Research Team

1. S. 45: Capital gains – Transfer – Development agreement -No real development took place till date – Matter restored to AO to decide the capital gains after verifying whether the possession is taken back by the assessee or not and the assessee cancelled the development agreement or not.[ S.2(47) (v)]

Assessee entered a Development agreement-cum-GPA with M/s 21st Century Investments & Properties Ltd., wherein he transferred the land admeasuring 0.15 guntas. The developer had to complete the development within 24 months and the Assessee had to receive 5000 square feet built-up area. Since, the assessee has handed over the property as per the agreement to the developer, the AO was of the view that it was hit by section 2(47)(v) of the IT Act and accordingly, determined the short-term capital gains. The Tribunal observed that after entering into agreement, the developer had vanished, and no real development took place till date as verified and confirmed by the AO through the Departmental Inspector. Neither development has taken place nor developed area was received by the assessee and this fact was confirmed by the AO himself. The Tribunal was of the view that there was no real income except notional income as per the development agreement, which was never been received by the assessee. The Tribunal observed that till date development agreement was not cancelled and no public notice was issued by the assessee for cancellation of development agreement. The Tribunal thus restored the matter back to AO to decide the capital gains after verifying whether the possession is taken back by the assessee or not and the assessee cancelled the development agreement or not. In case, the possession is taken back by the assessee and there was no development, there could be no capital gain. (IT A No. 1348 (Hyd.) of 2017, dt. 13-11-2020(AY. 2007-08)

Santosh Kumar Subbani v. ITO (2020) 122 taxmann.com 169 / (2021)186 ITD 217 (Hyd)(Trib.)

2. S. 4: Charge of income-tax – Reimbursement of Software payments – Licence obtained from third parties – Not taxable

The assessee entered into a services agreement to provide SAP software and licence to its Indian subsidiary on a cost-to-cost basis without any markup. The assessee has purchased a licence on behalf of the Indian subsidiary and then charged the assessee for these amounts. The Assessing Officer held that once a right had been provided for a cost, the fact that there was no markup or any profit would not take the receipt out of income nature. In such a scenario, the amount cannot be treated as reimbursement and treated the payments as Royalty.

The Tribunal noted the agreement, and the financial director’s certificate and held there no challenge to the factual element of the receipt being a cost to cost reimbursement received by the assessee. The routing of the payments has no bearing on the taxability of the income in the hands of the assessee. The receipt of software licence fees by the assessee from its Indian subsidiary was reimbursement of software licence fees to paid to a third party, and it would not constitute income taxable in the hands of the assessee. (ITA No. 7315 of 2018, dt 08.01.2021) (AY 2015-16)

Hygiene Products AB v. Dy. CIT (IT) (2021) 209 TTJ 545 / 123 taxmann.com 152/ 85 ITR 607 (Mum) (Trib.)

3. S. 4 :Charge of income-tax – Assessee a federation of co- operative societies received contribution from its members towards co-operative education fund – Assessee had no discretion to spend amount received – the contribution could not be treated as income of assessee.

The Appellate Tribunal has held that the

contribution received by the assessee from co- operative societies towards specific purpose and the assessee has no discretion to spend the contribution received. The utilization of the contribution is to be decided by the Advisory Board consists of different persons as per the direction of the Government of Karnataka. The donations were for specific purposes which means that the assessee has agreed to act as a trustee for this contribution received from various co-operative societies. Thus, the donations received by the Assessee are for specific purposes and do not belong to the assessee. Hence, such donations do not form income of the assessee. ( AY. 2013-14 to 2015-16)

Karnataka State Co-operative federation Ltd. v. ACIT (2021) 186 ITD 750 (Bang) (Trib.)

4. S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Singapore tax resident providing bandwidth services – Cannot be taxed as royalty as Indo- Singapore DTAA does not include “transmission by satellite, cable, optic fiber or similar technology” in the definition of ‘Royalty’- DTAA-India-Singapore

Assessee a tax resident of Singapore provided the bandwidth services, as standard services, wherein the customer enjoys an uninterrupted 24×7 service to transmit voice and data at standard rate of reliability. In case no service was provided or there is default of regular supply, then there is non- payment of consideration by the payee. The Revenue authorities were of the view that the consideration received by the assessee falls within the definition of Royalty both u/s 9(1) (vi) of the Act and also under provisions of Tax Treaty. The Tribunal held that the Tax Treaty between India Singapore specifically does not include “transmission by satellite, cable, optic fiber or similar technology” in the definition of ‘Royalty’ under the Tax Treaty and also further the Tax Treaty had not undergone any amendment, the provisions of DTAA being more beneficial to the assessee were attracted. The Tribunal held that assessee was not liable to be taxed on the amount received from Indian customers for the provision of bandwidth services outside India. (ITA 1548 & 6733/ Del/2015; 286/Del/2016; 3020/Del/2017; dt. 30-09-2020) (AY. 2011-12, 12-13 , 14-15)

Telstra Singapore Pte Ltd. v. Dy. CIT (IT)-(2021) 186 ITD 440/ 123 taxmann.com 124 (Delhi ) (Trib.)

5. S. 10 (23C): Educational institution – exemption if income is applied for educational purpose – alternatively expenditure incurred for earning such income should be allowed under section 57(iii) – eligibility to claim exemption – wholly and substantially financed by the government.[S.57 (iii)]

Where there is an educational institution, established for educational purpose and not to earn profit, which is substantially financed by the government, it is eligible to claim exemption under section 10(23C)(iiiab) of the Act. Inability to furnish details of exemption under section 10(23C)(iiiab) on account of lack of proper columns in the income tax return form will not invalidate such claim, when the income was applied for the purpose of running the college. Alternatively, if the claim for exemption is denied under section 10(23C)(iiiab) and the income is assessed under the residual head of income, then as per section 57(iii) entire expenditure incurred for the purpose of making or earning income should be allowed to the Assessee.

On the question of eligibility of the Assessee to claim exemption under section 10(23C)(iiiab) with respect to the institution being “wholly and substantially financed by the Government”.

The Tribunal observed that the explanation to clause 10(23C)(iiiab) was inserted via Finance Act, 2014 which came into effect on 01.04.2015, and this explanation was prospective in nature. It held that the Assessee is an education institution running for educational purpose and not for profits and therefore it is eligible for exemption under section 10(23C)(iiiab). CIT v. Jat Education Society, Rohtak (2016) 383 ITR 355 (Punjab. &. Har.) relied. (ITA No. 469 (Ind) 2018 dt. 6 November, 2020) (AY 2014-15).

Dy. CIT v. Shri Vaishnav Polytechnic College Govn by VSK Market Tech Educational Society (20210186 ITD 378 (Indore) (Trib.)

6. S.  10AA : Special economic zones – Transfer pricing voluntary adjustments – Entitle to deduction in enhanced income [S.92C]

The Assessee is engaged in providing back office support services, in the nature of ‘Information Technology Enabled Services’ (ITES). It adopted TNMM to benchmark its international transaction. It made a voluntary TP adjustment to its financial results and claimed deduction under Section 10AA of the Act against it. The TPO proposed an adjustment by making certain changes in the comparable companies. The DRP directed the AO/TPO to exclude certain comparable companies on the basis that it considered the Assessee company as low end service provider whereas the comparable companies viz. M/s E-Clerx Services Ltd. & M/s Acropetal Technologies Limited were providing high-end services. The Tribunal upheld this direction of the DRP. In respect of disallowance of section 10AA claim on voluntary adjustment, the AO had allowed the said deduction on the voluntary TP adjustment, however, the DRP directed to disallow the claim as- (i)The Assessee has not furnished any details as to how the above said amount was worked out;(ii) Section 10AA mandates the export consideration should be brought into India; (iii) The unit for which deduction has been claimed has actually incurred losses. The Tribunal noted that the first proviso to Section 92C(4) is applicable only to situations where adjustment to the ALP is made by the AO/TPO / DRP. It also appreciated that the Assessee computed the adjustment in a scientific manner by comparing its margins with that of comparable companies selected by the Assessee. The Tribunal observed that artificial income cannot be part of export turnover and hence there could not be any condition for getting such foreign exchange to India. It held that the Assessee was entitled to deduction under Section 10AA of the Act on voluntary transfer pricing adjustment. Apoorva Systems (P) Ltd (2018)(92 taxmann.com 82); I-Gate Global Solutions Ltd. (2007)(112 TTJ 1002) upheld by Hon’ble Karnataka High Court in ITA 453/ 2008 relied. (ITA No. 218 (Bang) 2015 & 199 (Bang) 2015 Dt. 20.05.2020) (AY 2010-11)

