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Category: Tribunal News: Part A-Domestic Taxation

Section 50B read with sections 2(19), 2(42C) and 50 – Windmills of an assessee, engaged in the business of aqua culture, export of frozen shrimp, sale of hatchery seed and wind-power generation, along with all the assets and liabilities, constitute an ‘undertaking’ for the purpose of slump sale

20. [117
taxmann.com 440 (Vish.)(Trib.)] ACIT vs. Devi Sea
Foods Ltd. ITA No.
497/Vish./2019 A.Y.: 2013-2014 Date of order: 19th
June, 2020

 

Section 50B read
with sections 2(19), 2(42C) and 50 – Windmills of an assessee, engaged in the
business of aqua culture, export of frozen shrimp, sale of hatchery seed and
wind-power generation, along with all the assets and liabilities, constitute an
‘undertaking’ for the purpose of slump sale

 

FACTS

The assessee sold
three windmills, declared the gains arising on such sale as a slump sale and
computed the long-term capital gains as per section 50B. The assessee had not
furnished separate financial statements for the windmill business activity;
however, it was claiming deduction u/s 80-IA on the income from the windmill as
a separate business which was allowed by the A.O. from A.Y. 2009-10 onwards.
But at the time of the sale, the A.O. denied the applicability of the
provisions related to slump sale by stating that the windmills did not
constitute an ‘undertaking’ and charged the income as short-term capital gains.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who held that each windmill is a
unit of the undertaking and is covered by the definition of slump sale. He also
noted that though the assessee had shown windmills as part of the block of
assets, depreciation claim could not be a factor to deny benefit of slump sale.
He directed the A.O. to compute long-term capital gains u/s 50B.

 

Aggrieved, the
Revenue filed an appeal to the Tribunal.

 

HELD

The Tribunal observed that the windmills were part of the assessee’s
business, for which the assessee was claiming deduction since A.Y. 2009-10. The
A.O. had not made any adverse remarks in respect of deduction claimed u/s
80-IA. Though separate books of accounts had not been maintained, the assessee
had demonstrated separate ledger account belonging to the windmill operation,
and income from such activity was independently ascertainable. Further, there
is no requirement in the Act that all assets sold under slump sale should be
together. The Tribunal held that the real test for considering any sale of an asset
as non-slump sale would be any independent asset or liability not forming part
of the business operations. It held that the windmills satisfied all conditions
for being considered as an ‘undertaking’ and the provisions of slump sale would
be applicable.

 

Section 2(22)(e) – No addition can be made u/s 2(22)(e) since as per annual return filed by the assessee, he had transferred his shareholding in borrower company before the advancement of loan by the lender company to the borrowing company

19. [(2020) 117 taxmann.com 451
(Chd.)(Trib.) ACIT vs. Gurdeep Singh ITA No. 170 (Chd.) of 2018 A.Y.: 2013-2014 Date of order: 26th June, 2020

 

Section 2(22)(e) – No addition can be made
u/s 2(22)(e) since as per annual return filed by the assessee, he had
transferred his shareholding in borrower company before the advancement of loan
by the lender company to the borrowing company

 

FACTS

The assessee was a shareholder in two companies, namely, C Ltd. and J
Ltd. During the previous year relevant to the assessment year under
consideration, C Ltd. gave loans and advances to J Ltd. out of its surplus
funds. The A.O. took a view that since the assessee was holding shares in both
companies in excess of ten percent of total shareholding, the amount of loan is
to be taxed as dividend u/s 2(22)(e) of the Act.

 

The annual return
filed with the Registrar of Companies (ROC) revealed that the assessee held
only one share of C Ltd., whereas the other shares were transferred to J Ltd.
The annual return was belatedly filed with the ROC, along with payment of late
fee, which was accepted by the ROC. Based on the belatedly filed annual return,
the assessee contended that the shares were transferred prior to the
advancement of loan and, therefore, the provisions of section 2(22)(e) were not
applicable. The A.O. did not agree with the submissions made by the assessee
and held the plea of share transfer to be an afterthought since the return with
the Registrar was filed late.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the
appeal since the transfer of shares was accepted by the A.O. while framing assessments
of subsequent years, and also held that the transfer of shares had to be
considered. He also held that the transaction was commercially expedient with
no personal benefit involved.

 

Aggrieved, the Revenue preferred an appeal to the Tribunal.

 

HELD

The Revenue could
not establish beyond doubt that the assessee was having substantial interest in
C Ltd. on the date of advancement of loan by C Ltd. to J Ltd. Even though the
annual return was filed belatedly, once accepted by the ROC, it was a legal and
valid document as per law and the effective date for transfer of shares should
be considered as that mentioned in the return filed. To apply a deeming
fiction, the first set of facts is to be proved beyond doubt and the deeming
fiction cannot be applied on the basis of assumption, presumption or suspicion
about the first set of facts. The Tribunal observed that it was the A.O.’s
suspicion that the assessee was holding substantial shares in C Ltd. on the
date of advancement of loan. The Revenue could not rebut the facts beyond
reasonable doubt. The Tribunal upheld the order passed by the CIT(A) and
confirmed the deletion of the addition made u/s 2(22)(e).

 

The appeal filed by
the Revenue was dismissed.

 

 

Section 115BBE, read with sections 69, 143 and 154 – Amount surrendered, in the course of survey, as undisclosed investment in stock and assessed as business income cannot be subsequently brought to tax u/s 115BBE by passing an order u/s 154

18. [(2020) 117 taxmann.com 178
(Jai.)(Trib.) ACIT vs. Sudesh Kumar Gupta ITA No. 976 (Jp) of 2019 A.Y.: 2014-2015 Date of order: 9th June, 2020

 

Section 115BBE, read with sections 69, 143
and 154 – Amount surrendered, in the course of survey, as undisclosed
investment in stock and assessed as business income cannot be subsequently
brought to tax u/s 115BBE by passing an order u/s 154

 

FACTS

During the course of survey, the assessee surrendered an amount of Rs. 21
lakhs as undisclosed investment in stock. This amount was offered to tax in the
return of income as business income. In the assessment completed u/s 143(3) of
the Act, the returned income was accepted.

 

Subsequently, the A.O. issued a notice u/s 154 proposing to tax the
undisclosed investment of Rs. 21,00,000 in stock u/s 69 and tax thereon levied
u/s 115BBE at 30%. The assessee submitted that the amount admitted as
undisclosed excess stock was on an estimated basis and it had been accepted by
the A.O. in an assessment made u/s 143(3). The A.O. rejected the submission
made by the assessee and passed an order u/s 154 and levied tax on the amount
of undisclosed investment at 30% in accordance with section 115BBE.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the
appeal holding that the A.O. was not justified in invoking the provisions of
section 69 once he had charged it to tax under the head business income while
passing the assessment order u/s 143(3).

 

Aggrieved, the Revenue preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted
that the amount of undisclosed investment in stock surrendered by the assessee
was offered as ‘business income’ in the return of income and was accepted by
the A.O. In the course of assessment, there was no adjustment / variation
either in the quantum, nature or classification of income offered by the
assessee. The A.O. had not called for any explanation regarding the nature and
source of such investment during the course of assessment proceedings. Further,
he had neither formed any opinion, nor recorded any satisfaction for invoking
the provisions of section 69. The Tribunal held that since the provisions of
section 69 had not been invoked at the first instance while passing the
assessment order u/s 143(3), they cannot be independently applied by invoking
the provisions of section 154.

 

The Tribunal
dismissed the appeal filed by the Revenue.

Sections 2(47), 45: When the terms of the sale deed and the intention of the parties at the time of entering into the sale deed have not been adhered to whereby full sale consideration has not been discharged, there is no transfer of land, even though the sale deed has been registered, and no income accrues and consequently no liability towards capital gains arises in the hands of the assessee

17. [2020] 117 taxmann.com 424 (Jai.)(Trib.) CIT vs. Ijyaraj Singh ITA Nos. 91 and 152/Jp/2019 A.Y.: 2013-14 Date of order: 18th June, 2020

 

Sections 2(47), 45: When the terms of the
sale deed and the intention of the parties at the time of entering into the
sale deed have not been adhered to whereby full sale consideration has not been
discharged, there is no transfer of land, even though the sale deed has been
registered, and no income accrues and consequently no liability towards capital
gains arises in the hands of the assessee

 

FACTS

The assessee in his
return of income filed u/s 139(1) declared long-term capital gains of Rs.
2,51,85,149 in respect of sale of agricultural land situate in Kota. In the
course of assessment proceedings, the assessee revised his return of income
wherein the income under the head long-term capital gains was revised to Rs.
1,10,18,918 as against Rs. 2,51,85,149 shown in the original return. The reason
for revising the return was that out of three sale deeds, two sale deeds of
land executed with Mr. Rajeev Singh were invalid sale deeds and consequently no
transfer took place and hence no capital gain arises in respect of the two
invalid sale deeds. In respect of these two sale deeds, the assessee had
received only Rs. 63 lakhs towards consideration out of Rs. 803 lakhs. The
cheques received from the buyer were dishonoured and even possession was not
handed over to the buyer. The Rajasthan High Court has also granted stay on the
sale deeds executed by the assessee.

 

But the A.O. was of
the view that the contract entered into by the assessee was a legal and valid
contract entered into in accordance with the procedure laid down by law. The
assessee voluntarily agreed to register the sale deed before the Registrar and
on the date of execution and also on the date of registration there was no
dispute between the parties. The A.O. computed long-term capital gains by
considering the full value of consideration, including the two sale deeds which
were contended to be invalid, and computed the full value of consideration u/s
50C of the Act.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who held that the transaction in
respect of the two invalid sale deeds is not chargeable to capital gains tax.

 

Aggrieved, the
Revenue preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted
that the question for its consideration is that where the full value of
consideration has not been discharged by the purchaser of the impugned land as
per the sale deed, and there is violation of the terms of the sale deed,
whether the impugned transaction would still qualify as transfer and be liable
for capital gains tax, given that the same is evidenced by a registered sale
deed. Having considered the provisions of sections 2(24), 2(47), 45 and 48 of
the Act, and also the decision of the Punjab & Haryana High Court in the
case of Hira Lal Ram Dayal vs. CIT [122 ITR 461 (Punj. & Har. HC)]
where the question before the Court was ‘whether it is open to the assessee to
prove that the sale transaction evidenced by the registered sale deed was a
sham transaction and no sale in fact took place’, and also the decision of the
Patna High Court in the case of Smt. Raj Rani Devi Ramna vs. CIT [(1992)
201 ITR 1032 (Patna)], the Tribunal held that the legal proposition
which emerges is that a registered sale deed does carry an evidentiary value.

 

At the same time,
where the assessee is able to prove by cogent evidence brought on record that
no sale has in fact taken place, then in such a scenario the taxing and
appellate authorities should consider these evidences brought on record by the
assessee and on the basis of an examination thereof, decide as to whether a
sale has taken place in a given case or not. The title in the property does not
necessarily pass as soon as the instrument of transfer is registered and the
answer to the question regarding passing of title lies in the intention of the
parties executing such an instrument. The registration is no proof of an
operative transfer and where the parties had intended that despite execution
and registration of sale deed, transfer by way of sale will become effective
only on payment and receipt of full sale consideration and not at the time of
execution and registration of sale deed.

 

The Tribunal noted
that no payment was received before execution of the sale deed but only
post-dated cheques were received by the assessee. It held that mere handing
over of the post-dated cheques which have been subsequently dishonoured and
returned unpaid to the assessee, cannot be held to be discharge of full sale
consideration as intended and agreed upon between the parties and there is
clearly a violation of the terms of the sale deed by the buyer.

 

Although the sale
deed has been registered, given that the terms of the sale deed and the
intention of the parties at the time of entering into the said sale deed have
not been adhered to whereby full sale consideration has not been discharged,
there is no transfer of the impugned land and no income accrues and
consequently, no liability towards capital gains arises in the hands of the
assessee. The Tribunal also held that it is only the real income which can be
brought to tax and there cannot be any levy of tax on hypothetical income which
has neither accrued / nor arisen or been received by the assessee. Since the
transaction fell through in view of non-fulfilment of the terms of the sale
deed whereby cheques issued by the buyer have been dishonoured, there is no
transfer and no income which has accrued or arisen to the assessee. There is no
real income in the hands of the assessee and in the absence thereof, the
assessee is not liable to capital gains. It observed that a similar view has
been taken by the Pune Bench of the Tribunal in the case of Appasaheb
Baburao Lonkar vs. ITO [(2019) 176 ITD 115 (Pune-Trib.)].

 

This ground of
appeal filed by the Revenue was dismissed.

Section 194C r/w/s 40(a)(ia) – Even an oral contract is good enough to invoke section 194C – Payment of hire charges made by assessee to cab owners for hiring cabs for the purpose of providing transportation services to its customers would attract section 194C – Since payment is made by the assessee, the presumption would be that there was a contract for hiring of vehicles

12.
[2020] 116 taxmann.com 230 (Bang.) Singonahalli
Chikkarevanna Gangadharaiah vs. ACIT ITA No.
785/Bang/2018 A.Y.: 2014-15 Date of
order: 24th February, 2018

 

Section 194C r/w/s 40(a)(ia) – Even an oral
contract is good enough to invoke section 194C – Payment of hire charges made
by assessee to cab owners for hiring cabs for the purpose of providing
transportation services to its customers would attract section 194C – Since
payment is made by the assessee, the presumption would be that there was a
contract for hiring of vehicles

 

FACTS

The A.O. noticed
from the Profit & Loss account of the assessee that the assessee has debited
a sum of Rs. 6,18,73,785 for vehicle hire charges paid and Rs. 2,48,39,356 for
petrol and diesel expenses paid. The assessee was asked to produce details of
TDS on expenses. However, the assessee failed to do so.

 

Subsequently, the
assessee submitted the PAN cards from cab drivers and owners to whom hire
charges were paid and said that the cab drivers and owners were all regular
income tax payers and hence, as per section 194C, no TDS was made where PAN was
provided.

 

According to the
A.O., section 194C will only apply to a contractor engaged in the  business of plying, hiring or leasing goods
carriages – and not to a contractor engaged in the business of plying passenger
vehicles. Accordingly, the A.O. held that the assessee is liable to deduct
TDS and disallowed a sum of Rs. 6,18,73,785 for vehicle hire charges u/s
40(a)(ia) of the Act.

 

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

 

HELD

Upon going through
the provisions of section 194C, the Tribunal held that there is no doubt that
the assessee in this case has made the payments of hire charges to cab owners.
As regards the contention of the assessee that the payments have not been made
in pursuance of any contract, the Tribunal held that a contract need not be in
writing; even an oral contract is good enough to invoke the provisions of
section 194C. The cab owners have received the payments from the assessee
towards the hiring charges, therefore, the presumption normally would be that
there was a contract for hiring of vehicles. Hence, if the assessee has made
the payment for hiring the vehicles, the provisions of section 194C are clearly
applicable.

 

The contract has to
be looked into party-wise, not on the basis of the individual. The Tribunal
held that all the payments made to a cab owner throughout the year are to be
aggregated to ascertain the applicability of the TDS provision as all the
payments pertain to a contract. A contract need not be in writing. It may infer
from the conduct of the parties. It may even be oral. The Tribunal also noted
that u/s 194C, sub-section (5) proviso thereto, if the aggregate amount
paid or credited to a person  exceeds Rs.
75,000, then the assessee shall be liable to deduct income tax at source.

 

The Tribunal then
discussed the amendment brought in by the Finance (No. 2) Act, 2014 with effect
from 1st April, 2015 by virtue of which only 30% of any sum payable
to a resident is to be disallowed. It noted that in the present case the
authorities below have added the entire sum of Rs. 6,18,73,785 by disallowing
the whole amount. Though the substitution in section 40 has been made effective
from 1st April, 2015, in its view the benefit of the amendment
should be given to the assessee either by directing the A.O. to confirm from
the cab owners as to whether the said parties have deposited the tax or not,
and further restrict the addition to 30% of the disallowance. The Tribunal held
that it will be tied (sic) and meet the ends of justice if the
disallowance is only restricted to 30% of the amount liable for TDS u/s 194C.
Accordingly, this issue is partly allowed.

 

Following the decision of the Calcutta High Court in IT Appeal No.
302 of 2011, GA 3200/2011, CIT vs. Virgin Creations decided on 23rd
November, 2011, the Tribunal restored the issue to the file of the A.O.
with the direction that the assessee shall provide all the details to the A.O.
with regard to the recipients of the income and the taxes paid by them. The
A.O. shall carry out necessary verification in respect of the payments made to
the cab drivers and taxes paid on the same by the cab drivers and filing of
returns by the recipients. In case the A.O. finds that the recipient has duly
paid the taxes on the income, the addition made by the A.O. shall stand
deleted.

 

The appeal filed by
the assessee was partly allowed.

Section 54F – Even after amendment w.e.f. A.Y. 2015-16, investment of long-term capital gain in two bungalows located adjacent to each other and used as one residential unit qualifies for exemption u/s 54F – Benefit of exemption could not have been denied on reasoning that there were two different registries of buildings / properties as both properties purchased by assessee were a single property located in same geographical area

7. [2020] 114 taxmann.com 508 (Ahd.)(Trib.)

Mohammadanif Sultanali Pradhan vs. DCIT

ITA No. 1797/Ahd/2018

A.Y.: 2015-16

Date of order: 6th January, 2020

 

Section 54F – Even after amendment w.e.f. A.Y. 2015-16,
investment of long-term capital gain in two bungalows located adjacent to each
other and used as one residential unit qualifies for exemption u/s 54F –
Benefit of exemption could not have been denied on reasoning that there were
two different registries of buildings / properties as both properties purchased
by assessee were a single property located in same geographical area

 

FACTS

During the previous year relevant to the A.Y. 2015-16, the
assessee in his return of income declared income under the head capital gain at
Rs. 23,84,101 after claiming exemption u/s 54F for Rs. 1,08,00,000. In support
of the exemption claimed, the assessee contended that he has made investment in
two bungalows which are adjacent to each other, bearing Nos. 18 and 19 located
at survey No. 606/2, TPS No. 92, Sarkhej – Makarba – Okaf – Fatewadi of Mouje
Sarkhej, taluka Vejalpur, district Ahmedabad.

 

The A.O. was of the view that the assessee can claim
exemption u/s 54F with respect to the investment in one bungalow only.
Accordingly, he computed the exemption with respect to one bungalow only
amounting to Rs. 43,77,118 and thus disallowed the excess claim u/s 54F of Rs.
64,22,882.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) and
submitted that both the bungalows are in the same society, adjacent to each
other. As such both the bungalows are one unit for residential purposes.
Therefore, he claimed that he is entitled to deduction / exemption for both the
bungalows u/s 54F.

 

The CIT(A) rejected the claim of the assessee on the ground
that there is an amendment under the provisions of section 54F of the Act where
the expression previously used, ‘a residential house’, has been substituted
with ‘one residential house’. Such amendment is effective with effect from A.Y.
2015-16, i.e., the year under consideration.

 

Aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that:

(i) the
issue relates to whether the assessee is eligible for exemption u/s 54F of the
Act against the long-term capital gain for the investment made in the two
properties which are adjacent to each other and used as one residential unit.
It noted that indeed, the provision of the law requires that the exemption will
be available to the assessee u/s 54F for the investment in one residential
unit;

 

(ii) under
the provisions of section 54F, there is no definition / clarification provided
about the area of the residential property. It means that one assessee can buy
a huge bungalow / property of, say, one thousand square metres and can claim
the deduction subject to conditions. Similarly, another assessee acquired two
different residential properties adjacent to each other but both the properties
put together were only two hundred square metres – but he will be extended the
benefit of the exemption with respect to one unit only because there are two
different properties based on registry documents;

 

(iii) there can be a situation that the family of the assessee is quite
large, comprising of several members, and therefore he needs two properties
adjacent to each other to accommodate them. So from the point of view of the
assessee it is a single property but he got two different properties registered
as per the requirement of the builder;

 

(iv) the
assessee cannot be deprived of the benefit conferred under the statute merely
on the reasoning that there were two different registries of the buildings /
properties;

 

(v) it
is also not a case of the Revenue / assessee that both the properties purchased
by the assessee were located in different geographical areas. In such a
situation the law amended u/s 54F appears to be applicable where the assessee
buys two properties in two different areas;

 

(vi) the
principles laid down by the courts cannot be just brushed aside on the aspect
of defining one residential unit. It noted the observations of the Hon’ble High
Court of Karnataka in the case of CIT vs. D. Ananda Basappa [(2009) 309
ITR 329].

 

The Tribunal held that the assessee
is entitled to claim exemption u/s 54F in respect of investment made in two
adjacent bungalows used as one residential unit. The Tribunal deleted the
addition made by the A.O. and confirmed by the CIT(A).

 

This ground of appeal filed by the assessee was
allowed.

Section 80P(4): Provisions of section 80P(4) exclude only co-operative banks and the same cannot be extended to co-operative credit societies

20. [2019] 107 taxmann.com 53
(Trib.)(Ahd.)(SB) ACIT vs. People’s Co-op. Credit Society Ltd. ITA Nos. 1311, 2668 to 2670, 2865, 2866,
2871 & 2905 (Ahd.) of 2012 A.Ys.: 2007-08 to 2009-10 Date of order: 18th April, 2019

 

Section 80P(4):
Provisions of section 80P(4) exclude only co-operative banks and the same
cannot be extended to co-operative credit societies

FACTS

The assessee, a
co-operative credit society, providing credit facilities to its members and
carrying on banking business, claimed deduction u/s 80P(2)(a)(i). The AO
disallowed the same holding that provisions of section 80P(4) are applicable to
the assessee.

 

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

 

The Revenue then
preferred an appeal to the Tribunal.

 

HELD

In view of the
contrary decisions by various benches of the Tribunal, a Special Bench (SB) was
constituted by the President to consider the question whether a co-operative
credit society is to be considered as a co-operative bank and whether by virtue
of the provisions of section 80P(4), a co-operative credit society shall be
disentitled to claim deduction u/s 80P(2)(a)(i).

 

At the time of
hearing before the Tribunal, the learned representatives agreed that the issues
before the SB of the Tribunal are now covered in favour of the assessee by
various decisions of the Hon’ble Jurisdictional High Court – including in the
cases of Pr. CIT vs. Ekta Co-operative Credit Society Ltd. [2018] 91
taxmann.com 42/254, Taxman 33/402 ITR 85 
and CIT vs. Jafari Momin Vikas Co-operative Credit Society
Ltd. [2014] 49 taxmann.com 571/227, Taxman 59 (Mag.) 362 ITR 331 (Guj.).

 

The Tribunal, having considered the ratio of the decisions of the
Jurisdictional High Court in the cases of Pr. CIT vs. Ekta Co-operative
Credit Society Ltd. (Supra) and CIT vs. Jafari Momin Vikas
Co-operative Credit Society Ltd. (Supra), held that the legal position
is quite clear and unambiguous. As held by the Jurisdictional High Court, the
benefit of section 80P(2)(a)(i) cannot be denied in the case of co-operative
credit societies in view of their function of providing credit facilities to
the members and the same are not hit by the provisions of section 80P(4).

 

The appeals filed
by the Revenue were dismissed.

Rule 37BA(3) r/w/s 199: Credit for Tax Deducted at Source has to be allowed in the year in which the corresponding income is assessed even though the tax is deposited by the deductor in the subsequent assessment year

19. [2019] 112 taxmann.com 354 (Trib.)(Pune) Mahesh Software Systems (P) Ltd. vs. ACIT ITA No. 1288/Pune/2017 A.Y.: 2011-12 Date of order: 20th September, 2019

Rule 37BA(3) r/w/s 199: Credit for Tax Deducted at Source has to be allowed in the year in which the corresponding income is assessed even though the tax is deposited by the deductor in the subsequent assessment year

FACTS
The assessee raised an invoice and offered to tax income arising therefrom in March, 2011. The assessee claimed credit for tax deducted thereon. However, the deductor deposited TDS only in April, 2011, i.e., in the succeeding financial year. Consequently, the TDS claimed by the assessee did not appear in Form 26AS for the year in which the income was booked. The AO, relying on sub-rule (1) of Rule 37BA, did not allow the credit in A.Y. 2011-12.

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

The assessee then filed an appeal to the Tribunal.

HELD
The Tribunal observed that the AO had relied on sub-rule (1) of Rule 37BA for denying the benefit of TDS during the year under consideration. It provides that credit for TDS shall be given to the person to whom payment has been made or credit has been given on the basis of information furnished by the deductor. Thus, what is material for sub-rule (1) is the beneficiary of credit and not the time when credit ought to be allowed. The CIT(A), in addition, had relied on sub-rule (4) of Rule 37BA which again provides that credit for TDS shall be granted on the basis of information relating to TDS furnished by the deductor.

The Tribunal observed that the point of time at which the benefit of TDS is to be given is governed by  sub-rule (3) of Rule 37BA which very clearly provides that – ‘credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.’

In view of the above, the Tribunal held that the credit of TDS had to be allowed in the year under consideration even though the TDS was deposited by the deductor in the subsequent assessment year.

The Tribunal allowed the appeal filed by the assessee.

Section 142A(6): It is mandatory for the Valuation Officer to submit the Valuation Report within six months from the date of receipt of the reference – Delay in filing the report cannot be condoned

18. [2019] 75 ITR (Trib.) 219 (Hyd.) Shri Zulfi Revdjee vs. ACIT ITA No. 2415/Hyd/2018 A.Y.: 2013-14 Date of order: 5th September,
2019

 

Section 142A(6): It is mandatory for the
Valuation Officer to submit the Valuation Report within six months from the date
of receipt of the reference – Delay in filing the report cannot be condoned

 

FACTS

The assessee sold a
property during F.Y. 2012-13. He filed the return of income disclosing capital
gains arising from the sale of the said property. The AO sought to make an
addition u/s 50C of the Act. However, since the assessee objected to it, he
referred the file to the Departmental Valuation Officer (DVO) for valuation of
the property. The DVO submitted the report after the expiry of the period
stipulated u/s 142A(6). Further, he also considered the value of the house as
on the date of registration of agreement. The assessee, inter alia,
raised an objection that the report submitted by the DVO is beyond the
stipulated time limit of six months, as specified u/s 142A(6), and consequently
the assessment is barred by limitation.

 

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

 

HELD

The Tribunal
observed that u/s 142A the valuation report by the DVO has to be submitted
within six months from the date of receipt of the reference. However, the DVO
submitted his report after 15 months from the end of the month in which
reference was made to him. The Tribunal considered whether the time limit for
submission of report could be enlarged or condoned. It noted that the word used
in sub-section (6) of section 142A is ‘shall’, while in other sub-sections it
is ‘may’. In B.K. Khanna & Co. vs. Union of India and others, the
Delhi High Court [156 ITR 796 (Del.)] has held that where the words
‘may’ and ‘shall’ are used in various provisions of the same section, then both
of them contain different meanings and the word ‘shall’ shall mean ‘mandatory’.
In sub-section (6), since the word ‘shall’ is used, the time limit specified
therein is mandatory and, thus, delay cannot be condoned. The Tribunal held
that the report of the DVO had to be filed within the time limit prescribed
under section 142A(6) and, thus, the Assessment Order passed on the basis of
the DVO’s report is not sustainable.

 

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

 

Section 143(2) – The statutory notice u/s 143(2) of the Act issued by the non-jurisdictional A.O. is void ab initio – If there are discrepancies in the details as per notice issued and details as per postal tracking report, then that cannot be considered as valid service of notice

5.       [2019]
76 ITR (Trib.) 107 (Del.)

Rajeev Goel vs. ACIT

ITA No. 1184/Del/2019

A.Y.: 2014-15

Date of order: 26th September, 2019

 

Section 143(2) – The statutory notice u/s 143(2) of the Act
issued by the non-jurisdictional A.O. is void ab initio – If there are
discrepancies in the details as per notice issued and details as per postal
tracking report, then that cannot be considered as valid service of notice

 

FACTS

The assessee’s case was selected for scrutiny by issuing
statutory notice u/s 143(2). The notice was issued by the non-jurisdictional
A.O., i.e., A.O. Circle 34(1), and without any order u/s 127 for transfer of
the case from one A.O. to another. Without prejudice to the assessee’s
contention that the notice was issued by non-jurisdictional A.O., notice u/s
143(2) was not served upon the assessee. While serving notice u/s 143(2), there
were discrepancies in the address stated in the notice and the address
mentioned in the tracking report of the post. The address mentioned in the
notice was with Pin Code 110034 and the Pin Code as per the tracking report was
110006.

 

The assessee had filed an affidavit before the A.O. claiming
that no notice u/s 143(2) was served upon him. He had produced all possible
evidences to prove that there were discrepancies while serving the said notice
and also that the assessment was initiated by non-jurisdictional A.O. These
contentions were not accepted by the A.O.

 

Aggrieved, the assessee preferred an appeal to the CIT(A)
claiming that the statutory notice u/s 143(2) was issued by the
non-jurisdictional A.O. and, thus, the assessment was void ab initio.
Without prejudice to this, the statutory notice u/s 143(2) was not validly
served upon the assessee. The CIT(A) held that the notice was served upon the
assessee and the assessee had failed to raise objections within the stipulated
period prescribed u/s 124(3) of the Act and hence dismissed the assessee’s
appeal.

Aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that there was a difference between the
address mentioned in the PAN database and the address mentioned in the return
of income filed by the assessee. The jurisdiction of the assessee as per his
address in the PAN database was with the A.O. Ward 39(1), whereas the
jurisdiction of the assessee as per his address in his return of income was
with A.O. Circle 47(1). However, the notice was issued by the A.O. Circle 34(1)
who had no jurisdiction over the assessee either on the basis of his
residential address or on the basis of his business address. Further, no order
u/s 127 of the Act was passed either by the Commissioner of Circle 34(1), or
the Commissioner of Circle 47(1) for transfer of the case from one A.O. to
another A.O. Thus, the notice issued by the A.O. Circle 34(1) was held to be void
ab initio as it was issued by the non-jurisdictional A.O.

 

Further, the Tribunal observed that even if the notice u/s
143(2) issued by the A.O. Circle 34(1) was considered to be valid, the notice
was not duly served upon the assessee. The address mentioned in the notice was
one of Delhi with Pin Code 110034, whereas the notice had been delivered to a
Delhi address with Pin Code 110006. As regards service of notice, the assessee
had filed an affidavit before the A.O. Circle 47(1) claiming that no notice u/s
143(2) was served upon him. The assessee had produced all possible evidences to
prove that there were discrepancies while serving notice u/s 143(2). Besides,
there was also a difference in the name mentioned in the notice which was
Rajeev Goel, whereas that mentioned in the tracking report was Ranjeev Goel.
Hence, on the basis of the aforementioned discrepancies, the notice was held to
be not validly served upon the assessee.

 

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

Section 153(1) r/w clause (iv) of Explanation 1 – Extension of time is provided to complete the assessment in a case where A.O. makes reference to the Valuation Officer only u/s 142A(1) – Where a reference is made to the Valuation Officer u/s 55A or 50C, there is no extension of time to complete the assessment

4.       [2019]
76 ITR (Trib.) 135 (Luck.)

Naina Saluja vs. DCIT

ITA No. 393/LKW/2018

A.Y.: 2013-14

Date of order: 25th October, 2019

 

Section 153(1) r/w clause (iv) of Explanation 1 – Extension
of time is provided to complete the assessment in a case where A.O. makes
reference to the Valuation Officer only u/s 142A(1) – Where a reference is made
to the Valuation Officer u/s 55A or 50C, there is no extension of time to
complete the assessment

 

FACTS

The assessee had sold her
two properties and derived income under the head ‘Capital Gains’ during the
relevant A.Y. 2013-14. While computing long-term capital gain, the assessee had
worked out the cost of acquisition on the basis of the circle rates as on 1st
April, 1981. For this purpose, the A.O. had referred the matter to the
Valuation Officer for estimating the correct fair market value of the properties
as on that date. In the meanwhile, the assessee had challenged the Stamp Duty
Value adopted and requested to refer the matter to the Valuation Cell for
valuation of the property as on the date of transfer. As the transaction was
falling under ‘capital gains’, the reference made by the A.O. to the Valuation
Officer was u/s 55A and the reference made by the assessee for valuation was
u/s 50C. The A.O. had received the second valuation report on 21st
March, 2016 and had thereafter called for objections from the assessee on the
second valuation report. The A.O. concluded the assessment and passed an
assessment order on 19th May, 2019 making an addition to the capital
gains on the basis of the said valuation report.

 

Aggrieved, the assessee preferred an appeal to the CIT(A)
claiming that the assessment completed was beyond the time period prescribed in
section 153 of the Act and, thus, the assessment order was barred by
limitation. However, the CIT(A) held that both the references were made u/s
142A of the Act and thereby concluded that the assessment order was not barred
by limitation. The CIT(A) upheld the assessment order and dismissed the
assessee’s appeal.

 

The assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that the reference to the Valuation
Officer u/s 142A can be made for the purpose of assessment or reassessment
where the valuation is required for the purpose of section 69, 69A, 69B or
section 56(2), whereas the references u/s 55A or u/s 50C are specific for the
purpose of computation of capital gains. The provisions of section 142A do not
govern the provisions of computation of capital gains.

 

The first reference to the Valuation Officer was made for
ascertaining the value of the asset as on 1st April, 1981 when it
was sold, and the second reference was made for valuation of property as on the
date of transfer which can only be made under the provisions of section 50C(2)
of the Act. Thus, neither of the references was made u/s 142A of the Act.

 

Further, as per the provision of section 153(1) r/w
Explanation 1, the provision for extension of time for completing the
assessment is available only if the reference is made to the Valuation Officer
u/s 142A. There is no provision for extension of time for completing the
assessment in case the reference is made u/s 55A or u/s 50C. Hence, the
assessment order was to be passed by 31st March, 2016 for the
relevant assessment year. The assessment order was, however, passed on 19th
May, 2016 which was beyond the period of limitation, hence the Tribunal quashed
the assessment order.

 

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

I.Section 194H – Benefit extended by assessee to the distributor under an agreement for supply of mobile phones cannot be treated as commission liable for deduction of tax at source u/s 194H as the relationship between the assessee and the distributor was not of a principal and agent II.Section 37 – Expenditure incurred on Trade Price Protection to counter changes in price of handsets by competitors, life of model, etc. was incurred wholly and exclusively for the purpose of business and was an allowable expenditure u/s 37(1)

11.
[2020] 114 taxmann.com 442 (Delhi) Nokia
India (P) Ltd. vs. DCIT ITA Nos.:
5791 & 5845(Del)2015 A.Y.:
2010-11 Date of
order: 20th February, 2020

 

I.   Section 194H – Benefit extended by assessee
to the distributor under an agreement for supply of mobile phones cannot be
treated as commission liable for deduction of tax at source u/s 194H as the
relationship between the assessee and the distributor was not of a principal
and agent

 

II.  Section 37 – Expenditure
incurred on Trade Price Protection to counter changes in price of handsets by
competitors, life of model, etc. was incurred wholly and exclusively for the
purpose of business and was an allowable expenditure u/s 37(1)

 

FACTS I

The assessee
company had extended certain benefits / post-sale discounts to the
distributors. These discounts / trade offers did not form part of the agreement
between the assessee and the distributors. The A.O. disallowed the expenditure
u/s 40(a)(ia) considering the fact that no TDS u/s 194H was deducted from these
amounts.

 

HELD I

Upon perusal of the
agreement, the Tribunal observed that the relationship between the assessee and
HCL is that of principal to principal and not that of principal and agent. The
Tribunal held that the discount which was offered to distributors is given for
promotion of sales. This element cannot be treated as commission. There is
absence of  principal-agent relationship
and the benefit extended to distributors cannot be treated as commission u/s
194H of the Act.

 

As regards the applicability of section 194J, the A.O. has not given any
reasoning or finding that there is payment for technical service liable for withholding
u/s 194J. Marketing activities had been undertaken by HCL on its own. Merely
making an addition u/s 194J without the actual basis for the same on the part
of the A.O. is not just and proper.

 

As regards the
contention of the Revenue that discounts were given by way of debit notes and
the same were not adjusted or mentioned in the invoice generated upon original
sales made by the assessee, the Tribunal observed that this contention does not
seem tenable after going through the invoice and the debit notes. In fact,
there is clear mention of the discount for sales promotion.

 

The Tribunal
allowed this ground of appeal and deleted the addition made.

 

FACTS II

The assessee
company had incurred certain expenditure on Trade Price Protection which was
extended to distributors to counter changes in the price of handsets by
competitors, protect them against probable loss, etc. The A.O. had disallowed
the expenditure questioning the commercial expediency involved in incurring the
same.

 

HELD II

The Tribunal held
that the expenditure can be treated as being incurred on account of commercial
expediency considering the modern-day technological changes which are very
fast. It observed that as per the submission made before the A.O., this
expenditure had been covered in a special clause in the Trade Schemes filed.
The Tribunal further held that expenditure incurred for Trade Price Protection
was allowed as deduction since the same was considered as being incurred wholly
and exclusively for the purpose of business.

This ground of
appeal filed by the assessee was allowed.

Section 10(13A), Rule 2(h) of Fourth Schedule – For the purpose of computing qualifying amount u/s 10(13A) of the Act, the amount received as performance bonus does not assume character of salary

17. [2020] 113
taxmann.com 295 (Trib.)(Kol.) Sudip Rungta vs.
DCIT ITA No.
2370/Kol/2017 A.Y.: 2011-12 Date of order: 10th
January, 2020

 

Section 10(13A), Rule 2(h) of Fourth Schedule – For the purpose of
computing qualifying amount u/s 10(13A) of the Act, the amount received as
performance bonus does not assume character of salary

 

FACTS

The assessee was a salaried employee who, for the year under
consideration, filed his return of income declaring total income of Rs.  2,61,97,296. During the year under
consideration, he had received a basic salary of Rs. 30,00,000 and performance
bonus of Rs. 1,50,00,000. In the return he had claimed exemption of HRA of Rs.
8,47,742. The AO called for details of the rent paid and calculation of the
amount of exemption. In response, the assessee submitted that the total rent
paid during the year was Rs. 8,20,000 and for the purposes of computing
exemption, only the basic salary had been regarded as ‘salary’.

 

The AO held that
‘performance bonus’ is covered under the term ‘salary’ as per the meaning
assigned to the definition of ‘salary’ for the purpose of calculating exemption
u/s 10(13A). ‘Performance bonus’ cannot be comprehended as an allowance or
perquisite as defined in Rule 2(h) of the Fourth Schedule to be excluded from
the purview of ‘salary’. Thus, the assessee’s total salary for computation of
exemption u/s 10(13A) for the year under assessment comes to Rs. 30,00,000 plus
Rs. 1,50,00,000, which totals Rs. 1,80,00,000; and 10% of this comes to Rs.
18,00,000. Since the assessee has paid rent of Rs. 8,20,000 which is much less
than the amount of Rs. 18,00,000, the assessee is not entitled to any benefit u/s
10(13A) of the Act. Thus, the AO denied the benefit u/s 10(13A) of the Act.

 

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

 

The assessee then
preferred an appeal to the Tribunal where it was submitted that clause (h) of
Rule 2A  specifically provides that
‘salary’ includes dearness allowance if the terms of employment so provide, but
excludes all other allowances and perquisites. Accordingly, the performance bonus
received by the appellant did not form part of ‘salary’ for the purposes of
computing exemption u/s 10(13A) of the Act.

 

HELD

The Tribunal noted
that the decision of the Hon’ble Kerala High Court in the case of CIT vs.
B. Ghosal (125 ITR 444) is on identical facts wherein on the same set
of facts, the Court had held that ‘performance bonus’ does not form part of
‘salary’ as defined in clause (h) of Rule 2A for the purposes of section
10(13A) of the Income tax Act, 1961.

 

Considering the facts narrated above, the Tribunal noted that total rent
paid by the assessee during the year is Rs. 8,20,000. The basic salary for the
purpose of computation of house rent disallowance is Rs. 3,00,000 (10% of Rs.
30,00,000 being basic salary). Therefore, excess of rent paid over 10% of
salary is Rs. 5,20,000 (Rs. 8,20,000 minus Rs. 3,00,000). Therefore, the
assessee is entitled for house rent allowance at Rs. 5,20,000 u/s 10(13A) of
the Act. The AO is directed to allow the exemption of HRA at Rs. 5,20,000.

 

The Tribunal
allowed the appeal filed by the assessee.

 

Sections 2(47), 45 – Amount received by assessee, owner of a flat in a co-operative housing society, from a developer under a scheme of re-development was integrally connected with transfer of old flat to developer for purpose of re-development, in lieu of which assessee received the said amount and a new residential flat – To be treated as income under head ‘capital gain’

3.       [2020]
115 taxmann.com 7 (Mum.)

Pradyot B. Borkar vs. ACIT

ITA No. 4070/Mum/2016

A.Y.: 2011-12

Date of order: 17th January, 2020

 

Sections 2(47), 45 – Amount received by assessee, owner of a
flat in a co-operative housing society, from a developer under a scheme of
re-development was integrally connected with transfer of old flat to developer
for purpose of re-development, in lieu of which assessee received the
said amount and a new residential flat – To be treated as income under head
‘capital gain’

 

FACTS

The assessee, an individual, filed his return of income
declaring total income of Rs. 32,30,000. The A.O., in the course of assessment
proceedings noted that the assessee has offered long-term capital gain of Rs.
31,12,638, towards sale of residential flats at C-20, 179, MIG, Bandra, Mumbai,
and has simultaneously claimed deduction u/s 54 of the Act.

