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Category: Tribunal News : PART B - Unreported Decisions

Section 37: Business expenditure — Commission payment — Wholly and exclusively for the purpose of the business — Revenue cannot sit in judgment over the assessee to come to a conclusion on how much payment should be made for the services received by the Assessee.

16. The Indian Hume Pipe Co. Ltd Construction House vs. Commissioner of Income Tax, Central II
[ITXA No. 744 OF 2002; Dated: 31st August, 2023; (Bom.) (HC)]

Section 37: Business expenditure — Commission payment — Wholly and exclusively for the purpose of the business — Revenue cannot sit in judgment over the assessee to come to a conclusion on how much payment should be made for the services received by the Assessee.

The Appellant-Assessee is a limited company listed on the stock exchange and is engaged mainly in the business of manufacturing and sale of R.C.C. Pipes, Steel Pipes etc., which are required for water supply and drainage systems. In the course of the assessment proceedings, the Appellant filed details of commission paid amounting to Rs. 26,90,104. The Appellant also filed copies of the agreements with the aforesaid parties and justified the allowability of the commission payment as business expenditure incurred in the course of its business. The Assessing Officer disallowed a sum of Rs. 22,89,941 on account of commission payment claimed as a deduction by the Appellant-Assessee.

The Assessing Officer disallowed the whole amount with respect to some parties and balance parties; the Assessing Officer allowed only 1/3rd as deductible expenditure and disallowed balance 2/3rd on the ground that the entire payment cannot be considered as laid out wholly and exclusively for the purpose of the business because neither the Appellant nor the recipients of commission could show that orders were procured with their assistance.

The Commissioner of the Income Tax (Appeals) disposed of the said appeal. With respect to ground relating to the disallowance of commission payment, the Commissioner (Appeals) followed his own order for the A.Y. 1985-86 and allowed the whole of the amount which was disallowed by the Assessing Officer, that is, Rs. 22,89,941.

Being aggrieved by the aforesaid order, the Respondent-Revenue filed an appeal to the Tribunal. The Tribunal disposed of the said appeal relating to the commission payment, and the Tribunal restricted disallowances to 2/3rd of the total commission. With respect to one party, the Tribunal directed to give relief of 1/3rd of the amount and with respect to other remaining parties, the Tribunal confirmed the disallowance made by the Assessing Officer on the ground that the Appellant-Assessee did not furnish any evidence in support of services rendered by these commission agents. The Tribunal further observed that there should have been a lot of correspondence between the Appellant-Assessee and the recipient of commission and in the absence of any evidence in this regard, the disallowance made by the Assessing Officer was justified. Being aggrieved by the Tribunal’s order, the Appellant-Assessee filed the appeal on a substantial question of law before the Hon. High Court.

The Appellant-Assessee consolidated appeals for A.Ys. 1986-87, 1987-88 and 1988-89 against common order passed by the Income Tax Appellate Tribunal, dated 18th January, 2002, was admitted on the following substantial question of law:

“Whether on the facts and in the circumstances of the case, the Appellate Tribunal’s conclusion that the commission agents had not rendered services to the Appellant company to warrant payment of commission is based on relevant and valid material and is sustainable in law?”

The Appellant-Assessee further contended that the commission agents are not related to the Appellant and further they have also produced the commission agreements with these agents in the course of the assessment proceedings. The payments have been made through a banking channel and there is no allegation that payments made to the commission agent have come back to the Appellant. The Appellant further submitted that the nature of services is such that there would not be any documentary evidence in support thereof.

The Respondent-Revenue contended that the Appellant-Assessee has failed to furnish any evidence to show that services have been rendered and therefore, the Assessing Officer was justified in disallowing the commission. The Respondent also brought to the notice of the Court Explanation 1 to Section 37(1) of the Act which was introduced by the Finance No. 2 Act of 1998 with retrospective w.e.f. 1st April, 1962. However, he fairly submitted that in the present appeal, the case of the Revenue is not based on Explanation.

The Hon. High Court held that the Assessing Officer, with respect to 4 parties, disallowed 2/3rd of the commission payment on the ground that the Appellant-Assessee could not furnish evidence about the services having been rendered. With respect to 3 parties, the AO disallowed the whole of the commission payment on the ground that they were acting as sub-contractors to the Appellant-Assessee and therefore no question arises to make payment of commission to these parties. With respect to 1, there was a discrepancy in the figures paid by the Appellant-Assessee and confirmed by the recipient and therefore the full amount was disallowed. The said disallowance was fully deleted by the First Appellate Authority. The Hon. Court observed that the Assessing Officer and the Tribunal both have not fully disallowed the commission payment but as partly allowed (1/3rd) and partly disallowed (2/3rd). If that be so, then the lower authorities have accepted the rendering of service by the commission agent and it is only on that basis that 1/3rd came to be allowed by the Assessing Officer and the Tribunal. The Court observed that the services are either rendered or not rendered and the Assessing Officer and the Tribunal having allowed partly the commission payment clearly indicate that both the authorities have accepted that the services have been rendered. The part disallowance confirmed by the Tribunal and the Assessing Officer would then amount to the Revenue venturing into the quantum of payment whether the commission payment was reasonable for rendering the services, which course of action, in the facts of the present case, is not permissible under the Act because the transaction is between unrelated parties. It is a settled position that the Revenue cannot sit in judgment over the assessee to come to a conclusion on how much payment should be made for the services received by the Appellant-Assessee. Therefore, the Tribunal was not justified in confirming the disallowance of 2/3rd as made by the Assessing Officer and allowing the relief of only 1/3rd of the expenses.

