Tribunal News: Part A-Domestic Taxation Archives

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.

BCAJ Admin

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.

BCAJ Admin

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.

BCAJ Admin

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.

BCAJ Admin

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.

BCAJ Admin

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: 10^th 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 26^th 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 19^th 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 21^st proviso to section 10(23C) w.e.f. A.Y. 2023–24.

BCAJ Admin

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: 18^th 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.

BCAJ Admin

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: 21^st 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.

BCAJ Admin

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: 28^th 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 29^th September, 2006 for ₹35,00,000, which was registered on 6^th September, 2010. The assessee made a new investment of ₹53,29,440 on 20^th 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 20^th June, 2007 whereas the sale deed was registered on 6^th 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 29^th 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.

BCAJ Admin

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: 23^rd 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 26^th February, 2016, and the assessee’s premises were also searched on the said date. Thereafter, a notice dated 28^th 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 27^th 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 13^th 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 5^th 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.

BCAJ Admin

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: 6^th 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 31^st 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.

BCAJ Admin

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: 21^st 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 30^th 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 11^th 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.

BCAJ Admin

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: 10^th 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 23^rd September, 2010 declaring total income at Nil. The case was subjected to regular assessment vide order under section 143(3) dated 28^th 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 31^st 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.

BCAJ Admin

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: 13^th 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).

BCAJ Admin

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: 24^th 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 30^th 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 16^th 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 16^th 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.

BCAJ Admin

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: 13^th 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 3^rd 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 10^th 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 25^th July, 2009 for a consideration of ₹73,06,530. The possession of the new house was granted to the assessee on 2^nd February, 2011 after receipt of the occupancy certificate and when the building was habitable. Assessee considered the date of possession i.e., 2^nd 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 25^th 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 25^th July, 2009, the assessee acquired a `right to purchase a house’ which was under construction. On 2^nd 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.

BCAJ Admin

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: 30^th 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 30^th 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 8^th 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 26^th 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.

BCAJ Admin

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: 02^nd 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 10^th January, 2014 and it came into effect on 1^st 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 22^nd August, 2023];

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

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.

BCAJ Admin

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: 7^th 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.

BCAJ Admin

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: 26^th 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.

BCAJ Admin

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: 16^th 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 31^st 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 8^th 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).

BCAJ Admin

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: 12^th 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.

BCAJ Admin

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: 22^nd 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 11^th 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 28^th 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 28^th 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 23^rd February, 2016, whereby assessee took all the necessary steps for execution of conveyance in favour of SMI which was done on 24^th August, 2016. The assessee received the balance consideration of ₹1.95 crores as agreed earlier through agreement to sale dated 28^th 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.

BCAJ Admin

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: 29^th 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 30^th 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 18^th October, 2019 and finally assessment order was framed on 29^th 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 6^th 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 12^th 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 1^st 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 30^th 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 31^st 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 12^th 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 1^st 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.

BCAJ Admin

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: 22^nd 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. 1^st 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. 1^st 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. 1^st 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 7^th 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.

BCAJ Admin

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: 2^nd 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 26^th 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 22^nd 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.

BCAJ Admin

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: 8^th 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 22^nd 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.

BCAJ Admin

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 : 7^th 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 3^rd 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.

BCAJ Admin

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: 21^st 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 31^st 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.

BCAJ Admin

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 : 20^th 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 31^st 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 23^rd 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.

BCAJ Admin

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: 18^th 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 30^th 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 22^nd 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.

BCAJ Admin

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: 19^th 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 13^th September, 2019 upheld the order of the CIT(A).

On a further appeal, Meghalaya High Court vide its judgment dated 06^th 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.

BCAJ Admin

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: 11^th 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 15^th 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 7^th November, 2022.

It was granted provisional approval under section 80G on 6^th April, 2022 under clause (iv) of the first proviso to section 80G(5) for the period commencing from 6^th 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 2^nd December, 2022.

CIT(E), vide his order dated 28^th June, 2023, rejectedthe application dated 2^nd 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 30^th September, 2022 allowed by CBDT vide Circular No.8/2022 dated 31^st 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 30^th 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 09^th 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.

BCAJ Admin

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: 16^th 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.

BCAJ Admin

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: 1^st 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 31^st March, 2019 and the assessee had paid tax at normal rates on such surrendered amount in its Return of Income filed on 30^th September, 2019.

The assessee’s case was selected for scrutiny and notice u/s 143(2) was issued on 29^th September, 2020. The case of the assessee was finalised and assessment order dated 28^th 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.

BCAJ Admin

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: 19^th 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.

BCAJ Admin

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: 13^th 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.

BCAJ Admin

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: 15^th 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 15^th 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 23^rd February, 2015 in the name of the assessee, that is, after the assessee expired.

PCIT passed an order under section 263 dated 24^th 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.

BCAJ Admin

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 30^th October, 2019. Thereafter, the assessee revised the return on 15^th 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 30^th 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 15^th 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.

BCAJ Admin

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.

BCAJ Admin

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.

BCAJ Admin

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: 23^rd 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.

BCAJ Admin

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.

BCAJ Admin

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 27^th 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.

BCAJ Admin

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.

BCAJ Admin

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.

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.

BCAJ Admin

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.

BCAJ Admin

Section 54F, read with sections 48 and 50C — Where entire actual sales consideration had been invested in purchase and construction of residential house by assessee, capital gain would be exempt under section 54F and provisions of section 50C would not be applicable

54 Lalit Kumar Kalwar vs. Income-tax Officer

[2023] 106 ITR(T) 373 (Jaipur – Trib.)

ITA No.: 379 (JP) OF 2018

A.Y.: 2013–14

Date of Order: 30th May, 2023

Section 54F, read with sections 48 and 50C — Where entire actual sales consideration had been invested in purchase and construction of residential house by assessee, capital gain would be exempt under section 54F and provisions of section 50C would not be applicable.

FACTS

The assessee had sold shops and received actual sale consideration of ₹12 lakhs, which was less than the value accepted by the DLC of ₹20.78 lakhs. The assessee claimed long term capital gain (LTCG) at nil after seeking exemption under section 54F, contending that the entire actual sale consideration was invested in the purchase and construction of the residential house.

The Assessing Officer (AO) disallowed the claim of the assessee for the reason that the assessee had not deposited the sale consideration received on transfer of the property in capital gain account as per provisions of section 54F(4).

Aggrieved, the assessee filed the appeal before the CIT(A). The CIT (A) also upheld the order of the AO.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

After analysing the provisions of S. 54F(1) of the Act, the ITAT found that in Explanation to S. 54F(1), the term “net consideration” means the full value of consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. The meaning of full value of consideration in Explanation to S. 54F(1) was not to be governed by the meaning of words “full value of consideration” as mentioned in S. 50C.

The ITAT also held that the fiction under S. 50C of the Act is extended only to the aspect of computation of capital gains and the same does not extend to the charging section or the exemptions to the charging section. The legislature consciously intended to apply the fiction under S. 50C of the Act only to the expression used in S. 48 of the Act and not in any other place. The ITAT further observed that the cost of new asset was not less than the net consideration, and thus, the whole of the capital gains was not to be charged even if the capital gains had been computed by adopting the value adopted by stamp registration authority. The requirement of law is that net consideration is required to be appropriated towards the purchase of the new asset. Thus, deduction under S. 54F was clearly applicable.

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

BCAJ Admin

S.69A r.w.s. 115BBE — Conversion of Miscellaneous business income into other sources by invoking provisions of section 69A without any evidence and taxing such income at special rate as per section 115BBE was improper

53 Deepak Setia vs. Deputy Commissioner of Income-tax

[2023] 106 ITR(T) 125 (Amritsar – Trib.)ITA NO. 112 (ASR.) OF 2023

A.Y.: 2019–20

Date of Order: 17th June, 2023

S.69A r.w.s. 115BBE — Conversion of Miscellaneous business income into other sources by invoking provisions of section 69A without any evidence and taxing such income at special rate as per section 115BBE was improper.

FACTS

A survey was conducted on the assessee’s premises u/s 133A. The assessee surrendered the amount of ₹29 lakhs and offered it for taxation as business income. Subsequently, the case was selected for scrutiny and out of ₹29 lakhs, amount of ₹14.23 lakhs which was related to miscellaneous business income (MBI) was taken as income from an undisclosed source under section 69A, and tax was calculated as per section 115BBE at a special rate. The rest of the surrendered amount was taken as normal business income, and tax was calculated at normal rate.

Aggrieved, the assessee filed the appeal before the CIT(A). The CIT(A) also upheld the order of the AO.

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

HELD

The ITAT observed that during survey proceedings, the assessee had surrendered total income of ₹29 lakhs out of which amounted to ₹14.23 lakhs related to other discrepancies / MBI, which was treated as income from undisclosed source u/s 69A and tax thereon was calculated as per section 115BBE at special rate during assessment. The entire addition was certainly without forming proper basis for conversion of business income to non-business income. The revenue was not able to submit any evidence during assessment and appeal proceeding that the said income was not connected with the business income of the assessee or was accumulated from a non-recognising source.

The ITAT held that when all the incomes earned by the assessee were only from the business income of the assessee, there did not arise any question as to the application of provisions of section 69A by following the settled principle that “when there is no other / separate source of income identified during the course of survey or during the course of assessment proceedings, any income arising to the assessee shall be treated to be out of the normal business of the assessee only”.

The ITAT had relied on the following Judicial precedents:

1. Harish Sharma vs. ITO [IT Appeal No. 327 (Chd.) of 2020, dated 11th May, 2021]

2. Daulatram Rawatmull vs. CIT [1967] 64 ITR 593 (Cal.)

3. Mansfield & Sons vs. CIT [1963] 48 ITR 254 (Cal.)

4. Sham Jewellers vs. Dy. CIT [IT Appeal No. 375 (Chd.) of 2022, dated 22nd August, 2022]

The ITAT held that the conversion of business income into other income and application of section 69A was bad and illegal and accordingly, levy of tax u/s 115BBE on the business income was liable to be quashed.

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

BCAJ Admin

S. 69A – Where there was a huge amount available with assessee in form of cash which he had deposited during demonetization, it could not be presumed that cash deposited by assessee was out of some undisclosed source without any adverse material

52 Arun Manohar Pathak vs. ACIT

[2023] 106 ITR(T) 14 (Mumbai – Trib.)

ITA NO.: 489 (MUM.) of 2023

A.Y.: 2017–18

Date of Order: 24th May, 2023

S. 69A – Where there was a huge amount available with assessee in form of cash which he had deposited during demonetization, it could not be presumed that cash deposited by assessee was out of some undisclosed source without any adverse material.

FACTS

The assessee was carrying on the milk distribution business. He deposited cash of a certain amount in his bank account during the demonetization period in old currency notes, i.e. specified bank notes (SBNs). The assessee submitted that he was a retailer of milk and the said cash deposits in SBNs were out of collection from sale of milk to persons during the demonetization period, and the same had been used to make payment towards purchase of milk to Gujarat Co-operative Milk Marketing Ltd. (GCMM) by way of demand drafts as reflected in the bank statement of the assessee. However, the Assessing Officer (AO) treated cash deposited in the bank during the demonetisation period in SBNs as unexplained and added the same under section 69A of the IT act.

Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) upheld the order of the AO on the grounds that the assessee was not able to show that he was entitled to claim benefit of Notification No. S.O. 3408(E), issued by the Ministry of Finance (Department of Economic Affairs), dated 8th November, 2016, as the assessee had not filed any material to establish that the assessee qualifies as a milk booth operator under authorisation of Central or State Government.

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

HELD

The ITAT observed that the assessee had placed on record all the documents which supported the averments made by the assessee before the AO and CIT(A). The assessee had submitted the following documentary evidences to substantiate that he was carrying out milk distribution services and, therefore, was entitled to claim benefit of the notification:

1. Copy of License No. 11512018000623 issued by Government of Maharashtra.

2. Cash book, bank book and bank statement of the assessee.

3. Ledger Account of purchases made from GCMM.

Upon perusal of documents / details on record, the ITAT held that the assessee was able to substantiate the stand during the assessment proceedings, and the burden of proof was on the Revenue.

The ITAT observed that the CIT(A) had not dealt with the documents / details furnished by the assessee and failed to either carry out any inquiry / verification into purchase / sale of milk by the assessee to controvert the averments made by the assessee, or to point out any infirmity in the aforesaid documents / details.

The ITAT held that AO as well as CIT(A) were incorrect in holding that the assessee was not covered by the notification. Even if for the sake of arguments, it is believed that though the assessee was not covered by the aforesaid notification, the assessee had a bona fide belief that the assessee was entitled to the benefit of the notification, and therefore, permitted to receive SBNs, and that the assessee did accept SBNs as valid tender.

The ITAT held that the averments made by the assessee, supported by the documents furnished, went uncontroverted and, accordingly, deleted the addition made under section 69A of the act.

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

BCAJ Admin

When income is offered for taxation under the head ‘Income from House Property’ but the income is assessed under the head ‘profits and gains of business or profession’, it cannot be said that the assessee has suppressed or under-reported any income

51 D.C. POLYESTER LIMITED vs. DCIT

2023 (10) TMI 971 – ITAT MUMBAI

A.Y.: 2017–18

Date of Order: 17th October, 2023

Section: 270A

When income is offered for taxation under the head ‘Income from House Property’ but the income is assessed under the head ‘profits and gains of business or profession’, it cannot be said that the assessee has suppressed or under-reported any income.

Where the assessee offered an explanation as to why it reported rental income under the head ‘income from house property’ and the explanation of the assessee was not found to be false, the case would be covered by section 270A(6)(a).

FACTS

The assessee filed its return of income declaring total income to be a loss of ₹72,200. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had offered rental income of ₹29,60,000 under the head ‘income from house property’. The AO noticed that the assessee had declared the rental income from the very same property under the head ‘income from business’ in an earlier year, i.e., in A.Y. 2013–14. However, in the instant year, the assessee had declared rental income under the head ‘income from house property’ and also claimed various other expenses against its business income. He further noticed that there was no business income during the year under consideration.

The assessee submitted that it has reduced its business substantially and all the expenses claimed in the profit and loss accounts are related to the business only. It was submitted that the rental income was rightly offered under the head ‘income from house property’ during the year under consideration. In the alternative, the assessee submitted that it will not object to assessing rental income under the head ‘income from business’. Accordingly, the AO assessed the rental income under the head ‘income from business’.

The AO assessed rental income under the head ‘business’ and consequently, the assessee was not entitled to deduction under section 24(a) of the Act. This resulted in assessed income being greater than returned income.

The AO initiated proceedings for levy of penalty under section 270A. In the course of penalty proceedings, it was submitted that the assessee has not under-reported the income since the addition pertains only to statutory deduction under section 24(a). The AO held that the furnishing of inaccurate particulars of income would have gone undetected, if the return of income of the assessee was not taken up for scrutiny. He also took the view that the claim of statutory deduction as well as expenses in the Profit and Loss account under two different heads of income would tantamount to under-reporting of income under section 270A of the Act. The AO levied a penalty of ₹1,83,550 under section 270A of the Act.

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.

HELD

The Tribunal observed that since section 270A of the Act uses the expression “the Assessing Officer ‘may direct’”, there is merit in the contention of the assessee that levying of penalty is not automatic, and discretion is given to the AO not to initiate penalty proceedings under section 270A of the Act.

It held that it is not a case that the assessee has suppressed or under-reported any income. The addition came to be made to the total income returned by the assessee, due to change in the head of income, i.e., the addition has arisen on account of computational methodology prescribed in the Act. It held that, in its view, this kind of addition will not give rise to under-reporting of income. The Tribunal was of the view that the AO should have exercised his discretion not to initiate penalty proceedings u/s 270A of the Act in the facts and circumstances of the case.

The Tribunal observed that the assessee has offered an explanation as to why it reported the rental income under the head ‘income from house property’ and the said explanation is not found to be false. Accordingly, it held that the case of the assessee is covered by clause (a) of sub-section (6) of section 270A of the Act. The Tribunal noted that the Chennai bench of Tribunal has in the case of S Saroja [2023 (5) TMI 1262 – ITAT CHENNAI] held that a bonafide mistake committed while computing total income, the penalty u/s 270A of the Act should not be levied.

The Tribunal deleted the penalty levied under section 270A of the Act.

BCAJ Admin

Proviso to section 56(2)(vii)(b) providing for considering stamp duty value on the date of agreement applies even in a case where a part of the consideration was paid by the co-owner, and not by the assessee, on or before the date of the agreement

50 Rekha Singh vs. ITO

ITA No. 2406/Mum/2023

A.Y.: 2015–16

Date of Order: 30th October, 2023

Section: 56(2)(vii)(b)

Proviso to section 56(2)(vii)(b) providing for considering stamp duty value on the date of agreement applies even in a case where a part of the consideration was paid by the co-owner, and not by the assessee, on or before the date of the agreement.

FACTS

The assessee, an individual, filed a return of income declaring therein a total income of ₹5,93,520 on 27th August, 2015. The case was subjected to limited scrutiny. In the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee has purchased an immovable property for a consideration of ₹84,15,300 as a co-owner jointly with her husband. The consideration was paid by both co-owners. The assessee was a co-owner for the property being 50 per cent share. The AO noticed that while the consideration was ₹84,15,300 whereas the value of property determined by the stamp valuation authority was ₹1,32,82,000. The AO was of the view that section 56(2)(vii)(b) was to be applied.

The assessee explained that as per the proviso to section 56(2)(vii)(b), the stamp duty value on the date of agreement may be taken for the purpose of this clause. It was explained that the date of agreement (letter of allotment) was 16th December, 2010, whereas the purchase deed was registered on 29th December, 2014, and the first payment of R1 lakh was paid through a banking channel on 18th October, 2010, by the husband of the assessee.

The AO did not agree with the submission of the assessee and since property was transferred for a consideration less than its stamp duty value, therefore, 50 per cent of the total difference was assessable as income in assessee’s hands.

Aggrieved, the assessee preferred an appeal to the CIT(A) who held that since the initial payment before date of registration was made only by the other co-owner, husband of the assessee, the assessee was not entitled to the benefit of the proviso. He, accordingly, confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

In the course of hearing before the Tribunal, on behalf of the assessee, it was submitted that the property was purchased by the assessee in the joint name of the assessee with her husband, and it is immaterial that the initial consideration was paid by the husband of the assessee who was other co-owner. Reliance was placed on the decision of the co-ordinate bench, Mumbai, in the case of Poonam Ramesh Shahjwanv. ITO(IT) 4(2)(1) A.Y. 2014–15 in ITA No. 2252/Mum/2019 and the decision of ITAT, Pune in the case of Sanjay Dattatrya Dapodikarv. ITO, Ward 6(2) [(2019) 107 taxmann.com 219 (Pune Trib.)].

The Tribunal having perused the decision of ITAT in the case of Poonam Ramesh Shahjwan (supra) wherein on the similar facts, the value of the flat was determined on the date of booking of flat after taking into consideration the payment made by the assessee through banking channel before the registration of the flat as laid down in the proviso to section 56(2)(vii)(b) of the Act. The Tribunal also considered the decision of ITAT, Pune bench in the case of Sanjay Dattatraya Dapodikar (supra) wherein it is held that where the date of agreement for fixing the amount of consideration for purchase of a plot of land and the date of registration of sale deed were different but assessee, prior to date of agreement, had paid a part of consideration by cheque, provisos to section 56(2)(vii)(b) being fulfilled, the stamp value as on date of agreement should be applied for purpose of said section.

The Tribunal directed the AO that the stamp duty value on the date of allotment, in the case of the assessee on 16th October, 2010, be taken for the purpose of section 56(2)(vii)(b) of the Act and not stamp value as on the date of registration of sale deed. Further, the Tribunal did not find any merit in the findings of the CIT(A) that before the registration of the flat only other co-owner, i.e., Ajay Kumar Singh, husband of the assessee has made the payment. Since, it was joint property owned by assessee and her husband, it is immaterial who had made payment before the date of registration of the property.

The Tribunal decided this ground of appeal in favour of the assessee.

BCAJ Admin

Section 54B deduction is allowable even if agricultural land is purchased in the name of the wife.

49 Ravinder Kumar vs. ITO

ITA No. 2265/Del/2023

A.Y.: 2011–12

Date of Order: 8th November, 2023

Section: 54B

Section 54B deduction is allowable even if agricultural land is purchased in the name of the wife.

FACTS

The assessee sold agricultural land which gave rise to long-term capital gain of ₹12,78,456. The assessee claimed that it had purchased another agricultural land and, therefore, the entire long term capital gain of ₹12,78,456 is exempt under section 54B of the Act. The Assessing Officer (AO) denied the claim for deduction under section 54B on the grounds that the land had been purchased in the name of the wife of the assessee.

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, reliance was placed on the decision of Ashok Kumar vs. ITO [ITA No. 7460/Del/2018; AY: 2009–10; Order dated 28th December, 2022] and on behalf of the revenue, reliance was placed on dismissal of SLP by the SC in the case of Bahadur Singh vs. CIT(A) [(2023) 154 taxmann.com 457 (SC)] against the decision of the Punjab & Haryana High Court wherein purchase of agricultural land in the name of the assessee’s wife was not allowed under section 54B relief to the assessee.

HELD

The Tribunal noted the ratio of the decision of the Tribunal in the case of Ashok Kumar (supra). The Tribunal observed that in the decision relied upon by the DR, it was a dismissal of SLP simpliciter by Hon’ble Apex Court against the decision of Hon’ble Punjab & Haryana High Court. The Tribunal noted that dismissal of SLP simpliciter by Hon’ble Supreme Court does not merge the order of Hon’ble High Court with that of Hon’ble Supreme Court. It also noted that there is no jurisdictional High Court decision on this issue. Further, in case of conflicting, Hon’ble High Court decision one in favour of assessee has to be adopted as per Hon’ble Supreme Court decision in Vegetable Products. Accordingly, the Tribunal followed the precedent relied upon by the assessee which also draws support from Hon’ble High Court decisions referred therein.

The Tribunal set aside the order of the Revenue authorities and decided the issue in favour of the assessee.

BCAJ Admin

The Tribunal held the act of PCIT in treating the assessment order as erroneous and prejudicial to the interest of the revenue only because the capital gain was not deposited in the capital gain account scheme as a hyper-technical approach while dealing with the issue. When the basic conditions of section 54(1) are satisfied, the assessee remains entitled to claim deduction under section 54.

48 Sarita Gupta vs. PCIT

ITA No. 1174/Del/2022

A.Y.: 2012–13

Date of Order: 7th December, 2023

Sections: 54, 263

The Tribunal held the act of PCIT in treating the assessment order as erroneous and prejudicial to the interest of the revenue only because the capital gain was not deposited in the capital gain account scheme as a hyper-technical approach while dealing with the issue.

When the basic conditions of section 54(1) are satisfied, the assessee remains entitled to claim deduction under section 54.

FACTS

The assessee, a resident, filed a return of income declaring total income of ₹6,42,740. The AO upon receiving information that the assessee has sold immovable property for a consideration of ₹62,06,000 issued a notice under section 147. The assessee, in response, filed a return of income declaring the income to be the same as that declared in the original return of income.

In the course of assessment proceedings, the AO asked the assessee to submit details relating to property sold and capital gain arising out of such property. From the documents, the AO observed that the assessee along with one another had purchased the property for ₹20 lakh of which ₹10 lakh was contributed by the assessee. The property was sold for ₹62,06,000, out of which, the share of the assessee was ₹31,03,000. After reducing the indexed cost of acquisition, the long-term capital gain aggregated to ₹14,59,324. The assessee made purchase of a new residential property and consequently claimed that the entire long-term capital gain to be exempt under section 54. The AO completed the assessment accepting the returned income.