 

The A.O. found that the
assessee owned a flat in the housing society which was given for development
under a scheme of re-development. As per the terms of the development agreement
between the housing society and its members, in addition to receiving a new
residential flat after re-development, each member was also entitled to receive
an amount of Rs. 53,80,500, comprising of the following:

 

Rs. 25,00,000

Compensation for
non-adherence by the re-developer to the earlier agreed terms and that the
member should be required to vacate the old flat.

 

 

Rs. 28,50,500

Beneficial right and interest
in corpus and income of the society and nuisance annoyance and hardship that
will be suffered by the members during the re-development.

 

 

Rs. 30,000

Moving or shifting cost.

 

 

The A.O. held that the amount received is not in any way related
to transfer of capital asset giving rise to capital gain. He assessed the
amount of Rs. 53,30,500 under the head ‘Income from Other Sources’.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who
confirmed the action of the A.O. The assessee then preferred an appeal to the
Tribunal.

 

HELD

The Tribunal noted that in the return of income the assessee
has offered the amount of Rs. 53,50,500 as income from long-term capital gain.
But the A.O. has held that the amount is in the nature of compensation received
due to some specific factors and not related to transfer of capital asset. He
also observed that as per the terms of the development agreement, any capital
gain arising due to re-development would accrue to the housing society.
Therefore, the compensation received, Rs. 53,50,500, cannot be treated as
capital gain.

 

The Tribunal held that the amount of Rs. 53,50,500 was
received by the assessee only because of handing over the old flat for the
purpose of re-development. Therefore, the said amount is integrally connected
with the transfer of his old flat to the developer for re-development in
lieu of which he received the said amount and a new residential flat.
Therefore, the amount of Rs. 53,50,500 has to be treated as income under the
head ‘Capital Gain’. The Tribunal observed that the decision of the Co-ordinate
Bench in Rajnikant D. Shroff [ITA No. 4424/Mum/2014, dated 23rd September,
2016] supports this view. It held that the amount of Rs. 53,50,500 has
to be assessed under the head ‘Capital Gain’.

 

This ground of appeal filed by the assessee was allowed.

Section 56 read with sections 22 and 23 – Compensation received under an agreement entered into with a tenant granting him an option to take on lease other units which belonged to the assessee is taxable under the head Income from Other Sources

10.
[2020] 116 taxmann.com 223 Redwood
IT Services (P) Ltd. vs. ITO(10)(2)(2), (Mum.) ITA No.
1309(Mum) 2018 A.Y.:
2011-12 Date of
order: 28th February, 2020

 

Section 56 read with sections 22 and 23 –
Compensation received under an agreement entered into with a tenant granting
him an option to take on lease other units which belonged to the assessee is
taxable under the head Income from Other Sources

 

FACTS

The assessee acquired an immovable property which was divided into four
units of which two units, viz. Unit Nos. 3 and 4, were let out. In terms of the
agreement entered into by the assessee with the tenant, the assessee had
granted an option to the tenant to take the other two units, viz. Units 1 and 2,
on lease. Under the option agreement, the assessee agreed to lease the property
in future and restrained itself from leasing it to any other person during the
period for which the option was granted. In consideration of such a covenant,
the assessee received from the tenant a compensation of Rs. 33,75,000 which was
offered by him under the head Income from Other Sources.

 

The A.O. considered
the two units in respect of which option was granted to be deemed let-out units
and charged tax on their market rent, and after allowing the standard deduction
taxed a sum of Rs. 76,64,328 under the head ‘Income from House Property’.

 

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

 

HELD

The Tribunal held that for income to be assessable under the head Income
from House Property, it should be out of the property let out or deemed to be
let out for the relevant period. In this case the property is neither let out
nor vacant. The compensation cannot, therefore, be assessed under the head
Income from House Property.

 

The amount received
by the assessee is in the nature of compensation for not letting out property
to any third party for a specified period. The meaning thereof is that by
entering into an option agreement, the assessee had renounced its right to let
out Unit Nos. 1 and 2 for a period of nine months from the date of the option
agreement and any amount received in pursuance of the said agreement is in the
nature of compensation which is assessable under the head Income from Other
Sources.

 

The Tribunal held
that the A.O. as well as the CIT(A) were incorrect in coming to the conclusion
that the property is deemed to be let out and income from the said property
needs to be computed u/s 22 of the Act.

 

The Tribunal directed
the A.O. to delete the additions made towards Income from House Property.

 

This ground of appeal filed by the assessee was
allowed.

Sections 32, 37, 45, 50 – Where the business of the assessee came to a halt, expenses incurred by the assessee for maintaining its legal status and disposing of the assets are allowable u/s 37(1) of the Act Assessee owned leasehold rights in the land and a building was constructed thereon; on transfer of the same, capital gains were to be bifurcated as long-term capital gains on transfer of land u/s 45 and short-term capital gains on transfer of building u/s 50 Unabsorbed depreciation is deemed to be current year’s depreciation and it can therefore be set off against capital gains

25. [2019] 202 TTJ (Bang.) 893 Hirsh Bracelet India (P) Ltd. vs. ACIT ITA No. 3392/Bang/2018 A.Y.: 2015-16 Date of order: 3rd July, 2019

 

Sections 32,
37, 45, 50 – Where the business of the assessee came to a halt, expenses
incurred by the assessee for maintaining its legal status and disposing of the
assets are allowable u/s 37(1) of the Act

 

Assessee owned
leasehold rights in the land and a building was constructed thereon; on
transfer of the same, capital gains were to be bifurcated as long-term capital
gains on transfer of land u/s 45 and short-term capital gains on transfer of
building u/s 50

Unabsorbed
depreciation is deemed to be current year’s depreciation and it can therefore
be set off against capital gains

 

FACTS

The assessee company was engaged in the
business of manufacturing wrist watch straps. The assessee had taken land on
lease for a period of 99 years and set up a unit for designing, importing,
exporting, dealing in and manufacturing wrist watch straps. In view of
continued losses and several operational difficulties, the business of the
assessee had to be closed down. The assessee had declared capital gains on the
sale of leasehold rights in land and building as short-term capital gain in the
return of income and, after adjusting current year’s expense and depreciation,
returned a total income.

 

During the course of the assessment
proceedings, the assessee claimed that sale of leasehold rights in land would
result in long-term capital gains. But the A.O. taxed the capital gains as short-term
and did not allow set-off of brought forward business losses. Further, the A.O.
had disallowed the expenditure u/s 37(1), contending that the same could not be
allowed as there was no business in existence.

 

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

 

HELD

The various expenses incurred by the
assessee were to maintain its legal status as a company until the assets were
disposed of and the liabilities paid. The Tribunal held that it was essential
for the assessee to incur these expenses and neither the A.O. nor the CIT(A)
has doubted the incurring of the expenditure. The assessee held leasehold
rights in land and it required permission from the Government for transfer of
such rights. This permission was received by the assessee only in the previous
year, 2013-2014. Therefore, even though the business of the assessee had come
to a halt in 2010, it was necessary to maintain the legal status until all the
assets were liquidated. Thus, the expenses incurred by the assessee were to be
allowed as a deduction in computation of income.

 

The assessee had made a claim for the
bifurcation of capital gains into long-term capital gains on transfer of
leasehold rights in land and short-term capital gains on transfer of building,
being a depreciable asset, in accordance with the provisions of section 50. The
assessee was entitled to bifurcate the capital gains and the provisions of
section 50 would be made applicable in computation of capital gains arising
from transfer of building.

 

Unabsorbed depreciation is deemed to be
current year’s depreciation and the same can be set off against capital gains
under the provisions of section 71.

 

These grounds of appeal filed by the
assessee were allowed.

 

Section 147, Explanation 3 & Section 154 – The powers conferred on the A.O. by Explanation 3 to section 147 cannot be extended to section 154 – Any discrepancy that was not a subject matter of reassessment proceedings cannot, subsequently, upon conclusion of reassessment proceedings, be brought up by the A.O. by recourse to section 154

24 [2019] 202 TTJ (Del.) 1014 JDC Traders (P) Ltd. vs. DCIT ITA No. 5886/Del/2015 A.Y.: 2007-2008 Date of order: 11th October, 2019

 

Section 147,
Explanation 3 & Section 154 – The powers conferred on the A.O. by
Explanation 3 to section 147 cannot be extended to section 154 – Any
discrepancy that was not a subject matter of reassessment proceedings cannot,
subsequently, upon conclusion of reassessment proceedings, be brought up by the
A.O. by recourse to section 154

 

FACTS

The assessee was a company engaged in the
business of trading, export and printing. For A.Y. 2007-2008 it submitted its
return of income and the same was processed u/s 143(1) of the Act. Reassessment
proceedings were initiated against the assessee for the assessment year in
question after recording reasons for the same. Certain travel expenditure
claimed by the assessee was disallowed and addition was made for the same. On
conclusion of the reassessment proceedings and perusal of the assessment
records by the A.O., he noticed a discrepancy in the amount of stock appearing
in the statement of profit and loss and in the notes to financial accounts. The
A.O. issued a notice u/s 154 to the assessee as regards the difference. The
assessee submitted that the amount stated as closing stock at the time of
preparation of accounts had been inadvertently missed out to be corrected
post-finalisation of accounts and stock reconciliation. The assessee also
submitted that after reconciliation the mistake was detected and corrected. The
A.O. made an addition for the amount of difference in the amounts of closing
stock stated at different values.

The assessee preferred an appeal with the CIT(A).
However, the CIT(A) did not agree with its contention and stated that under the
provisions of Explanation 3 to section 147, the A.O. was justified in assessing
/ reassessing the income which had escaped assessment. Further, there was
nothing wrong in the A.O. rectifying the mistake in the order under sections
147 / 143(3). The assessee then filed an appeal with the ITAT.

 

HELD

The issue relating to the discrepancy in the
value of closing stock was not taken up by the A.O. at the time of reassessment
proceedings u/s 147. A reading of section 147 shows that it empowers the A.O.
to assess or reassess income in respect of any issue which had escaped
assessment, irrespective of the fact whether such aspect was adverted in the
reasons recorded u/s 147. The A.O. had resorted to section 154 to make addition
in respect of the issue of discrepancy in closing stock on conclusion of the
reassessment proceedings. The powers under Explanation 3 to section 147, if
extended to section 154, would empower the A.O. to make one addition after the
other by taking shelter of Explanation 3 to section 147. It was also not the
case that the A.O. had invoked section 154 with respect to the original
assessment finalised u/s 143(3).

 

Thus, the powers of Explanation 3 to section
147 cannot be extended to section 154, and the addition made by the A.O. for
discrepancy of closing stock values upon conclusion of reassessment proceedings
was beyond his jurisdiction.

 

The appeal filed by the assessee was
allowed.

 

Section 64 – Entire loss arising to wife of assessee in the business of Futures and Options (F&O) which business was started by her during the previous year with contribution from assessee in shape of gifts, was liable to be clubbed in hands of assessee in terms of Explanation 3 read in conjunction with section 64(1)(iv) – Assessee was entitled to club full loss from business of F&O in his personal income

8. [2020] 113 taxmann.com 378 (Pune)(Trib.)

Uday Gopal Bhaskarwar vs. ACIT

ITA No. 502/Pune/2019

A.Y.: 2014-15

Date of order: 20th January, 2020

 

Section 64 – Entire loss arising to wife of assessee in the
business of Futures and Options (F&O) which business was started by her
during the previous year with contribution from assessee in shape of gifts, was
liable to be clubbed in hands of assessee in terms of Explanation 3 read in
conjunction with section 64(1)(iv) – Assessee was entitled to club full loss
from business of F&O in his personal income

 

FACTS

The assessee, in the return of
income filed by him, clubbed the loss from the business of his spouse amounting
to Rs. 31,56,429 in view of the provisions of section 64. In the course of
assessment proceedings, on being called upon to justify such a claim, the
assessee submitted that during the year under consideration he gifted a sum of
Rs. 94.50 lakhs to Mrs. Priti Bhaskarwar, his wife, who started a business of
Futures and Options (F&O) on 18th September, 2013. The assessee
claimed that she incurred a loss of Rs. 31,56,429 in the business which was
clubbed in his hands.

 

The A.O. accepted the primary claim
of the assessee of his wife having incurred a loss of Rs. 31.56 lakhs in the
business of F&O, which was set up on 18th September, 2013, and further that
the loss from such business was eligible for set-off against the income of the
assessee in terms of section 64(1)(iv) read with Explanation 3 thereto. He,
however, did not accept the assessee’s contention that the entire loss of Rs.
31.56 lakhs be set off against his (the assessee’s) income. Considering the
mandate of Explanation 3 to section 64(1), the A.O. held that only that part of
the business loss incurred by the assessee’s wife could be set off against the
assessee’s income which bears the proportion of amount of investment out of the
gift on the first day of the previous year to the total investment in the
business as on the first day of the previous year.

 

He, therefore, computed the amount
of loss eligible for set-off against the assessee’s income at Rs. 9,72,563 by
multiplying Rs. 31,56,429 (loss incurred by wife in the business) with Rs.
25.00 lakhs (gifts made by the assessee to his wife up to 18th
September, 2013) as divided by Rs. 81,13,648 (opening capital as on 1st April,
2013 as increased by the gift of Rs. 25.00 lakhs given by the assessee up to 18th
September, 2013).

 

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

 

Still aggrieved, the assessee
preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted that the core of
controversy is the computation of eligible amount of loss incurred by the
assessee’s wife which is eligible for set-off against the assessee’s income.

 

On going through the mandate of
section 64(1)(vi) of the Act in juxtaposition with Explanation 3 to the
sub-section, it transpires that there can be two possible situations of
utilisation of the assets transferred by husband to wife triggering the
clubbing provision. The first situation can be where the amount of assets
received by the wife is exclusively invested in an asset and further there is
no investment by the wife in such a new asset. The full income resulting from
such an exclusive investment is liable to be clubbed with the total income of
the husband. An example of such a situation can be a wife making a fixed
deposit with a bank, etc. out of the gift of money received from her husband.
The full amount of interest income arising on such FDR is liable to be clubbed
with the income of the husband.

 

The second situation can be where
the amount of assets received by the wife as a gift from her husband is not the
exclusive investment in the business carried on by her. Rather, she has also
made separate investment in the said business. In such a situation of a common
pool of unidentifiable investments in the business, there arises difficulty in
precisely attributing the income of such a business to the investments made out
of the gift received from the husband attracting clubbing and to investments
made out of funds other than the gift received from the husband not attracting
the clubbing provision. It is in such a scenario that the prescription of
Explanation 3 comes into play by providing that the amount of income from the
combined business as relatable to the assets transferred by the husband should
be computed by taking the income from such business earned during the year as
multiplied with the amount of assets received by the wife from her husband as
invested in the business and divided by her total investment in the business,
including the amount of assets received from the husband.

 

In a nutshell, there are three
components in this formula. The first component is the income of the business,
which is to be considered for the year. The second is the amount of assets
received by the wife from her husband as invested in the business, and the
third is the total investment in the business including the amount of assets
received from the husband. The latter two figures are required to be taken as
on the first day of the previous year. Section 3 defines ‘Previous year’ to
mean ‘the financial year immediately preceding the assessment year.’ The proviso
to section 3 states that, in the case of a business newly set up in a financial
year, the previous year shall be the period beginning with the date of the
setting up of the business and ending with the said financial year. Since the
wife of the assessee started the new business of F&O on 18th
September, 2013, the extant case is, ergo, covered by the proviso
to section 3.

 

Having examined the factual position
in detail, the Tribunal held that the entire amount of loss resulting from the
business of F&O started by Mrs. Priti Bhaskarwar with the gifts received
from the assessee is liable to be clubbed in the hands of the assessee.

 

This ground of appeal filed by the assessee was
decided in favour of the assessee.

I.Section 43(6), Explanation 2 – In Explanation 2 to section 43(6), deprecation actually allowed shall not include any unabsorbed depreciation – The WDV in the hands of the amalgamated company is to be calculated without considering the unabsorbed depreciation of the amalgamating companies, for which set-off was never allowed II.When a receipt is held to be capital in nature and not chargeable to tax under the normal provisions of the Act, the same cannot be taxed u/s 115JB of the Act as well III.Section 234B r/w/s 115JB – Interest u/s 234B cannot be levied where liability arises on account of retrospective amendment in the Act

16. [2019] 112
taxmann.com 55 (Trib.)(Mum.) ACIT vs. JSW Steel
Ltd. ITA No.
156/Bang/2011; CO No. 59/Mum/2012 A.Y.: 2006-07 Date of order: 29th
November, 2019

 

I.  Section 43(6), Explanation 2 – In Explanation
2 to section 43(6), deprecation actually allowed shall not include any
unabsorbed depreciation – The WDV in the hands of the amalgamated company is to
be calculated without considering the unabsorbed depreciation of the
amalgamating companies, for which set-off was never allowed

 

II. When a receipt is held to be capital in nature
and not chargeable to tax under the normal provisions of the Act, the same
cannot be taxed u/s 115JB of the Act as well

 

III.        Section 234B r/w/s 115JB – Interest u/s
234B cannot be levied where liability arises on account of retrospective
amendment in the Act

 

FACTS I

In the return of
income filed by the assessee for the year of amalgamation, i.e., A.Y. 2006-07,
the assessee computed WDV in respect of the assets transferred by the
amalgamating companies by reducing the amount of deprecation (‘actually
allowed’) in A.Y. 2005-06 in accordance with the provisions of Explanation (2)
to section 43(6) of the Act.

 

The AO observed
that the closing WDV of the amalgamating company becomes the WDV in the hands
of the amalgamated company and accordingly determined the WDV of the assets
acquired on amalgamation after considering normal depreciation allowed on
assets of the two amalgamating companies; consequently, he disallowed excess
depreciation of Rs. 6,81,27,607 (being 15% of the difference in the WDV of Rs.
45,41,84,048).

 

However, the AO was
of the view that Explanation (3) has to be read into Explanation (2) and
accordingly the WDV of the assets transferred on amalgamation has to be
computed after reducing the total depreciation in the hands of the amalgamated
companies.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who allowed the appeal and directed
the AO to allow depreciation on the increased written down value of the assets.

 

Being aggrieved,
the Revenue preferred an appeal to the Tribunal.

 

HELD I

The Tribunal
observed that

(i)   the only dispute under consideration is
whether the WDV of the assets transferred on amalgamation was to be computed in
the hands of the amalgamated company considering the unabsorbed depreciation,
i.e., depreciation not given effect to, in the assessment of the amalgamating
companies;

(ii)   the provisions of Explanations (2) and (3) to
section 43(6) explains what will be the WDV of assets in the hands of the
amalgamated company in cases of amalgamation. Similarly, section 32(2) provides
for carry forward of unabsorbed depreciation and section 72A provides for carry
forward of business loss and unabsorbed depreciation in the hands of the
amalgamated company in cases of amalgamation;

(iii) on going through Explanation (2) to section
43(6), it is very clear that it speaks about depreciation ‘actually allowed’ in
relation to the said preceding year in case of the amalgamated company.

 

The Tribunal held
that in view of Explanation (2) to section 43(6) of the Act, the WDV in the
hands of the assessee as on 1st April, 2005 (the appointed date)
would be the WDV of block of assets as on 31st March, 2004 as
reduced by the depreciation ‘actually allowed’ during the said preceding year,
i.e., F.Y. 2004-05, in the hands of the amalgamating companies. Accordingly,
the WDV of assets transferred on amalgamation in the hands of the amalgamating
company has to be necessarily computed in terms of Explanation (2) to section
43(6) of the Act. In terms of this Explanation, while computing the WDV on
amalgamation, the depreciation actually allowed has to be reduced.

 

Since the case of
the AO was that Explanation (3) has to be read into Explanation (2) and,
accordingly, the WDV of assets transferred on amalgamation has to be computed
after reducing the total depreciation in the hands of the amalgamated
companies, the Tribunal found it necessary to read and comprehend as to why the
provision of section (3) to section 43(6) of the Act cannot be applied in the
facts of the present case. It held that Explanation (3) to section 43(6) states
that any depreciation which is carried forward u/s 32(2) shall be deemed to be
depreciation actually allowed. Further, it observed that Explanations (2) and
(3) to section 43(6) of the Act both used the term depreciation actually
allowed. However, as against Explanation (2), Explanation (3) to section 43(6)
of the Act operates as a deeming fiction, wherein depreciation which is carried
forward u/s 32(2) of the Act is deemed to have been actually allowed.

 

The Tribunal held
that in its view Explanation (3) being a deeming fiction, operates only in
particular conditions and in order to remove an anomaly which otherwise would
have been created under the other provisions of the Act. It held that while
interpreting Explanation (3) one needs to be aware of the intention of the
statute. These provisions, along with their intent, have been explained
elaborately by the Hon’ble Bombay High Court in the case of Hindustan
Petroleum Corporation Limited where it was held that Explanation (3) to
section 43(6) seeks to find certain anomalies which would have otherwise
existed under the Act. The intention of Explanation (3) is not simply to
nullify the provision of Explanation (2) to section 43(6), as has been read by
the AO. This is also evident from the fact that Explanation (2) has been
introduced from 1st April, 1988, whereas Explanation (3) was always
on the statute, which clearly implies that Explanation (3), which is a legal /
deeming fiction, was not introduced to nullify the impact of Explanation (2) of
the Act.

 

Accordingly, in
terms of Explanation (3) to section 43(6), in the present case, unless the
unabsorbed depreciation of the amalgamating companies is carried forward in the
hands of the amalgamated company u/s 32(2), Explanation (3) cannot be read into
Explanation (2) to simply conclude that depreciation ‘actually allowed’ also
includes unabsorbed depreciation.

 

It observed that in
view of the ratio of the decision of the Supreme Court in the case of CIT
vs. Doom Dooma India Ltd. [2009] 310 ITR 392, the words actually
allowed under Explanation (2) only mean depreciation, which has been given
effect to in the computation of income of the amalgamating companies and will
not include unabsorbed depreciation. This legal proposition, it observed, is
also supported by the decision in the case of Silical Metallurgic Ltd.
where the Hon’ble Court held that the statutory provision makes it clear that
the WDV of the asset would be the actual cost of the assets of the assessee
less depreciation allowed to the company. Any unabsorbed depreciation, which
was not set off for carry forward could not be taken into account.

 

A similar view was
taken by the Bombay High Court in the case of Hindustan Petroleum Corpn.
Ltd. and a Special Leave Petition filed against the aforesaid High
Court decision has been dismissed by the Hon’ble Supreme Court on merits in SLP
(C) No. 19054 of 2008 (SC). A similar proposition has been laid down by
the Hon’ble Madras High Court in the case of EID Parry India’s vs. CIT
[2012] 209 Taxmann 214. The Courts have, considering the applicability
of provisions of section 72A, held that deprecation actually allowed shall not
include any unabsorbed depreciation.

 

The Tribunal held
that the WDV in the hands of the amalgamated company was to be calculated
without considering the unabsorbed depreciation of the amalgamating companies,
for which set-off was never allowed. The Tribunal upheld the findings of the
CIT(A) and dismissed this ground of the appeal of the Revenue.

 

FACTS II

The assessee
received a sales tax subsidy of Rs. 36,15,49,828 from the Karnataka Government
for setting up a new industrial unit in the backward area of the state. The
refund of sales tax subsidy was routed through the profit and loss account and
hence the same was considered as part of the book profits u/s 115JB of the I.T.
Act, 1961. Subsequently, the assessee realised that sales tax subsidy being
capital receipt as held by the CIT(A), the same is not taxable under the MAT
provisions; accordingly, the issue was raised before the Tribunal and this
ground was taken by the assessee in the cross-objections filed by it.

 

HELD II

The Tribunal noted
that

(i)   the Coordinate Bench of the ITAT, Mumbai
Tribunal, in the assessee’s own case for A.Y. 2004-05 in ITA No. 923/Bang/2009,
had considered an identical issue and held that where a receipt is held to be
capital in nature not chargeable to tax under the normal provisions of the Act,
the same cannot be taxed u/s 115JB of the I.T. Act, 1961;

(ii)   the Hon’ble Kolkata High Court, in the case of
Pr. CIT vs. Ankit Metal & Power Ltd. [2019] 109 taxmann.com
93 had considered an identical issue and after considering the decision
of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. (Supra)
held that when a receipt is not in the character of income as defined u/s 2(24)
of the I.T. Act, 1961, then it cannot form part of the book profit u/s 115JB.
The Court further observed that the facts of case before the Hon’ble Supreme
Court in the case of Apollo Tyres Ltd. were altogether different,
where the income in question was taxable but was exempt under a specific
provision of the Act, and as such it was to be included as a part of book
profit; but where the receipt is not in the nature of income at all, it cannot
be included in book profit for the purpose of computation u/s 115JB.

 

The Tribunal
further noted that to a similar effect was the ratio of the following
decisions:

(a)   Sutlej Cotton Mills
Ltd. vs. Asstt. CIT [1993] 45 ITD 22 (Cal. Trib.) (SB);

(b)   Shree Cement Ltd. vs.
Addl. CIT (2015) 152 ITD 561 (Jai. Trib.);

(c)   Sipca India (P) Ltd.
vs. Dy. CIT [2017] 80 taxmann.com 87 (Kol. Trib.).

 

As regards the case
laws relied upon, on behalf of the Revenue, the Tribunal held that the Tribunal
or High Court in those cases came to the conclusion that the capital receipt is
in the nature of income, but by a specific provision the same has been exempted
and hence came to the conclusion that once a particular receipt is routed
through the profit and loss account, then it should be part of book profit and
cannot be excluded while arriving at book profit u/s 115JB of the Act, 1961.

 

The Tribunal held
that when a particular receipt is exempt from tax under the Income tax Law,
then the same cannot be considered for the purpose of computation of book
profit u/s 115JB. It directed the AO to exclude the sales tax subsidy received
by the assessee amounting to Rs. 36,15,49,828 from the book profits computed
u/s 115JB.

 

The cross-objection
filed by the assessee was allowed.

 

FACTS III

Section 234B
r/w/s 115JB – Interest u/s 234B cannot be levied where liability arises on
account of retrospective amendment in Act

 

While completing
the assessment, interest of Rs. 9,84,94,367 was levied on total income computed
u/s 115JB on account of retrospective amendment to section 115JB. In the profit
and loss account for the year ended 31st March, 2006, the assessee
had debited provision for deferred tax of Rs. 433.61 crores. In the return of
income filed for A.Y. 2006-07, the aforesaid provision was not added back while
computing book profit u/s 115JB. However, subsequently the Finance Act, 2008
made a retrospective amendment to section 115JB by inserting clause (h) in
Explanation 1 to section 115JB according to which book profits are required to
be increased by an amount of deferred tax and provision thereof; the said
amendment was made with retrospective effect from A.Y. 2001-02. Accordingly,
during the course of assessment proceedings while computing book profits u/s
115JB, the AO, in view of the insertion of clause (h) in Explanation 1 to
section 115JB by the Finance Act, 2008 with retrospective effect, added the
provision for deferred tax liability and consequently interest u/s 234B was
levied which interest arose on account of the retrospective amendment to
section 115JB.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who allowed the appeal on the ground
that no liability can be fastened onto the assessee on the basis of
retrospective amendment to the Act.

 

HELD III

The Tribunal noted
that whether interest us/ 234B can be charged on the basis of a retrospective
amendment on recomputed book profit is no longer res integra. The
Coordinate Bench of the ITAT Bangalore Tribunal, in the assessee’s own case for
A.Y. 2005-06 in ITAT No. 924/Bang/2009, had considered an identical issue and
held that no interest can be levied u/s 234 B where liability arises on account
of retrospective amendment in the Act.

 

It observed that in the current year as well, the liability for interest
u/s 234B has arisen only on account of a retrospective amendment to the
provision of section 115JB. Accordingly, the assessee would not have
anticipated the retrospective amendment at the time of making the payments for
advance tax, but would have estimated the liability to pay advance tax on the
basis of the then existing provisions. The Tribunal found no error in the
findings recorded by the CIT(A), while deleting the interest liability u/s 234B
of the Act. The Tribunal upheld the findings of CIT(A) and rejected the ground
taken by the Revenue. This ground of appeal of the Revenue was dismissed.

I – Section 115JB – Provision for leave encashment is not to be added back to the book profit for computation u/s 115JB as it is an ascertained liability determined on actuarial basis II – Provision for wealth tax was not to be reduced from book profit to be computed u/s 115JB

6. [2020] 114 taxmann.com 538 (Mum.)(Trib.)

Caprihans India Ltd. vs. DCIT

ITA No. 4252/Mum/2011

A.Y.: 2005-06

Date of order: 23rd December, 2019

 

I – Section 115JB – Provision for leave encashment is not to
be added back to the book profit for computation u/s 115JB as it is an
ascertained liability determined on actuarial basis

 

II – Provision for wealth tax was not to be reduced from
book profit to be computed u/s 115JB

 

FACTS I

While assessing the total income of the assessee u/s 153C
r.w.s. 143(3) of the Act, the A.O. for the purpose of computing book profits
added the amount of provision for leave encashment of Rs. 15,30,070 on the
ground that it was an unascertained liability. He held that the liabilities
pertaining to leave encashment were not ascertained by the end of the financial
year, therefore the assessee had made a provision for the same.

 

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

 

The assessee then preferred an appeal to the Tribunal where,
relying on the ratio of the decision of the Punjab & Haryana High
Court in the case of CIT vs. National Hydro Electric Power Corporation
Ltd. [2010] 45 DTR 117 (P&H) it was contended that the provision
for leave encashment was made in the books on actuarial basis, therefore the
same could not be held to be in the nature of a provision for an unascertained
liability.

 

HELD I

The Tribunal held that if a business liability had definitely
arisen in the accounting year, the deduction should be allowed although the
liability may have to be quantified and discharged at a future date.

 

It observed that this view is fortified by the judgment of
the Hon’ble Supreme Court in the case of Bharat Earth Movers vs. CIT
[2000] 245 ITR 428 (SC). In the said case, it was observed by the
Hon’ble Apex Court that what should be certain is the incurring of the
liability and the fact that the same is capable of being estimated with
reasonable certainty, although the actual quantification may not be possible.
The Apex Court had observed that the provision for meeting the liability for
encashment of earned leave by the employees is not a contingent liability and
is admissible as a deduction.

 

In view of the above, the Tribunal held that as the provision
for leave encashment had been made by the assessee on actuarial basis,
therefore the same being in the nature of an ascertained liability could not
have been added by the A.O. for the purpose of determining the ‘book profit’
u/s 115JB. This ground of appeal of the assessee was allowed.

 

FACTS II

The assessee, while computing the ‘book profit’ u/s 115JB had
added back the amount of the wealth tax provision. On appeal, the assessee by
way of a specific ground had assailed the addition of the provision for wealth
tax while computing the ‘book profit’ u/s 115JB. However, the CIT(A) declined
to accept the aforesaid claim. Observing that the said provision was covered
u/s 115JB, the CIT(A) had upheld the view taken by the A.O.

 

Aggrieved, the assessee preferred an appeal to the Tribunal
where it was contended that as the provision for wealth tax does not fall
within any of the items of the ‘Explanation’ to section 115JB, the same could
not be added back while computing the ‘book profit’ under the said statutory
provision. In support of the aforesaid contention, reliance was placed on the
order of the ITAT, Kolkata, Special Bench in the case of JCIT vs. Usha
Martin Industries Ltd. [2007] 104 ITD 249 (SB).

 

HELD II

The Tribunal observed that an addition to the
‘book profit’ which during the period relevant to the year under consideration
was computed as per Part II of Schedule VI of the Companies Act, 1956 could be
made only if the same was permissible as per Item No. (a) to (k)
of the Explanation to section 115JB. As contemplated in clause (a) of
the ‘Explanation’ to this section, ‘the amount of Income-tax paid or payable,
and the provision therefor’ was liable to be added for computing the ‘book
profit’ u/s 115JB. However, as there was no such provision for making the
addition with regard to wealth tax, the A.O. could not have added the same for
computing the ‘book profit’ of the assessee company u/s 115JB. It observed that
its view is fortified by the order of the ITAT, Kolkata, Special Bench in the
case of JCIT vs. Usha Martin Industries Ltd. [2007] 104 ITD 249 (SB).
The Tribunal directed the A.O. to rework the ‘book profit’ u/s 115JB after
deleting the provision for wealth tax. This ground of appeal of the assessee
was allowed.

Sections 144C(1), 143(3) – For the period prior to 1st April, 2020 in case of an eligible assessee, draft assessment order u/s 143(3) r.w.s. 144C(1) is not required to be passed in cases in which no variation in returned income or loss is proposed Mere issuance of draft assessment order, when it was legally not required to be issued, cannot end up enhancing the time limit for completing the assessment u/s 143(3)

2.       [2020]
115 taxmann.com 78 (Mum.)

IPF India Property Cyprus (No. 1) Ltd. vs. DCIT

ITA No. 6077/Mum/2018

A.Y.: 2014-15

Date of order: 25th February, 2020

 

Sections 144C(1), 143(3) – For the period prior to 1st April,
2020 in case of an eligible assessee, draft assessment order u/s 143(3) r.w.s.
144C(1) is not required to be passed in cases in which no variation in returned
income or loss is proposed

 

Mere issuance of draft assessment order, when it was legally
not required to be issued, cannot end up enhancing the time limit for
completing the assessment u/s 143(3)

 

FACTS

The A.O., for A.Y. 2014-15, passed a draft assessment order
u/s 143(3) r.w.s. 144C(1) even when no variation was proposed therein to the
income or loss returned by the assessee.

 

The assessee challenged the correctness of the DRP’s order
dated 26th July, 2018 in the matter of assessment u/s 144(C)(1)
r.w.s. 143(3) of the Act. It contended that the A.O. had erred in passing a
draft assessment order u/s 143(3) r.w.s. 144C(1) of the Act, even when no
variation has been proposed therein to the income or loss returned by the
assessee and in passing the final assessment order u/s 143(3) of the Act, after
the due date provided u/s 153 of the Act, thus making the final assessment
order illegal, bad in law and non-est.

 

HELD

The Tribunal observed that the short question for
adjudication is whether or not the A.O. was justified in passing a draft
assessment order on the facts of the case, and whether the fact that the A.O.
chose to issue the draft assessment order even though he was not required to do
so, would result in affecting the normal time limit within which the normal
assessment order u/s 143(3) is to be issued. It also observed that there are no
variations in the returned income and the assessee income.

 

The controversy is thus confined to the question as to what
will be the rate on which income returned by the assessee is to be taxed. While
the assessee has claimed taxation @ 10% under article 11(2) of the India-Cyprus
DTAA, the A.O. has declined the said treaty protection on the ground that the
assessee was not beneficial owner of the said interest and, accordingly,
brought the income to tax @ 40% thereof. The Tribunal observed that there is,
quite clearly, no variation in the quantum of income.

 

The Tribunal observed that the assessee before it is a
non-resident company incorporated, and fiscally domiciled, in Cyprus.
Accordingly, in terms of section 144C(15)(b)(ii), the assessee is an eligible
assessee but then there is no change in the figure of income returned by the
assessee vis-a-vis the income assessed by the A.O. It held that there
is, therefore, no question of a draft assessment order being issued in this
case. It noted that the Finance Bill, 2020 proposes to make the issuance of
draft assessment orders in the case of eligible assessees mandatory even when
there is no variation in the income or loss returned by the assessee, but then
this amendment seeks to amend the law with effect from 1st April,
2020. Since the amendment is being introduced with effect from that date, the
Tribunal held that it is beyond any doubt that so far as the period prior to 1st
April, 2020 is concerned, in the cases in which no variations in the returned
income or loss were proposed, the draft assessment orders were not required to
be issued. The Tribunal upheld the plea of the assessee on this point.

 

The Tribunal noted that if no draft assessment order was to
be issued in this case, the assessment would have been time-barred on 31st
December, 2017 but the present assessment order was passed on 17th
August, 2018. It held that since no draft assessment order could have been
issued in this case, as the provisions of section 144C(1) could not have been
invoked, the time limit for completion of assessment was available only up to
31st December, 2017. The mere issuance of a draft assessment order,
when it was legally not required to be issued, cannot end up enhancing the time
limit for completing the assessment u/s 143(3). The Tribunal held the
assessment order to be time-barred.

 

The Tribunal allowed these grounds of appeal filed by the
assessee.

Sections 23, 24(b) – Where assessee is receiving rent from his own son and daughter who are financially independent, property is both a self-occupied and a let-out property – Consequently, interest claim cannot be allowed in full and shall have to be suitably proportioned, restricting the interest claim relatable to the self-occupied part thereof to Rs. 1.50 lakhs

1.       [2020]
115 taxmann.com 179 (Mum.)

Md. Hussain Habib Pathan vs. ACIT

ITA No. 4058/Mum/2013

A.Y.: 2009-10

Date of order: 5th March, 2020

 

Sections 23, 24(b) – Where assessee is receiving rent from
his own son and daughter who are financially independent, property is both a
self-occupied and a let-out property – Consequently, interest claim cannot be
allowed in full and shall have to be suitably proportioned, restricting the
interest claim relatable to the self-occupied part thereof to Rs. 1.50 lakhs

 

The children of the assessee were financially independent;
so instead of just transferring some money to their father, they wanted it to
be regarded (by mutual agreement) as rent – They believed that thus he would
receive funds in the shape of rent and that would also help meet their father’s
(the assessee’s) interest burden and help him with some tax savings – It was to
be regarded as a genuine arrangement in order to minimise assessee’s tax
liability

 

FACTS

The assessee claimed a loss of Rs. 15,32,120 qua his
residential house property in Mumbai. He claimed that he had incurred interest
on borrowed capital of Rs. 21,62,120 which was adjusted against rental income
of Rs. 9,00,000; this (rent), on a field inquiry, was found by the A.O. to be
from the assessee’s major son and major daughter residing in the said property
along with other family members of the assessee.

 

The A.O. was of the view that nobody would charge rent (for
residence) from his own son and daughter, particularly considering that both
are unmarried and living together with their family at its self-owned abode.
The arrangement was therefore regarded as merely a tax-reducing device adopted
by the assessee and liable to be ignored. Treating the house property as a
self-occupied property, the A.O. restricted the claim of interest u/s 24(b) to
Rs. 1,50,000.

 

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

 

Aggrieved, the assessee preferred an appeal to the Tribunal
where he contended that there is nothing to show that the arrangement, which is
duly supported by written agreements furnished in the assessment proceedings,
is fake or make-believe. Rental income cannot be overlooked or disregarded
merely because it arises from close family members. However, on a query from
the Bench, the counsel for the assessee was not able to state the status, i.e.,
self-occupied or rented, of the said premises for the earlier or subsequent
years, though he submitted that this is the first year of the claim of loss. He
was also unable to tell the Bench about the area let out, i.e., out of the
total area available, inasmuch as other family members, including the assessee,
were also residing in the same premises.

 

The Revenue’s case, on the other hand, was of no cognisance
being accorded to an arrangement which is against human probabilities and
clearly a device to avoid tax.

 

HELD

The Tribunal observed that the arrangement is highly unusual,
particularly considering that the rent is in respect of a self-owned property
(i.e., for which no rent is being paid), which constituted the family’s
residence, and with the assessee’s son and daughter both being unmarried.
However, the Bench felt that that may not be conclusive in the matter. Being a
private arrangement not involving any third party, not informing the
co-operative housing society was also found to be of not much consequence. It also
observed that the Revenue has rested on merely doubting the genuineness of the
arrangement without probing the facts further. What was the total area, as well
as its composition / profile? How many family members, besides the assessee
(the owner) and the two ‘tenants’, were resided thereat? Has the area let out
been specified, allowing private space (a separate bedroom each) to the son and
the daughter who would in any case be also provided access to or use of the
common area – specified or not so in the agreement/s, viz. kitchen, balcony,
living area, bathrooms, etc.? How had the rent been received, in cash or
through a bank and, further, how had it been sourced, whether from the assessee
(or any other family member), or from the capital / income of the ‘tenants’?
Why was there no attempt even to inquire whether the arrangement was a
subsisting / continuing one, or confined to a year or two, strongly suggestive
in the latter case of a solely tax-motivated exercise?

 

The Tribunal held that it could, however, well be that the
assessee’s major son and daughter are financially independent (or substantially
so), with independent incomes, sharing the interest burden of their common
residence with their father. As such, instead of transferring funds to him have
decided by mutual agreement to give the amounts as rent as that would, apart
from meeting the interest burden to that extent, also allow tax saving to the
assessee-father. A genuine arrangement cannot be disregarded just because it
results in or operates to minimise the assessee’s tax liability. The Tribunal
found itself in agreement with the assessee’s claim inasmuch as there was
nothing on record to further the Revenue’s case of the arrangement not being a
genuine one, but just that it was an unusual one.

 

However, on quantum the Tribunal found the stand of the
assessee infirm. It held that the house property, that is, the family residence
of the Pathan family, was both a self-occupied and a let-out property in view
of the rent agreements. It observed that the interest claimed (Rs. 21.62 lakhs)
is qua the entire property, which therefore cannot be allowed in full
against the rental income, which is qua only a part of the house
property. The assessee’s interest claim therefore cannot be allowed in full and
shall have to be suitably proportioned, restricting the interest claim
relatable to the self-occupied part thereof to Rs. 1.50 lakhs as allowed. The
assessee shall provide a reasonable basis for such allocation as well as the
working of the area let out. It observed that it may well be that in view of
the joint residence, no area (portion) is specified in the rent agreements. The
number of family members living jointly; their living requirements – which may
not be uniform; fair rental value of the property; etc. are some of the
parameters which could be considered for the purpose. The Tribunal directed the
A.O. to adjudicate thereon per a speaking order, giving definite reasons for
being in disagreement, whether in whole or in part, with the assessee’s claim
within a reasonable time.

