. Income-tax department is directed to refund the cash to the Assessee along with interest. (W.P. No. 23023 of 2019, dated
28-12-2020).

Mectec v. DIT* (Inv)(2021) 319 CTR 95 / 198 DTR 157 /433 ITR 203 / 278 Taxman 214 (Telegana) (HC)

*Also Vipul Kumar Patel v. Union of India (W.P. No. 29297 of 2019)

46. S. 132(4) : Search and seizure – Statement on oath – Addition only the basis of a statement not sustainable. [Section 69A]

Addition which is made solely on the basis of a statement recorded under section 132(4) of the Act cannot be sustained if it is not corroborated by any other evidence.

Principal Commissioner Of Income Tax v. M/s. Kunvarji Commodities Brokers Pvt. Ltd. (2020) 193 DTR 0018 (Guj), (2021) 318 CTR 0597 (Guj), (2021) 432 ITR 0180 (Guj), (2020) 274 Taxman 162 (Gujarat)

47. S. 143(3) : Assessment – Joint venture – Association of persons – Once amount had been offered to tax by its members, AOP could not be saddled with liability to pay tax in respect of same amount – Estimation of net profit at 11.59 % was deleted – Order of Tribunal is affirmed [S. 4, 2(31) (v)]

Assessee was a joint venture constituted through a joint venture agreement, holding a separate permanent account number and having status of AOP. Assessing Officer finalised assessment under section 143(3) treating assessee as an AOP and making addition by adopting net profit ratio at 11.59 per cent of gross receipt. Commissioner (Appeals) deleted addition made by Assessing Officer. Tribunal affirmed the order of CIT (A) and held that AOP was formed only to secure work and after that there was no involvement of such AOP in execution of work as entire work was executed by members of joint venture as agreed between them. Tribunal also held members of joint venture had duly shown income in their returns of income and paid tax thereon. Joint venture and members of joint venture were being taxed at maximum marginal rate, and hence, no loss had been caused to revenue. Tribunal also held that requirements of CBDT circular No. 7/2016 were duly satisfied in case of assessee and hence, once amount had been offered to tax by its members, hence AOP could not be saddled with liability to pay tax in respect of same amount. High Court affirmed the order of the Tribunal. (AY. 2008-09, 2009-10)

PCIT v. Backbone Projects Ltd. (2021) 124 Taxmann.com 261 (Guj) (HC)

Editorial: SLP of revenue is dismissed, PCIT v. Backbone Projects Ltd. (2021) 277 Taxman 497 (SC)

48. S. 143(3) : Assessment – Business of textile – Cash sales – Income from undisclosed sources – Income from other sources – Sale of opening stock cannot be treated as income from undisclosed sources. [S.56, 68, 133A]

Assessee was engaged in business of textiles. All sales were cash based on the survey report the Assessing Officer held that entire cash deposit found in assessee’s bank account was unexplained income and not sale proceeds. On appeal the Tribunal deleted the addition. On appeal by the revenue the Court held that where quantum figure and opening stock was accepted in previous years during scrutiny assessments, receipt from sales made by assessee proprietary concern out of its opening stock could not be treated as unexplained income to be taxed as income from other sources. (AY. 2014-15)

PCIT v. Akshit Kumar (2021) 277 Taxman 423/ 197 DTR 121/ 318 CTR 26 (Delhi)(HC)

49. S. 147 : Reassessment – After the expiry of four years – When re-assessment proceedings to disallow brought forward loss were held to be without jurisdiction, High Court could not issue fresh directions to Assessing Officer to look into other grounds.[S.72, Art 226]

Reassessment proceedings were challenged before the High Court. High Court held that the Assessing Officer was not entitled to adjust loss of brought forward from books of account of transferor-company. However the Single Judge held that re-assessment was without jurisdiction but rendered direction to Assessing Officer to look into other grounds. On appeal the division bench held that when the since Single Judge came to conclusion that re-assessment proceedings were without jurisdiction, Single Judge was barred to issue any further directions to Assessing Officer to look into other grounds. (AY. 2010-11)

T. Stanes and Company Ltd. v. Dy. CIT (2021) 277 Taxman 230 (Mad.)(HC)

50. S. 147 : Reassessment – Business expenditure – Loss on bidding deduction – Tribunal quashed the reassessment on the ground that there was no failure on the part of assessee to disclose all material facts – High court quashed the order of Tribunal and remanded the matter back to Tribunal to decide on merit afresh. [S.37 (1)), 148]

Allowing the appeal of the revenue the Court held that since Tribunal had not taken note of fact that Assessing Officer had recorded reasons and had held that escapement of income from assessment had taken place due to failure to disclose fully and truly all material facts necessary on part of assessee, impugned order of Tribunal was to be quashed and matter was to be remitted back to Tribunal to decide same afresh. (AY. 2003-04)

CIT v. Shriram Chits (Karnataka) (P.) Ltd. (2021) 277 Taxman 224 (Karn)(HC)

51. S. 147 : Reassessment – Unexplained money – Enforcement Directorate without making any independent inquiry himself into matter – Borrowed satisfaction – Reassessment was held to be not valid [S.69A)

Assessing Officer reopened the assessment on the ground that assessee had paid bribe to Iraqi officials and added the amount as undisclosed investment. On appeal the Tribunal held that the Assessing Officer had simply borrowed conclusions drawn by Enforcement Directorate without making any independent inquiry himself into matter. On appeal the High Court held that these were re-assessment proceedings and not at the stage where it was enough to form a prima facie view for re-opening the assessment. In the re-assessment proceedings the AO was expected to undertake a full-fledged inquiry into the documents produced before him to come to the conclusion that the addition sought to be made was justified. As pointed out by the ITAT or that the AO seems to have done is to simply borrow the conclusions drawn by the ED without making any independent inquiry himself into the matter. Even before the ITAT, the Revenue was unable to show the precise documents or material on the basis of which the AO formed the reason to believe that 60,000 US$ had been paid as bribe to the Iraqi officials and therefore was required to be added to the income of the Assessee. Order of Tribunal was affirmed. (AY. 2001-02)

PCIT v. Andaleeb Sehgal (2021) 124 taxmann.com 246 (Delhi) (HC).