Dy. CIT v. EYBGS India (P.) Ltd (2021)186 ITD 765 (Bang) (Trib)

7. S. 11: Property held for charitable purposes – Deployment of funds pursuant to government policy and recommendations – No intention to earn profits – Exemption allowable [S.12AA, 13(1)(d)]

Assessee is a not-for-profit company registered under section 12AA of the Income- tax Act, 1961 as a charitable institution. The Assessee was required to establish Broadcast Audience Research Council (BARC) under section 25 of the Companies Act, 1956 by the policy of Central Government and TRAI recommendations. The Tribunal observed that the BARC enables assessee to fulfil its ‘objects incidental or ancillary to the attainment of the main objects’. It further observed that, there was no intention to earn profits by the Assessee as being a not-for-profit company, the BARC is not permitted to distribute profits among its shareholders neither can it distribute its funds to its shareholders upon the liquidation of the company. Therefore the finding of the Assessing officer that the investment in BARC was in violation of section 13(1)(d) is not valid and the Assessee is eligible for exemption under section 11. Director of Income tax v. Alarippu (2000) 111 TAXMAN 511 (Delhi), Director of Income tax v. Acme Educational society (2010) 326 ITR 146 (Delhi) upheld. (ITA No.4193 and 4194/Del/2017 dt. 14 September, 2020) (AY. 2013-14, 2014-15)

ACIT (Exemption) v. Indian Broadcasting Foundation (2021) 186 ITD 241 (Delhi)(Trib.)

8. S. 14A : Disallowance of expenditure – Exempt income – Rule 8D is not mandatory – AO must record satisfaction. [R.8D]

Assessee disallowed Rs. 41 lakhs as expenditure attributable to said exempt income. Assessing Officer applied provision of section 14A read with rule 8D and made addition of Rs. 31 lakhs in disallowing expenditure over and above disallowance made by assessee.It was held by ITAT that Assessing Officer did not examine books of account and nowhere recorded satisfaction to arrive at reasonable expenditure incurred by assessee to earn exempt income. Further, Assessing Officer had proceeded on erroneous presumption that application of rule 8D was mandatory in nature. (AY 2014-15)

JCIT v. Rare Enterprises (2020) 84 ITR 164 / (2021) 187 ITD 65 (Mum)(Trib.)

9. S. 14A : Disallowance of expenditure – Exempt income – Ad-hoc disallowance – deleted. [R.8D]

The Tribunal noted that the Assessing Officer accepted that no expenditure has been incurred for earning the dividend income and therefore no disallowance under section 14A was called for. Without appreciating this aspect, the Assessing Officer disallowed Rs. 3 lacs under section 14A of the Act on an ad-hoc basis, and while doing so the Assessing Officer had not established any nexus between the expenditure and earning of dividend income. The Tribunal deleted the disallowance. (ITA Nos. 1955 TO 1959/Del/2016; dt. 06-08-2020) (AY. 2001-02 to 2005-06)

Triveni Engineering & Industries Ltd. v. ACI (2020) 118 taxmann.com 301/ (2021) 186 ITD 353 (Delhi (Delhi)(Trib.)

10. S. 17(2): Perquisite – ESOP Benefits Granted To An Assessee When He Was Resident And In Consideration For Services Rendered In India Is Taxable Even Though The Assessee Is A Non-Resident In The Year Of Exercise- DTAA-India-UAE [S.15, Art .15]

Tribunal Held That Esop Benefits Granted To An Assessee When He Was Resident And In Consideration For Services Rendered In India Is Taxable Even Though The Assessee Is A Non-Resident In The Year Of Exercise. S. 17(2) (Vi) Decides The Timing Of The Income To Be The Year Of Exercise Of The Esops But Does Not Dilute Or Negate The Fact That The Benefit Had Arisen At The Point Of Time When The Esop Rights Were Granted. Article 15 Of The India-UAE DTAA Permits Taxation Of Esop Benefit, Which Is Included In The Scope Of The Expression “Other Similar Remuneration”

Appearing Immediately After The Words “Salaries And Wages”, In The Jurisdiction In Which The Related Employment Is Exercised. Thus, An Assessee Who Gets Esop Benefits In Respect Of His Service In U.A.E. And He Exercises These Options At A Later Point Of Time, Say After Returning To India And Ceasing To Be A Non-Resident, Will Still Have The Treaty Protection Of That Income Under Article 15(1). Conversely, When The Assessee Gets The Esop Benefit On Account Of Rendering Services In India, He Cannot Have The Benefit Of Article 15 In Respect Of The Said Income. (ITA No. 1200 And 1201/Mum/2018, Dt. 13.01.2021)(Ay.2013-14 And 2014-15)

Unnikrishan V. S. v. Ito(Mum)(Trib), www.itatonline.org

11. S. 36(1)(iii): Interest on borrowed capital – Interest free advances made-availability of sufficient own funds- addition deleted by the Tribunal-delay in payment to the account of Provident Fund- disallowance upheld-delay in pronouncement of order by the Tribunal-90 days period should exclude at least the lockdown period.

Delay on the part of the Assessee to file an appeal before the CIT(A) pursuant to Notification no. 11/2016 dated 01.03.2016 on account of technical difficulty faced by the Assessee in filing the appeal electronically within the prescribed time limit was condoned by the Tribunal.

Further, the Assessing Officer made certain disallowance under section 36 (1)(iii) assuming that interest bearing funds were utilized for making interest-free advances by the Assessee. The Tribunal observed that upon perusal of records, the company had sufficient interest free and in fact it made such interest free advances to the tune of only 20.43% of the total interest free funds available with the Assessee company and therefore deleted the addition.

On the question of delayed payment by the Assessee to the account of Provident Fund after the expiry of the due date as prescribed by the relevant Act was not allowed by the Tribunal.

Lastly, the Tribunal touched upon the topic of delay in pronouncement of an order by the Tribunal taking into consideration the lockdown imposed by the government during the unprecedented COVID19 pandemic. Where the Tribunal acknowledged the time limit of 90 days prescribed under Rule 34(5) of the Appellate Tribunal Rules, 1963, and usage of the word “ordinarily” therein. It held that a pedantic view of the rule cannot be taken since these are extra-ordinary situations and that such period of 90 days must be computed by excluding at least the period during which the lockdown was in force. It also concluded that this does not create any bar on the discretion of benches to re-fix the matters for clarifications because of the considerable time gap between hearing a case and finalizing an order thereon. Eagel Steel Industries P. Ltd. vs. ITO [ITA No. 3151/Ahd/2016]; CIT-vs-Dalmia Cement (P.) Ltd. [(2002) 254 ITR 377]; DCIT v. JSW Ltd. (ITA Nos. 6264 & 6103/Mum/2018) relied upon. (I.T.A. No. 1538/Ahd/2018 & 1539/Ahd/2018 dt. 11.09.202) (AY 2013-14 & 2014-15)

Balaji Electrical Insulators (P) Ltd. v. Dy. CIT (2021) 186 ITD 1 (Ahd.) (Trib)

12. S. 37(1) : Business expenditure – expenditure incurred on affixing adhesive stamps on conveyance deed-held, it is revenue expenditure-provision for warranty-provision for present obligation due to past event-not a contingent liability-expenditure allowed – Depreciation on goodwill and customer contracts- held in nature of intangible assets, therefore eligible for depreciation [S. 32]

Assessee’s claim for expenditure of Rs. 59,17,000/- for cost of adhesive stamp in connection with preparation of deed of transfer and assignment for acquisition of receivables was allowed by the Tribunal as the same was incurred for receivables which is a part of current asset and therefore revenue expenditure. CIT(A)’s observation that that the payment of stamp duty was in connection with acquisition of industrial steam turbine i.e. an industrial unit or a capital asset and therefore it is a capital expenditure set aside.