 

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

Section 56 r/w Rule 11UA – Fair Market Value of shares on the basis of the valuation of various assets cannot be rejected where it has been demonstrated with evidence that the Fair Market Value of the assets is much more than the value shown in the balance sheet

22. [2019] 75 ITR (Trib.) 538 (Del.) India Convention & Culture Centre (P)
Ltd. vs. ITO ITA No. 7262/Del/2017 A.Y.: 2014-15 Date of order: 27th September,
2019

 

Section 56 r/w Rule 11UA – Fair Market
Value of shares on the basis of the valuation of various assets cannot be
rejected where it has been demonstrated with evidence that the Fair Market
Value of the assets is much more than the value shown in the balance sheet

 

FACTS

The assessee company issued 70,00,000 equity
shares of Rs. 10 each at a premium of Rs. 5 per share. The assessee company had
changed land use from agricultural to institutional purposes owing to which the
value of the land increased substantially. It contended before the ITO to
consider the Fair Market Value (FMV) of the land instead of the book value for
the purpose of Rule 11UA. However, the ITO added the entire share premium by
invoking section 56(2)(viib). He computed the FMV of shares on the basis of
book value instead of FMV of land held by the assessee company while making an
addition u/s 56(2)(viib) r/w Rule 11UA.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who confirmed the action of the A.O. The assessee then preferred
an appeal to the Tribunal.

 

HELD

The Tribunal observed that the assessee took
refuge of clause (ii) of Explanation (a) to section 56(2)(viib). The counsel
for the assessee argued that the lower authorities have wrongly computed the fair
market value of the shares on the basis of the book value ignoring the fair
market value of the land held by the company; since the assessee had obtained
permission of the competent authority for change of land use from
‘agricultural’ to ‘institutional’ for art, culture and convention centre, its
market value increased substantially. The Tribunal, convinced by the fact of
increase in market value of land, held that valuation of the shares should be
made on the basis of various factors and not merely on the basis of financials,
and the substantiation of the fair market value on the basis of the valuation
done by the assessee simply cannot be rejected where the assessee has
demonstrated with evidence that the fair market value of the asset is much more
than the value shown in the balance sheet.

 

The Tribunal allowed the appeal filed by the
assessee.

 

Section 68 r/w/s 194J – Merely because an amount is reflected in Form 26AS, it cannot be brought to tax in the hands of the assessee where an error was made by a third person

21 [2019] 75 ITR (Trib.) 364 (Mum.) TUV India (P) Ltd. vs. DCIT ITA No. 6628/Mum/2017 A.Y.: 2011-12 Date of order: 20th August, 2019

 

Section 68 r/w/s 194J – Merely because an
amount is reflected in Form 26AS, it cannot be brought to tax in the hands of
the assessee where an error was made by a third person

 

FACTS

The assessee filed return of income,
claiming Tax Deducted at Source (TDS) of Rs. 6.02 crores whereas TDS appearing
in the AIR information was Rs. 6.33 crores. During the course of scrutiny
assessment, the ITO concluded that the assessee had not disclosed income
represented by the differential TDS of Rs. 30.88 lakhs. The income was
calculated by extrapolating the differential TDS amount (ten per cent of TDS
u/s 194J) and was taxed as undisclosed income in the hands of the assessee.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A), claiming that the difference was mainly due to the error made by
one of the clients by wrongly furnishing Permanent Account Number (PAN) of the
assessee instead of that of one of their (other) clients. The assessee produced
all possible evidence to prove that the same was on account of a genuine error
made by its client. The CIT(A) deleted the addition partially and confirmed the
rest of the difference, on the ground that the same was irreconcilable.

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD

The Tribunal observed that the assessee’s
client had erroneously quoted the assessee’s PAN in its TDS return owing to
which higher TDS was reflected in the assessee’s Form 26AS. However, the
assessee duly filed all the details to explain the difference between the TDS
amounts before the ITO during remand proceedings as well as before the CIT(A).

 

It produced evidence by way of emails
exchanged with its client to prove that the error took place while filing TDS
returns by the client. It also filed a revised TDS return as well as ledger
account of the client in the assessee’s books, as well as reconciliation
statements, and offered party-wise explanations. Thus, the assessee discharged
its primary onus as cast under the Income Tax laws.

 

Neither the ITO nor the CIT(A) conducted
necessary inquiries despite having all information in their possession
submitted by the assessee during appellate / remand proceedings.

 

It further observed that the assessee has no
control over the database of the Income-tax Department as is reflected in Form
No. 26AS and the best that the assessee could do is to offer bona fide
explanations for the differential which the assessee did in this case during
appellate / remand proceedings. The CIT(A) / ITO ought to have conducted
necessary inquiries to unravel the truth, but asking the assessee to do the
impossible is not warranted. No defects in the books of accounts are pointed
out by the authorities below nor were the books of accounts rejected by them.
No cogent incriminating material was brought on record by the authorities below
as evidence / to prove that the assessee has received / earned any income
outside its books of accounts.

 

Another important aspect which the Tribunal
considered was that though the principle of res judicata was not applicable
to assessment proceedings under Income tax law, from the assessment orders for
other assessment years indications can be drawn as to the behaviour pattern of
the taxpayer and modus operandi of the taxpayer adopted to defraud
Revenue / conceal income, if any. No such incriminating information is brought
on record by Revenue. Therefore, considering the totality of facts as well as
on the touchstone of preponderance of probabilities, the Tribunal held that no
additions to the income are warranted in the hands of the assessee on account
of the above difference.

 

The ground of appeal filed by the assessee
was allowed.

 

Section 45 – Amount received by assessee in its capacity as a partner of a firm from the other partners on account of reduction in profit-sharing ratio of the assessee, is a capital receipt not chargeable to tax

9. [2019] 116 taxmann.com 385 (Mum.) Anik Industries Ltd. vs. DCIT ITA No. 7189/Mum/2014 A.Y.: 2010-11 Date of order: 19th March, 2020

 

Section 45 – Amount received by assessee in
its capacity as a partner of a firm from the other partners on account of
reduction in profit-sharing ratio of the assessee, is a capital receipt not
chargeable to tax

 

FACTS

The assessee was a partner in a partnership firm, namely
M/s Mahakosh Property Developers (the ‘firm’). The assessee was entitled to a
30% share in the profits of the firm. During the year, the assessee received a
sum of Rs. 400 lakhs on account of surrender of 5% share of profit (from 30% to
25%.) This sum was not included in the computation of total income on the
ground that the firm was reconstituted and a right was created in favour of the
existing partners. The existing partners whose share was increased, paid
compensation of Rs. 400 lakhs to the assessee.

The assessee relied
upon the decision of the Hon’ble Madras High Court in A.K. Sharfuddin vs.
CIT (1960 39 ITR 333) for the proposition that compensation received by
a partner from another partner for relinquishing rights in the partnership firm
would be capital receipt and there would be no transfer of asset within the
meaning of section 45(4) of the Act. Reliance was placed on other decisions
also to submit that the provisions of sections 28(iv) and 41(2) shall have no application
to such receipts.

 

The A.O. held that
the said payment was nothing but consideration for intangible asset, i.e., the
loss of share of partner in the goodwill of the firm. Therefore, this amount
was to be charged as capital gains in terms of the decision of the Ahmedabad
Tribunal in Samir Suryakant Sheth vs. ACIT (ITA No. 2919 &
3092/Ahd/2002) and the decision of the Mumbai Tribunal in Shri
Sudhakar Shetty (2011 130 ITD 197). Finally, the said amount was
brought to tax as capital gains u/s 45(1).

 

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

 

Aggrieved, the
assessee preferred an appeal to the Tribunal,

 

HELD

The Tribunal
observed that the only issue that fell for its consideration was whether or not
the compensation received by an existing partner from other partners for
reduction in profit-sharing ratio would be chargeable to tax as capital gains
u/s 45(1).

 

As per the
provisions of section 45(1), any profits or gains arising from the transfer of
a capital asset effected in the previous year shall be chargeable to capital
gains tax. The Tribunal noted that the answer to the aforesaid question lies in
the decision of the Hon’ble Karnataka High Court in CIT vs. P.N.
Panjawani (356 ITR 676) wherein this question was elaborately examined
in the light of various judicial precedents.

 

The Tribunal noted
that the decision of the Karnataka High Court in P.N. Panjawani (Supra) also
takes note of the fact that the firm is not recognised as a legal entity but
the Income-tax Act recognises the firm as a distinct legally assessable entity
apart from its partners. A clear distinction has been made between the income
of the firm and the income of the partner. It is further noted that there is no
provision for levying capital gains on consideration received by the partner
for reduction in the share in the partnership firm. Upon perusal of paragraph
22 of the decision, it is quite discernible that the factual matrix is
identical in the present case. The aforesaid decision has been rendered after
considering the various case laws on the subject as rendered by the Hon’ble
Apex Court. The Tribunal found the decision to be applicable to the given
factual matrix.

 

The Tribunal held
that the compensation received by the assessee from the existing partners for
reduction in the profit-sharing ratio would not tantamount to capital gains
chargeable to tax u/s 45(1). It deleted the addition made and allowed the
appeal filed by the assessee.

Sections 2(14), 2(47), 45, 56 – Giving up of a right to claim specific performance by conveyance in respect of an immovable property amounts to relinquishment of capital asset. It is not necessary that in all such cases there should have been a lis pending between the parties and in such lis the right to specific performance has to be given up. The payment of consideration under the agreement of sale, for transfer of a capital asset, is the cost of acquisition of capital gains. Amount received in lieu of giving up the said right constitutes capital gains and is exigible to tax

16. [2020] 117
taxmann.com 520 (Bang.)(Trib.) Chandrashekar
Naganagouda Patil vs. DCIT ITA No.
1984/Bang/2017 A.Y.: 2012-13 Date of order: 29th
June, 2020

 

Sections 2(14),
2(47), 45, 56 – Giving up of a right to claim specific performance by
conveyance in respect of an immovable property amounts to relinquishment of
capital asset. It is not necessary that in all such cases there should have
been a lis pending between the parties and in such lis the right
to specific performance has to be given up. The payment of consideration under
the agreement of sale, for transfer of a capital asset, is the cost of
acquisition of capital gains. Amount received in lieu of giving up the
said right constitutes capital gains and is exigible to tax

 

FACTS

The assessee, an
individual, entered into an agreement dated 9th February, 2005 to
purchase a vacant site in Amanikere village, Bangalore for a consideration of
Rs. 27,60,000. He paid an advance of Rs. 2,75,000 and agreed to pay the balance
at the time of registration of sale deed. The vendor of the property was
required to make out a marketable title to the property. Under clause 8 of the
agreement, the assessee had a right to enforce the terms by way of specific
performance.

 

On 8th
February, 2011, Mr. Channakeshava as vendor, along with the assessee as a
confirming party, sold the property to a third party for a consideration of Rs.
82,80,000. The preamble to the sale deed stated that the assessee has been
added as a confirming party as he was the agreement holder who had a right to
obtain conveyance of the property from the owner. Out of the consideration of
Rs. 1,200 per sq. feet, a sum of Rs. 500 per sq. feet was to be paid to the
vendor, Mr. Channakeshava, and Rs. 700 per sq. feet was to be paid to the
assessee.

 

The assessee
considered the sale consideration of Rs. 48,30,000 so received under the head
capital gains. The A.O. was of the view that under the agreement dated 9th
February, 2005, the assessee did not have any right over the property except a
right to get refund of advance paid. Accordingly, he taxed Rs. 45,55,000 under
the head income from other sources.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who confirmed the action of the A.O.
by observing that the assessee did not file any suit for specific performance
and did not have any right over the capital asset.

 

Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted that
the Karnataka High Court has in the case of CIT vs. H. Anil Kumar [(2011)
242 CTR 537 (Kar.)] held that the right to obtain a conveyance of
immovable property falls within the expression `property of any kind’ used in
section 2(14) and consequently it is a capital asset. The Tribunal held that
the right acquired under the agreement by the assessee has to be regarded as
‘capital asset’. Giving up of the right to claim specific performance by
conveyance in respect of an immovable property amounts to relinquishment of the
capital asset. Therefore, there was a transfer of capital asset within the
meaning of the Act. The payment of consideration under the agreement of sale,
for transfer of a capital asset, is the cost of acquisition of the capital
asset. Therefore, in lieu of giving up the said right, any amount
received constitutes capital gain and it is exigible to tax. It is not
necessary that in all such cases there should have been a lis between
the parties and in such lis the right to specific performance has to be
given up. The Tribunal held that the CIT(A) erred in holding that the assessee
did not file a suit for specific performance and therefore cannot claim the
benefit of the ratio laid down by the Hon’ble Karnataka High Court in
the case of H. Anil Kumar (Supra).

 

The Tribunal
allowed the appeal filed by the assessee.

 

Sections 11, 12, 139, 148 – A failure on the part of the Trust to file its return of income u/s 139(4A) cannot lead to withdrawal of exemption under sections 11 and 12 – Having filed a return of income u/s 139, subsequently, where a return is furnished in response to notice u/s 148, it replaces the return filed u/s 139, including section 139(4A), and all the other provisions of the Act including sections 11 and 12 are applicable – There was no time limit prescribed for submission of return of income and audit report in respect of a Trust whose income before claiming the exemption exceeded the basic exemption limit Clause (ba) to Section 12A, which prescribes time limit for submission of return of income and audit report to be time available u/s 139(1), is effective from A.Y. 2018-19 and is prospective in its application

23. [2019] 202 TTJ (Del.) 928 United Educational Society vs. JCIT ITA Nos.
3674 & 3675/Del/2017 and 2733 & 2734/Del/2018 A.Ys.: 2006-2007 to 2009-2010 Date of order: 28th June, 2019

 

Sections 11, 12, 139, 148 – A failure on
the part of the Trust to file its return of income u/s 139(4A) cannot lead to
withdrawal of exemption under sections 11 and 12 – Having filed a return of
income u/s 139, subsequently, where a return is furnished in response to notice
u/s 148, it replaces the return filed u/s 139, including section 139(4A), and
all the other provisions of the Act including sections 11 and 12 are applicable
– There was no time limit prescribed for submission of return of income and
audit report in respect of a Trust whose income before claiming the exemption
exceeded the basic exemption limit

 

Clause (ba) to Section 12A, which
prescribes time limit for submission of return of income and audit report to be
time available u/s 139(1), is effective from A.Y. 2018-19 and is prospective in
its application

 

FACTS

The assessee was an educational society. The
A.O. had received information about huge investments made by the society in
land and building; however, no return of income had been filed. The A.O. issued
notice u/s 148, in response to which the assessee filed return of income
showing ‘nil’ income after application of section 11. There were two sets of
financial statements prepared, one for the purpose of obtaining loan and
another filed along with the return. In view of this, the A.O. ordered a
special audit to be carried out u/s 142(2A). Based on the report of the special
auditor, the A.O. made a computation of the total income of the society by
disallowing the benefit of exemption u/s 11. The income was assessed under the
head ‘Profits & Gains of Business or Profession’ and the assessee was
assessed in the status of an AOP.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who gave partial relief to the assessee.

 

Still aggrieved, the assessee preferred an
appeal to the Tribunal.

 

HELD

The A.O. had denied the benefit of exemption
of section 11 to the assessee on account of the fact that the assessee had not
filed its return of income pursuant to section 139(4A). The assessee was a
society which had been granted registration u/s 12A; it engaged in activities
which were within the meaning of charitable purpose, and once so registered,
the computation of income had to be made in accordance with the provisions of
sections 11 and 12.

 

The fact that the assessee had filed its
return in response to notice issued u/s 148 and not under the provisions of
section 139(4A) cannot be a reason for not granting the benefit of exemption.
Once a return of income is submitted under the provisions of section 148, it
replaces the return filed u/s 139 and all other provisions of the Act,
including sections 11 and 12, become applicable as if it was a return filed
under the provisions of section 139. For a return filed under the provisions of
section 148, the relevant provisions of section 139 have to be applied along
with the procedure for assessment and computation of income, without
restricting it to exclude any procedure. Therefore, the trust was entitled to
claim the exemption u/s 11 in computation of income.

 

Clause (b) of section 12A mandates that
provisions of sections 11 and 12 shall not apply unless the accounts are
audited and a return is filed along with the audited accounts. Thus, as and
when computation was done these conditions had to be complied with. The issue
of whether or not the return was filed in time is not relevant for clause (b)
of section 12A.

 

The Finance Act, 2017 has amended section
12A and a new clause has been inserted specifying the time limit in case of such
trusts to furnish their return of income and audit report within the time
specified in section 139(4A). These provisions are prospectively applicable
from A.Y. 2018-19 onwards and cannot be treated as clarificatory amendments.

 

Note: Clause (ba) to section 12A as inserted
by the Finance Act, 2017 prescribes that the return of income and tax audit
report has to be submitted by a trust within the time provided by section
139(1). Consequently, the ratio of this decision will not apply post
insertion of clause (ba), i.e. for assessment years 2017-18 and thereafter.

 

The grounds of appeal filed by the assessee
were allowed.

 

Rule 34 of the Income-tax Appellate Tribunal Rules – The period of 90 days prescribed in Rule 34(5) needs to be computed by excluding the period during which lockdown was in force

15. [2020] 116 taxmann.com 565 (Mum.)(Trib.) DCIT vs. JSW Ltd. ITA Nos. 6103 & 6264/Mum/2018 A.Y.: 2013-14 Date of order: 14th May, 2020

 

Rule 34 of the Income-tax Appellate
Tribunal Rules – The period of 90 days prescribed in Rule 34(5) needs to be
computed by excluding the period during which lockdown was in force

 

FACTS

In this case, the hearing of the appeal was concluded on 7th
January, 2020 whereas the order was pronounced on 14th May, 2020,
i.e. much after the expiry of 90 days from the date of conclusion of hearing.
The Tribunal, in the order, suo motu dealt with the procedural issue of
the order having been pronounced after the expiry of 90 days of the date of
conclusion of the hearing. The Tribunal noted the provisions of Rule 34(5) and
dealt with the same.

 

HELD

The Tribunal noted
that Rule 34(5) was inserted as a result of the directions of the Bombay High
Court in the case of Shivsagar Veg Restaurant vs. ACIT [(2009) 317 ITR
433 (Bom.)]. In the rule so framed as a result of these directions, the
expression ‘ordinarily’ has been inserted in the requirement to pronounce the
order within a period of 90 days. It observed that the question then arises
whether the passing of this order beyond 90 days was necessitated by any
‘extraordinary’ circumstances.

It also took note of the prevailing unprecedented situation and the
order dated 6th May, 2020 read with the order dated 23rd
March, 2020 passed by the Apex Court, extending the limitation to exclude not
only this lockdown period but also a few more days prior to, and after, the
lockdown by observing that ‘In case the limitation has expired after 15th
March, 2020 then the period from 15th March, 2020 till the date
on which the lockdown is lifted in the jurisdictional area where the dispute
lies or where the cause of action arises shall be extended for a period of 15
days after the lifting of lockdown’.

 

The Tribunal also
noted that the Hon’ble Bombay High Court, in an order dated 15th
April, 2020 has, besides extending the validity of all interim orders, also
observed that, ‘It is also clarified that while calculating time for
disposal of matters made time-bound by this Court, the period for which the
order dated 26th March, 2020 continues to operate shall be added and
time shall stand extended accordingly’, and also observed that the
‘arrangement continued by an order dated 26th March, 2020 till 30th
April, 2020 shall continue further till 15th June, 2020’.

 

The extraordinary
steps taken suo motu by the Hon’ble jurisdictional High Court and the
Hon’ble Supreme Court also indicate that this period of lockdown cannot be
treated as an ordinary period during which the normal time limits are to remain
in force.

 

The Tribunal held
that even without the words ‘ordinarily’, in the light of the above analysis of
the legal position, the period during which lockout was in force is to be
excluded for the purpose of time limits set out in Rule 34(5) of the Appellate
Tribunal Rules, 1963.

 

The order was
pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962,
by placing the details on the notice board.

 

Section 143(3), CBDT Instruction No. 5/2016 – Assessment order passed upon conversion of case from limited scrutiny to complete scrutiny, in violation of CBDT Instruction No. 5/2016, is a nullity

14. TS-279-ITAT-2020 (Delhi) Dev Milk Foods Pvt. Ltd. vs. Addl. CIT ITA No. 6767/Del/2019 A.Y.: 2015-16 Date of order: 12th June, 2020

 

Section 143(3), CBDT Instruction No. 5/2016
– Assessment order passed upon conversion of case from limited scrutiny to
complete scrutiny, in violation of CBDT Instruction No. 5/2016, is a nullity

 

FACTS

For assessment year
2015-16, the assessee filed its return of income declaring a total income of
Rs. 19,44,88,700. The case was selected for limited scrutiny through CASS.

 

In the assessment
order, the A.O. stated that the assessee’s case was selected for limited
scrutiny with respect to long-term capital gains but it was noticed that the
assessee had claimed a short-term capital loss of Rs. 4,20,94,764 which had
been adjusted against the long-term capital gains. The A.O. was of the view
that the loss claimed by the assessee appeared to be suspicious in nature
primarily because the loss could possibly have been created to reduce the
incidence of tax on long-term capital gains shown by the assessee. The A.O.
further stated in the assessment order that in order to verify this aspect,
approval of the Learned Principal Commissioner of Income Tax (PCIT) was taken
to convert the case from limited scrutiny to complete scrutiny and that the
assessee was also intimated about the change in status of the case.

 

The A.O. held that
the purchase of shares did not take place and the transactions were sham in
view of documentary evidence, circumstantial evidence, human conduct and
preponderance of probabilities. He observed that the entire exercise was a
device to avoid tax. The A.O. completed the assessment u/s 143(3) after making
an addition of Rs. 4,20,94,764 on account of disallowance of short-term capital
loss, Rs. 8,41,895 for alleged unexplained expenditure on commission, and Rs.
1,93,20,000 on account of difference in computation of long-term capital gains.
Thus, the total income was computed by the A.O. at Rs. 25,67,43,360.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the additions made by the
A.O. on merits.

 

The assessee
preferred an appeal to the Tribunal challenging the validity of the order
passed by the A.O. inter alia on the ground that the return was
primarily selected for limited scrutiny only on the limited issue of long-term
capital gains (LTCG) on which aspect, as per the order of the CIT(A), there
remains no existing addition, and conversion of limited scrutiny to complete
scrutiny was on mere suspicion only and for verification only, on the basis of
invalid approval of the PCIT-3; consequently, the entire addition on account of
disallowance of short-term capital loss of Rs. 4,20,94,764 and Rs. 8,41,895 as
alleged unexplained commission expense is not as per CBDT instructions (refer
Instruction Nos. 19 and 20/2015 of 29th December, 2015) on the
subject and is ultra vires of the provisions of the Act.

 

HELD

The Tribunal, on
perusal of the instructions issued by CBDT vide its letter No. DGIT
VIF/HQ SI/2017-18 dated 30th November, 2017, observed that the
objective behind the issuance of these instructions is to (i) prevent the
possibility of fishing and roving inquiries; (ii) ensure maximum objectivity;
and (iii) enforce checks and balances upon the powers of an A.O.

 

The Tribunal
observed that the proposal drafted by the A.O. on 5th October, 2017
for converting the case from limited scrutiny to complete scrutiny and the
original order sheet entries, do not have an iota of any cogent material
mentioned by the A.O. which enabled him to reach the conclusion that this was a
fit case for conversion from limited scrutiny to complete scrutiny.

 

Examining the
proposal of the A.O. of 5th October, 2017 and the approval of the
PCIT dated 10th October, 2017 on the anvil of paragraph 3 of CBDT
Instruction No. 5/2016, the Tribunal held that no reasonable view is formed as
mandated in the said Instruction in an objective manner, and secondly, merely
suspicion and inference is the foundation of the view of the A.O. The Tribunal
also noted that no direct nexus has been brought on record by the A.O. in the
said proposal and, therefore, it was very much apparent that the proposal of
converting the limited scrutiny to complete scrutiny was merely aimed at making
fishing inquiries. It also noted that the PCIT accorded the approval in a
mechanical manner which is in clear violation of the CBDT Instruction No.
20/2015.

The Tribunal noted
that the co-ordinate bench of the ITAT at Chandigarh in the case of Payal
Kumari in ITA No. 23/Chd/2011, vide order dated 24th
February, 2011 has held that even section 292BB of the Act cannot save
the infirmity arising from infraction of CBDT Instructions dealing with the
subject of scrutiny assessments where an assessment has been framed in direct
conflict with the guidelines issued by the CBDT.

 

In this case, the
Tribunal held that the instant conversion of the case from limited scrutiny to
complete scrutiny cannot be upheld as the same is found to be in total violation
of CBDT Instruction No. 5/2016. Accordingly, the entire assessment proceedings
do not have any leg to stand on. The Tribunal held the assessment order to be
null and quashed the same.

 

The appeal filed by
the assessee was allowed.

 

Section 5 – When an assessee had an obligation to perform something and the assessee had not performed those obligations, nor does he even seem to be in a position to perform those obligations, a partial payment for fulfilling those obligations cannot be treated as income in the hands of the assessee

13. [2020] 116
taxmann.com 898 (Mum.) ITO vs. Newtech
(India) Developers ITA No.
3251/Mum/2018 A.Y.: 2009-10 Date of order: 27th
May, 2020

 

Section 5 – When
an assessee had an obligation to perform something and the assessee had not
performed those obligations, nor does he even seem to be in a position to
perform those obligations, a partial payment for fulfilling those obligations
cannot be treated as income in the hands of the assessee

 

FACTS

The assessee, under
the joint venture agreement entered into by it with Shivalik Ventures Pvt.
Ltd., was to receive Rs. 5.40 crores on account of development rights from the
joint venture and this payment was to be entirely funded by Shivalik Ventures
Pvt. Ltd., the other participant in the joint venture. Out of this amount, the
assessee was paid Rs. 86.40 lakhs at the time of entering into the joint
venture agreement, Rs. 226.80 lakhs was to be paid on ‘obtaining IOA and
commencement certificate’ by the joint venture, and Rs. 226.80 lakhs was to be
paid upon ‘all the slum-dwellers vacating said property and shifting to
alternate temporary transit accommodation.’

 

In terms of the
arrangement the amount of Rs. 86.40 lakhs was to be treated as an advance until
the point of time when at least 25% of the slum-dwellers occupying the said
property vacated the premises. The agreement also provided that in case the
assessee was unable to get at least 25% of the slum-dwellers occupying the said
property to vacate the occupied property in five years, the entire money will
have to be refunded to Shivalik Ventures Pvt. Ltd., though without any
interest, within 60 days of the completion of the five years’ time limit.
However, even till the time the re-assessment proceedings were going on, the
assessee had not been able to get the occupants of the property to vacate it.
In the financial statements, the amount of Rs. 86,40,000 received was reflected
as advance received.

 

The assessee was of
the view that no income has arisen in the hands of the assessee in respect of
the above-mentioned transaction. However, the A.O. was of the view that under
the mercantile method of accounting followed by the assessee, the transactions
are recognised as and when they take place and under this method, the revenue
is recorded when it is earned and the expenses are reported when they are
incurred. He held that the assessee has already received an amount of Rs.
86,40,000 during the year and the balance amount will be received by him in
instalments after the fulfilment of the conditions as mentioned in the
agreement. As regards the agreement terms, the A.O. was of the view that since
the stipulation about the payment being treated as an advance till at least 25%
occupants have vacated the property was by way of a modification agreement, it
was nothing but a colourable device to evade taxes.

 

The A.O., in an
order passed u/s 147 r/w/s 143(3) of the Act, taxed the entire amount of Rs. 5,40,00,000
in the year under consideration.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who held that the crux of the issue
was whether income had accrued to the assessee. The basic concept is that the
assessee should have acquired a right to receive the income. Drawing support
from the decisions of the Tribunal in R & A Corporate Consultants
India vs. ACIT (ITA No. 222/Hyd/2012) and K.K. Khullar vs. Deputy
Commissioner of Income Tax – 2008 (1) TMI 447 – ITAT Delhi-I, the
CIT(A) held that income can be considered to accrue or arise only when the
assessee is able to evacuate 25% slum-dwellers as per the agreement / deed. If
the assessee is unable to comply with this, the assessee will have to return
the sum to Shivalik.

 

The Revenue was
aggrieved by this and preferred an appeal to the Tribunal,

 

HELD

The Tribunal
observed that –

i)   the payment to be received by the assessee
was for performance of its obligations under the joint venture agreement;

ii)   when an assessee had an obligation to perform
something and the assessee had not performed those obligations, nor did he even
seem to be in a position to perform those obligations, it cannot be said that a
partial payment for fulfilling the obligations can be treated as income in the
hands of the assessee;

iii)  it was a composite agreement and, irrespective
of whether the modifications are looked at or not, all the terms of the
agreement are to be read in conjunction with each other;

iv)  what essentially flows from the decision of
the Apex Court in E.D. Sassoon & Co. Ltd. vs. CT [(1954) 36 ITR 27
(SC)] is that a receipt cannot have an income character in the hands of
the person who is still to perform the obligations, if the amount to be
received is for performance of such obligations;

v)  since the obligations of the assessee under
the joint venture agreement are not yet performed, there cannot be any occasion
to bring the consideration for performance of such obligations to tax;

vi)  the very foundation of the impugned taxability
is thus devoid of any legally sustainable basis.

 

As regards the
supplementary agreement, it observed that even if the same were to be
disregarded, income could accrue only on performance of obligations under the
joint venture agreement. In any case, it cannot be open to the A.O. to
disregard the supplementary, or modification whichever way one terms it, only
because its result is clear and unambiguous negation of tax liability in the
hands of the assessee. It also observed that whether the amount is actually
refunded or not, nothing turns on that aspect either.

 

Under the terms of
the joint venture agreement, the assessee was to receive the payment for
performance of its obligations under the agreement and in view of the
uncontroverted stand of the assessee that the obligations have not been
performed till date, the Tribunal held that the income in question never
accrued to the assessee.

The Tribunal held
that the taxability of Rs. 5.40 crores, on account of what is alleged to be
transfer of development rights, is wholly devoid of merits.

 

The appeal filed by
the Revenue was dismissed.

 

Sections 200A, 234E – Prior to amendment of section 200A, with effect from 1st June, 2015, late fee leviable u/s 234E for default in furnishing TDS statement could not be effected in course of intimation while processing TDS statement u/s 200A

12 [2019] 111 taxmann.com 493 (Trib.)(Del.) D.D. Motors vs. DCIT (CPC – TDS) ITA No. 956/Del/2017 A.Y.: 2013-14 Date of order: 18th October, 2019

 

Sections 200A, 234E – Prior to amendment of
section 200A, with effect from 1st June, 2015, late fee leviable u/s
234E for default in furnishing TDS statement could not be effected in course of
intimation while processing TDS statement u/s 200A

 

FACTS

The assessee firm, formed in July, 2012, for
the first time deducted tax at source amounting to Rs. 34,486 in the fourth
quarter of the financial year 2012-13. The amount of tax so deducted was paid
before the due date. However, TDS return was filed on 12th
September, 2013 instead of before the due date of 15th May, 2013.
Vide intimation dated 11th February, 2014, u/s 200A of the Act, a
fee of Rs. 24,000 u/s 234E @ Rs. 200 for the delay of 120 days was charged.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) against the levy of the late fee but the appeal was dismissed. It was contended that prior to 1st June, 2015, late
fee u/s 234E could not be levied while processing u/s 200A.

The assessee filed an appeal to the
Tribunal.

 

HELD

The Tribunal noted that section 200A has
been inserted w.e.f. 1st April, 2010 and section 234E w.e.f. 1st
July, 2012. It also noted that it is only w.e.f. 1st June, 2015 that
there is an amendment to section 200A permitting making of an adjustment of
fee, if any, u/s 234E. It observed that at the relevant time when the impugned
intimation u/s 200A was made there was no enabling provision therein for
raising a demand in respect of levy of fees u/s 234E.

 

The Tribunal held that while examining the
correctness of the intimation u/s 200A, it has to be guided by the limited
mandate of section 200A. Except for what has been stated in section 200A, no
other adjustments in the amount refundable to, or recoverable from, the tax
deductor were permissible in accordance with the law as it existed at that
point of time. The adjustment in respect of levy of fees u/s 234E was indeed
beyond the scope of permissible adjustments contemplated u/s 200A.

 

Further, the Tribunal observed that this
intimation is an appealable order u/s 246A (a) and, therefore, the learned
CIT(A) ought to have examined the legality of the adjustment made under this
intimation in the light of the scope of section 200A. The CIT(A) has not done
so. He has justified the levy of fees on the basis of the provisions of section
234E. But that is not the issue here. The issue is whether such a levy could be
effected in the course of intimation u/s 200A. The answer is clearly in the
negative. No other provision enabling a demand in respect of this levy has been
pointed out to us and it is, thus, an admitted position that in the absence of
the enabling provision u/s 200A, no such levy could be effected.

 

The Tribunal observed that a similar view
has been taken by the Coordinate Benches of Chennai, Ahmedabad and Amritsar.

 

The appeal filed by the assessee was
allowed. The Tribunal deleted the fee levied u/s 234E.

Section 54 – Investment, for purchase of new residential house, made up to date of filing of revised return of income qualifies for exemption u/s. 54

15

[2019] 104 taxmann.com 303 (Mum.)

Rajendra Pal Verma vs. ACIT

ITA No. 6814/Mum/2016

A.Y.: 2013-14

Dated: 12th March, 2019

 

Section 54 – Investment, for
purchase of new residential house, made up to date of filing of revised return
of income qualifies for exemption u/s. 54

 

FACTS

The
assessee e-filed his return of income for A.Y. 2013-14 on 31.03.2013.
Thereafter, he revised his return on 15.11.2014. In the course of assessment
proceedings, the A.O. observed that the assessee had sold a residential flat
and had claimed the entire long term capital gain of Rs. 1.75 crores as exempt
us. 54 of the Act.

 

The A.O.
observed that the assessee entered into an agreement dated 29.12.2014 with the
builder for the purchase of a new residential house. The agreement provided
that the construction of the house would be completed by September, 2017. The
A.O. also observed that the assessee had 
neither invested the capital gains in the purchase of a new house, nor
had he deposited the amount in a capital gains account as required by section
54(2). Accordingly, the A.O. disallowed the claim for exemption u/s. 54 of the
Act.

 

Aggrieved,
the assessee preferred an appeal before the CIT(A) who allowed the exemption to
the extent of investment made for purchase of new residential house up to the
due date of filing of the return of income as envisaged u/s. 139(1). He
restricted the claim of exemption to Rs. 83.72 lakhs. Still aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

The
Tribunal, on examining the provisions of section 54, observed that on a plain
and literal interpretation of section 54(2), it can be gathered that the
conscious, purposive and intentional wording provided by the legislature of
“date of furnishing the return of income u/s. 139” cannot be
substituted and narrowed down to section 139(1) of the Act. It held that the
date of furnishing the return of income u/s. 139 would safely encompass within
its sweep the time limit provided for filing the “return of income” by the
assessee u/s. 139(4) as well as the revised return filed by him u/s. 139(5).

 

The
Tribunal noted that the question as to whether an assessee would be eligible to
claim exemption u/s. 54 to the extent he had invested in the new residential
property up to the date on which he had filed the revised return of income had
been looked into by a co-ordinate bench of the Tribunal in the case of ITO
vs. Pamela Pritam Ghosh [ITA No. 5644(Mum.) of 2016, dated 27.06.2018].
The Tribunal in that case had observed that the due date for furnishing the
return of income according to section 139(1) was subject to the extended period
provided under sub-section (4) of section 139.

 

The Tribunal held that the assessee was entitled to claim exemption u/s.
54 to the extent he had invested towards purchase of new residential property
up to the date of filing revised return u/s. 139(5) [on 15.11.201]. As the
assessee had invested Rs. 2.49 crores towards purchase of the new residential
house up to that date (date of filing of revised return u/s. 139(5)) which is
in excess of long term capital gain, the entire long term capital gain was held
to be exempt u/s. 54. The appeal filed by the assessee was allowed.

Corrigendum:  In
the March 2019 issue of BCAJ, in the feature Tribunal News – Part A, the line “The
appeal filed by the Revenue was dismissed by the Tribunal” appearing on
page 56 in the decision at Serial No. 31 – should correctly read as “This
ground of appeal filed by the revenue was allowed by the Tribunal.”

Section 263 – If a matter is examined by the Assessing Officer during the course of assessment and consciously accepts the plea of the assessee, the order can still be subjected to revision u/s. 263 of the Act if the view adopted by the A.O. is unsustainable in law

14

[2019] 104 taxmann.com 155 (Ahmedabad)

Babulal S. Solanki vs. ITO

ITA No. 3943/Mum/2016

A.Y.: 2012-13

Dated: 4th March, 2019

 

Section 263 – If a matter is
examined by the Assessing Officer during the course of assessment and
consciously accepts the plea of the assessee, the order can still be subjected
to revision u/s. 263 of the Act if the view adopted by the A.O. is
unsustainable in law

 

FACTS

The
Commissioner, on verification of assessment records of the assessee, observed
that while computing capital gains from transfer of land by the assessee, sale
consideration was taken instead of the jantri value, which was higher,
and therefore the difference between the jantri value and sale
consideration remained untaxed. He opined that the assessment order passed by
the A.O. was erroneous and prejudicial to the interest of the Revenue.

 

The
assessee, however, submitted that this aspect was specifically examined by the
A.O. and his claim was allowed after due verification of the records and
details pertaining to the sale of land.

 

The Commissioner
did not accept the contention of the assessee and held that since there was no
mention by the A.O. as to why the stamp duty value was not adopted as full
value of consideration, the matter was not examined and thus he directed the
revision of the assessment order u/s. 263 of the Act. Aggrieved, the assessee
preferred an appeal to the Tribunal.

 

HELD

The
Tribunal noted the decision of the Supreme Court in the case of Malabar
Industrial Co. Ltd. vs. CIT (243 ITR 83) wherein it was held that where
two views are possible and the ITO has taken one view with which the
Commissioner does not agree, it cannot be treated as an erroneous order
prejudicial to the interests of the Revenue unless the view taken by the ITO is
unsustainable in law.

 

The
Tribunal held that even if the matter was examined by the A.O. and it was his
conscious call to accept the plea of the assessee, such a situation would not
take the matter outside the purview of section 263 as the view adopted by the
A.O. in the present case was clearly unsustainable in law.

 

Further,
the Tribunal observed that the Commissioner had directed examination of the
claim on merits and therefore the revision order of the Commissioner did not
call for any interference.

 

The appeal filed by the assessee was dismissed.

Section 54 r.w.s. 139 – Assessee would be entitled to claim exemption u/s 54 to extent of having invested capital gain on sale of old residential flat towards purchase of new residential property up to date of filing of his revised return of income u/s 139(5)

24.  [2019] 199 TTJ
(Mum.) 873

Rajendra Pal Verma vs. ACIT

ITA No.: 6814/Mum/2016

A.Y.: 2013-14

Date of order: 12th March, 2019

 

Section 54 r.w.s. 139 – Assessee would be entitled to claim
exemption u/s 54 to extent of having invested capital gain on sale of old
residential flat towards purchase of new residential property up to date of
filing of his revised return of income u/s 139(5)

 

FACTS

The assessee had e-filed
his return of income on 31st July, 2013. Thereafter, the assessee
filed a revised return of income on 15th November, 2014. The AO
observed that the assessee had during the year under consideration sold an old
residential flat and the entire long-term capital gain (LTCG) on the sale of
the old flat was claimed as exempt u/s 54. The assessee had purchased a new
residential flat as per an agreement dated 29th December, 2014 with
the builder / developer, as per which the construction of the property was
expected to be completed by September, 2017. However, the AO observed that the
assessee had failed to substantiate his claim of exemption u/s 54 amounting to
Rs. 1.75 crores; hence he declined to allow the same.

 

Aggrieved by the order, the assessee preferred an appeal to
the CIT(A). The CIT(A) was of the view that the assessee was entitled for claim
of exemption u/s 54 only to the extent he had invested the LTCG up to the due
date of filing of his return of income for the year under consideration, i.e.,
assessment year 2013-14 as envisaged u/s 139(1), therefore, he had restricted
his claim for exemption up to the amount of Rs. 83.72 lakhs.

 

HELD

The Tribunal held that on a perusal of section 54(2), it
emerges that the assessee in order to claim exemption u/s 54 remains under an
obligation to appropriate the amount of the capital gain towards purchase of
the new asset as per the stipulated conditions of section 54.Where the capital
gain was not appropriated by the assessee towards purchase or construction of
the residential property up to the date of filing of the return of income u/s
139, then in such a case the entitlement of the assessee to claim the exemption
by making an investment towards purchase or construction of the new asset would
be available, though subject to the condition that the assessee had deposited
the amount of such capital gain in the CGAS account with the specified bank by
the due date contemplated u/s 139(1). Further, in case any part of the capital
gain had already been utilised by the assessee for the purchase or construction
of the new asset, the amount of such utilisation along with the amount so
deposited would be deemed to be the cost of the new asset.

