S. 2(47) Capital or Revenue – Compensation received on cancellation of builder-buyer agreement pursuant to arbitration award – Capital Receipt taxable as Capital gains [Sec 2(14), 2(47), 4, 45 & 263; Indian Contract Act 1872 sec 55 & 73]

The assessee invested the amount to acquire a villa under an builder-buyer agreement. For non-delivery of villa assessee filed a plaint before a sole arbitrator for claiming compensation. As per the Award, assessee received Rs.91.33 crores as compensation which was considered as capital receipt taxable as capital gains.

PCIT in revision proceedings rejected the arbitration award, and held that the agreement and transaction was coloured and sham.

On appeal Tribunal held that :

1. Assessee had invested the amount to acquire villa i.e capital asset, and thus having acquired a legal right as per builder-buyer agreement, the compensation received for giving up the said right would amount to capital receipt u/s 2 (47), and compensation cannot be said to have arise in course of any trading activity.

2. Furthermore, even when there is no clause in the agreement for payment of compensation. Assessee is entitled for general compensation in case of breach of an obligation on the part of the promisor, as per provisions of sec 55 & 73 of the contract Act.

3. The Award passed, being based on scientific examination of relevant facts, same cannot be rejected, and same is final and binding on the parties, and enforceable as it were the decree of the court. (AY. 2017-18)

Smt Abha Bansal v. PCIT (2021) 212 TTJ 545 (Del.)(Trib.)

S. 2(47)(v): Transfer – Any transaction involving the allowing of the possession of any immoveable property – Invoking section 53 of Transfer of Property Act – not a transfer

Where the AO has taken cognizance of the definition of ‘transfer’ u/s 2(47)(v) of the Act read with section u/s 53A of Transfer of Property Act to hold that `transfer’ took place in the year 2008 itself. It was held that the Developer was allowed to enter the property only as Licensee. When title to a part of such property itself was disputed and it vested with Government of Maharashtra at the time of the Agreements in 2008 because of the order of the Competent Authority under the ULC Act, there could have been no question of allowing the Developer any possession for the enjoyment of property as its owner. As there was no transfer of possession at the material time, the case of the AO invoking section 53A of the TPA to brand the transaction as a ‘transfer’ u/s 2(47)(v), automatically fails.

ITO v. Amit Murlidhar Kamthe L/H of Shri Murlidhar Kamthe

S. 9: Income – Deemed to accrue or arise in India (Shipping, Inland waterways transport) – satisfied requirement of article 4 – entitled to treaty – income earned in India.

Assessee company, a tax resident of the UAE, was engaged in business of services like ship chartering, freight forwarding, sea cargo services, shipping line agents etc. Assessee chartered ships for use in transportation of goods and containers in international waters, including to Kandla and Mundra ports as indeed other ports in India and elsewhere. The AO noted that as much as 80 per cent of profits of assessee entity were to go to one D, a Greek national, concluded that assessee was not entitled to benefits of Indo UAE tax treaty, and, accordingly, issued a draft assessment order holding that income from operation of ship was taxable in India.

It was found that Assessee Company had its office in UAE, it was in business there since 2000, it had expatriate employees who had been given a work permit to work in UAE for Assessee Company, and that main driving force of company and its director was an expatriate resident in UAE. Whether since assessee company was a resident of UAE, in terms of requirements of article 4(1)(b) of Indo-UAE tax treaty, limitation of benefits provisions of article 29 of Indo-UAE tax treaty could not be pressed into service and, thus, under provisions of article 8(1) of Indo UAE tax treaty, assessee company was protected from taxation of income in question in India.

Interworld Shipping Agency LLC. v. DCIT (IT) (2021) 189 ITD 213 (Mum)(Trib.)

S. 9: Income – Deemed to accrue or arise in India (Royalties/fees for technical services – Remittance) – payment made to US based company towards cost reimbursement on which parties had equal right to use and not paid amount to royalty, levy of interest u/s. 201(1A) is unjustified.

The AO passed order u/s. 201(1) and held that remittance made by assessee to GTRC was nothing but royalty as per provisions of s.9 (1)(vi) as well as in terms of article 12 of DTAA between India and USA.

Held that, when assessee had explained with support of agreement and copies of invoices that payment made was towards cost reimbursement of joint research project on which both parties had equal right to use and did not amount to royalty as per section 9(1)(vi) and not covered under clause 3 of article 12 as royalties and fees for included services of India USA DTAA. Therefore, levy of interest u/s. 201(1A) was not justified.(r.w.s. 195 and 201 and article 12 of DTAA between India and USA)(AYrs : 2012-13 and 2013-14)

Pandit Deendayal Petroleum University-PDPU. v. ITO (2021) 189 ITD 110 (Ahd)(Trib.)

S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – Income from sale of software license held in the nature of Royalty income – ITAT held that income is received on sale of software/license and not for parting with copyright of the software – thus it is not Royalty income as defined under Article 12 of the DTAA.

The AO sought to assess business income earned by the Assessee on sale of software/license as Royalty income u/s 9(1)(vi) of the Act r.w. Article 12 of the India-USA DTAA. On appeal, the Tribunal held that the transaction was for sale of license/software, where the end-user will have access to and make use of the licensed computer software product and not for parting with copyright the software. Therefore it is not a Royalty income as defined under Article 12 of the India-USA DTAA. Since it is not Royalty, the income is in the nature of business profits of the Assessee. For business profits of a non-resident entity to be taxable in India under Article 7 of the India-USA DTAA, it is necessary that such foreign enterprise must have a permanent establishment (“PE”) in India in terms of Article 5 of the said DTAA. The Tribunal noted the decision of the DRP which held that the Assessee does not have a PE in India and therefore held that provisions of Article 7 are not applicable in the case of Assessee and therefore the income earned on sale of license/software is exempt from tax in India. (AY 2009-10 & 2014-15)

Ansys Inc. v. ACIT (International Taxation) (2021) 189 ITD 671 (Pune)(Trib.)

S. 11 : Property held for charitable purposes – rental income derived from letting out studio to artists for teaching Indian classical music comes within the ambit of “education” – Assessee is entitled to exemption u/s 11 read with S. 2(15)

The assessee is a charitable trust registered u/s 12A and 80G of the Act. In the relevant AY, the assessee-trust received studio charges of Rs 16,72,197/- from various artists. The AO held that the studio was rented to the artists with an intention to make profits in the shield of charitable activities and taxed such studio charges as business income of the Assessee under S.11(4A) of the Act. CIT(A) upheld the order of the AO. The Tribunal observed that Assessee is a charitable trust engaged in teaching Indian Classical Music which falls within the field of “education”. Since the trust is engaged in education, the proviso to section 2(15) does not apply as clarified by CBDT Circular No. 11 dated 19.12.2008 even if it involves the carrying a commercial activity. The tribunal noted the history of the Trust observed that the receipts of Rs. 16,72,197/- are at a subsidized fees and the activities of the studios are carried on in order to achieve the main object of the Trust and cannot be construed as a business. Reliance has been placed on the judgement of Madras High Court in the case of Sri Thyaga Brahma Gana Sabha 188 ITR 160 (Mad) court. (AY 2010-11 & 2012-13)

Acharya Jiyalal Vasant Sangeet Niketan v. ITO (Exemption)(2021) 189 ITD 1 (Mum)(Trib.)

S. 12A: Charitable or religious trust – Registration of (Cancellation) – Assessee unwilling to avail ‘benefit’ of registration ‘obtained’ u/s. 12A cannot be bound to, by action of or by inaction of revenue authorities, continue with said registration

The Assessee trust registered u/s. 12A in year 1976 sought cancellation of registration u/s.12A in 2015 which was eventually granted in 2019 due to reasons not attributable to assessee. Claimed that it surrendered its registration and, therefore, should not be treated as registered charitable trust, for application of s. 11 tax exemption, with effect from AY 2015-2016. However, revenue authorities submitted that since registration was cancelled vide Pr. Commissioner’s formal order, such cancellation will only have a prospective effect, and, accordingly, trust was required to be treated as a registered trust, for application of section 11 tax exemption, for assessment years 2015-16, 2016-17, 2018-19 and 2019-20, as also assessment year 2020-21.

Held that, registration having been obtained u/s. 12A was in nature of a benefit to assessee, and if it did not wish to avail that benefit for some reason, benefit could not be forced upon him. Therefore, assessee trust’s voluntary surrender of registration u/s.12A was to be effective from date on which hearing on first show-cause notice proposing to cancel/withdraw trusts registration u/s. 12A was concluded. (r.w.s. 11)

Navajbai Ratan Tata Trust v. Pr. CIT (2021) 88 ITR(T) 170 / 189 ITD 535 (Mum) (Trib.)

S. 14A: Expenditure incurred in relation to exempt income not includible in total income (General)

Disallowance u/s.14A is restricted to extent of exempt income earned by assessee-company during relevant year. (r.w. rule 8D)

Pricewaterhouse Coopers (P.) Ltd. v. ACIT (2021) 189 ITD 329 (Kol)(Trib.)

S. 23: Income from house property – Annual value – Occupied property – excluded – for the purpose of computing notional rent

Where bungalows out of two buildings developed by assessee were unsold. The department held the same for the purpose of deemed notional rental income on such vacant properties and made addition on under section 23 of the Act. It was held that those flats/bungalows are occupied by the assessee owner; business of property development is carried on by the assessee; the occupation of the flats etc. is for the purpose of business; and profits of such business are chargeable to income-tax. Ergo, all the four conditions for exclusion from section 22 of the Act are cumulatively satisfied in the present case. Therefore, no addition can be made under section 23 of the Act.

Kumar Properties and Real Estate (P.) Ltd. v. DCIT [2021] 128 taxmann.com 364 (Pune)(Trib.)

S. 24: Income from house property – Deductions – interest on borrowed capital – interest on loan to repay earlier loan – allowable as deduction

It was 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. Further held that, irrespective of the nature of the property whether it is residential or commercial, deduction has to be allowed under section 24(b) of the Act.

Indraprastha Shelters (P.) Ltd. v. DCIT [2021] 187 ITD 306 (Bang)(Trib.)

S. 28 (iv): Business income – Grant received for specific purpose i.e., for procuring a capital asset, this receipt being in cash could not have been taxed u/s. 28(iv)

Held that, grant received for specific purpose i.e., for procuring a capital asset, is in nature of a capital receipt, not subject to tax, and this receipt being in cash could not have been taxed u/s. 28(iv).

Pricewaterhouse Coopers (P.) Ltd. v. ACIT (2021) 189 ITD 329 (Kol)(Trib.)

S. 28(iv) : Business income – Value of any benefit or perquisites – benefit or perquisite arising from the business shall not be in monetary form. (r.w.s.51)

A sum of Rs. 3 Crores advanced as loan by the director of the Assessee Company for its projects was converted into advance money for sale of property of the Assessee as it was unable to repay the loan. Subsequently the director was unable to pay the balance amount for purchase of the said property and therefore the advance money was forfeited by the Assessee company in terms of sale agreement. The AO held that the sale agreement was a colorable device and that the forfeited amount represents income u/s 28(iv) in the hands of the Assessee. The Tribunal followed the decision of the Mahindra & Mahindra Ltd. (2018) 404 ITR 1 and held that the provisions of section 28(iv) of the Act would not have application to any transaction involving money. In the present case, Rs.3 crores represented advance money forfeited by the assessee and the same also represents cash received on forfeiture of advance money, therefore, section 28(iv) is not applicable to the case. The Tribunal further allowed the claim of the Assessee that the amount would go to reduce cost of the property under section 51 of the Act. (AY 2011-12)

M/s. Archana Traders Pvt. Ltd. v. ITO (2021) 189 ITD 626 (Bang)(Trib.)

