S. 2(7A) : Assessing Officer – Jurisdiction – The Addl. CIT is an Assessing Officer, he can act as such only if there is a notification issued by the CBDT u/s. 120(4)(b) or if there is an order u/s. 127 transferring jurisdiction from the DCIT to the Addl. CIT – In the absence of either, the assessment order is without jurisdiction and has to be quashed as null and void – No estoppel against the law – Additional ground of assessee on jurisdictional issue is allowed.
[S. 2(28c), 120(4) 127, 254(1)]
Allowing the additional grounds raised by the assessee the Tribunal held that, though, by virtue of the retrospective amendment to S. 2(7A), the Addl. CIT is an Assessing Officer, he can act as such only if there is a notification issued by the CBDT u/s. 120(4)(b) or if there is an order u/s. 127 transferring jurisdiction from the DCIT to the Addl CIT. In the absence of either, the assessment order is without jurisdiction and has to be quashed as null and void. The fact that the assessee co-operated is irrelevant because there is no estoppel. The argument of the Dept. that as the order is passed by a higher officer, there is no prejudice to the assessee is not acceptable. The matter also cannot be remanded back. (ITA No. 3927/Mum/2017 dt. 16-8-2019)(AYs. 2003-04, 2004-05)
Tata Communications Ltd. v. Addl. CIT (Mum)(Trib.), www.itatonline.org
S. 2(24)(iv): Income – The value of benefit or perquisite – Success fee paid by company Tirumala Milk products Pvt. Ltd. to Barclays Bank could not be treated as perquisites. [S. 48(1)]
Assessee, was holding 10.34 per cent of shares in company Tirumala Milk products Pvt. Ltd. During year, assessee along with all other individual shareholders decided to sale his shares in Tirumala Milk Products Pvt. Ltd. BSA International. Tirumala Milk products Pvt. Ltd. had appointed Barclays Bank as a financial advisor for evaluating value of its shares, searching a potential buyer, etc. On finalization of sale transaction, Tirumala Milk products Pvt. Ltd. paid success fee to Barclays Bank. The AO held that the assessee being shareholder of 10.34 per cent had got indirect benefit from services of Barclays Bank which required to be taxed in hands of assessee under S. 2(24)(iv) of the Act. CIT(A) held that provision is not applicable hence deleted the addition. On appeal by the revenue the Tribunal affirmed the order of the CIT(A). (AY 2014-15)
ACIT v. Danda Brahmanandam (2019) 179 ITD 38 (Vishakha) (Trib.)
S. 2(24)(xi) : Income – Business income – Key man insurance policy – Accrual or receipt basis – Bonus on Keyman Insurance Policy taxable on receipt basis.
[S. 5, 28(vi), 10(10DD), 145]
Tribunal held that the proceeds from LIC are exempt under S. 10(10D) except if the amount is received on a Keyman Insurance policy, if the amount is received from a pension policy and the premium paid is more than 20 per cent. of the sum assured in any year. The proceeds from the insurance company in respect of Keyman Insurance policy would be taxable only on receipt basis. In terms of the provisions of S. 2(24)(xi) read with S. 28(vi), the amount of bonus on keyman insurance policy is to be taxed on receipt basis only. Hence taxing the income on accrual basis was not valid.
(AYs. 2006-07, 2009-10, 2010-11, 2011-12).
Dy. CIT v. Impulse International P. Ltd. (2019) 71 ITR 28 (SN) (Delhi)(Trib.)
S. 4 : Charge of income-tax – Capital or revenue – Subsidy received from Government is a capital receipt not chargeable to tax – Rule of consistency to be followed.
The assessee had received grant/financial assistance from the Government of India. The assessee had recorded the same as capital receipt and not offered to tax which was accepted by the Department from AY 2006-07 till AY 2013-14. However, for AY 2014-15 the Department in the assessment has considered the receipt as revenue in nature and made an addition on account of the same. The Tribunal after going through the facts and circumstances of the case and relying on the decision of Apex Court in case of CIT v. Ponni Sugars & Chemicals Ltd. (2008) 306 ITR 362 (SC) and in the case of CIT v. Chaphalkar Brothers Pune (2018) 400 ITR 279 (SC) held that grants given for specific purpose to be applied for capital outlays is capital in nature and not chargeable to tax. Further the Tribunal, placing reliance on the decision of Radhasaomi Satsang v. CIT (1992) 193 ITR 321) (SC) and CIT v. Neo Poly Packs (P) Ltd. (2000) 245 ITR 492 (Delhi) (HC) noted that the Apex Court has laid down the principle of rule of consistency. Thereby in absence of any material change justifying the Revenue to take different stand view, the same view as accepted by earlier years should continue to prevail till there is some material change in facts. (AY. 2014-15)
Chhattisgarh Mineral Development Corporation Ltd. v. ACIT (2019) 69 ITR 75 (SN) (Raipur)(Trib.)
S. 4: Charge of income-tax – Subsidy – Refund of octroi – Capital receipt – Not chargeable to tax. [S. 2(24)(xviii), 43(1), 56]
The receipt of a subsidy in the form of refund of octroi is a capital receipt and not a revenue receipt in the hands of the assessee if the subsidy goes to reduce the cost of assets being material/purchases and the receipt of such a subsidy will be on capital account. Applied CIT Chaphalkar Brothers (2018) 400 ITR 279 (SC) (AY. 2012-13)
Dy. CIT v. Mas India P. Ltd. (2019) 74 ITR 72 (SN) (Pune)(Trib.)
S. 9(1)(vii) : Income deemed to accrue or arise in India – Fees for technical services – Management service fees from its Indian subsidiaries – Not taxable as fees for technical services and not as dividend – Reimbursement of expenses – DTAA – India – Swedish [S. 9(1)(iv), Art. 10, 12]
Assessee-Swedish company received management service fees from its Indian subsidiaries, department’s view that said receipts were in nature of Fees for Technical Services (FTS). Alternate, case of the department was, said receipts to be treated in nature of dividend taxable under DTAA between India and Sweden as well as u/s. 9(1)(iv). Tribunal held that, management service fees from its Indian subsidiaries is neither taxable as fees for technical services nor as as dividend. Reimbursement of expenses is not taxable in the absence of any permanent Establishment in India. (AY. 2009-2010)
Sandvik AB v. DIT (2019) 178 ITD 128 (Pune)(Trib.)
S. 10(1) : Agricultural income – Growing h igh yielding hybrid seeds – Agricultural activity – Entitled for exemption.
The assessee produced high yielding hybrid seeds. It purchased seeds and then produced hybrid seeds in the net houses and marketed the seeds. The AO held that the activity carried on by assessee was not agricultural activity and treated the receipts as income of assessee and denied the exemption. The CIT(A) deleted the addition. Dismissing the appeal of the revenue the Tribunal held that growing of hybrid seeds could never be held to be non-agricultural activity. Accordingly entitled for exemption.
(AYs. 2012-13, 2013-14).
Dy. CIT v. Genuine Seeds P. Ltd. (2019) 74 ITR 7 (SN) (Pune)(Trib.)
S. 10(38): Long term capital gains from equities – Penny stocks – Burden is on the revenue to show with evidence the chain of events and live link of the assessee’s involvement in the scam including that he paid cash and in return received exempt Long term capital gains – Denial of exemption is held to be not justified – Addition cannot be made as unexplained income – Addition cannot be made on estimated commission for alleged accommodation entries. [S. 45, 68, 69C]
The AO treated the transactions of sale of shares of listed companies as bogus and added the sale proceeds as unexplained income u/s. 68 of the Act and also added commission u/s. 69C for alleged accommodation entries. CIT (A) confirmed the order of the AO. On appeal allowing the appeal of the assessee the Tribunal held that the fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behaviour, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee’s involvement in the scam including that he paid cash and in return received exempt Long term capital gains. Addition cannot be made as unexplained income. Addition cannot be made on estimated commission for alleged accommodation entries. (Note: Sanjay Bimalchand Jain v. PCIT (2018) 89 Taxman.com 196 (Bom) (HC) is distinguished) (ITA No. 3427-3429/Mum/2019, 3311-3313/Mum/2019/3426/Mum/2019/3264/3265/Mum/2019/3247/3248/Mum/2019, dt. 1-10-2019)(AY. 2012-13)
Vijayattan Balkrishan Mittal v. DCIT (Mum) (Trib) www.itatonline.org
S. 11: Property held for charitable purposes – Surplus from the property held for charitable purpose – Cannot be taxed – When such activities done on such property are ancillary to the main object of the charitable organization – Corpus donation from members is entitle to exemption [S. 2(15), 11(1)(d), 12AA]
Assessee has been granted registration under S. 12AA of the Act. As per the MOA of the organization its main object is to engage itself in establishing harmony between the construction industry and the Govt. bodies, financial institutions for promoting healthy growth and development of the construction industry. To attain this objective it performed certain ancillary activities like organized fairs, exhibitions and several other inter-connected activities. In such fairs there was the participation of members as well as non-members of the organization for certain consideration. It was brought to the notice of the Tribunal that it was expressly mentioned on the invoice that even if any surplus is realised by the assessee, it would be transferred to the “Infrastructure Fund” of the assessee. The Tribunal held as this surplus was realised by the assessee while performing the activities ancillary to the main object, the surplus realised is corpus in nature under S. 2(15) and not income and hence not chargeable to tax in the hands of the assessee. (AY 2012-13)
CREDAI Bengal v. ITO (2019) 56 CCH 123 / 72 ITR 672 (Kol.) Trib.)
S. 11 : Property held for charitable purposes – Business income Incidental to object of Trust – Providing transport to students and staff working for society is incidental to achieve object of providing education i.e. object of society and not in nature of business – Entitle to exemption. [S. 2(15), 11(4A)]
During the year society charged transport fee for providing facility to students and staff for transport to and from school to respective houses of children in given routes. During assessment proceeding, AO disallowed the said fees on the premise that the aforesaid activity amounts to business in view of proviso to S. 2(15) of the Act and thus assessee would not be entitled for exemption under S. 11(4A) of the Act. AO further noted that surpluses generated from running of transport business were neither distributed among students nor was reduced from fee of next year and the institution can also run without the transport facility. On assessee’s appeal to CIT(A) no relief was granted. On assessees appeal to Tribunal held that the activity of running school buses exclusively for the students and staff, is an intrinsic part of the activity of running a school. These activities of the assessee are not in nature of business in as much as transport is also incidental to attainment of main object of Assessee trust of the education Therefore, provisions of S. 11(4A) would not be applicable. (AY. 2010-11)
Delhi Public School Ghaziabad Society v. ACIT (2019) 69 ITR 31 (SN) (Delhi) (Trib)
S. 12AA : Procedure for registration – Trust or institution – CSR activities are charitable in nature – Eligible for registration. [S. 15, Companies Act, 2013, S. 8]
Assessee filed application for registration u/s. 12AA, the Act. CIT(E), rejected the application on the ground that merely to comply with requirement of Corporate Social Responsibility (CSR) of its parent company and, activities carried out by assessee did not partake meaning of public charitable company as defined u/s. 2(15) of the Act. On appeal the Tribunal held that as per S. 8 of Companies Act, 2013, CSR activities are public charitable activities per se the objects of assessee were to establish and run educational institutions like schools, colleges, apprentice training, practical training classes, vocational training, boarding facilities, NGO, gurukuls, teaching classes, etc., and the same fall under charitable activities in terms of s. 2(15). Hence assessee eligible for registration u/s. 12AA of the Act.
Escorts Skill Development v. CIT (2019) 178 ITD 32 (Delhi) (Trib.)
