48. S.2(42A) : Capital gains – Short-term capital asset –
Immovable property – Period of holding – Assessee received immovable
property belonging to his grandmother, by way of family settlement,
to determine nature of capital gain arising from sale of said
property the period of holding would commence from date when he
became owner of property, by virtue of family arrangement and not
from date when his grandmother expired. [Ss.45, 54EC]

Assessee received an immovable property as per wishes and intent of his grandmother who expired on 10-12-1999. Since grandmother died intestate, assessee could receive said property in year 2006 vide family arrangement. Assessee sold said property in year 2009 and claimed deduction u/s.54EC. Revenue authorities rejected assessee’s claim by holding that capital gain arising from sale of property was taxable as short-term capital gain. It was undisputed that ‘previous owners’ were sons and daughters of grandmother from whom property came to assessee by way of final settlement on 8-8-2006. Assessee sold said property on 27-9-2008. Period of holding was to be computed from date when property came to possession of assessee in terms of family settlement. Since assessee sold property before expiry of 36 months from date of obtaining possession, impugned order passed by authorities below did not require any interference. (AY. 2009-10)

Nitul B. Shah v. ITO (2016) 158 ITD 830 (Mum.)(Trib.)

49.
S.4 : Charge of income-tax –Accrual – Carbon Emission Reduction Certificates (CERs) is taxable only when the right to receive consideration for transfer of these CERs is quantified and crystallized

The Tribunal held that income from Carbon Emission Reduction Certificates (CERs) is taxable only when the right to receive consideration for transfer of these CERs is quantified and crystallized. It is not the case of the AO that the sale was made in the relevant previous year. Once the sale is not effected in the relevant previous year, there cannot be any good reasons to bring the CERs value to tax in this assessment year. Accordingly, the value of CERs even though quantifiable, cannot be brought to tax by the reason of accrual simplicitor. (AY. 2009-10)

Dy. CIT v. Kalpataru Power Transmission Ltd. (2016) 177 TTJ 394 (Ahd.)(Trib.)

50.
S.5 : Income – Accrual of dependent personnel services – Assessee rendered services in USA, salary received by him for such services in India from sister concern of US employer would be exempt from Indian taxation – DTAA – Indo-US

Assessee was transferred from Indian company to its American sister concern to act as a lead software engineer and accordingly he left India on 30-5-2007 in connection with his US employment. However, for internal facilitation, his salary for relevant period was paid by Indian company in India. Since services in question were rendered by assessee in USA, his salary income during relevant year was exempt from tax under Article 16(1). Applicability of article 16(1) depends on country where services were rendered and merely because salary was paid by Indian entity, application of Article 16(1) could not be denied. (AY. 2008-09)

Neeraj Badaya v. ADIT (2016) 157 ITD 1016 (Jaipur)(Trib.)

51.
S.9(1)(i) : Income – Deemed to accrue or arise in India (Shipping, inland waterway transport and air transport) (Limitation of benefits) – DTAA – India-Singapore

Assessee, tax resident of Singapore, earned freight income from operation of ships in international traffic and claimed benefit of Indo-Singapore Tax Treaty. AO denied benefit of Treaty on ground that freight had been remitted to a country other than Singapore. Allowing the appeal the Tribunal held that provision of Article 24 can only be triggered when twin conditions of treaty protection, by low or no taxability in source jurisdiction and taxability on receipt basis in residence jurisdiction, are fulfilled. Since in instant case freight income was taxable in Singapore on accrual basis and not on remittance basis, Article 24 had no application . Therefore, in terms of Article 8 entire freight income of assessee, which was only from operation of ships in international traffic, was taxable only in Singapore. The Assessing Officer was, thus, in error in bringing the same to tax in India.(AY. 2011-12)

Alabra Shipping Pte. Ltd. v. ITO (IT) (2015) 175 TTJ 359 (Rajkot)(Trib.)

52.
S.9(1)(vi) : Income deemed to accrue or arise in India – Fees for technical services – Consideration received for sale of computer software programme in CD Rom is not assessable as “royalty”. The retrospective amendment in Explanation 4 to section 9(1)(vi) to tax such receipts as royalty has no application to DTAA if the definition of the term “royalty” in the DTAA has remained unchanged – DTAA-India- Netherlands.

Dismissing the appeal of Revenue the Tribunal held that

(i) From the plain reading of Article 23(4) of the India-Netherlands DTAA it can be inferred that, it refers to payments of any kind received as a consideration for the use of, or the right to use any ‘copyright’ of literary, artistic or scientific work including cinematograph films, any patent, trade-mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question as “royalty”, it is sine qua non that the said payment must fall within the ambit and scope of Para 4 of Article 12. The main emphasis on the payment constituting ‘royalty’ in Para 4 are for a consideration for the ‘use of’ or the ‘right to use’ any copyright………. The key phrases “for the use” or “the right to use any copyright of”; “any patent…….; “or process”, “or for information………,”; “or scientific experience”, etc., are important parameters for treating a transaction in the nature of “royalty”. If the payment doesn’t fit within these parameters then it doesn’t fall within terms of “royalty” under Article 12(4). The computer software does not fall under most of the term used in the Article barring “use of process” or “use of or right to use of copyrights” Here first of all, the sale of software cannot be held to be covered under the words “use of process”, because the assessee has not allowed the end user to use the process by using the software, as the customer does not have any access to the source code. What is available for their use is software product as such and not the process embedded in it. Several processes may be involved in making computer software but what the customer uses is the software product as such and not the process, which are involved into it. What is required to be examined in the impugned case as to whether there is any use or right to use of copyright? The definition of copyright, though has not been explained or defined in the treaty, however, the various Courts have consistently opined that the definition of “copyright” as given in the ‘Copyright Act, 1957’ has to be taken into account for understanding the concept.

(ii) The definition of ‘copyright’ in section 14 is an exhaustive definition and it refers to bundle of rights. In respect of computer programming, which is relevant for the issue under consideration before us, the copyright mainly consists of rights as given in clause (b), that is, to do any of the act specified in clause (a) from (i) to (vii) as reproduced above. Thus, to fall within the realm and ambit of right to use copyright in the computer software programme, the aforesaid rights must be given and if the said rights are not given then, there is no copyright in the computer programme or software. As noted by the CIT(A), under the terms of the agreement between the assessee and INFOR India, the agreement specifically forbids them from decompiling, reverse engineering or disassembling the software. The agreement also provides that the end user shall use the software only for the operation and shall not sublicense or modify the software. None of the conditions mentioned in section 14 of the Copyright Act are applicable. If the conclusion of learned CIT(A) are based on these facts and agreement, then he has righty concluded that the consideration received by the assessee is for pure sale of “shrink wrapped software” off the shelf and hence, cannot be considered as a “royalty” within the meaning of Article 12(4) of the DTAA, as the same is consideration for sale of copyrighted product and not to use of any copyright.

(iii) One of the issues which was raised by the learned DR before us is that, the Explanation 4 to section 9(1)(vi) which has been brought by Finance Act 2012 with retrospective effect in section 9(1)(vi), therefore, the meaning and definition of ‘royalty’ as given therein should be read into the DTAA. We are unable to appreciate this contention of the Ld. DR because the retrospective amendment brought into statute with effect from 1-6-1976 cannot be read into the DTAA, because the treaty has not been correspondingly amended in line with new enlarged definition of ‘royalty’. The alteration in the provisions of the Act cannot be per se read into the treaty unless there is a corresponding negotiation between the two sovereign nations to amend the specific provision of “royalty” in the same line. The limitation clause cannot be read into the treaty for applying the provisions of domestic law like in Article 7 in some of the treaties, where domestic laws are made applicable. Here in this case, the ‘royalty’ has been specifically defined in the treaty and amendment to the definition of such term under the Act would not have any bearing on the definition of such term in the context of DTAA. A treaty which has entered between the two sovereign nations, then one country cannot unilaterally alter its provision. Thus, we do not find any merit in the contention of the Learmed DR that the amended and enlarged definition should be read into the Treaty. ( ITA No. 7048/Mum/2010, dt. 13-6-2016) (AY. 2006-07)

ADIT v. Baan Global BV (Mum.)(Trib.) www.itatonline.org

53.
S.9(1)(vi) : Income – Deemed to accrue or arise in India – Royalties and fees for technical services/Software) – Consideration received by assessee for sale of software claimed to have been supplied as part of machine to end user is not royalty – DTAA – India-Israel.

Assessee non-resident company sold to its customers machines and operating software. In invoice issued by Assessee Company, consideration was mentioned separately for machine and operating software. However, there was no separate transaction of sale of software. Dominant character and essence of transaction was sale of machine by assessee and software, independently, had no value for customer. Thus it was predominantly transaction of sale of machine and therefore, it could not have been brought within definition of ‘Royalty’ as envisaged in s. 9(1)(vi). Further in absence of there being any P.E. of assessee in India, income arising from sale of machine could not have been taxed in its hands in India.)(AY. 2010- 11)

Galatea Ltd. v. Dy. CIT (2016) 157 ITD 938 / 46 ITR 690 (Mum.)(Trib.)

54.
S.10A : Free trade zone – Addition on account of suppression of stock and difference in books of accounts – Exemption is allowable [S. 133A]

Assessee is a manufacturer & Exporter of Gold Jewellery. Survey u/s 133A carried out on assessee’s premises. Assessee surrendered certain sum on account of various discrepancies . AO made addition of sum surrendered. CIT(A) sustained addition. On appeal Tribunal held that assessee is entitled to deduction. (AY. 2007-08)

Bridal Jewellery Mfg. Co. v. ITO (2016) 45 ITR 119 (Delhi)(Trib.)

55.
S.10A : Profits & gains derived from export – Interest on short term deposit is eligible for benefits.

Tribunal held that interest on short term deposit is profits of business eligible for benefits of section 10A & 10B. (AY. 2006-07)

American Express (I) (P) Ltd. v. Dy. CIT (2016) 177 TTJ 33(UO) (Delhi) (Trib.)