S. 36(1)(iii) : Interest on borrowed capital – disallowance – advance less than available free funds -acquisition of asset – not for business

Where interest paid for the acquisition of the asset and the asset is not for extension of existing business of the Assessee, it was held that the disallowance of interest expenses cannot be sustained.

Golf view Homes Ltd. v. ACIT ITA Nos.1037 & 1038/Bang/2019 dated February 10, 2021

S. 37(1) : Business expenditure – Allowability of (Explanation to section 37(1)) – contributed 15 per cent of sale proceeds to SPV account, these payment did not fall under category of penalty.

The AO disallowed said SPV deduction by observing that as per observations of Supreme Court amount of sale proceeds deducted and retained towards SPV was penal in nature attracting Explanation 1 to section 37(1). The Supreme Court’s decision clearly held that 15 per cent contribution to SPV account was guarantee payment for implementing of R & R plan, which would be deducted from sale proceeds and this was one of conditions for resuming mining operations under Category ‘B’ mine.

Held that, since 15 per cent of sale proceeds was payable to SPV account, after it accrued to assessee, and fact that, assessee was obliged to part with such portion of income, by virtue of directions of Supreme Court, as a precondition to resume mining operations under Category ‘B’ mine would be application of income and, therefore, should be considered as expenditure incurred for carrying out its business activity. Contribution towards SPV being a requirement to be incurred to continue its business activities, these payments did not fall within category of penalty within ambit of Explanation to section 37(1). (AY 2013 – 14)

Muneer Enterprises v. ACIT (2021) 189 ITD 7 (Bang)(Trib.)

S. 37(1) : Business expenditure – Allowability of (Commission) – AO failed to considered the letter submitted by recipient wherein confirmed that entire commission paid was for relevant assessment year, matter needs remanded for consideration.

Assessee claimed expenditure towards sales commission paid to bring foreign tourists to shop of assessee. The AO noted that commission paid for period of 15 months and out of which only 12 months related to year under consideration and remaining 3 months were related to preceding assessment year.

Held that, AO had not considered letter submitted by Assessee wherein confirmed that amount paid for financial year 2008-09. Hence matter remanded to file of AO for deciding issue afresh. (AY: 2009-2010)

Jaipur Boutique Carpet v. ITO (2021) 189 ITD 305 (Jaipur) (Trib.)

S. 37(1) : Business expenditure – Factory shifting expenditure – transportation expenditure from one site to another site, did not give any enduring benefit, same could not be treated as capital in nature.

Transportation expenditure for shifting its factory from one site to another site, did not give any enduring benefit to assessee, same could not be treated as capital in nature, its revenue expenditure in the hands of the Assessee.

Jayant Packaging (P.) Ltd. v. DCIT (2021) 189 ITD 321 (Chen)(Trib.)

S. 37(1) : Business expenditure – Foreign exchange loss – neither speculative loss within meaning of s.43(5), nor same was notional or contingent in nature, same being loss on foreign exchange derivatives allowed.

The AO passed order u/s. 143(3) disallowing claim of assessee of loss incurred on foreign exchange.

Held that, loss incurred on foreign exchange was neither speculative loss within meaning of section 43(5), nor same was notional nor contingent in nature, therefore, said sum being loss on foreign exchange derivatives deserved to be allowed.

Pricewaterhouse Coopers (P.) Ltd. v. ACIT (2021) 189 ITD 329 (Kol)(Trib.)

S. 37 (1): Business expenditure – Non-compete fees – Paid to individuals who had experience in business of consultancy for not to engage themselves in similar kind of business activities for a period of 3 years, such consideration was independent and not part of cost of acquisition of business, such fee was to be allowed as revenue expenditure.

The AO passed order u/s. 143(3) and made additions on account of disallowance of non-compete fee.

Held that, non-compete fees was paid to individuals who had experience in business of consultancy for not to engage themselves in similar kind of business and activities for a period of 3 years, these consideration was independent and not part of cost of acquisition of business paid to shareholders. Therefore, payment of non-compete fees was revenue in character and allowed as business expenditure.

Pricewaterhouse Coopers (P.) Ltd. v. ACIT (2021) 189 ITD 329 (Kol)(Trib.)

S. 40(a)(ia) : Amounts not deductible – Deduction at source – Commission – Failure to deduct TDS on the commission paid to agents residing outside India – Held that no income has been received or paid inside India, which attracts deduction of TDS in India- disallowance deleted.

The assessee failed to deduct TDS on the commission paid to agents located outside India, hence the AO assessed a disallowance under section 40(a)(ia) of the Act. It was observed that the commission was paid outside of India. There was no situs in India and also he assessee’s modus operandi showed that he received income in India after deducting of commission made by the buyer outside of India. As a result, no income had been received or paid within India that was liable to TDS deduction, and therefore assessee was not required to deduct TDS in India. In light of the foregoing, the disallowance granted u/s 40(a)(ia) was deleted.

Ajay Kumar Singh Gaur v. ITO (2021) 189 ITD 696 (Agra)(Trib.)

S. 40(a)(ia): Amounts not deductible – disallowance of software expenses paid to non-residents – the Tribunal observed that the Assessee had only purchased the software, which is a copyrighted article and there is no transfer of copyright, therefore, it is not royalty income as per relevant tax treaty – held, such income is exempt in the hands of software manufacturers/suppliers – therefore no deduction of tax at source u/s 195 of the Act.

The Assessee was granted a user-license to use the software for its internal business purpose. The Assessee submitted that what is transferred is a copyrighted article and not a copyright itself. Hence, consideration paid is not taxable as royalty under the provisions of the Act. The tribunal observed from the order of AO and CIT(A) that there was only purchase of software which is a copyrighted article and no transfer of copyright and thus such income is not a Royalty income under the relevant tax treaty. Reliance was placed on the decision of Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd.- Civil Appeal Nos.8733- 8734/2018 wherein it is held the end user can only use the computer programme by installing it in the computer hardware and cannot reproduce the same for sale or transfer and the licence granted vide the End-User License Agreements is not a license in terms of section 30 of the Indian Copyright Act, 1957 (CA) but is a license which imposes restrictions or conditions for the use of the computer software. Therefore, amounts paid by the assessee to the non-resident computer software manufacturers/suppliers as consideration for the resale/use of computer software, is not payment of royalty for use of copyright in the computer software and it is not liable for deduction of tax at source u/s 195 of the Act. (AY 2010-2011, 2011-2012, 2012-2013)

M/s Altisource Business Solutions Private Ltd. v. ACIT (2021) 189 ITD 369 (Bang)(Trib.)

S. 43B : Certain deductions only on actual payment – disallowance on account of GST remaining unpaid on rent received – matter remanded to CIT(A) for verification of certain facts – if the income is rental income and GST is found not to be included in such rental income then there will be no disallowance- if it is included in rental income then the issue needs to be determined in the light of section 23 of the Act which allows deduction of “local taxes” from rental income on payment basis and it needs to be decided whether the GST is covered under the same or not.

The audit report for the relevant AY mentioned that GST payable on rent received by the Assessee remained unpaid till the date of Audit report. The Assessee submitted that disallowance u/s 43B could only be made against income from business & profession whereas the GST in his case related to rental income. The return of Income if the Assessee reflected income under both the heads i.e. house property and business and profession. It was further submitted that section 23 of the Act with respect to deduction on payment basis in case of tax paid covered only taxes levied by local authority and it was not relatable to GST levied on rental income. Perusal of computation of income revealed that the assessee reflected rental income excluding the GST component. The Ld. DR was asked as to how any disallowance was possible when the amount of GST itself was not reflected in the return of income. It was observed that The DR requested that these facts needed to be verified. Accordingly, the matter was remanded back to the CIT(A) to determine the above fact as well as whether the income component is rental or from business and profession, if it is rental income whether it has been returned. If it is not returned, there is no occasion of making a disallowance but if it is returned then the issue needs to be determined in the light of section 23 which allows deduction of “local taxes” from rental income on payment basis and if GST is covered under the section. (AY 2018-19).

Ashok Kumar v. Dy. CIT (Centralised Processing Centre)(2021) 189 ITD 687 (Chandigarh)(Trib.)

S. 45 : Capital Gain – benefit or gain on realization of loan issued in foreign currency on account of foreign exchange fluctuation – is in capital field cannot be held to be in the nature of interest and taxed as income from other sources [S. 2(24)(vi)]

The Assessee extended a personal interest free loan of USD 2,00,000 (INR 90,30,758/-) to his cousin in Singapore in accordance with the Liberalized Remittance Scheme (“LRS”) of the RBI on 29/03/2010 when the exchange rate was INR 45.14. At the time of repayment of loan i.e. on 24th may, 2012, the exchange rate was Rs. 56.18 and therefore, when the loan amount of USD 2,00,000 was repaid, the cousin actually repaid INR 1,12,35,326/-. The Assessee submitted that it was a personal loan and the repayment thereof was a capital receipt in his hands but the AO did not accept this explanation and brought such benefit or gain to tax under the head Income from Other Sources. The Assessee paid the impugned tax of Rs.22,02,286/- as a matter of abundant caution without conceding to the taxability thereof. The CIT(A) upheld the order of AO and treated the benefit or gain on account of exchange rate fluctuation as interest income of the Assessee which was altogether a different explanation than the one adopted by the AO.

The Tribunal did not accept the reasoning of the lower authority to tax such benefit or gain. It observed that the lower authorities have erroneously proceeded to hold that the benefit or gain on realization of loan partakes the character of an income under the head income from other sources without going into the foundational plea that the scope of income does not include the gains in capital field. S. 2(24(vi) lays down that “income, includes any capital gains chargeable under section 45”. Thus a capital gain, which is not chargeable to tax under section 45, cannot be included in the Income. It further observed that in the present case, interest as defined u/s 2(28A) was not payable by the cousin of the Assessee on repayment of loan but only the principal debt amount was repaid. The benefit or gain arising to the Assessee was on account of foreign exchange fluctuation which comes in the capital field and therefore such gain is not taxable as it is a capital receipt in the hands of the Assessee. With respect to the stand adopted by the CIT(A) that under the LRS scheme only Rupee denominated loans were permissible to the non-resident close relatives. The tribunal has taken the stand that nothing turns on the fact that only rupee denominated loans were permitted to be extended by the assessee to his close relative NRI/PIO cousin, that such question was beyond the scope of the CIT(A) or the Tribunal. Therefore, the Tribunal deleted the addition. (AY 2013-14)

Aditya Balkrishna Shroff v. ITO (2021) 189 ITD 587 (Mum)(Trib.)

S. 50C : Applicability – Gap between the date of execution of agreement to sell and sale deed – Sale deed executed in 2007, much later after entering into Agreement for sale in 1993 -, possession given and also major portion of sale consideration was received along with agreement to sale – Capital Gains to be computed based on guidance value of the property as on the date of sale agreement and not as on date of sale deed [S. 2(47), 45, 48]

Assessee entered into sale agreement on 08.03.1993, received major portion of sale consideration and handed over the possession of property. However, right over the property was transferred by way of sale deed dt 09.03.2007. Assessee had offered the gain in the year under consideration, based on valuation as per agreement to sale i.e. value as on 08.03.1993, and not as per valuation on date of sale deed, which was 09.03.2007 on the ground that there was no transfer of property during the year under consideration.