S. 12AA : Procedure for registration – Trust or institution – Surplus generated – Registration cannot be denied. [S. 2(15)
Allowing the appeal of the assessee the Tribunal held that when an educational institution carries on activity of education primarily for educating persons, and merely it making profit would not lead to conclusion that it ceases to exist solely for educational purposes and becomes an institution for purpose of making profit. Since surplus generated by assessee had been ploughed back for furtherance of its object of carrying out educational activities, hence rejection is not justified to grant registration to assessee-society.
Sanatam Dharam Educational Charitable Society v. CIT (2019) 178 ITD 242 (Asr.)(Trib.)
S. 14A : Disallowance of expenditure – Exempt income – For the calculation of average investments only those investments from which exempt income is derived. Assessee did not derive any exempt income matter remitted back to AO. [R. 8D]
Assessee made suo motu disallowance under Rule 8D. AO computed disallowance under rule 8D(2)(iii). For the calculation of average investments only those investments from which exempt income is derived. Assessee did not derive any exempt income matter remitted back to AO. (AY. 2012-13)
Cox & Kings Ltd v. Addl. CIT (2019) 55 CCH 75/ 69 ITR 45 (SN) (Mum) (Trib)
S. 28(i) : Business loss – Advance to subsidiary – Subsidiary has gone to liquidation – Loss is allowable as business loss.
[S. 2(13), 37(1)]
When the assessee has advanced funds to its subsidiary and the subsidiary has gone into liquidation then the funds advanced to such subsidiary must be treated as a business loss if they are advanced on the grounds of commercial consideration and commercial expediency.
Dy. CIT v. Pioneer Investcorp Ltd. (2019) 72 ITR 376 (Mum.) (Trib.)
S. 28(i) : Business loss – loss on account of shifting in securities – Fall in the value of investments allowable as a deduction irrespective of change in classification of investments to comply with RBI guidelines. [S. 37(1)]
During the year, assessee bank had shifted certain securities from Account for Sale (AFS) to Held to Maturity (HTM) in order to comply with the RBI guidelines in preparation of accounts. AO disallowed the claim on the ground that RBI guidelines are not binding while computing taxable income and the CIT(A) confirmed the same.
Before the Tribunal, assessee submitted that as on date of shifting of securities, the diminution in the value of securities was claimed as deduction and investments held by the banking companies are treated as stock-in-trade and therefore fall in value of securities should be allowed as deduction based on the principle of statutory valuation stock that stock-in-trade should be valued at cost or market whichever is less.
Relying on assessee’s own case for previous year and Madras High Court decision in case of CIT v. Karur Vysya Bank Ltd. (2005) 273 ITR 510 (Mad) (HC), Tribunal held that the fact that the assessee bank has shifted the investment from one category to another is of no relevance, in as much as, fall in value of investment is held to be allowable as deduction. (AYs. 2012-13, 2014-15)
City Union Bank Ltd. v. ACIT (2019) 74 ITR 644 (Chennai)(Trib.)
S. 32: Depreciation – Income from house property – Properties continued to form block of assets – Depreciation is not allowable. [S. 2(11)]
Dismissing the appeal the Tribunal held that merely because properties continued to form block of assets depreciation is not allowable as there is no business income during the year and the income is assessed as income from house property (AY. 2013-14)
Emco Dyestuff (P.) Ltd. v. DCIT (2019) 178 ITD 111 (Mum)(Trib.)
S. 32: Depreciation – No turnover during the year – Depreciation cannot be disallowed
The AO disallowed depreciation on the asset on the ground that the assessee had not carried out any business activity during the year. The CIT(A) deleted the disallowance holding that the assets were business assets of the assessee. On appeal the Tribunal held that merely because there was no turnover during the instant year that could not be a reason for disallowance of deprecation once the asset was already put to use in the preceding years. The depreciation being a statutory allowance cannot be disallowed. (AYs. 2010-11, 2011-12)
Dy. CIT v. Jammu Metalic Oxides Pvt. Ltd. (2019) 72 ITR 449 (Jaipur) (Trib.)
S. 32 : Depreciation – POS TERMINALS are in the nature of computers – Entitled to depreciation at 60% [S. 2(11), 2 (13)]
POS TERMINALS are in the nature of computers and not in the nature of office equipment and would therefore be eligible for depreciation @60% and not 15%. Hon’ble Delhi High Court in the case of Pr. CIT v. Connaught Plaza Restaurant has held that POS TERMINALS are in the nature of computers and therefore depreciation is allowable @60%. (AY 2009-10)
Dy. CIT v. Oxigen Services India P. Ltd. (2019) 69 ITR 63 (SN) (Delhi)(Trib.)
S. 32 : Depreciation – LED Panel – Rate of depreciation is allowable as applicable to computer. [Information Technology Act, 2000, S 2(1)]
The Tribunal held that the term ”computer” has not been defined in the Act. However, it has been defined in Section 2(1) of Information Technology, Act. The LED Panel more or less fits to the definition of computer as given in Information Technology Act, 2000 and upheld the order of the CIT(A). (AY. 2006-07)
Dy. CIT v. Kumudam Publications P. Ltd. (2019) 70 ITR 41 (SN) (Chennai)(Trib.)
S. 32 : Depreciation – Car purchased in the name of director – Reflected in the balance sheet of the Company – Depreciation is allowable.
Allowing the appeal of the assessee the Tribunal held that the car was purchased in name of a director in order to reduce incidence of indirect taxes, levies etc., however, it was duly reflected in balance sheet of assessee-company. Accordingly the depreciation is allowable to the company. (AY 2013-14)
Shree Laxmi Estate (P.) Ltd. v. ITO (2019) 178 ITD 98 (Mum.)(Trib.)
S. 35D : Amortisation of preliminary expenses – Deduction granted earlier years – Deduction to be allowed for balance period.
The deduction once granted to the assessee for earlier years under Section 35D of the Act would entitle the assessee to amortise the expenses for the balance period under the said section as per the decision of the Supreme Court in Shasun Chemicals and Drugs Ltd. v. CIT  388 ITR 1 (SC). (AYs. 2005-06, 2007-08)
Dy. CIT v. Sahara Care Ltd. (2019) 74 ITR 117 (Delhi)(Trib.)
S. 36(1)(vii) : Bad debt – Provisions for bad and doubtful debts – Reduced from advance account in the balance sheet allowable as deduction to the extent of write off. [S. 36(1)(viia)]
Allowing the appeal of the assessee the Tribunal held that CIT(A) erred in combining the provisions of S. 36(1)(vii) and S. 36(1)(viia). Tribunal observed that CIT(A) considered only the provisions of bad and doubtful debts debited to profit and loss account and ignored the write off of bad debts debited to provisions for bad and doubtful debts and reduced from advance from the Balance Sheet which also constitutes write off. Accordingly, Tribunal remanded the issue back to the file of the AO for limited purpose of verifying the amount of write off debited to provisions of bad and doubtful debts and reduced from advance account in the balance sheet and allow the same as deduction to the extent of write off. (AYs. 2012-13, 2014-15)
City Union Bank Ltd. v. ACIT (2019) 74 ITR 644 (Chennai)(Trib.)
S. 37(1): Business expenditure – Asset management company – Set up of business – Approval from SEBI – Expenditure is allowable though it had not actually commenced its business. [S. 2(13)]
When the assessee has received approval from SEBI to act as an Asset Management Company then it can be said to have set up its business and even though it has not actually commenced its business all business expenses incurred by it are allowable because its business has been set up. (AY. 2013-14)
Dy. CIT v. PPFAS Asset Management P. Ltd. (2019) 72 ITR 41 (SN) (Mum.)(Trib.)
S. 37(1) : Business expenditure – Product registration expenses – Allowable as revenue expenditure.
If the assessee has incurred product registration expenses for the purpose of registering its product and is a trader and not a manufacturer and such expenditure is of a recurring nature then such expenses are not towards purchasing a capital asset nor any benefit is derived which is of an enduring nature and therefore such expenses are entirely allowable as revenue expenditure. (AY. 2013-14)
Dy. CIT v. Sharda Cropchem Ltd. (2019) 178 DTR 83/ 71 ITR 141/199 TTJ 960 (Mum.)(Trib.)
S. 37(1) : Business expenditure – Expenditure on issue of bonus shares – Held to be allowable as revenue expenditure.
Expenditure on issue of bonus shares is held to be allowable as revenue expenditure.
Dy. CIT v. Sharda Cropchem Ltd. (2019) 178 DTR 83/ 71 ITR 141/199 TTJ 960 (Mum.)(Trib.)
S. 37(1) : Business expenditure – Puja donation – Local entities – Charities – Allowable as business expenditure.
Puja donations made by the assessee to various local entities primarily towards community celebrations in order to build goodwill within the community and to ensure smooth conduct of business are allowable as deduction.
Dy. CIT v. Stewarts and Lloyds of India Ltd. (2019) 74 ITR 677 (Kol.)(Trib.)
S. 37(1) : Business expenditure – Sales promotional expenses – Held to be allowable as business expenditure. [Medical Council (Professional Conducts, Etiquettes and Ethics) Regulation Act, 2002]
Expenses incurred by pharmaceutical company on distribution of articles to stockists, distributors, dealers, customers and doctors are allowable as business expenditures. (AY. 2013-14)
Aristo Pharmaceuticals (P.) Ltd. v. ACIT (2019) 178 ITD 147 (Mum.)(Trib.)
S. 37(1) : Business expenditure – Pre-operative expenses –advertisement, marketing and promotion expenses to keep products fresh in minds of public – No enduring benefit – Allowable as revenue expenditure.
The assessee was engaged in trading in high-end kitchen appliances, cooling and coffee machines and laundry and floor care appliances. The Assessing Officer observed that the assessee had not commenced business during the first seven months of the year 2010-11. He disallowed the expenditure of the first seven months as pre-operative expenses. The CIT(A) deleted the addition on account of pre-operative expenses. On appeal the Tribunal held that (i) the assessee had commenced its business in the previous year relevant to the earlier assessment year. Therefore, the expenses considered as pre-operative expenses by the Assessing Officer had to be treated as legitimate business expenditure for the year 2010-11. (ii) He was satisfied with the advertisement, marketing and promotion expenses incurred by the assessee. Public memory is very short and companies had to incur advertisement expenditure year after year to keep their products fresh in the minds of the public. Such expenditure could not partake of the character of giving any enduring benefit. The Assessing Officer had erred in treating such expenditure as creating an intangible asset.
Dy. CIT v. Miele India P. Ltd. (2019) 72 ITR 149 (Delhi)(Trib.)
S. 37(1) : Business expenditure – Liquidated damages – Interest – Breach of agreement and not breach of law – Corporate club membership fees – Allowable as deduction. [S. 35ABB]
The assessee claimed a deduction under section 35ABB on account of payments made to the Department of Telecommunications towards liquidated damages and interest thereon paid. The Assessing Officer disallowed the claim of the assessee holding that liquidated damages and interest paid thereon were penal in nature and not allowable under section 35ABB. The assessee claimed deduction of payments to various clubs as membership fee, said to have been incurred wholly and exclusively for the purpose of business. The Assessing Officer disallowed the amounts observing that the assessee had tried to link the personal expenses with business expenses and that the expenditure incurred in the club were not wholly and exclusively for the purpose of business. The CIT(A) deleted the disallowances. On appeal: Held, (i) that the assessee paid liquidated damages and interest thereon due to breach of the agreement and not a breach of law. Thus, the expenditure claimed did not fall within the Explanation to S. 37(1). Since it was incidental to business, it could not be disallowed. (ii) That considering the expenditure incurred and the nature of the industry, the amount incurred by the assessee for corporate club membership fees was for business promotion and no disallowance could be made. (AY. 2010-11).
Dy. CIT v. HFCL Infotel Ltd. (2019) 71 ITR 93 (SN) (Delhi)(Trib.)
