DIRECT TAXES – Tribunals
- S.2(9): Assessment year – Where assessee company along with ‘R’ purchased property and Assessing Officer held that assessee acted as Benamidar for beneficial owner of ‘R’ for property purchased, thus, provisions of prohibition of Benami Properties Transaction Act were clearly applicable in case of assessee company, since fact that purchase of property was disclosed by assessee company itself in its books of account and fact that assessee company was seeking to maintain and protect its assets out of its own resources, transaction could not be said to be Benami. (r.w.s. 24 of Prohibition of Benami Property Transactions Act, 1988)During relevant previous year, assessee-company along with a person ‘R’ purchased a property. The property purchased by assessee which had 95% stake in property was let out to ‘R’ who had 5% stake in property for a monthly rent. During the course of assessment proceedings, the Assessing Officer alleged that the assessee acted as a Benamidar for beneficial owner of ‘R’ for property purchased and thus provisions of prohibition of Benami Properties Transaction Act were clearly applicable in case of assessee company.
Tribunal observed that purchase of property by ‘R’ was not inaccurate as he was one of joint owners of property as per registered sale deed. This fact was disclosed by assessee company itself in its books of accounts. Further, having acquired property, assessee company could have given it on rent to anybody and would have received fair market rentals. By giving it to ‘R’, nothing turned against assessee company. Assessee company had duly recorded asset as well as liabilities being source of acquisition of property in its audited books of accounts and assessee company was also seeking to maintain and protect its assets out of its own resources. Accordingly, Tribunal held that it could not be said that assessee company was not real owner of property and transaction entered into by assessee company could not be classified as benami transaction. [ITA No. 8026 (Delhi) of 2019 dt. 02.12.2022] (A.Y. 2015-16)
ACIT v. Tupelo Builders (P.) Ltd. (2023) 199 ITD 58 (Delhi)/221 TTJ (Delhi) 192
- S.2(24) – Definition of Income – Section 35 (2AB) – Weighted deduction – Assessee claimed unpaid amounts as expenditure – AO rejected the contention of funding projects – CIT(A) rejected the addition u/s 2(24)Assessee is a government undertaking called NABARD and claimed a sum of Rs.2872.36 crores as interest expenditure. The AO noticed that unpaid amounts was claimed as expenditure and the contention of the Assessee was that it is a part of several funding projects, acting as a nodal agency. The contention was rejected by the AO and a sum of Rs. 682.55 crores and Rs. 4.88 crores was added as income. The ld. CIT(A) rejected the AO’s addition of Rs. 682.55 crores as it did not fit under the definition of income u/s 2(24) of the Act. Revenue appealed. The tribunal held that there is a vast difference between approval of a facility and notification of the assessee itself. It can be noticed that the Central Government has notified the assessee from AY 2013-14 onwards, meaning thereby, the assessee was not notified for the year under consideration. It is the contention of the assessee that the above said notification should be read as applicable to the years prior to AY 2013-14 also. However, the CBDT, being the authority issuing notification, has itself stated that the assessee is recognized u/s 36(1)(xii) of the Act from AY 2013-14 onwards. In the decisions relied on by the assessee, it was the assessing officer, who had disallowed the claim for non-approval of scientific research facility. Hence it was a question of interpretation of the provisions of sec.35(2AB) of the Act. That is the not the case here. When the notifying authority itself has mentioned that the assessee is being notified from AY 2013-14 onwards, we are of the view that the assessee cannot be deemed to have been notified in the year under consideration, being AY 2010-11. Accordingly, we confirm the disallowance made by the AO. (Asst. Year 2010-11)
Dy. CIT v. National Bank for Agriculture & Rural Development And Anr. (2022) 65 CCH 0791 MumTrib, (2023) 221 TTJ 00 25 (Mumbai), (2023) 221 DTR (Trib) 0369 (Mumbai) (Trib)
- S. 4: Mismatch of amount as captured in return of income vis- à-vis Form 26AS- All transaction shown in Form 26AS does not represent income in the hands of the Assessee.The Hon’ble Tribunal observed that the transaction shown in Form 26AS cannot be taken as the gospel truth that it represents income in the hands of the Assessee especially in a situation where the Assessee has contended that the said amount was reimbursement of expenses. In such a situation, the revenue is expected to be more vigilant before reaching to the conclusion that the Assessee has not shown certain income. Accordingly, the Assessing Officer was directed to delete the addition in the absence of necessary verification and having any doubt on the details filed by the Assessee. (AY 2014- 15, ITA No. 105 (AHD.) of 2018)
Oceanic Vehicles Pvt. Ltd. v. DCIT (2023) 102 ITR 70 (Ahd.)(Trib.)
- S.4: Diversion by overriding title – Transfer of interest receipts to tribal development fund (TDF) and watershed development fund (WDF) per scheme devised by Government of India for promotion of investments in agriculture and rural development.Amounts transferred to TDF and WDF by the assessee acting as nodal or implementing agency as per the schemes framed by the Government of India for promotion of investments in agriculture and rural development stood diverted at source itself and did not belong to the assessee and, therefore, the said amounts cannot be brought to tax in the hands of the assessee.
Dy. CIT v. National Bank for Agriculture & Rural Development  221 TTJ (Mumbai) 25.
- S. 4 & 5: Income – Accrual – Service charges accrued but not receivedThe assessee has been following consistent accounting policy to recognize income by way of service charges on receipt basis. It was submitted that there was uncertainty in recovering service charges. There should not be any dispute that an income can be recognized under mercantile system of accounting also, only if there is certainty of its recovery. Considering the past consistent practice followed by the assessee, addition was not justified.
Dy. CIT v. National Bank for Agriculture & Rural Development  221 TTJ (Mumbai) 25.
- S. 9 : Israel DTAA – In view of the MFN clause in India-Israel DTAA, the restricted definition of FTS as per India-Portugal & India-Canada DTAA is invoked to be applicable. Consequently, amounts received towards the provision of SAP & IT services on a recurring basis are not in the nature of FTS.(r/w article 13 of India)The Assessee was a non-resident corporate entity and a tax resident of Israel. During the relevant assessment year, the assessee provided SAP and information technology support services to its Indian subsidiary, Netafim Irrigation India Pvt. Ltd. (NIIPL). Netafim as a group had developed a common platform to provide information technology-related support services to all its entities across the globe. The Assessee acted as a cost center and charged other subsidiaries for the use of the SAP system that was maintained and supported globally from Assessee’s headquarters in Israel. While providing such support services, the Assessee had not transferred any technical knowledge, know-how, skill etc. and services were provided outside India. Further, the payments received were in the nature of reimbursements on cost-to-cost basis without any profit element embedded therein. The question before the Hon’ble Tribunal was whether the amounts received by the Assessee were in the nature of fees for technical services (‘FTS’) under Article 13 of India-Israel DTAA.
The Hon’ble Tribunal held that the amounts received by the Assessee did not qualify to be FTS and hence, not taxable in India in the absence of a permanent establishment. While arriving at the said decision, the Tribunal took note of following points viz. (i) The term FTS under Article 13 of the India-Israel DTAA had a very wide scope. Further, w.r.t Article 12 and 13 of the India-Israel DTAA, the Protocol to the treaty contained the ‘Most Favoured Nation’ clause. Accordingly, the definition of the term FTS under India- Portugal and India-Canada DTAA were borrowed. In terms of the said DTAAs, the term FTS included ‘make available’ clause within its ambit; (ii) In the present case, the Assessee had not made available technical knowledge, experience, skill, knowhow etc. to NIIPL since such services were provided on a recurring basis; (iii) By applying the restricted meaning of FTS as per India-Portugal and India- Canada DTAAs, the amounts received by the Assessee from providing SAP and information technology support services were not in the nature of FTS. (AY 2010-11 & 2011- 12) (ITA No. 1427 (DEL) of 2015 & 975 (DEL) of 2016)
Netafim Ltd. v. DCIT (2023) 102 ITR 40(Del) (Trib.)
- S. 9(1)(vi) : Income deemed to accrue or arise in India – Royalty – consideration received from sale of software licenses is not royalty for the use of copyright in the computer software and the same does not give rise to any taxable income [S. 195] The assessee is a non-resident foreign company, incorporated under the laws of Singapore, which does not have any presence in India either by way of a PE or fixed base as defined under Article 5 of the India-Singapore DTAA. The AO held that the consideration received which was claimed as sale of software is nothing but royalty with respect to the use of computer software by the end users together with or without technical support taxable under section 9(1)(vi). Similarly, the CIT(A) held that the income of the Appellant from provision of its security solutions and related support services to Indian consumers is taxable in India as Royalty of Fees for Technical Services under Article 12 of the India-Singapore DTAA. The Tribunal placed reliance on the orders of the Tribunal in assessee’s own case for AY 2013-14 wherein it was held that even though Explanation 4 was added to S. 9(1) (vi) by Finance Act, 2012 with retrospective effect from 01.06.1976 to provide that all consideration for use of software shall be assessable as “Royalty”, the definition in the DTAA has been left unchanged. Since provisions of the DTAA are more beneficial to the assessee, then the said provisions would be applied and therefore, consideration from sale of software was not taxable. Similarly, further reliance was placed on the Tribunal’s order in assessee’s own case for AY 2014-15 which quoted the order of the Hon’ble Apex Court in Engineering Analysis Centre of Excellence (P) Ltd. v. CIT since reported in (2021) 432 ITR 471 (SC) wherein it was held that receipt of such payments by non-resident software manufacturers/suppliers is not royalty for the use of copyright in the computer software and the same does not give rise to any taxable income in India. As the facts in the present AY remained unchanged, the department’s appeal was rejected. (ITA No. 7749/Del/2019, 8282/ Del/2019, date 03.08.2022) (AY 2015-16).
Assistant Commissioner of Income Tax (International Taxation) v. Symantec Asia Pacific Pte. Ltd. [(2023) 102 ITR 387 (Del)
- S. 9(1)(v) : Income deemed to accrue or arise in India – Interest paid by the Indian branch/PE to the head office/GE is not taxable in India in terms of India-France DTAA.The assessee is a commercial bank having its head office in France. AO noticed that the Indian branch office had paid interest to its head office/overseas branches as interest on the subordinated debt and further interest on Nostro overdrafts. The Indian branch office has claimed a deduction of such an amount citing the provisions of Article 7(3) of the India-France DTAA. The AO held that once the assessee has opted to be governed under the beneficial provisions of the India-France DTAA and it is accepted that the assessee has a PE in India under the DTAA, then the single entity approach of the Act gives way to the distinct and independent entity or separate entity approach under the DTAA. The AO therefore, held that the interest paid by the Indian branch office (i.e. PE) is chargeable in the hands of the head office in terms of the provisions of S. 9(1)(v)(c) of the Act by virtue of the Explanation to S. 9(1)(v)(c) of the Act, inserted by the Finance Act, 2015. The ITAT held that the coordinate bench of the Tribunal came to the conclusion that the interest paid by the Indian branch/PE to the head office/ GE is not taxable in India independent of the decision of the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation (supra). Thus, in view of the above, even though the submission of the Revenue that the amendment by Finance Act 2015, whereby Explanation to S. 9(1)(v) of the Act was inserted specifically to overcome the decision in Sumitomo Mitsui Banking Corporation (supra), is accepted, the same would still not lead to taxation of the interest paid to the head office/overseas branches under the provisions of the DTAA. (ITA No. 1076/Mum./2021, 1670/Mum./2022, dated 24.01.2023)(AY 2017-18, 2018-19)
BNP Paribas v. ACIT (IT) [(2023) 102 ITR (Trib) 587 (Mumbai)]
- S. 9(1)(vi) : Income deemed to accrue or arise in India – non- existence of PE – RoyaltyS. 10(23C): Educational institution — provisional approval granted u/s 10(23C) is not equivalent to the grant of registration for the purpose of S. 11(7)
The assessee was a trust registered under S. 12A since 1974. It claimed exemption u/s 11 up to the AY 2020-21. However, from the AY 2020-21 assessee applied for the alternative claim of exemption under S. 10(23C)(vi) and it received provisional approval u/s 10(23C)(vi) in Form No. 10AC for AY 2021-22 to 2023-24. Thereafter, the assessee filed an application u/s 12A(1)(ac)(iv) as per the 2nd proviso to S. 11(7) seeking revival of its registration u/s 12A. The application filed by the assessee u/s 12A(1) (ac)(iv) was rejected in terms of 2nd proviso to S. 11(7) by CIT (Exemptions), on the basis that the registration granted to the assessee u/s 10(23C) was provisional and therefore, same is not identical to the approval granted u/s 10(23C) for S. 11(7). The 1st proviso to S. 11(7) is not even triggered in the facts of the present case, as the CIT(Exemptions) rejected the submission of the assessee to treat provisional approval u/s 10(23C) identical to approval u/s 10(23C) for S. 11(7). Therefore, it was held that once the 1st proviso to S. 11(7) is not triggered, there is no question of the registration granted u/s. 12A becoming inoperative. (ITA No. 2910/ Mum./2022, dated 27th February, 2023) (AY 2021-22)
Indian Institute of Banking and Finance vs. CIT(E) [(2023) 102 ITR (Trib) 0058 (Mumbai) (SN)]
- S. 10(23C)(vi) – Educational Institution – Assessment Year: 2019–2020 – Rejection of application seeking approval u/s 10(23C)(vi) of the Act by the CIT (Exemption) merely stating that the Trust did not exist solely for educational purposeThe Hon’ble ITAT, allowing the appeal, observed that the assessee’s sole object was to provide education to students, the other ancillary activities like promotion of cultural, social and sports were necessary in building the character of the students and were to meet the prime activity of education, that nominal profit earned could not be termed as the assessee trust exists for profit motive, that the State Government has granted the approval to establish and run the secondary and higher secondary studies for the students. The assessee trust entitled to the approval certificate u/s. 10(23C)(vi) of the Act
Star Education Trust v. CIT (Exemption) (2023) 102 ITR (Trib.) (S.N.) 15 (ITAT- Surat)
- S. 10(23C)(vi) and 12AA: Charitable purpose vis-à-vis hospital providing medical facilities on commercial basisOriginally assessee was a private limited company by shares incorporated under the provisions of the Companies Act, 2013. On 17th February, 2018, it altered its Memorandum & Articles of Association with the object to convert into a charitable company as provided under Section 8 of the Companies Act, 2013 and a fresh certificate of incorporation dated 3rd August, 2018 was issued. A license was also issued under Section 8(5) of the Companies Act, 2013. On 25th February, 2019, the Appellant made an application for registration under Section 12AA, Section 80G and Section 10(23C) of the Act, 1961.
Application was rejected by Order dated 31st August, 2019. The rejection was on the ground that Appellant was involved profit making activity.
The Appellant was providing medical facilities on commercial basis and even after its
conversion from a private limited company into a Charitable Trust falling under Section of the Companies Act, 2013, assessee has been charging cost + unreasonable mark-up on its services; free treatment / concessional rate of less than 1% of the revenue of the assessee and it was not entitled to registration under Section 12AA as well as approval under Section 10(23C); CIT (Exemption) was well within the right to examine the audited records / other financial statements for the period after conversion into Section 8 company with a view to deciphering the nature of activities.
Fernandez Foundation v. Commissioner of Income Tax (Exemption)  221 TTJ (Hyd.) 109
S. 10(38): Considering that the Assessee was involved in price manipulation, income arising from sale of such long- term securities is to be taxed as business income of the Assessee without allowing any expenditure. (r.w.s 28(i) and 45)
The Assessee is an individual engaged in the business of dealing in securities and investments. The Assessee earned long term capital gain from sale of shares held in an entity and the same was claimed as exempt under section 10(38) of the Act. The Assessing Officer noted that SEBI had found the Assessee to have manipulated the share price of the above entity, with an ulterior motive, and thereby banned the Assessee from trading in the stock market. SEBI had computed the unlawful gain made by Assessee, and this amount was imposed as fine. The Assessing Officer on the basis of order passed by SEBI, disallowed the exemption claimed by Assessee and treated the long-term capital gain as business income of the Assessee. In further appeal, the Commissioner (Appeals) directed that the profit to the extent of unlawful gain be held as income from unlawful activity and no expenditure to be allowed against the same. The balance profit i.e., lawful gain, was treated as long term capital gain eligible for exemption under section 10(38) of the Act. The Hon’ble Tribunal upheld the order of the Commissioner (Appeals) by taking note of the fact that the Assessee was found to be involved in manipulating the prices of shares of PSTL by SEBI. (AY 2009-10; ITA No. 437 (MUM.) of 2021)
ITO v. Nirmal Kotecha; (2023) 200 ITD 52, 102 ITR 60 (Mum)(Trib.)