The Court further noted that there was no allegation made in the assessment order of any flow back of the commission payment by the commission agent to the Appellant-Assessee. The commission agents had confirmed the receipt of the commission. The payments had been made through banking channels. Therefore, even on this account, the genuineness of the payment cannot be doubted.

The AO and the Tribunal were not justified in bifurcating the commission payment between the work done for assisting in getting the tender and the follow up action for obtaining the payment. The agreement has to be read as a whole and merely because the payment of the commission is deferred in tranches, it could not be said that partly the payments are justified and partly are not justified. The action of the Assessing Officer and the Tribunal on this account would amount to rewriting of the agency agreement which is not permissible. Therefore, the finding of the officer and the Tribunal for disallowing part of the commission payment on the above basis was also not justified.

The Court further observed that the Appellant-Assessee was in the business, which inter alia involves
contracts / works awarded by the public sector/government, which necessitates the Appellant to apply for various tenders issued by the public sector co. / government across the country. To apply for such public tenders the Appellant is required to engage the services of agents. As per the commission agency agreement, the services rendered by the commission agent are for supplying information for working out the tender and to give information about the competitive tenders. The said agreement further requires the commission agent to keep the Appellant-Assessee informed about various clarifications required by the companies who floated the tenders. The role of the commission agent does not stop at this, but if the Appellant-Assessee gets the contract, then the commission agent has to follow up with these corporations for realising the payments on account of bills raised by the Appellant-Assessee. It is for such composite services to be rendered by the commission agent that the Appellant-Assessee makes payment of the commission.

The Court observed that merely because the contracts awarded to the Appellant are by Government / Public Corporations does not mean that the Appellant-Assessee cannot obtain services of the commission agents to assist them in the tendering process and for the follow-up action for recovery of the money. For the Appellant, it is fully a commercial activity and engaging expert/specialised services is under a written contract entered between the commission agents and the Appellant. It was not the case of the Revenue that there is any legal prohibition for the Appellant-Assessee to avail services of such commission agents. It was also not the case of the Revenue that these commission agents within the meaning of the Act are entities/persons related to the Appellant-Assessee and/or they are government employees. Therefore, it was the business prerogative of the Appellant-Assessee as to whose services they should engage in the course of its business and on what terms and conditions. Most significantly, the fact that the Assessing Officer and the Tribunal have allowed part of the commission payment for the purpose of business also indicates that the Revenue has accepted the services rendered and this part of expenditure in that regard was held to be allowable. There cannot be a contradictory course of action as the Revenue needs to be consistent.

It was true that it is for the Assessing Officer to decide, whether, any commission paid by the Appellant-Assessee to his agents is wholly or exclusively for the purpose of his business and the mere fact that the Appellant-Assessee establishes the existence of an agreement between him and his agent and the fact of actual payment, the discretion of an officer to consider, whether such expenditure was made exclusively for the purpose of the business is not taken away. The expenditure incurred must be for commercial expediency. However, in applying for the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure has to be judged from the businessman’s point of view and not from the Revenue’s perspective. In view thereof, the appeal of the Assessee was allowed.

Article 5(3) and Article 5(4) of India — Singapore DTAA — The time for the calculation of 180 days does not start and end with the date of raising the first and last invoice. It depends upon the facts of each case. Time spent on different projects cannot be aggregated to compute the time threshold merely because the client and person performing work are the same.

4. Planetcast International Pvt Ltd vs. ACIT
[TS-389-ITAT-2023(Del)]
[ITA No: 1831/1832/Del/2022 & 451/Del/2023]
A.Ys.: 2018-19, 2019-20 & 2020-21     
Date of order: 18th July, 2023

Article 5(3) and Article 5(4) of India — Singapore DTAA — The time for the calculation of 180 days does not start and end with the date of raising the first and last invoice. It depends upon the facts of each case. Time spent on different projects cannot be aggregated to compute the time threshold merely because the client and person performing work are the same.

FACTS

The assessee received two orders from A (an Indian Company) for projects located in Gurugram and Bengaluru. He obtained a quote from Original Equipment Manufacturer (OEM), shared it with A and placed an order with OEM on receipt of confirmation from A. Assessee claimed that the supply of equipment is not taxable in India as the title passed outside India and fees for installation and commission is not taxable as 183 days duration threshold relevant for trigger of installation PE is not crossed. AO held that assessee’s presence constituted construction PE and supervisory PE in India. For the calculation of 183 days, AO calculated the period starting from the date of the first invoice for the supply of material to the last invoice raised. Also, both projects were treated as integrated for computing time threshold. DRP upheld AO’s order.