S. 40(a)(ia) : Amounts not deductible – Deduction at source – Burden is on assessee to prove recipient declared income in its gross income – Interest to be calculated for the period of default. [S. 201(1), 201(IA)]
The AO held that the assessee had not deducted tax at source and had made a short deduction of tax. Accordingly, he disallowed the sum under section 40(a)(ia) of the Act. The CIT(A) confirmed the order of the AO. On appeal Tribunal held that according to the special audit report, admittedly, the assessee had not deducted tax at source for the payments made. Considering the amendments to section 40(a)(ia), the assessee had to prove that the recipient had declared the income in its gross income. Since the Assessing Officer had not initiated proceedings under S. 201(1), the assessee had not submitted any documents. Hence, the Assessing Officer was directed to delete the addition made under S. 40(a)(ia) and to calculate the interest under S. 201(1A) for the period of default. (AYs. 2007-08, 2008-09)
Dy. CIT v. Janapriya Engineers Syndicate Ltd. (2019) 70 ITR 370 (Hyd.)(Trib.)
S. 40(a)(ia) : Amounts not deductible – Deduction at source – Amendment to effect that if tax deducted at source paid on or before due date for filing return disallowance not warranted – Retrospective in operation –Remitting tax deduction at source amount before due date for filing return – No disallowance can be made. [S. 139(1)]
Tribunal held that the effect of the amendment by the Finance Act, 2010 is that the assessee deducting tax either in the last month of the previous year or first eleven months of the previous year shall be entitled to deduction of the expenditure in the year of incurring it, if the tax so deducted at source is paid on or before the due date for filing the return under S. 139(1). Merely because an appeal had been preferred against the judgment of the High Court which took the view that the amendment to the provisions of S. 40(a)(ia) by the Finance Act, 2010 with effect from April 1, 2010 was retrospective in its operation and was applicable from April 1, 2005, it could not be the basis not to follow the binding decision of the High Court. Since the tax deduction at source had been remitted on or before the due date of filing of return by the assessee, no disallowance under S. 40(a)(ia) could be made and the entire addition made by the AO should be deleted. (AY. 2005-06).
Dy. CIT v. Janani Tours and Resorts P. Ltd. (2019) 70 ITR 51 (SN) (Bang.)(Trib.)
S. 40A(2) : Expenses or payments not deductible – Excessive or unreasonable – Contribution and commission of directors – Directors are paying tax at maximum marginal rate – No disallowances can be made. [S. 36(1)(ii), 37(1), 40A(2)(b), 115-0, Companies Act, 1956, S. 198, 309]
The AO held that the assessee had paid commission expenses in excess of the market rates and disallowed the amount under S. 36(1)(ii). He considered that an amount as excessive and made addition under the provisions of S. 40A(2)(b). For the assessment year 2010-11 he held that the assessee had tried to evade dividend distribution tax under S. 115-O by giving commission which was far more excessive. On appeal the Tribunal held that the assessee was not bound by section 198 and section 309 of the Companies Act, 1956 as the assessee was neither a public company nor a private company which was the subsidiary of a public company nor received any payment beyond the provisions of sub-section (1)(a) of section 309. In terms of the Board resolution a maximum commission of 27 per cent over the turnover can be paid to the directors whereas the total payments was only 1.25 per cent. of the value of the export orders achieved by them. The AO had not brought anything on record nor gathered any evidence about the contribution of the directors which went contra to the payments they received. There was no doubt about the qualifications and contribution of the directors for obtaining the orders and increasing the turnover. The payment of commission had been the practice of the company for the past seven years. The directors who had been receiving commission paid tax at the maximum marginal rate and no revenue leakage could also be found based on the tax payments. Increase in personal expenses and comparing it with the increase in directors remuneration could not be accepted as a methodology to calculate the reasonable remuneration. The company could determine the rates of salary, remuneration, commission as long as it did not infract any law in force. Hence the addition made by the AO was deleted. (AYs. 2006-07, 2009-10, 2010-11, 2011-12).
Dy. CIT v. Impulse International P. Ltd. (2019) 71 ITR 28 (SN) (Delhi)(Trib.)
S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – liability on account of trade payable is not written back in profit and loss account – No cessation of liability – Addition cannot be made.
When the assessee has not written back the liability on account of trade payables in its Profit and Loss A/c and proceedings with respect to the winding up of the assessee company are pending before an authority (AAIFR) then no liability can be fastened upon the assessee as there has been no cessation of liability.
Dy. CIT v. Pasupati Fabrics Ltd. (2019) 74 ITR 411 (Delhi)(Trib.)
S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – Trade payables outstanding for more than three years in the books – Addition cannot be made as remission or cessation of trading liability.
Dismissing the appeal of the revenue the Tribunal held that outstanding trade payables in its books of account for last three years addition cannot be made as remission or cessation of trading liability. (AY. 2013-14)
DCIT v. Sri Radhakrishna Shipping Ltd. (2019) 179 ITD 139 (Mum.) (Trib.)
S. 43CA: Transfer of assets – other than capital assets – Full value of consideration – Stock in trade – Agreement value – Stamp valuation – Agreement to sell flats/offices – Under construction – No transfer of land or building – Provision is not applicable.
The assessee, engaged in construction of a commercial project, entered into agreement to sell flats/offices (which were under construction) and there was no transfer of any land or building or both in favour of buyers in year. Tribunal held that, provisions of S. 43CA are applicable only when there is transfer of land or building or both. Accordingly agreement to sell entered in to under construction flats provision is not applicable. (AY. 2014 -2015)
Shree Laxmi Estate (P.) Ltd. v. ITO (2019) 178 ITD 98 (Mum.)(Trib.)
S. 45 : Capital gains – Long term capital gains – Off market transaction – Legal requirements complied with – Addition cannot be made as cash credit. [S. 2(47), 68]
If the sale of shares has been carried out as an off market transaction then that per se would not make the assessee liable to pay long term capital gains tax if the price at which the sale is made has been intimated to SEBI, the delivery of shares has been carried out, contract notes have been received, and the transaction is carried out through recognized brokers through account payee cheques. Addition cannot be made as cash credit. (AY. 2007-08)
Dy. CIT v. R. K. Commercial Ltd. (2019) 74 ITR 541 (Kol.)(Trib.)
S. 45 : Capital gains – Long term – Period of holding – Date of execution of sale deed to be considered for the holding period and not date of receipt of occupation certificate – Assessable as long term capital gains.
Assessee and other three companies had purchased four commercial properties by way of separate sale deeds. Subsequently all the aforesaid companies amalgamated with assessee and assessee became owner of all the four properties. Subsequently, assessee sold all properties to Bank and offered the gain derived from such sale as LTCG. AO treated gain derived from sale of such properties as STCG since he computed the holding period for such properties from the date of issue of occupation certificate. However, CIT(A) overruled the same holding that upon execution of sale deeds the right, title and interest over properties were transferred to Assessee hence assessee should be deemed to be owner of properties from date of execution of registered sale deeds. Tribunal held that merely because occupation certificate was issued by competent authority at a later stage, for whatever reason, it would not mean that assessee has not held property from date of execution of registered sale deeds. Assessee was holding properties from date of execution of registered sale deeds i.e., for a period of more than 36 months prior to date of transfer. Hence gains derived from sale of properties had to be assessed as LTCG. (AY. 2010-11)
Crescent Realtors P. Ltd. v. Dy. CIT (2019) 72 ITR 57 (SN) (Mum.)(Trib.)
S. 45 : Capital gains – Capital receipt – Professional goodwill – Business income – Compensation – Amount received against termination of right – Held to be capital receipt [S. 2(14), 4, 28(ii(a), 55]
Assessee received certain amount from a company which he claimed as professional goodwill. AO held that said amount was received by assessee on account of relinquishment of his rights in management of a company accordingly taxed under S. 28(ii)(a) of the Act. CIT (A) deleted the addition. On appeal by revenue the Tribunal held that since AO had not established that assessee was person who was managing whole or substantially whole of affairs of company, invocation of section 28(ii)(a) failed. The Tribunal also held that even, assuming that amount received by assessee was relatable to relinquishment of any managerial right, cost of any such managerial right being indeterminate, provisions relating to computation of capital gain were not workable and, consequently, amount could not be taxed under S. 45 of the Act also. (AY. 2009-10)
DCIT v. Dr. Sandeep Dave (2019) 179 ITD 51 (Raipur) (Trib.)
S. 48 : Capital gains – Loan liability of mortgaged property – Doctrine of over-riding title – Not deductible from sale consideration while computing the capital gains. [S. 45, 47(xii), 48(1), SARFAESI ACT, 2002, S. 13]
There was difference of opinion on the allowability of loan liability of mortgaged property is allowable deduction or not. The matter was referred to third member. Third member held that the payment towards discharge of outstanding loan liability out of the sale proceeds of mortgaged property is a mere application of income and not a diversion of sale proceeds by overriding title. The assessee cannot claim such application as deduction for the purpose of computing capital gains in terms of s. 48 of the Act. The legal position prevailing prior to SARFAESI Act is also germane even after the enactment of SARFAESI Act (ITA No. 4964/Mum/2013, dt. 05-09-2019)(AY. 2010-11)
Perfect Thread Mills Ltd. v. DCIT (2019) 183 DTR 25 (TM)(Mum)(Trib)
S. 50C : Capital gains – Full value of consideration – Stamp valuation – Value determined by registering authority – AO is bound to make a reference to Valuation Officer before adopting, without objection raised by the assessee – Matter remanded to the AO to refer the matter to Valuation Officer for determination of market value. [S. 45]
The assessee sold its office premises. The registering authority determined the market value of the assessee’s office premises for the purpose of stamp duty at higher value than shown in the agreement. The AO adopted this value as deemed consideration and computed the capital gains. CIT(A) up held the addition. On appeal the Tribunal held that the AO is duty bound to make a reference to the Valuation Officer before adopting the value of assets determined by the stamp valuation authority for the purpose of computing capital gains even without there being any objection raised by the assessee. The AO was directed to decide afresh after making a reference to the District Valuation Officer for determination of the market value of the property sold by the assessee. Relied Sunil Kumar Agarwal v. CIT (2015) 372 ITR 83 (Cal) (HC) (AY 2007-08)
Ara properties P. Ltd v. Dy. CIT (2019)75 ITR 12 (SN) (Trib.) ((Kol.) (Trib.)
S. 50C : Capital gains – Full value of consideration – Stamp valuation – Lease hold rights – Stamp valuation is not applicable – Addition is held to be not applicable. [S. 45]
Tribunal held that the property sold by the assessee in the building was leasehold property and the addition made by the AO and confirmed by the CIT(A) by invoking the provisions of S 50C is held to be not sustainable. (AY 2007-08)
Ara properties P. Ltd v. Dy. CIT (2019) 75 ITR 12 (SN) (Trib.) ((Kol.) (Trib.)
S. 50C : Capital gains – Full value of consideration – Stamp valuation – Purchase of property – Applicable to seller and not purchaser – Unaccounted income invested in the purchase of property [S. 56(2)(x), 132, 153C]
S. 50C is applicable in the case of the seller of the property to take into consideration the valuation of the property as per the value adopted by the Registration Authority and there is no provision under the Income -tax Act to deal with a situation in respect of the purchase of the property. If there is no other material brought on record to justify the conclusion that assessee company made unaccounted investment in purchase of the property no addition can be made. S. 56(2)(x) of the Income-tax Act was inserted into the Act with effect from 1st April 2017 and cannot apply retrospectively.
Dy. CIT v. Sutlej Agro Products Ltd. (2019) 70 ITR 33 (SN) (Delhi)(Trib.)