The A.O took the view that there was a transfer of property during the year, and also invoked Sec 50C, and computed Long Term Capital gains based on guidance value of the property as on date of sale deed i.e. 9.3.2007.

On appeal the Tribunal held that the transfer has taken place vide sale agreement dt 08.03.1993, and consequently for purpose of computing Long Term Gain the value as on date of sale agreement has to be adopted, and not the value as on the date of sale deed dt 09.03.2007, and accordingly sec 50C is not applicable based on following :

Vide agreement to sale, the right over the property was transferred from vendor to purchaser i.e. a right in persona has already been created in favour of purchaser, and seller is restrained from selling said property.

The purchaser in whose favor right in persona is created has legitimate right to enforce specific performance of the agreement.

Assessee has produced all the relevant documents for demonstrating the authenticity of the sale agreement with corroborative evidence (AY. 2007-08)

Prakash Chand Bethala v. DCIT (2021) 212 TTJ 720 (Bang.)(Trib.)

S. 50C: Capital Gain – full value of consideration – the value adopted by the stamp valuation authority on the date of agreement to be taken as full value of sale consideration

The Assessee owned 2 plots which were purchased on 24-08-2007. The Assessee subsequently entered into a sale agreement dated 12-03-2008 for the sale of both the plots to another company. Accordingly, the Assessee declared a short-term capital gain only in the year under consideration with respect to the sale of plots.

The AO found that there was a search in case of the buyer had sold these plots after converting into small plots and showed huge profits in its own books which was set off against loss on sale of commodities. Accordingly, the AO sought clarification from Assessee as to why the transaction should not be treated as colorable device and held that the stamp duty value of the property should be considered as sale consideration and accordingly worked out capital gain and made addition.

The CIT(A) held that there was no incriminating material found during search in case of buyer nor any material has been brought on record by the AO in the present case during assessment and therefore the AO was not justified in making addition in the present case. It was further held that as per the provisions of section 50C of the Act, where date of agreement and date of registration is different (as in the present case) the stamp duty value can be taken but only in case where consideration or part thereof has been received before the date of agreement. However, in the present case, even though the condition laid down by section 50C was not satisfied, CIT(A) held that Assessee’s case is covered by section 50C and hence deleted the addition made by the AO.

Tribunal upheld the finding of CIT(A) that no addition could be made in the present case in absence of any incriminating material and accordingly deleted the addition made by the AO. However, on merits of the case, Tribunal held that the Assessee had received a small consideration at the time of agreement and therefore CIT(A) finding to the extent that Assessee would get benefit of proviso of section 50C of the Act was incorrect.

In the result, the addition made was deleted by the Tribunal though on merits of the case, Tribunal ruled against the Assessee.

ACIT v. M/S. Himalayan Darshan Developers (Gujarat) Pvt. Ltd. (2021) 212 TTJ 738 (Ahd)(Trib.)

S. 54B : Exemption – Allowability to HUF – Exemption available even prior to amendment by Finance Act, 2013 – Amendment is clarificatory in nature – Person includes individual as well as HUF – HUF entitled to benefit of sec 54B.

Assessee had claimed exemption u/s 54B and u/s 54F which was denied as per Order u/s 143(3). CIT(A) allowed granted partial relief and allowed exemption u/s 54F, but confirmed denial of exemption u/s 54B.

On appeal the Tribunal held that assessee HUF is entitled to benefit of sec 54B of the Act for following reasons :

• The word assessee used in s 54B, had always included HUF, and further the amendment brought in by Finance Act, 2013 by inserting “the assessee being an individual or his parent or an (HUF)” was clarificatory in nature.

• Word ‘person’ as defined in s 2(31) includes individual as well as HUF and therefore HUF was entitled to benefit u/s 54B.

• Benefit of any doubt in respect of taxability of exemption should be given to assessee rather than to revenue. (AY. 2012-13)

Sitaram Pahariya (HUF) v. ITO (2021) 212 TTJ 273 (Agra)(Trib.)

S. 54F: Capital gains – Exemptions – investment in house property in name of assessee’s widowed daughter was allowable – direct nexus between sale consideration received and investment in house property.

Held that, there is nothing in s.54F to show that house should be purchased in name of assessee only. Since there was a direct nexus between sale consideration received and utilized investing in residential house in name of married widowed daughter of assessee, exemption u/s. 54F on amount invested in purchase of residential house in daughter’s name is allowed. (AY 2016 -17)

Krishnappa Jayaramaiah v. ITO (2021) 189 ITD 15 (Bang)(Trib.)

S. 56(2)(viib): Income from other sources – Issue of shares at a premium – Determination of fair market value – Value to be adopted either as per method prescribed in r. 11UA or FMV arrived by assessee duly substantiated to satisfaction of A.O [I Tax Rules, 1962 r 11UA]

Assessee had issued shares at a premium based on valuation report from independent chartered accountant as well as from statutory auditor of the company, further supported by reports from civil engineer and property valuer thereby substantiating the fair market value of shares as on date of issue of shares.

AO during reassessment proceedings, rejected the valuation report, on the ground that said report was not filed during original assessment proceedings, and taxed the premium collected by invoking sec 56(2)(viib).

On appeal the Tribunal held that :

• Assessee having exercised the option given as per Expln. (a)(ii) to sec. 56(2)(viib), and having substantiated the fair market value of shares based on valuation report, as on date of issue of shares, there is no scope to invoke provisions of sec 56(2)(viib) to tax share premium collected on issues of shares.

• Assessee having substantiated share price with the help of valuation report, the timing of filing valuation report is not relevant criteria, nor it alters the situation, to decide whether fair market value of shares issued is substantiated to the satisfaction of AO, the rejection of valuation report on ground that same is obtained subsequent to the date of issue of shares and not being filed during original assessment proceedings is incorrect. (AY. 2013-14)

Sri Sakthi Textiles Ltd. v. DCIT (2021) 212 TTJ 917 (Chennai)(Trib.)

S. 68: Cash credits – Unexplained investments – Seizure of Banakhat duly signed by the assessee –Addition U/s 68 on account of non-availability of ROI and Bank account of lender – Held that AO has not brought any material or evidence to disprove the genuineness of information submitted by the assessee – the appeal of the revenue is dismissed. [r.w.s. 69 & 153A]

Assessment was finalized in case of the Assessee u/s 153A r.w.s. 143(3) of the Act and certain additions were made u/s 69 on protective basis and further addition u/s 68 on account of cash credits. During the course of search at the residence of one Sohit Mehta,a signed banakhat was found and seized. It was the case of the Assessee (Co-owner along with wife of the impugned land) that the transaction of sale of land did not materialize and the land deal as per the seized banakhat was ultimately cancelled. It was further submitted that the land was still in the name of the assessee and other two co-owners and the land was not transferred in the name of the buyer mentioned in the banakhat. It was further explained that the amount received was returned back through the broker, through whom the transaction was undertaken, to the parties i.e. Mehul Mehta mentioned in the banakhat. The impugned land was subsequently sold to other parties. However, the assessing officer did not accept the above submission of the assessee and added 40% of part payment received against sale of land, to the total income of the assessee as unexplained income u/s 69 of the Act on the protective basis.

The Hon’ble bench upheld the order passed by the CIT(A) which states that considering the nature of transaction only substantive addition can be made in the hands of the buyer and the seller on the reasoning that if payments was made by the buyer not out of disclosed sources, the amount has to be added as undisclosed income to the total income of the buyer on substantive basis and at the same time if the receipt of consideration is not disclosed by the seller,the amount has to be added as undisclosed income to the total income of the seller on substantive basis only. Further,it is undisputed fact that Shri Mehul Mehta in whose hands the addition was made on substantive basis had made relevant disclosure in the application for the settlement which has been considered by the Settlement Commission. Therefore, this ground of appeal of the revenue stands dismissed.

In case of second ground with respect to Addition of Rs 4 Lacs U/s 68 of the Act, the Hon’ble Bench held that because of non-availability of return of income and copy of bank account of the lender the Assessing Officer has treated the unsecured loan amount of Rs 4lacs as unexplained and added to the total income of the assessee U/s 68 of the act. However,assessee furnished additional evidences before CIT(A) in the form of bank statement, confirmation containing the lender full address, documentary evidences of the ownership of agricultural land and it was also explained that since lender was an agriculturist therefore, he was not liable to file any return of income. The assessing officer has not brought any material or evidences on record to disprove the aforesaid facts and evidences submitted by the assessee in support of genuineness of the loan transactions. Therefore, appeal of the revenue is dismissed. (AY 2012-13)

ACIT v. Shri Karsangiri Buddhgiri Goswami (Diamond Petroleum) (2021) 189 ITD 227 (Ahd)(Trib.)

S. 68 : Cash credits – Addition u/s 68 is not sustainable where the assessee-company has been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter

Search and seizure action was conducted on the premises of a third person i.e. Shirish C. Shah. Therein Assessee Company was found to have received a certain amount from Investor Company, M/s Prraneta Industries Ltd which was allegedly being controlled and managed by the aforementioned third person for providing accommodation entries. The statement of a Promoter of Prraneta Industries Ltd. was recorded where he admitted to providing accommodation entries of the Investor Company after charging a certain commission. The AO did not accept any explanation provided by the Assessee and proceeded to make an addition to the total income of the Assessee primarily on the basis of the aforementioned statement of the Promoter of Prraneta Industries Ltd.

This reopening proceeding was challenged by the Assessee. The Tribunal observed that the Assessee Company had placed substantial material before the AO to establish the identity of the creditors, their creditworthiness and the genuineness of the transaction. It further observed that the Assessee was not provided an opportunity to rebut the statement made by the third person Shirish Shah and the Promoter of Prraneta Industries Ltd. by stating them to be “confidential” in nature and therefore they cannot be read in evidence against the Assessee. It was also submitted by the Assessee that the Promoter of Prraneta Industries Ltd. later on retracted from his statement and therefore there was no case for reopening of the assessment. It was further submitted that the Indore bench of the tribunal had dismissed the group departmental appeals in case of certain other companies in respect of the same Investor Company, Prraneta Industries Ltd. based on the same information received in search in cases of the third person, Shirish C. Shah and deleted the additions on the merits of the case. The order was further upheld by the Madhya Pradesh High Court and ultimately the Supreme Court. Similar judgments were passed by the Delhi Bench of the tribunal in case of other companies and therefore it was submitted that the present case was covered by these decisions on identical facts.Thus on the basis of facts of the case and law as well as relying upon the decisions of the coordinate benches, the Tribunal ultimately concluded that the Assessee Company has adequately established the identity of the creditors, their creditworthiness and the genuineness of transaction and therefore deleted the addition made u/s 68 of the Act. (AY 2010-11).

Ancon Chemplast P. Ltd. v. ITO (2021) 189 ITD 156 (Delhi)(Trib)

S. 68 : Cash credit (Loan) – various evidences filed including financial statement of creditor to prove his identity and creditworthiness and genuineness of transactions, merely for reason that loan were received in cash was unjustified.

The AO made addition u/s. 68 on account of said loan on ground that assessee had failed to explain receipt of said loan amount in cash in its bank account – It was noted that assessee had filed various evidences including financial statement of creditor to prove his identity and creditworthiness and genuineness of transactions – From financial statement of creditor, it was found that amount advanced to company was recorded in loans and advances – Assessee had also explained creditworthiness of creditor by filing his income tax return for relevant assessment year – Assessing Officer except stating that loan was received in cash, made no other observations to reject arguments of assessee that creditor was having creditworthiness to provide loan – Whether on facts, impugned addition under section 68 made by Assessing Officer merely for reason that loan was received in cash was unjustified and same was to be set aside.