 

On the basis of the
aforesaid deliberations, it was viewed that the outer limit for the purchase or
construction of the new asset as per sub-section (2) of section 54 was the date
of furnishing of the return of income by the assessee u/s 139. It was viewed
that the date of furnishing of the return of income u/s 139 would safely
encompass within its sweep the time limit provided for filing of the return of
income by the assessee u/s 139(4) as well as the revised return filed by him
u/s 139(5). It was found that the instant case clearly fell within the sweep of
the aforementioned first limb, i.e., sub-section (1) of section 54. As the
assessee in the instant case had utilised an amount of Rs. 2.49 crores (i.e.,
much in excess of the amount of LTCG on sale of the residential property) up
till the date of filing of his revised return of income u/s 139(5) on 15th
November, 2014, therefore, his claim of exemption u/s 54 in respect of the
investment made towards the purchase of the new residential property up to the
date of filing of the revised return of income u/s 139(5) was found to be in
order.

 

Therefore, the assessee in the instant case was entitled to
claim exemption u/s 54 to the extent he had invested towards the purchase of
the new residential property under consideration up to the date of filing of
his revised return of income u/s 139(5), i.e., on 15th
November,  2014.

Section 48 – Legal and professional expenditure incurred by assessee, a foreign company, for sale of shares of its Indian subsidiary is an expenditure incurred wholly and exclusively in connection with transfer and is allowable as deduction while computing capital gains

5. [2019] 103
taxmann.com 297 (Mum) AIG Offshore
Systems Services Inc. vs. ACIT ITA No.:
6715/Mum/2014 A.Y.: 2010-11 Dated:  18th January, 2019

 

Section 48 – Legal
and professional expenditure incurred by assessee, a foreign company, for sale
of shares of its Indian subsidiary is an expenditure incurred wholly and
exclusively in connection with transfer and is allowable as deduction while
computing capital gains

 

FACTS


During the previous
year relevant to the assessment year in dispute, the assessee, a foreign
company, carrying on activities as a Foreign Institutional Investor, sold
shares held by it in its Indian subsidiary and offered long-term capital gains
arising from sale of shares of the Indian subsidiary.

 

During the course
of assessment proceedings, the Assessing Officer (AO) observed that the
assessee had claimed deduction of expenditure incurred towards transfer of
shares. The assessee submitted that the said expenditure represented legal /
professional fees paid to lawyers / accounting firms for assisting in transfer
of shares. The AO, however, held that:

 

(i)   the expenditure claimed by the assessee was
not of such nature that without incurring those expenses sale of shares could
not have been done;

(ii)   the objective behind incurring the expenses
was to optimise the economic value of the business and not for the purpose of
transfer of shares; and

(iii)  the documentary evidences relied upon by the
assessee also did not mention the name of the buyer.

 

The AO disallowed
the assessee’s claim for deduction of expenditure while computing capital
gains.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the disallowance by
holding that the expenditure incurred is in the nature of business expenditure.

 

Still feeling
aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD


The Tribunal,
relying on various decisions, held that expenditure which is intrinsically
connected to the transfer of a capital asset is allowable as deduction u/s.
48(i) of the Act. On a perusal of the documents filed by the assessee, the
Tribunal observed that the expenses were towards advice on sale of entire
shareholding, preparation of share / sale / purchase agreement, preparation of
closing documents including board resolution, share transfer forms, etc., and
were therefore for the transfer of shares. The Tribunal held that it was clear
from the scope of the work that the services rendered by the legal /
professional firm was intrinsically related to transfer of shares of the Indian
subsidiary and therefore the expenditure qualified for deduction u/s. 48(i).
The Tribunal also held that non-mentioning of the name of the buyer did not, in
any way, militate against the fact that the expenditure incurred by the
assessee on account of legal and professional fees was in connection with the
transfer of shares.

 

The appeal of the
assessee was allowed by the Tribunal.

Section 251 – Power of enhancement conferred on CIT(A) can be exercised only on the issue which is the subject matter of the assessment. The CIT (Appeals), even while exercising its power for enhancement u/s. 251, cannot bring a new source of income which was not subject matter of assessment

12. (2019) 69 ITR (Trib) 261 (Jaipur) Zuberi Engineering Company vs. DCIT ITA Nos.: 977-979/JPR/2018 A.Y.s: 2012-13 to 2014-15 Dated: 21st December, 2018

 

Section 251 – Power of enhancement
conferred on CIT(A) can be exercised only on the issue which is the subject
matter of the assessment. The CIT (Appeals), even while exercising its power
for enhancement u/s. 251, cannot bring a new source of income which was not
subject matter of assessment

 

FACTS


The assessee was a
partnership firm and a contractor engaged in erection and fabrication work. The
assessment was completed making disallowances of various expenses claimed by
the assessee. On appeal, the Commissioner (Appeals) enhanced the assessment by
rejecting books of accounts and estimating higher net profit. On further appeal
to the Tribunal, the Tribunal allowed the assessee’s appeal and held as under.

 

HELD


The power of
Commissioner (Appeals) to enhance an assessment exists in section 251. However,
this power can be exercised only on the issue which is a subject matter of the
assessment. In the instant case, the issue of not accepting the books of
accounts was never taken up by the Assessing Officer in the scrutiny
proceedings. Therefore, the same did not constitute the subject matter of the
assessment. Consequently, it is beyond the scope of the power of enhancement
available with Commissioner (Appeals).

 

It is a settled proposition of law that the
Commissioner (Appeals), even while exercising the power for enhancement u/s.
251, cannot bring a new source of income which was not a subject matter of the
assessment. An issue or claim discussed / taken up in the course of assessment
proceedings becomes the subject matter of assessment but all the probable
issues that are capable of being taken up for scrutiny but are not so taken up
can at most collectively constitute scope of assessment, for which Commissioner
(Appeals) cannot exercise power of enhancement.

 

However, the
Commissioner can exercise revisionary powers in respect of the same subject to
fulfilment of conditions specified u/s. 263. Thus, in the instant case, since
the issue of rejection of books of accounts was not the subject matter of
assessment, the Tribunal set aside the order of the Commissioner (Appeals) qua
the issue of the power of the Commissioner (Appeals) to reject the books of
accounts.

Even in a limited scrutiny case there is no bar on the AO as regards adjudication of issues raised by the assessee

11. (2019) 69 ITR (Trib) 79 (Amritsar) Thakur Raj Kumar vs. DCIT ITA No.: 766/Asr/2017 A.Y.: 2014-2015 Dated: 29th November, 2018

 

Even in a limited scrutiny case there is no
bar on the AO as regards adjudication of issues raised by the assessee

 

FACTS


The assessee’s case was selected for complete scrutiny under
Computer-Assisted Scrutiny Selection. However, later, it was converted to
limited scrutiny to examine an issue pertaining to capital gains on securities.
The assessee had sold an agricultural land and offered relevant capital gains
to tax. However, in the course of assessment proceedings, the assessee made a
fresh claim to substitute the cost of acquisition of the land claimed by him in
return of income, for another value. The AO denied his claim citing that the
scrutiny being a limited one, he had no jurisdiction to discuss and pass
judgment on issues not covered within the reasons of scrutiny and the only
recourse available to the assessee was to file a revised return. On appeal to
Commissioner (Appeals), the issue was decided against the assessee. The
assessee therefore preferred an appeal to the Tribunal.

 

HELD


The Tribunal held
that though the AO has no jurisdiction to touch upon issues which are not a
subject matter of limited scrutiny, however, there is no bar to adjudicate the
issues raised by the assessee. This is because an AO is obliged to make correct
assessment in accordance with provisions of the law. Further, in terms of
Circular No. 14 dated 11.04.1955, the department cannot take advantage of
ignorance of the assessee to collect more tax than what is legitimately due.

 

The matter was,
thus, remanded to the file of the Assessing Officer to adjudicate the
assessee’s claim. Though the decision in Goetz (India) Limited vs. CIT
(2006) 284 ITR 323(SC) was relied on by the D.R., the same does not seem to
be discussed by the Tribunal.

 

Section 54 – An assessee is entitled to claim deduction u/s. 54 if he purchases a new house property one year before or two years after the date of transfer of the original asset, irrespective of the fact whether money invested in purchase of new house property is out of sale consideration received from the transfer of original asset or not

10. (2019) 198 TTJ (Mum) 370 Hansa Shah vs. ITO ITA No.: 607/Mum/2018 A.Y.: 2011-12 Dated : 5th October, 2018

 

Section 54 – An assessee is entitled to
claim deduction u/s. 54 if he purchases a new house property one year before or
two years after the date of transfer of the original asset, irrespective of the
fact whether money invested in purchase of new house property is out of sale consideration
received from the transfer of original asset or not

 

FACTS


During the year,
the assessee had sold a flat jointly held with others and declared her share of
capital gain at Rs. 55,82,426. However, she claimed deduction of the capital
gain u/s. 54 of the Act towards investment made of Rs. 98,90,358 in purchase of
a new flat. The AO noted that the investment of Rs. 98,90,358 included housing
loan of Rs. 50 lakh availed from Citibank. The assessee submitted that the
housing loan was not utilised for the purchase of the new house. The assessee
had produced the loan sanction letter of the bank as well as bank statement to
demonstrate that the housing loan was disbursed much after the purchase of the
new house by the assessee. In fact, the assessee had also explained the source
of funds utilised in the purchase of the new house. However, the AO rejected
the claim of the assessee and reduced the housing loan from the cost of the new
house and allowed the balance amount of Rs. 48,93,358 towards deduction u/s. 54
of the Act. Accordingly, he made an addition of Rs. 6,92,068 towards long-term
capital gain.

 

Aggrieved by the
assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A)
sustained the addition made by the AO.

 

HELD


The Tribunal held that even assuming that the housing loan was utilised
for the purpose of purchase of new house property, it needed to be examined
whether by the reason of utilisation of housing loan in purchase of new house
property, the assessee would not be eligible to claim deduction u/s. 54 of the
Act. For this purpose, it was necessary to look into the provisions of section
54. On a careful reading of the aforesaid provision as a whole and more
particularly sub-section (1) of section 54 of the Act, it became clear that the
only condition which required to be fulfilled was, one year before or two years
after the date of transfer of the original asset the assessee must have
purchased the new house property.

 

In case the logic of the department that for availing deduction the
consideration received by the assessee from the sale of the original asset had
to be utilised for investment in the new house property was accepted, the
provision of section 54(1) would become redundant because such a situation
would never arise in case assessee purchased the new house property one year
before the date of transfer of new asset.

 

Thus, on a plain
interpretation of section 54(1) of the Act, it had to be concluded that if the
assessee purchased a new house property one year before or two years after the
date of transfer of the original asset, he was entitled to claim deduction u/s.
54 of the Act irrespective of the fact whether money invested in the purchase
of the new house property was out of the sale consideration received from transfer
of original asset or not. In the present case, the assessee had purchased the
new house property within the stipulated period of two years from the date of
transfer of the original asset. That being the case, the assessee was eligible
to avail deduction u/s. 54 of the Act.

Section 12A read with section 11 and 12 – Where return of income had been filed in response to notice u/s. 148, requirement u/s. 12A filing of return of income stood fulfilled

9. [2019] 198 TTJ (Chd) 498 Genius Education Society vs. ACIT ITA No.: 238/Chd/2018 A.Y.: 
2012-13 Dated: 20th August, 2018

     

Section 12A read with section 11 and 12 –
Where return of income had been filed in response to notice u/s. 148,
requirement u/s. 12A filing of return of income stood fulfilled


FACTS


The assessee applied for registration u/s. 10(23C)(vi) which was denied
by the Chief Commissioner. The assessee had also applied for registration as a
charitable society u/s. 12AA on the same day which was granted by the Principal
Commissioner, with effect from 01.04.2012 effective from assessment year
2013-14. Subsequently, the Assessing Officer (AO) noticed that for the impugned
assessment year, no return of income had been filed by the assessee and the
assessee’s application for approval u/s. 10(23C)(vi) had been rejected.
Consequently, reopening proceedings were initiated by issuing notice under section
148. In response to the same, the assessee filed Nil return of income. During
assessment proceedings, the assessee contended that having been granted
registration u/s. 12AA effective from assessment year 2013-14, the benefit of
the same was available to it in the impugned year also by virtue of the first
proviso to section 12A(2).

 

Aggrieved, the
assessee preferred an appeal to the CIT(A). The CIT(A) upheld the order of the
AO, holding that benefit of second proviso was not available to the assessee since
in the present case the assessee was ineligible to claim exemption not on
account of absence of registration u/s. 12A, but because of the fact that
assessee had failed to file its return of income and report of audit, as
required under the provisions of section 12A(b).

 

HELD


The Tribunal held
that it was not the case of the Revenue that the reopening was valid on the
ground of absence of registration u/s. 12A for the impugned year, therefore
making its income taxable. In fact, the CIT(A) had accepted that reopening
could not have been resorted to on account of absence of registration u/s.12A
for the impugned year on account of the second proviso to section 12A(2).
Therefore, the contention of the assessee on this count was accepted by the
Revenue. But the argument of the Revenue was that because the assessee failed
to comply with the conditions of section 12A(1)(b) which was necessary for
claiming exemption u/s. 11 and 12, its income for the impugned year was
taxable, which had thus escaped assessment and, therefore, the reopening was
valid. The said conditions, as pointed out by the CIT(A), were the filing of
return of income accompanied with the report of an auditor in the prescribed
form.

 

The requirement of filing of return of income and the report of audit
have been specified for being eligible for claiming exemption u/s. 11 and 12
along with the grant of registration u/s. 12AA. The section nowhere prescribed
the filing of return by any due date, therefore the findings of the CIT(A) that
the assessee having not filed its return within the prescribed time it had
failed to comply with the requirement prescribed, was not tenable. As for the
requirement of filing report of audit in the prescribed form, the said
condition has been held by courts to be merely procedural and, therefore,
directory in nature and not mandatory for the purpose of claiming exemption
u/s. 11 and 12.

 

Therefore, in view
of the above, no merit was found in the argument of the Revenue that the
assessee was not eligible for exemption u/s. 11 and 12 on account of not having
complied with the requirements of section 12A(1)(b). Since this was the sole
basis for upholding the validity of the reassessment proceedings, it was noted
that the reassessment in the present case was invalid, on account of the second
proviso to section 12A(2) which specially debarred resort to the same in view
of registration having been granted from the immediately succeeding assessment
year. The reassessment framed was therefore set aside and the addition made was
deleted.

 

Sections 10(37), 45 – Interest on enhanced compensation received from government on compulsory acquisition of agricultural land is exempt u/s. 10(37) of the Income-tax Act, 1961 and consequently TDS deducted on account of enhanced compensation was liable to be refunded

8. [2019] 104 taxmann.com 99 (Del) Baldev Singh vs. ITO ITA No.: 2970/Del./2015 A.Y.: 2011-12 Dated: 8th March, 2019

 

Sections 10(37), 45 – Interest on enhanced
compensation received from government on compulsory acquisition of agricultural
land is exempt u/s. 10(37) of the Income-tax Act, 1961 and consequently TDS
deducted on account of enhanced compensation was liable to be refunded

 

FACTS

The assessee, in
the return of income filed by him, claimed exemption u/s. 10(37) of the Act in
respect of enhanced compensation of Rs. 4,69,20,146, received by him during the
previous year in respect of agricultural land inherited by him from his
parents.

 

During the course
of assessment proceedings, the Assessing Officer (AO) observed that the said
compensation of Rs. 4,69,20,146 comprised of Rs. 2,70,33,074 as principal and
balance Rs. 1,98,85,972 as interest and TDS amounting to Rs. 93,84,030 was
deducted, out of which Rs. 74,45,433 was refunded to the assessee and credited
to his account.

 

The AO, based on
the amendments made in sections 56(2), 145A(b) and 57(iv) of the Act which were
applicable with effect from 1.04.2010 held that interest on enhanced
compensation was liable to be taxed as income in the year in which it was
received, irrespective of the method of accounting followed and accordingly
taxed Rs. 99,42,986 being the interest received after allowing 50% deduction.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A). In the appellate proceedings before
CIT(A) it was contended that the Supreme Court has in CIT vs. Ghanshyam Dass
(HUF) [2009] 315 ITR 1 held interest on enhanced compensation to be a part
of compensation and therefore the same is exempt u/s. 10(37) of the Act. This
decision of the Supreme Court in CIT vs. Ghanshyam Dass (HUF) (supra)
has been followed in the case of CIT vs. Gobind Bhai Mamaiya [2014] 367 ITR
498 (SC)]. The CIT(A) upheld the action of the AO and observed that the
decision of the Supreme Court in the case of Gobind Bhai Mamaiya (supra)
did not deal with exemption u/s. 10(37) of the Act but held that interest u/s.
28 of the Land Acquisition Act is interest on enhanced compensation and is to
be treated as an accretion to the value and part of compensation. He held that
the decision of the SC in Gobind Bhai Mamaiya (supra) is not applicable
to the facts of the case.

 

Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

The Supreme Court
has, in Union of India vs. Hari Singh [(2018) 254 Taxman 126 (SC)]
relied by the assessee, set aside the matter to the AO and specifically directed
the AO to examine the facts of the case and apply the law as contained in the
Act. The SC also directed the AO to find out whether the land was agricultural
land and if that be the case then the tax deposited with the Income-tax
Department shall be refunded to the assessee.

 

The Tribunal
observed that the CIT(A), in his order, did not state that an amount shall be
brought to tax u/s. 45(5) without applying provisions of section 10(37) of the
Act which exempts receipts from being taxed. The Tribunal held that section
45(5) did not make reference to the nature of property acquired but dealt with
the category of cases which fell within the description of “capital assets”.
However, section 10(37) specifically exempted income chargeable under the head
capital gains arising from transfer of agricultural land. It was therefore
clear that the Supreme Court specifically directed the AO to examine if the
compensation received was in respect of the agricultural land, (and if so) the
tax deposited with the Income-tax Department shall be refunded to the
depositors.

 

The Tribunal,
therefore, following ratio laid down by the Supreme Court in the case of CIT
vs. Ghanshyam Dass (supra) and Union of India vs. Hari Singh (supra)
directed the AO to refund the TDS amount deducted on account of enhanced
compensation.

 

The Tribunal
allowed the appeal filed by the assessee.

 

Explanation 2 to section 37(1) – Explanation 2 to section 37(1) inserted with effect from 01.04.2015 is prospective

7. [2019] 103 taxmann.com 288 (Del) National Small Industries Corp Ltd. vs. DCIT ITA No.: 1367/Del/2016 A.Y.: 2012-13 Dated: 25th February, 2019

 

Explanation 2 to section 37(1) –
Explanation 2 to section 37(1) inserted with effect from 01.04.2015 is
prospective

 

FACTS


The assessee, a
public sector undertaking, established to promote and develop “Skill India”
through cottage and small industries, incurred expenses under the head
“Corporate Social Responsibility” (CSR) and claimed the same as deduction in
the return of income.

 

The Assessing
Officer (AO) was of the opinion that the claim of such expenses was towards CSR
and therefore could not be allowed. He invoked Explanation 2 to section 37(1)
of the Act and disallowed the expenditure so claimed.

 

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

 

Still aggrieved,
the assessee preferred an appeal to the Tribunal.

 

HELD


The Tribunal held
that Explanation 2 has been inserted in section 37(1) with effect from
01.04.2015 and the same is prospective. The amendment could not be construed as
a disadvantage to the assessee for the period prior to the amendment. The Tribunal
observed that the expense sought to be disallowed under Explanation 2 to
section 37(1) of the Act was the expenditure on CSR which provision itself came
into existence under the Companies Act in the year 2013. It observed that the
lower authorities disallowed the expenditure merely on the ground that
Explanation 2 to section 37(1) of the Act applied to the year under
consideration and the expenditure was therefore to be disallowed.



The Tribunal,
following the decision of the Supreme Court in the case of CIT vs. Vatika
Townships Pvt. Ltd. [(2014) 367 ITR 466 (SC)] held that the amendment would
not affect the allowability of expenses for the assessment year under
consideration.

 

The appeal filed by
the assessee was allowed.

Sections 50, 72 and 74 – Brought-forward business loss and brought-forward long-term capital loss can be set off against deemed short-term capital gains u/s. 50 arising on sale of factory building

6. [2019] 104 taxmann.com 129 (Mum) ITO vs. Smart Sensors & Transducers Ltd. ITA No.: 6443/Mum/2016 A.Y.: 2011-12 Dated: 6th March, 2019

 

Sections 50, 72 and 74 – Brought-forward
business loss and brought-forward long-term capital loss can be set off against
deemed short-term capital gains u/s. 50 arising on sale of factory building


FACTS


The assessee
company in its original return of income declared long-term capital loss on the
sale of its factory building. During the course of assessment proceedings, the
Assessing Officer (AO) noted that the factory building was a depreciable asset
and the gain on sale of such depreciable asset was to be treated as deemed
short-term capital gains as per section 50 of the Act. Subsequently, the
assessee revised its return of income and offered the gains from the sale of
factory building as short-term capital gains after setting-off brought-forward
business loss and brought-forward long-term capital loss.

 

The AO noted that
in view of section 74 of the Act, long-term capital loss can be set off only
against long-term capital gains and that as per section 72 of the Act,
brought-forward business loss can be set off against business income and not
against short-term capital gains. The AO, thus, disallowed the assessee’s claim
for brought-forward business loss and brought-forward capital loss.

 

The aggrieved
assessee preferred an appeal to the CIT(A) who, considering the decision of the
Bombay High Court in CIT vs. Manali Investments [(2013) 219 Taxman 113 (Bom
HC)] allowed the assessee’s appeal.

 

Aggrieved, the
Revenue preferred an appeal to the Tribunal.

 

HELD


The Tribunal,
following the decision of the Bombay High Court in the case of CIT vs.
Manali Investments (supra), allowed the assessee’s claim for set-off of
brought-forward long-term capital loss against deemed short-term capital gains
u/s. 50. The Tribunal noted that the Hon’ble Bombay High Court in its decision
had held that by virtue of section 50, only the capital gain is to be computed
u/s. 50 and the deeming fiction is restricted only for the purposes of section
50 and the benefit of set-off of long-term capital loss u/s. 74 has to be
allowed.

 

As regards the
set-off of brought-forward business loss, this issue was also covered by the
decision of the Bombay High Court in CIT vs. Manali Investments (supra).
The Tribunal held that the CIT(A) had rightly allowed the assessee’s claim for set-off of brought-forward business loss as well as
brought-forward long-term capital loss against deemed short-term capital gains
computed u/s. 50.

 

The Tribunal
dismissed the appeal filed by the Revenue.

Section 154 – What is permissible is merely rectification of an obvious and patent mistake apparent from record and not wholesale review of an earlier order.

4. 
[2019] 103 taxmann.com 154
(Mum.) Maccaferri
Environmental Solutions (P.) Ltd. vs. ITO ITA No.:
7105/Mum./2014 A.Y.: 2010-11 Dated: 12th
December, 2018

 

Section 154 – What is permissible is merely
rectification of an obvious and patent mistake apparent from record and not
wholesale review of an earlier order.

 

FACTS


The assessee, a private limited company,
filed its return of income declaring total income at NIL after setting off
brought forward losses under the normal provisions of the Act. Further, since
the book profit determined by the assessee was a negative figure, there was no
liability to pay MAT on book profits u/s. 115JB of the Act and the same was
accordingly declared and disclosed in the return of income filed by the
assessee. The case was selected for scrutiny and assessment was completed u/s.
143(3) of the Act determining the total income at NIL. Subsequently, the
Assessing Officer (AO) issued notice u/s. 154 of the Act so as to rectify the
mistake of accepting the book profits as such and thereby determined the book
profits at Rs. 6,95,57,438.

 

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

 

Aggrieved, the assessee preferred an appeal
to the Tribunal,

 

HELD


The Tribunal made a reference to the well
settled position that the power u/s. 154 to rectify a mistake apparent from
record did not involve a wholesale review of the earlier order and rather, what
was permissible was only to rectify an obvious and patent mistake. The Tribunal
further noted that even debatable points of law would not fall in the meaning
of the expression “mistake apparent” for the purposes of section 154
of the Act. The Tribunal observed that the adjustments made by the AO disagreeing
with the determination of book profits by the assessee u/s. 115JB of the Act
involved a debatable issue which was outside the purview of section 154 of the
Act. The Tribunal held that action of the AO in invoking section 154 was unjust
in law as well as on facts. The appeal filed by the assessee was allowed.

Section 54F – Deposit of the amount of capital gains in a separate savings bank account and utilisation thereof for the purposes specified u/s. 54F is said to be substantial compliance with the requirements of section 54F.

3.      
[2019] 102 taxmann.com 50
(Jaipur) Goverdhan Singh
Shekhawat vs. ITO ITA No.:
517/JP/2013 A.Y.: 2009-10  Dated: 11th
January, 2019

 

Section 54F – Deposit of the amount of
capital gains in a separate savings bank account and utilisation thereof for
the purposes specified u/s. 54F is said to be substantial compliance with the
requirements of section 54F.

 

FACTS


The assessee, an individual, received
certain compensation on compulsory acquisition of land. The assessee offered
the said receipts as long-term capital gains and claimed exemption u/s. 54F of
the Act by depositing the amount of capital gains in a separate savings bank
account. The assessee contended that the amount of gains was deposited under
Capital Gains Accounts Scheme 1988. The Assessing Officer (AO) observed that
the account in which amount was deposited by the assessee was not a Capital
Gains Scheme Account and therefore denied exemption u/s. 54F of
the Act.

 

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

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD

The Tribunal noted that the undisputed facts
viz. that despite having an existing account in another bank, the assessee
opened a new bank account and deposited not only the amount of consideration
but also the TDS refund received by it in this respect. Subsequently, the
assessee utilised the said amount for the construction of house. Thus, the
Tribunal noted that since the assessee had not utilised the amount for the
purposes stated u/s. 54F, he had duly deposited the entire compensation in the
bank account at the time of filing of return of income and claimed exemption
u/s. 54F of the Act. The Tribunal held that the assessee was entitled to claim
exemption as the assessee had substantially complied with the provisions of
sub-section (4) of section 54F.

 

The Tribunal held that the idea of opening
capital gains account under the scheme is to delineate the funds from other
funds regularly maintained by the assessee and to ensure that benefit availed
by an assessee by depositing the amount in the said account is ultimately
utilised for the purposes for which the exemption has been claimed i.e, for
purchase or construction of a residential house.

 

The Tribunal further observed that though
savings bank account was not technically a capital gains account, however the
essence and spirit of opening and maintaining a separate capital gains account
was achieved and demonstrated by the assessee. The Tribunal thus held that
merely because the saving bank account is technically not a capital gains
account, it cannot be said that there is violation of the provisions of s/s.
(4) of the Act in terms of not opening a capital gains account scheme.

 

The Tribunal allowed the appeal filed by the
assessee.

Section 22, 24(4) and 56 – Income earned by assessee from letting out space on terrace for installation of mobile tower/antenna was taxable as ‘income from house property’ and, therefore, deduction u/s. 24(a) was available in respect of it.

2.      
(2019) 197 TTJ (Mumbai) 966 Kohinoor
Industrial Premises Co-operative Society Ltd. vs. ITO ITA No.:
670/Mum/2018 A. Y.: 2013-14 Dated: 5th
October, 2018

           

Section 22, 24(4) and 56 – Income earned by
assessee from letting out space on terrace for installation of mobile
tower/antenna was taxable as ‘income from house property’ and, therefore,
deduction u/s. 24(a) was available in respect of it.

 

FACTS

 The assessee, a co-operative society, had
derived income from letting out some space on terrace for installation of
mobile towers/antenna which was offered “as income from house
property”. Further, against such income the assessee had claimed deduction
u/s. 24(a). The Assessing Officer observed that, the terrace could not be
termed as house property as it was the common amenity for members. Further, the
Assessing Officer observed that the assessee could not be considered to be
owner of the premises since as per the tax audit report, conveyance was still
not executed in favour of the society. He also observed that the annual letting
value of the terrace was not ascertainable. Accordingly, he concluded that the
income received by the assessee from the mobile companies towards installation
of mobile towers/antenna was to be treated as “income from other
sources”.

 

Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) confirmed the order of
the Assessing officer on grounds that the income received by the assessee was
in the nature of compensation received for providing facilities and services to
cellular operators on the terrace of the building.

 

HELD

The Tribunal
held that the terrace of the building could not be considered as distinct and
separate but certainly was a part of the house property. Therefore, letting-out
space on the terrace of the house property for installation and operation of
mobile tower/antenna certainly amounted to letting-out a part of the house
property itself. That being the case, the observation of the Assessing Officer
that the terrace could not be considered as house property was unacceptable. As
regards the observation of the CIT(A) that the rental income received by the
assessee was in the nature of compensation for providing services and facility
to cellular operators, it was relevant to observe, the department had failed to
bring on record any material to demonstrate that in addition to letting-out
space on the terrace for installation and operation of antenna, the assessee
had provided any other service or facilities to the cellular operators. Thus,
from the material on record, it was evident that the income received by the
assessee from the cellular operators/mobile companies was on account of letting
out space on the terrace for installation and operation of antennas and nothing
else. Therefore, the rental income received by the assessee from such
letting-out had to be treated as income from house property.

 

 

Section 68 – Bank account of an assessee cannot be held to be ‘books’ of the assessee maintained for any previous year, and therefore, no addition u/s. 68 can be made in respect of a deposit in the bank account.

1.      
[2019] 198 TTJ (Asr) 114 Satish Kumar vs. ITO ITA No.: 105/Asr/2017 A.Y.: 2008-09 Dated: 15th January, 2019

                                               

Section 68 – Bank account of an assessee
cannot be held to be ‘books’ of the assessee maintained for any previous year,
and therefore, no addition u/s. 68 can be made in respect of a deposit in the
bank account.

 

FACTS


The assessee had filed his return of income
for A.Y. 2008-09. In the course of the assessment proceedings the Assessing
Officer observed that the assessee had during the previous year made a cash
deposits of Rs.11,47,660 in his saving bank account. In the absence of any
explanation on the part of the assessee as regards the ‘nature’ and ‘source’ of
the aforesaid cash deposit in the aforesaid bank account, the Assessing Officer
made an addition of the peak amount of cash deposit of Rs.11,47,660 u/s. 68 of
the Act.

 

Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) upheld the addition made
by the Assessing Officer and dismissed the appeal.

 

HELD


The Tribunal held that an addition u/s. 68
could only be made where any sum was found credited in the books of an assessee
maintained for any previous year, and the assessee either offered no
explanation about the nature and source as regards the same, or the explanation
offered by him in the opinion of the assessing officer was not found to be
satisfactory. A credit in the ‘bank account’ of an assessee could not be
construed as a credit in the ‘books of the assessee’, for the very reason that
the bank account could not be held to be the ‘books’ of the assessee. Though it
remained as a matter of fact that the ‘bank account’ of an assessee was the
account of the assessee with the bank, or in other words the account of the
assessee in the books of the bank, but the same in no way could be held to be
the ‘books’ of the assessee. Therefore, an addition made in respect of a cash
deposit in the ‘bank account’ of an assessee, in the absence of the same found
credited in the ‘books of the assessee’ maintained for the previous year, could
not be brought to tax by invoking the provisions of section 68.

Sections 47 r.w.s. 2(47), 271(1)(c) – Entire material facts relating to computation of total income having been disclosed by the assessee before the AO – The disallowance of partial relief u/s 47(xiv) on a difference of opinion would not make it a case of furnishing inaccurate particulars of income attracting penalty u/s 271(1)(c)

11. [2019] 202 TTJ (Mum.) 517 ITO vs. Kantilal G. Kotecha ITA No. 205/Mum/2018 A.Y.: 2009-10 Date of order: 5th July, 2019

 

Sections 47 r.w.s. 2(47), 271(1)(c) –
Entire material facts relating to computation of total income having been
disclosed by the assessee before the AO – The disallowance of partial relief
u/s 47(xiv) on a difference of opinion would not make it a case of furnishing inaccurate
particulars of income attracting penalty u/s 271(1)(c)

 

FACTS

During the year, the assessee converted his
proprietary concern into a public limited company. Thus, the business of the
proprietary concern was succeeded by a public limited company. On succession of
business, the assessee transferred all the assets (including self-generated
goodwill) and liabilities of the proprietary concern, and in consideration for
the said transfer, received fully paid-up equity shares of the public limited
company. The AO denied the exemption u/s 47(xiv) in respect of part of the
goodwill transferred by taking a view that the said goodwill was never
mentioned in the books of the proprietary concern. He further opined that the
goodwill which was transferred from the assessee to the company was not covered
by the exemption u/s 47(xiv). Accordingly, the AO levied penalty u/s 271(1)(c)
for filing inaccurate particulars of income read with Explanation 1 thereon.

 

Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) held that merely because
there was no balance mentioned towards ‘Goodwill’ in the balance sheet of the
proprietary concern, it could not be brushed aside that there was no goodwill
at all in the said business which was in existence for 30 years. The CIT(A)
also noted that all the information of goodwill was provided by the assessee in
the return of income and part of the goodwill was also allowed by the AO.
Hence, it was not a case of furnishing any incorrect information in the return
of income. Accordingly, he deleted the penalty levied u/s 271(1)(c) of the Act.

 

Aggrieved by the CIT(A) order, Revenue filed
an appeal to the Tribunal.

 

HELD

The Tribunal held that it had to be seen
whether the denial of exemption u/s 47(xiv) to the extent of goodwill which was
self-generated in the books of the proprietary concern would amount to
furnishing of inaccurate particulars of income. The assessee had given
reasonable explanation as to why there was no value reflected in the balance
sheet of the proprietary concern in respect of the self-generated goodwill. It
was not in dispute that the assessee was in business for the last 30 years
which had earned substantial goodwill for the assessee. Even the AO had
accepted this fact and had partially granted exemption in respect of the same
u/s 47(xiv) in the assessment.

 

The assessee also had a bona fide
belief that since there was no value for the self-generated goodwill in terms
of section 55(2), the allotment of shares for the same pursuant to conversion
of proprietary concern into public limited company would also not be considered
as transfer within the meaning of section 2(47), as the computation mechanism
fails in the absence of cost of the asset. In fact, the AO had accepted the
value of self-generated goodwill to be Rs. Nil. This goes to prove that there
was existence of self-generated goodwill in the hands of the proprietary
concern. Hence, apparently, the claim of exemption u/s 47(xiv) by the assessee
for the transfer of self-generated goodwill together with the other assets and
liabilities could not, per se, be considered as wrong.

 

It was found from the materials available on
record that all these facts were duly reflected in the return of income itself
by the assessee and subsequently during the course of assessment proceedings.
The entire facts of proprietary concern getting converted into public limited
company were made known to the Department. Thus, the assessee’s case falls
under Explanation 1 of section 271(1)(c) of the Act wherein he had offered bona
fide explanation narrating the entire facts before the AO. Moreover, it was
well settled that the discharge of consideration by way of issue of shares was
a valid consideration and hence for the goodwill portion, the assessee was
allotted shares in the public limited company and would have to be treated as
valid consideration for the transfer of goodwill together with other assets and
liabilities. No explanation furnished by the assessee was found to be false by
the AO. It was only a genuine difference of opinion between the assessee and
the AO in not allowing the claim of exemption u/s 47(xiv).

 

In view of the above, the CIT(A) had rightly
deleted the penalty in respect of denial of exemption u/s 47(xiv) of the Act on
the self-generated goodwill portion partially.

 

Section 72 r.w.s. 254, Section 154 – Business loss determined and carried forward by the AO pursuant to an order passed in accordance with directions of the Tribunal u/s 143(3) r.w.s. 254 can be set off in subsequent years though such claim is not made in the return of income. The AO is duty-bound to give relief to the assessee which has resulted pursuant to the order passed by the appellate authority and which has a cascading effect on the subsequent assessment years

26.  [2019] 107
taxmann.com 92 (Pune)

Maharashtra State Warehousing Corporation vs. DCIT

ITA Nos.: 2366 to 2399/Pune/2017

A.Y.s: 2003-04 to 2006-07

Date of order: 3rd June, 2019

 

Section 72 r.w.s. 254,
Section 154 – Business loss determined and carried forward by the AO pursuant
to an order passed in accordance with directions of the Tribunal u/s 143(3)
r.w.s. 254 can be set off in subsequent years though such claim is not made in
the return of income. The AO is duty-bound to give relief to the assessee which
has resulted pursuant to the order passed by the appellate authority and which
has a cascading effect on the subsequent assessment years

 

FACTS

The assessee, a State Government Undertaking, was engaged in
providing warehouse facilities in the State of Maharashtra. For A.Y. 2002-03,
while assessing the total income of the assessee, the AO made certain additions
to the returned income. The assessee contested the additions in an appeal
before the CIT(A) as well as before the Tribunal. The Tribunal restored the
matter back to the AO with certain directions.

The AO passed an order u/s 143(3) r.w.s. 254 and allowed the
final net business loss to be carried forward.

 

Subsequently, the CIT
invoked section 263 of the Act and held the order passed by the AO u/s 143(3)
r.w.s. 254 to be erroneous and prejudicial to the interest of the Revenue.

 

The assessee challenged the action of the CIT before the
Tribunal. The Tribunal quashed the order passed by the CIT u/s 263. As a
result, the order passed by the AO based on the directions of the Tribunal
stood restored.

 

Thereafter, the assessee, in order to claim the set-off of
brought-forward business loss of A.Y. 2002-03, filed an application for
rectification of assessment orders for A.Y. 2003-04 to A.Y. 2006-07. The AO
rejected this application.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who
dismissed the appeals of the assessee on the ground that since the set-off was
not claimed in the return of income, the same could not be allowed to the
assessee at a belated stage.

 

The assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that by the time the order u/s 143(3)
r.w.s. 254 was passed whereby loss was determined and allowed to be carried
forward, the assessee had already filed return of income for the subsequent
assessment years and hence the assessee had no occasion to claim set-off of
brought-forward business loss and it was a case of supervening impossibility.
The Tribunal held that the AO is duty-bound to give relief to the assessee
which has resulted pursuant to the order passed by the appellate authority and
which has a cascading effect on the subsequent assessment years.

 

Further, the Tribunal relied on the decision of the Bombay
High Court in the case of CIT vs. Pruthvi Brokers & Shareholders (P)
Ltd. [2012] 349 ITR 336 wherein it was held that the assessee is
entitled to raise additional ground not merely in terms of legal submissions
but also additional claims which were not made in the return filed by it. It
was thus held that the assessee was entitled to claim set-off of
brought-forward business loss in A.Y.s 2003-04 to 2006-07.

 

The Tribunal decided the appeal in favour of the
assessee.

Section 22 r.w.s. 23 –Under section 22 annual value is chargeable to tax in the hands of the owner – The assessee, SPV, promoted by the State Housing Board, was merely a developer and not the owner. Accordingly, notional annual value of unsold flats, held as stock-in-trade by the assessee, could not be assessed u/s 23

25.  [2019] 106
taxmann.com 346 (Kol.)

Bengal DCL Housing Development Co. Ltd. vs. DCIT

ITA Nos.: 210/Kol/2017 & 429/Kol/2018

A.Y.s: 2011-12 & 2012-13

Date of order: 24th May, 2019

 

Section 22 r.w.s. 23 –Under section 22 annual value is
chargeable to tax in the hands of the owner – The assessee, SPV, promoted by
the State Housing Board, was merely a developer and not the owner. Accordingly,
notional annual value of unsold flats, held as stock-in-trade by the assessee,
could not be assessed u/s 23

 

FACTS

The assessee was a
joint-sector company promoted by the State Housing Board with DCPL for
undertaking large-scale construction of housing complexes within the state to
solve basic housing problems subject to the supervision and overall control by
the State Government. Pursuant to a development agreement, the assessee
undertook construction of a housing complex known as ‘U’. The assessee treated
unsold constructed flats as its stock-in-trade.

 

These flats, in respect of which annual value was sought to
be computed by the AO, were allotted by the assessee to various persons. The AO
noted that the expression ‘allotment’ in the terms and conditions of allotment
was defined to mean ‘provisional allotment’; the definition also stated that
allotment will remain provisional till a formal deed of transfer is executed
and registered in favour of the allottee for his apartment. In respect of the
flats for which no formal deeds were executed and registered, the AO held the
assessee to be the owner. The AO computed and charged to tax the notional
annual value of unsold finished apartments held by the assessee.

 

Aggrieved, the assessee preferred an appeal before the
Commissioner of Income-tax (Appeals) [CIT(A)] who confirmed the action of the
AO. Still aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that in order to attract charge of tax
under the head ‘house property’, the AO must prove that the assessee is the
owner of the same. The term ‘owner’ for the purposes of Chapter IVC is defined
in section 27. The Tribunal observed that though the value of finished
apartments was included under the head ‘Inventory’ disclosed in the balance
sheet, yet, for the purposes of section 22 the assessee could not be considered
to be the owner of the apartments. The Tribunal noted that the apartments were
allotted prior to the balance sheet date and in respect of such allotments a
substantial part of the consideration was received and reflected by way of
liability in the books of the assessee. Consequent to allotment and receipt of
consideration, the right of specific performance and right to obtain conveyance
accrued in favour of the purchaser. The assessee was debarred from claiming ownership
rights in the apartments already allotted to the flat purchasers.