S. 54 : Capital gains – Profit on sale of property used for residence – Short term – Long term – Date of acquisition – Date of allotment letter and not conveyance deed – Entitled to exemption [S. 2(29A), 2(29B), 2(42A), 2(42B), 45, 54F]
The assessee sold a plot of land and claimed exemption u/s. 54 of the Act. The exemption was denied on the ground that it was short term capital gains which was affirmed by the CIT(A). On appeal the Tribunal held that in terms of Circular No. 471 dated October 15, 1986 the date when the letter of allotment was issued shall be considered as the date of acquisition of the asset. Merely because there was a change in the nature of immovable property, the principles for determining the date of acquisition could not change. The AO was directed to consider the date of allotment on May 31, 2002 as the date of acquisition of the asset. Thus what was transferred by the assessee was a long-term capital asset and not a short-term capital asset. The profit or gain on sale of the asset shall be considered as long-term capital gains. Relied PCIT v. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom) (HC). Accordingly the assessee is held to be entitled to deduction under S. 54 or 54F of the Act. Matter remanded to CIT(A) to decide the issue. (AY. 2013-14)
Bhawna Sharma (Smt) v. DY. CIT (IT) (2019) 75 ITR 7 (SN) (Delhi) (Trib.)
S. 56 : Income from other sources – Bonus shares – Provisions of S. 56(2) (vii)(c) would not apply to bonus shares. [S. 56(2)(vii) (c)]
The assessee received bonus shares from BIPL without taking any consideration for these shares and 1,47,357 right shares were allotted to the assessee at the face value of ₹ 10 per share. The AO applied provisions of S. 56(2)(vii) and made an addition on account of the difference between the fair market value of the bonus shares received by the assessee and the actual consideration at which they were allotted to the assessee as income from other sources. The CIT(A) deleted the addition stating that provisions of S. 56(2)(vii)(c) would not apply to bonus shares. On appeal the Tribunal upheld that order of the CIT(A). (AY 2010-11)
DCIT v. Mamta Bhandari (Smt.) (2019) 178 ITD 89 (Delhi)(Trib.)
S. 56 : Income from other sources – Share Premium – Share application money received from non-residents – Provisions of S. 56(2)(viib) is not applicable – Additions cannot be made as cash credits. [S. 56 (2) (viib), 68]
Assessee received share application money from non-residents. The AO held that act of receiving share application money in excess of authorized share capital of assessee was not in accordance with law and, therefore, money received could not be considered as towards share application money accordingly he treated money received from non-residents as income of assessee and brought same to tax under head income from other sources.
The Tribunal. Held that, the details of receipt of share application money on various dates given. Further assessee had applied to the ROC for increase in authorized share capital of equity shares and application money received from various share applicants was converted into equity shares under Board Resolution allotting shares to the various share applicants. Hence, there is no provision for invoking S. 68. Further provisions of 56(2)(viib) are applicable only for receipt of consideration for issue of shares from a resident and not in the case of a non-resident. (AY. 2015-16)
Edulink (P.) Ltd. v. ITO (2019) 178 ITD 174 (Bang.)(Trib.)
S. 56 : Income from other sources – Shares issued at premium – DCF method – Commercial expediency has to be seen from point of view of businessman – Addition is held to be not justified. [R. 11UA(2)]
Tribunal held that as per clause (i) of the Explanation to section 56 the FMV is to be determined in accordance with such method as may be prescribed. The method to determine the FMV is further provided in rule 11UA(2). The assessee has an option to do the valuation and determine the fair market value either on DCF Method or NAV Method. The assessee being a ‘start-up company’ having lot of projects in hand had adopted DCF method to value its shares. If the statute provides that the valuation has to be done as per the prescribed method and one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then there is no express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. Accordingly, appeal of the Assessee was allowed and the addition was deleted. (AY. 2015-16)
Cinestaan Entertainment (P) Ltd. v. ITO (2019) 180 DTR 65/ 200 TTJ 459 (Delhi) (Trib.)
S. 56 : Income from other sources – Foreign company – DCF Method – Receipt of property less than aggregate fair value of the property – S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 1-4-2019) which defines “balance sheet” was not applicable to a foreign company – If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1-4-2019 is prospective in nature – Rejection of DCF method is held to be not proper. [S. 56(2) (viia), Rule 11UA(b) (ii)]
The AO made addition u/s. 56(2)(viia) of the Act by treating the difference between the fair value of the shares and the purchase price of shares of the shares by the assessee. CIT(A) confirmed the order of the AO. Tribunal held that rejection of DCF method is held to be not proper. Tribunal held that S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01-04-2019) which defines “balance sheet” was not applicable to a foreign company. If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from
1-4-2019 is prospective in nature. (Followed CIT v. B. C. Srinivasa Shetty (1981) 128 ITR 294 (SC), CIT v. Official Liquidator Palai Central Bank Ltd. (In liquidation) (1985) 1 SCC 45). (ITA No. 1703/Mum/2019, dt. 16-10-2019)(AY. 2015-16)
Keva Industries Pvt. Ltd. v. ITO (Mum.)(Trib.), www. itatonline. org
S. 56 : Income from other sources – Valuation of shares – substantiation of the fair market value on the basis of the valuation done by the assessee simply cannot be rejected where the assessee has demonstrated with evidence that the fair market value of the asset is much more than the value shown in the balance sheet. [S. 56(2) (viib), R. 11UA]
Allowing the appeal of the assessee the Tribunal held that the valuation of shares should be made on the basis of various factors and not merely on the basis of financials. The substantiation of the fair market value on the basis of the valuation done by the assessee simply cannot be rejected where the assessee has demonstrated with evidence that the fair market value of the asset is much more than the value shown in the balance sheet. (ITA No. 7262/Del/2017,
dt. 27-09-2019) (AY. 2014-15)
India Convention and Culture Centre Pvt. Ltd. v. ITO (Delhi.)(Trib.), www. itatonline.org
S. 56 : Income from other sources – The assessee has the option to determine the fair market value of shares either under the Discounted Cash Flow (DCF) method or the Net Asset Valuation (NAV) method. [56(2)(viib), R. 11UA]
Allowing the appeal of the assessee the Tribunal held that the assessee has the option to determine the fair market value of shares either under the DCF method or the NAV method. The assessee’s choice is binding on the AO. While the AO can scrutinize the working, he cannot discard the assessee’s method and substitute another method (Vodafone M-Pesa Ltd v. PCIT  92 taxmann. com 73 (Bom) referred) followed Rameshwaram Strong Glass (P) Ltd. v. ITO (2018) 172 ITD 571 (Jaipur) (Trib) DCIT v. OZoneland Agro Pvt. Ltd. (Mum.) (Trib.) www. itatonline.org; Medplus Health v. ITO (ITA No. 871 /Hyd /2015, Regal Builtech Pvt. Ltd. v. ACIT (7505/ Del/ 2018). (ITA No. 3521/Mum/2018,
dt. 22-08-2019)(AY. 2013-14)
Narag Access Pvt. Ltd. v. DCIT (Mum.)(Trib.), www.itatonline.org
S. 68 : Cash credit – Impounding of documents found during search – Satisfactory explanation is furnished – Addition cannot be made. [S. 132, 153A]
If the documents found during the course of the search satisfactorily explain the income of the assessee no addition can be made under S. 68 of the Act as there is no unaccounted income lying in the hands of the assessee. (AY 2013-14)
Dy. CIT v. Pumarth Commodities P. Ltd. (2019) 69 ITR 52 (SN) (Indore)(Trib.)
S. 68 : Cash credit – Share premium – Addition made merely on basis of statement of a person recorded u/s. 131 by DIT (Invt.) and there was no any other evidence on record – Addition is held to be not justified. [S. 131]
The assessee-company received share application money/share premium from its Managing Director and one company. The AO observed that on basis of statement recorded by Investigation Wing of department of one MS u/s. 131 it was found that share application money/share premium received by assessee was nothing but accommodation entries. On basis of said statement, AO made additions u/s. 68. It was noted that impugned addition was made only on basis of statement of MS recorded by Investigation Wing u/s. 131.
On appeal Tribunal held that other than statement of MS, no other material evidence was referred either by AO or CIT(A). U/s. 131, authorities are not empowered to administer oath to deponent, therefore, such a statement recorded u/s. 131 had no evidentiary value. Hence, addition made merely on basis of statement recorded u/s. 131 without there being any other material available on record, was unjustified. (AYs. 2013-14, 2015-16)
Lalithaa Jewellery Mart (P.) Ltd. v. ACIT (2019) 178 ITD 503 (Chennai)(Trib.)
S. 68 : Cash credits – Share premium – Share applicants proved their creditworthiness and source of funds for investing – Addition is held to be not valid.
Tribunal held, that the share applicants have proved their creditworthiness and source of funds hence deletion of addition is held to be justified. (AY 2013-14)
Dy. CIT v. HSM Steels P. Ltd. (2019) 70 ITR 47 (SN) (Hyd. )(Trib.)
S. 68 : Cash credits – Bank deposits – Funds withdrawn from bank four months ago for purchase of a property but due to non-materialised of property transaction, money was redeposited in bank account, addition cannot be as cash credits.
The AO held that assessee had deposited certain amount in his bank account. Assessee explained that he had withdrawn said funds from his bank account four months ago and since a transaction relating to purchase of property did not materialise, he redeposited funds in his bank account. The AO rejected explanation and added amount deposited in bank account to his taxable income.
On appeal Tribunal held that, there was no instance, reference, argument or evidence to suggest that funds were not available with assessee. There could be no blanket period which could be judicially considered to be a reasonable time for redepositing funds in bank account. Mere fact that there was a gap of about four months in re-depositing funds by itself would not lead to conclusion that explanation given by assessee was not acceptable. Accordingly the addition was deleted. (AY. 2009-10)
Baljit Singh. v. ITO (2019) 178 ITD 12 (Chd)(Trib.)
S. 68 : Cash credits – Share capital – Share premium – Additional grounds – Photocopies of blank share transfer forms, blank signed receipts etc., necessary for transfer of shares found with assessee are not admissible as evidence u/s. 61 of Evidence Act and not incriminating in nature – All investors are assessed & have filed confirmations with trail of funds – AO did not make further inquiry into the documentary evidences or verify the trail of source of funds – Addition is held to be not justified. [S. 132(4), 145A, 153A Evidence Act, S. 61].
Tribunal held that photocopies of blank share transfer forms, blank signed receipts etc necessary for transfer of shares found with assessee are not admissible as evidence u/s 61 of Evidence Act and not incriminating in nature. All investors are assessed & have filed confirmations with trail of funds. AO did not make further inquiry into the documentary evidences or verify the trail of source of funds-Addition is held to be not justified. Decision in PCIT v. NRA Iron and Steel (2019) 103 taxmann. com 48(SC) and decision in NDR promoters Private Limited (2019) – TIOL – 172 (Delhi) (HC) is considered. (ITA Nos. 3741 to 3746/Del/2019 (assessee) ITA Nos. 5264 to 5269/Del/2019 (Revenue), dt. 31-10-2019) (AY. 2012-13 to 2017-18)
Agson Global Pvt. Ltd. v. ACIT (Delhi)(Trib), www.itatonline.org
S. 69 : Unexplained investments – loose sheet found during search not in handwriting of assessee or of any of family members – No statement recorded from author of loose sheet regarding contents and no enquiries conducted with buyer of flat – Addition is held to be not valid. [S. 132]
Tribunal held that a loose sheet was found evidencing the on money consideration for sale of the flat. The loose sheet was not in the handwriting of the assessee or of any of the family members. No statement was recorded from the author of the loose sheet regarding the contents and no enquiries were conducted with the buyer of the flat. The assessee had never agreed or accepted that he had received the sale consideration over and above the amount recorded in the registered document and no evidence was found with regard to receipt of cash. Therefore, the addition was unsustainable. (AY. 2012-13 and 2013-14).
