DIRECT TAXES – Tribunals

  1. S. 2(22) : When the Assessee holds a current account in a company and the balance in the books remain in credit, advancing of a certain sum to the Assessee by the company cannot be characterized to be deemed dividend.
    The Assessee is an individual who held two accounts with a company in which he also held significant shareholding. One account pertained to loan and the second account was a Trade account of the assessee’s proprietary concern, in which the assessee had a credit balance. The Ld. AO proposed to add the loan amount received by the assessee as deemed dividend as in his opinion the assessee had failed to adduce necessary evidence to prove otherwise. The Assessee contented that the Assessee had multiple ledger accounts; and even if such accounts were of different nature, the balance of the assessee in the books of the company remained in credit and so no addition were warranted under section 2(22)(e) but to no avail.The Assessee approached the Ld. Joint Commissioner of Income Tax (“JCIT”) under section 144A of the Act. The main contention of the Assessee was that there was no debit balance at all after consolidation of the loan and trading account of the Assessee. It was also urged that the account on the basis of which the Ld. AO proposed addition was in the nature of current account, which is evident from the frequency of the transaction. There was no one off loan that was given to the assessee nor have any funds of the company been divested; what exists is a current account which keeps fluctuating as per requirement of the funds. The fluctuating balances correlates to requirement that arise in the ordinary course of business and hence cannot be treated as deemed dividend under section 2(22)(e).

    However, the above ground for consolidation of two accounts – loan and trading account, was not acceptable to the revenue. As an alternate ground, the Assessee also urged restricting the addition to the extent of accumulated profit which meant restricting accumulated profit as on the date of loan. The Ld. JCIT directed the Ld. AO to limit the addition to the accumulated profit of the company. The Ld. AO complied with the said direction but also included security premium amount while calculating the accumulated profits. The Ld. CIT(A) sustained the addition however restricted the addition taking accumulated profits amount as on the start of the year as the correct way to calculate deemed dividend.

    The Hon’ble Tribunal relying on various rulings and the factual matrix held that, no funds of the company were divested; there exists a current account which keeps fluctuating as per requirement of the funds that arise in the ordinary course of business and hence advance cannot be treated as deemed dividend under section 2(22)(e). (AY 13-14)

    Smt. Kankuben Karshanbhai Tejani v. DCIT (2023) 198 ITD 304 (Surat)(Trib)

  2. S. 2(28A): Interest – loan processing fees are not in respect of money borrowed or debt incurred, such loan processing fees cannot qualify as “interest” as defined u/s 2(28A) of the Act
    Held that, the definition of interest in s. 2(28A) uses the expression “service fee or other charge”, the loan processing fee cannot qualify as “interest” within the meaning of s. 2(28A). PCIT not justified in initiating revision proceedings on the ground that the AO has not made disallowance under s. 40(a)(ia) in respect of the loan processing fee paid by the assessee without deducting TDS. (AY 2014-15)
    Smt. Badrunisha v. ACIT (2022) 220 TTJ 983 / 220 DTR 338 (Jodhpur)(Trib.)
  3. S. 2(28A): Interest – Part of the interest paid by the assessee on borrowings could not be disallowed merely for the reason that the assessee has charged a lower rate of interest on the loan given to a related person, hence, the PCIT was not justified in initiating revision proceedings on the ground that the AO was required to make part disallowance of interest paid on the borrowings. (r.w.s. 263)
    Held that, the terms agreed between the parties would decide the rate of interest to be charged on the loan given/received. It is well settled proposition of law that a tax gatherer cannot sit in the armchair of a businessman and regulate the affairs of the business. PCIT initiated enquiry on the ground that the provisions of S.40A(2)(a) are attracted to the transaction of loan given to the related party. However, he concluded that the provisions of s. 40A(2)(a) are not attracted but he also concluded that a part of interest paid to related party should be disallowed without citing any of the provisions of the Act, which would warrant such a disallowance. Hence, there is no rationale in the view taken by PCIT in respect of this issue and hence, the PCIT was not justified in initiating revision proceedings in respect of this issue. (AY 2014-15)
    Smt. Badrunisha v. ACIT (2022) 220 TTJ 983 / 220 DTR 338 (Jodhpur)(Trib.)
  4. S. 2(47): Transfer – partition or family settlement is not transfer – assessee transferred shares under family arrangement as per direction of CLB – no capital gain tax was liable to be paid on such transfer.
    Hon’ble Appellate Tribunal held that there is no doubt that there is a family arrangement and based on the condition specified in the order passed by CLB, the shares were transferred to the company on the buyback terms. Partition or family settlement is not transfer. When there is no transfer there is no capital gain and consequently no tax on capital gain is liable to be paid on such transaction even if tax was paid by assessee under mistaken belief that such transaction was taxable. (AY 2007-08)
    Sujan Azad Parikh v. Dy. CIT (2023) 198 ITD 83 (Mum.)
  5. S. 9 : Limited Liability Partnership firm UK shall be affirmed the benefit of the DTAA even if they are not taxable technically on the basis that the income of the partnership firm has been taxed in the foreign state in the hands of its partners. (r/w article 4 of India – UK DTAA)
    The Assessee was a UK based Limited Liability Partnership (“LLP”) firm. It had partners in majority who were UK tax residents. During the impugned year the Assessee is said to have provided legal services to its clients in India and worldwide. The Ld. AO was of the opinion that since LLP in UK is not taxed- but it is the partners of the LLP who are taxed for the profits of the LLP in proportion to their share, the assessee LLP cannot be granted the benefit of the Treaty. As unless an entity was liable to taxation, it did not fall within the purview of a resident within the meaning of article 4(1) of the India- UK DTAA. Since LLP has been kept outside the purview of definition of ‘resident’ and is not liable to taxation in UK, treaty benefit cannot be extended to the Assessee. The Ld. CIT(A) upheld the views of the Ld. AO.The Hon’ble Tribunal placing its reliance on the judgement in Linklaters LLP v. ITO, opined that the Assessee was entitled to the benefit of India-UK DTAA on the portion of its income from Indian engagements, which has been taxed in the UK in the hands of its UK tax resident partners. Further, that the eligibility of a fiscally transparent partnership firm to avail of the tax treaty benefits is to be affirmed on the basis that the income of the partnership firm has been taxed in the foreign state in the hands of its partners. In this backdrop, the Hon’ble Tribunal directed that the orders of the lower authorities be set aside. (AY 12-13 & 13-14)

    Herbert Smith Freehills LLP v. ACIT (2023) 198 ITD 633 (Delhi)(Trib.)

  6. S. 9 : Where Assessee purchased software for usage under a non- transferrable and non-exclusive basis, such a usage arising out of purchase of the product and payment thereof, shall not characterize the transaction pertaining to payment into royalty. (r.w.s. 195 and 201 and article 12 of India-USA DTAA)
    The assessee during the impugned year made payment to its foreign AE entity without deduction of tax at source under section 195 of the Act towards use of some software. The contention of the Ld. AO was that these payments were in the nature of royalty and thus attracted the provisions of section 195, which the Assessee did not adhere to, and hence were now liable to taxed for the default under section 201(1) of the Act along with the interest u/s 201(1A).Aggrieved, the assessee appealed to the Ld. CIT(A) claiming that they did not purchase the copyright or copyrighted article, but only a standard software which does not contain any element of proprietary knowledge which could be re-used; and that the payments were made for the purchase of goods which cannot be taken as royalty. Also, that the said grant was a non-exclusive and non-transferrable right to use software without further right either to distribute or to copy the software or the source code therein, and so did not give rise to any royalty. The Ld. CIT(A) could not appreciate the contention of the Assessee and) thereby sustained the additions upholding the findings of the Ld. AO.

    The Hon’ble Tribunal held that, once the software is purchased for a particular usage under a non-transferable and non-exclusive grant of license, by no stretch of imagination could be said that any payment made for the usage of software could be royalty. Further finding the facts of the case similar to the case of Engineering Analysis Centre of Excellence (P.) Ltd (adjudicated by the Hon’ble SC) the Hon’ble Tribunal placed reliance on the same and held that the remittances made by the assessee to foreign AE towards the use of software are not royalty income chargeable to tax under the Act as well as under the treaty, and consequently the assessee cannot be treated as an ‘assessee- in-default’ under section 201 of the Act for non- deduction of taxes under section 195 of the Act. (AY 2008-09 to 2010-11)

    GE India Industrial (P.) Ltd v. ADIT (2023) 198 ITD 522 (HYD)(Trib.)

  7. S. 9: Income deemed to accrue or arise in India – Business Profits – Profit attributable to PE – interest paid by PE of assessee-bank to head office could not be brought to tax in hands of assessee as the fiction of hypothetical independence as determined under article 7(2) was for limited purpose of profits attributable to PE and could not be used for computation of profits of assessee.
    Hon’ble Mumbai Appellate Tribunal held that fiction of hypothetical independence as determined under article 7(2) between India and Korea was for limited purpose of profits attributable to PE and could not be used for computation of profits of assessee and, thus, interest paid by PE to head office could not be brought to tax in hands of assessee-bank, even though it was allowed as deduction in computation of profits attributable to PE. (AY 2012-13 to 2015-16)
    Shinhan Bank v. Dy. CIT(IT) (2023) 198 ITD 453 (Mum.)
  8. S. 9: Income deemed to accrue or arise in India – assessee received search fee under service agreement from Indian company wherein it agreed to provide, on a principal- to-principal basis, support and services to each other in relation to executive search assignments against executive search service fee – the search fee is a business income not exigible to tax in the absence of PE in India. [S. 12(5)(a)]
    In the present case Hon’ble appellate tribunal held that where assessee-Dutch company had entered into two agreements with its Indian subsidiary, namely, License Agreement granting rights to use software owned by it and Service Agreement to provide executive search services, since executive search fee earned by assessee in terms of Service Agreement was independent of royalty earned in terms of License Agreement, same was not taxable in India as FTS or royalty under article 12(5)(a) of DTAA between India and Netherlands. (A.Y.2019-20)Spencer Stuart International B.V. v. Asstt. CIT (IT) (2023) 198 ITD 698 (Mum.)
  9. S. 9(1): Income deemed to accrue or arise in India – Profits from transport of air passengers to be taxed in contracting state as per Indo-Bhutan DTAA
    The Assessee is an airline company incorporated in Bhutan. The Assessee claimed that income earned from the sale of tickets to passengers, insurance and fuel charges, etc. in India was taxable in Bhutan only. However, AO held that as the assessee was having a PE in India and therefore, income was taxable in India as per S. 9. The CIT(A) had accepted the contention of the Assessee that since its place of effective management (POEM) had been in Bhutan then as per Article 8 of Indo Bhutan DTAA the income earned by the Assessee from air transport was taxable in Bhutan only. The ITAT held that article 8 of the Indo Bhutan DTAA is more beneficial to the assessee. Therefore, the profits earned by the Assessee from the operation of ships or aircraft in international traffic are liable to be taxed in the contracting state in which its place of effective management is situated, which undisputedly is Bhutan. (AY 2017-18 & 2018-19)Dy. CIT(IT) v. Tashi Air (P.) Ltd. (Kol.) (2023) 198 ITD 420
  10. S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – assessee did not have any fixed place PE – business profits earned by assessee on account of reinsurance business would have no tax implications in India [S. 5]
    In the present case, the assessee an Ireland based company was engaged in the business of providing reinsurance services to its clients in India. During relevant assessment year, the assessee had earned the reinsurance commission from India. The assessee had not declared any taxable income in India on the ground that it does not have any permanent establishment in India, and, therefore, in terms of the provisions of Indo-Irish tax treaty, its business profits, embedded in the reinsurance premium received from Indian entities, are not taxable in India. The matter reached upto Appellate Tribunal for adjudication. Hon’ble Appellate Tribunal held that unless a particular place is at the disposal of the assessee, that place cannot be said to constitute the PE of the assessee. In any case, the core reinsurance activity is the assumption of risk, and that assumption of risk has been done outside India. Thus, there is no occasion to attribute reinsurance profit attribution to Indian group entity. Whatever activities were carried out by Indian group entity have been duly paid for by the assessee, and the transfer pricing officer has accepted that position. Once that position is accepted, there cannot be any further profit attribution for services rendered by the Indian group entity. So far as profit attribution of a dependent agency PE is concerned, the legal position is that as long as an agent is paid an arm’s length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral. (A.Y. 2015-16)RGA International Reinsurance Co. Ltd. v. Asstt. CIT, IT (2023) 198 ITD 240 (Mum.)
  11. S. 9(1)(vii): Income deemed to accrue or arise in India – Fees for technical services – when there is no complete transfer of technical knowledge, know- how, skill etc. to the recipient of service so as to enable him to use such technical know-how, knowledge, experience, skill etc. independently without the aid and assistance of the service provider hence ‘make available’ condition under Article 12(4)(b) of the Tax Treaty is not satisfied.
    The Assessee provides marketing support services to its parent company in India in terms of the marketing support services agreement for which it received certain consideration. The AO was of the view that the services rendered by the assessee to the parent company in India are in the nature of consultancy services which satisfied the ‘make available’ condition in terms with Article 12(4)(b) of the DTAA. Thus, he concluded that the amount received by the assessee is in the nature of Fee for Included Services (FIS) under Article 12(4)(b) of the Tax Treaty. The DRP concurred with the view of the AO. The ITAT held that the services provided by the Assessee to its parent Indian company are not in the nature of either technical or consultancy services. It further held that the term ‘make available’ has been interpreted in various judicial precedents to mean that there must be a transfer of technical knowledge, experience, skill, know-how etc. from the service provider to service recipient in a manner so as to enable the service recipient to perform such services in future independently without any aid and assistance of the service provider, which was not the contention of the department in the present case. Therefore, in absence of such transfer, the ‘make available’ condition in article 12(4)(b) of the DTAA is not satisfied. (AY 2017-18)Anand NVH Products Inc. v. ACIT (Delhi) (2023) 198 ITD 515
  12. S. 9(1)(vii): Amount received under the Master Franchise Agreement cannot be treated either as royalty or Fee for Technical Services (FTS) or FIS
    The Assessee is incorporated in the USA and is a resident of that country. The Assessee received various other receipt apart from royalty income towards a package of services provided under the Master Franchise Agreement which related to third party reservation, reservation fee, etc. The ITAT observed that an identical issue came up for consideration in assessee’s own case in AY 2016-17. While deciding the issue, it was held that the even quantum of service fee received if compared to the royalty income, would not make it ancillary and subsidiary so as to make it FIS under article 12(4)(a) of the India- USA DTAA. The ITAT, in the present case followed the above decision of the ITAT for AY 2016-17, the issue being identical in the impugned AY. (AY 2018-19)Country Inn & Suites by Radisson v. ACIT (Delhi) (2023) 198 ITD 620
  13. S. 10(10D): Life insurance policy- Keyman insurance policy- Sec. 143(1)(a)(vi) of the Act provides for making adjustments by way of ‘addition of income appearing in Form No. 26AS’ and not the sum so appearing in the Form 26AS and hence only the resultant income (surrender value – premium value) is liable for adjustment in the intimation under s. 143(1) of the Act. (r.w.s.143 (1)(a)
    Held that, since the life insurance policy in question commenced on 30/08/2011 on payment of premium of Rs.8 lakhs and the sum assured was Rs.16 lakhs, the amount received by the assessee on premature surrender of policy fell within the exception cl. (c) of s. 10(10D) and did not qualify for exemption; assessee having not included the said amount in the total income in her return, an adjustment u/s. 143(1)(a)(vi) is to be made only of the ‘amount of income’ appearing in Form No.26AS and not the whole amount so appearing in the Form 26AS. Hence, only the difference of the surrender value and premium paid is liable for adjustment in the intimation u/s 143(1) of the Act. (A.Y.2017-18)

    Swati Dyaneshwar Husukale v. DCIT. (2022) 220 TTJ 665 / 220 DTR 82 (Nag.)(Trib.)