 

The Tribunal also observed that the apartments did not have
occupancy certificate. And in the absence of a valid occupancy certificate, the
property could not be said to be in a position to be let or occupied. Thus, the
notional annual value of unsold apartments could not be assessed in the hands
of the assessee u/s 23 of the Act.

 

The Tribunal decided the appeal in favour of the assessee.

Section 80-IB(10) – Deduction u/s 80-IB(10) cannot be denied even if the return of income is filed beyond the due date u/s 139(1) owing to bona fide reasons

10. [2019] 72
ITR 402 (Trib.) (Chand.) Himuda vs. ACIT ITA Nos.: 480,
481 & 972/Chd/2012 A.Ys.: 2006-07,
2007-08 & 2009-10 Date of order:
10th May, 2019

 

Section
80-IB(10) – Deduction u/s 80-IB(10) cannot be denied even if the return of
income is filed beyond the due date u/s 139(1) owing to bona fide
reasons

 

FACTS

The assessee
filed his return of income beyond the due date u/s 139(1). Later, he filed
revised return claiming deduction u/s 80-IB(10). The AO rejected this claim for
the reason that the original return had been filed beyond the due date
specified u/s 139(1). The Commissioner (Appeals) also confirmed the action. The
assessee therefore appealed to the Tribunal.

 

HELD

The first factual observation made by the
Tribunal was that the delay in filing return of income was on account of the
local audit department and an eligible deduction cannot be denied due to
technical default owing to such bona fide reason.

 

Based on a
harmonious reading of sections 139(1), 139(5) and 80AC, the Tribunal considered
various decisions available on the issue:

(i)        DHIR
Global Industrial Pvt. Ltd. in ITA No. 2317/Del/2010 for A.Y. 2006-07;

(ii)        Unitech
Ltd. in ITA No. 1014/Del/2012 for A.Y. 2008-09;

(iii)       Venkataiya
in ITA No. 984/Hyd/2011;

(iv)       Hansa
Dalkoti in ITA No. 3352/Del/2011;

(v)        SAM
Global Securities in ITA No. 1760/Del/2009;

(vi)       Symbosis
Pharmaceuticals Pvt. Ltd. in ITA No. 501/Chd/2017;

(vii)     Venkateshwara Wires Pvt. Ltd. in ITA No.
53/Jai/2018.

 

The Tribunal applied the ratio of the above decisions to the
facts of the case and allowed the assessee’s claim of deduction u/s 80-IB,
primarily on the basis of the following three judgements:

 

(a) National
Thermal Power Company Ltd. vs. CIT 229 ITR 383;

(b) Ahmedabad
Electricity Co. Ltd. vs. CIT (1993) 199 ITR 351 (FB);

(c) CIT vs.
Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom.).

 

In all these
decisions, the courts have held that the appellate authorities have
jurisdiction to deal not merely with any additional ground which became
available on account of change of circumstances or law, but also with
additional grounds which were available when the return was filed.

In National
Thermal Power Company (Supra), the Supreme Court observed that the Tribunal
is not prevented from considering questions of law arising in assessment which
were not raised earlier; the Tribunal has jurisdiction 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.

 

Besides, the
full bench of the Hon’ble Bombay High Court in the cases of Ahmedabad
Electricity Company Ltd. vs. CIT and Godavari Sugar Mills Ltd.
vs. CIT (1993) 199 ITR 351 observed that either at the stage of CIT(A)
or the Tribunal, the authorities can consider the proceedings before them and
the material on record for the purpose of determining the correct tax
liability. Besides, there was nothing in section 254 or section 251 which would
indicate that the appellate authorities are confined to considering only the
objections raised before them, or allowed to be raised before them, either by
the assessee or by the Department as the case may be. The Tribunal has
jurisdiction to permit additional grounds to be raised before it even though
these might not have arisen from any order of a lower appellate authority so
long as these grounds were in respect of the subject matter of the tax
proceedings. Similar ratio was held by the Bombay High Court in CIT
vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (Supra).

 

The Tribunal
further observed that the decision of the Hon’ble Supreme Court in the case of Goetze
(India) Limited vs. CIT (2006) 287 ITR 323, relating to the restriction
of making the claim through a revised return was limited to the powers of the
assessing authority only and not the appellate authority.

 

An assessee cannot be burdened with the
taxes which he otherwise is not liable to pay under the law.

 

Section 148 – Issue of notice u/s 148 is a foundation for reopening of assessment and to be sent in the name of living person – Where notice is issued in the name of deceased person, the deceased person could not participate in assessment proceedings and even provisions of section 292BB could not save such invalid notice

9. [2019] 72
ITR 389 (Trib.) (Chand.) S/Sh. Balbir
Singh & Navpreet Singh vs. ITO ITA Nos.: 657
& 658/CHD/2016 A.Y.: 2008-09 Date of order:
13th May, 2019

 

Section 148 –
Issue of notice u/s 148 is a foundation for reopening of assessment and to be
sent in the name of living person – Where notice is issued in the name of
deceased person, the deceased person could not participate in assessment
proceedings and even provisions of section 292BB could not save such invalid
notice

 

FACTS

The assessment
for A.Y. 2008-09 of the deceased assessee Balbir Singh was reopened u/s 147 of
the Act by way of issuance of a notice in his name only.

 

Considering the
manner of service of the notice and the name in which it was issued, the legal
heir contested the validity of the reopening before the Commissioner (Appeals).
However, the Commissioner (Appeals) confirmed the action taken by the AO as to
the reopening as well as on merits.

 

Aggrieved, the
legal heir of the assessee filed an appeal to the Tribunal.

 

HELD

The Tribunal
observed that for valid reopening of a case, notice u/s 148 should be issued in
the name of the correct person. The notice has to be responded to and hence it
is a requirement that it should be sent in the name of a living person. This view
was based on the decision of the Bombay High Court in Sumit Balkrishna
Gupta vs. ACIT in Writ Petition No. 3569 of 2018, order dated 15th February,
2019, wherein it was held that the issue of a notice u/s 148 of the Act
is the foundation for reopening of assessment.

 

It also relied
on another decision of the Delhi High Court in Rajender Kumar Sehgal vs.
ITO [2019] 101 taxmann.com 233 (Delhi) wherein it was held that where
the notice seeking to reopen assessment was issued in the name of a deceased
assessee, since she could not have participated in reassessment proceedings,
provisions of section 292BB were not applicable to the case and as a
consequence the reassessment proceedings deserved to be quashed.

 

On the argument
of the learned D.R. that the legal heir of the assessee ought to have informed
the AO of the fact of the assessee’s death, the Tribunal said this contention
had no force because the notice was not served through registered post / or by
regular mode of service but was allegedly served through a substituted mode of
service, i.e., by affixation of the same at the door of the house of the
assessee and the report of service through affixation had not been witnessed by
any person.

 

The Tribunal
remarked, ‘It is not believable that the Revenue officials had visited the
house of the assessee and they could not get the information about the death of
the assessee despite affixation of the notice which is also required to be
witnessed by some independent / respectable (sic) of the village.’

 

The Tribunal
also found that even otherwise, the notice was never served at the address at
which the assessee was actually residing before death, which address was
available in a document with the Income Tax Officer.

 

Based on these
factual and legal grounds, the notice u/s 148 was held to be invalid.

Section 41(1) r.w.s. 28(iv) – Where assessee assigned its loan obligation to a third party by making a payment in terms of present value of future liability, surplus resulting from assignment of loan was not cessation or extinguishment of liability as loan was to be repaid by third party –The same could not be brought to tax in the hands of the assessee

8. [2019] 201
TTJ (Mum.) 1009 Cable
Corporation of India Ltd. vs. DCIT ITA Nos.:
7417/Mum/2010 & 7369/Mum/2012 A.Y.: 2000-01 Date of order:
30th April, 2019

 

Section 41(1)
r.w.s. 28(iv) – Where assessee assigned its loan obligation to a third party by
making a payment in terms of present value of future liability, surplus
resulting from assignment of loan was not cessation or extinguishment of
liability as loan was to be repaid by third party –The same could not be
brought to tax in the hands of the assessee

 

FACTS

The assessee
company was engaged in the business of manufacturing and sales of cables.
During the year the assessee borrowed interest-free loan of Rs. 12 crores from
a company, MPPL, which was to be repaid over a period of 100 years. The said
loan was utilised for the purchase of shares by the assessee and not for its
line of activity / business. Thereafter, a tripartite agreement was entered
into between the assessee, MPPL and CPPL under which the obligation of repaying
the above-mentioned loan of Rs. 12 crores was assigned to CPPL at a discounted
present value of Rs. 0.36 crores. The resultant difference of Rs. 11.64 crores
was credited by the assessee to the profit and loss account as ‘gain on
assignment of loan obligation’ under the head income from other sources.
However, while computing the taxable income, the assessee reduced the said
amount from the taxable income on the ground that the same constituted a
capital receipt in the hands of the assessee and was not taxable.

 

The AO observed that the lender, MPPL, had
accepted the arrangement of assignment of loan to CPPL and CPPL had started
paying the instalments to MPPL as per the said tripartite agreement. Thus, the
liability of the assessee was ceased / extinguished; as such, the provisions of
section 41(1) were applicable to this case. He further observed that the
assessee during the course of his business borrowed funds to the tune of Rs. 12
crores and assigned the same to CPPL for Rs. 0.36 crores, thus the resultant
benefit of Rs. 11.6 crores by cessation of liability was a trading surplus and
had to be taxed. The AO further observed that the assessee himself had credited
Rs. 11.64 crores to the profit and loss account as gain on assignment of loan
under the head income from other sources. On appeal, the Commissioner (Appeals)
upheld the AO’s order.

 

HELD

The Tribunal
held that the assessee was in the line of manufacturing and trading of cables
and not the purchase and sale of shares and securities. It was apparent from
the facts that the loan was utilised for the purpose of purchase of shares
which was not a trading activity of the assessee. The liability of the loan of
Rs. 12 crores to be discharged over a period of 100 years was assigned to the
third party, viz., CPPL, by making a payment of Rs. 0.36 crores in terms of the
present value of the future liability and the surplus resulting from the
assignment of the loan liability was credited to the profit and loss account
under the head income from other sources; but while computing the total income,
the said income was reduced from the income on the ground that the surplus of
Rs. 11.64 crores represented capital receipt and, therefore, was not taxable.
It was true that both companies, MPPL and CPPL, were amalgamated with the
assessee later on with all consequences. So the issue was whether the surplus
Rs. 11.64 crores resulting from the assignment of loan to CPPL under the said
tripartite agreement between the assessee, MPPL and CPPL was a revenue receipt
liable to tax or a capital receipt as has been claimed by the assessee.

 

The purchase of
shares by the assessee was a non-trading transaction and was of capital nature.
The surplus resulting from the assignment of loan as referred to above was not
resulting from trading operation and therefore was not to be treated as revenue
receipt. The provisions of section 41(1) were not applicable to the said
surplus as its basic conditions were not fulfilled. In other words, the
assessee had not claimed it as deduction in the profit and loss account in the
earlier or in the current year. In order to bring an allowance or deduction
within the ambit of section 41(1), it was necessary that a deduction /
allowance was granted to the assessee.

 

In the instant
case, the loan was utilised for purchasing shares which was a capital asset in
the business of the assessee and the surplus resulting from assignment of loan
was a capital receipt not liable to be taxed either u/s 28(iv) or u/s 41(1).
Accordingly, the surplus arising from assignment of loan was not covered by the
provisions of section 41(1) and consequently could not be brought to tax either
u/s 28(iv) or u/s 41(1). Further, the surplus had resulted from the assignment
of liability as the assessee had entered into a tripartite agreement under
which the loan was to be repaid by the third party in consideration of payment
of net present value (NPV) of future liability. Thus, the surplus resulting
from assignment of loan at present value of future liability was not cessation
or extinguishment of liability as the loan was to be repaid by the third party
and, therefore, could not be brought to tax in the hands of the assessee.
Therefore, the order of the Commissioner (Appeals) was set aside and the AO was
directed to delete the addition of Rs. 11.64 crores.

Section 271AAB – Mere disclosure and surrender of income in statement recorded u/s 132(4) would not ipso facto lead to the conclusion that the amount surrendered by the assessee was undisclosed income in terms of section 271AAB of the Act, when the entry and the income were duly recorded in the books of accounts

4.  [2019] 71 ITR 518 (Trib.) (Jai.) DCIT vs. Rajendra
Agrawal ITA No.: 1375
(Jaipur) of 2018 A.Y.: 2015-16 Date of order: 22nd
March, 2019

 

Section 271AAB –
Mere disclosure and surrender of income in statement recorded u/s 132(4) would
not ipso facto lead to the conclusion that the amount surrendered by the
assessee was undisclosed income in terms of section 271AAB of the Act, when the
entry and the income were duly recorded in the books of accounts

 

FACTS

The assessee, an individual, filed his return of income declaring total
income at Rs. 12,01,09,200 which included, inter alia, surrendered
income of Rs. 10,87,68,470 on account of long-term capital gain. The assessment
was completed u/s 143(3) read with section 153A of the Income-tax Act, 1961 at
the total income of Rs. 12,24,18,200. The AO also initiated proceedings for
levy of penalty u/s 271AAB.

 

The AO passed the
order imposing penalty u/s 271AAB(1) @ 30% of the undisclosed income. But the
CIT(A) reduced the penalty from 30% to 10%. Aggrieved, the Revenue filed an
appeal to the Tribunal. The assessee also filed a cross appeal.

 

HELD

The question before the Tribunal was whether the surrender made by the
assessee in the statement recorded u/s 132(4) will be regarded as undisclosed
income without testing the same against the definition as provided under clause
(c) of the Explanation to section 271AAB of the Act.

 

It observed that the
term ‘undisclosed income’ has been defined in the Explanation to section 271AAB
and, therefore, the penalty under the said provision has to be levied only when
the income surrendered by the assessee constitutes ‘undisclosed income’ in
terms of the said definition. It observed that in various decisions the
Tribunal has taken a consistent view that the penalty u/s 271AAB is not
automatic but the AO has to decide whether a disclosure constitutes
‘undisclosed income’ as defined in the Explanation to section 271AAB of the
Act.

 

The Tribunal
observed that the assessee had established that the transactions were recorded
in the books and had also proved their genuineness with documentary evidence.
In such a scenario, mere disclosure and surrender of income would not ipso
facto lead to the conclusion that the amount surrendered by the assessee
was undisclosed income in terms of section 271AAB of the Act. The Tribunal
observed that the document found during search was not an incriminating
material when the entry and the income were duly recorded in the books of
accounts. The Tribunal also held that the statement of the assessee recorded
u/s 132(4) would not constitute incriminating material and said the income
disclosed by the assessee could not be considered as undisclosed income in
terms of section 271AAB of the Act.

 

The penalty levied
u/s 271AAB of the Act was deleted. The appeal filed by the assessee was
allowed.

Section 13(1)(c) – Payments made to trustees in professional capacity cannot be considered as for the benefit of trustees

3. [2019] 71
ITR (Trib.) 687 (Pune) Parkar Medical
Foundation vs. ACIT ITA Nos.: 2724
& 2725 (Pune) of 2017 A.Ys.: 2004-05
& 2005-06 Date of order:
20th March, 2019

 

Section
13(1)(c) – Payments made to trustees in professional capacity cannot be considered
as for the benefit of trustees

 

FACTS

The assessee
was a hospital registered u/s 12A of the Income-tax Act, 1961. At the time of
reassessment proceedings, the AO disallowed Rs. 6,52,748 being professional
charges paid to two of the trustees. He also disallowed Rs. 1,95,000 being
utilisation charges paid to those trustees. These disallowances were made on
the ground that the assessee had violated the provision of section 13(1)(c)
which provides that where any part of the income of a trust enures or any part
of such income or any property of the trust or the institution is, during the
previous year, used or applied, directly or indirectly, for the benefit of any
persons referred to in section 13(3), then such amounts are not to be allowed
as deduction.

 

But the
assessee argued that the trustees were doctors and payments were made to them
for rendering their professional services apart from looking after the
day-to-day activities and managing the hospital. Further, the assessee paid
utilisation fees to the trustees because certain equipments were owned by those
trustees but were utilised by the hospital.

 

These arguments
were rejected by the CIT(A) and now the question before the Hon’ble ITAT was
whether payments made to the trustees were directly or indirectly for the
benefit of those trustees.

 

HELD

The Hon’ble
ITAT allowed the appeal of the assessee on the following basis:

 

It was an
undisputed fact that the trustees to whom professional fees were paid were
qualified doctors who, besides looking after the administration and running of
the hospital, were also providing their professional medical services to the
assessee and thus such payments cannot be held to be paid for the direct or
indirect benefit of those trustees.

 

Similarly,
regarding the disallowance of utilisation fees paid to those trustees, the ITAT
held that there was no finding of the AO that utilisation fees paid were
excessive or were being paid for any direct or indirect benefit of those
trustees and hence cannot be disallowed.

 

Section 56(2)(viia) – Value of tangible or intangible assets once substantiated would be replaced with the book value for the purposes of FMV regardless of the book entries in this regard

2. [2019] 109 taxmann.com 165 (Ahd. – Trib.) Unnati
Inorganics (P.) Ltd. vs. ITO ITA No.:
2474/Ahd./2017 A.Y.: 2014-15  Date of order:
11th September, 2019

 

Section 56(2)(viia)
– Value of tangible or intangible assets once substantiated would be replaced
with the book value for the purposes of FMV regardless of the book entries in
this regard

 

FACTS

The assessee, a
private limited company, filed its return of income for A.Y. 2013-14 declaring
Nil total income. In the course of assessment proceedings the AO noticed that
the assessee company has, during the previous year, issued 10,16,000 shares of
face value of Rs. 10 each at a premium of Rs. 23 per share. The AO made
inquiries regarding the Fair Market Value (FMV) of the shares allotted, having
regard to the provisions of section 56(2)(viib) of the Act, for the purposes of
ascertaining the correctness of the premium charged.

 

The assessee
submitted that the company holds certain land parcels in Vadodara and Dahej
whose FMV is substantially high on the date of allotment of shares and
consequently premium charged of Rs. 23 per share is quite commensurate with the
FMV of shares allotted as contemplated in Explanation to section 56(2)(viib) of
the Act. By producing a valuation report of the land, the assessee demonstrated
that the value of land adopted by the assessee for this purpose is only 45% of
the jantri price. However, the AO disputed the FMV of the fresh
allotment and proceeded to apply the prescribed method of valuation as
stipulated in Rule 11UA to determine the FMV of the shares; for this purpose he
adopted the book value of the assets and liabilities including land as on 31st
March, 2013 and determined the FMV of fresh allotment at Rs 12.84 per share in
place of Rs. 33 per share adopted by the assessee. The AO, accordingly, added a
sum of Rs. 2,04,82,560 to the total income, on issue of shares at a price in
excess of the FMV of the shares, u/s 56(2)(viib) of the Act.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the action of the
assessee by observing that (i) no accounting entry has been passed in respect
of the difference between the FMV of the land at the relevant point of time and
its corresponding actual costs as reflected in the books of accounts; (ii) if
share premium was charged on the basis of jantri price, then it was less
than what was required to be charged, and therefore there is arbitrariness in
deciding the issue price; (iii) the assessee first acquired land at Vadodara
for setting up its plant and thereafter acquired another plot of land at Dahej
since it was not in a position to complete legal formalities qua the
first property acquired by it, and therefore there is an element of ad
hocism in the actions of the assessee.

 

Aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal observed that section 56(2)(viib) seeks to enable the
determination of FMV by two methods: (i) prescribed method as purportedly
embedded in Rule 11UA of the Income-tax Rules; and (ii) FMV based on the
intrinsic value of the assets both tangible and intangible on the date of issue
of shares. Thus, the FMV of all the assets (tangibles, intangibles, human
resources, right of management or control or other rights whatsoever in or in
relation to the Indian company), whether recorded in the books or not,
appearing in the books at their intrinsic value or not, is a sufficient warrant
to value the premium on issue of unquoted equity shares by a closely-held
company. Thus, the Explanation (a)(ii) itself implies that book entry for
recognition of intrinsic value is not necessary at all. Moreover, the higher of
the values determined as per the first and second limbs of Explanation shall be
adopted for the purposes of section 56(2)(viib) of the Act.

 

It also observed that the FMV of the land belonging to the assessee
company was sought to be substantiated by the valuation report. And that the
valuation report has not been controverted by the Revenue. No rebuttal of the
fact towards the value of land is on record. It observed that one of the
grounds taken by the Revenue for rejecting the basis of determination of FMV is
that no accounting entry has been passed in respect of difference between the
FMV of the immovable property at the relevant point of time and its actual cost
as reflected in the books of accounts.

 

The Tribunal
held that the value once substituted would be replaced with the book value for
the purposes of FMV regardless of the book entries in this regard. What is
relevant is whether at the time of allotment of shares the value of shares as
claimed existed or not. The valuation report is not evidence in itself but
merely an opinion of an independent having regard to totality of expert facts
and circumstances existing on the date of valuation. So long as the facts and
circumstances exist, the presence or otherwise of valuation report per se
has no effect. It observed that the AO has himself, in a subsequent year,
disputed the higher valuation of Rs. 46 and unequivocally adopted Rs. 33 as its
fair value. The assessee has also been able to demonstrate arm’s length
transaction and unison of two different groups bringing different capabilities and
expertise for furtherance of business. Also, the existing promoters, too,
subscribed at a rate similar to the rate at which shares were allotted to the
new group which, according to the Tribunal, further reinforces the inherent
strengths in the valuations of the company as represented by the value of
equity shares.

The Tribunal
set aside the order of the CIT(A) and directed the AO to delete the addition
made u/s 56(2)(viib) of the Act. The appeal filed by the assessee was allowed.

 

Section 143 r.w.s. 131 and 133A – Assessing Officer could not make additions to income of the assessee company only on the basis of a sworn statement of its managing director recorded u/s. 131 in the course of a survey without support of any corroborative evidence

23  [2019] 199 TTJ (Coch) 758 ITO vs. Toms Enterprises ITA No. 442/Coch/2018 A.Y.: 2014-15 Date of order: 7th
February, 2019

 

Section
143 r.w.s. 131 and 133A – Assessing Officer could not make additions to income
of the assessee company only on the basis of a sworn statement of its managing
director recorded u/s. 131 in the course of a survey without support of any
corroborative evidence

 

FACTS

A survey action u/s. 133A was conducted in the business
premises of the assessee firm. During the course of survey, summons u/s. 131(1)
was issued by the AO to TCV, managing partner of the firm, and statement u/s.
131 was recorded in which he indicated the gross profit of the assessee at 15%.
On verification of the profit and loss, the AO found that the assessee had
shown gross profit at 10.55% instead of 15% as indicated by the managing
partner. The AO assessed the gross profit at 15% and made an addition to the
income returned.

 

Aggrieved by the assessment order, the assessee preferred
an appeal to the CIT(A). The CIT(A) observed that the statement of the managing
partner was not based on any books maintained by the assessee and, therefore,
no addition could be made based on such general statements.

 

Being aggrieved by the CIT(A) order, the Revenue filed an
appeal before the Tribunal.

 

HELD

The Tribunal held that u/s. 131 the income tax authority
was empowered to examine on oath. The power invested u/s. 131(1) was only to
make inquiries and investigations and not meant for voluntary disclosure or
surrender of concealed income. As per section 31 of the Indian Evidence Act,
1878 admissions were not conclusively proved as against admitted proof. The
burden to prove ‘admission’ as incorrect was on the maker and in case of
failure of the maker to prove that the earlier stated facts were wrong, these
earlier statements would suffice to conclude the matter. The authorities could
not conclude the matter on the basis of the earlier statements alone.

 

If the assessee proved that the statement recorded u/s.
131 was involuntary and it was made under coercion or during their admission,
the statement recorded u/s. 131 had no legal validity. From the CBDT Circular
in F. No. 286/98/2013-IT (Inv. II) dated 18th December, 2014 it was
amply clear that the CBDT had emphasised on its officers to focus on gathering
evidences during search / survey operations and strictly directed to avoid
obtaining admission of undisclosed income under coercion / under influence.

 

The uncorroborated statements collected by the AO could
not be the evidence for sustenance of the addition made by the AO. It had been
consistently held by various courts that a sworn statement could not be relied
upon for making any addition and must be corroborated by independent evidence
for the purposes of making assessments.

 

From the foregoing discussion, the following principles
could be culled out: Firstly, an admission was an extremely important piece of
evidence but it could not be said that it was conclusive and it was open to the
person who made the admission to show that it was incorrect and that the
assessee should be given a proper opportunity to show that the books of
accounts did not correctly disclose the correct state of facts. Secondly,
section 132(4) enabled the authorised officer to examine a person on oath and
any statement made by such person during such examination could also be used in
evidence under the Income-tax Act.

 

On the other hand,
whatever statement was recorded u/s. 133A could not be given any evidentiary
value for the obvious reason that the officer was not authorised to administer
oath and to take any sworn statement which alone had evidentiary value as
contemplated under law. Thirdly, the word ‘may’ used in section 133A(3)(iii),
viz., record the statement of any person which may be useful for, or relevant
to, any proceeding under this Act, made it clear that the materials collected
and the statement recorded during the survey u/s. 133A were not a conclusive
piece of evidence in themselves. Finally, the statement recorded by the AO u/s.
131 could not be the basis to sustain the addition since it was not supported
by corroborative material.

Section 115JAA r.w.s. 263 – Amalgamated company is entitled to claim set-off of MAT credit of the amalgamating company

7.  [2019]
111 taxmann.com 10 (Trib.) (Mum.) Ambuja Cements Ltd. vs. DCIT ITA No.: 3643/Mum/2018 A.Y.: 2007-08 Date of order: 5th September,
2019

 

Section 115JAA r.w.s. 263 – Amalgamated
company is entitled to claim set-off of MAT credit of the amalgamating company

 

FACTS

The assessee, engaged in the manufacture and
sale of cement, filed its return of income wherein a MAT credit of Rs. 20.12
crores was claimed. The AO, while completing the assessment, allowed MAT credit
of only Rs 6.99 crores instead of Rs 20.12 crores as claimed in the return of
income.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) on several grounds, one of which was that MAT credit was
short-granted. The CIT(A) directed the AO to grant MAT credit in accordance
with law. The AO passed an order giving effect to the order of CIT(A) wherein
he allowed MAT credit of Rs. 20.12 crores to the assessee.

 

The CIT was of
the opinion that the MAT credit allowed by the AO is excessive as the MAT
credit allowed includes Rs. 6.99 crores being MAT credit of ACEL, a company
which was amalgamated into the assessee company. She, accordingly, exercised
her powers u/s 263 of the Act and directed the AO not to grant MAT credit of
Rs. 6.99 crores because according to her the amalgamated company is not
entitled to MAT credit of the amalgamating company.

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD

The Tribunal observed that there is no
restriction with regard to allowance of MAT credit of an amalgamating company
in the hands of the amalgamated company. According to the Tribunal, a plain
reading of the aforesaid provision reveals that MAT credit is allowed to be
carried forward for a specific period.

 

In the case of Skol Breweries Ltd.,
the Tribunal, Mumbai Bench, while deciding an identical issue, has held that
carried forward MAT credit of the amalgamating company can be claimed by the
amalgamated company. A similar view has been expressed by the Tribunal,
Ahmedabad Bench, in Adani Gas Ltd.. If we consider the issue in
the light of the ratio laid down in the aforesaid decisions, there
cannot be two views that the assessee is entitled to claim carried-forward MAT
credit of the amalgamating company Ambuja Cement Eastern Ltd. (ACEL).

 

The Tribunal also observed that while
completing the assessment in case of the amalgamating company ACEL in the A.Y.
2006-07, the AO has also concluded that carried-forward MAT credit of ACEL
would be available in the hands of the present assessee.

 

Keeping in view the assessment order passed
in case of the amalgamating company as well as the decisions referred to above,
the Tribunal held that the principle which emerges is that the carried-forward
MAT credit of the amalgamating company can be claimed by the amalgamated
company. Viewed in this perspective, the decision of the AO in allowing set-off
of carried forward MAT credit of Rs. 6,99,46,873 in the hands of the assessee
cannot be considered to be erroneous. Therefore, one of the conditions of
section 263 of the Act is not satisfied. That being the case, the exercise of
power u/s 263 of the Act to revise such an order is invalid.

 

The Tribunal quashed the impugned order
passed by the CIT.

 

This ground of appeal filed by the assessee
was allowed.

Section 43CA applies only when there is transfer of land or building or both – In a previous year, when an assessee engaged in the business of construction of a commercial project entered into agreements to sell flats / offices (which were under construction) and there was no transfer of any land or building or both in favour of buyers, provisions of section 43CA would not apply

1. [2019] 108
taxmann.com 195 (Mum. – Trib.) Shree Laxmi Estate (P.) Ltd. vs. ITO ITA No.:
798/Mum/2018 A.Y.: 2014-15 Date of order: 5th July, 2019

 

Section 43CA
applies only when there is transfer of land or building or both – In a previous
year, when an assessee engaged in the business of construction of a commercial
project entered into agreements to sell flats / offices (which were under
construction) and there was no transfer of any land or building or both in
favour of buyers, provisions of section 43CA would not apply

 

FACTS

The assessee,
engaged in the construction of a commercial project following the project
completion method of accounting, entered into seven agreements to sell flats /
offices. In each of these cases there was a huge difference between the
consideration as per the agreement entered into by the assessee and the stamp
duty value of the units agreed to be sold. Further, there were a further seven
agreements entered into during the previous year in respect of which the
allotments were made prior to 31st March, 2013. In these seven cases
also there was a huge difference between the agreement value and stamp duty
value.

 

The AO asked
the assessee to explain the difference between the agreement value and the
stamp duty value. In response, the assessee submitted that the two values were
different because (i) the stamp valuation authorities have charged stamp duty
by considering the project to be situated in an area different from the area
where the project is situated; (ii) in respect of seven agreements which were
registered during the year but the allotments were made in the earlier year,
the stamp duty value was greater because the allotments were made in an earlier
year whereas the stamp duty was levied on the basis of value prevailing on the
date of registration; (iii) the sale value of properties is based on various
market conditions, location, etc., whereas the stamp duty valuation is based on
thumb rule without taking into account various market conditions, location,
etc.

 

For these
reasons, the assessee pleaded, the agreement value is the correct value and the
buyers were not willing to make any payment over and above the amount stated in
the agreement. The assessee pleaded that in the alternative the provisions be
made applicable in A.Y. 2015-16 when, following the project completion method,
the assessee has offered profits for taxation. The AO added a sum of Rs.
3,41,41,270 being the difference between stamp duty value and the agreement
value of all the 14 flats to the total income of the assessee.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who upheld the action of the AO. He
then preferred an appeal to the Tribunal.

 

HELD

The Tribunal
noted that during the year under consideration the assessee had not reported
any sales of units since it was following the project completion method. The
project under consideration was completed and profits offered for taxation in
A.Y. 2015-16 by considering agreement value as sale consideration. The Tribunal
observed that it is not in dispute that the assessee had not sold any land or
building or both in respect of any of the units during the year under appeal.
The assessee had only registered the agreement during the year under appeal
wherein it is clearly stated that the subject mentioned property was still
under construction and that the ultimate flat owners shall allow the assessee
to enter upon the subject premises to complete the construction of the flats as
per the said agreement which was subject matter of registration with the stamp
duty authorities. The Tribunal held that what was registered was the ‘property
under construction’ and not the ‘property’ per se. Therefore, the question
was whether in these facts the provisions of section 43CA could at all be
applied.

 

Observing that the provisions of section 43CA are applicable only when
there is transfer of land or building or both, the Tribunal stated that in the
present case neither of these had happened pursuant to the registration of the
agreement. In respect of the seven allotments made prior to 31st March,
2013, the Tribunal observed that the assessee and the prospective purchaser had
specifically agreed that till such time as the agreement to sell is executed
and registered, no right is created in favour of the purchaser and that
allotment is only a confirmation of booking subject to execution of the
agreement which is to be drafted at a later point of time. The said allotment
letter also specifies that the relevant office has been allotted to the buyer
with the rights reserved to the assessee to amend the building plan as it may
deem fit and that the buyer is bound to accept unconditionally and confirm that
any kind of increase or decrease in the area of the said office or shift in the
position of the said office, due to amendment in plan, etc., and in case of
variation of the area, the value of the office shall be proportionately
adjusted.

 

The Tribunal
held that, during the previous year under consideration, the construction of
the property was not completed and that the registration of the agreement
resulted in a transfer of rights in the office (which is under construction)
and not the property per se. It held that there was no transfer of any
land or building or both by the assessee in favour of the flat buyers pursuant
to registration of the agreement in the year under appeal. The Tribunal held
that the provisions of section 43CA cannot be made applicable during the year
under consideration. The Tribunal supported its conclusion by placing reliance
on the decisions of the Tribunal in the case of ITO vs. Yasin Moosa Godil
[(2012) 20 taxmann.com 425 (Ahd. Trib.)] and Mrs. Rekha Agarwal
vs. ITO [(2017) 79 taxmann.com 290 (Jp. – Trib.)].

 

The Tribunal
allowed the appeal filed by the assessee.

 

 

Section 194J, section 40(a)(ia) – Payment made by film exhibitor to distributor is neither royalty nor FTS and is not covered by section 194J and, consequently, does not attract disallowance u/s 40(a)(ia)

29. 
[2019] 71 ITR 332 (Ahd. – Trib.) ITO vs. Eyelex Films Pvt. Ltd. ITA No.: 1808 (Ahd.) of 2017 & 388
(Ahd.) of 2018 A.Ys.: 2013-14 and 2014-15 Date of order: 7th March, 2019;

 

Section 194J, section 40(a)(ia) – Payment
made by film exhibitor to distributor is neither royalty nor FTS and is not
covered by section 194J and, consequently, does not attract disallowance u/s
40(a)(ia)

 

FACTS

The assessee was an exhibitor of films. It
purchased cinematographic films from the distributors for exhibition in cinema
houses. The revenue earned from box office collections was shared with the
distributors as a consideration for purchase of films. The assessee had not
deducted tax at source on the said payments under the belief that the payment
does not fall under any of the provisions mandating TDS. However, the AO
categorised the said payments as royalty u/s 194J and, in turn, disallowed the
said payments u/s 40(a)(ia).

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who allowed the appeal. In turn, the aggrieved Revenue filed an
appeal before the Tribunal.

 

HELD

The Tribunal discussed the observations made
by the CIT(A) and concurred with its view which was as under:

 

Section 194J defines royalty in Explanation
2 to section 9(1)(vi). As per the said definition, the consideration for sale /
distribution or exhibition of cinematographic films has been excluded. The
payment made by the appellant could not be included under the definition of
royalty u/s 9 of the Act, and therefore the provisions of section 194J were not
applicable. Payments made by the assessee to the distributors were nothing but
the procurement charges, meaning purchases of the rights of exhibition for a
certain period as per the terms and conditions of the contract.

 

The CIT(A) had even discussed the
applicability of section 194C as well as section 9(1)(vii) of the Act and concluded that even section 194C was not applicable as the impugned
payment was not for carrying out any work.

 

CBDT circular dated 8th August, 2019 – The relaxation in monetary limits for departmental appeals vide CBDT circular dated 8th August, 2019 shall be applicable to the pending appeals in addition to the appeals to be filed henceforth

28. 
[2019] 108 taxmann.com 211 (Ahd. – Trib.) ITO vs. Dinesh Madhavlal Patel ITA No.: 1398/Ahd./2004 A.Y.: 1998-99 Date of order: 14th August, 2019;

 

CBDT circular dated 8th August,
2019 – The relaxation in monetary limits for departmental appeals vide CBDT
circular dated 8th August, 2019 shall be applicable to the pending
appeals in addition to the appeals to be filed henceforth

 

FACTS

The Tribunal vide its order disposed of the
present appeal and 627 other appeals filed by various AOs challenging the
correctness of the orders passed by CIT(A) and also cross-objections filed by
the assessees against the said appeals of the Revenue supporting the orders of
the CIT(A). The tax effect in each of these appeals is less than Rs. 50 lakhs.

 

The Tribunal noted that vide CBDT circular
dated 8th August, 2019 the income tax department has further
liberalised its policy for not filing appeals against the decisions of the
appellate authorities in favour of the taxpayers where the tax involved is
below certain threshold limits, and announced its policy decision not to file,
or press, the appeals before the Tribunal against appellate orders favourable
to the assessees – in cases in which the overall tax effect, excluding interest
except when interest itself is in dispute, is Rs. 50 lakhs or less.

 

Following the said circular, the Tribunal
sought to dismiss all the appeals. However, while dismissing the appeals, the
DR pointed out that the said circular is not clearly retrospective because in
para 4 it says, “(t)he said modifications shall come into effect from the
date of issue of this circular”. Relying on this, the argument sought to be
made was that the limits mentioned in the circular dated 8th August,
2019 will apply only to appeals to be filed after the date of the said
circular. The representatives of the assessees, however, argued that the
circular must be held to have retrospective application and must equally apply
to the pending appeals as well. It was submitted that the said circular is not
a standalone one but is required to be read with old circular No. 3 of 2018 which it seeks to modify.

 

HELD

The Tribunal did not have even the slightest
hesitation in holding that the concession extended by the CBDT not only applies
to the appeals to be filed in future but is also equally applicable to the
appeals pending disposal as of now. The Tribunal observed that the circular
dated 8th August, 2019 is not a standalone circular but has to be read
in conjunction with the CBDT circular No. 3 of 2018 (and subsequent amendment
thereto) and all it does is to replace paragraph Nos. 3 and 5 of the said
circular.

 

It observed that all other portions of the
circular No. 3 of 2018 have remained intact and that includes paragraph 13
thereof. Having noted the contents of paragraph 13 of the said circular No. 3
of 2018, the Tribunal held that the relaxation in monetary limits for
departmental appeals vide CBDT circular dated 8th August, 2019 shall
be applicable to the pending appeals in addition to the appeals to be filed
henceforth.

 

The Tribunal
dismissed all the appeals as withdrawn. As the appeals filed by the Revenue
were found to be non-maintainable and as all the related cross-objections of
the assessees arose only as a result of those appeals and merely supported the
order of the CIT(A), the cross-objections filed by them were also dismissed as
infructuous.


Section 45 – Capital gains arise in the hands of owners and not in the hands of general power of attorney holder

15 [2019] 72 ITR (Trib.) 578 (Hyd.) Veerannagiri Gopal Reddy vs. ITO ITA No. 988/Hyd/2018 A.Y.: 2008-2009 Date of order: 24th May, 2019

 

Section 45 – Capital gains arise in the
hands of owners and not in the hands of general power of attorney holder

 

FACTS

The assessee, an individual, did not file
return of income for A.Y. 2008-09. The AO, however, received information that
the assessee is holding GPA for certain persons and had sold the immovable
property belonging to them for a consideration of Rs. 8,40,000 against a market
value of Rs. 38,08,000 as per the registration authority. Based on this
information, the assessee’s case was reopened u/s 147.

 

In response to the notice u/s 148, the
assessee did not file return of income. Therefore, the AO issued a notice u/s
142(1) along with a questionnaire requiring the assessee to furnish the details
in connection with the assessment proceedings. In response, the assessee filed
a copy of the sale deed and contended that he has executed the sale deed as a
GPA holder only and has not received any amount under the transaction.

 

The AO observed that the assessee had not
filed any evidence in support of his contention but has filed a reply on 29th
February, 2016 in which he has justified the sale of plot for a sum of Rs.
8,40,000 as against a market value of Rs. 38,08,000. Therefore, the AO held
that the assessee sold the plot to his daughter not only as a GPA holder, but
also as owner of the property and has earned capital gain therefrom. The AO
brought the capital gains to tax.

 

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

 

Aggrieved, the assessee filed an appeal to
the Tribunal.

 

HELD

The Tribunal observed that in the year 1994
the assessee was given a registered irrevocable GPA by landowners and it was
stated therein that the possession was also given to the assessee to enable him
to handover possession to the purchaser. The GPA did not mention about the
receipt of consideration from whomsoever. It was 13 years later that the
assessee executed the sale deed in favour of his daughter and in the sale deed
it was mentioned that a sum of Rs. 8,40,000 was received by the vendors from
the vendee in the year 1994 and the vendor has handed over possession to the
vendee. The Tribunal agreed with the Revenue authorities that it is not
understandable as to why GPA was executed in favour of the assessee when the
entire consideration was received in 1994 and even possession handed over.

 

The Tribunal also noted that the recitals in
the GPA stated that the assessee is not the owner of the property but has only
been granted authority to convey the property to a third party. Therefore, the
Tribunal held that it cannot be considered that the assessee became owner of
the property by virtue of an irrevocable GPA.

 

It held that in the relevant previous year,
the assessee has executed the sale deed in favour of his daughter and in the
sale deed it has been mentioned that the total sale consideration was paid in
the year 1994. This fact also cannot be accepted, because if the entire sale
consideration was paid in the year 1994, then the vendors or even the GPA
holder could have executed the sale deed in favour of the vendee in that year
itself. Therefore, the sale is only in the year 2007 but capital gain would
arise in the hands of the owners of the property and not the GPA holder.

