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Category: Tribunal News: Part A-Domestic Taxation

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.

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.

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.

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.

 

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Provisions of section 115JC are applicable to projects approved before the introduction of the section 115JC.

59 DCIT vs. Vikram Developers and Promoters

TS-21-ITAT-2023(PUN)

ITA No. 608/Pune/2020

A.Y.: 2014-15

Date of Order: 10th, January, 2023

Provisions of section 115JC are applicable to projects approved before the introduction of the section 115JC.

FACTS

The assessee, a non-corporate entity, filed its return of income wherein it claimed deduction under section 80IB(10). In the return of income filed, the assessee did not give effect to the provisions of section 115JC. In the course of assessment proceedings, the AO held that the provisions of section 115JC which have been introduced w.e.f. 1st April, 2013 are applicable to the case of the assessee and accordingly the assessee is liable to pay taxes under 115JC for the year under consideration. Accordingly, the AO worked out the Adjusted Total Income and taxed it in accordance with the provisions of section 115JC of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) and contended that the Pune Bench of the Tribunal has in the assessee’s own case, for the assessment year 2013-14, decided the issue in favour of the assessee. The CIT(A), relying on the said order of the Tribunal, decided the issue in favor of the assessee.

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the recent decision of the co-ordinate bench in the case of Yash Associates [ITA.No.159/ PUN./2018 & C.O.No.1/PUN./2022 decided on 5th August, 2022 goes against the assessee. The Tribunal quoted the ratio of the decision in this case where considering the fact that section 115JC starts with a non-obstante clause and section 115JC(2)(i) stipulates adjustment(s) in an assessee’s total income “as increased by deductions claimed, if any, under any section (other than section 80P) included in Chapter VI-A under the heading C – Deduction in respect of certain incomes” and held that very clearly it is not the approval or completion of the residential project but the deduction claim only which has to be added under section 115JC(2)(i) of the Act. The Tribunal adopted stricter interpretation in light of the non-obstante provision and rejected the assessee’s contentions as per of decisions of the apex court in CIT vs. Calcutta Knitwears, Ludhiana [(2014) 6 SCC 444 (SC)], CCE vs. Dilip Kumar [(2018) 9 SCC 1 (SC) (FB)] and PCIT vs. Wipro Ltd [(2022) 140 taxmann.com 223 (SC)].

The Tribunal held that the co-ordinate bench deciding the case of the assessee in an earlier assessment year did not examine the ambit and scope of section 115JC of the Act so as to form a binding precedent in line with CIT vs. B. R. Constructions [(1993) 202 ITR 222 (AP)]. The Tribunal adopting the stricter interpretation held that the provisions of section 115JC would apply to the case of the assessee. The appeal filed by the Revenue was allowed.

Mere non-furnishing of the declaration by the deductee to the deductor in terms of proviso to Rule 37BA(2) cannot be reason to deny credit to the person in whose hands income is included.

58 Anil Ratanlal Bohra vs. ACIT
2023 (1) TMI 862 – ITAT PUNE
ITA No. 675/Pune/2022
A.Y.: 2021-22
Date of Order: 19th January, 2023

Mere non-furnishing of the declaration by the deductee to the deductor in terms of proviso to Rule 37BA(2) cannot be reason to deny credit to the person in whose hands income is included.

FACTS

Assessee, an individual, filed his return of income wherein he interalia claimed credit for TDS of Rs.2,80,456 being proportionate amount deducted at source by State Bank of India from the interest on fixed deposits placed by his wife with the State Bank of India. This amount of Rs.2,80,456 was in respect of interest attributable to fixed deposits which were placed by the wife of the assessee with State Bank of India out of the funds gifted by the assessee to her. Accordingly, in terms of section 64 of the Act, the income thereon was includible in total income of the assessee. The assessee included such income in the return of income and also claimed corresponding credit.

The CPC, in intimation denied credit of TDS claimed since the same was not reflected in Form No. 26AS of the assessee.

Aggrieved, the assessee filed an appeal to CIT(A) who held that the provisions of Rule 37BA(2) were not complied with and as a result, the assessee was not entitled to the credit for deduction of tax at source.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted the provisions of section 199 and observed that sub-Rule (2) of Rule 37BA is significant for deciding the appeal.

It noted that a careful perusal of sub-rule (2) indicates that where the income, on which tax has been deducted at source, is assessable in the hands of a person other than deductee, then credit for the proportionate tax deducted at source shall be given to such other person and not the deductee. The proviso to sub-rule (2) provides for deductee filing a declaration with the deductor giving particulars of the other person to whom credit is to be given. On receipt of such declaration, the deductor shall issue certificate for the deduction of tax at source in the name of such other person.

The crux of section 199 read with Rule 37BA(2) is that if the income, on which tax has been deducted at source, is chargeable to tax in the hands of the recipient, then credit for such tax will be allowed to such recipient. If, however, the income is fully or partly chargeable to tax in the hands of some other person because of the operation of any provision, like section 64 in the extant case, the proportionate credit for tax deducted at source should be allowed to such other person who is chargeable to tax in respect of such income, notwithstanding the fact that he is not the recipient of income.

It is with a view to regularise the allowing of credit for tax deducted at source to the person other than recipient of income, that the proviso to Rule 37BA(2) has been enshrined necessitating the furnishing of particulars of such other person by the recipient for enabling the deductor to issue TDS certificate in the name of the other person. The proviso to Rule 37BA(2) is just a procedural aspect of giving effect to the mandate of section 199 for allowing credit to the other person in whose hands the income is chargeable to tax.

One needs to draw a line of distinction between substantive provision [section 199 read with Rule 37BA(2) without proviso] and the procedural provision [proviso to Rule 37BA(2)]. Non compliance of a procedural provision, which is otherwise directory in nature, cannot disturb the writ of a substantive provision.

The Tribunal held that merely because the assessee’s wife did not furnish declaration to the bank in terms of proviso to Rule 37BA(2), the amount of tax deducted at source, which is otherwise with the Department, cannot be allowed to remain with it eternally without allowing any corresponding credit to the person who has been subjected to tax in respect of such income. As the substantive provision of section 199 talks of granting credit for tax deducted at source to the other person, who is lawfully taxable in respect of such income, we are satisfied that the matching credit for tax deducted at source must also be allowed to him.

The Tribunal held that the credit for Rs. 2,80,656 actually deducted on interest income of Rs. 37.42 lakh be allowed to the assessee who has been taxed on such income.

What is applicable for TDS should also be applicable for TCS and merely because there is no Rule identical to Rule 37BA(2)(i) of the Rules with reference to TCS provisions, it cannot be the basis for the Revenue to deny the legitimate claim for credit of TCS made by an assessee

57 Hotel Ashok Garden vs. ITO  

ITA Nos. 12 to 15 / Bang./2023

A.Ys.: 2016-17 to 2019-20

Date of Order: 6th February, 2023

What is applicable for TDS should also be applicable for TCS and merely because there is no Rule identical to Rule 37BA(2)(i) of the Rules with reference to TCS provisions, it cannot be the basis for the Revenue to deny the legitimate claim for credit of TCS made by an assessee.

FACTS

The assessee, a firm, engaged in the business of liquor bar and restaurant, claimed credit of TCS paid at the time of purchase of liquor in each of the four assessment years under consideration. The TCS certificate was in the name of Raju Shetty, a partner of the assesse firm, who held the license in the business of selling liquor. Since Raju Shetty held the license, the Karnataka State Beverages Corporation Ltd, (KSBCL) from whom liquor was purchased issued the certificate of TCS in the name of Raju Shetty but the credit wherefor was claimed by the assessee firm in the return of income filed by it.

In an intimation, the credit for TCS claimed by the assessee firm was denied. The assessee filed an application for rectification under section 154 of the Income tax Act, 1961 (Act) contending that the credit ought to be granted to the assessee firm. Along with the application, indemnity of the partner, Raju Shetty was also furnished. The AO rejected the application.

Aggrieved, the assessee preferred an appeal to CIT(A) who dismissed the appeal interalia on the grounds that this is a debatable issue which could not have been rectified under section 154 of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee, reliance was placed on the decision of the Jaipur Bench of the Tribunal in the case of Jai Ambey Wines vs. ACIT, order dated 11th January, 2017 where an identical issue came up for consideration with regard to the claim of TCS in the hands of the partnership firm when the licence stands in the name of the partners. The Tribunal after considering the statutory provisions held that the assessee firm should be given credit for TCS made in the hands of the partner.

The common issue in these four appeals was as to whether the lower authorities were justified in not granting credit for TCS as claimed by the assessee.

HELD

The Tribunal noted the ratio of the decision of the co-ordinate bench in the case of Jai Ambey Wines (supra). As regards the decision of the CIT(A) that the issue under consideration could not have been decided in an application under section 154 of the Act, the Tribunal held that if the ultimate conclusion on an application under section 154 of the Act can only be one particular conclusion, then even if in reaching that conclusion, analysis has to be done then it can (sic cannot) be said that the issue is debatable which cannot be done in proceedings under section 154 of the Act. The Tribunal held that the conclusion in the present case can only be one namely, that one person alone is entitled to claim credit for TCS and it is only the assessee who has claimed credit for TCS and not the licencee. In such circumstances, the application under section 154 of the Act ought to have been entertained by the Revenue. The Tribunal held that the assessee is entitled to claim credit for TCS when it is only the assessee who has claimed credit for TCS and not the licencee. In such circumstances, the application under section 154 of the Act ought to have been entertained by the Revenue.It also observed that the very basis of the decision of the Jaipur Bench of ITAT in the case of Jai Ambey Wines (supra) is based on the facts that what is applicable for TDS should also be applicable for TCS and merely because there is no Rule identical to Rule 37BA(2)(i) of the Rules with reference to TCS provisions, it cannot be the basis for the Revenue to deny the legitimate claim for credit of TCS made by an assessee.

The Tribunal allowed the appeal filed by the assessee and directed the AO to grant credit for TCS to the assessee.

When the AO had himself observed that the undisclosed income surrendered by the assessee, during survey, was nothing but the accumulation of the profit which it had been systematically enjoying, then, drawing of a view to the contrary and holding the same as not being sourced out of latter’s business but having been sourced from its income from undisclosed sources within the meaning of Section 69 of the Act is beyond comprehension.

56 Kulkarni & Sahu Buildcon Pvt Ltd vs. DCIT

TS-969-ITAT-2022 (Rajkot)

A.Y.: 2012-13     

Date of Order: 12th December, 2022

Section: 69

When the AO had himself observed that the undisclosed income surrendered by the assessee, during survey, was nothing but the accumulation of the profit which it had been systematically enjoying, then, drawing of a view to the contrary and holding the same as not being sourced out of latter’s business but having been sourced from its income from undisclosed sources within the meaning of Section 69 of the Act is beyond comprehension.

FACTS

The assessee company, engaged in the business of civil construction, e-filed its return of income declaring an income of Rs. 1,32,56,660. In the course of assessment proceedings the assessee was asked to explain the excess WIP of Rs. 30,71,500 as also excess stock of building material which included shuttering material of Rs. 24,60,000 unearthed by the survey team in the course of survey proceedings conducted on 2nd November 2011.

The assessee had surrendered, in the course of survey proceedings, the sum of Rs. 55,31,500 which sum was credited to its Trading Account. The (AO contended that the same was not separately offered in computation of income. The AO was of the view that as the excess stock or unexplained investment or cash surrendered during the course of survey operations was nothing but the accumulation of the profits of the assessee, which it had been systematically enjoying, and hence on being detected was surrendered in the course of survey operation as undisclosed income, thus, the same was liable to be assessed as the assessee’s undisclosed income against which no deduction for any expenditure would be allowable.

The AO excluded the amount of the undisclosed income surrendered by the assessee from its declared net profit and brought the same to tax separately as its income under the head “business income” under section 69 of the Act. The claim of depreciation on shuttering material was also denied by the AO.

Aggrieved, assessee preferred an appeal to CIT(A) which was dismissed.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the AO while framing the assessment had categorically observed that the excess stock or unexplained investment or cash surrendered during the course of survey operation was nothing but the accumulation of the profit which the assessee had been systematically enjoying and was detected during the survey action and surrendered as its undisclosed income. The Tribunal held that the aforesaid observation of the AO in a way relates the amount surrendered by the assessee during the course of survey operation to the accumulated profit which the assessee had been systematically enjoying and thus, by no means could solely be related to the year under consideration.

The Tribunal was of the view that the aforesaid observation of the AO finds support from the judgement of the Hon’ble Supreme Court in the case of Anantharam Veerasingaiah & Co. vs. Commissioner of Income Tax [(1980) 123 ITR 457 (SC)] wherein it was observed by the Supreme Court that secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.

The Tribunal observed that it is unable to comprehend that when the AO had himself observed that the excess stock or undisclosed investment or cash surrendered during the course of survey operation was nothing but the accumulation of profits which the assessee had been systematically enjoying and the difference was detected during the course of survey operation, therefore, on what basis a contrary view was taken by him to justify the treating of the same as the investment made by the assessee from its unexplained sources.

The Tribunal held that that the undisclosed income of Rs. 55,31,500 surrendered by the assessee during the course of survey operation had rightly been offered to tax by the assessee under the head “business income”, and in light of the clearly established source of the corresponding investment the same could not have been held to be the deemed income of the assessee under section 69 of the Act. Our aforesaid conviction is all the more fortified by the order of the Tribunal in the case of M/s Shree Sita Udyog vs. DCIT & Ors, Bhilai in ITA No. 249 to 255/RPR/2017, dated 22nd July, 2022 wherein, involving identical facts, it was observed by the Tribunal that the amount surrendered by the assessee qua the investment in the excess stock was liable to be taxed under the head “business income” and not under the head “income from other sources.”

Authorities directed to correct the demand raised due to deposit of TDS by the assessee vide a wrong challan.

55 WorldQuant Research (India) Pvt Ltd vs.
CIT, National Faceless Appeal Centre
TS-963-ITAT-2022 (Mumbai)
A.Y.: 2021-22
Date of Order: 13th December, 2022

Authorities directed to correct the demand raised due to deposit of TDS by the assessee vide a wrong challan.

FACTS

Aggrieved by the demand, the assessee raised on account of short payment of TDS under section 195 of the Act due to error in depositing TDS under wrong challan.

During the year under consideration, the assessee paid a dividend to a non-resident shareholder and deducted tax under section 195 of the Act. However, while depositing the amount of TDS, the assessee deposited the taxes vide challan no. 280 which is applicable for payment of advance tax, self-assessment tax, tax on regular assessment, tax on distributed income to unit holders, etc. The assessee ought to have correctly deposited the taxes vide challan no. 281 which is applicable for taxes deducted at source. The relevant TDS return was filed by the assessee on 31st March, 2021.

Upon noticing the error of having deposited the amount of TDS vide an incorrect challan the assessee filed a letter with DCIT-15(3)(1) as well as with DCIT-TDS (OSD) requesting to consider the deposit of taxes on dividend under challan no. 281 though erroneously deposited vide challan no. 280. However, vide Intimation dated 5th April, 2021 issued under section 200A/206CB for Q2 a demand of Rs. 2,95,78,630 was raised on account of short payment of taxes.

Aggrieved, the assessee preferred an appeal to CIT(A) who after taking note of the letters filed by the assessee held that the assessee has simply requested both the AO (including TDS) to treat the tax paid through challan No. 280 as tax paid as TDS, however, has not made any formal request for correction of challan from 280 to 281 with the AO (TDS). He further held that the AO (TDS) only after receipt of a formal request for change/correction in challan No. from 280 to 281, can act within the time limit prescribed as per the notification. The CIT(A) dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal where during the course of the hearing, on behalf of the assessee, the Tribunal’s attention was drawn to a letter dated 12th August, 2022 filed before DCIT–TDS [OSD TDS Circle 2(3)] praying for correction of challan. In the said letter reference has also been made to an e-mail dated 12th April, 2021, to DCIT TDS praying for rectification of challan.

HELD
During the course of the hearing, upon the direction of the Tribunal to the Revenue to update the Tribunal about the status of the applications filed by the assessee, the DR filed an e-mail informing the Bench that the DCIT-TDS(OSD) has escalated the issue to CPC-TDS.

The Tribunal held that the assessee has pursued this matter with the concerned authorities and not only requested to consider the deposit of taxes on dividends by the company but has also prayed for correction of the challan from challan No. 280 to challan No. 281. It observed that from the copy of the e-mail dated 6th December, 2022, filed by the learned DR, the Tribunal found that the office of DCIT (OSD) TDS has escalated the issue to CPC – TDS for either necessitating the required changes in the challan from the backend or enabling the system to allow the TDS–AO to do the same from his login at TRACES AO – Portal.

Therefore, the Tribunal directed the concerned authority to make every possible endeavour of carrying out the necessary correction in the challan within a period of 2 months from the date of receipt of this order and grant the relief to the assessee as per law.

Theatre owner is not liable to deduct tax at source on convenience fee charged by BookMyShow to the end customer and retained by it.

54 Srinivas Rudrappa. vs. ITO

TS-1026-ITAT-2022 (Bang.-Trib.)

A.Y.: 2013-14 & 2014-15

Date of Order: 2nd December, 2022

Section: 194H, 201, 201(1A)

Theatre owner is not liable to deduct tax at source on convenience fee charged by BookMyShow to the end customer and retained by it.

FACTS

The assessee, a proprietor of a theatre, was engaged in the business of exhibition of films. A survey under section 133A was conducted in the business premises of M/s Bigtree engaged in providing services through their online platform BookMyShow, facilitating booking of cinema tickets by providing an online ticketing platform for customers and sale of cinema tickets, food and beverages coupons, and events through its website www.bookmyshow.com.

In the case of cinema owners, when the end customers booked cinema tickets through the BookMyShow portal and made the payment to Bigtree, the payment was raised towards ticket cost along with convenience fees that were charged over and above the ticket charges. The ticket cost was remitted by Bigtree to the cinema owners after deducting TDS while it retained the convenience fee which constituted revenue in the hands of Bigtree.

The AO was of the opinion that the convenience fee retained by Bigtree was in lieu of commission/service charges payable by the cinema owner (assessee) and amounts to constructive payment made by the cinema owner (assessee) to Bigtree. The AO was of the opinion that the tax should be deducted at source under section 194H of the Act. He issued a show cause to the assessee, asking why the assessee should not be treated as `assessee-in-default’ as per provisions of sections 201 and 201(1A) of the Act.

In response, the assessee submitted that it is not availing services of Bigtree for sale of online cinema tickets, but has permitted Bigtree to list assessee’s cinema tickets on the Bigtree platform. The assessee also submitted that, the relationship between the assessee and Bigtree is of principal-to-principal, and, therefore, the conditions laid down in section 194H do not stand satisfied.

The AO held that the assessee was liable to deduct tax at source on the amount of convenience fee retained by Bigtree. He rejected the contention that the assessee is giving permission to Bigtree to list assessee’ cinemas tickets on the Bigtree’s platform and is not availing services from Bigtree for booking the tickets.

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

Aggrieved, the assessee preferred an appeal to the Tribunal interalia on merits.

HELD

The Tribunal went through the agreement and observed that Bigtree was facilitating the end customer for booking cinema tickets for which a transaction/convenience fee was charged from him. Further, as Bigtree was making a payment to the assessee after deducting the transaction/convenience fee and there was no occasion for the assessee to deduct tax at source and also that Bigtree was acting on behalf of the end customer and not the assessee. The Tribunal noted that in the present case, no expenditure is claimed by the assessee in respect of any payments alleged to be in the nature of commission / service fee.

The Tribunal also noted that there was no non-compete clause wherein a complete/partial control of Bigtree by the assessee could be established. Bigtree on its online platform sells tickets of other / many theatre owners apart from the assessee. For example if the theatre has a total 200 seats, if in the event no tickets are sold by the Bigtree, there is no penalty that is levied on Bigtree. It is totally the discretion of the customers to use Bigtree for booking the tickets. The agreement of the assessee with Bigtree is a non-exclusive agreement for selling cinema tickets of the assessee through its platform. The only income earned by the Bigtree is the convenience fee that it collects from the customers/movie viewers. Even there are no discount given by the assessee to the Bigtree on account of the tickets purchased by the customer from their platform.

The Tribunal held that the transaction/service fee collected by Bigtree from the end customers was actually the margin charged from the end customers for provision of such services. Also, the fact that the end customer paid service tax on such additional/convenience fee and no service tax was charged on the ticket charges. This, according to the Tribunal, established that the assessee did not cast any obligation on Bigtree to sell tickets on its platform.

The Tribunal was of the opinion that one aspect which needs to be considered is the situation where tickets are liable to be refunded. The Tribunal raised a question that if the theatre owner was not able to start/play the movie who would be liable to refund the ticket price – Bigtree or the theatre owner? This issue needs to be ascertained and risk analysed.

The Tribunal directed the AO to carry out the necessary verification and consider the claim of the assessee in accordance with law.

Section 68 — The department without dislodging the primary onus that was duly discharged by the appellant under section 68 of the Act could not have drawn adverse inferences and treat the transaction as unexplained cash credit.

29. ITO vs. Sharda Shree Agriculture & Developers (P.) Ltd
[2022] 99 ITR(T) 143 (Raipur – Trib.)
ITA No.:84 (RPR) OF 2017
A.Y.: 2012–13                    
Date: 5th August, 2022

Section 68 — The department without dislodging the primary onus that was duly discharged by the appellant under section 68 of the Act could not have drawn adverse inferences and treat the transaction as unexplained cash credit.

FACTS

During the relevant A.Y. 2012–13, the assessee company had received share application money of Rs. 26,00,000 from its directors and close relatives and had received share application money of Rs. 2,44,00,000 from two companies namely M/s Chandika Vanijiya Pvt Ltd and M/s Neel kamal Vanjiya Pvt Ltd Out of the above, the assessee company had refunded the amount of Rs. 26,00,000 to its directors and close relatives in the same A.Y. i.e., A.Y. 2012–13 and the assessee company had refunded amount of Rs. 38,50,500 to M/s Chandika Vanijiya Pvt Ltd in the same A.Y. i.e., A.Y. 2012–13 and balance amount of Rs. 95,00,000 in A.Y. 2015–16.

During the scrutiny proceedings, to substantiate the genuineness of the above transactions, the assessee company had submitted the following documents — copies of return of income along with computation of income, audited financial statements, details of bank accounts along with complete details of the share applicants. The Ld AO had passed the assessment Order under section 143(3) on 31st March, 2015 and made the following additions under section 68 of the Act on the ground that the transactions were not genuine:

i.    Opening balance in respect of Share Application money of Rs. 92,62,500

ii.    Share Application money received of Rs. 26,00,000 from its directors and close relatives

iii.    Share Application money received of Rs. 2,44,00,000 from two companies – M/s Chandika Vanijiya Pvt Ltd and M/s Neel Kamal Vanjiya Pvt Ltd.

The assessee company preferred an appeal before CIT(A). On appeal, the assessee company brought to the notice of the Ld CIT(A) that the Ld AO had issued notices under section 133(6) on 28th March, 2015 which were received by the investor companies based in Kolkata on  3rd April, 2015, i.e., after passing the assessment order dated 31st March, 2015, and the fact was supported by the endorsements of the postal department. The investor companies upon receipt of the notice under section 133(6) had filed their responses both by way of an Email dated 4th April, 2015, as well as reply was dispatched through speed post on 6th April, 2015. The Ld CIT(A) had remanded the matter to the Ld AO but the Ld AO failed to rebut the claim of the assessee company. The Ld CIT(A) had allowed the appeal on the following grounds:

i. Amount pertaining to opening balance cannot be added as unexplained cash credit u/s 68 and deleted the addition.

ii.    In respect of share application money of Rs. 26,00,000 and Rs. 2,44,00,000 during the year, the assessee company to substantiate the genuineness of the transaction had submitted the documentary evidences — in support thereof, viz. notarised affidavits of the investor companies and copies of the share application forms, audited financial statements, copies of the bank statements, confirmations of the share applicants, copies of the resolution passed in the meeting of the board of directors of the investor companies. The assessee company had proved the identity and creditworthiness of the investor companies and genuineness of the transaction and had discharged the onus under section 68 and hence deleted the addition.

iii.    The replies filed by the investor companies had also proved their identity and creditworthiness and affirmed the genuineness of the transaction.