Subsequently, PCIT called for an examined assessment record and found that the amount of capital gain was not deposited in the capital gain account scheme during the interim period till its utilisation in purchase / construction of new property. The PCIT was of the view that these facts were not looked into by the AO and therefore the assessment order is erroneous and prejudicial to the interest of the revenue. After issuing a show cause notice and considering the response of the assessee thereto, the PCIT set aside the assessment order with a direction to disallow the deduction claimed under section 54 of the Act as the assessee has failed to deposit the amount of capital gain in the capital gain account scheme.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that in the course of assessment proceedings, the AO had thoroughly examined the issue of the sale of immovable property and the resultant capital gain arising from such sale. The AO had called upon the assessee to furnish details of exemption claimed under section 54 of the Act with supporting evidence. The Tribunal held that the AO has duly examined the issue relating to capital gain from the sale of the property as well as assessee’s claim of deduction under section 54 of the Act.

The Tribunal noted that the PCIT had not doubted the amount of capital gain arising in 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 mentioned in section 54(1) of the Act. It is only because the capital gain was not deposited in the capital gain account scheme, the revisionary authority has treated the assessment order to be erroneous and prejudicial to the interest of the revenue.

The Tribunal held that in its view, the PCIT adopted a hyper technical approach while dealing with the issue. The Tribunal held that when the basic conditions of section 54(1) have been satisfied, the assessee remains entitled to claim deduction under section 54 of the Act. The Tribunal also held that in any case of the matter, there is no prejudice caused to the Revenue as the assessee in terms of section 54(1) of the Act is entitled to deduction. The Tribunal held that exercise of power under section 263 of the Act to revise the assessment order to be invalid. The Tribunal quashed the order passed under section 263 of the Act and restored the assessment order.

The appeal filed by the assessee was allowed.

BCAJ Admin

Levy of penalty under section 271AAB is not mandatory. The AO has discretion after considering all the relevant aspects of the case to satisfy himself that the case of the assessee does not fall within the definition of an `undisclosed income’ as provided in Explanation to section 271AAB of the Act. Initiation of penalty will be invalid where show cause notice for initiation thereof neither specifies the grounds and default on the part of the assessee nor does it specify the undisclosed income on which the penalty is proposed to be levied.

47 JCIT vs. Vijay Kumar Saini

ITA No. 371/Jaipur/2023

A.Y.: 2020–21

Date of Order: 8th November, 2023

Section: 271AAB

Levy of penalty under section 271AAB is not mandatory. The AO has discretion after considering all the relevant aspects of the case to satisfy himself that the case of the assessee does not fall within the definition of an `undisclosed income’ as provided in Explanation to section 271AAB of the Act.

Initiation of penalty will be invalid where show cause notice for initiation thereof neither specifies the grounds and default on the part of the assessee nor does it specify the undisclosed income on which the penalty is proposed to be levied.

FACTS

A search under section 132 of the Act was carried out at the premises of the assessee in connection with search and seizure action on Saini Gupta Malpani — Somani Group of Ajmer on 13th February, 2020. During the year, under consideration, the assessee filed the return of income on 25th February, 2021, declaring a total income of ₹3,34,40,150. During the course of assessment proceedings, the assessee only furnished revised computation of the total income but the revised return of income was not found on the e-filing portal, nor was it furnished by the assessee. Revised computation of total income was not given cognizance and the assessment of total income was completed by making an addition of ₹2,87,50,000 to the returned income on account of an undisclosed business income, and assessing the total income at ₹6,21,90,150 vide order dated 29th September, 2021 passed under section 143(3) of the Act. The AO also initiated proceedings for levy of penalty under section 271AAB(1A) by issuing a show cause notice without specifying the default prescribed under section 271AAB(1A) of the Act.

In response to the show cause notice, the assessee furnished the reply but the same did not find favour with the AO and he held that the assessee is liable for penalty under section 271AAB(1A) @ 60 per cent of the undisclosed income of ₹2,87,50,000 and he levied a penalty of ₹1,72,50,000. In the penalty order, the AO did not point out any specific document and the nature of transactions recorded therein which may substantiate the charge that undisclosed income was detected during the course of search.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the order of CIT(A) by observing the appellant to be guilty of mischief of clause (a) of section 271AAB(1A) instead of clause (b) under which penalty was supposedly levied by the AO. Thus, CIT(A) granted partial relief to the assessee.

Aggrieved, by the order passed by the CIT(A), revenue preferred an appeal to the Tribunal.

HELD

At the outset, the Tribunal observed that this appeal by the revenue is a cross appeal against order passed by CIT(A) against which order, the assessee preferred an appeal being ITA No. 303/Jp/2023 raising common issue as raised by the revenue and the said appeal of the assessee has been disposed off vide Tribunal’s order dated 25th July, 2023. It observed that the appeal of the assessee has been decided on legal issues as well as on merits in favour of the assessee after elaborately discussing the matter at great length, and after considering the identical issues as have been decided by the co-ordinate benches in the case of Ravi Mathur vs. DCIT [ITA No. 969/Jp./2017; Order dated 9th April, 2019, and Rajendra Kumar Gupta vs. DCIT [ITA No. 359/Jp./2017; Order dated 18th January, 2019.

The Tribunal noted the decision in the appeal filed by the assessee wherein the Tribunal interalia observed that the assessee, in the course of search, admitted an undisclosed sales of ₹5 crore and offered the same for taxation, and therefore, penalty cannot be levied under section 271AAB of the Act. The Tribunal held that —

(i) it is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of `undisclosed income’ as defined in Explanation to section 271AAB(1A) of the Act;

(ii) the question whether the income disclosed by the assessee is undisclosed income in terms of definition of section 271AAB has to be considered and decided in penalty proceedings;

(iii) since the assessee has offered the said income to buy peace and avoid litigation with the department, the question of taking any decision by the AO in the assessment proceedings about the true nature of surrender made by the assessee does not arise, and only when AO has proposed to levy the penalty then it is a pre-condition for invoking the provisions of section 271AAB that the said income disclosed by the assessee in the statement under section 132(4) is an undisclosed income as per definition in section 271AAB. Therefore, the AO in proceedings under section 271AAB has to examine all the facts of the case as well as the basis of surrender and then arrive at the conclusion that the income disclosed by the assessee falls in the definition of undisclosed income.

(iv) it did not agree with the CIT(A) that levy of penalty under section 271AAB is mandatory simply because AO has to first issue a show cause notice and then has to make a decision for levy of penalty after considering the fact that all the conditions provided for in section 271AAB are satisfied. It relied on the ratio of the decision of the co-ordinate bench of the Tribunal in the case of Ravi Mathur vs. DCIT.

As regards the second issue regarding validity of initiation, the Tribunal while deciding the appeal of the assessee held —

“We further note that in the case in hand, the AO in the show cause notice has neither specified the grounds and default on the part of the assessee nor even specified the undisclosed income on which the penalty was proposed to be levied. Thus it is clear that the show cause notice issued by the AO for initiation of penalty proceedings under section 271AAB(1A) is very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon’ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 6th December, 2016 has concurred with the view taken by Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT vs. SSA’s Emerald Meadows, 242 taxman 180 (SC). Accordingly, following the decision of the Coordinate Bench as well as Hon’ble Jurisdictional High Court, this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed.”

Since Revenue did not place any material to controvert the submissions of the assessee, the Tribunal on the basis of observations made while deciding the appeal filed by the assessee, allowed the appeal of the assessee and dismissed the appeal filed by the Revenue as it had become infructuous.

BCAJ Admin

Once tax has been deducted at source credit, it therefore has to be granted to the deductee even though the deductor has not deposited the tax so deducted with the Government

46 Vishal Pachisia vs. ITO

ITA No.: 764/Kol/2023

A.Y.: 2016–17

Date of Order: 7th November, 2023

Section: 205

Once tax has been deducted at source credit, it therefore has to be granted to the deductee even though the deductor has not deposited the tax so deducted with the Government.

FACTS

The assessee, a salaried employee, received a salary of ₹17,40,264. The employer deducted tax at source of ₹3,96,700. The employer did not deposit the tax deducted in the government treasury. The assessee in its return of income claimed credit of taxes deducted at source which interalia included the tax of ₹3,96,700 deducted at source by the employer. The AO, CPC denied the credit in respect of the tax deducted at source by the employer on the ground that the same was not deposited by the employer in the government treasury.

Aggrieved, the assessee preferred an appeal to CIT(A) who held that since the employer of the assessee has not deposited the tax so deducted into the government treasury, the assessee is not entitled to claim the credit.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the case of the assessee is covered in its favour by Departmental Circular No. F.No. 275/29//2014–IT(B) and also by decision in Unique Buildcon Private Limited vs. ITO in W.P.(C) 7797/2003 order dated 31st March, 2023, and also decision of co-ordinate bench Pune in the case of Mukesh Padamchand Sogani vs. ACIT in ITA No. 29/Pune/2022 order dated 30th January, 2023.

The Tribunal observed that in all the above cases the issue of non-deposit of TDS by the deductor has been allowed in favour of the assessee by holding that once TDS is deducted then liability resulting from non-deposit of TDS by the deductor cannot be fastened upon the assessee.

The Tribunal having reproduced the operative part of the decision of the Pune bench in the case of Mukesh Padamchand Sognai (supra) followed the said decision and set aside the order of CIT(A) and directed the AO to allow the credit of TDS to the assessee.

The appeal filed by the assessee was allowed.

BCAJ Admin

S. 69B, 132 – Additions to total income not sustainable when no incriminating material was found during the search. S. 153A, 153C – Additions based on documents found during a search on a third party to be made under section 153C and not 153A of the Act

45 ACIT vs. Atul Kumar Gupta (Delhi – Trib.)

[2023] 103 ITR(T) 13 (Delhi – Trib.)

ITA No.: 1164 and 1931 (Delhi) of 2020 and 205, 206 & 1395 (Delhi) of 2021

A.Ys.: 2011-12, 2014-15 to 2016-17

Date of Order: 13th March, 2023

S. 69B, 132 – Additions to total income not sustainable when no incriminating material was found during the search.

S. 153A, 153C – Additions based on documents found during a search on a third party to be made under section 153C and not 153A of the Act.

FACTS

A search was conducted by income tax authorities in a group case inter alia including the assessee. It was contended that the assessee had purchased shares of some companies at a price which was less than book value and, therefore, the difference between book value and purchase price represented unaccounted investment was added to the total income under section 69B of the Act.

Further, certain additions were made to the total income of the assessee based on ledger accounts found in the course of a third-party search.

Aggrieved, the assessee filed an appeal before CIT(A). The CIT(A) ruled in favour of the assessee and deleted both the additions on the basis that no incriminating material was found during the search to make the impugned addition. CIT(A) further observed that there was no reference to any document that was suggestive of any undisclosed income as a result of the purchase of shares.

Aggrieved, the Revenue, filed an appeal before the ITAT.

HELD

The ITAT observed that the CIT(A) has passed a well-reasoned order appreciating the material on record. The basis for addition as stated by the Assessing Officer was incriminating material found during the search and post search enquiry. However, no material or documents or any other details were specifically indicated or provided by the Assessing officer.

The ITAT further observed that merely stating that seized materials are there and post-search enquiry has shown that the purchase prices have been suppressed, cannot be the basis of addition.

The ITAT thus concurred with the findings of the CIT(A) on the first aspect.

On the next aspect of additions based on ledger accounts found in the course of a third-party search, the ITAT observed that no addition can be made de hors the material found during the search. When a separate independent search was not conducted on the assessee and additions are sought to be made based on ledger accounts found in the course of third-party search, the same have to be made under section 153C of the Act and not under section 153A of the Act.

Accordingly, the ITAT deleted the addition on the second aspect.

The ITAT relied on multiple judicial decisions inter alia includingK.P. Varghese vs. ITO [1981] 131 ITR 597 (SC), CIT vs. Kabul Chawla [2015] 380 ITR 573 (Delhi), CIT vs. Gulshan Kumar [2002] 257 ITR 703 (Delhi), CIT vs. Naresh Khattar HUF [2023] 261 ITR 664 (Delhi) and Pr. CIT vs. SMC Power Generation Ltd.[IT Appeal No. 406 of 2019, dated 23rd July, 2019]

BCAJ Admin

S. 271(1)(c) — Penalty levied without any independent and specific finding being recorded as to how disallowance made by the Assessing Officer (AO) which was upheld by the Tribunal, would lead to a charge of furnishing of inaccurate particulars of income by the assessee, was unjustified and to be deleted

44 ISGEC Heavy Engineering Ltd. vs. ITO

[2023] 103 ITR(T) 152 (Chandigarh – Trib.)

ITA No.: 577 (CHH) OF 2022

A.Y.: 2014-15

Date of Order: 13th March, 2023

S. 271(1)(c) — Penalty levied without any independent and specific finding being recorded as to how disallowance made by the Assessing Officer (AO) which was upheld by the Tribunal, would lead to a charge of furnishing of inaccurate particulars of income by the assessee, was unjustified and to be deleted.

FACTS

The assessee-company’s case was selected for scrutiny proceedings and an assessment order under section 143(3) was passed on 30th December, 2016 making various additions. Thereafter, the AO had passed a rectification order u/s 154 wherein the AO had reduced the addition made u/s 14A r.w. Rule 8D from Rs1,42,26,765 to Rs.63,21,654. On appeal before CIT(A), all the additions were deleted except for the addition made u/s 14A r.w. Rule 8D. On further appeal before the Tribunal, the addition u/s 14A r.w. Rule 8D was restricted to an amount of Rs.5,00,000 on an estimated and lump sum basis.

The AO had initiated penalty proceedings u/s 271(1)(c) vide show cause notice dated 30th December, 2016 and 10th June, 2021. Without taking into account, the reply of the assessee company, the AO passed the order u/s 271(1)(c) and levied a penalty of Rs.1,54,500 on restricted addition of Rs.5,00,000 holding that the assessee had furnished inaccurate particulars of income.

Aggrieved, the assessee company filed an appeal before CIT(A). The CIT(A) confirmed the penalty levied without assigning any reasons.

Aggrieved, the assessee company filed an appeal before the ITAT.

HELD

The ITAT observed that the AO had levied the penalty merely on the basis of the addition of Rs.5,00,000 in the quantum proceedings. The ITAT observed that there was no independent and specific finding which had been recorded by the AO, as to why he was of the belief that the charge of furnished inaccurate particulars of income can be fastened on the assessee company and the reasons for arriving at such a finding given that penalty provisions have to be strictly construed.

The ITAT held that it is a settled legal proposition that the quantum and penalty proceedings are independent proceedings. Though the initiation of penalty proceedings happens during the course of assessment proceedings and has to be evident and emerge from the assessment order, before the penalty is fastened on the assessee, the AO has to record independent finding justifying the charge of furnishing of inaccurate particulars of income or for concealment of particulars of income.

The ITAT further held that before the AO proceeded to calculate the disallowance under Rule 8D(2)(iii), he was supposed to consider the assessee company’s submission and examine the accounts of the assessee company. The AO had to record his reasoning that he was not satisfied with the submissions of the assessee company, but no such exercise was done by the AO.

The ITAT following the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158directed to delete the penalty levied u/s 271(1)(c) and allowed the appeal.

BCAJ Admin

When income is offered for taxation under the head ‘Income from House Property’ but the income is assessed under the head ‘profits and gains of business or profession’ it cannot be said that the assessee has suppressed or under-reported any income. Where the assessee offered an explanation as to why it reported rental income under the head ‘income from house property’ and the explanation of the assessee was not found to be false, the case would be covered by s. 270A(6)(a)

43 D.C. POLYESTER LIMITED vs. DCIT

2023 (10) TMI 971 – ITAT MUMBAI

A.Y.: 2017-18

Date of Order: 17th October, 2023

Section: 270A

When income is offered for taxation under the head ‘Income from House Property’ but the income is assessed under the head ‘profits and gains of business or profession’ it cannot be said that the assessee has suppressed or under-reported any income.

FACTS

The assessee filed its return of income declaring total income to be a loss of Rs.72,200. In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee has offered rental income of Rs.29,60,000 under the head ‘income from house property’. The AO noticed that the assessee had declared the rental income from the very same property under the head ‘income from business’ in an earlier year, i.e., in A.Y. 2013-14. However, in the instant year, the assessee has declared rental income under the head ‘income from house property’ and also claimed various other expenses against its business income. He further noticed that there was no business income during the year under consideration.

The AO assessed rental income under the head `business’ and consequently the assessee was not entitled to deduction under section 24(a) of the Act. This resulted in assessed income being greater than returned income.

The AO initiated proceedings for the levy of penalty under s. 270A. In the course of penalty proceedings, it was submitted that the assessee has not under-reported the income since the addition pertains only to statutory deduction under section 24(a). The AO held that the furnishing of inaccurate particulars of income would have gone undetected, if the return of income of the assessee was not taken up for scrutiny. He also took the view that the claim of statutory deduction as well as expenses in the Profit and Loss account under two different heads of income would tantamount to under-reporting of income under section 270A of the Act. The AO levied a penalty of Rs.1,83,550 under section 270A of the Act.

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.

HELD

The Tribunal observed that since section 270A of the Act uses the expression “the Assessing Officer ‘may direct” — there is merit in the contention of the assessee that levying of penalty is not automatic and discretion is given to the AO not to initiate penalty proceedings under section 270A of the Act.

It held that it is not a case that the assessee has suppressed or under-reported any income. The addition came to be made to the total income returned by the assessee, due to a change in the head of income, i.e., the addition has arisen on account of computational methodology prescribed in the Act. It held that, in its view, this kind of addition will not give rise to under-reporting of income. The Tribunal was of the view that the AO should have exercised its discretion not to initiate penalty proceedings u/s 270A of the Act in the facts and circumstances of the case.

The Tribunal observed that the assessee has offered an explanation as to why it reported the rental income under the head Income from House property and the said explanation is not found to be false. Accordingly, it held that the case of the assessee is covered by clause (a) of sub. sec. (6) of sec. 270A of the Act. The Chennai bench of the Tribunal has held in the case of S Saroja (supra) that if a bona fide mistake is committed while computing total income, the penalty u/s 270A of the Act should not be levied.

The Tribunal deleted the penalty levied under section 270A of the Act.

BCAJ Admin

The rate of tax mentioned in s. 115BBE does not apply to income surrendered in the course of the search, in a statement made under section 132(4), and the Department has no dispute with regard to the explanation of the assessee regarding the source of the surrendered income

42 DCIT vs. Tapesh Tyagi

TS-642-ITAT-2023 (DEL)

A.Y.: 2017-18

Date of Order: 27th October, 2023

Sections: 69A, 132, 115BBE

The rate of tax mentioned in s. 115BBE does not apply to income surrendered in the course of the search, in a statement made under section 132(4), and the Department has no dispute with regard to the explanation of the assessee regarding the source of the surrendered income.

FACTS

In the course of search action on the assessee, an individual, a loose paper was found in the possession of the assessee with an amount Rs.30.20 mentioned with the description “Com Trade”. In the statement recorded under section 132(4) of the Act, when the assessee was confronted with the said paper, the assessee submitted that it indicates profit earned by him from “Commodity Trade”. This amount was surrendered as an income in the statement recorded. This amount was also offered for taxation in the return of income filed by the assessee subsequent to the search. However, tax on this amount was paid at a normal rate and not at the rate mentioned in section 115BBE.

According to the Assessing Officer (AO), income surrendered by the assessee is in the nature of unexplained money in terms of section 69A of the Act. Though he did not make any separate addition of the said amount in the assessment order, he treated it as income under Section 69A of the Act. However, he did not make any change to the tax rate applied by the assessee. Subsequently, the AO passed an order under Section 154 of the Act, wherein, he applied the rate of tax as prescribed under Section 115BBE of the Act.

Aggrieved with the higher rate of tax being levied, the assessee preferred an appeal to the CIT(A) who held that the income subjected to tax at the rate prescribed under Section 115BBE of the Act cannot be treated as income of the nature provided under Section 69A of the Act. Hence, a normal tax rate would be applicable to such income. The CIT(A) allowed the appeal filed by the assessee.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the short issue arising for consideration is whether a special rate of tax provided under Section 115BBE of the Act would be applicable to the income surrendered by the assessee in the course of search and seizure operation and offered in the return of income.

The Tribunal held that the facts clearly establish that at the time of the search and seizure operation itself, the assessee has explained the source of the amount offered as income to be the profit derived from “commodity trade”, which is in the nature of business income. It observed that It also appears that the departmental authorities have no dispute with regard to the explanation of the assessee regarding the source of the surrendered income.

As rightly observed by the learned First Appellate Authority, section 69A uses the word “may”, which implies that if the explanation offered by the assessee regarding the source of money, bullion, jewellery or other valuable articles is satisfactory, it cannot be treated as unexplained money under Section 69A of the Act. In the facts of the present appeal, there is nothing on record to suggest that the assessee’s explanation regarding the source of the income offered has either been doubted or disputed at the time of the search and seizure operation or even during the assessment proceedings. Therefore, in our view, the income offered by the assessee cannot be treated as unexplained money under Section 69A of the Act. Therefore, as a natural corollary, section 115BBE of the Act would not be applicable.

The Tribunal observed that in the facts of the present appeal, admittedly, the assessee has not offered the income under Section 69A of the Act. It observedthat even, the AO has not made any separate additionunder Section 69A of the Act but has merely re-characterized the nature of income offered by the assessee. The Tribunal held that the provisions of sections 115BBE would not be applicable to the facts of the present appeal.

The Tribunal dismissed the appeal filed by the Revenue.

BCAJ Admin

Where the assessee sold flats at varied rates and the variation in rate was significant, Revenue directed to apply the weighted average rate of all the units for estimating the value of sales (except for one unit which is incomparable) and thus, to be valued at actual instead of the maximum rate applied by the Revenue to estimate sale value of the flats sold at varied rates by the assessee

41 DCIT vs. Mighty Construction Pvt. Ltd.

TS-522-ITAT-2023 (Mum)

A.Ys.: 2011-12 to 2013-14

Date of Order: 25th August, 2023

Section: 28

Where the assessee sold flats at varied rates and the variation in rate was significant, Revenue directed to apply the weighted average rate of all the units for estimating the value of sales (except for one unit which is incomparable) and thus, to be valued at actual instead of the maximum rate applied by the Revenue to estimate sale value of the flats sold at varied rates by the assessee.

FACTS

The assessee, a builder and developer, constructed a building known as `Universal Majestic’. During the assessment year 2011-12, the AO noticed that the flats in this building have been sold at varied rates ranging from Rs.13,513 per sq. feet to Rs.27,951 per sq. feet. He noted the comparable sale instances in the assessment order.

In the reply to the show cause notice, the assessee gave various factors and reasons for the variation in the prices for example, firstly, some units had additional flower bed area; secondly, due to various Vaastu angles and passage for the flat which commanded different prices; thirdly, certain units had additional areas like store room, flower bed and passage area, and lastly, some of the units had no natural ventilation and due to certain market conditions also, the price bookings and rates are varied. Apart from that, it was also submitted that the project was off-location and no good development and construction in the surrounding area was there during that period and it was covered with slums all around the building premises.

The Assessing Officer (AO) rejected all the contentions after giving his detailed reasoning stating that, firstly, the project was centrally located and directly accessible to Eastern Express Highway and easily accessible from Mumbai International Airport and Domestic Airport, and newly built freeway flyovers have come connecting to various important places. Apart from that, he also rebutted the assessee’s contention of the additional flower bed area and passage area on the grounds that as per the Municipal rules, a builder can only sell areas as per the approved plans, and any encroachment done on the flower bed or any alteration without the permission of the Municipal authorities is not permissible and the passage area is only common area property for the society wherein nobody can encroach. Regarding the Vaastu factor also, he has given his detailed analysis by bringing in certain comparable instances of the flats sold by the assessee itself. Thus, he held that the justifications and the submissions given by the assessee to prove the variation in the rates are only an afterthought.