In respect of provision for warranty of Rs. 2,76,18,000/-. The Assessing Officer and CIT(A) denied this claim on the ground that it is an unascertained and a contingent liability and the CIT(A) restricted this disallowance only for provision made during the year. The Tribunal noted that the claim was allowed in subsequent years. It held that when an expenditure or obligation is anticipated on the basis of past experiences, provision for such expenditure cannot be held as contingent liability and allowed the claim of assesse.

In respect of claim of depreciation on customer contracts made by the Assessee by referring to the provisions of section 2(11) & 32(1)(ii). The lower authorities denied the claim and held that depreciation under section 32(1) (ii) cannot be allowed as customer contracts were not in the nature of ‘intangible assets’ as contemplated under section 2(11). Assessee raised an additional ground for depreciation on goodwill under section 32 before the Tribunal. On the basis of judicial precedents, the Tribunal observed that goodwill was an intangible asset entitled for depreciation under section 32. It noted the claim of the Assessee that goodwill arising out of slump sale agreement and customer contract which were similar to goodwill being an intangible asset were also eligible for depreciation. On the basis of judicial precedents, it concluded that goodwill and customer contracts were eligible for depreciation under section 32. Rotork Controls India P. Ltd. v. CIT [(314 ITR 62)(SC)]; Techno Shares and Stocks Limited [37 ITR 323]; Commissioner of Income Tax vs. Smifs Securities Ltd. [Civil Appeal No. 5961 of 2012]; Areva T&D India Ltd. v. CIT [ITA No. 315/2010]relied (I.T.A. No. 211(Mum)2008 & I.T.A. No. 2500(Mum) 2010 dt. 16 September, 2020) (AY 2004-05 & 2005-06)

Demag Delaval Industries Turbomachinery (P.) Ltd v. ACIT(2021) 186 ITD 228 (Mum) (Trib)

13. S. 37(1) : Business expenditure – expenditure on implementation of a new software package – allowable as revenue expenditure

The assessee was a public limited company engaged in the business of manufacture and sale of Turbine, Gear and Gear Boxes, sugar plants, water treatment plants, mini hydel power projects, etc. The assessee had, during the relevant previous year, inter alia, incurred an expenditure aggregating to Rs. 1,16,60,400 on implementation of new ERP package which was treated as deferred revenue expenditure in the books of accounts. Though in the books of account, the expenses were treated as deferred revenue expenditure, the said expenses, being revenue in nature, were claimed as deduction in the return of income. The Assessing Officer disallowed the said expenses holding the same to be capital expenditure on the ground that it resulted an enduring benefit to the assessee and allowed depreciation @ 60% on the same. The Tribunal noted that no ownership of any software was acquired by the assessee as a consequence of the ERP expenditure. The assessee had only limited right to use the concerned software product which the assessee acquired without acquiring the right of transferring the said software. Thus, no benefit of an enduring nature had been derived by the assessee as result of said expenditure and the said expenditure was incurred only for smooth working and for improving the functioning of the organization. The Tribunal thus allowed the expenditure. (ITA Nos. 1955 TO 1959/Del/2016; dt. 06-08-2020) (AY .2001-02 TO 2005-06)

Triveni Engineering & Industries Ltd. v. ACIT (2020) 118 taxmann.com 301 / (2021)186 ITD 353

(Delhi) (Trib.)

14. S. 40(a)(ii) : Amounts not deductible – Rates or tax – Business expenditure – deduction for foreign taxes paid allowed while computing its income, to the extent that such tax was not entitled to the benefit of section 91 of the Act.[S.37(1), 91]

The assessee-company claimed deduction of state taxes paid overseas of Rs. 13,22,52,218/- in the return of income. The Assessing Officer held that the payments were not liable to be allowed as deduction either u/s 37(1) or section 40(a)(ii) of the Act. The Tribunal held that Assessee was entitled to deduction for foreign taxes paid on income accrued or arisen in India in computing its income, to the extent that such tax was not entitled to the benefit of section 91 of the Act. The Tribunal directed the AO to verify whether the State taxes paid by the assessee overseas are eligible for any relief u/s 90 of the Act and if it is not found to be so, assessee’s claim of deduction should be allowed. However for interest / penalty for delay in payment of federal or state taxes overseas, the Tribunal observed that assessee had not filed the details with supporting documents on the penal interest and hence it was not possible to decipher whether the penal interest was compensatory in nature or not. Hence the Tribunal restored the issue to the AO for deciding it afresh and directed the assessee to file the documents/evidence before the AO .(IT(TP)ANos. 3262 & 3389/MUM/2017; Dt. 11-11-2020) (AY. 2007-08)

Tata Consultancy Services Ltd v. ACIT (2020) 121 taxmann.com 190 (2021) 186 ITD 721 (Mum)(Trib.)

15. S. 40A(3) : Expenses or payments not deductible – Cash payments exceeding prescribed limits – purchase of lands from farmers – Disallowance deleted.

Assessee company during the year purchased vide six separate registered sale deeds, certain portion of land. Assessee, out of above total six purchases of land made cash payments in part in five purchases of land. The A.O. held that assessee had contravened provisions of section 40A(3) and there was no escape through rule 6DD therefore he disallowed 20% part of total expenditure (Rs. 2,12,50,000) incurred in cash amounting to Rs. 42,50,000/- and added the same to total income in the hands of the assessee company. The Tribunal observed that the identity of the persons from whom the purchase of various land parcels have been made by the assessee has been established and the source of cash payments was clearly identifiable in form of the withdrawals from the assessee’s bank accounts and the said details were submitted before the lower authorities which has not been disputed by them. The Tribunal observed that it was not the case of the Revenue either that unaccounted or undisclosed income of the assessee has been utilized in making the cash payments. The Tribunal held that genuineness of the transaction was established as evidenced by registered sale deeds wherein the payments through cheque as well as cash has been duly mentioned and lastly, the test of business expediency was met as the initial payments as insisted by the sellers most of whom were farmers have been made in cash to secure the transaction. Considering entire facts Tribunal held that no disallowance is called for under section 40A(3) of the Act and the same was deleted.(IT No. 980/JP/ 2018; dt . 27-10-2020) (AY. 2007-08)

Vijayeta Buildcon Pvt. Ltd v. ACIT (2021) 86 ITD 493 / 123 taxmann.com 133 (Jaipur) (Trib.)

16. S. 45(3): Capital gains – Transfer of capital asset to AOP – transfer of development right – Section 50C not applicable

The assessee entered into a Joint Venture agreement with M/s. Benchmark Properties, an AOP, vide agreement dated 01.07.2010, wherein it contributed the development rights as ‘capital contribution’ at an agreed consideration of Rs. 5 crores. According to the Assessee, development rights was a capital contribution, and though a transfer, it is not a sale because there neither any receipt nor any accrual of any consideration. The assessee claimed the said amount by way of ‘capital contribution’ and declared long term capital gain amounting to 1,28,953/- under the special provisions of section 45(3) of the Act.

The AO invoked section 50C of the Act by treating the consideration received as per circle rates and applied stamp duty value at Rs.10,10,47,000/-, thereby assessing the long term capital gains at Rs.5,10,47,000/-, and disregarded the application of section 45(3).