- S.10 (38): Exemption – Long-term capital gains – sale of shares – no evidence to prove that assessee directly involved in price manipulation of shares – addition based on surmise, suspicion, and conjecture and by making baseless allegations, assessee entitled to exemption. (68)Held that, merely because a particular scrip was identified as a penny stock by the Department, it did not mean all the transactions carried out in that scrip would be bogus. The assessee claimed exemption under section 10(38) in respect of long-term capital gains derived from sale of shares. The documentary evidence submitted by the assessee was found to be genuine and no adverse inferences were drawn by the Revenue thereon. The transactions were carried out by the assessee in the secondary market through a registered share broker at the prevailing market prices. Payments were received by the assessee by account payee cheques from the stock exchange through the registered broker. Amounts received on sale of shares were duly subjected to levy of securities transaction tax at the applicable rates. Merely on the basis of Investigation Wing report came to a conclusion that the transactions carried out by the assessee were bogus. No evidence had been brought on record to establish any link between the assessee either with the directors or any other person named in the assessment order or in the SEBI order, as being involved in any price rigging or the exit provider.
Pravin C. Bokadia v. ITO (2023) 102 ITR 43 (Mum)(Trib.)
- S. 11, 154, 184: Exemption not claimed as ITR-5 was filed instead of ITR-7Where assessee-trust filed its return of income in Form No. 5, natural inference to be drawn was that assessee was a partnership firm and computation of tax liability to be made accordingly; CPC could not go beyond return of income and accompanying documents when processing returns of income under section 143(1). [AY 2012-13]
ITA No. 258/Pun/2022 dated 30/12/2022 for AY 2012-13
Lions Nab Community Eyecare Centre v. DCIT: 2022 ITL 5085 / 221 TTJ 1023 / 150 taxmann.com 115
- S.11(1)(d) r.w.s. 115BBC : Anonymous donations – The donations given by the donors whose addresses were not furnished to Assessing Officer, would fall within the ambit of section 115BBC and the donations given by donors whose addresses were duly furnished to the Assessing Officer, would be eligible for exemption under section 11(1)(d).Assessee is a trust who had received corpus donation of Rs.32.26 lakh under head ‘building fund’ from various donors through cheques and in cash. The Assessing Officer carried out verification in respect of few donors through issuance of notice under section 133(6) and summons under section 131. Written replies were furnished by some donors. All such persons admitted to have given corpus donations. Assessing Officer accepted genuineness of corpus donation to the extent of Rs.2.93 lakh on the basis of replies/attendance and added remaining amount of Rs.29.32 lakh to the assessee’s income and taxed the same under section 115BBC. The Ld. CIT (A) upheld the assessment order passed by the Assessing Officer.
The Hon’ble Tribunal observed that on an analysis of section 11(1)(d) in conjunction with section 2(24)(iia), it becomes overt that corpus donations are also otherwise part of income but qualify for exemption by virtue of the operation of clause (d) section 11(1). Further section 115BBC provides that income by way of anonymous donation will be included in the total income and will be taxable as per the provisions of the said section if the person receiving such donation does not maintain a record of the identity indicating the name and address of the person making such donation. Therefore, when section 115BBC is read in juxtaposition to section 2(24)(iia), it becomes ostensible that anonymous donation included within its ambit all types of voluntary contributions whether corpus or non-corpus. Thus, corpus donations are not immune from the rigor of section 115BBC. The requisite conditions of maintaining record of the identity indicating the name and address of a person making contribution as prescribed under section 115BBC also need to be satisfied in respect of corpus donation failing which even the corpus donation is taxable under section 115BBC.
In present facts of the case, the assessee maintained a separate register for corpus donations and also furnished a list of corpus donations to the Assessing Officer and the said list had columns such as Sl. No., name of the donor, receipt No., amount and address. The Hon’ble Tribunal discovered that the Assessing Officer made addition even in respect of those donors to whom he had not issued any notice even though the assessee had given their addresses. This approach is not proper. If the Assessing Officer chose to issue notice under section 133(6) and summons under section 131 in respect of few of them then he cannot draw an adverse inference in respect of others to whom he did not issue any notice. Genuineness of such other donors having made corpus donations has to be accepted.
Accordingly, the Hon’ble Tribunal held that going with the prescription of section 115BBC r.w.s. 11(1)(d), only such corpus donations fall for consideration under section 115BBC for which the assessee did not maintain and furnish address of the donors to the Assessing Officer through the list. Consequently, the impugned assessment order was set aside. The matter was remitted back to the Assessing Officer for examining the list of corpus donors already provided by the assessee and the Assessing Officer was directed to make addition under section 115BBC only in respect of such donations received from donors whose addresses are not given and rest are eligible for exemption under section 11(1)(d). [ITA No. 793 (Pune) of 2022 dt. 16.12.2022] (A.Y. 2017-18)
Agrawal Sabha Aurangabad v. ITO (Exemption) (2023) 221 TTJ (Pune) 104
- Ss. 11 & 12A(1)(b) : Charitable Trust: Exemption under Section 11: Non-filing of Audit Report along with the return:While restoring the matter to the AO, the Tribunal on the earlier occasion had categorically observed that there was no justification on the part of CIT(A) in not entertaining the “audit report” in Form No. 10B which was filed before him. The CIT(A) without judicially appreciating the reasons that had led to the non-filing of the same at the relevant point of time. Tribunal though impliedly approved the filing of “audit report” by the assessee in the course of proceedings before CIT(A), but had in all fairness restored the issue to the AO to decide the same as per the facts and law after providing adequate opportunity of being heard to the assessee. However, the AO in the course of de novo proceedings had merely harped upon the view taken by CIT(A) in the course of first of the appellate proceedings, and despite specific direction by the Tribunal had without averting to the reasons which led to the failure on the part of the assessee to file the “audit report” in Form No. 10B along with its return of income or in the course of original assessment proceedings before him in the first round of appeal and restored the issue to the AO to decide the same as per facts and law, there was no justification on the part of the AO in declining the assessee’s claim of exemption under Section 11 for the reason that there was a delay in filing the audit report, more so when the said Form No. 10B was available on his record during the course of set aside proceedings.
Deputy Commissioner of Income Tax (Exemptions) v. Audyogik Shikshan Mandal  221 TTJ (Pune) 261
- S. 12A: Deemed Registration us 12A due to non-disposal by the RevenueThe assessee contended that it had filed application seeking 12A registration on 25/05/1999 in support of which the assessee filed letters and RTI replies, whereas, the revenue contends that the assessee for the first time filed the 12A application back dated, on 21/02/2002. The Revenue contended before the Hon’ble High Court as well as before this Tribunal that office of the PCIT Belgam came into existence in June 2001, and therefore it is not possible that the assessee could have filed the alleged application that bares the acknowledgement of ITO Belgam, during the period when the office was not in existence. Matter is remanded back to the CIT(A) to verify the inward register first maintained by the Belgaum office and to verify the seal in order to establish whether the alleged application dated 25/05/1999 was existing with the revenue records prior to 2002.
ITA No. 8/Bang/2016 dated 25/11/2022
Visvesvaraya Technological University v. CIT (Exemptions): 2022 ITL 5843 / 221 TTJ 439
- S.14A: Own funds more than investments – no disallowance of interest could be made – recording of satisfaction by AO that assessee’s claim was incorrect. Prerequisite for making disallowance – insertion of non- obstante clause perspective (r. 8D.)Held that, own funds were far more than the investments made in shares and securities. Therefore, no disallowance could be made under section 14A read with rule 8D(2)(ii). The AO had not recorded any satisfaction referring to the assessee’s books of account as to how the disallowance made by the assessee under section 14A of the Act read with rule 8D(2)(iii) of the Rules was wrong. The recording of such satisfaction was a prerequisite for invoking the provisions of section 14A. The insertion of the non-obstante clause in section 14A was prospective in nature. The memorandum to the Finance Bill, 2022 explicitly provided that the amendment made to section 14A would take effect from April 1, 2022, and would, accordingly, apply to the assessment year 2022- 23 and later assessment years. The decision of the Tribunal holding the amendment to be retrospective in nature was wrong and could not be applied.
TIL LTD. v. Dy. CIT (2023) 102 ITR 148 (Kol)(Trib.)
- S. 24(a) Deduction towards interest expenses to the extent incurred towards the acquisition of property to be allowed u/s. 24(a). Interest expenses not incurred in relation to business is not allowed under section 36(1)(iii)The Assessee acquired a property for the purpose of business against a loan taken. However, the Assessee failed to use such property for the purpose of business and eventually let out the property on rent to HDFC Bank against rental income. During the impugned Assessment Year, a fresh loan was taken for repayment of the first loan. The interest cost incurred on such borrowing was claimed as a deduction under section 24 and alternatively under section 36(1)(iii) of the Act. The Assessing Officer disallowed the deduction against rental income on account of lack of evidence substantiating utilisation of the loans towards the acquisition of the property and against business income since the Assessee had closed down its business.
The Hon’ble Tribunal post analysing the financials of the Assessee observed that the amount borrowed under the second loan after settlement of the outstanding first loan was not utilised for the purpose of acquiring the property. Accordingly, the interest expense incurred in proportion to the borrowing utilised for repayment of first loan was held to be eligible for deduction against rental income. Further, considering the fact that no business was carried on by the Assessee during the relevant year and in immediate previous year, it was held that the balance amount of borrowing cannot be considered for the purpose of business and allowed u/s 36(1)(iii) of the Act. (AY 2014- 15, ITA No. 105 (AHD.) of 2018)
Oceanic Vehicles Pvt. Ltd. v. DCIT (2023) 102 ITR 70(Ahmd.)(Trib.)
- S. 31: Repairs – Where assessee had entered into a license agreement with Board of Trustees for Port of Kolkata wherein it was entrusted with project of building facilities at dock complex and terms and conditions of license agreement required an obligation on assessee to undertake repairs of damage and destruction and assessee had undertaken repair of ship unloader affected by cyclone, expenditure incurred by assessee in facts of case were on revenue account which had rightfully been allowed.The assessee was a private limited companyn discharging cargo from incoming vessels using ship loader, conveyor and stacker. During the course of assessment proceedings, the Assessing Officer noted that an amount of Rs.5.02 crores had been claimed as expenditure in the Profit and Loss Account under the head ‘Repairs and Maintenance’. The said expenditure was incurred in respect of repairs undertaken for two ship unloaders which was damaged due to a cyclone in 2006. The Assessing Officer was of the view that the repairs and maintenance undertaken by assessee were in nature of capital expenditure and disallowed the same. CIT (Appeals) deleted the additions made by the Assessing Officer. Revenue is in appeal before the Tribunal against the order of CIT (Appeals).
The Tribunal observed that the ship loaders are located at the port area and almost every year the ship unloaders are affected by everyday wear and tear and need heavy repairs to keep them in usable conditions. It is also a fact on record that the assessee is not the owner of the property and is a leaseholder and is required to carry out repairs in the leasehold property in compliance with the terms of the license agreement. In view of the Tribunal, in order to entitle an assessee to claim deduction towards repairs as revenue expenditure it has to be taken in commercial sense which means that the repairs should be undertaken under the normal course of usage for the purpose of preservation, maintenance or proper utilization of the asset.
The Tribunal also observed that the assessee had also categorically demarcated the expenses incurred on account of repairs of revenue in nature and of capital in nature which have been duly accounted and reported in the audited financial statements. It is thus axiomatic that the expenditure incurred by the assessee in the facts of the case are on revenue account which have been rightfully allowed by the CIT (Appeals). Thus, Tribunal held that there is no reason to interfere with the findings given by the CIT (Appeals). [ITA No. 997 (Kol) of 2018 dt. 14.12.2022] (A.Y. 2012-13)
DCIT v. International Seaports (Haldia) (P.) Ltd. (2023) 199 ITD 188 (Kol)/221 TTJ (Kol) 46
- S. 35(2AB) – Weighted Deduction- Scientific Research Expenditure partly denied by the AO erroneously applying the proviso to Section 35(2AB)(1) of the Act which was applicable to the assessment years beginning on or after 01-04-2021 and on the ground that the said expenditure had not been approved by the Department of Science and Industrial Research – CIT (Appeals) affirm the AO’s orderThe AO erroneously applied the proviso to Section 35(2AB)(1) to the relevant assessment year. The assessee is entitled to the claim of deduction of a sum equal to two times the expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building).
Hawkins Cookers Ltd. v. ACIT (2023) 102 ITR (Trib.) 395 (ITAT (Mum))
- S.35: Scientific Research – Where the Assessing Officer had allowed a deduction under section 35(2AB) only after verifying all necessary certificates and approval by the prescribed authority, namely, DSIR, then such assessment order could not be said to be erroneous or prejudicial to interests of revenue and hence the assumption of jurisdiction by PCIT under section 263 to revise said order would be bad in law (r.w.s. 263)The assessee is a company engaged in manufacturing of food products and trading of cosmetics. The assessee-company claimed deduction under section 35(2AB). The assessment under section 143(3) was completed after allowing said claim of assessee. On verification of assessment records, Principal Commissioner noted that assessment order framed allowing deduction under section 35(2AB) was erroneous and prejudicial to interests of revenue for reason that assessee was not eligible for deduction under section 35(2AB) as assessee company was engaged in production of cosmetics listed in Eleventh Schedule and not personal care items. The Principal Commissioner passed a revisional order under section 263.
Tribunal observed that the Assessing Officer had issued notice under section 142(1) during the course of assessment proceedings wherein assessee was required to explain nature of exemption/deduction claimed and was required to submit relevant documents, details and audit reports in support of such exemption/deduction. The assessee in response to same furnished Form No.3CM issued by Department of Scientific & Industrial Research (DSIR), Ministry of Science & Technology as well as copy of Form No.3CL. Certificate as approved by DSIR in Form No.3CM & 3CL categorically mentioned nature of business activity of the assessee as “manufacture and marketing of personal care products” which clearly proves that the assessee company is engaged in manufacture or production of articles or things eligible for deduction under section 35(2AB). The Assessing Officer had rightly allowed deduction under section 35(2AB) based on Form No. 3CM & Form No. 3CL issued by DCIR. In respect of argument of Principal Commissioner that the assessee is engaged in manufacturing of cosmetics and toilet preparations, assessee contended that these products were launched from the year 2019 and 2020 and hence these are not relevant for consideration for impugned assessment year i.e. A.Y. 2011-12.
Tribunal also observed that sub-section (3) of section 35 clearly provides that if any question arises under this section as to whether and if so to what extent any activity constitutes or any asset was being used for scientific research, the Board should refer the question to the prescribed authority whose decision shall be final and binding. Neither the Assessing Officer nor Principal Commissioner can sit on judgment on the approval granted by prescribed authority i.e. DSIR in the present case.
Accordingly, Tribunal held that the assessment order framed under section 143(3) was neither erroneous nor prejudicial to interests of revenue since Assessing Officer had allowed deduction under section 35(2AB) only after verifying all necessary documents and certificates. Consequently, the revision order passed under section 263 by Principal Commissioner was set aside. [ITA No. 1603 (CHNY.) of 2016 dt. 23.12.2022] (A.Y. 2011-12)
Cavinkare (P.) Ltd. v. Deputy Commissioner of Income-tax 2023 (102) ITR (Trib) 436 (Chennai)/221 TTJ (Chennai) 549
- S. 35(1)(iii) & S. 35AC – contribution towards research in social science or statistical research & Eligible projects – no opportunity to the assessee to rebut the reports of Investigation Wing on statements recorded of third party or to cross examine such third party- held, violation of principles of natural justice- deduction allowed.The Tribunal observed that the assessee has furnished all the relevant documents and details in support of its claim of deduction u/s 35(1)(iii) and 35AC of the Act, for contributions made in trusts/institutions, which were not controverted or found to be false by the AO. However, the AO had heavily relied on the report on statements recorded of third persons by the Investigation Wing, a copy of which was not provided to the assessee to rebut. The AO also did not provide an opportunity to the assessee to cross-examine such third parties. There was no independent application of mind by the AO. Therefore, it was held that the AO had violated the principles of natural justice and also did not fulfil its obligations under S. 142(3) of the Act. Reliance placed on CIT vs Andaman Timber Industries Ltd.  62 taxmann.com 3 (SC). (ITA No. 628/Kol/2022, date- 28.02.2023) (AY 2015-16)
Gajraj Tradecom Pvt. Ltd. v. DCIT (2023) 102 ITR (Trib) 80 (Kolkata)
- S. 36(1)(xii) – Other deductions – Business ExpenditureAny expenditure other than capital expenditure incurred by a corporation or a body corporate for allowability vis-à-vis absence of notification in the relevant year.