56.
S.13 : Denial of exemption –Trust or institution – Investment restrictions – Assessee-trust invested funds in a company in which its trustee was managing director and his wife was a director, it was a case of violation of s. 13(1)(c) and exemption u/s. 11 would not be available to assessee

The assessee, a society registered under section 12AA, was running an educational institution. During the assessment year the assessee sold a land for certain amount. The purpose of sale was to use the sale proceeds for expansion of the educational activities. However, the amount was advanced to a limited company AIPL in which trustee and his wife were directors. The A.O. treated the income from sale of land as income of the assessee and also denied exemption u/s.11 as the amount advanced to AIPL was not an approved investment u/s. 11(5) and, thus, provisions of section 13(1)(c) were attracted. The income of the assessee was computed as ‘AOP’ under section 164(2).

The CIT(A) held that condition of section 13(3) was not fulfilled as the A.O. had not proved as to what benefit accrued to the specified person from the advancement of amount in question to AIPL. Regarding denying the exemption u/s. 11 and assessing the assessee u/s. 164(2), the CIT(A) given a finding that there was valid registration u/s. 12AA and since this was not cancelled or withdrawn by the Commissioner, benefit of section 11 could not be denied. Further, capital gain arising out of transfer of capital asset was to be assessed as per section 48 and the rate was to be applied as per section 112 and not at the maximum marginal rate as suggested by the A.O.

The ITAT held that the assessee advanced amount on 30-6-2006 to AIPL and the capital gain arose on sale of land during the financial year on 31-3-2007. AIPL have returned the money on 31-3-2009 and the said amount was not invested in new asset within the previous year. Therefore, exemption u/s. 11(1)(a) is not available to the assessee. (AY. 2007-08)

Dy. DIT v. India Cements Educational Society (2016) 157 ITD 1008 / 46 ITR 80 (Chennai)(Trib.)

57.
S.14A : Disallowance of expenditure – Addition on account of disallowance under S. 14A read with Rule 8D being expenditure in relation to earning of exempt income to book profit under S. 115JB justified [S. 115JB]

Section 115JB of the Act starts with non-obstante clause ‘Notwithstanding anything contained in any other provision in this Act…” meaning thereby that the section 115JB shall be applicable notwithstanding anything contained in any other provision of the Act and shall have overriding effect upon other provisions of the Act. Hence, A.O. has rightly disallowed the expenditure by invoking the provisions of section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 for computing book profit u/s 115JB(2) of the Act read with clause (f) to explanation 1 to clause 115JB(2) of the Act. (AY. 2008-09)

Dy. CIT v. Viraj Profiles Ltd. (2016) 156 ITD 72/ 46 ITR 626/ 177 TTJ 466 (Mum.)(Trib.)

58.
S.14A : Disallowance of expenditure – Exempt income – Disallowance can not exceed exempt dividend income

The Assessee was in the business of trading of shares, cloth, commission and real estate rent, and maintained the same books of accounts for all the businesses. Due to the exempt divided income and interest expenses incurred, the AO made disallowance u/s 14A. The ITAT observed that the dividend was earned in the normal course of business, and if one assumed that some expenditure was incurred to earn the exempt income, then the disallowance could not exceed the amount of exempt income. (AY. 2008-09)

K. Ratanchand and Co. v. ITO(2016) 45 ITR 608 (Ahd.)(Trib.)

59.
S.17(3) : Profits in lieu of salary – Amount received by an assessee, acting as a Managing Director of a Company, at the time of termination of his relation with the Company in consideration of his not providing benefit of his knowledge to any other person carrying on similar activity was not taxable either u/s. 17(3) or 28(va)

On appeal, the Tribunal held:

The role assigned to the assessee clearly shows that he was not subject to the direct control or supervision of Suzuki India, but was managing all affairs of the company, evolving business strategies and advising the company. His role was clearly that of a joint venture partner in Suzuki India and not that of an employee of the company and hence the assessee was not an employee of Suzuki India, and thereby the amount received by him from the company could not be taxed as ‘profits in lieu of salary’ under section 17(3).

Further the amount was paid by Suzuki India to the assessee in consideration of not providing ‘the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment’ it cannot be regarded as non-competition fee because it has not been paid for not competing with the payer, but for not providing the benefit of his knowledge, expertise, skills etc. to any other person in the two wheeler segment.

The contention of assessee that section 28(va) taxes a sum received for a restrictive covenant in relation to a business, but not a profession is supported by the observations in paragraph 28 on page 692 of Kanga and Palkhivala’s ‘Law and Practice of Income-tax’ that clause (va) of section 28 ‘taxes a sum received for a restrictive covenant in relation to a business, but not a profession’; and, therefore, does not fall within the ambit of section 28(va). The Supreme Court in the case of Guffic Chem. (P.) Ltd. v. CIT [2011] 332 ITR 602 held that compensation attributable to a negative/restrictive covenant is a capital receipt. Hence, the sum received by the assessee did not fall within the ambit of section 28(va), and it was not chargeable to tax as it constituted a capital receipt.

In view of the above, the claim of the assessee that the sum received by him from Suzuki India is not taxable under section 17(3)(b) andalso, said sum does not fall within the ambit of section 28(va), being a capital receipt is not taxable under the Act, is upheld (AY. 2010-11)

Satya Kant Khosla v. ITO (2015) 174 TTJ 825 (Delhi)(Trib.)

60.
S.22 : Income from house property – Annual value – Assessee did not disclose income from house property in respect of his six immovable properties, AO could not make addition to assessee’s income merely on basis of notional rent on cost of properties without computing income in accordance with provisions of sections 22 and 23

Assessee was running a dance academy and film production house. The AO noted that assessee owned six immovable properties. Since assessee did not declare any income under head ‘Income from house property’, AO after giving benefit of one house property for residential purpose and one for purpose of business, computed taxable income based on 10 per cent of book value of properties in question. It was undisputed that AO had not made any enquiry relating to computation of income in accordance with sections 22 and 23 rather computed ALV based on notional rent on cost of properties. Addition was set aside. (AY. 2007–08)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032 / 45 ITR 554 (Mum.)(Trib.)

61.
S.28(i) : Business loss – Speculative – Derivative loss on reinstatement of foreign currency forward contracts is not speculative and is an ascertained liability [S.43(5)]

The Assessee incurred a derivative loss arising out of reinstatement of foreign currency forward contracts entered into to hedge against the forex risk on account of receivables. The AO held that it was speculative loss and that it was notional in nature. The ITAT held that derivative transactions on foreign exchange were exempt from the purview of speculative transactions since they were settled by actual delivery. Further, the ITAT also held that the marked to market loss on reinstatement of the derivative is not a notional or contingent loss, but an ascertained liability which had crystallised on the date of balance sheet. (AY. 2009-10)

Inventurus Knowledge Services P. Ltd. v. ITO (2016) 45 ITR 57 (Mum.)(Trib.)

62.
S.32 : Depreciation – Hoarding structure – Building eligible depreciation at 10%, cannot be considered as plant [S 43(3)]

Assessee firm was carrying on business of outdoor publicity through use of hoardings, during the year Assessee claimed depreciation at rate of 15 per cent on hoarding structure owned by it under category of ‘plant and machinery’. The AO. opined that hoarding structures were to be treated as ‘building’ and therefore he allowed depreciation at rate of 10 per cent. The Honorable ITAT took a view that hoarding structures did not play any operative role as apparatus or tool in carrying on trade by assessee firm or in functioning of assessee firm’s business rather those hoarding structures were merely embedded in building and erected for entities to put their advertisements. Assessee failed to satisfy functional test of ‘plant’ as given in section 43(3) and therefore order of the A.O. was upheld. (AY. 2007-08)

Asian Advertising v. ITO (2016) 158 ITD 145 (Mum.)(Trib.)

63.
S.37(1) : Business expenditure – Where assessee made payment of royalty to its foreign AE through banking channel which was supported by bills and agreements and TPO as well as A.O. on same facts had accepted payment of royalty as genuine and not sham transaction in previous assessment year, disallowance of such payment on ground of genuineness was unjustified

The A.O. disallowed royalty payment made by Assessee Company to its associated enterprise abroad on ground that assessee had not proved necessity of payment of royalty and also benefits accrued to it by using brand name of AE. In view of facts that payment was made through banking channel which was supported by bills and agreements and TPO as well as A.O. on same facts had accepted payment of royalty as genuine and not sham transaction in previous assessment year, A.O. was unjustified in disallowing royalty payment. (A.Ys. 2007-08, 2008-09)

ACIT v. L. G. Polymers India (P.) Ltd. (2016)157 ITD 1113 (Visakhapatnam)(Trib.)

64.
S.37(1) : Business expenditure – Encashment of bank guarantee – Held to be allowable as deduction

Where in respect of contract for providing coverage of Commonwealth Games, assessee had to pay certain amount to Prasar Bharati as performance bank guarantee on account of inadequate performance of said contract, it was to be allowed as deduction . (AY 2011-12)

SIS Liv v. ACIT (2016) 175 TTJ 643 (Delhi)(Trib.)

65.
S. 37(1) : Business expenditure- Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure.

Expenditure on Corporate Social Responsibility (CSR), though voluntary, is allowable as business expenditure. Explanation 2 to s. 37(1) inserted w.e.f. 1-4-2015 is not retrospective. It applies only to CSR expenditure referred to in s. 135 of the Companies Act and not to voluntary CSR expenditure. (ITA No. 99/BLPR/2012, dt. 23-6-2016)(AY. 2008-09)

ACIT v. Jindal Power Limited (Raipur)(Trib.); www.itatonline.org

66.
S.37(1) : Business expenditure – Capital or Revenue – Repair of rented premises – held to be allowable [S. 30, 31]

Expenditure on repairs of rented premises, even if huge and accumulated, are allowable as revenue expenditure. Fact that CIT(A) admitted additional evidence is no justification for seeking a set aside to the AO if the CIT(A) called for a remand report from the AO: Ratio in CIT v. Savarana Spinning mills Limited (2007)293 ITR 201 (SC) is held to be not applicable. (ITA No. 5393/Del/2010, dt. 2-6-2016) (AY. 2005-06)

DCIT v. Ikea Trading (India) P. Ltd. (Delhi)(Trib); www.itatonline.org

67.
S.37(1) : Business Expenditure – Penal Interest paid to bank. – Compensatory in nature – Not an offence prohibited by any law – Allowable

The assessee had paid penal interest for not fulfilling a stipulated condition in the loan agreement which was compensatory in nature. The banks were entitled to charge extra rate of interest which was reimbursed to the assessee on fulfillment of condition. On appeal to Tribunal, it was held that the assessee has not committed any offence prohibited under any law and hence doesn’t come under the ambit of Explanation to Section 37. The expenditure was allowable. (AY. 2008-09)

ACIT v. Bharat Hi-Tech (Cement) P Ltd (2016) 176 TTJ166 (Kol.) (Trib.)