The Hon’ble Tribunal noted that Section 45(3) is a charging provision having two limbs joined by the conjunction “AND”. The first limb is a charging provision that levies capital gain tax arising from capital asset contribution in the AOP by a member, and the second limb is an essential deeming fiction for determining the value of consideration without which the charging provision would fail. Section 50C is also deeming fiction to apply to compute capital gains in the case of transfer of a capital asset from one person to another. The provisions of section 50C could not be applied to the sale development rights of land owned by the assessee when transfer from member to the AOP. In view of the above, the provisions of section 50C are not applicable, and provision of section 45(3) of the Act will be applied. (ITA No. 2279/Mum/2017 dated 11.08.2020, AY 2012-13)

Network Construction Company v. ACIT (2021) 209 TTJ 900 (Mum) (Trib)

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

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

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

Maria Fernandes Cherly v. ITO (IT )(2021) 209 TTJ 850 /123 Taxmann.com 252

18. S. 50C : Capital gains – Full value of consideration – Stamp valuation – Third Proviso providing tolerance band of 10 per-cent is retrospective.

The ITAT held that Amendment made in scheme of section 50C(1), by inserting third proviso thereto and by enhancing tolerance band for variations between stated sale consideration vis-à-vis stamp duty valuation from 5 per cent to 10 per cent are effective from date on which section 50C, itself was introduced, i.e 1-4-2003. (AY. 2011-2012)

Maria Fernandes Cheryl v. ITO [2021] 85 ITR 674 (Mum)(Trib.)

19. S. 50C : Capital gains – Full value of consideration – Stamp valuation – addition cannot be made under section 50C on the transfer of leasehold rights in land or building.[S.45]

The Appellate Tribunal held the expression ‘land or building’ in its coverage is quite distinct from the expression ‘any right in land or building’. The legislature, in its wisdom, has used the expression ‘land or building or both’ in section 50C(1) of the Act, and not the expression ‘any right in land or building’. Thus, section 50C covers only capital asset being land or building or both and it would not cover transfer of leasehold rights in land and building. (AY. 2015-16)

Noida Cyber park (P.) Ltd v. ITO (2021) 186 ITD 593 (Delhi) (Trib)

20. S. 54: Capital gains – Profit on sale of property used for residence – capital gains arising from sale of two flats were invested in one residential house, such capital gains would be exempted. [S.45]

Assessee invested capital gains from sale of two flats in one residential house and claimed exemption under section 54. Assessing Officer opined that there must be set of sale and purchase of one residential house to claim exemption under section 54. The ITAT held requirement of section 54 is that investment should be in one residential house, there is no bar on investing capital gains arising from sale of more than one residential house. (AY. 2009- 10)

Vijay Kumar Wanchoo v. ITO (2020) 84 ITR 268 / (2021) 187 ITD 283 (Delhi) (Trib.)

21. S. 54F : Capital gains – Exemption – unutilized sale consideration invested in capital gain accounts scheme before filing of return u/s.139(4), eligible for deduction [S.45, 139(4)]

Held that Long term capital gain earned from sale of plots was deposited in FDR with bank and later on, assessee came to know that as per provisions of s.54F, FDR was required to be made under capital gain account scheme (CGAS), therefore, to rectify procedural mistake, assessee en-cashed FDR with bank and deposited same on very same day into capital gains scheme FDR without utilizing same for any other purpose and had filed revised return within time limit prescribed u/s. 139(4). The claim of the Assessee u/s. 54F was eligible. (ITA No.96/JP/2020, dated. 06/03/2020)(AY 2011-12)

Renu Jain v. ITO (2021) 186 ITD 175 (Jaipur)(Trib.)

22. S. 54F : Capital gains – Investment in a residential house – Residential property where Assessee name is merely included will not be considered as owned by Assessee.[S.45]

Assessing Officer disallowed exemption under section 54F to assessee on ground that assessee was owner of two other residential properties along with one purchased by him out of consideration from sale of shares. The ITAT held that in view of fact that one of those properties was a commercial property and other residential property was fully owned by wife of assessee and merely name of assessee was included in purchase deed, assessee was to be allowed exemption under section 54F.(AY 2013-14).

Anil Dev v. Dy. CIT (2020) 185 ITD 418 / 119 taxmann.com 328 / (2021) 209 TTJ 920 (Bang) (Trib.)

23. S. 54F : Capital gains – Investment in a residential house – Joint Ownership cannot come in way of claiming exemption [S.45]

Assessee i.e. late husband of Smt Savita Bhasin sold land and earned long term capital gains. Assessing Officer denied exemption u/s 54F on ground that assessee on date of transfer of original asset had two residential house, although both assets were jointly owned with his wife. Assessee, however, claimed that second residential house was already sold to his son before sale of land. The ITAT held that the agreement to sell residential house between assessee and his son was duly registered and rental income from said property was mentioned in ITR of assessee’s son and hence said house cannot be said to be owned by Assessee. Further, assessee was having only 50 per cent share in the impugned residential property which was sold to the son of the assessee. Therefore, the Assessing Officer could not deny exemption under section 54F to the assessee.

Savita Bhasin Smt. v. ITO (2020) 84 ITR 602/ (2021( 186 ITD 195 (Delhi) (Trib.)

24. S. 55A: Reference to valuation officer – if value of immovable property determined by assessee was lesser than FMV of property, as per the amendment brought in s.55A (a) with effect from 01- 07-2012 by Finance Act, 2012; AO can make reference to DVO for determination of value. [S.45]

Amendment brought in section 55A(a) with effect from 1-7-2012 by Finance Act, 2012, according to which reference could be made by Assessing Officer to DVO if value of immovable property determined by assessee was lesser than FMV of property, is applicable prospectively. Therefore value of an immovable property sold by assessee determined by DVO was lesser than value declared by assessee as on 1-4-1981, reference to DVO by Assessing Officer under section 55A was not warranted. (ITA No.821 – 822/AHD/2016 dated. 27/11/2020)(AY. 2011 – 2012)

Ranchodbhai C. Patel v. ITO (2021) 186 ITD 523 (Surat) (Trib.)

25. S. 56 : Income from other sources – Chargeable as (Business income v. Income from other sources) – Assessee as director of company purchased one unit in a Hotel, had given for being run by a managing company, said unit could not be construed to be a business of assessee, loss from hotel unit assessed under head ‘income from other sources’ and not as business loss.

The Assessee was whole time Director of company in India also owner of one unit in a Hotel in USA, on which he incurred loss and claimed said loss under head ‘income from other sources’ and sought to set off loss against salary income of same year. The Assessing Officer considered said loss as business loss, CIT (A) also confirmed.

Tribunal observed that, assessee had entered into hotel maintenance and operation agreement in respect of Hotel Unit owned by him and under this agreement, Hotel Unit was operated as a part of Hotel by an appointed Managing Company. The control of affairs of assessee’s unit like to whom unit was to be let out. Tribunal held that the unit under consideration could not be considered to be a business undertaking of assessee. Loss from Hotel Unit in USA was to be assessed under head ‘income from other sources’ and not as business loss. (ITA No.9016/Del/2019, dated 01/07/2020)(AY. 2016-2017)

Rohit Kapur v. Addl CIT (2021) 186 ITD 466 (Delhi)(Trib.)

26. S. 56 : Income from other sources – Business income – Income from other sources – Assessee working as a director and made investment in two limited liability companies (LLCs) in USA, Investment being only for purpose of an investment and not business. Loss occurred from investment in LLCs assessed as ‘Income from other sources’ and not as business loss.[S.28 (i)]

The assessee was doing business as partner in LLCs and, therefore, resultant income or loss was he booked under head ‘business income’ and not income from other sources. Tribunal held that, assessee, by virtue of being whole time employee Director in an oil exploration company, could not have made capital outlay in two limited liabilities company for purpose of business and, apparently, this was only for purpose of an investment. In preceding years, investment of this nature had consistently not been treated as business and therefore, there was no foundation for to have treated impugned loss as business loss. Hence, loss from investment in LLCs was to be assessed under head ‘Income from other sources’ and not as business loss. (ITA No.9016/ Del/2019, dated 01/07/2020)(AY.2016-2017)

Rohit Kapur v. Addl CIT (2021) 186 ITD 466 (Delhi)(Trib.)

