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Category: Tribunal News: Part A-Domestic Taxation

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

7 [2024] 116 ITR(T) 261 (Mumbai – Trib.)

Piramal Enterprises Ltd. vs. DCIT

ITA NO.:3706 & 5091(MUM.) OF 2010

AY.: 2005-06

Dated: 11th January, 2024

Sec. 48 r.w.s. 50A & 55A.: Assessing Officer has no right to replace Government approved valuer’s opinion with his own.

FACTS I

The assessee had sold a flat at Malabar Hills during the year under consideration and for computing the cost of Acquisition of the said flat the assessee adopted the fair market value as on 1-4-1981 based on valuation report of government valuer. The AO after rejecting the valuation made by the valuer, calculated the cost of acquisition by assessing the rate at ₹1480 per sq. ft. as compiled in the reference book and thereby made an addition of ₹2,98,680/-.

Aggrieved by the order, the assessee preferred an appeal before the CIT(A). The CIT(A) upheld the addition. Aggrieved by the CIT(A) order, the assessee preferred an appeal before ITAT.

HELD I

The ITAT observed that for the year under consideration, the AO had no power to refer the matter for valuation to the Department Valuation Officer (DVO) but rather had power under section 50A of the Act to refer the case to the valuation officer in case the valuation adopted by the assessee was lower than the fair market value. But at the same time section 50A of the Act inserted by Finance Act, 2012 is prospective in nature as has been held by Hon’ble Jurisdictional High Court in case of CIT vs. Puja Prints[2014] 43 taxmann.com 247/224 Taxman 22/360 ITR 697 (Bom.).

The ITAT held that when the assessee had calculated the cost of acquisition on the basis of fair market value determined by the government valuer the AO had no right to replace the government approved valuer’s opinion on his own.

Thus, the appeal of the assessee was allowed to the extent of this ground.

Sec. 24.: Where assessee continued to be owner of part premises of House, rental income should be assessed only under the head income from house property and assessee would be entitled for statutory deduction @30% under section 24(a) for same.

FACTS II

The AO had treated the rental income earned by the assessee during the year under consideration from the let out portion of the property named “RP house” as income from other sources instead of income from house property on the ground that the assessee was not the owner of the property. The CIT(A) had confirmed the action of AO.

Aggrieved by the CIT(A) Order, the assessee preferred an appeal before ITAT.

HELD II

The ITAT followed the order passed by the co-ordinate Bench of the Tribunal on the identical issue in its own case for A.Y. 2003-04 & 2004-05 wherein rental income earned by the assessee from let out portion of RP house was treated as income from house property and directed the AO to assess the rental income of let out portion of RP house as income from house property.

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC. S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts. S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

6 (2025) 171 taxmann.com 392 (Mum Trib)

Sai Baba Sansthan Trust vs. DCIT

ITA Nos.: 932 & 935(Mum) of 2023

A.Ys.: 2013-14

Dated: 17th January, 2025

S. 115BBC – Where the tax department had recognized the assessee-trust as both charitable and religious in terms of approvals granted under section 80G and section 10(23C)(v) and therefore, its case was covered by exception under section 115BBC(2), it cannot be held that the Assessing Officer had formed a legally valid belief for the purpose of section 147 that the cash donations received by the assessee were taxable under section 115BBC.

S. 11(1)(a) – Accumulation under section 11(1)(a) is allowable on the gross receipts of the assessee and not on net receipts.

S. 11(2) – Any inaccuracy or deficiency in Form No. 10 would not be fatal to the claim of accumulation under section 11(2).

FACTS – I

The assessee was a charitable organisation registered under section 12A, section 80G and section 10(23C)(v). It was having a temple complex in the town of Shirdi consisting of Samadhi of a popular Saint fondly called as “Shri Sai Baba” and also other deities. The assessee usually receives huge amount of cash donations by way of hundi collections / charity box collections from the followers/devotees of Shri Sai Baba where the name and address of the contributor is not maintained. The assessee filed its return of income for A.Y. 2013-14 declaring NIL income which was processed under section 143(1).

Taking note of the Annual Information Report (AIR) for A.Y. 2013-14 and based on the stand taken by him for A.Y. 2015-16, the AO sought to reopen the assessee’s assessment by issuing notice under section 148 dated 23.3.2018 on the basis that cash deposits of ₹257 crores received by the assessee were taxable as anonymous donations under section 115BBC.The writ petition filed by the assessee against the notice was rejected by the High Court. SLP against the said High Court judgment was also rejected by the Supreme Court. Accordingly, the AO proceeded to pass the reassessment order wherein he determined the total income of the assessee at ₹67.01 crores, besides bringing the anonymous donations of ₹175.53 crores to tax @ 30% under section 115BBC.

On appeal, CIT(A) held that the reopening of the assessment was valid. On merits, CIT(A) held that the assessee was both charitable and religious trust and hence it would fall within the exceptions provided under section 115BBC(2). Consequently, he held that the anonymous donations received by the assessee were not taxable in the hands of the assessee. However, on other issues, CIT(A) confirmed the additions.

Aggrieved, both the parties filed appeals before the Tribunal.

HELD – I

The Tribunal observed that-

(a) At the time of recording of reasons for reopening, the AO should have been aware of the approval granted to the assessee under section 10(23C)(v) which is granted to a trust existing wholly for public religious purposes or wholly for public religious and charitable purposes. If the approvals under section 80G and section 10(23C)(v) granted by the income tax authorities were read together, there should not have been any doubt that the tax department has recognized the assessee trust as existing “wholly for charitable and religious purposes” which was covered by the exception listed in section 115BBC(2). Accordingly, had the AO considered both these approvals, he would not have entertained the belief that the assessee would be covered by section 115BBC.

(b) The AO had relied upon the approval granted under section 80G only and had chosen a document which would suit his requirement and ignored another important document which went in favour of the assessee, which is not permitted in law.

(c) Even on merits, in the appeals for AY 2015-16 to 2018-19, the Tribunal had held that the assessee was a charitable and religious trust, which order was upheld by the Bombay High Court vide its order dated 8.10.2024 in (2024) 167 taxmann.com 304 (Bombay).

Thus, the Tribunal held that the belief entertained by the AO, without considering the record in totality, could not be considered as a legally valid belief under section 147 and accordingly, the reopening of assessment was not valid.

HELD – II

On the issue of accumulation under section 11(1)(a), following the decision of the Supreme Court in CIT vs. Programme for Community Organisation,(2001) 248 ITR 1 (SC), the Tribunal held that accumulation under section 11(1)(a) is to be allowed on the gross receipts and not on the net receipt.

FACTS – III

In the return of income, the assessee had claimed accumulation of income under section 11(2) to the tune of ₹183.26 crores. During the course of assessment proceedings, it came to light that the assessee had omitted to disclose receipts from educational and medical activities to the tune of ₹78.84 crores. The assessee agreed to the addition of said amount and prayed that the deduction under section 11(1)(a) @ 15% of the above receipts should be allowed and further claimed enhanced accumulation under section 11(2) for the balance amount of ₹67.01 crores.

The AO noticed that the Form No. 10 filed by the assessee during assessment proceedings had certain deficiencies such as (a) it did not mention the date;(b) it did not quantify the amount to be accumulated; (c) the Board resolution passed for accumulation mentioned all types of objects; and (d) the amount to be accumulated was incorrectly mentioned as ₹575 crores. Therefore, he rejected the claim for enhancement of accumulation under section 11(2). However, he allowed the claim of accumulation of ₹183.26 crores as was originally claimed in the return of income.

CIT(A) upheld the action of the AO.

HELD – III

The Tribunal observed that the AO, even after pointing out the deficiencies in Form No. 10, had allowed the claim of accumulation under section 11(2) as originally claimed in the return of income. Therefore, such deficiencies should not come in the way of allowing the enhanced accumulation claimed by the assessee during assessment proceedings. In any case, as held by Gujarat High Court in CIT (E) vs. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust, (2019) 102 taxmann.com 122 (Gujarat), any inaccuracy or lack of full declaration in the prescribed format by itself would not be fatal to the claimant for the purpose of section 11(2). Accordingly, the Tribunal directed the AO to allow the enhanced amount of accumulation claimed under section 11(2).

In the result, the appeal filed by the assessee was allowed and the appeal of the Revenue was dismissed.

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable. S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

5 (2025) 171 taxmann.com 133(Pune Trib)

DCIT vs. Chakradhar Contractors and Engineers (P.) Ltd.

ITA No.:1939 & 1940(Pun) of 2024

A.Y.: 2020-21 & 2021-22.

Dated: 26th December, 2024

S. 270A – Where the Assessing Officer had not specified in the assessment order or in the notice issued under section 274 read with section 270A as to under which limb of section 270A(2) or section 270A(9) the case of the assessee fell, no penalty under section 270A was leviable.

S. 270A – Where the profit of the assessee had been estimated by resorting to section 145(3), no penalty under section 270A was leviable

FACTS

The assessee was a company engaged in the business of construction. It filed its return of income declaring total income by estimating the income from contract work at 7.37% of the turnover. The AO completed scrutiny assessment by estimating the income from contract work at 10 per cent of the turnover, which the assessee accepted and paid the due taxes thereon.

Subsequently, the AO initiated penalty proceedings under section 270A. Referring to section 270A(9), he levied penalty @ 200% of the tax payable on the under-reported income in consequence of misreporting.

On appeal, CIT(A) cancelled the penalty on the ground that the AO had not specified the sub-limb under section 270A(9)(a) to (g) and therefore, the penalty was not sustainable.

Aggrieved, the tax department filed appeals before ITAT.

HELD

The Tribunal held that where the Assessing Officer had not specified, either in the assessment order or in the notice issued under section 274 read with section 270A, as to under which limb of provisions of section 270A(2) or section 270A(9) the case of the assessee falls, no penalty under section 270A was leviable.

Further, applying the various decisions under erstwhile section 271(1)(c) that penalty was not leviable when the profit was estimated, the Tribunal held that since the profit of the assessee had also been estimated by resorting to the provisions of section 145(3), no penalty under section 270A was leviable.

Accordingly, the appeals of the tax department were dismissed.

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

4 (2025) 171 taxmann.com 569 (Jaipur Trib)

APJ Abdul Kalam Education and Welfare Trust vs. CIT(E)

ITA No. 567 (Jpr) of 2024

A.Y.: N.A.

Date of Order: 15th January, 2025

S. 12AB – Absence of registration under Rajasthan Public Trusts Act, 1959 cannot be a ground to deny registration under section 12AB since such non-registration did not prohibit the assessee to carry out its objects.

FACTS

The assessee was running a hostel. It obtained provisional registration under section 12A(1)(ac)(vi) on 3.8.2022. Thereafter, it applied for final registration on 30.9.2023.

CIT(E) rejected the application for final registration and cancelled the provisional registration on the grounds that (a) non-registration under the Rajasthan Public Trusts Act, 1959 (RPT) was in violation of section 12AB(1)(b)(ii)(B); (b) it was not specifically mentioned in the trust deed that foreign donations will be taken only after prior approval under Foreign Contribution (Regulation) Act, 2010 (FCRA); and (c) the assessee was not able to prove genuineness of its activities.

Aggrieved with the order of CIT(E), the assessee filed an appeal before ITAT..

HELD

Distinguishing Aurora Educational Society v. CCIT, (2011) 339 ITR 333 (Andhra Pradesh) and New Noble Educational Society vs. CCIT, (2022) 448 ITR 594 (SC) on the ground that the said cases applied to educational institutions only, the Tribunal observed that a plain reading of section 12AB (1) (b) (ii) (B) shows that compliance of requirement of any other law is required if compliance under such other law is material for achieving its objects. Section 17 of the RPT Act, 1959 requires that trustees of the trust have to apply for registration of a public trust. However, there is no section in the RPT Act, 1959 which prohibits a trust to carry out its objects if it is not registered under the RPT Act, 1959. Both the statutes, namely Income-tax Act and RPT Act, have their own provisions and implications and none of them have overriding effect. Even if the assessee trust was not registered with the RPT Act, 1959 and the concerned officials under the RPT Act, 1959 deemed it necessary to get the entity registered under section 17 of the RPT Act, 1959, appropriate action could be taken against the trustees of the trust. However, this issue cannot be a hurdle in getting registration under section 12AB of the Income-tax Act. Accordingly, the Tribunal directed the CIT(E) to not deny registration on this ground.

Considering the provisions of FCRA, the Tribunal directed the assessee trust to incorporate the relevant amendment in the trust deed mentioning that prior to receiving any foreign remittance whatever may be the form or nomenclature, prior approval will be taken from the Ministry of Home Affairs, Govt. of India, and produce the same for verification (in original) before CIT (E). Accordingly, the Tribunal restored the matter back to the file of CIT(E).

Since the assessee had furnished all the information and documents such as Income an Expenditure Account, note on activities etc. and the observations of the CIT(E) were either wrong or self-contradictory in nature, the Tribunal held that the CIT(E) was wrong in rejecting the registration on the ground of genuineness of activities and directed him to accept the reply of the assessee in toto.

Accordingly, the appeal of the assessee was allowed.

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30thJune, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

3 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3553/Mum./2024

A.Y.: 2014-15

Date of order: 28th February, 2025

Section: 149

Reassessment Notice issued beyond the surviving time limit would be time-barred. Surviving time limit can be calculated by computing number of days between the date of issuance of deemed notice u/s 148A(b) of the Act and 30th June, 2021. The clock of limitation which has stopped w.e.f. date of issuance of S. 148 notices under the old regime (which is also the date of issuance of deemed notices) would start running again when final to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO.

FACTS

For AY 2014-15, a notice u/s 148 of the Act (old regime) was issued to the Assessee on 07.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of AY 2014-2015). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment.

The Assessee filed reply on 09.06.2022. Thereafter, order u/s 148A(d) of the Act was passed on 24.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 24.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 26.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment, the Assessee preferred an appeal to CIT(A) who vide Order dated 16.05.2024 allowed the appeal.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee has filed cross-objection challenging the validity of the re-assessment proceedings.

The contention, on behalf of the Assessee was that the AO has passed order u/s 148A(d) of the Act and has issued notice u/s 148 of the Act (new regime) after the expiry of surviving period as computed according the judgment of the judgment of the Apex Court in the case UOI vs. Rajeev Bansal [(2024) 469 ITR 46]. Therefore, both, the order u/s 148A(d) of the Act and the notice u/s 148 of the Act (new regime) are barred by limitation.

HELD

The Tribunal observed that the issue which arises for consideration is whether the order, dated 24.07.2022, passed u/s 148A(d) of the Act and notice, dated 24.07.2022, issued u/s 148 of the Act (new regime) were passed / issued within the prescribed time. It noted that there is no dispute as to facts. It is admitted position that the notice issued u/s 148 of the Act (old regime) on 24.07.2022, was treated as notice issued u/s 148A(b) of the Act by the Assessing Officer (AO). Thereafter, order u/s 148A(d) of the Act, was passed on 24.07.2022, and the same was followed by issuance of notice dated 24.07.2022, u/s 148 of the Act (new regime). Thus, the notice u/s 148 of the Act (new regime) was issued after the expiry of 6 years from the end of the relevant assessment year.

The Tribunal noted the observations of Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46] which have been made in relation to the interplay between the judgment of the SC in the case of UOI vs. Ashish Agarwal [444 ITR 1] and TOLA.

The Tribunal held that on perusal of the observations of the Apex Court it becomes clear that the assessing officer was required to complete the procedures within the ‘surviving time limit’ which can be calculated by computing the number of days between the date of issuance of the deemed notice u/s 148A(d) of the Act and 30th June 2021 (i.e. the extended time limit provided by TOLA for issuing reassessment notices u/s 148, which fell for completion from 20.03.2020 to 31.3.2021).

The clock of limitation which has stopped with effect from the date of issuance of S. 148 notices under the old regime (which is also the date of issuance of the deemed notices), would start running again when final reply to the notice deemed to have been issued u/s 148A(b) of the Act is received by the AO. It was clarified that a reassessment notice issued beyond the surviving time limit would be time-barred.

The Tribunal observed that, in the present case, notice u/s 148 of the Act (old regime) was issued on 07.06.2021 and was deemed to be notice issued u/s 148A(b) of the Act (new regime). Thus, the surviving time limit can be calculated by computing the number of days between the date of issuance of the deemed notice (i.e., 07.06.2021) and 30.06.2021, which comes to 23 days. The clock started ticking only after Revenue received the response of the Assesses to the show causes notices on 09.06.2022. Once the clock started ticking, the AO was required to complete these procedures within the surviving time limit of 23 days which expired on 02.07.2022. Since notice u/s 148 of the Act was issued on 24.07.2022 which fell beyond the surviving time limit that expired on 02.07.2022, the Tribunal held that the notice issued u/s 148 of the Act to be time-barred and therefore, bad in law.

The Tribunal quashed notice dated 24.7.2022 issued u/s 148 of the Act (new regime), the consequential reassessment proceedings and the Assessment Order, dated 26.5.2023, passed u/s 147 r.w.s. 144B of the Act.

Thus, Cross-Objection raised by the Assessee was allowed and accordingly, all the grounds raised by the Revenue in the departmental appeal in relation to the relief granted by the CIT(A) on merits were dismissed as having been rendered infructuous.

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

2 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3552/Mum./2024

A.Y.: 2015-16

Date of Order: 28th February, 2025

Section: 149

In view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

FACTS

For AY 2015-16, notice u/s 148 of the Act was issued to the Assessee on 30.06.2021 (i.e., after the expiry of 4 years but before the expiry of 6 years from the end of the relevant AY). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 25.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The Assessing Officer (AO) also shared with the Assessee material / information on the basis of which he had formed a belief that income had escaped assessment. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022 which was followed by issuance of notice u/s 148 of the Act on 27.07.2022.

The reassessment proceedings culminated into passing of the Assessment Order, dated 29.05.2023, passed u/s 147 r.w.s. 144B of the Act.

Aggrieved by the assessment made, the assessee preferred an appeal to CIT(A) who allowed the appeal videhis Order dated 16.05.2024.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee filed cross-objection challenging the validity of the re-assessment proceedings.

HELD

The Tribunal, first dealt with the cross objections of the Assessee. It noted that the issue which arises for consideration is whether notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) is barred by limitation specified in S. 149 of the Act as contended, on behalf of the Assessee.

The Tribunal observed that it is admitted position that the notice, dated 30.06.2021, issued u/s 148 of the Act (old regime) was treated as notice issued u/s 148A(b) of the Act by the AO. Thereafter, order u/s 148A(d) of the Act was passed on 27.07.2022, and the same was followed by issuance of notice, dated 27.07.2022, issued u/s 148 of the Act (new regime) (i.e. after the expiry of 6 years from the end of the Assessment Year 2015-2016).

The Tribunal noted the contention made on behalf of the Assessee that as per First Proviso to S. 149(1) of the Act, no notice u/s 148 of the Act (new regime) could have been issued after 31.03.2022.

The Tribunal noted the relevant portions of the decision of the SC, in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], dealing with notice issued u/s 148 for AY 2015-16 and in relation to first proviso to section 149(1) of the Act (new regime). On perusal of the relevant extracts of the said decision of the SC, the Tribunal held that the SC has clarified as under –
(a) a notice could be issued u/s 148 of the new regime for AY 2021-2022 and assessment years prior thereto only if the time limit for issuance of such notice continued to exist u/s 149(1)(b) of the old regime;

(b) in view of the First Proviso to S. 149(1)(b) of the Act a notice u/s 148 of the Act (new regime) cannot be issued if the period of six years from the end of issuance of the notice. This also ensures that the new time limit of ten years prescribed u/s 149(1)(b) of the Act (new regime) applies prospectively. The said Proviso limits the retrospective operation of S. 149(1)(b) to protect the interests of the assesses.

Having noted that, in the present case, the time limit of 6 years from the end of AY 2015-2016 expired on 31.03.2022, the Tribunal held that, as per S. 149(1)(b) read with First Proviso to S. 149(1) of the Act (new regime), notice u/s 148 of the Act could not have been issued for the AY 2015-2016 after 31.03.2022. It held that notice, dated 27.07.2022, issued u/s 148 of the Act was barred by limitation.

The Tribunal also noted that before the Apex Court in the case of Rajeev Bansal [(2024) 469 ITR 46], the Revenue has conceded that for the AY 2015-16, notices issued on or after 01/04/2021, would have to be dropped and this has been recorded by the SC in para 19 of the decision of the Apex Court.

In view of the above, the Tribunal quashed the notice, dated 27.07.2022, issued u/s 148 of the Act and the consequent the Assessment Order, dated 29.05.2023, passed u/s 147 read with Section 144B of the Act as being bad in law.

Thus, Cross-Objection raised by the Assessee was allowed and accordingly, all the grounds raised by the Revenue in the departmental appeal in relation to the relief granted by the CIT(A) on merits were dismissed as having been rendered infructuous.

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

1 Addl CIT vs. Ramchand Thakurdas Jhamtani

ITA No. 3551/Mum./2024

A.Y.: 2017-18

Date of Order: 28th February, 2025

Sections: 148, 148A, 151

Non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Since the order u/s 148A(d) dated 30.7.2022 and also notice u/s 148 were issued with approval of Principal Commissioner of Income-tax instead of Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax, the consequential reassessment proceedings and also the order dated 25.5.2023 passed u/s 147 r.w.s. 144B of the Act were quashed as bad in law and were held to be violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

FACTS

A notice u/s 148 of the Act (old regime) was issued to the Assessee for the AY 2017-2018 on 28.06.2021 (i.e., after the expiry of 3 years but before 30.06.2021 — extended period time granted by TOLA1 ). Subsequently, in compliance with the judgment of the Apex Court, dated 4.5.2022, in the case of UOI vs. Ashish Agarwal [444 ITR 1 (SC)], communication, dated 27.05.2022, was sent to the Assessee intimating that the aforesaid notice issued u/s 148 of the Act (under old regime) would be treated as the show-cause notice issued in terms of S. 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021). The AO also shared with the Assessee material/information on the basis of which he had formed a belief that income had escaped assessment.

1 Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

Thereafter, order u/s 148A(d) of the Act was passed on 30.07.2022 after taking approval from the Principal Commissioner of Income Tax (PCIT), Mumbai. This was followed by issuance of notice on 30.07.2022 u/s 148 of the Act (new regime). The reassessment proceedings culminated into passing of the Assessment Order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act.

The appeal preferred by the Assessee against the aforesaid Assessment Order was allowed by the CIT(A) vide Order, dated 16.05.2024.

Aggrieved, the Revenue preferred the present appeal before the Tribunal challenging the relief granted by the CIT(A), while the Assessee filed cross-objection challenging the validity of the re-assessment proceedings.

HELD

The Tribunal, at the outset, observed that the issue which arises for consideration is whether the PCIT or the PCCIT was the Specified Authority for seeking approval for passing order u/s 148A(d) of the Act and issuance of notice u/s 148 of the Act (new regime) for the AY 2017-18.

The Tribunal having considered the decision of the Apex Court in the case of UOI vs. Rajeev Bansal [(2024) 469 ITR 46], to the extent it has dealt with issue of approval from Specified Authority in terms of section 151 of the Act, noted that the Supreme Court has clarified as under –

(a) under new regime introduced by the Finance Act, 2021 Assessing Officer was required to obtain prior approval or sanction of the ‘Specified Authority’ at four stages – at first stage under Section 148A(a), at second stage under Section 148A(b), at third stage under Section 148A(d), and at fourth stage under Section 148. In the case of Ashish Agarwal [444 ITR 1] the Apex Court waived off the requirement of obtaining prior approval u/s 148A(a) and u/s 148A(b) of the Act only. Therefore, the AO was required to obtain prior approval of the ‘Specified Authority’ according to Section 151 of the new regime before passing an order u/s 148A(d) or issuing a notice u/s 148;

(b) under new regime if income escaping assessment is more than ₹50 lakhs a reassessment notice could be issued after expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner(PCCIT) or Principal Director General (PDGIT) or Chief Commissioner (CCIT) or Director General (DGIT);

(c) the test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20th March, 2020 and 31st March, 2021, then the ‘Specified Authority’ under Section 151(i) has an extended time till 30th June 2021 to grant approval;

(d) S. 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the AO with the strict time limits prescribed u/s 151 affects their jurisdiction to issue a notice under section 148;

(e) grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

The Tribunal held that, in the present case, the period of 3 years from the end of the AY 2017-2018 fell for completion on 31.3.2021. The expiry date fell during the time period of 20.3.2020 and 31.3.2021, contemplated u/s 3(1) of TOLA. Resultantly, the authority specified u/s 151(i) of the new regime could have granted sanction till 30th June, 2021.

On perusal of the order, dated 30.07.2022, passed u/s 148A(d) of the Act the Tribunal found that the aforesaid order was passed after taking approval from PCIT. The Tribunal held that since the aforesaid order was passed after the expiry of 3 years from the end of the AY 2017-2018, as per the new regime, the authority specified under Section 151(ii) of the Act (i.e. PCCIT or CCIT) was required to grant approval. The Tribunal also noted that even the notice, dated 30.07.2022, was issued u/s 148 of the Act (new regime) after obtaining the prior approval of the PCIT.

The Tribunal concluded that, in the present case, the approval has been obtained by authority specified u/s 151(i) of the new regime instead of the authority specified u/s 151(ii) of the new regime.

The Tribunal held that non-compliance by the AO with the provisions contained in S. 148A(d) r.w.s. 151(ii) of the new regime affects the jurisdiction of the AO to issue a notice u/s 148 of the Act. Accordingly, the order, dated 30.07.2022 passed u/s 148A(d) of the Act, the consequential reassessment proceedings and the order, dated 25.05.2023, passed u/s 147 r.w.s. 144B of the Act were quashed as being bad in law as being violative of the provisions contained in Ss. 148A(d), 148 and 151(ii) of the Act.

The Tribunal allowed the cross objections filed by the assessee and dismissed, as infructuous, all the grounds raised by the Revenue in the appeal in relation to the relief granted by CIT(A) on merits.

Sec. 28: Where during search at residential premises of director of assessee-company, AO found that assessee had made out of books sales and added entire undisclosed sales to income of assessee, however, Commissioner (Appeals) restricted same to profit element embedded therein estimated at rate of 8 per cent of sales, since revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent instead of 8 per cent, addition restricted by Commissioner (Appeals) to 8 per cent of sales was to be upheld. Also, Commissioner (Appeals) failed to give benefit of income surrendered by assessee voluntarily against addition confirmed by him on account of unaccounted sales, Assessing Officer was to be directed to grant assessee benefit of income surrendered by assessee against addition confirmed by Commissioner (Appeals).

84. ACIT vs. Conor Granito (P.) Ltd

[2024] 116 ITR(T) 479 (Rajkot – Trib.)

ITA NO.: 143 (RJT) OF 2021

CO NO.: 01 (RJT) OF 2022

A.Y.: 2019-20

Dated: 12th January, 2024

Sec. 28: Where during search at residential premises of director of assessee-company, AO found that assessee had made out of books sales and added entire undisclosed sales to income of assessee, however, Commissioner (Appeals) restricted same to profit element embedded therein estimated at rate of 8 per cent of sales, since revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent instead of 8 per cent, addition restricted by Commissioner (Appeals) to 8 per cent of sales was to be upheld. Also, Commissioner (Appeals) failed to give benefit of income surrendered by assessee voluntarily against addition confirmed by him on account of unaccounted sales, Assessing Officer was to be directed to grant assessee benefit of income surrendered by assessee against addition confirmed by Commissioner (Appeals).

FACTS

During search at the residential premises of the director of the assessee-company, various incriminating material by way of WhatsApp message / images were discovered and on analysis of the same, it was discovered that the assessee had made out of books sales which during the impugned year amounted to ₹2,35,42,980/-. The Assessing Officer added entire undisclosed sales to the income of the assessee. The ld.CIT(A), however, restricted the same to the profit element embedded therein estimated at the rate of @ 8 per cent of the sales.

Aggrieved, the revenue filed an appeal and assessee filed cross objections before the Tribunal –

HELD

ITAT observed that the contention of the Revenue was that the ld.CIT(A) ought to have applied 12.5 per cent net profit rate instead of 8 per cent. However, the Revenue had not given any basis to justify applying higher rate of net profit at 12.5 per cent.

ITAT held that net profit to be applied was to be at justifiable rate depending upon nature of the business and other facts. It should not be an ad hoc rate and there has to be a reasonable basis for applying a particular net profit rate in each case. The DR had not supported his contention of applying 12.5 per cent GP rate with any reasonable basis. ITAT held that profit rate specified in the decision of Hon’ble Gujarat High Court in the case of CIT vs. Simit P. Sheth, [2013] 356 ITR 451 as cited by DR could not be justifiable rate in assessee’s case as the nature of activities of both the assessees were not identical.

Therefore, ITAT did not find any merit in the contentions of the DR that the ld.CIT(A) ought to have applied a net profit of 12.5 per cent in the present case. The ground raised by the Revenue was accordingly rejected.

Thus, the appeal of the Revenue was dismissed.

With respect to Cross Objections filed by the assessee, the ld.CIT(A) had failed to give benefit of the income surrendered by the assessee voluntarily against addition confirmed by him on account of unaccounted sales.

In the light of the same, ITAT directed the assessing officer to grant assessee the benefit of the income surrendered of ₹15 lakhs against the addition confirmed by the ld.CIT(A).

The Cross Objection was accordingly allowed.

Sec. 69A: Assessee deposited cash during demonetisation period of `10.75 lakhs which was recorded in his books of account and source of cash deposits was also maintained by assessee. However, Assessing Officer made addition as unexplained money under section 69A and taxed same under section 115BBE. ITAT held that Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE as assessee had recorded in his books of accounts and also explained source of such cash deposits.

83. Dipak Balubhai Patel (HUF) vs. ITO

[2024] 115ITR(T) 624 (Ahmedabad- Trib.)

ITA NO.:942(AHD) OF 2023

AY.: 2017-18

Dated: 22nd August, 2024

Sec. 69A: Assessee deposited cash during demonetisation period of `10.75 lakhs which was recorded in his books of account and source of cash deposits was also maintained by assessee. However, Assessing Officer made addition as unexplained money under section 69A and taxed same under section 115BBE. ITAT held that Assessing Officer was not correct in invoking provisions of section 69A and charging tax under section 115BBE as assessee had recorded in his books of accounts and also explained source of such cash deposits.

FACTS

The assessee was a HUF who derived income from House Property and Income from Other Sources. The case was selected for scrutiny assessment and the Assessing Officer found that assessee deposited a sum of ₹10,75,000/- during demonetisation period and issued show cause notice to explain the source of cash deposit.

The assessee explained the source of cash deposit as withdrawal from four other banks accounts of the assesse and the said deposits were duly reflected in his Return of Income. Further since assessee did not have any business income, therefore he had not filed the Profit and Loss Account and Balance Sheet along with Return of Income. However, the assessee filed the same before the
Assessing Officer along with cash book, wherein cash on hand as on 1st April, 2016 as opening balance was ₹10,09,933/-, which was deposited during demonetisation period.

However, Assessing Officer rejected the Books of Accounts by stating that assessee had shown Closing Cash on hand as zero in return of income filed for the A.Y. 2016-17, and in the Cash Book of F.Y. 2016-17 i.e. A.Y. 2017-18, assessee has shown Opening Balance to the tune of ₹10,09,933/- which was not justifiable and therefore made addition as unexplained money u/s. 69A of the Act.

Aggrieved against the addition, the assessee filed an appeal before CIT(A) who confirmed the additions by observing that during the previous 3 years, except 2 or 3 instances, all withdrawals were less than ₹10,000 and the appellant claimed that the withdrawals were preserved during last 3 years in his hand and were deposited in the year under consideration.

Since 95 per cent of the withdrawals were less than ₹10,000, CIT(A) observed that as per common sense these cash withdrawals were for day to day expenses and if the appellant had so much of cash with him then what was the need for frequent withdrawals of ₹5,000 and ₹10,000. The CIT(A) relied on decisions of CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC) where the Supreme Court has laid down Human Probability test as one of the important test in order to check genuineness of the transactions entered into the books of account of the assesses. Hence it was held by CIT(A) that the appellant failed to satisfactorily explain the source of ₹10,75,000 cash deposited in the bank account and the assessing officer was correct in treating this amount as unexplained cash under section 69A.

The appellant being aggrieved with the order of the CIT(Appeals) filed an appeal before the ITAT.

HELD

The ITAT observed that during the assessment proceedings, the Assessing Officer had rejected the explanation offered by the assessee as the assesse had showed closing cash on hand as Nil in the Return of Income but in the cash book showed the opening balance for A.Y. 2017-18 to the tune of ₹10,09,933/-.

The ITAT further observed that the assessee had filed copies of previous three years Form 26AS, ITR, Statement of Income, Profit and Loss account and Balance Sheet before CIT(A)and further explained that rental income was offered to tax with appropriate TDS u/s. 194I of the Act which was reflecting in Form 26AS records. Since the assessee was a Senior Citizen, he withdrew and kept substantial balance in his bank accounts for emergency medical needs. However, after declaration of the demonetization period, the assessee deposited the withdrawal amounts from his other bank accounts.

The ITAT observed that Assessing Officer erroneously treated cash deposits as unexplained cash and also invoked Section 115BBE of the Act and charged at 60 per cent rate which was not applicable to the present case since the cash deposits were reflected in the books of accounts maintained by the assessee. The ITAT relied on decision in case of Balwinder Kumar ([2023] 151 taxmann.com 338 (Amritsar – Trib.)) and Sri Sriram Manchukonda (2021 TaxCorp (AT.) 91806 Visakhapatnam ITAT) wherein co-ordinate Bench of the Tribunal held in favour of the assessee.

Respectfully following the above judicial precedents, ITAT observed that the addition made by AO u/s. 69A will be applicable only when the assessee is found to be the owner of any money etc. which is not recorded in the books of accounts maintained by him and any explanation offered by the assessee is not satisfactory in the opinion of the Assessing Officer.

ITAT observed that in the present case, the assessee had recorded the cash deposits in his books of accounts and source of cash deposits during demonetization period were also been maintained by the assessee. Therefore, ITAT held that the A.O. was not correct in invoking provisions of Section 69A of the Act and charging tax u/s. 115BBE of the Act. Thus the addition made by the Assessing Officer were deleted.

In the result, the appeal filed by the Assessee was allowed.

S. 127–Where the case of the assesse was transferred from one AO to another AO in a different city / locality / place, PCIT was under a statutory obligation to give an opportunity of being heard to the assessee.

82. Amit Kumar Gupta vs. ITO

(2025) 171 taxmann.com 16 (Raipur Trib)

ITA Nos.: 404 & 405 (Rpr) of 2024

A.Ys.: 2011-12 & 2012-13

Dated: 13th January, 2025

S. 127–Where the case of the assesse was transferred from one AO to another AO in a different city / locality / place, PCIT was under a statutory obligation to give an opportunity of being heard to the assessee.

FACTS

During the relevant year, the assessee had made cash deposits amounting to ₹17,05,824 into his bank account but did not file his income tax return. Based on the information gathered from NMS / ITS module, the AO (ITO-1, Ambikapur) initiated proceedings under section 147 by issuing notice under section 148 dated 23rd March, 2018. Thereafter, pursuant to an order under section 127 dated 7.9.2018 passed by PCIT-1, Bilaspur, the assessee’s case was transferred from ITO-1 Ambikapur to ITO-3, Korba. Since the assessee did not come forth with any explanation in response to notice under section 142(1), the AO taxed the entire cash deposit as unexplained money under section 69A vide his order under section 144 read with section 147 dated 16th December, 2018.

The assessee challenged the assessment order before CIT(A), inter alia, on the ground that PCIT had transferred his case from one ITO to another ITO without affording any opportunity of being heard as required under section 127. CIT(A) dismissed the appeal, inter alia, holding that he was not the appropriate forum to challenge the order under section 127 passed by PCIT.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) As can be gathered from section 127(3), in a case where the PCIT transfers the case of as assessee from any AO to any other AO and the offices of all such officers are not situated in the same city, locality or place, then he remains under a statutory obligation to give an opportunity of being heard to the assessee and only after recording his reasons for doing so,
transfer such case. In the assessee’s facts, the case had been transferred pursuant to the order of PCIT, Bilaspur dated 7th September, 2018 from ITO-1, Ambikapur to ITO-3, Korba, that is, offices of said officers were not situated in the same city, locality or place, and therefore, on a conjoint reading of section 127(1) / (3), he was obligated to have given an opportunity to the assessee prior to transfer of his case.

(b) CIT(A) was not right in holding that he was not vested with any jurisdiction to deal with the specific challenge raised by the assessee as regards the validity of the assessment order that was framed by the A.Ode-hors a valid assumption of jurisdiction on his part in absence of an order of transfer under section 127 as required per the mandate of law.

Accordingly, the Tribunal restored the matter back to the file of CIT(A) with a direction to adjudicate the challenge of the assessee as regards the validity of the jurisdiction that was assumed by the A.O for framing of the assessment order passed under section 144 read with section. 147 dated 16th December, 2018 de-hors an order of transfer under section 127 as per the mandate of law.

S. 80G – Where the application for final approval under section 80G was rejected due to incorrect section code in the application, the issue was remanded back to the file of CIT(E) to grant final approval under correct provision if assessee-trust was otherwise eligible.

81. Rotary Charity Trust vs. CIT(E)

(2025)170 taxmann.com 797(Mum Trib)

ITA No.: 6133(Mum) of 2024

A.Y.: 2024-25

Dated: 9th January, 2025

S. 80G – Where the application for final approval under section 80G was rejected due to incorrect section code in the application, the issue was remanded back to the file of CIT(E) to grant final approval under correct provision if assessee-trust was otherwise eligible.

FACTS

Assessee was a registered charitable trust incorporated on 25th September, 1996, engaged in promoting various public charitable activities especially providing education to weaker section of the society and to specially-abled children. It made an application for provisional registration under section 80G of the Act, which was granted under clause (iv) of first proviso to section 80G(5) on 4th April, 2022 which was valid for the period starting 4th April, 2022 to AY 2024-25. Subsequently, the assessee filed application in Form 10AB for final registration; in this Form, instead of selecting section code “clause (iii) of first proviso to section 80G(5)”, the assessee inadvertently once again selected “sub-clause (B)of clause (iv) of first proviso to section 80G (5)”.

CIT(E) rejected the application on the ground that the assessee was not fulfilling the stipulated conditions prescribed undersection 80G(5)(iv)(B).

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that there was merit in the claim of the assessee that it had selected the wrong section code inadvertently while filing the application for final approval in Form 10AB and it was not given the opportunity of being heard by CIT which otherwise would have allowed the assessee to explain the facts to avoid the rejection.