Being aggrieved, the assessee appealed to ITAT.

HELD

  •     Two separate purchase orders were issued for the purchase of different types of equipment to be installed at Bengaluru and Gurugram.

 

  •     Assessee did not manufacture the assets itself. Until manufacturing was complete and delivered to A, installation/commission services could not have commenced.

 

  •     Accordingly, the first date of invoice for the supply of material cannot be taken as the date of commencement of installation and commissioning of services at the project site.

 

  •     Two projects were independent of each other. Merely because installation at both sites was done by the same contractors, the project cannot be treated as a single project.

 

  •     In any case, from the evidence submitted, installation at the Bengaluru site was completed in 46 days and at Gurugram in 87 days. Thus, in any case, the aggregate threshold of 183 days was not crossed.

 

Article 12 of India — USA DTAA — Provision of architectural services for construction of Statue of Unity is not taxable in India as it does not satisfy make available condition in DTAA.

3. Michael Graves Design Group Inc. vs. DCIT
[ITA No: 7683/Del/2017 & 6007/Del/2018]
A.Ys.: 2014-15 & 2015-16          

Date of order: 18th July, 2023

Article 12 of India — USA DTAA — Provision of architectural services for construction of Statue of Unity is not taxable in India as it does not satisfy make available condition in DTAA.

 

FACTS

Assessee provided architectural design, drawing and master plan for the construction of Statue of Unity. AO held the assessee rendered technical and architectural design services which made available the technology, skill, experience, etc., and thus fell within the ambit of FIS under Article 12(4)(b) of the India-USA DTAA. DRP upheld the AO order.

Being aggrieved, the assessee appealed to ITAT.

HELD

  • Assessee rendered project-specific services involving creation of conceptual, aesthetic design and description of scope that would give the EPC contractor guidance for the design and execution of the project.
  • Design provided by the assessee was for the appearance of the project, and it was the responsibility of the EPC contractor to develop final design.
  • Assessee did not develop a technical design or transferred a technical plan. It only presented general conceptual designs and description to help EPC contractor visualise the project.
  • The design was specific for the project and cannot be applied independently. Thus, services do not satisfy make available condition.

 

Section 23 – Annual Letting Value of house property is to be determined on the basis of municipal rateable value

4 Anand J. Jain vs. DCIT Amarjit Singh (J.M.) and Manoj Kumar Aggarwal (A.M.) ITA No.: 6716/Mum/2018 A.Y.: 2015-16 Date of order: 18th January, 2021 Counsel for Assessee / Revenue: Anuj Kishnadwala / Michael Jerald

Section 23 – Annual Letting Value of house property is to be determined on the basis of municipal rateable value

FACTS
During the previous year relevant to the assessment year under consideration, the assessee owned 19 flats at Central Garden Complex out of which seven were lying vacant whereas the remaining were let out. The assessee, in his return of income, offered an aggregate income of Rs. 1.26 lakhs on the basis of municipal rateable value (MRV). The A.O., applying the provisions of section 23(1)(a), opined that the annual letting value (ALV) shall be deemed to be the sum for which the property might reasonably be expected to be let out from year to year. Therefore, the municipal value was not to be taken as the ALV of the property. He applied the average rate per square metre at which the other 12 flats were let out by the assessee and worked out the ALV at Rs. 64.57 lakhs; after reducing municipal taxes and statutory deductions, he added a differential sum of Rs. 42.57 lakhs to the total income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) where it relied upon a favourable decision of the Bombay High Court in the case of CIT vs. Tip Top Typography (48 taxmann.com 191) and also on the favourable orders of the Tribunal in its own case for A.Ys. 2009-10 and 2010-11 wherein the A.O. was directed to adopt the municipal rateable value as the ALV of the vacant flats held by the assessee. It was also mentioned that the predecessor CIT(A) has taken a similar view for A.Ys. 2012-13 to 2014-15. The CIT(A) distinguished the facts of the year under consideration by noticing that out of 19 flats, 12 were actually let out and that in the earlier years the A.O. did not make proper inquiry to estimate the rental income, but since this year 12 flats were actually let out, the same would give a clear indication of the rate at which the property might reasonably be expected to be let out. He confirmed the estimation made by the A.O.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal noticed that the issue of determination of ALV was a subject matter of cross-appeals for A.Ys. 2013-14 and 2014-15 before the Tribunal in the assessee’s own case vide ITA No. 6836/Mum/2017 & Others, order dated 27th February, 2019 wherein the bench took note of the earlier decision of the Tribunal in A.Y. 2012-13 in ITA Nos. 3887 & 3665/Mum/2017. In the decision for A.Y. 2012-13, the co-ordinate bench after considering the relevant provisions of the Act and also following the decision of the Bombay High Court in Tip Top Typography [(2014) 368 ITR 330] and also Moni Kumar Subba [(2011) 333 ITR 38], upheld the determination of ALV on the basis of the municipal rateable value.