  14. S. 10(37) : Capital gains – compulsory acquisition of non- agricultural land – held, amount received as compensation pursuant to the award under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is exempt from income tax as per section 96 of that Act.
    The Assessee received compensation for compulsory acquisition of land. The said compensation was erroneously awarded on 05.08.2016 u/s 11 of the Land Acquisition Act, 2013 instead of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“RFCTLARR”) as the former was replaced from 01.01.2014 by the latter Act. The ITAT upheld the order of the CIT(A) who held that as per S. 96 of the RFCTLARR, income tax shall not be levied on any award agreement made under that Act. Accordingly, the amount received as compensation was held as allowed under Section 10(37) of the Act. (AY 2017-18)Dy. CIT v. Ganga Developers (Mum.) (2023) 198 ITD 435
  15. S. 11: Exemption – Charitable purpose – assessee organizing drama on the life of Shivaji – drama for institutes and companies for fee – profit element in the performance of drama more than 40 per cent. Of gross receipts – not eligible for exemption.
    Held that, the assessee was organising the drama for the payer institutes and companies, who were then exploiting it commercially by selling tickets and earning revenue at their own end. The assessee was not directly organising the drama for any education, but for earning profit. The profit element in the performance of the drama was more than 40 per cent. of the gross receipts. Such profit rate patently fell in the category of “significant mark-up cases” and hence business activity. The assessee did not satisfy the condition of “advancement of any other object of general public utility” so as to be covered under section 2(15) and, ex consequential, becoming eligible for the benefit of exemption under section 11 of the Act.Maharaja Shivchatrapati Pratishthan v. ITO (Exemptions) (2023) 101 ITR 84 (Pune) (Trib.) 84
  16. S. 11 r.w.s 143(1) : Deduction claimed under section 11(1)(a) and 11(2) – Adjustment made by way of intimation under section 143(1) (a)- No opportunity of being heard granted – Debatable issue thus no adjustment should be made by way of intimation – Matter remanded [S. 11 r.ws 143(1)]
    The assessee was set-up with the objective of providing for instruction and training in such branches of medicine and allied sciences as may be considered suitable to make provision for research for the advancement and dissemination of knowledge. The assessee was also registered under section 12A. It filed its return of income for the year under consideration declaring Nil income. The CPC vide an intimation issued under section 143(1), denied the exemption claimed under section 11. The assessee filed rectification application against said order which was not entertained. On appeal, the Hon’ble CIT(A) upheld the disallowance by observing that no details were filed in the audit report in order to substantiate the exemption claimed in Form 10. Aggrieved, the assessee preferred appeal before the Hon’ble Tribunal. The Hon’ble Tribunal held that no adjustments’ except for arithmetical mistakes and/or an incorrect claim that is apparent from any information in the return can be made in intimation under Section 143(1).The scope of permissible adjustments under section 143(1)(a) for the relevant year is much narrower. Further the Hon’ble Tribunal relying on Hon’ble Bombay High Court judgment in case of Khatau Junkar Ltd. (1992) (196 ITR 157) held that claim which requires inquiry cannot be disallowed without hearing the parties and/ or giving the party an opportunity to submit proof in support of its claim. Since the issue is debatable and no opportunity of being heard is granted to assessee, in the interest of justice, this issue is remanded back to the Assessing Officer to grant opportunity of being heard to assessee in a physical hearing and to consider the claim in accordance with law.(ITA No.584,563/ Bang/2022) (AY 2016-17)

    Rajiv Gandhi University of Health Sciences (2022) 198 ITD 424 (Bangalore) (Trib)

  17. S. 12AA: Charitable Purpose – Registration – application filed initially in 2011 and not disposed of – no evidence for earlier application pending – registration properly granted from date of application in 2018.
    Held that, the assessee failed to file a copy of the application for registration u/s. 12AA, further not submitted any evidence that the assessee made any request before the Commissioner (Exemptions) from the registration file in 2011. Though the assessee furnished a copy of such application, the assessee failed to furnish any evidence of whether such application was registered in the office of the Commissioner (Exemptions) or not or any further query was raised by the Commissioner (Exemptions). One- sided correspondence, unless acknowledged by the other party would not be enough to consider the application of the assessee as pending. The assessee was allowed registration under section 12AA from the date of application, which was in order.Domadia Raiyaben Muljibhai Charitable Trust v. CIT (Exemption) (2023) 101 ITR 14 (Surat) (Trib.)
  18. S. 14A r.w. rule 8D: Disallowance cannot exceed exempt income- AO work out exempt income and to restrict disallowance accordingly.
    Disallowance u/s. 14A cannot exceed exempt income and the disallowance made u/s. 14A read with rule 8D was much in excess of the exempt income, the AO was to restrict the disallowance under section 14A read with rule 8D to the extent of exempt income earned by the assessee.Hero Corporate Service Pvt. Ltd. v. Deputy CIT (Delhi) (2023) 101 ITR (Trib.) 77
  19. S. 15: Salary – business expenditure no requirement for deduction of tax at source by firm on salary, bonus, commission or remuneration. (r.w.s. 15, explanation 2, 40(a)(ia) and 192)
    Held, that the provisions of Explanation 2 to s. 15 includes salary, bonus, commission, or remuneration received by a partner under the head “salary”. Considering the provisions of s. 192 about the salary given u/s. 15 of the Act, there was no infirmity in the findings of the Commissioner (Appeals) that there was no requirement under the provisions for deduction of tax at source by the partnership firm on salary, bonus, commission or remuneration, etc., or whatever name called given or credited to a partner of a firm.CIT (Asst.) v. Dhar Construction Co. (2023) 199 ITD 124 (2023) 101 ITR 49(Gauhati) (Trib.)
  20. S. 28: Business Loss – No evidence suggesting that assessee or his broker was involved in manipulating price of scripts – income and loss from trading in scripts cannot be held bogus – loss to be allowed.
    There was no evidence available on record suggesting that the assessee or his broker was involved in the manipulation of the price of the scripts of A Ltd. and V Ltd. In the absence of any specific finding against the assessee, the assessee could not be held guilty or linked to the wrong acts merely on basis of surmises and assumptions. The income earned by the assessee on the scrip of A Ltd. and loss incurred on the scrip of V Ltd. could not be held bogus merely on the basis of some assumption of the Assessing Officer unless cogent materials are brought on record.ITO v. Champalal Gopiram Agarwal (Ahmedabad) (2023) 101 ITR (Trib.) 22
  21. S. 36(1)(iii): Interest on borrowed capital – own fund as well as borrowed fund – While calculating proportionate interest disallowance own funds were not considered – matter remanded back to work out interest disallowance considering assessee’s own fund.
    It has been held by the Hon’ble Appellate Tribunal that where other than unsecured loan, assessee had its own funds also and while calculating proportionate disallowance of interest for granting loan to sister concern, the amount of own funds was not considered by authorities below, Assessing Officer was to be directed to work out interest disallowance considering assessee’s own fund.Samira Constructions (India) Ltd. v. Dy. CIT (2023) 198 ITD 264 (Mum.)
  22. S. 36(1)(va) : The payments made towards contribution to PF, ESIC and Labour Welfare fund after due date mentioned in the respective acts but before the date of filing of return is allowable. The Amendment to section 43B is prospective in application. (r.w. s. 43B)
    The issue involved here pertains to disallowance u/s 36(1)(va) in respect of employee contribution to PF, ESIC and Labour Welfare Fund. The said amounts had been paid beyond the due dates under the respective acts but paid before the due date of filing return. The Ld. AO observing that the amounts had been paid belatedly after the due date under the relevant acts, disallowed the impugned amounts. The Ld. CIT(A) upon appeal by the aggrieved Assessee confirmed the disallowance.The Hon’ble Tribunal relying on the rulings of the co-ordinate bench and the jurisdictional HC held that, the amendment brought about in the Finance Act, 2021 is only prospective and not retrospective and applies to assessment year 2022-23 and to subsequent assessment years thereto. Further held that the contribution to PF, ESIC and Labour Welfare Fund paid after the specified due dates under the relevant Acts, nevertheless paid before the due date for filing the return of income is allowable. (AY 18-19)

    Geekay Facility Management (P.) Ltd v. DCIT; (2023) 198 ITD 13 (Mum)(Trib.)

  23. S. 36(1)(ii) : Disallowance due to wrong reporting in the Audit report, subsequently acknowledged by the Auditor vide a certificate is remediable in the absence of any other specific finding by the revenue to the contra
    The Assessee has during the year claimed deduction of certain sum on account of bonus paid to the employees. The Ld. AO however being of the view that such payment is in violation of the provision contained under section 36(1)(ii), disallowed the amount. The Ld. AO drew the given position owing to the error by the Auditor in the Audit report who had inadvertently mentioned the deduction claimed in the wrong column – “amount otherwise payable to the employees as profits and dividends”. This disallowance was sustained by the Ld. CIT(A) with a finding that the assessee had failed to furnish a certificate from the Auditor acknowledging this mistake.The Hon’ble Tribunal given that the certificate in question was produced by the Assessee before it in the form of an additional evidence, deemed it right to hold that the Ld. AO was to factually verify the certificate issued by the Auditor and allow the deduction, since there was no finding by the revenue that the employees in question were either partners or shareholders. The Hon’ble Tribunal relied on the pronouncement made in the case of Dalal Broacha Stock Broking (P.) Ltd. v. ACIT by the Mumbai Special Bench of the Tribunal to profess that the payment of bonus to employees cannot be equated with profits or dividend payable and is thus an allowable deduction. AY 13-14

    Karam Singh Malik v. ITO (2023) 198 ITD 678 (Delhi)(Trib.)

    Editorial note: The above ratio has been reversed in favour of the revenue by the SC in the decision of Checkmate Services (P.) Ltd v. CIT; CA No. 2830-2833/2016 & 159/2019, requiring the Assessee company to deposit the deduction made from the employee within the due date stipulated under the respective Acts.

  24. S. 36(1) (va) : The payments made towards contribution to PF, ESIC and Labour Welfare fund after due date mentioned in the respective acts but before the date of filing of return is allowable. The Amendment to section 43B is prospective in application. (r.e.s. 43B)
    The issue involved here pertains to disallowance u/s 36(1) (va) in respect of employee contribution to employee Welfare Fund. And the addition of the above brought vide intimation u/s 143(1)(a) – debatable issue ought to have been precluded. The said amount had been paid beyond the due date under the relevant Act but paid before the due date of filing return. The Ld. AO observing that the amounts had been paid belatedly after the due date under the relevant Act, disallowed the impugned amount. The Ld. CIT(A) upon appeal by the aggrieved Assessee confirmed the disallowance.The Hon’ble Tribunal firstly on the issue of addition vide Intimation u/s 143(1) held that – the processing of a return of income u/s. 143(1) (a) is not an ‘assessment’ in as much as there is no provision for hearing the assessee, precluding debatable issues. The only circumstance, therefore, justifying the impugned additions is a decision/s by the Hon’ble jurisdictional High Court which isn’t available in the present case. Thus, held that additions cannot be brought vide intimation u/s 143(1)(a) on an issue that is debatable.

    Secondly on the issue of applicability of the amendments by way of Explanation 5 to s. 43B and Explanation 2 to s. 36(1) (va), the said Explanations themselves have been proposed as prospective amendments, as stated in the Notes on the Clauses to, and the Memorandum explaining the Provisions of, the Finance Bill, 2021, with a view to, as explained, settle the controversy arising due to the contrary view expressed by some High Courts. Thus, accordingly held that there arose no question of giving retrospective effect to these amendments. (AY 19-20)

    Jabalpur Motors Ltd. v. ACIT/DCIT CPC; (2023) 198 ITD 528 (Jab)(Trib.)