Following the decision in North Eastern Social Research Centre vs. CIT(E), (2024) 165taxmann.com 12 (Kolkata – Trib.), the Tribunal remitted the issue back to the CIT(E) with a direction to grant final approval under clause (iii) to first proviso to section 80G(5) if the assessee was otherwise found eligible.

S.12AB, 13 — Where the applicant trust was a charitable cum religious trust and its objects were for the benefit of a particular religious community or caste, that is, Jains, it was not entitled to registration under section 12AB.

80. Soudharma Brihad Tapogachchiya Tristutik Jain Sangha Samarpanam vs. CIT(E)

(2025)170 taxmann.com 590 (AhdTrib)

ITA No.:1571 (Ahd) of 2024

A.Y.: N.A.

Dated: 3rd January, 2025

S.12AB, 13 — Where the applicant trust was a charitable cum religious trust and its objects were for the benefit of a particular religious community or caste, that is, Jains, it was not entitled to registration under section 12AB.

The assessee-trust was settled on 5th January, 2023 with objects which required it to follow the principles of Jainism, etc. and was registered with the Assistant / Deputy Charity Commissioner, Ahmedabad. It filed application for registration under section 12AB in Form 10AB on 13th January, 2024 before CIT(E). In this application, the applicant mentioned that it had charitable objects in addition to religious objects.

CIT(E) denied registration under section 12AB on the ground that the assessee was a composite trust and its object was restricted to benefit of a particular religious community or caste, that is, Jains, which was a “specified violation” under clause (d) of Explanation below section 12AB(4) read with section 13(1)(b).

Aggrieved with the order of CIT(E), the assessee filed an appeal before ITAT.

FACTS

The Tribunal observed that-

(a) A perusal of the main objects of the trust made it abundantly clear that all the objects were related to religious activities, more particularly relating to “Jain Community” and to propagate “Jainism”, that is, charitable cum religious in nature and was for the benefit of “Jains” which was a specific violation under clauses (c)/ (d) to Explanation to section12AB(4).

(b) In CIT vs. Dawoodi Bohara Jamat, (2014) 364 ITR 31 (SC), the Supreme Court held that section 13(1)(b)(which prescribed the circumstances wherein the exemption would not be available to a religious or charitable trust)was applicable even to a composite trust / institution having both religious and charitable objects. Section 13(1)(b)was required to be read in conjunction with the provisions of sections 11 and 12 towards determination of eligibility of a trust to claim exemption under the aforesaid provisions, while granting registration.

Accordingly, the Tribunal held that the order denying registration to the assessee did not require any interference and dismissed the assessee’s appeal.

While computing long term capital gains, interest on funds borrowed for purchase of property, duly indexed will be allowed as a deduction. Prior to amendment vide Finance Act, 2023 there was no such restriction for excluding the deduction claimed on account of interest paid under Section 24(b) or under the provisions of chapter VIA.

79. DCIT vs. Neville Tuli

ITA No. 3203/Mum./2023

A.Y.: 2013-14

Date of Order: 26th November, 2024

Section: 48

While computing long term capital gains, interest on funds borrowed for purchase of property, duly indexed will be allowed as a deduction. Prior to amendment vide Finance Act, 2023 there was no such restriction for excluding the deduction claimed on account of interest paid under Section 24(b) or under the provisions of chapter VIA.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee sold a property, held by him as a long term capital asset, for a consideration of ₹27 crore. This property was purchased from borrowed funds. While computing long term capital gains arising on sale of this property, the assessee deducted ₹9,90,67,611 being indexed cost of acquisition and ₹3,95,42,739 being indexed cost of interest paid to the bank (this was shown under “indexed cost of improvement”) and offered long term capital gain of ₹13,13,89,649.

The amount of interest claimed as deduction while computing long term capital gains was net of the amount claimed in earlier years under section 24(b) of the Act. In earlier years, interest up to ₹1,50,000 was claimed and was allowed as deduction under section 24(b) of the Act.

In the background of the above facts, the Assessing Officer, in the course of assessment proceedings framed two questions viz. (i) Whether interest paid is a cost of acquisition / cost of improvement; and (ii) whether the benefit of indexation is to be allowed to interest cost. The AO having perused the provisions of section 55 held that interest payment on housing loan cannot be said to be expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property. He also held that, on a reading of section 55, it is clearly evident that in no situation does the cost of acquisition involve bringing in any cost incurred after the date of acquisition, unless the cost of improvement and, in the instant case there is no improvement to the property. The AO supported his view by the ratio of the decisions of the Tribunal in the case of V Mahesh, ITO vs. Vikram Sadanand Hoskote [(2017) 18 SOT 130 (Mum.)] and Harish Krishnakkant Bhatt vs. ITO [(2004) 91 ITD 311 (Ahd. Trib.)].

The AO disallowed the sum of ₹3,95,42,739 and added the same to the income of the assessee.

Aggrieved, assessee preferred an appeal to the CIT(A) who during the course of appellate proceedings noted that a similar claim was allowed in earlier years as well. Having considered the relevant provisions of the Act and the judicial precedents on the issue, the CIT(A) allowed the appeal preferred by the assessee.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that in earlier assessment years as well, the assessee has claimed similar deduction of interest expenditure under the head income from house property and as cost of acquisition / improvement, which has been continuously allowed by the revenue authorities and therefore rule of consistency is required to be followed.

The Tribunal also noted that the Finance Act, 2023 has w.e.f. 1st April, 2024 amended the provisions of section 48 to provide that the cost of acquisition of the asset or cost of improvement thereto shall not include the deductions claimed on account of interest under clause (b) of section 24 or under the provisions of Chapter VIA. It held that for the period prior to the insertion of the said provision which is applicable w.e.f. 1st April, 2024, no such restriction can be imposed and / or made applicable. The Tribunal noted that the CIT(A) has also taken note of this amendment and has rightly held it to be not clarificatory.

The Tribunal after considering the ratio of various decisions on which reliance was placed on behalf of the assessee held that the interest paid on the borrowed funds for the purchase of property for the period prior to the provision inserted vide Finance Act, 2023 which was made applicable from 1st April, 2024, over and above claimed u/s 24(b) of the Act, would be deductible while computing the capital gains. Thus, we answered the question posed accordingly.

The Tribunal held that the order passed by CIT(A) does not suffer from any perversity, impropriety and / or illegality. It upheld the order passed by CIT(A) and dismissed the appeal filed by the revenue.

For the purpose of computing the ‘tax effect’, in the present case, only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue.

78. ACIT vs. Bennett Property Holdings Company Limited

ITA No. 556/Mum./2024

A.Y.: 2017-18

Date of order: 12th December, 2024

Section: CBDT Circular No. 5 of 2024 dtd. 15th March, 2024 r.w. Circular No. 9 of 2024 dtd 17th September, 2024

For the purpose of computing the ‘tax effect’, in the present case, only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue.

FACTS

For AY 2017-18, the Assessee company, primarily engaged in the business of earning rental income by letting out properties and running business centres, filed original return of income which was subsequently revised. The Assessing Officer (AO), in an order passed under section 143(3), assessed the total income of the Assessee under the normal provisions of the Act at ₹1,20,45,17,348/- and computed Book Profits of the Assessee under Section 115JB of theAct at ₹1,33,19,94,660/-. Since the tax payable on Book Profits was less than the tax payable on the income computed under normal provisions of the Act, the Assessee was assessed to tax under normal provisions of the Act.

Aggrieved by the additions made by the AO while assessing the total income, the assessee preferred an appeal to CIT(A) challenging certain additions / disallowances made under normal provisions of the Act viz. (i) disallowance of ₹6,38,05,371/- under Section 14A of the Act; (ii) addition taking deemed annual letting value of the immovable properties lying vacant during the relevant previous year at ₹23,28,000; and (iii) denial of claim of set off of accumulated loss of ₹12,86,53,730 and unabsorbed depreciation of ₹15,65,15,799 relatable to real estate service undertaking of Banhem Estates & IT Parks Ltd. That demerged into the Assessee pursuant to composite scheme of amalgamation and arrangement approved by the Hon’ble Bombay High Court vide order, dated 2nd December, 2016.

The assessee also challenged the following additions made by the AO while computing the amount of book profits u/s 115JB viz. (i) increase in Book Profits by Extra Depreciation of ₹4,38,18,551; (ii) increase in Book Profits by ₹6,38,05,371 disallowed under Section 14A of the Act by invoking provisions contained in Clause (f) of Explanation 1 to Section 115JB of the Act; and (iii) rejection of Assessee’s claim of substitution of long-term capital gain (computed by taking index cost of acquisition) in place of the profit on sale of capital asset appearing in the statement of Profit & Loss Account for the purpose of computing Book Profits.

The assessee also raised additional grounds seeking credit for TDS in respect of companies / undertakings forming part of composite scheme and also challenged computation of interest under section 234B of the Act.

The appeal preferred by the Assessee was disposed off by the CIT(A)as partly allowed vide order, dated 13th December, 2023. The CIT(A) granted partial relief by (a) deleting the addition made under normal provisions of the Act in respect in respect of deemed rental income estimated at ₹23,28,000/-, and (b) accepting Assessee’s contention that no disallowance of expenses can be made in respect of any exempt income by invoking provisions contained in Section14A read with Rule 8D of the IT Rules while computing Book Profits under Section 115JB of the Act.

Since, both, the Assessee as well as the Revenue were aggrieved by the order passed by the CIT(A), the present cross-appeals were preferred before the Tribunal.

Before the Tribunal, on behalf of the assessee, it was submitted that the Assessee has been assessed under normal provisions of the Act. Even if the grounds raised by the Revenue in relation to the computation of ‘Book Profits’ under Section 115JB of the Act are allowed in favour of the Revenue, the Assessee would be assessed to tax under the normal provisions of the Act. It was submitted that the grounds of appeal raised by the Revenue pertaining to the additions / disallowance made under the normal provisions of the Act carry tax effect below the specified monetary of ₹60 Lacs fixed by Central Board of Direct Taxes(CBDT) for filing Departmental Appeal before the Tribunal limit. Therefore, the appeal preferred by the Revenue should be dismissed as withdrawn in view of Circular No. 5 of 2024, dated 15th March, 2024, read with Circular No. 9 of 2024, dated 17th September, 2024, issued by CBDT.

HELD
The Tribunal noted that the Revenue has preferred appeal challenging the deletion of addition in respect of deemed annual letting income of ₹23,28,000 under normal provisions of the Act. The Revenue has also challenged the relief granted by the CIT(A) by accepting Assessee’s claim that the ‘Book Profits’ could not be increased by ₹6,38,05,371 (being amount disallowed under Section 14A of the Act read with Rule 8D of the IT Rules), by invoking provisions contained in clause (f) of Explanation 1 to Section 115JB of the Act. Thus, the Tribunal observed that Revenue has raised grounds having impact on the computation of income under normal provisions of the Act and the computation of ‘Book Profits’ under Section 115JB of the Act.

The Tribunal perused the Circular No. 5 & 9 of 2024 issued by the CBDT and held that Circular No.5 of 2024, dated 15th March, 2024, when read with Circular No.9 of 2024, dated 17th September, 2024, issued by CBDT clarifies that the monetary limit of ‘tax effect’ for filing departmental appeals before Tribunal has been increased from ₹50 Lakhs to ₹60 Lakhs. It has also been clarified in Circular No. 9 of 2024 that the aforesaid monetary limit for filing the appeal before the Tribunal would also apply to the pending departmental appeals.

The Tribunal held that for the purpose of computing the ‘tax effect’ involved in the present appeal preferred by the Revenue only the grounds raised by the Revenue having an impact of determination of total income under the normal provisions of the Act ought to be considered. This is because the Assessee has been assessed under the normal provisions of the Act and this would continue to be the case even if all the grounds raised by the Revenue (whether related to computation of income under normal provisions of the Act or related to computation of Book Profits under 115JB of the Act) are allowed.

On examination the grounds raised by the Revenue having impact on computation of income under normal provisions of the Act, the Tribunal found that tax effect involved in the present appeal is below the monetary limit of Rs.60 Lakhs fixed by the CBDT for the purpose of filing departmental appeal before the Tribunal.

On perusal of Para 5.1 of Circular No. 5 of 2024 containing the definition of `tax effect’, the Tribunal observed that ‘tax effect’ has been defined to mean the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed. It held that when computed as aforesaid, the tax effect in the appeal preferred by the Revenue would fall below the specified monetary limit of ₹60 Lakhs for filing departmental appeals. On perusal of the computation submitted by the Assessee the Tribunal found that the tax effect in the appeal preferred by the Revenue would only be ₹5,63,973 for the reason that the Assessee would continue to be assessed under normal provisions of the Act even if all the grounds raised by the Revenue in departmental appeal are assumed to be allowed in favour of the Revenue. Thus, accepting the contention of the Assessee, we dismiss the appeal preferred by the Revenue as ‘withdrawn’ in terms of Circular No.5 & 9 of 2024 issued by CBDT.

Dismissing the appeal under section 249(4) is unsustainable in a case where an assessee who has not filed the return of income has submitted before the AO that its income is exempt from tax and therefore it is not required to pay advance tax.

77. Srirampura Prathamika Krishi Pathina Sahakara Sangha Ltd. vs. ITO

ITA No. 1731/Bang./2024

A.Y.: 2017-18

Date of Order: 9th January, 2025

Section: 249(4)

Dismissing the appeal under section 249(4) is unsustainable in a case where an assessee who has not filed the return of income has submitted before the AO that its income is exempt from tax and therefore it is not required to pay advance tax.

FACTS

The assessee, a primary agricultural credit co-operative society, providing credit facilities to its members and also supplying the items like kerosene, fertilisers, food grains, etc. to its members did not file return of income. The notice u/s 142(1) of the Act was issued on 4th January, 2018 calling for return of income for the assessment year 2017-18 on or before 3rd February, 2018 but the assessee has neither filed any return of income nor filed any submission or response to the above notice.

Further, during the course of assessment proceedings, the AO found that assessee has deposited huge cash into his bank account with CDCC bank Hosadurga. The information has also been called for from the bank u/s 133(6) of the Act and on verification of the same, it was found that the assessee had deposited during the demonetised period a sum of ₹13,82,000/-.

The AO in his assessment order observed that the assessee vide letter dated 5th September, 2019 furnished the details of income and expenditure statement, profit & loss account and cash book. Further, the assessee in the said letter stated that they have exempted income for the financial year 2016-17 and therefore, not filed the income tax return for the said period.

The AO found the submission made by the assessee as not satisfactory and as the assessee had deposited cash in old currencies of denomination of ₹500/- & ₹1,000/-, amounting to ₹13,32,000/- into their bank account, the entire deposits were treated as assessee’s unaccounted income for the assessment year 2017-18 by invoking the provisions of section 69A of the Act and taxed u/s 115BBE of the Act.

Further, as the assessee had audited his books of accounts as per the provisions of the State Co-operative Society Act of Karnataka and the net profit as per income and expenditure statement was amounting to ₹1,13,376/- and hence a sum of ₹1,13,376/- was also considered by the AO as income of the assessee and brought to tax and accordingly, assessed on a total income of ₹14,45,376/-.

Aggrieved by the assessment completed u/s 144 of the Act dated 25th November, 2019, the assessee preferred an appeal before the CIT(A)/NFAC who dismissed the appeal of the assessee on the ground that the assessee had not paid the tax on returned income and the particulars of payment was also not mentioned in column 8 of Form 35. Further, as there was no response to deficiency letter dated 3rd June, 2024,the CIT(A) held that as the assessee has not paid tax on returned income / particulars of payment was not mentioned in column 8 of Form 35, the appeal of the assessee is not maintainable as per section 249(4) of the Act.

Aggrieved, the assessee filed the appeal before the Tribunal.

HELD

It is pertinent to note that section 249(4)(b) of the Act is clear that appeal before the CIT(A) should be admitted only when the assessee has paid an amount equal to the amount of advance tax, which was payable by him. Where the return of income has not been filed the proviso to said section also describe that the assessee will get exemption from this clause, if an application is made before the CIT(A) for not paying an amount equal to the amount of advance tax for any good and sufficient reason to be recorded in writing. The Tribunal noted that in the instant case, the AO in para 6 of the assessment order has observed that the assessee vide letter dated 5th September, 2019 had stated that they have exempted income for the financial year 2016-17 and therefore, not filed the income tax return for the said period. Before the Tribunal, as well, it was submitted that the assessee’s income is exempted and therefore, the question of paying advance tax does not arise in the case of the assessee as no amount is payable by the assessee. Being so, the Tribunal was of the opinion that dismissing the appeal on the grounds that the same is not maintainable as per section 249(4) of the Act is not sustainable as the income of the assessee is exempt from income tax. The assessee is not liable to pay any advance tax even though they have not filed the return of income.

While computing capital gains on slump sale under section 50B r.w.s. 48, transfer expenses are allowable as a deduction. There is no scope of deviation from the statutory provision regarding computation of capital gains in case of slump sale. The first limb i.e. “the expenditure incurred in connection with transfer” cannot be excluded from being claimed as deduction for the purposes of computation u/s 50B.

76. DCIT vs. Larsen and Toubro Ltd.

ITA No. 3369/Mum./2023

A.Y.: 2009-10

Date of Order: 20th December, 2024

Sections: 2(42C), 48, 50B

While computing capital gains on slump sale under section 50B r.w.s. 48, transfer expenses are allowable as a deduction. There is no scope of deviation from the statutory provision regarding computation of capital gains in case of slump sale. The first limb i.e. “the expenditure incurred in connection with transfer” cannot be excluded from being claimed as deduction for the purposes of computation u/s 50B.

FACTS

The Assessing Officer, while reassessing the total income of the assessee, under section 147 of the Act disallowed the sum of ₹27.08 crore claimed by the assessee to be expenditure incurred on transfer while calculation of capital gains on slump sale under section 50B of the Act. The sum of ₹27.09 crore disallowed comprised of Financial Advisory Fee of ₹8.31 crore and other expenses of ₹18.77 crore. The contention of the assessee was that this sum is allowable u/s 48(i) of the Act. These contentions did not find favour with the AO who held that section 50B is a code in itself for computation of capital gains arising on slump sale. Therefore, no other provision other than provision of section 50B shall be applicable.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed this ground of appeal.

Aggrieved, revenue preferred an appeal to the Tribunal, where on behalf of the assessee, reliance was placed on decision of Delhi High Court in case of free CIT vs. Nitrex Chemicals India Ltd [(2016) 75 taxman.com 282] and also on the decision of coordinate bench of theTribunal in case of Wockhardt Hospitals Ltd vs. ACIT [ITA Nos.7454/MUM/2013 and 7021/Mum./2013 for AY2010-11; Order dated 6th January, 2017], wherein in the context of computation of capital gains arising on slump sale of an undertaking, deduction was allowed in respect of expenditure incurred in connection with such transfer by reference to section 48(i) of the Act..

HELD

There is no scope for deviation from the statutory provision regarding computation of capital gains on slump sale.

Section 48 has two limbs –

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the asset and the cost of any improvement thereto.

The networth replaces the value as per section 48(ii). However, the first limb, which is, “the expenditure incurred in connection with the transfer”, cannot be excluded from being claimed as deduction for the purposes of computation under section 50B. The Legislature in its wisdom, clearly excludes indexation of such cost of acquisition and cost of improvement, for the purposes of slump sale in Section 50B itself. The Tribunal placed reliance on decision of Delhi High Court in case of PCIT vs. Nitrix Chemicals India Pvt. Ltd [(2016) 75 taxmann.com 282] and held that while computing capital gains arising on slump sale, in accordance with the provisions of section 50B that includes only the networth of the undertaking treating it as a cost of acquisition and cost of improvement without considering the provision of section 48(i), will be in contradiction to the intention of the Legislature.

The Tribunal observed that there is no dispute that the expenditures claimed by the assessee are incurred in connection with the transfer of the business as a going concern. Then, not computing the capital gains of the slump sale in accordance with the provisions of section 50B that require to treat cost of acquisition and cost of improvement and is allowable as a deduction as per section 48 (ii) of the act as net worth of the undertaking, and not to consider the expenditure incurred for the purpose of transfer as per section 48(i) will be in contradiction to the intention of the Legislature. It held that section 50B cannot be read and understood as argued by the Ld.DR, because the computation provision section 48 to the extent applicable to section 50B as mentioned in clause (2) of section 50B would then become ineffective and inapplicable to a slump sale.

The Tribunal did not agree with the arguments made on behalf of the revenue and held them to be not founded on the basic principles of interpretation. The Tribunal upheld the order of the CIT(A) and dismissed the ground of appeal filed by the revenue.

Sec. 43A: Where the assessee claimed expenses on account of foreign exchange fluctuation, which were merely reinstatement of losses as per accounting standards and there was no actual payment or remittance, section 43A could not apply.

75. Bando (India) (P.) Ltd. vs. DCIT

[2024] 114 ITR(T) 275 (Delhi – Trib.)

ITA NO.: 7743 (DEL) OF 2018

A.Y.: 2014-15

Date of Order: 11th July, 2024

Sec. 43A: Where the assessee claimed expenses on account of foreign exchange fluctuation, which were merely reinstatement of losses as per accounting standards and there was no actual payment or remittance, section 43A could not apply.

FACTS

During the year the assessee had claimed losses on account of foreign exchange fluctuation of ₹6,42,33,238/-. The AO had disallowed amount of ₹4,20,57,880/- u/s 37(1) treating exchange fluctuation as capital expenditure on account of ECB loan being utilized for purpose of acquiring capital asset which had enduring benefit. Aggrieved by the order, the assessee was in appeal before CIT(A). The CIT(A) in its order sustained the disallowance by invoking the provisions of section 43A instead of section 37 invoked by the AO.

Aggrieved, the assessee filed an appeal before the Tribunal –

HELD

The ITAT observed that the assessee had reinstated income or loss from fluctuation of currency as per accounting standards AS11 and the assessee was regularly following the same system of accounting in the previous years and subsequent years.

The ITAT observed that disallowance u/s 37 and u/s 43A of the Act, both operate in different spheres. Section 43A is a deeming provision for adding or deducting, the fluctuation loss or profit, from the cost of asset whereas disallowance u/s 37 was however for the reasons that capital expenditures are specifically disallowed.

The ITAT held that there was no ground to invoke section 43A since there was merely reinstatement of losses on account of fluctuation in foreign exchange currency and there was no actual payment or remittance. The ITAT following the concept of consistency, allowed the losses claimed for foreign exchange fluctuation.

The appeal of the assessee was accordingly allowed.

Sec. 68: Where the assessee company had placed on record with the AO supporting documentary evidence substantiating the authenticity of its claim of having received share application money from the investor company, viz. confirmation, bank statement, copies of the return of income, financial statements of the investor company, copy of share application forms, copy of PAN, copy of memorandum and articles of association, copy of board resolution and return of allotment in Form No.2, though notice u/s 133(6) was not complied with by the investor company, the AO on the said standalone basis could not draw adverse inferences in the hands of the assessee company for addition u/s 68 in respect of share capital and share premium.

74. ITO vs. Shree Banke Bihari Infracon (P.)Ltd.

[2024] 115ITR(T) 223(Raipur – Trib.)

ITA NO.:95 (RPR) OF 2020

CO.: 8(RPR) OF 2023

AY.: 2013-14

Date of Order: 18th March, 2024

Sec. 68: Where the assessee company had placed on record with the AO supporting documentary evidence substantiating the authenticity of its claim of having received share application money from the investor company, viz. confirmation, bank statement, copies of the return of income, financial statements of the investor company, copy of share application forms, copy of PAN, copy of memorandum and articles of association, copy of board resolution and return of allotment in Form No.2, though notice u/s 133(6) was not complied with by the investor company, the AO on the said standalone basis could not draw adverse inferences in the hands of the assessee company for addition u/s 68 in respect of share capital and share premium.

FACTS

The assessee company was engaged in the business of real estate and building work. The assessee company had e-filed its return of income on 21st December, 2013 declaring a total income of ₹229,982/-. The assessee company’s case was selected for scrutiny proceedings u/s 143(2) of the Act.

During the course of assessment proceedings, it was observed that the assessee company had claimed to have received share capital and share premium of ₹2.05 crores from M/s. Modakpriya Merchandise Pvt. Ltd [the investor company].

The AO had issued notices u/s 142(1) of the Act which was returned unserved by postal authority. The A.O. sought for a direction from the Jt. CIT, Range-4, Raipur, and under his direction issued a commission u/s. 131(1)(d) of the Act. The A.O. directed his Inspector to carry out a spot verification about the existence of the investor company at its old address. The Inspector vide his report dated 23rd March, 2016 informed the A.O. that the investor company was neither available at the address that was provided to him nor any board evidencing the availability of the investor company was found at the said address.

The AO observed that the assessee company had failed to discharge the onus that was cast upon it as regards proving the authenticity of its claim, the identity of the investor company was not established and except for the aforesaid transaction of payment made towards share capital / premium, the bank account of the investor company revealed no other transaction.

Accordingly, the AO being of the view that the assessee company in the garb of share capital/premium had laundered its unaccounted money, thus, made an addition of the entire amount of Rs.2.05 crore (approx.) u/s. 68 of the Act. Aggrieved by the order, the assessee company filed an appeal before the CIT(A).

The CIT(A) observed that the inquiry was done on the back of the assessee company and results of enquiry were not confronted to the assessee before making the addition. The CIT(A) further observed that the AO made inquiry at wrong address of Synagogue Street Kolkata instead of correct address of Mango Lane, Kolkata. The CIT(A) observed that the availability of the investor company could not be gathered by the AO for the reason that the necessary inquiries were carried out at an incorrect address, i.e., the old address of the assessee company. It was also observed that the ARs were attending hearing before the AO and AO could have very well informed the result of the inquiry across the table to the AR. All the documents in respect of M/s Modakpriya Merchandise Pvt. Ltd. such as ITR, audited balance sheet, bank account statement, ROC certificate were furnished. It was observed by CIT(A) that the investment of ₹2.05 crore made by the investor company with the assessee company was sourced from the sale of its investments, and complete details of the same were filed with the AO. Without finding any fault in the documents furnished by the appellant, no adverse finding can be made by the AO.

The CIT(A) observed that the assessee had discharged its onus to prove the existence of the investor company, genuineness of the transaction and the creditworthiness of the investor company and thus, deleted the addition made by the AO.

The revenue being aggrieved with the order of the CIT(Appeals) filed an appeal before the ITAT.

HELD

The ITAT observed that the investor company had shifted from its old address “Synagogue Street, Kolkata” to its new address: “3, Mango Lane, 4th Floor, Kolkata(WB)-700 001”, however, the spot verification was carried out at its old address. The ROC records of the investor company also revealed its new address. The AO himself on Page 3 of his order had referred to the new address of the investor company. In spite of the above facts, the AO drew the adverse inference about the unavailability of the investor company at its old address and doubted the genuineness of the transactions. The ITAT did not approve the adverse inferences drawn by the AO.

The ITAT observed that the department had accepted the investment of ₹39.99 lacs (approx.) made by the investor company with M/s. Rupandham Steel Pvt. Ltd. during A.Y.2017-18, vide its order u/s. 143(3) dated 31st December, 2019 while framing the assessment for A.Y 2017-18 of M/s. Rupandham Steel Pvt. Ltd. and thus it dispels all doubts about the existence of the investor company.

The ITAT further observed that the AO had issued notice u/s. 133(6) of the Act at the new address of the investor company but it had carried out necessary verifications at its old address. The ITAT held that though notice u/s 133(6) was not complied with, the AO on the said standalone basis could not draw adverse inferences in the hands of the assessee company.

The ITAT observed that the assessee company had placed on record with the AO supporting documentary evidence substantiating the authenticity of its claim of having received share application money from the investor company, viz. confirmation of the investor company, bank statement, copies of the return of income, financial statements of the investor company, copy of share application forms, copy of PAN, copy of memorandum and articles of association, copy of board resolution and return of allotment in Form No. 2. The ITAT also observed that on a perusal of the bank account of the investor company, the amount remitted to the assessee company as an investment towards share application money was not preceded by any cash deposits in the said bank account but is sourced from bank transfers made through RTGS and had filed the confirmations of the source of RTGS as well.

The ITAT held that the assessee company had discharged the double facet onus that was cast upon it as regards proving the authenticity of its claim of having received genuine share application money from the investor company –

i by substantiating based on documentary evidence the “nature” and “source” of the amount so credited in its books of account, i.e. receipt of the share application money from the investor company; and

ii by coming forth with a duly substantiated explanation about the “nature” and “source” of the sum so credited in the name of the investor company, as per the mandate of the “1st proviso” to Section 68 of the Act.

In the result, the appeal of the revenue was dismissed.

S. 12AB–CIT(E) cannot deny registration under section 12AB on the ground that some of the objects of the applicant-trust had an element of commerciality.

73. (2025) 170 taxmann.com 198 (IndoreTrib)

Aruva Foundation vs. CIT

ITA No.: 398 & 399(Ind) of 2024

A.Y.: N.A.

Date of Order: 11th December, 2024

S. 12AB–CIT(E) cannot deny registration under section 12AB on the ground that some of the objects of the applicant-trust had an element of commerciality.

FACTS

The assessee-company was incorporated under section 8 of the Companies Act, 2013 with the objects of, inter alia, selling and marketing of products developed by the weaker sections of the society. It was granted provisional registration / approval under section 12AB and section 80G. Subsequently, it applied to CIT(E) for grant of final registration / approval under section 12AB as well as section 80G.

CIT(E) rejected assessee’s application under section 12ABon the ground that some of the objects of the assessee as mentioned in the Memorandum of Association clearly showed that its intention was to carry out various commercial activities and also to engage in trading of various products and therefore, it was not eligible to obtain registration under section 12AB. He also rejected the application under section 80G on the ground that as a consequence of denial of registration under section 12AB, approval under section 80G was not available to the assessee. Further, the said application was also belated.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed that-

(a) Proviso to section 2(15) defining ‘charitable purpose itself allows commerciality in the activities of assessee but up to a ceiling limit of 20 per cent. Further, section 11(4A) grants exemption to commercial or business activity on fulfillment of certain requirements.

(b) Section 13(8) also provides that the exemption under section 11/12 shall be denied in that previous year only in which the proviso to section 2(15) is violated. Therefore, these provisions of law clearly show that even if any object or activity of assessee, out of various multiple objects and activities, has element of commerciality, that would result in denial of exemption under section 11/12 to that extent and in that particular previous year only; but the CIT(E) in exercise of power under section 12AB cannot deny registration to assessee.

(c) It was also a fact that the assessee had done only charitable activities till date and had not undertaken any activity contemplated under the said “commercial” objects. Therefore, as and when the said activity was actually undertaken by assessee in future, it would be a prerogative of Assessing Officer in that particular year, to ascertain the quantum of exemption under section 11/12 available to assessee.

In the result, the appeal of the assessee was allowed and CIT(E) was directed to grant registration under section 12AB.

With regard to the approval under section 80G, the Tribunal observed that the assessee had already filed a fresh application to CIT(E) within the extended timeline of 30.6.2024 [as extended by Circular No. 7/2024 dated 25.04.2024] and therefore, remitted the matter back to the file of CIT(E) for an appropriate adjudication.

S. 12A–If the charitable institution had filed its return of income belatedly but within time allowed under section 139(4), then the tax department must allow exemption under section 11.

72. K M Educational & Rural-development Trust vs. ITO

(2024) 169 taxmann.com 617(Chennai Trib)

ITA No.: 1326(Chny) of 2024

A.Y.: 2018-19

Date of Order: 4th December, 2024

S. 12A–If the charitable institution had filed its return of income belatedly but within time allowed under section 139(4), then the tax department must allow exemption under section 11.

FACTS

The assessee-trust was registered under section 12A. For AY 2018-19, it filed its return of income belatedly on 30th November, 2018 [due date for filing of return under section 139(1) was 30th September, 2018] declaring total income of ₹NIL and claimed a refund of ₹1,96,656. While processing the return of income under section 143(1), the Central Processing Centre (CPC) did not allow the exemption under section 11 on the ground that the return of income / audit report was not filed within the due date under section 139(1).

On appeal, CIT(A) upheld the action of CPC.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Citing CBDT Circular No.F.No.173/193/2019-ITA-I dated 23rd April, 2019 the Tribunal held that CPC and CIT(A)erred in restricting the time limit for filing return of income to the due date under
section 139(1) and therefore, if the assessee had filed its return of income within the time allowed under section 139, that is, even if it is filed belatedly, then CPC was required to allow the exemption under section 11 by rectifying its intimation under section 143(1)(a).

Accordingly, the Tribunal allowed the appeal of the assessee and restored the issue back to the file of CIT(A) with a direction to pass rectification order as required vide CBDT Circular dated 23rd April, 2019(supra).

S. 54F–Deduction under section 54F is allowable to the assessee even if the new residential property was purchased by him in the name of his wife.

71. VidjayaneDurairaj -VidjayaneVelradjou vs. ITO

(2024) 169 taxmann.com 625 (ChennaiTrib)

ITA No.:1457 (Chny) of 2024

A.Y.: 2012-13

Date of Order: 4th December, 2024

S. 54F–Deduction under section 54F is allowable to the assessee even if the new residential property was purchased by him in the name of his wife.

FACTS

During FY 2011-12, the assessee sold three immovable properties for consideration of ₹50,40,000 and received the sale proceeds in cash. Out of the sale proceeds, he had deposited ₹19,75,000 into his own bank account and an amount of ₹36,00,000 in his wife’s bank account. Thereafter, a residential property was purchased in the assessee’s wife’s name for ₹44,27,994. The assessee did not file his return of income for AY 2012-13.

Vide notice under section 148 dated 27th March, 2018, the Assessing Officer (AO) reopened the assessment on the ground that he had received information from ITS Data that the assessee had deposited cash into his UCO Bank account to the tune of ₹19,75,000. In response thereto, the assessee filed his return of income claiming deduction of ₹44,27,994 under section 54F being capital gain invested into residential property purchased in his wife’s name. The AO did not allow the claim of deduction under section 54F on the ground that the residential property in question was purchased in the name of the assessee’s wife who was also assessed to tax separately and not in the assessee’s name.

The assessee preferred an appeal before CIT(A) who dismissed the same citing the decision of Punjab and Haryana High Court in Kamal Kant Kamboj vs. ITO, (2017) 88 taxmann.com 541 (Punjab & Haryana).

Aggrieved with the order of CIT(A), the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that the predominant judicial view is that for the purpose of section 54F, new residential house need not be purchased by the assessee in his own name and therefore, following the decision of jurisdictional High Court in erred in CIT vs. V. Natarajan,(2006) 154 Taxman399/287 ITR 271 (Madras), the Tribunal directed the AO to allow deduction under section 54F to the assessee.

 

Penalty levied under section 270A deleted where the assessee having fulfilled the conditions for grant of immunity from levy of penalty u/s 270AA of the Act made a belated application under section 270AA and no opportunity was given to the assessee as also no order passed by the AO rejecting the assessee’s application.

70. Bishwanath Prasad vs. CIT(A)

ITA Nos. 163 to 166/Patna/2023

A.Ys. : 2017-18 to 2020-21

Date of Order: 29th August, 2024

Sections: 270A, 270AA

Penalty levied under section 270A deleted where the assessee having fulfilled the conditions for grant of immunity from levy of penalty u/s 270AA of the Act made a belated application under section 270AA and no opportunity was given to the assessee as also no order passed by the AO rejecting the assessee’s application.

FACTS

All the appeals were against orders passed under section 270A of the Act levying penalty for under-reporting of income. The facts in each of the years under appeal being the same, the Tribunal considered the facts in the case of Nand Kumar Prasad Sah for assessment year 2017-18 and apply the decision to all other appeals.

The assessee, an individual, filed return of income under section 139(1), for AY 2017-18, declaring total income of ₹8,35,425. Subsequently, consequent to search conducted at the business premises of the assessee, the assessee in response to a notice issued under section 153A of the Act filed the return of income declaring therein a total income of ₹13,97,271. The assessment of the assessee for AY 2017-18 stood abated.

The Assessing Officer (AO) completed the assessment under section 153A of the Act by accepting the income returned in response to notice issued under section 153A of the Act. The AO levied penalty with reference to the difference between income assessed under section 153A and the income declared in return of income filed under section 139(1).

The assessee belatedly filed an application under section 270AA for grant of immunity from levy of penalty and initiation of prosecution. The AO rejected the application and levied a penalty of ₹6,20,495.

Aggrieved, the assessee preferred an appeal to CIT(A) claiming that since returned income has been assessed there is no under-reporting under section 270A(2) of the Act. It was also argued that the AO ought to have considered the application for grant of immunity. The CIT(A) dismissed the contentions and confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal before the Tribunal where two-fold arguments were raised viz. relying on decision of Delhi High Court in PCIT vs. Neeraj Jindal [(2017) 399 ITR 1] it was contended that once the assessee is subjected to search and notice u/s 153A of the Act is issued for furnishing the return and the assessee furnished return since the return filed originally gets abated and become non-est. Therefore, since there is no difference between the returned income and assessed income, no penalty is leviable u/s 270A of the Act. Second fold of the arguments was that the AO erred in rejecting the assessee’s application for grant of immunity without granting an opportunity of being heard which is contrary to the principles of natural justice. Relying on the decision of the Madras HC in Natarajan Anand Kumar vs. DCIT [(2024) 159 taxmann.com 637 (Mad)] it was contended that the ratio of the said decision squarely applies to the present case and that the AO ought to have condoned the delay in furnishing application under section 270AA because the assessee satisfied all the conditions required to be satisfied for grant of immunity.

HELD

The Tribunal observed that there is no difference between the income returned under section 153A and assessed income. The Tribunal examined the second fold of the arguments first viz. that the case of the assessee was covered by the decision of the Madras High Court in Natarajan Anand Kumar (supra) and therefore the AO ought to have condoned the delay and granted immunity.

The Tribunal noted that there was no tax and interest payable as per assessment order passed under section 143(3) r.w.s. 153A and assessee had not preferred any appeal against the order of assessment. The application for grant of immunity is required to be filed within one month from the end of the month in which the assessment order is received. Assuming that the assessment order is received by the assessee on the very same date of its passing viz. 31st March, 2022 there is a delay of 45 days in filing an application for grant of immunity. The application of the assessee has been rejected without providing any opportunity of being heard.