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

HELD

The Tribunal observed that there were twofold reasons that had primarily weighed with the Ld AO for drawing adverse inferences as regards the share application money/premium received by the assessee company from the aforesaid investor companies, which were:
i. That the notices issued under section133(6) of the Act were not complied with by the investor companies; and

ii. That the commission issued under section131(1)(d) of the Act had revealed that neither of the aforesaid companies were available at their respective addresses.

The Tribunal held that the Ld AO had failed to call the requisite details well within the reasonable time and that resulted in delay in furnishing of the reply by the investor companies. Further, the Tribunal also observed that the investor companies had furnished the requisite information and the same were found available on the assessment record. The Tribunal further observed that the assessee company in the course of the proceedings before the CIT(A) had furnished substantial documentary evidences to support the authenticity of its claim of having received share application money from the aforesaid investor companies, i.e., M/s Neel Kamal Vanijya Pvt. Ltd and M/s Chandrika Vanijya Pvt Ltd and when the CIT(A) remanded the matter to Ld AO, the Ld AO failed to rebut much the less dislodge the claim of the assessee company of having received genuine share application money from the aforesaid share subscribers.

The Tribunal viewed that both the investor companies had placed on record supporting documentary evidences which duly substantiated their identity and creditworthiness, as well as the genuineness of the transaction in question, which had neither been rebutted by the Ld AO in the course of the original assessment proceedings; nor in the remand proceedings, therefore, the department without dislodging the primary onus that was duly discharged by the assessee company could not have drawn adverse inferences as regards the transactions in question.

In result the appeal filed by the revenue was dismissed.

Section 10B(7) r.w.s. 80IA(10) — The onus is on the department to prove that there existed an arrangement between the assessee and its associate enterprises to earn more than the ordinary profit and if that is not established then there cannot be any addition and corresponding disallowance under the said provisions.

28. DCIT vs. Halliburton Technology Industries (P) Ltd
[2022] 99 ITR(T) 699 (Pune – Trib.)
ITA No.:277(PUNE) OF 2021
A.Y.: 2011–12     
Date: 10th June, 2022

Section 10B(7) r.w.s. 80IA(10) — The onus is on the department to prove that there existed an arrangement between the assessee and its associate enterprises to earn more than the ordinary profit and if that is not established then there cannot be any addition and corresponding disallowance under the said provisions.

FACTS

The assessee company was engaged in the export of IT enabled services [ITES] and was registered as a 100 per cent export-oriented undertaking with the SEEPZ special economic zone. The assessee company had filed its return of income for the relevant A.Y. 2011–12 on 30th November, 2011, and declared total income as NIL under normal provisions after claiming deduction under section 10B of the Act and a book profit of Rs. 9,60,43,389 under section 115JB of the Act. The case was selected for the scrutiny proceedings and the Ld AO observed that the assessee company had earned more than ordinary profits as the operating margin of the assessee company was 22.38 per cent and the operating margins of the comparable was 13.08 per cent. For this sole reason, the Ld AO was of the view that there was an arrangement between the assessee company and its associate enterprises that produced more than the ordinary profits to the assessee company and invoked the provisions of Section 10B(7) r.w.s. 80-IA(10) of the Act, thereby excluding the amount of Rs. 2,88,27,056 from the eligible profits claimed by the assessee company.
Aggrieved by the order, the assessee company had filed an appeal before the Ld CIT(A). The Ld CIT(A) had observed the following:

i.    That these international transactions of the assessee company had been accepted in the past by the TPO.

ii.    That the Ld AO had simply taken the mean margin of the comparables and neglected the comparables with more profit than the assessee company.

iii.    That the basis for arriving at the decision that the assessee company was having more than ordinary profits was not sound and;

iv.    That the Ld AO had not brought forward any proof of any arrangements for the disallowance under section 10B(7) r.w.s. 80-IA(10) of the Act.

The Ld CIT(A) relied on various judicial decisions placed before him and allowed the appeal of the assessee company. Aggrieved by the order of CIT(A),the revenue filed further appeal before the Tribunal.

HELD

The Tribunal upheld the order of CIT(A) on the ground that it was mandatory for the Revenue to prove that there is some special arrangement between the assessee and its associated enterprise to earn extra profit. The Ld AO had specifically not demonstrated any proof of arrangement for disallowance under the provisions of section 10B(7) r.w.s. 80-IA(10) of the Act. The burden of proof had not been discharged by Ld AO.

The Tribunal relied on the following judicial pronouncements while deciding the matter:

i.    CIT vs. Schmetz India (P) Ltd [2016] 384 ITR 140 (Bom. HC) – approved by the Hon’ble SC.

ii.    Honeywell Automation India Ltd vs. DCIT [2015] Taxmann.com 539 (Pune – Trib)

iii.    Western Knowledge Systems & Solutions (India) Pvt Ltd [2012] 52 SOT 172 (Chennai)

iv.    Digital Equipment India Ltd vs. DCIT [2006] 103 TTJ 329 (Bang.)

v.    Visual Graphics Computing Services India (P) Ltd vs. ACIT [2012] 52 SOT 172 (Chennai) (URO)

vi.    Zavata India (P) Ltd vs. ITO [2013] 141 ITD 456 (Hyd. – Trib)

vii.    Visteon Technical & Services Centre (P) Ltd vs. Asstt. CIT [2012] 24 taxmann.com 353 (Chennai)

viii. A T Kearney India (P) Ltd vs. ITO [2015] 153 ITD 693 (Delhi – Trib)

ix. Eaton Industries (P) Ltd vs. ACIT in [IT Appeal No. 2544 (PUN) of 2012, dated 30th October, 2017]

x.    Honeywell Automation India Ltd vs. Dy CIT [2020] 115 taxmann.com 326 (Pune – Trib.)

In result the appeal filed by the revenue was dismissed.

Against a defect notice issued under section 139(9), an appeal lies to CIT(A) under section 246A(1)(a) as such notice has the effect of creating liability under the Act, which the assessee denies or would jeopardize refund.

27. V K Patel Securities Pvt Ltd vs. ADIT
ITA No. 1009/Mum./2023
A.Y.: 2019–20              
Date of Order: 20th June, 2023
Sections: 139(9)

Against a defect notice issued under section 139(9), an appeal lies to CIT(A) under section 246A(1)(a) as such notice has the effect of creating liability under the Act, which the assessee denies or would jeopardize refund.

FACTS
The assessee, a stock broker, filed its return of income for the year under consideration on 21st September, 2019 declaring a total income of Rs. 3,82,74,330. The CPC issued a defect notice u/s 139(9) of the Act with error “Tax Payer has shown gross receipts or income under the head ‘Profits and Gains of Business or Profession’ more than Rs. 1 crore, however, the books of accounts have not been audited.”

The CPC did not process the return of income filed by the assessee.

Aggrieved by the above said defect notice issued by CPC, the assessee filed “e-Nivaran Grievance”, against which response communication was issued on 16th February, 2021, invalidating the return filed by the assessee.

Aggrieved, the assessee challenged the said defect notice, by filing an appeal before the CIT(A), who dismissed the appeal of the assessee holding that there is no provision to file appeal against the defect notice issued under section 139(9) of the Act.

HELD

The Tribunal observed that the Pune bench of ITAT has held in the case of Deere & Company vs. DCIT [(2022) 138 taxmann.com 46 (Pune)] has held that the defect notice issued under section 139(9) of the Act has the effect of creating liability under the Act, which the assessee denies or would jeopardize refund. Hence it will get covered within the ambit of section 246A(1)(a) of the Act.
The Tribunal held that in view of the said decision of Pune bench of ITAT, the defect notice issued under section 139(9) is appealable, if the assessee denies its liability or if it would jeopardise the refund.

The Tribunal set aside the order passed by the CIT(A) and held that the assessee could file an appeal in the instant case.

There is no need for the AO to issue reopening notice before the expiry of time available to file return under section 139(4) and that too before the end of the assessment year itself. Reopening of an assessment cannot be resorted to as an alternative for not selecting a case for scrutiny.

26. Uttarakhand Poorv Sainik Kalyan Nigam Ltd vs. ITO
ITA No. 3129/Delhi/2018
A.Y. : 2014–15               
Date of Order : 23rd June, 2023
Sections : 139(4), 147

There is no need for the AO to issue reopening notice before the expiry of time available to file return under section 139(4) and that too before the end of the assessment year itself. Reopening of an assessment cannot be resorted to as an alternative for not selecting a case for scrutiny.


FACTS
For the assessment year 2014–15, the assessee filed its return of income belatedly under section 139(4), on 6th October, 2015, declaring total income to be Rs. Nil after claiming exemption of Rs. 5,11,44,966 under section 10(26BB) of the Act. This return of income was not selected for scrutiny by the AO.

The AO, in fact, prior to the date of filing of return of income by the assessee issued a notice under section 148 of the Act on 22nd January, 2015, i.e., before end of the assessment year itself and before expiry of time available to assessee to file belated return.

Aggrieved, the assessee preferred an appeal to CIT(A) where interalia it raised this issue of reopening notice, being issued before the end of the assessment year itself. The CIT(A) decided this ground against the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal interalia challenging the validity of assumption of jurisdiction by learned AO in the reassessment proceedings.

HELD
The Tribunal observed that:

i)    The assessee had time to file return belatedly under section 139(4) of the Act up to 31st March, 2016. While this is so, there is absolutely no need for the AO to issue reopening notice under section 148 of the Act. The AO could have selected the belated return filed by the assessee for scrutiny and proceeded to determine the total income of the assessee in the manner known to law.

ii)    When the due date for filing the belated return of income under section 139(4) of the Act was available to the assessee, the AO prematurely reopened the assessment by issuing notice under section 148 of the Act on 22nd January, 2015 much before the end of the assessment year itself.

iii)    Against the belated return of income filed by the assessee under section 139(4) of the Act on  6th October, 2015, the AO had time to issue notice under section 143(2) of the Act till 30th September, 2016.

iv)    When the return of income is not filed within the due date prescribed under section 139(1) of the Act, the AO is entitled as per the statute to issue notice under section 142(1) of the Act calling for the return of income. Without resorting to this statutory provision, the AO cannot directly proceed to reopen the assessment. In any case, when the due date for filing the return of income is available in terms of section 139(4) of the Act to the assessee, how there could be any satisfaction on the part of the learned AO to conclude that the income of the assessee has escaped assessment.

The Tribunal held:

i)    Nothing prevented the AO to select the filed returns for scrutiny, and frame the assessment in accordance with law. When this provision is available with the AO, where is the need to issue reopening notice that too before the end of the assessment year itself. The Tribunal declared the reopening notice issued u/s 148 of the Act to be premature;

ii)    In any case, the revenue cannot resort to reopening proceedings merely because a particular return is not selected for scrutiny. Reopening of an assessment cannot be resorted to as an alternative for not selecting a case for scrutiny. There should be conscious formation of belief based on tangible information that income of an assessee had escaped assessment;

iii)    The issue in dispute has already been adjudicated by the co-ordinate Bench of Delhi Tribunal in ITO vs. Momentum Technologies Pvt Ltd [ITA No.5802/Del/2017 dated 31st March, 2021 for A.Y. 2011–12]. Similar view was also addressed by the co-ordinate Bench of Bombay Tribunal in Bakimchandra Laxmikant vs. ITO [(1986) 19 ITD 527 (Bombay)].

iv)    Following the judicial precedents mentioned hereinabove, the Tribunal quashed the reassessment proceedings framed by the AO as void abinitio.

Third proviso to section 50C being a beneficial provision, the benefit extended by third proviso to section 50C should be extended to a case where value determined by stamp valuation authority has been substituted by the value determined by DVO.

25. Smt. Krishna Yadav vs. ITO    
ITA No. 2496/Del/2017 (Delhi)
A.Y.: 2005–06            
Date of Order: 22nd February, 2022
Section: 50C

Third proviso to section 50C being a beneficial provision, the benefit extended by third proviso to section 50C should be extended to a case where value determined by stamp valuation authority has been substituted by the value determined by DVO.

FACTS
The assessee, an individual, filed return of income, for assessment year 2005–06, declaring total income of Rs. 46,18,500. In the course of assessment proceedings, the Assessing Officer (AO) noticed that during the year under consideration, the assessee has sold immovable property consisting of land and constructed portion for a sale consideration of Rs. 90 Lakh. The Stamp Valuation Authority has determined the value of the property at Rs. 1,02,36,200.

The AO issued a show cause-notice to the assessee to explain, why the value determined by the Stamp Valuation Authority should not be considered as deemed sale consideration. Though, the assessee objected to the proposed action of the AO, rejecting assessee’s submission, the AO proceeded to substitute the declared sale consideration with the value determined by the Stamp Valuation Authority in terms of section 50C of the Act. Hence, the AO proceeded to compute short term capital gain by making an addition of Rs. 12,36,200.

Aggrieved, the assessee preferred an appeal to CIT(A) who directed the AO to refer the valuation of the property to DVO. Consequently, the DVO determined the value of the property at Rs. 92,37,400 as on the date of sale. Thus, based on the value determined by the DVO, the Commissioner (Appeals) restricted the addition on the ground of short term capital gain to Rs. 2,37,500 being the difference between the declared sale consideration and the value determined by the DVO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal observed that:

i)    It is a fairly accepted position that the valuation of asset involves some amount of guess work and estimation;

ii)    Consequent to determination of the fair market value of the immovable property transferred by the assesse, the difference between the declared sale consideration and the value determined by the DVO has narrowed down to Rs. 2,37,400;

iii)    After determination of market value of asset as on the date of sale by the DVO, the difference between the declared sale consideration and the market value is within the range of 5 per cent, as referred to, in third proviso to section 50C(1) of the Act;

iv)    There are various judicial precedents, wherein, it has been held that the third proviso to section 50C(1) of the Act introduced by Finance Act, 2018, w.e.f., 1st April, 2019, will apply retrospectively. In this context, the decision of the Tribunal in the case of Maria Fernandes Cheryl vs. ITO, [2021] 123 taxmann.com 252 (Mum.) was referred to.

The Tribunal held that the third proviso to section 50C being a beneficial provision, in our considered opinion, the said benefit should be extended to the assessee, as, ultimately the value determined by the Stamp Valuation Authority has been substituted by DVO’s valuation in terms of sub-section (3) of section 50C of the Act. The Tribunal held that the addition of Rs. 2,37,400 towards short-term capital gain needs to be deleted.

Where the assessee stated that the source of cash deposit in its bank accounts was the balance of cash in hand brought forward from earlier assessment years, but the AO treated the same as an unexplained investment without assigning any reason, then impugned additions made u/s 69 was not justified.

Where the Department had accepted that the assessee had earned a tuition fee in preceding assessment years then in terms of principle of consistency, the AO had no justifiable reason to disbelieve assessee’s claim of having received income from tuition fee and add the same to assessee’s income as unexplained money u/s 69A.

53. Smt. Sarabjit Kaur vs. ITO
[2022] 96 ITR(T) 440 (Chandigarh – Trib.)
ITA Nos.:1144 & 1145 (Chd.) of 2019
A.Ys.: 2011-12 and 2013-14
Date of order: 30th March, 2022
Sections: 69, 69A

Where the assessee stated that the source of cash deposit in its bank accounts was the balance of cash in hand brought forward from earlier assessment years, but the AO treated the same as an unexplained investment without assigning any reason, then impugned additions made u/s 69 was not justified.

Where the Department had accepted that the assessee had earned a tuition fee in preceding assessment years then in terms of principle of consistency, the AO had no justifiable reason to disbelieve assessee’s claim of having received income from tuition fee and add the same to assessee’s income as unexplained money u/s 69A.

FACTS

A.Y. 2011-12

The assessee earned income from tuition as well as rent, and interest from bank and other parties. An information was received from the Investigation Wing of the Income Tax Department vide letter dated15th March, 2017 that the assessee had deposited cash of Rs. 8,00,000 in her bank account maintained with Axis Bank, Jagraon and Rs. 5,40,000 in her bank account with HDFC bank, thus, totalling to a deposit of Rs. 13,40,000. In view of this information, a notice u/s 148 of the Income-tax Act, 1961 was issued and in response to the said notice, the assessee filed the return which was originally filed u/s 139(1).

During the course of re-assessment proceedings, the assessee was required to explain the source of cash deposit of Rs. 13,40,000. The assessee stated before the AO that the deposit was from the closing balance of cashin hand in the immediately preceding assessment year amounting to Rs. 12,61,473 and was also partly out of cash withdrawals of Rs. 3 lakhs from Axis bank. The assessee was asked to furnish cash book/cash flow statement but the same were not furnished. The AO gave benefit of cash withdrawal of Rs. 3 lakhs from the Axis Bank and counted such withdrawal towards availability of cash for the purpose of cash deposit but proceeded to treat the remaining amount of Rs. 10,40,000 as unexplained and added the same to the income of the assessee u/s 69. The AO also proceeded to add the tuition fee of Rs. 2,03,600 as income from undisclosed sources. The assessment was completed at an income of Rs. 12,84,780.

Against the order of the learned AO, the assessee preferred first appeal before the CIT(A) who confirmed the action of the AO. Aggrieved by the order of CIT(A), the assessee filed a further appeal before the ITAT.

A.Y. 2013-14

The assessee had deposited cash of Rs. 10,40,000 in her bank account maintained with HDFC Bank, Jagraon.

Acting on the information received from the Investigation Wing vide letter 15th March, 2017, the assessee’s case was reopened by issuing notice u/s 148 of the Act. In response to the notice, the assessee filed the return which was originally filed u/s 139(1). The assessee was asked to explain the cash deposit in the bank account and the response of the assessee was that the amount was deposited from the brought forward cash balance of the immediately preceding assessment year i.e. year ending 31st March, 2012 amounting to Rs. 12,58,949. However, the assessee could not produce any books of account or cash flow statement in support of her claim. The re-assessment was completed by treating the cash deposit of Rs. 10,40,000 as unexplained income u/s 69 and tuition income of Rs. 2,03,600 as unexplained income u/s 69A of the Act.

Against the order of the ld. assessing officer, the assessee preferred first appeal before the CIT(A) who confirmed the action of the AO. Aggrieved by the order of CIT(A), the assessee filed further appeal before the ITAT.

HELD

The assessee submitted that he had regularly filed the balance sheet/statement of affairs for every assessment year along with the income and expenditure account. The assessee also submitted that in the assessment order passed u/s 143(3) r.w.s. 147 for A.Y.2010-11, the return of income was accepted and so was the cash deposit.

The assessee also contended that even the tuition income had been accepted in earlier assessment years as well as in subsequent assessment years and, therefore, there was no reason for not having accepted the tuition income for A.Y. 2011-12 and having treated it as income from unexplained sources. The Tribunal’s attention was also drawn to the assessment order passed u/s 143(3) r.w.s 147 for A.Y. 2012-13, wherein also the returned income of the assessee was accepted, which included cash deposits as well as tuition income. It was submitted that the availability of opening cash in hand had been duly justified by filing of balance sheet for the immediately preceding assessment year which had already been accepted by the Department and, therefore, there was no reason to not accept the same for the purpose of making cash deposit in A.Y. 2011-12.

Reliance was placed on the decision of ITAT Camp Bench at Jalandhar in Holy Faith International (P.) Ltd. vs. Dy. CIT [IT Appeal No. 181 (Asr) of 2017, dated 15th January, 2019] to contend that completed assessment cannot be reopened u/s 148 by simply acting upon the information received from the Investigation Wing and without application of mind by the AO.

It was observed by the Tribunal that if the assessee’s explanation of having the opening cash in hand was to be disbelieved, there should have been cogent reasoning behind the same. Since the Department had no cogent reasoning behind the disbelief, the Tribunal accepted the assessee’s contention that as on 31st March, 2010 the assessee had a closing balance of cash in hand of Rs. 12,61,473 which ought to have been considered for the purposes of explaining the source of cash deposits in the bank accounts.

The Tribunal by concurring with the view of the assessee, opined that the lower authorities had no reason to disbelieve the assessee’s claim of having earned tuition income during the years under consideration in light of the rule of consistency which was enshrined in the decision of the Apex Court in the case of Radhasoami Satsang vs. CIT [1992] 60 Taxman 248/193 ITR 321.

Accordingly, the appeals of the assessee for both the years under consideration were partly allowed.

Where the assessee was hiring trucks from an open market on individual and need basis and payments had not been made to any sub-contractor since the assessee did not have any contract with the truck owner and therefore the question of TDS did not arise in respect of payments towards lorry hire charges

52. Dineshbhai Bhavanbhai Bharwad vs. ITO
[2022] 96 ITR(T) 429 (Ahmedabad – Trib.)
ITA No.:1488 (Ahd.) of 2016
A.Y.:2007-08
Date: 31st March, 2022
Section: 194C r.w.s 40(a)(ia)

Where the assessee was hiring trucks from an open market on individual and need basis and payments had not been made to any sub-contractor since the assessee did not have any contract with the truck owner and therefore the question of TDS did not arise in respect of payments towards lorry hire charges.

FACTS

During the year under consideration, the assessee had debited sum of Rs. 10,41,14,765 as ‘Lorry Hire Charges’.

In the course of the assessment proceedings, the assessee was asked to furnish the complete details and copy of account of said expenses. The assessee had produced all the ledger accounts of the said expenses and submitted that as individual payments do not exceed Rs. 20,000, no TDS was deducted. On going through the ledger accounts, it was noticed by the AO that the assessee ought to have deducted tax at source u/s 194C of the Act, since in a number of individual cases the payment exceeded Rs. 50,000. The AO partly disallowed lorry hire charges u/s 40(a)(ia), since the assessee failed to deduct tax at source u/s 194C in individual cases where payment exceeded Rs. 50,000.

Against the order of the learned AO, the assessee preferred the first appeal before the CIT(A) who confirmed the action of the AO. Aggrieved by the order of CIT(A), the assessee filed a further appeal before the ITAT.

HELD

The assessee had submitted that he did not have any contract, and had hired trucks from the open market on individual and need basis. In support of his contentions, the assessee had filed truck numbers. It was observed by the ITAT that truck numbers as well as owners of all trucks were different.

Reliance was placed on the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Mukesh Travels Co.[2014] 367 ITR 706, wherein it was held that the vital requirement for invoking section 194C is the existence of relationship of contractor and sub-contractor between the assessee and the transporter. If the said relationship does not exist, then the liability to deduct tax at source u/s 194C does not arise.

The ITAT had considered the above decision of Jurisdictional High Court and concurred with the view of the assessee that the payments have not been made to any sub-contractor.

Accordingly, the ITAT held that the question of TDS u/s 194C does not arise. Consequently, the appeal filed by the assessee was allowed and the disallowance made u/s 40(a)(ia) was deleted.

There need not be any “occasion” for receipt of gift by the assessee from his relative.