The AO held that the rate per sq. ft should be Rs.27,951, this being the highest rate per sq. ft, as of 31st August, 2010, since most of the other bookings were somewhere close to this date and accordingly, he worked out the sale cost of each unit. The AO added a sum of Rs.46,75,48,737 to the returned total income on this account.

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

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that a huge variation in the sale price of different units of the same project was not found to be justifiable by the AO. The AO has rebutted the explanation given by the assessee but the CIT(A) without much factual analysis has deleted the addition made by the AO.

The Tribunal held that though there could be some variation in the rates per unit depending upon various factors which cannot be brushed aside, but to accept that there would be such huge variation is beyond any prudence and reality. Thus, such a huge difference is certainly not justified and even the action of the AO to take the maximum rate of units sold is also not justified. Because factors like total area, extra accessible and useable area of particular unit and location and ventilation of the unit etc., do have variation in the price and the premium paid. Therefore, it would be very difficult to apply any kind of logic to accept the version of both assessee as well as AO.

The Tribunal asked the AR to submit a weighted average rate at which the flats were sold and noted that the weighted average rate comes to Rs.17,712 per sq. feet. It found that there is one unit which is a shop cum garage and definitely it cannot be compared with other units where the agreement rate was very low and therefore, the same rate of Rs.17,172 cannot be applied. The Tribunal held that in the weighted average, this particular unit sold would be excluded while calculating the weighted average, and the actual price should be taken, and for all other 12 units, the rate for estimating the sales to be taken at Rs.17,172. The Tribunal directed the AO to work out the consequential relief.

BCAJ Admin

S. 69A – Where there was a huge amount available with the assessee in the form of cash which he had deposited during demonetization, it could not be presumed that cash deposited by the assessee was out of some undisclosed source without any adverse material.

40 Om Prakash Nahar vs. ITO

[2022] 100 ITR (T) 345 (Delhi – Trib.)

ITA No.: 960 (Del) of 2021

A.Y.: 2017-18

Date of Order: 27th January, 2022

S. 69A – Where there was a huge amount available with the assessee in the form of cash which he had deposited during demonetization, it could not be presumed that cash deposited by the assessee was out of some undisclosed source without any adverse material.

FACTS

The assessee was an individual. The assessee was a senior citizen, aged about 79 years old and a retired Govt. servant and had declared income of ₹19,06,400 from income from Pension and earnings from bank interest. The assessee’s case was selected under CASS for limited scrutiny to verify cash deposits during the demonetisation period.

The assessee explained that the amount of ₹63,63,000 was deposited in Bank of Baroda out of withdrawals from the same account from time to time made during the years 2014, 2015 and 2016, because of his suffering from serious illness — juvenile diabetes and old age. It has also been submitted by the assessee that he had undergone bypass surgery and operation in the past and looking to his ailment and staying alone with his wife, therefore, he has been withdrawing and keeping cash for his personal and psychological security. The AO rejected the assessee’s explanation and held that there is no substantial justification given by the assessee and accordingly, added the entire amount of ₹63,63,000 under section 69A/115BB of the Act.

Aggrieved, the assessee filed an appeal before CIT(A). The CIT(A) restricted the addition to ₹44,13,000 after holding that the cash withdrawn from the bank account from 1st April, 2016 to 9th November, 2016 for sums aggregating to ₹19,50,000 can be held to be out of money withdrawn from the bank account, which was deposited after demonetisation.

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

HELD

The ITAT observed that the assessee looking at his old age and suffering from various ailments as he had suffered a heart attack and had juvenile diabetes, for his mental security, he was in the habit of keeping huge cash with him. The ITAT also observed that the assessee had been withdrawing cash and keeping it with him after withdrawing from his bank account.

From the perusal of the history of cash withdrawals starting from the financial year 2014-15, the ITAT observed that the assessee has been regularly withdrawing huge cash amounts on various dates and there was hardly any credit balance left in his bank account. The ITAT held that the fund’s flow statement as submitted by the assessee clearly showed that each and every withdrawal has been mentioned and utilisation thereof and the money being withdrawn from the bank account. Even after household withdrawal, there was a huge amount available with the assessee in the form of cash. Under these facts and circumstances stated by the assessee, the ITAT held that it cannot be held to be improbable that the assessee did not have any availability of cash at the time of demonetisation. Further, it was never brought on record whether the assessee was carrying out any business or profession or was having income from undisclosed sources of income which can be said to be available with the assessee in the form of cash. The ITAT found the explanation of the assessee to be reasonable and plausible and preponderance of probability was in the favour of the assessee and without any adverse material, it cannot be presumed that the cash deposited by the assessee is out of his undisclosed source. Accordingly, the addition of ₹44,13,000 as sustained by the CIT (Appeals) was deleted.

The appeal of the assessee was allowed.

BCAJ Admin

S. 2(14), 50C, 43CA, 2(47), 263 — Where the assessee being an owner of the land had entered into a joint development agreement (JDA) with a developer, such an agreement of transfer of possession for development of property does not constitute transfer as per the Act as to attract provisions of section 43CA and said the order could not be treated as prejudicial to the interest of revenue.

39 Emporis Properties (P.) Ltd. vs. PCIT

[2022] 100 ITR(T) 1 (Kolkata – Trib.)

ITA No.: 299 (Kol.) of 2022

A.Y.: 2014-15

Date of Order: 22nd September, 2022

S. 2(14), 50C, 43CA, 2(47), 263 — Where the assessee being an owner of the land had entered into a joint development agreement (JDA) with a developer, such an agreement of transfer of possession for development of property does not constitute transfer as per the Act as to attract provisions of section 43CA and said the order could not be treated as prejudicial to the interest of revenue.

FACTS

The assessee had entered into a joint development agreement (JDA) with a developer, wherein after the construction of the housing complex, a 55 per cent portion of the same would pertain to the assessee and the balance will pertain to the developer. In the course of the assessment, the Assessing Officer (AO) was of the primary view that the execution of JDA amounted to the transfer of the capital asset and therefore taxable as capital gains.

The assessee replied stating that there was no transfer of any capital asset on handing over possession of land to the developer. Further, it was submitted that the said land was stock-in-trade and therefore the same cannot be treated as a capital asset u/s 2(14) of the Act.

The AO accepted the said contention and did not make any additions to the total income of the assessee.

Thereafter, the Commissioner invoked his jurisdiction u/s 263 of the Act and stated that the said transaction was not examined in the light of section 43CA of the Act, making the order prejudicial to the interest of Revenue. Accordingly, the matter was set aside for the AO to ascertain the applicability of provisions of section 43CA of the Act to the JDA.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The ITAT, on the perusal of the terms of the JDA, observed that the assessee had continued to be the owner of the property throughout the development of the property. The possession was only transferred for the development of the property.

It was also observed by the ITAT that there was no transfer / sale of the land under the JDA. Under the agreement, the developer would develop the land making it saleable and in lieu of the construction of the same, the developer will be provided a part of the stock-in-trade. Further, since the JDA cannot be considered as a transfer, the provisions of section 43CA will not have any applicability.

The ITAT held that merely, because the JDA has been registered with the municipal authorities and stamp duty has been paid on the agreement that does not attract the provisions of section 43CA of the Act.

Neither the terms and conditions of the JDA nor the registration authority has treated the JDA as transfer / conveyance.

The ITAT quashed the revision order and allowed the appeal of the assessee.

BCAJ Admin

S. 68 – Where the assessee-company had produced all the documents and evidence to establish the identity, genuineness and creditworthiness of investors by filing complete details including their bank statement and audited financial statements, share application money cannot be treated as unexplained or non-genuine merely on the ground that the directors could not appear before the Assessing Officer personally.

38 Dharmvir Merchandise (P.) Ltd. vs. ITO

[2023] 101 ITR (T) 279 (Kolkata – Trib.)

ITA No.: 1938(KOL) OF 2018

A.Y.: 2012-13

Date of Order: 13th December, 2022

S. 68 – Where the assessee-company had produced all the documents and evidence to establish the identity, genuineness and creditworthiness of investors by filing complete details including their bank statement and audited financial statements, share application money cannot be treated as unexplained or non-genuine merely on the ground that the directors could not appear before the Assessing Officer personally.

FACTS

The assessee-company had issued fresh share capital during the year and received a certain sum from three companies. In the course of assessment proceedings, the assessee-company was called upon to explain the source of the said amount of share capital. The assessee company had provided all the details pertaining to the share capital issue.

Further, summons were issued to the directors of the company u/s 131 of the Act. The directors complied with the summons and had furnished their replies to the Assessing Officer (AO).

The AO, without pointing out any defect in the submissions of the assessee company and the directors, solely stressed upon the personal appearance of the directors. Since the directors were unable to appear personally before the AO, the sum received against share capital was added to the total income of the Assessee company u/s 68 of the Act.

Aggrieved, the assessee company filed an appeal before CIT(A). The CIT(A) upheld the action of the AO due to non-appearance of the assessee on the date of hearing.

Aggrieved, the assessee company filed an appeal before the ITAT.

HELD

The ITAT observed that the primary onus of establishing the identity, genuineness and creditworthiness of investors was discharged by the assessee company by filing complete details of the share subscriber companies including their bank statement, audited financial statements, Form No. 18 in support of registered office address, source and utilisation of funds, copies of ITRs and copies of all relevant company returns.

It was also observed by the ITAT that once the primary onus is discharged by the assessee, the onus shifts on the AO to disprove the documents furnished by the assessee, so as to draw an adverse view or rebut the submissions of the assessee.

Further, it was observed by the ITAT that shareholders were duly served notice under section 133(6) thereby establishing the identity of such shareholders. Since transactions have been executed through a banking channel which is traceable from the origin to the destination of such payments and further confirmed from the documents furnished, this proves the genuineness of the transaction. Creditworthiness of the transaction was established from the fact that all the shareholder companies were having more than sufficient share capital and reserve and surplus funds for giving share application money.

The ITAT relied on the following decisions:

• CIT vs. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78 (SC)

• Dy. CIT vs. Rohini Builders [2002] 256 ITR 360 (Guj HC)

• CIT vs. Kamdhenu Steel & Alloys Limited ITA No. 972 of 2009 (Del HC)

• PCIT vs. Chain House International (P.) Ltd. 98 taxmann.com 47 (MP HC)

• CIT vs. Gagandeep Infrastructure (P.) Ltd. 80 taxmann.com 272 (Bombay)

• Tradelink Carrying (P.) Ltd. vs. ITO [2020] 181 ITD 408 (Kol. – Trib.)

• Satyam Smertex (P.) Ltd. vs. Dy. CIT [2020] 184 ITD 357 (Kol. – Trib.)

The ITAT held that the additions made were based on conjectures and surmises and that the invocation of section 68 of the Act was not justified.

In result, the appeal filed by the assessee company was allowed.

BCAJ Admin

A bank can receive Form No. 15G and need not deduct tax at source only in the cases, where the declaration is given that the tax liability on total income including the interest income will be Nil provided the interest income does not exceed the basic exemption limit. But where the interest income exceeds the basic exemption limit, the bank needs to deduct tax at source notwithstanding the furnishing of declaration in Form No. 15G and the bank will be treated as assessee in default u/s 201(1), where not only it failed to deduct tax at source but the customer also failed to pay such tax directly.

37 Bank of India vs. DCIT (TDS)

TS-582-ITAT-2023 (Nag.)

A.Y.: 2012-13

Date of Order: 28th August, 2023

Sections: 191, 194A, 197A, 201(1A)

A bank can receive Form No. 15G and need not deduct tax at source only in the cases, where the declaration is given that the tax liability on total income including the interest income will be Nil provided the interest income does not exceed the basic exemption limit. But where the interest income exceeds the basic exemption limit, the bank needs to deduct tax at source notwithstanding the furnishing of declaration in Form No. 15G and the bank will be treated as assessee in default u/s 201(1), where not only it failed to deduct tax at source but the customer also failed to pay such tax directly.

FACTS

The assessee bank was required to deduct tax at source under section 194A of the Act. Based on spot verification, it was found that in four cases, the assessee has not deducted tax at source in respect of amounts paid/credited in excess of basic exemption limits on the ground that the assessee had received declarations in Form No. 15G/15H. After considering the reply of the assessee, the Assessing Officer (AO) held the assessee to be in default under section 201 to the tune of R1,90,801.

Aggrieved, the assessee preferred an appeal to the CIT(A) who did not admit the appeal on the ground that there was a delay of about 633 days in filing the appeal. Even after granting credit in respect of the corona period, there was a delay of 324 days which he did not condone.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

Explanation to section 191 clearly provides that the person responsible for the deduction of tax at source can be treated as assessee in default under section 201(1) in respect of such tax, only if he does not deduct or fails to pay thereafter, and the recipient has also failed to pay such tax directly. It is only upon the cumulative satisfaction of both conditions that the person responsible can be treated as assessee in default. In the present case, admittedly the assessee did not deduct tax at source but there is no material to show that the recipient also paid such tax directly. The Tribunal held that the contention of the AR that on receipt of Form No. 15G/15H, its obligation is discharged and the assessee cannot be treated as an assessee in default u/s. 201(1), does not pass the scrutiny of the mandate of Explanation to section 191, which clearly provides that the recipient “has also failed to pay such tax directly”.

On reading sub-section (1A) in juxtaposition to sub-section (1B) of section 197A, it transpires that even if the tax on the estimated total income of the recipient including interest other than interest on securities will be Nil, but the deduction of tax at source would still be required where the amount of interest income exceeds the basic exemption limit.

Thus, on a harmonious construction of the above provisions, it is manifested that a bank can receive Form No. 15G and need not deduct tax at source only in the cases, where the declaration is given that the tax liability on total income including the interest income will be Nil, provided the interest income does not exceed the basic exemption limit. But where the interest income exceeds the basic exemption limit, the bank needs to deduct tax at source notwithstanding the furnishing of declaration in Form No. 15G and the bank will be treated as assessee in default u/s 201(1), where not only it failed to deduct tax at source but the customer also failed to pay such tax directly.

The net effect of the Explanation to section 191, section 194A read with sections 197A and 201 is that there will be no obligation to deduct tax at source on furnishing the necessary declaration by customers where either the interest income does not exceed the basic exemption limit, or the depositor is more than the prescribed age and he furnishes the declaration that tax on his total income including interest from the bank will be Nil.

In order to treat a person as an assessee in default, firstly, there should be an obligation to deduct tax at source and despite such obligation, the person fails to deduct tax at source or pay after such deduction, and further the payee has also not paid tax directly.

The question of whether the assessee is in default in terms of section 201(1) needs to be determined in the light of Explanation to section 191. However, the cases covered u/s 197A(1A) [i.e. the eligible person furnishing declaration in Form No. 15G that his tax liability on total income, including the interest, will be Nil] but not hit by section 197A(1B) [i.e. interest income other than interest on securities as referred to in section 194A does not exceed the basic exemption limit], will at the outset be excluded from consideration as not entailing any obligation to deduct tax at source. Similarly, the cases covered u/s 194A(1C) [i.e. persons exceeding the specified age furnishing Form No. 15H to the effect that tax on their total income including such interest will be Nil] will also be excluded.

Interest u/s 201(1A) is payable by the assessee — even w.r.t. the cases where it is not in default in terms of Explanation to section 191 – from the date when the tax was deductible up to the date of filing of return by the payee including the interest income in his total income. However, the cases in which there is no obligation to deduct tax at source will not be considered for interest u/s 201(1A) of the Act.

The Tribunal set aside the impugned order and sent the matter back to the AO for passing a fresh order u/s 201(1)/(1A) in the light of the above directions. In case, it is found that the recipients included such an amount of interest in their total income, then the assessee should not be treated in default in terms of section 201(1).

BCAJ Admin

AO not having rejected books of accounts could not make any estimated additions or resort to section 44AD.

36 Bulu Ghosh vs. ITO

2023 Taxscan (ITAT) 2508 (Kol – Trib.)

ITA No.: 729/Kol./2023

A.Y.: 2016-17

Date of Order: 18th October, 2023

Sections: 44AD, 145A

AO not having rejected books of accounts could not make any estimated additions or resort to section 44AD.

FACTS

The assessee filed a return of income for the A.Y. 2016-17 which was duly processed u/s 143(1) of the Act. In the course of proceedings for scrutiny assessment, the assessee furnished the necessary details asked for, by providing a copy of the audit report along with P & L A/c and balance sheet for the year ended 31st March, 2016. The Assessing Officer (AO) examined the documents which were produced before him during the assessment proceeding and found that the assessee had reflected a net loss of ₹13,80,362 from contractual business, whereas, as per 26AS, the total value of contract works is ₹22,13,069. On this issue, the AO asked the assessee to explain the discrepancy. However, the assessee could not furnish any documentary evidence to reconcile the same within the stipulated time provided by the AO. Thus the AO decided to add an amount of ₹1,77,046 by calculating 8 per cent of the total contract value of ₹22,13,070 by resorting to the provisions of section 44AD of the Act.

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.

HELD

The Tribunal observed that the main grievance of the assessee in the appeal is that the assessee maintained complete books of accounts and also filed an audit report. There is no whisper in the assessment order about the mistake in the books of account. The AO has not invoked the provision of section 145(3) of the Act and without rejecting the books of accounts, an addition cannot be made as held by the Rajasthan High Court in the case of CIT vs. Maharaja Shree Umaid Mills Ltd. [192 ITR 565].

The Tribunal held that in the present case, the assessee has filed duly audited balance sheets along with P & L A/c before the AO at the time of framing of the assessment order. However, such books of accounts were never rejected by the AO in accordance with the law, and even the AO as well as CIT(A) has not given any findings on the issue. In view of the decision of the Rajasthan High Court in the case of CIT vs. Maharaja Shree Umaid Mills Ltd. (supra), profits cannot be estimated without rejecting books of account. Following the said judgement and based on the discussion of facts recorded, the Tribunal accepted the contentions of the assessee and directed the AO to delete the additions made.

BCAJ Admin

AO having not disputed that the provisions of section 44AD are not applicable, could not have called upon the assessee to produce P&L Account to show the source of expenditure. The addition, if challenged, would have been deleted. Penalty proceedings are independent proceedings. Such incorrect addition is not liable to penalty under section 270A.

35 Prem Kumar Goutam vs. DCIT

2023 Taxscan (ITAT) 2510 (Kol – Trib.)

ITA No.: 156/Pat./2023

A.Y.: 2017-18

Date of Order: 12th October, 2023

Section: 270A

AO having not disputed that the provisions of section 44AD are not applicable, could not have called upon the assessee to produce P&L Account to show the source of expenditure. The addition, if challenged, would have been deleted. Penalty proceedings are independent proceedings. Such incorrect addition is not liable to penalty under section 270A.

FACTS

The assessee, a brick kiln dealer and composition dealer, under Bihar Value Added Tax, 2005, filed his return of income under section 139(4) on 29th March, 2018, under section 44AD of the Act. The assessee disclosed gross receipts of ₹ 49,45,000 and offered income thereon at 8 per cent, i.e. ₹3,95,600. The Assessing Officer (AO) in an order passed under section 143(3) of the Act made an addition of ₹76,000, a payment made to the Mining Department, ₹25,000 as VAT and ₹2,500 as the profession tax on the ground that the assessee has failed to explain the sources of these payments. The AO held that these amounts were incurred by the assessee out of unexplained income. He, accordingly, taxed these amounts under section 69C. He also initiated penalty proceedings under section 270A of the Act and levied a penalty under section 270A.

Aggrieved by the levy of penalty, 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.

HELD

The Tribunal observed that the dispute is, whether the benefit of any inherent jurisdictional lacuna committed by the AO could again be availed by the assessee for absolving himself from the levy of penalty under section 270A of the Income-tax Act. The AO nowhere disputed that the assessee does not fall in the category provided under section 44AD.

In case, where income is offered @ 8 per cent of the gross receipts under section 44AD and the AO did not record a finding that this benefit u/s 44AD is not available to the assessee, then, he cannot direct the assessee to produce Profit & Loss Account and show the sources of the expenditure. The estimated rate of 8 per cent in itself takes care of all expenses incurred by an assessee. No further inquiry is required to be made. There was an incorrect approach adopted by the AO while passing the assessment order. The assessee did not dispute the determination of income otherwise the addition would have been deleted.

But the penalty proceeding is an independent proceeding. The assessee can take all jurisdictional pleas to absolve him from the levy of penalty. The assessee cannot be charged that he has under-reported the income and is liable to be visited for the penalty under section 270A of the Income-tax Act.

The appeal filed by the assessee was allowed.

BCAJ Admin

Section 54B — Where assessee claimed capital gains arising on sale of agricultural land as exempted u/s 54B on purchase of another agricultural land, since the assessee had furnished all sales documents viz., agreement to sell and purchase, receipt, possession letter, GPA and affidavit, along with a copy of the return filed by the land owner, from whom new land was purchased, wherein she had declared capital gains arising from the sale of its land to assessee, the benefit of exemption u/s 54B was allowable.

34. ITO vs. Babita Gupta

[2022] 100 ITR(T) 252 (Delhi – Trib.)

ITA No.: 5313 (Delhi) of 2019

A.Y.: 2014–15

Date of Order: 18th October, 2022

Section 54B — Where assessee claimed capital gains arising on sale of agricultural land as exempted u/s 54B on purchase of another agricultural land, since the assessee had furnished all sales documents viz., agreement to sell and purchase, receipt, possession letter, GPA and affidavit, along with a copy of the return filed by the land owner, from whom new land was purchased, wherein she had declared capital gains arising from the sale of its land to assessee, the benefit of exemption u/s 54B was allowable.

FACTS

In the course of assessment proceedings, the AO noticed that the assessee had sold agricultural land measuring 8 bighas situated in the Revenue Estate of Bakkarvala Village, Delhi for a consideration of ₹8,76,56,250 and claimed long-term capital gain of ₹8,48,80,881 as deduction u/s 54B of the Act. The assessee submitted the documentary evidences such as the copy of the agreement to sell, to purchase the agricultural land in the year 2000, copy of General Power of Attorney, copy of possession letter, affidavit of Shri Kali Ram Ganga Bishan (HUF) in proof of purchase of land by the assessee and copy of sale deed, dated 7th November, 2013, executed in the name of Pearls Life Style Developers (P) Ltd [Old Agricultural Land] and copy of the sale deed, dated 15th November, 2013, for the purchase of new agricultural land from Smt. Sumitra Devi Gupta, copy of General Power of Attorney, copy of possession letter, affidavit of Smt. Sumitra Devi Gupta in proof of purchase of land by the assessee[New Agricultural Land].

The AO while completing the assessment u/s 143(3) of the Act accepted the first transaction i.e., the sale of Old Agricultural land as genuine and fulfilled all the criteria and the second transaction i.e., the purchase of New Agricultural Land was not accepted on the ground that this transaction was made through General Power of Attorney only to claim deduction u/s 54B of the Act.

Aggrieved by the order of AO, the assessee filed an appeal before CIT(A). The CIT(A) considering the submissions of the assessee, the evidence furnished before him and following the decision of the Hon’ble Delhi High Court in the case of CIT vs. Ram Gopal [2015] 55 taxmann.com 536/230 Taxman 205/372 ITR 498 allowed deduction u/s 54B of the Act as claimed by the assessee.

Aggrieved by the order of CIT(A), the revenue filed a further appeal before the Tribunal.

HELD

The ITAT observed that the assessee immediately upon receiving the payments (through the banking channel) on account of sale consideration in respect of old agricultural land the assessee had invested the whole of the sale consideration received in respect of her old agricultural land towards the purchase of new agricultural land. Since the assessee had purchased the new agricultural land by investing the whole of the sale consideration in respect of the old agricultural land within the next few days, she had become eligible and entitled to claim the deduction / exemption u/s 54B of the Act, and accordingly, the assessee had claimed the deduction / exemption u/s 54B in her ITR filed for A.Y. 2014–15, which was denied by the AO.