The Tribunal observed that –

i) the Madras High Court has in Natarajan Anand Kumar (supra) dealt with almost identical issue and held that it was a fit case to condone the delay of 30 days in filing the application for grant of immunity. The Court condoned the delay;

ii) the Delhi High Court in the case of Ultimate Infratech Private Limited v. National Faceless Assessment Centre in WP 6305/2022 dated 20th April, 2022 where the Court has held that upon satisfaction of the conditions mentioned in section 270AA the assessee acquires a right to be granted immunity under section 270AA;

iii) the Rajasthan High Court in GR Infraprojects Ltd. vs. ACIT [(2024) 158 taxmann.com 80] has held that “Sub-section (4) of section 270AA provides that the Assessing Officer shall pass an order accepting or rejecting any application filed by the assessee seeking immunity from imposition of penalty under section 270A within a period of one month from the end of month in which the application under sub-section (1) is received.

The Tribunal held that the ratio laid down in the above decisions is squarely applicable in favour of the assessee and therefore, it was of the considered view since, the assessee has fulfilled the conditions for grant of immunity from levy of penalty u/s 270AA of the Act, the actions of the AO levying penalty u/s 270A of the Act, is not justified because firstly, no opportunity was given to the assessee and secondly, no order has been passed by the AO rejecting the assessee’s application.

The Tribunal held the case of the assessee to be a fit case for immunity of penalty u/s 270AA of the Act and on this ground itself deleted the impugned penalty. In view of the decision of the Tribunal on the second fold of the arguments of the assessee, the Tribunal held that the first fold of the arguments became academic in nature. The penalty levied by AO and confirmed by the CIT(A) was deleted and the appeals filed by the assessee were allowed.

Where Revenue has failed to establish direct nexus between the borrowed funds and interest-free advances, the presumption is that the interest-free advances have been made out of interest-free funds available with the assessee.

69. SiwanaAgri Marketing Ltd. v. ACIT

ITA No. 1094/Ahd./2024

A.Y.: 2017-18

Date of Order: 27th November, 2024

Section: 36(1)(iii)

Where Revenue has failed to establish direct nexus between the borrowed funds and interest-free advances, the presumption is that the interest-free advances have been made out of interest-free funds available with the assessee.

FACTS

For A.Y. 2017-18, the assessee filed its return of income declaring a total income of ₹31,91,560. While assessing the total income of the assessee under section 143(3) of the Act, the Assessing Officer (AO) disallowed ₹65,86,200 under section 36(1)(iii) of the Act on the ground that the assessee had advanced interest-free loans of ₹5.48 crore while incurring significant interest expenses on unsecured borrowings. He held that the assessee failed to demonstrate the nexus of these advances with interest-free funds and did not demonstrate any business purpose.

Aggrieved, the assessee preferred an appeal to CIT(A) contending that interest-free advances were made out of sufficient interest-free funds available with it. The CIT(A) held that the assessee failed to substantiate its claims with adequate evidence or satisfy the legal requirements under the Act. He observed that no fund flow statement or evidence provided to establish the nexus of interest-free funds with advances and that business purpose or commercial expediency has not been demonstrated. He confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee, on the basis of financial statements it was contended that the assessee has sufficient own funds. The net worth as on 31st March, 2016 was ₹30.31 crore and that on 31st March, 2017 was ₹27.11 crore whereas the amount of loan given during the year is only ₹15.75 lakh and the balance is all opening balances. It was also pointed out that no disallowance was made in earlier years despite the existence of similar advances of ₹5.33 crore and assessee has earned net interest income of ₹1.10 crore during the year thereby negating any suspicion of diversion of interest-bearing funds. Reliance was placed on decision of SC in CIT(LTU) vs. Reliance Industries Ltd. [(2019) 410 ITR 466]. It was contended that the reliance placed by AO and CIT(A) on the decision of S A Builders [Appeal (civil) 5811 of 2006 (SC)] was misplaced in light of later SC ruling in Reliance Industries Ltd. (supra).

HELD

The Tribunal, based on material on record, held that had sufficient interest-free funds amounting to ₹27.10 crores as on 31st March, 2017, which were more than adequate to cover the interest-free advances of ₹5.48 crores. It observed that the CIT(A) did not address the assessee’s submission that no disallowance was made in earlier years despite similar advances. The principle of consistency was disregarded. The CIT(A)’s emphasis on the absence of a fund flow statement is unjustified, as the assessee’s financial statements clearly indicated the sufficiency of interest-free funds and the CIT(A)’s reliance on S.A. Builders vs. CIT (supra) is misplaced.

The Tribunal held that while the decision in the case of S A Builders (supra) emphasizes the requirement of commercial expediency, the principles laid down in CIT vs. Reliance Industries Ltd. (supra), a subsequent decision of the Supreme Court clarifies that where sufficient interest-free funds are available, the presumption arises that such advances are made from those funds. Following the principle established in CIT vs. Reliance Industries Ltd. (supra), it is presumed that such advances are made from interest-free funds. The Revenue has failed to establish a direct nexus between borrowed funds and these advances. Therefore, the disallowance of interest expenses under Section 36(1)(iii) of the Act cannot be sustained.

Where funds were introduced by the partners of the firm as their capital contribution and their confirmations filed, the onus cast on the assessee stood discharged. If the AO is not satisfied with the explanation then the addition may be made in the hands of the partners but not in the hands of the assessee firm.

68. J K Associates vs. ITO

ITA No. 1200/Ahd./2024

A.Y.: 2017-18

Date of Order: 5th December, 2024

Sections: 68, 69A

Where funds were introduced by the partners of the firm as their capital contribution and their confirmations filed, the onus cast on the assessee stood discharged. If the AO is not satisfied with the explanation then the addition may be made in the hands of the partners but not in the hands of the assessee firm.

FACTS

For the assessment year 2017-18, the Assessing Officer (AO) received information that the assessee firm had purchased immovable property of ₹1 crore in Financial Year 2016-17. Since the assessee firm had not filed return of income, he recorded reasons and issued a notice under section 147 of the Act and completed the assessment by making an addition of ₹1 crore in respect of unexplained investment in immovable property.

Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee it was submitted that the source of investment in the immovable property was duly explained by the assessee before the AO as well as before the Ld. CIT(A). It was submitted that the property was acquired out of capital contribution made by 12 partners of the firms and the details of amount contributed by the individual partners along with their confirmations was filed before the AO. It was further explained that the partners had made withdrawals from other firms as well as taken loan from other entities for making capital contribution to the assessee firm. Therefore, the identity, genuineness and creditworthiness of the partner’s contribution towards the acquisition of property was duly established. Therefore, the AO was not correct in making an addition in the hands of the assessee firm. Relying on the decision of the Gujarat High Court in PCIT vs. VaishnodeviRefoils&Solvex [(2018) 89 taxman.com 80(Gujrat] it was submitted that in case the AO was not satisfied with the explanation of the assessee, then the addition should have been made in the hands of the individual partners but not in the case of assessee firm.

HELD

The AO was not correct in rejecting the evidences filed by the assessee as self-serving documents. The assessee has discharged its onus by explaining the source of investment made in the immovable property. It is not that the amounts were borrowed by the assessee from 3rd parties; rather all the fund had come from its own 12 partners in the form of their capital contribution. The assessee had discharged its onus to explain the source of investment in the immovable property. The confirmation of the partners was also filed in this regard. If the AO was not satisfied about the creditworthiness of the partners, then the enquiry was required to be made at the end of the partners. No addition in respect of unexplained capital contribution made by the partner can be made in the hands of the firm. The Tribunal held that the assessee had discharged its onus to explain the source of investment in the immovable property.

The addition of ₹1 crore made by the AO in respect of unexplained investment in property was deleted.

Credit card dues settled / paid in cash, qualify for addition u/s 69A if the source of cash deposit is not explained.

67. Dipak Parmar vs. ITO

ITA No. 178/Srt./2024

A.Y.: 2017-18

Date of Order: 19th November, 2024

Section: 69A

Credit card dues settled / paid in cash, qualify for addition u/s 69A if the source of cash deposit is not explained.

FACTS

For A.Y. 2017-18, the assessee filed his return of income declaring total income at ₹2,78,400/-. The assessee had made cash payment towards credit card purchases of ₹6,16,142/-. The Assessing Officer ( ‘AO’) asked the assessee to explain the source of the above cash payments. The AO also issued show cause notice which was not replied to by the assessee. Therefore, the AO held that the amount of cash payment of ₹6,16,000/- remained unexplained and constitutes income of the assessee u/s 69A of the Act which is taxable at the rates mentioned in section 115BBE of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who issued seven notices which were not responded neither were any written submissions filed. The CIT(A) concluded that the assessee was not interested in pursuing the appeal and therefore decided the same based on material on record.

The CIT(A) observed that assessee failed to explain the source of cash payment of ₹6,16,000/- towards credit card purchases; hence, the impugned amount constitutes income in the hands of the assessee u/s 69A of the Act. The CIT(A) also relied on the order of Hon’ble Punjab & Haryana High Court, in case of Anil Goel vs. CIT, 306 ITR 212 (P& H) wherein relying on the earlier decision of the High Court in case of Popular Engineer Co. vs. ITAT, 248 ITR 577 (P & H), it was held that elaborate reasons need not be recorded by the CIT(A) as has been done by the AO. The reasons are required to be clear and explicit indicating that the authority has considered the issue in controversy. If the appellate / revisional authority has to affirm such an order, it is not required to give separate reasons, which may be required incase the order is to be reversed by the appellate / revisional authority.

Aggrieved, the assessee preferred an appeal to the Tribunal where none appeared on behalf of the assessee and therefore the appeal was decided ex-parte.

HELD

The Tribunal noted that the assessee had made cash payments for credit card purchases i.e. ₹3,37,650/- with RBL Bank Ltd., ₹1,66,492/- with SBI Cards and Payment Services Pvt. Ltd. and ₹1,12,000/- with City Bank. It observed that both AO and CIT(A) issued several notices but assessee chose not to respond to the notices nor file any written submission. Having observed that the provisions of section 69A are clear, the Tribunal held that in the present case, assessee has purchased the credit cards by making cash payments. It is, therefore, clear that assessee was owner of money (cash) which was used to make credit card purchases. However, he has not explained the nature and source of acquisition of such money, being cash, of ₹6,16,142/-. The AO has added the same u/s 69A of the Act due to non-compliance by assessee to the statutory notices as well as the show cause  notice. The CIT(A) has rightly confirmed the addition because assessee did not attend before him or filed any written submission in support of the grounds raised before him.

The Tribunal upheld the order of CIT(A) holding that the provisions of section 69A are clearly attracted to the facts of the case.

S. 17(3) — Voluntary severance compensation received by an employee for loss of employment could be regarded as capital receipt not subject to tax as profits in lieu of salary under section 17(3).

66 (2024) 168 taxmann.com 369(Ahd. Trib)

Sudhakar Ratan Shanker Gautam vs. ITO

ITA No.: 1033(Ahd) of 2024

A.Y.: 2018-19

Dated: 3rd October, 2024

S. 17(3) — Voluntary severance compensation received by an employee for loss of employment could be regarded as capital receipt not subject to tax as profits in lieu of salary under section 17(3).

FACTS

The assessee, an individual, was employed with “Y” which was subsequently acquired by “E”. Following this acquisition, the assessee’s employment was terminated on 26th October, 2017 on account of redundancy, and he received a severance compensation of ₹15,50,905. This amount was claimed as a capital receipt not chargeable to tax in the return of income filed for AY 2018-19 on 31st August, 2018.

The AO treated this amount as “profits in lieu of salary” under section 17(3) and added it to the total income of the assessee. On appeal, CIT(A) observed that since the compensation received by the assessee was related to the termination of employment, it should be treated as “profits in lieu of salary” under section 17(3)(i), thereby confirming the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that–

(a) Gujarat High Court [in Arunbhai R. Naik vs. ITO, (2015) 64 taxmann.com 216 (Guj)] and various ITAT decisions have consistently held that voluntary severance payments made without contractual obligation are capital receipts and not subject to tax as profits in lieu of salary.

(b) The severance payment received by the assessee was paid for the loss of employment and not for past services. It is consistently held that payments, when not tied to services rendered, are capital in nature and not taxable as salary income. Since the employer had no obligation to pay further amounts upon termination, the compensation should be deemed a capital receipt and thus not taxable under Section 17(3).

(c) Under section 17(3), “profits in lieu of salary” is a key provision that seeks to tax certain payments received by an employee in connection with the termination of employment. On the other hand, capital receipts, especially in the context of employment, typically relate to compensation for the loss of a source of income and are generally not taxable, unless specified. This distinction is critical in determining whether a severance payment or other termination-related compensation is subject to tax as salary income or can be treated as a non-taxable capital receipt.

(d) Section 56(2)(xi), w.e.f. 1st April, 2019, deals with compensation received or receivable in connection with the termination or modification of terms of employment contracts. However, this amendment applies to assessment years starting from AY 2019-20 onwards and not to the case in question.

Accordingly, the Tribunal held that severance compensation received by the assessee was a capital receipt, not chargeable to tax under section 17(3).

Where the assessee was not only for the benefit of its members but also for benefit of insurance consumers from the general public, it was regarded as engaged in charitable activity in the nature of advancement of object of general public utility and therefore, principle of mutuality could not be applied. Where participation in the annual meet of the assessee was free of cost, it was not a case of rendering of any service for a fee and therefore, proviso to section 2(15) did not apply.

65 Insurance Brokers Association of India vs. ITO

ITA No. 3955 & 3958 / Mum / 2024

A.Ys.: 2016-17 & 2018-19

Date of Order: 13th November, 2024

Section 2(15), principle of mutuality

Where the assessee was not only for the benefit of its members but also for benefit of insurance consumers from the general public, it was regarded as engaged in charitable activity in the nature of advancement of object of general public utility and therefore, principle of mutuality could not be applied.

Where participation in the annual meet of the assessee was free of cost, it was not a case of rendering of any service for a fee and therefore, proviso to section 2(15) did not apply.

FACTS

The assessee was a company registered under section 25 of the Companies Act, 1956 in 2001 and was registered as a charitable organization under section 12A of the Act. For AY 2016-17 and 2018-19, the assessee filed its return of income claiming exemption under section 11 of the Act.

For AY 2016-17 and AY 2018-19, the case of the assessee was selected for scrutiny. Relying on Circular No. 11/2008 dated 19th December, 2008, the AO held that the assessee cannot claim exemption under section 11 of the Act since 1st proviso to section 2(15) of the Act was applicable and also held that the principle of mutuality was applicable in assessee’s case and brought to tax the interest income and other income.

CIT(A) confirmed the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the question of applying the principle of mutuality, the Tribunal observed that-

(a) It was not in dispute that the assessee was a charitable organisation since it was registered under section 12A of the Act and that the tax department till now had not held the assessee to be otherwise.

(b) A perusal of the financial statements of the assessee showed that the income consisted of subscription fee from members, sponsorship fees for annual event, and bank interest. Further, a perusal of the brochure of the annual event showed that the event was held for the benefit of insurance consumers and brokers and that the events were conducted without collecting any fees.

(c) The assessee was not only for the benefit of members but was also for the benefit of insurance consumers from general public and therefore, the assessee could be regarded as engaged in charitable activity in the nature of advancement of object of general public utility.

Therefore, the Tribunal held that the principle of mutuality was not applicable in the assessee’s case.

On the question of the applicability of proviso to section 2(15), the Tribunal observed that the income of the assessee did not contain any revenue from any activity in the nature of trade, commerce or business. Further, the participation in the annual meet for which the sponsorship fees was received was free of cost and therefore, it could not be held to be a service for a fee for rendering services. Relying on observations of the Supreme Court in ACIT vs. Ahmadabad Urban Development Authority, (2022) 143 taxmann.com 278 (SC), the Tribunal held that the AO was not correct in denying the benefit of section 11 by invoking proviso to section 2(15).

Accordingly, the appeals of the assessee were allowed.

Ss. 12AB, 2(15) – Where the objects and activities of the trust showed that its charitable activities were for the general public at large and not only for the alumni and faculty of the university, it was entitled to registration under section 12AB.

64 (2024) 168 taxmann.com 526 (AhdTrib)

Indus Alumni Association vs. CIT(E)

ITA No.: 916 (Ahd) of 2024

A.Y.: N.A.

Dated: 4th November, 2024

Ss. 12AB, 2(15) – Where the objects and activities of the trust showed that its charitable activities were for the general public at large and not only for the alumni and faculty of the university, it was entitled to registration under section 12AB.

FACTS

The assessee was a trust registered under Gujarat Public Trusts Act, 1950. The main objects of the trust were educational, medical relief and charitable in nature. It was created for the benefit and advancement of the whole mankind of the society without discrimination of caste, creed, sex and religion of any person.

The assessee obtained provisional approval for registration under section 12AB in 2022 and thereafter, applied for final registration under section 12AB by filing Form 10AB on 23rd September, 2023.

After considering the details filed by the assessee, CIT(E) held that the objects of the trust were for the benefit / welfare / interest of the members of the association only, namely alumni and faculty members of Indus University and not for the benefit of the public at large. Accordingly, the trust does not fall within the ambit of charitable purposes as defined under section 2(15) and is not eligible for registration under section 12AB.

Aggrieved with the order of CIT(E), the trust filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) Looking into the objects of the trust, it cannot be held that the assessee had been formed only for the benefit of a particular set of public, namely alumni and faculty members of the University.

(b) Perusal of the activities carried out by the trust, namely — food donation, blood donation, women empowerment, English learning, awareness of ecological concept, new library for the under privileged school children in a village clearly demonstrate that the trust was not doing charitable activities only for the alumni members of the University but for the general public at large.

(c) In any case, this aspect should be considered at the time of grant of exemption under section 11 and the provisions of section 13 should not be invoked at time of grant of registration under section 12AB.

The Tribunal also observed that this view was supported by decision of co-ordinate bench in Parul University Alumni Association vs. CIT(E),(2024) 162 taxmann.com 98 (AhdTrib).

Accordingly, the appeal of the assessee was allowed and the impugned order was set aside with a direction to CIT(E) to grant final registration under section 12AB to the assessee-trust.

Annual value of vacant flats held as stock-in-trade is not chargeable as `Income from House Property’.

63 Palm Grove Beach Hotels Pvt. Ltd. vs. DCIT

ITA No. 3858/Mum./2024

A.Y. : 2017-18

Date of Order : 11th October, 2024

Sections: 22, 23

Annual value of vacant flats held as stock-in-trade is not chargeable as `Income from House Property’.

FACTS

The assessee, engaged in the business of development of housing complexes, industrial parks and running five star hotels at Kodaikanal, e-filed the return of income for A.Y. 2017-18, declaring total income to be a loss of ₹1,22,20,66,420/-. While assessing the total income of the assessee under section 143(3) of the Act, the Assessing Officer (AO) inter alia taxed deemed annual letting value of finished property held in stock.

Aggrieved, the assessee filed an appeal before learned CIT(A), who partly allowed the assessee’s appeal by reducing the estimated annual value to 2.5 per cent as against 8.5 per cent determined by the AO in the assessment order.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal, at the outset, observed that the main point for consideration is as to whether the flats held by the assessee as stock-in-trade, be treated as income from house property. The Tribunal noted that the issue is no more res integra and that in this connection the observations made by the Bombay High Court in the case of PCIT, Central 1 vs. Classique Associates Ltd (order dated 28th January, 2019) are important. The Tribunal considered the observations of the court in paragraphs 3 to 5 of the order of the Bombay High Court. The Bombay High Court has, in its decision, considered the ratio of the decision of the Gujarat High Court in the case of CIT vs. Neha Builders (296 ITR 661) and of the Apex Court in Chennai Properties and Investments Ltd. vs. CIT (377 ITR 673). The Tribunal having reproduced the observations of the Bombay High Court found it futile to reproduce the observations of the Gujarat High Court and the Supreme Court. It also observed that the co-ordinate bench in the assessee’s own case by common order dated 1st July, 2021 passed in ITA NO. 1973/MUM/2019 and 1974/MUM/2019 for A.Y. 2014-15 and 2015-16 respectively.

The allotment letter issued by developer is to be construed as an ‘agreement’ for the purpose of section 56(2)(vii)(b). Consequently, benefit of proviso to section 56(2)(vii)(b) will be available and valuation of the property as on the date of allotment letter will need to be considered and not the valuation as on the date of conveyance.

62 Tamojit Das vs. ITO

ITA No. 1200/Kol./2024

A.Y.: 2015-16

Date of Order: 3rd October, 2024

Sections :56(2)(vii)(b)

The allotment letter issued by developer is to be construed as an ‘agreement’ for the purpose of section 56(2)(vii)(b). Consequently, benefit of proviso to section 56(2)(vii)(b) will be available and valuation of the property as on the date of allotment letter will need to be considered and not the valuation as on the date of conveyance.

FACTS

In the course of assessment proceedings, for AY 2015-16, the Assessing Officer (AO) noticed that the assessee has purchased a residential flat jointly with his wife Smt. Gargi Das through Deed of Conveyance, which was registered on 28th October, 2014 before District Sub-Registrar-II, South 24-Parganas. The value of the said transaction was declared by the assessee at ₹24,05,715/- as against stamp duty valuation of ₹38,74,500/-.

When assessee was confronted with, then the assessee submitted that he has booked this flat with Greenfield City Project LLP and first payment was made on 08.06.2010. In support of his contention, he filed (i) copy of receipt from Greenfield City Project LLP, (ii) letter of allotment by Greenfield City Project LLP dated 10.06.2010 and (iii) copy of typical floor plan purported to be allotment of flat to the assessee.

The AO did not equate the allotment letter and payment of the installment by the assessee through account payee cheque as an agreement contemplated in proviso appended to sub-Clause (2) of section 56(1) of the Income-tax Act, 1961. He made the addition of the difference between the transaction value and the stamp duty value i.e. ₹14,68,785/- as a deemed gift within the meaning of section 56(2)(vii)(b)(ii) of the Act.

Aggrieved, the assessee filed an application under section 154 wherein he emphasised that the letter given by the developer demonstrating the booking of the flat amounts to an agreement. The AO rejected the application.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the dispute is whether the allotment letter by the developer is to be construed as an agreement or not. The Tribunal perused the copy of the allotment letter. It also noted that the payments of amounts starting from 1st June, 2010 have been made through account payee cheques and that part payment has been made before issuance of the allotment letter.

The Tribunal held the interpretation by both the lower authorities to be incorrect. It held that the allotment letter is be equated to an agreement to sale. The agreement is not required to be a registered document. The only requirement in the law is that agreement should be followed by payments through banking channel, so that its veracity cannot be doubted. It observed that in the present case, the assessee has established the genuineness of the allotment letter by showing that payments were made through account payee cheques. Therefore, the valuation date for the purpose of any deemed gift is the date when first payment was made, in this case it happened around June, 2010. It held that the AO has erred in taking the valuation of the property as on 28th October, 2014.

Where assessee-company underwent a CIRP under IBC, 2016, the provisions of IBC, 2016 overrides the provisions of the other laws for the time being enforced and once a resolution plan is approved by the Adjudicating authority, Income-tax Department is also bound by terms of the resolution plan so approved.

61 [2024] 113 ITR(T) 243 (Chandigarh – Trib.)

SEL Manufacturing Co. Ltd. Vs. DCIT

ITA NO.: 362 (CHD.) OF 2023
A.Y.: 2011-12

DATED: 27th May, 2024

Where assessee-company underwent a CIRP under IBC, 2016, the provisions of IBC, 2016 overrides the provisions of the other laws for the time being enforced and once a resolution plan is approved by the Adjudicating authority, Income-tax Department is also bound by terms of the resolution plan so approved.

FACTS

The assessee company had undergone a Corporate Insolvency Resolution Process (“CIRP”) in the terms and provisions of the Insolvency and Bankruptcy Code,2016 (“IBC”) under the aegis of the Adjudicating Authority of the National Company Law Tribunal (“NCLT”). A petition for CIRP u/s 7 of the IBC was filed by the State Bank of India before NCLT vide Company Petition No. (IB)-114/Chd/Pb/2017. The NCLT admitted the petition vide order dated 1st April, 2018 and vide order dated 10th February, 2021, approved the resolution plan.

The AO initiated reassessment proceedings u/s 147 on the assessee on the basis of information received that the assessee had made accommodation entries with Shree Shyam Enterprises and passed the impugned order making addition of ₹2,08,60,900/- u/s 68 of the Act, on account of alleged unexplained cash credits representing bogus purchases made.

Aggrieved by the assessment order, the assessee filed an appeal before CIT(A). The CIT(A), on the other hand, enhanced the addition to ₹8,13,85,737/-, invoking the provisions of Section 69C of the Act.

Aggrieved by the Order, the assessee preferred an appeal before the ITAT. The assessee had raised the additional ground before the ITAT, challenging the CIT(A) order as the same was passed ignoring the order dated 10th February, 2021 passed by the NCLT under IBC, 2016.

HELD

The assessee contented that in terms of the approved resolution plan vide order dated 10th February, 2021 passed by the NCLT, any claim or demand assessed / raised / ordered by Income-tax Department endeavoring to saddle the assessee with a liability for a period prior to approval of the Resolution Plan, was extinguished / abated / withdrawn except to the extent provided for in the approved Resolution Plan and thus, any claim or demand assessed / raised / ordered by the Income-tax Department was not payable by the assessee. The provisions of the IBC override other laws for time being in force and as per Section 31(1) of the IBC, a Resolution Plan once approved shall be binding on the assessee company and, inter-alia, its creditors, including, inter-alia, the Central Government to whom, a debt in respect of the payment of dues arising under law are owing.

The ITAT observed that as rightly contended and not disputed, any claim or demand assessed or raised or ordered by the Income Tax Department was to be treated in the nature of operational debt and the Department was to be treated as an Operational Creditor of the assessee. The ITAT further observed that the Resolution Plan further provided that all claims that may be made against or in relation to any payments required to be made by the assessee company under any applicable law shall unconditionally stand abated, settled and / or with minimum effect. The Resolution Plan also provided that any claim or demand assessed or raised or ordered by the Department shall not be payable by the assessee company. The plan also provided that no Government Authority including the Income Tax Department shall have any further rights or claims against the assessee company in respect of any claim relating to the period prior to the approval of the Resolution Plan.

The ITAT held that the impugned order was passed ignoring the provisions of the IBC, which overrides the provisions of the other laws for the time being enforced, in so far as they are inconsistent with the provisions of the IBC, and that the impugned order was passed in violation or ignorance of the order dated 10th February, 2021, passed by the NCLT, by which order, the Income Tax Department was precluded from undertaking any action with respect to any issue / transaction prior to the date of commencement of the insolvency process.

In the result, finding merit in the Additional Ground raised by the assessee, the order of CIT(A)was set aside and cancelled. The appeal of the assessee was accordingly allowed.

Sec. 263: Where there was no application of mind by CIT to take cognisance u/s 263 on the proposal sent by Additional CIT, order passed u/s 263 was to be quashed.

60 [2024] 113 ITR(T)158 (Kol – Trib.)

Rajesh Kumar Jalan vs. PCIT

ITA NO. 254 & 255 (KOL) OF 2024

A.Y.: 2015-16 & 2016-17

Dated: 12th June, 2024

Sec. 263: Where there was no application of mind by CIT to take cognisance u/s 263 on the proposal sent by Additional CIT, order passed u/s 263 was to be quashed.

FACTS

The assessee at the relevant time was engaged in trading of cloth and had filed return of income under presumptive taxation scheme contemplated u/s 44AD of the Act. The AO had received information from Bureau of Investigation, Commercial Taxes, West Bengal that the assessee had by fraudulent act opened seven Bank accounts under five proprietorship concerns and received a total sum of ₹112,41,47,898/- over the years. On perusal of the information, the AO recorded the reasons and reopened the assessment in both the assessment years.

The assessee had denied being the operator of any such alleged bank accounts. The AO not being satisfied with the assessee’s submission, passed the assessment orders for both the assessment years estimating profit at 8 per cent of alleged unaccounted sales of ₹30,47,35,796/- for AY 2015-16 and ₹43,08,96,425/- for AY 2016-17.

Aggrieved by the Order, the assessee preferred an appeal before the CIT(A) which was pending to be disposed-off.

Meanwhile, the Additional Commissioner of Income Tax, Range-43, Kolkata [Addl. CIT] forwarded a proposal to CIT for initiating proceedings under section 263 of the Act against the assessee. The ld. CIT had reproduced the proposal made by the Addl. CIT and issued a notice under section 263. The Addl. CIT was of the view that the alleged credit of sales ought to be treated as unexplained cash credit against the name of assessee and the AO had erred in treating it as gross turnover.

In response to the show cause notice u/s 263, the assessee had submitted that somebody has personated his identity and opened these fake accounts in his name. The assessee had not undertaken any such business. The CIT not satisfied with the explanation of the assessee, set aside the assessment orders with a direction that AO to recompute income at ₹30,07,20,390/- in A.Y. 2015-16 and ₹43,13,11,955/- in A.Y. 2016-17.

Aggrieved by the Order, the assessee preferred an appeal before the ITAT.

HELD
The ITAT observed that as per section 263(1), powers of revision granted by section 263 to the learned Commissioner have four compartments-

  1.  the learned Commissioner may call for and examine the records of any proceedings under this Act
  2. He will judge an order passed by an AO on culmination of any proceedings or during the pendency of those proceedings and form an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue

                   [By this stage the learned Commissioner was not required the assistance of the assessee]

3. Issue a show-cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer

4. After hearing the assessee, he will pass the order.

To judge the action of CIT taken under section 263, the ITAT followed the decision of the Hon’ble ITAT Mumbai in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO, Mumbai [2006] 100 ITD 173 (Mum. Trib.). One of the principles propounded in the above case-

“The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.”

The ITAT observed that the assessee submitted that he had not opened any bank accounts, rather somebody had impersonated him. His case was based on the issue that his IDs were misused and some unknown person had carried out these transactions in his name. He could only know about this when he received information from Sales Tax Authorities, Bureau of Investigation, Commercial Taxes.

During the course of proceedings u/s 263, the assessee was asked to submit his audited financial statements; the assessee was asked to appraise about the status of the complaint lodged by him in Konnagar Police Station. To this, the CIT recorded the finding that the assessee failed to give anything. The ITAT held that, this cannot be expected from a Senior Officer of the Income Tax Department to put somebody under the tax liability without concluding the finding. He ought to have issued notice to the Police Authorities as well as to the Commercial Tax Investigating Authorities for submission of their report. He ought to have first determined whether these accounts belong to the assessee, only thereafter taxability of the amounts available in those accounts would have fallen upon the assessee.

The ITAT further observed that the CIT had reproduced the proposal sent by the Addl. CIT and there was no independent application of his mind for taking cognizance under section 263. The CIT had not recorded any finding. He just put the blame on the assessee to prove a negative aspect. It was for the revenue to first determine that these accounts belonged to the assessee.

Once the assessee had been emphasising that these accounts did not belong to him and he had lodged an FIR in such situation, there should be adjudication of this aspect but CIT simply ignored this aspect under the garb that the assessee failed to substantiate this issue. The ITAT held that it could not be substantiated by the assessee. It was to be investigated by the AO or by the CIT. The role of the AO is not only a prosecutor but he has to play a role of an adjudicator. That very role has to be played by the CIT while exercising the powers under section 263.

Further, the ITAT held that impugned orders are not sustainable because the same very issue was subject matter of appeal before the ld. CIT(Appeals) and by meaning of clause (c) of section 263(1) that aspect could be looked into by the 1st Appellate Authority and no revisionary power ought to have been exercised on that aspect.

In the result, the appeal of the assessee was allowed and the impugned orders were quashed.

S. 251 — CIT(A) is not vested with any power to summarily dismiss the appeal for non-prosecution and is obliged to dispose off the same on merit.

59 (2024) 167 taxmann.com 730 (Raipur Trib)

Avdesh Jain vs. ITO

ITA No.: 30(Rpr.) of 2024

A.Y.: 2010-11

Dated: 9th October, 2024

S. 251 — CIT(A) is not vested with any power to summarily dismiss the appeal for non-prosecution and is obliged to dispose off the same on merit.

FACTS

The assessee was engaged in the business of retail trading. He filed his return of income for AY 2010-11 by declaring an income of ₹4,67,200. The AO, on the basis of certain information shared by
the Investigation Wing, initiated proceedings under section 147.

The AO observed that as the returned income of the assessee did not suffice to source the business expenditure of ₹8.24 lakhs that was incurred by him, he made an addition of the deficit amount of ₹3.56 lakhs as an unexplained expenditure under section 69C. He also made an addition towards deemed income of ₹60,000 under section 44AE. Accordingly, the AO passed an order under section 147 read with section 144 assessing the income of the assessee at ₹3.51 crores.

On appeal, after noting that despite being given six opportunities the assessee had failed to participate in the proceedings, CIT(A) held that the assessee was not interested in pursuing the matter and disposed of the appeal vide an ex-parte order.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) CIT(A) had disposed-off the appeal for non-prosecution and had failed to apply his mind to the issues which did arise from the impugned order and were assailed by the assessee before him.

(b) Once an appeal is preferred before the CIT(A), it becomes obligatory on his part to dispose-off the same on merit and it was not open for him to summarily dismiss the appeal on account of non-prosecution of the same by the assessee.

(c) A perusal of Section 251(1)(a) / (b) as well as the Explanation to section 251(2) reveals that CIT(A) remains under a statutory obligation to apply his mind to all the issues which arises from the impugned order before him and he is not vested with any power to summarily dismiss the appeal for non-prosecution. This view was also supported by CIT v. Premkumar Arjundas Luthra (HUF), (2017) 297 CTR 614 (Bom).

Accordingly, the Tribunal restored the matter to the file of the CIT(A) for fresh adjudication.

S. 69A — Where the assessee had made frequent cash withdrawals and deposits, he should not be denied the benefit of peak credit and it was only peak shortage which could be added as unexplained income under section 69A.

58 (2024) 167 taxmann.com 671(Indore Trib)

Kamal Chand Sisodiya vs. ITO

ITA No.: 206(Ind) of 2024

A.Y.: 2011-12

Dated: 11th October, 2024

S. 69A — Where the assessee had made frequent cash withdrawals and deposits, he should not be denied the benefit of peak credit and it was only peak shortage which could be added as unexplained income under section 69A.

FACTS

The assessee was an individual aged about 75 years who had retired from Government service of 39 years as teacher. During financial year 2010–11, he had made cash deposits of ₹11.61 lakhs in the bank account, which were added to the income of the assessee as unexplained cash deposits by the AO, resorting to section 147.

CIT(A) fully sustained the said addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) the AO has made impugned addition by merely aggregating various credit/deposits made by assessee throughout the financial year 2010-11 in bank account.

(b) On perusal of bank statement, it was found that the assessee has made frequent deposits in bank account, and it was not a case of one times sudden deposit. Further, the assessee had also made frequent cash withdrawals from the very same bank account.

(c) Therefore, looking at the pattern of deposits and withdrawals, the assessee should not be denied the benefit of peak credit and it was only peak shortage could be considered as unexplained income.

Accordingly, after examining the cash flow statements filed by the assessee, the Tribunal restricted the addition to peak shortage of ₹1.05 lakhs.

Ss. 166, 160, 246A — Where the assessment order was framed in the case of the sole beneficiary of the private discretionary trust, appeal against the order could be filed by the beneficiary only and not by the trust.

57 (2024) 167 taxmann.com 378 (Raipur Trib)

Kajal Deepak Trust vs. ITO

ITA No.:70 (Rpr.) of 2024

A.Y.: 2017-18

Dated: 21st August, 2024

Ss. 166, 160, 246A — Where the assessment order was framed in the case of the sole beneficiary of the private discretionary trust, appeal against the order could be filed by the beneficiary only and not by the trust.

FACTS

A minor was the sole beneficiary of the assessee-trust (a private discretionary trust) in which her father and mother were the trustees. The minor filed her return of income for AY 2017-18.

During the course of assessment proceedings of the minor, the AO observed that during the demonetization period, cash deposits of ₹9 lakhs were made in the bank account of the trust. The minor submitted that the cash deposits were made out of accumulated cash gifts received from her friends / relatives in the preceding years. The AO was not satisfied with the explanation and made additions under section 69A in her hands.

Although the assessment was framed in the hands of the minor, the trust filed an appeal before CIT(A). CIT(A) proceeded with the appeal, upheld the assessment order and dismissed the appeal.

Aggrieved with the order of CIT(A), the trust filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) The sole beneficiary in whose case the assessment had been framed was a separate and distinct entity as against the private discretionary trust and therefore, the appeal against the said assessment order could not be filed by the trust.

(b) Although the discretionary trust was the primary assessee whose income was liable to be brought to tax in the hands of the representative assessee under section 160(1)(iv), as per section 166, there was no bar on the department to frame direct assessment of a person on whose behalf or for whose benefit income was receivable. Accordingly, when the AO had framed the assessment in the hands of the individual beneficiary, then if the said assessment order was not accepted, it was for the beneficiary to have filed the appeal before CIT(A).

Accordingly, the appeal of the trust was dismissed with liberty to the beneficiary to file an appeal before CIT(A) who was directed to adopt a liberal approach regarding the reasons to the delay for filing of appeal.

S. 12A — Where the assessee was granted registration under section 12AB during pendency of assessment proceedings and audit report in Form 10B was also available with CPC at the time of processing of the return of income, exemption under section 11 should not be denied to the assessee-trust vide intimation under section 143(1)(a).

56. SirurShikshanPrasarak Mandal vs. ACIT

(2024) 166 taxmann.com 525 (PuneTrib)

ITA No.: 609(Pun.) of 2024

A.Y.: 2021–22

Dated: 4th September, 2024

S. 12A — Where the assessee was granted registration under section 12AB during pendency of assessment proceedings and audit report in Form 10B was also available with CPC at the time of processing of the return of income, exemption under section 11 should not be denied to the assessee-trust vide intimation under section 143(1)(a).

FACTS

The assessee was a charitable trust formed in 1946 and registered under Bombay Public Trusts Act, 1950 and was engaged in education activities by running various schools / colleges in and around Pune district. It was also holding registration under section 12A / 80G for past many years. For A.Y. 2021–22, the assessee filed its return of income along with audit report in Form 10B on 30th March, 2022 claiming exemption under section 11. The assessee obtained provisional registration under section 12AB on 7th April, 2022.

An intimation under section 143(1) dated 27th October, 2022 was passed, disallowing exemption under section 11 on two grounds, namely, (i) the detail of registration under section 12AB was not mentioned in the return of income; and (ii) trust had not e-filed the audit report in Form 10B one month prior to the due date for furnishing of return under section 139.

While the appeal was pending before Addl. / JCIT(A), the assessee was also approved by CIT(E) under section 12AB for five assessment years, that is, from assessment year 2022–23 to 2026–27. Yet, Addl. / JCIT(A) dismissed the appeal of the assessee.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that:

(a) Where the delay of 43 days in filing audit report inForm 10B was due to the covid pandemic and such report was available at the time of processing of return by CPC, such delay should have been condoned, as held by co-ordinate bench in ITO vs. P.K. Krishnan Educational Trust, ITA No.3533/Mum/2023 (order dated 7th May, 2024).