Dy. CIT v. Kotu Sarat Kumar (2019) 71 ITR 147 (Vishakha)(Trib.)
S. 69 : Unexplained investments – Search and seizure – Bogus purchases – Diary – Contents of a seized document are to be read in toto, and it is not permissible on part of an AO to dissect same and therein summarily accept same in part and reject other part. [S. 132, 292C]
During course of search and seizure a diary was seized from office premises of assessee-company, a part of said group. Assessee surrendered an amount towards bogus bills booked during various years in its books of account. AO held that company had made unexplained investments in various capital assets by incurring expenditure in cash and treated unexplained investment/expenditure as income of assessee from undisclosed sources, and brought same to tax under head other sources. AO adopted a self-suiting approach and had accepted part of contents of seized document, i.e., to extent same revealed that assessee had made investment towards construction/furnishing of hotel building, however, he had whimsically declined to take cognizance of fact that said investment, as per said seized document, was sourced from cash that was received back by assessee against payments made towards bogus purchases. CIT (A) partly deleted the addition. On appeal by revenue and cross appeal by the assessee, the Tribunal held that approach adopted by AO was not justified and held that contents of a seized document are to be read in toto, and it is not permissible on part of an AO to dissect same and therein summarily accept same in part and reject other part. and deleted the addition. (AY. 2011-12)
DCIT v. Kanakia Hospitality (P.) Ltd. (2019) 179 ITD 1 (Mum.) (Trib.)
S. 69 : Unexplained investments – Search and seizure – Gold and silver ornaments – Found in premises of assessee belonging to assessee’s wife and his mother – Gold and silver ornaments inherited – Addition cannot be made.
The Tribunal held, that once the AO had found the explanation was reasonable, there was no case for making the addition in the hands of the assessee. The Assessing Officer had accepted the explanation of the assessee that the gold jewellery and silver articles found in the premises of the assessee belonged to the assessee’s wife and his mother and were inherited. There was no case for making the addition in the hands of the assessee. Merely because of non-furnishing of wealth-tax returns, the Assessing Officer could not make the addition in the hands of the assessee when it was explained to the Assessing Officer that the jewellery belonged to his wife and mother. If at all the addition was required to be made it should be made in the hands of the right person duly initiating the proceedings. The assessee had filed wealth-tax returns for the assessment years 2009-10 and 2010-11, which had been accepted by the Department without making any addition. Therefore, there was no case for making the addition on account of gold and jewellery found during the course of search in the hands of the assessee. (AYs. 2012-13, 2013-14).
Dy. CIT v. Kotu Sarat Kumar (2019) 71 ITR 147 (Vishakha)(Trib.)
S. 69A : Unexplained money – Income from undisclosed sources – unexplained cash – Cash flow statement accepted in wealth-tax assessment not to be discarded – Cash balance available as on date of search treated as explained.
Tribunal held that as on the date of search, a sum was found in cash in the residence of the assessee, which the assessee explained as representing the book balance and stated that there was no unaccounted or unexplained cash. In support of the availability of the cash balance, the assessee filed a cash flow statement for the financial years 2007-08 to 2012-13, which indicated that there was a huge cash balance available with the assessee for the year ended March 31, 2012 and March 31, 2013. The assessee filed the wealth-tax returns in response to the notice issued by the AO under section 17 of the Wealth-tax Act, 1957 and the assessments were accepted by the Department taking the cash balance as per the wealth-tax returns and no defects were found. Therefore, the cash flow statement could not be discarded. Neither the Assessing Officer nor the CIT(A) had found any defect in the cash flow statement submitted by the assessee during the wealth-tax proceedings. Therefore, the cash balance available as on the date of search was treated as explained and no addition was warranted. (AYs. 2012-13, 2013-14).
Dy. CIT v. Kotu Sarat Kumar (2019) 71 ITR 147 (Vishakha)(Trib.)
S. 69B : Amounts of investments not fully disclosed in books of account – Unexplained investment – Purchase of land – Addition merely on presumption is held to be not justified.
Tribunal held that the Department found the agreement to sale with the schedule of payments. There was no proof for payment in cash and by cheque. Apart from that, there was no evidence to show that the assessee had actually made the payment except the schedule of payments mentioned in the agreement. The AO made the addition only on presumption that the payment would have been made. The assessee denied that it had actually made any further payments and submitted that the transaction had not gone through. But no details were submitted. The Department had not found anything to show that the landlords actually received the payments. The additions could be made only based on actual evidence and not based on presumptions particularly, Therefore, the addition was to be deleted. (AYs. 2007-08, 2008-09
Dy. CIT v. Janapriya Engineers Syndicate Ltd. (2019) 70 ITR 370 (Hyd.)(Trib.)
S. 69C : Unexplained expenditure – Bogus purchases – AO cannot blow hot & cold by disallowing the purchases from a party as bogus while treating sales to same party as genuine – Entire purchases cannot be disallowed – Percentage of addition to gross profit is held to be justified.
Tribunal held that AO cannot blow hot & cold by disallowing the purchases from a party as bogus while treating sales to same party as genuine. Addition is held to be not justified. Percentage of addition to gross profit is held to be Considered NK Proteins Ltd. v. CIT (2017 TIOL l23 –SC-IT), NK Industries Ltd v. DCIT (2016) 72 taxann.com 628 (Delhi) CIT v. La Medica (2001) 117 Taxman 628 (Delhi)(HC) Ganesh Rice Mills v. CIT (2007) 294 ITR316 (All) (HC), Vijay Proteines Ltd v. ACIT (2015) 58 taxmann. com 44 (Guj) (HC) Sanjay Oil cake Industries Ltd. v. ACIT (2009) 316 ITR 274 (Guj) (HC) (ITA No. 3741to 3746/Del/2019 (assessee) ITA No. 5264 to 5269/Del/2019 (Revenue), dt. 31-10-2019) (AY. 2012-13 to 2017-18)
Agson Global Pvt. Ltd. v. ACIT (Delhi)(Trib), www.itatonline.org
S. 69C : Unexplained expenditure – Purchase of land – Addition of same payments made in hands of landowners – Addition on protective basis not sustainable. [S. 143(3)]
In the course of assessment proceedings, the AO based on the seized documents and sworn statement of the director of the assessee, made an addition of ₹ 6.30 crore as unexplained expenditure under S. 69C of the Act. The CIT (A) directed the AO to delete the addition. On appeal : Held, that the AO had already made addition in the hands of the assessee and the same payments to land owners could not be made as addition in the case of the assessee on protective basis. The findings of the CIT(A) is held to be justified. (AYs. 2007-08, 2008-09)
Dy. CIT v. Janapriya Engineers Syndicate Ltd. (2019) 70 ITR 370 (Hyd.)(Trib.)
S. 71 : Set off loss – One head against income from another – Borrowing funds and making investments in business also paying interest – No evidence assessee diverted funds for non-business purpose – Intra head losses can be set off
The assessee was engaged in the business of running a hotel and made investments in V Hotels. It borrowed funds from a co-operative bank for the purpose of making investments in V Hotels. He declared interest from other sources and claimed deduction of the interest paid on unsecured loans and on bank loans and set off the resultant loss against the income from other sources, business and capital gains under S. 71 of the Act. The CIT(A) deleted the disallowance. On appeal the Tribunal held that the assessee had borrowed the funds and made investments in the business. The AO did not make out a case that the assessee had diverted the funds for non-business purpose. Business consideration was the decision of the assessee and not the AO. The assessee made the investments for the purpose of business and paid the interest. The income under the head “Income from other sources” resulted in a loss which was claimed for set off under section 71. Intra head losses were allowable to be set off against other sources of income in the same assessment year. Therefore the addition was deleted. (AY. 2012-13, 2013-14).
Dy. CIT v. Kotu Sarat Kumar (2019) 71 ITR 147 (Vishakha)(Trib.)
S. 92B : Transfer pricing – Arm’s length price – Corporate guarantee given to associated enterprises – Arm’s length commission on such guarantee restricted to 0.5%. [S. 92C]
The assessee gave corporate guarantee to its associate enterprises (“AE’s”) who received loans from a bank which were guaranteed by the assessee. The assessee charged commission @0.5% of the amount of guarantee given to the AE’s. The AO made adjustment to such commission @1.77 as against 0.5% charged by the assessee. The Tribunal held that the issue is squarely covered by the Tribunal in assessee’s own cases for immediately preceding years and hence the adjustment should be restricted at 0.5%. (AY. 2012-13)
Cox & Kings Ltd. v. Addl. CIT (2019) 55 CCH 75/ 69 ITR 45 (SN) (Mum.) (Trib.)
S. 92C : Transfer pricing – Arm’s length exemption – Tax exemption – Arm’s length price on international transactions deserve to be determined. [S. 10A, 10B, 92]
Question before the Special Bench was “whether or not the provisions of section 92 can be invoked in a situation in which income of the assessee is eligible for tax exemption or tax holiday and thus not actually chargeable to tax in India, or in a situation in which there cannot be any motive in manipulating the prices at which international transactions have been entered in to ?”
Special Bench held that even if an assessee is eligible for tax exemption at the rate of hundred per cent under section 10A/10B of the Act, then also the arm’s length price on international transactions deserve to be determined under S. 92C of the Act. (ITA Nos. 1352, 1258, 1822 & 1874/Ahd/2011-2012 & 2014, dt. 24-10-2019)(AYs. 2006-07 to 2008-09)
Doshi Accounting Service Pvt. Ltd. v. DCIT (SB)(Ahd) (Trib) www.itatonline.org
S. 92C : Transfer pricing – Arm’s length price – International transactions – Benchmarking of transactions – Comparable – Back office support services – Company providing consultancy business solution and testing and high end business process outsourcing services – Cannot be held to be comparables.
Assessee providing back office support services, company providing high end data analytics and customised process solution and leading Indian provider of knowledge process outsource services functionally different. High end diversified services. Company having income from translation charges. Company having lower employee cost to sales than assessee. Company having different financial year ending. Company under serious indictment in fraud cases. Company providing consultancy business solution and testing and high end business process outsourcing services is held to be not comparables. (AY. 2007-08).
Dy. CIT v. Morgan Stanley Advantage Services P. Ltd. (2019) 74 ITR 456 (Mum.)(Trib.)
S. 127 : Power to transfer cases – Opportunity of hearing – Assessee’s case was transferred from one AO to another AO having offices in different localities/places, notice had to be given to assessee – Order is held to be void ab initio and barred by limitation. [S. 127(1), 143(2), 292B]
The assessee, individual, filed his return declaring certain taxable income. The return was processed u/s. 143(1) and subsequently, the case was selected for scrutiny under CASS. Thereafter, the Addl. CIT, Kurnool, transferred the files to Addl. CIT (IT-II) Hyderabad, stating that the jurisdiction of the case vested with the AO Hyderabad since the assessee was a non-resident. AO issued a notice u/s. 143(2) and 142(1) and completed the assessment u/s. 143(3). The assessee preferred an appeal before the Commissioner (Appeals) challenging the jurisdiction of the AO at Hyderabad on making the assessment and also the additions made by the AO. Tribunal held that where assessee’s case was transferred from one Assessing Officer to another Assessing Officer having offices in different localities/places, notice u/s. 127(1) had to be given to assessee and it was only Principal Director General or Principal Commissioner who could transfer case u/s. 127. Order is held to be void initio and barred by limitation. (AY. 2011-12)
Vijay Vikram Dande Kurnool. v. ADIT (2019) 178 ITD 139 (Hyd.) (Trib.)