 

It observed that the Hon’ble Supreme Court
in the case of Suraj Lamps & Industries Pvt. Ltd. vs.
State of Haryana (2012) 340 ITR 2 has held that GPA is not a deed of
conveyance and hence cannot be construed as an instrument of transfer in regard
to any right, title or interest in the immovable property. It also considered
the judgment in Wipro Ltd. vs. DCIT 382 ITR 179 (Kar.), which has
considered the above judgment as well as the judgment in the case of State
of Rajasthan vs. Basant Nahata (2005) 12 SCC 77 to hold that a power of
attorney is not an instrument of transfer in regard to any right, title or
interest in an immovable property.

 

The Tribunal held that since the assessee is
not the owner of the property, capital gains cannot be brought to tax in his
hands.

Sections 37, 263 – Foreign exchange loss arising out of foreign currency fluctuations in respect of loan in foreign currency used for acquiring fixed assets should be allowed as revenue expenditure

14 [2019] 111 taxmann.com 189 (Trib.)(Coch.) Baby Memorial Hospital Ltd. vs. ACIT (CPC –
TDS) ITA No. 420/Coch/2019 A.Y.: 2014-15 Date of order: 8th November, 2019

 

Sections 37,
263 – Foreign exchange loss arising out of foreign currency fluctuations in
respect of loan in foreign currency used for acquiring fixed assets should be
allowed as revenue expenditure

 

FACTS

For assessment
year 2014-15, the assessment of total income of the assessee was completed u/s
143(3) of the Act by accepting the income returned. The Pr. CIT, on
verification of records, noticed that the assessment order passed by the AO was
prima facie erroneous insofar as it was prejudicial to the interest of
the Revenue.

 

The Pr. CIT
found that the assessee had claimed an amount of Rs. 2,08,09,140 being foreign
exchange loss which was allowed by the AO. According to the Pr. CIT, the
foreign exchange loss was on account of foreign currency loan taken for the
construction of new building and additional equipment and the loss was
recognised translating the liabilities at the exchange rate in effect at the
balance sheet date. The Pr. CIT said that the loss on devaluation of rupee on
account of loan utilised for fixed capital was not deductible u/s 37(1) since
the expenditure is capital in nature. Therefore, he held that the foreign
exchange loss claimed as revenue expenditure is to be disallowed in the
assessment. The Pr. CIT set aside the assessment and invoked the provision of
section 263 of the I.T. Act inter alia for the limited purpose of
verifying whether the foreign exchange loss qualifies for being a revenue
expenditure.

 

Aggrieved, the
assessee preferred an appeal to the Tribunal where it contended that the case
of an assessee was a limited scrutiny case and in a limited scrutiny case the
details specific to CASS reasons were furnished and were verified. Therefore,
the order of CIT is invalid.

 

HELD

As regards the
challenge of the assessee to the jurisdiction of CIT, the Tribunal held that
even in a case of limited
scrutiny assessment, the AO is duty-bound to make a prima facie inquiry
as to whether there is any other item which requires examination and in the
assessment, the potential escapement of income thereof exceeded Rs. 10 lakhs.
The AO ought to have sought the permission of CIT / DIT to convert the ‘limited
scrutiny assessment’ into a ‘complete scrutiny assessment’. If there is no
escapement of income, which would have been more than Rs. 10 lakhs, the Pr. CIT
could not exercise jurisdiction u/s 263 of the I.T. Act. In the present case,
the assessee itself agreed that the Pr. CIT is justified in giving direction to
rework MAT income after adding back the provision for doubtful debts. Now, the
argument of the learned AR that in case of limited scrutiny assessment, the Pr.
CIT could not exercise jurisdiction u/s 263 is devoid of merit. Accordingly,
the Tribunal rejected the ground relating to challenging of the exercise of
jurisdiction by the Pr. CIT u/s 263.

 

The Tribunal
observed that the question for its consideration is whether gain on account of
foreign exchange fluctuation can be reduced from the cost of assets as per the
provisions of section 43(1). It held that as per the provisions of section
43(1), actual cost means actual cost of the capital assets of the assessee
reduced by that portion of the cost of the capital assets as has been met
directly or indirectly by any other person or authority. The section also has
Explanations. However, the section nowhere specifies that any gain or loss on
foreign currency loans acquired for purchase of indigenous assets will have to
be reduced or added to the cost of assets.

 

After having
considered the ratio of various judicial pronouncements and the
provisions of Schedule VI and AS-11, the Tribunal observed that in view of the
revision made in AS-11 in 2003, it can be said that treatment of foreign
exchange loss arising out of foreign currency fluctuations in respect of fixed
assets acquired through loan in foreign currency shall be required to be given
in profit and loss account. The said exchange loss should be allowed as revenue
expenditure in view of amended AS-11 (2003). The Tribunal observed that the
Apex Court had followed treatment of exchange loss or gain as per AS-11 (1994).
It held that in view of revision made in AS-11, now treatment shall be as per
the revised AS-11 (2003). Exchange gain or loss on foreign currency
fluctuations in respect of foreign currency loan acquired for acquisition of
fixed asset should be allowed as revenue expenditure.

The Tribunal held that –

(a)   in its opinion, section 43A is only relating
to the foreign exchange rate fluctuation in respect of assets acquired from a
country outside India by using foreign currency loans which is not applicable
to the indigenous assets acquired out of foreign currency loans;

(b) foreign exchange loss arising out of foreign
currency fluctuations in respect of loans in foreign currency used for
acquiring fixed assets should be allowed as revenue expenditure by charging the
same into the profit and loss account and not as capital expenditure by
deducting the same from the cost of the respective fixed assets. Hence, in its
opinion, there is no potential escapement of income on the issue relating to
allowability of foreign exchange loan taken for the construction of new
building and additional equipment. Accordingly, this ground of appeal filed by
the assessee is allowed.

 

Section 2(15) r.w.s. 10(23C) – Where assessee was conducting various skill training programmes for students to get placement, activities would fall within definition of education u/s. 2(15), thus entitling it for exemption u/s. 10(23C)(iiiab)

22  [2019] 199 TTJ (Del) 922 Process-cum-Product
Development Centre vs. Additional CIT ITA No. 3401 to
3403/Del/2017 A.Y.s: 2010-11 to 2013-14 Date of order: 4th
February, 2019

 

Section 2(15) r.w.s.
10(23C) – Where assessee was conducting various skill training programmes for
students to get placement, activities would fall within definition of education
u/s. 2(15), thus entitling it for exemption u/s. 10(23C)(iiiab)

 

FACTS

The assessee society was engaged in imparting education
and in the same process trained students by sending them to sports industries,
etc. It conducted various short-duration training programmes of computer
training, training in Computer Accounting System, cricket bat manufacturing,
carom board manufacturing, training in R/P workshop, wood workshop, etc. The
assessee got raw material from industries and after manufacturing the goods
through its trainees, returned the finished goods after receiving its job charges.
The assessee claimed exemption u/s. 10(23C)(iiiab). The AO declined the
exemption on the ground that the assessee did not exist solely for educational
purposes.

 

Aggrieved, the assessee preferred an appeal to the CIT(A).
The CIT(A) also declined the exemption and recorded further in his order that
the issue of charitable activities of the assessee society being of charitable
nature was not relevant in the instant case as the assessee was yet to be
registered u/s. 12AA.

 

HELD

The Tribunal held that the main objects of the assessee
society were to be examined. The AO had relied upon the decision rendered by
the Supreme Court in the case of Sole Trustee Loka Shikshak Trust vs. CIT
[1975] 101 ITR 234 wherein the word ‘education’ as referred in section
2(15) was explained. The Supreme Court had categorically held that ‘education’
connoted the process of training and developing the knowledge, skill, mind and
character of students by normal schooling.

 

When the training imparted to the students was not to
produce goods of world standard by doing necessary marketing research and by
identifying products for domestic and export market, such training would be of
no use and the students who had been given training would not be in a position
to get placement. Examination of the audited income and expenditure account of
the assessee society showed that substantial income was from training courses
and there was a minuscule income from job receipts.

 

The
assessee society was admittedly getting raw material from various industries to
produce sport goods for them and the job charges paid by them were again used
for running the training institute, therefore it could not be said by any
stretch of the imagination that the assessee society was not being run for
educational / training purpose. The word ‘education’ was to be given wide
interpretation which included training and developing the knowledge, skill,
mind and character of the students by normal schooling. So, the assessee
society was engaged in imparting training to the students in manufacturing
sport goods and leisure equipments without any profit motive.

 

Further,
the exemption sought for by the assessee society u/s. 10(23C)(iiiab) was
independent of exemption being sought by the assessee u/s. 12AA. So, the
exemption u/s. 10(23C)(iiiab) could not be declined on the ground that
registration u/s. 12A had been rejected. The assessee society, substantially
financed by the Government of India, was engaged only in imparting
research-based education / skill training to the students in manufacturing of
sports goods and leisure equipments without any profit motive, to enable them
to get placement; this fell within the definition of education u/s. 2(15),
hence it was entitled for exemption u/s. 10(23C)(iiiab).

 

Section 148 – Mere reliance on information received from Investigation Wing without application of mind cannot be construed to be reasons for reopening assessment u/s. 148

21 [2019] 70 ITR (Trib.) 211
(Delhi) M/s. Key Components (P) Ltd.
vs. the Income Tax Officer ITA. No.366/Del./2016 A.Y.: 2005-2006 Date of order: 12th
February, 2019

 

Section 148 – Mere
reliance on information received from Investigation Wing without application of
mind cannot be construed to be reasons for reopening assessment u/s. 148

 

FACTS

The assessee’s case was reopened on the basis of
information received from the Investigation Wing of the Income-tax Department
that the assessee company has taken accommodation entries. The assessee
objected to the reopening; however, the AO completed the assessment after
making an addition of undisclosed income on account of issue of share capital.
The assessee challenged the reopening of the assessment as well as the addition
on merits before the Commissioner (Appeals). The CIT(A), however, dismissed the
appeal of the assessee on both grounds. Aggrieved, the assessee preferred an
appeal on the same grounds to the Tribunal.

 

HELD

The
Tribunal observed that in this case the AO has merely reproduced the
information which he received from the Investigation Wing, in the reasons
recorded u/s. 148 of the Act. He has neither gone through the details of the
information nor has he applied his mind and merely concluded that the
transaction SEEMS not to be genuine, which indicates that he has not recorded
his satisfaction. These reasons are, therefore, not in fact reasons but only
his conclusion, that, too, without any basis. The AO has not brought anything
on record on the basis of which any nexus could have been established between
the material and the escapement of income. The reasons fail to demonstrate the
link between the alleged tangible material and formation of the reason to
believe that income has escaped assessment, the very basis that enables an
officer to assume jurisdiction u/s. 147.

 

The
Tribunal remarked, “Who is the accommodation entry giver is not mentioned. How
can he be said to be ‘a known entry operator’ is even more mysterious.”

 

In
coming to the conclusion, the Tribunal discussed the following decisions at
length:

 

1.    Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. [395
ITR 677] (Del.)

2.    Pr. CIT vs. G&G Pharma India Ltd. (2016)
[384 ITR 147] (Del.)

3.     Pr. CIT vs. RMG Polyvinyl (I) Ltd. (2017)
[396 ITR 5] (Del.)

4.    M/s. MRY Auto Components Ltd. vs. ITO – ITA.
No. 2418/Del./2014, dated 15.09.2017

5.    Signature Hotels Pvt. Ltd. vs. Income-tax
Officer Writ Petition (Civil) No. 8067/2010 (HC)

6.    CIT vs. Independent Media Pvt. Limited – ITA
No. 456/2011 (HC)

7.    Oriental Insurance Company Limited vs.
Commissioner of Income-tax [378 ITR 421] (Del.)

8.    Rustagi Engineering Udyog (P) Limited vs.
DCIT W.P. (C) 1293/1999 (HC)

9.    Agya Ram vs. CIT – ITA No. 290/2004 (Del.)

10.  Rajiv Agarwal vs. CIT W.P. (C) No. 9659 of
2015 (Del.)

 

Section 234E – In case of default in filing TDS statement for a period beyond 1st June, 2015, fees u/s. 234E cannot be levied for the period before 1st June, 2015

20 [2019] 70 ITR (Trib.) 188 (Jaipur) Shri Uttam Chand Gangwal vs.
The Asst. CIT, CPC (TDS), Ghaziabad ITA No. 764/JP/2017 A.Y.: 2015-16 Date of order: 23rd
January, 2019

 

Section
234E – In case of default in filing TDS statement for a period beyond 1st
June, 2015, fees u/s. 234E cannot be levied for the period before 1st
June, 2015

 

FACTS

The assessee filed TDS statement in Form 26Q for Q4 of
F.Y. 2014-15 on 22nd July, 2015 for which the due date was 15th
May, 2015. The TDS statement was processed and the ACIT, TDS issued an
intimation dated 30th July, 2015 u/s. 200A of the Act imposing a
late fee of Rs. 13,600 u/s. 234E of the Act for the delay in filing the TDS
statement. On appeal, the Learned CIT(A) confirmed the said levy. The assessee
therefore filed an appeal to the Tribunal.

 

HELD

The Tribunal observed that though the quarterly statement
pertains to the quarter ended 31st March, 2015, the fact remains
that there is a continuing default even after 1st June, 2015 and the
statement was actually filed on 22nd July, 2015. It further observed
that an assessee who belatedly filed the TDS statement even though pertaining
to the period prior to 1st June, 2015 cannot be absolved from levy
of late fee when there is a continuous default on his part even after that
date. The Tribunal, therefore, concluded that, irrespective of the period to
which the quarterly statement pertains, where the statement is filed after 1st
June, 2015, the AO can levy fee u/s. 234E of the Act.

 

At the same time, in terms of determining the period for
which fees can be levied, the only saving could be that for the period of delay
falling prior to 1st June, 2015, there could not be any levy of fees
as the assumption of jurisdiction to levy such fees has been held by the Courts
to be prospective in nature. However, where the delay continues beyond 1st
June, 2015, the AO is well within his jurisdiction to levy fees u/s. 234E for
the period starting 1st June, 2015 to the date of actual filing of
the TDS statement. In the result, the Tribunal partly allowed the assessee’s
appeal by deleting fees for the period prior to 1st June, 2015 and
confirmed the fees levied for the subsequent period.

Section 154 – Non-consideration of decision of Jurisdictional High Court or of the Supreme Court can be termed as ?mistake apparent from the record’ which can be the subject matter of rectification application u/s. 154 even if not claimed earlier by the assessee during assessment proceedings or appellate proceedings

19 [2019] 71 ITR (Trib.) 141 (Mumbai) Sharda Cropchem Limited vs.
Dy. Comm. of Income Tax ITA No. 7219/Mum/2017 A.Y.: 2012-2013 Date of order: 14th
February, 2019

 

Section 154 –
Non-consideration of decision of Jurisdictional High Court or of the Supreme
Court can be termed as ?mistake apparent from the record’ which can be the
subject matter of rectification application u/s. 154 even if not claimed
earlier by the assessee during assessment proceedings or appellate proceedings

 

FACTS

The assessee’s income was subject to assessment u/s. 143(3).
Additions were made u/s. 35D as also under other sections. The assessee did not
contest addition u/s. 35D but filed appeal against the other additions. In the
meanwhile, the assessee filed an application for rectification to allow the
expenditure on issue of bonus shares, in terms of decision of the Bombay High
Court in CIT vs. WMI Cranes Limited [326 ITR5 23] and the Supreme
Court in CIT vs. General Insurance Corporation [286 ITR 232].
However, the AO denied the rectification; consequently, the assessee appealed
to the Commissioner (Appeals) against the AO’s order rejecting his
rectification application. However, the assessee’s claim was rejected by the
Commissioner (Appeals) also. The assessee then filed an appeal to the Tribunal.

 

HELD

The Tribunal observed that the assessee moved
rectification petition u/s. 154 for the first time towards his claim u/s. 35D
relying upon the decision of the Hon’ble Supreme Court as well as the decision
of the jurisdictional High Court. The only basis on which the same was denied
by first appellate authority is the fact that there was no mistake apparent
from the record. The Tribunal considered the decision of the Supreme Court in ACIT
vs. Saurashtra Kutch Stock Exchange Ltd. [305 ITR 227]. It observed
that non-consideration of a decision of the Jurisdictional High Court or of the
Supreme Court could be termed as ‘mistake apparent from the record’.

 

The Tribunal also analysed the said facts from the angle
of constitutional authority – in terms of Article 265 of the Constitution of
India, no tax is to be levied or collected except by the authority of law. It
is trite law that true income is to be assessed and the Revenue could not
derive benefit out of the assessee’s ignorance or procedural defects. The
Tribunal finally allowed the appeal filed by the assessee considering the
principles of rectification pronounced in Saurashtra Kutch Stock Exchange
Ltd. (supra) and merits of the case as held in General Insurance
Corporation (supra).

 

Section 143 r.w.s. 148 – Failure to issue notice u/s. 143(2) of the Act after the assessee files the return of income renders the re-assessment order illegal and invalid

18 [2019] 105 taxmann.com 118
(Pune) ITO
(Exemptions) vs. S. M. Batha Education Trust ITA No. 2908/Pun/2016 A.Y.: 2012-13 Date of order: 4th
April, 2019

 

Section 143 r.w.s.
148 – Failure to issue notice u/s. 143(2) of the Act after the assessee files
the return of income renders the re-assessment order illegal and invalid

 

FACTS

The AO issued a notice u/s. 148 of the Act dated 29th
September, 2014 to the assessee, a trust engaged in educational
activities. The assessee neither replied to the notice nor filed its return of
income. Thereafter,
the AO issued two separate notices u/s. 143(2) of the Act on 29th
April, 2015 and 1st July, 2015. Subsequently, the assessee filed the
return of income on 21st October, 2015.

 

The AO completed the assessment and passed a reassessment
order. Aggrieved, the assessee preferred an appeal to the CIT(A).

 

Revenue also preferred an appeal to the Tribunal. The
assessee filed cross-objections challenging the re-assessment proceedings to be
bad in law since no statutory notice u/s. 143(2) was issued by the AO after the
assessee filed the return of income. The Tribunal decided this jurisdictional
issue.

HELD

The Tribunal held that the AO is required to issue
statutory notice u/s. 143(2) of the Act after the assessee files the return of
income in response to notice issued u/s. 148 of the Act. In the absence of such
a statutory notice after return of income is filed by the assessee, the
re-assessment order made by the AO was held to be invalid and illegal.

 

The Tribunal dismissed the appeal filed by Revenue and
allowed this ground raised by the assessee in its cross-objections.

Section 69 – No addition u/s 69 could be made in year under consideration in respect of investment in immovable property made in earlier year(s)

27. 
[2019] 200 TTJ (Del.) 375 Km. Preeti Singh vs. ITO ITA No. 6909/Del./2014 A.Y.: 2009-10 Date of order: 31st October,
2018;

 

Section 69 – No addition u/s 69 could be
made in year under consideration in respect of investment in immovable property
made in earlier year(s)

 

FACTS

The AO made an
addition of Rs. 55.39 lakhs while completing the assessment, being the entire
amount of investment in immovable property. The aforesaid amount of Rs. 55.39
lakhs consisted of cost of property of Rs. 51.86 lakhs and stamp duty of Rs.
3.53 lakhs. The investment made by the assessee during the year under
consideration was only Rs. 12.58 lakhs. The remaining amount of investment was
made in the earlier year(s) for which no addition could be made in the year
under consideration. The assessee 
submitted that the aforesaid investment of Rs. 12.58 lakhs during this
year included Rs. 6.05 lakhs by cheque out of the assessee’s bank account and a
payment of Rs. 6.53 lakhs made in cash. The assessee provided copies of the
accounts from the books of the builder from whom the property was purchased.
She also provided copies of statements of bank accounts. The assessee showed
that there were sufficient deposits in her bank accounts carried forward from
the earlier year to explain the source of the aforesaid cheques. The brought
forward opening balance at the beginning of the year in the bank accounts of
the assessee had accumulated over a period of time in the past few years.

 

On appeal, the CIT(A) upheld the addition of
Rs. 38.58 lakhs out of the aforesaid addition of Rs. 55.39 lakhs made by the
AO.

 

HELD

The Tribunal held that on perusal of section
4(1), it was obvious that in the year under consideration no addition could be
made in respect of investments in property made by the assessee in earlier
years or in respect of deposits in bank accounts of the assessee made in the
earlier year which was brought forward to this year for making cheque payments
of the aforesaid total amount of Rs. 6.05 lakhs. Moreover, certain amounts were
invested by the assessee and certain other amounts were deposited in the bank
account of the assessee in previous years relevant to earlier assessment years;
such investments or deposits could not possibly have been out of the income of
the previous year under consideration.

 

It is well settled that each year is a
separate and self-contained period. The income tax is annual in its structure
and organisation. Each ‘previous year’ is a distinct unit of time for the
purposes of assessment; further, the profits made and the liabilities of losses
made before or after the relevant previous year are immaterial in assessing the
income of a particular year. Even if certain income has escaped tax in the
relevant assessment year because of a devise adopted by the assessee or
otherwise, it does not entitle Revenue to assess the same as the income of any
subsequent year when the mistake becomes apparent.

 

In view of the
above, the AO was directed to delete the additions in respect of those amounts
which were invested by the assessee in earlier years, i.e., before previous
year 2008-09. Secondly, the AO was directed to delete the addition amounting to
Rs. 6.05 lakhs which was made by the assessee during the year under
consideration through cheque transactions from the bank account because, as
stated earlier, it was not disputed that the assessee had sufficient deposits
in her bank account at the beginning of the year to explain the source of the
aforesaid transactions by cheque. Thirdly, as far as investment aggregating to
Rs. 6.53 lakhs in cash was concerned, the matter was restored to the file of
the AO with the direction to pass a fresh order on merits on this limited issue
after considering the explanation of the assessee.

Section 37 – Lease rent paid for taking on lease infrastructure assets under a finance lease, which lease deed provided that the assessee would purchase them upon expiry of the lease period, was allowable as a deduction since the assets were used exclusively for the purpose of the business of the assessee

13 [2019] 112 taxmann.com 66 (Trib.)(Del.) NIIT Ltd. vs. DCIT (CPC – TDS) ITA No. 376/Del/2014 A.Y.: 2009-10 Date of order: 1st November, 2019

 

Section 37 – Lease rent paid for taking on
lease infrastructure assets under a finance lease, which lease deed provided
that the assessee would purchase them upon expiry of the lease period, was
allowable as a deduction since the assets were used exclusively for the purpose
of the business of the assessee

 

FACTS

The assessee, a public limited company
engaged in the business of Information Technology Education and Knowledge
Solutions, filed its return of income on 29th September, 2009
declaring Rs. 25.81 crores, which was processed u/s 143(1) of the I.T. Act,
1961. The assessee had taken certain infrastructure / movable assets on lease
which were located at three places, i.e., Malleswaram Centre, Bangalore;
Mehdipatnam Centre, Hyderabad; and Mylapore Centre, Chennai. The said lease, in
accordance with the mandatory prescription of AS-19, was recognised as a
finance lease. Accordingly, in the books of accounts, the present value of
future lease rentals was recognised as capital asset with a liability of
corresponding amount.

 

Lease rents payable over the period of the
lease were divided into two parts, i.e., (a) principal payment of its cost of
asset, which was reduced from the liability recognised in the books, and (b)
finance charges, which was recognised as expense and debited to the P&L
account. Accordingly, in the books of accounts, out of the total lease rent of
Rs. 56,73,765 paid by the assessee during the relevant previous year, an amount
of Rs. 50,09,835 was adjusted against the principal repayments towards the cost
of asset and the balance amount of Rs. 6,63,930 was recognised as interest and
debited to P&L account.

 

The AO noticed that in the return of income,
the assessee has claimed deduction of Rs. 50,09,835 in respect of payment of
principal amount of finance lease. The AO asked the assessee to explain as to
how this amount is allowable as revenue expenditure. After considering the
reply filed by the assessee, the AO held that though the interest on such
finance lease is allowable as revenue expenditure, payment of principal amount
cannot be allowed as revenue expenditure because it is capital expenditure in
nature in respect of the value of leased assets. The AO, following the order of
ITAT, Delhi Bench in the case of Rio Tinto India (P) Ltd. vs. Asstt. CIT
[2012] 24 taxmann.com 124/52 SOT 629 disallowed the deduction claimed
by the assessee on account of principal amount of finance lease.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who dismissed the appeal by relying on the decision of the
Tribunal in the case of Rio Tinto India (P) Ltd. (Supra).

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD

The Tribunal noted that it is pursuant to
lease agreements dated 1st September, 2006, 1st April,
2008 and 1st June, 2009 that the assessee was provided
infrastructure assets on lease. The assets provided on lease and also the terms
and conditions for granting lease have been recorded in these agreements. The
agreements provided that after termination, the assessee would buy the
infrastructure assets. It observed that the infrastructure assets are required
for the purpose of business of the assessee. Therefore, the assessee paid finance
lease rentals to the lessor for the purpose of business. Thus, the assessee is
not the owner of these infrastructure facilities provided on rent.

 

It also noted that a similar claim of the
assessee on the basis of the same agreements have been allowed in favour of the
assessee in preceding A.Ys. 2007-08 and 2008-09 in the scrutiny assessments u/s
143(3) of the I.T. Act, 1961. In A.Ys.
2012-13 and 2014-15 also, the Tribunal has allowed the claim of the assessee of
a similar nature vide order dated 26th July, 2019.

 

The Tribunal held that –

(i)   it is a well-settled law that rule of
consistency does apply to the income tax proceedings. Therefore, the AO should
not have taken a different view in the assessment year under appeal, when
similar claims of the assessee have been allowed as revenue expenditure in
earlier years;

(ii) since the assessee used these items wholly and
exclusively for the purpose of business and was not the owner of the same,
therefore, the assessee rightly claimed the same as revenue expenditure and
rightly claimed the deduction of the same;

(iii) it is also well settled law that the liability
under the Act is governed by the provisions of the Act and is not dependent on
the treatment followed for the same in the books of accounts;

(iv)        Further, it is also well settled that
whether the assessee was entitled to a particular deduction or not would depend
upon the provisions of law relating thereto, and not on the view which the
assessee might take of his right, nor could the existence or absence of entries
in the books of accounts be decisive or conclusive in the matter.

The Tribunal set aside the orders of the
authorities below and deleted the entire addition. The appeal filed by the
assessee was allowed.

 

Section 143 – Assessment order passed in the name and status of the HUF where the notice was issued in the name and status of an individual is invalid and such an assessment order deserves to be quashed

17 [2019] 105 taxmann.com 201
(Pune) Pravin Tilokchand Oswal
(HUF) vs. ITO ITA No. 1917/Pun/2018 A.Y.: 2007-08 Date of order: 4th
April, 2019

 

Section 143 –
Assessment order passed in the name and status of the HUF where the notice was
issued in the name and status of an individual is invalid and such an
assessment order deserves to be quashed

 

FACTS

The assessment order was passed in the status of the HUF,
whereas proceedings were initiated by issue of notice u/s. 143(2) of the Act in
the name of the individual. Both the individual and the HUF were assessed to
tax and had different and distinct PAN numbers. The first notice for getting
jurisdiction to make the assessment was issued u/s. 143(2) of the Act in the
name of the individual and the PAN number of the individual was clearly
mentioned. However, assessment was made in the hands of the HUF.

Aggrieved,
the assessee preferred an appeal to the CIT(A) who decided it on merits but did
not decide the jurisdictional issue and passed an ex parte order against
the assessee.

 

The aggrieved assessee preferred an appeal to the Tribunal
where it was pointed out that the information received under the Right to
Information Act clearly mentioned that notice was issued for the individual and
proceedings were carried out for the individual. However, the assessment was
made in the name of the HUF.

 

HELD

The Tribunal held that since notice was issued in the name
of the individual and assessment completed and made in the name of the HUF, the
assessment order was invalid and bad in law. The Tribunal quashed the
assessment order. It decided in favour of the assessee.

Section 54F r.w.s. 45, 2(29B) and 2(42B) – Assessee having acquired rights in a flat vide allotment letter dated 26.02.2008 issued by the builder which was an unconditional allotment, and since the agreement to sell executed by the builder in assessee’s favour subsequently on 25.03.2010 was mere improvement in assessee’s existing rights to acquire a specific property, the gains arising on the sale of the said flat on 04.04.2012 were long term capital gains; assessee was entitled to exemption u/s. 54F

13
[2019]
199 TTJ (Mumbai) 388

ACIT vs. Keyur Hemant Shah

ITA No. 6710/Mum/2017

A.Y.: 
2013-14

Dated: 2nd April, 2019

 

Section 54F r.w.s. 45,
2(29B) and 2(42B) – Assessee having acquired rights in a flat vide allotment
letter dated 26.02.2008 issued by the builder which was an unconditional
allotment, and since the agreement to sell executed by the builder in
assessee’s favour subsequently on 25.03.2010 was mere improvement in assessee’s
existing rights to acquire a specific property, the gains arising on the sale
of the said flat on 04.04.2012 were long term capital gains; assessee was
entitled to exemption u/s. 54F

 

FACTS

The
assessee filed return of income on 31.07.2013 declaring income of Rs. 185.33
lakhs. During the assessment proceedings it was found by the A.O. that the
assessee had sold a flat for a consideration of Rs. 1.20 crores in which he had
a 50% share. The long term capital gain was computed at Rs. 288.73 lakhs out
which Rs. 109.4 lakhs was claimed exempt u/s. 54F and the balance was offered
to tax. It was observed by the A.O. that the agreement for purchase of the flat
was executed on 25.03.2010 and was sold subsequently on 04.04.2012. Hence the
period of holding for the original property was less than 36 months and hence
the capital gains arising out of the same cannot be claimed for exemption u/s.
54F.

 

The
assessee defended the claim by submitting the letter of allotment of the flat
dated 26.02.2008 and asserted that substantial payments for the flat were made by that time and therefore the
period of holding exceeds the required period of 36 months to classify the flat
as long term capital asset.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A). The CIT(A) allowed exemption of
Rs. 109.40 lakhs u/s. 54F as claimed by the assessee.

 

HELD

The Tribunal held that on perusal of the facts of
the case, it emerged that the assessee had acquired rights in the flat on
26.02.2008. The letter of allotment was not conditional and did not envisage
cancellation of the allotted property. The agreement of sale was executed on
25.03.2010 which was nothing but a mere improvement of the assessee’s right
over the same transaction.

 

There was
nothing to suggest that the construction scheme promised by the builder was
materially different from the terms of allotment. Considering the same, it
confirmed that the resultant gains were long term capital gains in nature. The
assessee had made payments for the new property within the stipulated time and
obtained the new property by 14.04.2012.

 

Therefore,
all conditions of section 54F were fulfilled. There was no reason to deny
benefit of section 54F in this case.

Sections 28(ii), 45 – Amount of Rs. 1.75 crores received by assessee towards professional goodwill was not chargeable u/s 28(ii)(a) as no case was made out by AO to establish that the assessee was the person who was managing the whole or substantially the whole of the affairs of the company Section 55(2) does not specify cost of acquisition of management right. There is no deemed cost of acquisition in the statute. Therefore, the charge u/s 45 never intended to levy a tax on transfer of management rights

6. [2019] 201 TTJ (Rai.) 683 DCIT vs. Dr. Sandeep Dave ITA No.: 175/Rpr/2013 A.Y.: 2009-10 Date of order: 1st July, 2019

 

Sections 28(ii), 45 – Amount of Rs. 1.75
crores received by assessee towards professional goodwill was not chargeable
u/s 28(ii)(a) as no case was made out by AO to establish that the assessee was
the person who was managing the whole or substantially the whole of the affairs
of the company

 

Section 55(2) does not specify cost of
acquisition of management right. There is no deemed cost of acquisition in the
statute. Therefore, the charge u/s 45 never intended to levy a tax on transfer
of management rights

 

FACTS

The assessee received a certain amount from company CARE. According to
it, the amount was received as professional goodwill and was liable to be
treated as capital receipt not liable to capital gain. The AO observed that the
amount was received by the assessee on account of relinquishment of his rights
in the management of a company in favour of CARE, and not on account of
relinquishment of any right relating to professional expertise or acumen as
surgeon. The AO, accordingly, brought the amount to tax holding that it was
covered under the provision of section 28(ii)(a). On appeal, the Commissioner
(Appeals) deleted the addition made by the AO. Aggrieved by this order, the
Revenue filed an appeal.

 

HELD

The Tribunal held
that the work of management was entrusted to different committees and such
committees had other members / doctors apart from the assessee. Therefore, it
was incumbent on the Revenue to establish that in spite of there being other
members on various managerial committees, it was the assessee alone who was
actually managing the affairs of different committees. In such a case, it is
the board of directors collectively who can be said to be managing the business
affairs of the company.

 

Management right
has now been included in the definition of ‘property’ and, therefore, is a
‘capital asset’ u/s 2(14). This being so, the taxability of any amount received
against relinquishment of ‘management right’ has to be tested on the touchstone
of provisions relating to computation of capital gain. The assessee argued that
since management right is a capital asset, provisions relating to capital gain
will apply and when such computation provisions are applied, they are
unworkable. It is true that under the scheme of taxation of capital gain it is
not the entire sale consideration of an asset which is chargeable to tax but it
is the ‘profit or gain’ arising on transfer thereof which is taxable. This
observation is subject to the specific provisions of law which prescribe that
in case of some category of capital assets, cost of acquisition is considered
to be nil and, in those cases, full consideration accruing on transfer will
become taxable. In the instant case, it is the stand of the assessee that cost
of acquisition of management right being indeterminate, no capital gain can be
worked out and so the provisions are not workable.

 

Section 55(2) does
not specify the cost of acquisition of ‘management right’. There is no deemed
cost of acquisition provided in the statute. No case has been made out by the
AO to show as to what was the cost of management right in the hands of the
assessee. Therefore, what has been brought to tax is the entire consideration
for relinquishment of management right which runs contrary to the settled
proposition of law, which was laid down by the Supreme Court in the case of CIT
vs. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294. In this
decision, the Supreme Court has laid down the proposition that machinery and
charging provisions constitute an integrated code and in the situation where
the computation provision fails, it has to be assumed that such a transaction
was not intended to be falling within the charging section and, therefore, the
charge on account of capital gain must fail.

 

It is evident that
the Revenue has not established that the assessee was managing the whole or
substantially the whole of the affairs of the company as no case has been made
out by the Revenue that the amount received by the assessee from CARE was on
account of relinquishment of any managerial rights. Even assuming that the
amount received by the assessee is relatable to relinquishment of any
managerial right, in view of the ratio laid down by the Supreme Court in the
case of B.C. Srinivasa Setty (Supra), the cost of any such
managerial right being indeterminate, provisions relating to computation of
capital gain are not workable and, consequently, it has to be held that the
charge u/s 45 never intended to levy a tax on such a transaction. Therefore,
the amount received by the assessee is neither chargeable u/s 28(ii)(a) nor
under the head capital gain.

Section 54 – Condition of not owning more than a residential house on the date of transfer of the original asset would mean absolute ownership and does not cover within its sweep a case where the assessee jointly owns residential house together with someone else

16[2019] 105 taxmann.com 204 (Mum) Ashok G. Chauhan vs. ACIT ITA No. 1309/Mum/2016 A.Y.: 2010-11 Date of order: 12th
April, 2019

 

Section 54 –
Condition of not owning more than a residential house on the date of transfer
of the original asset would mean absolute ownership and does not cover within
its sweep a case where the assessee jointly owns residential house together
with someone else

 

FACTS

The
assessee, an individual, filed his return of income after claiming deduction
u/s. 54F of the Income-tax Act, 1961 (“the Act”) in respect of capital gains
arising from transfer of tenancy rights. In the course of re-assessment
proceedings, the Assessing Officer (AO) observed that the assessee was owner of
two residential houses, one of which was jointly held by him with his wife. The
AO rejected the claim for deduction u/s. 54F on the ground that the assessee
owned two flats on the date of transfer of tenancy rights.

 

Aggrieved,
the assessee preferred an appeal to the Commissioner of Income-tax (Appeals)
who upheld the order passed by the AO.

 

HELD

The
Tribunal observed that the Legislature has used the word ‘a’ before the words
‘residential house’ and held that what was meant was a complete residential
house and not shared interest in a residential house. It held that joint
ownership is different from absolute ownership and that ownership of
residential house means ownership to the exclusion of all others. The Tribunal
relied on the judgement of the Supreme Court in the case of Seth Banarasi
Dass Gupta vs. CIT [(1987) 166 ITR 783] wherein it is held that a
fractional ownership was not sufficient for claiming even fractional
depreciation u/s. 32 of the Act.

 

The
Tribunal noted that because of this judgement, the Legislature had to amend
section 32 with effect from 1st April, 1997 by using the expression
‘owned wholly or partly’. But while the Legislature amended section 32 it chose
not to amend section 54F. The Tribunal held that since section 54F has not been
amended the word ‘own’ in section 54F would include only the case where a
residential house is fully and wholly owned by the assessee and consequently
would not include a residential house owned by more than one person.

 

Hence
it was held that the claim for exemption u/s. 54F could not be denied. The
appeal filed by the assessee was allowed.

Section 12AA – At the time of granting of registration u/s 12A, the only requirement is examining the objects of the trust / society and genuineness of its activities

5. [2019] 72 ITR 14
(Trib.) (Amrit.) Acharya Shri Tulsi
Kalyan Kendra vs. CIT(E) ITA No.: 335
(Amritsar) of 2017 A.Y.: 2017-18 Date of order: 28th
January, 2019

 

Section 12AA – At
the time of granting of registration u/s 12A, the only requirement is examining
the objects of the trust / society and genuineness of its activities

 

FACTS

The assessee is a
trust. It had applied for registration u/s 12A of the Act. However, the CIT(E)
denied the said registration citing the following reasons:

(i)    The assessee had carried out certain
activities which were not covered under charitable purposes u/s 2(15) of the
Income-tax Act, 1961;

(ii)    Complete inactivity since inception in 1979
till the sale of land in 2007 reflects that the activities were not in sync
with the stated objects;

(iii)   The registration was sought to be obtained
after a gap of ten years after the sale of land in 2007, indicating
unwillingness to carry out charitable activities;

(iv)   Amendment of the trust deed incorporating the
dissolution clause and at the same time introduction of new trustees indicated
that the motive of the applicant to seek registration under this section was
merely to save on taxes on interest income;

(v)   Changes in the trust deed do not have proper
legal sanction and though a supplementary deed was submitted to the
sub-registrar, his jurisdiction to accept the same was questionable.

 

Aggrieved by the
rejection order passed by the Commissioner, the assessee preferred an appeal to
the Tribunal.

 

HELD

The Tribunal
observed the following in relation to the reasoning given by the Commissioner:

 

It is trite to say
that at the time of registration u/s 12AA, the CIT(E) has to consider the twin
requirements of (a) objects of the assessee society, and (b) genuineness of its
activity. Nowhere in the order had the CIT(E) either pointed out any defect in
the objects of the society and / or the activities of the applicant assessee
society, or doubted the genuineness of the activities specifically. Therefore,
the Tribunal concluded that the assessee is carrying out its activities in
accordance with its objects specified in the trust deed and for charitable
purposes. As a matter of fact, the Tribunal found that the trust also carried
out other charitable activities as per its objects.

 

The trust was in
operation since 1979. However, much activity was not carried out until 2007 due
to paucity of funds. When the trust had accumulated a good amount of funds from
rollover of investments after sale of land in 2007, it constructed certain
halls / rooms which were used in the course of its charitable activities. This
fact was clearly demonstrated by the assessee and the same was considered to be
a logical reason for not carrying out any activity previously. The main reason
for rejection of registration was that amendment of the trust deed
incorporating the dissolution clause and at the same time introduction of new
trustees indicated the motive of the applicant to seek registration under this
section was merely to save on taxes on interest income. This reasoning given by
the CIT(E) was merely a general remark without considering the intricacies of
the law and therefore the reason was illogical.

 

Considering the
above, the Tribunal directed the CIT(E) to grant registration to the trust. It
further clarified that the CIT(E) while granting the registration shall be at
liberty to endorse the condition, if any, he finds to be reasonable in accordance
with law.

 

Section 40A(3) – No Disallowance u/s. 40A(3) when genuineness of the transaction is not doubted and incurring of such cash expenses was necessary as part of business expediency.

37.  [2018] 66 ITR (Trib.) 371 (Delhi-Trib.) KGL
Networks (P) Ltd. vs. ACIT ITA No.:
301/Del./2018 A.Y.:
2014-2015 Dated: 2nd July, 2018

 

Section 40A(3) – No Disallowance u/s.
40A(3) when genuineness of the transaction is not doubted and incurring of such
cash expenses was necessary as part of business expediency.

 

FACTS


The assessee-company
was a clearing and forwarding agent and had made payments to various reputed
airlines. The Assessing Officer (AO) noted from the tax audit report that the
assessee-company had incurred expenditure amounting to Rs.8,17,807/- in cash.
The A.O. accordingly disallowed the same in light of section 40A(3), being in
excess of Rs. 20,000/-.

The assessee-company challenged the addition
before the Ld. CIT(A) stating that payments were made to various reputed
airlines whose PAN had been duly submitted. The genuineness of the payment was
not doubted, therefore, no disallowance could be made u/s. 40A(3) of the Act.
The CIT(A), however, did not accept the contention of assessee-company and
noted that Rule 6DD had been amended in 2008. The CIT(A) held that the Rule in
its present form does not include any such circumstances like business
expediency or exceptional circumstances, under which, such cash payments could
be made as a business expenditure u/s. 40A(3).