Editorial: SLP of revenue is dismissed, PCIT v. Andaleeb Sehgal (2021) 277 Taxman 492 (SC)

52. S. 148 : Reassessment – Reasons recorded not communicated – Reassessment is held to be bad in law [S. 147, 292BB]

Assessing Officer reopened assessment on ground that in original assessment, he had extended excessive and unnecessary relief to assessee on wrong appreciation of facts, though the recorded reasons were not communicated to the assessee. CIT (A) up held the order of the Assessing Officer. On appeal the Tribunal quashed reassessment proceedings on ground that reasons for reopening were not communicated to assessee and despite opportunities, revenue was not able to produce any evidence to show that reasons recorded for reopening had been provided to assessee as requested by them in their letter. On appeal by revenue the High Court held that Tribunal was right in quashing reassessment proceedings. (AY. 2006-07)

CIT v. Janak Shantilal Mehta (2021) 277 Taxman 385 / 200 DTR 385 (Mad.)(HC)

53. S. 148 : Reassessment – Transfer pricing – Objection not disposed of against reassessment notice – Single judge directed the Assessee to participate in adjudicating mechanism- Order of single judge is affirmed in appeal. [S.92C, 92D, 92E, 148, Art. 226]

Assessing Officer without dealing with objections raised against reopening of assessment transferred its case to Transfer Pricing Officer (TPO) under section 92CA who further called upon assessee to furnish information in terms of sections 92D and 92E. The Assessee filed writ petition against reference of its case by Assessing officer to TPO without dealing with its objections against reopening. Single Bench directed assessee to participate in statutory adjudication mechanism and dismissed writ petition. Assessee filed an writ appeal challenging said order of Single Judge. Dismissing the appeal the Court held that .finding rendered passed by Single Judge was an appropriate procedure to be adopted and same was to be upheld.

PPN Power Generating Company (P) Ltd v. CIT (2021) 277 Taxman 240/ 200 DTR 382/ 320 CTR 268 (Mad)(HC)

54. S. 148 : Reassessment – Notice – AO bound to dispose off objections before referring the matter to the TPO – However, assessee to comply with notices issued under section 92D and 92E [S. 92D r.w.s 92E and 147]

Assessee challenged the notice issued under section 148 of the Act and sought reasons and filed objections for reopening the assessment. The HC held that the AO is bound to dispose off objections before referring the case under section 92CA to the TPO following the decision of GKN Driveshaft (SC). However, the HC directed the assessee to participate in the statutory adjudication mechanism and provide information which was called for under section 92D and 92E of the Act. Petition of the assessee disposed off. (WA No. 855 of 2020 dt. 28-09-2020) (AY.:NA)

PPN Power Generating Company (P.) Ltd. v. CIT (2020) 320 CTR 268 / 200 DTR 382 / 122 taxmann.com 42 (Mad.)(HC)

55. S. 148 : Reassessment – Notice – Validity – After the expiry of four years – Survey conducted – Back up of computer, laptop, mobiles, hard disk and gadgets impounded – Assessee maintained an undisclosed bank account which had credit balance of huge amount – Report of investigation wing that assessee’s income had escaped assessment – Mere disclosure of bank transaction in return not sufficient – Notice issued after considering facts – Valid [S. 69A]

The assessee had filed his return of income declaring total income of certain amount and same was processed under section 143(1). A survey under section 133 was conducted in the case of one AIPL during which back up of computer, laptop and mobiles were taken in hard disk and certain gadgets were impounded. After verification of the back-up data, the authority found one undisclosed bank account of the assessee in which there were credit entries of certain amounts. Further, a statement of the assessee was recorded under section 133 wherein he admitted that the alleged bank account was maintained by him and the same was opened and closed in the financial year 2013-14. On basis of same, the Assessing Officer had issued a reopening notice to the assessee. On writ, the High Court, while dismissing the petition, held:

Section 139 imposes an obligation on the assessee to furnish voluntarily a return of his total income and further makes it obligatory to disclose all material facts necessary for his assessment for that year fully and truly. Mere submission or production of books of account or other documents is not sufficient. Explanation 1 to section 147 of the Act explains that the production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the provision.

In the facts of the case, the reasons for reopening cited by the Assessing Officer specifically recorded that the impugned bank account maintained was not reflected either in the books or in the return of income and upon physical verification of the Income-tax return and other documents like Income-tax statement details, annual information return, the undisclosed bank account as reported by the Investigating Wing was found to be unaccounted and accordingly, the authority finally came to the conclusion that, the income had escaped assessment. The authority had relied on the primary information of the undisclosed account and after independent inquiry and upon verification of the return of income and other documents, recorded his satisfaction and formed a reasonable belief that the income of the assessee had escaped assessment. The details available in the books of account or balance sheet or profit and loss account could not absolve the assessee of his obligation under section 147 as without any scrutiny, the original return was processed under section 143(1). There was enough material before the Assessing Officer and he was justified to reopen the assessment for the year under consideration. (R/Special Civil Application No. 20392 of 2019)

Hiteshkumar Babulal Ramani v. ACIT [2021] 432 ITR 403 (Guj)

56. S. 153: Assessment – Reassessment – Limitation – draft order to be passed within time limit specified in section 153(2A) – proceedings before DRP are not unfettered by limitation [S. 153(2A) and 144C]

Assessee’s case was selected for scrutiny and referred to the TPO and a draft order was passed and assessee filed objections before the DRP and a final order was passed against the assessee which was challenged before the Tribunal. The tribunal set aside the order and remanded the matter to the AO. The AO did not give effect to the same and only upon a refund communication from the assessee, the DRP issued notices to the assessee though the matter was remanded to the AO. The High Court held that notices issued by the DRP after a period of 4 years from date of tribunal order would be barred by limitation as per section 153(2A) of the Act. (WP Nos. 919, 922, 1068 and 1070 of 2020 dt. 23-12-2020) (AY.: 2009-10 & 2010-11)

Roca Bathroom Products (P.) Ltd. v. DRP-2, Bangalore (2021) 432 ITR 192 / 127 taxmann.com 332 (Mad.)(HC)

57. S. 153(A) : Assessment – Search or requisition – Assessee filed writ petition contending that there was violation of principles of natural justice as sufficient opportunity of hearing was not given to him – It was found that each and every objection raised by petitioner in his written representation had been considered by AO and it had rejected same by giving reasons – Hence, no violation of natural justice – Petitioner to file appeal u/s 246A.

On Writ file the High Court held that:

1. Loose sheets picked up during search u/s 132, falls within definition of ‘document’, mentioned in S.132(4) and therefore, it has got evidentiary value;

2. Where writ petition was filed raising a plea that assessment order was passed in violation of principles of natural justice, and if every objection raised by petitioner in his written representation had been considered by the AO and it had rejected the same by giving reasons, then even if such reasons for rejection given by AO were correct or not, could not be held to be violation of principles of natural justice;

3. There was no merit in writ petition and only remedy available to petitioner was to file statutory appeal under S.246A. (W.P.(MD) Nos. 9877, 9878, 10120, 10140, 10147, 10150 and 10156 of 2020) (AY 2012-13)

4. Vivek v. DCIT (2020) 121 taxmann.com 366 (Madras)

58. S. 153C: Assessment – Income of any other person – Search and Seizure – In absence of any incriminating documents or evidence discovered against assesse the assessment is bad in law. [S.12AA, 132]

Dismissing the appeal of the revenue the Court held that in absence of any incriminating documents or evidence discovered against assessee, during search upon TJR, jurisdiction under provisions of section 153C could not be assumed against assessee.