51. ITO vs. Dr. Satish Natwarlal Shah
ITA No. 379/Ahd./2020 (Ahemadabad-Trib.)
A.Y.: 2012-13
Date of order: 19th October, 2022
Section: 56(2)(v)

There need not be any “occasion” for receipt of gift by the assessee from his relative.

FACTS

A doctor by profession, the assessee filed his return of income for A.Y. 2012-13, declaring a total income of Rs. 16,34,278. In the course of assessment proceedings, the (AO) noticed that the assessee had received a gift of Rs. 3,12,24,009, of which Rs. 2,61,82,207 were shares of various companies, and the balance was a monetary gift. The assessee had also gifted Rs. 1,06,65,848 to his relatives. The AO sought an explanation from the assessee regarding the gifts received and given.

The assessee replied that the gift, in the form of shares and debentures of Rs. 2,61,82,207 was received by him on 4th October, 2011 from his brother Sanjay N. Shah, residing in the U.S.A. Also, the amount of Rs. 44,00,000; Rs. 13,436 and Rs. 1,736 were received by him on 25th November, 2011, 2nd January, 2012 and 4th January, 2012, respectively from his brother Sanjay N. Shah. To substantiate this, he filed a declaration of the gift from his brother that they had been made out of natural love and affection.

The AO noticed that the assessee had gifted Rs. 53,71,016 to Seema S. Shah; Rs. 26,71,238 to Shailja S. Shah and Rs. 7,53,138 to Sapna S. Shah, the three daughters of his brother Sanjay Shah.

The AO disbelieved the above gifts received by the assessee from his brother and also the gifts by the assessee to his nieces. The AO held that the assessee had failed to prove the source of investment into shares by his NRI brother, which the assessee eventually got in the form of a gift, and a gift to nieces has no logic. He further held that even if this transaction of gifting is to be believed, it appears to be a kind of family arrangement for equalisation of wealth amongst the family members. The AO treated the above gift as unexplained and added Rs. 3,06,13,009 as income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A), who held that though the AO cannot ask for the source of source, the assessee has properly explained the same during assessment proceedings itself. The CIT(A) held that the AO accepted the purchase of shares by the assessee’s brother under the NRI quota, and the funds which were paid through the assessee’s brother’s NRE bank account. He observed that the AO was satisfied about the genuineness of the gift. However, the AO had doubted the “occasion of the gift” in the absence of any family function, namely marriage, etc.

The CIT(A) relying upon decisions of Vishakhapatnam Tribunal in Dr. Vempala Bala Manohar vs. ITO [68 taxmann.com 410]; Rajasthan High Court in Arun Kumar Kothari [31 taxmann.com 258] and Andhra Pradesh High Court in Pendurthi Chandrasekhar [91 taxmann.com 229], held that no occasion needs to be proved for accepting a gift from a relative more particularly where the relationship is one as defined in section 56(2)(v). The CIT(A) deleted the addition made by the AO.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

HELD

The Tribunal observed that it is an admitted case that the genuineness of the gift, though doubted by the AO in assessment proceedings, during appellate proceedings, the AO was satisfied with the evidences produced by the assessee by way of additional documents, and thus the AO was satisfied with the genuineness of the gift by the assessee’s brother who is an NRI. The only remaining doubt of the AO was that there is no justification in gifting such a huge sum without there being any big occasion in the assessee’s family namely wedding, etc.

The Tribunal noted that the co-ordinate bench in the case of Dr. Vempala Bala Manohar (supra) has held tat the lack of occasion cannot be a ground to doubt the transaction of gift between family members. It observed that similar is the ratio of the decision of the Rajasthan High Court in the case of Arun Kumar Kothari (supra) and the Andhra Pradesh and Telangana High Court in the case of Pendurthi Chandrasekhar (supra). Following the ratio of these judgments the Tribunal held that the source and genuineness having been proved beyond doubt, there need not be any “occasion” for the assessee having received gift from his brother, who is a relative as per Explanation 2 to section 56(2)(v).

The Tribunal upheld the order of CIT(A) deleting the addition made by the A.O.

Credit for tax deducted at source needs to be allowed even though the amount so deducted is not reflected in Form No. 26AS of the payee.

50. Liladevi Dokania vs. ITO
ITA No. 126/Srt./2021 (Surat-Trib.)
A.Y.: 2019-20
Date of order: 27th June, 2022
Sections: 199, 203

Credit for tax deducted at source needs to be allowed even though the amount so deducted is not reflected in Form No. 26AS of the payee.

FACTS

The assessee, an individual, during the previous year relevant to the assessment year under consideration, earned rental income and offered the same for taxation under the head ‘Income from House Property’. The tenant, while paying rent, deducted TDS but did not deposit the same with the Government. The assessee claimed the amount of tax deducted by the tenant even though the same was not reflected in Form No. 26AS of the assessee. The AO , CPC did not allow credit of Rs. 5,71,770.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

On perusal of the documents produced before it, the Tribunal held that it is clear that the assessee received the rent income, and the tenant deducted TDS but has not deposited the same with the Government. The Tribunal noted that the issue is no more res integra as the Gujarat High Court, in the case of Kartik Vijaysinh Sonavane [(2021) 132 taxmann.com 293 (Guj.)], has held that where the employer of the D.S. assessee has deducted TDS, it will always be open for the Department to recover from the said employer and credit of the same could not have been denied to the assessee.

Following the judgment of the High Court of Gujarat in the case of Kartik Vijaysinh Sonavane, the Tribunal directed the AO to verify the assessee’s claim and allow credit of TDS in accordance with the law.

The Tribunal allowed the appeal filed by the assessee.

The second proviso to section 10(34) categorically states that dividends received on or after 1st April, 2020 alone would be subjected to tax. In the instant case, since the dividend was received during F.Y. 2019-20 relevant to A.Y. 2020-21, there is no case for taxing the said dividend during the year under consideration i.e. A.Y. 2020-21

49. Manmohan Textiles Ltd. vs. National Faceless
Appeal Centre
I.T.A. No. 1884/Mum. /2022 (Mum.-Trib.)
A.Y.: 2020-21
Date of order: 6th September, 2022
Sections: 10(34), 154

The second proviso to section 10(34) categorically states that dividends received on or after 1st April, 2020 alone would be subjected to tax. In the instant case, since the dividend was received during F.Y. 2019-20 relevant to A.Y. 2020-21, there is no case for taxing the said dividend during the year under consideration i.e. A.Y. 2020-21.

FACTS

The assessee filed its return of income, declaring a loss of Rs. 1,40,712. The return of income was processed, determining the total income to be Rs. 1,05,850. While processing the return, a dividend of Rs. 2,46,859 claimed to be exempt u/s 10(34) in the return of income was treated as taxable.

Aggrieved by the addition, the assessee filed a rectification application to the CPC, who dismissed the application and upheld its earlier action.

Aggrieved, the assessee filed an appeal to CIT (A). The CIT (A) observed that dividend income is not exempt and has become taxable. He upheld the action of the CPC in taxing the dividend income.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

Having gone through the provisions of section 10(34), the Tribunal noted that the same is amended by the Finance Act 2020 and is applicable from A.Y. 2021-22 onwards. It held that the second proviso is incorporated only from 1st April, 2021 and categorically states that the dividends received on or after 1st April alone will be subject to tax. The Tribunal noted that in the present case, admittedly, the dividend has been received in F.Y. 2019-20 relevant to A.Y. 2020-21 and therefore, it held that there is no case for taxing the said dividend income during the year under consideration. The Tribunal directed the AO to treat the dividend income as exempt u/s 10(34).

Enhancing the assessed book profit for the amount disallowed u/s 14A is not a mistake apparent on record, which can be rectified by passing an order u/s 154

48. Manyata Promoters Pvt. Ltd. vs. JCIT
ITA No. 548/Bang/2022 (Bang.-Trib.)
A.Y.: 2017-18
Date of order: 6th September, 2022
Sections:14A, 154

Enhancing the assessed book profit for the amount disallowed u/s 14A is not a mistake apparent on record, which can be rectified by passing an order u/s 154.

FACTS

The assessee, engaged in the business of development and lease of office space and related interiors, filed its return of income for the assessment year under consideration on 31st October, 2017. On 7th August, 2017, the National Company Law Tribunal approved the scheme of amalgamation of Pune Embassy Projects Pvt. Ltd. with the assessee company. The return of income filed by the assessee was revised on 30th March, 2018. In the revised return of income, the assessee declared a total income of RNil under the normal provisions and a book profit of Rs. 26,04,02,080 u/s 115JB of the Act.

In the course of assessment proceedings, the AO disallowed a sum of Rs. 14,49,60,000 u/s 14A and added Rs. 58,29,802 towards the difference in income as per Form No. 26AS and the financials of the assessee. The AO also denied credit of TDS of Rs. 4,02,70,802, which the assessee claimed in its return of income.

The assessee filed a rectification application requesting that credit of TDS as claimed in the return of income be granted.

In an order passed u/s 154 of the Act, pursuant to the rectification application filed by the assessee, the AO made an adjustment to book profits u/s 115JB for the amount disallowed u/s 14A of the Act. He considered this to be a mistake apparent on the record. The AO did not grant a credit for TDS as claimed by the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A), who granted relief to the assessee for adjustment made by the AO to the book profits u/s 115JB. With regards to short credit of TDS, the CIT(A) held that this did not arise out of the order passed u/s 154, which is in appeal before him and therefore dismissed the same.

Aggrieved, Revenue preferred an appeal against the action of the CIT(A) in granting relief in respect of adjustment made by the AO to the book profits u/s 115JB.

HELD

The Tribunal noted that CIT(A), while deciding the issue in favour of the assessee, has considered the issue both, from the point of view that whether an adjustment of book profits for disallowance u/s 14A is a mistake apparent on record, and also on merits by relying on the decision of the jurisdictional High Court in the case of CIT vs. Gokaldas Images Pvt. Ltd. [(2020) 122 taxmann.com 160 (Kar. HC)].

The Tribunal held that the AO cannot go beyond the profits as per the profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to section 115JB of the Act, and therefore the action of the A.O. to make adjustment for disallowance u/s 14A to the book profits u/s 115JB is not tenable. The scope of rectification is limited to correcting errors of facts or errors of law based on material available on record. Enhancing the book profit for the amount disallowed u/s 14A is not a mistake apparent on record but is subject to interpretations and hence cannot be rectified by passing an order u/s 154 of the Act. The Tribunal held that it saw no reason to interfere with the order of C.I.T. (A).

Once a statutory provision provides explicitly that the Tribunal can only grant a stay subject to a deposit of not less than 20 per cent of the disputed demand, or furnishing of security thereof, it is not open to the Tribunal to grant a stay in violation of these basic statutory provisions.

Law itself visualizes that the payment of 20 per cent of the disputed demands, impugned in the appeal before the Tribunal, cannot be viewed as a condition precedent for grant of stay by the Tribunal, in as much as when the applicant “furnishes security of equal amount in respect thereof”, the Tribunal can exercise its powers of granting a stay.

47. Hindustan Lever Ltd. vs. DCIT
SA No. 116/Mum/2022 in ITA 2125/Mum./2022
(Mumbai-Trib.)
A.Y.: 2018-19
Date of order: 26th September, 2022
Section: 254(2A)

Once a statutory provision provides explicitly that the Tribunal can only grant a stay subject to a deposit of not less than 20 per cent of the disputed demand, or furnishing of security thereof, it is not open to the Tribunal to grant a stay in violation of these basic statutory provisions.

Law itself visualizes that the payment of 20 per cent of the disputed demands, impugned in the appeal before the Tribunal, cannot be viewed as a condition precedent for grant of stay by the Tribunal, in as much as when the applicant “furnishes security of equal amount in respect thereof”, the Tribunal can exercise its powers of granting a stay.

FACTS

By this stay application, the assessee sought a stay on the collection/recovery of the income-tax and interest demands aggregating to Rs. 172.47 crore raised by the AO in framing an assessment u/s 143(3) r.w.s. 144C(13) of the Act for the A.Y. 2018-19, which order has been impugned in an appeal before the Tribunal and out of which the assessee made not even a partial payment.

HELD

The Tribunal, after considering the decision of the Supreme Court in I.T.O. vs. M. K. Mohd. Kunhi [(1969) 71 ITR 815 (SC)], and the provisions of section 254(2A) as also the principle of harmonious construction as explained in the Principles of Statutory Interpretation by Justice G P Singh, held –

i) the Hon’ble Supreme Court’s inferring the Tribunal’s power to grant the stay, in the absence of specific statutory authority to that effect, is one thing, and the Tribunal’s dealing with a power statutorily recognised, even if implicitly, is quite another thing;

ii) once a statutory provision specifically provides that the Tribunal can only grant a stay subject to a deposit of not less than 20 per cent of the disputed demand, or furnishing of security thereof, it is not open to the Tribunal to grant a stay in violation of these basic statutory provisions;

iii) the powers of the Tribunal u/s 254(1) to grant a stay cannot be so interpreted to make the first proviso to Section 254(2A) redundant;

iv) if it is held that the Tribunal’s power of granting a stay, even after the enactment of the first proviso to Section 254(2A) remains unfettered in as much as a stay can indeed be granted even in clear disharmony with the statutory conditions set out under the first proviso to section 254(2A), the requirement with respect to the partial payment of demand or furnishing of security in relation thereof will thus be redundant;

v) the law as it stood at the point of time when Mohd. Kunhi’s judgment was delivered has undergone a significant change vis-à-vis the position prevailing as of now, and, therefore, the observations made by the Hon’ble SC are now to be read in the light of the subsequent enactment of the law;

vi) when the statute does not give the powers to the Tribunal to grant a blanket stay, nor the Hon’ble Courts above hold so, it cannot be open to the Tribunal to hold that the Tribunal can grant a blanket stay – clearly contrary to the scheme of the law as visualised under the first proviso to section 254(2A);

vii) no matter how fair, just or desirable it is to grant such a blanket stay, we have to live with this reality;

viii) an institution like this Tribunal, which is itself a creature of the Income-tax Act, 1961, has to perform its functions within the limitations that the Income-tax Act, 1961 has imposed on its functioning;

ix) law itself visualizes that the payment of 20 per cent of the disputed demands, impugned in the appeal before the Tribunal, cannot be viewed as a condition precedent for the grant of stay by the Tribunal in as much as when the applicant “furnishes security of equal amount in respect thereof”, the Tribunal can exercise its powers of granting stay; and

x) the issues of the reasonableness of the nature of security cannot be at the unfettered discretion of the AO, and it must meet judicial scrutiny as and when required.

Following the decision of the Bombay High Court in the case of Grasim India Ltd. Vs. DCIT [(2021) 126 taxmann.com 106 (Bom.)], the Tribunal granted a stay on collection/recovery of the disputed demand of Rs. 172.47 crore on the condition that the assessee shall provide a reasonable security for an amount of Rs. 35 crore or more, within two weeks from the date of receipt of this order.

It further held that in case the AO is not satisfied with the security offered by the assessee, the AO shall pass a detailed speaking order setting out his position on the issue and give a two-week notice to the assessee before initiating any coercive recovery proceedings. The assessee can pursue appropriate legal remedies, if so advised, against the stand of the AO.

No adjustment can be made u/s 115JB in respect of interest on income-tax refund, which as per consistent practice, was not credited to the profit & loss account but was reduced from advance income-tax paid under ‘loans and advances’

46. Reliance Industries Ltd. vs. ACIT
[2022] 143 taxmann.com 194 (Mumbai – Trib.)
A.Y.: 2016-17
Date of order: 14th October, 2022
Sections: 244A, 115JB

No adjustment can be made u/s 115JB in respect of interest on income-tax refund, which as per consistent practice, was not credited to the profit & loss account but was reduced from advance income-tax paid under ‘loans and advances’.

FACTS

For the year under consideration, the assessee, in its return, offered interest income on an income tax refund of Rs. 266,45,06,765, following the Special Bench decision in Avada Trading Company (Pvt) Ltd vs. ACIT (100 ITD 131). The interest income on the income tax refund was revised to Rs. 265,38,24,122 due to orders passed subsequently.

During the assessment proceedings, the assessee was asked to show cause as to why interest on income tax refund ought not to be added to book profit u/s 115JB of the Act. In reply, the assessee submitted that there was no certainty with the quantum of interest on income tax refund, as the assessee as well as the Department are in appeal on multiple issues before the appellate forums. Thus, no finality has been reached with respect to the assessment. Therefore, interest on the income tax refund was not credited to the profit and loss account as per the policy consistently followed by the assessee. The assessee further submitted that, once the financial statements have been prepared under the Companies Act following the accounting policies and accounting standards, the book profit needs to be computed as per the profit and loss account since the financial statements cannot thereafter be altered for making adjustments.

The AO disagreed with the submissions of the assessee and held that once the income tax refund has been issued,and the same is accounted in the books though not in the profit and loss account directly, the same ought to be considered while working out the book profits as per the provisions of section 115 JB. Accordingly, the interest on income tax refund determined at Rs. 266,45,06,765 was added, inter-alia, for the computation of book profit u/s115 JB.

Aggrieved, the assessee preferred an appeal to CIT(A), who dismissed the appeal filed by the assessee on this issue and held that when the assessee has credited the refund, it should have been credited to the correct account and routed through the profit and loss account.

Aggrieved, the assessee preferred an appeal to the Tribunal contending that any adjustment to book profits can only be made in respect of items provided in Explanation 1 to Section 115JB(1) of the Act.

HELD

The Tribunal noted that the amount of interest on incometax refund has been reduced by the assessee from advance income-tax shown under the head `loans and advances’. However, while filing the return of income, the said interest has been offered to tax under the normal provisions of the Act. Having noted the decision of the Supreme Court in the case of Apollo Tyres Ltd. vs. CIT [(2002) 255 ITR 273 (SC)], the Tribunal held that once the assessee’s accounts have been maintained in accordance with the Companies Act, and the same have also been scrutinised and audited by the statutory auditor, in the absence of any material to negate these facts, the AO. has limited power u/s 115JB of the Act to adjust to book profit only in respect of the items provided in Explanation 1 to section 115 JB (1) of the Act.

As regards to the submission of ld. DR that the information regarding interest on income tax refund not being included in the profit and loss account has not been disclosed by the assessee in its annual accounts, and thus could not be said to be approved in the AGM or filed with the ROC and other statutory authorities, the Tribunal held that it observed no evidence being brought on record to the effect that due to such non-disclosure, the accounts of the assessee were not maintained as per the provisions of Companies Act and other relevant rules and regulations. It also noted that no such objection by the statutory auditor or ROC or other statutory authority had been brought to its notice.

The Tribunal held that there is no dispute on the fact that the assessee has offered interest on an income tax refund to tax while filing its return of income, and the same has also been assessed under the standard provisions of the Act. The Tribunal found no merit in addition to interest on income tax refund for computing the book profit u/s 115 JB of the Act. The Tribunal directed the AO to delete the same.

45. Subsidy in the nature of remission of sales tax given to promote industries is capital in nature and not chargeable to tax. Further, a subsidy under a retention pricing scheme is eligible for deduction u/s 80IB of the Act.

Tata Chemicals Ltd vs. Deputy Commissioner of Income-tax
[2022] 95 ITR(T) 134 (Mumbai – Trib.)
ITA No.: 2439(MUM) of 2011
A.Y.: 2003-04
Date of order: 16th February, 2022
Sections: 4, 80IB

45. Subsidy in the nature of remission of sales tax given to promote industries is capital in nature and not chargeable to tax. Further, a subsidy under a retention pricing scheme is eligible for deduction u/s 80IB of the Act.

FACTS

During the captioned A.Y. the assessee company merged with a corporate entity. The assessee did not claim a deduction u/s 80IB of the Act in the revised return pursuant to the merger but reserved the right to claim it during the assessment proceedings.

During the assessment proceedings, the AO taxed the sales tax incentive considering the same as a revenue item and held that the fertilizer subsidy was not eligible for deduction u/s 80(IB).

Aggrieved, the assessee filed an appeal before the CIT(A). However, the assessee’s appeal was dismissed on the following grounds:

  • Sales tax incentive scheme does not have a direct nexus with the activities of the industrial unit.

  • Fertilizer subsidy provided by the government as price concession was not income from the industrial undertaking and therefore not eligible for deduction u/s 80(IB).

Aggrieved, the assessee filed further appeal before the ITAT.

HELD
While deliberating on the sales tax incentive scheme, the ITAT relied on the Apex Court decision in CIT vs. Ponni Sugars & Chemicals Ltd. 306 ITR 392, wherein it was held that the object behind the subsidy determines the nature of the subsidy/incentive. Further, the form of granting the subsidy was immaterial. Thus, it was held that the sales tax incentive money received was capital in nature and hence not subject to tax.

On the subsidy of fertilizers, the ITAT observed that the same was under price retention scheme i.e. the Government decides the Maximum Retail Price (MRP) and pays the difference between the cost of fertilizers and the decided MRP to the assessee in the form of a subsidy. Further, it was held that the aforesaid subsidy was allowed as a deduction u/s 80IB of the Act by the Apex Court decision in CIT vs. Meghalaya Steels Ltd.38 ITR 17 (SC).

Accordingly, the ITAT allowed the appeal of the assessee.

44. Amended provisions of section 56(2)(vii)(b) of the Act cannot be applied retrospectively.

Rajib Rathindra Saha. vs. Income-tax Officer (International Taxation)
[2022] 95 ITR(T) 216 (Mumbai – Trib.)
ITA No.: 7352 (Mum.) of 2019
A.Y.: 2014-15
Date of order: 21st February, 2022
Section: 56(2)(vii)(b)

44. Amended provisions of section 56(2)(vii)(b) of the Act cannot be applied retrospectively.

FACTS

The assessee, an individual, paid earnest money for the purchase of an immovable property in 2010. The assessee executed the agreement to purchase the said property on 31st March, 2013 and paid the stamp duty on 18th March, 2013. The property was actually registered on 2nd April, 2014.

In the course of assessment proceedings for A.Y. 2014-15, the AO pointed out the fact that the stamp duty valuation on the date of registration was higher than the cost of acquisition of the property. Accordingly, the said difference was bought to tax u/s 56(2)(vii)(b) of the Act, as amended vide Finance Act, 2013. The assessee requested the AO to refer the matter to the departmental valuation officer (DVO), but the same was rejected and an order was passed making an addition of the difference between the stamp duty value and the cost of acquisition.

Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) referred the matter to DVO and directed the AO to re-compute the income of the assessee accordingly.

Aggrieved, the assessee filed further appeal before the ITAT.

HELD

The assessee submitted that the agreement of the property was executed and stamp duty was paid on 31st March, 2013 i.e. during A.Y. 2013-14.

Prior to the amendment, where any immovable property was received without consideration and the stamp duty value of which exceeded Rs. 50,000 the stamp duty value of such property would be charged to tax. The Finance Act, 2013 introduced an amendment to section 56(2)(vii)(b), according to which the difference between the stamp duty value and the consideration paid became taxable in the hands of the purchaser.

Since the said amendment to section 56(2)(vii)(b) was applicable from A.Y. 2014-15, the said provision could not be applied to the assessee. Reliance was placed on the decision of the Ranchi Bench of Tribunal in Bajrang Lal Naredi vs. ITO [IT Appeal No. 327 (Ran.) of 2018, dated 2-1-2020].

An alternate contention was raised by the assessee, wherein it was stated that the DVO has erred in valuing the property on 31st March, 2013 as against 2010, when the earnest money was paid by the assessee.

The Departmental Representative submitted that since the property was actually registered during A.Y. 2014-15, the amended provisions were applicable in the present case.

The ITAT held that the registration of the agreement was a compliance of a legal requirement under the Registration Act, 1908 and accordingly, was not relevant while deciding the date of purchase of the property.