The Tribunal observed that it is the consistent view of the Tribunal in all the earlier years that municipal rateable value was to be taken as the annual rental value. There is nothing on record to show that any of the aforesaid adjudications has been reversed in any manner. The Tribunal held that the distinction of facts as made by the CIT(A) was not to be accepted. Following the consistent view of the Tribunal in earlier years in the assessee’s own case, the Tribunal directed the A.O. to adopt the municipal rateable value as the annual letting value. This ground of appeal filed by the assessee was allowed.

Sections 45, 48 – Extinguishment of assessee’s right in flat in a proposed building is actually extinguishment of any right in relation to capital assets and accordingly compensation received upon extinguishment of rights falls under the head ‘capital gain’

3 Shailendra Bhandari vs. ACIT Rajesh Kumar (A.M.) and Amarjit Singh (J.M.) ITA No.: 6528/Mum/2018 A.Y.: 2015-16 Date of order: 21st January, 2021 Counsel for Assessee / Revenue: Porus Kaka / T.S. Khalsa

Sections 45, 48 – Extinguishment of assessee’s right in flat in a proposed building is actually extinguishment of any right in relation to capital assets and accordingly compensation received upon extinguishment of rights falls under the head ‘capital gain’

FACTS
During the year under consideration the assessee cancelled an agreement entered into for purchase of a flat and received Rs. 2,50,00,000 as compensation along with refund of money already paid towards purchase of the flat amounting to Rs. 10,75,99,999. The said flat was booked by the assessee, as confirmed by the builder, vide a letter of intent dated 9th February, 2010 wherein the terms and conditions for the purchase of the property were duly mentioned. The letter of intent had to be cancelled as the sellers were not allowed to raise the building height up to the level on which the flats were to be constructed. The assessee, after giving various reminders and legal notices to the builders, succeeded in getting a compensation of Rs. 2,50,00,000 along with refund of money already paid, as evidenced by a letter dated 29th March, 2014.

These rights were transferred to the assessee by three persons, viz., Ms Vibha Hemant Mehta, Mrs. Anuja Badal Mittal and Mr. Sunny Ramesh Bijlani, who were shareholders in Kunal Corporation Pvt. Ltd. which was the owner of the plot and was to construct the building after obtaining necessary permissions from the Government authorities.

The A.O. held that the asset for which the letter of intent was issued in favour of the assessee did not exist on the date 9th February, 2010 when the letter of intent was issued by the assessee. The assessee has merely made a deposit with the developers which is refundable to the assessee along with compensation subject to certain terms and conditions. The A.O. also held that when an asset does not exist it is not a capital asset and therefore the assessee is not entitled to claim capital gain on the same. He rejected the claim of the assessee.

Instead of the long-term capital loss of Rs. 3,37,09,596 claimed by the assessee, the A.O. taxed Rs. 2,50,00,000 as income from other sources by holding that the said receipt is not from transfer of capital assets.

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

The aggrieved assessee preferred an appeal to the Tribunal where on behalf of the Revenue it was contended that the letter of intent issued by the builder for the purpose of allotment of flat, which was not in existence on the date of execution of the letter of intent as well as on the date of execution of the letter of intent and also not on the date of cancellation of the said letter of intent, is not an agreement. Since the seller has not followed the provisions of MOFA which are applicable in the state of Maharashtra, the letter of intent cannot be treated as having created any interest, right, or title in a capital asset in favour of the assessee.

HELD
The Tribunal held that the provisions of MOFA cannot regulate the taxability of any income in the form of long-term capital gain / loss which may arise from the cancellation of any letter of intent / agreement which is not registered. The Tribunal held that the assessee has rightly calculated the long-term capital loss upon cancellation of the letter of intent dated 9th February, 2010. It observed that the case of the assessee finds support from the decision of the jurisdictional High Court in the case of CIT vs. Vijay Flexible Containers [(1980) 48 taxman 86 (Bom)] and it is also squarely covered by the decision of the co-ordinate bench of the Tribunal in the case of ACIT vs. Ashwin S. Bhalekar ITA No. 6822/M/2016 A.Y. 2012-13 wherein the Tribunal has held that the extinguishment of the assessee’s right in a flat in a proposed building is actually extinguishment of any right in relation to capital assets and accordingly held that the compensation received upon extinguishment of a right which was held for more than three years falls under the head ‘capital gain’ u/s 45. Following these decisions, the Tribunal set aside the order of the CIT(A) and directed the A.O. to allow the claim of the assessee on account of long-term capital loss.

