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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Judgments relied upon:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cases referred:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On appeal the Tribunal considered the following facts viz:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Judgements relied upon:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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