For availing deduction under Section 36(1) (xii), the assessee itself should be notified by the Central Government. Central Government has notified the assessee from assessment year 2013-14 onwards, meaning thereby the assessee was not notified for assessment year 2010-11. Moreover, was not the owner of funds transferred to WDF. If the amount has been spent out of the funds so transferred to WDF as per the directions issued by the Government / RBI, the assessee cannot claim such expenditure incurred out of WDF, as deduction. Held disallowance was sustainable.
Dy. CIT v. National Bank for Agriculture & Rural Development  221 TTJ (Mumbai) 25.
- S. 36(1)(va), 143(1)(a): Dis-allowance of Employee’s contributions to ESI/PFCPC made disallowance under section 143(1) on account of delayed deposit of employee’s contribution to ESI/PF. Assessee argued that disallowance made by CPC while processing return under section 143(1) was beyond scope of provisions of section 143(1)(a) and, therefore, should not be sustained. In view of decision of Supreme Court in Checkmate Services (P.) Ltd. v. CIT 448 ITR 518, Employees’ contribution deposited after respective due date could not be allowed as deduction and, therefore, it would be incorrect to say that decision of Supreme Court was applicable only in case of an assessment framed under section 143(3). Thus, ratio decidendi of said judgment was equally applicable for intimation framed under section 143(1). [AY 2017-18 to AY 2019-20]
ITA No. 2197, 2249, 2250, 2293/Del/2022 dated 09/01/2023 for AY 2017-18 to AY 2019-20
Savleen Kaur v. ITO: 2023 ITL 18 / 199 ITD 437 / 221 TTJ 409 / 147 taxmann.com 402
- S. 36: Insurance premium claimed by Assessee cannot be said to be ineligible for deduction in the absence of any business activity. (r.w.s 37)The Hon’ble Tribunal allowed insurance premiums claimed as prepaid expenses incurred in the previous year on the grounds that the Assessee had not claimed any bogus expense and the books of accounts were audited and no defect was pointed out by the Assessing Officer during the assessment proceedings. Further, noting the fact that the Assessee had not been carrying out any business activity, it was observed that expenses claimed by Assessee cannot be said to be ineligible for deduction in the absence of business activity. This is so because the Assessee being a body corporate had to carry out necessary compliance to maintain its status and may incur certain administrative expense for the said purpose. (AY 2014-15, ITA No.105 (AHD.) 2018)
Oceanic Vehicles Pvt. Ltd. v. DCIT (2023) 102 ITR 70 (Ahd.)(Trib.)
- S.36(1)(iii): Interest on borrowed capital – Since interest free advances have been given by the assessee out of his own interest fund, the question of making disallowance of interest expense does not arise.Since the own fund of the assessee exceeds the amount of loans and advances given to various parties, a presumption can be drawn to hold that the interest free advances have been given by the assessee out of his own interest free fund. Accordingly, the question of making disallowance of interest expense does not arise. Hence, the ground of appeal of the assessee is allowed. [ITA No. 1269 (Ahd) of 2012 dt. 11.01.2023] (A.Y. 2008-09)
Aaryavart Impex (P) Ltd. v. ACIT (2023) 221 TTJ (Ahd) 817
- S.37: Expenditure incurred relating to a joint venture project later abandoned is allowable in so far as the expenditure is incurred by the Assessee itself and not the joint venture entity.The Hon’ble Tribunal observed that the Assessee had suitably demonstrated incurring of expenditure by self, by pointing out that the shareholders agreement between the joint venture partners which required the respective parties to the joint venture, to bear costs up to a certain date and the Assessee had till then incurred this cost which is sought to be written off. There was no question therefore of the joint venture company bearing any expenditure up to this cutoff date. The Hon’ble Tribunal thus held that the assessee was entitled to a deduction of project expenses. (AY 2000-01, ITA No. 3216/Ahd/2015)
Gujarat State Fertilizers & Chemicals Ltd v. DCIT (2023) 102 ITR 76 (Ahd.)(Trib.)
- S.37: Expenditure on wages is allowed in the year of final settlement and on actual payment only.Held that the directions of the Tribunal in the first round were to allow claims in respect of wage settlement on the final settlement of the wages and on actual payment. The Assessing Officer pursuant to the remand, denied the claim finding that the sum was not settled by the assessee in the year in question. The assessee had not controverted this factual finding. In view thereof, the Hon’ble Tribunal held that there was no reason to interfere in the order of the Commissioner (Appeals) disallowing the claim of wages. The claim could be allowed in the year in which it was actually paid by the assessee. (AY 2000-01, ITA No. 3216/Ahd/2015)
Gujarat State Fertilizers & Chemicals Ltd v. DCIT (2023) 102 ITR 76 (Ahd.)(Trib.)
- S. 37(1) : Business expenditure — Assessee, following a consistent method of accounting, has offered EIS to tax on proportionate basis as and when they have accrued over tenure of loan and same has been accepted by revenue – in accordance with RBI norms as well as AS-9 – Therefore, keeping in view principle of prudence as well as rule of consistency, no fault could be found with accounting methodology adopted by assessee to recognize revenue under securitization transactionsIn the present case, the receipt of EIS is uncertain and the same may or may not accrue to the assessee over the terms of the loan. The assessee, following a consistent method of accounting, has offered EIS to tax on proportionate basis as and when they have accrued over the tenure of loan and the same has been accepted by revenue. The said methodology is in accordance with the RBI norms as well as AS-9 which provide that in case the revenue could not be measured with reasonable certainty, a suitable provision thereof should be made. However, in the present case, EIS may not have even accrued to the assessee in future years and thus, no such provision could be made in this year. Therefore, keeping in view the principle of prudence as well as rule of consistency, no fault could be found with the accounting methodology adopted by the assessee to recognize the revenue under securitization transactions. (ITA No. 848/Chny/2020, Date- 08.06.2022)
Cholamandalam Investment & Finance Co. Ltd. v. ACIT (2023) 102 ITR (Trib) 685 (Chennai)
- S. 37(1): Business Expenditure: Genuineness of jobwork chargeAO and CIT(A) rejected the jobwork expenses claimed by the assessee on the ground that the notices issued under Section 133(6) and thereafter summons issued under Section 131 to the Contractors remained uncomplied with.
It is the case of the assessee that since the Contractors are situated at a remote area situated in excess of distance of 500 kms, these witnesses could not be ordered to attend in person before the AO having regard to the Order XVI, rule 19 of CPC, 1908. The right course of action available to the AO was to issue ‘commission’ under Section 131(1)(d) at the nearest place of the situation of the Contractors for personal attendance, enquiry and local investigations. The assessee’s plea is sustainable. The assessee has successfully demonstrated the incurring of job work expenses on the basis of clinching evidences, both direct and circumstantial. No adverse materials to controvert these tell-tale evidences are on record at present. Shorn off the non- compliance of summons served under Section 131, the assessee has filed formidable evidences to identify the contractors as well as the factum of incurring job work expenses as demonstrated by the IT returns of the service providers. TDS has been deducted on such expenses and reflected in the returns of income of the contractors. The increase in turnover, addition of new line of business, i.e., processing of rice and substantial increase in the fixed asset are vital indicators of plausibility of the explanation offered by the assessee in this regard. In the absence of any culpable evidence in possession of Revenue, the job work expenses are allowable on a standalone basis, as incurred in the ordinary course of business.
United Foods (P) Ltd. v. Assistant Commissioner of Income-tax  221 TTJ (Delhi) 1.
- S. 37(1) : Business expenditure – foreign exchange fluctuation loss – as on the date of balance sheet is allowable as an item of expenditure – provision for stock made on an ad hoc basis – contingent in nature and no historic trend explained – held, value of contingent liability, like the warranty expenses, if properly ascertained and discounted on accrual basis can be claimed as item of deduction – claim disallowed.The assessee was engaged in manufacture and export of Metal halide Lamps. It followed a system of mercantile accounting and converted all the assets and liabilities at the end of the year which are receivable or payable in foreign currency into INR at the prevailing conversion rate as on 31st March every year. The debit or credit arising on account of said reinstatement fluctuations are accounted in the profit & loss account. This system was consistently followed by the assessee. The AO disallowed the claim which was further upheld by the CIT(A). On a query raised by the Tribunal the DR was unable to controvert or challenge the fact regarding consistency of treatment. The ITAT followed the judgment of the Apex Court in CIT vs. Woodward Governor India P Ltd., reported in [(2009) 312 ITR 254 (SC)] wherein it was held that the loss suffered by assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure allowable u/s.37(1) of the Act. Further, it was held that the accounting method followed by an assessee continuously for a given period of time needs to be presumed to be correct till AO comes to conclusion for reasons to be given that said systems does not reflect true and correct profits.
The assessee also made a provision for stock in order to meet the liability of payment of custom duty as it was situated in the Madras Export Processing Zone and for removal of some materials it had to pay a custom duty. The AO held that the provision was merely an estimate without any scientific basis also the assessee could not produce any supporting evidence and basis of creation of the provision. The CIT(A) also confirmed the action of the AO. The ITAT also noted that the provision for stock made by the assessee is totally on an ad hoc basis, contingent in nature and there was no historic trend explained. The Tribunal relied on the case of Apex Court in Rotork Controls India P. Ltd., v. CIT, reported in  314 ITR 62 (SC) wherein the Apex Court has noted the issue regarding contingent liability like warranty provision and held that the value of contingent liability, like the warranty expenses, if properly ascertained and discounted on accrual basis can be claimed as item of deduction u/s.37(1) of the Act. The Supreme Court also laid down certain parameters for recognizing such provisions in the books of account which the assessee did not fulfill and hence this claim was disallowed. (ITA Nos. 2945 & 2946/CHNY/2018 & 1209/ CHNY/2019, dated 04.03.2022) (AY 2012-13, 2014-15 & 2010-11)
Venture Lighting Limited v. ACIT [(2023) 102 ITR (Trib) 0354 (Chennai)]
- S. 40(a)(ii): Disallowance of education cess:Retrospective amendment brought in by Finance Act, 2022, deduction of education cess was not allowable.
Dy. CIT v. National Bank for Agriculture & Rural Development  221 TTJ (Mumbai) 25.
- S. 40(a)(ia): Business expenditure – no disallowance – payments liable to no deduction of tax at source. (r.w.s194C)The assessee, manufacturer of gold and silver jewelry, purchasing old gold from customers and melting through goldsmiths to get pure gold. assessee showing wastage charges ranging between 4.5 per cent. and 6 per cent. The AO estimating between 0.5 per cent. and 1 per cent. and holding excess rate of gold as wastage retained by goldsmiths in lieu of making charges.
Held that, the tax at source had to be deducted wherever there was credit of a sum to the account of the contractor or payment thereof in cash, by cheque, by draft or by any other mode. Once, there was no payment there was no question of deduction of tax at source under section 194C. The wastage was 0.5 per cent. to 1 per cent. or 4.5 per cent. to 6 per cent., it neither involved any payment nor credit of such sum by way of cash, issue of cheque or draft or by any other mode. Hence, it was not liable for deduction of tax at source under section 194C. (AY 2013-14 & 2014-2015)
P. R. Gold and Silver Craft v. Dy. CIT  102 ITR 362 (Trib.)(Bang)
- S. 40(a)(ia): Disallowance of business expenditure – Revision of order by the tribunal – Held amendment was done to remove hardship caused to the assessee – Amendment not clarificatory in nature.Decision of coordinate Bench of the tribunal dismissed an appeal saying that the amendment to Section 40(a)(ia) of the Act by the Finance Act (No.2) Act, 2014 was retrospective in operation and the disallowance on account of the non-deduction of TDS was liable to be restricted to 30% as against 100 made by the AO and confirmed by the ld. CIT(A). It is recalled citing the decision of the Hon’ble Supreme Court in the case of Shree Choudhary Transport Company (2020) 426 ITR 289 (SC) stating that there has been an apparent mistake in interpretation. The Tribunal held that the disallowance of 100%, by the said amendment was restricted to 30%, thus, clearly the amendment was brought in to remove the hardship caused to the assessee. The AO is directed to restrict the disallowance u/s.40(a) (ia) of the Act to 30%. (AY 2014-2015)
Om Sri Nilamadhab Builders (P) Ltd. v. ITO (2022) 66 CCH 0560 Cuttack Trib, (2023) 221 TTJ 0021 (Ctk) (UO)
- S.40(a)(iib): Amounts not deductible – Since the provisions of section 40(a)(iib) does not contemplate tax and VAT does not fall within the ambit of “fee” or “charge”, section 40(a)(iib) cannot be attracted in respect of expenditure by way of VAT. Accordingly, the order of the Assessing Officer under section 143(3) allowing assessee’s claim for deduction of expenditure by way of VAT cannot be regarded as erroneous and prejudicial to the interest of the revenue in terms of section 263 (r.w.s. 263)Assessee is a company wholly owned by the State Government of Chhattisgarh. The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under section
263. During the course of revision proceedings, PCIT observed that the assessee had debited an amount under the head “VAT” in its Profit and Loss account for the impugned assessment year. It was observed by PCIT that the Assessing Officer in the course of assessment proceedings had without raising any query as regards the assessee’s entitlement for claim of deduction of the expenditure by way of VAT had summarily accepted the same. The PCIT was of the view that the expenditure by way of VAT claimed by the assessee clearly fell within the realm of disallowance contemplated in sub-clause (B) of clause (iib) of section 40(a) as per which any amount appropriated directly or indirectly under any head by whatever name called from a State Government undertaking by the State Government is not to be allowed as a deduction in computing the income chargeable under the head “Profits and Gains from business or profession”. Accordingly, the PCIT passed an order under section 263 wherein it was held that the order passed by the Assessing Officer under section 143(3) was erroneous in so far as it was prejudicial to the interest of the revenue in view of Explanation 2 of section 263. Consequently, the PCIT directed the Assessing Officer to give effect to his order passed under section 263 and disallow the assessee’s claim for deduction of VAT.
The Tribunal observed that the issue involved was squarely covered by the judgment of the Hon’ble Supreme Court in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. ACIT wherein it was held that “surcharge of tax” is a tax and section 40(a)(iib) does not contemplate “tax” and surcharge on sales tax is not a “fee” or a “charge”. Therefore, no disallowance under the said statutory provision was called for in the hands of the assessee.
Thus, the Tribunal had set aside the order passed by the PCIT under section 263 and had restore the order of the Assessing Officer passed under section 143(3) to the extent he had allowed the assessee’s claim for deduction of VAT. [ITA Nos. 38, 39 & 40 (RPR) of 2021 dt. 12.12.2022] (A.Y. 2015-16 to A.Y.2017-18).
Chhattisgarh State Beverages Corporation Limited v. PCIT (2023) 221 TTJ 427
- S. 43B: Deduction allowed in the year in which the Assessee settles the outstanding electricity dues by way of payment out of the government grants, which is provided for the very purpose of aiding settlement.It is vide resolution dated May 16, 2006 of the Government of Gujarat, the Assessee was sanctioned a subsidy which was to be adjusted against electricity duty payable by Assessee to the state government for the subsequent financial year 2006-07. For the AY 2006-07, the Assessee claimed to have adjusted the outstanding balance of electricity duty against the grant received from the Government. The Commissioner (Appeals) disallowed the deduction under section 43B of the Act considering the fact that the subsidy had been granted for settlement of dues pertaining to the financial year 2006-07 and due to lack of evidence substantiating such adjustment for the impugned year before the due date of filing of the return, no deduction under section 43B was warranted.