(b) Where provisional registration under section 12AB for three years was granted to the assessee on 7th April, 2022 and the return of income was thereafter processed by CPC on 27th October, 2022, in light of erstwhile second proviso to section 12A(2), the assessee was entitled to get the benefit of exemption under section 11.

(c) Following the decision of the co-ordinate bench in Shri Krishnabai Ghat Trust vs. ITO, ITA No.44/PUN2019 (order dated 3rd May, 2019), since the assessee was also granted final registration under section 12AB while matter was pending before the CIT(A), it was entitled for exemption under section 11 for such previous assessment year also.

Thus, the Tribunal held that where on the date of intimation under section 143(1)(a), Form 10B was already filed and was available along with return of income and also the assessee had obtained provisional registration under section 12AB, exemption under section 11 should not have been denied to the assessee.

S. 10(1) — Where the assessee submitted copies of sales bills for agricultural produce, provided justification for not claiming any expenses and consistently declared agricultural income over the years, his claim for exemption under section 10(1) could be regarded as genuine. S. 44AA — An agriculturist is not required to maintain books of accounts under section 44AA in respect of the agricultural activities carried on by him.

55. Ishwar Chander Pahuja vs. ACIT

(2024) 167 taxmann.com 41(Del Trib)

ITA No.: 2560(Del) of 2023

A.Y.: 2015–16

Date of Order: 6th September, 2024

S. 10(1) — Where the assessee submitted copies of sales bills for agricultural produce, provided justification for not claiming any expenses and consistently declared agricultural income over the years, his claim for exemption under section 10(1) could be regarded as genuine.

S. 44AA — An agriculturist is not required to maintain books of accounts under section 44AA in respect of the agricultural activities carried on by him.

FACTS

The assessee was deriving salary income as a director, income from house property and income from other sources. He had claimed exemption on agricultural income under section 10(1).

During assessment proceedings, the Assessing Officer (AO) noticed that the assessee had not claimed any expenses for earning agricultural income. As required, the assessee filed submissions / evidence to support the claim of exemption under section 10(1). However, the AO rejected the submissions and disallowed the claim on the grounds that the assessee did not furnish any reasonable explanation and computation of agricultural income along with books of account maintained for the agricultural activities.

CIT(A) sustained the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that:

(a) The assessee was a graduate in agricultural science from Agricultural University, Ludhiana and had a vegetable seeds business. He was holding agricultural land in different places and the details of the sales were also
submitted before the AO. It was also submitted that the agricultural expenses were met out of sale of seedlings to farmers.

(b) Considering the regularity and consistency of declared income over the past years and subsequent assessment years, the income declared by the assessee appeared to be in order.

(c) Since the assessee was an agriculturist whose income fell under section 10(1), he was not required to maintain books of account under section 44AA.
Accordingly, the appeal of the assessee was allowed.

Ss. 194-I, 194C — Where Common Area Maintenance (CAM) charges are for separate and distinguishable services, the applicable rate of TDS is 2 per cent under section 194 C, and not 10 per cent under section 194-I.

54. Benetton India (P.) Ltd. vs. JCIT

(2024) 167 taxmann.com 76 (DelTrib)

ITA No.:5774 (Del) of 2019

A.Y.: 2011–12

Date of Order: 28th August, 2024

Ss. 194-I, 194C — Where Common Area Maintenance (CAM) charges are for separate and distinguishable services, the applicable rate of TDS is 2 per cent under section 194 C, and not 10 per cent under section 194-I.

FACTS

The assessee was in the business of manufacturing and trading of readymade garments. For the purpose of carrying out its business, it had taken on lease a unit / shop in a mall. During FY 2010–11, it had paid rent, Common Area Maintenance (CAM) and miscellaneous amenity charges to the payee. Value of the services for the aforesaid charges had been separately quantified under the different agreements, and the payment had been made pursuant to separate specific invoices raised by the payee. The assessee had deducted TDS on payments for (a) lease of business premises at the rate of 10 per cent under section 194-I; and (b) CAM services at the rate of 2 per cent under section 194C.

Vide an order under section 201(1) / (1A), the AO held that TDS should have been deducted on payment of CAM charges under section 194-I, treating the same as payment of rent.

CIT(A) confirmed the order of the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Following a series of decisions given by co-ordinate benches of ITAT, the Tribunal held that CAM charges paid are for separate and distinguishable services and cannot be said to be for use of building, and therefore, such charges paid were not covered by section 194-I and TDS was deductible under section 194C only.

Allotment letter issued by developer constitutes an agreement for the purpose of proviso to section 56(2)(vii)(b).

53. Tamojit Das vs. ITO

ITA No. 1200/Kol/2024

A.Y.: 2015–16

Date of Order: 3rd October, 2024

Section:56(2)(vii)

Allotment letter issued by developer constitutes an agreement for the purpose of proviso to section 56(2)(vii)(b).

FACTS

The assessee has filed his return of income declaring total income of ₹7,27,020. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has purchased a residential flat jointly with his wife Smt. Gargi Das through Deed of Conveyance, which was registered on 28th October, 2014 before District Sub-Registrar-II, South 24-Parganas. The value of the said transaction was declared by the assessee at ₹24,05,715 as against stamp duty valuation of ₹38,74,500.

When the assessee was confronted with, the assessee submitted that he had booked this flat with Greenfield City Project LLP and the first payment was made on 8th June, 2010. In support of his contention, he filed (i) copy of receipt from Greenfield City Project LLP, (ii) letter of allotment by Greenfield City Project LLP dated 10th June, 2010, and (iii) copy of typical floor plan purported to be allotment of flat to the assessee.

The AO did not equate this allotment letter and payment of the instalment by the assessee through account payee cheque as an agreement contemplated in proviso appended to section 56(2)(vii)(b) of the Act. The AO made the addition of ₹14,68,785 being the difference of both these amounts (₹38,74,500 and ₹24,05,715) to the total income of the assessee u/s 56(2)(vii) of the Act.

Aggrieved, the assessee filed an application under section 154 of the Act and emphasised that the letter given by the developer demonstrating the booking of the flat amounts to an agreement. The AO rejected the application for rectification.

Aggrieved, the assessee has filed an appeal before the ld. CIT(A), which was dismissed.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the dispute in the present case is whether the allotment letter by the developer is to be construed as an agreement or not. The Tribunal noted that several payments were made from 1st June, 2010 onwards by various account payee cheques. The Tribunal held the interpretation of the revenue authorities to be an incorrect interpretation. It held that the allotment letter is be equated to an agreement to sale. The agreement is not required to be a registered document. The only requirement in the law is that the agreement should be followed by payments through a banking channel, so that its veracity cannot be doubted. In the present case, the assessee has established the genuineness of the allotment letter by showing that the payments were made through account payee cheques. Therefore, the valuation date for the purpose of any deemed gift is the date when first payment was made; in this case, it happened around June 2010. The Tribunal held that the AO erred in taking the valuation of the property as on 28th October, 2014.

The Tribunal proceeded to mention that it would like to draw attention to the CBDT Circular No. 872 dated 16th December, 1993. The issue under this Circular was whether allotment of flats / houses by cooperative societies and other institutions whose scheme of allotment and construction are similar to that of DDA should be treated as the cases of construction for the purpose of section 54 and 54F. Earlier, there was a Circular bearing No. 471 dated 15th October, 1986, wherein it was provided that cases of allotment of flats under the self-financial scheme of the Delhi Development Authority should be treated as cases of construction for the purpose of section 54 & 54F of the Act. The scope of this Circular was enlarged to cover other institutions and cooperative societies, meaning thereby that allotment letter by the developer was always recognised as an agreement to purchase the house. Thus, these are also considered as a construction activity where benefit of set off of capital gain could be granted to the purchaser. Applying that very analogy in the present case, it would reveal that the allotment letter given by the developer to the assessee way back in 2010 would be construed as an agreement of purchase between the developer and the assessee.

The Tribunal held that benefit of proviso appended to section 56(2)(vii)(b) would be available in the present case. The AO has committed an error by ignoring this aspect. If this starts from June 2010 for which the assessee has made payments through account payee cheque is being construed as an agreement, then additions under section 56(2)(vii)(b)(ii) will not survive.

The Tribunal allowed this ground of appeal.

Section 200A before its amendment by the Finance Act, 2015, w.e.f. 1st June, 2015 did not permit levy of fee under section 234E, for delay in filing quarterly statements, while processing the quarterly statements.

52. Dream Design and Display India Pvt. Ltd. vs. DCIT

TS-776-ITAT-2024(Delhi)

ITA Nos. 634 to 639/Del/2024

A.Y.:2013–14

Date of Order: 11th October, 2024

Section: 234F

Section 200A before its amendment by the Finance Act, 2015, w.e.f. 1st June, 2015 did not permit levy of fee under section 234E, for delay in filing quarterly statements, while processing the quarterly statements.

FACTS

In this case, admittedly, the assessee filed quarterly TDS / TCS statements belatedly, i.e., beyond the time limit prescribed under sections 200(3) or 206C(3) as the case may be. The CPC while processing the TDS statements issued intimation / order to the assessee under section 200A of the Act and levied late fees of different amounts computed with reference to section 234E of the Act.

Aggrieved, by levy of late filing fees under section 234E, the assessee challenged the action of the Assessing Officer (AO) before the CIT(A) and contended that the demand by way of late fee under section 234E can be raised only by virtue of the amendment carried out in S. 200A by Finance Act 2015 w.e.f 1st June, 2015 and prior to the amendment, S. 200A of the Act does bear any reference to fee computed under S. 234E. The amendment seeking to levy fee under S. 234E is penal in nature and would thus apply prospectively for the quarters ending after 1st June, 2015 and not to earlier quarters.

The CIT(A), however, dismissed the appeals on the grounds that the appeals filed before him are belated for which no sufficient cause has been shown for condonation. He, thus, dismissed all the appeals in limine without going into the merits of the case.

Aggrieved, the assesssee preferred an appeal to Tribunal.

HELD

The Tribunal noted that the late filing fee under section 234E has been imposed for delay in filing the relevant TDS statements but, however, all such Quarterly TDS statements relate to the period prior to amendment in S. 200A of the Act by Finance Act, 2015. S. 200A specifically provides for computing fee payable under Section 234E w.e.f. 1st June, 2015. It is thus the case of the assessee that section 234E being a charging provision, creating a charge for levying fee for certain defaults in filing statements and fee prescribed under section 234E cannot be levied without a regulatory provision found in section 200A for computation of fee prior to 1st June, 2015. The Tribunal stated that the question which arises is whether late fee can be imposed for default under Section 234E of the Act. It observed that there are many decisions covering the field. Some decisions are in favour of the assessee while others are against. Having noted that the CIT(A) has not adjudicated the issue on merits, the Tribunal, in the interest of justice, proceeded to adjudicate the issue on merits.

The pre-amended section 200A of the Act as of 31st March, 2013, i.e., F.Y. 2012–13 relevant to A.Y. 2013–14 in question, did not permit processing of TDS statement for default in payment of late fee under section 234E of the Act. Hence, the late fee charged for the belated filing of TDS quarterly return could not be recovered by way of processing under section 200A of the Act. The Co-ordinate Bench of Tribunal in Karnataka Grameen Bank vs. ACIT (2022) 145 taxmann.com 192 (Bangalore) observed that the amendment under section 200A providing imposition of fee under section 234E could be computed at the time of processing of return and issue of intimation had come into effect only from 1st June, 2015 and had only prospective effect and therefore, levy of late fee under section 234E would be illegal for statement of TDS in respect of the period prior to 1st June, 2015. In light of the decision of the Coordinate Bench, the late fee for TDS quarterly statement under challenge in captioned appeals cannot be recovered by way of processing under section 200A of the Act.

The Tribunal held that the demand raised with reference to section 234E of the Act cannot be countenanced in terms of the pre-amended provision of S. 200A and hence, requires to be quashed. Consequential interest charges on fee levied under the provisions of the Act also requires to be quashed.

The Tribunal allowed the appeal filed by the assessee.

The maximum marginal rate is to be computed by taking the maximum rate of income-tax and maximum rate of surcharge applicable in the case of an individual. It is this rate which applies to a private discretionary trust as well. The levy of maximum marginal rate on trust is thus specific anti avoidance rule and therefore, should be given a strict interpretation.

51. Aradhya Jain Trust vs. ITO

TS-741-ITAT-2024(Mum.)

ITA No. 2197/Mum./2024

A.Ys.: 2022–23

Date of Order: 7th October, 2024

Sections: 2(29C), 167B

The maximum marginal rate is to be computed by taking the maximum rate of income-tax and maximum rate of surcharge applicable in the case of an individual. It is this rate which applies to a private discretionary trust as well.

The levy of maximum marginal rate on trust is thus specific anti avoidance rule and therefore, should be given a strict interpretation.

FACTS

The assessee, a private discretionary trust, filed its return of income declaring total income to be Nil. The return of income was revised to declare a total income of ₹55.75 lakh. In the revised return of income, the assessee computed the tax liability by applying surcharge @ 10 per cent being the rate applicable to the total income declared in the revised return of income.

The return of income was processed under section 143(1) of the Act. In the Intimation generated upon processing of return of income, the amount of total income returned as also the amount of tax computed thereon was accepted. However, surcharge was levied @ 37 per cent on the entire amount of tax of ₹16,72,710 computed by the assessee and accepted in the Intimation.

Aggrieved, the assessee preferred an appeal to the CIT(A) where it was contended that the assessee is liable to surcharge at the rate applicable to the total income of the assessee and not at the maximum rate of surcharge. Also that in an intimation under section 143(1), the Assessing Officer (AO) cannot recompute the rate of income-tax or the rate of surcharge thereon. For this proposition, the assessee placed reliance on the decision of Rajasthan High Court in JKS Employees Welfare Fund vs. ITO [199 ITR 765].

The CIT(A) upheld the computation and levy of surcharge @ 37 per cent.

Aggrieved, the assessee preferred an appeal to the Tribunal where the assessee contended that the rate of surcharge applicable to the assessee should be according to the income slab of the assessee and should not be at the highest rate of surcharge provided in the Finance Act. It was contended that the issue is covered squarely in favour of the assessee by the decisions of the co-ordinate bench in ITO vs. Tayal Sales Corporation [2003] 1 SOT 579 (Hyd.) and decision of ITAT, Hyderabad Bench in the case of Sriram Trust, Hyderabad vs. ITO in ITA No. 439/Hyd/2024 dated 19th June, 2024.

HELD

The Tribunal noted that according to section 2(29C), when assessee is to be taxed at maximum marginal rate, same is to be arrived at by taking highest slab of tax and highest slab of surcharge applicable in case of an individual. This view is already expressed in the commentary on Income Tax by Chaturvedi and Pithisaria as well as of the book published by Vinod Singhania. The Tribunal observed that, even otherwise, language of law is clear that maximum marginal rate shall be maximum rate of tax and surcharge of the highest rate in case of an individual. It observed that if the surcharge was to be levied according to the slab rate of the assessee, it was not required to be mentioned in section 2(29C) of the Act that rate of income tax (including surcharge of income tax, if any) applicable in relation to the highest slab of income in case of an individual. According to the Tribunal, purpose of mentioning surcharge in that section is to compute maximum marginal rate as high rate of tax and also highest rate of surcharge and that if one reads the provisions as suggested on behalf of the assessee then the word surcharge becomes redundant.

The Tribunal held that:

i) the definition is not capable of any doubt and only meaning that it admits is that the rate on the maximum slab of income and maximum rate of surcharge is to be treated as the maximum marginal rate;

ii) the Finance Act for each year prescribes various slabs for each category of the assessee and the corresponding rates applicable. This view is also supported by the decision of the Hon’ble Kerala High Court in the case of CIT vs. C.V. Divakaran Family Trust [2002] 254 ITR 222 (Ker.);

iii) it is also true that the Policy of Law as suggested in section 2(29C) of the Act is to discourage discretionary trust by charging the income of such trust in the hands of the trustee at the maximum marginal rate except in certain specified situation. Thus, such a policy is defeated if we hold that the beneficiary of a trust is chargeable to tax and also surcharge at the highest slab, but the assessee trust is charged to tax at the highest slab but lower rate of surcharge. We also draw support from the decision of the Hon’ble Supreme Court in the case of Gosar Family Trust, Jamnagar etc vs. CIT dated 28th April, 1994 (MANU/ SC/0316/1995);

iv) the levy of maximum marginal rate on trust is thus specific anti Avoidance rule and therefore should be given a strict interpretation. Law prescribes that tax shall be charged on income in respect of which such person is so liable at the maximum marginal rate. There is no provision in the law to charge specific discretionary trust bit lower than the rates of tax and surcharge applicable to a beneficiary individual. The Tribunal mentioned that it draws strength from the decision of the Hon’ble Bombay High Court in the case of CIT vs. JK Holdings [2003] 133 Taxman 443 (Bombay).

As regards the contention of the assessee that CPC does not have any power to vary the rate of surcharge by processing the return of income u/s. 143(1) of the Act, the Tribunal held that CPC has power to compute the correct amount of tax and sum payable by the assessee in terms of provisions of section 143(1)(b) and (c) of the Act. Therefore, on this ground also, the Tribunal did not find any reason to interfere with the order of the learned CIT(A).
The appeal filed by the assessee was dismissed.

Long-term capital loss arising from sale of quoted equity shares with STT paid was eligible to be set-off against long-term capital gain earned from sale of unquoted shares, in view of specific provisions of sections 2(14), 10(38), 45, 47 and 48.

50 Riya Gupta vs. DCIT

[2024] 113 ITR(T) 1 (Kol – Trib.)

ITA NO. 46 (KOL.) OF 2024

A.Y.: 2014-15

DATED: 6th June, 2024

Sec. 70

Long-term capital loss arising from sale of quoted equity shares with STT paid was eligible to be set-off against long-term capital gain earned from sale of unquoted shares, in view of specific provisions of sections 2(14), 10(38), 45, 47 and 48.

FACTS

The assessee filed return of income on 31st July, 2014 declaring total income of ₹18,31,980/. -During the assessment proceedings, the AO called for various information from the assessee which were supplied and replied by the assessee. The AO passed the order making various additions including the addition of ₹47,90,616/- resulting on non-allowance of set off of loss from sale of equity shares on recognised stock exchange with STT paid against the profit on sale of unquoted equity shares. The AO rejected the said action on the ground that the long-term capital gain on sale of quoted shares is exempt u/s 10(38) of the Act and similarly the loss incurred was also not liable to be set off against the other taxable income.

Aggrieved by the assessment order, the assessee filed an appeal before CIT(A). The CIT(A) dismissed the appeal of the assessee by upholding the order of the AO on this issue on the same reasoning. Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The undisputed facts were that during the year, the assessee had earned long term capital gain of ₹50,00,000/- from sale of unquoted shares of M/s IRC Infra and Reality Pvt. Ltd. and also incurred long term capital loss of ₹47,90,616/- from sale of quoted equity shares which was executed on the recognized stock exchange and STT was duly paid. The issue for adjudication was whether the long term capital loss suffered on sale of equity shares can be set off against the long term capital gain earned by the assessee on sale of unquoted equity shares or not.

The ITAT, after perusing provisions of section 2(14), 45, 47 and 48, observed that nowhere any exclusion or exception has been provided to the long-term capital gain resulting from sale of equity shares. The ITAT observed that it’s only the long term capital gain resulting from sale of shares / securities which was granted exemption u/s 10(38) subject to the fulfillment of certain conditions and not the entire source which was excluded from the aforesaid sections.
The ITAT relied on the following Judgments –

  • Hon’ble Kolkata High Court in the case of Royal Calcutta Turf Club vs. CIT [1983] 144 ITR 709/12 Taxman 133
  • United Investments vs. ACIT TS-379-ITAT- 2019 —Kolkata Tribunal
  • Raptakos Brett & Co. Ltd. vs. DCIT (69 SOT 383) —Kolkata Tribunal

In the result, the appeal of the assessee was allowed for the above-mentioned issue.

EDITORIAL COMMENT

The decision of Hon’ble Apex Court in the case of CIT vs. Harprasad& Co. (P.) Ltd.[1975] 99 ITR 118 is distinguished on the ground that the principle laid down by the Hon’ble Apex Court that income includes negative income can be applied only when the entire source of income falls within the charging provision of Act but where the source of income is otherwise chargeable to tax but only a specific kind of income derived from such source is granted exemption, then in such case, the proposition that the term income includes loss would not be applicable. In other words, where only one of the streams of income from a source is granted exemption by the legislature upon fulfillment of specified conditions then the concept of income includes loss would not be applicable.

Commissioner (Appeals) has to decide appeal on merits by passing a speaking order and does not have any power to dismiss appeal for non-prosecution.

49 Meda Raja KishorRaghuramy Reddy

[2024] 113ITR(T)258 (Panaji – Trib.)

ITA NO. 127 (PANJ.) OF 2022

A.Y.: 2014-14

DATE: 28th February, 2024

Commissioner (Appeals) has to decide appeal on merits by passing a speaking order and does not have any power to dismiss appeal for non-prosecution.

FACTS

The assessee had filed return of income electronically on 29th November, 2014 declaring total income of ₹37,60,840/-.The assessee’s case was selected for scrutiny proceedings. The assessee had failed to comply with the notices issued by the AO. The AO passed an ex-parte assessment order making the following additions:

  • ₹6,22,72,638/- under section 68 of the Act as unproved creditors
  • ₹39,62,472/- under section 69 of the Act
  • ₹5,78,850/- on account of difference in Form 26AS and return of income.

On appeal before CIT(A), the CIT(A) in a cryptic manner dismissed the appeal of the assessee.

Aggrieved by the Order, the assessee preferred an appeal before the ITAT.

HELD

DELAY IN FILING APPEAL

There was a delay of 1330 days in filing the appeal which included the period of Covid Pandemic.

Considering the principle of substantial justice, respectfully following the Hon’ble Supreme Court in the case of Gupta Emerald Mines (P.) Ltd. vs. Pr. CIT [2023] 156 taxmann.com 198 (SC) [25-09-2023] and Hon’ble Jurisdictional High Court in the case of Hindalco Industries Ltd vs. Pr. CIT Writ Petition No. 569 of 2023/ [2024] 158 taxmann.com 485, the ITAT condoned the delay in filling the appeal.

MERITS OF THE CASE

The ITAT observed that the assessee had filed written submission dated 14th August, 2017 containing following documents — Copy of confirmation of Accounts, Copy of Ledgers, Identity and Address proof of Creditors, cash books, bills, vouchers, bank statements, affidavits etc. The ITAT further observed that Form 35 which is form of appeal for filing appeal before CIT(A) was enclosed with application for admission of additional evidence under rule 46A.

The ITAT further observed the following fall outs in the assessment proceedings —

  • It was possible for AO to collect information directly from renowned companies — Jaypee cement Bangalore & JSW Steel [Sundry creditors of the assessee] u/s 133(6) or 131 of the Act.
  • Some of the creditors appeared in the balance sheet from earlier years – under section 68 the amount which was credited during the year only can be added.
  • Assessee had shown Interest income on FD of ₹1,98,487/- and the AO had merely added ₹40,063/- without discussing what was total interest as per Form 26AS statement
  • Fixed Deposit in Ratnakar Bank Account Number 3158 appeared in the balance sheet of the Assessee — the AO had worked out corresponding FD in the Ratnakar Bank at ₹507,087/- without actually calling the details from the Ratnakar Bank.
  • The AO made an addition of ₹31,700/- as receipt from Gammon India Ltd based on 26AS statement — exact amount and exact name appeared in the Balance Sheet – the AO could have called for information u/s 133(6) of the Act from Gammon India Ltd.

The ITAT held that though the assessee had failed to comply with the notices issued by AO, the AO also failed to carry out necessary investigations and to understand the facts in totality.

The ITAT held that the CIT(A) has discretion to admit the Additional evidence, if there was sufficient cause which prevented the assessee from filling the documents during the assessment proceedings. The discretion had to be used in judicious manner and one must be able to reason out. In this case the CIT(A) had not passed a speaking order for rejecting the additional evidence. The CIT(A) had failed to follow the procedure laid down in Rule 46A.

The ITAT also held that the CIT(A) had not adjudicated each and every ground raised by the Assessee on merits. The ITAT followed the Hon’ble Jurisdictional High Court in the case of Pr. CIT (Central) vs. Premkumar Arjundas Luthra (HUF) [2016] 69 taxmann.com 407 wherein it was held that CIT(A) has to decide the appeal on merits and CIT(A) does not have any power to dismiss appeal for non-prosecution.

The ITAT set aside the order of the CIT(A) for de novo adjudication after giving opportunity to the assessee. In the result, the appeal of the assessee was allowed for statistical purpose.

Where the view taken by the AO that the assessee was eligible for deduction under section 80G for CSR expenses was approved by various decisions of Tribunal, PCIT could not invoke revisional jurisdiction under section 263 on the ground that the order of AO was erroneous.

48 American Express (India) P. Ltd. vs. PCIT

(2024) 165 taxmann.com 91 (Del Trib)

ITA No.: 2468(Delhi) of 2023

A.Y.: 2016-17

Dated: 30th August, 2024

Ss. 263, 80G

Where the view taken by the AO that the assessee was eligible for deduction under section 80G for CSR expenses was approved by various decisions of Tribunal, PCIT could not invoke revisional jurisdiction under section 263 on the ground that the order of AO was erroneous.

FACTS

The assessee had incurred expenditure amounting to ₹5,20,00,000 under section 135 of the Companies Act 2013 dealing with Corporate Social Responsibility (CSR). It voluntarily disallowed the same in the computation of income; however, it claimed benefit of deduction under section 80G to the extent of ₹3,21,43,427.

During the assessment proceedings, after examining the assessee’s claim of deduction under section 80G, the Assessing Officer allowed the said deduction. PCIT initiated revision proceedings under section 263 on the ground that claim of deduction under section 80G for CSR expenses was not allowable to the assessee.

Aggrieved by order of PCIT, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that:

(a) In the past, the Tribunal has considered this issue in various cases and consistently held that though CSR expenses which are mandatory under section 135 of the Companies Act are not allowable as deduction under section 37(1), if any part of CSR contribution is otherwise eligible for deduction under Chapter VI-A, there is no bar on the companies to claim the same as deduction under section 80G.

(b) Merely because the PCIT does not agree with the view taken by the AO, the assessment order does not become erroneous. The view taken by the AO in allowing deduction under section 80G for CSR expenses was approved by various decisions of the Tribunal.

(c) The satisfaction of twin conditions set out in section 263, namely, the order is (i) erroneous; and (ii) prejudicial to the interest of Revenue is sine qua non for exercising revisional jurisdiction. If any of the said conditions are not satisfied, the revisional jurisdictional under section 263 cannot be invoked.

It noted that this view was also supported by coordinate bench in JMS Mining P Ltd. v. PCIT, (2021) 130 taxmann.com 118 (KolTrib).

Accordingly, the Tribunal allowed the appeal of the assessee and quashed the revisional order passed by PCIT.

S. 12AB –Registration under section 12AB could be denied to a trust if it had not complied with the applicable State public trusts law.

47 Gurukul Shikshan Sansthan vs. CIT

(2024) 165 taxmann.com 369(JaipurTrib)

ITA No.: 482(Jpr) of 2024

A.Ys.: 2022-23 to 2024-25

Dated: 3rd July, 2024

S. 12AB –Registration under section 12AB could be denied to a trust if it had not complied with the applicable State public trusts law.

FACTS

CIT(E) rejected the assessee-trust’s application for registration under section 12AB dated 26th September, 2023 on the ground that it was not registered under the Rajasthan Public Trusts Act, 1959, genuineness of the activities of the assessee could not be verified due to non-compliance, and that the assessee had filed incomplete Form No. 10AB.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Before the Tribunal, the assessee filed a request for adjournment stating that the assessee-trust had applied for a certificate under the Rajasthan Public Trusts Act, 1959 and was awaiting such certificate.

Rejecting the adjournment request, the Tribunal, vide an ex-parte order, observed that:

(a) As admitted in the adjournment request, as on the date of application for registration, that is, 26th September, 2023, the assessee was not registered under the Rajasthan Public Trusts Act although such registration was mandated under section 17 of the said Act.

(b) Section 12AB(1) mandates that all the applicable laws shall be followed and if any applicable law is not followed by the assessee, then it is not eligible for registration.

Following the decision of Supreme Court in New Noble Educational Society vs. CCIT, (2022) 448 ITR 594 (SC), the Tribunal held that since the assessee had not followed provisions of Rajasthan Public Trusts Act, it was not eligible for registration under section 12AB.

Additionally, the Tribunal observed that since the assessee had neither submitted the details called by CIT nor filed any document before the Tribunal to prove genuineness of its activities, it was not eligible for registration under section 12AB also on this ground.

A determinate trust with sole beneficiary was liable to be taxed at same rate as applicable to its beneficiary.

46 ITO vs. Petroleum Trust

(2024) 165 taxmann.com 504 (MumTrib)

ITA No.: 2694(Mum) of 2024; C.O. No. 133 (Mum) of 2024

A.Y.: 2021-22

Dated: 2nd August, 2024

S. 161

A determinate trust with sole beneficiary was liable to be taxed at same rate as applicable to its beneficiary.

FACTS

The assessee was a discretionary trust, which held investments mainly for its beneficiary, RIIHL. RIIHL, being a limited company, opted to be taxed under the new tax regime under section 115BAA by filing Form 10-IC claiming to be taxed @ 22 per cent (+surcharge / cess). The assessee-trust, being a representative assessee under section 161, claimed to be taxed at same rate applicable to its beneficiary in its return of income. The tax department disagreed with this position.

CIT(A) accepted the status of the assessee as a representative assessee under section 161 and held that since the assessee is a determinate trust with RIIHL as its sole and 100 per cent beneficiary and settlor and since RIIHL has opted to be taxed under the new tax regime @22 per cent, the assessee-trust was also liable to be taxed at the same rate.

Aggrieved, the tax department filed an appeal before the ITAT. The assessee also filed cross objections in support of order of CIT(A).

HELD

Noting language of section 161(1) and following the decision of Bombay High Court in Mrs. Amy F. Cama vs. CIT,(1999) 237 ITR 82 (Bom), the Tribunal held that the tax shall be levied upon and recovered from a representative assessee in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him, which meant that the assessee-trust will be subject to same rate of tax as applicable to the person represented by it, that is, RIIHL which was taxed @ 22 per cent under section 115BAA.

 

I : Capital gains is taxable in the year in which possession of constructed premises was received by the assessee and not in the earlier year when occupancy certificate was granted. II : The cost of construction given by the developer which is not supported by any particulars cannot be taken as full value of consideration. Section 50D of the Act, would be applicable and accordingly, the full value of consideration should be computed on the basis of guideline value of land or building that is transferred / received on development.

45 AlagappaMuthiah HUF vs. DCIT

ITA No. 775/Bang./2024&954/Bang./2024

AY: 2017-18

Date of Order: 12th August, 2024

Sections: 45, 48

I : Capital gains is taxable in the year in which possession of constructed premises was received by the assessee and not in the earlier year when occupancy certificate was granted.

II : The cost of construction given by the developer which is not supported by any particulars cannot be taken as full value of consideration. Section 50D of the Act, would be applicable and accordingly, the full value of consideration should be computed on the basis of guideline value of land or building that is transferred / received on development.

FACTS I

The assessee HUF along with Alagappa Annamalai HUF were co-owners of land in respect of which they entered into two development agreements dated 10th February, 2011. Under these Development agreements the properties belonging to these two persons were being developed into both residential as well as commercial units. These two persons were allotted the entire commercial unit and 6 apartment units in the residential units.

In the course of a search conducted in the case of Sri Alagappa Annamalai on 4th July, 2019, a sworn statement was recorded from Sri Alagappa Annamalai as to why the capital gain in respect of transaction of entering into development agreement has not been offered for tax in AY 2017-18. In response, it was submitted that capital gain has been offered in the year in which possession of constructed premises has been received. This was done in absence of information about occupancy certificate and cost of construction. Similar statement was recorded in the case of assessee on 5th July, 2019 under section 131. Thereafter, both the assessee and Alagappa Annamalai retracted their respective statements and stated that the possession of the properties was received by them after development on 8th May, 2017 and accordingly the liability to capital gains arose for the assessment year 2018-19 and not for the assessment year 2017-18 as admitted in their earlier statements. Accordingly, they stated that they would be offering capital gains for the assessment year 2018-19 on the above basis in course of assessment proceedings after receipt of notice.

The assessee, accordingly, filed returns in response to notice u/s.153C of the Act offering capital gains by adopting the value determined by the registered valuer. In the assessment proceedings, the A.O. held that the liability to capital gains arises for the assessment year 2017-18 as occupancy certificate was received on 1st February, 2017 for commercial portion and 17th March, 2017 for residential portion. On the other-hand both these persons contended that the liability to capital gains arose for the assessment year 2018-19 on receipt of possession vide letter dated 8th May, 2017 when simultaneous with receiving possession they have returned the deposits. The AO was of the view that the letter of possession was manipulated in collusion with the builder.

HELD I

The Tribunal observed that reason for taxing the capital gain as income of assessment year 2017-18 is that the occupancy certificate was received on 17th March, 2017. On behalf of the assessee,it was contended that section 45(5A) has been introduced w.e.f. 1.4.2018 and therefore the same does not apply to the present case. Section 45(5A) applies w.e.f. AY 2018-19 and not AY 2017-18. The Tribunal noted that section 45(5A) cannot be applied retrospectively and also that the possession has been received vide letter dated 8th May, 2017. It held that the parties to the transfer of impugned property mutually agreed to hand over the delivery of the possession vide the said letter and it is to be accepted as true unless it is proved otherwise.There is no basis for the allegation made by the AO that the letter of possession is manipulated in collusion with the builder.The Tribunal, relying upon the decision of the co-ordinate bench in the case of N A Haris in ITA No.988/Bang/2018 dated 15th February, 2021 held that the capital gain arising pursuant to development agreement dated 10th February, 2011 is to be taxed in AY 2018-19 and not AY 2017-18 as held by the AO.

FACTS II

The assessee in the retraction letter had informed the AO that it had engaged a registered Valuer to determine the value of the property received by it after development and the said value was –

Commercial portion: ₹82,26,36,541

Residential portion: ₹6,89,11,624

—————————————————————————

                        Total: ₹89,15,48,165

===========================================

The assessee computed the capital gains by adopting the above stated value. In the assessment order, the A.O. varied the computation of capital gains by adopting the full value of consideration at ₹120,03,46,357/- based on the details furnished by the Developer vide letter dated 7th January, 2022. While doing so the A.O. has taken the cost of construction reported by the Developer of ₹4,597 per sft for the commercial portion and ₹3,750 per sft. for the residential portion.

The assessee disputed the cost of construction before the CIT(A). The CIT(A) observed that except for one unsigned sheet, the Developer had not furnished any bills or documents in support of the cost claimed to be incurred by the Developer. The DVO had without giving any reasons stated that the valuation as done by the Registered Valuer is understated.

Before CIT(A), reliance was placed on the decision of the Hon’ble Karnataka High Court in the case of Shankar Vittal Motor Company in ITA 653/2016 dated 1st December, 2021 as well as the decision of the jurisdictional High Court in the case of Smt. Sarojini M. Kushe in ITA 475/2016 dated 1st December, 2021. In the aforesaid cases it has been held that the cost of construction given by the developer which is not supported by any particulars cannot be taken as full value of consideration. The Hon’ble High Court has held that section 50D of the Act, would be applicable and accordingly, the full value of consideration should be computed on the basis of guideline value of land or building that is transferred / received on development.

The CIT(A) determined the full value of consideration for transfer of the undivided interest land to the developer at ₹93,80,19,968/- as against ₹120,03,46,357/- taken by the Assessing Officer. The CIT [A] has noticed that the appellant has transferred 1,94,368sft. of land to the developer. The said land has been valued at ₹4,826 per sft. after deriving the same by reducing the guideline value of the building from the guideline value of the super built-up area. This is because the super built-up area includes both undivided interest in land as well as the built-up area. In this manner the learned CIT[A] has held that the deemed value of consideration for the transfer of the undivided share of land in the project pertaining to the developer share was ₹93,80,19,968/-

HELD II

The method adopted by AO for determining the consideration of the impugned transfer of property is not correct. There is no basis for inclusion of cost of land, finance cost and administrative cost for determining the consideration received by the landlord. The Tribunal held that the most appropriate judgment to be followed is the decision of Karnataka High Court in Shankar Vittal Motor Company in ITA 653/2016 dated 1st December, 2021. It held that no fault can be found with the decision of the CIT(A) which has been rendered by following the ratio of the decision of the Karnataka High Court Shankar Vittal Motor Company in ITA 653/2016 dated 1st December, 2021 as also the decision of the Smt. Sarojini M. Kushe in ITA No.475 of 2016 dated 15th December, 2021. The Tribunal dismissed this ground of appeal of the revenue.

Section 143(1) mandates only processing the return of income to vouch for the arithmetical error, detect the incorrect claim of expenses, losses, verify and cross check the claim made in the audit report, claim of deductions, cross verify the income declared in form 26AS or form 16A etc. and the Revenue is not allowed to go beyond that. Claim not made in the return of income, which has been processed, and time for filing revised return has expired can be made only before the administrative officers or the Board and not in an appeal.

44 PasupatiAcrylon Ltd. vs. ACIT

TS-696-ITAT-2024(DEL)

ITA No. 1773/Delhi/2024

AY: 2019-20

Date of Order: 19th September, 2024

Sections: 37, 143(1)

Section 143(1) mandates only processing the return of income to vouch for the arithmetical error, detect the incorrect claim of expenses, losses, verify and cross check the claim made in the audit report, claim of deductions, cross verify the income declared in form 26AS or form 16A etc. and the Revenue is not allowed to go beyond that.

Claim not made in the return of income, which has been processed, and time for filing revised return has expired can be made only before the administrative officers or the Board and not in an appeal.

FACTS

For the year under consideration, the assessee filed its return of income declaring therein a total income of ₹28,98,24,424. The CPC processed the return of income and passed an intimation accepting the return of income as filed by the assessee.