Accordingly, the ITAT allowed the appeal of the assessee and deleted the addition u/s 56(2)(vii)(b) on the basis that the agreement of purchase of property was executed during A.Y. 2013-14, and thus the amended section 56(2)(vii)(b) of the Act, being applicable w.e.f. 1st April, 2014, could not be made applicable to the assessee.

Further, the actual registration of property was a procedural formality as a consequence of the execution of agreement and hence not relevant to ascertain the date of purchase of the property.

43. Where the land of the assessee was situated beyond 5 km from the nearest Municipal Corporation, as per Notification No. SO 9447, dated 6th January, 1994 issued for Chenglepet Municipality, the land was agricultural land and hence out of ambit of ‘capital asset’ as defined u/s 2(14).

Mohideen Sharif Inayathulla Sharif vs. Income-tax officer
[2022] 95 ITR(T) 345 (Chennai – Trib.)
ITA No.: 658 (Chny) of 2020
A.Y.: 2011-12
Date: 7th March, 2022
Sections: 2(14), 45

43. Where the land of the assessee was situated beyond 5 km from the nearest Municipal Corporation, as per Notification No. SO 9447, dated 6th January, 1994 issued for Chenglepet Municipality, the land was agricultural land and hence out of ambit of ‘capital asset’ as defined u/s 2(14).

FACTS

The assessee sold certain land in his village and did not offer any capital gains on the sale on the grounds that it was an agricultural land. A copy of Google maps was submitted by the assesse to establish that land was located beyond 5 km from the nearest Municipal Corporation. Further, the certificate issued by Village Administrative Officer was furnished by the assessee in support of his claim.

Reliance was also placed by the assessee on the notification No. SO 9447 dated 6th January, 1994, wherein it was stated that the distance for Chenglepet Municipality was 5 Km.

The AO contended that the definition of agricultural land was applicable w.e.f. 1st April, 2014 and prior to the amendment the distance was 8 km and not 5 km from Municipal Corporation. Accordingly, long term capital gains were computed by the AO.

Aggrieved, the assessee filed an appeal before the CIT(A), however, the appeal of the assessee was dismissed. Aggrieved, the assessee filed further appeal before the ITAT.

HELD

The ITAT observed that the factual considerations with respect to the location of the land and the certificate issued by the Village Administrative Officer were undisputed.

Based on the submissions of the assesse, the ITAT concurred with the view of the assessee. The ITAT ruled that the Notification No. SO 9447, dated 6th January, 1994 issued for Chenglepet Municipality has also been accepted by the CIT(A) and accordingly, the relevant area will be 5 km and not 8 km. Moreover, the ITAT observed that the fact that the revenue records still show the impugned land as agricultural land was not rebutted by the AO.

Accordingly, the ITAT allowed the appeal of the assessee and deleted the additions made.

42. Where the identity of the shareholders has been established, no addition could be made u/s 68 with respect to the increase in share capital and share premium.

Greensaphire Infratech (P.) Ltd. vs. Income-tax Officer
[2022] 95 ITR(T) 464 (Amritsar – Trib.)
ITA No.:213 (ASR.) of 2017
A.Y.: 2012-13
Date of order: 23rd December, 2021
Section: 68

42. Where the identity of the shareholders has been established, no addition could be made u/s 68 with respect to the increase in share capital and share premium.

FACTS

The assessee company during the year under consideration had issued shares to five individuals and two body corporates by way of share capital and share premium.

In the course of assessment proceedings, the AO called for certain details about the issue of share capital. The assessee furnished certain explanations with respect to the details of shares issued. Not being satisfied with the identity and genuineness of the allottees, the AO invoked section 68 of the Act and treated the issue of share capital and premium as income of the assessee.

Aggrieved, the assessee filed an appeal before the CIT(A), however, the appeal of the assessee was dismissed. Aggrieved, the assessee filed further appeal before the ITAT.

HELD

The assessee submitted that the transaction was carried out through normal banking channels and the identity of subscribers to the company had been established through various documents namely, the financial statements, PANs of the allottees, the Memorandum of Association and Form No. 23AC filed by the corporate allottees and ledger confirmations from the parties.

The assessee also submitted that once the identity of parties has been established, the onus to prove the genuineness of the transaction lies with the Revenue. Reliance was placed on the ruling of the Apex Court in Pr. CIT vs. Paradise Inland Shipping (P.) Ltd. [2018] 93 taxmann.com 84.

Reliance was also placed on the ruling of the Bombay High Court in CIT vs. Gagandeep Infrastructure Ltd. [2017] 394 ITR 680 and the ruling in ITO vs. Arogya Bharti Health Park (P.) Ltd. [IT Appeal No. 2943 (Mum.) of 2014, dated 17th October, 2018, wherein it was held that the amendment to section 68 of the Act, vide Finance Act, 2012 was prospective in nature and applicable from A.Y. 2013-14 onwards. Accordingly, the same will not apply to the impugned A.Y. 2012-13. It was also observed in the aforesaid ruling, that no addition could be made in the hands of the assessee but addition, if any, could be made only in the hands of the allottees of such shares.
    
Further, it was submitted by the assessee that issue of shares being a capital transaction, cannot be considered as income in its hands. Reliance was placed on the following decisions in this regard:

  • G.S. Homes and Hotels (P.) Ltd. vs. Dy. CIT 387 ITR 126
  • Vodafone India Services (P.) Ltd. vs. Union of India [2014] 368 ITR 1 (Bom.)
  • Pr. CIT vs. Apeak Infotech [2017] 397 ITR 148

The ITAT considered the above decisions and concurred with the view of the assessee company, stating that the assessee had furnished voluminous documents to establish the identity of the shareholders. Further, the ITAT held that the share capital and share premium, being transactions on ‘capital account’, cannot be considered as income of the assessee.

Accordingly, the ITAT allowed the appeal of the assessee and deleted the addition u/s 68 of the Act.

41. Interest granted u/s 244A cannot be withdrawn by the AO in an order passed u/s 154 by holding that the proceedings resulting in refund were delayed for reasons attributable to the assessee.

Grasim Industries Ltd. vs. DCIT
TS-813-ITAT-2022(Mum.)
A.Y.: 2007-08
Date of order :18th October, 2022
Section: 244A

41. Interest granted u/s 244A cannot be withdrawn by the AO in an order passed u/s 154 by holding that the proceedings resulting in refund were delayed for reasons attributable to the assessee.

FACTS

In the course of appellate proceedings before the Tribunal, in an appeal preferred by the assessee, the assessee raised an additional ground with regard to the amount suo moto disallowed by the assessee u/s 14A. The additional ground so raised was allowed by the Tribunal. The AO upon passing an order dated 16th May, 2016 to give effect to the order of the Tribunal, worked out the amount of refund due to be Rs. 54,52,12,250 which included interest of Rs. 21,25,91,553 which was granted from 1st April, 2007.

Subsequently, the AO passed an order u/s 154 withdrawing the interest granted u/s 244A to the extent attributable to the refund arising as a result of additional ground being raised by the assessee on the grounds that the delay in granting refund is due to assessee’s raising additional ground in respect of suo moto disallowance u/s 14A. He held that the case of the assessee is squarely covered by section 244A(2) 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 where on behalf of the assessee it was contended that the issue in appeal is covered in favour of the assessee by co-ordinate bench decision in the case of DBS Bank Ltd. vs. DDIT [(2016) 157 ITD 476 (Mum.)].

HELD

What is essential for declining interest to the assessee u/s 244A(2) is that the delay in refund must be on account of reasons attributable to the assessee, and where there is a dispute about the period for which interest is to be declined, the Chief Commissioner or Commissioner must take a call, in favour of the AO’s stand, on the same. The Tribunal observed that none of these conditions are satisfied on the facts of this case. Just because an assessee has raised a claim by way of an additional ground of appeal before the Tribunal, it does not necessarily mean that the delay is attributable to the assessee – this delayed claim could be on account of subsequent legislative or judicial developments, or on account of other factors beyond the control of the assessee. This exercise of ascertaining the reasons of delay is an inherently subjective exercise, and well beyond the limited scope of mistake apparent on record on which no two views are possible. In any case, there is no adjudication by the Chief Commissioner or the Commissioner on the period to be excluded – something hotly contested by the assessee. The Tribunal held that unless that adjudication is done, the denial of interest u/s 244A cannot reach finality, and, for this reason also, it was held that the impugned order does not meet with the approval of the Tribunal.

The ground of appeal filed by the assessee was allowed.

40. Where the assessee had paid indirectly higher tax than actually liable, it shows that there was no malafide intention on the part of the assessee and the Department had no revenue loss. Since there is no revenue loss to the Department, therefore, there is no question of levying penalty on the assessee.

Bagaria Trade Impex vs. ACIT
ITA No. 310/Jp./2022
A.Y.: 2017-18
Date of order: 27th September, 2022
Section: 270A

40. Where the assessee had paid indirectly higher tax than actually liable, it shows that there was no malafide intention on the part of the assessee and the Department had no revenue loss. Since there is no revenue loss to the Department, therefore, there is no question of levying penalty on the assessee.

FACTS

The assessee firm filed its return of income declaring therein a total income of Rs. 95,48,815. While assessing the total income of the assessee an addition of Rs. 1,84,650 was made to the returned total income on account of interest income short declared in the return of income.

During the previous year relevant to assessment year under consideration the assessee in its return of income declared interest income of Rs. 16,61,850 (13,46,850 + 3,15,000). As per Form No. 26AS, the assessee’s interest income was Rs. 18,46,500 (14,96,500 + 3,50,000). Thus, the AO held that the assessee had declared less interest income.

In the course of assessment proceedings when this fact came to the knowledge of the assessee, the assessee vide its letter dated 31st July, 2019 stated that it is willing to pay tax on this amount and requested the AO to adjust the amount of refund due to it. It was mentioned that the assessee had, in its return of income, considered net amount of interest income instead of considering the gross amount.

The AO levied penalty u/s 270A of the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that it is undisputed fact that the amount of TDS was not claimed by the assessee and the assessee made a self-declaration of this fact. Therefore, it cannot be said that there was a misrepresentation or suppression of facts on the part of the assessee. The Tribunal noted that the assessee had not claimed credit for TDS which appears to be a bonafide mistake as the CA of the assessee was not able to detect this fact during the audit. The Tribunal observed that the assessee had short stated its interest income by Rs. 1,84,650 and had not claimed TDS credit of Rs. 1,84,650. Tax on income short stated worked out to Rs, 57,057 while tax which remained with the Revenue amounted to Rs. 1,84,650. Considering this fact the Tribunal concluded that assessee had paid indirectly higher tax than actually liable which goes to show that there was no malafide intention on the part of the assessee and the Department had no revenue loss. The Tribunal held that since there is no revenue loss to the department, therefore, there is no question of levying penalty upon the assessee. The Tribunal held that the levy of penalty was not justified and therefore it deleted the same.

39. In case the assessee’s prayer on facts is not to be accepted, a reasonable opportunity of being heard is to be granted putting the issue to the notice of the assessee.

Surinder Kumar Malhotra vs. ITO
ITA No. 240/Chd./2020
A.Y.: 2011-12
Date of order: 9th September, 2022
Section: 54F

39. In case the assessee’s prayer on facts is not to be accepted, a reasonable opportunity of being heard is to be granted putting the issue to the notice of the assessee.

FACTS

The present appeal was filed by the assessee, for A.Y. 2011-12, being aggrieved by the order dated 11th March, 2022 passed by NFAC, Delhi acting as First Appellate Authority. The assessee was inter alia aggrieved by the CIT(A) confirming the disallowance of claim of deduction under section 54F of the Act by ignoring the applicable judicial precedents including the jurisdictional High Court of Punjab and Haryana.

The claim of the assessee was disallowed on the grounds that the sale proceeds have been applied for acquiring two separate properties. The assessee had in statement of facts pleaded that these were adjoining properties and may be treated as a single unit in terms of various decisions available.

The CIT(A) dismissed the appeal on the legal issue and in para 6 of his order stated that the assessee has not argued anything further.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noticed and drew the attention of the DR to the statement of facts recorded by the CIT(A) on page 2 of the impugned order where it is claimed that two adjoining houses were purchased hence the claim was allowable. The Tribunal referred to the grounds of appeal filed before the CIT(A) and also to the statement of facts wherein it was clearly mentioned that the assessee is a senior citizen who has purchased two adjoining residential houses through two sale deeds dated 7th December, 2010 and 21st March, 2011.

The Tribunal observed that:

(i) the CIT(A) has completely ignored the facts pleaded on record;

(ii) the assessee no doubt has purchased two separate residential houses, however, it is also a fact that consistently the assessee who is a senior citizen has pleaded in writing, which is on record that these were adjoining residential houses, hence, constituted one single unit. No finding has been given by tax authorities on this claim; and

(iii) legal position on two adjoining flats constituting a single residential unit is well settled.

The Tribunal recorded its painful dissatisfaction and disappointment in the passing of the order by the authorities and set aside the order back to the file of the AO for factual verification of facts by accepting the prayer of the DR that the matter needs verification at the end of the AO. The Tribunal also directed that in case the prayer of the assessee on facts is not accepted, a reasonable opportunity of being heard be granted putting the issue to the notice of the assessee.

The Tribunal observed that – “The obdurate attitude of ignoring the written pleadings on record is most unfortunate. Unfortunately such arbitrary orders reek of a backlog of colonial mind set. It needs to be kept in mind that the Tax Authorities are acting as servants of the Government of India. Hence are expected to be live and alert to the citizens for whom and on whose behalf, the functionaries of the State act. In the blind race of showing high disposal the careless ignoring of facts pleaded causes unaccounted harm to the reputation and fairness of the Tax Administration. It erodes the trust and faith of the citizens in the fairness of the functioning of the tax administration. It not only causes harassment to the citizens but also reflects on the arbitrary functioning of the tax administration. Such a reputation and record should not be created.”

38. MA filed on the ground that the Revenue has filed an appeal u/s 260A of the Act with the Bombay High Court in the case on which reliance was placed while deciding the appeal and also in view of subsequent SC order dismissed.

DCIT vs. Cipla Ltd.
MA No. 177/Mum./2022 in
ITA No. 1219/Mum./2018
A.Y.: 2010-11
Date of order: 19th September, 2022
Section: 254

38. MA filed on the ground that the Revenue has filed an appeal u/s 260A of the Act with the Bombay High Court in the case on which reliance was placed while deciding the appeal and also in view of subsequent SC order dismissed.

FACTS

The appeal of the assessee against the order of lower authorities disallowing claim u/s 37(1) was allowed by the Tribunal vide order dated 20th September, 2021 by relying on the decision of the jurisdictional bench of the Tribunal in Aristro Pharmaceuticals Pvt. Ltd. vs. ACIT.

Subsequently, the Revenue preferred this MA before the Tribunal on the grounds that the revenue has filed an appeal against the order of the Tribunal in Aristro Pharmaceuticals Pvt. Ltd. (supra) before the Bombay High Court, which appeal is pending and also that the Supreme Court in the case of Apex Laboratories vs. DCIT LTU [135 taxmann.com 286 (SC)] has, on identical facts, upheld the disallowance u/s 37(1) of the Act.


HELD
The Tribunal noted that the sole dispute of the Revenue is that the order of Hon’ble Tribunal in Aristro Pharmaceuticals Pvt. Ltd. (supra) relied upon while deciding the appeal of the assessee was not accepted by the Revenue and further an appeal u/s 260A of the Act has been filed before the Hon’ble Bombay High Court, and is pending. Also, on similar issue, The Supreme Court has passed an order in the case of Apex Laboratories (supra) on 22nd February, 2022.

The Tribunal observed that while deciding the appeal of the assessee it had relied upon an order of the co-ordinate bench in respect of allowability of sales promotion expenses.

The Tribunal held that provisions of section 254(2) are envisaged for the rectification of the mistake apparent from the record but not to review the order. If submissions made on behalf of the revenue are accepted it would amount to review of the order which is not within the purview of section 254(2) of the Act.

The Tribunal dismissed the miscellaneous application filed by the Revenue.

Despite violation of conditions for grant of exemption on conversion of proprietary concern into a company, transfer of goodwill ‘at cost’ will not be taxable.

DCIT vs. Univercell Telecommunications India Pvt. Ltd.
TS-721-ITAT-2022 (Chennai) A.Y.: 2009-10
Date of order: 7th September, 2022 Sections: 45, 47, 47A

37. Despite violation of conditions for grant of exemption on conversion of proprietary concern into a company, transfer of goodwill `at cost’ will not be taxable.

FACTS

The assessee company came into existence as a result of conversion of M/s Univercell Telecommunications, a proprietary concern of Mr. Satish Babu into a company on 28th September, 2005. Transfer of assets and liabilities of proprietary concern to the assessee has been treated as exempt u/s 47(xiv) of the Act. In the course of assessment proceedings, the AO noticed that as a result of transfer of shareholding by Mr. Satish Babu within a period of five years from the date of conversion, the conditions prescribed have been violated. The AO invoked section 47A of the Act and assessed the difference between the assets and liabilities of the assessee company as long term capital gain and added it to the total income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) and contended that assuming that the provisions of section 47A are triggered because of violation of conditions prescribed in section 47(xiv) there is still no liability to capital gains tax because the difference between assets and liabilities has been determined by the AO by excluding cost incurred for brand value and if the same is considered as per books of the proprietary concern then there will be no capital gains pursuant to conversion of proprietary concern into a private limited company. The CIT(A) held that there was no capital gains on transfer of goodwill at book value, because, if you consider the cost incurred by the assessee for creation of goodwill, then, the capital gains on transfer of said goodwill become ‘nil’ and thus, deleted the additions made by the AO.

Aggrieved, Revenue preferred an appeal to the Tribunal.

HELD
The Tribunal noted that it is an undisputed fact that when proprietary concern was converted into a Pvt. Ltd. Co., conditions of section 47(xiv)(b) of the Act, have been satisfied. However, at later date, Mr. Satish Babu has transferred 16.67 per cent of his shareholding to Mr. Shankar S.Nathan on 10th October, 2018 i.e. within five years from the date of transfer of proprietary concern into the assessee company and thus, breached the conditions prescribed u/s 47(xiv)(b) of the Act, i.e. retaining not less than 50 per cent of the shares of successor company for a period of five years from the date of transfer of proprietary concern. It held that:

(i)    the assessee is hit by provisions of Section 47A(3) of the Act, and as per the said provision, if certain conditions are violated, then, exemption granted u/s 47(xiv)(b) of the Act, needs to be withdrawn for the impugned assessment year. It also held that even after invoking the provisions of Sec 47A(3) of the Act, there cannot be any liability of capital gains on conversion of proprietary business into Pvt. Ltd. Co., because, the assessee has transferred all assets and liabilities of erstwhile proprietorship into a Pvt. Ltd. Co., on book value including so called goodwill of Rs. 3.47 Crs. considered by the AO for taxation;

(ii)    it observed that as per the details filed by the assessee, the goodwill considered by the AO is not self-generated but created by the erstwhile proprietary concern before assets and liabilities have been transferred to Pvt. Ltd. Co., which is evident from the fact that the assessee has filed necessary details of expenditure incurred for generation/creation of goodwill in the books of accounts of proprietary concern; and

(iii)    even if you invoke the provisions of section 47A(3), to withdraw exemption granted u/s 47(xiv)(b), but, in principle there cannot be any capital gains on transfer of goodwill, because, the said goodwill is not self-generated or created on account of conversion of proprietary concern into a Pvt. Ltd. Co., but acquired by incurring cost. If you consider cost incurred by the assessee for acquiring goodwill, then, capital gains on transfer of said goodwill would come to ‘nil’ amount.

The Tribunal found no fault with the findings of CIT(A) and dismissed the appeal filed by the Revenue.

Indexation has to be granted with effect from the previous year in which the allotment was made even though the payment has been made in instalments in later years

Nitin Prakash vs. DCIT TS-734-ITAT-2022 (Mum.) A.Y.: 2011-12
Date of order: 22nd August, 2022 Section: 48

36. Indexation has to be granted with effect from the previous year in which the allotment was made even though the payment has been made in instalments in later years.

FACTS

The assessee had purchased four residential flats in a building i.e. Ashok Towers, Tower-B, Parel, Mumbai in September, 2004. The assessee paid Rs. 9,58,000 at the time of booking of the flats in June, 2004 and 10 per cent of the total consideration i.e. Rs. 19,17,700 in October, 2004. The balance amount was paid as per the schedule provided by the builder. The registered agreement for sale of flats was executed on 31st December, 2008. During the period relevant to the assessment year under appeal, the assessee vide registered agreement dated 13th August, 2010 sold the flats. For the purpose of computation of ‘long term capital gain’ the assessee claimed indexation on purchase price of Rs. 2,03,36,000 from the F.Y. 2004-05 i.e. the year in which the assessee had booked the flat. The assessee computed indexed cost of acquisition at Rs. 3,01,22,700. The AO rejected the assessee’s computation of indexed cost and applied indexation as and when the installments were paid by the assessee i.e. on the basis of year of payment of installments.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the short issue before it is, whether the benefit of indexation on the installments paid for the flat should be allowed from the date of allotment of flat i.e. the F.Y. 2004-05 or the assessee is eligible for the benefit of indexation on payment of instalments in the year of actual payment. The Tribunal noted that there is no dispute regarding the date of payment of instalments, and the fact that the flats sold by the assessee during the period relevant to the assessment year under appeal is a long-term capital asset. The dispute is only with regard to computation of indexation.

The Tribunal noted the ratio of the following decisions on which reliance was placed on behalf of the assessee

(i)    Lata G. Rohra vs. DCIT, 21 SOT 541(Mum);

(ii)    Divine Holdings Pvt. Ltd., ITA No.6423/Mum/2008;
 
(iii)    M/s. Pooja Exports, ITA No.2222/Mum/2010;

(iv)    Mr. Ramprakash Bubna, ITA No. 6578/Mum/2010

and observed that no contrary decision was brought to its notice by the Revenue.

In the light of the aforesaid decisions, the Tribunal held that the assessee is entitled to the benefit of indexation on the total cost of acquisition from the year of allotment of flat dehorns the fact that the assessee has paid instalments over a period of time subsequent to the date of allotment.

Amendment to section 269SS, made by the Finance Act, 2015, to include “specified advances” within its scope w.e.f. 1st June, 2015 is prospective and applies to transactions entered by the assessee w.e.f. 1st June, 2015

35. ACIT vs. Ruhil Developers Pvt. Ltd. TS-702-ITAT-2022 (Delhi)
A.Y.: 2013-14
Date of order: 30th August, 2022 Sections: 269SS, 271D

Amendment to section 269SS, made by the Finance Act, 2015, to include “specified advances” within its scope w.e.f. 1st June, 2015 is prospective and applies to transactions entered by the assessee w.e.f. 1st June, 2015.

FACTS

A search was conducted on 17th December, 2013 in the case of the assessee. In the course of search, Mr. Neeraj Ruhil, Director of the assessee admitted in a statement recorded u/s 132(4) that entries of Rs. 5.30 crores in the books of the assessee company on account of advances were not genuine, and that the same was undisclosed income of the assessee company which has been introduced in the books. However, in the return of income filed u/s 153A, this amount was not offered for taxation.