S. 133A : Power of survey – Undisclosed income – Loose papers – Bona fide mistake by director in surrendering income – Set off of expenditure is allowable. [S. 115BBE]
Dismissing the appeal of the revenue the Tribunal held that during the course of survey loose paper referred to certain details of health camp income and expenditure. On the basis of these documents income worked out to ₹ 2,10,13,228 (gross receipt ₹ 3,26,00,730 less expenses) but inadvertently the director during the course of survey while admitting the undisclosed income comprising of income and expenses and surrendered the income at
₹ 4,41,88,232 which was a bona fide mistake as the income on the basis of the loose papers was desired to be surrendered. Therefore the addition was deleted. As regards the set off of the expenditure of ₹ 19,70,923 had been explained by the assessee before the authorities and the account mainly included salary paid to the director and others at
₹ 17,97,199 which had been duly offered to tax by the director and others in their respective returns. The expenditure of ₹ 19,70,923 had been claimed against the income from organising health camp which was also the part of the business activity of the assessee. Therefore the set off of the expenditure was allowed. (AY. 2013-14).
Dy. CIT v. Dthri Health Care P. Ltd. (2019) 69 ITR 17 (SN) (Indore)(Trib.)
S. 133A : Power of survey – unaccounted receivables – Surrender of income Deemed income – Categorization/characterization of income surrendered – business income – Set off of losses was to be allowed [S. 69A 69B]
The assessee in this case was deriving income from manufacturing and sale of different types and sizes of autoparts. That during the impugned assessment year the assessee’s premises was surveyed under the provisions of section 133A of the Act, whereupon it was noticed that there were unaccounted receivables. The same was surrendered by the assessee. However, at the time of finalization of the accounts, as at the close of the year, though the additional income surrendered during survey proceedings was credited as income, the same was offset with the brought forward business losses from the preceding assessment year, resulting in the return of nil income for the impugned assessment year, and claim of carry forward of losses of the balance. In the assessment proceedings the Assessing Officer treated the additional income surrendered as deemed income under the provisions of section 69A and 69B of the Act separately without allowing setoff of the same with the business losses of the assessee. The Ld. CIT(A) held the case in favour of the assessee. On revenue appeal, the Tribunal held that the assessable as business income of the assessee and set off of losses was to be allowed against the same as rightly claimed by the assessee. (AY. 2013-14).
Dy. CIT v. Mehta Engineers Ltd. (2019) 177 DTR 140 (Chd.)(Trib.)
S. 143(3): Assessment – Ad hoc addition – No understatement by assessee – Addition on ad hoc basis at 50% is held to be not sustainable.
Tribunal held that there was no understatement of receipts by the assessee. Further, in first round of appeals no addition in this regard for called for by Tribunal and the same was not controverted by lower authorities. The net income from drama company as a percentage of gross receipts cannot be as high as has been held by CIT(A). In absence of any comparable case put forth the by the authorities below, the ad hoc addition sustained by CIT(A) cannot be justified. (AY. 1995-96 to 1998-99).
C. L. Chandradhara. v. CIT (2019) 55 CCH 0468/ 71 ITR 246 (SMC)(Bang.)(Trib.)
S. 143(3): Assessment – If the case is selected for limited scrutiny of a specific issue, the AO has no jurisdiction to make additions or disallowances on other issues.
Allowing the appeal of the assessee the Tribunal held that the case is selected for limited scrutiny of a specific issue, the AO has no jurisdiction to make additions or disallowances on other issues. (434/CHD/2019, dt. 12-9-2019)(AY. 2014-15)
Vijay Kumar v. ITO (SMC) (Chd)(Trib), www.itatonline.org
S. 143(3) : Assessment – Unaccounted sales – Addition can be made only after the consideration of purchases and ancillary expenses – Addition is restricted to only profit margin.
Assessee company was engaged in the milk processing business. A search was conducted at the premises and documents reflecting unaccounted sales for a period of 20 days were discovered. The assessee company claimed that the unaccounted portion was handed over to the director of the company to deal with in his individual capacity. To this the director also confirmed in affirmative stating that he had already offered to tax the income from such milk, which was acknowledged by the AO. However, the AO, without any justification and without bringing any documents on record considered that such unaccounted sales was done for 2 AY’s rather than 20 days only and accordingly made an addition to the income of the assessee company. Also the assessee contended that the AO, in his whims and surmises, has considered the extrapolation only for 2 AY’s, if he was so confident about the seized documents and the income therein, he should have extrapolated for the entire block of six years. It was held that, here as the income from the unaccounted milk was already declared by the director and tax was paid on it, the addition made was completely unjustified and was to be deleted.
(AYs. 2011-12, 2012-13)
ACIT v. Creamy Foods Ltd. (2019) 55 CCH 377 /70 ITR 59 (SN) (Delhi) (Trib.)
S. 145 : Method of accounting – Works contract tax (TDS) – When sale is offered corresponding amount of works contract is allowable as deduction. [S. 37(1)]
When the work is executed and sales accounted for and offered to tax in the year, deduction claimed for the corresponding amount of works contract tax incurred on such erection sales or works receipts is allowable. (AY. 2004-05)
Dy. CIT v. Stewarts and Lloyds of India Ltd. (2019) 74 ITR 677 (Kol.)(Trib.)
S. 145 : Method of accounting – Percentage completion method – Corresponding expenditure incurred in relation to unbilled sales – Sales include sub contract charges – Provision to be made – Rule of consistancy to be followed.
The amount of unbilled sales if represents revenue booked in the accounts on the percentage completion method for incomplete contracts at the end of the year and corresponding expenditure incurred in relation to the unbilled sales including subcontract charges is also provided for in the accounts and this method is followed by the assessee consistently in the earlier years then the claim of the assessee is allowable. (AY. 2004-05)
Dy. CIT v. Stewarts and Lloyds of India Ltd. (2019) 74 ITR 677 (Kol.)(Trib.)
S. 147 : Reassessment – Within four years – Reopening for taxing Bogus share capital – Even in a S. 143(1) intimation, the AO is not entitled to reopen on the ground that the assessee has received “huge share premium” which was not “examined” by the AO. The AO cannot reopen in the absence of tangible material that shows income has escaped assessment. [S. 68, 143(1)]
The assessment was reopened under S. 147. Accordingly, notice under section 148 was issued to the assessee. The Assessing Officer noted that during the relevant period the assessee company introduced a sum of ₹ 1,36,50,000/- on account of share application and added the entire amount under section 68 of the Act. The CIT(A) held that the basic requirement of reopening of the assessment i.e., “reason to believe” is not fulfilled at the time of recording the reasons for reopening. An appeal filed by the Revenue is against the order of CIT(A). The Tribunal held that there is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147. (AY 2009-10)
Dy. CIT v. Kargwal Products P. Ltd. (2019) 69 ITR 77 (SN) (Mum.)(Trib.)
S. 148 : Reassessment – Notice – Notice has been issued on wrong premise, reopening of assessment is not valid – Notice cannot be issued for certain examination
Tribunal held that the main premise i.e. non filing of return of income on the basis of which AO has sought approval for reopening was incorrect as assessee has already filed return of income. Further, relying on various judicial precedents held that the case should not be reopened for verification. The AO never made an opinion that there was escapement of income in the hands of assessee since even in the reasons it was mentioned that the reopening is for examination and even in the assessment order, the AO also made the aforesaid addition in the hands of assessee on protective basis. Accordingly, considering the aforesaid, reopening of assessment was held as invalid. (AYs. 1996-97, 1997-98)
Computerland Integrators (India) Ltd. v. Dy. CIT (2019) 180 DTR 17 (Delhi)(Trib.)
S. 151 : Reassessment – Sanction for issue of notice – Share capital – Share premium – Approval – mechanical approval mentioning “ Yes” – Non application of mind – Reassessment is held to be bad in law. [S. 147, 148]
Allowing the appeal of the assessee the Tribunal held that if the PCIT, while granting approval for issue of notice u/s. 148, has only mentioned “YES”, it establishes that the approving authority has given approval to the reopening of assessment in a mechanical manner without due application of mind. On this count the reassessment is not sustainable in the eyes of law and needs to be quashed. Followed, United Electrical Company (P) Ltd. v. CIT (2002) 258 ITR 317 (Delhi) (HC) CIT v. S. Goyanka Lime & Chemical Ltd (2015) 64 taxmann.com 313 /(2016) 237 Taxman 378 (SC) (ITA No. 1061/Del/2019, dt. 02-12-2019) (AY. 2009-10)
Blue Chip Developers (P) Ltd. v. ITO (Trib.)(Delhi), www.itatonline.org
S. 153: Assessment – Limitation – Special audit under section 142(2A) is not in accordance with law, time limit for making assessment cannot be extended for time taken for special audit. [S. 142(2A)]
Tribunal held that though the notice directing special audit referred to accounts of both
AY 2008-09 and 2009-10, the financial statements of only AY 2009-10 were considered for special audit. Thus, the AO did not apply his mind and mechanically adopted the figure of AY 2009-10 and passed the order under section 142(2A) of the Act for AY 2009-10 without realizing that he is dealing with AY 2008-09. Therefore, the Tribunal noted that if the period taken for special audit is not excluded, the assessment order passed by the AO would be time barred. Further, the Tribunal remarked that even though order under section 142(2A) of the Act is not appealable, it is well within the rights of Tribunal to consider all material aspects which were considered while framing the assessment order. Accordingly, since the order framed under section 142(2A) was not for concerned AY 2008-09, the Tribunal quashed the assessment order as it was barred by limitation.
Consulting Engineering Services India (P) Ltd. v. ACIT (2019) 175 DTR 217 / 198 TTJ 21 (Delhi)(Trib.)
S. 153A : Assessment – Search – No incriminating material was found – Addition cannot be made. [S. 68, 132]
When no incriminating material is found during the course of the search no addition can be made against the assessee and the addition if any made by the Assessing Officer is without jurisdiction. (AYs. 2011-12, 2014-15, 2015-16)
Dy. CIT v. Pacific Industries Ltd. (2019) 72 ITR 634 (Jodh.)(Trib.)
S. 153A : Assessment – Search – Share application money – No incriminating material was found – Addition cannot be made – Opportunity to cross examination must be given of the entry operators. [S. 68, 132]
When no incriminating material is found during the course of the search then the additions if any made by the Assessing Officer are unsustainable and are liable to be deleted.
The assessee must be allowed to cross examine third party entry operators who make statements which are relied upon by the AO while passing an assessment order and in the absence of such cross examination no addition can be levied.
If undisclosed income has already been added to the total income of the share applicant then the same income cannot be added to the income of the investee company and be subject to double taxation. (AY. 2008-09 to 2013-14)
Dy. CIT v. Rashmi Metaliks Ltd. (2019) 72 ITR 226 / 201 TTJ 160 (Kol.)(Trib.)
S. 153A : Assessment – Search or requisition – Assessment for relevant year completed – No addition could be made. [S. 68, 132]
The assessee was a group concern and subjected to search and seizure action under S. 132 of the Income-tax Act, 1961. The Assessing Officer initiated proceedings under S. 153A pursuant to the and made various additions under section 68 on account of share application money and special deposits against the issue of preferential equity shares treating them as accommodation entries availed of by the assessee from entry providers. The CIT (A) deleted the major part of the addition on the ground that the Assessing Officer had no material in his possession but confirmed the addition in respect of which the statement of the entry provider was with the Assessing Officer. On appeal: Held, (i) that the addition made by the Assessing Officer under section 153A was not sustainable and liable to be deleted when the assessment for the assessment year 2010-11 had been completed and was not pending as on the date of the search. (ii) That the assessee had repeatedly requested and demanded the cross-examination of the witnesses whose statements were relied upon by the Assessing Officer in the assessment order. The denial of cross-examination was a gross violation of the principles of natural justice. (iii) That once the assessee had produced the relevant documentary evidence in support of the then in the absence of any contrary material the addition was not sustainable. The Assessing Officer made an addition in respect of share capital received from three companies but it was deleted by the Commissioner (Appeals) for want of supporting material as well as statement of alleged entry operator. On appeal: Held, that the assessee had produced all the relevant documentary evidence to establish the identity, creditworthiness and genuineness of the transactions. Hence in the absence of any discrepancy or otherwise any material or record, the addition made by the AO was not justified. (AYs. 2010-11, 2011-12)
Dy. CIT v. Jammu Metalic Oxides Pvt. Ltd. (2019) 72 ITR 449 (Jaipur (Trib.)