  25. S. 36(1)(va): employees contribution to the provident fund – no deduction on failure to pay employee’s contribution within prescribed due date under respective PF Act
    Held, S. 36(1)(va) and S. 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee’s contribution is linked to payment before the due dates specified in the respective Acts and employer’s contribution is linked to payment before the due dates specified in the respective Acts and employer’s contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of an employee’s contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating the employer’s claim for deduction permanently forever u/s.36(1 )(va).Chase Security v. ITO (Bang.) (2023) 198 ITD 351
  26. S. 36(1)(va): Any sum received from employees – Assessee not entitled to deduction u/s 36(1) (va) r.w.s. 43B if employee’s contribution to provident fund not deposited within the due date mentioned in the respective statues – Follows Checkmate Services Ruling
    The only issue involved before Tribunal was the disallowance of employees’ contribution to Provident Fund as well as ESIC. The Assessee following decision of various High Courts and Tribunal had considered that if the employees’ contribution to provident fund is paid before the due date of filing of return of income, then it is deductible as per provisions of section 43B of the Act and the amendment made by the Finance Act, 2021 inserting Explanation 2 to section 43B is applicable prospectively i.e. from A.Y. 2021- 22. Since in the year under consideration, the payment of impugned employee’s’ contribution to provident fund was before the due date of filing of return of income u/s 139(1) of the Act, the same was contested to be allowable.The Tribunal noted that Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. v. CIT- 1 (448 ITR 518) has analyzed the legal essence of the welfare legislations such as ESI, EPF, etc. which are primarily for the benefit of the employees. The Apex Court had further held that essentially the condition precedent for deduction is that such amounts which are held in trust for the employees should be deposited by the employer on or before the due date as prescribed under the relevant Statutes. The Hon’ble Supreme Court further held that if this approach and reasoning is adopted then the non- obstante clause u/s 43B or anything contained in that provision would never absolve the assessee- employer from its liability to deposit employees’ contribution on or before the due date as mentioned in the respective enactments as a condition for deduction. In view thereof, the Hon’ble Apex Court upheld the findings of lower courts and also stated that the decisions of other Hon’ble High Courts holding to the contrary do not lay down the correct proposition of law.

    Accordingly, following the decision of Checkmate Services (supra), Tribunal held that Assessee was not entitled for deduction u/s 36(1)(va) read with section 43B of the Act as the payment of employees’ contribution to the provident fund was made before the due date of filing of return of income u/s 139(1) of the Act but beyond the due date as provided in the respective statutes. (ITA No.718, 719/Pun/2021) (AY 2018-19, 2019-20)

    Kohinoor Developments Corporation v. ADIT (198 ITD 672) (Pune) (Tribunal)

  27. S.37: Business Expenditure – No deficiency or specific defect shown in audited books – disallowances on account of conjectures and surmises not permissible – however, no documents to support claim disallowance on a certain percentage is justified.
    No proper documents to support claim have filed by the assesse, to the quantum of expenses and lack of sufficient evidence before the lower authorities, the disallowance of expenses at certain percentage made under various heads was justified.CIT (Asst.) v. Dhar Construction Co. (2023) 199 ITD 124 (2023) 101 ITR 49 (Gauhati) (Trib.)
  28. S. 37 : Whether legal expenses incurred by the Assessee in defending the directors and shareholders of the company before the Court, for alleged illegal gratification in their individual capacity, were related to business and eligible for claiming deduction or not, must be determined basis the outcome of the judgement of the special court (Central Bureau of Investigation).
    The sole issue in this matter revolves around the fact whether a certain legal expenditure incurred towards charges framed against the directors and shareholders of the assessee company for their alleged illegal receipt, is attributable to the company and thus expense be allowed as the business expenditure, or are the expenses incurred attributable to the directors involved in the issue individually as against the charges pressed against them. The Ld. AO believed the expenditure was not ‘wholly and exclusively’ for the purpose of the business of the assessee. The charges were against the directors and the shareholders of the Assessee company for their alleged misdemeanour and not the company per se. In this backdrop, it was Ld. AO’s belief that the expenses had to be disallowed. The Ld. CIT(A) sustained the disallowance made by the Ld. AO, claiming that no contentions apropos furthering the business activity was put forward by the Assessee.The Hon’ble Tribunal observed that, at the time of assessment proceedings, the CBI judgment was not available before the Ld. AO and therefore, there was no occasion for the Ld.AO to examine the judgment of the CBI court and consider this issue. However, judgment of the Special CBI Court was available when the Ld. CIT(A) passed his order. The Ld. CIT(A), without considering the same, confirmed the order of the Ld. AO. That both the authorities had disallowed the expenditure claimed by assessee without examining the outcome of the Special CBI Court judgment. That due consideration was not given to the outcome of the judgement on whether the parties against whom the charges were levied had been exonerated- in which event expenses could be considered as eligible expenses or if they were found to be guilty – no deduction could be allowed in such a case. Further the Hon’ble Tribunal remitted the matter back to the file of the AO to decide the issue afresh in accordance with law after examining the judgement of Special CBI Court. (AY 12-13 to 2014-15)

    Kalaignar TV (P.) Ltd v. ACIT (2023) 198 ITD 22 (CHY)(Trib.)

  29. S. 37(1) : premium paid on forward covers of foreign exchange rates to be treated as revenue expenditure
    The Assessee had taken foreign currency loans by way of external commercial borrowings. For this purpose, the assessee entered into forward contracts to mitigate any foreign currency losses arising out of fluctuation in foreign currency. The premium paid in respect thereof was claimed as revenue in nature in accordance with AS- 11 and the ICDS recommended by the Act as well as on the basis of various decisions of High Courts and ITAT. The ITAT, with respect to the contention of the Department that AS-11 did not specifically mention that the premium paid on foreign exchange contracts was to be claimed in the profit and loss account, observed that the AS-11 recommends the premium paid on foreign exchange contracts to be amortized as expense or income over the contracts. It observed that the term ‘expense’ is used in juxtaposition with income which undoubtedly is revenue receipts and came to the conclusion that that the language of AS-11 recommends writing off the premium on forward exchange contracts as expense means writing it off as revenue expenditure in the profit and loss account. It further held that section 43A is not applicable to the facts of the present case since it is not the case of the Revenue that the foreign exchange loan has been taken for purchasing any foreign asset. Therefore, since no other section of the Act deals with the issue of premium paid on forward contracts, the accounting prescribed by AS-11 will apply. With respect to the contention that loan was taken for capital purposes, therefore the premium paid in respect thereof cannot be treated as revenue expenditure, the ITAT relied on the decision of Dy. CIT, Circle-2 (1),Guntur v. Maddi Lakshmaiah &Co. Ltd. (2017) 166 ITD 69 (Visakhapatna-Trib) wherein it is held that for determining whether devaluation loss is Revenue or capital, the object for which the currency is obtained is not relevant and what is relevant is the utilization of the amount at the time of devaluation. (AY 2014-15 to 2016-17)CLP Wind Farm (India) Ltd. v. Dy. CIT (Ahd.) (2023) 198 ITD 690
  30. S. 37: The provision made by the assessee for sales incentive under a scheme on a scientific basis, is an allowable deduction.
    The Assessee during the impugned year claimed deduction on the provision made for sales incentive under a scheme. The Ld. AO following the Ld. CIT(A)’s order in Assessee’s case for previous Assessment year allowed certain amounts made under the scheme during the year and went onto disallow certain other balances in the provision calling the same unscientific. The Ld. CIT(A) sustained the additions made by the AO.The Hon’ble Tribunal held that, the issue having been decided in favour of the assessee consistently, there was no reason to change its stance given that the revenue had not brought forward any evidence or material to prove its claim of the provision being unscientific nor to differentiate the decision in assessee’s own case for the previous years. (AY 12-13 & AY 13-14)

    Havells India Ltd. v. DCIT (2023) 198 ITD 610 (Delhi)(Trib.)

  31. S. 40(a)(ia) : Deduction at source – Revision – Assessee reported shortfall on account of lower TDS in its tax audit report but the AO did not conduct any inquiry on this point hence it is a clear case of non-application of mind empowering the PCIT to invoke jurisdiction under s. 263 of the Act.
    Held that, the AO having not conducted any enquiry regarding the shortfall in deduction of TDS as reported in the tax audit report of the assessee, it is a clear case of non-application of mind by the AO which empowered the PCIT to invoke jurisdiction u/s. 263.Wockhardt Ltd v. PCIT (2022) 220 TTJ 657 / 220 DTR 1 (Pune)(Trib,)
  32. S. 40(a)(ia) and S.263 : Amounts not deductible – Deduction at source – Commission – Revision – Erroneous and prejudicial order- Assessee having sold its products to stockists on principal- to- principal basis at prices below the MRP, there was no requirement of deduction of tax at source under s. 194H and, therefore, the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue on account of omission to make disallowance under s. 40(a)(ia) of the Act.
    Held that, the Assessee Company sold its products to distributors at a price lower than the MRP. This difference has been opined by the PCIT as a commission requiring deduction of tax at source under s.194H of the Act. The said difference by no stretch of imagination, can be considered as commission or brokerage paid by the assessee to its stockists. In order to attract s. 194H of the Act, it is apparent that principal and agent relation must be established. The assessee sold its products to stockists on principal-to- principal basis. Thus, the relation between the assessee and its stockists cannot be described as that of principal and agent. Therefore, the PCIT was not justified in holding the assessment order to be erroneous and prejudicial to the interest of the Revenue on account non-deduction of tax at source from such amount warranting any disallowance under s. 40(a)(ia). (AY 2012-13)Wockhardt Ltd v. PCIT (2022) 220 TTJ 657 / 220 DTR (Pune)(Trib.)
  33. S. 40(a)(ib) : Amounts not deductible – if the advertiser, target audience and the advertising platform (Google) is located outside India then Equalisation levy cannot be imposed on sum paid by the Indian Company
    The assessee being an agent of Google Singapore, carried out an online advertising campaign for his clients for availing of Google Singapore services. During the relevant AY, the assessee paid charges to Google Singapore towards online advertisement on behalf of his clients. The AO made an addition u/s 40(a)(ib) for non-charging of Equalization levy (EL) as the conditions prescribed under section 165 of the Finance Act, 2016 are fulfilled. The CIT(A) reversed the order of the AO. The ITAT observed that the assessee was acting only as an agent of Google Singapore. On being approached the assessee would provide login credentials generated by him on the Google website, to his clients. Thereafter, the client runs advertisements on their own on Google. Thus the client decides in which geographical location the advertisement is to be run, who would be the targeted audience, and the duration of such advertisement. All such aspects are decided by the client advertising and not by the assessee who was merely a conduit for getting the advertisement run on Google. Therefore, the ITAT held that when the intention of the levy was related to the targeted audience and the party paying the online advertisement had no relation in India, Equalisation Levy is not attracted. (AY 2018-19)Dy. CIT v. Prakash Chandra Mishra (2023) 198 ITD 124 (Jaipur)(Trib)
  34. S. 40(b)(v) : Business Expenditure – Remuneration to Partners – Allowable Expenditure
    Held that, salary, bonus, remuneration or commission collectively termed “remuneration”. Payments computed on basis of profit sharing ratio amongst all working partners and within permissible limits and according to partnership deed. Remuneration paid during the year was within the permissible limit provided under section 40(b)(v) of the Act. No disallowance of expenditure held to be justified.CIT (Asst.) v. Dhar Construction Co. (2023) 199 ITD 124 (2023) 101 ITR 49 (Gauhati) (Trib.)
  35. S. 40A(3) : Business disallowance- assessee purchased land and on demand of sellers made payment in cash towards part of sale consideration, since sellers were identified and had admitted receipt of cash payment before registering authority under due process and Assessing Officer did not dispute same, impugned disallowance under section 40A(3) of said cash payment was not justified. (r.w.rule 6DD)
    The Assessee is an individual engaged in the business of purchase and sale of agricultural land, plots, etc. The assessee filed return of income declaring a total income of Rs. 4,08,119/- and under scrutiny, the AO determined the same at Rs. 25,41,452/- inter alia making addition on account of cash payment in violation of section 40A(3) of the Act. The Hon’ble CIT(A) confirmed the same. The Hon’ble Tribunal noted that sellers were identified and admitted receipt of cash payment before registering authority under due process and Assessing Officer did not dispute same as it was not disputed that assessee made cash payment to sellers as they had no bank accounts standing to their name as on date of registration of sale deed and only after receipt of consideration in part as post dated cheques, sellers opened bank accounts. The impugned disallowance of cash payment under section 40A(3) deserved to be deleted. (ITA No. 1425 (Pun) of 2019 dt. 10 October 2022) (AY 2012-13)Mrs. Monika Chitrasen Patil v. Income Tax Officer 198 ITD 508 (Pune) (Trib)
  36. S. 40A(3) : Business Expenditure – disallowance – payments in cash in excess of prescribed limit- additional evidence of freight expenses – no reasonable cause for admitting additional evidence – freight expenses not allowable. (r.w. income-tax (appellate tribunal) rule 29).
    The vouchers and bills for payment towards freight charges were available with the assessee at the time of assessment proceedings as well as at the time of first appellate proceedings but it did not produce them, without any reason. Since there was no reasonable cause for admitting the petition under rule 29 of the 1963 Rules, the application was to be rejected and since there was no evidence for the claim of freight expenses, not allowable. 

    ITO v. Saranya Agro Foods Pvt. Ltd. (Chennai) (2023) 101 ITR (Trib.) 60

  37. S.41 : Remission or cessation of trading liability – Assessee not supplying necessary details – not made further enquiry by AO and CIT(A) – liquidity crunch not bar to treat sum as deemed income – matter remanded back.
    The amounts involved had ceased to be the liability of the assessee for a considerably long period of time. The assessee had accepted that it was undergoing a liquidity crunch and that was why it had not been able to return the amounts. Having a liquidity crunch did not operate as a bar to the application of provisions of section 41 of the Act. A liability can change character over a period of time and an amount in the capital field may become a revenue receipt. Some documents which were not before the AO had been considered by the Commissioner (Appeals) and even before the Tribunal, the assessee had given details of payment subsequent to the order of the Commissioner (Appeals). The issue remitted to the AO to consider the issue afresh after taking into account and examining the factual veracity.CIT (Asst.) v. Ansal Landmark (Kamal) Township Pvt. Ltd. (2023) 101 ITR 6 (Delhi) (Trib.)
  38. S. 41(1) : Profits chargeable to tax – Remission or cessation of trading liability – No evidence to prove that the liability in books of account was other than purchase of capital asset – since it is not a trading liability – addition is not warranted.
    The assessee has purchased machinery from Sabko Emerystone & Engineering Industries Pvt. Ltd., which turned out to be defective and therefore was never put to use. The supplier was asked to take back the machinery and no depreciation was claimed by the assessee. Ld. AO had made addition under section 41(1) of the Act by taking view that assessee had not demonstrated that liability is on account of capital expenditure, nor the assessee had shown that an asset allegedly brought by assessee, was included by the fixed asset schedule. The CIT(A) had upheld the order of Ld. AO on the ground that ledger copy of the creditor party shown the assessee as its trading account.The Tribunal noted that there was no dispute that purchase was of machinery and no adverse evidence is brought on record that the liability is other than purchase of machinery. Thus, the credit in the books is not on account of trading liability and therefore expenditure incurred is a capital expenditure. Subsequently, the Tribunal following the decision of Apex Court in case of Mahindra & Mahindra (404 ITR 1) held that on a perusal of section 41(1), it is evident that it is a sine qua non that there should be an allowance or deduction claimed by the assessee in any assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the assessee is liable to pay tax under section 41.