In the course of assessment proceedings, the assessee was asked to furnish a list of persons from whom assessee claimed to have received advances in cash. In response, the assessee furnished a list of 18 persons. Notices u/s 133(6) were issued to all the parties mentioned in the list provided by the assessee. Summons was issued to 18 parties and the assessee was asked to produce the parties who have not responded to summons. Of the 18 parties only two responded and their statement was recorded. The Assessing Officer (AO) held that these two parties did not have creditworthiness to advance huge amounts claimed to have been received by the assessee from them. The entire sum of Rs. 5.30 crores was added to the income of the assessee u/s 68. Thereafter, a notice for levying penalty u/s 271D was issued to the assessee company. The assessee company in its response stated that it has received advances during the period from 1st April, 2012 to 17th December, 2013 and that during this period the provisions of section 269SS did not apply to receipt of advance for transfer of immovable property.

The AO relying on the decision in the case of Parayil Balan Nair vs. CIT [63 taxmann 26 (Kerala HC)] and CIT vs. Shyam Corporation [Civil Application No. 293/2013 – Gujarat High Court] held that assessee accepted cash advances of Rs. 5.30 crores in contravention of provisions of section 269SS and levied a penalty u/s 271D of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who deleted the penalty on the ground that the amount has been treated as undisclosed income of the assessee.

Aggrieved, Revenue preferred an appeal to the Tribunal.


HELD
The Tribunal upon going through the provisions of section 269SS as was in force in A.Y. 2013-14 held that the word “advance” has not been mentioned in the provisions of the Act. The Tribunal then proceeded to analyse the meaning of “loan” and “deposit” and held that “advances are given for specified purchases in lieu of immediate or subsequent transfer of goods & services and settled fully after conclusion of the transactions. The loan is a debt instrument whereas the advance is a credit instrument on the part of the recipient.” It held that upto 1st June, 2015, section 269SS applied only to “loans” and “deposits” and it is only w.e.f. 1st June, 2015 that “any specified sum” has been brought within the ambit of section 269SS. The earlier provisions could not envisage the utilization of provisions of Section 269SS for the “advances” taken or accepted. This mischief has been addressed w.e.f. 1st June, 2015 only by adding the words “any specified sum.” The Tribunal held that since the amendment to the provisions of Section 269SS has been brought w.e.f. 1st  June, 2015 with regard to the “advances” received in relation to transfer of immovable property, and since the appeal pertains to the A.Y. 2013-14 and since the amendment is not retrospective in operation, the appeal of the Revenue is liable to be dismissed.

Additional grounds filed by the assessee before the CIT(A) need to be adjudicated by him even though such grounds have been rejected by the PCIT earlier in revisionary proceedings

34. Granda Investments & Finance Pvt. Ltd. (formerly Granda Energy Systems Pvt. Ltd.) vs. DCIT
TS-693-ITAT-2022 (Mum.) A.Y.: 2011-12
Date of order: 25th August, 2022 Sections: 251, 264

Additional grounds filed by the assessee before the CIT(A) need to be adjudicated by him even though such grounds have been rejected by the PCIT earlier in revisionary proceedings.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee, a private limited company engaged in the business of facilitating foreign consultancy and business, earned income by way of interest and capital gains.

The assessee, along with three individuals, were promoters of WMI Cranes Ltd. and amongst the four of them (promoters) held the entire paid-up capital of WMI Cranes Ltd. The assessee held 123,800 equity shares of WMI Cranes Ltd. constituting 12.38 per cent of its total equity share capital. Pursuant to a Share Purchase and Subscription Agreement dated 11th October, 2010 entered into by the assessee and three individuals with M/s Konecranes & Finance Corporation, the promoters agreed to sell 48.25 per cent of the total paid-up and issued capital of WMI Cranes Ltd. to Konecranes & Finance Corporation initially at Rs. 302,012.31 per share amounting to Rs. 155 crore. The assessee consented to sell 75,000 out of 123,800 shares held by it. M/s Konecranes also subscribed for additional 56,000 equity shares in order to increase its shareholding in the company to 51 per cent. As per the terms of the agreement, of the total consideration of Rs. 155 crores, a sum of Rs. 30 crores was to be credited to the escrow account which wouldoperate as per escrow agreement entered into between the promoters, the purchaser M/s Konecranes and the escrow agent. Past liabilities, if any, would be discharged out of the amount lying in escrow and balance, if any, would be paid to promoters.

In the return of income, the assessee computed capital gains by considering the sale consideration to be Rs. 155 crores (i.e. inclusive of Rs. 30 crores deposited in the escrow account). Subsequent to the sale of shares, the purchaser i.e. Konecranes directed the escrow agent to make certain statutory payments and other liabilities which arose prior to sale of shares and an amount of Rs. 9.17 crores was paid on various dates from the escrow account. The assessee contended that this Rs. 9.17 crores ought not to have been considered as part of full value of consideration for computing capital gains. This ground was raised by the assessee before PCIT in an application u/s 264 of the Act on the grounds that the amount withdrawn from the escrow account cannot at any time reach the coffers of the promoters and consequently the amount withdrawn from the escrow account results in reduction of consideration and also the capital gains. The PCIT rejected the application on the ground that there is no express provision in the Act to reduce the returned income and the same cannot be done indirectly by invoking the provisions of section 264 of the Act.

On denial of the relief applied for, the assessee preferred an additional ground in an appeal filed by it before CIT(A). The CIT(A) called for a remand report from the AO and dismissed the additional ground on the grounds that since the assessee has taken additional ground for reducing returned income before PCIT u/s 264 which was rejected, therefore the same cannot be again taken before CIT(A) and therefore he held that he did not have jurisdiction to adjudicate such additional ground of appeal.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal held that the CIT(A) has erred in not deciding the ground of appeal filed as additional ground before him by the assessee which ought to have been decided on merits. It held that the CIT(A) is not barred from deciding this ground of appeal on merits in spite of the fact that section 264 application was rejected by the PCIT. The Tribunal directed the CIT(A) to consider this ground of appeal on merits and adjudicate the issue pertaining to the reduction of capital gain. It remanded the matter back to the CIT(A) for deciding this issue on merits.

S. 271(1)(c) – The Assessee had wrongly claimed a long-term capital loss in respect of a property which had been gifted by him to his son. Since the amount of capital loss had duly been disclosed in the computation of income and the Assessee had also accepted at the time of assessment proceedings it had considered gift made to son as a transfer by mistake, and there was no concealment of any material fact by the Assessee and thus, levy of penalty u/s 271(1)(c) was not justified.

33 Pawan Garg vs. Assistant Commissioner of Income-tax
[2022] 94 ITR(T) 159 (Chandigarh -Trib.)
ITA No.: 1475(CHD) of 2018
A.Y.: 2014-15
Date of order: 17th January, 2022

S. 271(1)(c) – The Assessee had wrongly claimed a long-term capital loss in respect of a property which had been gifted by him to his son. Since the amount of capital loss had duly been disclosed in the computation of income and the Assessee had also accepted at the time of assessment proceedings it had considered gift made to son as a transfer by mistake, and there was no concealment of any material fact by the Assessee and thus, levy of penalty u/s 271(1)(c) was not justified.

FACTS

The Assessee is a partner in a firm engaged in the dyeing and finishing of textile yarn. The return of income was filed declaring an income of Rs. 8,11,800. The Assessee had claimed Long Term Capital Loss at 20 per cent amounting to Rs. 7,14,554 in respect of a property gifted by him to his son Shri Akhilesh Garg on 20th July, 2013. The Assessee was asked by the Assessing Officer to explain as to why this loss, which had wrongly been claimed, may not be disallowed. In response, the Assessee accepted that there was a mistake due to some typographical error and, therefore, the amount was added to the income of the Assessee. Subsequently, the impugned penalty was imposed on the said addition.

Aggrieved, the Assessee filed an appeal challenging the levy of penalty before the CIT(A). However, the appeal was dismissed. Aggrieved, the Assessee filed further appeal before the ITAT.

HELD

The Assessee submitted that no penalty was imposable as he had only made a wrong claim and not a false claim inasmuch as all the facts were before the Assessing Officer at the time of assessment proceedings, and for the reason that all the figures were duly reflected in the computation of income. It was also submitted that the mistake had occurred due to some error at the end of the Chartered Accountant who had filed the return of income and that the Assessee should not be burdened with the penalty as it was a genuine mistake.

The ITAT observed that the mistake was noticed by the Assessing Officer during the course of assessment proceedings, and on being confronted on the issue, the Assessee surrendered the Long Term Capital Loss. It also observed that the amount of capital loss has been duly mentioned in the computation of income. Therefore, it finds that there is no concealment of any material fact by the Assessee. It can be said that the claim made with respect to the Long Term Capital Loss was an incorrect claim or a wrong claim but it was not a false claim by any measure inasmuch as there was only a mistake in the legal sense that the gift made by the Assessee to the son was considered as a transfer in the computation of income and the resultant figure was shown as a capital loss. It was also a fact on record that the Assessee had accepted the same at the time of assessment proceedings.

The ITAT held that it is not a case where the particulars of income in relation to which the penalty has been levied were either incorrect or were concealed. The amount of capital loss has duly been disclosed in the computation of income and, therefore, it cannot be said to be a case of the Assessee attempting to make a false claim. The ITAT held that it was a bonafide mistake on the part of the Assessee and it would not attract levy of penalty as all the particulars of income were duly disclosed. The appeal of the Assessee was allowed.
 
The ITAT placed reliance on the following decisions while deciding the matter:

1. CIT vs. Reliance Petroproducts Pvt. Ltd.  [2012] 322 ITR 158
    
2. Price Waterhouse Coopers Pvt. Ltd vs. CIT  [2011] 348 ITR 306.

S. 36(1)(iii) – Where interest free funds had been lent by the Assessee to its wholly owned subsidiary for business, no disallowance of interest will be made u/s 36(1)(iii) of the Act.

32 Moonrock Hospitality (P.) Ltd vs. Assistant Commissioner of Income-tax
[2022] 94 ITR(T) 185 (Delhi – Trib.)
ITA No.: 5895 (Delhi) of 2019
A.Y.: 2016-17
Date of order: 22nd September, 2021

S. 36(1)(iii) – Where interest free funds had been lent by the Assessee to its wholly owned subsidiary for business, no disallowance of interest will be made u/s 36(1)(iii) of the Act.

FACTS

The Assessee company had investments in wholly owned subsidiaries, and had also advanced loans to these companies out of borrowed funds. During the A.Y., the Asssessee company had advanced an interest free loan to one of its wholly owned subsidiaries. Based on the same, the Assessee was asked to explain as to why no disallowance of interest expenses should be made as per section 36(1)(iii) of the Act.

The Assessee furnished an explanation stating that the said funds were advanced for the purpose of business. Not satisfied with the same, the Assessing Officer contended that the said arrangement was a diversion of interest bearing funds towards interest free advances to related parties. A disallowance of interest at 9 per cent (being the rate of interest on loans taken by the Assessee) on such interest free deposits was made u/s 36(1)(iii) of the Act.

Aggrieved, the Assessee filed an appeal before the CIT(A), however, the appeal was dismissed. Aggrieved, the assessee filed further appeal before the ITAT.

HELD

The Assessee submitted that the said loans had been advanced to its wholly owned subsidiary for business. A reference was drawn to the Object Clause of the Memorandum of Association of the Assessee wherein the object was to establish or promote or concur in establishing or promote any company for the purpose of acquiring all or any of the properties, rights and liabilities of such an entity.

Reliance was placed on the ruling of the Delhi High Court in CIT vs. Tulip Star Hotels Ltd. [2011] 16 taxmann.com 335/[2012] 204 Taxman 11 (Mag.)/[2011] 338 ITR 482, wherein it was held that where an Assessee engaged in the business of hotels, an advanced loan to its subsidiary to gain control over other hotel, interest paid on borrowed capital was allowable u/s 36(1)(iii) of the Act

Further, reliance was also placed on the Supreme Court ruling in Hero Cycles (P.) Ltd. vs. CIT (Central) [2015] 63 taxmann.com 308/[2016] 236 Taxman 447/[2015] 379 ITR 347, wherein it was decided that once a nexus between expenditure and purpose of business is established, the Revenue cannot step into the shoes of the businessman to decide how much is reasonable expenditure having regard to circumstances of case.

The ITAT considered the above decisions and concurred with the view of the Assessee company stating that where interest free advances made to a wholly owned subsidiary, no disallowance of interest paid on borrowed fund could be made. Further the ITAT also observed that once a nexus between the expenditure and the business of the subsidiary is established, no disallowance of interest paid on borrowed funds could be made.

Accordingly, the ITAT allowed the appeal of the Assessee and deleted the disallowance of interest u/s 36(1)(iii) of the Act.

Addition made due to wrong reporting in return of income deleted in an appeal against rectification order. Revised return held not necessary.

31 Heidrick and Struggles Inc. vs. DCIT
TS-679-ITAT-2022 (DEL.)
A.Y.: 2018-19
Date of order: 26th August, 2022
Sections: 139(5), 154

Addition made due to wrong reporting in return of income deleted in an appeal against rectification order. Revised return held not necessary.

FACTS

The Assessee, a tax resident of USA, filed its return of income declaring total income of Rs. 23,60,54,860 and claiming a refund of Rs. 53,56,620. The return of income was processed by CPC, vide order dated 14th June, 2019, and a demand of Rs. 80,58,000 was raised for the reason that service income is taxable at 40 per cent plus applicable surcharge and cess and consequential interest u/s 234B and 234C was levied.

Against the order dated 14th June, 2019, the Assessee filed a rectification application which was disposed of vide order dated 22nd August, 2019, passed by CPC, raising a demand of Rs. 2,78,10,114. This demand arose as service income was held to be taxable at 40 per cent and TDS credit of Rs. 2,78,10,114 was denied. The Assessee filed one more rectification application on 15th October, 2019. The CPC vide its order dated 24th October, 2019 raised a demand of Rs. 1,06,73,750 by taxing service receipts of Rs. 2,84,40,475 at 40 per cent along with applicable surcharge and cess and denied TDS credit of Rs. 22,54,771.

Aggrieved, the Assessee preferred an appeal to CIT(A), who without going into the merits of the case, dismissed the appeal holding that the relief could have been claimed by filing revised return of income.

Aggrieved, the Assessee preferred an appeal to the Tribunal where on behalf of the revenue it was contended that the demand has been raised considering the details furnished by the Assessee in the form of return of income. Therefore, the Assessee cannot find fault with processing the order or rectification order passed. The Assessee ought to have claimed relief sought by filing revised return of income for which statutory time limit has expired. The relief now sought by the Assessee was not found in the return of income. Therefore, CIT(A) was right in holding against the Assessee.

HELD

The Tribunal noted that the Assessee has claimed a service income of Rs. 2,84,40,475 received from Heidrick and Struggles Pvt. Ltd. to be taxable as Other Sources. As per India US Tax Treaty, service rendered by the Assessee did not satisfy ‘make available clause’ of India US Treaty. Also, in the case of a group concern of the Assessee, for A.Y. 2018-19, CPC made a similar adjustment i.e. it taxed service receipt at 40 per cent. The said Assessee preferred rectification application which was allowed. The Tribunal held that it is not in dispute that as per India US Tax Treaty the impugned income is not chargeable to tax as per Article 12.

The Tribunal noted CBDT Circular No. 14 and also that the Calcutta Bench of the Tribunal has in the case of Madhabi Nag vs. ACIT [ITA No. 512/Kol/215] held that the revenue authorities ought not to have rejected rectification application u/s 154 on the ground that the Assessee has not filed revised return of income. Further, in the case of CIT vs. Bharat General Reinsurance Co. Ltd. 81 ITR 303 (Delhi), the High Court held that merely because the Assessee wrongly included the income in its return for a particular assessment year it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year.

The Tribunal held that the addition had been made only due to wrong reporting of income by the Assessee and the same cannot be sustained. The Tribunal held that the CIT(A) has committed an error in dismissing the appeal filed by the Assessee.

Interest granted u/s 244A(2) cannot be withdrawn by passing a rectification order u/s 154 when PCCIT / CCIT / PCIT / CIT has not decided exclusion of period for interest.

30 Otis Elevator Company (India) Ltd. vs. DCIT
[2022] 141 taxmann.com 391 (Mum. – Trib.)
A.Y.: 2010-11
Date of order: 18th August, 2022
Section: 244A(2)

Interest granted u/s 244A(2) cannot be withdrawn by passing a rectification order u/s 154 when PCCIT / CCIT / PCIT / CIT has not decided exclusion of period for interest.

FACTS

The assessment was finalized u/s 143(3) on 4th February, 2014. Subsequently, however, the Assessing Officer (AO) withdrew the interest granted u/s 244A(2) on the ground that “it is undisputed fact that in the income tax return filed u/s 139(1) on 30th September, 2010, the TDS claim was Rs. 10,62,11,325 which was enhanced to Rs. 13,70,80,237 by filing revised return on 29th March, 2012” and “thus, the delay was on the part of the Assessee to make correct claim of refund”. The interest payment of Rs. 43,71,038 was thus withdrawn, disregarding the plea of the Assessee that on merits such a claim could not have been declined, and, in any event, such a withdrawal of interest is beyond what is permissible u/s 154. The assessee carried the matter in appeal but without any success. The assessee is in second appeal before us.

HELD

The Tribunal observed that the dispute between the Assessee and the revenue was whether or not the Assessee is responsible for delay in refund. It noted that the guidance to deal with such situations is provided in 244A(2) which inter alia provides that “where any question arises about the period to be excluded (for which interest is to be declined), it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whose decision thereon shall be final”. The Tribunal held that, therefore, the final call about the period to be excluded for grant of interest is to be taken by the higher authority and that exercise is admittedly not done in the present case. Referring to the observations in a co-ordinate bench decision in the case of DBS Bank Ltd. vs. DDIT [(2016) 157 ITD 476 (Mum)] wherein it has inter alia been held that:

(i)    The delay in making of the claim by itself, without anything else, cannot lead to the conclusion that the delay is attributed to the Assessee.

(ii)    Even if the interest u/s 244A could be declined for this period on merits, not declining the interest u/s 244A could not be treated as a mistake apparent on record within the inherently limited scope of Section 154.

(iii)    When a question arises as to the period for which such interest under section 244A is to be excluded, this is to be decided by the Commissioner or the Chief Commissioner.

The Tribunal found itself in agreement with the views of the co-ordinate bench and following the same upheld the plea of the Assessee to the extent that given the limited scope of section 154 for rectification of mistakes apparent on record and given the fact that the period to be excluded for grant of interest has not yet been taken a call on by the PCCIT/CCIT/PCIT or the CIT, the impugned withdrawal of interest u/s 244A(2) is beyond the scope of rectification of mistake u/s 154.

The Tribunal set aside the order of rectification passed by the AO u/s 154 of the Act.

Advances received by an Assessee landlord who has converted land into stock-in-trade, following project completion method, are not taxable on receipt basis.

29 ACIT vs. Suratchandra B. Thakkar (HUF)
TS-648-ITAT-2022 (Mumbai)
A.Y.s: 2006-07 to 2008-09
Date of order: 12th August, 2022
Section: 28

Advances received by an Assessee landlord who has converted land into stock-in-trade, following project completion method, are not taxable on receipt basis.

FACTS

The assessee was a 25 per cent owner of a land in respect of which development agreement was entered into with K. Raheja Universal Pvt. Ltd. Under the terms of the Development Agreement, the land owners and developers were to share sale proceeds in the ratio of 45.5 per cent and 54.5 per cent respectively. The Assessee had a 25 per cent share in land, and was entitled to 25 per cent of 45.5 per cent share receivable by the land owners. The project consisted of construction of four towers of which two were completed in previous year relevant to A.Y. 2008-09 and two were completed in previous year relevant to A.Y. 2009-10.

The Assessee received advances of Rs. 1,78,68,399, Rs. 96,04,258 and Rs. 2,77,19,807 against sale of flats in A.Ys. 2006-07, 2007-08 and 2008-09 respectively. However, no income was offered on the ground that the Assessee was following the project completion method of accounting, and entire income was declared in A.Ys. 2008-09 and 2009-10 on completion of the project, receipt of occupancy certificate and execution of conveyance deed in favour of buyers.

According to the Assessing Officer (AO), as the entire cost of construction was being met by the developer, the project did not require any contribution from the Assessee. Therefore, the advances received became final and certain. The AO also observed that the Assessee had not shown any work-in-progress in the balance sheet. Also, since there was no risk attached to the Assessee, the advances, according to the AO, became income in the year of their receipt.

Aggrieved, the Assessee preferred an appeal to CIT(A) who allowed the appeal filed by the Assessee and held that the land was not transferred by the land owners to the developers till the completion of construction and therefore entire risk of the project remained with the land owners including the Assessee.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the Assessee has already paid tax on advances received in A.Ys. 2008-09 and 2009-10. The Tribunal concurred with the following findings of the CIT(A):

(i)    Since the land in question was treated as stock-in-trade by the Assessee in its books of account, transfer of the same was not liable to be taxed as capital gain.

(ii)    The Supreme Court, in the case of Seshasayee Steel Pvt. Ltd. 115 taxmann.com 5 (SC), held that executing a development agreement granting permission to start advertising, selling and construction and permitting to execute sale agreement to a developer does not amount to granting possession u/s 53A of the Transfer of Property Act.

(iii)    Possession of land has been handed over to the prospective buyers consequent to the conveyance in favour of co-operative society of flat owners.

(iv)    The assessee was regularly and consistently following completed contract method.

(v)    In case of the developer also, the completed contract method has been accepted by the revenue.

The Tribunal did not find any error in the finding of the CIT(A) in upholding the project completion method or the completed contract method followed by the Assessee for declaring the income from the project under reference.

The Tribunal dismissed the appeal filed by the revenue for all the three years.

Proviso to section 43CA providing for tolerance limit of 10 per cent, being beneficial in nature, is retrospective.

28 Sai Bhargavanath Infra vs. ACIT
TS-658-ITAT-2022 (Pune)
A.Y.: 2014-15
Date of order: 17th August, 2022
Section: 43CA

Proviso to section 43CA providing for tolerance limit of 10 per cent, being beneficial in nature, is retrospective.

FACTS
The Assessee, a builder and developer, filed its return of income for A.Y. 2015-16 declaring therein a total income of Rs. 47,17,490. The Assessing Officer (AO) while assessing the total income of the assessee made an addition of Rs. 19,58,875 u/s 43CA of the Act, being difference between sale value of the flats sold and their stamp duty value.

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 contended that the stamp duty value was at an uniform rate without taking into consideration the peculiar features of a particular property. It was also contended that the difference of Rs. 19,58,875 was less than 10 per cent and therefore, not required to be added. For this proposition reliance was placed on the decision of Pune Tribunal in IT No. 923/Pun/2019 for A.Y. 2016-17, order dated 4th August, 2022 and also on the Assessee’s own case in ITA No. 2417/Pun/2017 for A.Y. 2014-15, the Tribunal on the very similar issue had remanded the matter back to the file of the AO for fresh consideration.

HELD
The Tribunal noted the proviso to section 43CA which provides for a tolerance limit of 10 per cent has been introduced by the Finance Act, 2020 w.e.f. 1st April, 2021 and that the assessment year under consideration is before the date when the amendment took place and therefore, the question is whether the proviso can apply to assessment years prior to its introduction as well.

The Tribunal observed that the decision of the Pune Bench in ITA No. 2417/Pun/2017 for A.Y. 2014-15 (supra) on which reliance has been placed by the Assessee has held the proviso to be retrospective but in the said decision reliance has been placed on the decision of Mumbai Bench of the Tribunal in the case of Maria Fernandes Cheryl vs. ITO (2021) 187 ITD 738 (Mum) which relates to section 50C of the Act. On behalf of the Assessee it was submitted that section 43CA and section 50C of the Act are pari materia provisions and therefore, holding of retrospective application of section 50C is even applicable making retrospective application to section 43CA of the Act as well. The Tribunal observed that the AR was unable to place on record any direct decision where first proviso to section 43CA has been held to be retrospective.