Before the Hon’ble Tribunal, the Assessee made an alternate claim to allow such expense in the succeeding year since the Assessee was able to sufficiently demonstrate that the electricity dues outstanding as at the end of AY 2006-07 was not outstanding at the end of the succeeding year. The Hon’ble Tribunal post inspecting the financials of the Assessee took a view that it can be safely presumed that the outstanding electricity liability for the month of March 2006 were not outstanding and thus stood adjusted against the Government grant. Accordingly, the alternate claim of the Assessee was accepted, and the claim was allowed in the succeeding year. (AY 2006-07) ITA No. 87 (AHD) of 2014
Madhya Gujarat Vij Company Ltd. v. ACIT (2023)102 ITR 56 (Ahd.)(Trib.)
- S.45: Capital Gain – If during preceding years, returned income had been accepted as assessed income without reclassification of income then during the previous year under consideration income by way of capital gains cannot be reclassified into business income.Assessee had maintained two separate and distinct DMAT accounts for his two portfolios of investment and trading in shares for past several years. Also, assessee had transacted in two portfolios in distinct manner from respective DMAT accounts and had accordingly maintained his books of accounts based on which respective income had been reported in the return of income. It had also been demonstrated evidently that there is no change in the material facts and circumstances as well as the applicable law during the year under consideration when compared with the preceding years. During the preceding years, the return of income had been accepted as the assessed income without any reclassification of income. Accordingly, the Tribunal held in favour of the assessee disregarding the reclassification of capital gains into profits and gains of business done by the Department. [ITA No. 1420 (Kol) of 2019 dt. 22.11.2022] (A.Y. 2015-16).
ACIT v. Chandravadan Desai (2023) 221 TTJ (Kol) 658
- S. 45 and 56(2)(vii)(a):
Section 45: Amount received for giving up rights of suit properties: Capital Receipt:
The amount received by the assessee for giving up his rights over some of the items of the suit properties is not chargeable to tax under Section 56(2)(viia). Those provisions will apply only when any sum of money is received without consideration. The sum in question is not a revenue receipt and is a capital receipt not chargeable to tax.
The assessee received Rs. 1.60 crores for giving up his rights over some of the items of suit properties. Fact that all the items of suit properties were bequeathed to the assessee’s mother under the Will of assessee’s father. It cannot be the basis to hold that the assessee did not have any rights whatsoever. The assessee had a right to question the validity of the Will and had in fact filed the suit for partition and separate possession of his share of the suit properties. He gave up his rights to contest the Will and in return received Rs. 1.60 crores and a shop. Therefore, the sum in question cannot be said to have been received without consideration. Sum in question is not in the nature of revenue receipt and is a capital receipt not chargeable to tax.
K. V. Sridhar v. Income Tax Officer  221 TTJ (Bang.) 676
- S.50C r.w.s. 55A: Valuation – Reference to DVO – Assessing Officer ought to have referred the matter to the district valuation officer to get the market value of the property, applying a circle rate meant for commercial property – Addition deleted.Held that, the assessee had purchased the property as commercial property and sold the property as residential property. The stamp duty authority had accepted the property as residential property. The assessee had sold the property according to the value assessed by the stamp valuation authority. The assessee had furnished a certificate from the Assistant Town Planner that the property in question fell in a residential area. The Assessing Officer ought to have referred the matter to the District Valuation Officer but he himself applied the value of the circle rate of commercial property. Since the value shown by the assessee had been accepted by the stamp duty authority and further the Assessing Officer had not referred the matter to the District Valuation Officer to get the market value of the property, there was no justification on the part of the Assessing Officer to have himself made the additions by applying circle rate meant for commercial property. The addition made was to be deleted.
Rajesh Kumar Gupta v. ACIT (2023) 102 ITR 259 (Chad.)(ITAT)
- S.54B – Exemption to tax under capital gains used for agricultural purposes – AO made addition as per unexplained cash deposits – Deduction disallowed.The Appellant is a salary drawing individual and filed a return of income declaring Rs. 2,83,360 as total income. The AO during assessment made addition of Rs.17,59,750/- as capital gains brought to tax and also a sum of Rs.28,42,000/- as unexplained cash deposits in the bank account as the assessee failed to offer any explanation. It was held that the appellant is not entitled for deduction in respect of section 54B of the Act as there was no purchase of the land/property in the name of the assessee. Submissions made in context of deduction u/s 54F are rejected as it is does not have any supporting evidence and is devoid of any merits. (Asst. Year 2011-12)
Popat Manaji Rahinj (Through Legal Heir Mr. Datta Popat Rahinj) v. ITO (2023) 67 CCH 0158 Pune Trib (2023) 221 DTR (Trib) 0433 (Pune) (Trib)
- S. 54, 54F: Capital gains – Exemption of in case of investment in residential houseWhere assessee claimed exemption under section 54 instead of section 54F on account of capital gains arising from surrender of tenancy right and during scrutiny informed AO about wrong claim, since claim for exemption was rightly made by assessee and only a wrong section was quoted, same would be qualitatively different from making a fresh claim and, thus, assessee would be entitled to claim exemption under section 54F without filing revised return. [AY 2017-18]
ITA No. 834/Mum/2022 dated 30/08/2022 for AY 2017-18
ITO, International Taxation Ward 3(1)(1) v. Armine Hamied Khan: 2022 ITL 2547 / 197 ITD 110 / 221 TTJ 653 / 142 taxmann.com 14
- S. 54F: Deduction under section 54F allowed even if assessee owns two residential houses in USAProviso to section 54F (1) which contains condition that deduction is not available if assessee owns more than one residential house, other than new asset, should be interpreted to mean ownership of residential houses in India and, therefore, deduction under section 54F could not be denied solely on ground that assessee jointly owned two residential houses in USA [AY 2015-16]
ITA No. 566,613/Coch/2022 dated 02/01/2023 for AY 2015-16
Smt. Maries Joseph v. DCIT, IT, Kochi: 2023 ITL 52 / 199 ITD 631 / 101 ITR(Trib) 629 / 221 TTJ 607 / 148 taxmann.com 97
S.68 : Tax treatment of cash credits- reopening of assessment – addition on the protective basis – Held reopening assessment to make addition on the protective basis is bad in law – amounts to reopening merely on suspicion.
The joint bank account of the assessee along with other family members was noticed by the AO while conducting assessment due to a cash deposit of Rs. 16 lakhs. The assesee along with four other joint holders had their returns of income assessed an addition was made on protective basis. The legal validity of reopening the assessment is under dispute. The tribunal held that the reopening of assessment made in the hands of the assessee for making addition protective basis is bad in law, since the same amounts to reopening of assessment merely on suspicion. Asst. Year 2010-11
Prakash Chandra Jain v. Income Tax Officer (2022) 66 CCH 0212 Jodh Trib, (2023) 221 TTJ 0001 (Jd) ((UO))
- S.68: Cash Credit – While making addition under section 68, Assessing Officer can investigate into truthfulness of assertion of assessee regarding nature and source of credit in its books of accounts. – If Assessing Officer is not satisfied with explanation of assessee with respect to establishing identity and credit worthiness of creditor and genuineness of transactions, Assessing Officer is empowered to make additions to income of assessee under Section 68 as unexplained credit.Assessee is engaged in the business of real estate. Search and seizure operations under section 132 were undertaken upon assessee. During the course of assessment proceedings under section 153A, the Assessing Officer observed that the assessee had shown sundry creditors to the tune of Rs.2.5 crore in the name of a person. The Assessing Officer asked the assessee to furnish the evidence of identity, genuineness and creditworthiness of the said creditor to prove the genuineness of the transaction. The Assessing Officer observed that the assessee failed to adduce any corroborative evidence in support. Thus, the Assessing Officer held that the amount shown as sundry creditors of Rs.2.5 crore be treated as unexplained and accordingly, the said amount was added to the income of the assessee under section 68 vide assessment order passed under section 153A r.w.s. 144.
Before CIT (A), the assessee submitted that the said creditor had deposited the amount of Rs.2.5 crore with the assessee for purchase of land. The deposits were made through banking channel and copy of bank statement was enclosed along with the confirmation letter of the said creditor. Since the transaction by way of sale did not materialize, the deposit of Rs.2.5 crore was returned by the assessee to the said creditor through banking channel. The assessee had submitted the copies of accounts of said creditor maintained in its books of accounts both at the time of receiving the amount and at the time of returning the said amount.
The Tribunal observed that the assessee is required to explain cumulatively about the identity and capacity/credit worthiness of the creditors along with genuineness of the transaction to the satisfaction of the Assessing Officer. In the given case, the assessee had merely submitted the confirmation letter of the creditor along with his PAN. The assessee had neither submitted copies of bank statement of the creditor nor the agreement of sale entered into with the creditor for sale of property. The Tribunal also observed that the said amount which is claimed to have been returned was actually returned after a gap of 3 years in three tranches and that too after the assessee was searched. Further, the assessee had not submitted cancellation deed for cancelling the deal for sale and reasons for such cancellation.
Thus, the Tribunal held that since the assessee failed to establish the identity, genuineness and creditworthiness of the creditor, the addition made by the Assessing Officer to the total income of the assessee to the tune of Rs.2.5 crore is upheld. [ITA No. 103 (Alld.) of 2017 & C.O. No. 22 (Alld.) of 2017 dt. 04.05.2022] (A.Y. 2011-12)
ACIT v. Sunshine Infraestate (P). Ltd. (2023) 221 TTJ (All) 929
- S.68: Cash Credit – The treatment of cash deposit in the bank account during demonetization period as unexplained cash credit was not justifiable because the said amount was in the nature of cash sales duly recorded in audited books of accounts and such sales were made out of stock-in-trade and cash sales were duly supported by relevant bills.During the course of assessment proceedings, the Assessing Officer had made an addition of an amount to the declared income by holding that said amount represented cash deposited by the assessee in his bank account during demonetization period which is nothing but the undisclosed income of the assessee which was shown under garb of cash sales and thus it is liable to be added under section 68 and taxable under section 115BBE. The assessee had submitted before the Assessing Officer that complete regular books of accounts, bills, vouchers and day to day stock register having complete quantitative details have been maintained. The said books of accounts were audited. The assessee also maintained manual item wise stock register. A copy of audited statement of account alongwith complete quantitative details, manually maintained item wise stock register and return of income were furnished to the Assessing Officer.
The Tribunal observed that the cash sales transaction was recorded in regular books of accounts and sales were made out of stock- in-trade. The assessee had also filed copies of sales invoice. The Ld. CIT (Appeals) had also observed that the Assessing Officer had treated the cash deposited in the bank during the demonetization period in demonetized currency as unexplained cash credit under section 68 although the nature and source of the cash deposits being proceeds arising out of cash sales was evident from the entries in the audited books of accounts of the assessee. The books of accounts of the assessee had been duly audited by an independent auditor. The cash sales and receipts were duly supported by relevant bills which were produced before the Assessing Officer. Tribunal was of the view that it cannot be said that the figures of sales and purchases were not supported by the quantitative details. Neither the Assessing Officer had made any enquiry in respect of the material supplied by the assessee nor the Assessing Officer had brought any material on record to establish that the sales bills were bogus.
Consequently, the Tribunal held that the Assessing Officer was not justified in making an addition under section 68. [ITA Nos. 166 (JP) of 2022 dt. 15.12.2022] (A.Y. 2017-18)
ACIT v. Chandra Surana (2023) 221 TTJ (JP)515
- S.68 : Unexplained Cash Credit – Loose documents found in Survey – genuineness of share capital subscribers – assessee must establish creditworthiness of subscribers.A survey u/s 133A of the Act was conducted at the business premises of the assessee and some loose documents/sheets were impounded. Assessee did not file return of income for A.Y. 2014-15 and the case was selected for compulsory scrutiny. Assessing Officer completed the assessment on 31.12.2016 by making an addition of Rs.64,10,599/- u/s 143(3) of the Act on account of difference in Cost of Construction as per valuation Report u/s 69 of the I.T.Act,1961 and also added Rs.1,29,10,000/- as unexplained share capital money appearing in the balance sheet as on 31.03.2014 assessed u/s.68 of the I.T. Act after reducing initial Share Application Money invested during the F.Y.2012-13. Assessee filed appeal with the ld. CIT(A) and was granted relief. Revenue appealed. The ITAT held that the law is now absolutely clear that unless the assessee is able to establish the identity of the subscribers, their creditworthiness as well as the genuineness of the transaction will be regarded as non-genuine for the purposes of Section 68 of the Income Tax Act, 1961. There are plethora of decisions consequent to the decision of Lovely Exports. It is also well-settled law that onus of proving credits in its book of accounts lies squarely on the assessee and such proof consists of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction. It is only when the assessee discharges this primary onus, that onus shifts to the Department. Merely establishing the identity of the creditor is not sufficient. (A.Y. 2014-15)
ITO v. M/S. Pritham and Prathik Hospitals Pvt. Limited (2022) 66 CCH 0561 HydTrib (2023) 221 TTJ 0911 (Hyd), (2023) 223 DTR (Trib) 0177 (Hyd)(Trib)
- S. 68: Cash credit (Purchases)Where assessee-company had made purchases of textile items, i.e., fabrics worth Rs. 19 crores (approx.) from a large number of entities (vendors) but entries showing credits in names of certain vendors and existence and means of these vendors were not proved and genuineness of transactions were not established and, thus, none of three necessary ingredients of a credit, i.e. existence of creditor, means of creditor and genuineness of transaction was established, Assessing Officer was fully justified in making addition under section 68 [AY 2009-10]
ITA No. 5328/Mum/2012 dated 19/10/2022 for AY 2009-10
ITO v. Solid Machinery Co. (P) Ltd.: 2022 ITL 3372 / 221 TTJ 1006 / 143 taxmann.com 293
- S. 69: Difference in Cost of Construction as per valuation ReportAO noticed that there is discrepancy in the cost of construction and investment recorded in books of accounts. The AO referred the matter to DVO and thus added the difference of Rs.64.10 lacs. AO had not doubted the cost of construction recorded in the Books. The AO has not brought any material on record to establish that the appellant had made any unaccounted investment in the construction of the building in question. It was held that without rejecting the books of accounts, it is not open for the Assessing Officer to refer the matter to Valuation Cell for determining different entries and the expenditure incurred by the assessee. [AY 2014-15]
ITA No. 97/Hyd/2019 dated 29/11/2022 for AY 2014-15
ITO v. Pritham & Prathik Hospitals (P) Ltd.: 2022 ITL 5850 / 221 TTJ 911
- S. 69A of the Income Tax Act, 1961: When sufficient explanation for the source of the Cash deposits were provided to the lower authorities, it was incorrect to disregard the same, unless enquiries to prove contrary facts were made & established.The Assessee had not filed return of income for the assessment year in question. Further, during the given year coinciding with the year of demonetization, the Assessee had deposited certain monies into two bank accounts.
Further, there was no response to the notice under section 142(1) and this compelled, the Assessing officer to frame an assessment under section 144 of the Act, and bring about additions of the sum deposited, as unexplained money under section 69A of the Act. The Commissioner (Appeals) affirmed the order of the Assessing officer stating that the Assessee could not bring on record any cogent evidence to controvert the findings of the Assessing officer.
Before the Hon’ble Tribunal, the Assessee reiterated its contentions that the monies pertained to the advances received as against sales consideration of the property being sold. And, that all the evidence pertaining to the said transaction (including the agreement bearing testimony to these cash deposits) had been placed on record before the lower authorities. The Hon’ble Tribunal held that there was sufficient source of cash deposits into the bank accounts of the assessee. Also, that the lower authorities had failed to make enquiries to prove the source of cash deposit was from any other source. The Hon’ble Tribunal thereby directed deletion of the addition made by the Assessing officer. AY 17-18.