PCIT v. S.R. Trust (2021) 277 Taxman 133 (Mad.)(HC)

59. S.  220: Collection and recovery –Assessee deemed in default – Stay – Mere grant of stay of demand the assessee cannot be absolved from mandatory levy of interest. [S.220 (2)]

Dismissing the appeal of the revenue the Court held that it is well settled law that mere grant of stay does not prevent running of interest. Therefore, interest under section 220(2) was chargeable upon assessee even during period of stay of demand granted by Assessing Officer as interest is mandatorily leviable under section 220(2). (AY. 2007-08)

CIT v. Canara Bank (2021) 277 Taxman 414 (Karn.)(HC)

60. S. 226 : Collection and recovery – Modes of recovery – Sale proclamation – Appeals pending before appellate authorities disputing demand and for condonation of delay – Directions issued on facts and undertakings given by assessee to pay 15% of demand and expenses incurred by department for newspaper notifications

The petitioner, a partnership firm, dissolved in the year 2013. The AO levied tax and penalty on the firm and its partners by orders on 27th March, 2014. Thereafter, through a rectification order, the demand was enhanced. The appeal filed by the petitioner was dismissed. The petitioner not having challenged the appellate order within the prescribed period before the Tribunal, the Tax Recovery Officer proceeded under section 226 of the Income-tax Act, 1961. An order of attachment was passed and notice for settling the sale proclamation was issued. After the valuation was completed, the sale proclamation was issued and it was also published in the newspaper. On a writ petition contending that the Petitioner had already filed an appeal before the Tribunal with a petition for condonation of the delay, and that if the court were not to intervene the entire issue might become infructuous as the sale proceedings were to be held on 31st March, 2021 and seeking stay of demand till disposal of the appeal and undertaking to pay 15 per cent of the disputed demand :

The court observed that even before the appeal period could be exhausted the Department had proceeded to effect attachment of the property and that the petitioner obviously had some difficulties in pursuing the matter further due to the Covid-19 pandemic. Recording the undertakings of the petitioner to pay 15% of the demand within four weeks and to pay the cost incurred for publication in newspapers by the Department so far and his further undertaking to pay a sum of Rs. 50,000 within seven days the court directed the Department to keep all proceedings in abeyance for a period five months. (W. P. (MD) Nos. 1299, 1302 and 1433 of 2021 and W. M. P. (MD) Nos. 1089, 1090 and 1224 of 2021)

K. S. Santhosh Kumar v. ITO and Anr. (2021) 432 ITR 209 (Mad)

61. S. 240 : Refund – Appeal effect was not given for eight months – Court directed to pass appeal effect order and to grant refund along with interest [S.154, 244A, Art. 226]

Assessee made an application for refund, however appeal effect was not given for eight months. The assessee filed writ petition praying for rectification order. Allowing the petition the Court held that since revenue had delayed by eight months to pass appeal effect, directed the Assessing Officer to grant refund along with interest to assessee on immediate basis. (AY. 2011-12)

Agilent Technologies India (P.) Ltd. v. ACIT (2021) 277 Taxman 153 (Delhi)(HC)

62. S. 241A : Refund – Power to withhold in certain cases – Determination of tax liability not in domain of High Court except when an appeal is preferred under section 260A – In garb of a challenge section 241A order, ongoing assessment could not be challenged [Article 226 of Indian Constitution]

Assessee, in its return of income, claimed a refund of Rs. 226.72 crores, being the amount of tax deducted at source by the payer, from the payments made to the assessee on account of sale by assessee of shares of an Indian company and which payment was not chargeable to tax in India in terms of Article 13(4) of India-Mauritius DTAA. The return of income was picked up for scrutiny by the AO on 25-11-2019 by issuing a notice under section 143(2). On the same day, an intimation under section 143(1) was also issued, determining a refund of approximately Rs. 249.39 crores to be due to the assessee along with applicable interest. However, as the assessee had not received the refund amount, it filed a writ petition in the High Court, seeking a mandamus, directing the respondents to issue/grant refund due of Rs. 249.39 crores along with interest under section 244A. During pendency of writ petition, on 15-7-2020, assessee was served with a copy of the order under section 241A. Thus, writ petition was amended impugning order under section 241A to seek refund withheld by revenue. The High Court dismissed the writ petition and held:

(i) In the garb of a challenge to an order under section 241A, a challenge to assessment underway cannot ordinarily be adjudicated. The scrutiny thereunder has to be confined to, whether grant of refund is likely to adversely affect the revenue i.e., whether there is no basis whatsoever for the opinion formed that if refund is granted today, tax if any found due on completion tomorrow of assessment underway of the ITR claiming refund, will not be recoverable. However, in a gross case, where it is found that though a notice under section 143(2) has been issued but there is nothing to controvert the ITR, a High Court would be entitled to quash the section 241A order. However, in the facts of the present case, not only detailed reasons, have been given in the section 241A order but otherwise also lengthy arguments have been addressed and it is viewed that this case does not fall in the said category.

(ii) For the writ Court to quash the order under section 241A on the ground that no tax is due and thus question of refund likely to adversely affect the revenue does not arise, the Court has to conclusively hold that the assessee has no tax liability in India. Once it is so held, there will be nothing left to be determined in the assessment underway pursuant to notice under section 143(2).

(iii) The AO and the Commissioner, in exercise of powers under section 241A, are required to take a prima facie view of the outcome of the assessment pursuant to notice under section 143(2). They are also the authorities vested with the power of assessment. The authority vested with the power of final determination is the best authority to take a prima facie view. Moreover, the statute provides statutory remedies in the form of appeals, against the final determination by such authority. In such statutory scheme, under section 260A, appeal lies to the High Court against orders of the Income-tax Appellate Tribunal. A determination of tax liability in a challenge to an order under section 241A would set at naught the entire statutory scheme of assessment and appeals. (AY 2018-19) (W.P.(C.) No. 3617 of 2020)

GE Capital Mauritius Overseas Investments v. Deputy Commissioner of Income Tax & Anr. (2021) 200 DTR 153 / (2021) 320 CTR 162 / (2021) 433 ITR 270 (DELHI)

63. S. 245D : Settlement Commission – Educational institution – Application is allowed to be proceeded with – Settlement Commission have exclusive jurisdiction to perform functions of Income-tax authority as provided under section 245F of the Act -Withdrawal of exemption by Director General (Inv) was held to be not valid. [S.10 (23C)(iv), 132, 153A, 245C, 245F(2) Art, 226]