S. 153A : Assessment – Search or requisition – Share application moneys – no evidence of receipt of unsecured loan – In the absence of incriminating material found during search – Addition on account of share application money is held to be not justified. [S. 68, 132(4)]
The assessee was engaged in the business of marble mining and selling. A search and seizure action under S. 132 of the Income-tax Act, 1961 was carried out at the residential premises of its partner including other group concerns of the assessee. During the search action, A in his statement recorded under S. 132(4) admitted taking accommodation entries in the form of long-term capital gains. The Assessing Officer made an addition on account of unsecured loans received by the assessee from the three parties aggregating to ₹ 76,65,206 under S. 68. The CIT(A) deleted the addition holding that during the search A made disclosure of income in the form of long-term capital gains in his individual capacity and there was no clinching evidence for routing the unaccounted income through unsecured loan during the search, and it was not legally tenable to make addition in the absence of incriminating material found during the search. The addition having been made on the basis of third-party information, the CIT(A) deleted the addition on the merits. On appeal: Held, that the Assessing Officer had not brought out any defect or discrepancy in the evidence brought on record by the assessee. Therefore, the addition made by the Assessing Officer in the assessment year was without jurisdiction. Thus, the assessment order was invalid, consequent upon which the entire addition made therein were deleted. (AYs. 2010-11 2014-15 to 2016-17).
Dy. CIT v. Krishna Marble (2019) 72 ITR 418 (Jodhpur)(Trib.)
S. 154 : Rectification of mistake – Failure to consider the Judgement of High Court or Supreme Court – Mistake apparent from record -Can be subject matter of rectification though the claim is not made during original assessment proceedings or appellate proceedings.
Failure to consider the Judgment of High Court or Supreme Court is a mistake apparent from record which can be subject matter of rectification though the claim is not made during original assessment proceedings or appellate proceedings. (AY. 2013-14)
Dy. CIT v. Sharda Cropchem Ltd. (2019) 178 DTR 83/ 71 ITR 141/199 TTJ 960 (Mum.)(Trib.)
S. 154 : Rectification of mistake – Reassessment – After conclusion of reassessment proceedings addition cannot be made by taking aid of explanation 3 to S. 147. [S. 147, 148]
Assessment which was completed u/s. 143(1) was reopened u/s. 148 and disallowed the travelling expenses Subsequently the AO issued the notice u/s. 154/155 of the Act and made addition in respect of difference of closing stock. Order of the AO is affirmed by CIT(A). On appeal the Tribunal held that the AO cannot, after conclusion of proceedings u/s 147, take aid of Explanation 3 to S. 147 to make any addition u/s. 154. If the Dept’s argument is accepted that u/s. 154 the AO is empowered to deal with escapement of income even after the S. 147 assessment is completed, it would empower the AO to go on making one addition after the other by taking shelter of Explanation 3 to S. 147 endlessly. Such a course is not permissible. (ITA No. 5886/Del/2015, dt. 11-10-2019)(AY. 2007-08)
JDC Traders Pvt. Ltd. v. DCIT (Delhi)(Trib), www.itatonline.org
S. 160 : Representative assessee – Transparent entities – When an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection –DTAA – India – Netherlands [S. 10(38), 45, Art. 13]
The assessee is a trustee of ING Emerging Markets Equity Based Funds (INGEMEF) which is registered with the Securities and Exchange Board of India as a sub account of ING Assets Management BV, a registered Foreign Institutional Investor (FII). There is no dispute that INGEMEF is a tax transparent entity, in the sense that while INGEMEF is not taxable in its own right, the constituents of INGEMEF are taxable in respect of their respective shares of earning. The form of its organization is FGR. i. e. Fonds voor Gemene Rekening, which literally means funds for joint account, and this form of organization, under the Dutch law, is in the nature of a contractual arrangement between the investors, fund manager and its custodian. The investors in this case are three entities- namely, ING Institutioneel Emerging Equity Market Fund (INGIEEMF, in short) with a participation share of 53.86%; Nationale-Nederlanden Levensverzekering Maatschappij NV (NNLNV, in short) with a participation share of 19.66% and ING Beleggingfondsen Paraplu N. V. (INGBPNV, in short) with the participation share of 26.48%. These three investors thus account for 100% of INGEMEF ownership. The funds so held by INGEMEF are invested through the custodian, i.e. the assessee who is legal owner of the investments on behalf of the investors, made on the advice of the fund manager ING Asset Management BV (INGAMBV, in short). The AO denied the benefit of exemption of DTAA, which was affirmed by CIT(A). On appeal Ground before the Tribunal is “Whether on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax Appeals erred in upholding the action of the Deputy Director of Income Tax (IT) in denying the benefit of Article 13 of the India – Netherlands Double Taxation Avoidance Agreement (“DTAA”) and consequently, taxing the capital gains amounting to ₹ 23,38,08,365/– as per the Income Tax Act, 1961.”
The Honourable Tribunal considering the provisions of the DTAA held that when an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection. Accordingly the capital gains is not table in India and entitle to the benefit of DTAA. (Linklaters LLP 9 ITR (Trib) 217 (Mum) followed). (ITA No. 7119/Mum/2014, dt. 27-11-2019)
ING Bewaar Maatschappiji BV v. DCIT (Mum.)(Trib.), www.itatonline.org
S. 194H : Deduction at source – Commission or brokerage – SIM distributors – Not liable to deduct tax at source – Roaming charges – Process of roaming does not require human intervention and cannot be considered as a technical service – Not liable to deduct tax at source. [S. 194J]
Allowing the appeal of the assessee the Tribunal held that discount extended to pre-paid SIM distributors on transfer of pre-paid SIM cards/talk time is not liable to deduct tax at source. Tribunal also held that process of roaming does not require human intervention and cannot be considered as a technical service hence not
liable to deduct tax at source. (AYs. 2007-08 to 2013-14)
Vodafone Idea Ltd. v. ACIT (2019) 179 ITD 207 (Chd.) (Trib.)
S. 195 : Deduction at source – Non-resident – Income deemed to accrue or arise in India – Royalty – Doctrine of treaty override – DTAA – India – Singapore [S. 9(1)(vi), Art. 12]
The Grievance of the revenue is the learned CIT(A) erred in holding that the assessee did not have tax withholding obligation in respect of payments of ‘bandwidth services’ to Reliance Jio Infocomm Pte. Ltd., Singapore. The question raised in the grounds of appeal is “Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in holding that tax was not required to be deducted at source on the payment made by the assessee to Reliance Jio Infocomm Pte. Limited, Singapore (RJIPL) for availing bandwidth services as it did not amount to income of the payee by way of royalty u/s. 9(1)(vi) of the IT Act, 1961 read with Article 12 of India-Singapore DTAA?”
Honourable Tribunal explained entire law on whether the retrospective amendments to the definition of “royalty” in s. 9(1)(vi) of the Act can have bearing on the interpretation of the same term in the DTAAs explained with reference to the doctrine of “treaty override” and the Vienna Convention (CIT v. Siemens Aktiongessellschaft (2009) 310 ITR 320 (Bom) (HC) explained). Appeal of revenue is dismissed. (ITA Nos. 6331 to 6334/Mum/2018, dt. 15-11-2019) (AY. 2018-19)
ACIT v Reliance Jio Infocomm Ltd. (Mum.)(Trib.). www.itatonline.org
S. 206C : Collection of tax at source – Sale of scrap – Tax cannot be collected at source on those items which are capable of being used as such without any modification. [S. 206 (1)]
The AO observed that, assessee failed to collect tax at source on certain items at time of sale of scrap arising on dismantling of ships and hence he passed an order u/s. 206C(1) directing assessee to collect tax at source along with interest.
Tribunal held that, tax was not required to be collected at source on those items which could be used as such without modification. Items sold which were capable of being used as such without any modification would fall outside purview of Explanation (b) to S. 206C.
ACIT v. Bansal Ship Breakers (P.) Ltd. (2019) 178 ITD 473 (Ahd.)(Trib.)
S. 253 : Appellate Tribunal – Powers – Delay of 571 days – Mistake of counsel may be taken in to account in condonation of delay. [S. 253(1), 254(1), Limitation Act, 1963, S. 3, 5]
The difference of opinion has arisen in the matter to relating to condoning the delay in filing of appeal by the assessee before the Tribunal. The appeal filed by the assessee was barred by limitation by 571 days. The question referred was “Whether, in the facts and circumstances of the case, the explanations furnished by the assessee for not filing the appeal within the prescribed period of limitation would constitute sufficient cause or not and accordingly whether the delay in filing the appeal should be condoned or not”
On reference third member held that mistake of counsel may be taken into account in condoning delay. Claim that the delay was caused by Counsel not communicating the order has to be accepted unless it is shown that blame put on counsel is with mala fide intentions in order to cover up mistake/lapse on the part of the assessee. As per human conduct and probabilities, a professional counsel cannot be expected to admit his lapses as it may affect his reputation. Also, if the appeal is adjudicated on merits, refusing to condone the delay is an error. Case laws referred;
(a) Collector, Land Acquisition v. Mst. Katiji & ors (1987) 167 ITR 471(SC)
(b) CIT v. West Bengal Infrastructure Development Finance Corp. Ltd ((2011) 334 ITR 269)(SC)
(c) Bhivchandra Shankar More v. BaluGangaram More (2019) 6 SCC 387 (SC)
(d) Elnet Technologies Ltd v. DCIT (2018) 259 Taxman 593 (Mad) (HC) taxmann. com 219)(Mad)(HC)
(e) Sivalogam Steels (P) Ltd v. CESTAT (2016) 70 taxmann. com (301)(Mad) (HC))
(f) E-Governance Society v. CIT (E) (2019) 261 taxman (289)(HP)(HC)
(g) Lahoti Overseas Ltd v. DCIT (ITNo. 3786/Mum/2012dt 18-03-2016)(Mum) (Trib) www.itatonline.org
(h) Vijayeswari Textiles Ltd. v. CIT (2002) 256 ITR 560 (Mad.) (HC)
(i) Esha Bhattachrjee v. Managing Committee of Raghunathpur Nafar Acadey & Ors (CANOs. 8183-8184 of 2013 dt 13-09-2013 (SC))
(j) G. Ramegowda Major and others v. Special Land Acquisition (1998) 2 SCC (2)142 /1988 AIR 897 (SC)
(k) Oriental Aroma Chemical Industries Ltd v. Gujarat Industrial Development Corporation (2010) 5 SCC 459
(l) Improvement Trust Ludhiana v Ujagar Singh and Ors. (2010) 6 SCC 786
(m) State of Kerala v. Krishna Kurup Madava Kurup AIR 1971 Ker 211 (215) (ITA No. 169/Asr/2015, dt. 29-10-2019) (AY. 2006-07)
Bhagwati Colonizer Pvt. Ltd. v. ITO (TM) (Amritsar) (Trib)
S. 254(1) : Appellate Tribunal – Duties – Cross objection – Delay of 1965 days condoned Order passed without following the mandate laid down u/s 144C of the Act is quashed – Penalty levied was also quashed.