Assessee filed an appeal to the CIT(A) raising a ground that the assessee failed to make a claim of certain business expenditures in the return filed by it, which was duly processed u/s 143(1) of the Act. The CIT(A) held that the claim of business expenses u/s 37 after processing the return of income seems an afterthought. He opined that the assessee can easily file the revised return of income if there is any discrepancy in the original return of income before the due date, which the assessee failed to do so. The due date for filing the revised return of income was 30th November, 2020. The contention of the assessee cannot be accepted by simply writing a letter to the concerned authority for allowing the business expenses which was not claimed in the return of income. The CIT(A) relied on the decision of Supreme Court in the case of Goetze (India) Ltd, wherein the issue was well-settled, any deduction stating that the assessee can revise the return of income within due date for raising any new claim which was not claimed in the original return of income. Accordingly, he dismissed the appeal.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

All the case law relied by the assessee are relating the fresh claim made by the assessee in the regular assessment proceedings, not in the case of preliminary assessment u/s 143(1) of the Act. The mandate of the preliminary assessment u/s 143(1) of the Act is different, it is only to process the return of income to vouch for the arithmetical error, detect the incorrect claim of expenses, losses, verify and cross check the claim made in the audit report, claim of deductions, cross verify the income declared in form 26AS or form 16A etc. The AO is not allowed to go beyond the above mandate given under section 143(1) of the Act.

The Tribunal noted that the asssessee filed the return of income in which it did not make certain claims which, according to the assessee, are genuine. The return was processed accepting the return of income as filed. The time allowed for filing revised return of income having elapsed the assessee found filing an appeal to be an easy option.

The Tribunal considered the possibilities available to make the fresh claim in case the assessee fails to make the claim in the original return of income. These, according to the Tribunal, are:

i. By filing revised return of income (not possible in this case as the limitation period already elapsed);

ii. Claim in the regular assessment, in case the return is selected for scrutiny. (in this case, not selected, the avenue to go in appeal also ruled out);

iii. The assessee can proceed by filing revision application u/s 264 of the Act before the jurisdictional commissioner. The application has to be filed within one year from the date of passing of the relevant impugned order;

iv. The assessee may file an application u/s 119(2)(b) of the Act before the Board. The board may find it desirable or expedient so to do for avoiding genuine hardship to admit an application or claim for any exemption, deduction, refund or any other relief under the Act. The important thing is that there is no limitation period attached to it. The assessee can approach any time when it has genuine claim.

The Tribunal was of the view that the assessee filed the present appeal before it without there being any grievance in preliminary or intimation order in which the Assessing Officer accepted the return of income filed by the assessee. It held that, the assessee may have two types of fresh claim, which may be genuine claim which is traceable from the return filed by the assessee, which can be claimed by the assessee, the other type is debatable issues which may be claimed only upon making proper verification and assessment, this will lead to discretion of the relevant authorities including the Board. It held that the remedy for the fresh claim is not with any appellate authority and the remedy lies only with the administrative officers or with the board. In case the board rejects the application, the remedy available only in the writ proceedings. The Tribunal dismissed the appeal filed by the assessee.

For failure on the part of the payer to deduct TDS, the assessee cannot be penalised by levy of interest under section 234C.

43 Standard Chartered Bank (Singapore) Limited vs. DCIT

TS-615-ITAT-2024(Mum)

Assessment Year: 2021-22

Date of Order: 14th August, 2024

Sections: 234B, 234C

For failure on the part of the payer to deduct TDS, the assessee cannot be penalised by levy of interest under section 234C.

FACTS

The assessee, a company incorporated in Singapore, registered as a Category I Foreign Portfolio Investor (FPI) with SEBI made investments in debt securities and equity shares in India. The assessee filed return of income for the year under consideration on 15th March, declaring a total income of ₹75,66,62,391. The return of income filed by the assessee was processed under section 143(1) and a demand of ₹47,13,33,940 was raised as a result of TDS credit not been granted and interest under section 234B and 234C being levied.

During the year under consideration, the assessee had received interest on commercial papers and non-convertible debentures amounting to ₹62,10,11,200 and ₹13,68,16,712 respectively which was subject to deduction of tax at source @ 20 per cent. The Assessee had also received interest on government securities which was subject to deduction of tax at source @ 5 per cent. On some part of income received from commercial papers, non-convertible debentures and government securities the payers did not deduct tax at source, though they were liable to deduct tax at source under section 196D and 194LD of the Act. Pursuant to the failure of the payer to deduct tax at source the assessee was required to discharge tax liability by way of advance tax at the time of receipt of such interest income from commercial papers, NCDs and government securities. The assessee did pay the full tax on interest receipts as advance tax.

Levy of interest under section 234B was subsequently rectified but the levy of interest under section 234C at ₹51,75,514 stood.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal where, on behalf of the assessee, reliance was placed on following decisions –

i) Goldman Sachs Investment (Mauritius) Ltd. vs. DCIT [(2021) 187 ITD 184 (Mum.-Trib.)];

ii) CIT vs. Madras Fertilisers Ltd. [149 ITR 703 (Mad. HC)].

HELD

The Tribunal observed that it is an undisputed fact that on some part of interest received by the assessee on commercial papers, NCDs and Government Securities, payers have faulted in not deducting tax at source. It was observed that for the fault of the payer, the assessee cannot be held responsible. The Tribunal held that in its understanding of the law, for failure on the part of the assessee to deduct tax at source under sections 196D and 194LD of the Act, the assessee cannot be penalised by levy of interest under section 234C. The Tribunal observed that the assessee has diligently discharged its full tax liability by paying entire advance tax on interest income.

Having examined the provisions of section 234C of the Act, the Tribunal held that it can be seen that advance tax is reduced by any tax deductible or collectible which means that the legislators have taken care of liability of the payer to deduct tax at source on payments and to that extent, assessee is not required to pay any advance tax. In the present case, since the payers faulted in deducting tax at source and assessee discharged its liability by paying full tax, the assessee cannot be levied with interest under section 234C of the Act for the fault of the payers. For this proposition, the Tribunal drew support from the decision of the Bombay High Court in Director of Income-tax (International Tax) v. Ngc Network Asia LLC [(2009) 313 ITR 187 (Bom. HC)] where the court held that when a duty is cast on the payer to deduct and pay tax at source, on payer’s default to do so, no interest under section 234B can be imposed on the payee assessee.

The Tribunal held that it is not a case of deferment of advance tax on income as envisaged in section 234C of the Act. The Tribunal directed the AO to delete the interest levied under section 234C.

The Tribunal allowed the appeal filed by the assessee.

Deduction under Sections 54 and 54F can be claimed simultaneously qua investment in the same new asset. The covenants in the sale deed executed and registered are conclusive in the absence of any evidence to the contrary. The crucial date for the purpose of determination of date of purchase for the purpose of section 54 is the date when the possession and control of the property is given to the purchaser’s hands.

42 RamdasSitaramPatil vs. ACIT

TS-618-ITAT-2024(PUN)

ITA No. 621/Pune/2022

AY: 2016-17

Date of Order: 7th August, 2024

Sections: 54 and 54F

Deduction under Sections 54 and 54F can be claimed simultaneously qua investment in the same new asset.

The covenants in the sale deed executed and registered are conclusive in the absence of any evidence to the contrary.

The crucial date for the purpose of determination of date of purchase for the purpose of section 54 is the date when the possession and control of the property is given to the purchaser’s hands.

FACTS

The appellant, an individual, filed his Return of Income for the A.Y. 2016-17 on 7th March, 2017 declaring a total income of ₹96,55,810/-. The assessment was completed by the Assessing Officer (AO) vide order dated 28th December, 2018 passed u/s.143(3) of the Act at a total income of ₹2,59,13,610/-. While doing so, the AO disallowed the claim for deduction of income u/s.54F of ₹98,97,654/- and deduction u/s.54 of ₹63,60,146/-.

During the year under consideration, on 9th February, 2016, the assessee entered into a joint development agreement for a consideration of ₹25,00,000 and 7 constructed flats. On 1st November, 2015, he entered into an unregistered agreement to sell a residential flat in Kolhapur for a consideration of ₹80,00,000. The assessee purchased a bungalow at Kolhapur, whose possession was taken on  31st March, 2015, for a consideration of ₹3,06,00,000, of which ₹1,30,00,000 was paid during the period from 20th May, 2014 to 2nd December, 2014 and ₹90,00,000 was paid in cash in 2014 as per MOU dated 19th May, 2014.

In view of the fact that the possession of the bungalow purchased was received on 31st March, 2015, the assessee claimed deduction under sections 54 and 54F against the long term capital gains arising on two transfers effected by him. The said claim was denied by the AO by holding that (1) deduction u/s.54/54F cannot be claimed simultaneously in respect of the same asset; and (2) payment for purchase of new house was made prior to one year before the sale of the original asset.

Aggrieved, the assessee preferred an appeal to the CIT(A) who vide impugned order confirmed the action of the AO in disallowing the claim for deduction u/s.54/54F by holding that the possession agreement dated 31st March, 2015 is a fabricated document in view of the statement made by him u/s.132(4) of the Act on 19th December, 2014 that the new residential property is in his possession.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the solitary issue in the present appeal revolves around the entitlement of assessee for deduction u/s.54/54F of the Act. It noted that admittedly, the sale consideration was paid prior to the one year before the sale of original asset. The Tribunal held that there is no bar under law to claim deduction simultaneously u/s. 54 and u/s.54F in respect of the same asset. It observed that the crucial fact which needs to be determined in the present case is the date of purchase of the new residential property.

The Tribunal held that it is settled position of law that the crucial date for the purpose of determination is when the property is purchased for the purpose of section 54 and the date when the possession and control of the property is given to the purchaser’s hands.

The Tribunal applying the principle laid down by the Andhra Pradesh High Court in case of CIT vs. Shahzada Begum [(1988) 173 ITR 397] and also the decision of Hon’ble Bombay High Court in the case of CIT vs. Dr. Laxmichand Narpal Nagda (deceased) [211 ITR 804] and observing that in the present case, the recital of the sale deed clearly says that possession of the property was taken on 31st March, 2015 which is within the period of one year before the date of sale of the original asset. The Tribunal held that the covenants in the sale deed executed and registered are conclusive in the absence of any evidence to the contrary; the finding of the CIT(A) that it is a fabricated document is a mere bald allegation and cannot be sustained in the eyes of law; the appellant is entitled for deduction us/.54/54F as claimed.

S. 12A, 13 — CIT(E) cannot deny registration under section 12A by invoking section 13(1)(b) since section 13 can be invoked only at the time of framing assessment and not at the time of grant of registration

(2024) 165 taxmann.com 141 (Ahd Trib)

Bargahe Husaini Trust vs. CIT

ITA No.: 826(Ahd) of 2023

A.Y.: N.A.

Date of Order: 22nd July, 2024

41. S. 12A, 13 — CIT(E) cannot deny registration under section 12A by invoking section 13(1)(b) since section 13 can be invoked only at the time of framing assessment and not at the time of grant of registration.

FACTS

The assessee-trust was granted provisional registration under section 12A on 24th January, 2022. Thereafter, it filed application for grant of final registration in Form 10AB on 18th March, 2023.

On perusal of the application, the CIT(E) observed that the objects of the applicant were for the benefit of a particular community or caste, that is, Khoja Shia Ishna Ashari Samaj, and hence, covered by the disallowance under section 13(1)(b). He, therefore, rejected the application for final registration under section 12A.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Noting various judicial precedents including that of jurisdictional High Court / Tribunal, the Tribunal held that provisions of section 13 can be invoked only at the time of framing assessment by AO and not at the time of grant of registration under section 12A by CIT(E). Accordingly, the appeal of the assessee-trust was allowed and the matter was restored to the file of CIT(E) for de-novo consideration.

S. 12A / 12AB — Where the show cause notice was issued on 6th October, 2022, CIT(E) could not have cancelled registration retrospectively with effect from 1st April, 2014 in so far as section 12AA /12AB do not provide for cancellation of registration with retrospective effect

(2024) 165 taxmann.com 39(Cuttack Trib)

Maa Jagat Janani Seva Trust vs. CIT

ITA No.: 248(Ctk) of 2023

Date of Order: 16th July, 2024

40. S. 12A / 12AB — Where the show cause notice was issued on 6th October, 2022, CIT(E) could not have cancelled registration retrospectively with effect from 1st April, 2014 in so far as section 12AA /12AB do not provide for cancellation of registration with retrospective effect.

FACTS

The assessee trust was granted registration under section 12A on 21st May, 2014, w.e.f. 1st April, 2013. It had also filed Form 10A to get re-registration under section 12A and Form 10AC was issued granting registration for the period from AY 2022-23 to AY 2026-27 vide an order dated 5th April, 2022.

Subsequently, a show cause notice was issued by CIT(E) to the assessee on 6th October, 2022 wherein the assessee was asked to explain as to why registration should not be cancelled. The assessee responded from time to time; however, CIT (E) held that the assessee had not submitted any categorical explanation or reply to the show cause notice and cancelled the registration under section 12AA with retrospective effect from 1st April, 2014.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that:

(a) A perusal of the order cancelling the registration showed that CIT(E) had not given any reason for rejecting various explanation given by the assessee to various show-cause notices issued.

(b) In any case, the show cause notice for cancellation of registration having been issued on 6th October, 2022, CIT (E) could not have cancelled registration retrospectively with effect from 1.4.2014 insofar as the provisions of section 12AA/12AB do not provide for the cancellation of registration with retrospective effect, as held by the Tribunal in Amala Jyothi Vidya Kendra Trust vs. PCIT, (2024) 206 ITD 601 (Bangalore Trib).

Accordingly, the Tribunal cancelled the order of CIT(E) and allowed the appeal of the assessee.

S. 45 — Revaluation of asset held by partnership firm and crediting amount of said revaluation to partners’ capital account is transfer taxable section45(4) and the fair market value fixed by stamp authorities should be taken as deemed value of consideration for purpose of section 48

(2024) 165 taxmann.com 261 (Hyd. Trib)

Shree Estatesvs. ITO

ITA No.:469(Hyd) of 2023

A.Y.: 2018-19

Date of Order: 30th July, 2024

39. S. 45 — Revaluation of asset held by partnership firm and crediting amount of said revaluation to partners’ capital account is transfer taxable section45(4) and the fair market value fixed by stamp authorities should be taken as deemed value of consideration for purpose of section 48.

S. 251 — Where CIT(A) considered the same income considered by AO but taxed it under the correct provision, the power exercised by CIT(A) cannot be said to be beyond scope of section 251(1).

FACTS

The assessee was a partnership firm registered on 15th May, 2017 with three partners, formed with capital contribution of land parcels by two partners and ₹1 lakh by third partner. Subsequently, it was reconstituted on 8th November, 2017 with six partners. The firm also revalued the land held by it in its books of account upwards to the tune of ₹12,56,24,460, thereby increasing the value of the land. The said revaluation amount was credited to the capital account of the partners. Subsequently, three partners also converted their loans given to the firm into capital account for which the existing partners agreed.

The assessee filed its return of income declaring total income of ₹1. The case was selected for scrutiny to verify substantial increase in capital in a year. During the course of assessment proceedings, the AO called upon the assessee to furnish the necessary capital account of partners and explain the substantial increase in partners’ capital account. The AO was not satisfied with the explanation furnished by the assessee and therefore, treated the entire capital account as unexplained credit taxable under section 68.

CIT(A) deleted the addition made under section 68; however, he held that the revaluation reserve credited to the partners’ capital account was available for withdrawal by the partners and such credit was taxable under section 45(4).

Aggrieved, the assessee filed an appeal before the ITAT, inter alia, taking an additional legal ground challenging the jurisdiction of CIT (A) to tax a new source of income.

HELD

On the additional legal ground, the Tribunal observed that once the first appellate authority is having the coterminus powers with that of AO, then the powers of CIT (A) under section 251(1)(a) are wide enough to consider any other issues which come to his knowledge during the course of appellate proceedings. However, such issues should have emanated either from the assessment order or from the return of income filed by the assessee. In other words, CIT (A) can very well consider the issues which have been dealt by the AO as it is or he can deal with the issues under proper provisions of law, if facts so demand; but he cannot consider a new issue or new source of income which is either not considered by the AO or not emanated from the return of income filed by the assessee. In the present case, the issue considered by the AO was increase in capital account of partners on account of revaluation of the assets held by the firm and credited such revaluation amount to the capital account of the partners and said issues fall under section 45(4), but the AO considered the issue under section 68 as unexplained cash credit. CIT (A) having noticed this fact had rightly invoked section 45(4). Therefore, the powers exercised by CIT (A) cannot be said to be beyond the scope of section 251(1).

On the issue of taxability under section 45(4), the Tribunal observed –

(a) Following CIT vs. Mansukh Dyeing and Printing Mills, (2022) 449 ITR 439 (SC), the revaluation of the asset held by the firm and crediting the amount of said revaluation to the partners’ capital account is a transfer which falls under section 45(4) and any profit or gain arising from the transfer needs to be taxed in the hands of the appellant firm.

(b) Under section 45(4), the fair market value of the asset on the date of such transfer is deemed to be the full value of consideration for the purpose of section 48. The value recorded by the assessee in the books of account for the purpose of revaluation of asset cannot be a fair market value of the property because it is not ascertainable as what is the basis on which said value has been arrived at.

(c) The guideline value fixed by the stamp duty authorities reflects the correct fair market value of any property and it may be a yardstick to determine the fair market value of the property. Therefore, in absence of contrary evidence to that effect, the fair market value fixed by the stamp duty value authorities should be taken as deemed full value of the consideration for the purpose of section 48 read with section 45(4).

Sec. 153D: Approval u/s 153D is a mandatory and not procedural requirement and mechanical approval without application of mind by the approving authority would vitiate assessment orders

[2024] 112 ITR (T) 224 (Pune – Trib.)

SMW Ispat (P.) Ltd. vs. ACIT

ITA NO. 56 TO 67 AND 72 & 73 (PUN.) OF 2022

A.Y.: 2009-10 TO 2014-15

Date of Order: 20th December, 2023

38. Sec. 153D: Approval u/s 153D is a mandatory and not procedural requirement and mechanical approval without application of mind by the approving authority would vitiate assessment orders.

FACTS

The assessee is a company engaged in the business of manufacturing of TMT Bars. A search and seizure action was conducted at different premises of the Mantri-Soni Group of Jalna / Bhilwara and their family members on 2nd May, 2013. A notice us 153A was issued upon the assessee on 13th February, 2014 requiring him to furnish the return of income from the date of receipt of notice.

The AO had added an amount of ₹2,00,00,000 which was taken from M/s. Sangam Infratech Limited, Bhilwara as unsecured loans on account of accommodation entry in the hands of the assessee. The AO further added unsecured loans of ₹85,00,000 taken from M/s. Swift Venture Pvt Ltd. and determined total income at ₹3,23,94,890 vide its order dated 30th March, 2016 passed us 143(3) r.w.s. 153A of the Act.

Aggrieved by the assessment order, the assessee filed an appeal before CIT(A). The CIT(A) in its order confirmed both the additions made by the AO. Aggrieved by the order, the assessee filed an appeal before the ITAT.

The assessee challenged the action of the AO of initiating the proceedings us 153A of the Act and passing the assessment order us 143(3) r.w.s. 153A of the Act.

HELD

The assessee argued that the Joint Commissioner of Income Tax, Central Range, Nashik granted approval u/s. 153D of the Act on mechanical basis without any independent application of mind, the said approval nowhere deals with the merits of case relating to the additions made in the draft assessment order, the said approval nowhere mentions any reason or justification as to why such approval is being granted and it amply proves beyond doubt that the same was given in mechanical manner with a biased approach without any independent application of mind.

The ITAT observed that there should be some indication that the approving authority examined relevant material in detail while granting the approval u/s 153D of the Act. The approval u/s. 153D is a mandatory requirement and such approval is not meant to be given mechanically. The ITAT observed that on an examination of the approval dated 21st March, 2016 which was placed on record, no reference whatsoever was made by the JCIT or no indication was given for examination of evidences, documents, statements of various persons, etc.

The ITAT also observed that the AO sought approval u/s 153D of the Act on 18th March, 2016, the JCIT granted approval on 21st March, 2016 and the final assessment order u/s 143(3) r.w.s. 153A of the Act was passed on 30.03.2016 which clearly indicates that the approving authority granted approval in one day [19th March, 2016 & 20th March, 2016 was a Saturday & Sunday] mechanically without examining the relevant material.

The ITAT followed the decision of Hon’ble High Court of Orissa in the case of M/s. Serajuddin & Co. in ITA Nos. 39, 40, 41, 42, 43, 44 of 2022 and held that the approval granted u/s. 153D of the Act mechanically without application of mind which resulted in vitiating the final assessment order dated 30th March, 2016 u/s. 143(3) r.w.s. 153A of the Act.

In the result, the appeal of the assessee was allowed for the above-mentioned issue.

EDITORIAL COMMENT

The decision of Hon’ble High Court of Orissa in the case of M/s. Serajuddin & Co. in ITA Nos. 39, 40, 41, 42, 43, 44 of 2022 was confirmed by the Hon’ble Supreme Court vide order dated 28th November, 2023 in SLP(C) No. 026338/2023.

Sec. 68 r.w.s. 148: Where nothing was brought on record by the Assessing Officer to substantiate that assessee had taken accommodation entry, reopening notice was to be quashed

[2024] 112 ITR (T) 158 (Kol – Trib.)

R. S. Darshan Singh Motor Car Finance (P.) Ltd. vs. ITO

ITA NO. 265(KOL) OF 2024

A.Y.: 2013-14

Date of Order: 2nd May, 2024

37. Sec. 68 r.w.s. 148: Where nothing was brought on record by the Assessing Officer to substantiate that assessee had taken accommodation entry, reopening notice was to be quashed.

FACTS

The assessee is a non-banking financial company [NBFC]. The AO had received information from Asst. Director of Income Tax (Investigation) (OSD), Unit-4, Kolkata that the assessee is one of the beneficiaries of the accommodation entries and had received total amount of ₹35,00,000 from M/s. Brahma Tradelinks Pvt. Ltd. during the FY 2012-13. A notice u/s 148 was issued on 19th March, 2020 on perusal of the said information. The assessee had objected the reopening of the assessment proceedings. The AO disposed of the objections without assigning any reasons and enhanced the income of the assessee by ₹35,00,000 as unexplained cash credit u/s 68 of the Act. On appeal before CIT(A), the CIT(A) confirmed the impugned addition of ₹35,00,000 and upheld the assessment order.

Aggrieved by the Order, the assessee preferred an appeal before the ITAT on several grounds and filed an application for additional ground of appeal – “That the impugned order passed u/s 147 of the Act making an addition of ₹35,00,000 is not based on any information leading to escapement of ₹35,00,000 and therefore the entire proceeding is without jurisdiction and hence bad in law”

HELD

The ITAT observed that evidently the assessee had received sum of ₹20,00,000 from M/s. Brahma Tradelinks Pvt. Ltd. during the FY 2012-13. The AO had not brought on record anything to substantiate the alleged receipt of ₹35,00,000 except for the fact that he had received credible information.

Assessee had relied on the following judgments:

  • CIT(Exemptions) vs. B. P. Poddar Foundation for Education [2023] 448 ITR 695 (Cal. HC)
  • CIT vs. Lakshmangarh Estate & trading Co. [2013] 220 Taxman 122 (Cal.)
  • Peerless General Finance and Investment Co. Ltd. vs. DCIT [2005] 273 ITR 16 (Cal. HC)

Relying on the above judgments, the ITAT opined that the burden lies with the AO to verify the genuineness of the credible information and that the information as alleged to be received by AO cannot be said to be a credible information. The ITAT also observed that in the preceding AY 2012-13, reopening was initiated by the then AO against the assessee on the same issue i.e. on the basis of transaction with M/s. Brahma Tradelinks Pvt. Ltd. but no addition was made.

The ITAT held that the AO did not apply his own mind to the information and examine the basis and material of the information, he accepted the plea in a mechanical manner and thus, the issuance of notice u/s 148 of the Act was illegal, wrong and quashed the notice.

In the result, the appeal of the assessee was allowed.

Section 250(6) of the Act obligates the CIT(A) to state points for determination in appeal before him, the decision thereon and the reasons for determination. CIT(A) has no power to dismiss appeal of assessee on account of non-prosecution and without deciding on the merits of the case

Maa Chintpurni Mining Pvt. Ltd. vs. ITO
ITA No. 28/Ranchi/2024
A.Y.: 2015-16
Date of Order: 13th August, 2024
Section: 250

36. Section 250(6) of the Act obligates the CIT(A) to state points for determination in appeal before him, the decision thereon and the reasons for determination. CIT(A) has no power to dismiss appeal of assessee on account of non-prosecution and without deciding on the merits of the case.

FACTS

The assessee, engaged in the business of mining, filed its return of income electronically on 29th October, 2015 declaring total income at ₹21,960. The case of the assessee was selected under limited scrutiny under CASS for the reason ‘large share premium received during the year’. During the assessment proceedings, the assessee failed to substantiate the nature of amount received to the tune of ₹68,11,000 whether it was share premium or otherwise to the satisfaction of the AO.

The assessment order stated that the assessee did not make due compliance to notices issued from time to time. Thus, the Assessing Officer (AO) framed the assessment u/s.144 of the Act assessing total income at ₹68,32,955 after making addition of ₹68,11,000 on account of unexplained cash credit u/s.68 of the Act.

Against the assessment order, the assessee preferred appeal before the ld. CIT(A). Before him, vide three grounds of appeal, the assessee contested the addition made on the ground that the AO erred in making the addition of the amount credited in the bank account as cash credit u/s 68 of the Act. Besides, he erred in making the addition which was not the subject matter of Limited scrutiny. The CIT(A) in his order narrated the non-compliant attitude of the assessee stating that despite number of notices sent through ITBA portal on several occasions, there was no response from the assessee. Therefore, he proceeded to dispose of the appeal based on materials on record. The CIT(A) dismissed the appeal of the assessee upholding the addition made by the AO.

Aggrieved, the assessee filed an appeal to the Tribunal where written submissions were filed on behalf of the assessee.

HELD

The Tribunal observed that while the CIT(A) has claimed that despite several notices issued allowing opportunity of hearing to the assessee during appellate proceedings, there was no compliance, the AR on the other hand, has inter alia claimed vide written submission above (which have been reproduced by the Tribunal in its order) that the CIT(A) ignored the written submission made on e-filing portal within the due date of time allowed. Copies of e-proceeding acknowledgements were enclosed with the written submissions which the Tribunal found to be self-speaking.

The Tribunal held that evidently, it appeared to the Bench that the compliance made by the assessee through e-portal was not in the knowledge of the CIT(A) for some technical issue. Since the appellate proceedings were taken up by NFAC in a faceless manner, such lack of communication cannot be ruled out due to technical glitches. It held that it would be in the fitness of things that the matter be adjudicated de novo on the grounds of appeal before the CIT(A)/NFAC after taking account the reply and other supporting material as claimed by the assessee to have been filed on e-portal.

The Tribunal held that the appeal has not been decided on merits due to miscommunication between the department and the assessee. Referring to provisions of Section 250(6) of the 1961 Act the Tribunal held that CIT(A) is obligated to state points for determination in appeal before him, the decision thereon and the reasons for determination. He has no power to dismiss appeal of assessee on account of non-prosecution and without deciding on the merits of the case.

Thus, in the in the interest of justice, the Tribunal restored the matter to CIT(A) emphasising the need for a thorough and compliant adjudication process.

The appeal filed by the assessee was allowed for statistical purposes.

It is not necessary that the consideration of the original asset be invested in new residential house. Construction of new house can commence before the date of transfer of original asset. Where return of income is filed under section 139(4), investment in new residential house till the date of filing of such return qualifies for deduction under section 54

Jignesh Jaysukhlal Ghiya vs. DCIT

ITA No. 324/Ahd./2020 A.Y.: 2013-14

Date of Order: 7th August, 2024

Sections: 54, 139(4)

35. It is not necessary that the consideration of the original asset be invested in new residential house. Construction of new house can commence before the date of transfer of original asset. Where return of income is filed under section 139(4), investment in new residential house till the date of filing of such return qualifies for deduction under section 54.

FACTS

For the assessment year under consideration the assessee filed his return of income declaring total income of ₹31,71,420. The Assessing Officer (AO) assessed the total income by making an addition of ₹23,17,183 as long-term capital gains.

The assessee sold a residential house on 9th January, 2013 for a consideration of ₹45,00,000 and purchased an unfinished flat on 17th February, 2014 and sale consideration was paid between 4th August, 2011 to 8th December, 2011 (much before sale of original house). The assessee also entered into a Construction Agreement on 25th February, 2014 to complete the construction of unfinished flat for a total consideration of ₹51,65,000. This consideration was paid during 8th December, 2011 to 16th February, 2014. Thereafter, the assessee filed his belated Return of Income u/s. 139(4) of the Act and claimed exemption u/s. 54 (restricted to ₹23,17,183). The Assessing Officer (AO) denied the benefit of section 54 as the assessee failed to deposit unutilised amount of capital gain in separate account and also did not file the Return of Income as prescribed u/s. 139(1) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who partly allowed the appeal and directed the AO to recompute the deduction under section 54 by considering only that part of the investment made in new property which was made after the date of sale of the original house and before the due date of filing of return of income under section 139(1) of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee it was submitted that construction of the new flat has been completed within three years (25th February, 2014) from the date of transfer of original asset (9th January, 2013). Thus, assessee is eligible for exemption u/s. 54 even in respect of investment made prior to the date of transfer of original asset. The date of commencement of construction is irrelevant for the purpose of claim of exemption u/s. 54 of the Act, so long as construction is completed within three years from the date of “transfer of original asset”. Further, the assessee is eligible for exemption u/s. 54 of the Act even in respect of amount of investment in construction made prior to the date of “transfer of original asset”. Reliance was placed on the following decisions:

i) Bhailalbhai N. Patel vs. DCITITA 37/Ahd/2014;

ii) ACIT vs. Subhash S. Bhavnani – (2012) 23 taxmann. com 94 (Ahd);

iii) Kapil Kumar Agarwal vs. DCIT-(2019) 178 ITD 255 (Del);

iv) CIT vs. J. R. Subramanya Bhat (1987) 165 ITR 571 (Karnataka);

v) CIT vs. H. K. Kapoor-(1998) 234 ITR 753 (Allahabad);

vi) CIT vs. Bharti Mishra-(2014) 41 taxmann.com 50 (Del);

HELD

The Tribunal found that both the lower authorities have taken a common view that the sale consideration of the old residential house should form part of construction in the residential house for claiming deduction 54 of the Act. It held that that the assessee is eligible to claim deduction under this section, even if a new residential house is purchased within one year before the date of transfer of original asset, which means that assessee has to make use of funds other than the sale consideration of original asset for investing in a new residential house and it is not mandatory that only the sale consideration of original asset be utilised for purchasing or constructing a new residential house. Since the assessee, in the present case, has utilized other funds (apart from sale consideration) for constructing new residential house, for this reason only he cannot be denied deduction u/s 54 of the Act.

The Tribunal having quoted the provisions of section 54 held that there is no mention about the date of start of construction of residential house, but it only refers to a construction of a residential house, which is the date of completion of the constructed residential house habitable for the purpose of residence.

As regards the question as to whether the assessee is entitled for claiming exemption u/s. 54 where the return is filed belatedly u/s. 139(4) of the Act it noted that this issue is considered by the Co-ordinate Bench of this Tribunal in the case of Manilal Dasbhai Makwana vs. ITO [(2018) 96 Taxmann.com 219] where the Tribunal has held that “when an assessee furnishes return subsequent to due date of filing return under s.139(1) but within the extended time limit under s.139(4), the benefit of investment made up to the date of furnishing of return of income prior to filing return under s.139(4) cannot be denied on such beneficial construction.”

It also noted that the Madras High Court in the case of C. Aryama Sundaram vs. CIT [(2018) 97 taxmann.com 74] has on identical facts decided the issue in favour of the assessee and held that “It is not a requisite condition of section 54 that the construction could not have commenced prior to the date of transfer of asset resulting in capital gain.”

The Tribunal following the above judicial precedents held that the assessee is eligible for deduction u/s. 54 of the Act and directed the AO to grant deduction and delete the addition made by him.

The Tribunal allowed the appeal filed by the assessee.

Mistake in tax calculation whereby tax was calculated at slab rate instead of rate mentioned in section 115BBE is a mistake which can be rectified under section 154 and therefore provisions of section 263 cannot be invoked in such a scenario

Dhashrathsinh Ghanshyamsinh vs. PCIT

ITA No. 223/Ahd./2021

A.Y.: 2015-16

Date of Order: 8th August, 2024

Sections: 115BBE, 154, 263

34. Mistake in tax calculation whereby tax was calculated at slab rate instead of rate mentioned in section 115BBE is a mistake which can be rectified under section 154 and therefore provisions of section 263 cannot be invoked in such a scenario.

FACTS

The assessee filed return of income for AY 2015-16 declaring total income to be a loss of ₹31,52,060. The case was selected for limited scrutiny. The Assessing Officer (AO) passed an order under section 143(3) assessing the total income to be ₹1,89,07,363. The additions made by the AO comprised of addition in respect of interest free advance amounting to ₹3,60,000, addition in respect of cash gift amounting to ₹34,00,000, addition in respect of unsecured loan amounting to ₹19,50,000 and addition in respect of cash deposit in Bank amounting to ₹1,63,49,423. The PCIT issued show cause notice under Section 263 of the Act dated 28th February, 2020 in respect of the observation that during the assessment proceedings, the assessee failed to submit any documentary evidence regarding the source of cash deposit in the Bank and gift received in cash and, therefore, the addition made under section 68 should have been taxed at 30 per cent and not as per the slab rates. Thus, the PCIT passed order under Section 263 on 30th April, 2020 directing the AO to calculate tax as per Section 115BBE of the Act.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The PCIT has not pointed out the aspect of assessment order being erroneous and prejudicial to the interest of the revenue. The Tribunal observed that all the additions made by the AO are in consonance with the Income-tax statute. The calculation of tax as per Section 115BBE of the Act is a mistake which can be rectified under Section 154 of the Act and, therefore, the provisions of Section 263 of the Act cannot be invoked in this scenario as it is not derived from Section 263 of the Act where the mistake in the assessment order carried out by the AO can be rectified. Thus, invocation of Section 263 of the Act itself was held to be not justifiable in the assessee’s case.

Disallowance under section 13 relating to benefit to interested persons cannot apply to charities notified under section 10(23C)(iv).

33 ITO vs. Theosophical Society

(2024) 163 taxmann.com 770 (ChennaiTrib)

ITA No.: 624 (Chny) of 2024

A.Y.: 2014–15

Date of order: 10th June, 2024

Sections: 10(23C), 13

Disallowance under section 13 relating to benefit to interested persons cannot apply to charities notified under section 10(23C)(iv).

FACTS

The assessee was a society notified under section 10(23C)(iv) and also registered under section 12A(1)(a) of the IT Act. The assessee filed its return of income on 26th September, 2014, admitting NIL income after claiming exemption under section 11.

The AO denied exemption under section 11 on the grounds that two individuals who had made donations to the society [“interested persons”] had stayed in the lodging facilities of the society by paying nominal maintenance charges, and therefore, the society had violated section 13(1)(c)(ii).

CIT(A) allowed all the grounds of appeal of the assessee-society and observed that:

(a) On perusal of details of interested persons, it was seen that those individuals were providing services to the society without remuneration and their stay in guest house was for theosophical work. It was debatable whether such donors to society will be qualified as interested persons. People staying in society lodgings to serve the society are obviously not benefitting from the society as such.

(b) Even if it was so, then such instance would only affect the case of an assessee since sections 11 to 13 relating to interested persons could not be imported to deny exemption under section 10(23C) as per CBDT Circular No.557 dated 19th March, 1990.

Aggrieved, the revenue filed an appeal before ITAT.

HELD

The Tribunal noted that it was an admitted fact that the society was notified under section 10(23C)(iv) and registered under section 12A(1)(a) and held that the conditions prescribed under section 13 of the IT Act were not applicable, as per CBDT Circular No.557 dated 19th March, 1990, once the society was notified under section 10(23C). Similarly, the AO could not make any disallowance under section 11 as the society was an organisation notified under section 10(23C)(iv) of the IT Act.

Author’s note: The law has undergone a change by the insertion of the 21st proviso to section 10(23C) w.e.f. A.Y. 2023–24.

Deeming provision of section 50C is not applicable to leasehold rights in property.

32 Shivdeep Tyagi vs. ITO

(2024) 163 taxmann.com 614(DelTrib)

ITA No.: 484(Delhi) of 2024

A.Y.: 2011–12

Date of order: 18th June, 2024

Section: 50C

Deeming provision of section 50C is not applicable to leasehold rights in property.

FACTS

The assessee, a salaried employee, filed his return of income without declaring capital gains on sale of leasehold property for ₹60,00,000.

Subsequently, based on AIR information, the AO reopened the case. Since the assessee did not file any proof of cost of acquisition of the leasehold property, the assessment was completed under section 143(3) / 147 by taxing the entire sale consideration of ₹75,94,850 for stamp duty purposes under section 50C as against the actual sale consideration of ₹60,00,000.

The assessee did not succeed in the appeal filed before CIT(A). CIT(A) also did not adjudicate on the issue of validity of reopening of assessment.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Since the issue of validity of reopening of the assessment had not been adjudicated by CIT(A), the Tribunal restored the matter of validity of reopening of the assessment to the file of CIT(A) to decide it afresh.

On merits, the Tribunal observed as follows:

(a) It is axiomatic that the leasehold right in a plot of land is neither “land or building or both” as such nor can be included within the scope of “land or building or both”. The distinction between a capital asset being “land or building or both” and any “right in land or building or both” is well recognised under the Act, as can be seen from section 54D, which shows that “land or building” is distinct from “any right in land or building”;

(b) Section 50C is a special provision for full value of consideration in certain cases and is a deeming provision; therefore, the fiction created therein cannot be extended to any asset other than those specifically provided therein;

(c) Following decision of the coordinate bench in the case of Noida Cyber Park (P.) Ltd., (2021) 123 taxmann.com 213 (Delhi Trib), section 50C, being deeming provision, is not applicable to leasehold right in a plot of land;

(d) However, the AO was empowered to compute capital gains as per the IT Act, without invoking the provisions of section 50C.

Interest earned by a co-operative housing society on investment with co-operative banks in Maharashtra is eligible for deduction under section 80P(2)(d).

31 Ashok Tower “D” Co Op Housing Society Ltd. vs. ITO

(2024) 163 taxmann.com 598 (Mum Trib)

ITA No.: 434(Mum) of 2024

A.Y.: 2015–16

Date of order: 21st June, 2024

Section: 80P

Interest earned by a co-operative housing society on investment with co-operative banks in Maharashtra is eligible for deduction under section 80P(2)(d).

FACTS

The assessee, a cooperative housing society, filed its return of income, claiming deduction under section 80P(2)(d) on the interest income of ₹14,72,930 earned by it from its investment in co-operative banks.