Jayant Packaging (P.) Ltd. v. DCIT (2021) 189 ITD 321 (Chennai)(Trib.)

S. 68 : Cash credit – (Share capital) – Assessee submitted share application form, copy of share certificates, copy of board resolution, certificate of incorporation etc. with respect to all investor and all investor entities had sufficient net worth to make investment, additions as unexplained cash credit was unjustified.

Assessee is builders and developers had received share capital / share premium from various entities and said receipts were alleged to be bogus in nature and were added its income as unexplained cash credit u/s. 68.

Held that, when share application form, copy of cheque, cheque deposit slips, copy of bank statement, copy of share certificates, copy of source of funds, copy of board resolution, certificate of incorporation, copy of Memorandum of Association (MOU) etc. were filed with respect to all investor entities, further, all investor entities had sufficient net worth to make investment, its proves assessee had successfully discharged onus cast upon it u/s. 68. Additions were unjustified.

Moongipa Dev. & Inf. Ltd. v. DCIT (2021) 189 ITD 388 (Mum)(Trib.)

S. 68: Cash credit (Accommodation entity) – AO issued reopening notice merely on basis of information received from department and he had not pointed out as to how investment in question was unexplained income of assessee, order passed by AO was to be quashed.

The AO received an information from ITO that a search action u/s. 132 was carried out in case of one ‘VI’ Group during which it was found that several companies of group were engaged in providing accommodation entries to various companies in form of share capital, share premium, bogus bills, unsecured loans etc. on commission basis and that one company RTCPL had made bogus investments of certain amount in assessee company, on basis of said information, AO issued reopening notice against assessee and passed reassessment order by making additions u/s. 68 on account of bogus investment.

Held that, reopening proceedings initiated only an solely on basis of information received from ITO, thus, said assessment order was void ab initio, as AO had not pointed out as to how investment in question was unexplained income of assessee, AO had assumed jurisdiction u/s. 147 in a mechanical manner. (r.w.s.148)

Kaur Sain Spinning & Weaving Mills Ltd. v. ACIT (2021) 189 ITD 515 (Chd) (Trib.)

S. 68 r.w.s. 37: Cash Credits – onus to explain genuineness of transaction – once Assessee discharges such burden to prove genuineness, burden of proof shifts on the Revenue to prove the contrary – once burden of proof is discharged successfully by Assessee no addition can be made

The Assessee had received certain unsecured loans from various companies. The repayment of such loans along with interest was done much before the date of initiation of search proceedings. During the search assessment proceedings, the Assessee had discharged its onus by filing various details including name and address and PAN numbers of the creditors to prove identity of creditors. The Assessee had also filed financial statements of creditors to prove creditworthiness along with bank statements to prove the fact that loan transactions are routed through proper banking channels. These loans were also backed by equitable mortgage of immovable properties in favour of the lender. However, the AO disregarded all this and made additions u/s.68 in assessment framed u/s.143(3) r.w.s. 153C of the Act on the basis of statements given by third parties and without providing an opportunity for cross examination of said third party or copy of statement made. On appeal, the CIT(A) deleted such addition and disallowance made.

The Tribunal held that AO made additions without providing copies of statement recorded from said person and also did not provide opportunity of cross examination, even though the Assessee has specifically requested for the same. It was further observed that denial of the same is a serious flaw which renders the order a nullity in as much as it amounted to violation of the principles of natural justice. Similar view had been upheld by Hon’ble Supreme Court in the case of Kishinchand Chellaran v. CIT [1980] 125 ITR 713

Further, on merits, the Tribunal relied on the decision of Hon’ble Supreme Court in the case of CIT v Lovely Exports (P) Ltd [2008] 216 CTR 195 and held that the Assessee had discharged its burden cast upon it by Section 68. Once, the Assessee has discharged its initial burden then the burden shifts to the AO to prove otherwise that said sums recorded as unsecured loans in the books of accounts of the Assessee is unexplained credit which represents undisclosed income of the Assessee. Hence, the Tribunal deleted the addition made by the AO and upheld the action of the CIT(A).

ACIT & Anr. v. CMG Steels Pvt. Ltd. & Anr. (2021) 212 TTJ 109 (Chen)(Trib.)

S. 68: Cash credit (Bank deposits post demonetization) – amount deposited by Assessee-jeweller in its bank account post demonetization – the addition made on account of unexplained income was to be deleted.

Assessee firm was engaged in business of jewellery trading. A survey under section 133A was conducted at business premises of Assessee by Deputy Director (Investigation) in which he found that Assessee deposited huge sum in high denominations of specified bank notes post demonetization. The Assessee had explained source of cash deposits as cash sales and advances received against sales. However, AO held that said amount was unexplained, cash credits representing unaccounted money was brought into business in disguise of jewellery sales, and, accordingly, made addition under section 68 on account of said cash deposit.

The Tribunal noted that Assessee had explained source of said amount in question as sales, produced sale bills and admitted same as revenue receipt as well as offered it to tax. There was no defect in purchases and sales and same were matching with inflow and outflow of stock. Further audit report under section 44AB and financial statements clearly showed reduction of stock position matching with sales which clearly showed that cash generated represented sales. Both Assessing Officer and DDIT (Inv.) were unable to find any defects in books of account, trading account, P&L account and financial statements of Assessee.

Therefore, following the decision in case of CIT v. Associated Transport (P.) Ltd. [1996] 84 Taxman 146/ [1995] 212 ITR 417 (Cal.) the Tribunal held that as the Assessee had sufficient cash in hand in the books of account, there was no reason to treat this amount as income from undisclosed sources and it was not a fit case for treating the said amount as concealed income of the Assessee. Further, as the Assessee had already admitted the sales as revenue receipt, it did not qualify for making an addition u/s 68.

ACIT v. Hirapanna Jewellers (2021) 212 TTJ 11 (Visakhapatnam)(Trib.)

S. 68: Cash credits – Unsecured Loan – All documents including Financial Statements, confirmations and the transactions were through banking channels – impugned addition was unjustified.

Where the assessee filed various details including bank statement and financial statement of creditor, confirmation of the creditors and all these transactions are routed through proper banking channel, the assessee has proved identity, genuineness of transaction and creditworthiness of loan creditors. The assessee has discharged its burden caste upon u/s. 68 of the Income-tax Act, 1961. The impugned addition was not justified.

K.P. Manish Global Ingredients (P.) Ltd v. ACIT [2021] 131 taxmann.com 158 (Chennai)(Trib.)

S. 69: Income from undisclosed sources – Addition based on statement given to survey team on documents found indicating receipt of large amounts – No retraction – Addition upheld.

Assessee in the statement to survey party, admitted the sum of large receipts as undisclosed receipts, based on documents found during survey. No explanation was offered, nor, the statement was retracted by the assessee, before any authorities, or during the course of assessment proceedings by way of plausible evidence or by any other mode.

CIT (A) upheld the addition made by A.O. Assessee later before the tribunal raised the ground that

• admission was extracted under coercion and under influence during survey

• additions are not backed by any cohesive primary and circumstantial evidence as to its nature and source

• persons from whom receipts have been purported to be made are unidentifiable, non-existent and are thus a sham and imaginary

• Survey proceedings and assessment proceedings have been headed by same official, and assessment thus made is biased and unjustified.

On appeal Tribunal held that the findings recorded by the AO as well as CIT(A), are based on reasonable basis and credible evidences, and assessee not having retracted the statement given to survey team, nor has produced any evidences, the addition made is upheld. (AY.2012-13)

Sanjay Sultania v. ITO (2021) 212 TTJ 539 (Ctk.)(Trib.)

S. 69A: Unexplained moneys (Loan) – necessary confirmation from such two persons from whom money was received as ‘temporary loan’ was not produced – matter remanded back to decide afresh.

The AO on examination of cash books of assessee, noticed that whenever there was shortage of cash receipts below Rs.20,000 was shown by assessee in name of RW and PK and therefore he made addition on account of said amounts as unexplained income. The CIT(A) also confirmed same on ground that necessary confirmation from above two persons from whom money was received as ‘temporary loan’ were not produced.

Held that, since two parties could not deliver required results, advance which was paid by assessee through account payee cheques was repaid by them in small amounts out of their own earnings further assessee had never claimed that it had received temporary loan from these two parties. Therefore, matter remanded back to decide issue afresh. (AY: 2009 –2010)

Jaipur Boutique Carpet v. ITO (2021) 189 ITD 305 (Jaipur)(Trib.)

S. 69A : Unexplained moneys (Revision) – When during scrutiny assessee had submitted all relevant details regarding loans and advance and explained that said advance was returned back in next year, AO after due verification passed order, invocation of revision u/s.263 by Pr. CIT was unjustified.

The Pr. CIT invoked revision u/s. 263 on ground that AO had not examined issue related to advance of certain amount given by assessee to one AIP and also had not examined issue related to payments of commission to two persons.

Held that, when assessee had furnished all relevant details regarding loan and advances given and explained that said advance was returned back in next year and also furnished copy of ledger account, further, assessee had also submitted all evidence and explained services in relation to sales provided by such two persons to whom it paid commission along with copy of sales register, profit and loss account and confirmation of parties before AO. It was again furnished in revision proceedings and that nothing was found wrong against those documents by Pr. CIT. Invocation of revision under section 263 was unjustified. (r.w.s. 263)

Nilkanth Stone Industries v. Pr. CIT [2021] 189 ITD 718 (Surat)(Trib.)

S. 80-IC : Deductions by way of special provisions – Entitlement to deduction – substantial expansion in the existing unit in line with clause (ix) of sub-section 8 of section 80-IC

The Assessee is into the business of manufacturing of perfumes, deodorants, cosmetic items and toiletry goods and was claiming deduction under section 80-IC. The Assessing Officer restricted the deduction to 25% instead of 100% claimed by the Assessee on the ground that 100% deduction u/s 80IC is available to the units located in North Indian states for the first 5 years and for the next 5 years @ 25%/35%. The CIT(A) allowed 100% deduction to the Assessee against which the Revenue filed appeal before the Tribunal

The Tribunal observed that the Assessee was claiming the deduction from the last 5 years and had carried out substantial expansion in the 5th year. Further, in the subsequent years (i.e. 7th to 10th year), the Assessee had also been granted 100% deduction by the CIT(A) and no appeal was filed by Revenue against the same. Since it was not in dispute that the Assessee has carried out substantial expansion in accordance with section 80IC(8)(ix) during current financial year, the Tribunal relied on the decision of the Hon’ble SC in the case of Aarham Softronics (412 ITR 623) and CIT(A) orders for subsequent years and held that the deduction is admissible to the Assessee irrespective of the conditions stipulated for North Indian States as discussed by AO.

ACIT v. Vanesa Cosmetics (2021) 212 TTJ 712 (Delhi)(Trib.)

S. 92C : Transfer pricing –Computation of arm’s length price – (TP adjustment – Illustration – Management fee) – documents filed to justify and availment of services – have to accept value of management services as claimed by assessee.