Sections 22, 56 – Since the nature of services provided by the assessee to the tenants / lessees was linked to the premises and was in the nature of the auxiliary services which were directly linked to the leasing of the property, gross receipts on account of amenities / services provided by the assessee to its tenants are chargeable to tax under the head ‘Income from House Property’ and not ‘Income from Other Sources’

5 ACIT vs. XTP Design Furniture Ltd. Pramod Kumar (V.P.) and Saktijit Dey (J.M.) ITA No. 2424/Mum/2019 A.Y.: 2013-14 Date of order: 19th January, 2021 Counsel for Assessee / Revenue: None / T.S. Khalsa

Sections 22, 56 – Since the nature of services provided by the assessee to the tenants / lessees was linked to the premises and was in the nature of the auxiliary services which were directly linked to the leasing of the property, gross receipts on account of amenities / services provided by the assessee to its tenants are chargeable to tax under the head ‘Income from House Property’ and not ‘Income from Other Sources’

FACTS
The assessee had leased its office premises at Unit Nos. 201, 301 and 401 in Peninsula Chambers to Group Media Pvt. Ltd. and Hindustan Thompson Associates Ltd. The assessee had given the lessees additional common facilities like lift, security, fire-fighting system, common area facilities, car parking, terrace use, water supply, etc. The assessee charged license fees and also amenities fees. Both these amounts were offered by the assessee for taxation under the head ‘Income from House Property’. The A.O. taxed the license fees under the head ‘Income from House Property’, whereas the amenities fees were taxed by him as ‘Income from Other Sources’.

Aggrieved, the assessee preferred an appeal to the CIT(A) who, following the decision of the Tribunal in the assessee’s own case for A.Ys. 2009-10 and 2010-11, decided the appeal in favour of the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

HELD
The Revenue fairly accepted that the issue under consideration is clearly covered by the decision of the Tribunal, in the assessee’s own case, for A.Ys. 2009-10 and 2010-11 in favour of the assessee. The Tribunal noted that the CIT(A) has decided the issue by following these decisions of the Tribunal wherein for the A.Y. 2009-10 the Tribunal has held as under:

‘We find that the nature of services provided by the assessee to the tenants / lessees were linked to the premises and were in the nature of the auxiliary services which were directly linked to the leasing of the property. Since there is a direct nexus between the amenities and leased premises, the CIT(A) has rightly directed the A.O. to treat the income from amenities under the head, “Income from House Property”’.

The Tribunal while deciding the appeal for A.Y. 2010-11, has in its order dated 9th February, 2016, concurred with the above view by holding that ‘the income of Rs. 4,38,61,486 received by the assessee company from amenities shall be chargeable to tax under the head “Income from House Property”.’

The Tribunal held that it found no reason to take any other view of the matter than the view taken by the co-ordinate bench. It held that there is no infirmity in the order of the CIT(A) in deciding the issue in favour of the assessee in consonance with the decision of the co-ordinate bench.

Section 54F – Exemption cannot be denied merely because the sale consideration was not deposited in a bank account as per ‘capital gain accounts scheme’ when the investment in acquisition of a residential house was made within the time prescribed

1. Ashok Kumar Wadhwa vs. ACIT (New Delhi) Amit Shukla (J.M.) and O.P. Kant (A.M.) ITA No. 114/Del/2020 A.Y.: 2016-17 Date of order: 2nd March, 2021 Counsel for Assessee / Revenue: Raj Kumar Gupta and J.P. Sharma / Alka Gautam

Section 54F – Exemption cannot be denied merely because the sale consideration was not deposited in a bank account as per ‘capital gain accounts scheme’ when the investment in acquisition of a residential house was made within the time prescribed

FACTS

The assessee, along with a co-owner, sold a residential plot on 15th April, 2015 for Rs. 6.26 crores. He deposited the sale proceeds in a savings bank account maintained with Axis Bank. Subsequently, he purchased a residential house for a sum of Rs. 2.48 crores on 12th April, 2017 under his full ownership. The due date for filing of the return of income was 31st July, 2016, which was extended to 5th August, 2016, but the assessee filed his return of income belatedly on 5th June, 2017 u/s 139(4). In the said return, the assessee claimed exemption u/s 54F against capital gain on sale of property. But according to the A.O., the assessee was not entitled to the benefit of exemption because the sale consideration was not deposited in a bank account maintained as per the ‘capital gain accounts scheme’ before the due date of filing of return of income u/s 139(1), i.e. 5th August, 2016. On appeal, the CIT(A) confirmed the order of the A.O.

Before the Tribunal, the assessee submitted that he has made an investment in the residential house within the specified period of two years from the date of the sale of the property and thus he has substantially complied with the provision of section 54F(1). Therefore, exemption should be allowed. However, the Revenue relied on the orders of the lower authorities.

HELD


The Tribunal noted that the assessee had made an investment in a new house on 12th April, 2017, i.e., within the two years’ time allowed u/s 54F(1). The benefit was denied only because the assessee had failed to deposit the sale consideration in the specified capital gains bank deposit schemes by 5th August, 2016, i.e., the time allowed u/s 139(1), as required u/s 54F(4).

Analysing the provisions of section 54, the Tribunal observed that the provisions of sub-section (1) are mandatory and substantive in nature while the provisions of sub-section (4) of section 54F are procedural. According to it, if the mandatory and substantive provisions stood satisfied, the assessee should be eligible for benefit u/s 54F. For this purpose, the Tribunal relied on the decisions of the Karnataka High Court in the case of CIT vs. K. Ramachandra Rao (56 Taxmann.com 163) and of the Delhi Tribunal in the case of Smt. Vatsala Asthana vs. ITO (2019) (110 Taxmann.com 173). Therefore, the Tribunal set aside the findings of the lower authorities and directed the A.O. to allow the exemption u/s 54F.