The Tribunal observed that the AO accepted the transactions pertaining to old agricultural land and disbelieved the transaction of purchase of agricultural land from Smt. Sumitra Devi Gupta made by the assessee during the assessment year under consideration for the reason that there was no mutation in the Revenue Records and the purchaser of the property, Smt. Sumitra Devi Gupta, did not respond to the notice issued u/s 133(6) of the Act.

The ITAT further observed that in the course of appellate proceedings, the assessee had furnished the Return of Income filed by Smt. Sumitra Devi Gupta from whom the land was purchased by assessee, wherein the capital gain was declared by Smt. Sumitra Devi Gupta in her return of income for the A.Y. 2014–15.

The ITAT relied on the decision of the Delhi High Court in the case of Ram Gopal (supra) wherein it was observed that the Hon’ble Supreme Court’s decision in the case of Suraj Lamp & Industries (P) Ltd (340 ITR 1 SC) is of no consequence because the Hon’ble Apex Court had dealt with whether a sale or transfer based upon confirming a GPA amounted to sale / conveyance but the Hon’ble Apex Court did not consider and had no occasion to deal with section 2(14) and section 2(47) of the Act in the context of a claim of acquisition of rights of property and interest in a capital asset for the purpose of Income-tax Act, 1961. Applying the principles of this decision, the ITAT held that there was no infirmity in the order passed by the CIT(A) in allowing the exemption claimed u/s 54B of the Act as claimed by the assessee.

In the result, the appeal filed by the revenue was dismissed.

BCAJ Admin

Section 4 — Where pursuant to search upon assessee-company, an addition was made merely on the basis of statements recorded of ex-employees and where no incriminating material was recovered from premises of assessee, impugned addition made without giving assessee opportunity to cross-examine said ex-employees and dealers was unjustified. The department had failed to follow the cardinal principle of providing adequate opportunity for rebuttal of evidence being sought to be relied upon.

33. DSG Papers (P) Ltd vs. ACIT/DCIT

[2022] 99 ITR(T) 241 (Chandigarh – Trib.)

ITA No.: 82 to 86 (Chd.) of 2022

A.Ys.: 2013–14 to 2017–18

Date of Order: 29th July, 2022

Section 4 — Where pursuant to search upon assessee-company, an addition was made merely on the basis of statements recorded of ex-employees and where no incriminating material was recovered from premises of assessee, impugned addition made without giving assessee opportunity to cross-examine said ex-employees and dealers was unjustified. The department had failed to follow the cardinal principle of providing adequate opportunity for rebuttal of evidence being sought to be relied upon.

FACTS

The assessee-company was engaged in the business of manufacturing paper and paper products. For the A.Y. 2013–14, the assessee company’s case was selected for scrutiny proceedings u/s 143(3) and was completed on 20th March, 2016, at the returned income. Subsequently, the PCIT, Patiala set aside the assessment order and directed the Assessing Officer (AO) to pass a fresh assessment order vide order u/s 263, dated 31st August, 2017. The assessment subsequent to the revisionary proceedings was completed on 26th December, 2018, wherein the income of the assessee company as per the original assessment order passed u/s 143(3) on 20th March, 2016, was confirmed.

Meanwhile, there was a search and seizure operation on 5th August, 2016, on the business premises of the assessee-company, and the search was also conducted on Shri Sanjay Dhawan, an ex-president of the assessee company as well as three-four dealers of the assessee company and some ex-employees of the assessee company. During the course of the search at the residential premises of Shri Sanjay Dhawan, parallel invoices of goods manufactured and sold by the assessee-company were allegedly recovered. The evidence of undervaluation of sales was allegedly in the form of statements of third parties recorded u/s 14 of the Central Excise Act, 1944. There was also allegedly evidence of unaccounted sales and undervaluation of accounted sales made to third parties in the form of e-mail communication between the assessee-company and third parties. The information was passed on by the Intelligence Wing of GST to the Income-tax Department that the assessee-company had been allegedly suppressing its turnover by way of not accounting for the sales by under-invoicing the sales. Relying upon the said information and the said statements, the AO had initiated the reassessment proceedings u/s 147.

During the course of reassessment proceedings, the assessee-company had specifically requested to cross-examine the persons on whose statements the AO had relied. However, the AO brushed aside the request of the assessee for the opportunity to cross-examine these persons by simply observing that since the assessee had no explanation to offer, there was no requirement for giving any such opportunity. The AO proceeded to reject the books of account maintained by the assessee-company u/s 145(3) of the Act and, thereafter, proceeded to complete the assessment after making an addition of ₹31,40,021 on account of additional net profit by applying the net profit rate of 4.42 per cent. The alleged undisclosed sales for the year were computed at ₹3,62,60,331.

Aggrieved, the assessee-company filed an appeal before CIT(A). The CIT(A) upheld the action of the AO in rejecting the books of account but gave partial relief with respect to additional net profit by holding that the average net profit rate of 3.64 per cent was to be applied rather than 4.42 per cent.

Aggrieved, the assessee-company filed an appeal before the ITAT.

HELD

The ITAT had observed that it was an undisputed fact that during the course of search proceedings conducted by the Central Excise Authorities, neither at the premises of the assessee-company nor from any other premises, any other evidence with regard to undisclosed sales was found except for the invoices recovered from the residence of Shri Sanjay Dhawan and the impugned additions on account of the undisclosed / additional net profit on alleged unaccounted sales have been made only on the basis of invoices recovered from the residence of Shri Sanjay Dhawan.

The ITAT also observed that it was an undisputed fact that the assessee-company had specifically requested the AO to provide an opportunity to it to cross-examine these persons but such an opportunity was not granted. The ITAT further observed the following:

i. the assessee–company had demonstrated with ample evidence that Shri Sanjay Dhawan was a disgruntled employee of the company whose intentions were to put the assessee-company into unnecessary financial trouble and litigation,

ii. that the allegation that the unrecorded goods were being transported by vehicles owned by the assessee-company is incorrect in as much as it was physically impossible for the same vehicle to have delivered goods at two different stations within a short span of time on the same day, when time is required not only for movement of goods from one station to another but time is also required for loading and unloading of goods,

iii. that the statement of one of the ex-employees was in contradiction to the statement of Shri Sanjay Dhawan and the Income-tax authorities had relied on both, which does not hold good.

The ITAT observed that the denial of cross-examination by the Income-tax authorities has a significant bearing on the final outcome of this batch of appeals for the simple reason that the AO has relied upon those statements which had been recorded at the back of the assessee and the assessee was not given any opportunity to effectively rebut. The department had failed to follow the cardinal principle of providing adequate opportunity for rebuttal of evidence being sought to be relied upon. The ITAT had relied on the following decisions:

i. Andaman Timber Industries vs. CCE [2015] 62 taxmann.com 3/52 GST 355 (SC),

ii. CIT vs. Rajesh Kumar [2008] 172 Taxman 74/306 ITR 27 (Delhi.),

iii. CIT vs. Dharam Pal Prem Chand Ltd [2008] 167 Taxman 168 / [2007] 295 ITR 105 (Delhi HC),

iv. Prakash Chand Nahta vs. CIT [2008] 170 Taxman 520 / 301 ITR 134 (Madhya Pradesh HC).

The ITAT held that in the absence of such cross-examination having been allowed to the assessee-company and also in view of no incriminating material having been recovered from any of the premises searched; coupled with the fact that the assessee-company had filed an FIR against Shri Sanjay Dhawan and the statement of ex-employee itself stated that the parallel invoices used to be destroyed after the delivery of the consignments, the Income-tax authorities should not have placed complete reliance without any corroborative evidence on such statements.

In the result, the appeal filed by the assessee-company was allowed.

BCAJ Admin

Income from the business of consultancy qua stamp duty and registration would not be liable for taxation u/s 44ADA. The action of the assessee in offering profits of such business u/s 44AD was upheld.

32. Vishnu DattatrayaPonkshe vs. CPC

ITA No.: 1570/Mum./2023

A.Y.: 2017–18

Date of Order: 29th August, 2023

Sections: 44AD, 44ADA

Income from the business of consultancy qua stamp duty and registration would not be liable for taxation u/s 44ADA. The action of the assessee in offering profits of such business u/s 44AD was upheld.

FACTS

The Assessee e-filed its return of income declaring income, u/s 44AD of the Act, @8 per cent on receipts of ₹8,30,800 from the business of consultancy qua stamp duty and registration. The amount of ₹8,30,800 included the receipt of ₹4,81,280 on which TDS was deducted u/s 194J of the Act (fees for professional and technical services), and therefore, the AO / CPC added the income @50 per cent u/s 44 ADA of the Act, which resulted in making the addition of ₹2,40,640.

Aggrieved, the Assessee preferred an appeal to CIT(A), who by taking into consideration that all the deductors are big corporates and deducted tax u/s 194J of the Act, construed that the receipts of ₹4,81,280 related to professional and technical services and are covered u/s 44ADA of the Act and, therefore, taxable @50 per cent. The Commissioner ultimately computed the total income of the Assessee to the tune of ₹2,68,640 (₹2,40,640 + ₹27,982 @8 per cent of ₹3,49,500) and restricted the income of ₹3,49,500 u/s 139(1) of the Act to the tune of ₹2,68,602 only.

HELD

The Tribunal observed that the amount of ₹4,81,280 on which TDS was deducted u/s 194J of the Act, in fact, is part of the total receipt of ₹8,30,800 on which the Assessee has declared income @8 per cent u/s 44AD. However, both the authorities below applied the provisions of section 44ADA of the Act, which deals with persons carrying on legal, medical, engineering or architectural profession or profession of accountancy, technical consultancy or interior decoration or any other profession as is notified by the Board in the official gazette. The Tribunal noted that, admittedly, the Assessee is just a 10th/matriculation passed and does not have any qualification to act as a legal, medical, engineering or architectural professional or professional accountancy or technical consultancy of interior decoration or any other profession as is notified by the Board in the official gazette, as prescribed u/s 44AA of the Act.

The Tribunal held that the Assessee’s case does not fall under the provisions of section 44ADA of the Act. It deleted the addition of R2,40,640 sustained by the Commissioner.

BCAJ Admin

Where valuation, as done by a registered valuer, vide a valuation report furnished by the assessee is rejected, the AO should refer the valuation to Departmental Valuation Officer (DVO).

31. ND’s Art World Pvt Ltd vs. ACIT

ITA No.: 6850/Mum./2019

A.Y.: 2016–17

Date of Order: 23rd August, 2023

Sections: 56(2)(viib), Rule 11UA

Where valuation, as done by a registered valuer, vide a valuation report furnished by the assessee is rejected, the AO should refer the valuation to Departmental Valuation Officer (DVO).

FACTS

The assessee, a company engaged in the business of art direction, set construction, studio and equipment hire, filed its return of income on 17th October, 2016, declaring a total income of ₹8,41,17,500. The Assessing Officer (AO) vide order passed u/s 143(3) of the Act determined the total income at ₹23,68,86,730 by making various additions / disallowances.

During the year under consideration, the assessee had issued 1,780 shares of a face value of ₹10 at a premium of ₹98,280 per share. On perusal of the financials called for, the AO noticed that the assessee had in the financial year relevant to A.Y. 2015–16 revalued upwards the assets held by the assessee and had created a revaluation reserve. The immovable assets in the balance sheet pertained to land situated at Karjat along with the other assets, buildings, sets, etc., which were shown at WDV. Should the assessee while computing the book value of the assets for determining the fair market value of the shares consider the book value or should it be a revalued amount which is not reduced by the upward revaluation of the assets. The AO held that the assessee has increased the value of the assets in the previous year by creating an upward revaluation, and as a result, has determined the higher price per share. The AO stated that the valuer had not considered the prevailing stamp duty value at the time of the valuation of the land and building of the assessee and had not specified as to what methodology or reference was made to substantiate the value of the assets. According to the AO, the valuer has merely arrived at the market value of the land at ₹6,500 per square feet without considering the value of the land, current market price and various other criteria and has also not made a comparable analysis of nearby land sold during that period. The AO stated that the valuer has not justified the charging of an additional premium in his report and has merely increased the value of the sets and buildings which are depreciable assets, the value of which does not increase over a period of time. A similar observation was made by the AO on the value of the vehicles, plant and machinery, office equipment, etc., which are properties subject to depreciation. The AO held that the assessee has failed to substantiate the increase in the value. The AO further stated that the Rule 11UA specifies that the revaluation of the assets is not to be considered for the calculation of the share premium.

The AO calculated the fair market value of the shares after removing the revaluation value of the assets and arrived at the share price of ₹17,815 per share as against the assessee’s determination of the value per share amounting to ₹80,465. He made an addition to the difference of share premium of ₹80,465 per share aggregating to ₹14,33,27,700 u/s 56(2)(viib) of the Act on the grounds that the premium value under Rule 11UA cannot be taken using the revaluation of the assets, thereby recomputing the premium value at ₹17,815 per share as against the assessee’s valuation of ₹98,280 per share.

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 it was contended, on behalf of the assessee, that theassessee would not be covered u/s 56(2)(viib) of the Act for the reason that the shares were transferred only amongst the family members of the assessee, and the assessee is a company. So then how can it have relatives? And even otherwise, neither the AO nor the CIT(A) has referred the matter to the DVO for the purpose of determining the valuation of the assets. It was submitted that Rule 11UA does not mention that the revaluation reserve is to be reduced and that only Rule 11UAA inserted w.e.f. 1st April, 2018, lays down the Rules for valuation and that Rule 11UAA was not applicable to the assessee for the impugned year. Reliance was placed on the decision of the coordinate bench in the case of DCIT vs. Pali Fabrics Pvt. Ltd. [2019] 110 taxmann.com 310 (Mum)(Trib).

HELD

The Tribunal noted that the DR contended that AO had challenged the validity of the valuation report and that the AO is entitled with the power of the valuer and can determine the value himself. Without prejudice, he stated that this issue may be remanded to the file of the AO for determining the valuation after referring the same to the DVO. The DR relied on the decision of the Delhi Tribunal in the case of Agro Portfolio Pvt Ltd vs. ITO [(2018) 94 taxmann.com 112 (Del Trib)].

The Tribunal observed that the difference of share premium was added u/s 56(2)(viib) of the Act since the AO has rejected the valuation determined by the assessee as per the valuation report submitted by the assessee vide letter, dated 13th December, 2018. The AO further has failed to accept the valuation report of the assessee for the reason that the valuer has not adopted any methodology or reference for the purpose of calculation of the land value without considering the factors such as value of the land as per stamp authority, land market price, location factors and the value at which the neighbouring lands were sold during that period, etc. It is observed from the said fact that the AO has not referred the said matter for valuation to the DVO while he has merely rejected the valuation report submitted by the assessee. The Tribunal found it pertinent to point out that the lower authorities have failed to exercise the option of referring the matter to the DVO for the purpose of valuation of the assets which are very much within the purview of the jurisdiction of the lower authorities.

The Tribunal considered it fit to remand this issue back to the file of the AO for the purpose of valuation of the assets by referring the same to the DVO and to consider the said issue in light of the valuation report of the DVO.

BCAJ Admin

Provisions of section 56(2)(vii)(c) are not applicable on receipt of bonus shares / bonus units.

30. DCIT vs. Smt. Aruna Chandhok

ITA No.: 387/Del./2021

A.Y.: 2015–16

Date of Order: 5th September, 2023

Sections: 56(2)(vii)(c)

Provisions of section 56(2)(vii)(c) are not applicable on receipt of bonus shares / bonus units.

FACTS

The assessee, an individual, filed her return of income for the A.Y. 2015–16 on 16th October, 2015, declaring income under the head salary, house property, capital gains and other sources.

In the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee had, during the previous year relevant to the assessment year under consideration, received bonus shares and bonus units from Tech Mahindra Ltd. and JM Arbitrage Advantage Fund – Bonus options. The assessee was given a show cause as to why the value of these bonus shares and bonus units should not be added u/s 56(2)(vii)(c) of the Act. The assessee submitted that the provisions of section 56(2)(vii)(c) are not applicable to bonus shares / bonus units as these are received on capitalisation of profits. The value of the shares would remain the same, and there would be no increase in the wealth of the shareholders on account of bonus shares and his percentage of holding the shares in the company remains constant. Pursuant to bonus shares and bonus units, the share / unit gets divided in the same proportion for all the shareholders. There would be no receipt of any property by the shareholder and what is received is only split shares out of her own holding. Reliance was placed on the decision of the Supreme Court in the case of CIT vs. General Insurance Corporation Ltd [286 ITR 232 (SC)], which held that the issuance of bonus shares by a company does not result in any inflow of fresh funds and nothing comes to the shareholders. It was also submitted that the market price of any share after the bonus issue gets reduced almost in proportion to the bonus issue, and hence, there would be no increase in the market value of shares held by the assessee pursuant to the bonus issue. The overall wealth of a shareholder post-bonus or pre-bonus remains the same. Hence, the assessee received no additional benefit or income on the allotment of bonus shares, because it is only a split of his total rights in the wealth of a company, which remains the same even after the bonus issue.

The AO did not accept the contentions made by the assessee and taxed ₹36,10,63,656 u/s 56(2)(vii)(c) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who distinguished the decisions relied upon by the AO and relied on the decision of the Delhi Tribunal, dated 27th January, 2017, in the case of Meenu Satija vs. PCIT. The CIT(A) held that the AO had misread the judgment of the Bangalore Bench of the Tribunal in the case of Dr Rajan Pai.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD
The Tribunal held that bonus shares are issued on capitalisation of existing reserves of the company. It noted that the AO had not disputed that the overall wealth of the shareholder post-bonus or pre-bonus remains the same. Having held so, the Tribunal observed that it was wrong on the part of the AO to invoke section 56(2)(vii)(c) on the grounds that there is a double benefit derived by the assessee due to the bonus shares. The Tribunal noted that the issue is covered by the ratio of the decision of the Karnataka High Court in the case of PCIT vs. Dr. Ranjan Pai in ITA No. 501 of 2016, dated 15th December, 2020. The Tribunal held that the CIT(A) had rightly appreciated the contentions of the assessee.

The Tribunal not finding any infirmity in the order of the CIT(A) dismissed the grounds of appeal filed by the revenue and upheld the relief granted by the CIT(A) to the assessee.

BCAJ Admin

Section 56 read with Rule 11UA of the Income Tax Rules — There was no fault in approach of assessee in considering guideline value of land and building to arrive fair value of preference shares that it would fetch in open market on valuation date and arriving at premium value for redemption of preference shares, hence addition made by TPO computing differential premium on basis of book value of assets was not sustainable.

24. Information Technology Park Ltd vs. ITO
[2022] 99 ITR (T) 633 (Bangalore – Trib.)
ITA Nos.: 1357 & 1358 (BANG.) of 2018
A.Ys.: 2009-10 & 2010-11
Date of order: 24th August, 2022

Section 56 read with Rule 11UA of the Income Tax Rules — There was no fault in approach of assessee in considering guideline value of land and building to arrive fair value of preference shares that it would fetch in open market on valuation date and arriving at premium value for redemption of preference shares, hence addition made by TPO computing differential premium on basis of book value of assets was not sustainable.

FACTS

The assessee was a public limited company incorporated in the year 1994. It was engaged in the business of developing, operating and maintaining industrial parks/Special Economic Zones. The assessee was a subsidiary of Ascendas Property Fund (India) Pvt Ltd. [APFI]. The assessee had issued 0.5 per cent redeemable non-cumulative preference shares on 6th January, 2003 and the same was subscribed by APFI. The preference shares were issued at a face value of Rs. 100 per share and were redeemable at any time after 24 months but not later than 9 months from the date of allotment. During the assessment proceedings a reference was made to the Transfer Pricing Officer (TPO) for determination of the Arm’s Length Price (ALP) of the international transaction entered into by assessee with AFPI. The assessee had during the previous year relevant to A.Y. 2010-11 redeemed some of the preference shares at a premium based on the valuation done the expert valuer by adopting the Net Asset Value (NAV) method. The TPO accepted the method of valuation adopted by the assessee i.e., NAV method, but reworked the redemption value based on book value of assets. The TPO arrived at the redemption value at Rs. 286.80 per share which resulted in an adjustment of Rs. 29,95,66,000 that arose out of the difference between the redemption value adopted by the assessee and the TPO. The AO passed the final assessment order giving effect to the TP adjustment based on the letter filed by the assessee that the assessee would not be filing objections before the DRP and would prefer appeal with the CIT(Appeals).

The CIT(Appeals) held that the TP adjustment made by the TPO determining the value at which the preference shares should have been redeemed cannot be treated as income in the hands of the assessee by relying on the decision of the Bombay High Court in the case of Vodafone India Services (P.) Ltd vs. Union of India [2015] 53 taxmann.com 286/231 Taxman 645/[2014] 369 ITR 511. However, since the ALP of the share price determined by the TPO was lesser than the price determined by the assessee, the CIT(A) proposed to make addition to the extent of the same amount by treating it as deemed dividend. In this regard the CIT(Appeals) relied on the decision of the Tribunal in the case of Fidelity Business Services India (P) Ltd vs. Asstt. CIT [2017] 80 taxmann.com 230/164 ITD 270 (Bang – Trib). The assessee filed its response to the show cause notice before the CIT(Appeals) by submitting that the premium of redemption of preference shares cannot be considered as deemed dividend as per the provisions of section 2(22) of the Act and revenue authorities cannot re-characterize the transaction as deemed dividend. The assessee made detailed submissions before the CIT(Appeals) in this regard which were rejected by the CIT(Appeals) who proceeded to treat the premium on preference shares as deemed dividend. Aggrieved by the order, the assessee was in appeal before the Tribunal.

HELD

The Tribunal observed that a combined reading of the rule 11UA(1)(c)(b) with rule 11UA(1)(c)(c) can be taken to mean that for the purpose of valuation of preference shares also the immovable properties to be considered at guideline value since the value based on the guidance represents the economic and commercial value of the preference shares on the date of valuation.

The method of valuation adopted as NAV was not disputed as the TPO had also applied the same method and impugned addition had arisen only due to the value of land and building considered by the TPO for arriving at the NAV. The guideline value of land and building for the purpose of valuation of preference shares under NAV method was right. Therefore, the addition made by the TPO computing the differential premium basis the book value of assets was not sustainable. Since there cannot be any addition made towards the premium on redemption of the preference shares, the addition made by the CIT(Appeals) considering the same as deemed dividend under section.2(22)(e) also would not survive. The appeal was allowed in favour of the assessee.

shailesh.kwebmaker

Section 80-IB – Restriction on the extent of built up area of commercial space in housing project imposed by way of amendment to section 80-IB(10) w.e.f. 1st April, 2005 does not apply to housing projects approved before 1st April, 2005 even though completed after 1st April, 2005.

23. DCIT vs. Sahara India Sahkari Awas Samiti Ltd
[2022] 98 ITR (T) 634 (Delhi – Trib.)
ITA Nos.: 2481 & 2482 (Delhi) of 2011
A.Ys.: 2005-06 & 2006-07

Date of order: 19th July, 2021

Section 80-IB – Restriction on the extent of built up area of commercial space in housing project imposed by way of amendment to section 80-IB(10) w.e.f. 1st April, 2005 does not apply to housing projects approved before 1st April, 2005 even though completed after 1st April, 2005.