TPO examined timesheet related to charges to AE and observed that there was no clarity regarding services availed or services provided and treated value of management services fee as Nil in absence of supporting evidence of availing such services. Tribunal held that, since assessee had filed documents justifying not only need of services but also availment of services and TPO had failed to take into cognizance of those documents/evidences, there was no merit in order of TPO and hence to accept the value of management services as claimed by assessee.

Renishaw Metrology Systems Ltd. v. DCIT (2021) 189 ITD 236 (Pune)(Trib.)

S. 92C : Transfer pricing – Computation of arm’s length price – (Comparable – Functional similarity – Marketing support services) – Assessee involved in advertising agency, data not available in public domain for comparability of business support system segment of said company, it could not be compared to marketing support service provider.

Assessee-company rendered marketing support services to its AE, where a company was involved in advertising agency, but data was not available in public domain for comparability of business support system segment of said company, it should not be selected as comparable.

Renishaw Metrology Systems Ltd. v. DCIT (2021) 189 ITD 236 (Pune)(Trib.)

S. 92C : Transfer pricing –Computation of arm’s length price – (Comparable, Functional similarity – Marketing support services) – conducting exhibitions and events and most of income from exhibitions and events, should be excluded from comparable list to marketing support service provider.

The Assessee Company rendered marketing support services to its AE, a company was also involved in conducting exhibitions and events and most of income came from exhibitions and events, it should be excluded from list of comparable.

Renishaw Metrology Systems Ltd. v. DCIT (2021) 189 ITD 236 (Pune)(Trib.)

S. 92 C: Transfer pricing –Computation of arm’s length price – bona fide expenditure should be incurred while availing services – application of benefit test is not warranted

During the year under consideration, the Assessee had entered into a transaction for payment of service charges to a related domestic company. The Assessee had applied CUP as the method for benchmarking the said transaction after considering 13 comparable. The TPO rejected the CUP method and alternative benchmarking analysis under TNMM submitted by the Assessee. TPO determined ALP at NIL by using any other method.

The Tribunal after going through the detailed documentary evidence submitted by the Assessee noted that the TPO had held that services were in the nature of shareholder activity, however, it was sufficient to hold that shareholder activity takes place only when some act or services is done by the shareholder and thereby TPO has himself acknowledged the fact that services were received by the Assessee. Accordingly, the Tribunal after examining the details held that the Assessee had availed services from the related domestic company for running its business operation and there was no need to prove the benefit accruing from the same. The Tribunal held that these services were not shareholders services as alleged by the TPO.

Further the Tribunal rejected the CUP method applied by the Assessee as the comparables selected by the Assessee for the purpose of benchmarking were not functionally similar to the Assessee. Secondly, the Tribunal also did not accept Assessee’s alternate contention of using other method for benchmarking by placing reliance in case of group companies wherein similar disallowance was deleted by Tribunal by accepting payment as reasonable, wherein the AO had disallowed such payment made to domestic company under section 40A (2) of the Act. The Tribunal while rejecting the contention of the Assessee that such “reasonableness criteria” can be applied to determine ALP, under Rule 10AB, held that the Finance Act, 2012 brought SDT’s in the purview of Chapter X, and the payment of services charges to the domestic company would require determination of ALP under Chapter X and adhere the mechanism provided in the respective methods for benchmarking. Lastly, with regards to Assessee’s contention for adoption of TNMM at the entity level as the most appropriate method for benchmarking SDT at ALP, the Tribunal held that if the transactions are not closely linked, there can be no question of aggregation for the purpose of benchmarking and accordingly rejected the aggregation approach under TNMM.

Accordingly, the Tribunal held that the mechanism applied by the Assessee or the TPO all the three methods for benchmarking was improper, nothing was left to be adjudicated upon. Accordingly, the issue was set aside to the TPO (without any specific directions on a particular method to be adopted) to redetermine the ALP afresh after giving an opportunity of being heard to the Assessee.

Adient India (P) Ltd v. Dy CIT (2021) 212 TTJ 777

S. 92C : Transfer pricing – Arm’s length price – corporate guarantee distinct from bank guarantee – average of guarantee fee paid by assessee cannot be questioned

Where the adequacy of the ALP of the corporate guarantee fees determined by the assessee at 0.43 per cent of the amount of loan by taking the average of the guarantee fees that was paid by the assessee to various banks for standing guarantees on its behalf for certain third parties. It was held that a higher commission is to be paid for obtaining bank guarantee, as they are easily encashable in the event of default as in comparison to corporate guarantee provided by an assessee company to a bank for facilitating raising of loan by its AE. Therefore, the adequacy of the ALP of the corporate guarantee fees determined by the assessee cannot be called in question.

Greatship (India) Ltd. v. DCIT [2021] 126 taxmann.com 47 (Mum)(Trib.)

S. 115JB : Minimum alternate tax – (Computation provisions) – When income is not reported in its P&L account, could not be said that its prepared in accordance with Part II and III of Schedule – VI to Companies Act. AO is justified to re-compute book profit u/s. 115JB.

Held that, when books of account of assessee are not in accordance with Part II and III of Schedule VI to Companies Act, 1956, then AO is empowered to tinker with net profit by making additions u/s. 115JB to book profits.

Jayant Packaging (P.) Ltd. v. DCIT (2021) 189 ITD 321 (Chen)(Trib.)

S. 115JB : Minimum alternate tax – disallowance u/s. 14A r.w. rule 8D is not to be applied while determining book profits u/s. 115JB.

Disallowance u/s. 14A r.w. rule 8D is not to be applied while determining book profits u/s. 115JB. (AY 2010-2011)

Jayant Packaging (P.) Ltd. v. DCIT (2021) 189 ITD 321 (Chen)(Trib.)

S. 115-O: Domestic companies – Tax on distributed profits – Refers question of beneficial treaty-rate over DDT to Special Bench

Assessee (Indian Co.) paid dividend to its shareholders in France and sought to pay DDT at the lower rate prescribed under India-France DTAA by relying upon Delhi and Kolkata Bench rulings in Giesecke & Devrient and Indian Oil Petronas. ITAT admitted the cross-objection filed by the Taxpayer and thereafter, expressed doubt on the correctness of the decisions given by co-ordinate benches of the Tribunal such as,(i) DDT should be considered as a tax on the company and not shareholders, hence treaty protection for resident company not available in the absence of a specific provision (ii) The treaty protection thus sought goes well beyond the purpose of the tax treaties.(iii) Where intended, tax treaty provisions specifically provide for treaty application to taxes like DDT (iii) DTAA is a self-imposed limitation on states’ inherent right to tax and “Inherent in the self-imposed restrictions imposed by the DTAA is the fact that outside of the limitations imposed by the DTAA, the State is free to levy taxes as per its own policy choices”, arose in respect of DDT rate applicable in hands of shareholders. Thus, ITAT frames the question “Whether the protection granted by the tax treaties, under section 90 of the Income Tax Act, 1961, in respect of taxation of dividend in the source jurisdiction, can be extended, even in the absence of a specific treaty provision to that effect, to the dividend distribution tax under section 115-O in the hands of a domestic company?” for approval of the ITAT President for the constitution of a special bench of three or more members.

CIT v. Total Oil India Pvt Ltd – 212 TTJ 292 (Mumbai) (ITA No. 6997/Mum/2019 dt.15-06-2021) (AY 2016-17)

S 132: Search and Seizure proceedings – AO made addition based on the statement given by third party – No incriminating material found suggesting the payment of on-money consideration-Tribunal Deleted addition (r.w.s.132(4), 132(4A))

The Assessee had purchased a piece of land along with its group companies from a vendor in Nashik. A search and seizure operation was conducted on the Assessee and its group companies as well as on the vendors of the land purchased by the Assessee. During the search and seizure proceedings on the vendor, certain loose sheets were found and seized on the basis of which AO concluded that on-money received was represented as the amount received over and above the stated consideration as per sale deed from the Assessee and its group companies. Also, on the basis of third party i.e. vendors statements, the AO drew adverse inference that sellers had received cash from group companies over and above the consideration stated in the sale deed. Therefore, the AO made addition of such undisclosed consideration in the hands of the Assessee. The CIT(A) granted partial relief to the Assessee and addition to the extent of amount admitted in the statements recorded u/s 132(4) of the Act by the vendors. Against this order of CIT(A), both the Assessee as well as the Department filed appeal before the Tribunal.

The Tribunal held that no incriminating material suggesting the payment of on-money consideration to the vendors of the subject land was found in the hands of the Assessee. It also observed that any addition can only be made if there is conclusive evidence brought on record by the AO. The Tribunal also noted that during cross examination of the third party, the statements of such party were clearly contradictory and such contradictory statements had no evidentiary value. It also noted that the third party admitted the receipt of the on-money but nowhere mentioned that they received on-money consideration from the respondent Assessee or its group companies.

The Tribunal also held that onus lies upon the Department to collect cogent evidence to corroborate the notings on the loose sheets. The additions cannot be made merely on the basis of notings on the loose sheet papers which are in the nature of “dumb documents” having no evidentiary value. In the present case, as a result of search and seizure action in the case of respondent-Assessee and its group companies, no material whatsoever was seized and found indicating payment of on-money consideration at the time of purchase of the lands. Also, no addition in the assessment can be made merely based on assumptions, suspicion, guess work and conjuncture or on irrelevant inadmissible material.

Hence the Tribunal held that Department had failed to establish that the Assessee had paid any on-money over and above stated consideration of the sale deed to the vendors of the property and directed to delete the entire addition made.

Dhananjay Marketing v. CIT & ANR (2021) 212 TTJ 0877 (Pune)(Trib.)

S. 143(3) : Assessment – Disallowance the contribution received from employees towards ESI and EPF – National Faceless Appeal Centre (NFAC) situated in Delhi, though centralised, is bound by the precedents laid down by the HC exercising territorial jurisdiction over the Assessee’s AO.

The Assessee has claim of deduction on delayed employees’ contribution was disallowed by AO which was upheld by NFAC by relying on Gujarat HC ruling. However, on the same issue ruling is in favour of the Assessee rendered by the Allahabad HC. ITAT holds that National Faceless Appeal Centre (NFAC) situated in Delhi, though centralised, is bound by the precedents laid down by the HC exercising territorial jurisdiction (herein, Allahabad HC) over the Assessee’s AO. Opines that an appeal against an order passed by NFAC lies before the ITAT bench having jurisdiction over Assessee’s AO and “Thus appeal against the tribunal (Agra in present case) shall lie to the Hon’ble Allahabad High Court and therefore the decision rendered by Hon’ble High court is not only binding on the Tribunal but also on NFAC, (though sitting in Delhi) which is deciding the lis pertaining to Agra ITAT Jurisdiction (Allahabad HC Jurisdiction).(ITA No.41 & 42/Agr/2021, dt 14-06-2021) ( AY. 2018 -19, 2019-20)

Mahadev Cold Storage v. JAO (Agra) (Trib) www.itatonline.org Vinod Thanwerdas Sainani v. JAO – 212 TTJ 801 (Agra) (Trib)

S. 147 : Reassessment – a copy of complete text of the reasons recorded for reopening and the sanction obtained u/s 151 was furnished to the Assessee during the course of hearing-vague and general reasons – no new tangible material on record – sanction u/s 151 suffered from jurisdictional defects – therefore reopening is quashed.