During scrutiny proceedings, the AO denied the deduction under section 80P(2)(d) on the grounds that such deduction is available only in case of investment in another co-operative society and co-operative banks cannot be regarded as “co-operative society” under section 2(19) of the IT Act.

CIT(A) rejected the contentions of the assessee and confirmed the addition made by AO.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

Noting that a “co-operative bank” is defined under section 2(10) of the Maharashtra Co-operative Societies Act, 1960 to mean a “co-operative society” which is doing the business of banking, the Tribunal held that the amount of investment in fixed deposit receipts or in savings bank account made by the assessee with co-operative banks in Maharashtra is also investment made in co-operative society, and therefore, interest earned thereon is also eligible for deduction under section 80P(2)(d) of the IT Act.

Where assessee sold a land and made investment in new land from sale proceeds of old land in name of his son, assessee is entitled to exemption u/s 54B even if investment was made before registration of sale deed.

30 Siddhulal Patidar vs. ITO

[2024] 111 ITR(T) 541 (Indore – Trib.)

ITA No. 110 (IND.) of 2023

A.Y.: 2011–12

Date of order: 28th February, 2024

Section 54B

Where assessee sold a land and made investment in new land from sale proceeds of old land in name of his son, assessee is entitled to exemption u/s 54B even if investment was made before registration of sale deed.

FACTS

The assessee sold a land vide agreement dated 29th September, 2006 for ₹35,00,000, which was registered on 6th September, 2010. The assessee made a new investment of ₹53,29,440 on 20th June, 2007 in purchase of an agricultural land in the name of his son, Shri Rameshwar Patidar. On the strength of this investment, the assessee had claimed exemption u/s 54B.

The AO had denied the exemption u/s 54B for two reasons, namely:

  •  the new land was purchased in the name of son and not in the name of assessee himself;
  •  the new investment was made on 20th June, 2007 whereas the sale deed was registered on 6th September, 2010; thus, the investment has been made before the date of transfer which is not permitted u/s 54B.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) confirmed the order of the AO. Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT followed the decision of Hon’ble Jurisdictional High Court of Madhya Pradesh in PCIT vs. Balmukund Meena ITA No. 188/2016 and held that the assessee can be said to be entitled for exemption u/s 54B even if the registration was taken in the name of son.

As for the second reason, the ITAT relied on the following decisions wherein it is already established that the assessee is eligible for exemption u/s 54B where the investment was made by assessee after execution of sale agreement but before registration of sale deed, from the moneys received under sale agreement:

  •  Dharmendra J. Patel vs. DCIT [2023] 152 taxmann.com 465 (Ahmedabad – Trib.)
  •  Ramesh Narhari Jakhadi vs. ITO [1992] 41 ITD 368 (Pune)
  •  Smt. Narayan F. Patel vs. PCIT [2023] 152 taxmann.com 53 (Surat-Trib.) – It followed the decision of Hon’ble Bombay High Court in Mrs. Parveen P Bharucha vs. Union of India WP No. 10437 of 2011 dated 27th June, 2012 (Para No. 12 of order).

In the result, the appeal of the assessee was allowed for the above-mentioned issue.

EDITORIAL COMMENT

The Hon’ble Punjab and Haryana High Court in the case of Bahadur Singh vs. CIT(A) [2023] 154 taxmann.com 456 (P&H) had rejected assessee’s claim of exemption u/s 54B on the basis of purchase of land in the name of wife and the assessee’s SLP against the said decision was dismissed by Hon’ble Supreme Court vide order dated 29th August, 2023 published in [2023] 154 taxmann.com 457/295 Taxman 313 (SC). The ITAT followed the view favourable to the assessee by relying on the decision of CIT vs. Vegetable Products [1973] 88 ITR 192 (SC) and also mentioned that the Hon’ble SC had dismissed the assessee’s SLP against the decision of Hon’ble Punjab & Haryana High Court by passing a one line summary order; therefore, as per settled judicial view, such dismissal cannot be treated as pronouncement of final law by the Hon’ble Supreme Court.

Addition made by Assessing Officer during reassessment proceedings, not being based on any incriminating material during search and seizure action, was to be deleted.

29 Ashish Jain vs. DCIT

[2024] 111ITR(T)152 (Chd – Trib.)

ITA No. 352 (CHD) of 2023

A.Y.: 2012–13

Date of order: 23rd January, 2024

Section: 153A

Addition made by Assessing Officer during reassessment proceedings, not being based on any incriminating material during search and seizure action, was to be deleted.

FACTS

A search and seizure operation u/s 132(1) was carried out at the residential and business premises of M/s Jain Amar Clothing Pvt. Ltd. Group of cases on 26th February, 2016, and the assessee’s premises were also searched on the said date. Thereafter, a notice dated 28th September, 2016 u/s 153A was issued upon the assessee.

The assessee had purchased 1,700 equity shares of M/s. Maple Goods Pvt. Ltd. in F.Y. 2010–11 through share broker S.K. Khemka. M/s. Maple Goods Pvt. Ltd. was later on amalgamated with M/s. Access Global Ltd. and as against 1 share of M/s Maple Goods (P) Ltd., 47 equity shares of M/s Access Global Ltd. were allotted. The shares of M/s. Access Global Ltd. were received in D-Mat account of the assessee. The assessee had sold these shares in F.Y. 2012–13 and earned long-term capital gains (LTCG) of ₹87,04,733 thereon.

The AO had referred upon the report of the Directorate of Income-tax (Inv.), Kolkata dated 27th April, 2015, which stated that the share of M/s Access Global Ltd. and M/s Maple Goods (P) Ltd. resembled the character of Penny Stocks and provided accommodation entries in the guise of LTCG. The AO further referred to the documents so seized from the locker no. 194, HDFC Bank, Ludhiana which belonged jointly to Shri Sunil Kumar Jain, the father of the assessee and Smt. Kamla Jain, the grandmother of the assessee and that documents so seized were share certificates of M/s Maple Goods (P) Ltd. in respect of shares purchased by the assessee through Shri S.K. Khemka and the copy of the contract cum bill notes issued by Shri S.K. Khemka. The AO also referred to the statement recorded on oath on 13th March, 2015 of Shri S.K. Khemka who had admitted to provide “kachhapanna” [Purchase Contract Notes] of M/s Maple Goods (P) Ltd. and provided bogus LTCG entries to the assessee.

During the course of assessment proceedings, the assessee submitted that no incriminating material was found during the action of search but the AO stated that the said contention is not tenable and treated the LTCG of ₹87,04,733 as bogus and added to the total income of the assessee treating the same as unexplained cash credit under section 68 of the Act.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) in its order held that the assessment order and remand report of the AO dated 5th February, 2020, clearly brought on record the share certificates and the contract bills seized from the bank locker no. 194, HDFC Bank which belonged jointly to Shri Sunil Kumar Jain, the father of the assessee and Smt. Kamla Jain, the grandmother of the assessee on the basis of which bogus LTCG had been claimed by the assessee were incriminating in nature as they had a direct bearing on the estimation of correct income of the assessee. Further, on merits as well, various contentions raised by the assessee were rejected, and the findings and order of the AO was confirmed.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that it was an undisputed fact that the assessee had purchased 1,700 equity shares of M/s. Maple Goods Pvt. Ltd. in F.Y. 2010–11 through share broker S.K. Khemka, which were later on amalgamated with M/s. Access Global Ltd and received 79,900 shares of M/s. Access Global Ltd. The assessee had earned LTCG gains of R87,04,733 in A.Y. 2012–13 from sale of these shares which were disclosed in the original return of income u/s 139(1) of the Act.

The only issue was whether the documents seized from the bank locker no. 194, HDFC Bank – share certificate / contract cum bill notes in the name of the assessee issued by Shri S.K. Khemka for purchase of shares of M/s. Maple Goods Pvt. Ltd were incriminating material found during the course of search in case of the assessee.

The assessee had submitted that:

  •  it is a case of unabated assessment, and during the course of search on the assessee, no incriminating material / evidence was found in respect of LTCG on shares;
  •  the share certificates and the contract notes relating to purchase of shares cannot be an incriminating material; rather the said documents support the case of the assessee that the purchase of shares is genuine and is backed by proper documents;
  •  the statements of Shri S.K. Khemka and Shri Sunil Kumar Kayan and others had nothing to do with the search proceedings of the assessee as these were recorded during their respective investigation proceedings way back in the year 2015.

The ITAT held that the term “incriminating material” has to be read and understood in the context of one or more of the conditions stipulated in section 132(1) of the Act, on satisfaction of which a search can be authorised and search warrant can be issued. Therefore, the information in possession of the competent authority at the time of authorisation of search becomes relevant, and on the basis of the same, his satisfaction that search action is warranted coupled with material actually found and seized during the course of search which has not been disclosed or produced or submitted in the course of original assessment.

The ITAT further held that in case of unabated assessment, the reassessment can be made on the basis of the satisfaction note pursuant to which the search has been initiated and books of account or other documents not produced in the course of original assessment but found in the course of search which indicate undisclosed income or undisclosed property, and the reassessment can be made on the basis of the undisclosed income or undisclosed property which is physically found and discovered in the course of search.

Applying the aforesaid legal proposition, the ITAT held that it was not the case of the revenue that the locker from which the documents were seized was in the possession of the assessee or was being operated by the assessee, and thus, what was found and seized was from the possession of third persons, who no doubt were part of the assessee’s family and covered as part of the same search proceedings, but the same cannot be held as found during the course of search in case of the assessee.

The ITAT further observed that though the assessee was part of the search proceedings and action was initiated u/s 153A in his case, the same doesn’t take away the statutory requirement of recording of satisfaction note by the AO of family members whose locker was searched and from where the documents belonging to the assessee were found and seized.

The ITAT held that:

  •  it was an admitted and undisputed position that the assessee had purchased the shares of M/s Maple Goods (P) Ltd. during the F.Y. 2010–11 relevant to A.Y. 2011–12 and thus, the said transaction doesn’t pertain to impugned A.Y. 2012–13 and cannot be held as incriminating in nature for the impugned A.Y.;
  •  the assessee had purchased the shares wherein the payment was made through normal banking channel and the transaction was duly reflected and disclosed in the bank statement;
  •  proceedings for A.Y. 2011–12 were also reopened u/s 153A pursuant to search action and the reassessment proceedings were completed u/s 153A r/w 143(3) vide order dated 29th December, 2017 where the AO has not recorded any adverse findings regarding the aforesaid purchase of shares;
  •  the transaction of sale and purchase of shares have been duly disclosed as part of the original return of income, and the assessment thereof stood completed / unabated as on the date of search;
  •  the share certificates and contract notes represent and corroborate a disclosed transaction of purchase and sale of shares as part of the original return of income and cannot be termed as incriminating material so found and seized during the course of search;
  •  where there is no incriminating material found during the course of search, the statement of Shri S.K. Khemka (and what has been stated therein) which is recorded well before the date of search in case of the assessee and in the context of some other proceedings, independent of the impugned search proceedings, is availability of certain “other material / documentation” with the AO during the course of reassessment proceedings but not material / documentation which is incriminating in nature found during the course of search in case of assessee for the impugned assessment year.

In view of the aforesaid discussion and in the entirety of facts and circumstances of the case, the ITAT was of the view that the addition of ₹87,04,733 made by the AO during the reassessment proceedings completed u/s 153A is not based on any incriminating material found or seized during the course of search and seizure action u/s 132 of the Act in case of the assessee. Being a case of completed / unabated assessment, in absence of any incriminating material found during the course of search, the addition so made cannot be sustained and was directed to be deleted.

In the result, the appeal of the assessee was allowed.

The loss incurred on the sale of shares on stock exchange platform, where STT was duly paid, is eligible to be set of against the long-term capital gain earned by the assessee from sale of unlisted shares.

28 Rita Gupta vs. DCIT

ITA No. 46/Kol./2024

A.Y.: 2014–15

Date of Order: 6th June, 2024

Sections:10(38), 45, 70, 74

The loss incurred on the sale of shares on stock exchange platform, where STT was duly paid, is eligible to be set of against the long-term capital gain earned by the assessee from sale of unlisted shares.

FACTS

The assessee filed return of income on 31st July, 2014, declaring total income of ₹18,31,980. The Assessing Officer (AO) assessed the total income of the assessee, making various additions including the addition of ₹47,90,616, resulting on non-allowance of set off of loss from sale of equity shares on recognised stock exchange with STT paid against the profit on sale of unquoted equity shares. The AO held that the long-term capital gain on sale of quoted shares is exempt u/s 10(38) of the Act and similarly, the loss incurred was also not liable to be set off against the other taxable income.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal of the assessee and confirmed the action of the AO on this issue on the same reasoning that since long-term gain from sale of securities / shares are exempt in terms of provisions of Section 10(38) of the Act, and therefore, on the same analogy, the long-term capital loss resulting from the sale of equity shares with STT paid cannot be allowed to be set off against the taxable long-term capital gain resulting from sale of any other asset.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal having perused the provisions of sections 2(14), 45, 47, 70 to 74 held that it is only the long-term capital gain resulting from sale of shares / securities which was granted exemption u/s 10(38) subject to the fulfilment of certain conditions and not the entire source which was excluded from the aforesaid sections. Therefore, when the entire source is not excluded from the charging section and only special type of income is excluded, then the interpretation of law has to be made strictly and cannot be deemed to include any other income or loss resulting or falling within the same source. The case of the assessee is squarely covered by the decision of Hon’ble jurisdictional High Court in the case of Royal Calcutta Turf Club vs. CIT [144 ITR 709 (Cal)].

The Tribunal noted that:

i) the Co-ordinate Bench in another decision in the case of Raptacos Brett & Co Ltd. [69 SOT 383] has also decided the similar issue by following the decision of Calcutta High Court in the case of Royal Calcutta Turf Club vs. CIT (supra) and by considering the decision of CIT vs. Hariprasad & Co. Pvt. Ltd. [99 ITR 118] as relied by the CIT(A);

ii) the decision of Hon’ble Apex Court in the case of CIT vs. Hariprasad & Co. Pvt. Ltd. (supra) did not apply to the case of the assessee as the principle laid down in the above decision would be applicable if entire source is excluded from the charging section.

The Tribunal having perused the decision relied upon by the CIT(A) found that except two decisions of the coordinate benches namely Nikhil Sawhney [119 taxmann.com 372] and DDIT vs. Asia Pacific Performance SICAV [55 taxmann.com 333] and decision of Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani vs. ACIT [367 ITR 261], all others are distinguishable of facts.

In the case of Nikhil Sawhney (supra), the Co-ordinate Bench has relied on the decision of Supreme Court in the case of CIT vs. Hariprasad& Co. Pvt. Ltd., which has been rendered on the different principle that the income includes loss; however, the said legal proposition would apply only when the entire source is exempt and not liable to tax and not as in a case where the income falling within such source is treated as exempt. The Hon’ble Supreme Court in the case of Hariprasad & Co. Pvt. Ltd. (supra) has held that the expression “income” shall include loss because the loss is nothing but negative income. But in our opinion, the principle laid down by the Hon’ble Apex Court that income includes negative income can be applied only when the entire source of income falls within the charging provision of Act but where the source of income is otherwise chargeable to tax but only a specific kind of income derived from such source is granted exemption, then in such case, the proposition that the term “income” includes loss would not be applicable. Thus, if the source which produces the income is outside the ambit of charging provisions of the section, in such case negative income or loss can be said to be outside the ambit of taxing provisions. Consequently, the negative income is also required to be ignored for tax purpose. In other words, where only one of the streams of income from a source is granted exemption by the legislature upon fulfilment of specified conditions, then the concept of income includes loss would not be applicable. Similarly, the second decision of DDIT vs. Asia Pacific Performance SICAV (supra) has relied on the decision of Hariprasad & Co. Pvt. Ltd. [55 taxmann.com 333], CIT vs. J H Gotla [156 ITR 323], and CIT vs. Gold Coin Health Food Pvt. Ltd. [304 ITR 308], which are distinguishable of facts. In the case of Kishorebhai Bhikhabhai Virani vs. ACIT [367 ITR 261], the issue was decided against the assessee; but in the said decision, the decision of Hon’ble Calcutta High Court in the case of Royal Calcutta Turf Club (supra) has not been referred at all, and considering the ratio laid down by the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. 88 ITR 192 (SC), where there are two construction, then the construction / interpretation which is in favour of the assessee has to be followed.

The Tribunal held that the loss incurred on the sale of shares on stock exchange platform, where STT was duly paid, is eligible to be set of against the long-term capital gain earned by the assessee from sale of unlisted shares.

Payment made by assessee to tenants of a co-operative housing society towards alternate accommodation charges / hardship allowance / rent are not liable for deduction of tax at source under section 194I.

27 ITO vs. Nathani Parekh Constructions Pvt.

ITA Nos. 4088 and 4087/Mum/2023 and 4101 and 4100/Mum/2023

A.Ys.: 2013–14 & 2016–17

Date of Order: 21st May, 2024

Sections: 194I, 201

Payment made by assessee to tenants of a co-operative housing society towards alternate accommodation charges / hardship allowance / rent are not liable for deduction of tax at source under section 194I.

FACTS

The assessee, a real estate developer, engaged in the business of development and construction, entered into a redevelopment agreement with M/s Dalal Estate Co-operative Housing Society Ltd. In the course of survey conducted under section 133A(2A) of the Act, it was found that the assessee has debited amounts under the head “Alternate Accommodation / Rent” in each of the four years under appeal.

The Assessing Officer (AO) called upon the assessee to explain why tax has not been deducted at source in respect of the payments debited under the head “Alternate Accommodation / Rent”. The assessee submitted that it has entered into a re-development agreement dated 30th April, 2017 with M/s Dalal Estate Co-operative Housing Society Ltd., which was encumbered with more than 300 tenants and that for the purpose of vacating the premises, the assessee had agreed to pay compensation of hardship according to the nature of tenancy occupied by each tenant. The assessee further submitted that these tenants could not be provided the alternate accommodation, and therefore, the assessee agreed to pay the above amount as compensation for the hardship of the tenants. The assessee also submitted that the amount paid towards alternate accommodation / hardship allowance does not fall within the definition “Rent”, and therefore, tax was not liable to be deducted at source on the said payments. The assessee accordingly submitted that no tax was deducted at source from the payment of alternate accommodation charges / rent.

The AO did not agree with the contentions of the assessee and held that the payment made by the assessee is liable for deduction of tax at source under section 194I of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal of the assessee by relying on the decisions of the Co-ordinate Bench in the case of Jitendra Kumar Madan (32 CCH 59, Mumbai), Sahana Dwellers Pvt. Ltd. [2016] 67 taxmann.com 202 (Mum. Trib.) and Shanish Construction Pvt. Ltd. in ITA Nos. 6087 and 6088/Mum/2024 dated 11th January, 2017.

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the common issue arising in each of the four appeals preferred by the Revenue is “Whether the payment made by the assessee to the tenants of M/s Dalal Estate Co-operative Housing Society Ltd. towards alternate accommodation charges/hardship allowance/rent are liable for tax deduction under section 194I of the Act.”

On behalf of the assessee, it was contended that:

i) the impugned payment is made in lieu of the alternate accommodation which the assessee could not provide to the tenants / members of the society;

ii) the definition of term “Rent” as per the provisions of section 194I which states that the payment which is made towards use of land or building. In assessee’s case, the payment is made not towards the use of land or building but as a compensation for the hardship that the tenants would undergo by vacating the property for the purpose of re-development;

iii) the CIT(A) has correctly relied on the various decisions of the Co-ordinate Bench which has been consistently holding that the amount paid towards compensation / hardship allowance is not taxable in the hands of the tenants for the reason that the same is not paid towards use of land or building but for the hardship in vacating the property for re-development;

iv) the Hon’ble Bombay High Court in the case of Sarfaraz S. Furniturewalla vs. Afshan Sharfali Ashok Kumar & Ors in Writ Petition No. 4958 of 2024, has held that the “transit rent” i.e., the rent paid by the developer to the tenant who suffers due to dispossession is not a revenue receipt and is not liable to be taxed. As a result, there will not be any question of deduction of TDS from the amount payable by the developer to the tenant.

The Tribunal having quoted the decision of the Bombay High Court in Sarfaraz S. Furniturewalla (supra) observed that the Hon’ble High Court in the above decision has held that the transit rent which is paid to the tenant who suffers hardship due to dispossession does not fall within the definition “rent” under section 194I. It held that in assessee’s case, the payment is made towards compensation for handing over the vacant possession of the property and towards rent if any payable by the tenants in the alternate accommodation until the completion of the re-development.

Applying the ratio of the decision of the Hon’ble High Court, the Tribunal held that the payment made by the assessee towards “Alternate accommodation charges / rent” is not liable for tax deduction under section 194I, and accordingly, the Tribunal upheld the order passed by the CIT(A) for A.Y. 2013–14 to 2016–17, setting aside the order of the AO treating the assessee as an assessee in default for non-deduction and non-payment of TDS under section 194I of the Act.

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

26 (2024) 162 taxmann.com 730 (DelhiTrib)

Genus Power Infrastructure Ltd. vs. ACIT

ITA Nos.: 2573 & 2680(Del) of 2023

A.Y.: 2010–11

Dated: 10th May, 2024

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

FACTS

For AY 2010–11, the assessee filed its return of income on 23rd September, 2010 declaring total income at Nil. The case was subjected to regular assessment vide order under section 143(3) dated 28th March, 2013 and income was assessed at ₹8,71,08,200 and book profit under section 115JB at ₹31,04,38,156.

Thereafter, notice under Section 148 was issued by the AO on 31st March, 2017, that is, after a period of four years from the end of the assessment year where the original assessment was earlier completed under Section 143(3). The reasons recorded by AO showed that an adjustment at ₹4,28,41,017 was proposed to the book profit on the ground that provision on the repair of partly damaged assets had been wrongly allowed and was not eligible for deduction while computing book profits. The reasons recorded also made allegations towards escapement of income on varied grounds [namely, prior period expenses, deduction under s. 80IC, calculation mistakes etc.] while reassessing the taxable income under the normal provisions of the Act. The book profit was thus reassessed at ₹35.31 crores [as opposed to ₹31.04 crores in original assessment] whereas the taxable income under the normal provisions was assessed at ₹13.67 crores [as opposed to ₹8.71 crores in original assessment].

Cross appeals were filed by the Revenue and assessee against the order of CIT(A).

A jurisdictional controversy had been raised before the Tribunal as to whether re-opening under section 147/148 is maintainable where MAT liability as per book profits computed under section 115JB would not get disturbed on the correct application of the law, and tax on such book profits also exceeded the total income determined as per normal provisions.

HELD

The Tribunal observed as follows:

Escapement alleged qua book profits did not meet the conditions embodied in the first proviso to section 147 having regard to full and true disclosure of the relevant/material facts attributable to provisions for repairs in the ROI by making disallowances under normal provisions and suitable declarations in the audited financial statement;

One cannot say that when the adjustment on account of such provision for repairs has been made by the assessee while determining the income as per normal provisions of the Act, there was a failure on the part of the assessee to disclose facts in not making such corresponding adjustments while determining the book profit. The disclosures were also made in the financial statement. The condition of the first proviso was thus clearly not satisfied in the instant case. Hence, the escapement qua book profits were not sustainable in law.

In the absence of escapement qua book profits, the escapement alleged under normal provisions was of no consequence since despite the purported escapement qua normal provision which may lead to enhancement of taxable income under the normal provision, the tax liability thereon would still be lower than the book profits assessable in law;

The claim of the assessee that the tax liability on book profit was higher than the income assessable under normal provisions including escapement alleged qua normal provisions, had not been disputed by the revenue.

Accordingly, following the decisions of the Gujarat High Court in India Gelatine and Chemical Ltd. vs. ACIT, (2014) 364 ITR 649 (Guj) and Motto Tiles P. Ltd. vs. ACIT, (2016) 286 ITR 280 (Guj), the Tribunal quashed the reassessment notice and declared the reassessment order null and void.

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

25 Shree Swaminarayan Gadi Trust vs. CIT

(2024) 162 taxmann.com 772 (SuratTrib)

ITA Nos.: 369 & 370(Srt) of 2024

A.Y.: N.A

Dated: 13th May, 2024

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

FACTS

The assessee-trust applied for registration under section 12A and section 80Gin Form 10AB. Instead of selecting section 12A(1)(ac)(iii) in the Form, the assessee incorrectly selected section 12A(1)(ac)(iv). A similar mistake was also made in the Form relating to section 80G. In the proceedings before CIT(E), the assessee requested the CIT to consider the application under the appropriate sub-clause.

CIT(E) held that he has no power to change / amend / rectify Form 10AB and therefore, rejected the applications.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed as follows—

a) the mistake in filing entry was not fatal and could be considered under the appropriate sub-clause or clause of section 12A(1).

b) Being the first appellate authority, the plea of the assessee for correction in Form-10AB should be accepted and the order of CIT(E) be set-aside.

The Tribunal directed CIT(E) to treat the application of the assessee under Section 12A(1)(ac)(iii) in place of Section 12A(1)(ac)(iv) and to consider the case on merit and pass the order in accordance with the law. Similar directions were also given for application for approval under section 80G(5).

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit. II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

24 Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. vs. ACIT

ITA No. 3569/Del./2016

Assessment Year: 2012–13

Date of Order: 24th April, 2024

Section: 80IB(10)

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit.

II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

FACTS I

The assessee aggrieved by the order of CIT(A) denying a claim for deduction under section 80IB(10) in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit preferred an appeal to the Tribunal.

HELD I

The Tribunal upon perusal of the orders of the authorities below and the decision of the Tribunal in the assessee’s own case for AYs 2008–09 to 2011–12 observed that the Tribunal for AYs 2008–09 and 2009–10 in the common order dated 30th May, 2016 in ITA Nos. 1950/Del/2012 & 5849/Del/2012 allowed the claim for deduction under section 80IB(10) of the Act in respect of flats excluding the balcony open to the sky for the purpose of calculating the built-up area of the individual units. Following the earlier orders, the Tribunal allowed the claim for deduction u/s 80IB(10) in respect of those flats whose area exceeded 1,000 sq. feet only as a result of including a balcony open to the sky. The AO was directed to verify the claim of the assessee after obtaining the details and allow the deduction after providing adequate opportunity of being heard by the assessee.

FACTS II

Aggrieved by the order of the CIT(A) directing the AO to accept the project completion method followed by the assessee, revenue preferred an appeal to the Tribunal.

It was submitted that this issue came up for adjudication in assessee’s case for AY 2008–09 to 2011–12. It was also mentioned that the Tribunal for AY 2008–09 and 2009–10 has upheld the order of the CIT(A) in accepting the project completion method adopted by the assessee.

HELD II

The Tribunal observed that the Tribunal has decided the issue in appeal in favour of the assessee by sustaining the order of CIT(A) in holding that the project completion method adopted by the assessee is the right method for determining the profits. The CIT(A) had held that the AO should not have disturbed the project completion method followed by the assessee regularly and there is no cogent reason to change the method. Both these findings of the CIT(A) were upheld by the Tribunal for AYs 2008–09 and 2009–10. The appeal of the revenue has been dismissed by the High Court in ITA No. 766/2016 and 178/2017 dated 16th May, 2017 holding that there is no substantial question of law. The tribunal also observed that the Court held that the question “whether the addition made by the AO to the income of the Respondent for the relevant year based on percentage completion method was not correct as held by the ITAT’ stands answered in favour of the assessee and against the revenue by order dated 16th November, 2016 in ITA No. 802/2016 in PCIT vs. Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. Following this decision of the High Court, Tribunal rejected the ground of the revenue.

For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

23 Sunil Amritlal Shah vs. ITO

ITA No. 4069/Mum./2023

Assessment Year: 2011-12

Date of Order: 13th May, 2024

Section: 54

For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

FACTS

The assessee, an individual, preferred an appeal against the assessment order dated 3rd October, 2023 passed under section 144C(13) read with section 147 read with section 254 of the Act determining total income of ₹35,97,395 and denying a claim of deduction of ₹34,25,243 made under section 54 of the Act.

During the year under consideration, the assessee had long-term capital gain on the sale of a residential house on 10th February, 2011. The entire long-term capital gain was claimed to be exempt under section 54 on the ground that the assessee purchased a residential house at Ghatkopar. For this new house, the assessee entered into an agreement for sale with builder Runwal Capital Land India Private Limited on 25th July, 2009 for a consideration of ₹73,06,530. The possession of the new house was granted to the assessee on 2nd February, 2011 after receipt of the occupancy certificate and when the building was habitable. Assessee considered the date of possession i.e., 2nd February, 2011 to be the date of acquisition of the property. The AO denied the claim by holding the date of acquisition of the property to be 25th July, 2009.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

On behalf of the assessee reliance was placed on the decision of Bombay High Court in CIT vs. R K Jain [ITA No. 260 of 1993 (1994) 75 Taxman 145] wherein the Court has held that the date of possession of new residential premises is considered for exemption under section 54F instead of the date of sale agreement. It was submitted that there is no difference in the eligibility for deduction under section 54F and section 54 of the Act. It was also submitted that following this decision of the jurisdictional High Court, the co-ordinate bench in the case of Sanjay Vasant Jumde vs. ITO [148 taxmann.com 34] has so held. Reliance was also placed on several other decisions.

HELD

The Tribunal observed that —

(i) by agreement dated 25th July, 2009, the assessee acquired a `right to purchase a house’ which was under construction. On 2nd February, 2011 when the house was handed over to the assessee, when it was inhabitable (sic habitable) the assessee purchased the house;

(ii) in PCIT & Others vs. Akshay Sobit & Others [(2020) 423 ITR 321 (Delhi)], the Delhi High Court held that the provision in question is a beneficial provision for assessees who replace the original long-term capital asset with a new one. It was further held that booking of the bare shell of a flat is a construction of house property and not purchase. Therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the Act. In the present case as well, the assessee has booked the flat under construction which was handed over to the assessee upon completion of construction;

(iii) the Bombay High Court in the case of Beena K Jain [217 ITR 363 (Bom.)], in connection with section 54F which is parimateria, affirmed the action of the Tribunal and held that the date of the agreement is not the date of purchase but the date of payment of full consideration amount on flat becoming ready for occupation and having obtained possession of the flat is the date of purchase. The action of the Tribunal in looking at the substance of the transaction and coming to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by full payment of consideration and handing over of possession of the flat on the next day was upheld by the court;

(iv) the co-ordinate bench in Bastimal K Jain vs. ITO [(2016) 76 taxmann.com 368 (Mum.)] has also held that the assessee’s claim for deduction under section 54 was to be reckoned from the date of handing over of possession of the flat by the builder to the assessee.

The Tribunal held that the assessee is entitled to deduction under section 54 of the Act on the purchase of a new house considering the date of possession when it is completed as the date of purchase of property as agreement to purchase the property was for under-construction property. By entering into an agreement to purchase assessee acquired the right to purchase the property and did not purchase the property as the same was under construction. The section requires “purchase” of property.

The Tribunal allowed the ground of appeal filed by the assessee.

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

22 Emaar MGF Land Limited vs. ACIT

ITA Nos. 825 to 820/Del/2018 and 1378/Del/20123

Assessment Years: 2010–11 & 2015–16

Date of Order: 30th May, 2024

Section: 153D

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

FACTS

The assessments of the assessee company for AY 2010–11 to 2015–16 were completed by the Assessing Officer (AO). Aggrieved by the assessments so made, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who vide his order dated 30th November, 2017 decided some of the grounds in favour of the assessee and some of the grounds were decided against the assessee.

Aggrieved by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal. In the course of appellate proceedings before the Tribunal, the assessee filed an application under Rule 11 of the Income-tax Appellate Tribunal Rules, 1963 for admission of additional grounds which inter alia had the following as an additional ground —

“5. That, on the facts and circumstances of the case and in law, the approval under section 153D of the Act is mechanical and without application of mind and thus the impugned assessment order is illegal, bad in law and liable to be quashed.”

It was only ground no. 5 out of the additional grounds filed which was pressed and since the same raised purely a question of law, the Tribunal admitted the same.

HELD

Upon the Revenue not being able to produce a copy of the approval granted by the Range Head under section 153D of the Act, it was contended that as there is no order available with the Department for the purpose of section 153D of the Act, presumption has to be drawn that no such order was passed and in the absence of such order the assessment concluded in the relevant assessment years under section 153A read with section 143(3) of the Act are void. For this proposition reliance was placed on the decision of the Delhi High Court in the case of Rajsheela Growth Fund (P.) Ltd. vs. ITO [ITA No. 124/202 and other judgment dated 8th May, 2024].

On behalf of the revenue, reliance was placed on concluding para 7 of the assessment order and it was submitted that there is a reference of letter No. Jt. CIT/C.R.-1/153D Appr./2016–17/1025 dated 26th December 2016, by which approval was given, so it is not correct to contend that there was no approval under section 153D of the Act.

The Tribunal held that it is now a settled proposition of law that prior approval of competent authority under section 153D of the Act is mandatory and the same is required to pass rigour of the law, to show that the approval was granted after due consideration of the assessment record and it was not a mechanical approval.

In spite of giving reasonable and sufficient opportunities to the department, AO failed to produce any copy or other evidence of the existence of the approval. That only gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with law or not but to hold that the assessments in hand were concluded without the requisite approval under section 153D of the Act.

The Tribunal allowed additional ground no. 5 with a caveat that, in case the department is able to lay hand on any evidence showing existence and content of approval, application may be filed for re-calling this order and to contest this issue afresh on merits along with other issues raised in respective appeals.

The Tribunal allowed the appeals of the assessee.

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

21 Culver Max Entertainment Pvt. Ltd. vs. ACIT

ITA Nos. 7685/Mum/2019 and 925/Mum/2021

Assessment Years: 2015–16 & 2016–17

Date of Order: 02nd May, 2024

Section: 199

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

FACTS

MSM Satellite (Singapore) Pte Ltd. (MSN Singapore) a wholly owned subsidiary of the assessee purchased, in March 2005, a TV channel named “SAB TV” from a company named Shri Adhikari Brothers. Subsequently, during the financial year 2014–15 MSN Singapore demerged its broadcasting business and the same was taken over by the assessee herein. The demerger scheme was sanctioned by the Bombay High Court on 10th January, 2014 and it came into effect on 1st April, 2014.

Upon completion of the assessment u/s 143(3) r.w.s. 144C of the Act in pursuance of the directions given by the Dispute Resolution Panel, the assessee preferred an appeal to the Tribunal. One of the grounds of the appeal was with regards to the non-granting of TDS to the tune of ₹8,13,81,645.

On behalf of the assessee, it was submitted that the TDS credit was not given by the Assessing Officer (AO) for the reason that the TDS certificates were not in the name of the assessee, but it was in the name of amalgamated / demerged company. The contention was that the relevant income has already been assessed in the hands of the assessee and hence the TDS deducted from the said income should be allowed credit in the hands of the assessee.

HELD

The Tribunal noted that in the following cases, in identical circumstances, the AO has been directed to allow TDS credit —

(a) Popular Complex Advisory P. Ltd. vs. ITO [ITA No. 595/Kol./2023; order dated 22nd August, 2023];

(b) Adani Gas Ltd. vs. ACIT [ITA Nos. 2241 & 2516/Ahd./2011; order dated 18th January, 2016];

(c) Ultratech Cement Ltd. vs. DCIT [ITA No. 1412/Mum./2018 & Others; order dated 14th December, 2011]

The Tribunal observed that —

(i) In the above-mentioned cases, the co-ordinate benches have held that the resulting company in the case of demerger and transferee company in the case of transfer, are eligible to claim TDS credit, even if the TDS certificates are in the name of demerged company / transferor company;

(ii) The assessee has offered the relevant income, even though the TDS certificates were in the name of demerged company.

Following the above decisions, the Tribunal directed the AO to allow TDS credit to the assessee after verifying that the relevant income has been assessed by the AO this year.

Sec. 54, Sec. 263.: Where the assessee claimed deduction under section 54 within the prescribed time limits, capital gains not deposited in the CGAS scheme will not be considered as prejudicial to the interest of the revenue and invoking revisionary jurisdiction was bad in law.

20 Ms. Sarita Gupta vs. Principal Commissioner of Income-tax

[2024] 109 ITR(T) 373 (Delhi -Trib.)

ITA NO. 1174 (DELHI) OF 2022

A.Y.: 2012–13

Dated: 7th December, 2023

Sec. 54, Sec. 263.: Where the assessee claimed deduction under section 54 within the prescribed time limits, capital gains not deposited in the CGAS scheme will not be considered as prejudicial to the interest of the revenue and invoking revisionary jurisdiction was bad in law.

FACTS

The assessee was an individual who had sold a residential property during the year under consideration. Based on certain information in this regard, reassessment was initiated by the AO calling upon the assessee to furnish the details of the properties sold and the resultant capital gain. After verifying all the details, the AO accepted the return of income filed by the assessee and accordingly completed the assessment.

The records were examined by the PCIT wherein it was found that the capital gain amount was not deposited in the capital gain account scheme during the interim period till its utilisation in purchase / construction of new property. Revisionary powers under section 263 were invoked by the PCIT.

Rejecting assessee’s submissions, the PCIT set aside the assessment order with a direction to disallow the deduction claimed under section 54 of the Act, on the count that the assessee had failed to deposit the capital gain amount in capital gain account scheme.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that in the course of assessment proceedings, the AO had thoroughly examined the issue of sale of the immovable property and the resultant capital gain arising from such sale.

On the perusal of the show cause notice issued under section 263 of the Act as well as the order passed, it was observed by the ITAT that the revisionary authority had not expressed any doubt regarding the quantum of capital gain arising at the hands of the assessee and also the fact that such capital gain was invested in purchase/construction of residential house within the time limit prescribed under section 54(1) of the Act.

The ITAT held that treating the assessment order to be erroneous and prejudicial to the interest of Revenue only because the capital gain was not deposited in the capital gain account scheme was bad in law.

In the result, the appeal of the assessee was allowed.

Sec. 48.: Where assessee sold house properties and claimed indexed cost of improvement while computing long term capital gains, since all expenditure incurred enhanced the sale value of the house property, assessee was entitled to deduction towards cost of improvement. Sec. 54.: Where assessee reinvested sale proceeds in purchase of property from his own bank account, then the property being registered in the name of his parents will not disentitle the assessee to claim a deduction u/s 54 of the Act.

19 Rajiv Ghai vs. Assistant Commissioner of Income-tax

[2024] 109 ITR(T) 439 (Delhi – Trib.)

ITA NO. 8490 & 9212 (DELHI) OF 2019

A.Y.: 2016–17

Dated: 26th December, 2023

Sec. 48.: Where assessee sold house properties and claimed indexed cost of improvement while computing long term capital gains, since all expenditure incurred enhanced the sale value of the house property, assessee was entitled to deduction towards cost of improvement.