    The objective behind this section is simple as it is made to ensure that the assessee does not get away with a double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year with reference to deduction allowed earlier in case of remission of such liability. Accordingly, Tribunal held that in absence of any evidence that liability shown by assessee was other than purchase of machinery (capital asset), which was never put to use and the assessee never claimed depreciation thereof, the addition of outstanding liability under section 41(1) of the Act was not sustainable.(ITA No.10/SRT/2022) (AY 2016-17)

    Marvelore Mining & Allied Industries Pvt. Ltd. v. ITO (198 ITD 629) (Surat Tribunal) (SMC)

  39. S.43B : Certain deductions only on actual payment – Following the SC decision, the Tribunal held that if the employee’s contribution is not deposited as per the mandate of s.36(1)(va), the deduction of the same would not be available to the assesse. (r.w.s.36(1)(va) & S.2(24)(x))
    Following the Hon’ble Supreme Court’s decision in case of Checkmate Services P Ltd, the Tribunal held that since it has finally been held by Hon’ble Supreme Court that there is clear distinction between employer’s contribution which is its primary liability under law [in terms of Section 36(1)(iv)] and its liability to deposit amounts received by it or deducted by it from its employees’ [in terms of Sec. 36(1)(va)]. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of Section 2(24)(x) and therefore, subjected to conditions spelt out by Explanation to Section 36(1)(va) i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two contributions – the employer’s liability is to be paid out of its income whereas the second is deemed to be an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. If the same is not deposited as per mandate of Sec.36(1)(va), the deduction of the same would not be available to the assessee. Thus, this issue stands in favor of revenue and we respectfully follow the same. (ITA No. 788 of 2022, dt. 03-11-2022) (AY 2019-20)Electrical India v. ADIT (2022) 220 DTR 313 (Chny) (ITAT)
  40. S. 44AD : When an Assessee declared his income at an estimate of 3% without getting his books audited just like the approach of earlier years (accepted by the Ld. AO), the Ld. AO cannot for the current year determine income at 8% on the ground that Assessee should have kept accounting records. (r.w.s. 44AB and 144)
    The Assessee during the impugned year furnished income at 3% on turnover without getting the books audited, based on estimates as per practice followed since many previous years. The Ld. AO believed that since the assessee had not maintained accounts and income had been determined only on estimate basis, income ought to have been determined at 8% under section 44AD of the Act. Upon appeal to the Ld. CIT(A), the Ld. CIT(A) considering the earlier years restricted the net profit margin at 6% with depreciation or 4% without depreciation as against the estimated 3% claimed by the assessee.Upon further appeal by the revenue before the Hon’ble Tribunal, the Hon’ble Tribunal observed that, the Ld. CIT(A) by referring to various case laws and after considering earlier assessment years’ estimation of the Ld. AO- which ranged from 3-4%, the Ld. CIT(A) has reduced the net profit to 4%. Further held that in such a backdrop it found no infirmity in the Order passed by the Ld. CIT(A) and thus the same was upheld, dismissing the ground raised by the revenue. (AY 16-17)

    DCIT v. Srinivasan Devendran (2023) 198 ITD 495 (CHNY)(Trib.)

  41. S. 45(3): Capital gains – Transfer of capital asset to firm – AOP – BOI – Fact that the ARC has sold the property belonging to the assessee (guarantor) after taking over the said property from the lender bank under an assignment agreement indicates that the transfer of property by the assessee to ARC via bank took place at an earlier stage and, therefore, the capital gains is chargeable to tax in the said year so far as the assessee is concerned.
    The Assessee-director had given his personal guarantee on behalf of ASCL in respect of its commercial borrowings from SBI. As a collateral security his immovable property was given to the SBI and SBI recalled the credit facilities given to ASCL, and invoked the personal guarantee given by the assesse. On 29/03/2004 SBI entered into an assignment agreement with ARCIL wherein the land belonging to the assessee, which was offered as collateral security by the assessee to the SBI, was assigned to ARCIL. ARCIL sold this property to ADPL on 01/09/2005. AO took note of the fact that, as noted in the sale deed, “confirming party has surrendered all his rights, title and interest to the vendor”. AO thus proceeded to tax the entire market value of the property as a long term capital gain in the hands of the assessee for the AY 2006-07. In view of the above facts, the tribunal observed that the fact that ARC is selling the property as the owner of the property does indicate that the transfer from the assessee to the ARC, via SBI perhaps, took place at an earlier stage and that is the year of transfer in which the taxability arises so far as the assessee is concerned. However, there is no categorical finding about that aspect (year of transfer) of the matter at any stage and hence, this aspect of the matter has simply not been examined. Therefore, the matter is remitted to the CIT(A) for recording a specific finding in this regard. (AY 2006-07)Abbasbhai A. Upletawala v. ITO (2022) 220 TTJ 880 / 220 DTR 137 / 197 ITD 548 (Mumbai)(Trib.)
  42. S. 45 : Capital gains / loss – Income from other sources – Amount received for giving up rights over suit properties in return for Rs.1.60 crores and a shop cannot be said to be without consideration hence provisions of S 56(2)(vii)(a) and S. 45 of the Act cannot be made applicable. (r.w.s. 56(2)(Vii)(a))
    Held that, the Assessee had a right to question the validity of his father’s will whereby the latter had bequeathed all the items of suit properties to the assessee’s mother and, therefore, the amount received by the assessee for giving up his rights over someof the items of the suit properties is not chargeable to tax under s. 56(2)(vii)(a). Also, the said receipt cannot be brought to tax as capital gain under s. 45. (AY 2012-13)K.V. Shridhar v. ITO (2023) 221 TTJ 676 / (2022) 220 DTR 348 / 194 ITD 450 306 (Bang) (Trib.)
  43. S.45: Capital gains – Chargeable as (Conversion of asset) – assessee failed to disclosed value at which he transferred his capital asset into stock-in-trade – CIT(A) assessed LTCG at FMV computed by indexation of Stamp Duty Valuation as on date of sale, rather than entire sale consideration
    The assessee failed to disclose the value at which he had transferred his capital asset into stock-in-trade. The assessee also did not disclose the fair market value of land as on the date of conversion.The Tribunal held that section 45(2) of the Act is a specific provision wherein capital gains arising from conversion of capital asset to stock-in-trade which is assessed in year of actual transfer of stock-in-trade. The FMV of land as on date of its conversion into stock-in-trade can be computed by indexation of Stamp Duty Valuation as on date of sale. The Tribunal relying on the findings of CIT(A) concluded that the action of assessing impugned long-term capital gains in assessee’s hand at FMV, rather than entire sale. (AY. 2012-13)

    Rangnathappa Govindappa Zharkhande v. ITO (2022) 144 taxmann.com 152 (Pune – Trib.)/ (2023) 198 ITD 290 (Pune – Trib.)

  44. S. 49(2AA): Cost of Acquisition on transfer of shares allotted under ESOP shall be the fair market value on the date of exercise of option
    The Assessee, a non-resident, was allotted shares during his course of employment under the ESOP. The Assessee exercised the stock option during the year 2017-18 and sold some of these shares in the present FY. For the purpose of computation of value of perquisite u/s 17(2) (vi) of the Act, the Assessee took the cost of acquisition of such shares as the market price on the date of exercise of option as mentioned in the “allotment letter-cum-certificate for perquisite value” in accordance with section 49(2AA). From the said perquisite value, the portion allocable to services rendered by the assessee outside India at onsite location was reduced and the assessee paid tax on the same in the USA. According to the AO, the cost of acquisition was to be restricted to the amount of perquisite that was offered to tax in the earlier AY (i.e. 2018-19). However, the DRP directed the AO to verify the taxes paid with reference to the TRC and other requirements and adopt the cost of acquisition at the value adopted by the Assessee. However, in the final assessment order, AO did not adhere to this direction because the Assessee failed to produce the TRC, which was later on produced before the ITAT as a matter of abundant caution though the Assessee maintained that TRC is not required for determining the cost of acquisition as per the terms of section 49(2AA) of the Act. While the ITAT refrained from adjudicating on whether TRC is mandatory for determining the cost of acquisition u/s 49(2AA). It upheld the directions of the DRP and remanded the matter to the AO along with directions to examine the TRC and if it is found in order, the cost of acquisition shall be taken at the value adopted by the Assessee. (AY 2019-20)Biplab Adhya v. ITO (Bang.) (2023) 198 ITD 643
  45. S. 54: Capital gains – Profit on sale of property used for residence – investment of capital gains within stipulated period would entitle assessee to claim deduction under section 54 even if the new house property is registered in his name beyond the period specified under Act.
    It has been held by the Hon’ble Appellate Tribunal that the bonafides of the assessee cannot be doubted, since the assessee has made deposits into the capital gains scheme immediately and thereupon made payments to the developer to acquire the new house property. The assessee was also prevented by reasonable cause since the funds had already been utilized and was forced to acquire an asset due to the reason beyond her control. The section 54 of the Act being benevolent in nature, it should be liberal in interpreting the provisions of section 54 of the Act considering the fact that the new house was eventually acquired, out of the same capital gains utilized, which has been brought on record and not in dispute. Thus, the assessee is entitled to claim the benefit of deduction under section 54 of the Act.Dr. Sheela Puttabuddi v. ITO (2023) 198 ITD 48 (Bang.)
  46. S. 54 : A mere delay of certain days for deposit of the sale consideration into the capital gains account cannot allow the Ld. AO to deny the benefit of exemption under section 54, when the Assessee had transacted within the timelines stipulated therein.
    The Assessee during the impugned AY, sold 1/4th share in a residential house property and utilised Long Term Capital Gain (LTCG) for construction of a new house property. The Assessee then went on to claim deduction under section 54.The Ld. AO denied the deduction under section 54(1) because the Assessee had not deposited the sales consideration in capital gain account within due date of filing of return under section 139(1) and the same was deposited after a delay of 31 days. However, on appeal the CIT(A) allowed the exemption so claimed by the Assessee deleting the addition made under section 54.

    The Hon’ble Tribunal observed that there was no delay in as far as the compliance under section 54(1) was concerned i.e., within a period of 3 years, the Assessee had paid the entire capital gain deposits along with interest accrued thereon directly from the capital gain deposit to the parties for expenses relating to construction for new house. Further held that the intention of the legislature in section 54 is very much clear that an assessee who receives the sale consideration must invest in the new house within specified time framed. Merely because the assessee has not been able to deposit or deposited with a delay of 31 days in the capital gain account, he cannot be denied with the benefit of section 54(1). For the above reasons, the Hon’ble Tribunal upheld the action of the Ld. CIT (A). (AY 16-17)

    ITO v. Vinod Gugnani (2023) 198 ITD 233 (Delhi) (Trib.)

  47. S. 54: Capital gains – exemption allowable for investment in new property till the date of filing belated return u/s. 139(4) or revised return u/s. 139(5)
    After analysing the provisions of section 54 of the Act vis-a-vis section 139 and also the decisions of various High Courts and Supreme Court, the ITAT came to the conclusion that section 54(2) provides a pigeonhole in the sense that the investment by way of purchase or construction, can be made till the date of belated return u/s 139(4) or revised return u/s 139(5) as the language used in section 54(2) is “section 139”, and not section 139(1). Therefore it was held that the assessee is entitled to claim exemption u/s 54 to the extent she had invested the capital gains towards the purchase of new residential property under consideration upto the date of filing of belated return under section 139(4) of the Income Tax Act. (AY 2012-13)Dharmista Mehta (Dr.) v. ITO (Mum.) (2023) 198 ITD 106
  48. S. 54: Capital gains – Profit on sale of property used for residence – AO took into consideration Form 26QV and report under 26AS which have to be considered part of Returns of an assessee – further details about the transaction provided by way of reply filed by the assessee as to how no capital gain had arisen – assessee has not made a claim beyond his return
    The issue in this appeal is that the sale consideration of the property in ITR is less than sale consideration in Form 26QV. The ITAT observed that during the assessment proceedings the AO took into consideration Form 26QV, the report under 26AS, which have to be considered to be part of returns of an assessee, and also the detailed reply along with documents filed by the assessee in respect of the queries raised regarding the sale transaction. In that case the AO could not have left the assessment halfway by not inquiring into the deduction if any claimed as applicable. It was a duty of the AO to take the assessment to its logical end. The ITAT held that when the AO had some information on the basis of the Return filed which was then used to call for further information which was relied to make the assessment of income then not extending the benefit of deduction of exempt income to the assessee would be against the principles of natural justice and assessment cannot be said to be completed in accordance with law. It was further observed that the CIT(A) was correct in holding that even if the claim is not part of original return or the revised return, the same can be considered by appellate authorities while exercising appellate powers, which is in accordance with the judgments of the Hon’ble Apex Court in case of Goetze India Ltd., Jai Parabolic Springs Ltd. [2008] 172 Taxman 258. Therefore, the CIT(A) was very much in power to consider the claim of the assessee which was left halfway by the AO. (AY 2014-15)Addl. CIT v. Mayur Batra (Delhi) (2023) 198 ITD 333
  49. S. 54F: Capital Gains – investment in residential house – Assessee holding co-owned property cannot be treated as ‘absolute owner’ while determining claim under section 54F
    The assessee had sold land at Jambhe and claimed deduction under section 54F in respect to purchase of residential house property from Indiabulls Properties Ltd. Assessee further claimed deduction u/s. 54 on Long Term Capital Gain earned by selling Pune Kohinoor flat. During the course of assessment, AO found that the assessee has purchased one more residential property after investment in residential house property purchased from India bulls Properties Pvt Ltd. The AO observed that in order to avail exemption u/s. 54F the assessee should not own more than one residential house property on the date of sale and further assessee should not purchase any other residential house property other than the new asset within a period of one year after the date of transfer of the original asset. The AO, observed, the assessee purchased Indiabulls house property jointly along with his wife, therefore, the assessee was not the full owner of the property which was required by section 54F. The CIT(A) confirmed the view of the Assessing Officer. Held, the ITAT while deciding the issue observed that, the assessee, was full owner of the first residential property and had 50% share in the second residential property on the date of transfer of original capital asset in the form of a plot. Following decision of Amit Gupta v. ACIT [2017] 43 ITR 427 (Delhi) (Trib.), held that the assessee cannot be denied exemption under section 54F merely because he was the holder of 50 % of the share jointly with wife in the residential property .Anant R Gawande v. Asstt. CIT (Mum.) (2023) 198 ITD 58
  50. S. 56 : The provision of the section 56(2) (viib) does not prescribe only one method for valuation of Fair Market value of shares and that justification of FMV of shares based on valuation of its assets as on the date of issue of shares is also justified and acceptable. (r.w. Rule 11U & 11UA)
    The solitary issue in the given case pertains to the share premium amount received by the assessee upon issue of shares which in the opinion of the Ld. AO was not at the fair market value (FMV) as per the provisions of the Act. The Ld. AO accordingly made additions to this effect.The Assessee supported its argument vide submission of valuation report of a Company secretary, for the shares issued and asserted that the consideration for the issue of shares at premium was justified. Also asserted that the revenue could not simply reject the contention stating that it was contrary to the rules 11U and 11UA of the IT, rules when the said section allowed the assessee to justify FMV of its shares based on valuation of its assets as on date of issue of shares. The Ld. CIT(A) found merits in the arguments of the Ld. AO and sustained the additions.