The Ld AO sought to reopen the Assessment for the relevant AY by way of notice u/s 148 of the Act which was issued beyond four years but within six years from the end of the relevant AY. The Assessee file a letter requesting a copy of reasons recorded together with the sanction from the competent authority in terms of section 151, however, the AO furnished only an extract of such reasons recorded to the Assessee and the copy of the sanction/approval from the competent authority was not provided at all. The objections filed by the Assessee to the reasons recorded for reopening which were disposed of by the AO by way of a separate order on the same day. Further objections filed in respect of such order were dealt with and disposed of by the AO in the reassessment order u/s 143(3)/144C(3) r.w.s. 147 of the Act. The CIT(A) dismissed the grounds raised by the Assessee on the validity of reopening of assessment and assumption of jurisdiction by the AO.

The Tribunal noted that the full text of reasons recorded for reopening as well as sanction obtained u/s 151 was furnished to the Assessee during the course of the hearing. It observed that in the full text of the reasons recorded, omission on the part of Assessee was mentioned as a general and vague statement without specifically pointing out as to what was the clear omission or failure on the part of the assessee. The reasons started with the word “on verification of records…” which shows that the entire information was available before the AO, therefore there was no tangible material available to form belief that income has escaped assessment. Even the sanction u/s 151 for reopening of assessment u/s 147 suffered from jurisdictional defect. In view of the above, the reopening of the Assessment was quashed. (AY 2007-08)

ACIT v. M/s. Bharti Axa Life Insurance Company Ltd and Anr (2021) 189 ITD 0450 (Mum)(Trib.)

S. 147 : Reassessment – Notice u/s 148 based on Reason to believe and Existence of material & Rationale belief is a valid Notice even without any conclusive proof – re-opening held to be valid.

A.O during survey, based on certain documents found that assessee sold a property for a consideration which was much lower, than the guidance value as per provisions of Sec 50C. Based on the material A.O had reason to believe that Income has escaped assessment notice u/s 148 was issued.

On appeal the Tribunal held that:

There need not be conclusive proof that there was escapement of income while issuing notice u/s 148, reason to believe is good ground for reopening of assessment, further discovery of the facts during re-assessment, cannot invalidate the notice u/s 148, which when issued was a valid notice. (AY. 2007-08)

Prakash Chand Bethala v. DCIT (2021) 212 TTJ 720 (Bang.)(Trib.)

S. 147: Reassessment – Change of opinion – Issue not examined during assessment u/s 143(3) –Reopening justified as A.O has overlooked the relevant facts and not taken cognizance of resulting in escapement of Income.

During the assessment proceedings u/s 143(3) A.O had not considered the difference between the stamp duty value of the property sold vis-à-vis sale agreement value, inspite of the fact that the agreement as well as receipt showing registrable value was part of the records, furnished during assessment proceedings. Reopening u/s 147 on ground of under reporting of capital gains as per provisions of sec 50C, was challenged by the assessee, citing change of opinion on same set of facts and circumstances.

On appeal the Tribunal held that A.O has rightly exercised its power u/s 147 and the doctrine of ‘change of opinion’ cannot act as embargo, more so when the relevant fact not examined in original proceedings comes to the light of AO subsequent to original assessment.

The above conclusion was based on following:

That, the A.O is not supposed to have understood the purport of whole gamut of facts and figures placed before him, or are written somewhere in bundle of voluminous papers/documents filed during assessment proceedings.

That, when there is no explanation offered for vast difference in sale consideration qua adoptable value is discernible from the record, and thus mere production of records, will not amount to disclosure for the purpose of presuming formation of opinion.

That, A.O not having made any inquiry for applicability of sec 50C, nor having examined the issue, A.O cannot be said to have formed any opinion on the issue, and thus the doctrine of change of opinion cannot come to the rescue of the assessee.

That, the assessee cannot claim a vested right arising from a palpably erroneous conclusion owing to non-consideration of significant fact having direct bearing on escapement of income.

That, when the relevant facts have been overlooked and has not taken cognizance of, resulting in escapement of chargeable income, such omission would not constitute change of opinion, and such assessment order passed cannot be equated with a valid formation of opinion.(AY. 2010-11)

Rakesh Ambalal Patel v. ITO (2021) 212 TTJ 769 (Ahd.)(Trib.)

S. 147: Reassessment – Sanction u/s 151 – Validity – Approval by Jt CIT – Satisfaction recorded in a mechanical manner without application of mind – Reopening held to be invalid. [S.151]

The assessee before the Tribunal took the ground that that the impugned assessment Order u/s 143(3) r.w.s 147 was passed without complying with the mandatory conditions u/s 147/148 as envisaged by the Act.

Tribunal observed that Jt CIT recorded the satisfaction in a mechanical manner without application of mind, and gave approval by simply stating that “Yes, it is approved for 148 action”. Based on the same it was held that the approval was not valid and consequently the reopening of the assessment on the basis of said approval was also not valid. (AY. 2013-14)

Satnam Singh v. ITO (2021) 212 TTJ 1 (Asr.)(UO)(Trib.)

S. 147 : Re-assessment proceedings – AO made reopening relying upon information received from search proceedings in case of third party – Held reassessment proceedings null and void – Only 153C valid in case of information received from third party (r.w.s.153C)

Assessee is an HUF and sold its half share in a residential property and offered the capital gains to tax after claiming indexed cost of acquisition. A search & seizure action under section 132 of the Act was carried out in case of buyers and addition was made for unexplained on-money. AO initiated re- assessment proceedings under section 147 of the Act in the hands of the Assessee under the belief that addition made in hands of buyer has direct bearing on the seller as well as they were the recipient of the on-money. Accordingly, AO made addition of half share of alleged on-money received by Assessee and not declared as part of sales consideration and revised the capital gain tax payable by Assessee.

On appeal, CIT(A) held that the AO had not followed the procedure laid down by the law for reopening proceedings. CIT(A) noted that reasons of reopening provided to Assessee were mechanical in nature and the AO had adjudicated the matter without disposing the objections of Assessee. It was further submitted that AO received the information in respect of the valuation report from the CIT(A) before whom the appeal of the purchaser was pending for adjudication. The AO of the buyer did not find it worth passing on and thus buyers AO did not record his satisfaction in this respect. The CIT(A) who passed the information to the AO, while adjudicating the matter in case of buyer of property granted substantial relief to the buyer and held that the “valuation report of the valuer cannot be taken as yardstick for unaccounted investment. Hence, the basis for reopening the case, i.e., the copy of valuation report, was held to be invalid for the purpose of making any addition in the hands of the buyer by the CIT(A) and accordingly CIT(A) quashed the impugned order.

Tribunal relied on various decisions and held that reopening on the basis of documents found during course of search of third party premises was invalid and could be done only under section 153C of the Act. Tribunal noted and upheld the findings of CIT(A) and placing reliance on various decisions, including decision of Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd (259 ITR 19) and quashed the assessment.

ACIT v. M/s. K. S. Chawla & Sons [HUF] and ANR. (2021) 212 TTJ 199 / 203 DTR 180 (Del)(Trib.)

S. 148: Reassessment – Validity vis-à-vis absence of Notice – Issue of Reopening – Based on mechanical satisfaction of PCIT without application of mind – Reassessment not sustainable [S.69, 147, 148 & 151]

Assessee challenged the reopening notice, primarily on the ground that Notice was not served as per sec 282 of the IT Act. The addition was also challenged on merits, as reason to believe itself was based on wrong footing as power to reopen was exercised mechanically without examining the records.

The department on the other side argued that non-receipt is not equivalent to non-service, without producing any records or documents to counter the assessee’s objections.

On appeal the Tribunal held that :

• As the notice was never served on the assessee, nor the Revenue authorities have given any finding specifying the mode and manner of issuance of notice/s 148, the jurisdiction for reassessment based on such notice is bad in law and be restored to nullity.

• Even on merits as assessee having sufficiently explained the facts right at the assessment stage, and no infirmity in the evidences relied upon and available on record has been pointed out, assessee is entitled to relief on merits too.

• Also reopening u/s 148 based on mechanical satisfaction of PCIT without application of mind deserves to be quashed, as an authority vested with onerous powers of reopening u/s 147 and granting of approval is expected to exercise its power consciously, carefully and with full awareness. The public at large cannot be put to the mercies of careless, casual, arbitrary or whimsical exercise of power.(AY. 2010-11)

Smt Simar Kaur v. ACIT (2021) 212 TTJ 236 (Chd)(Trib.)

S. 148 : Issue of notice – Reasons for reopening – not supplied –directed to supply reasons for reopening and only after disposal of objections, if any, raised, AO would proceed to re compute income of assessee in accordance with law.

The assessment was reopened, since assessee requested for supply of reasons for reopening of assessment u/s. 148, which were not supplied, the AO was directed to supply reasons for reopening of assessment to assessee and only after disposal of objections, if any, raised by assessee to reopening, AO would proceed to recomputed income of assessee in accordance with law. (r.w.s. 69B)

Jitender Kumar Gupta (HUF) v. ACIT (2021) 189 ITD 714 (Hyd.)(Trib.)

S. 148: Income escaping assessment – Reopening after expiry of 4 years – Prior mandatory approval and sanction of Pr. CCIT/CCIT/PCIT/CIT

The Assessee Company filed its Return of Income declaring total income of Rs. 25,27,660. The Assessee AO completed assessment under Section 143(3) of the Act after assessing income at Rs. 26,27,660. Thereafter, Assessee AO reopened the assessment after expiry of four years by issuing notice under Section 148 of the JCIT on 29 March 2014 before taking prior approval of JCIT and had not taken any approval of Pr. CCIT/CCIT/PCIT/CIT and completed assessment under Section 147 r.w.s. 143(3) of the Act on 31 March 2015 determining total income at Rs. 40,84,900.

Aggrieved by the said order, the Assessee filed an appeal before CIT(A) challenging the validity of reassessment for want of necessary satisfaction of Pr. CCIT/CCIT/PCIT/CIT. However, CIT(A) upheld the order of Assessee AO. Aggrieved by the said CIT(A) order, the Assessee filed an appeal before Tribunal.

The Tribunal further noted that new provision of section 151(1) amended by the Finance Act, 2015 made it clear and unambiguous that such satisfaction from the Pr. CCIT/CCIT/PCIT/CIT. was required before issuing a notice under section 148 of the Act. The Tribunal further relying on the decision of the jurisdictional High Court in the case of Reliable Finhold Ltd. v. Union of India [2015] 54 taxmann.com 318/229 Taxman 446/[2014] 369 ITR 419 (All.) stated that once reopening was initiated after the expiry of four years from the end of the assessment year and the original assessment was complete under section 143(3) then irrespective of the rank of the AO who reopened the case it was a mandatory condition to satisfy the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Therefore, the reopening in the case was invalid as the AO did not satisfy the mandatory condition as provided under section 151(1). Accordingly, the reopening of the assessment was quashed.

Aries Marketers (P) Limited v. CIT(A) 212 TTJ 930 (All)(Trib.)

S. 148: Reassessment – Where all the documents were available on the file of the AO during the original assessment no reassessment could be made – no reassessment can be done on the basis of mere change of opinion – no failure on part of the Assessee to fully and truly disclose all material facts renders the reassessment invalid and bad in law. (r.w.s. 50 & 32)

The Assessee company had sold a built-up property on two plots of land and income from the same was offered to tax as income from long term capital gain in the return of income filed. A notice under section 148 of the Act was issued on 30/03/2015 for reopening the assessment on ground that said property sold by Assessee was included in block of assets on which depreciation was charged and sale consideration was more than WDV of block of assets, thus, such excess between sale consideration and WDV of block of assets was to be taxed as short-term capital gain chargeable under section 50.