Aggrieved by the order, Assessee Company filed
appeal to ITAT.

 

HELD


The
Tribunal relied on the decision of Attar Singh Gurmukh Singh vs. ITO (1991)
191 ITR 667 (SC) wherein it was held that section 40A(3) of the Income-tax
Act, 1961, is not arbitrary and does not amount to a restriction on the fundamental
right to carry on business. Consideration of business expediency and other
relevant factors are not excluded. Genuine and bonafide transactions are
not taken out of the sweep of the section. It will be clear from the provisions
of section 40A(3) and Rule 6DD that they are intended to regulate business
transactions and to prevent the use of unaccounted money or reduce the chances
to use black money for business transactions. The contention of the assessee
that owing to business expediency, obligation and exigency, the assessee had to
make cash payment for purchase of goods so essential for carrying on of his
business, was also not disputed by the AO.



It was also held that the primary object of
enacting section 40A(3) was twofold, firstly, putting a check on trading
transactions with a mind to evade the liability to tax on income earned out of
such transaction and, secondly, to inculcate the banking habits amongst the
business community. The ITAT concluded that Even though there was an amendment
in Rule 6DD of I.T. Rules as is noted by the Ld. CIT(A), but in section 40A(3)
of the I.T. Act, 1961 itself, an exception is provided on account of nature and
extent of banking facilities available, consideration of business expediency
and other relevant factors. The nature of business of assessee-company and the
agency carried on by the assessee-company on behalf of others clearly showed
that for business expediency in the line of business of assessee-company,
sometimes cash payments were made to complete the work on behalf of Principal.



The
assessee-company, under such compelling reasons, made payments in cash. The AO
and CIT(A) had not doubted the identity of the payee and the genuineness of the
transaction in the matter. The source of payment was also not doubted by the
authorities. ITAT mainly relied on the decision of ITAT, Delhi in the case of ACIT
vs. Marigold Merchandise (P) Ltd (ITA No. 5170/Del./2014).

 

Thus, in the
opinion of the ITAT no disallowance u/s. 40A(3) could be made when genuineness
of the transaction was not doubted and incurring of such expenses was necessary
as part of business expediency.

Section 40(a)(ia) – No Disallowance u/s. 40(a)(ia) for non-deduction of TDS u/s. 194C if no oral or written contract between the contractor and contractee.

36.  [2018] 66 ITR (Trib.) 525 (Vizag. – Trib.) ACIT vs.
A. Kasivishwanadhan ITA No.:
138/Viz/2017 A.Y.:
2012-13 Dated: 20th July, 2018

 

Section 40(a)(ia) – No Disallowance u/s.
40(a)(ia) for non-deduction of TDS u/s. 194C if no oral or written contract
between the contractor and contractee.



FACTS


In this case assessee was engaged in the business
which required large labour force within short notice of time. Assessee had
incurred labour expenses and payments were made through maistries who procured
the labour as per the need of the assessee. The Assessing Officer (AO) inferred
that there is a principal/agent relationship between the assessee and Maistry
and the transactions were in the nature of supply of labour contract and
accordingly held that such payments are liable for deduction of tax at source
u/s. 194C of Act. Since the assessee had not deducted TDS on labour charges,
the AO disallowed the expenditure u/s. 40(a)(ia) of Act.

 

Aggrieved by
the order of the AO, the assessee appealed before the CIT(A). The assessee
submitted before the CIT(A) that there was no agreement written or oral between
the assessee and the maistries and in the absence of any contract between both
the parties, it cannot be construed that there exists any principal agent
relationship/contract between them. The Assessee argued that the maistries were
not the labour contractors and they were randomly the first among the group of
few people claiming to be the leader of that group. They procured the labour
along with them as when required and for the sake of convenience, the assessee
made the payments to one of the maistries or group leader who in turn
distributed the payments to the rest of the group members. There was no implied
or express contract for supply of labour between the assessee and the maistry.
Thus there was no contract and the question of deduction of tax at source did
not arise. The CIT(A) observed that the labour maistries were not the labour
contractors and the payments made to labour maistries did not bear the
character of contract payment as contemplated u/s.194C of Act, accordingly held
that the payments made to the maistries did not attract deduction of tax at
source u/s. 194C of the Act and accordingly directed the AO to delete the
addition.

 

Aggrieved by the order, revenue filed appeal
to ITAT.

 

HELD


The Tribunal concluded that the assessee was
engaged in labour oriented industry which required labour at irregular
intervals yet urgently. It was not convenient to find individual labourers and
hence, the assessee identified some of the maistries or group leaders to
procure the labour who can work as per the requirement of the job. As stated by
the AR, the group leaders were only responsible for procuring the labour and
work was done under the assessee’s personal supervision. There was no written
or oral agreement or contract between the maistries and the assessee for
getting the work done through the maistry or to supply the labour as it was a
general practice used for convenience of obtaining distant labourers. Neither
there was a contract for supply of labour nor there was contract for getting
the work done through labour by the assessee with the maistries. The AO simply
considered the payments made to the group leaders and landed in a presumption
that there was contract in existence for supply of labour between the maistries
and the assessee. The AO did not examine the maistries before coming to such
conclusion. As per the provisions of section 194C of the Act, there must be
contract for deduction of TDS including supply of labour for carrying out any
work.

 

Thus, in the
opinion of the ITAT No Disallowance u/s. 40(a)(ia) for non deduction of TDS
u/s. 194C if no oral or written contract exist between the contractor and
contractee.

 

Section 153A – Copies of sale deeds of land found during the course of search operation which were already considered by the AO while framing the assessment u/s. 143(3) cannot be considered as incriminating material and, therefore, the assessment framed u/s. 153A on the basis of the contents of the same sale deeds is bad in law.

35.  [2019] 197 TTJ 502 (Delhi – Trib.) Lord Krishna
Dwellers (P) Ltd vs. DCIT ITA No.:
5294/Del/2013 A.Y.:  2006-07. Dated: 17th December, 2018.

 

Section 153A – Copies of sale deeds of land
found during the course of search operation which were already considered by
the AO while framing the assessment u/s. 143(3) cannot be considered as
incriminating material and, therefore, the assessment framed u/s. 153A on the
basis of the contents of the same sale deeds is bad in law.

 

FACTS


A search operation
was conducted at the premises of the assessee on 21.01.2011. Original return of
income was filed on 21.11.2006 and the assessment was framed u/s. 143(3) of the
Act vide order dated 13.05.2008. During the course of original assessment
proceedings the details of vendors from whom the land was purchased during the
F.Y. 2005-06 alongwith copies of land deed were furnished for verification.
After considering all this, the Assessing Officer framed the assessment. The
same sale deeds were found during the course of search operation and on the
basis of the very same sale deeds, the Assessing Officer came to the conclusion
that an amount of Rs.1.05 crore has been paid to various persons in cash.

 

Aggrieved by
the assessment order, the assessee preferred an appeal to the CIT(A). The
CIT(A) confirmed the same.

 

HELD 


The Tribunal
held that the sale deeds, transactions when duly recorded in the regular books
of account, could not be considered as incriminating material found during the
course of search operation. It was not the case of the Revenue that if the
search and seizure operation had not been conducted, the Revenue could never
have come to know that the assesse had entered into various purchase
transactions of land. The contention of the Departmental Representative that
though the deeds were before the AO, but he examined the deeds only to
ascertain the circle rate vis a vis the transaction rate and never went into
the cash transactions reflected in the land deed was not acceptable. Once a
document is filed before the AO during the course of search proceedings it is
assumed that he has gone through the contents of those documents and has
verified the same.

 

The copies of sale deed filed by the revenue
were the same which were considered by the AO while framing assessment u/s.
143(3). Therefore the assessment framed u/s. 153A was bad in law and was
quashed.

Section 54F r.w.s 50 – Deeming fiction of section 50 cannot be extended to the deduction allowable u/s. 54F and therefore, assessee is entitled for deduction u/s. 54F on the capital gains arising on the sale of depreciable assets as these assets were held for a period of more than thirty-six months.

34.  [2019] 197 TTJ 583 (Mumbai – Trib.) DCIT vs.
Hrishikesh D. Pai ITA No.:
2766/Mum/2017 A.Y.:
2012-13 Dated: 26th September, 2018

           

Section 54F r.w.s 50 – Deeming fiction of
section 50 cannot be extended to the deduction allowable u/s. 54F and
therefore, assessee is entitled for deduction u/s. 54F on the capital gains
arising on the sale of depreciable assets as these assets were held for a
period of more than thirty-six months.

 

FACTS


The assessee, a doctor by profession, had
sold a property, which was used by him for commercial purposes for his clinic and
on which depreciation was also claimed u/s. 32. The said property was held by
the assessee for a period of more than thirty six months before being sold.
Further, the assessee had purchased a new residential flat from the
consideration received from sale of the above property. The assessee claimed
deduction under section 54F on the capital gains arising from the sale of
aforesaid property.

 

The Assessing Officer treated the aforesaid
property as short-term capital assets within the deeming provision of section
50 and held that the assessee was not entitled for deduction u/s. 54F with
respect to short-term capital gains arising on sale of such short term capital
assets, as the deduction u/s. 54F was available only on the long-term capital
gains arising from transfer of long-term capital assets.

 

Aggrieved by the assessment order, the
assessee preferred an appeal to the CIT(A). The CIT(A) allowed the deduction
u/s. 54F to the assessee. Being aggrieved by the CIT(A) order, the Revenue
filed an appeal before the Tribunal.

 

HELD


The Tribunal
held that section 50 created a deeming fiction by modifying provisions of
sections 48 and 49 for the purposes of computation of capital gains chargeable
to tax u/s. 45 with
respect to the depreciable assets forming part of block of assets and there was
nothing in section 50 which could suggest that deeming fiction was to be
extended beyond what was stated in provisions of section 50 and it couldnot be
extended to deduction allowable to the assessee u/s. 54F which was an independent section operating in
altogether different field.

 

Thus, the assessee was entitled for
deduction u/s. 54F on the capital gains arising on the sale of depreciable
assets being commercial property.

 

In view of the aforesaid, the appeal filed
by the revenue deserved to be dismissed.

Section 23 – Assessee is entitled to claim benefit u/s. 23(1)(c) if assessee intended to let out property and took efforts in letting out of property and the property remained vacant despite such efforts made by the assessee.

33. 
[2019] 101 taxmann.com 45 (Delhi-Trib.) Priyankanki Singh Sood vs. ACIT ITA No.: 6698/Del./2015 A.Y.: 2012-13 Dated: 13th December, 2018

 

Section 23 – Assessee is entitled to claim
benefit u/s. 23(1)(c) if assessee intended to let out property and took efforts
in letting out of property and the property remained vacant despite such
efforts made by the assessee.

 

FACTS


In the course
of assessment proceedings, the Assessing Officer (AO) observed that the assessee
owned a property at Madras and that the assesse had not offered any income
under the head `Income from House Property’ in respect of the said house
property at Madras. The AO considered the annual value of the property to be
the sum for which the property might reasonably be expected to be let out and
after allowing standard deduction of 30% as per provisions of section 24(a) of
the Act, he made an addition of Rs. 49,849 under the head income from house
property.

 

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

 

Aggrieved, the assessee preferred an appeal
to the Tribunal,

 

HELD


The Tribunal
noted that the assessee purchased the said property in 1980 and the same was
continuously let out upto assessment year 2001-02 and thereafter from
assessment year 2002-03, suitable tenant could not be found and hence the
property remained vacant. The Tribunal observed that section 23(1)(c) was
attracted only upon fulfilment of the three conditions cumulatively. Upon cumulative
satisfaction of the three conditions the amount received or receivable shall be
deemed to be the annual value. The three conditions, according to the Tribunal,
are-

–  the property or part thereof must be let; and

–  it should have been vacant during the whole
or any part of the previous year; and

– owing to such
vacancy the actual rent received or receivable by the owner in respect thereof
should be less than the sum referred to in the clause

 

Further, the Tribunal also observed that
clause (c) would not apply in situations where the property was not let out at
all during the previous years or even if let out was not vacant during whole or
any part of the previous year.

 

The Tribunal observed that the property at
Madras which was in dispute remained vacant after assessment year 2002-03 till
date. The Tribunal noted that since the property could not be let out due to
inherent defects and the property remained vacant, the assessee had rightly
applied section 23(1)(c) of the Act. The said property after being vacant also
was not under self-occupation of the assessee. Further, it was not the case of
the revenue that the property was not let out prior to assessment year 2002-03.
Under the circumstances, the Tribunal, following the decision of the co-ordinate
bench in Premsudha Exports (P.) Ltd. vs. ACIT [2008] 110 ITD 158 (Mum.)
held that the assessee was entitled to benefit u/s. 23(1)(c) of the Act. The
appeal filed by the assessee was allowed.

CBDT Circulars – CBDT Circular No. 3 of 2018 dated 11th July, 2018 which specifies the revised monetary limits for filing appeal by the department before Income-tax Appellate Tribunal, High Courts and SLPs/appeals before the Supreme Court is applicable even in respect of the appeals filed prior to the date of circular

32. 
[2019] 101 taxmann.com 248 (Ahmedabad-Trib.) DCIT vs. Shashiben Rajendra Makhijani ITA No.: 254 and 255/Ahd./2016 A.Y.: 2009-10 and 2010-11 Dated: 17th December, 2018

 

CBDT Circulars – CBDT Circular No. 3 of
2018 dated 11th July, 2018 which specifies the revised monetary
limits for filing appeal by the department before Income-tax Appellate
Tribunal, High Courts and SLPs/appeals before the Supreme Court is applicable
even in respect of the appeals filed prior to the date of circular

 

FACTS


During the course of appellate proceedings,
the assessee submitted that the appeals filed by the revenue were to be
dismissed on account of low tax effect in view of the CBDT Circular No. 3 of
2018 dated 11th July, 2018.

 

HELD


The Tribunal observed that, indeed, the tax
effect in the instant appeals was less than the limit of Rs. 20 lakh prescribed
by CBDT Circular No. 3 of 2018 dated 11th July, 2018. The Tribunal
observed the assessee’s case was not covered within the exemption clause,
clause (10) of the said CBDT Circular and since tax effect was less than Rs. 20
lakh, the appeals were held to be not maintainable.

Section 56(2)(vii)(b) – Agricultural land falls within the definition of immovable property and covered within the scope of section 56(2)(vii)(b) irrespective of whether the same falls within the definition of capital asset u/s. 2(14) of the Act or otherwise.

This is the first
and oldest monthly feature of the BCAJ. Even before the BCAJ started, when
there were no means to obtain ITAT judgments – BCAS sent important judgments as
‘bulletins’. In fact, BCAJ has its origins in Tribunal Judgments. The first
BCAJ of January, 1969 contained full text of three judgments.

We are told that the first convenor of
the journal committee, B C Parikh used to collect and select the decisions to
be published for first decade or so. Ashok Dhere, under his guidance compiled
it for nearly five years till he got transferred to a new column Excise Law
Corner. Jagdish D Shah started to contribute from 1983 and it read “condensed
by Jagdish D Shah” indicating that full text was compressed. Jagdish D Shah was
joined over the years by Shailesh Kamdar (for 11 years), Pranav Sayta (for 6
years) amongst others. Jagdish T Punjabi joined in 2008-09; Bhadresh Doshi in
2009-10 till 2018. Devendra Jain and Tejaswini Ghag started to contribute from
2018. Jagdish D Shah remains a contributor for more than thirty years now.

While Part A covered Reported Decisions,
Part B carried unreported decisions that came from various sources. Dhishat
Mehta and Geeta Jani joined in 2007-08 to pen Part C containing International
tax decisions.

The decisions earlier were sourced from
counsels and CAs that required follow up and regular contact. Special bench
decisions were published in full. The compiling of this feature starts with the
process of identifying tribunal decisions from a number of sources. Selection
of cases is done on a number of grounds: relevance to readers, case not
repeating a settled ratio, and the rationale adopted by the bench members.

What keeps the contributors going for so
many years: “Contributing monthly keeps our academic journey going. It keeps
our quest for knowledge alive”; “it is a joy to work as a team and contributing
to the profession” were some of the answers. No wonder that the features
section since inception of the BCAJ starts with the Tribunal News!

31.  [2019] 101 taxmann.com 391 (Jaipur-Trib.) ITO vs.
Trilok Chand Sain ITA No.:
499/Jp./2018 A.Y.:
2014-15 Dated: 7th January, 2019

 

Section 56(2)(vii)(b) – Agricultural land
falls within the definition of immovable property and covered within the scope
of section 56(2)(vii)(b) irrespective of whether the same falls within the
definition of capital asset u/s. 2(14) of the Act or otherwise.

 

FACTS


The assessee, an individual, purchased three
plots of land and claimed that the said plots of land did not fall within the
definition of capital asset as per section 2(14) of the Income-tax Act, 1961
(“the Act”). The Assessing Officer (AO) invoked provisions of section
56(2)(vii)(b) of the Act and made addition of Rs. 1,51,06,224 being the difference
between the sale consideration as per the sale deed and the value determined by
the stamp valuation authority.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A). The CIT(A) held that land in question being agricultural land is
not a capital asset and the said transaction of purchase of land did not
attract the provisions of section 56(2)(vii)(b) of the Act. He further held
that the assessee was in the business of sale/purchase of property and the land
so purchased was his stock-in-trade and since the stock-in-trade is also
excluded from the definition of capital asset, provisions of section
56(2)(vii)(b) of the Act were not applicable. He deleted the addition of Rs.
1,51,06,224 made to the total income of the assessee.

 

Aggrieved, the Revenue preferred an appeal
to the Tribunal.

 

HELD


Section 56(2)(vii)(b) refers to any
immovable property and the same is not limited to any particular nature of
immovable property. The Tribunal also held that the section refers to
`immovable property’ which by its grammatical meaning would mean all and any
property which is immovable in nature i.e. attached to or forming part of earth
surface. The issue as to whether such agricultural land falls in the definition
of capital asset u/s. 2(14) or whether such agricultural land is part of
stock-in-trade could not be read into the definition of any immovable property
used in the context of section 56(2)(vii)(b) of the Act and is therefore not
relevant.

 

The appeal filed by the Revenue was
dismissed by the Tribunal.

 

Section 50C – Proviso to section 50C inserted by Finance Act, 2016 w.e.f. 1.4.2017 being curative in nature is retrospective.

19.  [2018] 100 taxmann.com 334 (Delhi-Trib.) Amit Bansal vs.
ACIT ITA No.:
3974/Delhi/2018 A.Y: 2012-13 Dated: 22nd November, 2018

 

Section
50C – Proviso to section 50C inserted by Finance Act, 2016 w.e.f. 1.4.2017
being curative in nature is retrospective.

 

FACTS


For
the assessment year under consideration, the assessee, an individual filed his
return of income declaring total income of Rs.10,20,270/-. During the year
under consideration, the assessee has shown net profit from sale/purchase of
properties under the head ‘Income from other sources’ at Rs.1,33,200/-. 

 

In
the course of assessment proceedings, the Assessing Officer (AO) asked the
assessee to provide the details of sale and purchase of property as well as to
justify why the income from sale of property is not to be assessed as ‘Capital
gain’ as against the ‘Income from other sources’ treated by the assessee. He
also asked the assessee to justify the impact of section 50C on the said
transaction.

 

The assessee submitted that he has sold the property held
by him jointly with Vikas Bansal on 22nd July, 2011 with net
consideration of Rs. 42 lakh which was purchased by him on 28th
July, 2010 for the sale value of Rs.39,33,600/- and has declared one half share
of profit on sale/purchase of property at Rs1,33,200/-. The assessee further
submitted that he has entered into an agreement to sell the property on 25th
March, 2011 with buyer Phool Pati and taken a part payment of Rs.10 lakh and no
possession was taken on that date. Thereafter, the assessee entered into an
agreement dated 22nd July, 2011 with buyer Phool Pati for final sale
and gave possession of the property in continuation of earlier agreement dated
25th March, 2011 in which the terms of payment were also specified.

 

It
was submitted that there is no registered conveyance deed and the transaction
was entered into just to earn profit from this venture of sale/purchase.
Alternatively, it was argued that the same may be treated as business income as
against ‘Income from other sources’ and not the ‘Capital gains’ in the hands of
the assessee. So far as the application of provisions of section 50C is
concerned, it was submitted that since the transaction is not in the nature of
capital gains, the provisions of section 50C are not applicable.

 

The
AO held that since the agreement of purchase as well as sale of plot involved
the possession of sale of property to be taken or retained in part performance
of a contract of the nature referred to in section 53A of Transfer of Property
Act, 1982, the property was a capital asset as prescribed in section 2(47)(v).
Therefore, it had to be treated as a capital asset and the asset was a
short-term capital asset in the hands of the assessee. The Assessing Officer
further noted that the circle rate of the property as on 22-7-2011 was Rs.
16,000/- per sq. yard as against the circle rate of Rs. 11,000/- as on
25-3-2011. Applying the provisions of section 50C, he determined the full value
of consideration at Rs. 57,21,600/- as against the actual sale consideration of
Rs. 42 lakh. Accordingly, the Assessing Officer determined the short-term
capital gain and made addition.

 

Aggrieved,
the assessee preferred an appeal to the Commissioner (Appeals) who confirmed
the action of the AO including the action of taking the circle rate of Rs.
16,000/- per sq. yard as on 22-7-2011.

 

Aggrieved
the assessee preferred an appeal to the Tribunal where, on behalf of the
assessee, relying on the ratio of the following decisions

(i)  Rahul G. Patel vs. Dy. CIT [(2018) 173 ITD 1
(Ahd. – Trib.)];

(ii) Smt. Chalasani Naga Ratna Kumaris vs. ITO
[(2017) 79 taxmann.com 104 (Vishakhapatnam – Trib.)];

(iii)       Hansaben Bhaulabhai Prajapati vs. ITO,
ITA No.2412/Ahd/2016 (ITAT, Ahmedabad).

 

it
was submitted that in view of the proviso to section 50C(1), where the date of
the agreement fixing the amount of consideration and the date of registration
for the transfer of the capital asset are not the same, the value adopted or
assessed or assessable by the stamp valuation authority on the date of
agreement may be taken and, thus, it had correctly adopted the rates applicable
on the date of the agreement as against the date of actual sale.

 

HELD


The
Tribunal noted that the proviso to section 50C was inserted by the Finance Act,
2016 with effect from 1-4-2017. It observed that the question that has to be
decided is as to whether the above amendment is prospective in nature i.e.,
will be applicable from assessment year 2017-18 or is retrospective in nature being
curative in nature.

 

The
Tribunal noted that identical issue had come up before the Ahmedabad Bench of
the Tribunal in the case of Dharamshibhai Sonani [2016] 75 taxmann.com
141/161 ITD 627 (Ahd. – Trib.) where it has been held that amendment to
section 50C introduced by the Finance Act, 2016 for determining full value of
consideration in the case of involved property is curative in nature and will
apply retrospectively. It then proceeded to observe that various other
decisions relied on by the Ld. counsel for the assessee also support the case
of the assessee that where the date of the agreement fixing the amount of
consideration and the date of registration regarding the transfer of the
capital asset in question are not the same, the value adopted or assessed or
assessable by the stamp valuation authority on the date of the agreement is to
be taken for the purpose of full value of consideration.

The
Tribunal accepted the argument made on behalf of the assessee in principle and
restored the issue to the file of the AO with a direction to verify necessary
facts and decide the issue in the light of the above observations directing to
adopt the circle rate on the date of agreement to sell in order to compute the
consequential capital gain.

 

The
appeal filed by the assessee was allowed.

 

Section 194H –Where assessee, engaged in business of providing DTH services, sold set top Box (STB) and recharge coupon vouchers to distributors at a discounted rate, discount so offered could not be considered as commission and, hence, not liable for deduction of tax at source under provisions of section 194H.

30.  [2019] 197 TTJ 75 (Mumbai – Trib.) Tata Sky Ltd.
vs. ACIT ITA No.: 6923
to 6926/Mum/2012 A.Y: 2009-10 to
2012-13 Dated: 12th
October, 2018

           

Section 194H
–Where assessee, engaged in business of providing DTH services, sold set top
Box (STB) and recharge coupon vouchers to distributors at a discounted rate,
discount so offered could not be considered as commission and, hence, not
liable for deduction of tax at source under provisions of section 194H.

 

FACTS


The
assessee-company was engaged in business of providing Direct to Home (DTH)
services in the brand name of Tata Sky. The provision of this service required
installation of set top box and dish antenna at the customer’s premises. The
assessee had entered into agreement with distributors for sale/distribution of
settop boxes, prepaid vouchers, recharge vouchers (RCVs) etc. As per the
agreements, STBs and RCVs were sold to distributors at a discounted price. The distributors/dealers
sold these items to customers/subscribers of the assessee-company at a price
not exceeding the MRP mentioned for the product.

 

The Assessing
Officer held that the assessee was liable to deduct tax at source in respect of
payments made to the distributors as discount for sale of STBs and recharge
coupons as same was ‘commission and brokerage’ and the same was income in the
hands of distributions for service relevant of assessee. He therefore, treated
the assessee to be in default as per the provisions of section 201(1).

 

Aggrieved by
the assessment order, the assessee preferred an appeal to the CIT(A). The
CIT(A) upheld the order of the Assessing officer.

 

HELD


The Tribunal
held that the assessee entered into agreement with the distributor for sale of
Set Top Box (STB) and recharge coupon vouchers. As per agreement products are
sold to distributor at discounted price, as agreed. The distributor/dealer
sells these items to customers/subscribers at a price not exceeding MRP on the
product. As per the agreement, payment of each order for the above items was to
be made by distributor either at the time of placing the order or at the time
of delivery. Apart from the above assessee also provided festival/seasonal
discounts to the distributors. For these discounts assessee did not make any
payment rather it issued credit notes and same was subsequently adjusted from
the payment due from the distributor, so in the financial statements the
discount amount was not reflected.

 

The Tribunal followed the ratio of the Bombay High
Court decisions in the case of CIT vs. Piramal Healthcare Ltd (2015) 230
Taxman 505 and CIT vs. Qatar Airways (2011) 332 ITR 253 wherein it
was held that the assessee should not be visited with the liability to deduct
TDS for non-deduction of tax at source u/s. 194H on the difference between the
discounted price at which it is sold to the distributors and the MRP upto which
they are permitted to sell. The difference between MRP and the price at which
item is sold to the distributor cannot be held to be commission or brokerage.
The distributors are customers of the assessee to whom sales are affected. The
discounts and credit notes credited cannot be considered to be commission
payment u/s. 194H and therefore, the assessee was not liable to deduct the tax at source on the impugned amounts in this case.

Section 69 r.w.s.5 & 6 –Where additions were made to income of assessee, who was a non-resident since 25 years, since, no material was brought on record to show that funds were diverted by assessee from India to source deposits found in foreign bank account, impugned additions were unjustified.

29.  [2019] 197 TTJ 161 (Mumbai – Trib.) DCIT (IT) vs.
Hemant Mansukhlal Pandya ITA No.: 4679
& 4680/Mum/2016 A.Y: 2006-07
& 2007-08 Dated: 16th
November, 2018

                                   

Section 69
r.w.s.5 & 6 –Where additions were made to income of assessee, who was a
non-resident since 25 years, since, no material was brought on record to show
that funds were diverted by assessee from India to source deposits found in
foreign bank account, impugned additions were unjustified.

 

FACTS


The assessee
was a non-resident individual living in Japan on a business visa since 1990. He
had been a director in a company in Japan and had got permanent residency certificate
from Japan since 2001. The assessing officer had made addition towards amount
found credited in HSBC Bank account, Geneva on the ground that the assessee had
failed to explain and prove that deposit was not having any connection to
income derived in India and not sourced from India. The Assessing Officer had
made additions on the basis of a document called ‘base note’ received from
French Government, as per which the assessee was maintaining a bank account in
HSBC Bank, Geneva. Except this, the Assessing Officer had not conducted any
independent enquiry or applied his mind before coming to the conclusion that
whether the information contained in base note was verified or authenticated.


Aggrieved by
the assessment order, the assessee preferred an appeal to the CIT(A). The
CIT(A) deleted the addition of income as made by the Assessing Officer. Being
aggrieved by the CIT(A) order, the Revenue filed an appeal before the Tribunal.

 

HELD


The Tribunal
held that the Assessing Officer was not justified in placing the onus of
proving a negative that the deposits in foreign bank account were not sourced
from India on the assessee. The onus of proving that an amount falls within the
taxing ambit was on the department and it was incorrect to place the onus of proving
negative on the assessee. No material was brought on record to show that the
funds were diverted by the assessee from India to source the deposits found in
foreign bank account. Therefore, it is viewed that when the Assessing Officer
found that the assessee was a non-resident Indian, was incorrect in making
addition towards deposits found in foreign bank account maintained with HSBC
Bank, Geneva without establishing the fact that the said deposit was sourced
out of income derived in India. Hence, the findings of the CIT(A) were upheld
and the appeal filed by the revenue was dismissed.

 

Section 68 – Mere non production of Director of Shareholder Company cannot justify adverse inference u/s. 68 of the Act.

28.  (2018) 66 ITR (Trib.) 226
(Delhi) Gopal Forex Pvt. Ltd. vs. ITO ITA No.: 902/Del/2018 A.Y: 2008-09 Dated:
26th June, 2018

 

Section 68 – Mere non production of Director of Shareholder Company
cannot justify adverse inference u/s. 68 of the Act.

 

FACTS

 

The assessee company filed its return of income. Subsequent to the
processing of return of income, information was received from the investigation
wing of Income tax about a search operation carried out in the case of Jain
Brothers who were involved in providing accommodation entries and bogus share
capital. The name of the assessee company was found in a list as one of the
beneficiaries.

 

Reassessment proceedings were initiated and additions were made by the
AO only on the basis of purported documents seized from the premises of Jain
Brothers. In the assessee’s case addition was sustained merely because the
director of shareholder company did not present himself physically before the
AO.

 

Important question raised before CIT(A) was whether adverse inference
u/s. 68 could be drawn by AO once assessee placed all the relevant documents in
its possession before AO to establish its burden u/s. 68, without discharging
secondary burden lying on the AO to point out defect in the assessee’s
submission. 

 

HELD

 

Before the Hon’ble ITAT, heavy reliance was placed by the Hon’ble bench
on Moti Adhesives P. Ltd. ITA No. 3133/Del/2018 where it was held that
once assessee places all the reliable and trustworthy documentary evidences to
support the veracity of transactions u/s. 68, it is the duty of AO to
dispassionately consider the same with objective standards and to not make
additions solely on the basis of investigation wing’s report prepared at the
time of search. This discharges the assessee’s burden u/s. 68 & shifts the
secondary burden to the AO. To discharge his burden, the AO must bring credible
incriminating material on record to displace the detailed evidence filed by the
assessee. But in the present case, it was observed that AO merely reproduced
the investigation wing’s report in the reasons recorded, the show cause notice
issued & the final order passed. If reassessment & additions are based
upon the sole ground of prima facie opinions which are used to reopen
the case, this would frustrate the entire object of law. Besides, additions
made merely on basis of non-production of directors of Share Holder Company
disregarding all the other detailed evidences on record is unjustified.

 

The Hon’ble ITAT also relied on the following judgements:

i)          Softline Creations
Pvt. Ltd. (387 ITR 636) [Delhi HC]

ii)         CIT vs. Orissa
Corporation Pvt. Ltd. (Vol. 159 ITR 78) [SC]

iii)        Crystal Networks Pvt.
Ltd. vs. CIT (353 ITR 171) [Calcutta HC]

iv)        Crystal Networks Pvt.
Ltd. vs. CIT (353 ITR 171) [Calcutta HC]

v)         CIT vs. Dataware Pvt.
Ltd. (ITAT No. 263 of 2011) [Calcutta HC]

vi)        Rakam Money Matters Pvt.
Ltd. (ITA no. 778/2015) [Delhi HC]

vii)       Orchid Industries Pvt.
Ltd. (397 ITR 136) [Bombay HC]

viii)      Aksar Wire Products (P)
Ltd. (ITA no. 1167/Del/2015) [Delhi ITAT]

ix)        CIT vs. Stellar
Investment Ltd. (Civil No. 7868 of 1996) [SC]

 

Thus, relying on the views expressed in a plethora of judgements, the
Hon’ble ITAT held that mere non production of Director of share holder company
ipso facto cannot justify straight adverse inference u/s. 68 dehors detailed
documentary evidences filed.

 

Section 153A, Rule 27 – Any issues other than those relating to undisclosed income which come to the AO’s knowledge while conducting enquiries relating to Search shall not be considered by AO for making assessment u/s. 153A if normal assessment for such relevant assessment years had already been completed earlier. Rule 27 gives liberty to the respondent to raise any ground which had been decided against him by the first appellate authority.

27.  (2018) 66 ITR (Trib.) 306 (Delhi) ACIT vs.
Meroform India Pvt Ltd. ITA No.:
4494/Del/2014 A.Y: 2011-12 Dated: 31st
July, 2018

 

Section 153A,
Rule 27 – Any issues other than those relating to undisclosed income which come
to the AO’s knowledge while conducting enquiries relating to Search shall not
be considered by AO for making assessment u/s. 153A if normal assessment for
such relevant assessment years had already been completed earlier.

 

Rule 27 gives
liberty to the respondent to raise any ground which had been decided against
him by the first appellate authority.

 

FACTS


 Assessment for six years was reopened u/s.
153A. Against these, the assessee filed appeals for all the six years. Out of
these, the department preferred appeals to the Hon’ble ITAT for three
assessment years. In these three appeals, the CIT(A) had dismissed the legal
contentions of the assessee but gave relief on merits. Therefore, assessee had
not filed any cross appeal or cross objection, but it raised a legal ground by
invoking Rule 27 of ITAT Rules, challenging the validity of additions made in
the impugned assessment orders on the ground that the same were beyond the
scope of section 153A. CIT(DR) objected to the admission of the petition made
under Rule 27 and submitted that the respondent assessee cannot be permitted to
raise a ground or an issue which was decided against it which could only be
done by filing of appeal.

 

The second
issue raised in the appeal was whether issues already considered in the
assessments completed earlier, which had attained finality, can be re-examined
u/s. 153A by the assessing officer?

 

HELD


The tribunal
allowed the ground raised under Rule 27 of the Income Tax Appellate Tribunal
rules, 1963 and held
as under:


Rule 27 gives
the liberty to the respondent to support the first appellate order on any of
the ground decided against him. The issue of scope of addition in assessment
completed u/s. 153A had been decided against the assessee and therefore, as a
respondent it can very well raise the defence in the appeal filed by the
revenue. The only limitation which can be inferred is that the respondent
cannot claim any fresh relief which had been denied to him by the first
appellate authority and also which is not part of the grounds so raised by the
revenue. In the given case, it was not a claim of any fresh relief denied to
the assessee and also it was a part of the ground raised by the revenue. The
respondent assessee got the favourable judgment on merits but there was an
adverse finding on the issue of scope of addition u/s. 153A; and therefore, the
assessee can very well raise such an issue under Rule 27.

 

In the second
issue, the ITAT held that in the case of assessments which have attained
finality and are non-abated assessments, no additions can be made over and
above the original assessed income unless some incriminating material has been
found during the course of search. This proposition had been well discussed in
the judgment of CIT vs. Kabul Chawla (2016) 380 ITR 573 (Delhi HC).
Further, section 153A does not say that additions should be strictly made on
the basis of evidence found in the course of the search. But this does not mean
that the assessment can be arbitrary or without any relevance or nexus with the
seized material. Thus, an assessment has to be made under this Section only on
the basis of seized material as laid down in Pr.CIT vs. Meeta Gutgutia 395
ITR 526 (Delhi HC).

 

Thus, in the
opinion of the ITAT all the additions made by the AO in the said three
assessment years were beyond the scope of assessment u/s. 153A, because
assessments for these assessments years had attained finality before the date
of search and no incriminating material was found relating to such additions.

 

Section 140A(3) and 221 – AO was not justified in levying penalty u/s. 140A(3) r.w.s. 221(1) for failure to pay self-assessment tax as per the provisions of section 140A(3) as amended w.e.f. 1st April, 1989 as the amended section 140A(3) does not envisage any penalty for non-payment of self-assessment tax

10.  [2018] 195 TTJ 536
(Mumbai – Trib.)

Heddle Knowledge P (Ltd) vs. ITO

ITA No.: 7509/Mum/2011

A. Y.: 2009-10.                                   

Dated: 19th January, 2018.

 

Section 140A(3) and 221 – AO was not justified in levying penalty
u/s. 140A(3) r.w.s. 221(1) for failure to pay self-assessment tax as per the
provisions of section 140A(3) as amended w.e.f. 1st April, 1989 as
the amended section 140A(3) does not envisage any penalty for non-payment of
self-assessment tax 

 

FACTS

The assessee filed its return for the relevant year which was not
accompanied by proof of payment of self-assessment tax. In response to
show-cause notice issued by AO, assessee raised a plea of financial stringency.
The AO did not find the reason advanced by the assessee to be satisfactory to
mitigate the levy of penalty.

He took a view that the assessee had defaulted in payment of self-assessment
tax within the stipulated period and was thus liable to be treated as
‘assessee-in-default’ as per the provisions of section 140A(3) r.w.s. 221(1) of
the Act. Accordingly, penalty order was passed for delayed payment of
self-assessment tax.

 

Aggrieved by the assessment order,
the assessee preferred an appeal to the CIT(A). The CIT(A) confirmed the
penalty order.

 

HELD

The Tribunal held that in terms of
the provisions of section 140A(3) as existing till 31-3-1989, the Assessing
Officer was empowered to levy penalty in cases where assessee had failed to pay
the self-assessment tax. The section was then amended by inserting Explanation
to it with effect from 1-4-1989. The amended section along with the explanatory
notes to the amendment conjointly made it clear that the earlier provision
prescribing for levy of penalty for default outlined in sub-section (1) of
section 140A(3) had yielded place to mandatory charging of interest for such
default. The aforesaid legislative intent also got strength by the fact that
simultaneously the legislature prescribed for mandatory charging of interest
u/s. 234B of the Act for default in payment of self-assessment tax with effect
from 01-04-1989 onwards.

 

However, a contrary position was
taken by the revenue to the effect that for having defaulted in payment of
self-assessment tax within the stipulated period, assessee qualified to be an
“assessee-in-default” as prescribed in the amended section 140A(3).
Section 221(1) of the Act prescribed for penalty when assessee was in default
in making the payment of tax. Once section 140A(3) had been amended with effect
from 01-04-1989, there was no amendment of section 221 and it continued to
remain the same. Furthermore, the intention of the legislature at the time of
insertion of the amended section 140A(3) made it clear that the old provisions
of section 140A(3) prescribing for levy of penalty for non-payment of
self-assessment tax was no longer found necessary because the said default
would henceforth invite mandatory charging of interest. Ostensibly, the
legislature did not envisage that consequent to the amendment, the default in
payment of self-assessment tax would hitherto be covered by the scope of
section 221(1).

 

The consequence of the aforesaid
two expressions contained in section 140A(3) were also not of the type sought
to be understood by the revenue, and rather the assessee was to be treated as
an “assessee-in-default” for the limited purpose of enabling the AO
to make recovery of the amount of tax and interest due and not for levy of
penalty, an aspect which had been specifically done away in the new provision.
Therefore, the Tribunal concluded that the fact that the amended section
140A(3) with effect from 01-04-1989 did not envisage any penalty for
non-payment of self-assessment tax, the AO was not justified in levying the
penalty by making recourse to section 221(1) of the Act. It may again be
emphasised that section 221 remained unchanged, both during the pre and post
amended section 140A(3) of the Act and even in the pre-amended situation,
penalty u/s. 221 of the Act was not attracted for default in payment of
self-assessment tax, which was expressly covered in pre 01-04-1989 prevailing
section 140A(3). In the result, the Tribunal directed the AO to delete the
penalty.

Section 54F – AO having accepted the returned income despite the fact that the assessee neither admitted capital gains on sale of property nor claimed exemption under any of the provisions and the CIT having given direction to the AO in his revisional order to verify the facts and to redo the assessment as per law, the claim for exemption u/s. 54F could not be denied in the fresh assessment

9.  [2018] 195 TTJ 630 (Hyd
– Trib.)

Manohar Reddy Basani vs. ITO

ITA No.: 1307/Hyd/2017

A. Y.: 2010-11.                                   

Dated: 30th May, 2018.

           

Section 54F – AO having accepted the returned
income despite the fact that the assessee neither admitted capital gains on
sale of property nor claimed exemption under any of the provisions and the CIT
having given direction to the AO in his revisional order to verify the facts
and to redo the assessment as per law, the claim for exemption u/s. 54F could
not be denied in the fresh assessment 

 

FACTS

The assessee filed its return
declaring certain taxable income. In course of scrutiny assessment, the AO
noticed that the assessee made transaction of sale of property. The assessee
had neither admitted capital gains on sale of property nor claimed exemption
under any of the provisions of the Act. In response to show-cause notice, the
assessee furnished the information called for and stated that he was entitled
to exemption u/s. 54F on the capital gains since his share of sale
consideration of the property was utilised for construction of a residential
property. Having considered the stand of the assessee, AO accepted the returned
income.

 

The Commissioner, however, opined
that in the absence of disclosure of capital gains in the return of income, the
assessee was not entitled to get any deduction u/s. 54F for investment in new
residential house. He thus passed a revisional order setting aside the
assessment.