68.
S.37(1) : Business Expenditure – Commission payments could not be disallowed on ad hoc basis unless any material brought on record to justify disallowance

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowance of commission paid to distributors. On appeal to Tribunal, it was held that since the AO has not brought any material on record to show that the commission expenditure was either bogus or was not allowable, there could not be any ad hoc disallowance of the same. (AY. 2008-09)

DDIT v. Vodafone Mobile Services Ltd) (2016) 176 TTJ 430 (Delhi)(Trib.)

69.
S.37(1) : Business Expenditure – Capital or revenue – Advertisement expenditure – Display of granty signs and product launching expenses – No asset of permanent nature comes into existence – Expenditure allowed as revenue

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowance of Advertisement expenses. The Tribunal held that the expenditure incurred on display of granty signs and on product launches were allowable as revenue since no asset of permanent nature comes into existence. (AY..2008-09)

DDIT v. Vodafone Mobile Services Ltd. (2016) 176 TTJ 430 (Delhi)(Trib.)

70.
S.37(1) : Business Expenditure – Capital or revenue – Royalty paid to DOT – Necessary to run the business – Amount allowed as Revenue expenditure

Assessee Company was engaged in the business of providing cellular mobile telephony network. During the year under consideration, the AO made disallowances of Royalty paid to DOT. On appeal to Tribunal, it was held that the royalty pertaining to spectrum charges was paid to DOT on a quarterly basis as a percentage of revenue. The assessee could not run the business without making such payments and hence the same were allowable as revenue expenditure. (AY. 2008-09)

DDIT v. Vodafone Mobile Services Ltd (2016) 176 TTJ 430 (Delhi)(Trib.)

71.
S.37(1) : Business expenditure – Advertisement expenses incurred after the issuance certificate by the Censor Board is allowable

The Assessee incurred advertisement expenses after the obtaining the certificate from the Censor Board, which was disallowed by the AO based on the provisions of Rules 9A and 9B. The ITAT held that advertisement and publicity expenses incurred after obtaining the certificate from the Censor Board would be allowable to the Assessee u/s 37 based on the earlier decisions of the Tribunal. (AY. 2009-10)

Dharma Productions P. Ltd. v. ACIT [2016] 45 ITR 102 (Mum.)(Trib.)

72.
S.37(1) : Business expenditure – Ad hoc disallowance not allowed in case primary documents have not been doubted and it has not been alleged that bogus expenses or inflated expenses have been booked

The AO disallowed ad hoc 25% of certain expenses claimed by the assessee due to want of evidence. The ITAT followed earlier year and deleted the disallowance and held that the AO had not doubted the primary documents, but had made bald observations. (AY. 2009-10)

Dharma Productions P. Ltd. v. ACIT (2016) 45 ITR 102 (Mum.)(Trib.)

73.
S.40(a)(i) : Amounts not deductible – Deduction at source – Fee for professional services outside India without deduction of tax at source – Payment made outside India was not sum chargeable to tax in India – Hence, provisions of S. 195 are not applicable [S. 195]

The Assessee is engaged in business of rendering taxation, business advisory, audit related services and other consultancy services. During course of assessment proceedings it was observed by AO that Assessee had paid fee for professional services outside India without deduction of tax at source. The assessee in reply to the AO’s query explained that the payment made outside India is not sum chargeable to tax in India. Hence, provisions of section 195 were not applicable, consequently no disallowance could be made under S. 40(a)(i) of the Act.The AO however, made disallowance under section 40(a)(i) by observing that services rendered by non-residents were in areas of application of high level of skills as well as technical and industrial know-how. Hence, assessee is required to deduct tax at source while making the payment. On appeal the First Appellate Authority deleted the disallowance made by AO on the ground that Assessee did not have any liability under S. 195 r.w.s. 9(1)(vii) to deduct tax at source from those payments. The department being aggrieved by the order of the Ld. CIT(A) preferred an appeal before the Appellate Tribunal. The Tribunal dismissed the appeal of the department by observing that provision of S. 195(1) uses expression “chargeable” under the provisions of the Act. As the payment made by assessee is not chargeable to taxed in India, TDS is not required to be deducted under S.195 of the Act. (AY. 2008-09)

KPMG v. ACIT (2016) 177 TTJ 708 (Mum.)(Trib.)

74.
S.40(a)(i) : Amounts not deductible – Deduction at source – Fees for technical services – Services in nature of recruitment or placement agency do not come under purview of ‘fees for included services – DTAA ‘ India-d USA.

Services in nature of recruitment or placement agency do not come under purview of ‘fees for included services’ within meaning of Article 12(4)(b) of DTAA. Retrospective amendment to section 9 cannot change tax withholding liability with retrospective effect. Assessee company made certain payments to its overseas group companies as reimbursement of expenses incurred by them for recruitment of employees on behalf of assessee. The Assessee had furnished all necessary details about said expenditure. However, the AO made disallowance u/s. 40(a)(i) by treating said expenditure as FTS as per provisions of s. 9(1)(vii). Since payments were pure and simple reimbursement of recruitment expenses, section 195 was not attracted and, consequently, disallowance u/s.40(a)(i) was not called. (A.Y.2007-2008)

ACIT v. Lehman Brothers & Advisors (P.) Ltd. (2016) 157 ITD 1003 (Mum.)(Trib.)

75.
S.40(a)(i) : Amounts not deductible – Deduction at source – Late deposit of tax – Assessee deducted tax at source from royalty paid to its foreign associate in subsequent year and failed to deposit same within due date specified u/s. 200(1) it was to be disallowed

Assessee Company deducted TDS from royalty paid to its foreign associated enterprise in subsequent year and also failed to deposit same within due date specified u/s. 200(1), it was rightly disallowed by revenue u/s.40(a)(i). However in view of proviso to s. 40(a)(i) assessee would be eligible for deduction towards royalty payment, in year in which TDS was deducted and remitted into Government account, i.e., for assessment year 2008-09.(AYs. 2007-08, 2008-09)

ACIT v. L.G. Polymers India (P.) Ltd. (2016) 157 ITD 1113 (Visakhapatnam)(Trib.)

76.
S.40(a)(i) : Amounts not deductible – Deduction at source – non-resident Retro amendments –Disallowance was not justified as assessee could not have visualised to deduct TDS in absence of any provision at time of making payment and since there was an already prevailing law laid down by Supreme Court that in such a case no TDS was to be deducted – DTAA – India-Swiss Confederation

Assessee made payment to a non-resident company for training programmes conducted by said company outside India in which assessee sent its delegates. Assessee did not deduct TDS on said payments in view of ratio laid down by Supreme Court in Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 (SC) wherein it was held that services rendered outside India would be taxable in India only if such services had been utilised in India. The AO disallowed payment for want of deduction of TDS holding that decision of Supreme Court would not be applicable in view of Explanation inserted with retrospective effect from 1-6-1976 which provided that fees for technical services received by a non-resident would be deemed to accrue in India whether or not it had rendered services in India. At time of making payment assessee could not have visualised to deduct TDS when there was no provision in this regard and there was already prevailing law laid down by Supreme Court that in such a case no TDS was to be deducted; therefore, disallowance for want of TDS was not justified. (AY. 2010-11)

Holcim Services South Asia Ltd. v. Dy. CIT (2016) 157 ITD 892 (Mum.)(Trib.)

77.
S.40(a)(ia) : Amounts not deductible – Deduction at source – Second proviso to s. 40(a)(ia) inserted by FA, 2013 should be treated as retrospectively applicable from 1st April, 2005 – When there are conflicting judgments of non-jurisdiction High Courts, it has to follow the view which is in favour of the assessee even if it believes that this view is not the correct law

When there are conflicting judgments of non-jurisdiction High Courts, the Tribunal is not permitted to choose based on its perception of what the correct law is because it will amount to sitting in judgment over the High Courts’ views. Instead, it has to follow the view which is in favour of the assessee even if it believes that this view is not the correct law. Second proviso to s. 40(a)(ia) inserted by FA, 2013 should be treated as retrospectively applicable from 1st April, 2005. (ITA No. 106/RPR/2016, dt. 24-6-20166) (AY. 2010-11)

R. K. P. Company v. ITO (Raipur)(Trib); www.itatonline.org

78.
S.40(a)(ia) : Amounts not deductible – R.w. S. 11 of the Act – Income computed under section 11 – No disallowance [S. 11]

Where income of the assessee has to be computed under section 11, no disallowance can be made under section 40(a)(ia) by applying commercial principles. (AYs. 2009-10 & 2010-11)

ITO v. Kalinga Cultural Trust (2016) 177 TTJ 233 (Hyd.)(Trib.)

79.
S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits –Payments through agents – Since assessee had no direct dealings with land owners, payments in question were to be regarded as covered under rule 6DD(k) which could not be disallowed

Assessee company was engaged in business of land aggregation. Nature of assessee’s business was to identify big parcels of lands and buy said land from different small landowners. The A.O. noted that assessee had made cash payments in excess of Rs. 20,000 for purchase of land. He thus invoked provisions of section 40A(3) to disallow said payments. It was noted that assessee had appointed agents who in turn selected land, negotiated price with land owners and purchased lands. Since assessee had no direct dealings with landowners and payments were made to them through agents, said payments were to be regarded as covered under provisions of rule 6DD(k) of 1962 Rules, which could not be disallowed by invoking provisions of section 40A(3).(AY. 2005-06 to 2011-12)

Om Shakthy Agencies (Madras) (P.) Ltd v. Dy. CIT (2016) 157 ITD 1062 / 177 TTJ 419 (Chennai)(Trib.)