The Assessee challenged the reopening of assessment on the ground that Assessee had made true and full disclosure of the facts regarding the sale of the asset and depreciation thereon during the assessment proceedings itself. The Assessee placed on record all the evidence to show that property was held for a period of more than three years, the rent was received on the said property and no depreciation at all was claimed on the said property.

As all these documents were part of the return of income and tax audit report filed before the Revenue, the Tribunal held that the Assessee had made a true and full disclosure of the facts regarding the sale of the asset and depreciation thereon and therefore the reassessment made was invalid and bad in law. (AY.2009-10 & 2012-13)

Anant Raj v. Dy. CIT (2021) 212 TTJ 836 (Delhi)(Trib.)

S. 148: Reassessment – Exemption disallowance u/s. 10(26BBB) – Quashes notice u/s 148 being vitiated on dual count of change of opinion [S. 10(26BBB)]

The Assessee was partially disallowed exemption u/s 10(26BBB) under the original assessment u/s 143(3). The assessee is incorporation u/s 617 of the Companies Act, 1956, with the objective to work towards welfare and up liftment of ex-servicemen of state of Uttarakhand. Subsequently, the case was reopened u/s 147 of the Act after expiry of four years and the entire claim of exemption u/s 10(26BBB) was disallowed. ITAT opines that it is apparent that action u/s 147 was solely for the purpose of enhancing the disallowance of claim of exemption u/s 10(26BBB) already made in the original assessment u/s 143(3), which is impermissible and not in accordance with spirit of section 147 of the Act. The reasons recorded fail to satisfy the dual jurisdictional requirements as per law. ITAT relies on decision of Hon’ble Uttarakhand High Court in the case of Oil and Natural Gas Corp. Ltd. v. DCIT [2003] 262 ITR 648 and concludes that notice u/s 148 is not in consonance with established legal principles and is vitiated on dual count of change of opinion as well as first proviso to section 147 of the Act.

Uttarakhand Purv Sainik Kalyan Nigam Limited v. ITO – 212 TTJ 498 (Dehradun) (ITA No.3070/Del/2016, dt. 31.05.2021)

S. 153A : Assessment – Search or Requisition – Search conducted and residential and business premises of the Assessee- held, addition made on account of difference in the value of house property declared by the Assesee in the relevant AY and the valuation provided by the DVO after a gap of so many years and considering the market situation is liable to be deleted. – held, in the case of unaccounted sales no bill is issued and therefore no customer will pay taxes and levies which will result in higher profit to the seller and thus adopted an estimated 2% profit rate for supari business instead of the 5% estimated by AO. – S. 132(4) : Search and seizure – Statement on oath – set-off of income declared by the assessee in the statement recorded u/s. 132(4) of the Act out of undisclosed income computed by the AO is allowed as otherwise it would amount to double addition for the same lapse found in the Books of Accounts – S. 234A & 234B- interest- Default in furnishing return of income & in respect of advance tax respectively – interest is chargeable from the date of expiry of the Notice period given u/s. 153A of the Act to the date of completing the assessment u/s. 153A r.w.s. 143(3) of the Act u/s. 139 of the Act.

A Search was conducted at the residential premises and the business premises of the Assessees, whose appeals were heard and adjudicated together since common issues were involved. The Assessees constructed House Property in the relevant AYs. The AO made addition towards the difference between the value declared by the assessee in their books of accounts and the valuation report of the DVO. The AR submitted that the difference in the value declared by the Assessee and valuation given in the valuation report is less than 15%. The Tribunal observed that the valuation report was made in F.Y 2016-17 whereas the property was purchased in the F.Y.2013-14 and F.Y.2015-16. The Tribunal held that considering the rise in the property value during this period, inflation as well the fact that the immovable property was registered and the valuation provided by the Assessees was accepted by the Sub-Registrar of the concerned State Govt. Office, the addition made by the AO is liable to be deleted.

With respect to estimation of income on undisclosed turnover at 5% of Supari business, the Assessee relied upon the decision of a co-ordinate bench in case of M.A. Siddique Vs. DCIT in ITA Nos.62 to 66/Bang/2020, wherein the business of Supari was considered and it was observed that in the case of unaccounted sales no bill is issued and therefore no customer will pay taxes and levies which will result in higher profit to the seller and thus adopted 2% profit rate for supari business. The Tribunal in the present case followed the decision and adopted the profit rate of 2%.

The AO assessed the undisclosed income in addition to the income voluntarily declared by the assesses in the statement recorded u/s. 132(4) of the Act. It was observed that the AO made independent addition based on the seized material found during the course of survey actions, that there cannot be income addition on account of voluntary disclosure made by the assessee. Hence the Tribunal allowed set-off of income declared by the assessee in the statement recorded u/s. 132(4) of the Act out of undisclosed income computed by the AO as otherwise it would amount to double addition for the same lapse found in the Books of Accounts of the assesses.

With regard to levy of interest u/s.234A and 234B of the Act, the Tribunal held that interest u/s. 234A is chargeable from the date of expiry of the Notice period given u/s. 153A of the Act to the date of completing the assessment u/s. 153A r.w.s. 143(3) of the Act u/s. 139 of the Act. It further held that the interest u/s. 234B is to be levied only on the additional tax levied on the enhanced income determined u/s. 153A, r.w.s.143 of the Act and therefore the period of charge should be from the date of determination of income u/s. 143(3) r.w.s. 153A to the determination of increased total income u/s. 153A, r.w.s. 143(3) of the Act.

Ahmed Shareef and ANR v. Dy. CIT (2021) 189 ITD 522 (Bang)(Trib.)

S. 153C : Assessment – Income of any other person – Search – No incriminating evidence found – addition cannot be sustained.

It was held that since no incriminating material was recovered during the course of search and seizure action, the Ld. CIT(A) has wrongly sustained the addition made by the Ld. AO on account of house hold expenses.

Smt. Harbhajan Kaur v. DCIT ITA NO. 70 & 71/Chd/2021 dated October 25, 2021

S. 153C: Assessment – Income of any other person – Search – Assessment under S. 147/S.148 – void ab initio

The Assessing Officer initiated re- assessment proceedings u/s 147 of the Act relying upon the information received based on the certain documents found during the course of search from the premises of a 3rd party. Thus, the assessment is based upon the documents found during the course of search of 3rd party premises, but that can be made only u/s 153C of the Act. The provision of Section 153C of the Act is attracted when there are any incriminating documents pertaining to the assessee which are found during the search of 3rd party premises. The provisions of Section 153C of the Act are non-obstantive provisions and the same specifically excludes the operation of Sec. 147 of the Act, therefore, invoking the provisions of Sec. 147, instead of 153C of the Act appears to be incorrect in legal parlance. When any incriminating documents are found Section 153C is invoked and the same has to be applied by the Revenue authorities as Section 147 has its own separate footing for invoking the provisions. If Sec. 147 is permitted on the basis of documents found in the course of search of 3rd party premises, then the provisions of Sec. 153C of the Act would become redundant. The notice issued u/s 148 of the Act and the consequent assessment framed u/s 147 of the Act is void-ab-initio.

M/S. K.S. Chawla & Songs (HUF) v. ACIT ITA. 2724 /Del/2015 dated May 18, 2021

S. 153C: Search and Seizure – No incriminating material found towards addition made in respect of AY the proceedings for which are unabated / concluded – addition made for such AYs cannot be sustained

A search action u/s.132 of the Act was conducted in the residential premises of the Director of Assessee company. During the course of search, documents belonging to the Assessee were seized. Thereafter, the case has been taken up for scrutiny and notice u/s.143(2) & 142(1) of the Act. During the course of assessment proceedings, the AO has made addition towards unsecured loans taken from various companies u/s.68 of the Act, on the ground that the Assessee has failed to prove identity, genuineness of transactions and creditworthiness of the parties. The AO also stated that certain other companies were indulged in providing accommodation entries and Assessee company being one of beneficiary of such entries, loans said to have been received from said companies were being treated as unexplained credit under Section 68 of the Act. Similarly, the AO held that the interest paid on such loans was also bogus and thereby made addition towards interest paid on said loans u/s.37 of the Act.

Before the CIT(A), the Assessee contended that the AO has made addition Towards unsecured loans without reference to any incriminating material found as a result of search. However, the CIT(A) rejected such contention.

On further appeal, the Tribunal in light of decision of the Hon’ble Supreme Court in the case of PCIT v Meeta Gutgutia [2018] 96 taxmann.com 468 and subsequent High Court rulings held that, from reading the proviso provided to section 153A it is very clear that assessment years which have already been completed are treated as unabated as on the date of search and for those assessment years the scope of assessment u/s.153A / 153C of the Act is limited to assess income on the basis of incriminating material found as a result of search. As in the present case AO has made additions on the basis of regular return of income filed by the Assessee for the relevant AYs without reference to any incriminating material found as a result of search, the additions made were deleted.

Asst. CIT & Anr. v. CMG Steels Pvt. Ltd. & Anr., (2021) 212 TTJ 109 (Chen)(Trib.)

S. 154: Rectification of mistake apparent on record – No format prescribed for rectification application – a simple letter can be considered as a rectification application even if it does not mention to be a rectification application – substantial justice prevails over technical consideration – Revenue cannot take undue benefit of the negligence of Assessee with regards to his rights

During the reassessment proceedings, the Assessee had filed a letter dated 29/02/2016 through which the Assessee filed a revised return along with reasons wherein it excluded the amount of long-term capital gain declared on the sale of the said property. This gain was earlier offered to tax in the original return and subsequently reopening was conducted by AO to treat the same as short term capital gains. This exclusion of capital gain was done due to the failure on part of the buyer to make the payments pursuant to which the Assessee filed a suit before the Hon’ble Delhi High Court for mediation and conciliation. A settlement deed dated 30/05/2015 was executed between the Assessee and the buyer wherein the Hon’ble Delhi High Court cancelled the deeds for sale of above mentioned land. However, the lower authorities rejected this relief to the Assessee by relying on the judgment of the Apex court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297.

The Tribunal held that once the sale transaction is reversed and the asset is owned and held by the Assessee being the seller, ostensibly no capital gain can be said to have accrued to the Assessee at all. The sale of the property was cancelled on 06/06/2015 and therefore, the very basis to exclude the LTCG from taxable income was not available at the time of filing the return of income in response to notice under section 148 and in fact, it became available on account of the change in circumstances during the course of hearing in the reassessment proceedings itself.

Further, the Assessee had also argued that letter dated 29/02/2016 should be considered as a rectification application u/s 154 of the Act. However, the Revenue contended that such letter did not mention to be an application u/s 154 of the Act and therefore, cannot be considered as such.

The Tribunal held that there is no format prescribed under the law for filing a rectification application u/s 154. It observed that what is relevant is that a mistake is brought to the knowledge of the AO. Further, it is a trite law that when substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred. When the substantive law confers a benefit on the Assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. Hence, too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. The Article 265 of the Constitution of India lays down that no tax shall be levied except by authority of law. Hence, only legitimate tax can be recovered.

An old circular no. 14(XL35) dated 11th April 1955 issued by the CBDT instructs that officers should not take advantage of the ignorance of an Assessee as is one of their duties to assist taxpayer and they should take initiative in guiding the taxpayer. The advice contained in the circular is also legally binding on all the field officers. Therefore, the Tribunal directed the AO to treat the letter dated 29/02/2016 as an application u/s 154 and thereby exclude the long term capital gain on sale of the said property. (AY.2009-10 & 2012-13)

Anant Raj v. Dy. CIT (2021) 212 TTJ 836 (Delhi)(Trib.)