FACTS

The assessee was a co-operative society of Sahara India Group and was engaged in the business of development and construction of residential and commercial units. A development agreement dated 21st September, 1999 was entered into between the assessee and Sahara India Commercial Corporation Ltd, wherein the assessee appointed SICCL to construct Sahara States, Lucknow and Sahara Grace, Lucknow projects. The project map was approved on 26th March, 2003 by the Lucknow Development Authority. The assessee claimed deduction under section 80-IB (10) in the return of income filed for A.Ys. 2005-06 and 2006-07. The AO questioned claim of deduction under section 80-IB (10) on the following grounds:

a. the built up area of the shops and commercial establishments cannot exceed 5 per cent of the aggregate built up area or 2,000 sq. ft. whichever was less and the project developed by the assessee comprised of 30,300 sq. ft. of commercial establishment which exceeds the prescribed limit.

b. the assessee was to obtain a completion certificate prior to 31st March, 2008 and the assessee did not produce such certificate.

c. the assessee cannot be regarded as a developer since it was not actively involved in the development and construction works due to non-employment of capital and labor for the purpose of development and construction.
On appeal, the CIT (Appeals), allowed the claim of the assessee.

Aggrieved by the order of CIT (Appeals), the revenue filed further appeal before the Tribunal.

HELD

The Tribunal observed that so far as the first objection of the revenue was concerned that the built up area of shops and commercial establishments far exceeds the area prescribed under the statute was concerned, the issue stands settled in favour of the assessee by the decision of the Supreme Court in the case of CIT vs. Sarkar Builders [2015] 57 taxmann.com 313/232 Taxman 731/375 ITR 392 and CIT vs. Vatika Township (P.) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 wherein it had been held that restriction on extent of commercial space in housing project imposed by way of amendment to section 80-IB(10) with effect from 1st April, 2005 does not apply to housing projects approved before 1st April, 2005 even though completed after 1st April, 2005. Since, in the instant case the housing project was admittedly approved before 1st April, 2005 therefore, the first allegation of the revenue that the aggregate built up commercial area far exceeds the prescribed limit was not applicable to the assessee.So far as the second objection of the revenue was concerned, i.e., completion of the project on or before 31st March, 2008 was concerned, the assessee contended that the project was completed before 31st March, 2008 in view of the following additional evidences:-

i. Letter from Sahara India Commercial Corporation Ltd to the assessee dated 14th March, 2008.

ii. Letter from the assessee to Sahara India Commercial Corporation Ltd dated 18th March, 2008.

iii. Architect certificate dated 15th September, 2008along with the official translation.

Since these documents were never produced before the lower authorities and were filed before the Tribunal for the first time in the shape of additional evidences, therefore, Tribunal admitted the additional evidences filed in terms of rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 and restore the issue relating to completion of the project prior to 31st March, 2008 to the file of the AO for adjudication of this issue. The Tribunal held that the AO shall examine the documents and any other details that he may require and decide the issue as per fact and law after giving due opportunity of being heard to the assessee.

So far as the third allegation of the revenue that the assessee was not a developer was concerned, the Tribunal observed that condition of developer was decided and allowed in the initial years of claim, i.e., in the assessment years 2003-04 and 2004-05 which was evident from the order of the Commissioner (Appeals) for assessment year 2005-06. Therefore, same was not open for examination in subsequent year in absence of change in the factual position. Without disturbing the assessment for the initial assessment year it was not open to the revenue to make disallowance of such deduction in subsequent year by taking a contrary stand. Further, merely appointing SICCL as a contractor for development and construction of the project, cannot lead to the conclusion that the said activities were not carried on by the assessee society. Since the assessee was bearing the entire risks and responsibilities relating to the project and SICCL was appointed only to execute the project, therefore, in the light of the ratio of various decisions relied on by Counsel for the assessee, the assessee ought to be considered as a developer and cannot be denied the benefit of deduction under section 80-IB (10). So far as the allegation of the revenue that the booking application forms of the flats were addressed to the SICCL and not to the assessee and that the assessee had authorized SICCL to collect money from purchasers of flats directly on its behalf was concerned, merely because certain procedural formalities relating to collection of booking application forms and money from the buyers were delegated to SICCL, it would not render SICCL as the developer of the project since the money collected by SICCL was on behalf of the assessee only and on the authorisation of the assessee and not in its independent capacity. Therefore, delegation of certain formalities regarding collection of booking application forms and money on behalf of the assessee would not cease the assessee company as being rendered as a developer of the project.In view of the above discussion, objection Nos. 1 and 3 by the AO while denying the benefit of deduction under section 80-IB(10) are rejected since the assessee, had fulfilled the condition regarding built up area of shops and commercial establishments and the assessee was a developer. However, the third objection relating to obtaining of completion certificate prior to 31st March, 2008 was restored to the file of the AO for fresh adjudication in view of the additional evidences filed by the assessee.

shailesh.kwebmaker

Section 69A – Where cash deposited in bank by the assessee during demonetisation period was out of cash sales and realisation from trade debtors which was duly shown in books of account and AO did not point out any specific defect in books of account maintained by assessee and no inflated purchases or suppressed sales were found, such cash deposit could not be treated as unexplained money of assessee.

22. DCIT vs. Roop Fashion
[2022] 98 ITR (T) 419 (Chandigarh – Trib.)
ITA No.: 136 (CHD) of 2021
A.Y.: 2017-18
Date of order: 14th June, 2022

Section 69A – Where cash deposited in bank by the assessee during demonetisation period was out of cash sales and realisation from trade debtors which was duly shown in books of account and AO did not point out any specific defect in books of account maintained by assessee and no inflated purchases or suppressed sales were found, such cash deposit could not be treated as unexplained money of assessee.

FACTS

The AO during the course of assessment proceedings noticed that the assessee had deposited demonetised currency in its bank account. The Ld. AO asked the assessee to furnish information with necessary documentary evidences. The assessee furnished the financial monthly data and relevant documents. However, the AO held that assessee had introduced its own unaccounted money in the disguise of sale in the wake of demonetisation and he estimated the sales of the assessee and invoking the provision of section 69A made addition. The CIT (Appeals) observed that the assessee had submitted a chart which revealed that cash deposited in this year was far less than the cash deposited in the preceding years when there was no demonetisation and that the auditor had not pointed out any discrepancy in the books of account of the assessee which had not been rejected by the AO under section 145(3) and that the stock position depicted in the books of account had been accepted by the AO. Thus, CIT (Appeals) was of the view that when the sales recorded in the books of account had been accepted by the AO, the corresponding cash deposit made out of such cash sales and cash realisation from debtors could not be rejected. The CIT (Appeals) allowed the appeal of the assessee.

Aggrieved by the order of CIT (Appeals), the revenue filed further appeal before the Tribunal.

HELD

The Tribunal observed that the books of account maintained by the assessee in the regular course of its business were audited and accepted by the AO while framing the assessment through deep scrutiny under section 143(3). The AO did not point out any specific defect in the books of account maintained by the assessee, no inflated purchases or suppressed sales were found. Even the Investigation Wing asked the assessee to furnish the details which were submitted and on those details, no adverse comment was made by the Investigation Wing. It was also noticed that the assessee was having cash sales in all the years. The assessee was also having cash realised from the debtors and it was not the case of the AO that the debtors of the assessee were bogus or those were not related to the business of the assessee. The cash deposited in the bank by the assessee during the demonetisation period was out of the cash sales and the realisation from the trade debtors duly shown in the books of account which were accepted by the AO. The assessee had deposited Rs. 2,47,50,000 during the demonetisation period in the bank account. The AO accepted Rs. 1,50,00,000 as cash sale on estimated basis but no basis or method was adopted for that estimation. In other words the AO considered the aforesaid estimated sales only on the basis of surmises and conjectures which were not tenable in the eyes of law. The AO accepted the trading results and had not doubted opening stock purchase sales and closing stock as well as GP rate shown by the assessee. Therefore, the addition made by the AO on the basis of surmises and conjectures was rightly deleted by the CIT (Appeals).

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

shailesh.kwebmaker

Section 250, Rule 46A

21. DCIT vs. Ansaldo Caldaie Boilers India Pvt Ltd
ITA No. 1999/Chny/2019
A.Y.: 2015-16
Date of Order: 21st June, 2023
Section 250, Rule 46A

FACTS

The assessee filed its return of income for the A.Y. 2015-16 on 30th November, 2015 admitting NIL income and claiming current year loss of Rs. 7,87,45,865/-.

In the course of assessment proceedings, the AO noted that (i) the assessee has claimed a sum of Rs. 8,59,47,532 as finance cost for the year under consideration; (ii) the interest bearing funds borrowed by the assessee as on 31st March, 2015 include long term loans at Rs. 32,18,49,972 and the short term loans at Rs. 19,92,21,313 totaling to Rs. 52,10,71,285; (iii) the assessee has incurred interest expenses to the tune of Rs. 8,59,47,532 as finance cot in respect of the above borrowings and has charged off the same to profit and loss account; (v) the assessee has advanced a sum of Rs. 15,00,00,000 as advance for purchase of land for which an agreement has been entered into but no registration has been taken place and therefore, the asset has not put to use by the assessee; (vi) from the balance sheet, the AO has noted that the assessee has utilised interest bearing funds for the advance given for purchase of land.

The AO asked the assessee to show-cause as to why proportionate interest should not be disallowed under section 36(1)(iii) of the Act. After considering the submissions and examining the details furnished by the assessee, the AO held that the assessee has disguised an interest free loan to fellow subsidiary as an advance for purchase of land. As per section 36(1)(iii) of the Act, the amount of the interest paid in respect of capital borrowed for the purpose of the business or professional only shall be allowed as a deduction. However, since the assessee has claimed interest on sums advanced to fellow subsidiary which has no connection with the business of the assessee, as per section 36(1)(iii) of the Act, the AO disallowed the sum of Rs.2,47,41,586 [computed as Rs.8,59,47,532 x (Rs.15,00,00,000 / Rs.52,10,71,285] proportionate to the amounts advanced not for the purpose of business and added back to the total income. Aggrieved, assessee preferred an appeal to CIT(A) who after considering the particulars and evidences to substantiate the fact that the payment of advance of Rs. 15 crores were from the proceeds of the equity share capital, which were received from the parent company during the F.Y. 2010-11 as well as bank statements in support of assessee’s claim, allowed the ground raised by the assessee by deleting the disallowance made under section 36(1)(iii) of the Act.

Aggrieved, the Revenue preferred an appeal to the Tribunal where it submitted that the CIT(A) has deleted the disallowance under section 36(1)(iii) of the Act based on the fresh evidences furnished by the assessee during the course of appellate proceedings without affording an opportunity to the AO to verify the additional evidences submitted by the assessee which is in violation of Rule 46A of the Income Tax Rules.

HELD

The Tribunal having heard both the sides and perused the materials available on record and gone through the orders of authorities below observed that the disallowance of interest made under section 36(1)(iii) of the Act has been deleted by CIT(A) by considering the fresh evidences furnished by the assessee during the course of appellate proceedings without affording an opportunity to the AO to verify the additional evidences submitted by the assessee which is in violation of Rule 46A of the Income Tax Rules. The Tribunal set aside the order of the CIT(A) on this issue and remitted the matter back to the file of the AO to verify the additional evidences/bank statements, etc. and decide the issue afresh in accordance with law by affording an opportunity of being heard to the assessee.

shailesh.kwebmaker

Claim for deduction under section 80IC cannot be denied in a case where tax audit report as also audit report in Form 10CCB under Rule 18BBB is filed on time but the return of income is filed late.

20. Canadian Speciality Vinyls vs. ITO
TS-301-ITAT-2023 (Delhi)
A.Y.: 2015-16
Date of order: 2nd June, 2023
Section 80IC

Claim for deduction under section 80IC cannot be denied in a case where tax audit report as also audit report in Form 10CCB under Rule 18BBB is filed on time but the return of income is filed late.

FACTS

In this case the claim of the assessee for deduction under section 80IC of the Act was not allowed by the AO on the grounds that the assessee had filed the return of income beyond the due date. The assessee had filed tax audit report as also the audit report in Form 10CCB under Rule 18BBB on time.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO on the ground that the return of income was filed late.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the assessee had filed the tax audit report as also the audit report in Form No. 10CCB but it was only return of income which was filed late due to illness of the executive partner. It also noted that the CIT(A) had recorded a categorical finding that the assessee was prevented by sufficient cause in filing return of income on time.

The Tribunal further noted the ratio of the decision of the Nagpur Bench (AT e-Court, Pune) of Tribunal in the case of Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha vs. ITO (ITA No. 182/Nag./2019; A.Y.: 2009-10; Order dated 7th October, 2022) wherein the coordinate Bench of the Tribunal, after considering the provisions of section 80AC of the Act and considering the judgements of the Hon’ble Supreme Court in the case of CIT vs. GM Knitting Industries Pvt Ltd, (376 ITR 456) and PCIT vs. Wipro Ltd, 446 ITR 1 (SC) held that the Chapter III and Chapter VI-A of the Act operate in different realms and principles of Chapter III, which deals with ‘incomes which did not form part of total income’ cannot be equated with mechanism provided for deductions in Chapter VI-A which deals with ‘deductions to be made in computing the total income’. Therefore, it was held that the fulfillment of requirement for making a claim of exemption under the relevant sections of Chapter III in the return of income is mandatory, but, when it comes to the claim of a deduction, inter alia, under the relevant section of Chapter VI-A, such requirement become directory. In a case where the assessee claims deduction under Chapter VI-A of the Act, the making of a claim even after filing of return, but, before completion of the assessment proceedings and passing of assessment order meets the directory requirement of making a claim in the return of income.

The Tribunal held that even in a situation the return of income of the assessee for A.Y. 2015-16 is treated as belated return beyond the prescribed time limit provided under section 139(1) of the Act, then also, as per the judgement of the Hon’ble Supreme Court in the case of G.M. Knitting Industries Pvt Ltd (supra), which was followed by the coordinate Bench of the ITAT, Pune in the case of Krushi Vibhag Karmchari Vrund Sahakari Pat Sanstha (supra), the assessee is very well entitled to claim deduction u/s 80IC of the Act.

The Tribunal held that a logical conclusion is that the assessee is entitled to get deduction under section 80IC of the Act, as the claiming such deduction, which is part of Chapter VI-A of the Act, in the return of income filed within prescribed time limit is not mandatory but directory.

shailesh.kwebmaker

Order imposing penalty under section 270A passed in the name of deceased is void. Assessment order cannot be rectified on the basis of an order of the Apex Court which was not available on the date when the AO exercised jurisdiction under section 154.

19. UCB India Pvt Ltd vs. ACIT
TS-377-ITAT-2023 (Mum.)
A.Y.: 2011-12
Date of order: 27th June, 2023
Section 154

Order imposing penalty under section 270A passed in the name of deceased is void.

Assessment order cannot be rectified on the basis of an order of the Apex Court which was not available on the date when the AO exercised jurisdiction under section 154.

FACTS

The assessee filed return of income, for assessment year 2011-12, declaring total income of Rs. 20,81,12,869. The case was selected for scrutiny and the total income assessed vide order dated 29th January, 2016 passed under section 144C(1) r.w.s 143(3) of the Act at Rs. 36,25,23,522. In the course of assessment proceedings, the AO raised specific query regarding sales promotion expenses and allowed the deduction claimed after considering the response of the assessee and also the fact that for A.Ys. 2002-03 and 2003-04 the Tribunal, in the case of assessee, has on identical facts allowed deduction of sales promotion expenses.

Subsequently, the AO issued notices dated 18th March, 2020, 20th December, 2020, and 23rd December, 2020 seeking to rectify the order dated 29th January, 2016 The assessee challenged the proposed order on jurisdiction and also on merits. However, the AO was not convinced and he disallowed the sales promotion expenses of Rs. 11,30,18,798.

The assessee being aggrieved by the action of the AO in passing an order rectifying the order dated 29th January, 2016 passed under section 144C(1) r.w.s 143(3) of the Act, preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the Calcutta High Court has in the case of Jiyajerrao Cotton Mills [(1981) 130 ITR 710 (Cal.)] held that a debatable issue on the question or which required investigation and arguments as to facts or law to find out if there was a mistake cannot be rectified under section 154. It observed that in the present case the issue relating to allowability of sales promotion expense in the hands of the assessee was not settled in favor of the revenue.

The Tribunal observed that on one hand there was Circular No. 5 of 2012, dated 01st August, 2012 issued by CBDT which provided that the deduction for sales promotion expense in violation of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 should be disallowed, and on the other hand there are two decisions of the Tribunal in assessee’s own case. Vide common order dated 06th February, 2009, pertaining to A.Ys. 2002-03 & 2003-04 [ITA No 428 & 429/Mum/2007], the Tribunal had allowed deduction for sales promotion expenses claimed by the assessee in identical facts and circumstances. Further, vide common order dated 26th February, 2016, passed in appeals pertaining to A.Ys. 2004-05 (ITA No. 6681 & 6454/Mum/2013), 2005-06 (ITA No. 6682 & 6455/Mum/2013 (and 2007-08 (ITA No. 6558 & 6456/Mum/2013), the Tribunal had deleted the adhoc disallowance made by the AO in respect of gift articles. The AO had made disallowance by placing reliance upon the aforesaid regulations and the circular, however, the Tribunal deleted the addition by placing reliance upon the decision of the Tribunal in the case of Syncom Formulation vs. DCIT (ITA No. 6429& 6428/Mum/2012, dated 23rd December, 2015) wherein it was held that the Circular No. 5 of 2012 issued by CBDT would apply prospectively with effect from 1st August, 2012. The Tribunal held that the issue was clearly debatable on law.

The AO did not have the benefit of the judgment of Hon’ble Supreme Court in the case of Apex Laboratories Pvt Ltd [(2022) 442 ITR 1 (SC)] at the time of exercising jurisdiction as the same came much later on 22nd February, 2022.

The Tribunal was of the view that, even on facts, the issue required investigation. The Tribunal noted that in the order passed under section 154, the AO had in a table given break-up of sales promotion expenses which table had a column captioned `broad nature of expenses’. On perusal of the column ‘Broad Nature of Expenses’ of the table forming part of Paragraph 4 of the Rectification Order (which table has been reproduced in the order of the Tribunal), the Tribunal observed that it was not apparent the all the sales promotion expenses were incurred on freebies. To the contrary, the broad nature of expenses given in the table suggested that the sales promotion expenses were not in the nature of freebies such as ‘Market Research Fee’, ‘Off Supplies Puch (Sales Promotion)’, ‘Printing & Reproduct (Sales Promotion)’, and ‘Documentation Books (Promotional Expenses)’. The balance expenses, according to the Tribunal, could have included expenses on freebies. However, this was a matter of investigation as it was not apparent that the sales promotion expenses of Rs.11,30,18,796 was incurred on freebies.

The Tribunal held that the issue of allowance of sales promotion expenses (including freebies) in the hands of the assessee was debatable and required investigation and arguments on facts and in law. The Tribunal held that it cannot be said that allowance of deduction of sales promotion expenses by the AO resulting in a mistake apparent on record.

The Tribunal quashed the order passed by the AO under section 154 of the Act as being without jurisdiction.

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Section 32 read with section 263 – Where the subsidiary of the assessee company was amalgamated with it by following the purchase method, then the excess consideration paid by the assessee amalgamated company over and above the net-asset value of transferor/amalgamating company was to be treated as goodwill arising on amalgamation and same could be amortised in books of accounts of transferee company and was eligible for depreciation under section 32 (1).

18 Trivitron Healthcare (P.) Ltd. vs. PCIT
[2022] 98 ITR(T) 105 (Chennai – Trib.)
ITA No.:97 (CHNY.) OF 2021
A.Y.: 2015-16
Date of order: 24th June, 2022

Section 32 read with section 263 – Where the subsidiary of the assessee company was amalgamated with it by following the purchase method, then the excess consideration paid by the assessee amalgamated company over and above the net-asset value of transferor/amalgamating company was to be treated as goodwill arising on amalgamation and same could be amortised in books of accounts of transferee company and was eligible for depreciation under section 32 (1).

FACTS

The assessee company was engaged in the business of manufacturing diagnostic equipment. During the year, Kiran Medical System Pvt Ltd (KMSPL), which was a wholly-owned subsidiary of the assessee, had amalgamated with the assessee company and the entire assets of the amalgamating company were taken over by the assessee company. The assessee company treated the difference between net-value of assets of the amalgamating company and the value of investments in the shares of the amalgamating company, as goodwill arising on amalgamation and claimed depreciation on same as applicable to intangible assets.

The AO accepted depreciation on goodwill claimed by the assessee. Subsequently, the case was taken up for revision proceedings by the PCIT on the grounds that the AO had allowed depreciation on goodwill even though 5th proviso to section 32(1) had very clearly restricted claim of depreciation to successor company on amalgamation, as if such succession had not taken place.

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

HELD

The Tribunal observed that the fifth proviso to section 32(1) was inserted by the Finance Act, 1996, to restrict the claim of aggregate deduction which was evident from memorandum of the Finance Bill of 1996. As per the same, in case of succession in business and amalgamation of companies, the predecessor of business and successor or amalgamating company and amalgamated company, as the case may be, are entitled to depreciation allowance on same assets which in aggregate cannot exceed depreciation allowance in any previous year at prescribed rates. Therefore, it was proposed to restrict aggregate deduction in respect of depreciation during a year at the prescribed rate and apportion the same allowance in the ratio of number of days for which said assets were used by them. From the memorandum explaining Finance Bill, and purpose of introduction of fifth proviso to section 32(1), it was very clear, as per which predecessor and successor in a scheme of amalgamation should not claim depreciation over and above normal depreciation allowable on a particular asset. In other words, in a scheme of amalgamation where existing assets of amalgamating company were acquired by amalgamated company, then while claiming depreciation after amalgamation, the amalgamated company can claim depreciation only on the basis of the number of days a particular asset were used by them. Therefore, the said proviso only determines the amount of depreciation to be claimed in the hands of predecessor/amalgamating company and in the hands of successor or amalgamated company only in the year of amalgamation based on date of such amalgamation. However, it did not in any way restrict claim of depreciation on assets acquired after amalgamation or during the course of amalgamation. Therefore, it was very clear from fifth proviso to section 32(1), that effectively, scope of the said proviso was narrow as could be culled out for the purpose for which said proviso was inserted in the statute as reflected in the Memorandum to the Finance Bill. To further clarify, fifth proviso to section 32(1) was restricted to assets which belong to the amalgamating company and its application would not be extended to the assets which arise in the course of amalgamation to the amalgamated company.

The intention of law was to extend the benefit available to the amalgamated company on succession and not to restrict depreciation on assets generated in the course of succession. It was very clear from the proviso that it referred to depreciation allowable to the predecessor and successor in the case of succession, and this should be understood as a reference to the assets that belong both to the predecessor and successor, and which once belonged to the predecessor company. It did not apply to the assets generated in the hands of amalgamated company for the first time, as a result of amalgamation as approved by the High Court. In considered view, the fifthproviso applied only to those assets which commonly exist between predecessor and successor, however, it did not apply to an asset which has been created or acquired after amalgamation. The creation of the new asset by virtue of amalgamation like goodwill completely go out of reckoning of said proviso and thus, basis of PCIT to invoke his jurisdiction under section 263 was incorrect.

In the instant case, there was no dispute with regards to the fact that goodwill does not exist in the books of account of the amalgamating company. Further, depreciation on goodwill claimed by assessee was first time recognised in the books of account of amalgamated company in a scheme of amalgamation approved by the High Court. As per said scheme of amalgamation, accounting treatment in the books of transferee company has been specified as per which transferee company shall account for merger in its books of account as per ‘purchase method’ of accounting prescribed under Accounting Standard-14 issued by Institute of Chartered Accountants of India (ICAI). As per AS-14 issued by the ICAI, all assets and liabilities recorded in the books of account of transferor company shall stand transferred and vested in the transferee company pursuant to scheme and shall be recorded by the transferee company at their book value. The excess of or deficit in the net-asset value of the transferee company, after reducing the aggregate face value of shares issued by the transferee company to the members of the transferor company, pursuant to the scheme and cost of investment in the books of the transferee company for the shares of transferor company held by it on the effective date, is to be either credited to the capital reserve or debited to the goodwill account, as the case may be in the books of transferee company. Such resultant goodwill, if any shall be amortised in the books of transferee company as per principles laid down in Accounting Standard-14. Therefore, from the scheme of amalgamation and Accounting Standard-14 issued by the ICAI, it is very clear that once amalgamation is in the nature of ‘purchase method’, then excess consideration paid over and above net-asset value of transferor company shall be treated as goodwill and can be amortized in the books of account of the transferee company.