Assessee charitable trust was granted approval under section 10(23C)(iv) A search was conducted on assessee pursuant to which a notice under section 153A was issued . In pursuance of notice, assessee filed a settlement application under section 245C before Settlement Commission which was accepted. Based on initiation of proceeding under section 245C before Settlement Commission, DGI (Inv) issued a show cause notice to assessee proposing for withdrawal of approval granted to it under section 10(23C)(iv). He, further, proceeded to pass an order effecting withdrawal of approval under section 10(23C)(iv) of the Act. The assessee filed writ petition and contended that when issue regarding violation of conditions of section 10(23C) by assessee was pending before ITSC, DGI (Inv) had no jurisdiction to issue said show cause notice in view of bar under section 245F(2) . Settlement commission had completed proceedings and passed an order under section 245D in favour of assessee. Writ petition filed against order of Settlement Commission was also set aside. Allowing the petition the Court held that proceedings before Settlement Commission on which DGI(Inv) placed reliance to issue said show cause notice did not exist on facts, impugned show cause notice issued by DGI (Inv) for withdrawal of approval under section 10(23C) and subsequent order passed withdrawing such approval under said section were unjustified and same were to be quashed . When application under section 245C made by trust is allowed to be proceeded with Settlement Commission , then Settlement Commission have exclusive jurisdiction to perform functions of Income-tax authority as provided under section 245F of the Act. Accordingly the order of DGI (Inv) was quashed. (AY. 2005-06 to 2011-12)

Adhiprasakthi Charitable, Medical, Educational & Cultural Trust v. DGI (Inv)(2021) 277 Taxman 355 (Mad.)(HC)

64. S. 245D : Settlement commission – Second application is maintainable – Order of Settlement commission cannot be neither in violation of any statutory provisions of the Income-tax Act nor is there any defect in the decision making process – Writ of the revenue was dismissed. [S. 132, 245C, 245HA, Art 226]

The assessee filed settlement application under section 245C before the Income-tax Settlement Commission (ITSC) disclosing additional income. Application was rejected for non-payment of taxes on the additional income disclosed in the settlement application. Subsequently the assesseee filed on more application which was accepted by the Settlement commission. Department has filed writ petition against the order of the settlement commission. Dismissing the petition the Court held that here is no bar for filing of a second application before the ITSC, when the earlier application was ‘not allowed’ to be proceeded with under section 245D(1). Section 245K(2) prohibits a subsequent application, only when the assessee had earlier made an application under section 245C and such an application has been ‘allowed’ to be proceeded with under section 245D(1). In contrast, there is no provision under the Income-tax Act, debarring the assessee from subsequently making an application after his original application was ‘rejected’ under section 245D(1) and ‘not allowed’ to be proceeded with. The fundamental requirement of the application under section 245C(1) is that the full and true disclosure of the income has to be made, along with the manner in which such income was derived. What requires to be taken into account by the ITSC is as to whether the assessee had explained the manner in which the additional income which was not disclosed before the Assessing Officer, has been disclosed in the application or not and whether, such a disclosure is a full and fair disclosure. This would basically be a factual aspect. Court held that there is neither in violation of any statutory provisions of the Income-tax Act nor is there any defect in the decision making process. Accordingly the writ petition was dismissed (AY. 2007-08 to 2011-12)

CIT v. Adhiparasakthi Charitable Medical, Educational & Cultural Trust (2021) 277 Taxman 333 (Mad.)(HC)

65. S. 245R : Advance rulings – Procedure – Application – Notices issued prior to date of filing application cannot be a bar for admitting the application – issues involved not pending before any income-tax authority – Application admitted [S. 245R(2)]

Assessee filed an application for advance ruling under section 245Q of the Act on 30-11-2018 on the issue of whether dividend distribution tax (DDT) paid to its shareholder is a tax on dividend and whether benefit of lower rate of 10% under the treaty applies. The AAR observed that notices were issued to the assessee under section 143(2) and 142(1) of the Act on 3-7-2017 and 9-7-2018 respectively. However, the issue of DDT was not present in these notices and the claim for refund was made after filing the present application. Thus, the questions raised in the present application were not found pending before any income-tax authority on the date of filing of the application under section 245R(2) and the application was admitted under section 245R(2). (AAR No. 25 of 2018 dt. 2-2-2021)

Mitsui Kinzoku Components India (P.) Ltd., In re (2021) 433 ITR 137 / 124 taxmann.com 150 (AAR-New Delhi)

66. S. 254 : Appellate Tribunal – Orders – Ex parte order passed on the ground of non-appearance and not on merits – Notwithstanding delay on part of assessee challenging tribunal order – Ex-patre order quashed and appeal restored back [S. 254 r.w.r 24 of ITAT rules]

The Tribunal passed an ex parte order dismissing the assessee appeal on the ground of non-appearance on two consecutive hearings. Assessee filed an application recalling the order of the tribunal and pleaded restoration of the appeal due to the ill health of the assessee. High Court held that the non-adjudication of the matter on merits by the Tribunal and dismissing the appeal on the ground of non-prosecution and non-appearance of the assessee is violative of Rule 24 of the Income-tax Appellate Tribunal Rules. Delay on part of assessee in challenging order of the tribunal could not have been dismissed applying period of limitation and order passed by the Tribunal quashed and appeal restored back to the Tribunal. (WP (C) No. 2229 of 2021 dt. 19-02-2021) (AY.:2008-09)

Pradeep Kumar Jindal v. PCIT (2021) 432 ITR 48 / 279 Taxman 14 / 126 taxmann.com 86 (Del.)(HC)

67. S. 254(2) : Appellate Tribunal – Orders – Rectification of mistake apparent from the record –Condonation of delay in filing application under S. 254(2) – As per R. 24 Tribunal was not justified in dismissing the appeals filed by the assessee in limine in absence of either the appellant or its Authorized Representative – Period of limitation prescribed in S. 254(2) would commence from the date the affected party got knowledge of the decision in question and it would not commence from the date the order was passed – Present appeals have been filed on 22nd June, 2020 in the midst of the lockdown –Aforesaid events are thus found sufficient to condone the delay subject to imposing costs on the applicant [r.w.s 254(1)]

Held by the High Court that:

In view of the provisions of Rule 24 of the ITAT Rules, 1963, the Tribunal was not justified in dismissing the appeals filed by the assessee in limine in absence of either the Appellant or its Authorized Representative. Further, period of limitation prescribed in S. 254(2) would commence from the date the affected party got knowledge of the decision in question and it would not commence from the date the order was passed. Hence, Assessee having explained reasons for delay, the delay is condoned subject to costs. [ITA Nos. 6304, 6309 & 6320 of 2020, dated 16-10-2020] (AY. 2002-03)

DaryapurShetkariSahakari Ginning and Pressing Factory v. ACIT (2021) 320 CTR 456 / 200 DTR 417 / 277 Taxman 155 (Bom)(HC)

68. S. 254(1) : Appellate Tribunal – Orders – Recalling of ex parte order – Rule 24 of ITAT Rules mandates that when the appeal is called on for hearing and the Appellant does not appear –Tribunal is required to dispose of the appeal on merits after hearing the respondent – Order passed by Tribunal holding that the Assessee is not interested in prosecuting the appeals is unsustainable.