    The Hon’ble Tribunal observed that, though the assessee has submitted valuation of fair market value of its shares, the authorities below have dismissed the same simply because it was not as per the rule prescribed under 11UA of IT, Rules or not as per any certificate furnished by the Chartered Accountant or Merchant Banker as prescribed under rule 11U of the IT, Rules. The provision of section 56(2) (viib) of the Act do not prescribe only one method for valuation of fair market value of share. The assessee can also justify the fair market value of the shares based on the valuation of its asset as on the date of issue of shares including both tangible and intangible assets. Therefore, the finding of the Revenue authorities in the present case that valuation of FMV as per the rule 11UA was held to be not justified, and to be not in accordance with law. Further directed restoration of the matter to the file of the AO for consideration of the valuation report and to decide to the issue afresh. AY 15-16

    Jayshri Propack (P.) Ltd v. ACIT (2023) 198 ITD 17 (AHD)(Trib.)

  51. S. 56: Income from other sources – Chargeable as (Clause (b) of sub-section 56(2)(vii)(b) – AO referred valuation of property to DVO – Difference between DVO value and consideration paid for purchase of property assessed as income of purchasers
    The assessee and others purchased a property for a consideration. During assessment proceedings, AO referred valuation of property to DVO. The AO assessed a sum under section 56(2)(vii)(b) of the Act, being difference between the DVO value and consideration shown in the registered document, at the rate of 1/5th on each co-owner name and made addition. On appeal, the CIT(A) sustained the additions made by the AO.On assessee appeal the Tribunal observed that there is no dispute regarding the fact that there is a difference between consideration paid for purchase of property as per registered document and guideline value of the property fixed by the authorities for payment of stamp duty. Therefore, the difference between DVO value and consideration paid for purchase of property should be assessed as income of the purchasers in terms of section 56(2)(vii)(b) of the Act.

    The Tribunal upheld the findings of CIT(A) concluded that the AO after considering relevant facts has rightly made addition towards differential consideration under section 56(2)(vii) (b) of the Act. (ITA Nos.63 to 67 (Chny.) of 2021) (AY. 2017-18)

    S. Ramesh v. DCIT (2022) 144 taxmann.com 151 (Chennai – Trib.)/(2023) 198 ITD 275 (Chennai – Trib.)

  52. S. 56: Income from other sources – share premium – assessee justified premium charged with the help of valuation report – change in method of valuation from DCF to NAV method – unjustified – additions required to be deleted.
    It has been held by the Hon’ble Appellate Tribunal that AO Cannot change the method followed by assessee for valuation of shares as it is optional for assessee to choose a particular method for determining share price. Further assessee has justified premium charged on issuance of shares and there was a minor difference in projected and actual financials. Thus, rejection of DCF method adopted by assessee was unjustified. Hence, impugned addition made by AO under section 56(2) (viib) of the Act is required to be deleted (A.Y. 2015-16)SB Industrial Engineering (P.) Ltd. v. Asstt. CIT (2023) 198 ITD 282 (Chennai)
  53. S. 56: Income from other sources – gift received as per instructions of assessee’s uncle through transfer by his son and daughter-in-law, residing at Singapore – gift can be construed as constructive gift from uncle – addition of such gift under section 56(2)(vii) unjustified.
    It has been held by the Hon’ble Appellate Tribunal that assessee’s uncle falls within the term ‘relative’ and it is clear that the gift has happened on instruction of the uncle. The uncle has, unequivocally, confirmed the grant of gift to the assessee. The uncle is assessed to tax in India. The only reason to treat the same as the income of the assessee is that the amount has been transferred from bank account of uncle’s son and his daughter-in-law who are residing abroad as non-resident. The son and daughter- in-law are not alien to the uncle but very close relatives and it could be construed that the gift was given by the son and daughter-in-law first to uncle and thereafter, it was remitted by uncle to the assessee. Hence, the gifts so received could be construed as constructive gift from uncle. Therefore, the addition so made could not be considered to be income of the assessee and the same is liable to be deleted.P. Srinivasan v. ITO (2023) 198 ITD 287 (Chennai)
  54. S. 57: Income from other sources – deductions – loss of interest on account of premature encashment of fixed deposits – not expenditure incurred by the assessee to earn interest income of current year – not deductible.
    Held that, the loss of interest income on account of premature encashment of fixed deposits if any was adjusted in the current year interest income as it had been offered to the tax on real-time basis. The deduction claimed by the assessee against the current year income was not an expenditure incurred by the assessee to earn interest income of the current year.Jatinder Kumar Suri v. Deputy CIT (International Taxation) (Delhi) (2023) 101 ITR (Trib.) 47
  55. S. 68: Cash Credit – search and seizure – unabated assessment – addition on account of unexplained cash credits not sustainable. (r.w.s. 153A)
    No incriminating material was found during the search and the assessment was an unabated assessment. Hence, the addition made under section 68 as cash credit was not sustainable.CIT (Asst.) v. Paramount Probuild Pvt. Ltd. (2023) 101 ITR 36 (Delhi) (Trib.)
  56. S. 68: Cash Credits – confirmations of parties and repayment in respect of credits – not taken into account by AO – matter remanded for re – adjudication.
    Held that, the assessee had filed confirmations of the parties and the repayment in respect of these credits of Rs. 80,000 but these were not taken into account by the Assessing Officer or the Commissioner (Appeals). Matter remanded back for re adjudication.Gajanand Ginning and Pressing Pvt. Ltd. v. ITO (Ahmedabad) (2023) 101 ITR (Trib.) 90

    Ganesh Ginning Factory v. Asst. CIT (Ahmedabad) (2023) 101 ITR (Trib.) 90

  57. S.68: Cash Credits – Burden of proof discharged – presumption u/s. 292C rebuttable and not to be applied mechanically – additions not justified. (r.w.s.292c)
    Explanations submitted by the assessee revealed that the assessee has, inter alia, given the details of the amount received, the receipt number and the details of the amount which were refunded including the cheque number and date. The explanation and the details given by the assessee had not been shown to be untrue or contrary to the facts. The assessee had discharged the onus cast upon it. The presumption u/s. 292C was a rebuttable presumption and could not be applied mechanically ignoring the facts of the case.Godwin Construction Pvt. Ltd. v. Asst. CIT (Delhi) (2023) 101 ITR (Trib.) 74
  58. S. 68: Refusal to admit evidence on technicalities by the first appellate authority, not already produced before the Ld. AO is incorrect and ought to be examined.
    The Assessee had an unsecured loan which was called upon by the Ld. AO, to prove genuineness of the loan transaction. Further alleging that the Assessee failed to establish its genuinity, the Ld. AO added back the entire sum to the income of the Assessee.The Hon’ble Tribunal held that the additional evidence should not have been rejected, merely because, the Ld. AO in the remand report observed that such evidence should not be admitted. Considering that such evidence may have a crucial bearing in deciding the issue, the evidence cannot be overlooked due to technicalities. Further directed restoration of the matter to the file of the Ld. AO for fresh adjudication in due consideration of the additional evidence filed by the Assessee. AY 13-14

    Karam Singh Malik v. ITO (2023) 198 ITD 678 (Delhi)(Trib.)

  59. S. 68: Cash Credit (cash deposit into bank account) – Cash deposited by Assessee during demonetization period – Source explained- addition deleted as advance not to be treated as unexplained cash deposit.
    Assessee engaged in the business of trading in diamond filed its return of income for the year under consideration declaring a loss of Rs. 2.59 crores. The Assessing Officer noticed that the assessee has deposited a sum of Rs. 45 lakhs into its bank account during demonetization period. It was explained that the above said amount represented cash balance available in its books of account, which included advance received from the customers towards sale over the counter. In consequent to which AO held that the assessee has failed to prove cash deposits made by it during demonetization period and accordingly, treated the cash deposits of Rs. 45 lakhs as unexplained cash deposit and assessed the same as income of the assessee under section 68 of the Act. Further in appeal the Hon’ble CIT(A) also upheld the findings of the Ld. AO and confirmed the additions u/s 68 of the Act. Aggrieved the Assessee filed appeal before the Hon’ble Tribunal.The Hon’ble Tribunal relying on Lakshmi Rice Mills v. CIT- 97 ITR 258 and ACIT v. Hirapana Jewelers- 189 ITD 608 held that it is seen that the advance amount collected from customers, the sales bill raised against them etc., have been duly recorded in the books of account. The impugned deposits have been made from cash balance available with books of account. Also the Assessing Officer has not rejected the books of account.

    Thus, when cash deposits have been made from the cash balance available in the books of account, there is no question of treating the said deposits as unexplained cash deposit.(ITA No.2017/Mum/2021) (AY 2017-18)

    R.S. Diamonds v. ACIT [2022] 198 ITD 344 (Mumbai) (Trib)/ (2022) 98 ITR 505 (Mumbai) (Trib)

  60. S. 68: AO is not allowed to make additions without bringing any corroborative evidence to establish the nexus between additional “on- money” payments received by the assessee. (r.w.s. 132(4A) and 153C.
    The burden is on the AO to prove that the assessee received some additional “on-money” payments and the AO has not brought sufficient material on record against the assessee warranting the addition. The addition made by the AO is based on the assumption that someone has admitted transactions relating to other concerns, and therefore the impugned transaction should have taken place for what found in the entry.Holiday Marketing Pvt. Ltd. v. Asst. CIT (Cochin) (2023) 101 ITR (Trib.) 55
  61. S.68: Creditworthiness – No addition can be made by AO merely by stating that credit worthiness was not proved without even verifying the evidence submitted by assessee.
    The AO made addition on account of loans taken from Director on ground that source was not properly explained. Held that, assessee had submitted annual reports of various entities in which Director was involved. Assessee had submitted bank statements where entries of receipt on various dates were reflected and annual reports were submitted to substantiate various business interests of Director. Evidences could not be rejected without verification and without any adverse finding to contrary.Holiday Marketing Pvt. Ltd. v. Asst. CIT (Cochin) (2023) 101 ITR (Trib.) 55
  62. S. 68: Cash credits – LTCG on sale of shares – assessee failed to substantiate the genuineness of rise of price of shares within a short period of time – addition made under section 68 was justified. [S. 10(38)]
    The appellate tribunal relying on the decision of Hon’ble Calcutta High Court in the case of Pr. CIT v. Swati Bajaj [2022] 446 ITR 56 (Cal.) held that the LTCG reported by the assessee in the return was bogus and the entire transactions was done with the objective to introduce unaccounted money of the assessee in the books by using the route of LTCG which was exempt from tax under section 10(38) of the Act. Thus, the AO was justified in denying the claim of exemption under section 10(38) of the Act as the assessee failed to establish genuineness of rise of price of shares within a short period of time that too when general market trend was recessive. Thus, treating the LTCG earned on sale of shares as unexplained cash credit under section 68 on ground that assessee invested in shares of penny stock companies which provided bogus LTCG justified (AY 2014-15 & 2015-16)Shyam Sunder Bajaj v. ITO (2023) 198 ITD 253 (Kol.)
  63. S.69: Unexplained Investments – Non-Resident Indian – the source of funds from outside India and not taxable in India.
    Held, that, the assessee was a non-resident Indian and was granted a term loan of USD and that an amount deposited in the bank in Chennai and the amount was transferred on the same day for investment in the mutual fund. It’s clear that the source of the funds was from outside India and not taxable in India. Since documents more than six years old had to be obtained from the bankers due to the same assessee could not produce these documents before the reassessment. After satisfying with the copies of the documents submitted by the assessee, deleted the additions, since the funds were repatriated outside India.CIT (Asst.) (International Taxation) v. Vijaykumar Vasantbhai Patel (2023) 101 ITR 1 (Ahmedabad) (Trib.)
  64. S.69: Income from Undisclosed Sources – Discrepancy in stocks – rejection of accounts — conciliation statement – excess stocks not properly verified – matter remanded for re- adjudication. (r.w.s. 145(3))
    Held that the CIT(A) had not taken into account the conciliation statement filed before the authority. The assessee pointed out that the existence of all the units in the common compound inter-mingling of stocks among the units was possible and the partner’s statement could not be the sole criteria for making an addition to that extent. The reconciliation filed showed that the excess stocks claimed by the AO was not properly verified. The matter was remanded to the AO for proper adjudication after taking cognizance of the reconciliation.Gajanand Ginning and Pressing Pvt. Ltd. v. ITO (Ahmedabad) (2023) 101 ITR (Trib.) 90

    Ganesh Ginning Factory v. Asst. CIT (Ahmedabad) (2023) 101 ITR (Trib.) 90

  65. S. 69A : Unexplained money – Cash Credits- Difference in P&L and Form 26AS – Difference due to account policy adopted by auditors – Addition deleted. (r.w.s.68)
    The assessee is a company engaged in distribution and sales of I.T. products. Also engaged in providing AMC services in respect of computer hardware and other related I.T. products. The assessee filed its Return of Income and case was selected for scrutiny. The AO noted difference in amount of receipts from services as disclosed in P&L vis-à-vis as appearing in Form 26AS and issued notice to assessee to reconcile the same. However, since assessee was not able to submit reconciliations before AO, addition was made by AO. Further, AO noticed there were some cash deposits in bank account during the year for which no explanation was provided by the assessee and accordingly made addition with respect to the same as well.The assessee filed reconciliations of the difference in aforesaid amounts before CIT(A). However, CIT(A) did not consider or give any finding on the same and confirmed the addition made by AO. With respect to cash deposits, assessee stated that they were internal branch cash sales which was deposited in bank. However, CIT(A) upheld the additions made by the AO. Aggrieved, assessee filed appeal before Tribunal.