27. S. 68 : Cash credit – Manipulated accounts by way of bogus/ fictitious entries, transactions did not involve actual cash inflow, it was unrealizable for assessee to discharge onus of establishing identity and creditworthiness of parties and genuineness of transaction, addition cannot be made as cash credits.

During relevant years, assessee-company had shown certain additions to share capital in its books of account; It was revealed that assessee, through involvement of cashier of Bank manipulated accounts by way of bogus/ fictitious entries in compliance of provisions as prescribed by SEBI in order to facilitate public issue. No actual cash inflow carried out by assessee for enhancing share capital, the Assessing Officer held that such increase in share capital represented unexplained cash credit and made additions under section 68.

Held that, a legal fiction is created under section 68 on basis of which an entry in books of account is deemed to be income of assessee chargeable to tax in event assessee fails to discharge onus imposed upon it u/s. 68. However, such legal fiction could be applied only in case of actual transactions incorporated in books, therefore, transactions were fictitious/ bogus, did not involve real cash inflow, and it was impracticable for assessee to discharge onus of establishing identity and creditworthiness of parties and genuineness of transaction, hence s.68 was not invocable. (ITA No.186 to 188/ AHD/2015 dated.29/10/2020) (AY. 1995-96 to 1997-98)

Rich Paints Ltd. v. ITO (2021) 186 ITD 425 (Ahd) (Trib.)

28. S.68: Unexplained cash credits – not providing an opportunity to cross examine the witness – violation of principles of natural justice-when all the requisite documents and information is provided by the assesse onus shifts to the Revenue to cross verify the details furnish – otherwise no addition can be made [S. 132, 147, 148]

Reassessment proceeding under section 147 was initiated on the basis the basis of information received during search conducted under section 132 on the premises of a third person, Mr. P by the Assessing Officer. In response, Assessee furnished all the requisite documents and requested for cross-examination of Mr. P since the entire addition of Rs. 29,82,89,600/- as unexplained cash credit under section 68 was proposed to be made on the statement of Mr. P a.k.a. the witness. It was observed that the Assessing Officer did not provide a copy of such statement of the witness neither did it provide an opportunity to the Assessee to cross-examine such witness. It also did not bring anything on record to rebut the factual position and explanation provided by the Assessee.

The CIT(A) as well as the Tribunal held that the order passed by the Assessing Officer is illegal and the entire addition solely based on such statement is likely to be deleted as there was a violation of principle of natural justice. The Tribunal held that if the Assessing Officer intends to rely, for the purposes of making addition to the total income of the assessee, on the statement of the third party as a witness, then he has to summon such witness, record his statement, offer that witness to the assessee for cross examination in order to rebut the material on the basis of which the Assessing Officer intended to proceed.

On the merits of the case, the Tribunal observed that the Assessee by furnishing the necessary details has discharged its onus, if such details are not cross verified by the department then the Department cannot go on to hold addition under section 68 in the facts and circumstances of the case. CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103; Kalra Glue Factory v. Sales Tax Tribunal [1987] 167 ITR 498; CIT v. Pradeep Kumar Gupta [2008] 303 ITR 95 (Delhi); PCIT v. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi); Andaman Timber Industries v. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC); CIT vs. Chanakya Developers reported in 43 taxmann.com 91; CIT v. Orissa Corp. (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80 (SC); Deputy CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523 (Guj.) followed. (ITA No(s) 1823/ Ahd/2017 Dt. 11.02.2020) (AY 2009-10)

ACIT v. El Dorado Biotech Pvt. Ltd (2021) 186 ITD 661 (Ahd )(Trib)

29. S.80P: Co-operative societies – Deposit only from Members – Determination based on Charter documents – Not based on mere admission – deduction allowable. [S.80P(2)(a)(i)]

Where Assessee co-operative society collected deposits only from its members and had no transaction with non-members. It filed a return of income declaring Rs. Nil after calculating the deduction u/s. 80P(2)(a)(i) of the Act. The AO observed that the assessee is carrying on banking business as stated by the former Chartered Accountant.

The Tribunal noted that the assessee had collected deposits only from its members and had provided credit facilities only to its members and did not have any transaction with non-members. It was registered under Maharashtra State Co-operative Societies Act, 1960, providing financial assistance to its members. The former Chartered Accountant of the assessee had misinterpreted activity carried on by the assessee to be akin to banking business. On realising its mistake, the assessee had even preferred a rectification petition pointing out the mistake, which was still pending disposal. Mere admission of Chartered Accountant alone would not determine the status of assessee, and same was to be determined based on charter documents, i.e. objects and bye-laws of assessee society. The assessee was to be considered as a co-operative credit society and not co-operative bank and allowed deduction under section 80P(2)(a)(i). (ITA No 4296 & 4297 of 2016, 5983 of 2017 and 403 & 4211 (MUM.) OF 2018, dt 03.12.2020( AY. 2007-08, 2010-11, 2013-14, 2014-15)

Thane Zilla Madhyamik Shikshak Sangh Sahakari Patpedhi Maryadit v. ACIT (2021) 209 TTJ 571/ 124 Taxmann.com 75(Mum) (Trib)

30. S.80P: Deductions – Income of co-operative societies (Credit Societies) – interest earned on short term deposits eligible for deduction[ S. 80P (2)(d)]

The assessee co-operative society, engaged in providing credit facility to its members, was maintaining short-term deposits of money which was not required for time being, as investment with co-operative banks, interest earned by assessee on such deposits was qualify for deduction u/s. 80P(2)(d).(ITA No. 826/ Pune/2019, dated 23/09/2020)(AY. 2014-2015)

Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. v. ITO (2021) 186 ITD 220 (Pune)(Trib.)

31. S.80P : Deductions – Income of co-operative societies (Credit Societies) – Interest on income tax refund eligible for deduction [S. 80P (2)(a)(i), 244A]

Interest received by the co-operative societies (Credit Societies) on income tax refund u/s. 244A would be eligible for deduction u/s. 80P (2)(a)(i). (ITA No. 826/Pune/2019, dated 23/09/2020)(AY.2014-2015)

Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. v. ITO (2021) 186 ITD 220 (Pune)(Trib.)

32. S.90: Double taxation relief – Most Favourable Nation clause – Applied automatically – No separate notification – Not assessabke as fees for technical services – DTAA-India-Sweden [S.9(1)(vii)]

The assessee provided consulting services on actual cost based charges and information technology services to the Indian subsidiary. The assessee submitted that payments would not constitute ‘fees for technical services’ as the services would not “make available” the recipient to perform the services in the future, as provided under the “Most Favoured Nation” clause (MFN clause) in India-Sweden Tax treaty, read with India Portugal DTAA. The AO denied the benefits of the MFN Clause under India – Sweden tax treaty was not notification.