On appeal the High Court that the Tribunal was not justified in dismissing the appeals in limine for non-appearance of the Assessee holding that the assessee is not interested in prosecuting the appeals; Tribunal was duty bound to decide the appeals on merits after hearing the Revenue. Matter remanded back to CIT(A).(ITA No. 12 to 14 of 2020, dt. 24-11-2020)(AY. 2002-03 and AY 2003-04)

DaryapurShetkariSahakari Ginning and Pressing Factory v. ACIT(2021) 319 CTR 70 / 198 DTR 125 / 432 ITR 130 (Bom) (HC)

69. S. 246A : Appeal – Commissioner (Appeals) – Appealable orders – Appeal would be maintainable in respect of subject matter which do not pertain to grounds under section 263 of the Act. [S.43, 251, 263]

Assessing Officer made disallowance on account of privilege fee paid by assessee to State Government under section 43B of the Act. During pendency of appeal filed by assessee before Commissioner (Appeals), a notice under section 263 was issued by Commissioner on ground that leave salary contribution and electricity charges paid by assessee were allowed as deduction by Assessing Officer without any examination CIT (A) without examining appeal preferred by assessee regarding disallowance of privilege fee dismissed same as being infructuous. Order of CIT (A) affirmed by the Tribunal. On appeal High Court held that Commissioner (Appeals) ought to have adjudicated appeal on merits regarding disallowance of privilege fee under section 43B and, accordingly, impugned order passed by Commissioner (Appeals) was to be quashed and matter was to be remanded back to him to decide accordance with law. (AY. 2004-05)

Karnataka State Beverages Corporation Ltd. v. ACIT (2021) 277 Taxman 58 (Karn.)(HC)

70. S. 254(1) : Appellate Tribunal – Duties – Charitable purpose – Questions concerning relations between employers and employees in Southern India in order to protect their interests – No finding as regards the activity of the trust whether commercial – Matter remanded to the Assessing Officer [S. 2(15), 11]

Assessing Officer denied same on ground that assessee received aggregate income of more than Rs.10 lakhs in nature of fees and, as such, it would come within purview of second proviso under section 2(15). Tribunal affirmed the order of the Assessing Officer denied benefit of section 11 to assessee taking view that substantial sums of money were received by assessee from conducting conferences and seminars which were open to persons other than its members, and this being major activity of assessee as projected in its Annual Report, it could not be considered as an activity incidental to its main objects. On appeal the Court held that since lower authorities had not rendered any finding that activity carried out by assessee was a commercial activity, benefit of exemption could not have been denied to assessee. A Whether, accordingly order of Tribunal was to be set aside and matter was to be remanded to Assessing Officer to take fresh decision. Referred CBDT Circular No. 11/2008, dated 19-12-2008 (AY.2009-10)

Employers Federations of Southern India v. CIT (E) (2021) 277 Taxman 266 (Mad.)(HC)

71. S. 254(1) : Appellate Tribunal – Duties – Free trade zone – Not deciding the grounds raised by observing that the academic – Tribunal directed to decide the ground on merit [S. 10A]

Assessee provided software development services. It claimed deduction under section 10A. Assessing Officer denied benefit of deduction to some units on ground that these were not set up in accordance with STPI scheme. It was further held that income earned by assessee in nature of recruitment fee should be excluded from eligible profits. On appeal, Commissioner (Appeals) partially allowed relief to assessee, however, Commissioner (Appeals) denied relief in respect of recruitment fees on ground that such activity had no nexus with activity of export of computer software. Tribunal affirmed said order without deciding grounds raised by assessee and held that same were academic. On appeal the Court held that Tribunal ought to have adjudicated grounds raised by assessee on merits instead of holding same to be academic and not deciding accordingly. Matter remanded to Tribunal. (AY. 2005-06)

NTT Data Global Delivery Services Ltd. v. ACIT (2021) 277 Taxman 143 (Karn.)(HC)

72. S. 254(1) : Appellate Tribunal – Duties – Property held for charitable purposes – Purchase of gold bullion – Application of income – Matter remanded to the Tribunal. [S. 11(5), 12AA, 13 (1)(d)]

Assessee is an educational charitable trust registered under section 12AA. During year, assessee purchased gold bullion. Tribunal held that purchase of gold by assessee was not application of funds for object of trust but an investment in violation of section 11(5). On appeal it was contended that as per proviso (iia) to section 13(1)(d) it could hold such gold bullion for a period of one year from end of previous year in which same was acquired, thus, there was no violation of section 11(5). High Court held that the Tribunal has not dealt with the issue in their order. Accordingly the matter was remanded (AY. 2010-11)

Sri Venkkaliamman Educational and Charitable Trust v. Dy. CIT (2021) 277 Taxman 257 (Mad.)(HC)

73. S. 254(1) : Appellate Tribunal – Powers – Deduction at source – Tribunal admitted the additional evidence and remanded the matter to decide afresh – Order of Tribunal is affirmed [S.40(a)(ia)]

Assessee filed an appeal against the remand order passed by the Tribunal. High Court affirmed the order and also modified the direction of the Appellate Tribunal in case, the Commissioner (Appeals) deems it appropriate, he shall be at liberty to seek the remand report from the Assessing Officer and, thereafter, to decide the matter afresh in accordance with law. (AY. 2006-07)

C.S. Raghoji (Bellary) v. Dy. CIT (2021) 277 Taxman 61 (Karn)(HC)

74. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Delay of 3052 days – Period of limitation would commence from date when affected party got knowledge of decision in question and it would not commence from date when order was passed- Tribunal cannot dismiss the appeal for non-appearance, it has to decide on merits – Cost of Rs 10,000 was imposed on the assessee for each year of appeal. [S.254(1), 260A]

Tribunal by an order dated 01-02-2013 dismissed assessee’s appeal against an assessment order making addition to income of assessee for default of appearance by assessee. On
19-11-2019 Tax Recovery Officer proceeded to attach immovable properties of assessee for tax recovery. Thereafter, on 30-12-2019 assessee filed an application before Tribunal to set aside its order dated 1-2-2013 and rehear appeal on merits along with an application for condonation of delay of 3052 days in seeking restoration of appeal Tribunal dismissed both of these applications. On appeal the Assessee contended that Tribunal was not justified in dismissing appeal of assessee merely for absence of any representation on behalf of assessee. It further contended that period of limitation would begin to run from date when assessee got knowledge of order i.e. on 19-11-2019 and not from date of passing of order. On appeal the Court held that Tribunal has to dispose of an appeal on merits and it cannot dismiss same solely on account of non-appearance of a party, thus, impugned order of Tribunal dismissing assessee’s appeal merely for default of appearance was unjustified and same was to be set aside. Court also held that period of limitation prescribed in section 254(2) would commence from date when affected party got knowledge of decision in question and it would not commence from date when order was passed. Accordingly period of limitation would commence only from 19-11-2019 which was date of obtaining knowledge of order dated 1-2-2013 and, accordingly, impugned application filed by assessee was not barred by limitation. Court also held that from December 2019 till March 2020, the applicant had taken various steps in its attempt to have the appeals restored. The present appeals have been filed on 22-6-2020 in the midst of the lockdown. The aforesaid events are thus found sufficient to condone the delay subject to imposing costs on the applicant. Accordingly the delay in filing each appeal stands condoned subject to costs of Rupees Ten thousand per appeal to be paid to the Revenue within a period of three weeks. The applications are allowed and disposed of in aforesaid term. (AY. 2002-03 to 2004-05)

Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT (2021) 277 Taxman 155/ 200 DTR 417/ 320 CTR 456 (Bom.)(HC)

75. S. 254(2A): Appellate Tribunal – Stay – Rejection of stay petition – No perversity or erroneous approach on part of Tribunal in not granting interim order – Order of Tribunal is affirmed. [S.254 (1), Art.226]

The assessee filed stay petition before the Tribunal, which was rejected by the Tribunal. On writ the Court held there was no perversity in the order, the rejection of stay petition is held to be proper ad justified (AY. 2013-14)

Sporting Pastime India Ltd. v. Assistant Registrar, Chennai (2021) 277 Taxman 19 (Mad.)(HC)

76. S. 260A : Appeal – High Court – Only if the finding of fact of the tribunal is perverse can the question of correctness of the order in appeal arise. [S. 260A]

TPO passed an order with a direction to the AO to compute the total income in accordance with section 92(4). Since, the assessee had not objected to any orders passed by all hierarchy authorities it was precluded from raising such a contention before the High Court. Further, having not raised any objection with regard to jurisdiction assessee cannot now state that the entire proceedings are vitiated as it complied with the demand notices. No substantial question of law arises. (TC Appeal No. 458 of 2018 dt. 19-03-2021) (AY.:2003-04)

POS Hyundai Steel Manufacturing (P.) Ltd. v. CIT (2021) 320 CTR 241 / 200 DTR 382 / 125 taxmann.com 383 (Mad.)(HC)

77. S. 260A : Appeal – High Court – Financial incapacity to pay tax in AY 2007-08 does not warrant levy of penalty under section 221 in AY 2008-09 – Not a curable defect under section 292B – Tribunal order quashed [S. 140A(3), 221, 260A and 292B]

Assessee filed its return of income declaring an income of Rs. 4,07,660. AO passed a penalty order levying penalty of 50 lakh for AY 2008-09. Assessee’s contention is that penalty has been levied in AY 2008-09 based on facts of AY 2007-08. Assessee appealed before the CIT(A) and tribunal has been dismissed. On appeal, the High Court held that the assessee has paid tax in AY 2008-09 and it is not in dispute that assessee has committed a default in AY 2007-08 where it did not pay the tax on account of financial hardship. Section 292B would not apply and the tribunal order quashed and matter remitted back to the tribunal. (ITA No. 249 of 2011 dt. 1-2-2021)(AY.2008-09)

M/s. SSS Projects Ltd. (Rep. by its Managing Director Sri. K. Sathish Kumar) v. DCIT (2021) 432 ITR 201 / 110 CCH 188 (Kar.)(HC)

78. S. 260A : Appeal – High Court – Arguments not taken in appeal cannot be agitated. [S. 37]

Loss arising from fluctuation of foreign exchange rate was claimed as deductible by the assessee following the judgement of the Supreme Court in the case of CIT v. Woodward Governer India Pvt. Ltd. (312 ITR 254). In the course of the hearing before the High Court, the department’s counsel urged that the conditions set out in Woodward Governer were not satisfied. Held that this allegation of the department’s Council was not urged in the appeal and could, therefore, not be gone into by the High Court. It was further noted that in the year in which fluctuation of foreign exchange rate resulted in gains, the same were offered to tax by the assessee. Accordingly, the department’s appeal was dismissed. (A.Y. 2010-11)

Principal Commissioner Of Income Tax v. HCL Comnet Systems & Services Ltd. (2021) 433 ITR 251 (Delhi)

79. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Depreciation – Order passed by Assessing Officer relying on the decision of Tribunal – Subsequently reversed by High Court – Revision is not be not valid [S.32]

Dismissing the appeal of revenue the Court held that Order passed by Assessing Officer relying on the decision of Tribunal which was Subsequently reversed by High Court. Revision is not being not valid. (AY. 2009-10)

CIT v. Canara Bank (2021) 277 Taxman 215 (Karn)(HC)

80. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Revision valid when there was non-application of mind by the AO.

Where the AO had only called for information, but not applied his mind to such information, it would not be a case of thorough enquiry and is open to revision under section 263. Where the CIT records a prima facie opinion regarding an addition/ disallowance, it cannot be said that the CIT has himself not carried out necessary enquiries. (A.Y. 2009-10)

Principal Commissioner Of Income Tax, Panaji v. Zuari Maroc Phosphates Ltd. [2021] 432 ITR 316 (Bombay)

81. S. 271(1)(c) : Penalty – Concealment – Not recording satisfaction – Not striking irrelevant portion in the notice – Levy of penalty is not valid [S. 260A]

Dismissing the appeal of the revenue the Court held that the Assessing Officer has not recorded satisfaction and even not – striking irrelevant portion in the notice, hence the deletion of penalty is held to be valid. Relied on CIT v. Shri Samson Perinchery (2017) 392 ITR 4 (Bom) (HC) Pr. CIT v. New Era Sova Mine (2020) 420 ITR 376 (Bom) (HC)

PCIT v. Golden Peace Hotels and Resorts (P.) Ltd (2021) 124 taxmann.com 248 (Bom.) (HC)

Editorial : SLP of revenue is dismissed, PCIT v. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 277 Taxman 595 (SC)

82. S. 271(1)(c) : Penalty – Concealment – Non striking off of the irrelevant part while issuing notice makes the order bad in law – assessee should be informed of the grounds of penalty proceedings through statutory notice and an omnibus notice suffers from the vice of vagueness [S. 271(1)(c)]

The High Court was dealing with the issue of whether a mere defect in the notice (failure of an income-tax authority to tick mark the applicable grounds in the notice / non striking off the irrelevant matter) under section 271 of the Act vitiate the entire penalty proceedings. The Court held that the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. The court distinguished the decisions of CIT v. Kaushalya (Smt) (1995) 216 ITR 660 (Bom)(HC), Ventura Textiles Ltd. v. CIT (2020) 426 ITR 478 (Bom)(HC) and followed the decision of Dilip N. Shroff v. JCIT (2007) 291 ITR 519 (SC) and Samson Perinchery (392 ITR 4)(Bom HC).(ITA No. 51 and 57 of 2012 dt. 11-03-2021) (AY.:2006-07 and AY 2007-08)

Mohd. Farhan A. Shaikh v. ACIT (2021) 434 ITR 1 / 125 taxmann.com 253 (Bom.)(HC)(FB)

83. S. 274 : Penalty – Procedure – Not striking off the irrelevant limb. [S. 271(1)(c)]

Where in the notice issued under section 274 of the Act, the irrelevant limb (concealment of income or furnishing of inaccurate particulars of income) was not struck off, the penalty proceedings were bad in law and were to be quashed.