    The Hon’ble Tribunal noted that the CIT(A) has not given any finding on the reconciliations submitted by the assessee and the same has not been examined by the AO as well as it was not filed with AO. Accordingly, Tribunal restored the issue to the file of AO with a direction to give one more opportunity to the assessee to substantiate its case and for the AO to consider the details submitted by the assessee.

    With respect to addition on account of cash deposits, assessee filed invoice wise details on which cash was received and deposited in bank. Tribunal also noted that the turnover of the assessee has not been disputed by the AO and since all the invoices are part of the total sales, Tribunal deleted the addition on this issue. (ITA No. 494/HYD/2018 dt. 29.08.2022 (AY.2012-14))

    NECX (P.) Ltd. v. ITO (Hyd.) (2023) 198 ITD 506

  66. S. 69A : Unexplained Money – Amount Deposited during demonetization – No source of income other than rental or pension income – AO could not presume cash deposited was not from undisclosed source
    The assessee was a senior citizen and a retired Government employee, deriving income from pension, bank interest and earning from rent property as a Karta of HUF. The rental income was a part of income in return for HUF which was deposited in the individual account of assessee.The learned AO noticed that there was cash deposit made by Assessee during demonetization and accordingly a notice under section 143(2) was issued. Assessee explained his habit of withdrawing cash frequently and keeping it in the form of cash at home due to his ill health. The Assessing Officer rejected the assessee’s explanation and accordingly added the entire amount of cash deposited as unexplained money under section 69A/115BB.

    The CIT(A) gave part relief to the extent of amount of cash withdrawn from account during the year under consideration holding that the amount to that extent could be out of money withdrawn from the bank account, which was deposited after demonetization. Aggrieved, assessee filed appeal before Tribunal.

    The Hon’ble Tribunal noticed that assessee had huge rental income apart from pension and bank interest and has been making huge withdrawal time to time hardly leaving any balance in bank account. Further, assessee submitted fund flow statement showing each withdrawal and utilization thereof. Even after household withdrawal, there was a huge amount available with the assessee in the form of cash. Under these circumstances, the explanation of the assessee is found to be reasonable and plausible, and preponderance of probability is in the favour of the assessee and without any adverse material it cannot be presumed that the cash deposited by the assessee is out of some undisclosed source. Accordingly, Tribunal deleted the entire addition made by the AO.(ITA No.960/DELHI/2021) (AY. 2017-20)

    Om Parkash Nahar v. ITO (Delhi) (2023) 198 ITD 312

  67. S. 69A : Unexplained money – Income from undisclosed sources – Data retrieved from the hard disk revealed undated, unsigned and unexecuted draft deed and draft cash receipt relating to the transaction of sale of property between the assessee and third party – such draft deed and originally executed deed being exactly similar such material cannot be ignored. (r.w.s 147)
    Held that, the Revenue authorities having discovered undated, unsigned and unexecuted draft deed and draft cash receipt from a hard disk found during the course of search conducted against a third party which revealed that the assessee received unaccounted amount of Rs. 4 crores in cash on sale of a property, and names of the vendor and vendee and the details of cheque by which part of the sale consideration was received as mentioned in the said draft deed and the original sale deed executed by the assessee are exactly similar, said material evidence cannot be ignored and brushed aside simply because the draft agreement was undated and unstamped and, therefore, impugned addition under s. 69A of the Act is up held. (AY 2011-12)DCIT v. Shivram Consultants India (P) Ltd. (2022) 220 TTJ 640 / 220 DTR 9 (Del) (Trib.)
  68. S. 80AC: Return to be furnished – deduction under section 80IE of the Act – as the assessee has not filed his return within the due date provided under section 139(1), the denial of deduction under section 80IE of the Act is justified. [S. 80IE and section 139(1)]
    It has been held by the Hon’ble Appellate Tribunal that as per the provisions of section 80AC of the Act, for claiming of deduction under section 80IE of the Act, the mandatory/statutory condition is that the return should be filed before the due date provided under section 139(1) of the Act. However, in the present case undisputedly the assessee had filed his return belatedly i.e., beyond the due date provided under section 139(1) of the Act. Hence, the basic condition to be eligible for claiming the deduction under section 80IE remained unfulfilled. There may be reasonable cause on the part of the assessee for the delay in filing the return, but such delay cannot be condoned at the end of this Tribunal.Sri Kailash Modi v. ITO (2023) 198 ITD 616 (Gauhati)
  69. S. 80G: Deductions – Donations to charitable institutions – PCIT granting approval under section 80G(5)(i) subject to fulfillment of certain conditions – stipulation of conditions by PCIT is beyond jurisdiction. (S. 12A)
    The role of Ld. PCIT while according registration and approval under sections 12A & 80G is only to make himself satisfied about the genuineness of the activities to be carried out by the assessee trust and compliance of such requirement of any other law for the time being in force by the trust or institution material to achieve its object and then to accord the registration and approval. Thus, where assessee-trust applied for approval under clause (i) of first proviso to sub-section (5) of section 80G, no condition can be imposed by Principal Commissioner while granting approval. Approval is to be made absolute sans conditions. (A.Y. 2022-23 TO 2026-27)Sir Ratan Tata Trust v. CIT (Exemptions) (2023) 198 ITD 669 (Mum.)
  70. S. 80IC : The interest earned out of Fixed deposit receipts (“FDR”) in the line of & for the purpose of business is allowed to be included for deduction under the said section.
    The Assessee sought to include the interest receipts pertaining to the Fixed deposits (“FDR”) pledged with sales tax department, electricity department and interest from debtors into the computation of deduction under section 80IC. The Ld. Ld. AO was of the view that the said deposits were in the nature of income from other sources and hence do not qualify to be included for computation of deduction under section 80IC. The Ld. AO also put the onus on the Assessee that he had failed to demonstrate that the FDR are related to business of the undertaking eligible for the deduction. The Ld. CIT(A) sustained the addition as the Assessee was not able to prove his claim through necessary supporting.The Hon’ble Tribunal observed that, entire addition in this regard was deleted by the Tribunal in assessee’s own case for the previous Assessment years. Further since the issue has been decided in favour of the Assessee in Assessee’s own case, the issue is held to be principally in favour of the Assessee. Further the issue was directed to be remitted to the file of the Ld. AO for obtaining the necessary details required for adjudication in lines with the ruling in assessee’s own case for previous years which has been upheld for the impugned year as well. (AY 12-13 & AY 13-14)

    Havells India Ltd. v. DCIT (2023) 198 ITD 610 (Delhi)(Trib.)

  71. S. 80P: Co-operative societies – Co-operative society eligible for deduction under section 80P even if return of income is filed beyond the due date specified in section 139(1)
    Assessee had filed belated return of income and claimed deduction under section 80P of the Act. The issue for consideration before Tribunal was that whether once the return of income is filed beyond the prescribed date under section 139(1) of the Act, can the deduction under section 80P of the Act be denied to the assessee, by way of adjustment under section 143(1) of the Act.The Tribunal noted on joint reading of the provisions to section 143(1) and 80P, makes it evident that the claim of deduction under section 80P of the Act cannot be allowed to the assessee, if the assessee does not file its return of income within the due date stipulated under section 139(1) of the Act w.e.f. assessment year 2018-19 onwards. However, that amendment has been introduced in section 143(1)(a)(v) of the Act to provide that the claim of deduction under section 80P of the Act can be denied to the assessee, in case the assessee does not file its return of income within the time prescribed under section 139(1) of the Act with effect from 01-04-2021 and does not apply to the impugned assessment year i.e. assessment year 2019-20 relevant to financial year 2018-19. Accordingly, denial of claim under section 80P of the Act would not come within the purview of prima facie adjustment under section 143(1)(a)(v) of the Act, for the reason that the section was not in force during the period under consideration i.e. assessment year 2019-20.

    The second issue before Tribunal was whether the case of the assessee would fall within the purview of prima facie adjustment under section 143(1)(a)(ii). The Tribunal held that scope of the adjustments that can be made under the said provision has been elaborated in the Explanation to the aforesaid section, which does not include denial of deduction claimed by the assessee in case the assessee does not furnish its return of income within the date stipulated under section 139(1) of the Act.

    Accordingly, the Tribunal relied on the decision of SR Engg. & Projects Ltd. [2019] 111 taxmann. com 49 (Hyderabad- Trib.), wherein it was held that Assessee is eligible to claim deduction under section 80P of the Act even if no claim was made in original return but subsequently revised return was filed. Accordingly, Tribunal concluded that in instant case, return was filed within the due date of section 139(4) of the Act and therefore Assessee was eligible for deduction under section 80P of the Act. The issue was restored to CIT(A) on merits for adjudication. (ITA No.38/Rjt/2022) (AY 2019-20)

    Medi Seva Sahakari Mandali Ltd v. ADIT (198 ITD 623) (Rajkot Tribunal)

  72. S. 90: Double Taxation relief – Foreign Tax credit – Due date of filing Form No.67 not mandatory but directory. (Rule 128)
    The assessee, an individual filed her original Return of Income under Section 139(1) within the due date for AY 2019-20. However, due to some reason, assessee could not submit Form 67 along with the Return of Income. Subsequently, assessee filed a revised Return of Income under Section 139(5) along with the computation of income and Form No.67 for claiming foreign tax credit within the due date for filing of revised Return as extended by The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020.The revised return filed by the assessee was processed under Section 143(1) but the Foreign Tax Credit claimed under Section 91 was denied on the ground that the same was filed beyond the due date under Rule 128(9) of the Rules. The assessee filed an appeal to CIT(A) but it was dismissed on the ground that Form No 67 was filed after the due date for filing of return of income under Section 139(1). Aggrieved, assessee filed an appeal before the Tribunal.

    The Hon’ble Tribunal held that the assessee has filed both the original and revised Return of Income within the permissible time limit for filing Return for the year under consideration. Tribunal relied on various decisions wherein it has been held that due date to file Form 67 is not mandatory but directory in nature. Accordingly, Tribunal held that mere delay in filing Form 67 cannot be ground to deny Foreign Tax Credit to assessee. Accordingly, since the claim of assessee was denied on technical ground, Tribunal directed the AO to examine the claim of Foreign Tax Credit on merits after accepting Form 67 filed by the Assessee.(ITA No. 2094/MUM/2021 dt. 01.12.2022 (AY. 2019-20)

    Nirmala Murli Relwani v. Asstt. DIT (Mum.) (2023) 198 ITD 603

  73. S. 90: Double taxation relief – rule 128(9) of Income-tax Rules does not provide for disallowance of foreign tax credit (FTC) in case of delay in filing Form No. 67 and filing of Form No. 67 is not mandatory but a directory requirement. [Rule 128 of the Income Tax Rules, 1962 and article 24 of DTAA between India and Netherlands].
    In this case the Assessee offered to tax salary income earned for services rendered in Netherlands and claimed foreign tax credit (FTC) for taxes paid in Netherlands under section 90 of the Act. The Assessee filed return of income along with Form No. 67 in support of claim of FTC. However, the AO/Centralized Processing Centre (CPC) rejected assessee’s claim of FTC as not allowable. On appeal the first appellate authority upheld the disallowance holding that filing of Form No. 67 before due date of filing return of income under section 139(1) was mandatory and failure to do so will result in FTC not being allowed. The assessee being challenged the order of the Ld. CIT(A) before the Hon’ble Bangalore Appellate Tribunal. Hon’ble Appellate Tribunal allowed the claim of the assessee relying on the decision of the co-ordinate bench of the Appellate Tribunal in the case of Ms. Brinda Ramakrishna v. ITO [2022] 135 taxmann.com 358/193 ITD 840 (Bang. – Trib.) and held that Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67; filing of Form No. 67 is not mandatory but a directory requirement and further DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non-furnishing of Form No. 67 before the due date under section 139(1) is not fatal to the claim for FTC. (A.Y. 2020-21).Sanjiv Gopal v. Asstt. DIT (2023) 198 ITD 411 (Bang.)
  74. S. 92B : (i) Corporate Guarantee indeed forms an international transaction. And in the absence to anything in contrary wrt. the ruling brought forward; the ALP adjustment should be determined at the rate of 0.5% (r.w. s. 92C)
    The Assessee sought to treat the transaction of corporate guarantee meted out to its AE to be in the nature of shareholder’s activities and not an international transaction as no cost had been incurred by the Assessee for it and also that the said transaction had no bearing on the profits, income, losses and assets of the Assessee. The Transfer Pricing Officer (“Ld. TPO”) on the other hand treated corporate guarantee as an international transaction in view of the amendment made u/s 92B. Further the Ld. TPO went onto determine the arm’s length price at 1.15%. The Ld. CIT(A) sustained the additions made by the Ld. AO.Before the Hon’ble Tribunal, the Ld. Department representative (“Ld. DR”) placed reliance on the Hon’ble Madras HC decision in Redington India (P.) Ltd v. DCIT, to claim that the law around the issue of corporate guarantee was settled and that it indeed formed an international transaction and in the present case the same was amenable to an adjustment as prescribed by the Ld. TPO. The Assessee alternatively argued that the adjustment proposed was on the higher side and placed reliance on the judgement in Hon’ble HC of Bombay in CIT v. Everest Kento Cylinders Ltd. and Hon’ble HC of Bombay in CIT v. Thomas Cook (India) Ltd.