Section 14A – Even suo motu disallowance made by an assessee u/s 14A needs to be restricted to the extent of exempt income

16. Chalet Hotels Ltd. vs. DCIT Mahavir Singh (V.P.) and Rajesh Kumar (A.M.) ITA No. 3747/Mum/2019 A.Y.: 2015-16 Date of order: 11th January, 2021 Counsel for Assessee / Revenue:Madhur Agarwal / V. Sreekar


 

Section 14A – Even suo motu disallowance made by an assessee u/s 14A needs to be restricted to the extent of exempt income

 

FACTS

The A.O., while assessing the total income of the assessee, invoked the provisions of section 14A read with Rule 8D and disallowed a sum of Rs. 27,15,12,687 and of Rs. 2,14,47,136 under Rule 8D(2)(iii). Thereby, he disallowed a total sum of Rs. 29,29,59,823 u/s 14A.

 

Aggrieved, the assessee preferred an appeal to the CIT(A) where, in the course of the proceedings it claimed that the assessee has earned exempt income only to the extent of Rs. 13,17,233 and the same may be adopted for making disallowance under Rule 8D(2)(iii).

 

The CIT(A) deleted the disallowance made by the A.O. under Rule 8D(2)(ii), i.e., interest expenditure amounting to Rs. 27,15,12,687, but confirmed the disallowance under Rule 8D(2)(iii) being administrative expenses at Rs. 5,86,52,973 as against the exempt income claimed by the assessee at Rs. 13,17,233. The CIT(A) restricted the disallowance to the amount suo motu computed by the assessee at Rs. 5,86,52,973.

 

Aggrieved, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal noted that the short point of dispute is whether the disallowance under Rule 8D(2)(iii) is to be restricted to the extent of exempt income, i.e., dividend income earned by the assessee at Rs. 13,17,233 or the disallowance as suo motu computed by the assessee at Rs. 5,86,52,973.

Having gone through the decision of the Supreme Court in the case of Maxopp Investments Ltd. (Supra) wherein the Supreme Court has categorically held that the disallowance cannot exceed the exempt income the Tribunal deleted the suo motu disallowance made by the assessee at Rs. 5,86,52,973 and restricted the disallowance to the extent of the exempt income claimed by the assessee at Rs. 13,17,233.

Sections 43CA and 263 – In a case where the A.O. has taken a possible view after inquiring into the matter and appreciating the facts and documents filed by the assessee, the PCIT has no jurisdiction to set aside the assessment

15. Ranjana Construction Pvt. Ltd. vs. PCIT George George K. (J.M.) and B.R. Baskaran (A.M.) ITA No. 4308/Mum/2019 A.Y.: 2014-15 Date of order: 11th January, 2021 Counsel for Assessee / Revenue: N.R. Agrawal / Bharat Andhle

Sections 43CA and 263 – In a case where the A.O. has taken a possible view after inquiring into the matter and appreciating the facts and documents filed by the assessee, the PCIT has no jurisdiction to set aside the assessment

FACTS

The assessee e-filed its return of income for A.Y. 2014-15 declaring a total income of Rs. 1,60,260.

Vide an allotment letter dated 12th June, 2010, the assessee agreed to sell to Mr. Vasant Kumar Pujari, the buyer, Flat No. A-302 in Kailash Heights for a consideration of Rs. 36,65,000. He (the assessee) received an account payee cheque for Rs. 2,50,000 dated 22nd June, 2010 as token advance. Thereafter, he received Rs. 18,32,500 up to 20th December, 2012. The sale agreement was registered on 26th June, 2013. On the date of registration, the stamp duty value of the said flat was Rs. 57,48,160 which was reflected in the AIR on the Department website. In the course of assessment proceedings, a notice was issued u/s 142(1) asking the assessee to furnish the date of property purchased / sold details. (These were contained in the AIR information generated by the Department from the ITES.)

The assessment of total income of the assessee was completed u/s 143(3) and an order dated 8th September, 2016 was passed u/s 143(3) accepting the returned income.

Subsequently, the PCIT, after issuing a show cause notice to the assessee and rejecting its contentions, set aside the order passed u/s 263 and directed the A.O. to examine the issue after giving sufficient opportunity of being heard to the assessee. The PCIT held that:
i) the agreement does not mention allotment of the flat vide allotment letter dated 12th June, 2010;
ii) allotment letter is not forming part of the registered agreement;
iii) the assessee has not filed any evidence of having filed the allotment letter with the Stamp Duty Authority;
iv) the agreement does not mention about booking amount claimed to have been paid by the assessee vide the allotment letter;
v) the agreement mentions that the purchaser has perused the commencement certificate, plans and other documents and has approached the promoters for allotment of the flat. The allotment letter is dated 12th June, 2010 and the commencement certificate is dated 28th June, 2010 which contradicts the clauses in the agreement.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD


The Tribunal observed that according to the learned PCIT, the business income should have been computed by taking the deemed consideration as on the date of registration and not on the date of agreement to sell as per the observations in the revisionary order. Besides, the Tribunal also found that this issue has been specifically raised by the A.O. in the notice issued u/s 142(1) wherein a copy of the AIR as generated by the ITES was attached and the assessee was called upon to reconcile the entries appearing therein. The assessee had duly filed reconciliation vide letter dated 24th August, 2016 submitting a copy of the sale agreement and also the necessary details of the said deal. The A.O., after examining such details, accepted the business income of the assessee based on the stamp value as on the date of the agreement to sell.