Sec. 54.: Where assessee reinvested sale proceeds in purchase of property from his own bank account, then the property being registered in the name of his parents will not disentitle the assessee to claim a deduction u/s 54 of the Act.

FACTS

The assessee was an individual who sold two residential properties at Lucknow and Bangalore. The assessee claimed indexed cost of acquisition and indexed cost of certain improvements made to both the properties. Further, the assessee reinvested the sales proceeds towards the purchase of another house property which was registered in the name of his parents and claimed deduction u/s 54 of the Income-tax Act, 1961 (Act).

In the course of scrutiny, the Assessing Officer (AO) partly disallowed the indexed cost of improvements in the computation of long-term capital gains against the Lucknow property. It was contended by the AO that the valuation report and other evidences furnished by the assessee to justify the cost of improvements were vague and insufficient. Further, the AO partly disallowed the indexed cost of improvements for the Bangalore property contending that installation costs of elevator was ineligible to be claimed as cost of improvement. Further, the deduction claimed u/s 54 was disallowed on the count that the house property was registered in the name of assessee’s parents.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee to the extent of the claim of deduction u/s 54 of the Act.

Aggrieved, the assessee and the Revenue filed an appeal before the ITAT.

HELD

The ITAT observed that the assessee had submitted a valuation report certifying the cost of acquisition and cost of improvement of the Lucknow property. The said valuation was carried out in compliance with the guidelines laid down by the Central Public Works Department.

The ITAT held that all the costs incurred led toimprovement in the value of the house property. The AO had disallowed the improvement costs based on selective reading of the sale agreement. Further, it was held that the AO could not bring anything on record that the statement given by the valuer was wrong on facts or had inconsistencies.

For the Bangalore property, the ITAT held that deductions towards elevator installation and other expenses made the house habitable and should be allowed to be claimed as costs of improvement.

Relying on the decisions in ACIT vs. Suresh Verma (135 ITD 102) & CIT vs. Kamal Wahal (351 ITR 4), the ITAT held that the assessee reinvested sale proceeds in purchase of property from his own bank account. Therefore, the property being registered in the name of his parents will not disentitle the assessee to claim a deduction u/s 54 of the Act.

In the result, the appeal of the assessee was allowed and that of the revenue dismissed.

S. 270A – No penalty under section 270A can be levied for incorrect reporting of interest income if the interest income as appearing in Form 26AS as on date of filing of return was correctly disclosed by the assessee and the difference in interest income was on account of delayed reporting by the deductor. S. 270A – No penalty under section 270A could be levied if the enhanced claim of exemption under section 10(10) of the assessee was on the basis of a mistaken but bona fide belief and he had disclosed all material facts and circumstances of his case S. 270A – Imposition of penalty under section 270A(1) is discretionary and not mandatory.

18 Ravindra Madhukar Kharche vs. ACIT

(2024) 161 taxmann.com 712 (Nagpur Trib)

ITA No.: 228(Nag) of 2023

A.Y.: 2017–18

Dated: 16th April, 2024

S. 270A – No penalty under section 270A can be levied for incorrect reporting of interest income if the interest income as appearing in Form 26AS as on date of filing of return was correctly disclosed by the assessee and the difference in interest income was on account of delayed reporting by the deductor.

S. 270A – No penalty under section 270A could be levied if the enhanced claim of exemption under section 10(10) of the assessee was on the basis of a mistaken but bona fide belief and he had disclosed all material facts and circumstances of his case

S. 270A – Imposition of penalty under section 270A(1) is discretionary and not mandatory.

FACTS

The assessee-individual joined his services with Maharashtra State Electricity Board (MSEB), which was demerged, inter alia, into Maharashtra State Electricity Generation Company Ltd (MSEGCL) which was a State Government of Maharashtra-owned company. Consequently, the assessee’s employer became MSEGCL. He retired from MSEGCL on 31st May, 2016.

He declared total income of ₹44,68,490 with NIL tax liability in his original return of income. Subsequently, the return was revised claiming tax refund of ₹3,09,000, owing to upward revision of claim of exemption of gratuity to ₹20,00,000 (on the belief that his case was covered by CBDT notification dated 8th March, 2019) as against original claim of ₹10,00,000.

While framing assessment under section 143(3),the AO made two additions: (a) addition of ₹10,00,000 arising on account of restricting the claim of exemption of gratuity to ₹10,00,000 under section 10(10) as available to non-government employee, as against the claim of ₹20,00,000 made in revised ITR;(b) addition of ₹21,550 being difference of interest
income offered to tax as against the income reported in Form 26AS.

The assessee did not challenge the disallowances in appeal and paid the assessed tax.

The AO initiated penal proceedings under section 270A pursuant to the aforesaid additions and imposed a penalty of ₹6,02,858 @ 200 per cent of tax sought to evaded under section 270A(8).

CIT(A) confirmed the penalty levied by the AO.

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

The Tribunal vide an ex-parte order deleted the penalty under section 270A and observed as follows:

(a) With regard to the penalty vis-a-vis incorrect reporting of interest income was concerned, the Tribunal held that no penalty under section 270A could be levied since:

(i) as on the date of filing of return, the amount of interest earned as appearing in Form No 26AS had been rightly offered to tax by the assessee;

(ii) the difference in interest income came to light post filing of ITR and on account of delayed reporting by the deductor / payer bank / financial institution.

(b) With regard to the penalty vis-à-vis disallowance of enhanced claim of gratuity exemption was concerned, the Tribunal deleted the penalty under section 270A since:

(i) Admittedly for part of the service, the appellant was State Government employee whose employment, by enforcement of Electricity Act, 2003 and MSEGCL Employee Service Regulation, 2005, was converted into non-governmental service / employment. Therefore, the belief under which full / extended exemption of retirement benefit claimed in the ITR filed was in first not incorrect in its entirety and certainly it was bonafide and not synthetic one.

(ii) The explanation offered by the appellant in support of his mistaken but bonafide belief and his disclosure of all material facts of his service and circumstances which swayed him to claim full exemption in his ITR, fell within section 270A(6)(a) and therefore, was pardonable.

(iii) The imposition of penalty is at the discretion of AO since section 270A(1) refers to the word “may” and not as “shall”; and in light of facts and circumstance of the present case holistically and in right spirit of law, levy of penalty @ accelerated rate of 200 per cent was unwarranted.

(iv) in respect of penalty in fiscal laws, the principle followed is more like the principle in criminal cases, that is to say, the benefit of doubt is more easily given to the assessee as expounded in V V Iyer vs. CC, (1999) 110 ELT 414 (SC).

Section 17(3) — payment of ex-gratia compensation without any obligation on the part of employer to pay an amount in terms of any service rule would not amount be taxable under section 17(3)(i). The Departmental Representative is required to confine to his arguments to points considered by AO / CIT(A) and could not set up altogether a new case before ITAT and assume the position of the CIT under section 263.

17 ITO vs. Avirook Sen

(2024) 161 taxmann.com 462 (DelTrib)

ITA No.: 6659(Delhi) of 2015

A.Y.: 2009–10

Dated: 12th April, 2024

Section 17(3) — payment of ex-gratia compensation without any obligation on the part of employer to pay an amount in terms of any service rule would not amount be taxable under section 17(3)(i).

The Departmental Representative is required to confine to his arguments to points considered by AO / CIT(A) and could not set up altogether a new case before ITAT and assume the position of the CIT under section 263.

FACTS

During F.Y. 2008–09, the assessee received ₹2,00,00,000 as lumpsum from his employer after his termination from service and ₹13,08,444 for purchase of a new car.

The AO sought to tax the aforesaid amounts as profits in lieu of salary under section 17(3)(i).

CIT(A) allowed the assessee’s appeal.

Aggrieved, the tax department filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) The cases relied by the AO, namely, C.N. Badami vs. CIT,(1999) 240 ITR 263 (Madras) and P. Arunachalam vs. CIT,(2000) 240 ITR 827 (Mad) were distinguishable since unlike in those cases, there was no agreement between the assessee and his employer in the present case and the amounts were received on account of out of court settlement and as value of perquisite.

(b) Since neither the AO nor CIT(A) had considered the applicability of section 17(3)(iii), the Departmental Representative could not set up altogether a new case / arguments before ITAT and assume the position of the CIT under section 263.

(c) As the payment of ex-gratia compensation was voluntary in nature without there being any obligation on the part of employer to pay further amount to assessee in terms of any service rule, it would not amount to compensation under section 17(3)(i).

Accordingly, the Tribunal held that the addition was rightly deleted by CIT(A) and dismissed the appeal of revenue.

Section 50C ­— Leasehold rights in land are not within the purview of section 50C.

16 DCIT vs. A. R. Sulphonates (P.) Ltd.

(2024) 161 taxmann.com 451 (KolTrib)

ITA No.:570(Kol) of 2022

A.Y.: 2017–18

Dated: 22nd March, 2024

Section 50C ­— Leasehold rights in land are not within the purview of section 50C.

FACTS

The assessee was allotted leasehold land by Maharashtra Industrial Development Corporation (MIDC) on 11th April, 2008 for setting up a manufacturing unit.

Subsequently, the assessee decided to transfer the said land to one partnership firm, M/s S. M. Industries (SMI) vide an agreement to sale executed on 28th April, 2011, whereby the assessee agreed to transfer the said leasehold land for a consideration of ₹2 crores (stamp value on such date was ₹1,62,99,500). Against this agreement to sale, assessee received an advance of ₹5 lacs by account payee cheque and the balance was to be received on or before the execution of conveyance deed.

Assessee handed over possession of the said land to the partners of SMI on the date of execution of agreement to sale, that is, on 28th April, 2011. It also sought a permission from MIDC to transfer the leasehold rights in the land. The permission from MIDC got delayed which was eventually given on 23rd February, 2016, whereby assessee took all the necessary steps for execution of conveyance in favour of SMI which was done on 24th August, 2016. The assessee received the balance consideration of ₹1.95 crores as agreed earlier through agreement to sale dated 28th April, 2011.

The AO held that leasehold right of the land acquired by the assessee are capital asset which the assessee acquired from MIDC and subsequently transferred it to the partners of SMI for the remaining period of lease, and the assessee is liable to pay long term capital gain under section 50C.

CIT(A) held in favour of the assessee.

Aggrieved, the tax department filed an appeal before the ITAT.

HELD

Noting the restrictive covenants in the relevant agreements / MIDC order, the Tribunal noted that the leasehold rights of the assessee were limited and restrictive in nature as compared to the ownership rights.

The Tribunal observed that:

(a) It is a settled legal proposition that deeming provision cannot be extended beyond the purpose for which it is enacted. Section 50C(1) does not refer to immovable property but to specific capital asset being, land or building or both.

(b) A reference to “rights in land or building or part thereof” (as used in section 54D , 54G, etc.) does not find place in section 50C(1); therefore, it cannot be inferred that that capital asset being land or building or both, would also include rights in land or building or part thereof and that such provision will also cover leasehold rights which are limited in nature and cannot be equated with ownership of land or building or both. The Act has given separate treatment to land or building or both, and the rights therein.

Accordingly, the Tribunal held that leasehold rights in land are not within the purview of section 50C and concurred with CIT(A).

On the alternate plea of applicability of first and second proviso to section 50C, the Tribunal observed that even if it is assumed that transfer of a leasehold right in land is covered by section 50C(1), the assessee was adequately safeguarded by first and second proviso to section 50C since the stamp duty value at time of agreement to sale was less than the actual consideration of R2 crores.

Where refund arising consequent to granting MAT credit is more than 10 per cent of the total tax liability and is out of TDS and the return of income has been filed by due date mentioned in section 139(1), assessee is entitled to interest u/s 244A from the first day of the assessment year though the claim of MAT credit was made much later in a rectification application filed. Interest on unpaid interest also allowed.

15 Srei Infrastructure Finance Ltd. vs. ACIT

TS-288-ITAT-2024(Kol)

A.Y: 2017–18

Date of Order: 29th April, 2024

Section 244A

Where refund arising consequent to granting MAT credit is more than 10 per cent of the total tax liability and is out of TDS and the return of income has been filed by due date mentioned in section 139(1), assessee is entitled to interest u/s 244A from the first day of the assessment year though the claim of MAT credit was made much later in a rectification application filed.

Interest on unpaid interest also allowed.

FACTS

The assessee originally filed the return on 29th November, 2017, and in this return TDS credit of ₹81,86,10,024 was claimed and this amount was finally revised in the revised return on 30th March, 2019 claiming TDS of ₹75,14,12,726. In the final revised return, the refund claimed by the assessee was only ₹2,89,36,036. Thereafter, the assessee’s case was scrutinised by issuing of noticeu/s. 143(2) and the reference was given to the TPO on 18th October, 2019 and finally assessment order was framed on 29th May, 2021. In the computation sheet attached with the assessment order, the amount payable to assessee was only ₹3,31,49,723. No interest u/s. 244A of the Act was granted because the TDS was less than 10 per cent of the total tax liability.

Thereafter, on 6th June, 2022, the assessee moved a rectification application and one of the points of its application was that the assessee is entitled to substantial MAT credit brought forward from earlier years. The AO passed rectification order on 12th July, 2022 and issued a refund of ₹25,72,14,141 which comprised of tax of ₹25,06,86,616 and interest u/s 244A of ₹65,27,525. Interest was granted for only five months whereas the assessee was of the view that it was entitled to interest for 70 months, i.e., since 1st April, 2017.

Aggrieved with short grant of interest, assessee preferred an appeal to CIT(A) who held that assessee had not raised this issue in rectification application and therefore, there was no need for adjudication of the issue relating to interest u/s 244A.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted the facts and also the year wise details of MAT credit claimed and observed that except for A.Y. 2010–11, all the other amounts of MAT credit were either after the filing of original return of income or during the course of assessment proceedings for the year under appeal. The Tribunal observed that it appears that assessee was not aware of the eligible MAT credit which it was entitled prior to the date of filing the final revised return on 30th March, 2019. It also noted that there was no dispute about the correctness of the MAT credit of ₹33,08,57,877. The Tribunal observed that since the MAT credit available for set off is from preceding assessment years is available to the assessee and has been accepted by the AO in the computation sheet and has given the revised tax component of ₹25,06,86,616, the only point to be examined is for how many months the assessee is entitled to the interest u/s. 244A.

The Tribunal upon perusal of section 244A observed that the assessee’s case falls u/s 244A(1)(a)(i) of the Act because the refund order to the assessee is out of the tax deducted at source upto 31st March, 2017 and the assessee had furnished its original return u/s139(1) of the Act. Even though the assessee has revised the return but for the purpose of calculating interest, assessee’s return shall always be treated to be filed u/s. 139(1) of the Act. Though the refund in the present case has been awarded in the order u/s. 154 of the Act but even section 154 is also forming part of the fleet of other sections mentioned in section 244A(3) of the Act and that comes into action when a refund has already been granted but subsequent to the rectification order, the refund is increased or decreased then the interest given earlier also needs to be increased or decreased. However, in the instant case when the assessee was originally granted the refund no interest was given because the refund was less than 10 per cent of the total tax liability. It was only in the rectification order dated 12th July, 2022 that the refund of tax component of ₹25,06,86,616 was given. After considering the facts and circumstances of the case, and also considering the set off of MAT credit available with the assessee as on the beginning of the assessment year, the Tribunal found merit in the contentions made on behalf of the assessee that the interest u/s 244A of the Act in the case of the for A.Y. 2017–18 needs to be computed from 1st April, 2017 to the date of grant of refund. The Tribunal relying upon the following decisions allowed the effective ground raised by the assessee in its appeal:

i) UOI vs. Tata Chemicals ltd. [(2014) 43 taxmann.com 240 (SC)];

ii) CIT vs. Birla Corporation ltd. [(2016) 66 taxmann.com 276 (Cal)];

iii) CIT vs. Cholamandalam Investment & Finance Co. Ltd. [(2008) Taxman 132 (Madras)];

iv) CIT vs. Ashok Leyland Ltd. [(2002) 125 Taxman 1031 (Madras)];

v) PCIT vs. Bank of India [(2018) 100 taxmann.com 105 (Bom.)]; &

vi) ADIT (IT) vs. Royal bank of Scotland N. V [(2011) 130 ITD 305(Kol)].

The Tribunal also held that the assessee indeed is entitled for interest on unpaid interest.

Disallowance provision in section 143(1)(a)(v), introduced by the Finance Act, 2021, w.e.f. 1st April, 2021, dealing with deductions claimed under Chapter VI-A applies with prospective effect.

14 Food Corporation of India Employees Co-operative Credit Society Ltd. vs. ADIT, CPC

TS-193-ITAT-2024(Mum)

A.Y.: 2019–20

Date of Order: 22nd March, 2024

Sections 80P, 143(1)(a)(v)

Disallowance provision in section 143(1)(a)(v), introduced by the Finance Act, 2021, w.e.f. 1st April, 2021, dealing with deductions claimed under Chapter VI-A applies with prospective effect.

FACTS

The CPC while processing the return of income filed by the assessee for assessment year 2019–20 disallowed the claim of deduction made under section 80P for want of filing the return of income by due date.

Aggrieved, the assessee preferred an appeal to the CIT(A) who dismissed the appeal.

Aggrieved, the assessee filed an appeal to the Tribunal where revenue contended that the claim made by the assessee could be disallowed u/s 143(1)(a)(ii) at the time of processing of return of income on the grounds that it constituted “incorrect claim, if such incorrect claim is there from any information in the return of income”. Reliance was also placed on the decision of the Madras High Court in the case of Veerappampalayam Primary Agricultural Co-operative Credit Society vs DCIT [(2022) 138 taxmann.com 571 (Mad. HC)]. Attention was also drawn to the provisions of section 80AC.

HELD

In view of the fact that the Finance Act, 2021 has w.e.f. 1st April, 2021 introduced a disallowance provision in section 143(1)(a)(v) dealing with deduction claimed under Chapter VI-A, the contention of the revenue was not found acceptable. The amendment made by the Finance Act, 2021 is prospective and applies w.e.f. 1st April, 2021 whereas the assessment year under consideration is 2019–20. As regards reliance on section 80AC, the Tribunal held that once the legislature itself has made the impugned provision in section 143(1)(a)(v) the same could not have led to the claim of deduction u/s 80P being disallowed in summary “processing”. The Tribunal found the decision of the Madras High Court in Veerappampalayam Primary Agricultural Co-operative Credit Society (supra) to be distinguishable since the said judgment was pronounced on 7th April, 2021 and dealt with A.Y. 2018–19 and did not have the benefit of the amendment made by the Finance Act, 2021. Since the specific provision in section 143(1)(a)(v) is not applicable the general provision in section 143(1)(a)(ii) could not be pressed in action. The Tribunal held that it has adopted the principle of strict interpretation as laid down in Commissioner vs. Dilip Kumar and Co. & Others [(2018) 9 SCC 1 (SC)(FB)] to conclude that the action of both the lower authorities needs to be reversed.

When notice is for under-reporting of income, order passed levying penalty for misreporting of income is not justified.

13 Mohd. Sarwar vs. ITO

TS-193-ITAT-2024(Mum)

A.Y.: 2018–19

Date of Order: 2nd April, 2024

Section 270A

When notice is for under-reporting of income, order passed levying penalty for misreporting of income is not justified.

FACTS

The assessee filed his return of income for the assessment year 2018–19, declaring therein a total income of ₹14,34,180. In the revised return of income filed on 26th July, 2018, the assessee returned total income of ₹6,46,520 and claimed a refund of ₹2,21,980. The TDS credit claimed in revised return of income was ₹2,65,037 as against ₹2,50,037 claimed in the original return. This led to a notice u/s 142(1) being issued along with questionnaire. During the course of assessment proceedings, the assessee furnished a revised computation of income, computing total income to be ₹14,84,160, claiming that certain rental income was overlooked in the return of income filed. It was also submitted that the revised return of income was filed by the tax consultant without his knowledge and that in the revised return of income the tax consultant had erroneously claimed housing loan benefits when there was no such loan. The assessee contended that the revised return of income which has been filed is a fraud played upon the assessee by the tax consultant and this was substantiated by saying that the revised return of income had email id and mobile number of the tax consultant. As per the revised computation of income filed in the course of assessment proceedings, the revised total income was ₹14,84,160 and tax payable worked out to ₹2,65,480.

The Assessing Officer (AO) held that revised return of income claiming large refund was filed with the knowledge of the assessee and that the assessee was responsible for filing of any return under his name and PAN. The refund due on processing of revised return would go to the bank account of the assessee and not the tax consultant. He rejected the contention that the fraud had been played upon the assessee and accepted the revised computation of total income filed and determined the total income by not allowing deduction claimed under Chapter VIA and housing loan and held that the assessee has under-reported his income. The difference between ₹14,84,160 and ₹6,46,520 being amount of total income as per revised return of income was treated as under-reported income. The assessee accepted the proposed modification to the total income. He also issued a notice u/s 274 which mentioned that the assessee has under-reported his income.

The AO, consequently, passed an order dated 22nd January, 2022 levying a penalty of ₹4,44,844 for misreporting of income.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the AO has in the assessment order categorically mentioned that the assessee was involved in under-reporting of income. Also, the notice issued was for under-reporting of income. The Tribunal held that it failed to understand under what circumstances the initial violation which was under-reporting of income was converted into misreporting of income. The Tribunal held that if at all the revenue authorities are intending to charge the assessee for misreporting of income then specific notice is required to be issued which has not been done in the present case. In the present case, a revised return of income was filed claiming huge deduction, which in the estimation of the AO, constituted under-reporting of income and for which a notice was issued. The Tribunal held that once the assessee himself admitted the fact that there was under-reporting of income which was also accepted by the AO then penalty should have been levied only on account of under-reporting of income and not for misreporting of income. The Tribunal modified the order passed by the AO and confirmed by CIT(A) and directed the AO to revise the demand by taking the violation as under-reporting of income u/s 270A of the Act and not misreporting of income.

Notional interest income credited to the profit and loss account in compliance of Indian Accounting Standard (Ind AS) cannot be considered as real income in absence of contractual obligation of repayment.

12 ACIT vs. Kesar Terminals and Infrastructure Ltd.

TS-193-ITAT-2024(Mum)

A.Y.: 2018–19

Date of Order: 8th March, 2024

Section 28

Notional interest income credited to the profit and loss account in compliance of Indian Accounting Standard (Ind AS) cannot be considered as real income in absence of contractual obligation of repayment.

FACTS

The assessee, a public limited company, engaged in the business of storage and handling cargo, had given an interest free loan to its wholly owned subsidiary, viz., Kesar Multimodal Logistic Limited. Though no interest was due as per the agreed terms, yet as per the requirement of Indian Accounting Standard, the assessee accounted for a sum of ₹2,76,81,947 as “notional interest” in the books of account and credited the same to its Profit & Loss Account.

While processing the return, CPC did not allow the exclusion as it was not a deduction allowable under any of the provisions of the Act. Accordingly, the returned income was enhanced by an amount of ₹2.76 crore.

Aggrieved, the assessee challenged the addition in an appeal filed to the CIT(A). In the meantime, assessee also preferred a rectification application before CPC, which was rejected. Aggrieved by the rejection of rectification application, assessee filed another appeal before CIT(A). The CIT(A) took up both the appeals together. However, he first disposed the appeal filed against an order u/s 154. The CIT(A) agreed with the contention of the assessee that “notional interest” did not accrue to the assessee and hence, the same is not liable for taxation. Accordingly, he deleted the disallowance made by CPC.

Aggrieved by the order passed by CIT(A), revenue preferred an appeal to the Tribunal.

HELD

The Tribunal noted that CIT(A) dismissed the appeal filed against an intimation u/s 143(1)(a) of the Act since he had already granted relief against the very same addition while deciding appeal filed against rectification application u/s 154 of the Act. The Tribunal also noted that the assessee has not challenged the order passed by CIT(A), dismissing the appeal filed against an intimation u/s 143(1)(a) of the Act.

The Tribunal observed that the only issue that arose for adjudication is related to taxability of notional interest income credited by the assessee to its profit & loss account as per requirements of Ind AS. The assessee argued that income tax can be levied only on real income and not on notional income. Since there is no contractual obligation for the debtor to pay interest, notional interest credited to Profit & Loss Account as per requirement of Ind AS cannot be taxed.

The Tribunal noted that the Chennai Bench of the Tribunal in Shriram Properties Ltd. [ITA No. 431/Chny/2022 dated 22nd March, 2023], while deciding the case related to an order passed by PCIT u/s 263 of the Act directing the AO to assess notional guarantee commission credited by the assessee to its P & L Account, in accordance with the requirement of Ind AS, held that “when there is a contractual obligation for not charging any commission, merely for the reason that the assessee had passed notional entries in the books for better representation of the financial statements, it cannot be said that income accrues to the assessee which is chargeable to tax for the impugned assessment year. Therefore, we are of the view that on this issue it cannot be said that there is an error in the order of the Assessing Officer.”

The Tribunal observed that the revenue had not shown that there existed a contractual obligation to collect interest from debtors. The Tribunal following the decision rendered by the Chennai Bench held that notional interest income credited by the assessee to its profit & loss account as per requirements of Ind AS has not accrued to the assessee and hence the same is not liable for taxation under real income principle. The Tribunal held that the CIT(A) was justified in directing the AO to exclude the same.

Income returned and assessed in the hands of the wife cannot again be taxed in the hands of the husband by invoking section 64(1)(ii)

11 Ketan Prabhulal Dalsaniya v. DCIT

ITA Nos. 25 to 30 / Rjt/2023 and ITA No. 96/Rjt/2023

Assessment Years: 2013-14 to 2019-20

Date of Order : 7th February, 2024

Sections: 64, 153A

Income returned and assessed in the hands of the wife cannot again be taxed in the hands of the husband by invoking section 64(1)(ii)

FACTS

Consequent to a search action conducted in the group cases of Coral group of Morbi on 3rd January, 2019 warrant was executed in the name of the assessee. For each of the assessment years under consideration, assessment orders were framed under section 153A of the Act. The common addition viz. clubbing of income allegedly earned by the wife of the assessee was clubbed with the income of the assessee under section 64(1)(ii) of the Act. According to the assessee, the additions were made on the basis of statement of the assessee that his wife did not perform any business activity. The income which was added to the total income of the assessee was returned by his wife in the returns filed in response to notice issued under section 153A of the Act and was also assessed in her hands.

HELD

Since the income of the wife of the assessee stands accepted in her hands by the Department in scrutiny assessment vide order passed u/s 143(3) of the Act, on returns filed in consequence to the search action conducted on her u/s 153A of the Act, the Tribunal held that there is no case with the Revenue now to tax the same income in the hands of the assessee also in terms of the clubbing provisions of Section 64(1)(ii) of the Act. Having accepted the said income as belonging to the assessee’s wife in scrutiny assessment, the Department is now debarred from taking a contrary view and taxing it in the hands of the assessee on the ground that his wife was not actually carrying out any business. In view of the above, all the appeals of the assessee are allowed in above terms.

The appeals filed by the assessee were allowed.

Penalty under section 271F cannot be levied if estimated total income was less than maximum amount not chargeable to tax and assessee was not required to file return even pursuant to the provisos to section 139(1) though assessed income may have been greater than maximum amount not chargeable to tax. The basis of determination of income in the assessment order cannot be said to be the basis for filing of return of income under Section 139(1) of the Act.

10 Mahesbhai Prabhudas Gandhi v. ITO

I.T.A. Nos. 759 to 762 & 764 to 767/Ahd/2023

Assessment Years : 2013-14 to 2016-17

Date of Order: 21st February, 2024

Section 271F

Penalty under section 271F cannot be levied if estimated total income was less than maximum amount not chargeable to tax and assessee was not required to file return even pursuant to the provisos to section 139(1) though assessed income may have been greater than maximum amount not chargeable to tax. The basis of determination of income in the assessment order cannot be said to be the basis for filing of return of income under Section 139(1) of the Act.

FACTS

For AY 2013-14, a penalty under section 271F was levied for non-filing of return of income by the assessee. The total income of the assessee for the year under consideration was assessed vide order dated 31st March, 2022 passed under section 144 r.w.s. 147. The contention of the assessee was that his income for the year under consideration was below the maximum amount not chargeable to tax and therefore the assessee was not obliged to file a return of income. The Tribunal noted that the estimated total income of the assessee was ₹2,00,000 for AY 2013-14 and AY 2014-15.

The AO levied penalty under section 271F on the ground that as per assessment order the assessee has deposited considerable amount of cash in different banks and therefore the assessee must have had income above taxable limits and therefore was bound to file return of income and pay due taxes within time.

Aggrieved, the assessee preferred an appeal to CIT(A) which was dismissed.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

It is a trite law that the basis of determination of income in the assessment order cannot be said to be the basis for filing of return of income under Section 139(1) of the Act. As estimated income for the year under consideration was ₹2,00,000/- as per the assessee for A.Ys. 2013-14 & 2014-15 and ₹2,50,000/- for A.Ys. 2015-16 & 2016-17, the assessee was of the firm belief that return of income is not required to be filed under Section 139(1) of the Act.

HELD

The provision of Section 271F of the Act clearly speaks of requirement of furnishing return of income as required under Section 139(1) of the Act or by the provisos of that sub-Section. Precisely, the return of income is to filed on the basis of the total income of any person in respect of which he is assessable under the Act during the previous year, exceeded the maximum amount which is not chargeable to tax, and in this particular case as the estimated income of the assessee is only ₹2,00,000/- i.e. below the taxable limit, the assessee was, therefore, of the firm belief of not being required to file return under Section 139(1) of the Act. The Tribunal held that under this fact and circumstance of the matter, levy of penalty seems not only harsh but also not sustainable in the eye of law under Section 271F of the Act and hence quashed.

This ground of appeal filed by the assessee was allowed.

Management fee paid is allowable as deduction while computing capital gains.

9 Krishnamurthy Thiagarajan v. ACIT (Mumbai)

ITA No. 1651/Mum./2013

A.Y.: 2008-09

Date of Order : 20th February, 2024

S. 48

Management fee paid is allowable as deduction while computing capital gains.

FACTS

The assessee, during the year under consideration, returned short term capital gain of ₹10,04,322. While computing short term capital gain, the assessee had deducted ₹1,71,028 paid to BNP Paribas Investment Services India Pvt. Ltd. as management fees for sale of securities. There was no dispute either about payment by the assessee of management fee or that management fee paid was inextricably linked to earning of short term capital gain. The AO disallowed the claim of deduction of management fees only for the reason that the same is not an allowable deduction under section 48 of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee, relying on the following decisions, preferred an appeal to the Tribunal-

(i) KRA Holding and Trading Investments Pvt. Ltd. vs. DCIT, ITANo.703/PN/2012 for A.Y.2008-09 decided on 19/09/2013; and

(ii) Nadir A. Modi vs. JCIT, ITA No.2996/Mum/2010 & 4859/Mum/2012 for A.Y. 2005-06, decided on 31st March, 2017.

HELD

The Tribunal noted that the contention of the revenue is that the management fees which are claimed as deduction do not constitute expenditure incurred in connection with transfer nor are they cost of acquisition / cost of improvement and therefore, the same are not allowable as deduction section 48 of the Act. The Tribunal noted that a similar issue had come up for adjudication before a co-ordinate bench in the case of KRA Holding and Trading Investments Pvt. Ltd. (supra). In the said case as well, the revenue rejected the claim of the assessee for the same reasons as has been done in the impugned order. The revenue in the case of KRA Holding and Trading Investments Pvt. Ltd. had placed reliance on the decision in the case of Homi K. Bhabha v. ITO ITA No.3287/Mum/2009 decided on 23rd September, 2011 [48 SOT 102 (Mum)].

The Tribunal noted the observations of the co-ordinate bench in KRA Holding and Trading Investments Pvt. Ltd. (supra) to the effect that the said case was decided based on the decision of the Tribunal in the assessee’s own case for AY 2004-05. Against the decision of the Tribunal for AY 2004-05 in the case of KRA Holding and Trading Investments Pvt. Ltd. (supra) revenue had preferred an appeal to the Supreme Court on the correct head of income under which profit on sale of shares should be taxed but had not preferred an appeal on allowability of claim of deduction of management fees while computing capital gains. The revenue relied upon the decision in the case of Homi K Bhabha (supra) which was dealt with by the Tribunal as follows-

“Since the AO & CIT(A) have followed the order for earlier year in the case of the assessee and since the order of CIT(A) for earlier year has been reversed by the Tribunal, therefore, unless and until the decision of the Tribunal is reversed by a higher court, the same in our opinion should be followed. In this view of the matter, we respectfully following the order of the Tribunal in assessee’s own case for A.Y. 2004-05 allow the claim of the Portfolio Management fees as an allowable expenditure. The ground raised by the assessee is accordingly allowed.”

The Tribunal observed that since there are contrary decisions of the Tribunal on allowability of Management Fee u/s. 48 of the Act. It is a well settled proposition that when two views are possible, the view in favour of assessee should be preferred [CIT vs. Vegetable Products Ltd., 88 ITR 192(SC)]. Accordingly, the Tribunal allowed the ground of appeal filed by the assessee.

Proviso to section 2(15) will not apply to a charity if the profit derived from the services rendered in furtherance of the object of general public utility is very meagre

8 The Institute of Indian Foundrymen vs. ITO

ITA No.: 906 / Kol/ 2023

A.Y.: 2014–15

Date of Order: 18th March 2024

Section 2(15)

Proviso to section 2(15) will not apply to a charity if the profit derived from the services rendered in furtherance of the object of general public utility is very meagre

FACTS

The assessee society was registered under section 12A order dated 30th September, 1989 with the main object relating to the foundry industry (which was an object of general public utility). It derived income by way of contributions from the head office, membership fees, income from publication of the Indian Foundry journal, other grants and donations, interest on fixed deposits, etc. The surplus as per the profit and loss account was ₹17,70,380 which was around 2 per cent of the receipts from the activities.

The AO contended that since gross receipts from such activity in the previous year were more than ₹10 lakhs, the activities of the assessee were hit by the provisoto section 2(15) (as it stood in the relevant year)and the assessee was not entitled to exemption under section 11.

CIT(A)confirmed the addition by the AO.

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

Relying on the decision of co-ordinate bench in Indian Chamber of Commerce vs. DCIT in ITA Nos. 933 & 934/Kol/2023 (order dated 22nd December, 2023),the Tribunal held that since profit derived by the assessee from the services rendered as public utility was very meagre, the assessee was entitled to the exemption under section 11.

Exemption under section 10(26) is available to the individual members of the Scheduled Tribe and this benefit cannot be extended to a firm which has been recognized as a separate assessable person under the Income Tax Act.

7 M/s Hotel Centre Point, Shillong & Another vs. ITO

ITA Nos.: 348 to 350 / Gty / 2018

A.Y.s: 2013–14 to 2015–16

Date of Order: 19th March 2024

Section 10(26)

[Bench of 3 members]

Exemption under section 10(26) is available to the individual members of the Scheduled Tribe and this benefit cannot be extended to a firm which has been recognized as a separate assessable person under the Income Tax Act.

FACTS

The assessee-partnership firm was running a hotel business in Shillong. It consisted of two partners who were brothers and belonged to the Khasi tribe, a Scheduled Tribe in the State of Meghalaya, and thus, were entitled to exemption under section 10(26) in their individual capacity.

Assessee claimed before AO that since a partnership firm in itself is not a separate juridical person and it is only a collective or compendious name for all of its partners having no independent existence without them, and since the partners of the assessee-firm were entitled to exemption under section 10(26), the same exemption was available to a partnership firm formed by such partners. It also relied on the decision of the Guwahati High Court in CIT v. Mahari & Sons, (1992) 195 ITR 630 (Gau).

The AO did not agree with the assessee and observed that the exemption under section 10(26) was available to individual members of the recognized Scheduled Tribes and not to a partnership firm which is a separate entity under the Income Tax Act.

CIT(A) upheld the order of the Assessing Officer (AO). Division Bench of the Tribunal vide its order dated  13th September, 2019 upheld the order of the CIT(A).

On a further appeal, Meghalaya High Court vide its judgment dated 06th July, 2023 set aside the order of the Tribunal and remanded the matter back to the Tribunal, with a request to the President of the Tribunal to constitute a larger bench.

In view of the directions of Meghalaya High Court, a larger bench of the Tribunal (3 members) proceeded to decide the issues afresh.

HELD

The Tribunal observed as follows-

Under the Income-tax Act, a partnership firm is a separate and distinct “person” assessable to Income Tax. There are separate provisions relating to the rate of income tax, deduction, allowances etc. in relation to a firm as compared to an individual. The benefits in the shape of deductions or exemptions available to an individual are not transferrable or inter-changeable to the firm nor vice versa. The firm in general law may not be treated as a separate juristic person, however, under the Income-tax Act, it is assessable as a separate and distinct juristic person. The Income-tax Act is a special legislation, therefore, the interpretation given in general law cannot be imported when the special law defines the “firm” as a separate person assessable to income tax;

When the relevant provisions of the Partnership Act, 1932 are read together with the relevant provisions of the Income Tax Act and the Code of Civil Procedure, 1908, it leaves no doubt that for the purpose of the Income Tax Act, a partnership firm is a separate assessable legal entity which can sue or be sued in its own name,can hold properties, and is subjected to certain restrictions for want of non-registration. Merely because the liability of the partners is unlimited or to say that the rights against the firm can be enforced against the individual partners also, is not enough to hold that the partnership is not a distinct entity from its individual members under the Income-tax Act, especially when in the definition of “person” under the Income-tax Act, corporate and non-corporate, juridical and non-juridical persons, have been included as separate assessable entities;

Even in the case of a partnership Firm having partners of a Khasi family only, the mother or wife, as the case may be, being the head named “Kur” would not have any dominant position. All the partners, subject to the terms of the contract between them, will have equal status and rights inter se and even equal duties and liabilities towards the firm. The profits of the partnership firm are shared as per the agreement/capital contributed by the partners. Neither the capita nor the profits of the firm can be held to be the joint property of the family;

The ratio decidendi in CIT vs. Mahari & Sons (supra) in the context of a ‘Khasi family’ would not be applicable in the case of a partnership firm, though consisting solely of partners, who in their individual capacity are entitled to exemption under section10(26);

In a partnership, the relation between the partners is purely contractual and no obligation arises out of the family status or relationship, inter se of the partners;

Though it is true, as held in various decisions of the Supreme Court, that the beneficial and promotional exemption provision should be given liberal interpretation; however, liberal interpretation does not mean that the benefit of such exemption provision could be extended to bypass the express provisions of the fiscal law, which have to be construed strictly;

The advantages and disadvantages conferred under the Income-tax Act on separate classes of persons are neither transferrable nor inter-changeable. The scope of the beneficial provisions cannot be extended to a different person under the Act, even after liberal interpretation as it may defeat the mechanism and process provided under the Income Tax Act for the assessment of different class / category of persons.