Principal Commissioner Of Income Tax v. Goa Dourado Promotions Pvt. Ltd. (2021) 433 ITR 268 (Bom)

84. S. 274 : Penalty – Procedure – Not striking off the irrelevant limb. [S. 271(1)(c)]

Where in the notice issued under section 274 of the Act, the irrelevant limb (concealment of income or furnishing of inaccurate particulars of income) was not struck off, the penalty proceedings were bad in law and were to be quashed.

Principal Commissioner Of Income Tax v. New Era Sova Mine (2021) 433 ITR 249 (Bom)

85. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Concealment of income – Failure to disclose capital gains- Application for quashing of proceedings was rejected. [S. 45, 278E, CPC, S. 313]

The assessee did not disclose short term capital gains in the return of income. The Assessing Officer made addition and also prosecution under section 276C of the Act. The assessee moved application before the High Court for quashing the prosecution proceedings. Dismissing the petition the Court held the order of assessment had nothing to do with prosecution proceedings under section 276C and same were separate and distinct from assessment proceedings .Accordingly on facts, impugned proceedings against assessee were justified and same was to be upheld. The trial Court was directed to complete the trial within a period of six months from the date of receipt of copy of this Order. (AY. 2008-09)

Rohit Kumar Nemchand Piparia v. Dy. DIT (2021) 277 Taxman 549 (Mad.)(HC)

86. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Failure to file return – Refund due to assessee – Abuse of process of law – Prosecution was quashed. [S 139 (1), 276C(1)(i), 276CC Cr .P.C, S.482]

The return filed by the petitioner in the year 2013-14 shows that tax payable by the petitioner is nil and he is also claiming for refund of the tax payable have been adjusted against the advance tax payable and tax deducted at source for the assessment year 2013-14. The return filed by the petitioner for the year 2013-14 shows that tax payable by the petitioner and his claiming for refund of the tax payable have been adjustable against the advance payable and the source for the assessment year 2013-14. The revenue launched prosecution against the assessee under section 276C (1)(i) and section 276CC of the Act. The assessee moved application before the High Court to quash the prosecution proceedings. Allowing the petition the Court held that considering the facts of the case launching of prosecution is nothing but clear abuse of process of law, it could not be sustained. (AY.2013-14)

Rajkumar Thiyagarajan v. Income Tax Department, Madurai (2021) 277 Taxman 437 (Mad.)(HC)

87. S. 276C : Offences and prosecutions – Wilful attempt to evade tax – Quantum and penalty appeal was pending – Prosecution is stayed until final judgement was delivered by Tribunal in pending appeal. [S.143(3), 156, 271 (1)(c) Code of Criminal Procedure, S.482]

The quantum and penalty appeal was pending before the Tribunal Principal Commissioner initiated criminal proceedings under section 276C(2) against assessee for evading tax . The assessee filed petition . Court held that when the demand raised by the Department is not crystallized as the appeal preferred by the petitioner is pending adjudication on merits. Considering the aforesaid factual scenario and since the petitioner has already deposited a substantial part of the demand raised by the Department, this Court is of the opinion that the continuation of the prosecution against the petitioner for the same allegations could not be permitted. Court also observed that the passing of this order will not preclude the Department from considering the case of the petitioner under the “Vivad se Vishwas Scheme” in view of the object of the scheme and particularly when the petitioner has already deposited a substantial part of the demand. (AY. 2011-12)

Hemal Manubhai Patel v. State of Gujarat (2021) 277 Taxman 323 / 200 DTR 57 (Guj.)(HC)

88. S. 277 r.w.s 276C : Offences and prosecutions – False statement – Verification – Misstatement – Where assessee had been forced to upload returns by mentioning that entire amount of tax as otherwise returns would not have been accepted by software system – It could not be said to be misstatement within meaning and definition thereof u/s 277, as said statement made had been forced upon assessee by Income Tax Department – Held, yes

On a criminal petition filed, the High Court held that for an offence to be said to be committed u/s 277, the misstatement is required to be wilful made with a mala fide or dishonest intention in order to prosecute the assessee.

89. S. 276Cr.w.s277 : Offences and prosecutions – Willful attempt to evade tax – Whether delayed payment of tax would not amount to evasion of tax, so long as there is payment of tax, more so for reason that in returns filed there is an acknowledgement of tax due to be paid – Held, yes

On a criminal petition filed, the High Court held that delayed payment of income tax would not amount to evasion of tax, so long as there is payment of tax, more so for reason that in returns filed there is an acknowledgement of tax due to be paid.

90. S. 276C r.w.s277 :Offences and prosecutions – Willful attempt to evade tax – Whether all directors of Company cannot be automatically prosecuted for any violation of Income-tax Act – Held, yes – Whether there has to be specific allegations made against each of Directors who is intended to be prosecuted – Held, yes

On a criminal petition filed, the High Court held that all directors of company cannot be automatically prosecuted without specific allegations made against each of directors who is intended to be prosecuted for any violation of tax laws. Such specific allegation would have to amount to an offence and satisfy the requirement of that particular provision under which the prosecution is sought to be initiated and preliminary investigation has to be concluded, more so when the prosecution is initiated by the Income Tax Department who has all the requisite material in its possession.

91. Section 292 r.w.s 191 and 204 of the Code of Criminal Procedure, 1973 – Cognizance of offences – Whether at time of taking cognizance of an offence and issuance of process, Court taking cognizance is required to pass a sufficiently detailed order to support conclusion to take cognizance and issue process – Held, yes

On a criminal petition filed, the High Court held that at time of taking cognisance and issuance of process, Court taking cognisance is required to pass a sufficiently detailed order to support conclusion to take cognisance and issue process. (Criminal Petition Nos. 5480 and 5481 of 2016, dt. 01/28/2021) (AY 2013-14)

Confident Projects (India) (P.) Ltd. v. Income Tax Department, Bengaluru, (2021) 124 taxmann.com 36 (Karnataka)(HC)

I hope this communication finds you and your family members are safe and healthy.

Friends, Covid-19 vaccination drive is in full swing in the Country. I hope all of you including your family members got vaccinated. I request you all to encourage your relatives and friends to get vaccinated, so that we can get immunity from so called third wave as being cautioned by many medical experts.

I am extremely happy to inform you that, the new membership applications received from 15th February, 2021 to 15th July, 2021 have crossed 1,000 and overall membership of AIFTP has also crossed 10,000 (Reduced membership fee was effective from 15th February, 2021). All the new applications received after NEC meeting are subject to approval of NEC. The new membership fee has been increased to Rs.5,000 + Expenses + GST w.e.f., 16th July,2021, as decided by the NEC. I am very much thankful to all the National and Zonal Officer Bearers, NEC Members, all the Committees and all the other members of the AIFTP, who have motivated the new members to join AIFTP Family. I do hope efforts for strengthening the Federation will be continued forever.