The Tribunal held that the A.O. has taken a possible view after inquiring into the matter and appreciating the facts and documents filed by the assessee. Since the A.O. took a possible view, the PCIT has no jurisdiction to set aside the assessment. The Tribunal found itself inclined to quash the revisionary proceeding on this count alone.

On merits, the Tribunal held that the assessee has a fool-proof case as the income has been assessed pursuant to sections 43CA(3) and (4) which clearly provide that if the date of agreement and the date of registration are not the same, the stamp value as on the date of agreement shall be taken for the purpose of computing the income of the assessee and not the date of registration.

The Tribunal allowed the appeal of the assessee by setting aside the order of the PCIT.

Sections 45, 48 and 50CA – There is no provision in the Act authorising the A.O. to refer valuation of shares transferred for the purpose of calculating capital gains – Sale consideration disclosed in the share purchase agreement ought to be adopted for calculating the long-term capital gains in the case of transfer of shares – Section 50CA of the Act inserted w.e.f. 1st April, 2018 clearly indicates that prior to that date there was no provision under the Act authorising the A.O. to refer for valuation of shares for the purpose of calculating capital gains

14. ACIT vs. Manoj Arjun Menda George George K. (J.M.) and B.R. Baskaran (A.M.) ITA No. 1710/Bang/2016 A.Y.: 2012-13 Date of order: 4th January, 2021 Counsel for Revenue / Assessee:  Rajesh Kumar Jha / V. Srinivasan

Sections 45, 48 and 50CA – There is no provision in the Act authorising the A.O. to refer valuation of shares transferred for the purpose of calculating capital gains – Sale consideration disclosed in the share purchase agreement ought to be adopted for calculating the long-term capital gains in the case of transfer of shares – Section 50CA of the Act inserted w.e.f. 1st April, 2018 clearly indicates that prior to that date there was no provision under the Act authorising the A.O. to refer for valuation of shares for the purpose of calculating capital gains

FACTS

The assessee, an individual, filed his return of income for A.Y. 2012-13 declaring a total income of Rs. 7,22,25,230. Vide Share Purchase Agreement dated 20th October, 2011, the assessee along with other shareholders sold their entire shareholding in Millennia Realtors Private Limited (MRPL) to Ambuja Housing & Urban Infrastructure Company Limited (AHUIC) for a consideration of Rs. 66.81 crores. The purchasers also agreed to pay Rs. 17.76 crores as accrued interest on debentures. Thus, the total amount payable by AHUIC to the shareholders of MRPL worked out to Rs. 84.58 crores. The assessee held 13.29% of the shareholding in MRPL and hence received Rs. 11.24 crores for his portion of the shares sold. In his return of income, he computed long-term capital loss and carried forward the same.

In the course of the assessment proceedings, the assessee submitted copies of the share purchase agreement and the valuation report dated 20th October, 2011 referred to in the share purchase agreement. The A.O., based on the information sought by him u/s 133(6) from Oriental Bank of Commerce, the bankers of MRPL, and also the property consultant who facilitated the transfer of shares of MRPL, came to the conclusion that the fair market value of the shares of MRPL disclosed in the share purchase agreement was on the lower side. Therefore, he held that to arrive at the correct FMV the shares need to be valued and said that the most appropriate way to value them is the Net Asset Valuation method (NAV).

After adopting valuation under the NAV method, the A.O. held that the sale consideration of the shares transferred by the assessee and the other shareholders has to be taken as Rs. 166.72 crores against Rs. 66.81 crores as agreed upon in the sale / purchase agreement dated 20th October, 2011 and the assessee’s share in the consideration works out to Rs.24.52 crores against Rs. 11.24 crores. Accordingly, the A.O. arrived at the long-term capital gain of Rs. 3,33,23,661 as against the loss of Rs. 9,94,59,651 as calculated by the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who, following the judgment of the Apex Court in the case of George Henderson & Co. Limited [66 ITR 622 (SC)] and other judicial pronouncements, held that there is no provision under the Income-tax Act empowering the A.O. to refer a matter for valuation in relation to the transfer of a capital asset, being transfer of shares. The CIT(A) allowed the appeal of the assessee.

But the aggrieved Revenue preferred an appeal to the Tribunal where, on behalf of the assessee, it was contended that the issue in question is squarely covered by the decision of the Tribunal in the case of another shareholder, viz., Raj Arjun Menda, in ITA No. 1720/Bang/2016 (order dated 20th February, 2020).