The Tribunal held that the MFN clause in the Indo-Swedish tax treaty is a situation in which limiting the source taxation, for fees for technical services, to any other OECD member jurisdiction, by itself, is enough to trigger that the same provisions. No further actions on India’s part are envisaged in the Indo-Swedish tax treaty to trigger the application of the same provisions in the Indo Portugal tax treaty (no requirement to issue separate notifications). Portugal is an OECD jurisdiction, and India has entered the tax treaty after Sweden. The Portuguese tax treaty provides a far more restricted scope of ‘fees for technical services’, since it adopts the ‘make available’ clause, which restricts the taxation of fees for technical services only in such cases which “make available” technical knowledge, experience, skill, know- how or processes. The services provided does not enable the recipient of these services to perform the same services, in the future, without recourse to the assessee, thus cannot be considered as FTS. (ITA No 7315 of 2018, dt 08.01.2021)(AY 2015-16)

Hygiene Products AB v. Dy. CIT (IT) (2021)-209 TTJ 545/ 123 taxmann.com 152/ 85 ITR-DTAA 607 (Mum)(Trib)

33. S.90: Double taxation relief – Credit for foreign taxes on income eligible for deduction u/s 10A/10AA – Allowed as per the treaties – DTAA-India-USA [S.90(1)(a)(ii), 91]

Assessee had claimed foreign tax relief as per the provisions of section 90(1)(a)(ii) of the Act read with provisions of the applicable Double Tax Avoidance Agreements, for income taxes paid in overseas jurisdiction in relation to income eligible for deduction under section 10A/10AA of the Act in India. It is stated that herein the countries involved are USA, Denmark, Hungary, Norway, Oman, South Africa, Saudi Arabia and Taiwan. Tribunal relied on earlier years ITAT order. Referring to the treaty provisions with USA it was earlier held that it is not the requirement of law that the assessee before he claims credit under the Indo-US convention or under the provision of the Act must pay tax in India on such income. As per the embargo placed in the DTAA, the assessee is entitled to such tax credit only in respect of that income which is taxed in USA. It referred to the tax treaty with Canada where the provisions do not allow credit for tax paid in Canada if the income is not subjected to tax in India. Regarding countries with which India does not have any agreement for avoidance of double taxation, the Tribunal observed that as per section 91 of the Act, the assessee would be eligible to avail tax credit. Thus, Tribunal observed that where the respective tax treaty provides for benefit for foreign tax paid even in respect of income on which the assessee has not paid tax in India, still, it would be eligible for tax credit under section 90 of the Act. Basis above Tribunal held that foreign tax credit would be available to the assessee in view of treaties India is having with USA, Denmark, Hungary, Norway, Oman, Saudi Arabia and Taiwan. The assessee was further directed to file before the AO the relevant provisions of India- South Africa Treaty.

(IT(TP)Nos. 3262 & 3389/MUM/2017; Dt. 11-11-2020) (AY. 2007-08)

Tata Consultancy Services Ltd. ACIT / (2020) 121 taxmann.com 190 / (2021) 186 ITD 721 (2021) (Mum) (Mum)(Trib.)

34. S.90: Foreign tax Credit – Not allowed as refund – Deduction of taxes paid – Allowed in computation – DTAA [S. 28(1), 37(1), 91, Art 24]

The assessee is a major Indian bank, with several branches abroad- a few in the treaty partner jurisdictions, i.e., the countries with which India has entered into Double Taxation Avoidance Agreements under section 90, and remaining in the non-treaty partner jurisdictions. The issue before the Tribunal was ;

1. Whether or not, on the facts and in the circumstances of this case, learned CIT(A) was justified in upholding the action of the Assessing Officer, in declining refund to the assessee for Rs. 165,96,87,349 for income tax paid in treaty partner jurisdictions, for Rs. 15,79,80.943 for income tax paid in non- treaty partner jurisdictions and for Rs. 87,54,656 in respect of dividend taxes abroad?

2. Whether or not the learned CIT(A) was justified in upholding the action of the Assessing Officer in declining deduction, in the computation of business income, of Rs. 182,64,22,948 in respect of taxes so paid abroad?

The Tribunal held that The assessee is declined the foreign tax credits for Rs. 182,64,22,948, and, accordingly, held that the assessee is not entitled to seek a refund of that money from the Indian tax exchequer. The claim of the assessee that these taxes paid abroad will be allowed as a deduction in the computation of the business income of the assessee is upheld. (ITA No. 869/ Mum/2018 dt. 4-3-2021 (AY. 2012-13)

Bank of India v. ACIT (Mum) (Trib) www.itatonline.org

35. S.92C : Transfer pricing – Arm’s length price – Working capital adjustment is to be allowed on actual without making adjustment to average working capital component of comparables.

In the present case the Ld. TPO while making the working capital adjustment observed that that working capital adjustment cannot exceed the average working capital component of the comparables. Ld. TPO further observed that while computing working capital adjustment, advances received from the sister company included in the debtors should be excluded because such advances received towards services to be rendered usually does not have any cost.

The Appellate Tribunal however deleted the addition by holding that when the working capital adjustment is positive, the same is to be allowed on actual without putting a cap on the working capital adjustment i.e., without restricting the working capital adjustment to the average working capital component of the comparables. The Appellate Tribunal further held that when the working capital adjustment is negative then there should be no adjustment on account of working capital and advances received from AE should also be considered as part of payables in computing working capital of the Assessee. (AY. 2010-11)

ITO v. sabre Travel Technologies (P) Ltd (2021) 186 ITD 164 (Bang) (Trib)

36. S.92C : Transfer pricing – Assessee apart from acting as a distributor of products manufactured by its AE, also engaged in manufacturing its own products in India under license from AE – AMP expenditure to promote its brand would not constitute international transaction requiring any TP adjustment. [S.92B]

In this case the Appellate Tribunal held that the assessee was not merely a distributor of the products manufactured by its AE but also manufacturing its own products in India under license from the AE. The assessee has incurred AMP expenditure by making payments to third parties in India in order to market and promote its own manufactured products. There was no express arrangement/agreement between the assessee and its AE for incurring such expenditure to promote the brand of the AE. Therefore, the said transactions would not constitute international transaction relating to AMP expenditure. The Appellate Tribunal further observed that BLT method as adopted by Ld. TPO is not a valid method to benchmark the transactions relating to AMP expenditure. (AY.2013-14)

Kellogg India (P.) Ltd v. ACIT (2021) 186 ITD 10 (Mum) (Trib)

37. S.92C : Transfer pricing – Arm’s length price – Guarantee commission

The Tribunal directed the AO to charge guarantee commission @0.5% per annum both on performance/lease guarantee as well as financial guarantee. Tribunal further directed the AO to examine the contentions of the assessee that (i) part of the activity with respective performance guarantee, was performed by the assessee itself, while the remaining services are rendered by the AE and thus, if the performance guarantee is treated a chargeable services, the charges should be levied only on the component of services performed by the AE (ii) part of the premises i.e. 40% during the year under consideration was occupied by the assessee and thus, if lease guarantee is treated as chargeable services, the charge should be levied only for the balance i.e. 60% during the year under consideration.

(IT(TP)A Nos. 3262 & 3389/Mum/2017;dt. 11-11-2020) (AY. 2007-08)

Tata Consultancy Services Ltd v. ACIT (2020) 121 taxmann.com 190 /(2021) 186 ITD 721 (Mum) (Trib.)

38. S.92C : Transfer pricing – AMP expenditures incurred for creating awareness about the product is purely business expenditures and thus, outside the purview of international transactions. Hence, no TP adjustment on account of AMP expenses are required to be made.[ S.92B]

It has been held by the Appellate Tribunal that the assessee is engaged in sale of Nivea products in India. The Assessee had incurred huge expenditure on advertisement, marketing and promotion of Nivea brand in India. The TPO made adjustment in respect of AMP expenditure incurred by assessee in the absence of any agreement or arrangement between assessee and AE for incurring the AMP expenses. As, the assessee wanted to create awareness about its product in Indian market, it has incurred AMP expenditure. Thus, the expenses incurred by the assessee were wholly and exclusively for its own business and it was not international transaction. Hence, no adjustment is required to be made with respect to AMP expenditure incurred by the Assessee. (AY. 2014-15)

NIVEA India (P) Ltd. v. Dy. CIT (2021) 186 ITD 366 (Mum) (Trib)

39. S.92C : Transfer pricing – Arms’ length price – Availment of support services from AE had benefitted business of assessee – Thus, ALP of management fee paid to AE could not be determined at nil.

In this case the Appellate Tribunal held that increase in profitability of assessee during relevant period proved that availment of support services from AE had benefitted its business. Thus, TPO is not justified in determining ALP of management fee paid by assessee to its AE at nil. (AY.2008-09)

Michelin India (P) Ltd v. JCIT (2021)186 ITD 62 (Delhi) (Trib)

40. S.92C : Transfer pricing – Arms’ length price – A company engaged in KPO services is not comparable to software development service company.