80.
S.43(1) : Actual cost – subsidy – Capital or Revenue – Backward area subsidy received towards incentive on building and pollution control devices for setting up manufacturing unit – Not meant for working capital purposes – Held capital in nature

The assessee had set up a cement manufacturing unit in a backward district for which it was entitled to State Capital Incentive subsidy @ 25% of fixed capital investment. The assessee treated the said subsidy received towards incentive on building and pollution control devices as capital in nature. The AO treated the same as revenue subsidy for want of details. On appeal to Tribunal, it was held that the subsidy was received only as an incentive on building and pollution control devices for setting a manufacturing unit in backward district and it was not meant for working capital purposes or for running the cement manufacturing unit. The subsidy received has gone to reduce the capital cost of the assessee in view of Explanation 10 to section 43(1). The subsidy received by the assessee was capital in nature. (AY. 2008-09)

ACIT v. Bharat Hi-Tech (Cement) P. Ltd. (2016) 176 TTJ 166(Kol.) (Trib.)

81.
S.45 : Capital Gain – Cost of acquisition – Partition of HUF Family Arrangement – Cost incurred by previous owner shall be adopted and period of holding of the assets should be reckoned from 1963 – Benefit of Indexation to be granted from 1981 [S. 2(42A), 47, 49, 55(2)(b)]

Held that the family arrangements which was settled through award in 1987 should not be regarded as transfer u/s 47 as section provides that any distribution of capital assets on the total partition of HUF shall not be regarded as transfer. It cannot be said that assessee acquired property in 1987 because as per law the rights of assessee have only been reinstated or redetermined. No fresh rights have taken birth. Assessee was a beneficial owner of the property since 1963 as term ‘held’ in section 2(42A) does not imply that it should be actually be held as owner. Even otherwise, assessee would fall in situations as provided in sec. 49(1). Hence, in any case cost incurred by the previous owner shall be adopted while computing capital gains in the hands of assessee and period of holding of assets in the hands of the assessee should also be reckoned from 1963. Therefore, value for the purpose of taking cost and benefit of indexation should be adopted as on 1st April, 1981. (AY. 2007-08)

ITO v. P.M. Rungta (HUF) (2016) 176 TTJ 648 (Mum.) (Trib.)

82.
S.45 : Capital gains – Slump sale – Sale of entire share holding to subsidiary company to third party – It was mere transfer of shares cannot be assessed as slump sale [S 2(19AA, 2(42C) 48, 50B]

The assessee sold its entire share holdings in its subsidiary company to a third party. On the said sale the assessee worked the capital gains under section 48 of the Act. The AO treated the sale consideration as slump sale of undertaking and computed the capital gains under section 50B. CIT(A) upheld the order of AO. On appeal the Tribunal held that where the assessee sold its entire share holdings to third party, since it was a case of mere transfer of shares and moreover sale consideration was received by assessee itself and not by subsidiary it could not be treated as slump sale within the meaning of section 2 (42C) of the Act. (AY. 2007-08)

UTV Software Communications Ltd. v. ACIT (2016) 157 ITD 71/176 TTJ 315 (Mum.)(Trib.)

83.
S.48 : Capital gains – Portfolio management service fee paid by assessee to various portfolio managers could not be allowed as deduction while computing capital gain arising from sale of shares kept in portfolio management services accounts held with various funds. [S. 45]

Assessee earned short-term capital gain and long-term capital gain arising from portfolio management services (PMS) accounts held with various funds. In return of income, assessee claimed deduction of portfolio management fees paid to various funds from capital gains earned by him. AO rejected assessee’s claim. The ITAT held that portfolio management service fee paid by assessee to various portfolio managers could not be allowed as deduction while computing capital gain arising from sale of shares kept in portfolio management services accounts held with various funds. (AY. 2008-09)

Capt. Avinash Chander Batra v. Dy. CIT (2016) 158 ITD 604 (Mum.)(Trib.)

84.
S.50 : Capital gains – Depreciable assets – Cost of shares allotted to members of BSE pursuant to corporatisation of BSE would be calculated as per section 50 and not as per section 55(2)(ab) if depreciation was claimed on BSE membership – Indexation benefit on sale of such share would be available from date of corporatization of BSE and not from date of acquisition of original membership of BSE. [S. 55(2)(ab)]

Dismissing the appeal of assessee, the Tribunal held that; cost of shares allotted to members of BSE pursuant to corporatisation of BSE would be calculated as per section 50 and not as per section 55(2)(ab) if depreciation was claimed on BSE membership; further, indexation benefit on sale of such share would be available from date of corporatisation of BSE and not from date of acquisition of original membership of BSE. (AY. 2008-09)

Twin Earth Securities (P.) Ltd. v. ACIT (2016) 158 ITD 764/ 177 TTJ 527 (Mum.)(Trib.)

85.
S.50C : Capital gains – Full value of consideration – Stamp valuation – Amount of sale consideration has been determined in view of stamp duty valuation – Consideration cannot be estimated [S.45]

Held that provisions of sec. 50C lays down that the value adopted or assessed by Stamp Valuation Authority shall be deemed be full value of consideration. Law is well settled that scope of deeming fiction cannot be extended beyond what has been clearly mentioned in law. Full value of consideration of the asset has been determined based upon the value as was assessed by the stamp valuation authority. Therefore, once the amount of sale consideration has been determined keeping in view of provisions of law no question would arise of estimating the value of consideration once again. CIT(A) erred in estimating lease rent as it was beyond the provisions of law. (AY. 2003-04, 2006-07, 2007-08)

Kamala Brothers v. ITO (2016) 176 TTJ 178 (Mum.)(Trib.)

86.
S.50C : Capital gains – Full value of consideration – Stamp valuation – The stamp duty value on the date of agreement and not date of sale deed has to be taken [S. 45]

The assessees were all family members of two brothers, Mr. Mohd. Zia Baig and Mr. Abdul Arif Baig. The family members of Mr. Mohd. Zia Baig and Mr. Abdul Arif Baig, owned adjacent immovable properties. They sold their properties together for a sale consideration of Rs. 3,35,60,000 vide registered document No.1264 of 2006 and Rs. 3,54,40,000 vide Regd. Document No.1262 of 2006 both dated 6th March, 2006. The assessees computed long term capital gains from the above transaction on the sale consideration received by them and arrived at the long term capital gains in the hands of each of these assessees. Observing that the capital gains should have been computed adopting the deemed consideration of Rs. 4,50,62,000 as per the provisions of S.50C of the I.T. Act, the Assessing Officer held that proportionate deemed consideration has to be brought to tax. In view of the same, the Assessing Officer formed an opinion that there was reason to believe that income chargeable to tax has escaped assessment within the meaning of S.147 of the Act.

The assessee objected to the re-opening inter alia on the ground that the fair market value of the land as on 20-5-2005 on which date the land had been sold pursuant to a MOU. Accordingly, the assessee submitted that the SRO value of the property as on the date of agreement has to be considered and not as on the date of the transfer of the property. However, the Assessing Officer without considering the assessee’s submissions adopted the fair market value of Rs. 4,50,62,000. The CI T(A) confirmed the Assessing Officer’s Order. On appeal, the Tribunal held that issue as to whether the date of agreement or the date of execution of sale deed has to be considered for the purpose of adopting the SRO value under S.50C of the Act, is now settled in favour of the assessee by the decisions of the Hon’ble Supreme Court in the case of Sanjeev Lal and Smt. Shantilal Motilal v. CIT ( 2014) (365 ITR 389 (SC) as well as decisions of the co-ordinate bench of this Tribunal at Visakhapatnam in the cases of Lahiri Promoters Visakhapatnam v. ACIT, Circle 1(1), Visakhapatnam (ITA No.12/Vizag/2009 dated 22-6-2010) and Moole Rami Reddy v. ITO (ITA No.311/Vizag/2010 dated 10-12-2010). Therefore, the SRO value as on the date of agreement of sale has to be considered for the purpose of computation of capital gains. (AY. 2006-07)

Mohd. Imran Baig and Ors v. ITO (2016) 130 DTR 33 /175 TTJ 319 (Hyd.)(Trib.)

87.
S.56(2)(vii) : Income from other sources – Interest awarded on compensation for personal disability does not have the character of “income” and cannot be taxed. CBDT requested to issue instructions to mitigate hardship of accident victims [S. 145A]

The assessee is an unfortunate victim of a motor accident. On 18th May 1990, she was travelling in a car, which met a serious accident, leaving her permanently disabled, what is termed by the competent authority, at ninety percent level. She claimed a compensation of Rs. 15,00,000 for this tragic loss of her physical abilities. She did eventually get it but she had to knock the doors of Hon’ble Supreme Court, and it was finally on 26th April 2011 that her claim was upheld. As if this long struggle of 21 years in the judicial process was not enough, the destiny had more in store for her. It is this settlement of the accident compensation claim that has led to a new round of litigation- this time about taxability of a component of compensation, i.e. interest component. Mercifully, there is no, and there cannot be, any dispute about the fact that the compensation for disability cannot be subject to tax, but the stand of the Assessing Officer is that interest component on compensation awarded by Hon’ble Supreme Court is taxable as it is covered under section 145A(b) r.w.s. 56(viii) of the Act. In appeal, learned CIT(A) has confirmed this stand. On appeal by the assessee HELD allowing the appeal:

(i) Section 145A starts with a non obstante clause which restricts the scope of Section 145 dealing with the method of accounting. It is not a charging provision. The only impact it has on taxability of an income is its timing of taxability. What is not taxable is not made taxable under section 145A(b) but what is taxable under the mercantile method of accounting, i.e. on accrual basis, is made taxable on cash basis of accounting, i.e. at the point of time when interest is actually received. Nothing else needs to read into this provision, and the memorandum explaining the provision of Finance Bill 2009, as reproduced earlier, makes that amply clear. As for the provisions of Section 56(2)(viii), it is only an enabling provision, as unambiguously made clear in the above memorandum as well, to bring interest income to tax in the year of receipt rather than in the year of accrual. Section 56(2)(viii) provides that……”incomes, shall be chargeable to income tax under the head ‘income from other sources’, namely ….(viii) income by way of interest received on compensation or enhanced compensation referred to in clause (b) of Section 145A”. The starting point of this exercise is income, and it is only when the receipt is in the nature of an income, that the classification of income under a particular category arises. In other words, when interest received by the assessee is in the nature of income, such interest can be taxed under section 56 (2)(viii). Section 56(1) makes this aspect even more clear when it states that “Income of every kind, which is not to be excluded from the total income under this Act, shall be chargeable to income tax under the head “income from other sources”, if it is not chargeable to income tax under any of the heads specified in Section 14, items A to E”, and then, in the subsequent provision, i.e. Section 56(2), proceeds to set out an illustrative, rather than exhaustive list of, such “incomes”. Clearly, unless a receipt is not an income, there is no occasion for the provisions of Section 56(1) or 56(2) coming into play. Section 56 does not decide what is an income. What it holds is that if there is an income, which is not taxable under any of the heads under Section 14, i.e item A to E, it is taxable under the head ‘income from other sources’. The receipt being in the nature of income is a condition precedent for Section 56 coming into play, and not vice versa. To suggest that since an item is listed under section 56(2), even without there being anything to show that it is of income nature, it can be brought to tax is like putting the cart before the horse. The very approach of the authorities below is devoid of legally sustainable merits. The authorities below were thus completely in error in bringing the interest awarded by Hon’ble Supreme Court to tax. The question of deduction under section 57(iii), given the above conclusion, is wholly irrelevant. We vacate this action of the Assessing Officer, and disapprove the CIT(A)’s action of confirming the same. Grievance of the assessee is thus upheld.

(ii) As we part with the matter, we must say that, as fellow citizens, we are deeply anguished to take note of the long journey that the assessee had to undertake to get her dues and then to fight this unjust income tax demand on her. In order to ensure that others do not have to tread the same arduous path- at least with respect to the tax demand, and to bring an element of certainty, we would suggest that the Central Board of Direct Taxes may as well take a conscious call on issuing appropriate administrative instructions in this regard and ensuring that what was brought as a measure of relief to the taxpayers is not used, by the field officers, as a source of taxation. Such a step certainly cannot mitigate the pain of an accident victim but it can probably help in ensuring that hardships of the accident victim are not further compounded, and that’s the least that a responsive tax administration, like the one we fortunately have at present, can do.( ITA No. 630/Ahd/2016, dt. 31-5-2016)(AY. 2012-13)

Urvi Chirag Sheth v. ITO (Ahd)(Trib) ; www.itatonline.org

88.
S.68 : Cash credits – Addition cannot be made for loans taken in the period prior to the commencement of business as well as in the initial period of business. No addition in respect of parties against whom summons for examination was not issued by the AO

The Assessee obtained unsecured loans from numerous parties, while installing its plant and machinery and also for 6 months after commencement of manufacturing. Confirmation of majority of the parties was submitted by the Assessee and were even produced before the AO. However, addition u/s 68 was made by the AO for want for creditworthiness of the parties. The ITAT deleted the addition made by the AO and held that receipts during the pre-commencement period and during the initial duration of operations could be assumed to be capital receipts since the Assessee could not have earned huge income / profits during the pre-commencement and initial period of business. Further, the ITAT also held the addition could not be made on the parties who were not presented by the Assessee, since no summons for their examination was issued by the AO. (AY. 2006-07, 2007-08)

Kundles Loh Udyog v. ITO (2016) 45 ITR 11 (Chd.)(Trib.)

89.
S.68 : Cash credits – Share application money – Assessee had given complete details about share applicants clearly establishing their identity and creditworthiness addition could not be made

Where assessee had furnished name, address, PA Nos. details of share applicants, income-tax returns, bank statements of assessee-company, balance sheet of share applicants and confirmed that all payments were received through regular banking channels, obligation of assessee to prove existence of share applicants and source of share application money stood duly discharged and no addition could be made in its hand u/s. 68 on account of share application money. (AY. 2006–07)

Dy. CIT v. Global Mercantiles (P.) Ltd. (2016) 157 ITD 924 (Kol) (Trib.)

90.
S.68 : Cash credits – Immovable property – Assessee sold two flats during relevant year acquired out of his undisclosed income, since said amount had already been added to assessee’s income earlier in block assessment proceedings, AO could not make addition again

Assessee received certain amount as advance sale consideration in respect of three flats. In absence of any sale agreement, AO added said amount to assessee’s taxable income u/s. 68. It was noted that two flats had been purchased in name of assessee’s mother and wife out of his undisclosed income. It was also undisputed that addition in respect of aforesaid flats had already been made in hands of assessee in block assessment proceedings relating to earlier period. In these circumstances addition was to be set aside and matter was to be remanded back with a direction to AO to compute capital gain arising out of aforesaid two flats in hands of assessee in accordance with law. (AY. 2007-08)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032 / 45 ITR 554 (Mum.)(Trib.)

91.
S.69B : Unexplained investments – Investment in property – Substitution of ‘full value of consideration received’ with ‘stamp value’ in terms of section 50C, is applicable in hands of seller of property who has to compute capital gains u/s. 48 pursuant to transfer of a capital asset in nature of land or building or both; same cannot be extended in case of purchaser to estimate undisclosed investment

The assessee purchased a property for a consideration of Rs. 48 lakh. The AO observed that the value determined by the stamp valuation authority for the said property was Rs. 1.05 crore and, accordingly treating the same to be the fair market value of the properties. AO made an addition of Rs. 57.13 lakhs as unexplained investment u/s. 69B. The ITAT held that substitution of ‘full value of consideration received’ with ‘stamp value’ in terms of s. 50C, is applicable only in hands of seller of property who has to compute capital gain u/s. 48 pursuant to transfer of a capital asset in nature of land or building or both and same cannot be extended in case of purchaser to estimate undisclosed investment. Where there was nothing on record to show that assessee had made any additional investment in property in addition to what had been stated in books of account, no addition could be made in its hands on basis of stamp duty charged by sub-registrar. S. 56(2)(vii) which provides for substitution of ‘stamp value’ with ‘actual purchase price, in excess of Rs. 50,000’ in hands of buyer is applicable only where any immovable property is purchased after 1-10-2009 and since in instant case property had been purchased by assessee in AY. 2006-07, S. 56(2)(vii) could not apply retrospectively. (AY. 2006-07)

Dy. CIT v. Global Mercantiles (P.) Ltd. (2016) 157 ITD 924 (Kol.) (Trib.)

92.
S.69C : Unexplained expenditure-Bribe – AO added an amount as unexplained payment made by assessee on basis of a VCD found in famous ‘Best Bakery case’ without corroborating it with any other evidence, action of AO was held to be not justified

Supreme Court, in famous Best Bakery case, found an evidence (VCD) against assessee in which it was claimed that assessee paid money to a witness for becoming hostile. Consequently, Supreme Court directed Income Tax Authorities to take decision for appropriate action against assessee. The A.O. added said money into income of assessee holding that it was an unexplained payment made by assessee. ITAT observed that, in Best Bakery case, enquiry officer gave his finding that there was no acceptable material to establish that assessee had paid money to witness and, thus, Supreme Court did not find any evidence against assessee and matter was merely left to Income-tax Authorities to look into and take action only if any tangible material came to surface. However, there was nothing on record to suggest that Revenue could unearth any evidence/tangible material against assessee to show that assessee had paid money to witness. Therefore, action of AO was not justified. (AY.2005-06)

Mahendrabhai B. Shrivastav v. ITO (2016) 158 ITD 755 (Ahd.)(Trib.)

93.
S.80-IA : Industrial undertakings – Infrastructure development –Initial assessment year – Option to choose with the assessee

The Tribunal held that option of choosing initial assessment year for claiming deduction under section 80-IA in a block of ten years out of 15 years is with the assessee. (AY. 2010-11)

Dy. CIT v. KEC Industries Ltd. (2016) 177 TTJ 6(UO) (Chd). (Trib.)

94.
S.80-IA : Industrial undertakings – Adjustment of brought forward losses set off in earlier years –There is no need to notionally carry forward these losses up to the initial assessment year and set off the same against the profits of the eligible business

The Tribunal held that losses claimed by the assessee in respect of eligible business period to the initial assessment year are to be set off against the income of the assessee from other ineligible business and there is no need to notionally carry forward these losses up to the initial assessment year and set off the same against the profits of the eligible business. (AY. 2010-11)

Dy. CIT v. KEC Industries Ltd. (2016) 177 TTJ 6)(UO) (Chd.) (Trib.)

95.
S.80-IB(10) : Housing projects –Assessee’s claim for deduction could not be restricted where the AO. failed to bring on record any material to show existence of any arrangement for business transacted between two concerns.

Assessee, engaged in manufacturing and packing of consumer articles for GCPL, a Godrej group company, claimed benefits u/s. 80-IB. the AO. noticed that main promoter of assessee had been closely associated with Godrej group and its net profit margin was significantly higher than what it should ideally be. AO. held that reasonable net profit of assessee should be 10 per cent as against 35.5 per cent declared, and applying s. 80IA(10) deduction u/s. 80-IB was allowed on 10 per cent of gross receipts. The A.O. can invoke provisions of deeming fiction created u/s. 80-IA(10) only when he proves that there is a close connection of assessee with other entity and further affairs are arranged in such a manner to inflate profits of eligible business. Since in instant case, AO had failed to bring any material on record to show existence of any arrangement for business transacted between two entities and it was not known on what basis he had arrived at net profit rate of 10 per cent. S. 80-IA(10) could not be invoked and assessee was entitled to deduction u/s. 80-IB as claimed. (AY. 2006-2007 to 2008-2009)

ACIT v. Ishwar Manufacturing Co. (P.) Ltd. (2016) 157 ITD 883 (Chd.)(Trib.)