Sh. Joginder Singh Johal v. ITO; ITA No. 462/ Kol/2022, 102 ITR 9
- S. 69A : Unexplained money – AO cannot partly accept the books of accounts and partly reject the same and decide the sales as per his choice to categorize into bogus sales and non-bogus sales – AO cannot determine the bogus sales without disputing the books of accounts or bringing any evidence on record.During the course of scrutiny proceedings, the assessee had explained before the AO that the cash deposits made in its bank account pertains to cash sales made during the demonetization period. However, the AO alleged that it was an abnormal increase in cash sales which was not in trend with the immediately previous AY sales and made an addition to the total income, which was upheld by the CIT(A). The ITAT observed that the lower authorities had accepted the books of accounts and statutory record of sale-tax department like Vat-15 and Vat-20 without pin-pointing any defect in it and further accepted the GP ratio declared by the assessee. However, he suo moto reduced the GP percentage out of disputed bogus sales which was reduced from the returned income. The ITAT held that the AO cannot partly accept the books of accounts and partly reject the same. The AO cannot sit on the chair of the assessee to decide the sales as per his choice to categorize into bogus sales and non-bogus sales. It therefore held that the cash deposits in bank represent the sales which the assessee has rightly offered for tax after going through the books of accounts. (ITA No. 256/Asr/2022, dated 31.01.2023)
Balwinder Kumar v. ITO (2023) 102 ITR (Trib) 0 228 (Amritsar)
- S.69A: Unexplained money – Merely on the basis of suspicion, howsoever it is strong, the Assessing Officer is not justified in presuming certain facts without having anything to corroborate. Accordingly, the deletion of impugned addition under section 69A made by CIT (Appeals) was upheld by the Tribunal. (r.w.s. 133A)The Tribunal observed that neither incriminating material was found during the course of survey proceedings nor any person had admitted about on-money payment made by the assessee. In the absence of any corroborative evidence to prove that there was any on-money payment made by the assessee, the Ld. Assessing Officer does not have locus standi to assume that the assessee had made payment in cash against purchase of land and had received commission. Merely on the basis of suspicion, howsoever it is strong, the Assessing Officer was not justified in presuming certain facts without having anything to corroborate. Accordingly, the deletion of impugned addition under section 69A made by CIT (Appeals) was upheld by the Tribunal. [ITA Nos. 156 to 158 (Ind) of 2019 & 355 (Ind) of 2020 dt. 30.11.2022] (A.Y. 2010-11 to 2012-13)
Sunil Sahu v. ACIT (2023) 221 TTJ (Indore) 631
- S. 80AC, IB(10): No deduction shall be allowed under section 80-IB(10) if not claimed in return of incomeAssessee filed return of income electronically within due date and no deduction under section 80-IB(10) was claimed in return. Assessee during assessment proceedings filed another corrected return of income claiming deduction under section 80-IB(10) in physical format and submitted that as it had filed Form No. 10CCB in time, claim for deduction under section 80-IB(10) was validly made. It was held that merely filing Form No. 10CCB was not sufficient compliance to avail deduction under section 80-IB(10). As per section 80A(5) no deduction under Chapter VI-A shall be allowed if not claimed in the return of income. As per section 80AC no deduction shall be allowed unless the return is filed on or before the due date mentioned in section 139(1) for the assessment year. Both the aforesaid conditions need to be satisfied as these are primary conditions. Therefore, assessee was not eligible for deduction under section 80-IB(10), as it had not claimed it in return of income. [AY 2014-15]
ITA No. 35/PUN/2018 dated 24/11/2022 for AY 2014-15
ITO v. Jagtap Patil Promoters & Builders: 2022 ITL 5656 / 221 TTJ 617 / 147 taxmann.com 199
- S.80IA: Industrial Undertaking – special deduction – rental income inseparably connected with a business and originates directly from the business of undertaking. Eligible for deduction under section 80IAThe assessee was engaged in the business of providing cargo handling services to airlines and clearing and forwarding at Bangalore international airport. The Assessing Officer disallowed the claim as a deduction under section 80-IA. Further, the AO held that a sum received as rental income by the assessee was liable to be taxed under the head “Income from other sources” and accordingly made an addition thereof.
Held that the cargo service agreed between the assessee and the airport included cargo handling services, mailing services and post office mail services. The assessee had entered into a licence agreement for the use of the space in the cargo terminal operated by the assessee with cargo handling agents, airlines, banks and post office. The list of licensees from whom the assessee had received rental income was given. Therefore the service commitment by the assessee to the airport was directly related to the services provided by the licensees who had taken the space in the cargo terminal. In order to meet the requirement of cargo services 365 7 24, it was essential for the licensees to operate within the cargo terminal so that the assessee could provide uninterrupted cargo service as committed to the airport. The licensees could not use the facility for any purpose other than for supporting the cargo services. Renting of the space was an integral part of the cargo business of the assessee since the licensees used the space to render services that were committed by the assessee to the airport as part of cargo services. That the rental income was inseparably connected with the business carried on by the assessee and emanated directly from the business of the undertaking. Rental income derived from cargo agents, airlines, and banks was eligible for deduction under section 80-IA. (AY 2017-2018)
Menzies Aviation Bobba (Bangalore) P. Ltd. v. Assistant Commissioner Of Income-Tax  102 ITR 373 (Trib.)(Bang)(Trib.)
- S.80P: Co-operative Societies – Since there was no infirmity in the computation of income as computed by the assessee under the head “business income”, the assessee is eligible for deduction under section 80P following the judgment of High Court of Kerala in the case of Chirackkal Service Cooperative Bank Ltd. v. CIT [r.w.s. 143(1)]Assessee filed the return of income on 14.02.2017 whereas the due date for filing return of income was 17.10.2016 declaring NIL income. The CPC processed the return under section 143(1)(a) assessing the total income at Rs.11,36,060/- by disallowing the deduction claimed under section 80P. The assessee challenged the order of the Assessing Officer before the CIT (Appeals) stating that such type of addition cannot be made under section 143(1)(a). The CIT (Appeals) decided the appeal against the assessee.
The Tribunal did not find any infirmity in the computation of income as computed by the assessee under the head “business income”. Since the assessee is eligible for deduction under section 80P following the judgment of High Court of Kerala in the case of Chirackkal Service Cooperative Bank Ltd. v. CIT, the Tribunal allowed the deduction claimed under section 80P. [ITA No. 188 (Coch) of 2021 dt. 28.07.2022] (A.Y. 2016-17)
Aroor Co-operative Urban Society v. DCIT (2023) 221 TTJ (Coch) 799
- Section 80P(2)(d) of the Income Tax Act, 1961 – Interest income earned from investments made with co-operative banks allowed as deduction.The Assessee, a co-operative society claimed interest income earned from investments made with co-operative banks as exempt under section 80P(2)(d) of the Act. The Assessing Officer disallowed the deduction by holding that the provisions of section 80P(2)(d) extended only to co-operative society and not to co-operative banks. The Commissioner (Appeals) upheld the order of the Assessing Officer and dismissed the appeal filed by the Assessee.
The Hon’ble Tribunal by placing reliance of the coordinate bench in the case of Kaliandas Udyog Bhavan Premises Co-op Society Ltd. v. ITO, ITA No. 6547/Mum. /2017 vide order dated April 25, 2018 allowed the plea of the Assessee and directed the Assessing Officer to grant deduction under section 80P(2)(d) of the Act to the Assessee in respect of interest income earned from investment with co-operative banks. AY 2018-19.
Manikpur Urban Co-operative Society Ltd. v. ITO, ITA No. 3083 (MUM.) of 2022; 102 ITR 62
- S. 80P of the Income Tax Act, 1961: (i) In the absence of evidence to prove that trading of agricultural equipment was done with persons other than the members, deductions cannot be disallowed. (ii) Section 80P of the Income Tax Act, 1961: State Government grants are eligible for deduction under the section provided the same is disbursed to members of the society only. (iii) Section 80P of the Income Tax Act, 1961: Receipts incidental to the main activities of the business also are eligible for deduction under section 80P of the Act.The appeal was filed by the revenue against the order of the Commissioner (Appeals). The bone of contention was, allowance of deduction under section 80P(2)(a)(iii) and (iv), by the Commissioner in favour of the Assessee against the surplus arising out of various heads – (i) Gross Profit (ii) State Government Grants (iii) Commission Income (iv) Cheque Book fee (v) Entry Fee (vi) Interest Income (vii) Other Income (viii) Patte (Satte) Se income (ix) Upaj Bhadhotri (x) Vasooli Kharcha. Further Assessee’s lack of suitable response to the notice for appearance before the Hon’ble Tribunal led to ex-parte adjudication by the Hon’ble Tribunal.
The argument of the revenue was that when the assessee had failed to provide complete details of its members, its activities between the members and outsiders separately and, failed to prove eligibility of specific deduction against the specific activity claim in the return of income under the relevant section.
The Hon’ble Tribunal at the outset found all the requisite details needed for claiming exemption to be on record. On the issue of gross profit, it observed that the assessee purchased sugarcane seeds, agricultural equipment, etc., and supplied them to its members in accordance with the objects of the society and profit from such activity was claimed to be exempt under section 80P(2)(a)(iv) of the Act. Given that there was no evidence to suggest that trading in agricultural equipment was done with persons other than the members, the Hon’ble Tribunal upheld the deduction.
As regards the grants received from the state government the Hon’ble Tribunal held that as far as the grants received have been passed on to the members, deduction was to be allowed.
Finally, as regards commission income, entry fee, other income, patte (satte) se income, Upaj Badhotri and Vasooli Kharcha and Cheque book fee, the Hon’ble Tribunal found them to be incidental receipts relating to the business of marketing of agricultural produce of the members therefore eligible for deduction u/s. 80P(2)(a)(iii) of the Act. AY 14-15 [ITA No. 1440/Del/2018]
ITO v. Sahkari Ganna Vikas Samiti (2023) 102 ITR 38 (Der) (Trib.)
- S.90: Double taxation relief – Since, in terms of the permission of RBI, liaison office’s activities are confined to the liaison and representative activities and is not permitted to carry out any business/commercial activities in India, the said liaison office cannot be regarded as permanent establishment.The assessee is a public company incorporated in Japan which is engaged in the business of import/export as well as domestic sales of dye stuffs, chemicals, plastic, machinery, electronic materials, cosmetics, health foods and medical equipment. In 1974, the assessee opened a liaison office in Mumbai after obtaining necessary approvals from the Reserve Bank of India. In terms of the permission of RBI, liaison office’s activities are confined to the liaison and representative activities and it is not permitted to carry out any business/commercial activities in India. under section 143(3) of the Act, AO did not agree with the submissions of the assessee.
The Assessing Officer on the basis of documents/books of accounts and other papers impounded during the course of survey under section 133A of the Act came to the conclusion that liaison office’s activities are not confined to the liaison work only, but it is also actively engaged in business activity (i.e. sales in India).
Tribunal found out that nothing has been brought on record to suggest that the RBI has found activities of the liaison office as being non-compliant with the terms and conditions of its permission and, therefore, the said aspect supports the assertion of the assessee that liaison office was performing activities as permitted by the RBI, which were preparatory and auxiliary in nature and not the core business activity independent of the Head Office. Accordingly, the Tribunal held that the liaison office in Mumbai does not constitute permanent establishment of the assessee in India under the provisions of Double Taxation Avoidance Agreement. [ITA Nos. 1805/Mum./2007, 118/Mum./2006, 1803/Mum./2007, 343/Mum./2007 and 2312/ Mum./2007 dt. 09.09.2022] (A.Y. 2001-02 & 2003-04)
Nagase and Company Ltd. v. Assistant Director of Income Tax (2023) 221 TTJ (Mum) 877
- Section 90: Article 7(2): Double Taxation Avoidance Agreement between India and Korea:Assessee had eleven Korean expatriate working exclusively for the Indian PE. These employees got salaries in Korea, and, in addition to that salary, when they come to India, they get certain additional amount as compensation for working in India. While the Indian salaries of these expatriates are paid in India and shown in the books of accounts in India and the salaries paid to expatriates in Korea are incurred by the head office. In view of Explanation 1 to Section 90, unless a foreign company makes prescribed arrangements for declaration and payment within India, of the dividend payable out of its income in India, the levy of tax at higher rate cannot be considered a less favourable levy of tax or more burdensome taxation vis-à-vis domestic companies, a Korea based banking company cannot be read down in the light of provisions of DTAA between India and Korea.
Shinhan Bank v. Deputy Commissioner of Income- tax  221 TTJ (Mumbai) 148
- S. 92(2) – Domestic transfer pricing – matter remandedAssessee has a manufacturing and trading business Section. Assessee has transactions with related parties of the nature of specific domestic transactions (STD). TPO rejected the TP analysis of the assessee. Held, 92(2), as amended provided that where in an international transaction or specified domestic transaction, two or more associated enterprises enter into a mutual agreement or arrangement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, the cost or expense allocated or apportioned to, or, as the case may be, contributed by, any such enterprise shall be determined having regard to the arm’s length price of such benefit, service or facility, as the case may be. Section 92(2A) provided that any allowance for an expenditure or interest or allocation of any cost or expense or any income in relation to the specified domestic transaction shall be computed having regard to the arm’s length price. Since the decision rendered by the Hon’ble High Court of Karnataka in Texport Overseas Pvt. Ltd. in ITA No.392/2018 order dated 12.12.2019 is binding on this bench of Tribunal sitting in Bengaluru, we follow the same. Accordingly, we hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec.92BA is not valid, as the said provision has been omitted. Accordingly, we direct the AO to delete the addition relating to specified domestic transactions made u/s 92CA of the Act. The Tribunal restore the issue to the file of the AO with the direction to examine the claim of expenditure in terms of the provisions of section 40A(2) of the Act. (AY 2016 – 2017)
Neogeneitcs Foods Private Limited v. Dy. CIT (2022) 64 CCH 0086 BangTrib (2022) 94 ITR (Trib) 0022 (Bangalore) (SN), (2023) 221 TTJ 1029 (Bang)
- S. 92A(2)(j) & 147: Re-assessmentIt is well settled in law that reasons as recorded for reopening the re-assessment are to be examined on a standalone basis. Nothing can be added to reasons so recorded, nor anything can be deleted from the reasons so recorded. Therefore, the reasons are to be examined only on the basis of the reasons as recorded. The next important point is that even though reasons, as recorded may not necessarily prove escapement of income at the stage of recording the reasons, such reasons must point out to an income escaping assessment and not merely need for an inquiry which may result in detection of income escaping assessment.
Followed: Hindustan Lever Ltd. v. Dr. B. Wadkar 268 ITR 332 (Bom.)
Dy. CIT v. Reliance Industrial Holdings (P) Ltd.  221 TTJ (Mumbai) 536.
- S. 92C – Transfer PricingAs per Rule 10A(d), if the transactions are closely linked transactions, they should be benchmarked together ideally the transactions should be tested on a transaction by transaction basis. However, in certain circumstances if the transactions are closely linked or continuous that they cannot be evaluated adequately on a separate basis and when it is impracticable to determine pricing for each individual product in those circumstances, i.e., may be more reasonable to assess the ALP for the two items together rather than individually.
According to Rule 10A(d), transactions included a number of closely linked transactions. Therefore, it is clear that if the transactions are closely linked transactions, they should be benchmarked together. OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration, January, 2022 in paragraph nos. 3.9 to 3.12 deal with the valuation of taxpayer ’s separate and combined transactions. This also accepts that ideally the transactions should be tested on a transaction by transaction basis. However, in certain circumstances if the transactions are closely linked or continuous that they cannot be evaluated adequately on a separate basis and when it is impracticable to determine pricing for each individual product in those circumstances, it may be more reasonable to assess the ALP for two items together rather than individually. It also considered the portfolio approaches wherein some products are marked by taxpayer with a low profit or even at a loss in portfolio. It also considers the cases where the sale of products is also part of the package deal. In those circumstances, it suggests that it is more practicable to adopt aggregate in those transactions and determine ALP on combined transaction basis.
IPCA Laboratories Ltd. v. Assistant Commissioner of Income Tax  221 TTJ (Mumbai) 319.