The Tribunal noted that the judgment of the full bench of the Apex Court in the case of CIT vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 (SC) has held that if any liability has to be fastened with the Assessee taxpayer retrospectively then the statute and the provision must spell out specifically regarding such retrospective applicability. However, if the provision is beneficial for the Assessee, in view of the welfare legislation spirit imbibed in the Income-tax Act, such a beneficial provision can be applied in a retrospective manner. The Tribunal examined the insertion of the first proviso to section 43CA in the light of the ratio of the decision of the Apex Court in Vatika Township (supra) and held the intent of the legislature is to provide relief to the Assessee in case such difference is less than 10 per cent which has been brought into effect from 1st April, 2021 thereby providing benefit to the Assessee. This being the beneficial provision therefore will even have retrospective effect and would apply to the present A.Y. 2015-16.

The Tribunal observed that Pune Bench of the Tribunal in Shri Dinar Umeshkumar More vs. ITO [ITA No. 1503/PUN/2015 for A.Y. 2011-12 dated 25th January, 2019] has considering the proposition of applicability of a beneficial provision in light of Hon’ble Apex Court decision in the case of Vatika Township Pvt. Ltd. (supra) has held that if a fresh benefit is provided by the Parliament in an existing provision, then such an amendment should be given retrospective effect.

The Tribunal allowed the ground of appeal by holding that the first proviso to section 43CA has retrospective effect.

Late payment charges and service tax do not attract TDS and consequently payment of these amounts without deduction of tax at source does not attract provisions of s.40(a)(ia).

27 Prithvi Outdoor Publicity LLP vs. CIT(A)
ITA No. 1013/Ahd./2019 (Ahd.-Trib.)
A.Y.: 2013-14
Date of order: 29th June, 2022
Section: 40(a)(ia)

Late payment charges and service tax do not attract TDS and consequently payment of these amounts without deduction of tax at source does not attract provisions of s.40(a)(ia).

FACTS
The Assessee incurred advertisement expenditure and made a payment of Rs. 2,27,56,222 to Andhra Pradesh Road Transport Corporation (APRTC). Out of Rs. 2,27,56,222, the Assessee deducted TDS on Rs. 2,17,08,097 and balance Rs. 10,48,125 was paid without deduction of tax. Payment of Rs. 10,48,125 on which no tax was deducted comprised Rs. 9,77,429 paid towards late fees and the balance of Rs. 1,16,155 towards service tax. The Assessee contended that since there is no provision to deduct tax on late fees and service tax, the said amount could not be disallowed u/s 40(a)(ia). Further, since the amount was penal in nature, no tax could be deducted on the same. Lastly, the Assessee contended that the recipient, i.e. APRTC, had included the said payment of Rs. 10,48,125 in its income and offered the same for tax; no disallowance could be made u/s 40(a)(ia).

The Assessing Officer, however, invoked the provisions of s.40(a)(ia) with respect to the payment of Rs. 10,48,125 made without deduction of tax at source.

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 held that the TDS provisions did not apply to late fees and service tax, and therefore disallowance u/s 40(a)(ia) could not be made.

Conditions imposed by CIT, at the time of registration, with respect to conduct of the trust and circumstances in which registration can be cancelled, vacated by the Tribunal on the ground that the scheme of law does not visualise these conditions being part of the scheme of registration being granted to the applicant trust.

26 Bai Navajbai Tata Zoroastrian Girls School vs. CIT(E)
[2022] 141 taxmann.com 62 (Mum.-Trib.)
A.Ys.: 2022-23 to 2026-27
Date of order: 29th July, 2022
Section: 12A

Conditions imposed by CIT, at the time of registration, with respect to conduct of the trust and circumstances in which registration can be cancelled, vacated by the Tribunal on the ground that the scheme of law does not visualise these conditions being part of the scheme of registration being granted to the applicant trust.

FACTS
The Assessee is a charitable trust who had applied for registration u/s 12A of the Income-tax Act, 1961 (“the Act”). The CIT granted registration to the Assessee u/s 12A subject to certain conditions. That is, while passing the order granting registration to the Assessee, the CIT imposed certain conditions, which, inter alia, are as follows:

  • The Trust/Institution should quote the PAN in all its communications with the Department.

  • The registration does not automatically confer any right on the donors to claim deduction u/s 80G.

  • No change in the terms of Trust Deed/Memorandum of Association shall be effected without the due procedure of law, and its intimation shall be given immediately to the Office of the Jurisdictional Commissioner of Income Tax. The registering authority reserves the right to consider whether any such alteration in objects would be consistent with the definition of “charitable purpose” under the Act and in conformity with the requirement of continuity of registration.

  • The Trust/ Society/Non-Profit Company shall maintain accounts regularly and get these accounts audited in accordance with the provisions of s.12A(1)(b) of the Act.

  • Separate accounts in respect of profits and gains of business incidental to attainment of objects shall be maintained in compliance with s.11(4A) of the Act.

  • All public money received including for Corpus or any contribution shall be routed through a bank account whose number shall be communicated to the Office of the Jurisdictional Commissioner of Income Tax.

The Assessee observed that all the conditions imposed in the order granting registration were the conditions which formed the reasons for which registration of the trusts is cancelled, and therefore the conditions were not valid. The Assessee challenged the said order of the Commissioner on the ground that the provisions of the Act do not provide for conditional registration u/s 12A, and in the absence of such provision under the Act, the Commissioner was not justified in imposing conditions upon the Assessee.

HELD

On appeal, the Tribunal held as follows:

  • The finding regarding the objects of the trust and the genuineness of the trust’s activities cannot be conditional.
  • The expression “compliance of the requirements under item (B), of sub-clause (i) (i.e. the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects)” is applicable to conditions precedent, say for example obtaining under FCRA which is under process, the Commissioner may grant registration subject to FCRA registration being obtained by the Assessee.

  • The conditions which the Commissioner imposed had the sanction of the law. That is, irrespective of such conditions being imposed by the Commissioner, the conditions found place in the law and the conditions imposed by the Commissioner could not be said to have the force of the law.

  • The Commissioner has a limited role, and can call for documents or information or make inquiries. The Commissioner cannot decide how and for what reasons the registration has to be cancelled, that too at the time of registration. The Commissioner, therefore, could not have supplemented the conditions by laying down conditions at the time of granting the registration.

  • Conditions attached to registration must be tested on the scheme of law, and the conditions imposed by the Commissioner did not find the force of law.

The observations of the Commissioner regarding the conduct of the Assessee trust could not be construed as legally binding in the sense that non-compliance with such guidance will not have any consequence beyond what is stated under the provisions of the Act. Further, the Tribunal also held that the implications of not doing what is set out in the conditions imposed by the Commissioner would not remain confined to the cancellation of registration when the law stipulates much harsher consequences.

Ss. 132 – Where a hard disk was seized from business premises of assessee, but, no corroborative documents were found to establish that information concerning certain expenditure derived from the hard disk was true and correct, no addition had been made

25 Assistant Commissioner of Income-tax vs.
Lepro Herbals (P) Ltd
[(2022) 94 ITR(T) 225 (Delhi – Trib.)]
ITA No.: 111(DELHI) of 2016
A.Y.: 2010-11; Date of order: 18th February, 2022

Ss. 132 – Where a hard disk was seized from business premises of assessee, but, no corroborative documents were found to establish that information concerning certain expenditure derived from the hard disk was true and correct, no addition had been made

FACTS
A Search u/s 132(1) of the Act was carried out at the premises of the assessee company, a manufacturer of herbal drugs. A hard disk was seized from the office premises during the search. The assessing officer (AO) considered certain figures of sales and purchases retrieved from the hard disk and concluded the assessment by making certain additions.

The contentions of the assessee that the hard disk consisted of personal data and the financial figures contained therein were only estimates that were not considered by the AO.

Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) deleted the additions on the ground that the additions have been made solely based on the hard disk data without any supporting or corroborative evidence. Aggrieved, the Revenue preferred an appeal before the ITAT.

HELD
The AO contended that the figures of sales and purchases derived from the pen drive reflected a true picture of the profitability of the assessee. But, the ITAT observed that no discrepancy in the books of accounts had been pointed out by the AO.

The ITAT noted that no further enquiries, in addition to the reliance placed on the hard disk data, have been carried out to establish that the expenditure mentioned in the seized document is true and correct. It was observed that identical queries were raised in the case of the assessee during previous A.Ys., but no addition had been made to that effect. The printouts of the hard disk of such previous years had the words ‘Forecast’ mentioned. Accordingly, following the principle of consistency and in the absence of any corroborative evidence, the ITAT upheld the Order passed by the CIT(A) and dismissed the appeal of Revenue.

S. 23 – Where House Property was let out for monthly rentals along with a refundable security deposit, and the assessing officer takes a view that such a deposit is in lieu of reduced rent, no notional addition could be made to rental income where the assessee had furnished evidence to show that municipal value was much less than rental income.

24 MLL Logistics (P.) Ltd. vs. Assistant Commissioner of Income-tax
[2022] 93 ITR(T) 513 (Mumbai -Trib.)
ITA No.: 164 (MUM) of 2019
A.Y.: 2013-14; Date of order: 18th November, 2021

S. 23 – Where House Property was let out for monthly rentals along with a refundable security deposit, and the assessing officer takes a view that such a deposit is in lieu of reduced rent, no notional addition could be made to rental income where the assessee had furnished evidence to show that municipal value was much less than rental income.

FACTS
The assessee company had declared income from house property. On perusal of the rent agreement, it was noticed that the rentals were Rs. 50,000 p.m. Further, the licensee deposited a refundable deposit of Rs. 5 crore with the assessee. Based on the same, the assessing officer (AO) took a view that the refundable deposit had been given in lieu of reduced rent of the house property. The AO questioned the rationale of the refundable deposit and made a notional addition of 10 % of the refundable deposit to the rental income.

Aggrieved, the assessee filed an appeal before the CIT(A), however, the appeal of the assessee was dismissed. Aggrieved, the assessee filed further appeal before the ITAT.

HELD
The assessee submitted that he has actually received Rs. 50,000 p.m. towards rent as per the rent agreement. Further, the assessee stated that even though he has received interest free security deposit, notional rent cannot be computed based on such interest free security deposit. Evidences were also furnished by the assessee to show that the actual rent was higher than the rateable value determined by Mumbai Municipal Corporation for the property.

The ITAT observed that the AO has computed notional rent at 10% of the security deposit received by the assessee. To justify such determination, the assessing officer had conducted an enquiry u/s 133(6) of the Income-tax Act, 1961 (Act) to establish that the market value of the rent is higher than what the assessee has offered. However, no concrete evidence had been brought by the AO to establish this assertion.

The ITAT held that the AO cannot determine the notional rent based on estimation or guess work. The ITAT remarked that if the rateable value is correctly determined under the municipal laws, the same is to be considered as the Annual Letting Value u/s 23 of the Act. Accordingly, the ITAT deleted the notional addition made to the rental income.
 
The ITAT placed reliance on the following decisions while deciding the matter:

1. J.K. Investors (Bom.) Ltd. vs. Dy. CIT [2000] 74 ITD 274 (Mum. – Trib.)

2. CIT vs. Tip Top Typography [2015] 228 Taxman 244 (Mag.)/[2014] 48 taxmann.com 191/368 ITR330 (Bom.)

3. CIT vs. Moni Kumar Subba [2011] 10 taxmann.com 195/199 Taxman 301/333 ITR 38 (Delhi)

4. Owais M. Hussain vs. ITO [IT Appeal No. 4320 (Mum.) of 2016, dated 11-5-2018]

5. Pankaj Wadhwa vs. ITO [2019] 101 taxmann.com 161/174 ITD 479 (Mum. – Trib.)

6. Marg Ltd. vs. CIT [2020] 120 taxmann.com 84/275 Taxman 502 (Mad.)

7. Maxopp Investment Ltd. vs. CIT [2018] 91 taxmann.com 154/254 Taxman 325/402 ITR 640 (SC)

Appeal filed by a company, struck off by the time it was taken up for hearing, is maintainable

23 Dwarka Portfolio Pvt. Ltd. vs. ACIT
TS-499-ITAT-2022 (Delhi)
A.Y.: 2014-15; Date of order: 27th May, 2022
Sections: 179, 226

Appeal filed by a company, struck off by the time it was taken up for hearing, is maintainable

FACTS
In this case, the assessee challenged the order passed by CIT(A) confirming the action of the Assessing Officer (AO) in adding a sum of Rs. 18,00,00,000 to the total income of the assessee u/s 68.

At the time of hearing before the Tribunal, on behalf of the revenue it was contended that the name of the assessee company has been struck off by notification no. ROC/Delhi/248(5)/STK-7/10587 dated 8th March, 2019 of Registrar of Companies NCT of Delhi and Haryana, and consequently the appeal filed by the assessee has become infructuous and prayed that the appeal be dismissed as not maintainable.

On behalf of the assessee, it was contended that the appeal could not be dismissed as ‘not maintainable’ merely because of striking off. Reliance was placed on the decision of the Supreme Court in the case of CIT vs. Gopal Shri Scrips Pvt. Ltd. 2019(3) TMI 703 SC and various provisions of the Companies Act, 2013 and Income-tax Act, 1961.

The Tribunal passed an interlocutory order deciding the maintainability of the appeal.

HELD
The Tribunal noted that there is no dispute that the name of the assessee company has been struck-off u/s 248(1) of the Companies Act. The Tribunal also noted the provisions of s. 248 of the Companies Act dealing with striking off of the companies and its effects as mentioned in s. 250 of the Companies Act. It noted that-

i) Once the company is struck-off, it shall be deemed to have been cancelled from such date except for the purpose of realizing the amount due to the company and for the payment and discharge of the liabilities or obligation of the company. Further, even after striking off of a company, the liability, if any, of the Director, Manager or Other Officers, exercising any power of management and of every member of the company shall continue and may be enforced as if the company had not been dissolved;

ii) As per s. 248(6) of the Companies Act, it is the duty of the Registrar to make provision for discharging the liability of the company before passing an order for striking off u/s 248(5) of the Companies Act. If there is any tax due from the struck-off company, the Department can invoke s. 226(3) of the Income-tax Act for satisfying such tax demands;

iii) As per s. 179 of the Income-tax Act, if the tax due from a private company in respect of any income of any previous year cannot be recovered, then every person who was a Director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such taxes unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the company;

iv) When it comes to recovery of tax from struck-off company, the Department can invoke s. 226(3) or s. 179 subject to satisfaction of conditions stated therein. The Department can invoke both 226(3) and 179 simultaneously for which there is no bar;

v) If the proceedings pending before the Court or Tribunal (regarding the determination of quantum of tax / liability for paying tax) are dismissed for having become infructuous without adjudicating the actual taxes due or the liability of the assessee to pay such tax in the manner known to the Law and based on such dismissal of the proceedings if the Revenue proceeds for the recovery of `such tax due’, the rights of the Directors of the Company will be seriously jeopardised and the same will amount to a denial of rights guaranteed under the Law;

vi) If the request of the Revenue is acceded to, then, on the one hand, the appeal will be dismissed as infructuous, and on the other hand, the Revenue will initiate proceedings u/s 179 of the Income-tax Act and that too without even adjudicating in the manner prescribed under the Law on the ‘quantum of actual tax due’ or ‘liability to pay tax’, in such event great injustice will be caused, which cannot be permitted;

vii) When the Revenue Department has not foregone the right to recover the tax due or written-off the demand on the ground of assessee Company being struck-off by ROC, the right of the assessee to determine the tax liability in due process of law cannot be denied by dismissing the appeal pending before us;

viii) Further, in a case where the CIT(A) deletes the addition made by the AO, and if the Revenue files an appeal before the Tribunal, even in a case where the Revenue is having a water tight case on merit, by dismissing the appeal for having become infructuous will also result in the non-adjudication of the actual tax due by the assessee and the Revenue cannot recover the actual tax dues from the assessee. In such events, the Department of Revenue will be left with no remedy, which is contrary to the root principle of law ‘Ubi Jus Ibi Remedium’.

Having noted the above, the Tribunal observed that the moot question is whether the Tribunal can proceed with the appeal filed by the struck down company or filed by the Revenue against struck down company? In other words, whether the struck-off company can be treated as alive / operating / existing for the purpose of adjudication of the tax arrears and the consequence order by which the recovery proceedings are triggered by the Revenue.

The Tribunal observed that in the case of Gopal Scrips Pvt. Ltd. (supra), the Revenue was having a grievance against the Order of the Rajasthan High Court in dismissing the appeal for having become infructuous on the ground that the assessee company was struck-off. The Apex Court has set aside the order of Rajasthan High Court and directed to decide the appeal on merit. Ironically, the very same department is seeking to dismiss the appeal as infructuous since the assessee company is struck-off. The Department cannot have such a double standard.

The Tribunal held that though the name of the assessee company has been struck off u/s 248 of the Companies Act, in view of sub-sections (6) and (7) of section 248 and section 250 of the Companies Act, the certificate of incorporation issued to the assessee company cannot be treated as cancelled for the purpose of realizing the amount due to the company and for payment or discharge of the liability or obligations of the company, the appeal filed by the struck-off assessee company or appeal filed by the revenue against the struck-off company are maintainable. The Tribunal held that the appeal filed by the assessee company is maintainable and the same has to be decided on merits and directed the office to list the appeal before the regular bench for hearing.

In a case where flat booked by the assessee (original flat) could not be constructed and the assessee, in lieu of the original flat, was allotted another flat (alternate flat) which was also under construction, the difference between stamp duty value of the alternate flat and the consideration is not chargeable to tax u/s 56(2)(vii)

22 ITO (International Taxation) vs.
Mrs. Sanika Avadhoot
TS-450-ITAT-2022 (Mum.)
A.Y.: 2016-17; Date of order: 9th May, 2022
Section: 56(2)(vii)

In a case where flat booked by the assessee (original flat) could not be constructed and the assessee, in lieu of the original flat, was allotted another flat (alternate flat) which was also under construction, the difference between stamp duty value of the alternate flat and the consideration is not chargeable to tax u/s 56(2)(vii)

FACTS
The assessee filed return of income declaring total income of Rs. 1,11,640. During the course of assessment proceedings the Assessing Officer (AO) noticed that the assessee has executed an agreement for purchase of flat no. A3-3405 for a consideration of Rs. 5,62,28,500, whereas the stamp duty value of the same is Rs. 8,05,06,000. The assessee was asked to show cause why the difference between the stamp duty value and consideration be not taxed u/s 56(2)(vii).

The assessee explained that on 24th September, 2010, the assessee booked flat no. 4707 with India Bulls Sky Suites. Because of height restrictions, the booking was cancelled and shifted to flat no. 3907 in the same project on 14th November, 2013. Since the construction of this flat could not be materialized, the assessee was allotted a flat in another project by the name Sky Forest without any change in the terms of the purchase. However, a formal agreement for the flat finally allotted was entered into on 4th May, 2015. There was no change in purchase price fixed for allotment in 2010.

The AO was of the view that the assessee acquired new flat no. A-3-3405 in lieu of transfer of right and paid a consideration of Rs. 5,62,28,500 for a flat whose stamp duty is Rs. 8,05,06,000. He added the difference of Rs. 2,42,77,400 to the total income of the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A), who deleted the addition.

Aggrieved, the revenue preferred an appeal to the Tribunal where on behalf of the assessee, it was stated that in F.Y. 2010-11, the assessee made a booking for the purchase of residential premises to be constructed by India Bulls Sky Forest in the project India Bulls Sky Suites against Flat No 4707 admeasuring 3,302 sq. ft. and an amount of Rs. 72,11,834 was paid by the assessee as booking amount. Subsequently, on 21st October, 2010, the assessee paid an amount of Rs. 4,23,18,166, and on 22nd November, 2011 Rs. 12,75,398 was paid totalling Rs. 5,08,05,398. Subsequently, vide letter dated 14th November, 2013, the developer informed the assessee of its inability to construct and provided alternative residential premises Unit 3907, measuring 3,341 sq. ft. Under such circumstances, the assessee threatened the developer for specific performance to provide the residential premises or will initiate criminal proceedings against them. Thereafter, with a view to avoid litigation, both the parties agreed on alternative residential premises being unit no. A3-3405 to be constructed by India Bulls Sky Forests. It was also submitted that the stamp duty value of constructed unit A3-3405 in 2010 was Rs. 2,60,91,806. The agreement registered was nothing but a ratification of the pre-existing agreement which dated back to principal agreement of 2010. It was the same contract with only constructed premises being replaced, and there was no new agreement and earlier payment formed part of the consideration for the registered agreement. The AO treated the shifting of flat as a transfer and taxed the difference between stamp duty value and amount paid as income u/s 56(2)(vii). If AO treated the same as transfer of rights to receive residential property originally allotted against A3-3405 being replaced by new flat 3907 in IndiaBulls Sky Suites, then it falls under the definition of transfer u/s 2(47), and the assessee is eligible for deduction u/s 54F.

HELD
The Tribunal observed that these facts demonstrate that it was the same booking which dated back to 24th September, 2010, and the assessee had not made any extra payment. The Tribunal held that the CIT(A) had clearly elaborated in his findings that when the developer failed to provide the original flat, then it had offered another flat in the building, which was to be constructed on a future date. When the assessee booked the flat, that property was not existing, and it was a property to be constructed in future. The CIT(A) has explained in detail that if such transactions are treated as transfer by notionally assigning the value, then the benefit of indexation and benefit of section 54, etc., will need to be given to the assessee. The Tribunal did not find any infirmity in the decision of the CIT(A). It dismissed the appeal filed by the revenue.

Compiler’s Note: Though this decision is rendered in the context of section 56(2)(vii), it appears that the ratio of this decision would apply to provisions of section 56(2)(x) as well.

For determining interest u/s 244A, refund already granted has to be first adjusted against interest component

21 DCIT vs. MSM Satellite (Singapore) Pte Ltd
TS-480-ITAT-2022 (Mum.)
A.Ys.: 2006-07 to 2008-09;
Date of order: 9th June, 2022
Section: 244A

For determining interest u/s 244A, refund already granted has to be first adjusted against interest component

FACTS
In the first round of proceedings, the Tribunal granted relief to the assessee. The Assessing Officer (AO) passed an order giving effect to the order of the Tribunal and determined the amount of refund payable to the assessee. Aggrieved by the short grant of refund, the assessee preferred an appeal to the CIT(A). The CIT(A) directed the AO to re-compute the interest granted u/s 244A by first adjusting the refund already granted to the assessee against the interest component and the balance, if any, towards the tax component of the refund due.

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

HELD
The Tribunal noted that the present case is not a case where interest on interest due was claimed by the assessee. The issue arising in the present case is regarding the correct computation of the refund. As per the Revenue, while computing the refund and interest thereon u/s 244A, the refund already granted to the assessee should be adjusted against the tax component. However, as per the assessee, the refund already granted to the assessee should be adjusted against the interest component and balance, if any, towards the component of refund due.

The Tribunal held that the issue arising in the present appeals is settled in favour of the assessee by the decisions of the co-ordinate bench in the case of Union Bank of India vs. ACIT [(2017) 162 ITD 142 (Mum.)] and in Grasim Industries Ltd. vs. CIT [(2021) 23 taxmann.com 31 (Mum.)]. The Tribunal dismissed the grounds raised by the Revenue.