96.
S.92C : Transfer pricing – Arm’s length price – TPO adopted a comparable operating on larger scale than assessee – When there is wide difference in brand value of two companies and, without quantification of same any company could not be ascertained as comparable

Assessee is an export oriented company and offered back office services (ITES) to one of its AE. It adopted TNM method to calculate the ALP and adopted 14 comparables but later contended before TPO to exclude Infosys BPO on grounds of its high revenue and wider business model. TPO rejected the plea of Assessee. The AO and DRP upheld the decision of TPO. The Tribunal directed the TPO to exclude Infosys BPO as comparable and held that assessee’s business profile is limited and not comparable to business model of Infosys, owing to the wide difference in turnover. The wide difference in turnover makes it clear that there is wide difference in the brand value of the two companies. Department has not brought on record any brand value of Act is on record and, When there is wide difference in brand value of two companies and, without quantification of same any company could not be ascertained as comparable of Assessee.) (AY. 2010-11)

Actis Global Services (P) Ltd. v. ITO (2016) 175 TTJ 506 (Delhi)(Trib.)

97.
S.92C : Transfer pricing – Arm’s length price – Exclusion of comparables – Comparable segmental details qua segment not reliable and Revenue generation model entirely different – Saket Projects Ltd. directed to be excluded as a comparable

Assessee engaged in business of software development and providing marketing services and had entered into international transactions in year under consideration. Case was marked to TPO. Assessee provided updated margins of comparables and sought the exclusion of a comparable, Saket Projects Ltd. on the ground that it is functionally not comparable and its segmental data is unreliable. TPO rejected the objection stating that since assessee selected the comparable showing extensive data, data is available and extreme results might consist of high profits but high profitability is not a proper ground for exclusion. ITAT accepted that comparable could not be excluded on grounds of high profitability alone but held that comparable has to be excluded because segmental details of comparable was not reliable and comparable organised events on sponsorship having an entirely different Revenue generation model of offering space on rent and selling event fees etc. (2008-09)

Qualcomm India Pvt. Ltd. v. Dy. CIT (2016) 45 ITR 370 (Delhi)(Trib.)

98.
S.92C : Transfer pricing – A company subjected to merger by way of amalgamation cannot be taken as comparable

Tribunal held as under:-

1. A company subjected to merger by way of amalgamation cannot be taken as comparable.

2. Company with outsourcing cost of 66 per cent cannot be taken as comparable to assessee having outsourcing cost at 8 per cent.

3. A company functionally similar cannot be excluded from comparables on the ground of low turnover. (AY. 2006-07)

American Express (I) (P) Ltd. v. Dy. CIT (2016) 177 TTJ 33 (Delhi)(UO)(Trib.)

99.
S.92C : Transfer Pricing – Turnover being less than 20 crores, companies having turnover in excess of 200 crore are to be excluded

Tribunal held that the assessee’s turnover being less than 20 crores, companies having turnover in excess of 200 crore are to be excluded from the list of the comparables. (AY. 2010-11)

Dy. CIT v. Obopay Mobile Technology India (P) Ltd. (2016)46 ITR(T) 42/ 157 ITD 982 / 177 TTJ 191 (Bang.)(Trib.)

100.
S.92C : Transfer pricing – Arms’ length price – Exclusion of comparables – Comparable segmental details qua segment not reliable and Revenue generation model entirely different – Saket Projects Ltd. directed to be excluded as a comparable

Assessee engaged in business of software development and providing marketing services and had entered into international transactions in year under consideration. Case was marked to TPO. Assessee provided updated margins of comparables and sought the exclusion of a comparable, Saket Projects Ltd on the ground that it is functionally not comparable and its segmental data is unreliable. TPO rejected the objection stating that since assessee selected the comparable showing extensive data, data is available and extreme results might consist of high profits but high profitability is not a proper ground for exclusion. ITAT accepted that comparable could not be excluded on grounds of high profitability alone but held that comparable has to be excluded because segmental details of comparable was not reliable and comparable organized events on sponsorship having an entirely different Revenue generation model of offering space on rent and selling event fees etc. (2008-09)

Qualcomm India Pvt. Ltd. v. Dy. CIT (2016) 45 ITR 370 (Delhi)(Trib.)

101.
S.92C : Transfer pricing – Arms’ length price – Comparable and adjustment – Assessee has benchmarked international transactions on TNMM basis and Transfer Pricing Officer has neither disputed assessee’s claim that TNMM is most appropriate method, nor comparable selected by assessee, it is not open to Transfer Pricing Officer to even reject benchmarking done by assessee.

Where assessee had benchmarked international transactions on TNMM basis and Transfer Pricing Officer had neither disputed assessee’s claim that TNMM was most appropriate method, nor comparable selected by assessee, it was not open to Transfer Pricing Officer to even reject benchmarking done by assessee and make ad hoc addition in value of international transaction; such a course of action is not permissible under scheme of transfer pricing law. Even when a method of ascertaining ALP is, for good and sufficient reasons, rejected by TPO, he has to select most appropriate method, out of recognised methods under rules 10AB and 10B, and then apply same. (AY. 2008-2009)

Det Norske Veritas A/S v. Addl. DIT (2016) 157 ITD 1022/ 178 TTJ 59 (Mum)(Trib.)

102.
S.92C : Transfer pricing –Computation of arm’s length price (Comparables and adjustments/Comparables – Illustrations) – Where on FAR analysis conclusion that a company is correctly chosen as a comparable remains unassailed, then it is necessary for revenue at that stage to bring some cogent reason, argument or fact justifying that still comparable needs to be excluded

Where on FAR analysis, conclusion that a company is correctly chosen as a comparable remains unassailed, then it is necessary for revenue at that stage to bring some cogent reason, argument or fact justifying that still comparable needs to be excluded; merely re-iterating TPO’s stand at this stage that it is consistently a loss making company, will not hold good. (A.Y. 2005 – 2006)

Dy.CIT v. Nortel Networks India (P.) Ltd. (2016) 157 ITD 971,176 TTJ 25 (Delhi) ( Trib.)(UO)

103.
S.92C : Transfer pricing – Arm’s length price – Comparables & adjustments – Company providing software development services could not be compared with company which was (a) engaged in sale and development of software, (b) having huge turnover in comparison to turnover of assessee, (c) predominantly product development company, (d) having minimal employee cost, (e) engaged in development of niche product and development service, (f) engaged in animation services or (g) incurring selling/research & development expenditure for sale/development of products

Assessee was providing software development services to its AE and non-AEs. The TPO applied (a) new comparables, (b) negative working capital adjustment and (c) took cost incurred in non-AE transactions to determine ALP. Company which was (a) engaged in sale and development of software, (b) having huge turnover in comparison to turnover of assessee, (c) predominantly a product development company, (d) having minimal employee cost, (e) engaged in development of niche product and development service, (f) engaged in animation services or (g) incurring selling/research & development expenditure for sale/development of products could not be accepted as valid comparable while determining ALP. No clear cut direction could be given for negative working capital adjustment as it was required to be analyzed on basis of assessee’s work profile and comparable companies, working results; therefore, A.O/TPO was to be directed to re-workout working capital adjustment after giving due opportunity to assessee. AO./Transfer Pricing Officer was to be directed to exclude TP adjustment on non-AE transactions and re-workout costs pertaining to AE transactions and restrict adjustment only to AE transaction. (AY. 2007-08)

NTT Data India Enterprises Application Services (P.) Ltd. v. ACIT (2016) 157 ITD 897 (Hyd.) (Trib.)

104.
S.92C : Transfer pricing – Arm’s length price – Comparables and adjustments – In case of assessee, engaged in development and delivery of domain specific software to its AE, companies having turnover in excess of Rs. 200 crore and companies having related party transactions in excess of 15 per cent, could not be accepted as comparable while determining ALP

Assessee entered into international transaction of development and delivery of domain specific software to its AE, Obapay Inc., USA. Since turnover of assessee was less than Rs. 20 crores, companies having turnover in excess of Rs. 200 crores, could not be accepted as comparables. Companies having related party transactions in excess of 15 per cent during relevant period, were not acceptable as comparables. A company engaged in development of its own software products, could not be accepted as comparables. Foreign exchange fluctuation gain was to be treated as part of operating profit while determining ALP. (AY. 2010-11)

Obopay Mobile Technology India (P.) Ltd. v. Dy. CIT (2016)157 ITD 982/ 46 ITR 42/ 177 TTJ 191 (Bang.) (Trib.)

105.
S.92C : Transfer pricing – Arm’s length price – Comparable and adjustments – Interest – Assessee claims that interest is not being charged from AEs as well as non-AEs for delay in realisation of funds given to AEs as a result of commercial transaction and that contention is not disputed to be factually incorrect, it cannot be open to TPO to compute interest and make adjustment accordingly

Where assessee claims that interest is not being charged from AEs as well as non-AEs for delay in realisation of funds given to them as a result of commercial transaction and that contention is not disputed to be factually incorrect, it cannot be open to TPO to compute interest and make adjustment accordingly. When international transactions have been benchmarked on basis of TNMM, and interest on delay in realisation of amounts is only incidental to such transactions rather than a standalone transaction, such an adjustment cannot be made independently.(AY. 2008-09)

Det Norske Veritas A/S v. Addl. DIT (2016) 157 ITD 1022 / 178 TTJ 59 (Mum.)(Trib.)

106.
S.112 : Capital gains – Long Term Capital Gains – Trusts – Capital gain earned by assessee – Trust became non-exempt u/s. 11 due to contravention of s. 13(1)(c), such capital gain would be taxed at maximum marginal rate in terms of s. 164(2) and benefit of section 112 could not be given to it

Assessee Trust earned capital gain on sale of land and claimed same as exempt income. As there was violation of section 13(1)(c), exemption u/s. 11 was denied to assessee and its income was assessed under section 164(2). Since capital gain became non-exempt as a consequence of contravention of provisions of section 13(1)(c) or (d), said income would be subject to tax at maximum marginal rate and benefit of section 112 could not be given to assessee. (AY. 2007-08)

Dy. DIT v. India Cements Educational Society (2016) 157 ITD 1008 / 46 ITR 80 (Chennai)(Trib.)