In this case, net asset value of the transferor company (amalgamating company) was at Rs. 42.66 crores. Further, value of investments of transferee company i.e., in the instant case, the value investment of the assessee company in the shares of transferor company (in the present case amalgamating company) was at Rs. 114.30 crores. The value of investments held by the assessee company in the shares of amalgamating company extinguishes after amalgamation and consequently difference between the net-asset value of amalgamating company and the value of investment held by amalgamated company would become goodwill in the books of account of the transferee company. In the instant case, the difference between net-value of assets of amalgamating company and the value of investments held by amalgamated company was at Rs. 71.63 crores and the same would become goodwill in the books of account of amalgamated company. Therefore, accounting of goodwill and consequent depreciation claim on such goodwill in the books of account of the assessee company was nothing but the purchase of goodwill and, thus, the assessee had rightly claimed depreciation on said goodwill in terms of section 32(1).

In this view of the matter and considering facts and circumstances of the case, the assessment order passed by the AO under section 143(3) was neither erroneous nor prejudicial to the interest of the revenue. The PCIT had assumed jurisdiction under section 263 on the sole basis of application of 5th proviso to section 32(1), towards depreciation on goodwill. In view of the factual matrix and non-applicability of the fifth proviso to section 32(1), to the facts of the instant case, there cannot be an error in relation to the view taken by the AO while framing the original assessment. Therefore, in absence of any such error in the assessment order, assumption of jurisdiction under section 263 by the PCIT should be reckoned as invalid. Hence, the order passed by him under section 263 was quashed.

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Section 69 read with section 44AD – Where the assessee furnished bank statements for relevant assessment year which showed that there were deposits and withdrawals of almost equal amounts from the bank account of assessee and the AO failed to give any findings regarding said withdrawals, then the assessee deserved to get benefit of telescoping and addition of entire deposits as unexplained was unjustified.

17. Smt. Sanjeet Kanwar vs. Income-tax Officer
[2022] 98 ITR(T) 12 (Amritsar – Trib.)
ITA No.:67 (ASR.) of 2019
A.Y.: 2015-16
Date of order: 30th June, 2022

Section 69 read with section 44AD – Where the assessee furnished bank statements for relevant assessment year which showed that there were deposits and withdrawals of almost equal amounts from the bank account of assessee and the AO failed to give any findings regarding said withdrawals, then the assessee deserved to get benefit of telescoping and addition of entire deposits as unexplained was unjustified.

FACTS

The return of income was filed on 3rd December, 2015 declaring a total income of Rs. 2,69,600. Subsequently, the case was selected for limited scrutiny under CASS for cash deposits in bank accounts being more than the turnover. The assessee and her husband appeared before the AO and submitted that the cash sales during the year was Rs. 8,31,625 and profit shown under section 44AD was Rs. 66,531. All the cash sales and purchases were first accounted in business cash account by the assessee and out of which the cash was deposited in the bank. The total cash deposits during the year were Rs. 8,57,000 out of which cash sales were Rs. 8,31,625. The excess amount of Rs. 25,375 was deposited out of profits earned by the assessee during the year. The Assessee submitted that the AO cannot blow hot and cold because at one hand he had accepted assessee’s returned income and on the other hand he had made addition of Rs. 8,57,000. The said amount had arisen out of cash sales of Rs. 8,31,625 and balance cash of Rs. 25,375 out of total profit shown amounting to Rs. 66,531.

The AO thereafter proceeded to frame the assessment under section 143(3) of the Act. Thereby, he made addition of Rs. 8,57,000 being the cash deposited in the bank account of the assessee.

Aggrieved against this, the assessee preferred appeal before CIT (A) who after considering the submissions and perusing the material available on record dismissed the appeal of the assessee and sustained the impugned addition. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that the authorities ought to have given a clear finding regarding withdrawals made by the assessee during the year under consideration. Since there were debit entries in the bank statement of the assessee then the addition of entire deposits as unexplained was not justified. The assessee deserved to get the benefit of telescoping and the entire addition would not survive. The AO was directed to delete the addition.

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Section 68 – Where deposit had been made from cash balance available in the books of accounts, and the AO had not rejected the books of accounts, there was no question of treating the same as unexplained cash deposit and hence, its addition made to the assessee’s income was not justified

16. R. S. Diamonds India (P) Ltd vs. ACIT
[2022] 98 ITR(T) 505 (Mumbai – Trib.)
ITA No.: 2017 (MUM.) OF 2021
A.Y.: 2017-18
Date of order: 26th July, 2022

Section 68 – Where deposit had been made from cash balance available in the books of accounts, and the AO had not rejected the books of accounts, there was no question of treating the same as unexplained cash deposit and hence, its addition made to the assessee’s income was not justified.

FACTS

The assessee was engaged in the business of trading in diamonds. The AO noticed that the assessee had deposited a sum of Rs. 45 lakhs into its bank account during demonetisation period. In respect of the said amount, the assessee had furnished an explanation that the said amount represented cash balance available in its books of accounts which included advance received from the customers towards sale over the counter. The AO asked the assessee to provide details of customers who had given these advances. It was explained that each sale made to the customer was less than Rs. 2 lakh, and hence it had not collected complete details of the customers. The AO took the view that the assessee had failed to prove cash deposits made by it during the demonetisation period. Accordingly, he treated the cash deposits of R45 lakhs as unexplained cash deposits and assessed the same as income of the assessee under section 68 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”].

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

Aggrieved by the order of CIT (A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that deposit made into the bank account was from out of the books of accounts and the said deposits had been duly recorded in the books of accounts which were not disputed. Reliance was placed on the judgment in the case of Lakshmi Rice Mills vs. CIT [1974] 97 ITR 258 (Patna) wherein it was held that when the books of accounts of the assessee were accepted by the revenue as genuine and cash balance shown therein was sufficient to cover high denomination notes held by the assessee then the assessee was not required to prove the source of receipt of said high denomination notes which were legal tender at that time. Reliance was also placed on the judgment in the case of ACIT vs. Hirapanna Jewellers [2021] 189 ITD 608 (Visakhapatnam – Trib.) wherein it was held that when the cash receipts represented the sales been duly offered for taxation then there was no scope for making addition under section 68 of the Act in respect of deposits made into the bank account.

Accordingly, it was held that the addition of Rs. 45 lakhs made in the hands of the assessee was not justified since the said deposits had been made from the cash balance available in the books of accounts. Consequently, the order passed by the CIT (A) on this issue was set aside and the AO was directed to delete the addition of Rs. 45 lakhs.

In result the appeal filed by the assessee was allowed.

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Section 69A–Where the assessee had introduced capital from funds received from his relatives towards advance for purchase of property through banking channel and same was recorded in books of account and identity of person from whom amount was received was also not in doubt then provisions of section 69A could not be invoked. Section 69A r.w.s 131 – Where the assessee informed the address of a person from whom amount was received and also requested AO to summon person if there was any doubt, then addition under section 69A was not justified if summons was not issued by the AO

15 Smt. Jagmohan Kaur Bajwa vs. Income-tax Officer, Ward 3(1), Chandigarh [2022] 97 ITR(T) 149 (Chandigarh – Trib.)
ITA No.:962 (CHD.) OF 2019
A.Y.: 2014-15
Date: 23rd July, 2021

Section 69A–Where the assessee had introduced capital from funds received from his relatives towards advance for purchase of property through banking channel and same was recorded in books of account and identity of person from whom amount was received was also not in doubt then provisions of section 69A could not be invoked.

Section 69A r.w.s 131 – Where the assessee informed the address of a person from whom amount was received and also requested AO to summon person if there was any doubt, then addition under section 69A was not justified if summons was not issued by the AO

FACTS

The deceased assessee was engaged in the business of sale and purchases of houses. During the course of assessment proceedings the AO noticed that there was a substantial increase in the capital account of the assessee amounting to Rs. 1,19,44,047. The AO asked the assessee to furnish the source of increase in the capital account with supporting evidence.

The assessee submitted that he had introduced capital from the funds received from his relatives Hardev Singh (Rs. 19 lakh) and Maninder Singh Sahi S/o Hardev Singh (Rs. 99.84 lakh) through banking channels. The assessee submitted a copy of ledger, ‘advice of inward remittance from Canada’ and relevant extract from his bank statement. The AO contended that the documents submitted by the assessee did not prove the identity, creditworthiness and genuineness of the transactions. He asked the assessee to furnish the bank statement of the persons from whom the assessee received money from Canada in Indian rupees and prove the identity and creditworthiness of the persons.

The assessee submitted that Hardev Singh was a retired officer from a Government Organisation and at the time when he transferred the amount, he was residing in Canada. Singh transferred Rs.19 lakh interest free out of his personal savings and retirement fund. Maninder Singh Sahi S/o Hardev Singh, who transferred Rs.99.84 lakh during the year had well established set-up of his own. The assessee submitted before the AO that advance money was given to him with motive of making some property investment in India. But since no deal could get materialized, the advance amounting to Rs.1,18,84,046 was to be refunded. The assessee also furnished identity of both lenders and his self-declaration in the form of affidavit with details of amount received. The purpose of receipt of funds and then as to why the same could not be invested in the property because of market conditions was duly explained.

The AO accepted explanation of assessee with respect to receipt of Rs.19 lakh from Hardev Singh. However, AO made an addition under section 69A in respect of Rs.99.84 lakh received from Maninder Singh Sahi on the grounds that documentary evidence furnished for establishing identity and creditworthiness of lender were not sufficient.

On appeal, the Commissioner (Appeals) upheld the addition of R99.84 lakh made by the AO. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that the entries relating to the advances received from Hardev Singh and his son Maninder Singh Sahi from Canada were recorded in the books of account as an advance for making the investment in the property by the said persons, and the assessee was engaged in the property business. The AO, therefore was not justified in invoking the provisions of section 69A particularly when the entries were recorded in the books of account maintained by the assessee and the explanation relating to the purpose of receiving the advances was given, identity of the person from whom amount was received was not in doubt and the entries were through banking channel. It was not the case of the AO that the assessee went to Canada and then put his money in the account of the depositor i.e. Hardev Singh and Maninder Singh Sahi which was remitted back. Therefore, the addition made by the AO and sustained by the Commissioner (Appeals) was not justified particularly when the credit of Rs. 19,00,000 in the similar circumstances from Hardev Singh had been accepted but the advance amounting to Rs. 99,84,046 received from his son Maninder Singh Sahi was doubted and added to the income of the assessee. The AO was not justified in blowing hot and cold in the same wind pipe.

The assessee informed the address of the person from whom the amount was received and also requested the AO to summon the person if there was any doubt. But the AO had not taken any step for issuance of the summons under section 131 of the Act. Therefore, the addition made by the Assessing Officer and sustained by the Commissioner (Appeals) was not justified.

The Assessing Officer did not doubt the contents of the affidavit furnished by the deceased assessee, declaration from the depositor as well as confirmation from bank. Therefore, the impugned addition made by the AO and sustained by the Commissioner (Appeals) was not justified.

The entries were made in the books of account maintained by the assessee and those were appearing in the bank account. The assessee also furnished an affidavit and the statement made therein was not doubted. Therefore, the addition made by the AO and sustained by the CIT (Appeals) was not justified. Therefore, addition of Rs. 99,84,046 made by the AO and sustained by the CIT (Appeals) was deleted.

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S.69A read with S.148–Where the draft sale deed of property between the assessee-company and a developer was never signed by assessee and application filed by developer before Settlement Commission admitting to having invested certain amount of unaccounted income was not provided to assessee for confrontation then the additions made by the AO in the hands of the assessee-company were to be deleted

14 Rajvee Tractors (P) Ltd vs. ACIT
[2022] 98 ITR(T) 459 (Ahmedabad – Trib.)
ITA No.: 1818 (AHD.) OF 2019
A.Y.: 2015-16
Date: 29th July, 2022

S.69A read with S.148–Where the draft sale deed of property between the assessee-company and a developer was never signed by assessee and application filed by developer before Settlement Commission admitting to having invested certain amount of unaccounted income was not provided to assessee for confrontation then the additions made by the AO in the hands of the assessee-company were to be deleted.

FACTS

The assessee was a private limited company, and was engaged in the business of tractors and spare parts. There was a survey operation under the provisions of section 133A of the Act at the business premises of the assessee on 22nd January, 2015. As a result of survey, the assessee had made certain disclosure of an income of Rs. 3,13,00,000 representing the advance received against the sale of land which was duly offered to tax in the income tax return. The property was sold by the assessee to a party namely M/s Ohm Developers for a consideration of Rs. 3,51,00,000 as recorded in the books of accounts.

There was also a survey operation under section 133A of the Act, at the premises of the M/s Ohm Developers. As a result of survey operation, a draft sale deed was found between the assessee and M/s Ohm Developers wherein the sale consideration was shown at Rs. 5,47,37,500 leading to a difference in the sale consideration of Rs. 1,96,37,500 which was alleged to be less/short reported by the assessee. The AO also found that M/s. Ohm Developers had also admitted to have invested unaccounted income of Rs. 1,96,37,500 on the purchase of the property in the application made before the Settlement Commission.

Accordingly, the AO initiated proceedings under section 148 of the Act. The assessee requested to supply copy of the application made by the M/s Ohm Developers before the Settlement Commission as well as copy of the order of the Settlement Commission. However, the AO denied to provide the same on the reasoning that these are confidential information of the third party which cannot be provided to the assessee. The AO finally held that the income of the assessee to the tune of Rs. 1,96,37,500 had escaped assessment and therefore made the addition of the same to the total income of the assessee.

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

Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that the draft sale deed in the absence of other corroborative materials cannot substitute the evidence. The Tribunal relied upon the decision of the Hon’ble Supreme Court in the case of Common Cause (A Registered Society) vs. Union of India [2017] 394 ITR 220 wherein it was held that noting on loose sheets/diary does not carry any evidentiary value under the provisions of section 34 of the Evidence Act.

The Tribunal also relied upon the decision of the Supreme Court in the case of CBI vs. V.C. Shukla [1998] 3 SCC 410 wherein it was held that entry can be made by any person against the name of any other person in any sheet, paper or computer, but the same cannot be the basis of making charges against the person whose name noted on sheet without corroborating the same.

Accordingly, the Tribunal held that the admission made by the buyer of the property before the Settlement Commission does not establish the fact that the assessee had received unaccounted consideration. The AO was directed to delete the addition made by him.

In result the appeal filed by the assessee was allowed.

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In view of section 270A (6)(a), no penalty under section 270A can be imposed in respect of an erroneous claim made by a salaried employee who is dependent on his consultant for filing the return of income which erroneous claim is withdrawn by filing a revised computation of income and also by revising return of income of subsequent year withdrawing the excess claim.

13 Sridhar Murthy S vs. ITO
ITA No. 1175/Bang/2022 (Bangalore-Trib.)
A.Y.: 2018-19
Date of order: 28th February, 2023
Section: 270A

In view of section 270A (6)(a), no penalty under section 270A can be imposed in respect of an erroneous claim made by a salaried employee who is dependent on his consultant for filing the return of income which erroneous claim is withdrawn by filing a revised computation of income and also by revising return of income of subsequent year withdrawing the excess claim.

FACTS

The assessee, a salaried employee, filed his return of income declaring therein income under the head `salaries’ and `house property’. The AO while assessing the total income of the assessee restricted the house property loss to Rs. 4,22,012 as against Rs. 18,87,322 claimed by the assessee. The AO initiated proceedings for levy of penalty under section 270A for misreporting of income.

The case of the assessee was that the return of income was filed by a local consultant who had made an erroneous claim by aggregating the interest on housing loan in respect of two properties (one self-occupied and one let out property) and claimed it against the let out property. The loss so computed was carried forward. Upon realising the mistake, the assessee filed a revised computation in the course of assessment proceedings and also revised return of income for A.Y. 2020-21 withdrawing the excess claim of loss.

The AO levied penalty under section 270A of the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended that the case of the assessee is covered by section 270A (6)(a) and it was pointed out that the Mumbai Tribunal in the case of Venkateshwearan Krishnan vs. ACIT in ITA No. 5768/Mum/2012 order dated 24th January, 2014 has, on identical facts, deleted the penalty under Section 271(1)(c) of the Act.

HELD

Section 270A(6)(a) of the Act states that when an explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered, then it cannot be a case of under reporting of income for the purpose of Section 270A of the Act. In the instant case as mentioned earlier, the assessee being a salaried employee would have been dependent on the consultant for filing his return of income. When the erroneous claim of the excess interest income against rental income by aggregating both the housing loans was pointed out, the assessee immediately filed revised computation for A.Y. 2018-19 and also filed revised return for A.Y. 2020-21 withdrawing the excess claim. The Mumbai Tribunal, on identical facts in the case of Venkateshwearan Krishnan (supra) had held that assessee’s explanation in making the incorrect claim is bona fide and deleted the penalty under section 271(1)(c) of the Act by following the judgement of the Hon’ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC).

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Penalty is not maintainable where AO does not pass an order accepting or rejecting an application filed by the assessee under section 270AA(4)

12. Okasi Ceramics vs. ITO
ITA No.: 779/Chny/2022 (Chennai-Trib.)
A.Y.: 2017-18
Date of order: 8th February, 2023
Sections: 270A, 270AA

Penalty is not maintainable where AO does not pass an order accepting or rejecting an application filed by the assessee under section 270AA(4)

FACTS

For A.Y. 2017-18, the assessee firm did not file its return of income for the A.Y.2017-18 within the time provided in the notice issued under section 142(1) of the Act, nor within the time allowed under section 139(4) of the Act. Therefore, the AO issued a show cause notice under section 144 of the Act and proposed to pass a best judgment assessment order on the basis of material available on record. Subsequently, the assessee filed a copy of profit and loss account and admitted business income of Rs. 10,15,730. The assessment was completed under section 144 determining the total income to be Rs. 10,15,730. The AO initiated proceedings for imposition of penalty under section 270A of the Act.

The assessee paid the tax demanded within thirty days and applied for grant of immunity under section 270AA. The AO did not dispose-off the application and proceeded to levy penalty under section 270A on the ground that the assessee has under-reported its income in consequence of misreporting. Thus, the assessee is not entitled for immunity as provided under section 270AA of the Act and levied penalty of 200 per cent of the tax sought to be evaded which worked out to Rs. 6,09,438.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the grievance of the assessee is that, the assessee filed an application in Form no. 68 and sought an immunity from the levy of penalty because the assessee has satisfied conditions prescribed under section 270AA of the Act, but the AO without disposing off application filed by the assessee in Form no. 68 has completed penalty proceedings and levied penalty under section 270A of the Act.

The Tribunal observed that when the assessee has filed an application in Form no. 68, seeking immunity from levy of penalty in terms of section 270AA of the Act, as per sub section 4 of the 270AA of the Act, the AO shall pass an order accepting or rejecting said application after giving an opportunity of hearing to the assessee. The Tribunal held that in this case, the AO did not pass an order accepting or rejecting application filed by the assessee as required under section 270AA(4) of the Act. Therefore, on this ground itself, the Tribunal can conclude that the penalty order passed by the AO under section 270A of the Act is not maintainable.

However, considering the facts and circumstances of the case, and also taking into account the totality of facts of the present case, the Tribunal deemed it appropriate to set aside the order passed by the CIT(A). The Tribunal restored the issue of levy of penalty under section 270A of the Act to the file of the AO with a direction to the AO to deal with the application filed by the assessee in Form no. 68 of the Act by passing a speaking order before levying penalty u/s. 270A of the Act.

shailesh.kwebmaker

An addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty under section 270A of the Act. The penalty cannot be sustained where the only basis of the addition is the estimate made by the DVO.

11. Jaibalaji Business Corporation Pvt Ltd vs. ACIT

ITA. No.840/PUN/2022 (Pune-Trib.)
A.Y.: 2017-18
Date of order: 10th February, 2023
Section: 270A

An addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty under section 270A of the Act. The penalty cannot be sustained where the only basis of the addition is the estimate made by the DVO.

FACTS

The assessee, engaged in the business of solar power generation, filed its return of income declaring total income to be Rs. Nil. The AO assessed the total income to be Rs. 2,80,07,310 by making an addition of equal amount under section 43CA. During the year under consideration, the assessee sold certain lands at a price less than stamp duty value. The AO proposed to make an addition on the basis of stamp duty value. The assessee requested for a reference to DVO. The assessee completed the assessment by taking stamp duty value of certain other properties subject to rectification on receipt of report of DVO. Thereafter, the report was received, pursuant to which the rectification order was passed under section 154 of the Act reducing the addition to Rs.7,05,000. The addition was computed by taking note of the value declared by the assessee (sic taken by the AO) at Rs. 71,83,800 and the value determined by the DVO at Rs. 78,88,800. On this basis, the AO rectified the original assessment and also imposed penalty under section 270A of the Act at Rs. 6,99,669.

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.

HELD

The Tribunal observed that –

i) the only basis for imposition of penalty under section 270A is the making of addition under section 43CA on the strength of report of the DVO. The AO originally took certain comparable circumstances and computed the amount of addition at Rs.2.80 crores, which got reduced on the receipt of report of the DVO by Rs. 7,05,000;

ii) it is apparent from the report of the DVO that the value determined by the DVO is again an estimate, in as much as he considered certain other properties at different rates and then averaged such rates to find out the value which the property ought to have realised on the transfer;

iii) it is vivid that the difference between the value declared by the assessee and the value determined by the DVO is minimal and further the value of the DVO is on the basis of value of certain other nearby properties.

Considering the provisions of section 270A(6)(b), the Tribunal held that it is ostensible from the language of subsection (6) that an addition made on the basis of estimation cannot provide foundation for under-reported income for the purpose of imposition of penalty under section 270A of the Act. Since the only basis of the addition was the estimate made by the DVO, the Tribunal held that the penalty cannot be sustained.

shailesh.kwebmaker

Order imposing penalty under section 270A passed in the name of deceased is void.

10 Late Shri Atmaram Tukaram Karad through Legal Heir Shri Sagar Atmaram Karad v. ITO

ITA Nos.: 942 and 943/PUN/2022 (Pune-Trib.)
A.Ys.: 2017-18 and 2018-19
Date of order: 7th February, 2023
Section: 270A

Order imposing penalty under section 270A passed in the name of deceased is void.

FACTS

The assessee, a salaried individual, filed his returns of income for A.Ys. 2017-18 and 2018-19. Subsequently, a notice under section 148 was issued for each of these two years alleging that the assessee has misreported his income. Reassessments were completed and proceedings for imposition of penalty under section 270A were initiated. The assessee was represented by way of a legal representative, who filed written submissions, which fact stood recorded at para 5 of the penalty order. Eventually, the AO imposed penalty under section 270A.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that a penalty was initiated for both the years with reference to the income declared by the assessee in the returns filed pursuant to notices under section 148. This is a case in which the assessee passed away before the initiation of penalty proceedings. The legal representative, in such capacity, filed written submissions as has been categorically recorded in the penalty order itself. Still the AO passed the penalty order for both the years in the name of the deceased.