    The Hon’ble Tribunal in furtherance to the foregoing arguments held that, the transaction of corporate guarantee to be indeed an international transaction concurring with the revenue on the case laws relied and further directed the adjustment in respect of corporate guarantee to be determined at 0.5% instead of 1.3% in view of the judgements relied upon by the assessee including assessee’s own case, and in the absence of any other decisions to the contrary.(AY 12-13 & AY 13-14)

    Havells India Ltd. v. DCIT (2023) 198 ITD 610 (Delhi)(Trib.)

  75. S. 92C: Transfer pricing – Arms’ length price – Necessary adjustments to be made for determination of ALP – Excess purchases recorded need to be reduced for proper comparability
    The AO/TPO had made addition on account of purchases of parts/spare parts by the assessee with its AE. The Asseessee had contended that its profitability ratio, which was compared with that of comparable case of M/s. Praj Industries for determining the ALP, had been incorrectly calculated by considering excess purchases.The Assessee had contended that it had booked purchases which was claimed as provision for purchases in the impugned year since all the invoices had not been received and in the subsequent year when the invoices were received, it was noted that there was excess purchases claimed due to the provision made during the year, which was reversed next year and the excess purchases reversed were offered to tax as income in the subsequent year.

    The Tribunal noted that there was no infirmity drawn by AO/CIT(A) that that the actual purchases relating to the impugned year were excess claimed and therefore it was held that the Assessee contentions that profitability ratio should be computed considering the actual expenses incurred on purchases is correct.

    The Tribunal further held that the entire exercise of determining ALP of an international transaction by comparing profitability ratio of the assessee with that of a comparable entity indulging in the same type of transactions, requires the comparison of the correct profits of both the entities, after making all necessary adjustment to arrive at the correct profits. Since the assessee has clearly demonstrated that it had booked excess purchases in the impugned year, the same needed to be reduced for the purpose of arriving at the correct profit, and only thereafter profitability ratio of the assessee was required to be calculated. In view of the same the additions made by AO and upheld by CIT(A) was deleted by the Tribunal. (ITA No.1086/ Ahd/2014) (AY 2005-06)

    KHS Machinery P. Ltd v. ACIT (198 ITD 649) (Ahmd Tribunal)

  76. S. 92D: Transfer pricing – Maintenance and keeping of information – Penalty – TPO having issued notice u/s 271(1)(c) for alleged default under s. 92CA(3) and not under s. 92D, the very initiation of penalty proceedings under s. 271G is not sustainable. (r.w.s.271G)
    Held that, the satisfaction recorded by the TPO to initiate penalty proceedings is not a valid one, as the penalty proceedings were sought to be initiated under s. 271(1)(c) which are not attracted at all to the issue in controversy rather notice was required to be issued under s. 92D to attract provisions contained under s. 271G. Further, notice was not issued under s. 92D rather notice was issued for alleged default under s. 92CA(3) which is procedure to be followed by TPO for the computation of ALP. Hence, very initiation of penalty proceedings under s. 271G is not sustainable in the eyes of law. (AY 2013-14).ACIT v. Enhance Ambient Communication (P) Ltd. (2022) 220 TTJ 947 / 220 DTR 229 / 194 ITD 40 (Mumbai) (Trib.)
  77. S. 115JB: Book Profits – Excise duty exemption is purely capital receipt and is neither chargeable to tax under the normal provisions of the IT Act nor is to be included as part of book profit for computing MAT as per the provisions of s. 115JB.
    Held that, the case of the assessee being covered by the excise duty notification, the sum collected on the goods manufactured and sold is in the nature of incentive subsidy given for establishing the units in backward areas and to generate employment opportunities. Hence, excise duty exemption is purely capital receipt and is neither chargeable to tax under the normal provisions of the IT Act nor is to be included as part of book profit for computing MAT as per the provisions of s. 115JB. (AY 2014-15)Greenply Industries Ltd. v. ACIT (2022) 219 TTJ 257 (Gau) (Trib.)
  78. S. 115JB: Book profit – interest on income tax refund not disclosed in the P & L Account due to pending adjudication – Assessee’s accounts have been maintained in accordance with Companies Act – Assessing Officer has limited power under section 115JB to make adjustment to book profit only in respect of items provided in Explanation 1 to section 115JB(1) of the Act.
    In the present case it has been held that where assessee had not credited interest on income tax refund to profit and loss account and reduced same from advance tax disclosed under loans and advances as a consistent accounting practice in view of non-crystallization of such interest due to appeals pending at various forums in respect of related income tax refunds and assessee had offered interest on income tax refunds to tax under normal provisions, no addition of such interest was to be made to net profit for computing book profit under section 115JB of the Act. (A.Y. 2016-17)Reliance Industries Ltd. v. Asstt. CIT (2023) 198 ITD 158 (Mum.)
  79. S. 142(2A) : Special audit under section 142(2A) ordered by Assessing Officer- No examination of accounts – No opportunity of being heard- Violation of principles of natural justice – Assessment order passed in extended limitation period was barred by limitation [S.143 r.w.s S. 153]
    The Assessee had raised the additional grounds for appointment of special auditor under section 142(2A) of the Act. The Hon’ble Tribunal held as per the provisions of section 142(2A) as in force during the relevant period, it was only the nature and complexity of the accounts, for which the matter could be referred by the Assessing Officer to the special auditor. However, in the present case without examining accounts and forming opinion as to complexity of accounts the Assessing Officer order special audit under Section 142(2A) of the Act. Thus, the Hon’ble Tribunal further relying on Hon’ble Supreme Court decision in case of Sahara India (Firm) v. CIT 300 ITR 403 held that Assessing Officer is bound to afford an opportunity of hearing to the assessee before ordering appointment of special auditor under section 142(2A) and that an assessee has right to contest the order asking appointment of special auditor under section 142(2A) and to urge that the extended period of limitation to pass assessment order was not available to the Assessing Officer because of an invalid order under section 142(2A) of the Act.The Tribunal also held that since the Commissioner, while granting approval did not look into any material at all and it was only the show cause notice that was produced before him. In view of this, it was apparent from the record that the special audit referred for these cases was merely to get extension of time to frame assessment, hence, the said assessment has to be held as barred by limitation.(ITA No.1325,1326,1421/Chandi/2014) (AY 2006-07)

    Rajiv Kumar v. ACIT (2023) 198 ITD 585 (Chandigarh.)(Trib.)

  80. S. 115BAA: benefit of reduced corporate tax rate of 22% – filing of form 10-IC is compulsory
    The Assessee submitted that due to COVID they were unable to file Form 10-IC before the due date of filing return of income and on account of such delay the Form 10-IC was not getting submitted on the Department website. The ITAT observed that for the relevant AY the due date to file return of income was extended to 15.02.2021 and the Assessee had filed its return on 15.01.2021 but it did not file Form 10-IC till date. Therefore, the order passed by CIT(A) was upheld. (AY 2020-21)
    Bholanath Precision Engineering (P.) Ltd. v. CIT (Appeals) (Mum.) (2023) 198 ITD 211
  81. S. 145 : AO rejected of books of accounts in the absence of supporting materials and estimated the net profit of the assessee on the basis of other similar comparable business – held, valid – but the assessee being a partnership firm, was allowed to claim deduction in respect of the amount of depreciation, partners remuneration against such estimated net profit.
    The Assessee’s books of accounts were rejected by AO due to inability to furnish supporting materials. It was held that in the absence of necessary books of accounts and supporting materials, the AO had to determine the profit of the assessee in the scientific manner, which was done by making a comparison with other assessees engaged in similar business and a net profit @1.5% of the turnover was determined. With respect to the claim of the Assessee of depreciation and remuneration to partners from the net profit, the ITAT held that the the Assessee is entitled to deduction against the net profit estimated by the AO, after rejection the books of accounts, for interest on partner’s capital account and remuneration to partners, since they are not expenses but appropriation of profit only, similarly, depreciation was also allowable being a statutory allowance. (AY 2013-14 & 2014-15)
    Bhavani Cotton Ginning & Pressing Factory v. ITO (Ahd.) (2023) 198 ITD 4
  82. S. 147: Reassessment – Reassessment proceedings consequent to notice issued by non-jurisdictional Assessing Officer – void ab initio. (r.w.s. 148)
    During the year, Assessee submitted Return of Income with ITO, Ward 1(2) (i.e. its Jurisdictional AO). Subsequently, a notice under Section 148 of the Act was issued by ITO Ward 5(2) (i.e. a non- jurisdictional AO) and an action was initiated under Section 147 after recording of the reasons by a non-jurisdictional AO who had also obtained sanction under Section 151 from the Principal Commissioner of Income Tax. After realization of the jurisdictional error, the case was transferred from to the jurisdictional AO who completed the reassessment by making certain addition under capital gains on sale of property by the assessee during the year. On appeal to CIT(A), order of AO was upheld. Aggrieved, assessee filed an appeal to the Tribunal.The Hon’ble Tribunal held that it is a settled law that notice issued under section 148 by the AO having no jurisdiction over the assessee is invalid and the reassessment order and proceedings after it stands invalid. Tribunal held that there are lapses on the part of the AO to decide the jurisdiction of the case. Any order passed by the AO who has no jurisdiction without recording reasons (As the reasons were recorded by non- jurisdictional AO in the present case) has no relevance and stands void ab initio and deserves to be annulled. The defect in the order is not curable and it cannot be corrected even if the matter goes back to the jurisdictional officer. Tribunal further held that since the notice under section 148 is issued solely based on information received from DDI, Wing without making any further enquiry, reopening of the assessment is not valid and therefore the same was quased. (ITA NO.321/JP/2021 & 152/JP/2022 dt. 27-06- 2022 (AY 2010-11))

    Mukesh Kumar Agarwal v. ITO (Jaipur) (2023) 198 ITD 32 (SMC)

  83. S. 153A: Assessment – Search or requisition – Search and seizure – Assessment under s. 153A— Computation of undisclosed income – AO has not raised any doubt on various figures shown for undisclosed and unaccounted assets, liabilities, capital, sales or the method of computation of undisclosed income – It is judicially well settled that when a document is found during the course of search, it has to be relied upon in entirety – Accordingly, CIT(A) was justified in deleting the addition made by the AO by wrongly adopting the figure of unaccounted assets in place of the unaccounted capital offered by the assessee in the return of income filed under s. 153A – Radhasoami Satsang v. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) applied
    Held that, the assessee has offered the cumulative amount of unaccounted capital to tax as undisclosed income in all the assessment years and the AO having duly accepted the same, he was not justified in making the impugned addition for one year only by adopting the figure of unaccounted assets as undisclosed income in the relevant assessment year in place of the unaccounted capital offered by the assessee in the return filed under S. 153A. (AY 2013-14)
    ACIT v. River Valley Flour Mills (P) Ltd. (2022) 220 TTJ 127 (Pat) (ITAT)
  84. S.153A : Assessment – Search or requisition – Assessment – Search and seizure – Time limit – Limitation under s. 153B – Fact that the JCIT granted the approval u/s. 153D in respect of the assessment order on 30/12/2016 does not prove that the order has been passed on 30/12/2016 and hence the assessment order purported to have been passed on 30/12/2016 is barred by limitation and therefore quashed. (r.w.s. 153B)
    Held that, in the absence of any documentary evidence on record to show that the impugned assessment order under s. 153A of the Act purportedly passed on 30/12/2016 which was dispatched by the Department only on 07/01/2017 was in fact passed on 30/12/2016 before the expiry of the limitation period, the same is barred by limitation. (AY 2009-10 to AY 2015-16)Sujata Panda v. ACIT (2022) 220 TTJ 899, 220 DTR 185 (Ctk) (Trib.)
  85. S. 195 : When the primary liability of the recipient of income is already discharged in the form of advance tax, the payer cannot be penalized for non-deduction of taxes as the provisions of TDS (Tax deducted at Source) is only a recovery provision which presupposes existence of primary liability of the recipient of income. (r.w.s. 201)
    The Assessee is a stockbroker who sold shares on behalf of an overseas depository and sent remittance to the said depository without deducting tax at source (“TDS”). The Assessee believed the overseas depository to whom the remittances were made had paid advance tax on the sale transaction and so the Assessee as a payer cannot be called upon to pay the tax on the same transaction again. It is the contention of the Ld. AO that TDS should have been deducted on the payments made by the Assessee. The Ld. AO thus went onto compute tax liability for non- deduction of TDS including interest for delay in payment, holding the Assessee to be Assessee in default u/s 201 of the Income Tax Act, 1961. The Ld. CIT(A) sustained the observations of the Ld. AO holding that section 201 does not exempt TDS to be made on the payment made to non-residents, even if non-residents paid advance tax and filed the return of income taking into consideration the profit/income earned on transaction.The Hon’ble Tribunal held that, it is well settled in law that tax deduction at source liability under section 201 is a vicarious liability of the payer of an income, which cannot come into play only when the primary liability of the recipient of income is already discharged. Further placing reliance on the SC judgement in CIT v. Eily Lilly & Co. (P.) Ltd. observed that “the liability of deducting tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a vicarious liability, and the principal liability is of the person who is taxable”. Therefore, once the principal liability itself is adequately protected or discharged, it cannot be said the vicarious liability still survives. The provisions of section 201 are only recovery provisions and compensatory in nature. If it can be shown that no loss occurred to the revenue, there is no occasion to invoke these provisions of section 201(1) and 201(A). Further the Hon’ble Tribunal also relied upon a judgement by the co-ordinate bench in ITO (TDS) v. Titagarh Steels Ltd. where it was observed that, as far as the provisions of Section 201 are concerned, “the tax-deductor has to make good the shortfall in tax deduction, and the tax-deductor also has to compensate the revenue by way of interest for the period of late realization of this tax to the revenue authorities”. Further held that when the facts are seen in this light, neither is there a shortfall in the collection of revenue on account of a lapse in a tax deduction, nor is there any delay in the realization of taxes. In this backdrop, the Hon’ble Tribunal held that for the reasons above stated the impugned demands under section 201 r/w. 195 deserves to be quashed. (AY 15-16)

    ICICI Securities Ltd. v. ITO, (2023) 198 ITD 214 (Mum)(Trib.)