- S.92C: Adjustment on Account of Interest Paid on Fully Convertible DebenturesAdjustment in respect of international transaction of Payment of Interest on ‘Fully Convertible Debentures’ by upholding the contentions that LIBOR was not applicable as there was no lending/borrowing in foreign currency and assessee had issued rupee dominated debentures. Also in earlier year, TPO has taken Indian rates for charging interest on FCDs and not LIBOR rate, and therefore the same transaction following/ percolating from previous years should not be taxed on different basis. [AY 2011-12]
ITA No. 424/Mum/2018 dated 04/07/2022 for AY 2011-12
Altico Capital India Pvt. Ltd v. ACIT: 2022 ITL 3772 / 221 TTJ 365
- 92CA: International Transactions – arm’s length price – interest on delayed receivables, credit period on invoices – interest on overdue export proceeds not charged from associated and non-associated enterprise – independent third parties on the similar transaction with a similar credit period of similar goods no interest charged – transfer pricing officer deleted adjustment.Held that allowing the appeal, on the bills and invoices itself the assessee had mentioned the credit period on export receivables of the associated and non-associated enterprise. In the case of independent third parties on similar transactions with similar credit periods of similar goods, no interest was charged. This was proved by the assessee for this year by producing the bills of associated enterprises as well as non-associated enterprises. Non- charging of interest on advances being overdue export proceeds from associated enterprises as per internal comparable uncontrolled price method as for similar time on similar conditions, for an almost similar period no interest was charged from non-associated enterprise. The arm’s length price of overdue export proceeds and receivables from associated enterprises was nil. Evidence was not led to show that there was a recession in the business of the assessee in this year or when there was a boom, the assessee was charging interest on such advances. Therefore, the Transfer Pricing Officer/Assessing Officer was to delete the adjustment.
S. Vinodkumar Diamonds P. Ltd. v. Dy. CIT (2023) 102 ITR (Trib.) 35 (Mum)(Trib.)
- S. 92B: Transfer pricing – application of turnover filter – higher threshold limit of INR 200 CroresThe assessee was engaged in the business of providing Software Development Services to its wholly owned holding company having a turnover of around Rs. 23 Crores. The TPO had excluded from the list of comparable companies chosen by the assessee in its TP study only those companies whose turnover was less than Rs. 1 Crore, which was upheld by the DRP. The assessee’s contention was that the AO failed to apply the same yardstick to exclude companies with high turnover compared to the assessee. The ITAT relied on the decision of Dell International Services India (P) Ltd. v. DCIT (2018) 89 Taxmann.com 44 (Bang-Trib) which in the similar factual background held that where contrary views on the issue are possible, a view favourable to the assessee should be adopted. The ITAT also relied on the decision of Autodesk India Pvt. Ltd. v. DCIT (2018) 96 Taxmann.com 263 (Bangalore-Tribunal) wherein it is held that high turnover is a ground for excluding companies as not comparable with a company that has low turnover. Therefore, the ITAT excluded the 7 companies from the list of comparable companies, as sought by the assessee, whose turnover in the current year was more than Rs. 200 Crores. (IT(TP)A No. 460/Bang/2022, dated 21.10.2022) (AY 2017-18)
Dover India Private Limited v. DCIT [(2023) 102 ITR (Trib) 0159 (Bangalore)]
- S.92C: Transfer Pricing – Arm’s length price – The benchmarking has to be done based on the prevailing market rate which a normal bank would lend money with the minimum risk. Since the assessee has already mitigated the risk by investing in the fully convertible debentures when the risk is already mitigated one more time, the same risk element cannot be considered for bench marking on the interest payment also.As per the transfer pricing study report, the assessee is engaged in the business of acquiring non-performing loans, other assets and providing medium to long-term finance to corporate borrowers. As the assessee would require finance from time to time to engage in the activities described above, assessee requested its associated enterprises (CCP Cyprus) to provide such finance by subscribing to FCDs issued by the assessee on a private placement basis. All the FCDs issued by assessee to the associated enterprise carried interest at the rate of 12%, during the year under consideration. The assessee benchmarked this international transaction by applying Comparable Uncontrolled Price (‘CUP’) method as the most appropriate method. Further, the assessee considered the lending rates offered by other banks, as published by RBI on a quarterly basis, in respect of advances other than export credits to be an appropriate benchmark for the rate of interest paid by the assessee to its associated enterprise. Thus, accordingly arm’s length rate of interest was worked out to 11.48%. As the assessee was paying interest at the rate of 12% on FCDs issued to the associated enterprise, the assessee claimed the international transaction to be at arm’s length. During the course of transfer pricing assessment, TPO noted that the assessee has paid interest at the rate of 12% amounting to Rs. 15,69,82,378 on FCDs issued to its associated enterprise and same has been debited in the books of accounts. The TPO vide order passed under section 92CA(3) of the Act held that similar uncontrolled transaction would have provided FCD for lower interest and thus the international transaction representing issue of FCDs at higher interest rate is not at ALP. Accordingly, TPO computed the ALP by applying the interest calculated on the basis of 6 month average USD LIBOR + 800 basis point (i.e. 8.5% p.a.). As a result, TPO made an upward adjustment of Rs. 4,57,86,527 to the international transaction of ‘Payment of Interest on FCDs’. In conformity, the Assessing Officer, inter-alia, passed the order under section 143(3) r.w.s. 144C(3) of the Act. In appeal, learned CIT(A) vide impugned order upheld the upward adjustment made by the TPO. Being aggrieved, assessee is in appeal before Tribunal.
The Tribunal observed that the coordinate bench in assessee’s own case for preceding assessment years while considering similar issue upheld the TPO’s approach of adopting average PLR of Indian banks. Accordingly, the appeal of the assessee is dismissed. [ITA Nos. 424/Mum./2018 and 11/Mum./2018 dt. 04.07.2022] (A.Y. 2011-12)
Altico Capital India Pvt. Ltd. and Ors. v. ACIT (2023) 221 TTJ (Mum) 365
- S.139: Return of income – While filing return of income the exemption was rightly made but only a wrong section was quoted while making such claim. The attempt of the assessee to correct it in the course of assessment proceedings does not amount to fresh claim and accordingly claim of exemption so made while filing return of income should not be denied.While filing the income tax return, instead of mentioning 54F as the section in which the exemption of capital gain was claimed, the assessee mentioned the section as 54 by mistake which he attempted to correct when the scrutiny assessment proceedings were in progress, The claim of the assessee on account of technicalities had been rejected even though accepted to be correct on merits by the Assessing Officer. The Assessing Officer rejected the claim made by the assessee under section 54F on the ground that it amounts to a fresh claim which ought to have been made by way of revising the income tax return instead of being made in the course of scrutiny assessment proceedings.
The Tribunal observed that the exemption was rightly made but only a wrong section was quoted while making a claim which is totally different from the fresh claim so alleged. The Assessing Officer was indeed in error in holding that there was a fresh claim for exemption under section 54F. Accordingly, the claim of exemption under section 54F which was allowed by the CIT(Appeals) was upheld by the Tribunal. [ITA No. 834 (Mum) of 2022 & CO No. 94 (Mum) of 2022 dt. 30.08.2022] (A.Y. 2017-18)
ITO (International Taxation Ward) v. Armine Hamied Khan (2022) 197 ITD 110 (Mum)/(2023) 221 TTJ (Mum) 653
- S. 143(1), 80P, 139(1): Disallowance of Deduction us 80P through Intimation us 143(1)The amendment to S 80AC, vide the Finance Act, 2018, w.e.f. 01.04.2018, no deduction would be admissible under certain sections of Chapter VIA of the Act, unless the assessee furnishes his return of income for the assessment year on or before the “due date” specified u/s 139(1). No such amendment was made available in sec 143(1)(a) till 01.04.2021. Therefore, no adjustment to the returned income of the assessee to the said effect could have been carried out during the A.Y.2018-19. Thus, the disallowance of the assessee’s claim for deduction u/s.80P for a period prior thereto i.e. A.Y.2018- 19 could not have been carried out in the garb of an adjustment u/s.143(1)(a) of the Act. [AY 2018-19]
ITA No. 143/Rpr/2022 dated 15/12/2022 for AY 2018-19
Jila Alp Sankhyak Bachat Sahakari Sakh Samiti Maryadit v. DCIT: 2022 ITL 4877 / 221 TTJ 404
- S. 143(3) r.w.s 153A of Income Tax Act, 1961 –Assessment orders passed by Assessing Officer during the moratorium period under the provisions of IBC are void-ab-initio.Assessee was a resident corporate entity. Pursuant to search and seizure proceedings, assessment was conducted, and assessment orders were passed under section 143(3) r.w.s 153A of the Act. Appeals were filed before the Commissioner (Appeals) and thereafter before the Tribunal by both the Assessee and revenue. The Hon’ble Tribunal remanded the matter back to the assessing officer for fresh adjudication.
In the meanwhile, on the basis of applications filed by creditors & others, Corporate Insolvency Resolution Process (CIRP) was initiated against the Assessee in National Company Law Tribunal (NCLT). The NCLT, Mumbai Bench passed an order of moratorium, and an Insolvency Resolution Professional (IRP) was also appointed by NCLT in terms with the Insolvency and Bankruptcy Code 2016 (IBC). Accordingly, by the time assessment proceedings were taken up in pursuance to the direction of the Tribunal, the moratorium order of the NCLT had already been passed and IRP was appointed. The IRP thereafter requested the Assessing Officer not to proceed with the assessment proceedings in view of the order passed by NCLT imposing moratorium in terms of section 14 of the IBC. Further, the IRP intimated to the Assessing Officer that the appeal filed by the revenue before the Hon’ble Delhi High Court against the order of the Tribunal was dismissed in view of the moratorium imposed by NCLT. The Assessing Officer, however, proceeded to complete the assessment on the following 2 grounds viz. (i) the proceedings under NCLT are applicable to normal creditors of Assessee and not to proceedings under the Act; (ii) Against the order of the Hon’ble Delhi High Court, the CBDT has given approval for filing SLP before Hon’ble Supreme Court. The Assessing Officer completed the assessment ex-parte by alleging that the Assessee neither appeared nor furnished necessary details as sought during the proceedings. Against the assessment orders passed by the Assessing Officer, the Assessee again preferred appeal before Commissioner (Appeals) which was dismissed.
The Hon’ble Tribunal quashed the assessment orders and held them to be void-ab-initio by taking note of the following facts viz. (i) since the moratorium order of the NCLT had already been passed and IRP had been appointed, the Assessee had no locus standi to appear in the assessment proceedings; (ii) the Assessing Officer went ahead with the assessment disregarding the moratorium imposed by NCLT, though specifically brought to notice of the Assessing Officer by the IRP; (iii) As per the final order of NCLT, the debt due to various creditors including the Income Tax department were extinguished and determined at Nil as per waterfall mechanism mentioned under section 53 of the IBC. AY 2010-11 & 2011-12.
Monnet Ispat & Energy Ltd. v. ACIT; ITA No. 2485 (DEL) of 2019 & 2486/Del/2019; 102 ITR 29
S. 143(1): Assessment – Remitted Employees’ Provident Fund – Addition made by AO as per Audit Report – Addition deleted.
On perusal of a Tax audit report of the assessee it was found that assessee had remitted the employees contribution to Provident Fund beyond the due date prescribed under the Provident Fund Act, but had duly remitted the same before the due date of filing the return of income under section 139(1) of the Act. The Ld. CPC Bangalore had taken up this data from tax audit report and sought to disallow the same while processing the return under section 143(1) of the Act, apparently by applying the provisions of section 143(1)(a)(iv) of the Act. Tribunal held that the impugned adjustment in course of processing of return under section 143(1) is vitiated in law, and we delete the same. Our adjudication confined to the limited scope of adjustments which can be carried out under section 143(1) and that we see no need to deal with the question, which is rather academic in the present context, as to whether if such adjustment was to be permissible in the scheme of section 143(1), whether the insertion of Explanation 2 to section 36(1)(va), with effect from 1st April 2021, must mean that so far as the assessment years prior to this assessment year 2021-22 are concerned, the provisions of section 43B cannot be applied for determining the due date under Explanation (now Explanation 1) to section 36(1)(va). That question, in our humble understanding can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s . 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv).
M/s P R Packaging Service v. ACIT (2023) 199 ITD 0724 (Mumbai-Trib), (2023) 221 TTJ 0137 (Mumbai), (2023) 221 DTR (Trib) 0001 (Mumbai) (Trib)
- S. 143(1)(a) – Adjustment to the total income returned for the Asstt.Year: 2017-18 – Assessing Officer of CPC made an adjustment denying the credit for the TDS even though appearing in Form 26AS – No notice was issued to the assessee before making such adjustment. The CIT (Appeals) confirmed the Assessing Officer’s action for not granting TDS credit merely on the ground that the corresponding income has not been shown by the appellant in the return of incomeSince the CIT (Appeals), without application of mind, confirmed the order of CPC by ignoring the mandate of law contained in Section 143(1) (a) that before making such adjustment, the notice shall be served upon the assessee, there is no jurisdiction with the CPC and consequently the adjustment done by the CPC is not sustainable in law. Even on merits also, there is no jurisdiction available with the AO, or CPC to make such adjustments. CIT v. Relcom (2015) 62 taxmann.com 190 (Delhi) referred to
Haft Propbuild P. Ltd. v. ITO (2023) 102 ITR (Trib.) 399 (ITAT- Del.)
- S.143(3) : Assessment – 263 – Revision by Commissioner – AO order was set aside – Tribunal held setting aside as erroneous.After a compulsory scrutiny and CASS survey at the premises of the assessee, an additional income of Rs. 1Cr was surrendered. Assessment order was passed. The order was set aside under the Revisionary Powers of ld. PCIT claiming that the Order was erroneous so as it is prejudicial to the interest of the revenue in terms of provisions of section 263 of the Act, especially in view of Explanation 2 inserted by the Finance Act, 2015. The tribunal held that the order framed u/s 263 of the Act deserves to be set aside and that of the Assessing Officer deserves to be restored. (Asst. Year 2017-18)
M/S Surya Hatchery (Earlier Known as M/S Neelkanth Breeding Farm) And Anr. vs. Pr. CIT (2022) 66 CCH 0544 ChdTrib (2023) 102 ITR (Trib) 0186 (Chandigarh), (2023) 221 TTJ 0567 (Chd )
- S.144C: Reference to dispute resolution panel – Since there was no forwarding not even effort to forward draft assessment order to the new address furnished to the Assessing Officer under proviso to Rule 127(2) within permitted time frame under section 153 r.w.s. 144C, the impugned assessment order was time barred and therefore liable to be quashed. [r.w.s. 153 & Rule 127(2)]The returned income of the assessee was proposed to be subjected to variations prejudicial to the interests of the assessee under section 144C. There was a change of address and assessee had intimated the new address to the Assessing Officer vide letter dated 25.05.2018. The Assessing Officer had passed two draft assessment orders both dated 10.12.2018 under section 144C but both of these draft assessment orders contained the old address of the assessee. The short case of the assessee was that since the Assessing Officer did not forward the draft assessment order on or before the due date as is prescribed in the provisions of section 153 r.w.s. 144C, the impugned assessment order was time barred. The Tribunal observed that there was no forwarding not even an effort to forward the draft assessment order to the new address furnished to the Assessing Officer under proviso to Rule 127(2) within the permitted time frame under section 153 r.w.s. 144C. The impugned assessment order was thus barred by limitation. Accordingly, the Tribunal held that the impugned assessment fails for this short reason alone and the impugned assessment order was quashed. [ITA No. 7597 (Mum) of 2019 dt. 09.11.2022] (A.Y. 2015-16)
DSV Solutions (P) Ltd. v. DCIT (2023) 221 TTJ (Mum) 310
- Section 147 of the Income Tax Act, 1961 – Reassessment proceedings-initiated basis re- appreciation of same documents which were available at the time of original assessment is to be set aside.The sole issue involved is whether reassessment proceedings can be initiated after a period of 4 years from the end of the relevant assessment year when complete disclosure was made regarding the issue at hand by the Assessee during scrutiny assessment under section 143(3) of the Act.