It has been held by the Appellate Tribunal that the assessee was rendering software development services to its AE. Thus, a company engaged in KPO services was not acceptable as comparable with Assessee company. (A.Y.2011-12)

Microchip Technology (India) (P) Ltd v. ACIT (2021) 186 ITD 156 (Bang) (Trib)

41. S.143(3) : Assessment – Validity – Assessment on a non-existent entity is bad in law

M/s Satyam Computers Services Ltd. was merged with the assessee company i.e. M/s Tech Mahindra Ltd. i.e. w.e.f 1-4-2011. Subsequent to the aforesaid merger, the existing proceedings against Satyam Computers Services Ltd. were taken over by the assessee company. The Tribunal found that the A.O in the assessment order had observed, that Satyam Computers Services Ltd. had w.e.f 1-4-2011 merged with M/s Tech Mahindra Ltd. Basis this, the Tribunal concluded that though the A.O while framing the assessment was well informed about the fact that M/s Satyam Computers Services Limited w.e.f 1-4-2011 having merged with M/s Tech Mahindra Ltd. was no more in existence, he had vide his assessment order dated 5-1-2015 chose to frame the assessment in the hands of the said non-existent entity. The Tribunal further found that even the PAN Number stated in the assessment order was of the amalgamating company i.e. M/s Satyam Computers Services Ltd. and thus in sum and substance, it was beyond any scope of doubt that the assessment order was passed in the name of a non-existent entity viz. M/s Satyam Computers Services Ltd. (Supreme Court decision in case of Pr. CIT v. Maruti Suzuki Ltd. [2019] 107 taxmann.com 375/265 Taxman 515/416 ITR 613 (SC) relied on) (ITA No. 7319 & 7156/Mum/2016; ITA No. 4856 & 4909/Mum/2017; dt.30-06-2020)(AY. 2010-11 , 2011-12)

Satyam Computer Services Ltd. v. Dy. CIT(2021) 186 ITD 39 (Mum)(Trib)

42. S.147: Reassessment – After the expiry of four years – Information obtained from CIB Report – Notice failed to provide reasons – No independent enquiry or application of mind- Reassessment invalid.[S.148]

The assessee held a power of attorney for a property that was sold for Rs.7 lakhs, and the value of stamp duty was Rs 7, 17, 286/-. The AO received CIB information that the assessee had sold a property, and the assessee failed to file a return of income. Therefore, he had reasons to believe that the income chargeable to tax has escaped assessment.

The Tribunal noted that the reasons failed to specify the nature and source of information. Further, the AO has merely relied upon the report of the CIB, which is more generic in nature and not containing exact information of the transaction. If the AO had verified the sales deed before recording the reasons, it would show that the assessee held a power of attorney. It is expected that the AO on receipt of such report should carry out further examination before arriving at the prima facie view that income has escaped assessment. The AO has not conducted any independent enquiry. Further, the reasons recorded must show a link/nexus and relevancy to the opinion formed by the AO. (ITA No. 170/JP/2019 dated 05.01.2021, [AY. 2008-09]

Ali Khan v. ITO (2021) 209 TTJ 409 (Jaipur) (Trib)

43. S.153A : Assessment – Search or requisition – Cash Credits – Disclosed in Return of Income and no incriminating material during Search – Addition deleted. [S.68]

Assessee-company was engaged in real estate, land trading and trading and development. A search was conducted at premises of assessee and notice under section 153A was issued. Assessing Officer made addition u/s 68 of share capital on the ground that Assessee had failed to discharge its onus of proving identity, creditworthiness and genuineness of transaction. The ITAT held that since addition had been made by Assessing Officer of items which were already disclosed to Department in original return of income and assessment was already completed on date of search and no incriminating material was found during course of search so as to make addition, said addition was to be deleted. (AY. 2003-04 to 2006-07)

Alankar Saphire developers v. Dy.CIT (2020) 184 ITR 847/ 116 taxmann.com 389/ 81 ITR 549/ (2021) 209 TTJ 491 (Delhi)(Trib.)

44. S.153A : Assessment – Search or requisition – The scope of making assessment of total is limited – Can be only of income that is not disclosed and which is detected or which emanates from material found in search.[S.132]

A search and seizure action was carried out in case of the assessee’s group on 25-4-2012. The original return of income was filed u/s 139 on 8-2-2008 and the last day of issuing notice section 143(2) had expired on 30-9-2008 before the date of search and the assessment proceedings therefore were not pending as on 25-4-2012 i.e. the date of search. The Tribunal held that in case of completed assessment and not abated due to initiation of search u/s 132 or making of requisition u/s 132A, the AO has to reassess the total income of the assessee and therefore, the assessment already completed can be tinkered with or distrusted where any incriminating material is found and seized during the course of search or requisition as case may be indicating undisclosed income of the assessee. Tribunal noted that the Assessing Officer had reassessed the income of the assessee by making the disallowance u/s 40(A)(3) without making any reference to any incriminating material found during the course of search. There was no finding of the Assessing officer or any other material brought on record that the registered sale deeds were found and seized during the course of search or the transactions so represented by such sale deeds were not recorded in the books of accounts as on the date of search. The Tribunal held that once these transactions were duly recorded in the books of accounts and basis the same, the return of income was furnished before the date of search, the said transactions were duly disclosed to the department and thus, doesn’t represent any undisclosed transactions so as to constitute incriminating material found during the course of search in case of the assessee. Therefore, the disallowance/addition made by the AO and reassessment completed u/s 153A was undisputedly not based on any incriminating material found or seized during the course of search and seizure action u/s 132 of the Act. The addition was thus deleted. (IT ANo. 980/JP/ 2018; dt . 27-10-2020) (AY. 2007-08)

Vijayeta Buildcon Pvt. Ltd v. ACIT (2021) 186 ITD 493 / 123 taxmann.com 133 (Jaipur) ( Trib.)

45. S.153C : Assessment – Income of any other person – Search and seizure – Disallowance of expenses – the scope of making assessment of total income in an unabated assessment proceedings is limited – can be only of income that is not disclosed and which is detected or which emanates from material found in search of some other person and which relate to the Assessee. [S.132]

Assessee, Sri Lakshmi Venkateshwara Minerals, was is a partnership firm. The business of the firm was trading in iron ore. There was a search & seizure action conducted on 25-11-2010 in the case of K. Mahesh Kumar, who was one of the partners of assessee firm. Proceedings consequent to search was initiated u/s. 153C of the Act. The AO of the assessee partnership firm and the AO of K. Mahesh Kumar who was subjected to search, was one and the same. During assessment proceedings the assessee could not participate in the proceedings and therefore the AO proceeded to frame the assessment in the absence of proper details from the assessee. The AO made a disallowance of 20% of the expenses claimed in the P&L account for the reason that the details of expenses were not furnished by the assessee during assessment proceedings. AO also noticed that for AY 2008- 09 there was a difference in total credit in the books of account and gross receipts from business of Rs. 71,02,418 which was treated as unexplained business receipts and added to total income of assessee. This addition was, however, made on a protective basis. Similar additions were made in AYs 2009-10 and 2010-11 also. Aggrieved the assessee preferred appeals before the CIT(Appeals). The CIT(Appeals) upheld the disallowance of expenses. As far as protective addition CIT(A) deleted the addition as it was confirmed in the hands of K. Mahesh Kumar on substantive basis.