 

Consequent to the directions of the
Revisional Authority, the AO passed an order u/s. 143(3) r.w.s. 263 holding
that the assessee neither declared the transaction of sale of property nor made
any claim of deduction u/s. 54F of the Act in the return of income and, in the
absence of any claim the assessee was not entitled to get any deduction u/s.
54F of the Act.

 

HELD

The Tribunal held that even if it
was assumed that the assesse could not make any new claim at later stage but
the fact remained that the assessee had not even disclosed capital gains and in
the absence of offering the capital gains to tax, the AO should have strictly
confined to the return filed and would not have made any addition and if once
he took the issue of capital gains for the first time, the claim of the
assessee regarding deduction u/s. 54F of the Act should also be considered and
in fact, the AO had fairly considered the same in the original assessment and
completed the assessment without making any addition. Presumably, because of
this the Revisional Authority did not give much stress to this aspect but
limited his direction by stating that the AO should reconsider the matter in
accordance with law. Thus, there was a categorical direction of the
Commissioner, to verify the facts and to redo the assessment as per law, and in
such an event it was a duty of the AO to consider the issue afresh. As the
assessee neither disclosed the capital gains in the return of income nor
claimed any deduction u/s. 54F, the assessee was not entitled to get any
deduction u/s. 54F, in the same way the AO should not have added the capital
gains to the income of the assessee since there was no disclosure of the same
in the return of income.

 

The first appellate authority ought
to have considered the issue on merits since the decision of the Supreme Court
in the case of Goetze (India) Ltd., would not debar the first appellate
authority to consider the fresh claim, if any, so as to arrive at the correct
taxable income. The High Court, in the case of CIT vs. Indian Express
(Madurai) (P.) Ltd. [1983] 13 Taxman 441/140 ITR 705, observed that unlike
a law suit in civil appeals, in tax litigation, it could not be treated as a
“lis”
between two rival parties but the job of the AO was to arrive at the correct
taxable income.

 

Therefore, merely on account of
fact that the assessee had not claimed exemption in return of income, the same
could not have been denied. In the result, the Tribunal directed AO to allow
the claim of deduction u/s. 54F of the Act.

Section 23 – Annual value of property of the assessee which property had remained let out for 36 months and thereafter could not be let out and had remained vacant during whole of the year under consideration, but had never remained under self-occupation of the assessee, has to be rightly computed at `nil’ by taking recourse to section 23(1)(c) of the Act

8.  [2018] 97 taxmann.com
534 (Mumbai-Trib.)

Sonu Realtors (P.) Ltd. vs. DCIT

ITA No.: 2892/Mum/2016 & 66(MUM) OF 2017

A. Y.: 2011-12 and 2012-13.

Dated: 19th September, 2018.

 

Section 23 – Annual value of property of the
assessee which property had remained let out for 36 months and thereafter could
not be let out and had remained vacant during whole of the year under
consideration, but had never remained under self-occupation of the assessee,
has to be rightly computed at `nil’ by taking recourse to section 23(1)(c) of
the Act 

 

FACTS

The assessee, engaged in the
business of construction, filed its return of income for assessment year
2011-12, declaring therein a total income of Rs. Nil. In the course of
assessment proceedings, the Assessing Officer noted that immovable properties
were reflected in the balance sheet of the assessee but the deemed rental
income had not been offered for taxation. He called upon the assessee to show
cause why deemed rent of the properties owned by the assessee should not be
charged to tax under the head `Income from House Property’. The assessee, in
response to the show cause, submitted that the two flats owned by it were let
out to Sterling Construction P. Ltd. for a period of 36 months vide agreement
dated April 2007. Upon expiry of the license period, the licensee vacated the
flats. During the period when the properties were let out on leave and license,
the rental income was offered for taxation under the head `Income from House
Property’. Since during the entire year the property was vacant, the assessee
had considered the annual value to be nil. The assessee contended that its case
is covered by section 23(1)(c) of the Act. The AO, however, held that since the
properties under consideration were not let out at all during the previous
year, the provisions of section 23(1)(c) would not be applicable to its case.

 

Aggrieved, the assessee preferred
an appeal to the CIT(A) who upheld the order passed by the AO. Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted that the
assessee had vide agreement dated April, 2007 let out the Unit No. 401 &
425 of project Balaji Bhavan to Sterling Construction Pvt. Ltd. for a period of
36 months, and had offered the rental income received therefrom as its
“Income from house property” in the preceding years, but after the
expiry of the license period of 36 months the licensee had vacated the property
and conveyed its intention of not getting the license agreement renewed any
further. It observed that it is not the case of the department that after the
property was vacated, the same thereafter had remained under the self
occupation of the assessee.

 

In light of the aforesaid factual
position the Tribunal found itself to be in agreement with the submissions of
the Ld. A.R. that the issue raised before it is squarely covered by the orders
of the coordinate benches of the Tribunal in the case of (i) Vikas Keshav
Garud vs. ITO [(2016) 71 taxmann.com 214 (Mum.); (ii). ACIT vs. Dr. Prabha
Sanghi [(2012) 27 taxmann.com 317 (Delhi)]; (iii). Premsudha Exports (P) Ltd.
vs. ACIT [(2008) 110 ITD 158 (Mum.); and (iv) Informed Technologies India Ltd.
vs. DCIT [(2016) 75 taxmann.com 128 (Mum.)].

 

The Tribunal, observed that the
co-ordinate Bench in the case of Informed Technologies India Ltd. (supra)
had while analysing the scope and gamut of section 23(1)(c) of the ‘Act’,
concluded that in light of the words ‘Property is let’ used in clause (c) of
section 23(1) of the ‘Act’, unlike the term ‘house is actually let’ as stands
gathered from a conjoint reading of sub-section (2) to (4) of section 23, it
can safely and rather inescapably be gathered that the conscious, purposive and
intentional usage of the aforesaid term ‘Property is let’ in section 23(1)(c)
of the ‘Act’, cannot be substituted by the term ‘house is actually let’ as used
by the legislature in all its wisdom in sub-section (3) of section 23.

 

The Tribunal held that it can
safely be concluded that the requirement that the ‘house is actually let’
during the year is not to be taken as a prerequisite for bringing the case of
an assessee within the sweep of section 23(1)(c) of the ‘Act’, as long as the
property is let in the earlier period and is found vacant for the whole year
under consideration, subject to the condition that such vacancy of the property
is not for self occupation of the same by the assessee who continues to hold
the same for the purpose of letting out.

 

Though the
term ‘Property is let’ used in section 23(1)(c) is solely with the intent to
avoid misuse of determination of the ‘annual value’ of self occupied properties
by the assesses by taking recourse to section 23(1)(c), however, the same
cannot be stretched beyond that and the ‘annual value’ of a property which is
let, but thereafter remains vacant for the whole year under consideration,
though subject to the condition that the same is not put under self occupation
of the assessee and is held for the purpose of letting out of the same, would
continue to be determined u/s. 23(1)(c) of the ‘Act’. The Tribunal held that
the assessee had rightly determined the ‘annual value’ of the property at Nil
by taking recourse to section 23(1)(c) of the ‘Act’.

 

It observed that the CIT(A) had
misconceived the judgment of the Hon’ble High Court of Andhra Pradesh in the
case of Vivek Jain vs. Asstt. CIT [2011] 14 taxmann.com 146/202 Taxman
499/337 ITR 74.  It observed that in
the said judgment the Hon’ble High Court in the concluding Para 14 & 15 had
observed that though the benefit of computing the ‘ALV u/s. 23(1)(c) could not
be extended to a case where the property was not let out at all, however the
same would duly encompass and take within its sweep cases where the property
had remained let out for two or more years, but had remained vacant for the
whole of the previous year.

 

The Tribunal was of the view that now
when in the case of the present case no infirmity emerges from the computation
of the ‘annual value’ of the said property u/s. 23(1)(c) of the ‘Act’ by the
assessee. The Tribunal allowed this ground of appeal filed by the assessee.

Section 271AAA – Penalty proceeding u/s. 271AAA can be initiated only if the person has been subjected to search u/s.132(1) If penalty proceedings u/s. 271AAA are initiated against a person who is not subjected to search action u/s. 132(1) of the Act, the provision itself becomes unworkable as no declaration u/s. 132(4) of the Act is possible from any person other than the person against whom search and seizure action u/s. 132(1) is carried out.

7.  [2018] 97 taxmann.com 460 (Mumbai-Trib.)

DCIT
vs. Velji Rupshi Faria

ITA
No.: 1849/Mum/2017

A. Y.:
2008-09
Dated: 31st August, 2018

 

Section 271AAA – Penalty proceeding u/s. 271AAA can be initiated
only if the person has been subjected to search u/s.132(1)

 

If penalty proceedings u/s. 271AAA are initiated against a person
who is not subjected to search action u/s. 132(1) of the Act, the provision
itself becomes unworkable as no declaration u/s. 132(4) of the Act is possible
from any person other than the person against whom search and seizure action
u/s. 132(1) is carried out.

 

FACTS

The assessee, an individual, was a
key person of certain firms and companies which were subjected to search and
seizure operation. The Assessing Officer (AO) initiated proceedings u/s. 153C
of the Act. In the course of proceedings for assessment u/s. 153C of the Act,
the AO referring to incriminating material found in the course of search and
seizure operation made a number of additions as a result of which total income
was assessed at Rs. 7,40,04,778. He also initiated proceedings for imposition
of penalty u/s. 271AAA of the Act. The AO, rejecting the explanation filed by
the assessee, levied penalty of Rs. 74,00,477 u/s. 271AAA of the Act.

 

Aggrieved, the assessee preferred
an appeal to the CIT(A) who having found that no search and seizure action was
carried out in the case of the assessee, followed the decision of the Ahmedabad
Bench of the Tribunal in the case of Dy. CIT vs. K. G. Developers, ITA No.
1139/Ahd./2012, dated 13th September, 2013, and deleted the
penalty imposed.


Aggrieved, the revenue preferred an appeal to the Tribunal.

 

HELD

At the outset, the Tribunal noted
that the Department is not disputing that the penalty has been levied u/s.
271AAA of the Act. The Tribunal held that the primary condition for initiating
penalty proceeding is, a person concerned must have been subjected to a search
and seizure operation u/s. 132(1) of the Act. Undisputedly, in the facts of the
present case, no search and seizure operation u/s.132(1) of the Act was carried
out in case of the assessee. This fact is clearly evident from the initiation
and completion of proceedings u/s. 153C of the Act.

 

Thus, the primary condition of section 271AAA of the Act remains
unsatisfied. Even otherwise also, if penalty proceedings u/s. 271AAA of the Act
is initiated against a person who is not subjected to search action u/s. 132(1)
of the Act, the provision itself becomes unworkable as no declaration u/s.
132(4) of the Act is possible from any person other than the person against
whom the search and seizure u/s. 132(1) is carried out.

Thus, in such circumstances, sub-section (2) to section 271AAA of the Act
cannot be given effect to. The Tribunal agreed with the CIT(A) that initiation
of penalty proceedings u/s. 271AAA of the Act in the instant case is invalid.
The Tribunal observed that its decision gets support from the decision relied
upon by the Authorised Representative.

 

The Tribunal upheld the order
passed by the CIT(A). The appeal filed by the revenue was dismissed.

 

21. [2018] 194 TTJ (Mumbai) 102 Owais M Husain vs. ITO ITA No.: 4320/Mum/2016 A. Y.: 2006-07 Dated: 11th May, 2018 Section 23(1)(a)- Income from house property –– AO is directed to compute the deemed rent of the house property as per the municipal rateable value and assess the income from house property accordingly instead of estimating the letable value on the basis of the prevailing rate of rent of the building situated in the surrounding areas.

FACTS


  •   The assesse owned 3 flats
    i.e. one at Chennai which is treated as self-occupied property by the AO and
    other two properties being flat at Queens Court, Worli and Dhun apartment,
    Worli, Mumbai.

 

  •  The AO estimated the reasonable let out value of the house
    property after taking IT inspector’s report. The report was on the basis of the
    local enquiry conducted in the surrounding area of the building situated and
    the going rent per square feet of Rs.50.70 per square feet per month. Based on
    inspector’s report, the AO estimated the rent per month for each of the flats
    at Rs. 75,000 per month. Therefore, the AO worked out ALV of the flat at Dhun
    cooperative society, Worli, Mumbai, at Rs. 9 lakh and for the other flat at
    Queens Court, Worli, Mumbai at Rs. 9 lakh. 

 

  • Aggrieved by the
    assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A)
    confirmed the action of the AO.

 

HELD


  •     The Tribunal while
    relying upon the judgement of the Hon’ble Bombay High Court, held that the
    municipal rateable value could be accepted as a bona fide rental value
    of the property and there could not be a blanket rejection of the same.


  •     The market rate in the
    locality was an approved method for determining the fair rental value but it
    was only when the AO was convinced that the case before him was suspicious,
    determination by the parties was doubtful that he could resort to enquire about
    the prevailing rate in the locality.

 

  •     In the result, the
    Tribunal directed the AO to compute the deemed rent as per municipal rateable
    value and assess the income accordingly.

20. [2018] 194 TTJ (Mumbai) 225 Fancy Wear vs. ITO ITA No.: 1596 & 1597/Mum/2016 A. Ys.: 2010-11 and 2011-12 Dated: 20th September, 2017 Section 69C – Assessee having not been allowed to cross-examine witnesses whose statements were recorded by AO and accounts of assessee having not been rejected, addition made u/s. 69C by AO was invalid for violation of the principles of natural justice as also on merits.

FACTS


  •     The assessee filed its
    return of income which was initially processed u/s. 143(1). Subsequently, the
    AO received information from the Sales Tax Department as well as from DGIT
    (Inv.) Mumbai that the assessee had received accommodation entries for
    purchases from suspicious parties.

 

  •     The AO initiated
    proceedings u/s. 147, after recording reasons thereof. He observed that the
    assessee had purchased goods from SE and SJE. The sales tax department had
    conducted independent enquiries in each of the hawala parties and conclusively
    proved that those parties were engaged in the business of providing
    accommodation entries only. The AO observed that the notices issued u/s. 133
    (6), had been returned with the mark ‘’not known’’ or “not claimed”.
    Accordingly, the aggregate of the purchases was treated as unexplained
    expenditure u/s. 69C and was added to the returned income of the assessee.

 

  •     The AO further observed
    that apart from the above purchases, the assessee had purchased goods from two
    more entities, namely RE and VE. The names of both the entities were appearing
    on the website of the Sales Tax Department in the list of the defaulters. Thus,
    he made a further addition to the income of the assessee invoking section 69C.

 

  •     Aggrieved by the
    assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A)
    reduced the addition to 25 per cent of the purchases.

 

HELD


  •   The Tribunal noted that
    though material for reopening was available to the AO, it was never shared with
    the assessee. The assessee had made a request for cross examining the parties
    who were treated as hawala-dealers by the Sales Tax Department. The AO did not
    provide the copies of statements of suppliers and opportunity of cross
    examination to the assessee.

 

  •   In case of the other two
    entities, the Tribunal held that a default under the Sales Tax Act, in itself,
    could not be equated with non-genuineness of the transaction entered by an
    entity with other party, unless and until some positive corroborative evidence
    was brought on record. It was a fact that all the payments to the suppliers
    were made through banking channels. No evidences were brought on record proving
    that the suppliers had withdrawn cash immediately after deposit of cheques of the
    assessee.

 

  •   The assessee had
    discharged the onus of proving the genuineness of the transactions by producing
    copies of purchase bills, delivery challans, bank statements showing payments
    made by the parties, confirmation of ledger accounts of the suppliers, sales
    tax returns and sales tax challans of the suppliers, income tax returns. After
    the submissions made by the assessee along with the above documents, the ball
    was in the court of the AO to discharge his onus-especially when he wanted to
    invoke the provisions of section 69C.

 

  •  The AO had completed the assessment without marshaling the facts
    properly and only on the basis of general information provided by the Sales Tax
    Department. The non-filing of appeals against the orders of the CIT(A), wherein
    he had deleted 75 per cent of the additions made by the AO, indicated that the
    department itself was not convinced about the approach adopted by the AO in
    making additions.

 

  •     In the end, the Tribunal
    held that the orders of the AO and CIT(A) were not valid because of violation
    of principles of natural justice. Besides, the addition made u/s. 69C was also
    not maintainable.

19. [2018] 193 TTJ (Jd) 751 ITO vs. Estate of Maharaja Karni Singh of Bikaner ITA NO.: 241/Jodh/2017 A. Y.: 2011-12 : 20th February, 2018 Section 50C- Capital gains – Assessee having contested the enhanced valuation of the property made by the stamp valuation authority and the AO having denied the request of the assesse to refer the matter to the DVO u/s. 50C(2), CIT(A) was justified in deleting the addition on account of capital gain on the sale of land.

FACTS


  •     The assesse had sold two
    pieces of land for Rs.45,00,000 and Rs.30,00,000 respectively, the DLC value of
    which was Rs.1,12,04,236 and Rs.1,20,00,566 aggregating to Rs.2,32,04,802.
    After deduction of cost of acquisition of Rs.95,07,478 the resultant taxable
    long term capital gain was Rs.1,36,97,324.

 

  •     The AO stated that the
    reference to DVO could not be made in view of the provisions of section 50C(2)
    of the Income-tax Act, 1961, as the litigation for the charging of stamp duty
    was pending before KAR board, Ajmer.

 

  •     Therefore, the AO
    computed the Income of the assessee invoking of the provisions of section 50C,
    as the assessment was getting barred by limitation on 31st March,
    2014.

 

  •     Aggrieved by the
    assessment order, the assessee preferred an appeal to the CIT(A). 

 

  •     The CIT(A) deleted the
    additions, holding that, before adoption of valuation of property sold by the
    valuation authority, the AO should have considered the objection raised by the
    assessee and should have referred the matter to the DVO u/s. 50C (2).

 

HELD


  •   The Tribunal held that as
    per section 50C, the value taken for stamp duty by the State registration
    authority would be considered as deemed sale consideration. There was solace
    for assessee u/s. 50C(2), which provided that if the assessee objected to the
    valuation of the property for stamp duty purposes, the AO might refer the
    valuation to the DVO.

 

  •     Thus, section 50C
    provided two remedies at the option of the assessee, in that, he could either
    file appeal against the stamp value or seek reference to the valuation cell.
    Adoption of the value by the valuation cell was again subject to regular
    appeals available against the order of the AO. 

 

  •     The Tribunal further
    stated that it was well settled that the principles of natural justice would be
    presumed to be necessary, unless there existed a statutory interdict, and also
    when substantial justice and technical consideration were pitted against each
    other, the cause of substantial justice deserved to be preferred.

 

  •     Therefore, denial of
    request or objections of the assessee against the value adopted by the stamp
    valuation authority by the AO was against the spirit of section 50C. It was not
    optional for the AO to make reference to DVO, the right of the assessee u/s.
    50C was a statutory right.

 

  •     In the result, the
    Tribunal held that there was no infirmity in the order of CIT(A) that the AO
    should have considered the objections raised by the assessee against the same
    and should have referred the matter to the DVO u/s. 50C(2).

18. [2018] 193 TTJ (Jp) 898 ACIT vs. Safe Decore (P.) Ltd ITA No.: 716/Jp/2017 A. Y.: 2014-15 Dated: 12th January, 2018 Section 56(2)(viib) read with Rule 11UA – Fair market value of shares determined by assessee as per discounted cash flow method being higher than the fair market value under net asset method, CIT(A) was justified in deleting addition made by AO u/s. 56(2)(viib)

FACTS

  •     During the year under
    consideration the assessee company allotted shares to ‘J’ Ltd. The assesse
    submitted valuation per equity share computed on the discounted cash flow
    method as per the certificate of Chartered Accountants wherein the value per
    shares was arrived at Rs.54.98 per share.

 

  •     The AO did not accept
    said valuation and applied Net Asset Value method as per which value of share
    came to Rs.26.69 per share. Applying the said value, the AO made addition u/s.
    56(2)(viib).

 

  •     Aggrieved by the
    assessment order, the assessee preferred an appeal to the CIT(A). In appellate
    proceedings, the assessee contended that as per Rule 11UA of the Income-tax
    Rules,1962, the Fair Market Value of unquoted equity shares would be the value
    on the allotment date of such unquoted equity shares as determined as per
    method provided or Net Asset Value, whichever was higher.

 

  •     The CIT(A) accepted the
    contention of the assessee and deleted the addition made by the AO.

 

HELD

  •     The Tribunal held that
    there was no dispute that the assessee had issued shares to ‘J’ Ltd., during
    the year under consideration. Further, the fair market value as per the
    provision of section 56(2)(viib) had to be determined in accordance with the
    method prescribed under Rule 11UA of Income-tax Rules,1962 and as per Rule
    11UA(2), discounted cash flow method was one of the prescribed methods. Therefore,
    it was the option of the assessee to adopt any of the prescribed methods under
    Rule 11UA(2).

 

  •     Section 56(2)(viib) read
    with the Explanation had specifically provided that the fair market value of
    the unquoted shares should be determined as per the prescribed methods, and
    should be taken whichever is higher fair market value, by comparing the value
    based on the assets of the company.

 

Therefore, value as per the Net
Asset Value method as well as any of the other methods prescribed under Rule
11UA of Income-tax Rules,1962, whichever was higher, should be adopted as per
the option of the assessee.

 

  •     In the case of the
    assessee, the fair market value determined as per the discounted cash flow
    method at Rs.54.98 per share which was higher than the valuation adopted by the
    AO as per the Net Asset Value at Rs.26.69 per share.

 

  •     Therefore, the Tribunal
    held that as the AO had not found any serious defect in the facts and details
    used in determining the fair market value under discounted cash flow method, there
    was no error or illegality in the order of the CIT(A). 

14 Section 56(2)(vii)(b) – The provisions of section 56(2)(vii)(b) are applicable to only those transactions which are entered into on or after 1.10.2009.

[2018] 94 taxmann.com 39 (Nagpur-Trib.)

Shailendra Kamalkishore Jaiswal vs. ACIT

ITA No.: 18/Nag/2015

A.Y.: 2010-11.                                                    

Dated: 11th May, 2018.


FACTS

For assessment year
2010-11, the assessee, engaged in business of trading in country liquor, filed
his return of income on 31.3.2011 declaring therein a total income of Rs.
32,70,730.  The assessee is also a
director of M/s Infratech Real Estate Pvt. Ltd. 
The Assessing Officer (AO) obtained information that the assessee has
purchased an immovable property for a consideration of Rs.48,57,000. 

 

The AO asked the
assessee to furnish details in respect of this transaction and also made
inquiry with the office of the Sub-Registrar. 
From the submissions and the inquiry, the AO observed that on 6th
June, 2009, the assessee has purchased a plot of land from Infratech Real
Estate Pvt. Ltd. for a consideration of Rs. 48,57,000. The registered sale deed
stated that the consideration was paid vide cheque no. 573883 drawn on Canara
Bank, Badkas Chowk, Nagpur. However, the transaction was not recorded either in
the books of the assessee nor in the books of Infratech Real Estate Pvt. Ltd.

 

In the course of
assessment proceedings, the assessee submitted that Infratech Real Estate Pvt.
Ltd. needed finance and on approaching the finance company, Infratech Real
Estate Pvt. Ltd. was informed that the finance company would not be able to
sanction more than Rs. 1 crore in single name and therefore, Infratech Real
Estate Pvt. Ltd. had transferred the plot of land in the name of the assessee
for Rs. 48,57,000.  Loan obtained by the
assessee from the finance company was transferred to Infratech Real Estate Pvt.
Ltd.  The cheque issued to them was not
encashed by them.  It was contended that
the property is not received without consideration. Not satisfied with the
explanations furnished by the assessee, the AO made an addition of Rs.
48,57,000 by invoking the provisions of section 56(2)(vii)(b) of the Act.

 

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

 

Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

At the outset, the
Tribunal noted that the addition in this case has been made u/s. 56(2)(vii)(b)
of the Act. It held that the provisions of section 56(2)(vii)(b) of the Act bring
into the ambit of income from other sources, stamp duty value of an immovable
property, to the transferee, which is received without consideration. This was
brought into statute book by Finance Act, 2010, w.e.f. 1st October
2009. Hence, prior to this date such transactions were not coming under income
u/s. 2(24) of the Act. 

 

It observed that,
it is evident that the above said provisions of the Act are applicable to
transactions which are entered into after 1st October 2009. It also
noted that Circular no.5/2010 issued by the CBDT clearly mentions that “these
amendments have been made applicable w.e.f. 1st October 2009 and
will accordingly apply for transaction undertaken on/or after such date“.
The Tribunal held that from the above provisions of law and CBDT circular, it
is clear that transfer of immovable property without consideration will be
taxable in the hands of transferee if the transaction took place after 1st
October 2009. There was no provision of law to tax such transaction prior to 1st
October 2009.

 

The impugned
transaction was entered into on 6th June 2009, as per registered
sale deed. Hence, there is no dispute that the impugned transaction is not hit
by the provisions of section 52(6)(vii)(b) of the Act. It is settled law that
CBDT circulars are binding upon Revenue authorities. It observed that no
contrary decision has been brought to its notice that the said amendment is
applicable retrospectively.

 

The Tribunal did
not adjudicate the other limbs of argument canvassed by the assessee since it
held that the assessee succeeds on this argument itself. The Tribunal set aside
the order of the CIT(A) and decided the issue in favour of the assessee.

 

The appeal filed by the assessee was
allowed.

13 Section 14A – Assessee having furnished details showing that its own funds were sufficient to cover the investments in shares and securities, no disallowance u/s. 14A was called for, more so when no objective satisfaction was recorded by AO before invoking the provisions of section 14A

[2018] 192 TTJ (Mumbai) 377
Bennett Coleman & Co. Ltd. vs. ACIT
ITA NO. : 3298/MUM/2012
A. Y. : 2008-09
Dated : 8th January, 2018

FACTS

–   During the A.Y. 2008-09,
assessee earned an exempt dividend income of Rs.15.68 crore from investments in
shares and securities. The company had also made long term capital gain of
Rs.51.22 crore on sale of equity shares and equity oriented mutual funds. The
dividend income and long term capital gains had been claimed as exempt from
income tax u/s. 10(34) and 10(38) of the Act respectively.

 

–   The AO held that assessee
had incurred interest expenditure and had not given exact details of the
sources of the investments in shares and mutual funds. The AO concluded that it
could not be ruled out that part of the interest incurred had a proximate
connection with the investments in tax free securities. Therefore, the AO made
the disallowance u/s. 14A.

 

–   This disallowance was
contested in an appeal before CIT(A) who upheld the disallowance.

 

–  Before the Tribunal, it was
contended that the assessee did not have any borrowings till 31-03-2006 as per
the audited balance sheet. The assessee had surplus own fund which could be
verified from the balance sheet. The comparative chart of assessee’s own funds
vis-à-vis investments right from 31-3-2006 to 31-3-2008 showed that the
assessee had sufficient interest free own funds to make investments in tax free
income yielding securities. 

 

HELD

–  The Tribunal noted that the
assessee had produced the chart showing the summary of source and application
of funds before the Assessing Officer. The assessee had replied to show cause
notice issued by the Assessing Officer and furnished details that its own funds
over the years were sufficient to cover the investments in the shares and
securities yielding exempt income.

 

–   The borrowings of the
assessee-company were utilised for other business requirements and not for
making investments. The entire interest expenditure incurred on borrowing fund
had been offered to tax.

 

–   No objective satisfaction
had been recorded by the Assessing Officer before invoking the provisions of
section 14A. It was necessary for the Assessing Officer to give opportunity to
the assessee to show cause as to why Rule 8D should not be invoked. Assessee
had placed on record all the relevant facts and it had also given the detailed
working of the disallowance voluntarily made for earning the exempt income in
the return of income.

 

–  The assessee had claimed
that it had sufficient funds to cover investments in tax free securities, which
fact was established by the financial audited report for various assessment
years. The AO had also recorded that assessee’s own funds were far more than
the investments in shares and securities yielding tax free income.

 

–  The Tribunal directed AO to
delete the disallowance made u/s. 14A.

12 Section 45 read with section 28(i) – Where assessee sold a property devolved on him after death of his father as a consequence of automatic dissolution of partnership firm in which his father was a partner, since there was nothing to suggest that assessee had undertaken any business activity, profit arising from sale of same was not taxable as business income.

[2018] 169 ITD 693 (Mumbai – Trib.)

Balkrishna P. Wadhwan vs. DCIT

ITA NO. : 5414 (MUM.) OF 2015

A.Y. : 2010-2011

Dated: 28th February, 2018


FACTS

–   During relevant year,
assessee had shown income under the head long-term capital gain on sale of an
immovable property. The property sold had devolved upon the assessee after the
death of his father as a consequence of automatic dissolution of the
partnership firm, in which his father was a partner.

 

–    The AO took a view that
since the assessee could not furnish the purchase and sale agreements of the
property in question, he was unable to verify the long term capital gain
declared by the assessee. For this reason, the AO considered the consideration
as ‘income from other sources’ and not as a long term capital gain.

 

–    Before the CIT(A), assessee
furnished the copies of the purchase and sale agreements of the property. On
that basis, the CIT (A) concluded that the consideration was received by the
assessee on sale of an immovable property, but according to him, the same was
not a ‘capital asset’. Therefore, he disagreed with the assessee that the
profit on sale of such property was assessable under the head ‘capital gain’.
Instead, CIT (A) concluded that the profit on sale of property was assessable
as ‘business income’.

 

–    The other three plots were
sold by the assessee in A.Y. 2008-09 and the gain arising therefrom was
declared as capital gain, and the same had also been accepted by the AO.

 

HELD

–    The material on record
showed that during the year under consideration, the assessee had sold a plot
of land admeasuring 966.40 sq. mtrs. for a consideration of Rs. 3.75 crore. The
material led by the assessee also revealed that the plot of land sold during
the year was a part of the four plots, which admeasured in total 4648.70 sq.
mtrs.

 

–    The Tribunal noted that the
share of assessee’s father devolved on his wife, two sons and four daughters,
and it was only by way of deed of release, that the assessee obtained complete
ownership of the plot of land from the other co-inheritors.

 

–   It was found that neither
the assessee had declared income from any business and nor any income under the
head ‘business’ had been determined by the AO. The assessee was engaged in the
business of dealing in lands, and the sources of income detailed in the return
of income were on account of salaries, capital gain and income from other
sources.

 

–   The basis for the CIT(A) to
treat the impugned plot of land as ‘stock-in-trade’ is the fact that the
property devolved on the assessee from the erstwhile partnership firm, where
assessee’s father was a partner. The property was acquired by the partnership
firm in 1972 and assessee’s father died in February, 1987. As per the CIT(A),
the final accounts of the erstwhile partnership firm were not available for
examination, therefore, the manner in which the impugned plot of land was
accounted for i.e. whether as capital asset or not, could not be verified.

 

–  The CIT(A) proceeded to
presume that the land was held by the erstwhile partnership firm as a ‘business
asset for the purpose of its business’. Apparently, it is nobody’s case that
upon dissolution of the erstwhile partnership firm, its business devolved on to
the assesse.

 

The fact is that
only the land devolved on the assessee. So far as the assessee was concerned,
there was nothing to establish that the same had been held by him for the
purpose of his business so as to be construed as stock-in-trade. In A.Y.
2008-09, the land devolved on the assessee from his father had already been
accepted as a ‘capital asset’. Therefore, there was no justification to treat
the plot of land in question as ‘stock-in-trade’ and the assessee was justified
in treating the gain on sale of the plot to be assessable under the head
‘capital gain’.

11 Section 32 read with section 43(3) – Depreciation – Assessee being in the business of manufacture and sale of soft drinks and required to supply the product to far off places in chilled condition. Visicoolers purchased by it and installed at the site of distributors to keep the product in cold saleable condition was entitled for additional depreciation.

[2017] 192 TTJ (Kol) 361

DCIT vs. Bengal Beverages (P) Ltd.

ITA NO : 1218/Kol/2015

A.Y. : 2010-11

Dated: 6th October, 2017


FACTS

–    The assessee company was
engaged in the business of manufacture of soft drinks, generation of
electricity through wind mill and manufacture of PET bottles for packing of
beverages. The assessee had installed visicoolers at distributors premises so
as to deliver product to ultimate consumer in its consumable form, i.e.,
chilled form. The assessee claimed additional depreciation on Visicooler.

 

–    The AO disallowed the claim
of additional depreciation on the ground that these Visicoolers were kept at
distributors premises and not at the factory premises of the assessee company.
The assessee submitted before the AO that Visicoolers were required to be
installed at the delivery point to deliver the product to the ultimate consumer
in chilled form, therefore these were part of assessee’s plant. However, the AO
rejected the assessee’s contention and held that assessee was not carrying out
manufacturing activity on the product of the retailer at retailer’s premises
and merely chilling of aerated water could not be termed as manufacturing
activity and even that chilling job was the activity of the retailer and not of
the assessee.

 

–    Aggrieved by the AO’s order
the assessee preferred an appeal before CIT(A). The CIT(A) deleted the addition
made by AO. The assessee’s contention that usage of visicooler at the
distributor’s premises so as to ensure that the drink is served ‘cold’ to the
ultimate consumer tantamounts to usage in the course and for the purposes of
business, was upheld by CIT(A).

 

HELD

–     The Tribunal held that the
benefit of additional depreciation is available to an assessee engaged in the
business of manufacture of article or thing. It is therefore clear that the
additional deprecation is available only to those assessees who manufacturer,
on the cost of plant & machinery. Additional depreciation allowance is not
restricted to plant & machinery used for manufacture or which has first
degree nexus with manufacture of article or thing. The condition laid down in
section 32(1)(iia) is that if the assessee is engaged in manufacture of article
or thing then it is entitled to additional depreciation on the amount of
additions to plant & machinery provided the items of addition do not fall
under any of the exceptions provided in clauses (A) to (D) of the proviso. ln
this case, the assessee was engaged in the business of manufacture of cold
drinks. This fact had not been disputed by the AO. Therefore, the assessee was
legally entitled to avail the benefit of additional depreciation u/s. 32(1)(iia).

 

–    The “visicooler”
is a “plant & machinery”. The said item falls within the category
of “plant & machinery” as laid down in the I.T. Rules, 1962. The
“visicooler” also does not fall within the exceptions provided in
clauses (A) to (D) of the proviso to section 32(1)(iia).

 

–    In the result, the appeal
filed by the Revenue was dismissed.

 

10 Section 45 – Capital gains – Settlement of accounts of partners on their retirement, and payment of cash by firm to retiring partners after revaluation of firm’s assets did not attract section 45(4) – there could be no charge of capital gains on assessee firm in such a case.

[2018] 193 TTJ (Mumbai) 8

Mahul Construction Corporation vs. ITO

ITA NO. : 2784/MUM/2017

A. Y. : 2009-10

Dated: 24th November, 2017


FACTS

–   The assessee firm was
engaged in the business of construction and was a builder and developer. This
firm vide an agreement acquired development rights over a piece of land for a
total consideration of Rs.4.67 crore. Subsequently, this partnership deed was
modified and new partners were inducted.

 

–    Subsequently, vide deed of
retirement & reconstitution, three partners retired from the partnership
firm and took the amount credited to their accounts, including surplus on
account of revaluation of asset.

 

–   The AO held that the
assessee firm had not carried out any development work till 1.4.2008.
Therefore, land was a capital asset and not stock-in-trade, and payment of
cash/bank balance by the firm for settlement of retiring partner’s revalued
capital balances amounted to distribution of capital asset as contemplated in
section 45(4).

 

–   Aggrieved by the assessment
order, the assessee preferred an appeal to the CIT(A). The CIT(A) confirmed the
action of the AO on both the issues by holding that the land was a capital
asset and not stock-in-trade, and
also that the amount distributed was taxable u/s.  45(4).

 

HELD

–    The Retiring partners
merely retired from the partnership firm without any distribution of assets of
the firm amongst the original and new incoming partners. Since, the
reconstituted firm consisted of 3 old partners and 1 new partner, it was not a
case where firm with erstwhile partners was taken over by new partners only. It
was not a case of distributing capital assets amongst the partners at the time
of retirement and therefore provisions of section 45(4) were not applicable.

 

–   It could not be inferred
that by crediting the surplus on revaluation to Capital account of 4 Continuing
Partners and allowing the 3 Retiring Partners to take equivalent cash
subsequently, amounted to distribution of rights by the Continuing Partners to the
Retiring Partners. Till the accounts are settled and the residue/surplus is not
distributed amongst the partners, no partner can claim any share in such assets
of the partnership firm. The entitlement of right in the assets/ property of
the partnership firm arises only on dissolution. While the firm is subsisting,
there cannot be any transfer of rights in the assets of the firm by any or all
partners amongst themselves because during subsistence of partnership, the firm
and partners do not exist separately. Therefore, it was not a case of
distributing capital assets amongst the partners at the time of retirement and,
therefore, provisions of section 45(4) were not applicable.

–    The AO wanted to tax the
amount credited in capital account of retiring as well as continuing partners u/s. 45(4). So far as amount credited to capital account of retiring partners
is concerned, notwithstanding the fact that there is no distribution by firm to
retiring partners, the transferor and transferee are like two sides of the same
coin. The capital gain is chargeable only on the transferor, and not on the
transferee.


–   In this case, the
transferor is the partners who on their retirement assign their rights in the
assets of the firm, and in lieu the firm pays the retiring partners the money
lying in their capital account. Hence, it is the firm and its continuing
partners who have acquired the rights of the retiring partners in the assets of
the firm by paying them lump sum amount on their retirement. So it cannot be
said that the firm is transferring any right in capital asset to the retiring
partner, rather it is the retiring partner who is transferring the rights in
capital assets in favour of continuing partners.

 

–   Accordingly, the assessee
firm was not liable to capital gains on the above transaction.


Sections 50, 54F – Deemed short term capital gains, calculated u/s. 50, arising on transfer of a depreciable asset, which asset was held for more than 36 months before the date of transfer qualify for exemption u/s. 54F, subject to satisfaction of other conditions mentioned in section 54F. Assessee having utilised the net consideration by the due date as specified u/s. 139(4), is entitled to exemption u/s. 54F though he failed to deposit the net consideration in the capital gain account scheme within the time specified u/s. 139(1).

18. [2018] 99 taxmann.com 88 (Ahmedabad-Trib.) Shrawankumar G. Jain vs. ITO ITA No. 695/Ahd./2016 A.Y.: 2011-12.Dated: 3rd  October, 2018.

 

Sections 50, 54F – Deemed short term
capital gains, calculated u/s. 50, arising on transfer of a depreciable asset,
which asset was held for more than 36 months before the date of transfer
qualify for exemption u/s. 54F, subject to satisfaction of other conditions
mentioned in section 54F. 


Assessee having utilised the net
consideration by the due date as specified u/s. 139(4), is entitled to
exemption  u/s. 54F though he failed to
deposit the net consideration in the capital gain account scheme within the
time specified u/s. 139(1).


FACTS


The assessee, an individual, carrying on his
proprietorship business under the name and style of MM sold his factory shed on
which depreciation had been claimed. Accordingly, the income earned thereon was
shown as short-term capital gain u/s. 50. However, in the return of income the
assessee had claimed exemption u/s. 54F against the short-term capital gain on
the ground that same was invested in purchase of residential property.


The Assessing Officer (AO) held that the
exemption is available u/s. 54F, only on transfer of a long-term capital asset.
The impugned factory shed was subject to depreciation u/s. 32 therefore, the
gain earned on the sale of such factory shed was liable to be taxed u/s. 50
being short-term capital gain. Once, the gain was held as short-term by virtue
of the provision of section 50, same could not be subjected to exemption under
section 54F.  The Assessing Officer also
observed that the object for enacting the provision of section 50 was to avoid
the multiple benefits claimed by the assessee. He held that the assessee was
not eligible for exemption u/s. 54F.  
Besides above, he also observed that the assessee had violated the
provision of section 54F(4) as he failed to deposit the amount of net sale
consideration in the capital gain account scheme. Therefore, the assessee could
not be allowed exemption u/s. 54F.


Aggrieved, the assessee preferred an appeal
to the CIT(A) who upheld the order passed by the AO.


Aggrieved, the assessee preferred an appeal
to the Tribunal.


HELD


The Tribunal noted that It is undisputed
fact that the period of holding of factory shed, on which depreciation was
claimed and which has been sold, was exceeding 36 months. Thus, the gain
arising on sale was held as short term by virtue of the provision of section
50.


The Tribunal on a combined reading of the
sections 50 and 54F noted that all the provisions of the two sections are
mutually exclusive to each other. There is no mention under section 50
referring to the provision of section 54F and vice versa. Therefore, the Tribunal
held that the provision of one section does not exclude the provision of other
section. It held that both the provisions should be applied independently in
the instant case. The Tribunal held that the capital gain earned by the
assessee on the sale of depreciable assets being factory shed is eligible for
exemption u/s. 54F as it is long-term capital assets as per the provision of
section 2(42A).  The Tribunal observed
that it has no hesitation in deleting the addition made by the AO by
disallowing the exemption available to the assessee.


The Tribunal also held that there is no
dispute the net consideration was utilised by the assessee before filing the
income tax return within the due date as specified u/s. 139(4). Therefore, the
assessee is eligible for exemption u/s. 54F, though he failed to deposit the
net consideration in the capital gain account scheme within the time specified
u/s. 139(1). The appeal filed by the assessee was allowed.