The Hon’ble Tribunal drawing reference to a catena of judgements, quashed the reassessment notice and set aside the reassessment proceedings on the reasons that (i) There was nothing on record to establish that there was any failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment; (ii) Relevant queries were made on the issue at hand during the course of assessment proceedings and the Assessee had duly replied to the same;(iii) The instant proceedings were reopened by way of ‘change of opinion’ since no fresh material or information had been brought on record by the Assessing Officer to show that there had been escapement of income due to failure on part of the Assessee to truly and fully disclose all material facts; (iv) The reassessment proceedings were initiated only on re-appreciation of same documents which were available with the Assessing Officer at the time of original assessment. AY 2008-09
Madhya Gujarat Vij Company Ltd. v. DCIT; ITA No. 182 (AHD) of 2017; 102 ITR 78
- S. 147: Bogus purchases – Inventory and Closing stock not disputedConsequent upon the search and seizure operation, the assessee firm’s assessments were completed u/s 153A(1)(b) r.w.s. 143(3) making addition on account of valuation of stock, which had been deleted by the CIT (Appeals) – Subsequently, on receipt of the information from the Investigation Wing, the AO issued notice u/s 148 for the reasons recorded that certain entities were providing accommodation entries and the assessee firm was one of the beneficiaries from K. Ltd. for the transaction of purchase of jewellery from K. Ltd. for Rs. 10,14,600/– and to treat the same as bogus purchases – In response, the assessee firm submitted the complete details of the purchase transaction with K. Ltd. with cogent and corroborative evidences i.e. copy of purchase bill, delivery challan, bank statements evidencing payment through banking channels, purchases, sales and stock register, confirmation of accounts from K. Ltd., but in vain. The CIT (Appeals) also confirmed the addition made by the AO
The Hon’ble ITAT held that the assessee firm had discharged the onus cast on it by placing the cogent and corroborative evidences, materials, etc. to establish the nature and source of purchases as duly recorded in the books of accounts and shown as part of its closing stock. A statement recorded on oath u/s 132(4) does not carry any evidentiary value, the assessee should be allowed an opportunity to cross-examine the deponent. , Merely relying on statement recorded at the back of the assessee and without granting an opportunity of cross-examination, the purchases could not be held bogus, more so when, the purchases equally form part of inventory and closing stock which has not been disputed by the AO either any finding as to such purchases at an inflated value. The addition was deleted in toto.
Talwar Jewellers v. ACIT (2023) 102 ITR (Trib.) (S.N.) 26 (ITAT-Chand.)
- Sections 147 and 151 of the Income-tax Act, 1961: ReassessmentIn this case, Principal CIT having granted approval under Section 151 in a mechanical manner without applying his mind to the fact that the AO has sought approval for reopening the assessee’s assessment under Section 147(b) which has been omitted from the statute with effect from 1st April, 1989, the entire proceeding is vitiated and, therefore the same is quashed.
Sunil Sahu v. Assistant Commissioner of Income Tax  221 TTJ (Ind.) 631
- S. 151 : Sanction – Reassessment They have also relied in the case of Kalpana Shantilal Haria, Writ Petition No. 3063/2017 dated 22nd December, 2017 has held that the assessment proceedings are invalid. They also followed the Delhi Bench in case of VRC Township (Pvt.) Ltd., ITA No. 1503/ Del/2017, Order dated 14th October, 2020 has held the assessment proceedings are invalid on the ground that while granting sanction under Section 151 of the Income-tax Act, the Additional CIT has mentioned in the reasons that “yes”, I am satisfied that it is a fit case for re-opening under Section 147. Such a satisfaction was not found valid by the Tribunal, Delhi Benches in case of Shri Balkrishna Agrawal v. Dy. CIT, hence, the appeal for A.Y. 2010-11 to 2012-13 stands allowed of the assessee.Sunil Sahu v. Assistant Commissioner of Income Tax  221 TTJ (Ind.) 631
- S. 154(7) r.w.s. 143(3) – Rectification of mistake – Time limitOriginal assessment order u/s 143(3) allowing the claim of deduction u/s 80-IA – Application for rectification u/s 154 of the Act filed by the assessee for granting credit for the TDS being the mistake apparent from records – Disposed off by the AO granting credit for the TDS without disturbing the claim u/s 80- IA – Assessee filed the appeal before the CIT (Appeals) against other disallowances made u/s 143(3) and the same has been disposed off by the CIT (Appeals) with substantial relief – At the time of the passing the order to give effect to the CIT (Appeals)’s order, the AO issued notice u/s 154 proposing to disallow the deduction u/s 80-IA – While not considering the reply of the assessee, the AO passed the order giving effect to the CIT (Appeals)’s order with the disallowance of deduction u/s 80-IA, which had already been allowed u/s 143(3) and subsequent to the order passed u/s 154
Once an order u/s 154 is passed for the rectification of the apparent mistake in the order u/s 143(3) of the Act, the rectification order u/s 154 could not be considered to be an independent proceeding, but it would be termed as the original assessment order modified/rectified. Hence, the time limit for rectification to deny deduction u/s 80- IA should be reckoned only from the date of original assessment order u/s 143(3) and therefore, the AO’s order giving effect to the CIT (Appeals)’s order with an attempt to deny the deduction u/s 80-IA of the Act in the garb of apparent mistake, is clearly barred by the limitation as provided u/s 154(7) of the Act. Even on merits, the assessee is eligible to deduction u/s 80-IA r.w. Section 80-IA(12A) of the Act.
Ultratech Cement Ltd. v. ACIT (2023) 102 ITR (Trib.) (S.N.) 33 (ITAT – Mum.)
- S. 154 r.w.s. 143(1) – Rectification of apparent mistake committed by CPC while processing the return of income in as much as depreciation u/s 32 has not been grantedAn inadvertent error committed at the time of feeding the information in the return of income for the claim of depreciation u/s 32 – Applicability of Explanation 5 to Section 32 which provides that even though, the depreciation is not claimed in the return of income, the assessee shall be allowed the depreciation u/s 32 of the Act – Effect of Circular No. 14 (XI-35) of 1955 dtd. 11–04– 1955 – The assessee entitled for the claim of depreciation u/s 32 of the Act
Indauto Filters v. ACIT (2023) 102 ITR (Trib.) 403 (ITAT (Bang))
- S. 194C, 194I: Deduction of tax at source – Contactors/ sub-contractors, payments to (Common area maintenance charges)S. 201(1), 201(1A): Consequence of failure to deduct or pay
Assessee-company had entered into a lease deed with GE and obtained piece and parcel of a shop – Under said agreement, assessee was to pay certain amount of rent and common area maintenance changes – Assessing Officer held that since CAM charges were directly relatable to and were part of rental activity, payment of same would fall under purview of section 194-I – Accordingly, he passed an order under section 201(1) and levied interest under section 201(1A) – It was noted that while lease rentals were paid based on a fixed percentage on net revenue, CAM charges were based on per square feet area. Further, determination of rent and CAM were separate and CAM arrangement were not an essential or integral part for use of premises – Whether since there were no expenses incurred against rent except for general building maintenance and municipal charges and CAM involved employment of separate staff and separate operations on a day-to-day basis, therefore, provision of rent was to be governed as per section 194-I, whereas, CAM charges as per section 194C.
Amendment made to sub-section (3) of section 201 by Finance (No. 2) Act, 2014, with effect from 1-10-2014, whereby limitation period for passing order has been extended to seven years from relevant financial year in which payment is made or credit is given in substitution of erstwhile six years period, has retrospective effect [AY 2012-13]
ITA No. 1115/DEL/2020 dated 03/10/2022 for AY 2012-13
YUM Restaurants India (P.) Ltd. v. ACIT, (TDS): 2022 ITL 5735 / 100 ITR(Trib) 239 / 221 TTJ 924 / 147 taxmann.com 257
- S.194C: Deduction at source – Contractors – The handling contractor was not responsible for deducting TDS under section 194C on demurrage and railway siding charges that were charged by Dock authorities on importer for delayed clearance [r.w.s. 40(a) (ia)]The assessee-company was engaged in the business of building, maintaining and operating a berth for discharging cargo from incoming vessels at Kolkata Port Trust. During the year under consideration, the assessee had handled the imported goods on behalf of Steel Authority of India Ltd. (SAIL) and had incurred railway siding charges and demurrage charges. In pursuance of this activity of handling contractor for SAIL, assessee had received the payments from SAIL after deduction of railway siding charges and demurrage charges. The assessee claimed these expenses in the profit and loss account. During the assessment proceedings, the Assessing Officer contended that the above claimed expenses were subject to tax deduction under section 194C. As tax was not deducted, Assessing Officer disallowed the expenses in accordance with section 40(a)(ia) and computed the income accordingly. On appeal, the CIT (Appeals) reversed the order of the Assessing Officer. The Revenue was in appeal before Tribunal against the order of CIT (Appeals).
The Tribunal observed that both the railway siding charges and demurrage charges arose out of failure on part of the assessee to complete work within the prescribed time allotted by Kolkata Port Trust to SAIL which was charged to SAIL who in turn deducted the same from the payments made by SAIL to the assessee. It was an admitted fact that assessee was contractually bound by SAIL to act as a handling contractor for imported coking coal and there was an agreement between the two parties to the effect that any incidental charges relating to handling job were to be deducted from the payments made to assessee by SAIL. In pursuance of this activity of handling contractor for SAIL, assessee had received the payments from SAIL after deduction of the two impugned expenses. The Tribunal pointed out that there was no payment made by the assessee to SAIL or to Port Trust on account of these two impugned expenses which have been disallowed by the Assessing Officer for want of deduction of tax at source by the assessee. Reference was made to the legal maxim ‘impotentia excusat legam’ and ‘lex non cogit ad impossibilia’ in this respect which says
that where the law creates a duty or charge and the party is disabled to perform it without any default in him and has no remedy over it then there the law will, in general, excuse him. Considering the factual matrix of the case and two legal maxims, the Tribunal held that there was no reason to interfere with the finding given by the Commissioner (Appeals) in this respect. Accordingly, the appeal of the revenue was dismissed. [ITA No. 997 (Kol) of 2018 dt. 14.12.2022] (A.Y. 2012-13)
DCIT v. International Seaports (Haldia) (P.) Ltd. (2023) 199 ITD 188 (Kol)/221 TTJ (Kol) 46
- S. 201/194: Non deduction of TDS on year-end provision – Suo moto disallowance of expenditure u/s 40(a)(ia) – liability to deduct tax at source u/s 194A exists – levy of interest u/s 201(1A) –Failure to identify the payees – matter remandedAssessee had disallowed certain expenditure u/s 40(a)(i) and 40(a)(ia) of the Act for not deducting tax at source from those expenses. AO initiated proceedings u/s 201(1) & 201(1A) and charged interest u/s 201(1A). It was held that assesses who are following a mercantile system of accounting are required to account for all known expenses and losses, even if bills/invoices have not been received. Point of time at which tax had to be deducted at source is at time of credit to Account of contractor or payment in cash or cheque, whichever r is earlier. Following the decisions of coordinate benches, it was held that TDS provisions are triggered for the amount credited to the Provision for expenses account. Accordingly, it was held that assessee is liable to deduct tax at source from year end provision for expenses. Even if the payer had disallowed expenditure u/s 40(a)(ia) or did not claim the same as expenditure at all, he shall still be liable to deduct tax at source u/s 194A.
In view of explanation given u/s 191 of the Act, provisions of S. 201 are triggered when assessee is deemed to be an assessee in default. If there is failure on part of an assessee to deduct tax at source, provisions of S. 191 introduces a deeming fiction as per which said assessee is deemed to be an assessee in default. Disallowance made u/s 40(a)(i)/40(a)(ia) will not absolve assessee from liability u/s 201. However, when assessee cannot ascertain payee who is beneficiary of credit of tax deduction at source, mechanism of Chapter XVII-B cannot be put into service as the mechanism provided under Chapter XVII-B would fail and hence AO would not be entitled to demand tax u/s 201(1) and interest u/s 201(1A). As the assessee has not furnished any detail to AO / CIT(A), the issue is restored to file of AO. Matter remanded. [ITA No. 1248/Bang/2014, dated 21.03.2022][AY 2012-13]
Biocon Ltd. v. DCIT (2023) 102 ITR (Trib.) 485 (Bangalore)
- Revision u/s 263 – Educational Institution – S. 10(23C)(iiiad) – The assessee trust was registered u/s 12A/12AA of the Act – Assessment Year: 2017–2018 – Assessment u/s 143(3) accepting the returned income, allowing the exemption u/s 10(23C)(iiiad) – The CIT (E) issued the notice u/s 263 on the ground that there was no receipt from education institution or activities, but total income comprised off dividend, interest and surplus from sale of investments and treated the AO’s order as an erroneous in so far as prejudicial to the interests of the Revenue and accordingly, CIT (E) directed the AO to assess the income without allowing exemption u/s 10(23C)(iiiad)The Hon’ble ITAT, while allowing the appeal of the Trust, observed the undisputed fact that the assessee trust was engaged in running an educational institution in which, no fee was charged from the students due to severe poverty and backwardness in the area and local residents were not sending their children to schools, incurred the huge sum towards educational expenses and maintenance of the school, that mere receipts from other sources other than educational activities more than 1 Crore could not be the ground to treat the assessment order passed by the AO, appreciating the crucial facts demonstrated from the submissions/explanations offered by the assessee trust in response to the queries raised by the AO and taking the plausible view to grant the benefit of the provisions of Section 10(23C)(iiiad) of the Act, could not fall within the phrase “an erroneous in so far as prejudicial to the interests of the Revenue”. Hence, the assessee trust entitled to exemption u/s 10(23C)(iiiad) of the Act and consequently, the order of the CIT (E) was to be set aside.
Shri Venkateshwara Educational Institute v. CIT (E) (2023) 102 ITR (Trib.) (S.N.) 45 (ITAT-Kol.)
S.263: Revision of orders prejudicial to revenue – Limited scrutiny assessment the PCIT can examine the only issue which was before the Assessing Officer during the course of scrutiny assessment and not any other issue which has not been subject matter of the Assessing Officer for the assessment in a limited scrutiny assessment. [r.w.s. S.143(3)]
The issue under consideration is that once the assessment is framed under section 143(3) for limited scrutiny then can PCIT revise the assessment order on some other issues which is not connected with the issues raised in limited scrutiny by the Assessing Officer.
The Tribunal by relying upon the Instruction No.20/2015 dated 29.12.2015 issued by CBDT observed that in a limited scrutiny case the assessment shall remain confined only to the specific issues for which case has been picked up. The scope of limited scrutiny shall be expanded upon fulfillment of certain conditions. The conditions are that during the course of assessment proceedings in a limited scrutiny case if it comes to the notice of Assessing Officer that there is a potential escapement of income exceeding Rs.5 lakh for normal CIT charge and potential escapement of income exceeding Rs.10 lakh for metro CIT charge requiring substantial verification on any other issue then the case may be taken up for complete scrutiny with the prior approval of PCIT.
In light of the aforesaid circular, the Tribunal held that once the Assessing Officer cannot examine any other issue except the issue as selected for limited scrutiny assessment, the PCIT can examine the only issue which was before the Assessing Officer during the course of scrutiny assessment and not any other issue which has not been subject matter of the Assessing Officer for the assessment in a limited scrutiny assessment. [ITA No. 232 (Chny) of 2021 dt. 21.12.2022] (A.Y. 2015-16)
Duckwoo Autoind Pvt. Ltd. v. PCIT (2023) 221 TTJ (Chennai) 235
S.263: Revision of orders prejudicial to revenue – Since the revisionary order was passed within five days from the date of issuance of show cause notice, proper and effective opportunity of being heard was not provided to the assessee matter restored back to PCIT to pass fresh revisionary order after giving proper and adequate opportunity of being heard to the assessee.
During the course of revisionary proceedings under section 263, the PCIT observed that during the course of reassessment proceedings, the Assessing Officer has not examined/ enquired the details of facts of the case and hence the reassessment order is erroneous so far as prejudicial to the interest of revenue. Show cause notice dated 18.03.2021 under section 263 was issued to the assessee and date of hearing was fixed on 22.03.2021. However, the assessee did not give reply on the aforesaid date of hearing. The revisionary order under section 263 was passed on 23.03.2021 which is within 5 days from the date of issue of show cause notice.