  86. S. 199 : Purposive interpretation of provision should take precedence over procedural requirement specified, should that pave way to substantial justice – Credit on Tax deducted at source cannot be denied simply because the corresponding income has not been offered to tax. (r.w. rule 37BA)
    The Assessee had a contract with the National Highway Authority of India (“NHAI”) for construction of National Highway. The Assessee was entrusted with the responsibility of shifting utilities for which the assessee appointed a sub-contractor to carry out the said work. The Assessee sought to claim credit of the sum which had been deducted at source by the NHAI.The flow of transaction in this case was in such a way that the sub-contractor raised invoices on the assessee periodically and the assessee raised invoices of the same amount on NHAI in turn. Given this arrangement, the assessee had no profit accruing to him. It was for this reason that the assessee had not shown any receipt from NHAI, and the corresponding expenses paid to the sub-contractor in the profit and loss account. The Ld. AO however denied the credit, holding that the assessee had failed to offer corresponding income to tax during the year. The Ld. CIT(A) sustained the position taken by the Ld. AO and there by denied the credit.

    The Hon’ble Tribunal held that, the revenue cannot deny/retain the credit to tax deducted at source. A purposive interpretation of provision of section 199 and rule 37BA must be adopted dehors the procedural requirements specified which shall allow for substantial justice. Further held that while the assessee cannot be denied the credit for tax deducted at source in the facts and circumstances of the instant case, the revenue also cannot be denied opportunity to examine the receipts and corresponding payments.

    Accordingly directed the AO to verify the receipts and deducibility of the corresponding payments reflected in the aforesaid ledger account during the relevant assessment year, and, thereafter, allow the claim of credit of tax deducted at source by NHAI. (AY 17-18)

    Hampi Expressways (P.) Ltd v. DCIT (2023) 198 ITD 498 (Mum)(Trib.)

  87. S. 201(3) : Time limit in respect of TDS applies to residents only.The ITAT held that S. 201(3) specifies a time limit to pass order under section 201/201A of the Act only for residents. The CIT(A) observed that the order dated 25.03.2019 is beyond four years in light of the decision of CIT vs. NHK Japan Broadcasting Corporation ((2008) 305 ITR 137) wherein it has been held that action must be initiated by the competent authority under the Act, where no limitation has been prescribed as in S. 201 of the Act within a period of four years. The case law is opt-in with respect to issue of limitation. Whereas on the merits, it was further observed that it was not the case of the Revenue that the payment made to non-resident is coming under the purview of TDS deduction. It was held that the amount paid to Allscripts USA is on actual cost basis without any element of markup and for the reimbursement of expenses incurred by way of using the network connectivity provided by the service provider and the amount is not chargeable to tax on any accounts. (AY 2013-14)
    ACIT{IT) v. Allscripts (India) (P.) Ltd. (Ahd.) (2023) 198 ITD 260
  88. S. 205: Deduction at source – Bar against direct demand – tax deducted from the salary of the assessee but not deposited to the government treasury – AO is not justified in denying the credit for TDS deducted. [S. 199]
    The Appellate Tribunal held that the AO was unjustified in denying the credit for TDS deducted by the assessee’s employer while making payment of salary but not deposited to Government Account. Hon’ble Appellate Tribunal restored the matter back to Assessing Officer to verify fact and grant set off of tax deducted. (A.Y. 2016-17)
    Sanjay Mahadev Khopkar v. Asstt. CIT (2023) 198 ITD 512 (Surat)
  89. S. 206C : Time limit is not defined in the Act for submission of buyer’s declaration to the authorities, to exempt from non-collection of tax at source. Thus, delay in filing of the said declaration by the Assessee cannot be a ground to hold the Assessee as Assessee in default.
    The Assessee during the assessment year had sold scrap to various parties without collecting tax at source (TCS). The Assessee was under the bonafide belief that the purchasing parties were manufacturers and hence no obligation arose for collection of TCS. However, the Ld. AO (“Ld. AO”) contended that the Assessee was obliged to collect TCS under the provisions of section 206C, and a statement in prescribed form within the timelines prescribed under the Income Tax Rules, 1962 was to be submitted which wasn’t done so, and thus held the Assessee to be the Assessee in default. Accordingly, the Ld. AO determined the liability and raised the demand at the rate of 1% on scrap sale.Before the Ld. CIT(A), the Assessee submitted that merely because the Assessee could not submit the prescribed form within the stipulated time cannot lead to an inference that the assessee was in default. Further the Assessee also pressed on the fact that necessary evidence had been furnished before the Ld. AO signifying that the buyers of the scrap have filed return of income and in such a return of income, they had reflected the purchases from the assessee and further also paid the income tax due on the returned income. The Assessee also was also on point of there being no legal mandate as regards the timeline for submission of the prescribed form which were amply supported by legal precedence. The Ld. CIT(A) however upheld the arguments of the Ld. AO holding that the Assessee had failed on two counts – not having fulfilled its obligation of collection of tax and not having collected the prescribed forms wherever applicable from the buyers for exemption of such collection, despite various opportunities already provided to the assessee.

    The Hon’ble Tribunal drawing reference to catena of judgements, observed, and held that no time limit is provided in section 206C to make declaration (in the prescribed form collected from the buyers). Further observed and held that since there was no dispute on the genuineness of the forms subsequently furnished by the Assessee, delay in filing declaration should not be a ground to deny benefit of declaration to the Assessee. Holding thus, the Hon’ble tribunal restored the matter for denovo consideration on merits to the file of the AO. (AY 14-15)

    G K Traders v. ITO (2023) 198 ITD 72 (Rjt.)(Trib.)

  90. S. 221 : When a return has been held to be invalid, no penalty can be levied as against the return since such a return is considered to have never been filed. (r.w.s.140A and 139)
    The Assessee filed its return of income. The Ld. AO issued a notice holding that the return of income was defective as the income appearing in the profit and loss account did not match with relevant schedule of the return and that the schedules were not filed. The said notice allowed for 15 days to address the said issues. The Assessee did not remove the defects and the Ld. AO thus declared the return as invalid.The Assessee found that the credit of MAT was not computed properly and therefore filed a revised return declaring the same total income, albeit with the corrected MAT credit claim. Additional tax liability arising thereof was duly paid. The Ld. AO however issued notice asking the assessee as to why penalty should not be levied for default of non-payment of taxes on due date. Rejecting the contentions of the Assessee, the Ld. AO passed an order under section 221(1) of the Act, holding that the assessee had filed belated return of income only after invalidation of return of income. And that filing of belated return was a subsequent event which cannot exonerate the assessee from its earlier default, of attempting to claim excess MAT credit not available to the Assessee. Therefore, held the assessee to be assessee in default under section 221(1) of the Act and proceeded to levy penalty. The Ld. CIT(A) sustained the order of the Ld. AO.

    The Hon’ble Tribunal held that when a return of income is held to be invalid, it cannot be considered that such return has ever been filed u/s 139 of the act. Provisions of section 140A (3) can apply only when there is a self-assessment tax payable with respect to the return filed u/s 139 of the act and if there is some discrepancy on this count. In the present case, there is no return of income filed u/s 139 of the income tax act, therefore any penalty based on that return, does not survive and so the addition made is not sustainable and liable to be reversed. Also held that the contention of the revenue holding the return subsequently filed as revised return is devoid of any merit as the acknowledgment of the return depicts the same to be an original return. (AY 16-17)

    G M Fabrics (P.) Ltd v. DCIT, (2023) 198 ITD 67 (Mum)(Trib.)

  91. S. 250 : Delay in filing appeal – Neither intentional nor deliberate – Delay condoned – Appeal to be decided on merits. (r.w.s.251)
    The assesses case was reopened based on information received from Sales Tax Department that assessee is one of the beneficiaries of the accommodation entries provided by accommodation entry providers. The AO accordingly framed the assessment under section 143(3) read with section 147 of the Act.The CIT(A) dismissed the appeal only on ground of delay of 54 months in filing appeal without deciding the issues on merits. On assessees appeal, to Tribunal the Tribunal held that since assessee’s father was suffering from multiple ailments during period of delay and remained hospitalized, the delay was neither intentional nor deliberate and there being sufficient reasons, directed CIT(A) to condone delay and decide appeal on merits Thus, the Tribunal set aside the order passed by CIT(A) in order to substantiate the cause of justice and so decide the issue once for in order to stop multiplicity of the proceedings. (ITA Nos.5 (M) 2022 dt. 29-07-2022) (AY. 2009-10)

    Rakesh Metal & Tubes v. ITO (2022) 144 taxmann. com 68 (Mumbai – Trib.)/ (2023) 198 ITD 1 (Mumbai – Trib.)

  92. S. 251: Powers of CIT(A) – Jurisdiction of CIT(A) does not extend to introducing altogether new source of income
    The Tribunal by relying on CIT v. Shapoorji Pallonji Mistry- 44 ITR 891 held that the jurisdiction of CIT(A) does not extend to introducing an altogether new source of income. Where AO treated entire sale consideration on sale of land as long term capital gains the CIT(A) could not have treated part of sale consideration as business profits. (ITA Nos.1209 (Pune) of 2017) (AY. 2012-13)
    Rangnathappa Govindappa Zharkhande v. ITO (2022) 144 taxmann.com 152 (Pune – Trib.)/ (2023) 198 ITD 290 (Pune – Trib.)
  93. S.253: Appeal to appellate tribunal – assessee not put in appearance nor adducing material before the tribunal to controvert findings of authorities – no reason to interfere with order of commissioner (appeals)
    Held that, there was no appearance from the side of the assessee on the various dates though the notices were issued through registered post with acknowledgment due. No material had been placed by the assessee before the Tribunal to controvert the findings of the lower authorities nor had the assessee pointed to any fallacy in the findings of lower authorities. In the absence of any contrary material to rebut the findings of the lower authority, no reason to interfere with the order of the Commissioner (Appeals).
    Mgs Securities P. Ltd. v. Dy. CIT [2023] 101 ITR 95 (Trib) (S.N.)(Delhi)
  94. S. 263 : Since there was no record/entry in the order sheet of assessment proceedings, which could corroborate the claim of submission of documents by the Assessee, it is deemed that the Ld. AO has failed to conduct required verification and examination (before passing the assessment order), the very purpose for which the scrutiny was picked up.
    The case of the Assessee was selected for scrutiny assessment for having large investments in unlisted equities but comparatively a low income in comparison to the high investment. Requisite documents were submitted by the Assessee to the Ld. AO, to his satisfaction. There by the Ld.AO accepted the return of income and passed assessment order.Subsequently the Principal Commissioner of Income Tax (“Ld. PCIT”) after making a prima facie observation of the assessment order invoked revisionary proceedings and passed order holding that impugned assessment order was prejudicial to the interest of revenue. In the opinion of the Ld. PCIT, the Ld. AO had not done verification on the issues for which the case was taken up for scrutiny and has passed the order without applying his mind to the material on record.

    The Hon’ble Tribunal observed that, there was discrepancy emanating from the noting made in the order sheet of the assessment proceedings and the submissions claimed to have been made by the assessee which indeed demonstrates that Ld. AO had not applied his mind. The Ld. AO had recorded that the discussion and hearing of the assessment as concluded on 19-9-2017, for which both the Ld. AO and the assessee had put their signatures on the order sheet.

    Assessee had repeatedly claimed that all the submissions were made vide letter dated 11-9-2017 and 21-9-2017, more importantly all the relevant submissions and explanations relating to the two issues for limited scrutiny criterion forms part of the submission dated 21-9-2017. In the written submission on 21-9-2017, it is submitted by the assessee that it is producing the bill and vouchers for claiming of expenses. There is no entry in the order sheet of the assessment proceedings of submission providing bills and voucher’s books of account. The last entry is on 19-9-2017. These facts evidently demonstrate that the Ld. AO has failed to conduct required verification and examination and has not applied his mind before passing the assessment order and accepting the returned income as assessed income. In this backdrop the Hon’ble Tribunal upheld the revisionary order passed by the Principal Commissioner under section 263. (AY 15-16)

    Karabi Dealers (P.) Ltd v. PCIT; (2023) 198 ITD 221 (KOL.)(Trib.)

  95. S. 271AA : AO did not specified the documents/information which, in his view, were required to be kept and maintained u/s 92D(1) and 92D(2) of the Act r.w.r 10D of the Rules but were not kept and maintained by the assessee – penalty set aside
    The ITAT has given a finding that it is undisputed that the Assessee has maintained requisite documentation in respect of its reported international transaction of FTS and FIS and has also furnished details of various documentations maintained by it. It is further observed that the AO has not specified the documents/information which, in his view, were required to be kept and maintained u/s 92D(1) and 92D(2)of the Act r.w.r 10D of the Rules but were not kept and maintained by the Assessee. Therefore, order of CIT(A) upheld and penalty set aside. (AY 2009-10)Dy. CIT v. Convergys Customer Management Group Inc. (Delhi) (2023) 198 ITD 100