S. 194C: TDS – provisions of Sec 194C applicable only when assessee has paid or credited any charges covered thereunder – Estimated excessive wastage treated as Making charges – addition u/s 40(a)(ia) for non-deduction of TDS u/s 194C on assumed amount, being excessive wastage treated as making charges, is not sustainable [S.40(a)(ia)]

Assessee Jeweller engaged in Jewellery manufacturing had reported wastage to the tune of 6.2 %. A.O estimated the normal wastage at around 1 %, thereby treated the wastage difference as making charges by adopting the market rate of gold and disallowed the same u/s 40(a)(ia) for non-deduction of TDS u/s 194C.

Assessee’s argument before CIT(A), that additions made by A.O towards estimated making charges on the basis of excessive wastage quantified is purely on assumption and suspicion, without there being any material facts to prove that assess has paid making charges by retaining gold with goldsmith did not find any favours.

On appeal the Tribunal held that :

• Provisions of Sec 194C are applicable when the assessee has paid or credited any charges covered thereunder. When no payment is debited or credited to respective party’s accounts, then such payment cannot be considered within the ambit of sec 194C or any other TDS provisions.

• There is no uniform yardstick to quantify the wastage in any process of manufacturing of goods. Further wastage allowed by the assessee to goldsmith is a matter of business prudence/commercial expediency and the same cannot be called upon to question by the AO unless he has evidence to prove that the same is excessive.

• Since assessee has neither debited making charges into P & L a/c nor credited any amount to parties’ account, the question of application of sec 194C does not arise.

• Since no Independent evidence has been brought on record by the AO to support his findings, as against assessee having produced necessary evidences to prove that making charges has been separately paid and TDS deducted wherever applicable, the addition cannot be sustained.

(ITA Nos. 3071 (Chny) of 2017 dt. 31-03-2021 (AY. 2013-14)

Siva Valli Vilas Jewellers (P) Ltd .v. DCIT (2021) 212 TTJ 101 (Chennai)(Trib.)

S. 194-IA : TDS – Payment of Refundable Security Deposit by developer to Landowners by virtue of JDA – Whether Advance payment not linked to transfer of immovable property liable to TDS u/s 194-IA ? [Sec 201(1)]

Assessee Company, a developer, entered into JDA cum general power of attorney with landowners, whereby the landowners agreed to transfer a portion of land, in lieu of share in superstructure which is to be constructed by the developer. As per JDA developer is only permitted to enter upon the scheduled property to develop a residential apartment building by way of License which is not to be construed as delivery of possession in part performance of any contract as defined u/s 53A of Transfer of Property Act r/w s 2(47)(v) & (vi). The Developer in turn agreed to pay refundable security deposit. Furthermore, the said deposit as per terms of JDA would be recovered through the sale of the part of the owner’s constructed area.

A.O held that the refundable security deposit is consideration for transfer of immovable property by the developer to the landowners liable to TDS u/s 194-IA, and treated the assessee, as assessee in default u/s 201(1).

On appeal the Tribunal held that:

There was no transfer of immovable property during the year under consideration, as transferee was not able to complete any acts as mentioned in JDA.

The security deposit cannot be treated as advance payment as same was not linked to transfer of immovable property as enumerated in s 194-IA.

The existence of income is a sin qua non for attracting TDS provisions and that the refundable security deposit paid did not constitute income in hands of land owners.

Based on above it was held that assessee was not liable to deduct TDS u/s 194-IA from said refundable security deposit and cannot be treated as assessee in default u/s 201(1) (AY. 2014-15)

Prestige Estates Projects Ltd v. ACIT (2021) 212 TTJ 23 (Bang.)(Trib.)

S. 195 : TDS – Payment to non-resident abroad – Agency Agreement – Principal and agent relationship – Sales commission for services rendered outside India – Not covered u/s 195 [Sec.5(2), 9(1)(vii),40(a)(i)]

Assessee Company appointed a sole service provider, to promote the activities and services provided by the assessee company by contacting and reaching out to companies based in UAE, and relationship was purely that of principal and agent. The payment being in nature of sales promotion expenditure for services rendered outside India, thus not falling in category of income received or deemed to be received in India, as well as income accruing or arising or deemed to accrue or arise in India not attracting TDS u/s 195.

A.O invoked provisions of sec 40(a)(i) and disallowed the commission paid treating the same as Joint venture agreement based on the method of determination of commission amount.

On appeal the Tribunal held that:

Fundamental requirement to deduct Tax at source, is that the sum has to be chargeable under the provisions of the Act to cast an obligation u/s 195(1)

Once the relationship is that of principal and agent, the mode of determination of fees as agreed between two parties cannot be construed as a joint venture, to bring the commission paid under the net of Sec 195, more so when the services were rendered outside India and did not fall in category of income received or deemed to be received in India, and consequently the provisions of sec 40(a)(i) cannot be invoked. (AY. 2013-14)

Prime Oceanic Pvt. Ltd v. ITO (2021) 212 TTJ 17 (Jp.)(UO)(Trib.)

S. 195: Short deduction of tax-Non provision of PAN- Section 206AA cannot override DTAA in case of payment made to non-resident

The Assessee was a Government owned company, which was into transportation of goods, passengers, and parcels etc. in domestic and international sector through aircrafts. The Assessee had been regularly filing their TDS return by depositing taxes in time in accordance with the Income-tax Rules, 1962. An order under section 200A of the Act, was passed and thereafter an order under Section 154 of the Act was received by the Assessee for short deduction of TDS on account of non-provision of PAN in case of Engine Lease Finance B.V. (ELFC), a non-resident company, taxed resident in Netherland, was not mentioned at the time of return filing as the foreign company did not have PAN. Assessee claimed to have taken an engine on lease under an Agreement from Engine Lease Finance B.V. The Assessee did not deduct the TDS from the payment but deposited from their account and absorbed it as cost. Aggrieved by the same, the Assessee preferred an appeal before CIT (A). The CIT(A) dismissed the said appeal. Aggrieved by the same, the Assessee preferred an appeal before the Tribunal.

The Tribunal relying on the decision of Dy. DIT v. Serum Institute of India Ltd. [2015] 56 taxmann.com 1 (Pune – Trib.), Dy. CIT v. Infosys BPO Ltd. [IT Appeal No. 1333 (Bang.) of 2014, order dated 27-9-2019] and the judgment of Hon’ble Delhi High Court in case of Danisco India (P.) Ltd. v. Union of India[2018] 90 taxmann.com 295/253 Taxman 500/404 ITR 539 held that provisions of Section 206AA of the Act does not override beneficial provisions of DTAA between India and Netherland. Thus, the Assessee was entitled to the benefit of the DTAA and had rightly deducted the tax @ 10% instead of 20% as per Section 206AA of the Income Tax Act, 1961.

Air India Limited v. ITO, 212 TTJ 109 (Delhi)(Trib.)

S. 254(1) : Appeal (Tribunal) – Additional ground – Admissibility – ground relating to mandatory requirement envisaged u/s 151 – legal ground – admitted – [sec 151, ITAT Rules, 1963 r. 11]

The additional ground was raised by the assessee that the impugned order u/s 147 r.w.s 143(3) was passed without complying with the mandatory requirements and conditions u/s 151.

Tribunal admitted the additional ground being purely a legal ground which goes to the root of the matter and same does not require fresh facts to be investigated.(AY. 2013 – 14)

Satnam Singh v. ITO (2021) 212 TTJ 1 (Asr.)(UO)(Trib.)

S. 263 : Revision – Order passed u/s 143(3) r/w sec 153B, after approval from Jt CIT u/s 153D – Revision of Order u/s 263 passed by PCIT without approval of JT CIT is nullity and void ab initio.

Tribunal held that PCIT has no jurisdiction to proceed u/s 263 against the Order passed u/s 143(3) r/w sec153B, when there is no revision of approval of Jt CIT u/s. 153D. (AY. 2017-18)

Smt Abha Bansal v. PCIT (2021) 212 TTJ 545 (Del.)(Trib.)

S. 263: Revision – Scope – Admissibility of documents seized from third party – No corroborative evidence brought on record – considered as inadmissible evidence in proceedings u/s 263

In the assessee’s case, copies of documents, emails and power point presentations were found from the computer of 3rd party being an ex-employee. Furthermore, no incriminating documents or material were found from the possession of assessee.

In revision proceedings PCIT considered the said documents seized from third party as evidences and proceeded with the proceedings u/s 263.

Tribunal held that PCIT having proceeded without any corroborative evidences, nor has obtained certificate u/s 65B(4) of the Evidence Act to prove the contents of seized documents, the same is not admissible in evidence, the order u/s 263 is perverse.(AY. 2017-18)

Smt Abha Bansal v. PCIT (2021) 212 TTJ 545 (Del.)(Trib.)

S. 263: Revision – Erroneous & prejudicial order – A.O examined the documents furnished based on inquiry during Assessment – A.O was convinced and no disallowance against claim made u/s 54F – Revision by PCIT of Assessment order passed u/s 143(3) overturned.

During the assessment proceedings, A.O sought the details for admissibility of deduction claimed u/s 54F. Assessee furnished all the relevant details and A.O after having examined the documents was convinced and allowed the claim u/s 54F.

PCIT by raising various objections opined that deduction u/s 54F has wrongly been allowed, and made a case for revision of the assessment order passed u/s 143(3).

On appeal Tribunal held, that PCIT failed to make out a proper case for revision of the Order passed u/s 143(3), and overturned the order, citing following reasons:

• Firstly, various objections raised by PCIT has no relevance in the matter, in granting deduction u/s 54F

• Also the observation of the PCIT, that A.O failed to enquire and verify the issues is not correct, more so, when the assessee on an inquiry furnished all the details, and necessary evidences to corroborate the claim was filed during assessment proceedings which was evident from the order sheet entries

• Mere doubt cannot lead to revision of an order unless it is proved that AO failed to apply his mind, or that his view was wrong in facts or in law

• AO having examined the issue, and being convinced, and not making any disallowance the order passed u/s 143(3) cannot be said to be erroneous and prejudicial order (AY. 2014 – 15)

Satnam Singh v. ITO (2021) 212 TTJ 793 (Pune)(Trib.)

Rule 26 of Income Tax (Appellate Tribunal) Amendment Rules, 2012- upon death of an Assessee during the course of hearing, it is mandatory to file a revised form 36 and the proceedings shall continue by or against, the executor, administrator or other legal representative of the Assessee or by or against the assignee, receiver or liquidator, as the case may be

During the course of the hearing, Counsel for the Assessee informed that the Assessee had expired. Neither the legal hairs were brought on record nor revised Form 36 were filled by the revenue and on behalf of assessee, despite grant of various opportunities by the Tribunal. The Hon’ble bench relied on the judgement of Shri Ram Chand Arora V. DCIT in IT(SS)A No. 03/Agr/2001 and dismissed the appeals filed by the revenue/assessee, as both the parties failed to file revised form 36 by bringing on record the legal heirs of deceased SH Chironjilala Shivhari. Both the parties are, however, granted liberty to file the application of revival along with revised form 36 parties Rule 26 of Income Tax (Appellate Tribunal) Amendment Rules, 2012. (AY 2003-04 to 2008-09 & 2003-04 to 2009-10)

ACIT v. Chironji Lal Shivhare and Anr. (2021) 189 ITD 692 (Agra)(Trib.)