[S. 92CA, 144C]
Tribunal held that none should be deprived of an adjudication on merits unless it is found that the litigant deliberately delayed the filing of appeal. Delay due to improper legal advice should be condoned. A technical view of dismissing the appeal on the ground of delay should not be taken if the legal issue has to be decided for other years. Followed Vijay Vishin Meghani v. DCIT (2017) 398 ITR 250 (Bom.) (HC). A draft assessment order u/s 144C issued with a notice of demand u/s 156 and s. 271(1)(c) penalty notice is null and void (Eaton Fluid Power Ltd v. DCIT (2018) 96 taxmann.com 512 (Pune) (Trib) followed, BS Ltd v. ACIT (2018) 94 taxmann. com 346 (Hyd) (Trib) distinguished)(ITA No. 649/PUN/2013 & 1726/PUN/2014, dt. 29-08-2019)(AYs. 2008-09 & 2009-10)
Atlas Copco (India) Limited v. DCIT (Pune)(Triib.),
S. 254(1) : Appellate Tribunal – Suggestions on how to remove hindrances to India’s goal to become a $5 Trillion economy. Cash credits – Cash sales – Vouchers of day to day was not examined – Matter remanded for verification. [S. 68, 115BBE]
ITAT offers suggestions on how to remove hindrances to India’s goal to become a $5 Trillion economy. Violations of tax laws by new assessees occur because of lack of proper advice. Instead of letting these sparks of economic change stifle and die due to fear of compliances, they should be assisted by the State. (i) Set up a Tax Advisory Cell consisting of public spirited Revenue officers with strong ethics, full awareness of tax laws and people skills (ii) Identify new successful businesses as the agents of economic change (e.g. Haldiram, Lijjat Papad) and assist them, (iii) Create a Tax Compliance Scheme specially for the benefits of these new ventures so as to address their past lack of compliance. As regards addition as cash credits in respect of cash sales matter remanded to the AO for verification. (ITA No. 1224/CHD/2018, dt. 29-08-2019)(AY. 2014-15)
Asha Gandhi v. ITO (SMC) (2019) 182 DTR 173/ 75 ITR 36 / 201 TTJ 900 (Chad.)(Trib.),
S. 254(1) : Appellate Tribunal- Delay of 420 days in filing appeal due to subsequent decision of the Supreme Court is a valid ground for condonation of delay – An order can be said to suffer from a “mistake apparent from the record” if it’s contrary to a subsequent judgement of the Supreme Court. Courts do not make any new law; they only clarify the legal position which was earlier not correctly understood. Such legal position clarified by Courts has retrospective effect as the law was always the same. [S. 80HHC, 154]
Tribunal held that delay of 420 days in filing appeal due to subsequent decision of the Supreme Court is a valid ground for condonation of delay. Tribunal also held that an order can be said to suffer from a “mistake apparent from the record” if it is contrary to a subsequent judgement of the Supreme Court. Courts do not make any new law; they only clarify the legal position which was earlier not correctly understood. Such legal position clarified by Courts has retrospective effect as the law was always the same. (ITA No. 4192/MUM/2012, dt. 20-8-2019)(AY. 2003-04)
Anandkumar Jain v. ITO (Mum.)(Trib.), www.itatonline.org
S. 254(1) : Appellate Tribunal – Remand Assessment – Order giving effect – AO must comply the direction of the Tribunal [S. 2(8), 143(3), 250]
If the ITAT has passed an order remanding the matter to the file of the AO then the AO is duty bound to pass a valid order in conformity with the directions given by the ITAT and the AO cannot pass any order in disregard of such directions. (AY. 2001-02)
Dy. CIT v. Punjab Beverages (P) Ltd. (2019) 174 DTR 329 (Chd.)(Trib.)
S. 254(1) : Appellate Tribunal – Respondent can defend on the grounds, though no appeal is filed – Search and seizure – Jurisdiction issue. [S. 132, 153A, ITAT R. 27]
Even though the assessee has not appealed against the order of a lower authority it may still defend such an order on the grounds decided against him if the grounds are otherwise in his favour. (AY. 2011-12, 2014-15, 2015-16)
Dy. CIT v. Pacific Industries Ltd. (2019) 72 ITR 634 (Jodh.)(Trib.)
S. 263 : Commissioner – Revision of orders prejudicial to revenue – Share capital – share premium – AO conducted detailed inquiry – Revision is held to be not valid [S 68, 133(6)]
Assessee company entered into a transaction to issue share capital at a huge premium and received shares (instead of money) held by the subscribers as investments in other companies. These shares (investments) were clearly shown in the balance sheets as investments and return filings of the subscribing companies in the earlier years. The AO decided to peruse the transaction in detail to decide as to whether addition needs to be made under section 68. In the assessment proceedings under section 147 the AO raised various queries and also issued notices to subscribing companies under section 133(6). The AO was satisfied with the responses but sent a proposal to the PCIT to take action under section 263 on various reasons recorded by the AO. The PCIT without applying any independent mind of his own took action to re-peruse the above transaction as the subscribing companies did not have revenues justifying the amount of investments held by them. The Tribunal held that the AO had conducted detailed inquiries from the parties directly and there was no need to exercise revisionary jurisdiction under section 263. The PCIT did not conduct any prima facie enquiry by himself so as to reach a conclusion that the inquiry conducted by the AO was deficient or lacking. Accordingly the impugned revisionary order was quashed. (AY. 2010-11).
Conton Textiles Mills Pvt. Ltd. v. PCIT (2019) 55 CCH 600 / 72 ITR 85 (Delhi) (Trib.)
S. 263 : Commissioner – Revision of orders prejudicial to revenue – Method of accounting construction contract – Completion method – Allocation of expenses – Accounting standard AS-7 – Revision is held to be not justified.
Assessee returned loss which was allowed by AO. CIT held that change in accounting policy resulted in declaration of loss from Projects and he directed AO to examine issues and pass de novo assessment in accordance with law. Tribunal held that construction of assets was required to be completed in accordance with time-line given in contracts, i.e., 22 months and 24 months respectively and work undertaken by assessee was convergence of various technological designs and functions for purposes of main battle tank training and construction of simulator was high end technical asset for purposes of training on battle tank and would definitely fall within definition of ‘construction of an asset’ and, thus, Accounting Standard 7 would be applicable to such an activity. Accordingly on facts, there was no fault in shifting of accounting policy by assessee accordingly the revision order is held to be not valid. (AY. 2008-09)
CAE India (P.) Ltd. v. CIT (2019) 177 ITD 780 (Bang.) (Trib.)
S. 271(1)(b) : Penalty – Failure to comply with notices – Alleged bank account not belong to assessee – No failure on part of assessee – No penalty can be levied. [S. 142(1), 273B]
On information received by department from ADIT (Inv.) it was alleged that the assessee held bank account in HSBC Bank, Geneva, Switzerland. The Assessing Officer has issued notice under S. 142(1) of the Act requiring assessee to furnish requisite information in respect of alleged bank account or submitting consent letter for obtaining account statement from the Bank. As the assessee had not submitted the consent letter, the AO has invoked penalty under S. 271 (1)(b). The Tribunal held that penalty should not be levied as assessee has a reasonable and bona fide belief in terms of S. 273B that there had been no violation of notice under section 142(1) for non-compliance on part of assessee. The Tribunal observed that the details of bank accounts which the assessee possessed outside India has already been disclosed by the assessee and thus there was no non-compliance under S. 142(1) of the Act and thus, no penalty can be levied under S. 271(1) (b) of the Act. (AYs. 2006-07 to 2012-13)
Charu Modi Bhartia v. DCIT (2019) 177 DTR 1/ 104 taxmann. com 390 (Delhi)(Trib.)
S. 271(1)(c) : Penalty – Concealment – Surrender of income voluntarily – Penalty cannot be levied.
Penalty can be levied only if there is concealment of income or inaccurate particulars of income have been furnished. The onus is on the Assessing Officer during penalty proceedings to prove that the assessee has either concealed its income or furnished inaccurate particulars of income. If the assessee has made an incorrect claim in the return that would not mean that the assessee has concealed income or furnished inaccurate particulars of income. If surrender is voluntary then penalty proceedings cannot be initiated against the assessee.
Dy. CIT v. Shehla Ahmad (Smt.) (2019) 74 ITR 523 (Luck.)(Trib.)
S. 271(1)(c): Penalty – Concealment – Interest on fixed deposit receipts – Messing commission – Shown as exempt income – Levy of penalty is held to be not valid. [S. 148]
Tribunal held that the said issue was debatable and assessee was unaware of the decision of Apex Court on the said issue while filing return of income pursuant to notice under section. 148 of the Act. However, assessee accepted the addition and payed taxes as well as interest on the same pursuant to decision of Apex Court. Thus, it does not amount to concealment of particulars of income and furnishing inaccurate particulars when all necessary details were already furnished by assessee at the time of filing original return. At the most assessee has put forth a wrong claim at the time of filing return pursuant to reopening under Section 148 of the Act and has never concealed the particulars of income or furnished inaccurate. Thus, Tribunal relying on previous year’s decision in assessee’s own case deleted penalty. (AY. 2006-07)
Dehradun Club Ltd. v. Dy. CIT (2019) 69 ITR 30 (SN) (Delhi)(Trib.)
S. 271(1)(c) : Penalty – Concealment – Explanation given by the assessee is not proved to be false – Levy of penalty is held to be not valid. [S. 69A, 271AAA]
A search and seizure operation was carried out by the department at the business premises of the aforesaid Group as well as residential premises of the promoters and directors of the company but no incriminating material was found during the search action. During the assessment proceedings, the Assessing officer had asked about the sources of the aforesaid income offered/declared by the assessee regarding which the common explanation given by the assessees was that the same was from speculation in the sale/purchase of the agricultural land, and since, no records were being maintained by the assessee in this regard, the income was offered under section 69A ‘subject to no explanation’. As the assessees could not satisfactorily explain the sources of income, the Assessing officer, therefore, invoked the Explanation 1 to section 271(1)(c) and initiated penalty proceedings and levied the penalty under section 271(1)(c). There was no material on record to indicate that the particulars furnished by the assessee were factually incorrect. Under the circumstances, even otherwise, on merits, the penalty under section 271(1)(c) is not attracted in this case. (AY. 2008-09 to 2012-13)
Dy. CIT v. Kulwant Singh (2019) 180 DTR 177/ 199 TTJ 545/ 104 taxmann.com 340 (Chd.) (Trib.)
S. 271AAA : Penalty – Search initiated on or after 1st June, 2007 – Common appeal filed – Wrong advice – Delay was condoned – Matter remanded. [S. 246A, 271(1)(c)]
Assessee had received orders imposing penalty u/s. 271(1)(c) as well as u/s. 271AAA for relevant year. As per the advice of his CA, assessee had filed a common appeal against both these orders. On realizing that a separate appeal was to be submitted by assessee against order imposing penalty u/s. 271AAA, assessee filed appeal seeking condonation of delay in filing said appeal. The CIT(A) dismissed appeal holding that ignorance of law cannot be a justifiable reason. Tribunal held that, CA. had advised assessee to file one common appeal, since assessee could not be penalized for no fault of its own, thus the order was remitted back to the CIT(A) to verify facts whether assessee had challenged penalty imposed u/s. 271(1)(c) and 271AAA by filing a single appeal and if said pleading was found to be correct, said mistake being a technical mistake. Accordingly the delay was condoned and matter was remanded to CIT(A) to decide on merit. (AY 2011-2012)
Vijay Kumar Sood v. DCIT (2019) 178 ITD 251 (Chd.)(Trib.)