Considering the above stated observations, the Tribunal held that the penalty orders, having been passed in the name of deceased, are void ab intio. The Tribunal noted that the Bombay High Court in Rupa Shyamsundar Dhumatkar vs. ACIT and others in writ Petition No.404 of 2009, vide its judgment dated 5th April, 2019 considered a similar situation in which the assessee had died and the notice was issued in the name of Late Shyam Sundar Dhumatkar with the Legal Heir as his widow. The Bombay High Court declared such reopening of the assessment as invalid in law. Also, the Supreme Court in PCIT vs. Maruti Suzuki India Ltd [(2019) 416 ITR 613 (SC)] has dealt with a similar situation in which notice was issued in the name of an amalgamating company. The Apex Court held that after amalgamation, the amalgamating company ceased to exist and thus the notice issued was rendered void ab-initio. Their Lordships further held that participation in the proceedings by the assessee cannot operate as estoppel against law.

The Tribunal held that it is manifest that the facts and circumstances of the instant appeals are mutatis mutandis similar to those as considered by the Hon’ble Supreme Court and the Hon’ble Bombay High court in the afore-noted cases and consequently held that the penalty order passed by the AO in the name of deceased is void. The consequential impugned order upholding the penalty was set aside by the Tribunal.

shailesh.kwebmaker

Section145 r.w.s.68 and section 133–where the AO had not found a single defect in assessee’s books of account and enquiry made by him under section 133(6) had been properly explained by the assessee then addition made by the AO on the basis of the difference between amount reflected in books of account and in Form 26AS should be deleted.

9. Shri Jeen Mata Buildcon (P) Ltd vs. ITO

[2022] 97 ITR(T) 706 (Jaipur – Trib.)

ITA No.: 397 (JP.) of 2019

A.Y.: 2013-14

Date: 08th March, 2022

Section145 r.w.s.68 and section 133–where the AO had not found a single defect in assessee’s books of account and enquiry made by him under section 133(6) had been properly explained by the assessee then addition made by the AO on the basis of the difference between amount reflected in books of account and in Form 26AS should be deleted.

FACTS

The assessee was a company engaged in the business of labor contractor supplier with machinery under affordable housing policy for the year under consideration. The assessee company filed its return of income declaring income at Rs. 5,21,007 on 30th March, 2015 through e-filing portal and the same was processed under section 143(1) of the Income-tax Act, 1961. Later on, the case was selected for scrutiny through CASS due to the difference in turnover reflected in Form 26AS and disclosed in books of accounts. During the course of the assessment proceedings, the AO had observed that turnover declared by the assessee for the year under consideration was Rs. 67,84,050. Whereas the turnover reflected in Form 26AS was Rs. 86,62,800

Accordingly, the difference of Rs. 18,78,750/- pertaining to the contract received from M/s Sidhi Vinayak Affordable Homes was added back to the total income of the assessee. The addition was made on the basis of the confirmation received from the said party during the course of the enquiry under section 133(6) of the Income-tax Act. The said party had confirmed that the amount of Rs.18,78,750 was booked in the books of accounts.

In another case, the addition in respect of M/s Bhairav Township Pvt Ltd, the AO had observed that there was a difference between income offered and expense booked. Accordingly, the AO made an addition to the total income of the assessee to the tune of Rs. 15,23,978 being the difference between the expenses booked and income offered.

The CIT (Appeals) had confirmed these two additions made by the AO.

Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Authorised Representative of the assessee argued that merely because there was a difference in the figures mentioned in Form 26AS and the books of accounts, there cannot be an addition to the returned income when the books of accounts of the assessee were duly audited. The AO had not found any single defect in the books of accounts that had been produced before the AO. Even the inquiry made under section 133(6) had been properly explained by the Authorised Representative of the assessee during the course of the assessment proceedings. The main contentions raised during the course of the assessment proceedings that merely because the other party had booked the expenses, cannot be the reason while making the assessment in the case of the assessee when the contract receipt got reflected in the subsequent year as per the regular method of accounting followed.

The income offered for the parties, M/s Sidhi Vinayak Affordable Homes and M/s Bhairav Township Pvt Ltd in respect of which addition was made, was almost reconciled and offered for tax in the regular books of accounts which was not rejected by the AO. Therefore, it was not required to disturb the books which had been audited by an independent auditor. Thus, the addition made for an amount of Rs. 18,78,750 and Rs. 15,23,978- totalling to Rs. 34,02,728 were deleted.

shailesh.kwebmaker

Section 40(b) r.w.s 263–Where the assessee-firm had mentioned in its partnership deed that the partners shall be entitled to draw salary to the extent allowable under Income-tax Act but shall be drawing salary to maximum of Rs. 24 lakhs each per annum and accordingly the AO had allowed Rs. 36 lakhs of remuneration paid by assessee-firm to its three partners at the rate of Rs. 12 lakhs each under section 40(b)(v), Commissioner was not justified in invoking revisionary proceedings under section 263 on the basis that such remuneration of partners was not quantified in the partnership deed.

8. H.R. International vs. PCIT
[2022] 97 ITR(T) 129 (Amritsar – Trib.)
ITA No.:675 (ARS.) of 2019
A.Y.: 2015-16
Date of order: 19th May, 2022

Section 40(b) r.w.s 263–Where the assessee-firm had mentioned in its partnership deed that the partners shall be entitled to draw salary to the extent allowable under Income-tax Act but shall be drawing salary to maximum of Rs. 24 lakhs each per annum and accordingly the AO had allowed Rs. 36 lakhs of remuneration paid by assessee-firm to its three partners at the rate of Rs. 12 lakhs each under section 40(b)(v), Commissioner was not justified in invoking revisionary proceedings under section 263 on the basis that such remuneration of partners was not quantified in the partnership deed.

FACTS

The assessee was a partnership firm. While filing its return of income for A.Y. 2015-16, the assessee claimed partner’s remuneration under section 40(b)(v) of the Income-tax Act, 1961 to the extent of Rs. 36 lakh i.e. Rs. 12 lakh for each of its three partners. The original assessment was carried out under section 143(3). The jurisdictional PCIT initiated revisionary proceedings under section 263 of the Income-tax act, 1961. During the course of revisionary proceedings, the PCIT observed that in the partnership deed of the assessee, the partner’s remuneration was not quantified. On the basis of this observation, the PCIT concluded that the assessee was not eligible to get the benefit of section 40(b)(v) in respect of remuneration paid to its three partners and accordingly concluded the revisionary proceedings by holding that the order passed by the AO under section 143(3) was erroneous and prejudicial to the interest of revenue.

Aggrieved by the order of PCIT passed under section 263, the assessee filed further appeal before the ITAT.

HELD

It was observed by the Tribunal that section 263 had two limbs which are erroneous order and prejudicial to the interest of revenue. The assessee in its partnership deed had mentioned that the drawing power of the salary was Rs.24 lakh per annum for each partner. In fact, the salary in excess of Rs. 24 lakh will be disallowed as per section 40(b)(v) of the Income-tax Act, 1961. Accordingly, the Tribunal concluded that it cannot be said that the specific salary was not quantified. Although the assessment order had not pointed out about anything related to partnership deed, during calculation of total income, the said deed was considered and documents were within the record of the proceeding. The remuneration of Rs.12 lakh paid to each of its three partners was within the limit permissible under section 40(b)(v).

The beauty of section 40(b)(v) was that the remuneration to the partner was fully regulated by the book profit. More the book profit, more remuneration of partner will be allowed. So as per the Act, the assessee can claim more remuneration but it will be allowed subjected to provision of section 40(b)(v) of the Act depending upon its book profit.

The PCIT had, during the issuance of notice under section 263 and during the passing of the revision order under the said section, not taken cognizance of the calculation of tax and the benefit of revenue. The revision order passed under section 263 was considered and the Tribunal observed that two opinions were formed by two authorities in the question of acceptance of clause of partnership deed related to partner’s remuneration.

Consequently, it was held that the view of the Assessing Officer being a plausible view could not be considered erroneous or prejudicial to the interest of revenue. Accordingly, the order of the AO cannot be considered erroneous or prejudicial to interest of the revenue.

In result the appeal filed by the assessee was allowed.

shailesh.kwebmaker

Sum received towards undertaking restrictive covenant of non-imparting service to any other person and not to share associated goodwill of medical practice, being in the nature of non-compete fee, is a capital receipt and not taxable as business or professional income. Non-compete fee related to profession is made taxable only w.e.f. A.Y. 2017-18 and the non-compete fee in relation to profession for period prior to A.Y. 2017-18 would be treated as capital receipt. Changing of Section from 28(va) to 28(i) without confronting the Assessee is a fatal mistake.

7. Nalini Mahajan vs. ACIT
TS-180-ITAT-2023(DEL)
A.Y.: 2014-15
Date of Order: 06th April, 2023
Sections: 28(i), 28(va)

Sum received towards undertaking restrictive covenant of non-imparting service to any other person and not to share associated goodwill of medical practice, being in the nature of non-compete fee, is a capital receipt and not taxable as business or professional income.

Non-compete fee related to profession is made taxable only w.e.f. A.Y. 2017-18 and the non-compete fee in relation to profession for period prior to A.Y. 2017-18 would be treated as capital receipt.

Changing of Section from 28(va) to 28(i) without confronting the Assessee is a fatal mistake.

FACTS

The assessee, a doctor by profession was running a clinic by the name of Mother & Child, New Delhi. On 28th October, 2012, the assessee, executed a `Service Agreement’ with Nova Pulse IVF Clinic Pvt Ltd (“the Company”) whereunder the assessee agreed to be exclusively engaged with the Company for providing her professional services. Under the agreement, the consideration was a fee for her professional services, an amount for exclusive engagement with the Company and an amount for her bringing her associated Goodwill to the Company. During the year under consideration, the assessee received a professional fee and a sum of Rs. 3.20 crore for exclusive engagement with the Company and for bringing her associated Goodwill to the Company. The AO held the sum of. Rs. 3.20 crore to be taxable under section 28(va) of the Act being the value of any benefit or perquisite arising from business or exercise of a profession.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO but held that the amount under consideration is chargeable to tax not under section 28(va) but under section 28(i) of the Act. He rejected the plea of the amount under consideration is a capital receipt.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that there is a proper agreement which provides for the non-compete fee/goodwill. The agreement has been turned down by the authorities below as it is a colorable device. This observation, the Tribunal held, is not backed by any proper reasoning. The case laws relating to the proposition is that the Revenue should only look at the agreement and not look through the binding agreements between the parties. The Tribunal further noted that the AO made addition under section 28(va) of the Act. The amendment to bring profession also, into the said clause was brought in w.e.f. A.Y. 2017- 18. Hence, non-compete fee related to profession is made taxable only w.e.f. A.Y. 2017-18 and the non-compete fee in relation to profession for period prior to A.Y. 2017-18 would be treated as capital receipt.

Furthermore, the CIT(A) has changed the section from 28(va) to section 28(i) of the Act without confronting the assessee. The Tribunal held this to be a fatal mistake. The Tribunal held that in view of the decisions of the Supreme Court in the case of Excel Industries [358 ITR 295 (SC)] and in the case of Radhasoami Satsang Saomi Bagh vs CIT [193 ITR 321 (SC)], the assessee also deserves to succeed. Also, on the principle of consistency in as much as for A.Ys. 2013-14, 2015-16 and 2016-17, the same was treated as capital receipt and the same had been accepted by the Revenue.

The Tribunal held that the sum of Rs.3.20 crore received towards undertaking restrictive covenant of non-imparting service to any other person, and not to share associated goodwill of medical practice, being in the nature of non-compete fee is a capital receipt and not taxable under the provisions of the Act. Hence, the assessment by the AO under 28(va) is not sustainable and similarly, the order of the CIT(A) whereby he changed the head from section 28(va) to section 28(i) without confronting the assessee is also not sustainable. The CIT(A)’s view that the same is taxable under the normal professional income is also not sustainable in the background of the aforesaid discussion, the agreement and the case law referred above. The Tribunal decided this ground of appeal in favour of the assessee.

shailesh.kwebmaker

Provisions of section 68 cannot be invoked as the assessee, offering income under presumptive tax provisions, was not required to maintain books of account.

6. Sunil Gahlot vs. ITO
ITA No. 176/Jodh./2019 (Jodh.-Trib.)
A.Y.: 2015-16
Date of Order: 24th March, 2023
Sections: 44AD, 68, 115BBE

Provisions of section 68 cannot be invoked as the assessee, offering income under presumptive tax provisions, was not required to maintain books of account.

FACTS

The assessee, an individual carrying on trading activity, returned a total income of Rs.2,63,920, under section 44AD of the Act. In the course of scrutiny assessment proceedings, the AO asked the assessee to furnish details of sundry debtors and creditors. The AO made an addition of Rs. 67,743 towards unexplained opening capital balance and Rs. 28,964 for unexplained creditors.

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.

HELD

The Tribunal having noted that the assessee had opted for presumptive taxation under section 44AD of the Act held that the assessee is not required to maintain proper books of accounts. The Tribunal observed that it does not find any merit in the action of the AO calling for the details of sundry creditors and further making addition under section 68 of the Act for unexplained creditors of Rs. 28,964. Since the assessee was not required to maintain books of accounts, the Tribunal deleted the addition under made by the AO under section 68 of the Act towards unexplained sundry creditors.

As regards the addition for opening capital balance of Rs. 67,463, the Tribunal held that it failed to find any merit in the action of the AO because the minimum amount not taxable for the preceding years i.e A.Y. 2014-15 and A.Y. 2013-14 was Rs. 2.00 lakhs and the assessee filed return regularly and having regular source of income from the business and, therefore, it can safely be presumed that he had sufficient accumulated profits to explain the opening capital balance of Rs. 67,463/-. The Tribunal deleted this addition as well.

As regards application of section 115BBE, the Tribunal held that section 115BBE comes into operation only in case of income referred in sections 68/69/69A/69B/69C and 69D of the Act, which is not applicable on the issues raised in the instant case, therefore, there is no justification for invoking the provisions of Section 115BE of the Act.

shailesh.kwebmaker

An addition made under the Black Money Act cannot be made on a protective basis under the Income-tax Act. This has been so held even though the assessment under section 10(3) of the Black Money Act had not attained finality and was subjudice.

5. DCIT vs. Ashok Kumar Singh
ITA No. 426 & 427/ Del/2022 (Delhi-Trib.)
A.Ys.: 2013-14 and 2014-15
Date of Order: 19th April, 2023
Sections : 68 and 10(3) of the Black Money Act

An addition made under the Black Money Act cannot be made on a protective basis under the Income-tax Act. This has been so held even though the assessment under section 10(3) of the Black Money Act had not attained finality and was subjudice.

FACTS

A search action was carried out on 7th April, 2016 and notices were issued and served upon the assessee. During the course of assessment proceedings certain information was available on the website of International Consortium of Investigative Journalists (ICIJ) regarding Indians having undisclosed foreign companies and assets offshore. Investigation was carried out by the Investigation Wing, Delhi. Information was also received from BVI under Information Exchange Agreement and thereafter information was also received from competent authority of Singapore.

The AO noticed that there were huge credits in the bank accounts, details whereof were received pursuant to Information Exchange Agreements. The AO, in the assessment order, mentioned that the Proceeding under the Black Money (Undisclosed Foreign Income and Assets) and imposition of Tax Act 2015 (“BM Act”) have also been initiated after examining the details / materials (including the information relating to foreign bank accounts which were not disclosed in the returns of income) by issuing notices under section 10(1) of the BM Act, and that the final orders are yet to be passed under the BM Act. The AO also stated that “But, it is also clearly understood that the same income cannot be added twice-(i) once under the Incometax Act and then (ii) in the BM Act, as a measure of abundant precaution, income is assessed protectively in the hands of the assessee under income tax act.”

Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted the addition so made on protective basis.

Aggrieved, the revenue preferred an appeal to the Tribunal where the Revenue conceded that the additions made under the Black Money Act are subjudice before the first appellate authority and to safeguard the interest of revenue protective addition has been made under the IT Act.

HELD

The Tribunal held that once additions have been made under the Black Money Act, the same cannot be made under the IT Act on the same set of facts. The Tribunal held that the deletion of the addition by the CIT(A) does not call for any interference.

shailesh.kwebmaker

Interest on delayed payment of TDS is compensatory in nature and is allowable as deduction under section 37(1) of the Act.

4. Delhi Cargo Service Centre vs. ACIT
2023 Taxscan (ITAT) 778 (Delhi – Trib.)
A.Y.: 2015-16
Date of order: 24th March, 2023
Sections: 37, 43B

Interest on delayed payment of TDS is compensatory in nature and is allowable as deduction under section 37(1) of the Act.

FACTS

The assessee, a company engaged in cargo handling services at Cargo Terminal – 2, Indira Gandhi International Airport, e-filed its return of income for A.Y. 2015-16 declaring therein a loss of Rs. 13,29,41,858. The AO passed a draft assessment order on 18th December, 2018 under section 143(3) r.w.s. 92C of the Act inter alia proposing an addition of Rs. 1,28,605 under section 43B being late payment towards statutory dues.

Aggrieved, the assessee preferred an application under section 144C(2) before the Dispute Resolution Panel (DRP) objecting to the additions proposed by the AO. Regarding disallowance of Rs.1,28,605 under section 43B, the DRP directed the Ld. AO to examine the evidence and allow to the extent supported by the evidence. The Ld. AO, however maintained the disallowance of interest of Rs. 94,662 paid on late payment of TDS and Rs.26,465 being PF arrear payments as challans in support were not filed.

The AO held that the entire amount pertained to A.Y. other than A.Y. 2015-16 and thus cannot be allowed. Liability for interest being in the nature of penalty, the AO disallowed the same under section 37(1) of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee it was contended that the liability for interest incurred by the assessee is compensatory in nature and for this proposition reliance was placed on the decision of Supreme Court in Lachmandas Mathuradas vs. CIT 254 ITR 799 (SC), decision of Hon’ble Madras High Court in Chennai Properties and Investment Ltd. vs. CIT 239 ITR 435 (Mad) and the decisions of Mumbai, Calcutta and Jaipur Benches of the Tribunal.

HELD

The Tribunal observed that the AO proposed the impugned disallowance under section 43B which allows deduction of statutory dues in the year of actual payment irrespective of the year in which the liability was incurred. The case of the assessee all along has been that the impugned interest has been paid in A.Y. 2015-16 and therefore it is an allowable deduction. However, after receipt of the direction of the DRP to verify the evidence of payment and allow the same as deduction, the AO made the impugned disallowance under section 37(1) of the Act assigning the reason that impugned interest liability is penal in nature.

The Tribunal held that the impugned disallowance for the reason assigned now is also not sustainable. It observed that an identical issue arose for consideration before Mumbai Bench of the Tribunal in M/s M L Reality vs. ACIT in ITA No. 796/Mum/2019 and the Tribunal vide its order dated 24th March, 2021 held that interest paid on late payment of TDS is compensatory in nature and is an allowable deduction under section 37(1) of the Act.

The Tribunal following the decision in M L Realty Ltd (supra) and the ratio decidendi of the decisions relied upon by the assessee decided found substance in the contentions of the assessee and decided this ground of appeal in favour of the assessee.

shailesh.kwebmaker

Section 69A r.w.s. 115BBE and section 153A – Where cash deposits made in bank accounts of the proprietorship concern during demonetization period were routed through regular books of account of the assessee which were not rejected by AO and no incriminating material was found during the search conducted at the premises of the sister concern of the assessee to point out that she introduced her own unaccounted money in her proprietorship concern in the garb of sale to its sister concern then additions made by the AO in respect of such cash deposit were merely based on surmise and conjectures and, thus, same were to be deleted.

3 Tripta Rani vs. ACIT

[2022] 97 ITR(T) 389 (Chandigarh – Trib.)

ITA No.: 135 (CHD.) OF 2021

A.Y.: 2017-18

Date of order: 13th June, 2022

Section 69A r.w.s. 115BBE and section 153A – Where cash deposits made in bank accounts of the proprietorship concern during demonetization period were routed through regular books of account of the assessee which were not rejected by AO and no incriminating material was found during the search conducted at the premises of the sister concern of the assessee to point out that she introduced her own unaccounted money in her proprietorship concern in the garb of sale to its sister concern then additions made by the AO in respect of such cash deposit were merely based on surmise and conjectures and, thus, same were to be deleted.

FACTS

The assessee was a proprietor of two concerns namely; ‘W’ and ‘S,’ and was engaged in the business of trading of textiles. The assessee was also engaged in the purchase and sale of cloth to its sister concern one R group. A search was conducted at premises of R group under section 132(1). Consequently, notice under section 153A was issued to the assessee. Pursuant to the said notice, the assessee filed return of income which reflected same income as filed in original return.

During the assessment proceedings, the AO observed that during the demonetization period, the assessee deposited Rs. 10 lakhs and Rs. 17 lakhs in the bank accounts of her proprietorship concerns ‘W’ and ‘S’ The AO required the assessee to submit details related to cash deposits along with certified copies of bank statements. The assessee explained to the AO that the cash deposits in the bank accounts of respective proprietorship concerns were out of sales made to its sister concern ‘R’ group. However, despite such explanation, the AO held that in case of proprietorship concern ‘S’, the assessee failed to submit any satisfactory reply and thus made additions under section 69A on the grounds that the assessee introduced own unaccounted money in the garb of sales to sister concern during the demonetization period.

On appeal, the CIT (A) upheld the decision of the AO. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that the AO had no sound reason to reject the contention of the assessee especially when the cash deposits in the bank account of ‘S’ have been routed through the regular books of account of the assessee. Even the books of account have not been rejected and the AO had accepted the sales as well as purchases and also the expenses claimed by the assessee and had only found fault with the quantum of cash deposits during the demonetization period. Thus, apparently, this impugned addition had been made without any foundation and the AO had acted on mere surmise and conjectures without duly appreciating the undisputed fact that he himself had accepted the books of account. The CIT (A) had also upheld the findings of the AO without assigning any cogent reason and he also seemed to have simply approved the addition without proper appreciation of facts. Further, on the same set of facts, the AO had accepted the cash deposit of Rs. 17 lakhs in another proprietorship concern of the assessee namely ‘W’ but had proceeded to doubt the cash deposited in the proprietorship concern ‘S’ without any cogent reason.

It was also noted by the Tribunal that the captioned case was a search case and even during the course of search no incriminating material was found which would point out towards the assessee introducing her unaccounted cash into the books of account under the garb of sales or receipts from sister concern.

Therefore, the view taken by the CIT (A) in upholding the addition of Rs. 10 lakhs was set aside by the Tribunal and the AO was directed to delete the same.

shailesh.kwebmaker

Section 80-IB r.w.s 154 and Section 143 – Where the assessee’s claim for deduction under section 80-IB was rejected for want of filing of an audit report, in view of CBDT’s Circular No. 689, dated 24th April, 1984, the AO was required to consider rectification application filed by the assessee-company since a copy of said report in Form 10CCB was uploaded by the assessee on receipt of intimation under section 143(1).

2 Satish Cold Storage vs. DCIT

[2022] 97 ITR(T) 601 (Lucknow – Trib.)

ITA Nos.: 76 & 77 (LKW.) of 2021

A.Y.: 2017-18 & 2018-19

Date of order: 25th May, 2022

Section 80-IB r.w.s 154 and Section 143 – Where the assessee’s claim for deduction under section 80-IB was rejected for want of filing of an audit report, in view of CBDT’s Circular No. 689, dated 24th April, 1984, the AO was required to consider rectification application filed by the assessee-company since a copy of said report in Form 10CCB was uploaded by the assessee on receipt of intimation under section 143(1).