The Tribunal held that the assessment in all the three AYs 2008-09 to 2010-11 have already been completed prior to the date of search in the sense that the return filed by the Assessee was accepted and no assessment u/s.143(3) of the Act was framed within the time contemplated in law. Therefore, the scope of making assessment of total income u/s.153C of the Act in an unabated assessment proceedings is limited and can be only of assessing income that is not disclosed which is detected or which emanates from material found in the course of search of some other person and which relate to the Assessee. Since the impugned addition of disallowance of expenses were not based on any incriminating material found during search, the additions are liable to be deleted. As far as the addition made on protective basis for AY 2008-09 to 2010-11 were concerned, the Tribunal held that the said addition was made not on the basis of any incriminating material found in the search of K. Mahesh Kumar which relate to the Assessee and therefore the said addition can also not be sustained as it is contrary to the provisions of Sec.153C of the Act. There was no basis for protectively assessing the income in the hands of the Assessee and substantively in the hands of K. Mahesh Kumar. There was no material to show that the income declared by K. Mahesh Kumar was either his income or that of the Assessee. From the fact that K. Mahesh Kumar was a Partner in the Assessee firm it cannot be concluded that the income declared by K. Mahesh Kumar in his hands was either his income or the income of the partnership firm in which he was a partner. Tribunal observed that even going by the theory of the AO that there are differences in the credits in the bank account which have to be regarded as undisclosed business receipts, such differences in the credits in the bank account was not found as a result of search in the case of K. Mahesh Kumar. (IT Nos. 1789 to 1791 & 1813 to 1818/Bang/2017; dt.30-09-2020) (AY.2008-09 to 2010-11)

Shree Lakshmi Venkateshwara Minerals v. Dy. CIT (2021) 186 ITD 695 (Bang)(Trib)

46. S.153D: Assessment – Search – Approval – Approval Has To Be Given Each Assessment Year By Proper Application Of Mind – Mechanical Approval Is Held To Be Bad In Law. [S.132]

Tribunal Held That The Approving Authority (Jcit) Has To Give Approval For “Each” Assessment Year After Applying Independent Mind To The Material On Record To See Whether The Cases Are Un-Abated Or Abated Assessments And Their Effect. However, The Jcit Has Granted Common Approval For All Ays. Further, He Did Not Have The Seized Material Nor The Appraisal Report Or Other Material At The Time Of Granting Approval. Therefore, The Approval Granted Is Merely Technical Approval Just To Complete The Formality And Without Application Of Mind. The Approval Has Been Granted Without Application Of Mind And Is Invalid, Bad In Law And Is Liable To Be Quashed.(1813/Del/2019, Dt. 19.01.2021)(AY. 20210-11)

Sanjay Duggal v. ACIT (Delhi)(Trib), www. itatonline.org

47. S.194C: Deduction at source – Contractors – Payments for maintenance charges – No failure to deduct tax. [S.194I, 201(1), 201(1A)]

The assessee had rented premises and entered into a tripartite agreement, under which it was liable to pay the rental income to the owner of the premises and common area maintenance charges to the operation/maintenance service provider. It deducted tax at 10 percent for the rent paid u/s 194I and 2 percent for the maintenance charges u/s 194C. According to the AO, the maintenance charges were part of the agreement and essentially a part of rental activity, hence covered u/s 194I and not 194C. It treated the assessee in default u/s 201(1) & (1A) for short deduction and interest.

The Tribunal noted that the maintenance charges were not forming part of the rent paid to the owner of the premises, and payments were made to two separate parties for different services after deducting tax at the source. Thus the assessee cannot be treated in default u/s 201(1) & (1A). (ITA No. 889/JP/2020 dated 05.01.2021) (AY 2011-12)

Kapoor Watch Company (P) Ltd v. ACIT (2021) 209 TTJ 793 (Delhi) (Trib)

48. S.253 : Appellate Tribunal – Power to condone delay – delay of 654 condoned. [S. 253 (5), 254 (1)]

The Tribunal observed that was a delay in filing the present appeal and the period of delay as computed by the Registry was 654 days. Tribunal observed that in the instant case, it had been stated in the affidavits submitted that there has been a change in the management of the company and the tax matter pertaining to the period prior to change of management, it was decided that the same would be handled by the erstwhile management, however, due to change of management and lack of diligence on part of erstwhile employees, the appeal could not be filed. It had been further stated that the matter came to light of the present management on 11-7-2018 when an enquiry was made by the Assessing officer for payment of outstanding demand and thereafter, the appeal papers were prepared and appeal was submitted before the Registry on 20-8-2018 though with a delay of 654 days. The Tribunal was of the view that there was no culpable negligence or malafide on the part of the assessee company in delayed filing of the appeal and as soon as it came to know of the old tax matter pertaining to the period prior to change of the management, it took steps and filed the present appeal. Therefore, the Tribunal believed that there was sufficient and reasonable cause for condoning the delay in filing the present appeal and where substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserved to be preferred. Therefore, in exercise of powers under section 253(5) of the Act, Tribunal condoned condone the delay in filing the present appeal as it was satisfied that there was sufficient cause for not presenting the appeal within the prescribed time. (IT A/ No. 980/JP/ 2018; dt. 27-10-2020) (AY. 2007-08)

Vijayeta Buildcon Pvt. Ltd. v. ACIT (2021) 186 ITD 493 / 123 taxmann.com 133 (Jaipur)(Trib.)

49. S.263 : Commissioner – Revision of orders prejudicial to revenue – Scope of Explanation 2(a) – Mere lack of necessary enquiries cannot lead to revision – Reassessment is held to be bad in law.

The ITAT held that for invoking Explanation 2(a) to section 263 Commissioner cannot only rely about lack of necessary inquiries and verifications but must give an objective finding that Assessing Officer has not conducted, at stage of passing order which is subjected to revision proceedings, inquiries and verifications expected, in ordinary course of performance of duties of a prudent, judicious and responsible public servant that Assessing Officer is expected to be. When investment in shares by assessee-trust had been accepted as part of corpus of trust for over four it was not at all unreasonable on part of Assessing Officer not to question whether or not investments in shares were part of corpus. Provisions under section 263 could not be put into service to make some roving and fishing inquiries. (AY. 2014-2015)

JRD Tata Trust v. JCIT (2021) 85 ITR 431 (Mum) (Trib.)

50. S.271AAB : Penalty – Search – Undisclosed income – Levy of penalty not mandatory – Opportunity of hearing must be given – No assessment required for initiation of penalty – Since, the assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action, the appeal of the assessee stands allowed- Levy of penalty deleted [S. 132]

A search action under section 132 of the Act was carried out at the premises of the assessee on August 07, 2014. During the search action jewellery in the shape of gold bars, coins was found from the locker of the assessee. The assessee could explain about the source of investment in respect of the part of the said bullion and jewellery. The assessee could not explain the source of assets worth Rs. 21,97,221/- with bills and vouchers. The assessee, however, explained that the said jewellery was accumulated out of gifts received by the assessee on the eve of marriage and other ceremonies/ occasions from time to time. The assessee, thereafter, included the value of the above stated jewellery in the computation of income and offered the same for taxation. The Assessing Officer in the assessment proceedings noted that the assessee in the return of income has disclosed income of Rs.21,79,222/- on account of undisclosed jewellery. He, therefore, initiated penalty proceedings under section 271AAB of the Act and levied the minimum penalty at 10 per cent of the said declared income of the assessee. The CIT(A), however, observed that the levy of penalty under the provisions of section 271AAB of the Act was mandatory and accordingly confirmed the penalty so levied by the AO. The Tribunal relied on the decision of Co-ordinate Chandigarh Bench of the Tribunal in the case of SEL Textiles Ltd. v DCIT ITA No. 695/Chd/2018 order dated April 18, 2019 wherein it was held that levy of penalty u/s 271AAB of the Act is not mandatory. It has also been noted that the Legislature has consciously used the word ‘may’ in contradistinction to the word ‘shall’ in the opening words of Section 271AAB of the Act. That the choice of the expression ‘may’ and not ‘shall’ in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the Assessing Officer but the Assessing Officer has been given discretion in the matter of levy of penalty. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of ‘undisclosed income’ as defined under explanation to Section 271AAB of the Act. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Further, the provisions of section 271AAB of the Act are self-contained and are not dependent upon commencement or finalization of the assessment proceedings. Since, the assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action, the appeal of the assessee stands allowed. (ITA No.194/ Pat/2019 dated February 11, 2021)

Shiv Bhagwan Gupta v. ACIT (Pat) (Trib) www. itatonline.org