Proceedings u/s 263 of the Act cannot be initiated merely for non-initiation of proceedings for levy of penalty u/s 270A

20 Coimbatore Vaiyapuri Maathesh vs. ITO
TS-488-ITAT-2022 (Chennai)
A.Y.: 2017-18; Date of order: 17th March, 2022
Sections: 263, 270A

Proceedings u/s 263 of the Act cannot be initiated merely for non-initiation of proceedings for levy of penalty u/s 270A

FACTS
For A.Y. 2017-18, the assessee filed his return of income declaring a total income of Rs. 4,84,300. The Assessing Officer (AO) assessed the total income u/s 143(3) to be Rs. 81,67,948 by making an addition of Rs. 29,09,000 for unexplained money u/s 69A, and disallowing the cost of improvement of Rs. 47,74,648 claimed while computing capital gains.

The Principal Commissioner of Income-tax (PCIT) issued a show cause notice (SCN) to the assessee asking the assessee to show cause why the assessment order should not be revised u/s 263 as the same has been passed with omission to initiate penalty proceedings u/s 270A in respect of disallowance of the claim made while computing capital gains.

In response to the SCN issued, the assessee submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue since there is no satisfaction/finding recorded by the AO with regard to underreporting or misreporting as required by law.

The PCIT, not being satisfied with the explanation of the assessee held that the assessment order passed by the AO with omission to initiate penalty proceedings u/s 270A, is erroneous in so far as prejudicial to the interest of the revenue, set aside the assessment order with a direction to the AO to re-do the assessment order after verification of issues discussed in 263 proceedings.

Aggrieved by the order passed by the PCIT, the assessee preferred an appeal to the Tribunal and contended that although the AO has made additions towards disallowance of capital gains but he has chosen not to initiate penalty proceedings u/s 270A because he has not arrived at satisfaction to the effect that there is an underreporting or misreporting of income as contemplated u/s 270A. Therefore, on the issue of non-initiation of penalty proceedings, the PCIT cannot assume jurisdiction and revise the assessment order. For this proposition, reliance was placed on the decision of the Madras High Court in the case of CIT vs. Chennai Metro Rail Ltd. [(2018) 92 taxmann.com 329].

HELD
The Tribunal noted that the AO had disallowed the cost of improvement on the ground that the assessee has not submitted supporting documentary evidence to substantiate his claim towards the cost of improvement. Except for this, there is no observation of unsustainability of the claim made by the assessee towards the cost of improvement. The Tribunal understood this to mean that although the AO has made an addition towards the cost of improvement, he has chosen not to initiate penalty proceedings u/s 270A because prima facie, there is no material with the AO to allege that there is an underreporting or misreporting of income. The Tribunal also noted that PCIT has relied upon the decision of Allahabad High Court in CIT vs. Surendra Prasad Aggarwal [(2005) 275 ITR 113 (All.)], where the court has held that revisionary power can be exercised for initiation of penalty proceedings.

The Tribunal found that although the Allahabad High Court in Surendra Prasad Aggarwal (supra) upheld 263 order passed by PCIT for initiation of penalty proceedings, the jurisdictional High Court in CIT vs. Chennai Metro Rail Ltd (supra) has taken a contrary view after considering the decision of the Allahabad High Court in Surendra Prasad Aggarwal (supra) and held that in the absence of any findings in the assessment order regarding underreporting or misreporting of income, the PCIT cannot revise assessment order to initiate penalty proceedings.

The Tribunal held that the PCIT erred in invoking revisional proceedings u/s 263 because the AO has chosen not to initiate penalty proceedings. The Tribunal quashed the revision order passed by the PCIT u/s 263.

Section 254: The Tribunal has jurisdiction to admit the additional grounds filed by the assessee to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee

19 ACIT vs. PC Jewellers Ltd [[2022] 93 ITR(T) 244(Delhi- Trib.)] ITA No.: 6649 & 6650 (DELHI) OF 2017 CONo. 68 & 74 (DELHI) OF 2020 A.Y.: 2013-14 & 2014-15; Date of order: 7th December, 2021

Section 254: The Tribunal has jurisdiction to admit the additional grounds filed by the assessee to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee

FACTS
In respect of the appeal filed before the ITAT by the department, the assessee had filed its cross objections and had raised additional grounds in the cross-objections. Admission of the additional grounds was opposed in principle by the Learned Departmental Representative.

HELD
The ITAT followed the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd vs. CIT[1998] 97 Taxman 358/229 ITR 383 and admitted the additional ground filed by the assessee.

The Hon’ble Apex court in the abovementioned case considered that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. The Hon’ble Apex Court also considered that the Tribunal will have the discretion to allow or not allow a new ground to be raised. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). It was held that the Tribunal has jurisdiction to examine a question of law having a bearing on the tax liability of the assessee, although not raised earlier, which arises from the facts as found by the authorities below, in order to correctly assess the tax liability of an assessee.

Section 68: When the assessee has been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter, there is no justification for the authorities to make or confirm the addition against the assessee under section 68 of the I.T. Act, 1961

18 Ancon Chemplast (P.) Ltd vs. ITO, Ward-2(4) [[2022] 93 ITR(T) 167(Delhi – Trib.)] ITA No.: 3562(DELHI) OF 2021 A.Y.: 2010-11; Date of order: 30th April, 2021

Section 68: When the assessee has been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter, there is no justification for the authorities to make or confirm the addition against the assessee under section 68 of the I.T. Act, 1961

FACTS
The assessee company issued shares at fair market value of Rs. 50 as per audited financial statements of the assessee company. The assessee received from one investor company M/s Prraneta Industries Ltd [Now known as Aadhar Venture India Ltd], a sum of Rs. 45 lakhs in three transactions dated 18.06.2009. Information in this case was received and perusal of the information revealed that the said Investor Company is one of the conduit company which is controlled and managed by ShriShirish C. Shah for the purpose of providing accommodation entries. The statement of Shri Omprakash Khandelwal, Promoter of the Company was recorded where he admitted to provide accommodation entries of the Investor Companies after charging Commission at the rate of 1.8%. Therefore, reasons were recorded and the Ld. A.O. initiated
the reassessment proceedings under section 147 of the Act.

To substantiate the facts that the assessee had received genuine share capital/premium, the assessee filed before A.O. documentary evidences such as copy of the confirmation, ITR Acknowledgement, copy of Board Resolution, copy of share application along with Share Application Form, copy of Master Data, Certificate of Incorporation and evidence in respect of listing of shares at BSE of Investor Company along with ITR and balance-sheet of the Investor. The assessee also submitted that Shri Omprakash Khandelwal, Director of the Investor Company retracted from his statement, and therefore there was no case of reopening its assessment on the basis of such statement.

The A.O. considering the modus operandi of these persons and did not accept the explanation of assessee to have received genuine share capital and made addition of Rs. 45 lakhs under section 68 of the I.T. Act and also made addition of Rs. 90,000 on account of Commission. Aggrieved, the assessee filed an appeal before the CIT(A), however, the appeal of the assessee was dismissed. Aggrieved, the assessee filed further appeal before the Tribunal.

HELD
The ITAT observed that the Investor Company was assessed to tax and was a listed public limited company, therefore, its identity was not in dispute. The assessee had also proved creditworthiness of the Investor Company and that entire transaction had taken place through a banking channel, therefore, genuineness of the transaction in the matter was also not in dispute. The assessee also explained before A.O. that Shri Shirish C. Shah was neither Director nor shareholder of the Investor Company. The A.O. had not brought any evidence on record to dispute the above explanation of the assessee. Therefore, the assessee had been able to prove the identity of the Investor, its creditworthiness and genuineness of the transaction in the matter.

The ITAT considered following decisions rendered by co-ordinate benches of the ITAT:

i. INS Finance & Investment (P.) Ltd [IT Appeal No. 9266 (Delhi) of 2019, dated 29th October, 2020]

ii. Pr. CIT vs. M/s Bharat Securities (P.) Ltd (ITAT – Indore Bench later confirmed in Pr. CIT vs. M/s Bharat Securities (P.) Ltd [2020] 113 taxmann.com 32/268 Taxman 394 (SC)

These decisions considered identical issue on identical facts on account of share capital/premium received from M/s Prraneta Industries Ltd through Shri Shirish C. Shah based on his statement and statement of Shri Omprakash Khandelwal. This issue of receipt of share capital/premium was examined in detail by the Indore Bench of the Tribunal as well as Hon’ble Delhi Bench of the Tribunal and the addition on merits had been deleted.

The Order of the Indore Bench of ITAT was confirmed by the Hon’ble Madhya Pradesh High Court and ultimately, the SLP of the Department was dismissed confirming the Order of the Hon’ble Madhya Pradesh High Court.

Following these ITAT decisions, the ITAT did not find any justification to sustain the addition of Rs. 45 lakhs under section 68 of the I.T. Act, 1961 and addition of Rs. 90,000 under section 69C of the I.T. Act and deleted the addition of Rs. 45,90,000.

Where under a joint venture agreement shares were issued to a resident venture and a non-resident venture at a differential price and the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement, addition cannot be made under section 56(2)(viib) by disregarding the method of valuation adopted by the assessee

17 DCIT vs. Mais India Medical Devices (P.) Ltd  [[2022] 139 taxmann.com 94 (Delhi-Trib.)] A.Y.: 2014-15; Date of order: 31st May, 2022 Section: 56(2)(viib), Rule 11UA

Where under a joint venture agreement shares were issued to a resident venture and a non-resident venture at a differential price and the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement, addition cannot be made under section 56(2)(viib) by disregarding the method of valuation adopted by the assessee

FACTS
The assessee company was incorporated on 01.03.2012 on the basis of joint venture agreement between M/s Sysmech Industries LLP, a resident and M/s Demas Company, a non-resident. Both the joint venture partners agreed to contribute to the project cost of the assessee company in the ratio of 60 and 40 while keeping share holding ratio 50:50.

On the basis of valuation of equity shares at Rs. 59.99 per share following the DCF method assessee issued shares to non-resident shareholder at the rate of Rs. 60 per share after necessary compliances under FEMA etc. However, shares to the resident shareholder were issued at Rs. 40 per share.

The assessee filed return of income declaring loss of Rs. 2,97,79,141 and the case was picked up for limited scrutiny to furnish the various details including the share valuation as computed under Rule – 11UA of the Income Tax Rules, 1962.

Since the assessee company had suffered a loss in the previous assessment year, the Assessing Officer (AO) rejected the valuation of shares under DCF and made an addition, equivalent to the amount of premium charged from resident shareholder for allotment of shares to the Indian entity Sysmech Industries LLP, under section 56(2)(viib) in the hands of assessee.

Aggrieved, assessee preferred an appeal to the CIT(A) who set aside the order passed by the AO by making an observation that as projected in the report of prescribed expert there has been marked improvement in the profit margins of the company in subsequent years and thus upholding the valuation done by the chartered accountant of the assessee on DCF Method.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the AO rejected the share valuation as computed under Rule 11UA for the reason that the shares were issued to a resident shareholder for a price which was lower than the price at which shares were allotted to non-resident shareholder and also for the reason that, according to the AO, DCF method could not be applied since the assessee company had suffered a loss in the previous assessment year.

According to the Tribunal, difference in the share price as issued to the resident company and that to the non-resident company was in furtherance of the clauses of joint venture agreement. The discounted factor has occurred due to difference in the share of capital contribution to the project cost. However, in the case in hand the AO without considering the relevant clauses of joint ventures agreement presumed that as there was difference in the valuation of share for resident and non-resident entity, the valuation given by prescribed expert is liable to be rejected.

The Tribunal relying on the decision of the Supreme Court in Duncans Industries Ltd vs. State of UP 2000 ECR 19 held that question of valuation is basically a question of fact. Thus, where the law by virtue of Section 56(2)(viib) read with Rule 11UA (2)(b) makes the prescribed expert’s report admissible as evidence, then without discrediting it on facts, the valuation of shares cannot be rejected. It noted that the AO has not disputed or questioned the financial, technical and professional credentials of the venturists for entering into the joint ventures agreement. The AO without disputing the details of projects, revenue expected, costs projected has discredited the prescribed expert’s report which is admissible in evidence for valuation of shares and to determine fair market value.

The Tribunal dismissed the appeal filed by the revenue.

There is no prohibition for the NRI for accepting gifts from relatives. In the absence of any prohibition, no adverse inference can be drawn against the assessee based on the prevailing system in society Merely the difference in the time between the cash deposited in the bank vis-à-vis cash received as gift cannot authorise the revenue authorities to draw inferences against the assessee until and unless some documentary evidences are brought on record contrary to the contentions of the assessee

16 Atul H Patel vs. ITO  [TS-348-ITAT-2022(Ahd.)] A.Y.: 2012-13; Date of order: 29th April, 2022 Section: 68

There is no prohibition for the NRI for accepting gifts from relatives. In the absence of any prohibition, no adverse inference can be drawn against the assessee based on the prevailing system in society

Merely the difference in the time between the cash deposited in the bank vis-à-vis cash received as gift cannot authorise the revenue authorities to draw inferences against the assessee until and unless some documentary evidences are brought on record contrary to the contentions of the assessee

FACTS
During the year under consideration, a sum of Rs. 11,44,000 was deposited, in cash, in the bank account of the assessee, a non-resident Indian, residing at Auckland, New Zealand since 2003. The Assessing Officer (AO) treated the same as cash credit under section 68 and added the same to the total income of the assessee.

Aggrieved, assessee preferred an appeal to CIT(A) where he stated that he accepted gift of Rs. 6.44 lakh and Rs. 5 lakh from his father and brother which was used by him for purchasing a property in Vadodra. According to the assessee, his father and brother were engaged in agricultural activity on the land held by them in their personal capacity as well as on land belonging to others and were able to generate annual agricultural income of Rs. 23 lakh approx. The assessee produced cash book, bank book, 7/12 extract and gift deed.

The CIT(A) called for a remand report from the AO wherein the AO mentioned that the date of deposit of cash in bank account of assessee was before the date of gift as mentioned in the gift declaration. Thus, he contended that source of cash deposited cannot be out of gift amount. The assessee, in response, submitted that there was a typographical error in the gift declaration. 7th October, 2011 was inadvertently typed as 27th October, 2011.

The CIT(A) held that the assessee is a very unusual and wealthy NRI who has accepted a gift from his father and brother who are claimed to be agriculturists. According to him, the donors do not have sufficient resources and capacity to gift wealthy assessee. Also, there was a contradiction in the gift deed. Therefore, CIT(A) confirmed the order of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
As regards the mismatch of the time in the amount of cash deposits in the bank out of the gift received by the assessee, the Tribunal held that it was the revenue who doubted that the cash deposit is not out of the amount of gift received by the assessee. It held that the assessee has discharged his onus by submitting the details (including revised gift deed) that the cash was deposited out of the gift amount. Now the onus shifts upon the revenue to disprove the contention of the assessee based on documentary evidence. The Tribunal observed that no contrary evidence has been brought on record by the revenue suggesting that the amount of cash deposit is not out of the gift amount. It held that merely the difference in time between the cash deposited in the bank vis-à-vis cash received as gift cannot authorise the revenue authorities to draw inferences against the assessee until and unless some documentary evidences are brought on record contrary to the arguments of the assessee.

The Tribunal observed that admittedly it is very unusual that a wealthy NRI accepts a gift from his father and brother. Generally, the practice is different in society. As such NRIs give gifts to relatives. The Tribunal held that it found no prohibition for NRI for accepting gifts from relatives. In the absence of any prohibition, no adverse inference can be drawn against the assessee based on the prevailing system in society.

It also noted that assessee has furnished sufficient documentary evidence of his father and brother to justify the income in their hands from agricultural activity. But none of the authority below has made any cross verification from the concerned parties in order to bring out the truth on the surface. It held that AO before drawing any adverse inference against the assessee, should have cross verified from the donors by issuing notice under section 133(6) / 131 of the Act. The Tribunal held that no adverse inference can be drawn against the assessee by holding that the amount of cash deposited by the assessee in his bank represents the unexplained cash credit under section 68 of the Act.

The Tribunal set aside the order passed by the CIT(A) and directed the AO to delete the addition made by him.

Non-compete fees does not qualify for depreciation under section 32 since an owner thereof has a right in personam and not a right in rem

15 Sagar Ratna Restaurants Pvt. Ltd vs. ACIT  [TS-325-ITAT-2022(DEL)] A.Y.: 2014-15; Date of order: 31st March, 2022 Section: 32

Non-compete fees does not qualify for depreciation under section 32 since an owner thereof has a right in personam and not a right in rem

FACTS
For Assessment Year 2014-15, assessee filed a return of income declaring a loss of Rs. 23,12,53,397. While assessing the total income, the Assessing Officer (AO) noticed that the assessee has claimed Rs. 1,94,33,166 as depreciation on non-compete fees. Since the AO was of the view that non-compete fee is not an intangible asset as per Section 32(1)(ii) and Explanation thereto, he asked the assessee to show cause why the same should not be disallowed. The AO following the ratio of the decision of Delhi High Court in Sharp Business Systems vs. CIT [(2012) 211 Taxman 567 (Del)] disallowed the claim of depreciation on non-compete fees.

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

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noted that by an agreement entered in June 2011 the assessee acquired a restaurant in the name and style of Sagar Ratna. As per the terms of the agreement, the transferor had transferred all its rights, copyrights, trademarks, etc. in respect of the restaurant Sagar Ratna. The payment made by the assessee towards non-compete fee to the transferor was treated by the assessee as a capital expenditure and depreciation was claimed thereon for A.Y. 2012-13 and 2013-14 which was allowed.

The contention of the assessee that the claim be allowed on the ground that it has been allowed in the earlier years was rejected on the ground that in earlier years the authorities did not have the benefit of ratio laid down by jurisdictional high court in the case of Sharp Business System (supra).

The Tribunal noted that the Delhi High Court in Sharp Business System (supra) while dealing with an identical issue has come to a conclusion that non-compete fee though is an intangible asset it is unlike the items mentioned in Section 32(1)(ii) where an owner can exercise rights against the world at large and which rights can be traded or transferred. In case of non-compete fees the advantage is restricted only against the seller. Therefore, it is not a right in rem but a right in personam. The Tribunal mentioned that it is conscious of the fact that some other non-jurisdictional High Courts have held that non-compete fee is an intangible asset coming within the ambit of Section 32(1)(ii) of the Act and have allowed depreciation thereon, however, the Tribunal was bound to follow the decision of the jurisdictional High Court.

The Tribunal dismissed the appeal filed by the assessee.

Powers of Commissioner (Appeals) are co-terminus with powers of Assessing Officer and that he is empowered to call for any details or documents which he deems necessary for proper adjudication of issue

14 ITO (TDS) vs. Tata Teleservices Ltd. [[2021] 92 ITR(T) 87 (Delhi – Trib.)] ITA Nos.:1685 & 1686 (DEL.) of 2017 A.Y.: 2008-09 and 2009-10; Date of order: 27th September, 2021

Powers of Commissioner (Appeals) are co-terminus with powers of Assessing Officer and that he is empowered to call for any details or documents which he deems necessary for proper adjudication of issue

FACTS
It was seen that no proper opportunity was given to the assessee to justify its case of non deduction of tax at source and ground was raised before the Ld. CIT(A) for violation of principles of natural justice by the assessee. The assessee had submitted additional evidence before the Ld. CIT(A) in the aforesaid matter. The Ld. CIT(A) had accepted the said evidence, without taking recourse to Rule 46A of the Income-tax Rules. The revenue filed an appeal before the ITAT on the ground that the CIT(A) erred to admit the additional evidence produced by the assessee before him in contravention of Rule 46A(3) of the Income-tax Rules, 1962, in as much as no opportunity was given to the Assessing Officer to examine the correctness of the additional evidence produced by the assessee before the CIT(A).

HELD
The ITAT observed that the assessee had raised the ground of violation of principles of natural justice before the CIT(A) since no proper opportunity was given to the assessee to justify its case. The assessee did not make any application for admitting additional evidences before the CIT(A).

The CIT(A) examined the various documents available on record in exercise of his powers u/s 250(4). He opined that the Assessing Officer had failed to provide proper opportunity to the assessee. The ITAT held that, in such circumstances, the CIT(A) had acted well within his power to adjudicate the issues after calling for necessary information and details and it cannot be said that there was any violation of rule 46A of the Income-tax Rules. It is trite that the First Appellate Authority has powers which are co-terminus with the powers of the Assessing Officer and that he is empowered to call for any details or documents which he deems it necessary for the proper adjudication of the issue and there is no requirement under the law for granting any further opportunity to the Assessing Officer in terms of section 250(4) in such cases.

On the basis, the appeal filed by the department was dismissed.

Where Assessing Officer failed to bring evidences to support his finding that assessee was involved in rigging price of shares held by her so as to get an undue benefit of exemption u/s 10(38), transactions of sale and purchase of such shares by assessee through recognized stock exchange could not be treated as bogus so as to make additions under Section 68

13 Mrs. Neeta Bothra vs. ITO  [[2021] 92 ITR(T) 450 (Chennai – Trib.)] ITA Nos.: 2507 & 2508 (CHNY.) of 2018 A.Ys.: 2012-13 and 2013-14, Date of order: 8th September, 2021

Where Assessing Officer failed to bring evidences to support his finding that assessee was involved in rigging price of shares held by her so as to get an undue benefit of exemption u/s 10(38), transactions of sale and purchase of such shares by assessee through recognized stock exchange could not be treated as bogus so as to make additions under Section 68

FACTS
Assessee purchased and sold shares of M/s. Tuni Textile Mills Limited (hereinafter referred to as ‘TTML’). She earned Long Term Capital Gains on the said transaction which was claimed exempt u/s 10(38) of the Act. The Assessing Officer held the transaction to be bogus and added the entire sale consideration u/s 68 of the Act for the reason that TTML was named as a penny stock in the report prepared by investigation wing of the Department and that though the assessee had sold the shares at a higher price in the market, the financials of TTML did not justify such a price rise in a short period of just two years. Aggrieved, the assessee filed appeal before the CIT(A). However, CIT(A) also decided the appeal against the assessee mainly on the basis of mere circumstantial evidences like:

(i) The broker through which assessee carried out the transaction was previously charged by SEBI under the relevant law for being found guilty of violating regulatory requirements.

(ii) The assessee, based in Chennai, carried out the lone instant transaction through a broker in Ahmadabad.

(iii) Shares of TTML have been specifically named as penny stocks by investigation wing of the Department.

(iv) Assessee was not able to explain how a company having negligible financial strength had split its equity shares in the ratio of 1:10 and further, failed to explain how price of shares were quoted at a record 9,400% growth rate in a short span of two years.

Therefore, the CIT(A) opined that mere furnishing certain evidences like broker notes, bank statements, etc is not sufficient to prove genuineness of transaction, when other circumstantial evidences show that transaction of share trading is not genuine.

Aggrieved, the assessee preferred appeal before the ITAT.

HELD
The ITAT observed that the fact of purchase and sale of the shares being through Recognized Stock Exchange was not disputed. However, both the Assessing Officer as well as CIT(A) had proceeded predominantly on the basis of analysis of financial statements of TTML. Even though the fact that the financial statements of TTML did not paint a very rosy picture coupled with the fact that TTML was a penny stock was brought to notice by both the lower authorities, the said facts alone are not sufficient to draw adverse inference against the assessee, unless the AO linked transactions of the assessee to organized racket of artificial increase in share price. It further observed that though the broker may be engaged in fraudulent activities, whether the assessee was a part of those activities was to be seen. There was no evidence on record to show that assessee was part of the organized racket of rigging price of shares in the market. The findings of the Assessing Officer was purely based on suspicion and surmises.

It stated that the Assessing Officer predominantly relied on the theory of human behaviour and preponderance of probabilities for the reason that the assessee was never involved in purchase and sale of shares and the instant transaction in question was the only one. However, the said fact was found to be erroneous by the ITAT.