FACTS

The assessee had claimed deduction under section 80-IB of the Income-tax Act, 1961. However, the auditor of the assessee omitted to upload the audit report in FORM-10CCB along with the return of income. The deduction under section 80-IB was denied in the intimation issued under section 143(1). After the receipt of intimation under section 143(1) of the Income-tax Act, 1961, the assessee uploaded the copy of audit report in FORM 10CCB and filed a rectification application under section 154 against the said intimation. The audit report was rejected by the Central Processing Unit (CPC).

Thereafter an appeal was filed before Ld. CIT (A) against the order passed by the CPC under section 154.

The CIT (A) dismissed the appeal by holding that no mistake was apparent from the record. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The Tribunal observed that CIT (As) while rejecting the appeal, had escaped the contents of Circular No. 689 dated 24th August, 1984. which clearly directs the Officers to allow rectification under section 154 for non-filing of audit report or other evidence which could not be filed with the return of income.

The Tribunal, by relying upon the decision of the Hon’ble High Court of Karnataka in the case of Mandira D Vakharia [2001] 250 ITR 432 (Kar.), held that the assessee would be entitled to the deduction in rectification under section 154 to the extent permitted by the Board’s Circular No.669 dated 25th October, 1993 and Circular No.689 dated 24th August, 1984. The AO was not right in law in disallowing the rectification application only on the grounds that the assessee had failed to furnish the audit report along with the return of income.

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Section 10 (38) r.w.s. 68 – Where the assessee claimed an exemption under section 10(38) towards long-term capital gains earned on the sale of shares alleged to be penny scrip and furnished various documentary evidences in the form of copies of contract notes, DEMAT account, details of share transactions, etc. in support of the claim, then onus casted upon assessee in terms of section 68 was discharged and therefore impugned addition made against alleged bogus LTCG was to be deleted.

1 Jatinder Kumar Jain vs. ITO

[2022] 97 ITR(T) 403 (Chandigarh – Trib.)

ITA No.: 338 (CHD) OF 2018

A.Y.: 2013-14

Date of order: 14th June, 2022

Section 10 (38) r.w.s. 68 – Where the assessee claimed an exemption under section 10(38) towards long-term capital gains earned on the sale of shares alleged to be penny scrip and furnished various documentary evidences in the form of copies of contract notes, DEMAT account, details of share transactions, etc. in support of the claim, then onus casted upon assessee in terms of section 68 was discharged and therefore impugned addition made against alleged bogus LTCG was to be deleted.

FACTS

The assessee-company had purchased shares of Maple Goods Ltd (MGL) through cheque and the identity of the broker had been furnished. Due to the order of High Court Kolkata, MGL along with Seaview Supplier Ltd (SSL) and Matrix Barter Pvt Ltd (MBL) were amalgamated and as a consequence, the assessee was allotted 7,900 shares of Access Global Ltd (AGL). Subsequently, the assessee sold these shares of AGL through a bank channel. It claimed long-term capital gain arising on sale of the said shares as exempt under section 10(38).

The AO received the report of the Investigation Wing wherein AGL had been allegedly identified as one of the penny stock companies. In the said report, it was alleged that the price of shares of AGL had been artificially rigged to create a non-genuine long-term capital gain. On the basis of the said report, The AO inferred that the assessee had allegedly earned bogus long-term capital gain on sale of shares of AGL through another alleged bogus client company, namely Ashok Kumar Kayan (AKK) and accordingly, came to conclusion that AKK had provided bogus long term capital gain to the assessee and other companies, and thus denied the assessee’s claim of exemption and made addition of the long term capital gain under section 68.

During the course of the assessment proceedings, the assessee had furnished documentary evidences which included copies of contract notes, DEMAT account, details of share transactions, contract notes giving details like trade number, trade time, contract note number, settlement number, details of service tax payment, securities transaction tax paid and the brokerage paid to the broker. It was also demonstrated by the assessee that the purchase of shares of MGL had been made through cheque in June, 2011. The assessee had also demonstrated that, subsequently, the sale proceeds from the shares of AGL were received again through banking channel. Apart from this, the assessee had also filed the judgment of the High Court ordering amalgamation of three companies MGL, SSL and MBL as a consequence to which the assessee was allotted 7,900 shares of AGL. The assessee had also furnished a copy of letter addressed to the assessee by MGL which showed the distinctive number of shares allotted to the assessee along with the certificate number and the share folio number.

The CIT(A) upheld the addition made by the AO. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

It was observed by the Tribunal that all these documents have apparently been accepted by the lower authorities in as much as neither the AO nor the CIT (A) had pointed out any defect in these documents. The statements of various persons were recorded. But nowhere in the statements, the name of the assessee was referred to.

The assessee had demonstrated with substantial evidence before the AO that the actual purchase and sale of the shares took place, such shares had distinctive numbers, the transactions were routed through the normal banking channels and the shares had been allotted to the assessee subsequently under an order of amalgamation/merger.

The Tribunal also observed that when the AO had received the report of the Investigation Wing, he ought to have conducted an independent enquiry to examine and verify the involvement of the assessee in the alleged bogus long-term capital gain claim rather than simply and blindly following the report and the statement to make a case against the assessee.

Accordingly, the Tribunal held that since the assessee had successfully discharged the onus casted upon him in terms of section 68, the impugned addition had no feet to stand.

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S.68 read with S.153A –When cash deposited post-demonetization by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by the AO and when there was sufficient stock available with the assessee to make cash sales then the said fact was sufficient to explain the deposit of cash in the bank account and could not have been treated as undisclosed income of assessee and accordingly, impugned addition made by the AO was not justified.

63 Smt. Charu Aggarwal

[2022] 96 ITR(T) 66 (Chandigarh – Trib.)

ITA No.:310 & 311 (CHD.) OF 2021

A.Y.: 2017-18

Date of order: 25th March, 2022

S.68 read with S.153A –When cash deposited post-demonetization by assessee was out of cash sales which had been accepted by Sales Tax/VAT Department and not doubted by the AO and when there was sufficient stock available with the assessee to make cash sales then the said fact was sufficient to explain the deposit of cash in the bank account and could not have been treated as undisclosed income of assessee and accordingly, impugned addition made by the AO was not justified.

FACTS-I

The assessee was a limited liability partnership engaged in the business of resale of jewellery, diamond and other related items. A search operation was conducted in the K group of cases. Notice under section 153A was issued to the assessee and in response to the notice, the assessee filed its return of income declaring an income of Rs. 22.53 lakhs.

During the course of assessment proceedings the AO observed that the assessee had deposited Rs. 2.90 crores post-demonetization in its account and that during the course of search, books of account and sales bill books relating to the demonetization period and pre-demonetization period were verified which revealed that the assessee was maintaining its books of account in the computer of its accountant. The AO further observed that on examination of the digital data it was noticed that there were two sets of books of account, i.e., one in the computer of the accountant and another in the pen drive of the accountant. On comparison of the two accounts it was found that there was a difference in the sale figures for the month of October, 2016 as cash sales were increased in one set of books of account. The statement of the accountant was recorded during the course of search wherein he admitted that he had changed the sale figures of October, 2016 by increasing cash sales after demonetization to generate cash in hand in the books of account. The AO asked the assessee to furnish documentary evidence regarding the source of the cash deposits in its bank accounts, but did not find merit in the submission of the assessee and made an addition of Rs. 2.19 crores.

On appeal, the Commissioner (Appeals) after considering the submissions of the assessee allowed relief of Rs. 15 lakhs and sustained the addition of Rs. 2.05 crores by observing that the net profit of 1.57 per cent had been declared by the assessee in the books of account and that the profit had already been disclosed on the sales of Rs. 2.19 crores which was added by the AO.

Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD-I

The Tribunal noticed that the assessee was maintaining the sales bills which were recorded in the regular books of account maintained in regular course of business by the assessee. No discrepancy was found in the quantitative details of the stock reflected in the stock register. In the instant case when there was a search at the premises of the assessee on 12th April, 2017, no discrepancy in respect of cash or stock was found which was evident from the assessment order dated 27th March, 2019 for the succeeding A.Y. 2018-19 wherein the addition of Rs. 1.02 lakhs only was made on account of difference in the stock in various items, which was negligible. The assessee was also filing regular returns with the VAT Department, copies of which were placed in the assessee’s compilation. In those VAT Returns also no difference/defect was pointed out which clearly showed that the stock available with the assessee in the form of opening stock and purchases had been accepted by the Department as well as the VAT Department. The Tribunal opined that the amount received by the assessee from the customer after selling the goods/jewellery out of the accepted stock (opening stock and purchases) cannot be considered as the income outside the books of account.

On the other hand, the Department had not brought any material on record to substantiate that the amount received by the assessee by selling the jewellery/goods out of the opening stock and the purchases was utilized elsewhere and not for depositing in the Bank account.

Furthermore, the opening stock, purchases & sales and closing stock declared by the assessee has not been doubted. The sales were made by the assessee out of the opening stock and purchases and the resultant closing stock has been accepted. The sales had not been disturbed either by the AO or by the sales tax/VAT Department and even there was no difference in the quantum figures of the stock at the time of search on 12th April, 2017. Therefore, the sales made by the assessee out of the existing stock were sufficient to explain the deposit of cash (obtained from realization of the sales) in the bank account and cannot be treated as undisclosed income of the assessee.

Accordingly, the impugned addition made by the AO and sustained by the Commissioner (Appeals) was not justified and therefore the same is liable to be deleted.

S.142A –When difference between valuation shown by the assessee and estimated by DVO was less than 10 per cent then the AO was not justified in substantiating the valuation determined by DVO in respect of cost shown by the assessee.

FACTS-II

During the course of assessment proceeding the AO confronted the assessee with the difference in the cost of construction of showroom as estimated by the departmental valuer and as shown by the assessee in the books of account. The AO came to conclusion that there was a difference in the valuation to the tune of Rs. 18.72 lakhs and accordingly made an addition of 7.97 lakhs in the hands of the assessee and the remaining addition of Rs. 10.75 lakhs in the hands of the other co-owner.

On appeal, the Commissioner (Appeals) sustained the addition made by the Assessing Officer.

Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD-II

It was submitted by the assessee that he had asked for the benefit of 10 to 15 per cent on account of self-supervision but the valuation officer had given a benefit of only 3.75 per cent and even the valuation officer applied the Central Public Works Department (CPWD) rates instead of local Public Works Department (PWD) rates. The CPWD rates were higher than the PWD rates. The contention of the assessee was based on a well settled principle of law that in the place of the CPWD rates, the local PWD rates were to be applied and adopted to determine the cost of construction which was pronounced by the Apex Court in the case of CIT vs. Sunita Mansingha [2017] 393 ITR 121.

Accordingly, the Tribunal, keeping in view the ratio laid down by the Apex Court in the aforesaid case, observed that the Valuation Officer ought to have applied the local PWD rates instead of CPWD rates which were on the higher side.

Further, it was also observed that on the similar issue, various Benches of the Tribunal have taken a consistent view that when the difference in valuation shown by the assessee and estimated by the DVO is less than 10 per cent then the AO was not justified in substantiating the valuation determined by the DVO in respect of cost shown by the assessee.

Consequently, it was held that the impugned addition made by the AO and sustained by the Commissioner (Appeals) on account of difference in the valuation as determined by the DVO and shown by the assessee in its regular books of account was liable to be deleted.

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S.10(38) –Where the assessee furnished all details to the AO with regards to long term capital gain arising from sale of shares on which securities transaction tax was paid, the the AO cannot deny exemption claimed under section 10(38) in respect of the said long term capital gain.

62 Mukesh Nanubhai Desai vs. ACIT
[2022] 96 ITR(T) 258 (Surat – Trib.)
ITA No.:781 (SRT) OF 2018
A.Y.: 2012-13
Date of order: 6th May, 2021

S.10(38) –Where the assessee furnished all details to the AO with regards to long term capital gain arising from sale of shares on which securities transaction tax was paid, the the AO cannot deny exemption claimed under section 10(38) in respect of the said long term capital gain.

FACTS-I

During the year under consideration, the assessee being an individual earned long term capital gain from sale of shares on which securities transaction tax was paid by him and claimed it as exempt under section 10(38). During the course of the assessment proceedings, the exemption was denied and the long-term capital gain was added to the total income of the assessee.

During the course of the first appellant proceedings, the AO furnished his remand report stating therein that contract notice/ledger accounts furnished by the assessee though matched with the data furnished by the stock exchange, it was however discovered that the directors of the broker companies, through whom the assessee undertook transaction of sale of shares, were banned by SEBI for market manipulation. Therefore, the AO derived a conclusion that the said companies did not have potential that the assessee could earn enormous capital gain.

On the basis of the same, the Commissioner (Appeals) held that although the basis for making the addition did not survive but there was a probability that allotment of shares and their eventual sale was a pre-planned scheme to convert unaccounted income into exempt income and accordingly the additions made by the AO were upheld. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD-I

The assessee contended that he had, during the course of the assessment proceedings as well as first appellate proceedings furnished all the documentary evidences in support of his claim of exemption such as books of accounts showing the credit of sale considerations of shares and details of various scrips of the shares with their date of purchase and its sales. It was also stated by the assessee that the purchase of the shares was accepted in the assessment completed for earlier years under section 143(3).

Despite production of documentary evidences by the assessee, the AO denied the exemption claimed under section 10(38) on the grounds that the Director of one of the broker companies was banned from trading by SEBI for market manipulation during the Initial Public Offer. The AO also stated that the director of the other broker company was also banned from trading by SEBI for market manipulation through artificially increasing the sale price and concluded that both the companies were not having potential so as to allow the assessee to earn enormous capital gain.

It was observed by the Tribunal that once it is accepted by the AO in his remand report that all the transactions of the assessee reflected in the contract notice/ledger accounts furnished by the assessee are matching with the data furnished by the stock exchange and the Commissioner (Appeals) had also taken a view that the basis for making addition did not survive, then addition cannot be sustained.

Further, in respect of the allegations of the AO with regard to ban from trading imposed upon the directors of the broker companies, the Tribunal had observed that the assessee had purchased shares much prior to the orders of SEBI. Accordingly, there was no live link between the order of the SEBI and the transactions by way of sale of shares undertaken by the assessee. Such an order of SEBI cannot be read against the assessee in the absence of anti-corroborative evidence.

Accordingly, the addition of long-term capital gain made to the total income of the assessee was deleted by the Tribunal.

S.10(2A) – Where assessee had furnished complete details of firm, details of partners with their PAN, copy of returns of firm with computation of income then assessee could not be denied exemption claimed under section 10(2A) in respect of income by way of share of profit received from firm.

FACTS-II

The assessee was a partner in a firm. He had received certain amount of income as remuneration, interest and share of profit from firm. The assessee had claimed exemption in respect of share of profit received from the firm under section 10(2A).The AO clubbed this exempt income with the LTCG and denied exemption in respect of the share of profit received from firm. On appeal, the Commissioner (Appeals) also upheld the same.

Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD-II

The assessee submitted that in the computation of income he had claimed exemption under section 10(2A) in respect of income by way of share of profit received from firm.

The Tribunal observed that the AO instead of examining the facts and the evidences furnished by the assessee, clubbed this income with the exempt long term capital gain claimed by the assessee. The Commissioner (Appeals) also upheld the action of the AO.

The Tribunal noted that the income by way of share of profit received from the firm is separate and independent income component earned by the assessee which is claimed as exempt under section 10(2A).

The Tribunal held that the AO ought to have examined the documentary evidences furnished by the assessee in support of his claim for exemption such as return of income of firm, details of partners, and their PAN. If the AO would have examined these evidences then the exemption under section 10(2A) would not have been denied.

Accordingly, the addition made to the total income of the assessee to the extent of income by way of share of profit received from firm stands deleted.

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Assessment order passed in the name of non-existing entity is null and void ab initio. The decision of SC in Mahagun Realtors (P.) Ltd cannot be interpreted to mean that even in a case where factum of amalgamation was put to the notice of the AO, still the assessment made in the name of amalgamating company i.e. non-existing company is valid in law.

61 DCIT vs. Barclays Global Service Centre Pvt Ltd (formerly Barclays Shared Services Pvt Ltd)

[TS-29-ITAT-2023(PUN)]

A.Y.: 2014-15

Date of Order: 2nd January, 2023

Assessment order passed in the name of non-existing entity is null and void ab initio. The decision of SC in Mahagun Realtors (P.) Ltd cannot be interpreted to mean that even in a case where factum of amalgamation was put to the notice of the AO, still the assessment made in the name of amalgamating company i.e. non-existing company is valid in law.

FACTS

The assessee company, engaged in the business of providing Information Technology Enabled Services (ITES) to Barclays Bank PIc, United Kingdom (BBPLC) and its affiliates, filed its return of income for the A.Y. 2014-15 declaring a total income of Rs. 1,13,02,89,902 after claiming deduction under section 10AA of the Income-tax Act, 1961 (‘the Act’). The appellant company also reported international transactions entered with its AEs. On noticing the international transactions, the AO referred the matter to the Transfer Pricing Officer (‘TPO’) for the purpose of benchmarking the international transactions. The TPO vide order dated 30th October, 2017 suggested the TP adjustment of Rs. 95,88,72,618/-. On receipt of the draft assessment order, the appellant had not chosen to file objection before the DRP and the final assessment order dated 20th March, 2018 was passed by the AO after making disallowance of the excess deduction claimed under section 10AA amounting to Rs. 8,92,33,721.

Aggrieved, assessee preferred an appeal to CIT(A) where it interalia contended that the assessment is null and void as the assessment order is passed in the name of non-existing entity i.e. M/s Barclays Shared Services Pvt Ltd instead of Barclays Global Service Centre Pvt Ltd. The CIT(A) had dismissed the said ground i.e. challenging the very validity of the assessment on the grounds that when the notice under section 143(2) was issued, the amalgamating company was very much in existence. On merits, the issue was decided partly in favour of the assessee.

Aggrieved, by the relief granted on merits, the revenue preferred an appeal to the Tribunal and assessee filed cross objections being aggrieved by the validity of the assessment made in the name of amalgamating company i.e. M/s Barclays Shared Services Pvt Ltd which was a non-existing entity.

HELD

The Tribunal noted that the assessee company Barclays Shared Services Pvt Ltd was amalgamated with Barclays Technology Centre India Pvt Ltd vide order dated 2nd November, 2017 passed by NCLT. The appointed date for amalgamation was 1st April, 2017 but became effective only on filing of Form INC-28 along with prescribed fee before the Registrar of Companies. The return of income was filed in the name of amalgamating company as the process of amalgamation was not complete. During the course of assessment proceedings under consideration, the assessee company had brought to notice of the AO that the fact of amalgamation vide letter dated 15th December, 2017 along with copies of the amalgamation scheme dated 26th December, 2017. In-spite of this, the AO passed the assessment order in the name of amalgamating company.

The Tribunal observed that the issue that arises for its consideration is whether or not an assessment order passed in the name of amalgamating company i.e. non-existing company, is valid in the eyes of law. Despite knowing very well that the amalgamating company was not in existence at the time of passing the assessment order, still the AO had chosen to pass an assessment order in the name of the amalgamating company i.e. Barclays Shared Services Pvt Ltd.

The Tribunal held that the ratio that can be discerned from the decision of the Supreme Court in PCIT vs. Maruti Suzuki India Ltd. [416 ITR 613 (SC)] is that consequent upon the amalgamation, the amalgamating company ceases to exist, therefore, it cannot be regarded as a “person”. The assessment proceedings against an entity which had ceased to exist were void ab initio. The fact that the assessee had participated in the assessment proceedings cannot operate as an estoppel against law.

The Tribunal also noted the ratio of the decision of the Jurisdictional High Court in the case of Teleperformance Global Services Pvt. Ltd. vs. ACIT [435 ITR 725 (Bom.)]; Alok Knit Exports Ltd. vs. DCIT [446 ITR 748 (Bombay)] and Vahanvati Consultants (P.) Ltd. vs. ACIT [448 ITR 258 (Bom.)].

The Tribunal having noted that the decision of the Apex Court in PCIT vs. Mahagun Realtors (P.) Ltd. [443 ITR 194 (SC)] was rendered in the peculiar facts of that case held that this decision is not an authority of proposition, that an assessment can be made in the name of non-existing entity, even though the AO was put on notice of factum of amalgamation.

In the present case, since the fact of amalgamation was brought to the notice of the AO, the ratio of the decision of the Apex Court in Mahagun Realtors (P) Ltd. will not apply. Therefore, the Tribunal held the assessment order passed by the AO in the name of non-existing entity to be null and void ab initio and quashed the assessment order. Cross objections filed by the assessee were allowed.

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Where the assessee mentioned residential status in original return as resident in India and in return filed under section 153A mentioned residential status as Non-resident which was uncontroverted fact, then merely mentioning the residential status as resident in original return of income, does not make the assessee a resident in India. Once the assessee is a non-resident then income or deposit in foreign bank account is not taxable in India

60 Ananya Ajay Mittal vs. DCIT

ITA Nos. 6949 & 6950/Mum/2019 and

576/Mum/2021

A.Ys: 2010-11 to 2012-13

Date of Order: 29th December, 2022

Where the assessee mentioned residential status in original return as resident in India and in return filed under section 153A mentioned residential status as Non-resident which was uncontroverted fact, then merely mentioning the residential status as resident in original return of income, does not make the assessee a resident in India.

Once the assessee is a non-resident then income or deposit in foreign bank account is not taxable in India

FACTS

The assessee in previous year relevant to A.Y. 2008-09 went to the US for studies. A search and seizure action was carried out in the case of the assessee’s father when during the course of search certain documents containing details of foreign bank account of Ananya Mittal. This foreign bank account was not declared by the assessee in the return of the income filed by him. In the course of post search assessment proceedings it was submitted by the assessee before the AO that the assessee was in the US for his post-graduation was to stay in there for four years. As a student pursuing studies in the US, it was mandatory for him to open a bank account in the country. All expenses of the assessee in USA were exclusively borne by a family friend of Mittal family, Dr. Prakash Sampath based in the USA. The assessee being a non-resident has not maintained records of his foreign bank account.

The AO held that the contention that assessee is a non-resident is an after thought since in the original return of income residential status has been stated as `resident’. It is only that this foreign bank account has been detected in the course of search that the assessee in the return of income filed in response to notice issued under section 153A has stated the residential status to be non-resident. However, the AO in the assessment order did mention the number of days the assessee was outside India. The AO taxed the entire credit of Rs.3,20,133 reflected in foreign bank account u/s 68 by holding that gift from family friend did not fall under section 56(2)(v) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) confirmed the action of the AO on the grounds that the assessee had not explained the source of deposits in foreign bank account which was unearthed during the course of search and details of which were obtained by AO through Foreign Tax and Tax Research (FTTR).

Aggrieved, the assessee preferred an appeal to the Tribunal. The Tribunal decided the appeal of the assessee for A.Y. 2010-11 and 2011-12 vide order dated 23rd March, 2022 wherein additions made on certain credits in foreign bank account were confirmed. The assessee filed Miscellaneous Application (MA) and pointed out that an important fact that the assessee is a non-resident and therefore no addition could have been made has been omitted to be considered. The Tribunal recalled the earlier order.

HELD

The Tribunal noted that before CIT(A) the issue that assessee was a non-resident was specifically raised and CIT(A) has not refuted this submission of the assessee. The Tribunal also noted that the assessee was a non-resident which fact has not been refuted by either of the lower authorities. The Tribunal held that merely mentioning the status as resident in the original return of income does not make the assessee a resident in India. The present assessment was under section 153A of the Act and the assessee had in the return filed in response to notice issued under section 153A mentioned the residential status as non-resident. The AO in the assessment order has also stated the status to be non-resident. Therefore, this cannot be a ground for treating the assessee as a resident. Once the assessee is non-resident, then income or deposit in the foreign bank account of the assessee who is not resident in India cannot be taxed in India. Therefore, on this ground the entire additions cannot be sustained.

This ground of appeal filed by the assessee was allowed.

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