The Tribunal has the power to condone the delay in filing the application for final approval under clause (iii) of the first proviso to section80G (5)

6 Swachh Vapi Mission Trust vs. CIT(Exemption)

ITA No.:583 / Srt / 2023

Date of Order: 11th March 2024

Section 80G

The Tribunal has the power to condone the delay in filing the application for final approval under clause (iii) of the first proviso to section80G (5)

FACTS

The assessee trust was formed on 15th March, 2021. The assessee received donations / other income of ₹40,401 and spent formation expenses (advocate fees) and other general expenses in FY 2021–22. However, it entered into a service agreement in furtherance of its objects only on 7th November, 2022.

It was granted provisional approval under section 80G on 6th April, 2022 under clause (iv) of the first proviso to section 80G(5) for the period commencing from 6th April, 2022 to AY 2025–26.

An application for final approval under section 80G under clause (iii) of first proviso to section 80G (5) (which requires an assessee to file the application for final approval at least six months prior to expiry of period of the provisional approval or within six months of commencements of its activities, whichever is earlier) was filed by the assessee in Form No.10AB on 2nd December, 2022.

CIT(E), vide his order dated 28th June, 2023, rejectedthe application dated 2nd December, 2022 on the ground that the activities of the assessee had commenced long back and therefore, it was required to file the said application on or before the extended deadline of 30th September, 2022 allowed by CBDT vide Circular No.8/2022 dated 31st March, 2022.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The Tribunal agreed with the findings of CIT(E) in as much as since the application was filed beyond 30th September, 2022, there was a delay in filing the application. However, following the order of co-ordinate bench in Vananchal Kelavani Trust vs. CIT(E), ITA No.728/SRT/2023 (order dated 09th January, 2024), it held that such delay can be condoned by the Tribunal. Accordingly, the Tribunal condoned the delay in filing the said application under section 80G and remitted the matter back to CIT(E) to adjudicate the issue afresh on merits.

Sec. 40A(2)(b).: Disallowance u/s 40A(2)(b) is not justified on merely estimating that more income should have been earned from subcontracting without bringing any comparable figures.

68 Tapi JWIL JV vs. Income-tax Officer

[2023] 108 ITR(T) 27 (Delhi – Trib.)

ITA NO. 6722 (DELHI) OF 2018

A.Y.: 2014-15

Date of Order: 16th October, 2023

Sec. 40A(2)(b).: Disallowance u/s 40A(2)(b) is not justified on merely estimating that more income should have been earned from subcontracting without bringing any comparable figures.

FACTS

M/s TAPI Prestressed Products Ltd. (‘TPPL’) and M/s JITF Water Infrastructure Ltd. (‘JWIL’) had entered into an agreement to form a Joint Venture (JV) with the specific purpose of bidding for construction of 318 MLD 70 MGD Sewage Pumping Station etc. on design, build and operate basis. The contract was awarded by Delhi Jal Board to the assessee JV. TPPL had executed the work and raised bills for ₹15,02,04,381/- to the assessee JV. The assessee JV had raised bills for ₹15,52,33,963/- to Delhi Jal Board. The assessee JV had filed its ITR declaring total income of ₹1,75,600/-.

The AO had passed the assessment order u/s 143(3) in the status of AOP, determining the total income at ₹1,20,77,763/- while making disallowance u/s 40A(2)(b) at ₹1,18,92,163/-. AO held that the assessee JV had suppressed its profit by making excessive payment to TPPL. To work out the amount to be disallowed u/s 40A(2)(b), the AO had applied the net profit rate of 8% on the Sub-Contract Expenses (net) of ₹14,86,52,038/-, and thus arrived at a figure of ₹1,18,92,163/-.

On appeal the CIT(A) held that profit in the hands of the assessee JV should also be calculated by applying a rate of 3.78 per cent and worked out the total income of the assessee JV at ₹ 56,19,047.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that the AO never alleged nor enquired into the issues nor:

i. recorded his finding that the books of account were not correct and complete

ii. doubted the genuineness of the expenses incurred by the assessee JV

iii. brought on record any material to prove that the expenses incurred by the assessee JV were excessive or unreasonable having regard to the fair market value; and

iv. recorded his finding that he was rejecting the books of account

The ITAT observed that the provisions of section 40A(2)(b) are applicable to the expenses which are considered to be excessive or unreasonable, having regard to the fair market value of the goods / services or facilities for which the payments are made. The AO had made disallowance u/s 40A(2)(b), by opining that the assessee JV should have earned income from sub-contracting.

The ITAT held that section 40A(2)(b) had no application to the income aspect of the assessee JV. The AO had not brought any comparable figures to disallow the expenditure, moreover with the structuring of the JV, provisions of Section 40A(2)(b) were not attracted.

Hence, the ITAT held that the AO had fallen into error in determining the profit @ 8 per cent and also invoking the provisions of Section 40A(2)(b) and the CIT(A) had also erred in determining the profit of the assessee @ 3.78 per cent equal to the profit of one of the parties to the JV.

In the result, the appeal of the assessee was allowed.

Sec. 69B.: Where the assessee has provided the necessary explanation about the nature and source of unrecorded transactions / assets and the necessary nexus with assessee’s business income has been established, such unrecorded transactions cannot be considered as unexplained and thus, deeming provisions of section 69B cannot be invoked.

67 Montu Shallu Knitwears vs. DCIT

[2024] 109 ITR(T) 1 (Chd – Trib.)

ITA NO. 21 (CHD) OF 2023

A.Y.: 2019-20

Date of Order: 1st December, 2023

Sec. 69B.: Where the assessee has provided the necessary explanation about the nature and source of unrecorded transactions / assets and the necessary nexus with assessee’s business income has been established, such unrecorded transactions cannot be considered as unexplained and thus, deeming provisions of section 69B cannot be invoked.

FACTS

The assessee is a partnership firm engaged in the business of manufacturing of wearing apparels. A survey action u/s 133A was carried out at the business premises of the assessee on 29.08.2018. During the course of the survey, certain discrepancies were encountered in physical verification of stock and in order to buy peace of mind, the assessee had surrendered an amount of ₹50,00,000/- as additional business income for the FY 2018-19. The assessee had credited said amount of ₹50,00,000/- in its profit & loss account for the year ending 31st March, 2019 and the assessee had paid tax at normal rates on such surrendered amount in its Return of Income filed on 30th September, 2019.

The assessee’s case was selected for scrutiny and notice u/s 143(2) was issued on 29th September, 2020. The case of the assessee was finalised and assessment order dated 28th September, 2021 was passed, wherein the AO had assessed total income at ₹1,90,22,390/- after making additions of ₹50,00,000/- on account of disallowance u/s 37 of the Act and applied provisions of section 115BBE of the Act on alleged application of Section 69B of the Act.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) in its order deleted the disallowance of ₹50,00,000/- u/s 37 of the Act and upheld the application of Section 69B r.w.s. 115BBE on account of the amount surrendered by the assessee during the course of survey proceedings.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that it is a settled legal proposition that there is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to explain the nature and source of such income or the AO doesn’t get satisfied with the explanation so offered by him.

The ITAT observed that the stock physically found had been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found belonging to the assessee had been offered to tax.

The ITAT held that the Revenue had not pointed out that the excess stock had any nexus with any other receipts other than the business being carried on by the assessee. There was thus a clear nexus of stock physically so found with the stock in which the assessee regularly deals in and recorded in the books of accounts and thus with the business of the assessee and the difference in value of the stock so found was clearly in the nature of business income.

The ITAT held that no physical distinction in unaccounted stock was found by the Revenue. The difference in stock so found out by the authorities had no independent identity and was part and parcel of the entire stock in the normal course of business. It could not be said that there was an undisclosed asset which existed independently. Thus, what was not declared to the department was receipt from business and not any investment as it could not be correlated with any specific asset and the difference should be treated as business income. Therefore, the income of ₹50,00,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same had to be assessed to tax under the head “business income”. In the absence of deeming provisions, the question of application of section 115BBE did not arise and normal tax rate was applied.

In the result, the appeal of the assessee was allowed.

Section 2(22)(e) can be invoked only in the hands of the common shareholder who was in a position to control affairs of both the lender company and the receiving company, and not in the hands of the receiving company.

66 ApeejaySurrendra Management Services Pvt. Ltd. vs. DCIT

ITA Nos.: 987 & 988 / Kol/ 2023

A.Y.s: 2013-14 and 2014-15

Date of Order: 19th February, 2024

Section 2(22)(e)

Section 2(22)(e) can be invoked only in the hands of the common shareholder who was in a position to control affairs of both the lender company and the receiving company, and not in the hands of the receiving company.

FACTS

The assessee-company received a sum of ₹5.50 crores as loans / advances from another group company, “APL”.

The assessee was not a registered shareholder of the lender company, APL. However, there was a common shareholder, “KSWPL”, who held substantial interest in both the assessee (57.86 per cent shares) and the lender company (99.96 per cent shares). The lender company had sufficient accumulated profits for distribution in its books.

The Assessing Officer treated the loan / advance as deemed dividend under section 2(22)(e) in the hands of the assessee.

Aggrieved, assessee filed an appeal before CIT(A) who confirmed the addition.

The assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) Considering the provisions of the Companies Act, 2013 and the legislative intent of section 2(22)(e), the beneficial ownership was with KSWPL under whose substantial control, loan from APL was granted to the concern, i.e. assessee. The assessee could not influence the decision making of company KSWPL. Similarly, APL could not influence the decision making process of KSWPL. In both the companies, the controlling interest (substantial interest) was held by KSWPL. It is, in fact, KSWPL who was in a position to influence the decision making process of the two companies. Therefore, the deeming fiction of section 2(22)(e) could be applied only in the hands of KSWPL who was the beneficial owner of shares in both, the lender and the receiving company.

(b) A loan or advance received by assessee (a concern) was not per se in the nature of income. It was, in fact, deemed accrual of income under section 5(1)(b) in the hands of the beneficial shareholder and not in the hands of the receiver (concern) who was a non- shareholder.

(c) Even going by the observations of the Supreme Court in CIT vs. National Travel Services (2018) 89 taxmann.com 332 (SC), the beneficial shareholder was KSWPL under whose controlling interest and influence APL had given loan / advance to the assessee. Accordingly, the deeming provisions of section 2(22)(e) were attracted on KSWPL.

Accordingly, the Tribunal held that no addition under section 2(22)(e) can be made in the hands of the assessee-company.

Where the claim of exemption under section 11 of the assessee-Board was on the basis of commercial principles of accountancy and in accordance with directions of the Government of India, such exemption was allowable.

65 DCIT vs. National Fisheries Development Board

ITA No.: 244 / Hyd / 2023

A.Y.: 2015-16

Date of Order: 13th February, 2024

Section 11, 13(1)(d)

Where the claim of exemption under section 11 of the assessee-Board was on the basis of commercial principles of accountancy and in accordance with directions of the Government of India, such exemption was allowable.

FACTS

The assessee was a Board established by the Central Government to act as a nodal agency in developing activities of fisheries among various states in the country.

The major source of receipt of the assessee was grants from the Central Government, and the outflow was release of grants to the State Governments.

In accordance with the accounting procedure and directions issued by the Government of India, the assessee followed the following treatment in its books of accounts-

(a) When the grants from Central Government were received, the same were kept on the liability side;

(b) When the grants were paid to the State Governments for implementing the projects, the same were kept in advances account;

(c) When the amount sanctioned to the State Governments was spent by the implementing agencies / State Governments, utilisation certificate was submitted to the Central Government through the assessee. Such amount was treated as expenditure in the Income & Expenditure Account of the assessee.

(d) The amount so spent (including the administrative expenses of the assessee) was recognised as income in the Income & Expenditure Account.

For assessment year 2015-16, assessee filed the return of income declaring NIL income by claiming exemption under section 11 on the basis of the accounting principles followed by the assessee.

The Assessing Officer did not accept the treatmentof the assessee and contended that the assesse had not utilised 85 per cent of the income, being the total grants-in-aid / refunds received during the year and therefore, the shortfall in application below 85 per cent was liable to be taxed. He also contended thatthe assessee had invested ₹1.55 crores in equity shares in one Sasoon Dock Matsya Sahakara Samstha Ltd., and continued to hold the investment so made, and thereby contravened section 13(1)(d) read with section 11(5).

CIT(A) allowed the appeal of the assessee observing that the treatment of the assessee was based on commercial principles of accountancy and made in compliance with the regulations of the Government of India.

Aggrieved, the revenue filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows-

(a) The assessee had been treating only such part of grants that were utilized by the implementing agencies as income and only such part of the funds released to the implementing agencies in respect of which the utilisation certificates were received as expenditure. This method of accounting followed by the assessee in treating the income and expenditure irrespective of the year of receipt of grant had not been appreciated or referred to by the Assessing Officer so as to find out any defects or reasons to reject the same.

(b) Given the position of the assessee in respect of the funds vis-à-vis the implementing agencies, it wasn’t possible to treat all the grants as receipts and all the allocations as expenditure. Such an approach was not at all scientific, because there was no income element on grant of funds by the Central Government, nor any expenditure incurred merely by allocation. Therefore, there was no illegality or irregularity in the method of accountancy followed by the assessee in treating the funds utilised by the implementing agencies as income and the funds covered by the utilisation certificate as expenditure.

(c) If the contention of the tax department was accepted, then as against the actual grants during the current year to the tune of ₹ 146.40 crores, the assessee had spent a sum of ₹178.13 crores which included the expenditure on account of the grants received for the current year as against the earlier year, which was more than 85 per cent of the grants received. Further, such treatment disturbed the method of accounting consistently followed by the assessee.

(d) Vis-à-vis the contention under section 13(1)(d),there was no contradiction to the plea taken by the assessee that such an investment was made in Sasoon Dock Matsya Sahakara Samstha Ltd., in the financial year 2008-09 and not during the current year and never in the earlier years any objection on that aspect was taken. It was also not in dispute that registration under section 12AA granted by the authorities in favour of assessee was continuing. In these  circumstances, the ground raised by the Assessing Officer was liable to be rejected.

Accordingly, the appeal of the revenue was dismissed.

Where the assessee passed away before framing of the assessment order, no assessment could be made in the name of the deceased without bringing the legal heirs of such person on record. In the absence of specific provision requiring the legal heirs to intimate the tax department, assessment cannot be valid only for the reason that the legal heirs failed to inform the department about the death of the assessee.

64 Bhavnaben K Punjani vs. PCIT

ITA No.: 138 / Rjt / 2017

A.Y.: 2007-08

Date of Order: 15th February, 2024

Where the assessee passed away before framing of the assessment order, no assessment could be made in the name of the deceased without bringing the legal heirs of such person on record.

In the absence of specific provision requiring the legal heirs to intimate the tax department, assessment cannot be valid only for the reason that the legal heirs failed to inform the department about the death of the assessee.

FACTS

During the financial year 2006-07, the assessee sold certain immovable property purportedly for less than stamp value.

The assessee passed away on 15th October, 2013. However, no intimation regarding the demise wasgiven to the tax department by the legal heirs of the assessee.

The Assessing Officer initiated reassessment proceedings under section 147 seeking to adopt stamp value of the property under section 50C; accordingly, he passed best judgment assessment under section 143(3) / 144 read with section 147 vide order dated 23rd February, 2015 in the name of the assessee, that is, after the assessee expired.

PCIT passed an order under section 263 dated 24th March, 2017 revising the said assessment order on the ground that while framing the assessment order, the Assessing Officer did not ascertain the cost and year of acquisition of the property and therefore, the order was made without proper inquiry and investigation.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The Tribunal observed that-

(a) in absence of any specific statutory provision under the Income Tax Act which requires the legal heirs to intimate the income tax department about the death of the assessee, the assessment order cannot be held to be valid in the eyes of law only for the reason that the legal heirs of the deceased assessee had not informed the income tax department about the death of the assessee.

(b) Since no assessment can be framed in the name of a person who has since expired, any assessment order framed in the name of a deceased person without bringing the legal heirs of such person on record, is invalid in the eyes of law.

Accordingly, since the original assessment order was not valid in law, the Tribunal also set aside the order of PCIT passed under section 263.

If the original return of income is filed within the due date under section 139(1), the carry forward of loss claimed in the revised return filed after the due date under section 139(1) cannot be denied.

63 Khadi Grammodhyog Prathisthan vs. CPC

[2024] 108 ITR(T) 94 (Jodhpur – Trib.)

ITA NO.: 87 (JODH.) OF 2023

A.Y.: 2019-20

Date of Order: 31st July, 2023

If the original return of income is filed within the due date under section 139(1), the carry forward of loss claimed in the revised return filed after the due date under section 139(1) cannot be denied.

FACTS

The assessee filed its original return of income for the assessment year 2019–20 on 30th October, 2019. Thereafter, the assessee revised the return on 15th January, 2020, which was considered by the CPC as the original return and accordingly, it denied the current year loss of ₹3,51,811. Aggrieved by the intimation, the assessee filed an appeal before the CIT(A).

The CIT(A) considered the revised return filed on15th January, 2020 as the original return and that it was filed after the due date u/s 139(1) of the Act which was 31st October, 2019. The CIT(A) sustained the intimation u/s 143(1) and denied the carry forward of current-year losses. The assessee then filed an appeal before the ITAT.

HELD

The ITAT observed that the apple of discord in this appeal was that the assessee had filed its original return of income on 30th October, 2019 which was within the extended due date of filing the return of income u/s 139(1). Thereafter, the assessee revised the return of income on 15th January, 2020 which the CPC considered as an original return filed beyond the due date u/s 139(1) and thereby denied the current year loss of ₹3,51,811.

The ITAT held that the return filed on 15th January, 2020 was not the original return but was a revised one and therefore, the denial of loss was not correct based on the set of facts and evidence available on records. The appeal of the assessee was allowed.

Sec. 271B r.w. Sec. 44AA, 44AB and Sec. 271A: Where Penalty u/s 271A is levied for not maintaining books of accounts u/s 44AA, the assessee could not further be saddled with penalty u/s 271B for failure to get books of accounts, which were not maintained, audited u/s 44AB.

62 Santosh Jain vs. ITO

[2023] 108 ITR(T) 636 (Raipur – Trib.)

ITA NO.: 143, 145 & 147 (RPR) OF 2023

A.Y.: 1993–94 to 1995–96

Date of Order: 24th July 2023

Sec. 271B r.w. Sec. 44AA, 44AB and Sec. 271A: Where Penalty u/s 271A is levied for not maintaining books of accounts u/s 44AA, the assessee could not further be saddled with penalty u/s 271B for failure to get books of accounts, which were not maintained, audited u/s 44AB.

FACTS

The AO imposed the penalties upon the assessee u/s 271A for failure to maintain his books of account and other documents as required u/s 44AA and u/s 271B for failure to get his books of account audited as per provisions of section 44AB.

The assessee filed an appeal before the CIT(A) against the penalty order u/s 271B dated 27th July, 2015 on the averment that as the assessee had been penalized for failure on his part to maintain books of account u/s 271A, the AO was divested from further saddling him with a penalty for getting such non-existing books of accounts audited as per the mandate of law. The CIT(A) upheld the view taken by the AO. Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The ITAT followed the judgment of the Hon’ble High Court of Allahabad in the case of S.K Gupta & Co. [2010] 322 ITR 86 wherein it was observed that the requirement of getting the books of account audited could arise only where the books of account are maintained. It was further observed that if for some reason the assessee had not maintained books of account, then the appropriate provision under which penalty proceedings could be initiated was section 271A of the Act. Accordingly, the ITAT allowed the assessee’s appeal and deleted the penalty levied u/s 271B.

Sec. 68: Where assessee, engaged in financial activities, and the records revealed that the credit entries were repayments of loans, and the third party was not a stranger entity and transactions were transparent and had been found to be routed through banking channel and reported in the return of income by the assessee as well as a third party, addition made under section 68 was to be deleted.

61 ACIT vs. Evermore Stock Brokers (P.) Ltd

[2023] 108 ITR(T) 13 (Delhi – Trib.)

ITA NO.: 5152 (DELHI) OF 2018

A.Y.: 2015–16

Date of Order: 19th September, 2023

Sec. 68: Where assessee, engaged in financial activities, and the records revealed that the credit entries were repayments of loans, and the third party was not a stranger entity and transactions were transparent and had been found to be routed through banking channel and reported in the return of income by the assessee as well as a third party, addition made under section 68 was to be deleted.

FACTS

The assessee was engaged in investments and financial activities and had filed its return of income on 29th September, 2015 declaring total income of ₹96,19,580 for AY 2015–16. The case was selected for limited scrutiny to verify the genuineness of the amount received of ₹47,72,95,676 from M/s. Pioneer Fincon Services Pvt. Ltd. [PFSPL].

The assessee had asserted that the funds were advanced to PFSPL with a view to earn interest on idle funds, rather than obtaining loans and the credit entries appearing in the ledger account of the assessee denote a mere return of pre-existing loans advanced. In the process of such advance of its funds, the assessee also earned the interest of ₹2,39,640 from transactions carried with PFSPL.

To discharge its onus to prove the genuineness of the financial transactions, the assessee submitted the following documents:

i. Assessee’s books of accounts

ii. ledger account of PFSPL as appearing in its books

iii. financial statement of PFSPL

iv. extract of bank statements of both parties to the transaction

The AO, however, alleged that the financial statement of PFSPL does not inspire much confidence in its creditworthiness. The AO issued the summons u/s 131 in the name of the Principal Officer of PFSPL. Shri Sagar Ramdas Bomble attended and submitted that the entity namely PFSPL has been stricken off from the records of the Registrar of Companies and recorded a statement on oath. The AO ultimately concluded that PFSPL is a mere paper company which was used only to route money to the assessee. The AO accordingly considered an amount of R47,72,95,676 as unexplained credit and added the same to the total income of the assessee.

Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) observed that the assessee was never required to explain the sources of funds in the bank account of PFSPL. The CIT(A) observed from the recorded statement of Shri Sagar Ramdas Bomble that PFSPL took a loan from the assessee and repaid the same to the assessee within the financial year along with Interest. Receiving interest by the assessee from PFSPL was an indication that the loans were given by the assessee and not vice versa. The CIT(A) was satisfied that the identity of PFSPL was established as it was regularly filing ROI, genuineness of the transactions stands proved by the fact that all transactions were done through banking channels, the account was squared up during the same year and PFSPL paid interest on such transactions to the assessee while deducting tax at source and creditworthiness cannot be judged only from the site of its balance sheet at the year-end. The CIT(A) allowed the appeal and deleted the addition.

Aggrieved by the order, the revenue filed an appeal before the ITAT.

HELD

The ITAT observed that the AO failed to understandthat firstly, the credits represented the repayment of the loan advanced by the assessee and secondly, the outstanding at any point in time was only ₹2.06 crore. The AO had made high-pitched additions onmisplaced assumptions of facts. The transactions were carried out through a banking channel and both the assessee as well as the borrower PFSPL, were regularly assessed to tax. The so-called loans were ultimately repaid by PFSPL and there was no outstanding at the end of the year.

The ITAT observed that the order of the CIT(A) clearly brings out the fact that PFSPL was not a stranger entity to the assessee. PFSPL had availed loans from the assessee on commercial considerations, and the interest paid had been subjected to deduction of tax at source. The presence of the Accountant and CFO of the erstwhile PFSPL reflected cooperation of the borrower with the Revenue Authorities. The ITAT also observed that the repayment and squaring up of loans was an overriding point of significance. The factum of repayment thus also validated the stance of bona fide.

The ITAT held that the facts in the present case thus spoke for itself and there appeared no need to amplify the findings of CIT(A) and the reasoning advanced on behalf of revenue lacked merits. Thus, the appeal of the revenue was dismissed.

Where pursuant to a scheme of arrangement and restructuring, assessee’s shareholding in a company was reduced, long-term capital loss arising to assessee on account of reduction of capital has to be allowed even if no consideration is paid to the assessee.

60 Tata Sons Ltd. vs. CIT

ITA No.: 3468/Mum/2016

A.Y.: 2009-10

Date of Order: 23rd January, 2024

Section: 2(47), section 48 and section 263

Where pursuant to a scheme of arrangement and restructuring, assessee’s shareholding in a company was reduced, long-term capital loss arising to assessee on account of reduction of capital has to be allowed even if no consideration is paid to the assessee.

 FACTS

The assessee-company owned 288,13,17,286 equity shares in TTSL acquired at various points of time, which were held as capital assets.

Since TTSL had incurred substantial loss in the course of its business for providing telecom services, a large part of the paid-up share capital of TTSL was utilized so as to finance / bear the said loss.

In view of such losses, a scheme of arrangement and restructuring between TTSL and its shareholders was entered under sections 100 to 103 of the Companies Act, 1956, which was approved by the High Court.

As per the scheme—

— the equity shares of TTSL of ₹10 each from 634,71,52,316 shares was reduced to 317,35,76,158 shares.

— no consideration was payable to the shareholders in respect of the shares which were to be cancelled.

Consequently, the shareholding of the assessee was also reduced to half.

The assessee claimed such a reduction of capital as long-term capital loss, which was set off against other long-term capital gain.

During the course of assessment proceedings under section 143(3), AO specifically raised the issue relating to the assessee’s claim for allowability of long term capital loss. However, after examining the submissions of the assessee, he allowed such loss.

PCIT initiated revision proceedings under section 263 and held that since no consideration was received by or accrued to the assessee by way of reduction of capital, the computation mechanism provided under section 48 fails and consequently, long term capital loss cannot be worked out.

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a)  There can be no dispute that there was a loss on the capital account by way of a reduction of capital invested and therefore any loss on the capital account, is a capital loss and not a notional loss.

(b)  If the right of the assessee in the capital asset stands extinguished either upon amalgamation or by reduction of shares, it amounts to the transfer of shares within the meaning of section 2(47) and therefore, computation of capital gains has to be made.

(c)  Following the observations of Gujarat High Court in CIT vs. JaykrishnaHarivallabhdas,(1997) 231 ITR 108 (Guj), it held that even when the assessee has not received any consideration on reduction of capital its investment has reduced resulting into capital loss, while computing the capital gain, such capital loss has to be allowed or set-off against any other capital gain.

Accordingly, the Tribunal held that AO had rightly allowed the computation of long-term capital loss to be set off against the capital gain and consequently, it set aside the order of PCIT under section 263.

No exemption under section 54F is allowable in respect of a building which was predominantly used for religious purposes. Section 54F does not allow pro-rata exemption.

59 ACIT vs. Shri Iqbal Ali Khan

ITA No.: 505 / Hyd / 2020

A.Y.: 2013-14

Date of Order: 12th January, 2024

Section: 54F

No exemption under section 54F is allowable in respect of a building which was predominantly used for religious purposes.

Section 54F does not allow pro-rata exemption.

FACTS

The assessee sold two properties for a total consideration of ₹8.81 crores, resulting in capital gain of ₹7.21 crores.

He claimed exemption under section 54F to the extent of ₹5.47 crores, by constructing a building consisting of ground floor plus three floors in Hyderabad.

The assessee had not taken any municipal permission before starting the construction.

However, subsequently, in the application forregularization dated 31st December, 2015 filed with the municipal authorities, it was stated that the property consisted of a mosque, orphanage school and staff quarters.

The Assessing Officer disallowed the exemption under section 54F.

On appeal, by relying on the remand report and verification / enquiry report of the inspector, CIT(A) held partly in favour of the assessee by allowing pro-rata exemption under section 54F in respect of first, second and third floors.

Aggrieved, the revenue filed an appeal before the Tribunal.

HELD

The Tribunal held that –

(a) the property was predominantly being used for religious purposes, namely, mosque, orphanage school and staff quarters and therefore, it did not fit within the definition of “residential house” as contemplated under section 54F.

(b) Further, there was no evidence to show that the assessee had invested in construction of a residential house and therefore, he was not entitled to any relief under section 54F.

(c) The literal reading of section 54F makes it abundantly clear that there was no scope of grant of pro-rata deduction, more particularly when no provision of residence can be made in a mosque.

Accordingly, the grounds of appeal of the revenue were allowed and the order of the Assessing Officer was upheld by the Tribunal.

 

Where the assessee transferred 62 per cent of the land to a developer in exchange for 38 per cent of the developed area to be constructed over time under an unregistered joint development agreement / irrevocable power of attorney, the transaction was liable to capital gain under section 2(47)(vi) in the year of the agreement.

58 K.P. Muhammed Ali vs. ITO

ITA No.: 1008 / Coch / 2022

A.Y.: 2012-13

Date of Order: 12th January, 2024

Section: 2(47)(v) / (vi)

 

Where the assessee transferred 62 per cent of the land to a developer in exchange for 38 per cent of the developed area to be constructed over time under an unregistered joint development agreement / irrevocable power of attorney, the transaction was liable to capital gain under section 2(47)(vi) in the year of the agreement.

 

FACTS

On 27th June, 2011, the assessee and a developer entered into a Joint Development Agreement (JDA) and a General Power of Attorney (GPA) in respect of a piece of land in Kasaba village for the construction of a residential complex. Both JDA and GPA were not registered.

Under the said agreements, the assessee transferred his rights into 62 per cent of the land in lieu of 38 per cent of the developed area to be constructed over a period of time.

The construction was completed only in 2017. Thereafter, as and when the assessee executed assignment deeds in favour of the various parties who purchased the assessee’s share of apartments, he had declared capital gains in his returns of income for such year(s).

The question before the Tribunal was whether the arrangement can be regarded as transfer under section 2(47) exigible for capital gain in the year of execution of JDA / GPA.

 

HELD

The Tribunal observed that-

(a) Though the assessee fulfilled the other conditions of section 53A of Transfer of Property Act, 1882 as propounded in Chaturbhuj Dwarkadas Kapadia vs. CIT, (2003) 260 ITR 491 (Bom), with effect from 24th September, 2001, section 53A does not recognize unregistered contracts. Hence, section 2(47)(v) would not apply to the facts of the assessee wherein both the JDA and GPA were unregistered.

(b) However, the constraining factor of registration of a contract would not be relevant in the case of section 2(47)(vi) which applies to any agreement or arrangement or a transaction in any other manner which has effect of transferring or enabling the enjoyment of immovable property, as explained in P. George Jacob vs. ITO (in ITA No. 558/Coch/2022, dated 2.3.2023).

(c) It is well-settled that income is to be taxed in the hands of the right person and for the right year, and it is being offered to tax in the hands of another person or year would be of no relevance in law.

The Tribunal held that the transaction between the assessee and developer under JDA / GPA constituted a transfer under section 2(47)(vi) and was liable to capital gain in the year of entering into the agreements.

With regard to the quantification of capital gain, the matter was set aside to the file of the Assessing Officer with an observation that since land in question was acquired prior to 1st April, 2001, fair market value on that date would be considered cost of acquisition (and further indexed under section 48); and sale consideration would be compared to stamp value on transfer date under section 50C.

Where the firm had borrowed a loan from the bank and raised fresh capital from the incoming partner to settle the debt / capital account of retiring partners, any interest paid on such loan / capital account is allowable under section 36(1)(iii)

57 M/s. Ariff & Company vs. ACIT

ITA No.: 140 / Chny/ 2022

A.Y.: 2007–08

Date of Order: 15th December, 2023

Section: 36(1)(iii)

Where the firm had borrowed a loan from the bank and raised fresh capital from the incoming partner to settle the debt / capital account of retiring partners, any interest paid on such loan / capital account is allowable under section 36(1)(iii).

FACTS

Mr R along with his wife and three children constituted the assessee-partnership firm in 1974, which carried on business of running a hotel called “Hotel President”.

Four partners decided to retire from the firm because they were migrating to the USA, leaving the management completely in the hands of Mr A.

Accordingly, after negotiations, the firm was reconstituted in 2006 with the retirement of four partners and the induction of a new partner, Mrs A.

Before reconstitution of the firm, the assets and liabilities of the firm were revalued and credited in the capital account of partners, and the capital account of the outgoing partners was treated as debt of the partnership firm.

To settle outgoing partners’ capital account, the firm borrowed a loan from Punjab National Bank and paid interest thereon. It had also taken capital contribution from incoming partner, Mrs A and paid interest to her in accordance with section 40(b).

The AO disallowed the interest paid by the assessee-firm to the capital account of partners and on loan borrowed from the Bank on the ground that payment to outgoing partners was nothing but a family settlement.

The disallowance was upheld by CIT(A).

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) interest paid on capital account of partners partakes the nature of funds borrowed for the purpose of business of the assessee, and consequently, interest paid thereon is allowable under section 36(1)(iii);

(b) any loan borrowed for the purpose of settling outgoing partners’ capital account which has been treated as debt in the books of accounts of the firm assumes the character of loan borrowed for the purpose of business of the assessee, and consequently, interest paid on borrowed capital account is allowable under section 36(1)(iii);

(c) when the assets were owned by the partnership firm, any settlement of such assets to the outgoing partners cannot be considered as settlement of family property, just because the partners were family members.

(d) merely because the assets of the firm had been revalued before reconstitution of partnership firm (to ascertain the fair market value of assets of the firm and shares of the outgoing partners), it cannot be a reason for the AO to treat the settlement of firm properties among partners as settlement of family property.

In the result, the appeal filed by the assessee was allowed.

Interest under section 244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left, if any, should be adjusted towards the tax component

56 Tata Sons Pvt. Ltd. vs. DCIT

ITA No.: 2362 / Mum / 2023

A.Y.: 1993–94

Date of Order: 6th December, 2023

Section: 244A

Interest under section 244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left, if any, should be adjusted towards the tax component.

FACTS

The return of income of the assessee for A.Y. 1993–94 was filed on 31st December, 1993, returning NIL income.

The return was subject to assessment / re-assessment and rectification over a period of time.

Tribunal, through orders dated 4th February, 2015, and 1st January, 2016, gave relief to the assessee.

The AO passed an order giving effect (OGE) dated 8th March, 2016, granting the refund of ₹30,45,62,594, and the assessee received the said refund on 18th August, 2022.

Aggrieved by the short credit of interest on refund, the assessee filed an appeal before CIT(A) / NFAC.

The CIT(A) / NFAC held against the assessee.

Aggrieved, the assessee filed an appeal before the Tribunal, alleging that:

(a) The AO had incorrectly adjusted the earlier refunds, resulting in a short credit of interest of ₹9,93,09,258;

(b) The AO had not calculated the interest for the interim period from when OGE was passed, that is, 8th March, 2016, and the actual receipt of refund, that is, 18th August, 2022, resulting in short credit of interest of ₹11,27,21,927.

(c) The AO had not calculated the interest under section 244A(1A), which led to interest short credit of ₹7,09,13,871.

HELD

Dealing with each of the grievances, the Tribunal held as follows:

(a) The amount of interest under section 244A is to be calculated by first adjusting the amount of refund already granted towards the interest component and balance left, if any, shall be adjusted towards the tax component; accordingly, the assessee would be entitled for interest on the unpaid refunds in accordance with the principle laid out in Grasim Industries Ltd vs. DCIT (2021) 123 taxmann.com 312(Mum);

(b) In light of the issue being squarely covered in favour of the assessee in CIT vs. Pfizer Limited (1991) 191 ITR 626 (Bom), City Bank NA Mumbai vs. CIT, ITA No. 6 of 2001 and CIT vs. K.E.C International in ITA No. 1038 of 2000 (Bom HC), the assessee was justified in seeking interest under section 244A up to the date of receipt of the refund order, i.e. 18th August, 2022;

(c) Applying the ratio laid down by coordinate bench in ACIT vs. Bharat Petroleum Corporation Ltd, ITA No. 5231 to 5233 of 2019, section 244A(1A) would be applicable in assessee’s case from 1st June, 2016, till the date of actual receipt of refund.

Accordingly, the Tribunal directed the AO to recompute the interest on refund in accordance with the order and as per law.

In the absence of express mention to operate retrospectively, no retrospective cancellation for earlier years can be done under the amended section 12AB(4) introduced with effect from 1st April, 2022

55 Amala Jyothi Vidya Kendra Trust vs. PCIT

ITA Nos.: 458 / Bang / 2023

A.Y.: 2021–22

Date of Order: 1st December, 2023

Section: 12AB(4)

 

In the absence of express mention to operate retrospectively, no retrospective cancellation for earlier years can be done under the amended section 12AB(4) introduced with effect from 1st April, 2022.

FACTS

The assessee-trust was registered vide trust deed dated 1st April, 2005.

It was registered under the erstwhile section 12AA. Due to the amended provisions with effect from 1st April, 2021, requiring re-registration, the assessee filed an application for registration under section 12A / 12AB, which was granted to it by DIT from A.Y. 2022–23 to A.Y. 2026–27.

On 28th December, 2021, a search was carried out under section 132 in the office premises of assessee-trust in Bangalore.

During the course of search, various incriminating materials were found which were confronted to the trustees and secretary of the assessee-trust, and it was found that they were using the funds of the trust for personal benefit.

Consequently, assessment proceedings were initiated by the AO for A.Y. 2021–22, calling for various details and confronting the evidence collected during the search.

Subsequently, vide letter dated 20th December, 2022, the AO sent a reference to PCIT for A.Y. 2021–22 communicating her satisfaction as per second proviso to section 143(3) of the Act that this was a fit case for cancellation of registration under section 12AB.

Accordingly, on 28th December, 2022, show cause notice was issued by the PCIT requiring the assessee-trust to explain as to why the registration granted to it should not be cancelled under section 12AB.

After considering the reply, the PCIT, invoking the amended provisions of section 12AB(4)(ii) [introduced by the Finance Act, 2022 w.e.f. 1st April, 2022], cancelled the registration granted to the assessee-trust w.e.f. A.Y. 2020–21 and that of subsequent years.

Aggrieved by this, the assessee-trust filed an appeal before the ITAT.

HELD

The Tribunal observed that:

(a) In income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, the PCIT cancelled the registration granted under section 12AA/12AB w.e.f. previous year 2020–21 relevant to assessment year 2021–22 and therefore, the law as stated in the A.Y. 2021–22 is to be applied and not the law as stood in A.Y. 2022–23;

(b) No retrospective cancellation could be made under section 12AB(4)(ii) since it has not been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made;

(c) Since the PCIT invoked section 12AB(4)(ii) which has been introduced by the Finance Act, 2022 w.e.f. 1st April, 2022, so as to cancel the registration with retrospective effect from A.Y. 2021–22, such order is bad in law and deserved to be quashed.

The Tribunal also noted that the same view has been taken by Mumbai ITAT in the case of Heard Foundation of India, ITA No.1524/Mum/2023 vide order dated 27th July, 2023.

In the result, the appeal of the assessee-trust was allowed.