Therefore, the ITAT concluded that unless the Assessing Officer brings certain evidences to support his finding that the assessee was also involved in rigging share price to get undue benefit of exemption u/s 10(38) of the Act, the transactions of sale and purchase of shares through recognized stock exchange could not be treated as unexplained cash credit u/s 68 of the Act.

Adjustment u/s 143(1)(a) without adjustment is legally invalid

12 Arham Pumps vs. DCIT  [TS-355-ITAT-2022(Ahd)] A.Y.: 2018-19; Date of order: 27th April, 2022 Section: 143(1)(a)

Adjustment u/s 143(1)(a) without adjustment is legally invalid

FACTS
For A.Y. 2018-19, assessee firm filed its return of income declaring therein a total income of Rs. 26,03,941. The said return was processed by CPC under section 143(1) and a sum of Rs. 28,16,680 was determined to be the total income, thereby making an addition of Rs. 2,10,743 to the returned total income on account of late payment of employees contribution to PF and ESIC which were disallowed u/s 36(1)(va) of the Act.

Aggrieved, assessee preferred an appeal to CIT(A), which appeal was migrated to NFAC as per CBDT notification. NFAC gave two opportunities to the assessee and upon not receiving any response decided the matter, against the assessee, based on documents and materials on record.

HELD
The Tribunal noted that the NFAC, in its order, has dealt with the matter very elaborately and has upheld the addition by following the decision of jurisdictional High Court in Gujarat State Road Transport Corporation 41 taxmann.com 100 (Guj.) and Suzlon Energy Ltd. (2020) 115 taxmann.com 340 (Guj.).

It also noted that in the intimation there is no description/explanation/note as to why such disallowance or addition is being made by CPC in 143(1) proceedings. The Tribunal having gone through the provisions of section 143(1) of the Act and the proviso thereto held that a return can be processed u/s 143(1) by making only six types of adjustments. The first proviso to section 143(1)(a) makes it very clear that no such adjustment shall be made unless an intimation has been given to the assessee of such adjustment either in writing or in an electronic mode. In this case, no intimation was given to the assessee either in writing or in electronic mode.

The Tribunal held that CPC had not followed the first proviso to section 143(1)(a). Also, NFAC order is silent about the intimation to the assessee. The Tribunal held that since the intimation is against first proviso to section 143(1)(a), the entire 143(1) proceedings are invalid in law.

It observed that NFAC has not looked into the fundamental principle of “audi alteram partem” which has been provided to the assessee as per 1st proviso to section 143(1)(a) but has proceeded with the case on merits and also confirmed the addition made by the CPC. It held that NFAC erred in conducting the faceless appeal proceedings in a mechanical manner without application of mind. The Tribunal quashed the intimation issued by the CPC and allowed the appeal filed by the assessee.

Proviso to section 201(1) inserted by the Finance (No. 2) Act, 2019 is retrospective as it removes statutory anomaly over sums paid to non-residents

11 Shree Balaji Concepts vs. ITO, International Taxation [TS-393-ITAT-2022(PAN)] A.Y.: 2012-13; Date of order: 13th May, 2022 Sections: 201(1) and 201(1A)    

Proviso to section 201(1) inserted by the Finance (No. 2) Act, 2019 is retrospective as it removes statutory anomaly over sums paid to non-residents

FACTS
The assessee purchased an immovable property from Elrice D’Souza and his wife for a consideration of R10 crore. However, it did not deduct tax at source as was required u/s 195 of the Act. The Assessing Officer (AO) held the assessee to be an assessee in default and levied a tax of Rs.2,26,60,000 u/s 201(1) and interest of Rs. 1,22,36,400 u/s 201(1A) 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.

HELD
The Tribunal noted that the payees in the instant case having filed their return of income and disclosed the consideration in their respective returns and have duly complied with the amended provisions of section 201[1] of the Act, which has been inserted in Finance [No. 2] Act, 2019.

After considering the decisions as relied upon by the appellant for the proposition that any provision which has been inserted with an object to remove any difficulty or anomaly, then the said provision has to be given retrospective effect:

(a) Celltick Mobile Media Pvt. Ltd. vs. DCIT (2021) 127 taxmann.com 598 (Mumbai-Trib.);

(b) CIT vs. Ansal Land Mark Township Pvt. Ltd. (2015) 61 taxmann.com 45 (Delhi);

(c) CIT vs. Calcutta Export Company [2018] 93 taxmann.com 51 (SC);

(d)  DCIT vs. Ananda Marakala (2014) 48 taxmann.com 402 (Bangalore-Trib.).

The Tribunal held that the said proviso to section 201(1) wherein the benefit has also been extended to the payments made to non-residents is meant for removal of anomaly, is required to be given with retrospective effect.

The Tribunal held that the appellant assessee cannot be held as an assessee in default as per proviso to section 201(1) of the Act, in view of the amended provisions of section 201(1) of the Act, being inserted in Finance (No. 2) Act, 2019.

The Tribunal deleted the demand raised by the AO and confirmed by the CIT(A) u/s 201(1) of the Act of Rs. 2,26,60,000.

As regards the sum of Rs. 1,22,36,400 levied as interest u/s 201(1A) of the Act, the Tribunal noted that the said property was sold by the appellant on 17th September, 2011 and the return of income by the two payees have been filed on 30th July, 2012. Thus, interest amount u/s 201(1A) of the Act has to be calculated for the period 7th October, 2011 to 30th July, 2012 being the date of filing of the return by the two payees.

The Tribunal directed the AO, to re-compute the interest u/s 201(1A) of the Act, for the period 7th October, 2011 to 30th July, 2012 till the date of filing of the return by the two payees.

Section 56(2)(vii)(c) does not apply to bonus shares received by an assessee

10 JCIT vs. Bhanu Chopra  [TS-388-ITAT-2022 (DEL)] A.Y.: 2015-16; Date of order: 29th April, 2022 Section: 56(2)(vii)

Section 56(2)(vii)(c) does not apply to bonus shares received by an assessee

FACTS
For A.Y. 2015-16, assessee filed a return of income declaring a total income of R31,99,25,740. While assessing the total income, the Assessing Officer (AO) computed FMV of bonus shares of HCL Technologies in terms of Rule 11UA to be R47,21,93,975 and consequently added this amount to the total income of the assessee by applying the provisions of section 56(2)(vii)(c) of the Act.

The AO observed that the taxable event is receipt of property without consideration or for a consideration which is less than its FMV. According to the AO, the assessee received property in the form of bonus shares and therefore the FMV of the same is taxable u/s 56(2)(vii)(c) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who deleted the addition made by the AO.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD
The Tribunal noted that the CIT(A) has –

(i)    while controverting the findings of the AO and coming to the conclusion that provisions of section
56(2)(vii)(c) are not applicable to the case of the assessee has followed the decision of the Apex Court in CIT vs. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC);

(ii)    while deciding the issue he has also relied upon the decision in the case of Dr. Rajan vs. Department of Income Tax (ITA No. 1290/Bang/2015) wherein, the judgment referred above of the Apex Court in the case of the CIT vs. Dalmia Investment Co Ltd (supra) was also relied upon by the Tribunal and in the case of Sudhir Menon HUF vs. ACIT (ITA No. 4887/Mum/2013) wherein, it was clearly held by the Tribunal that allotment of bonus shares cannot be considered as received for an inadequate consideration and therefore, it is not taxable as income from other sources u/s 56(2)(vii)(c) of the Act;

(iii)    held that the issue of bonus share is by capitalization of its profit by the issuing company and when the bonus shares are received it is not something which has been received free or for a lesser FMV. Consideration has flown out from the holder of the shares may be unknown to him/her, which is reflected in the depression in the intrinsic value of the original shares held by him/her.

The Tribunal held that –

(i) even the CBDT vide Circular No. 06/2014 dated 11th February, 2014 has clarified that bonus units at the time of issue would not be subjected to additional income tax u/s 115R of the Act, since issue of bonus units is not akin to distribution of income by way of dividend. This may be inferred from provisions of section 55 of the Act which prescribed that “cost of acquisition” of bonus units shall be treated as Nil for purposes of computation of capital gains tax;

(ii) further, the CBDT vide Circular No. 717 dated 14th August, 1995 has clarified that “in order to overcome the problem of complexity, a simple method has been laid down for computing of cost of acquisition of bonus shares. For the sake of clarity and simplicity, the cost of bonus shares is to be taken as “Nil? while the cost of original shares is to be taken as the amount paid to acquire them. This procedure will also be applicable to any other security where a bonus issue has been made;

(iii) the issue under consideration has been elaborately considered by the Tribunal in various cases such as Rajan Pai Bangalore vs. Department of Income Tax and Sudhir Menon HUF (supra) and even by the Apex Court in the case of CIT vs. Dalmia Investment Co. Ltd. (supra) as relied upon by the CIT(A) while holding that the provisions of section 56(2)(vii)(c) of the Act are not applicable to the bonus shares;

(iv) there is neither any material nor any reason to controvert the findings of the CIT(A).

The Tribunal dismissed the appeal filed by the revenue.

Provisions of Section 56(2)(vii)(c) are not applicable to rights shares issued in case there was no disproportionate allotment by the company and if the transaction was a genuine one, without any intention of tax evasion or tax abuse

9 ITO vs. Rajeev Ratanlal Tulshyan [2021] 92 ITR(T) 332 (Mumbai – Trib.) [ITA No.: 5748 (MUM.) of 2017 Cross Objection No. 118 (Mum.) of 2018 A.Y.: 2014-15; Date of order: 1st October, 2021

Provisions of Section 56(2)(vii)(c) are not applicable to rights shares issued in case there was no disproportionate allotment by the company and if the transaction was a genuine one, without any intention of tax evasion or tax abuse

FACTS
Assessee, a resident individual, was allotted rights shares of a company. In assessment, it was alleged that consideration being less than Fair Market Value (FMV), the difference between the FMV and consideration paid by the assessee would be taxable u/s 56(2)(vii). In the course of appeal, the assessee submitted that the shares were offered on right basis by the company on a proportionate basis to all existing shareholders. The assessee subscribed to the rights issue only to the extent of proportionate offer and no further. He also drew attention to CBDT Circular No. 5 of 2010 dated 3rd June, 2010 which provided that the newly introduced provisions of section 56(2)(vii) were anti-abuse measures. Similarly, CBDT Circular No. 1 of 2011 provided that these provisions were introduced as a counter evasion mechanism to prevent the laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent was not to tax the transactions entered into in the normal course of business and trade, the profits of which are taxable
under specific head of income. The assessee, inter-alia, relied on the decision of Mumbai Tribunal in Sudhir Menon HUF vs. Asst. CIT [2014] 45 taxmann.com 176/148 ITD 260 (Mum.) wherein it was held that in case of proportionate allotment of shares, there would be no taxability u/s 56(2)(vii)(c). He also submitted that, as held in Dy. CIT vs. Dr. Rajan Pai [IT Appeal No. 1290 (Bang.) of 2015, dated 29-4-2016], since the Gift tax Act was not applicable to issue of shares, the provisions of section 56(2) would not apply to transaction of nature stated above. He also relied on the decision of Hon’ble Supreme Court in Khoday Distilleries Ltd. vs. CIT [2009] 176 Taxman 142/[2008] 307 ITR 312, which held that shares [thus, property, as stipulated in Section 56(2)(vii)] comes into existence only on allotment. However, at
the same time, it was admitted by the assessee that similar argument was rejected by Mumbai Tribunal in Sudhir Menon HUF (supra) wherein the bench held that though allotment of shares is not to be regarded as transfer but since the assessee is receiving property in the form of shares, the provisions of section 56(2)(vii) would apply.

The CIT(A) upheld the addition, however, restricted the same to the extent of gain in value on account of disproportionate allotment of shares to the assessee. Aggrieved, the revenue filed appeal with the ITAT for the amount of addition not sustained by the CIT(A), while the assessee filed cross objection as regards the amount of addition sustained by the CIT(A).

HELD
The ITAT observed that there was a fallacy in the conclusion of the lower authorities that the allotment was disproportionate and skewed in favour of the assessee in that the rights offer made on two occasions during the year in the same proportion to all existing shareholders. It was only because few of the other shareholders did not exercise their right that the assessee’s shareholding in the company increased; there was no disproportionate allotment. Therefore, the ratio of decision in Sudhir Menon (supra) would be applicable.

It also considered the decision of the coordinate bench of Mumbai Tribunal in Asstt. CIT vs. Subodh Menon [2019] 103 taxmann.com 15/175 ITD 449 which, applying the ratio held in Sudhir Menon (supra), held that the provisions of section 56(2)(vii) did not apply to bona fide business transaction. The CBDT Circular No. 1/2011 dated 6th April, 2011 explaining the provision of section 56(2)(vii) specifically stated that the section was inserted as a counter evasion mechanism to prevent money laundering of unaccounted income. In paragraph 13.4 thereof, it is stated that “the intention was not to tax transactions carried out in the normal course of business or trade, the profit of which are taxable under the specific head of income”. Therefore, the aforesaid transactions, carried out in normal course of business, would not attract the rigors of provisions of section 56(2)(vii).

The ITAT, on perusal of orders of lower authorities, did not find any allegations of tax evasion or abuse by the assessee. The transactions were ordinary transactions of issue of rights shares to existing shareholders in proportion to their existing shareholding and therefore, no abuse or tax evasion was found to be made by the assessee.

The ITAT also took into consideration Circular No. 03/2019 dated 21st January, 2019 wherein it was mentioned, inter alia, that intent of introducing the provisions was anti-abusive measures still remain intact, and there is no reason to depart from the understanding that the provisions were counter evasion mechanism to prevent the laundering of unaccounted income. Therefore, the same does not apply to a genuine issue of shares to existing shareholders. The position was also duly supported by the decision of Bangalore Tribunal in Dr. Rajan Pai (supra) which is further affirmed by the Hon’ble Karnataka High Court in Pr. CIT vs. Dr. Rajan Pai IT Appeal No. 501 of 2016, dated 15-12-2020.

On these grounds, the ITAT deleted the addition made by the A.O. and dismissed the appeal filed by revenue and allowed the cross-objections filed by the assessee.

Sec. 36(1)(va): Contribution deposited by assessee-employer after the due date prescribed in Sec. 36(1)(va) but before the due date of filing return u/s 139(1) was allowed as a deduction until A.Y. 2020-21 since the amendment to Sec. 36(1)(va) brought by Finance Act, 2021 is prospective and not retrospective

8 Digiqal Solution Services (P.) Ltd. vs. ACIT [2021] 92 ITR(T) 404 (Chandigarh – Trib.) ITA No.: 176 (Chd.) of 2021 A.Y.: 2019-20; Date of order: 4th October, 2021

Sec. 36(1)(va): Contribution deposited by assessee-employer after the due date prescribed in Sec. 36(1)(va) but before the due date of filing return u/s 139(1) was allowed as a deduction until A.Y. 2020-21 since the amendment to Sec. 36(1)(va) brought by Finance Act, 2021 is prospective and not retrospective

FACTS
Addition of employees’ contribution to ESI and PF deposited beyond the due date prescribed in Section 36(1)(va), but before the due date of filing return of income u/s 139(1) was made to the assessee’s income in the intimation u/s 143(1). Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) held that the said amendment though effected by the Finance Act, 2021 but when read in the background of the decision of the Hon’ble Apex Court in the case of Allied Motors (P.) Ltd. vs. CIT (1997) 91 taxmann.com 205 / 224 ITR 677, the intention of Legislature set out through memorandum through the Finance Act while introducing the Explanations to section made it clear that the said amendments would apply to all pending matters as on date. The CIT(A) thus upheld the addition. Aggrieved, the assessee filed a further appeal before the Tribunal.

HELD
The ITAT considered the following decisions rendered by co-ordinate benches of the ITAT:

• ValueMomentum Software Services (P.) Ltd. vs. Dy. CIT [ITA No. 2197 (Hyd.) of 2017]

• Hotel Surya vs. Dy. CIT [ITA Nos. 133 & 134 (Chd.) of 2021]

• Insta Exhibition (P.) Ltd. vs. Addl. CIT [ITA No. 6941 (Delhi) of 2017]

• Crescent Roadways (P.) Ltd. vs. Dy. CIT [ITA No. 1952 (Hyd.) of 2018]

These decisions held that the amendment to Section 36(1)(va) and Section 43B of the Act effected by the Finance Act, 2021 are applicable prospectively, reading from the Notes on Clauses at the time of introduction of the Finance Act, 2021, specifically stating the amendment being applicable in relation to A.Y. 2021-22 and subsequent years.

It also considered the following decisions of jurisdictional High Court holding that employee’s contribution to ESI & PF is allowable if paid by the due date of filing return of income u/s 139(1) of the Act:

• CIT vs. Nuchem Ltd. [ITA No. 323 of 2009]
• CIT vs. Hemla Embroidery Mills (P.) Ltd. [2013] 37 taxmann.com 160/217 Taxman 207 (Mag.)/ [2014] 366 ITR 167 (Punj. & Har.)

Following these High court decisions and ITAT decisions, the ITAT allowed the assessee’s claim of deduction and set aside the order of CIT(A).

ITRs and Appeal forms of only individuals and Companies can be signed by a valid power of attorney holder in certain circumstances. Other categories of assessees (e.g. HUF/Firm) do not have this `privilege’ u/s 140 read with Rule 45(3) / 47(1) The benefit of the general rule that if a person can do some work personally, he can get it done through his Power of Attorney holder also is not intended to be extended to all categories of assessees

7 Bangalore Electricity Supply Co. Ltd. vs. DCIT  [137 taxmann.com 287 (Bangalore – Trib.)] A.Y.: 2008-09; Date of order : 7th April, 2022 Section: 140

ITRs and Appeal forms of only individuals and Companies can be signed by a valid power of attorney holder in certain circumstances. Other categories of assessees (e.g. HUF/Firm) do not have this `privilege’ u/s 140 read with Rule 45(3) / 47(1)

The benefit of the general rule that if a person can do some work personally, he can get it done through his Power of Attorney holder also is not intended to be extended to all categories of assessees

FACTS
The appeal filed in this case was found by the Tribunal, at the time of hearing on 6th March, 2022, to be defective on the ground that the appeal was not signed by the competent authority and it was signed by the General Manager (CT&GST), BESCOM. The Tribunal asked the AR of the assessee to cure the defect by 16th March, 2022. On 16th March, 2022, none appeared on behalf of the assessee and therefore the Tribunal proceeded to decide the appeal by hearing the DR.

The Tribunal noted that the focus in the present appeal is to decide whether the appeal filed is invalid or defective.

HELD
On going through the provisions of section 140, the Tribunal noted that clauses (a) and (c) contain the provisions for the signing of return by a valid power of attorney holder while other clauses do not have such a provision. Thus, there is a clear line of demarcation between the classes of assessees, who, in certain circumstances, can get their returns signed and verified by the holder of a valid PoA, in which case such PoA is required to be attached to the return and, on the other hand, the classes of assessees who do not enjoy such privilege.

It held that it is not permissible for a non-privileged assessee to issue PoA and get his return filed through the holder of a PoA. It is true that in common parlance if a person can do some work personally, he can get it done through his PoA holder also. But section 140 has made separate categories of assesses, and the said general rule has been made applicable only to some of them and not all. It is obvious that the intention of the Legislature is not to extend this general rule to all the classes of the assessees. If that had been the situation, then there was no need of inserting proviso to clauses (a) and (c) only but a general provision would have been attached as extending to all the classes of assessees.

From the language of section 140, it can be easily noticed that only the returns of individuals and companies can be signed by a valid Power of Attorney holder in the specified circumstances and the other categories of the assessee are not entitled to this privilege.

The Tribunal noted that the provisions of section 140(c) had been amended w.e.f. 1st April, 2020 where it was stated that the return could be filed by any other person as may be prescribed for this purpose. It observed that even if this amendment is held to be applicable retrospectively also, it is not clear whether the General Manager (CT&GST), BESCOM, was holding a valid PoA from the assessee company to verify the appeal of the assessee even as provided u/s 140(c). Since this information was not available on the record, the Tribunal dismissed the appeal.

Taxable loss cannot be set off against income exempt from tax under Chapter III. Short term capital loss arising on sale of shares cannot be set off against long term capital gains arising from the sale of shares, which are exempt u/s 10(38)

6 Mrs. Sikha Sanjaya Sharma vs. DCIT  [137 taxmann.com 214 (Ahmedabad – Trib.)] A.Y.: 2016-17; Date of order: 13th April, 2022 Sections: 10(38), 70, 74

Taxable loss cannot be set off against income exempt from tax under Chapter III. Short term capital loss arising on sale of shares cannot be set off against long term capital gains arising from the sale of shares, which are exempt u/s 10(38)

FACTS
The assessee, an individual, filed her return of income declaring a total income of Rs 17,25,67,630 and claimed carry forward of long term capital loss (in respect of transactions on which STT was not paid) of Rs. 15,41,625 and also a short term capital loss of Rs. 5,06,74,578. The assessee also claimed long term capital gain (in respect of transactions on which STT was paid) of Rs. 2,62,06,472 to be exempt u/s 10(38).

The Assessing Officer (AO) completed the assessment u/s 143(3) by accepting the returned income but reduced the claim of carry forward of loss by setting off exempt long term capital gain of Rs. 2,62,06,472 against long term capital loss (in respect of transactions on which STT was not paid) of Rs. 15,41,625 and also a short term capital loss of Rs. 5,06,74,578. Therefore, the AO reduced the quantum of losses claimed to be carried forward by the assessee.

Aggrieved, the assessee preferred an appeal to CIT(A), who relying on the decision of the Mumbai Bench of the Tribunal in the case of Raptakos Brett & Co. Ltd. In ITA No. 3317/Mum./2009 & 1692/Mum./2010 dated 10.6.2015 and of the Gujarat High Court in the case of Kishorbhai Bhikhabhai Virani vs. ACIT [(2014) 367 ITR 261] upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the short controversy before it is whether the assessee was legally correct in claiming carry forward of full amount of losses without setting off such losses against long term capital gain exempted u/s 10(38). To resolve the controversy, the Tribunal noted the scheme of the Act and analysed the decisions relied upon, on behalf of the assessee. It noted that the CIT(A) has dismissed the claim of the assessee by relying upon the decision of the Gujarat High Court, in the case of Kishorbhai Bhikhabhai Virani (supra) and the AR appearing on behalf of the assessee has relied upon this decision to support the claim of the assessee. The Tribunal observed that the Hon’ble Court has held that the exempted long term capital loss u/s 10(38) does not enter into the computation of total income. Therefore such loss cannot be set off against taxable income. Likewise the exempted LTCG u/s 10(38) does not enter into the computation of total income and therefore a taxable loss cannot be set off against such income. The Tribunal held the reliance of CIT(A) on this decision to be totally misplaced. It held that the decision was in favour of the assessee.

As regards the decision of the Mumbai Bench of the Tribunal in the case of Raptakos Brett & Co. Ltd. (supra), the Tribunal observed that the Tribunal, in this case, was persuaded to follow the decision of the Calcutta High Court in preference to the decision of the Gujarat High Court in the case of Kishorbhai Bhikhabhai Virani (supra). The Tribunal found itself bound by the decision of the jurisdictional High Court.

The Tribunal held that the assessee has rightly claimed the carry forward of Long Term Capital Loss (STT not paid) of Rs. 15,41,625 and Short Term Capital Loss of Rs. 5,06,74,578 without setting off against the exempted long term capital gain (STT paid) of Rs. 2,62,06,472 u/s 10(38).