107. S.127 : Power to transfer cases – Where Addl. CIT passed
assessment order, however, no order conferring concurrent
jurisdiction to Addl. Commissioner of Income-tax over cases of
Income-tax Officer was available, assessment being without
jurisdiction was void ab initio – Notice served on old address could
not be quashed if assessee did not intimate the new address to
department. [Ss. 142, 282]

Assessee contended that there was no order u/s. 127 transferring case to Addl. Commissioner of Income-tax in exercise of concurrent jurisdiction vested in her and hence order passed by Addl. CIT was without jurisdiction. Revenue however submitted that Addl. CIT was provided concurrent jurisdiction over cases through order of Commissioner of Income-tax and, therefore, no separate order u/s. 127 was required to be passed. However, no such order conferring concurrent jurisdiction to Addl. CIT over cases of Income-tax Officer was either available on assessment record, or was produced by revenue. Thus, in absence of any such order, assessment completed by Addl. CIT being without jurisdiction was void ab initio. Tribunal also held that the notice served on old address could not be quashed if assessee did not intimate the new address to department. (AY. 2007-08)

Harvinder Singh Jaggi v. ACIT (2016)157 ITD 869/ 179 TTJ 232 (Delhi)(Trib.)

108.
S. 143(3): Assessment – Search & Seizure – Stock – Surrender of income – Deletion of addition was held to be justified [S. 132(4)

The revenue is aggrieved by the decision of learned CIT(A) in deleting the income surrendered by the assessee in the statement given under section 132(4) of the Act in both the years.

The Tribunal held that in the instant case the learned CIT has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee and the AO did not make any addition on account of alleged excess stock meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee.

The Tribunal further held that the assessee has maintained books of account and further the difference in stock has been duly reconciled. In the circumstance the CIT(A) was justified in deleting the additions made by the AO in AY. 2009-10 and 2010-11 respectively. (AY. 2009-10, 2010-11)

CIT v. Tribhovandas Bhimji Zaveri (2016) 177 TTJ 306 (Mum.)(Trib.)

109.
S.145 : Method of accounting –System of accounting – Assessee had two sources of income under head ‘Income from Business or Profession’, since assessee followed cash system of accounting in respect of one source of income whereas mercantile system of accounting was adopted in respect of other source of income, it did not amount to following ‘hybird system of accounting’ as prohibited by amendment in section 145 by Finance Act, 1995

Assessee was professional dance director and also producing films in form of proprietorship concern. Assessee followed cash system of accounting in respect of his professional receipts whereas he was following mercantile system of accounting for computing income from production of films. Assessee filed his return declaring certain taxable income. The A.O. took a view that assessee was following hybrid system of accounting which was not permissible in view of amendment in section 145 by Finance Act, 1995, thus, added certain amount to income of assessee from profession by following mercantile system of accounting. The assessee had two sources of income under one head i.e. ‘Income from Business or Profession’. It was undisputed that assessee followed cash system of accounting in respect of one head of income and mercantile system of accounting in respect of other head of income which did not amount to following ‘hybrid system of accounting’. In view of addition made was to be set aside. (AY. 2007-2008)

Vishwanath Acharaya v. ACIT (2016) 157 ITD 1032/ 45 ITR 554 (Mum)(Trib.)

110.
S.147 : Reassessment – Reopening on the basis of statement given to police under section 161 of Criminal Procedure Code, 1973 – Unjustified. [S. 69C]

Statement recorded by Police Officer under section 161 of Code of Criminal Procedure, 1973, is neither given ‘on oath’ nor it is tested by cross examination. Therefore, such a statement cannot be treated as substantive evidence to reopen assessment proceedings. (AY. 2006-07)

Subhash Chander Goel v. ITO (2016)156 ITD 808/ 177 TTJ 353 (Chd.)(Trib.)

111.
S.153A : Assessment – Search – An assessment made u/s. 153A only on the basis of pre-search enquiries and because the parties did not appear in response to S.133(6) summons is not valid if no incriminating material was found in search. S.143(1) Intimation is deemed to be a completed assessment if no notice u/s. 143(2) has been issued prior to the date of search – Addition was deleted. [S. 143(1)]

We are of the considered view that completed assessment interfered with by the AO u/s. 153A and confirmed by the learned CIT(A) are not sustainable in the eyes of law for the following reasons:-

(i) That in the instant case, undisputedly the AO has not made assessment on the basis of incriminating material unearthed during search and seizure operation conducted u/s 132 rather proceeded u/s. 153A of the Act on the basis of some pre-search enquiries to make an addition as has specifically been recorded in para 6 of the assessment order that, “Pre-search enquiries revealed that M/s Jaipuria Infrastructure Developers Pvt. Ltd., the flagship company involved in the real estate business of the S. K. Jaipuria group is indulged in inflating the cost of the project by debiting bogus expenses by raising bills from the non-existing parties or the entry providers.”

(ii) That the ratio of the judgment in case of CIT v. Kabul Chawla 380 ITR 173 (Del.) is required to be extracted by perusing the judgment in entirety and not by picking up the favourable sentences and by ignoring the unfavourable one. Highlighted portion of paras 37 (iv), (v), (vi) & (vii) of Kabul Chawla (supra) is crux of the issue involved which is applicable to the facts and circumstances of the case;

(iii) That the ratio of the judgment Kabul Chawla (supra) is that in all circumstances, completed assessment can be interfered with by the AO u/s. 153A only on the basis of incriminating material unearthed during the course of search;

(iv) That not only this, the addition in this case has been made by the AO u/s. 153A on the sole ground that assessee has failed to produce the parties with whom the assessee company has transacted during the year under assessment who have failed to turn up despite the issue of notice u/s 133 (6) of the Act;

(v) That the contention of the learned DR that the assessment qua the AY 2006-07 was pending as on date of search as mere issuances of acknowledgement by the Ministerial staff does not imply that assessment has been completed, is not tenable in the face of undisputed fact that when within the prescribed period, no notice u/s 143 (2) has been issued prior to the date of search, assessment is deemed to be completed;

(vi) That there is not an iota of material with the AO to initiate proceedings u/s. 153A what to talk of incriminating seized material;

(vii) That the learned CIT(A) affirmed the assessment order by relying upon the decisions relied upon by Hon’ble jurisdictional High Court in the case cited as Filatex India Ltd. v. CIT-IV – (2014) 49 taxmann.com 465 (Delhi) which has been distinguished in the Kabul Chawla (supra) on the ground that in the said case, there was some material unearthed during the search whereas in the instant case there is admittedly no incriminating material unearthed during the search to proceed u/s. 153A.( ITA Nos. 5522 & 5523/Del./2015, dt. 27-6-2016)(AYs. 2006-07, 2007-08)

Jaipuria Infrastructure Developers v. ACIT (Delhi)(Trib.); www.itatonline.org

112.
S.153A : Assessment – Search and seizure – Where pursuant to search proceedings, notice u/s. 153A was issued, since assessment in respect of some assessment years covered by said notice had already been completed and, moreover, no incriminating material was found during search, assessment for those assessment years could be made only as per original assessment u/s. 143(1) or 143(3).

Assessee raised an objection relating to invoking of jurisdiction u/s. 153A in respect of assessment years 2005-06 and 2006-07 for which original assessment was already completed. Since original assessment for aforesaid assessment years had already been completed and no incriminating material was found during search operation, assessment u/s.153A had to be made only as per original assessment which was made u/s.143(1) or u/s. 143(3).

Om Shakthy Agencies (Madras) (P.) Ltd v. Dy.CIT (2016) 157 ITD 1062 / 177 TTJ 419 (Chennai)(Trib.)

113.
S.192 : Deduction at source – Salary – Profit in lieu of salary –Tips – Assessee collected tips from customers by charging it in their bills and gave to its employees, it formed part of their salary liable for deduction of tax at source. [S. 17]

Assessee was running a hotel it collected tips from customers by charging it in their bills and gave to its employees, It did not deduct TDS thereon. Tips charged in bill, either by way of fixed percentage of amount on total bill or otherwise, which were disbursed to employees would amount to salary and thus liable for deduction of TDS. However, benefit of bona fide belief would be available to assessee and therefore it would not be treated as assessee-in-default and would only be liable to pay interest. (AY.2006-07, 2007-08)

C.J. International Hotels Ltd. V. ACIT (2016) 158 ITD 287/ 177 TTJ 447 (Delhi)(Trib.)

114.
S.194C : Deduction at source –Payment to music group – Cannot be considered as professional services – Deduction of tax at source as contractor was held to be justified [S. 194J]

The Tribunal held that live performance given by a music troupe at the assessee’s hotel cannot be considered as professional services as defined in section 194J. There was no production of any cinematography film during the performance by the group and therefore provision of section 194J are not applicable, ex-consequent deduction of tax at source under section 194C is in order. (AY. 2006-07, 2007-08)

C. J. International Hotels Ltd. v. Addl. CIT (2016)158 ITD 287 / 177 TTJ 447 (Delhi)(Trib.)

115.
S.194C : Deduction of tax at source – Contractors – Assessee deducted TDS under wrong provision in earlier assessment years which was accepted by revenue without verification, principle of consistency could not be applied to continue application of such wrong provision in later years

The assessee was engaged in business of distribution of TV channels from its own DTH network. It obtained rights from TV channels to distribute their programmes to the ultimate viewers. It made payments thereto after deducting TDS u/s.194C. The AO held that assessee paid licence fee to TV channels which was in the nature of royalty covered under Explanation 2(v) of section 9(1)(vi) and as such, TDS was to be deducted u/s. 194J. Applicability of correct TDS provision was in question. Assessee argued that it made payments in past also after deducting TDS u/s.194C, which view had not been disturbed by revenue therefore same view should be followed for assessment year in question as well. Issue was not examined in earlier years and assessee’s contention was accepted without verification. Non-examination of issue in earlier years could not give licence to assessee to claim in later years that correctly applicable section be put under carpet and, therefore, a wrong provision could not be applied in garb of consistency. (AY.2009-10)

Dish TV India Ltd. v. ACIT (2016) 157 ITD 1096 (Delhi) (Trib.)