Tribunal observed that proper and effective opportunity of being heard was not provided by Ld. PCIT to the assessee before passing the impugned revisionary order since the said order was passed within five days from the date of issuance of show cause notice. Accordingly, the Tribunal set aside the revisionary order passed by the Ld. PCIT. The matter was restored back to the file of the Ld. PCIT to pass fresh revisionary order after giving proper and adequate opportunity of being heard to the assessee. [ITA No. 8 (Alld.) of 2021 dt. 06.12.2022] (A.Y. 2010-11)
Anil Kumar Singh v. PCIT (2023) 221 TTJ (All) 97
- S. 263: Revision of orders prejudicial to revenue – Assessment under section 143(3) – PCIT initiated proceedings u/s 263 – No detailed inquiry or verification by PCIT – failure to point out error in assessment order – S. 263 order quashedAfter making an enquiry with respect to the claim of deduction made by the assessee u/s 35(2AB), the assessment order was passed u/s. 143(3) of the Act. Subsequently, PCIT issued a show cause notice u/s 263 wherein the assessee furnished detailed explanations. PCIT passed the S. 263 order holding the assessment order as erroneous and prejudicial to the interest of revenue, and set aside the assessment order for fresh assessment. It was held that the PCIT had merely reproduced the exhaustive details submitted by the assessee but did not dwell on the same by giving observations of his examination of the details and data, to point out how and what was erroneous in respect of the claim made u/s 35 of the Act. Further, it was not a case where there was no enquiry at all by the AO as the AO did enquire in to the claim of assessee in respect of S. 35(2AB). Further, PCIT had not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to re-examine the issue of claim of scientific research expenditure. Therefore, the conclusion arrived at by the Ld. PCIT invoking provisions of S. 263 of the Act on the first issue was not justified. The impugned order u/s 263 of the Act was quashed. [ITA No. 150/Kol/2021, dated 28.03.2022] [AY 2016-17]
Britannia Industries Ltd. v. PCIT (2023) 102 ITR (Trib) 513 (Kolkata)
- S. 263 : Revision – AO allowed deduction u/s 35(2AB) after verifying all the necessary documents and certificates — neither the AO nor the PCIT has power to question the approval granted by the DSIRThe PCIT passed an order u/s 263 of the Act wherein he set aside the set aside assessment order framed by the AO u/s.143(3) of the Act, stating that the assessee was engaged in the production of cosmetic products, which is one of the articles listed in Eleventh Schedule to which deduction u/s.35(2AB) of the Act does not apply and therefore, the AO has erroneously allowed claim of deduction to the assessee u/s.35(2AB) of the Act, in contravention of said section without carrying out any verification or enquiry.
The ITAT observed that the AO had gone through the various documents furnished and also the approval received by the assessee from the DSIR for claiming deduction u/s 35(2AB) of the Act during the scrutiny proceedings and after examining the same allowed the claim of deduction u/s 35(2AB) of the Act. Insofar as the question as to whether the AO has any power to question the approval granted by DSIR u/s 35(2AB) of the Act, the ITAT held that the decision of DSIR is final as per sub-rule 5A of Rule 6 of the IT Rules, 1962. Therefore, the revision order was set aside. (I.T. A. No. 1603/ Chny/2016 date 23.12.2022) (AY 2011-12)
M/s Cavincare Pvt. Ltd. v. DCIT (2023) 102 ITR (Trib) 0436 (Chennai), (2023) 221 TTJ 0549 (Chennai)
- S. 263: Revision – Principal commissioner taking view explanation offered by the assessee to assessing officer not satisfactory and assessing officer had failed to conduct further enquiries, revision based on audit objection is invalid. (r.w.s. 68, 69, 69A, 69B, 69C, 69D, 115BBE)Held that, the Assessing Officer had duly made enquiries from the assessee as to the nature and the source of the surrendered income and called upon him to show cause why it should not be charged at a higher rate of tax according to the provisions of section 115BBE of the Act. The Assessing Officer after considering the submissions and explanations of the assessee had accepted the contention of the assessee that the surrendered income was out of the business income of the assessee. The Principal Commissioner had not pointed out why the explanation offered by the assessee to the Assessing Officer was not satisfactory and what further enquiries were required to be conducted, which the Assessing Officer had failed to conduct. The Principal Commissioner based his opinion and order on the audit objections and report. Therefore, there was no justification on the part of the Principal Commissioner in invoking the revisionary jurisdiction.
Surender Kumar v. Pr. ITO (2023) 102 ITR 247 (Chad)(Trib.)
- S. 263: Revision: Principal commissioner is not justified in initiating revision proceedings when proceedings have already declared under the Direct Tax Vivad Se Vishwas Scheme, (Direct Tax Vivad Se Vishwas Act, 2020, s. 8)Held that, the declaration under the Direct Tax Vivad se Vishwas Scheme was made for the proceedings in which the disputed amount pertaining to the allotment of shares to shell company on premium. The assessee had filed the necessary forms under the Direct Tax Vivad Se Vishwas Scheme and Form 5 confirming the settlement under the Scheme had been issued. Therefore, the transaction was part of the proceedings declared under the Direct Tax Vivad Se Vishwas Scheme. Without verification of the face value, the Assessing Officer would not have assessed the premium amount and the amount towards the face value of the shares was part and parcel of the entire proceedings which the assessee had opted to settle under the Direct Tax Vivad Se Vishwas Scheme.
Therefore, the Principal Commissioner was not justified in initiating the proceedings under section 263 when the proceedings were already declared under the Direct Tax Vivad Se Vishwas Scheme.
Shiva Ferric Pvt. Ltd. v. Pr. CIT (2023) 102 ITR 173 (Bang.)(ITAT)
- S.263: Revision – Assessment order which is nullity in law – Cannot be revised u/s. 263 of the Act.Rs. 20 Lakhs in old currency was seized by the ITO during municipal elections. Scrutiny notice u/s 143(2) was issued for assessment. After assessment, the order passed was called for revision by the PCIT u/s 263. The assessee contended that when a requisition has been made under s.132A of the Act, the jurisdiction to complete the assessment is governed by the provisions of Section 153A of the Act. The normal provisions of assessment under s.143(3) of the Act would not apply in the case where action has been taken either under s.132 of the Act or under s.132A of the Act.
The Tribunal held that the order which is a nullity in law and has no legal effect, cannot be revised under s.263 of the Act. The assessment order being infructuous in law, the consequential action under s.263 of the Act is equally infructuous. The assessment, in the instant case, has not been framed under s.153A of the Act despite requisition under s.132A of the Act. The error committed by the AO in contravention of express provisions of Act is incurable and has rendered the assessment void ab initio and a nullity in law. Such an assessment order being devoid of any legal effect could not be revised. The revisional order is accordingly quashed and set aside. (Asst. Year 2017-18)
Piyush Kumar Choubey v. Pr. CIT (2022) 63 CCH 0677 Raipur Trib (2023) 221 TTJ 0017 (Raipur) ((UO)),
- S. 263 : Revision The Principal commissioner was wrong to seek revision of the duly examined matter on mere surmise of human probability.For the given assessment year, the assessee’s return was selected for limited scrutiny to examine cash deposits during the demonetization period. Notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 with questionnaires were issued and after taking into consideration the submissions filed by the assessee, the returned income declared by the assessee was accepted. Subsequently, the Principal Commissioner held the order passed by the Assessing Officer erroneous and prejudicial to the interests of the Revenue and set it aside directing the Assessing Officer to pass a fresh order in accordance with law after providing sufficient opportunity to the assessee.
Upon appeal before the Hon’ble Tribunal, the assessee contended that the deposit of cash during the financial year relevant to the assessment year in question, was out of opening cash-in-hand at the beginning of the financial year and that the opening cash-in- hand was from (i) maturity proceeds from life insurance (ii) policies on death of her husband, (iii) compromise and settlement amounts received pursuant to court orders, (iv) sale of shares (v) sale of plot of land and (vi) withdrawals from the bank account. The Assessee further explained that the reason for keeping cash was due to insecurity of the assessee and undergoing mental trauma on account of death of her husband, divorce proceedings of her daughter and various court cases. The Assessing Officer had examined these submissions and carried out verification from the banks and after examining earlier years’ tax returns, had accepted them in support of cash available at the beginning of the year and deposit therefrom during the demonetization period. Further, regarding other receipts on maturity of insurance policies and sale of land, the factum of these transactions and necessary evidence on record had not been disputed by the Principal Commissioner. The Principal Commissioner could not fathom the explanation of the assessee holding the same against human probability, on the assessee keeping such huge cash-in-hand for such a long period of time.
Held that the human probability must be seen in context of surrounding circumstances of the assessee prevalent at the relevant point in time and a reasonable inference has to be drawn. In the present case, the assessee had sufficiently explained and demonstrated the availability of cash which she kept in her possession instead of depositing it with the bank or any other person and thus, she had discharged the initial onus placed on her. In absence of any contrary evidence on record, the explanation deserved acceptance. (AY 2017-18) ITA No. 446/Chd/2022
Smt. Kanta Rani v. PCIT 102 ITR 49 (Chd.)(Trib.)
- Section 263: Revision-Erroneous and prejudicial orderAn assessee, a State Government Undertaking, pays VAT as per Section 3(5) of INVAT Act, 2006. State derives power to levy sales tax (VAT) on liquor under entry 54 and power to levy fees in connection with production, manufacture, transportation etc. is derived under entry 69 of List II of VII Schedule to the Constitution. So, the power of the State Government to levy tax on sale and purchase of liquor and power to levy fees are two different powers and are derived from two different entries in the State list. Thus, fees levied under the power granted under Section 69 cannot encompass tax levied by virtue of Entry 54. Hence, it cannot be said that the word “royalty” license fee, privilege service charges or any other fee or charge by whatever name called, occurring in 40(a)(iib) are wide enough to include sales tax, i.e., VAT also. VAT so collected on behalf of the Government and passed on to Government in totality, VAT, which is separately collected from the Purchaser – VAT is not levied exclusively on the assessee. Entire amount so collected has to be passed on to the Government and is not out of any surplus available. Therefore, VAT collected cannot be considered as surplus appropriated by State Government. Hence, VAT collected and paid the assessee under the provisions of TNVAT Act, 2005 is an allowable expenditure and cannot be disallowed under amended provisions of Section 40(a)(iib). Therefore, the order passed by AO allowing deduction of VAT Under Section 37 read with Section 43B to the assessee cannot be said to be erroneous and prejudicial to the interest of the Revenue. Hence, the revisional order passed by the Pr. CIT was quashed.
Tamilnadu State Marketing Corporation Ltd. v. ACIT  221 TTJ (Chennai) 65
- S. 263: Revision – Not for corrections, errors & mistake – No order in existence.Section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO. If there is no order which is sought to be revised by the Pr. CIT, question of revising the order does not arise. In the instant case, though the AO recorded his finding in the order for initiation of penalty under Section 271(1)(c). He issued notice under Section 271AAB(1A).
Held that if there is no order, it is not open to the Pr. CIT to exercise his revisional powers under Section 263 to create a non-existent proceedings, invocation of provision of Section 263 to correct the section under which the penalty is leviable is beyond the power vested under Section 263 when there are other options available with AO.
Harish Jain v. Pr. CIT  221 TTJ (JP.) 276
- S. 263: Revision – Audit objection – Rate of tax – Same set of fact – Revision not justified.The assessee is a partnership firm running hatchery business under the name and style of M/s. Surya Hatchery. The assssee did not have any other business other than hatchery business.
Survey under Section 133A of the Act was conducted at the business premises of the assessee, in order to cover the discrepancies of the business, the assessee surrendered an amount of Rs. 1,00,00,000/- as a part of his normal business of income just to buy peace of mind and to avoid litigations and tax was also paid on the same at the normal rate of tax.
During the course of assessment proceedings itself, the AO issued a specific notice dated 11th December, 2019 addressing the issue of charging tax under Section 115BBE of the Act @ 60% on the surrendered income. The assessee filed a detailed reply in response to the said notice explaining the non- applicability of Section 115BBE of the Act on the income surrendered by the assessee. Since the surrender was made on account of business discrepancies, the applicable tax rate on the surrendered income was 30% instead of 60% levied by the Principal CIT. Thereafter, audit objection was raised by the ITO, that income to the tune of Rs. 1,00,00,000/- as surrendered during the course of survey proceeding should be taxed under Section 115BBE of the Act @ 60% instead of normal tax rates which lead the Principal CIT to assume jurisdiction under Section 263 of the Act passed on the audit objection and without independent application of mind by the Principal CIT, notice dated 11th February, 2022 was issued to the assessee under Section 263 of the Act to show cause as to why the order passed by the AO could not be considered as erroneous as well as prejudicial to the interest of the revenue and why the tax rate as mentioned in the section 115BBE should not be applicable to the income of the assessee.
Held that there is not even a whisper of any allegation on the record of any other source of income of the assessee. It was for the revenue to prove that there were some other sources.
Surrendered income was normal business income of the assessee. Thus, the action of the Principal CIT in re-looking at the very same facts and position of law solely to bring a higher rate of tax by applying section 115BBE cannot be countenanced in the revisionary proceedings. Revisionary powers cannot be exercised merely on the same set of facts. Therefore, the view taken by the Principal CIT is at variance with the AO. They are seen to be legal support. Therefore, it cannot hold that the assessment order was passed without inquiry. Pr. CIT was not justified in passing the impugned revisional Order under Section 263 on the basis that surrendered income was assessable as per the provisions of Section 115BBE.
Followed: Parashuram Potteryworks Co. Ltd. v. ITO 106 ITR 1 (SC), CIT v. Sunbeam Auto Ltd. 332 ITR 160 Delhi
Surya Hatchery v. Principal Commissioner of Income-tax  221 TTJ (Chd.) 567, 202 ITR 186 (Chd.) (Trib.)
- S. 271: Penalty notice – Search – imposition of penalty u/s 271AAA – Issued notice under wrong section — non-striking off of the irrelevant limbIn this case a search was conducted by the department pursuant to which a return was filed u/s 153A. After making the assessment, the AO imposed a penalty u/s 271AAA with respect to undisclosed income, which was partially upheld by the CIT(A).
The ITAT observed that the AO had rightly imposed penalty u/s 271AAA, however, the notice for penalty was issued u/s 271 even though S. 271AAA categorically provides that no penalty u/s 271(1)(c) of the Act shall be imposed in respect of undisclosed income referred to in S. 271AAA(1). The ITAT therefore held that not only did the AO invoke the wrong section for imposing penalty u/s 271AAA but he also did not strike off the irrelevant limb in the notice u/s 271(1)(c) r.w.s. 274 of the Act. (ITA No.1898/PUN/2019, 40/ PUN/2020 dated 16.02.2023) (AY 2011-12)
Dellip Vijaykumar Kotecha & Anr v. DCIT & Anr. [(2023) 102 ITR (Trib) 0671 (Pune)]
- S. 271(1)(c): Penalty not justified when the assessee has neither concealed the particulars of the income nor furnished such facts which lead to the furnishing of inaccurate particulars.In quantum, held that the assessee has already declared income on the higher side compared to the earlier assessment year. The additions in the quantum were restricted on the basis of different views taken by CIT (A) and hence appeal was affirmed.
Held that, though the appeal is confirmed, the assessee has neither concealed the particulars of the income nor furnished such facts which lead to the furnishing of inaccurate particulars. Not a fit case for levy of penalty under section 271(1)(c).
Ranjanben G. Kasodaria v. Dy. CIT (2023) 102 ITR 718 (Surat)(Trib.)
- S. 271(1)(c): Penalty – Concealment of income or furnishing of inaccurate particulars of income – Notice – AO had not struck off the inapplicable portion as to whether the levy of penalty was for concealment of income or for furnishing of inaccurate particulars of income.Held: The penalty notice and levy of penalty were liable to be quashed as the AO had not struck off the inapplicable portion in the notice.
Judgment followed: Mohd. Farhan A. Shaikh v. Dy. CIT (2021) 434 ITR 1 (Bom.)
Sonpal Singh Pal Singh Saini v. ITO (2023) 102 ITR (Trib.) (S.N.) 32 (ITAT (Mum.))
- Section 274 r.w.s 271B of Income Tax Act, 1961 – No penalty to be levied when Assessee has voluntarily filed audit report though belatedly and the delay in obtaining tax audit report is on account of bona fide reasonsThe issue involved here pertains to imposition of penalty under section 271B of the Act against Assessee for delay in furnishing of audit report within due date.
The Hon’ble Tribunal noted that the Assessee had submitted the audit report though delayed and after the due date but without issuance of any notice. The delay in filing of the tax audit report was caused since the computer data crashed and it took time to recover the data and finalise the accounts again. The Assessee also submitted a sworn affidavit to this effect. No such default was observed by the revenue in the past. Considering the aforesaid fact pattern and voluntary compliance made by Assessee, the Hon’ble Tribunal held that penalty under section 271B of the Act cannot be levied for the reason that the failure was on account of a bona fide reason. Accordingly, the Assessing Officer was directed to delete the penalty levied on Assessee. (AY 2017-18) ITA No. 423 (JPR) of 2022.
Manju Saran v. ITO (2023) 102 ITR 64 (Jpr.) (Trib.)