In my earlier communication, I have informed you that we have initiated a COVID Relief Fund under the Chairmanship of our Past President Dr. Ashok Saraf. Some esteemed members of AIFTP have contributed generously. We have already received contributions of more than Rs.55 lacs from our members for providing financial assistance to the needy members as per the Scheme guidelines. I am very much thankful to the members who have shown their generosity while making contributions to the scheme. I request other members also to contribute generously for the good cause taken up by AIFTP.

We have also decided to commence the AIFTP Members Benevolent Fund to help the needy members of the Federation. The NEC has constituted a Committee under the Chairmanship of Shri. Ganesh Purohit, Past President for preparation of guidelines of the scheme for the benefit of the members.

All the zones are regularly conducting webinars on different topic with versatile speakers. I request all the Zones Chairmen, Vice Presidents, Jt. Secretaries and all eminent leaders in the Federation to plan physical programmes in their respective areas in grand manner for the benefit of the Tax Fraternity following Covid-19 guidelines issued by the Governments from time to time.

AIFTP is organising the National Tax Moot Court Competition in the memory of Padma Vibhushan Late Dr. N. A. Palkhivala, Senior Advocate, in association with Maharashtra National Law University, Mumbai. The same will be organised on virtual mode. Further details and the dates of the competition will be intimated in due course of time.

Friends, as you all are aware this year is the election year of the Federation. We have to conduct National as well as Zonal Elections for electing new members to the National Executive and Zonal Management Committees. The NEC has appointed Dr. Ashok Saraf, Past President as Chief Election Officer for conducting National and Zonal elections for the years 2022-2023. The Chief Election Officer, with the help of 5 Zonal Election Officers will conduct elections at the appropriate time and manner as required under the Constitution of AIFTP. I request you all to co-operate with the Elections Officers in discharging their duties efficiently.

I would take this opportunity to greet you all on the occasion of 74th Independence Day of India on 15th August, 2021. At the end I appeal to you all to stay safe during the current time which we are all passing through.

Place: Eluru 
Dated: 17-7-2021 

M. Srinivasa Rao
National President, AIFTP

Trust Deficit Remains

The present dispensation, in its first term also, initiated several measures under the Ease to do Business which can be termed as confidence building measures among the tax payers and investor community. Late Shri Arun Jetly as Finance Minister stated that “Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increase the compliance cost of the tax payers and administrative cost for the Government.” With the observation Dispute Resolution Scheme was introduced. Similarly, the Hon’ble Finance Minister Smt. Nirmala Sitharaman also, in her budget speech for the Fiscal Year 2020-21 had initiated several measures which had brought fresh breeze into the economy, especially assesses were happy that certain measures are being initiated as a confidence building measures. The Direct Taxes Vivad se Vishwas Act, 2020 (DTVSVA) was one of such measures. The COVID-19 pandemic has disrupted lives and livelihoods of many. The Government in a proactive manner introduced stimulus to revive the economy in the month of May, 2020. These were serious and sincere efforts on the part of the Government to do handholding of the business entities going through rough times. The sufficiency of the same may be a matter of debate. The initial response to the DTVSVA was lukewarm, but, the momentum picked up over a period of time. The assesse found the DTVSV a very beneficial scheme to end the uncertainty of litigation. The Hon’ble Prime Minister in the month of August, 2020 launched a very ambitious and much needed Faceless assessment and appeal proceedings before CIT(A). The tax professional fraternity welcomed it as this was a freedom from the long waiting periods in the income tax department to attend the assessment proceedings.

The Hon’ble Finance Minister in her budget speech on 1st February, 2021 in paras 153 and 154 stated as under:

153. Honourable Speaker, presently, an assessment can be re-opened up to 6 years and in serious tax fraud cases for up to 10 years. As a result, taxpayers have to remain under uncertainty for a long time.

154. I therefore propose to reduce this time-limit for re-opening of assessment to 3 years from the present 6 years. In serious tax evasion cases too, only where there is evidence of concealment of income of Rs. 50 lakh or more in a year, can the assessment be re-opened up to 10 years. Even this reopening can be done only after the approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.

The above quoted statement along with above mentioned measures definitely made a difference at the ground level. New scheme to reopen the assessment was introduced by substituting existing sections 147 to 151 and 153 to 153C vide sections 35 to 43 of the Finance Act, 2021. As per the law applicable from 1st April, 2021 no notice can be issued under section 148 if three years have elapsed from the end of the relevant assessment year. The re-opening can take place in certain cases where the AO has in his possession evidence which reveals income chargeable tax more than Rs. 50 lakhs has escaped assessment where three years have elapsed but not more than ten years have elapsed. These new provisions were welcomed by all concerned as the tax assessments will reach finality in shorter period of time in comparison to earlier provision.

However, the euphoria generated by the new provisions was short lived. The departmental authorities started issuing notices under section 148 of the Income tax Act, 1961 post 1st April, 2021 under the garb of extended time limits under section 3 of The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. The Notification dated 31st March, 2021 extended the time limits to 30th April, 2021. The Explanation in para (A) clarified that the notices issued in the extend time period will be governed by the statutory provisions as they stood before the Finance Act, 2021 came into operation. The validity of these notices issued under section 148 as well as the Notifications issued by the CBDT are under challenge before various High Courts. The Courts will determine the legality of the notices I am not concerned about the same over here. As far as faceless appeal proceedings are concerned, making any comment on the same is rather pre mature. However, it is not the same with respect to faceless assessment proceedings. The assesses have been thrust with unreasonably huge demand by passing arbitrary orders in blatant breach of rules of natural justice.

I want to discuss much larger issue which I out lined in the beginning i.e. the initiative taken by the government of confidence building measures. The same has suffered in this process. It may not out of place to mention here that the professional organisations made several representations seeking extension deadlines for several compliances on the ground that in tier-I and tier-II cities the public transport is not available to the staff hence hardship faced by the professionals. The CBDT was not considerate. This very approach on the part of the highest body of tax administration makes the assesses and the tax professionals skeptical about the implementation of the well-intended assesse friendly tax policies. The gains made in reducing the litigation by introducing DTVSVA have been lost. It seems tax administration is not keen to start a regime in which the assesse is certain about his tax liability. If the above observation is not true then we professionals will be very happy. But, the scale at which the notices are issued and the manner in which the faceless assessment orders are passed it is difficult believe that the same is a coincidence.

In the month of April we had come up with this year’s first issue of Tax companion. Now it’s time for the next issue. The energetic research team has put together certain important and relevant case laws for the benefit of professionals. I hope the same is of assistance to the readers. I thank the members of the research team for their efforts. I am grateful to the senior professionals, who are part of the Editorial team, for sparing their valuable time to edit the present issue. I request all my professional brothers to continue following the COVID-19 appropriate practices as the pandemic is not yet over. The experts say the Third Wave is round the corner. Prevention is the best cure if not the only one.

K. Gopal,
Editor