116.
S. 194J : Deduction of tax at source – Fees for professional or technical services – TV programmes – Payment to TV channels to receive their programmes for further telecasting TDS was to be deducted u/s. 194J

Assessee made payment to TV channels to receive their programmes so that it can distribute same to its viewers through its own DTH network. It deducted TDS u/s. 194C. AO held that assessee paid licence fee to TV channels which was in nature of royalty covered under Explanation 2(v) of s. 9(1)(vi) and, thus, TDS was to be deducted u/s. 194J. S. 194C would be attracted when payment was made for carrying out work of broadcasting and telecasting and since assessee did not make payments to TV channels for telecasting rather it telecasted TV programmes on its own, TDS was not to be deducted u/s. 194C. Payment was made to TV channel for transfer of intellectual property rights in programs to be used by assessee in connection with television which was covered under Explanation 2(v) of s. 9(1)(vi) and thus TDS was to deducted u/s. 194J. (AY. 2009-10)

Dish TV India Ltd. V. ACIT (2016) 157 ITD 1096 (Delhi)(Trib.)

117.
S.201 : Deduction of tax at source – Consequence of failure to deduct or pay – Wrong deduction- Assessee deducted TDS under wrong provision resulting in lower deduction of tax but deductee paid tax on such payments by including it in its income, assessee was not to be treated as assessee-in-default although he would be liable for interest on such payments

The AO raised demand with interest for amounts on which assessee deducted TDS in wrong provision resulting in lower deduction of tax. CIT(A) directed AO to reduce demand and interest for amounts which were included by deductees in their incomes and on which due taxes were paid. Assessee should not be held liable for amounts which were taken into account for computing income and on which tax had been paid by deductee. However, assessee would be liable to pay interest under sub-section (1A) from date on which such tax was deductible to date of furnishing of return of income by deductee. (AY. 2009-10)

Dish TV India Ltd. v. ACIT (2016) 157 ITD 1096 (Delhi)(Trib.)

118.
S.206C : Collection of tax at source – Liability incurred by purchaser – AO verified and ensured that buyer of scrap from assessee – Scrap importer had duly discharged tax liability in respect of income earned in respect of goods in question, there could not be any justification of recovering tax collectible at source by assessee

TCS demands raised u/s. 206C are in nature of vicarious liabilities which survive only as long as principal liability of taxpayer remains in existence; when principal tax liability itself is extinguished, very raison d’etre of demand raised u/s. 206C ceases to hold good in law. Where it was ensured that buyer of scrap from assessee – scrap importer had duly discharged tax liability in respect of income earned in respect of goods in question, there could not be any justification of recovering tax collectible at source by assessee which was, in any event, adjustable against tax liability of buyer of scrap. (AY. 2010-11, 2011-12)

ITO v. Dudani Metal Agencies (2016) 157 ITD 1088 (Rajkot)(Trib.)

119.
S.244A : Refunds – Self assessment tax – Interest – Refund of excess self-assessment tax will not carry any interest from date of payment but it will carry interest from date of processing of return under section 143(1) till date of granting of refund [S.140A, 143(1)]

Payment of excess self-assessment tax on being allowed credit for against tax payable assumes character of tax paid upon processing of return for relevant year resulting in refund and thus refund of excess self-assessment tax will not carry any interest from date of payment but it will carry interest from date of processing of return under section 143(1) till date of granting of refund. (AY.1994-95)

Raymond Ltd. v. Dy. CIT (2015) 173 TTJ 572 (Mum.)(Trib.)

120.
S.253 : Appellate Tribunal – In case of order passed by DRP, right to file an appeal by department does not extend to a point decided either way by Assessing Officer/TPO himself, which remains intact even after direction given by DRP [S.144C ]

Tribunal held that after the insertion/amendment by the Finance Act, 2012 of/to sub-sections (2A) and (4) of section 253, the Department has acquired a right to file appeal or cross objection against the assessment order passed in pursuance of the direction of the DRP to the extent it is aggrieved against such direction. It has no right to file appeal or cross objection against the voluntary decision of the AO/TPO which was not subject matter of any adverse direction by the DRP. It can be clarified here that what has been prohibited against such an adverse position is the appellate recourse and not other remedies, if any, available as per law de hors the appellate option. Insofar as the adverse direction given by the DRP is concerned, the Assessing Officer has now got a right to assail its correctness before the Tribunal. Adverting to the facts of the instant case, though the revenue had a right to file appeal or cross objection against the direction of the DRP in accepting the cash system of accounting followed by the assessee, but it chose not to do so. Thus the doors of this route are foreclosed. (AY 2011-12)

SIS Liv v. ACIT (2016) 175 TTJ 643 (Delhi)(Trib.)

121.
S.253 : Appeal to Tribunal – Single or separate appeals [S. 201(1), 201(1A)]

Tribunal held that there is no need to file separate appeals in respect of defaults under section 201(1) & 201(1A) as there is no provision in the Act mandating the filing of separate appeals either before CIT(A) or the Tribunal against the order covering defaults under sub-section (1) or sub-section (1A) of section 201. (AY. 2006-07 & 2007-08)

C. J. International Hotels Ltd. v. Addl. CIT (2016) 158 ITD 287 / 177 TTJ 447 (Delhi)(Trib.)

122.
S.254(1) : Appellate Tribunal – Right of respondent – Revenue has no right to appeal against view taken by AO/TPO himself [ITATR, 27]

Though revenue has right to file cross objections against the adverse order of the CIT(A) but it has no right to file appeal against the view taken by the AO/TPO himself which was not disturbed in the First appeal. When TPO himself considered ASE Ltd as comparable, there could be no reason for revenue to be aggrieved against its inclusion; and department could take recourse to other legal remedies, if any, available as per law insofar as its grievance against decision of Assessing Officer/TPO was concerned. (AY. 2007-08)

ACIT v. Tech Books Electronics P. Ltd. (2016) 176 TTJ 20/65 taxmann.com 241 (Delhi)(Trib.)

123.
S.263 : Commissioner – Revision of orders prejudicial to revenue – In challenging the validity of a s. 263 revision order, the validity of the underlying s. 143(3) assessment order which is sought to be revised can be examined even if the said assessment order has not been challenged and has become final. If the assessment order is passed on a non-existent entity, the revision order is void. [S. 292B ]

Allowing the appeal of assessee the Tribunal held that; If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s. 263 to revise the non est assessment order. The original assessment order passed u/s 143(3) dt 24-10-2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the CIT is also nullity in the eyes of law and therefore the same is hereby quashed. (ITA No. 688/Mum/2016, dt. 10-6-2016)(AY. 2011-12)

Westlife Development Ltd. vs. Pr. CIT (Mum)(Trib) ; www.itatonline.org

124.
S.271(1)(c) : Penalty – Concealment – Accrual of (Banks/NBFC, in case of) – Assessee – NBFC provided security in form of cash collateral for loans purchased by purchaser-bank but did not book said amount as its income, levy of concealment penalty was justified

Assessee, a Non-Banking Financial Company, was engaged in business of providing loans. It sold a portion of loans to purchaser-bank on Bilateral Buy Out Basis. As per agreement, assessee provided cash collateral for 2 per cent of loans by way of fixed deposits of which lien was made in favour of purchaser-bank. Such cash collateral had to be utilised by purchaser-bank to cover any shortfall in repayment of loans. Assessee did not treat such cash collateral as its income on ground that its case fell in capacity of contractor and money was retained for a certain period which should not be taxable until retention period was over. The AO levied penalty for furnishing inaccurate particulars. Treatment given by assessee was incorrect and had no sanction of law and also not supported by any accounting standard and therefore claim of assessee was false and was of furnishing inaccurate particulars of income; therefore levy of penalty was justified. (AY. 2007-08)

Dy. CIT v. Madura Micro Finance Ltd. (2016) 157 ITD 918 (Chennai)(Trib.)

125.
S.271C : Penalty – For failure to deduct tax at source – Confirmation of demand raised u/s. 201, cannot be sole criteria for imposing penalty as proceedings are two separate and independent proceedings – No mala fide intention could be imputed to assessee for failure to deduct tax and, accordingly, penalty imposed was deleted. [S. 195, 201, 273B]

Imposition of penalty u/s. 271C is neither automatic nor mandatory; authority concerned is empowered u/s. 273B not to impose penalty in a deserving case if he is satisfied that there was reasonable cause for failure to comply with statutory requirement. Where confirmation of demand raised u/s. 201, cannot be sole criteria for imposing penalty u/s. 271C as proceedings u/s. 271C and 201 are two independent and separate proceedings. Assessee paid a certain sum in foreign currency to a non-resident for development of website and other allied works. Assessee submitted that payment was made without deduction of TDS under section 195 on basis of advice of her CA that tax was not required to be deducted at source on said remittances because payment was made to a non-resident having no P.E. in India and that too, for services rendered outside India. AO treated assessee as an assessee-in-default u/s. 201(1), though the assessee challenged said order, but she accepted her liability on the basis of same AO initiated penalty proceedings u/s.271C. No mala fide intention could be imputed to assessee for failure to deduct tax and, accordingly, penalty imposed u/s. 271C was deleted. (AY.2007-08)

Aishwarya Rai Bachchan (Smt.) v. Addl. CIT (2016) 158 ITD 987 (Mum.)(Trib.)

126.
S.282 : Service of notice – Rebuttal of presumption – Notice served on old address could not be quashed if assessee did not intimate the new address to department. [S. 143(2)]

Assessee filed his return for relevant assessment year. Case of assessee was selected for scrutiny and notice u/s. 143(2) was issued. Revenue had provided enough proof that notice was sent through speed post at correct address provided in return of income and receipt of postal authorities was available on record. Assessee filed an affidavit stating that said notice was not served; however, in affidavit, assessee had not furnished any reasons or evidences as to why notice sent at correct address could not be served on assessee. It was noticed that address of assessee in affidavit was different from address provided in return of income, which showed that assessee had changed his address and new address was not communicated to Income-tax Department. Onus to communicate correct address or change of address to Department was on assessee, which assessee failed to do. Thus, assessee failed to rebut presumption of valid service of notice and hence, it could be said that AO had complied requirement of service of notice u/s. 143(2) and notice was served validly.(AY.2007-08)

Harvinder Singh Jaggi v. A CIT (2016)157 ITD 869/ 179 TTJ 232 (Delhi)(Trib.)

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