HELD

The Tribunal observed that the co-ordinate bench in the case of Raj Arjun Menda (Supra) has decided an identical issue in favour of the assessee. The Tribunal held that the transfer of the assets being the shares of a company, there is no provision under the Act for referring the matter for valuation. Accordingly, the Tribunal in that case confirmed the order of the CIT(A) and held that the consideration disclosed in the share purchase agreement dated 20th October, 2011 should be adopted for the purpose of computation of long term-capital gains on the sale of shares.

Following the decision in the same case, viz., Raj Arjun Menda (Supra), the Tribunal held that the CIT(A) is justified in holding that the sale consideration disclosed in the sale purchase agreement ought to be adopted for calculating the long-term capital gains in the case of transfer of shares. It also mentioned that section 50CA inserted w.e.f. 1st April, 2018 would have no application to the instant case since it was dealing with A.Y. 2012-2013. In other words, section 50CA inserted w.e.f. 1st April, 2018 clearly indicates that prior to that date there was no provision authorising the A.O. to refer the shares for valuation for the purpose of calculating capital gains.

Item (c) of the Explanation to section 115JB – Reduction of provision of doubtful debts written-back from book profit allowed, even when in the year when provision was made and the tax was paid under normal provisions of the Act, while computing book profit, the same was not added to book profit

2. BOB Financial Solutions Ltd. vs. DCIT (Mumbai) Mahavir Singh (V.P.) and Manoj Kumar Aggarwal (A.M.) I.T.A. No. 1207/Mum/2019 A.Y.: 2014-15 Date of order: 15th March, 2021 Counsel for Assessee / Revenue: Kishor C. Dalal / Rahul Raman

Item (c) of the Explanation to section 115JB – Reduction of provision of doubtful debts written-back from book profit allowed, even when in the year when provision was made and the tax was paid under normal provisions of the Act, while computing book profit, the same was not added to book profit

FACTS

While computing book profits u/s 115JB, the assessee reduced ‘provision of card receivables written-back’ amounting to Rs. 19.30 crores. According to the A.O., the provision made for card receivable, in earlier years, was not added back to compute book profits, hence, the same cannot be reduced from book profit in the current year. The assessee explained that in the earlier years the same was disallowed while computing total income under the normal provisions of the Act. In those years, the assessee had business losses and, therefore, as advised by its consultant, the book profit was shown as ‘Nil’ without making any adjustment as required u/s 115JB as it had no impact on his tax liability. However, the A.O. disallowed the said reduction of Rs. 19.30 crores from the book profit. The CIT(A), on appeal, confirmed the A.O.’s order.

HELD

The Tribunal noted that a similar issue had arisen before it in the assessee’s own case in A.Y. 2012-13 (ITA No. 4485 & 4297/Mum/2017 order dated 7th May, 2019) which was decided in favour of the assessee. In the said case also, the assessee had book losses and even after adding back the said write-offs, the resultant figure would have still been a negative figure and the assessee would not have any liability to pay tax u/s 115JB. Following the same, the Tribunal held that the assessee was entitled for deduction of write-back while computing book profit u/s 115JB.

Third proviso to section 50C(1) – Insertion of the proviso and subsequent enhancement in its limit to 10% is curative in nature to take care of unintended consequences of the scheme of section 50C, hence relate back to the date when the statutory provision of section 50C was enacted, i.e., 1st April, 2003

13. Maria Fernandes Cheryl vs. ITO (Mumbai) Pramod Kumar (V.P.) and Saktijit Dey (J.M.) ITA No. 4850/Mum/2019 A.Y.: 2011-12 Date of order: 15th January, 2021 Counsel for Assessee / Revenue: None / Vijaykumar G. Subramanyam

Third proviso to section 50C(1) – Insertion of the proviso and subsequent enhancement in its limit to 10% is curative in nature to take care of unintended consequences of the scheme of section 50C, hence relate back to the date when the statutory provision of section 50C was enacted, i.e., 1st April, 2003

FACTS

During the year under appeal, the assesse had sold her flat for a consideration of Rs. 75 lakhs. The valuation of the property for the purpose of charging stamp duty was Rs. 79.91 lakhs. She computed capital gains based on the sale consideration of Rs. 75 lakhs. But according to the A.O., the assessee had to adopt the Stamp Duty Valuation (SDV) which was Rs. 79.91 lakhs for the purpose of computing the capital gains. The CIT(A), on appeal, confirmed the A.O.’s order.

On appeal by the assessee, the Tribunal noted that the variation in the sale consideration as disclosed by the assessee vis-à-vis the valuation adopted by the SDV authority was only 6.55%. The Tribunal then queried the Departmental Representative (DR) as to why the assessee not be allowed the benefit of the third proviso to section 50C(1) as the variation was much less than the prescribed permissible variation of up to 10%.

In reply, the DR contended that the said provision is applicable by virtue of the Finance Act, 2018 with effect from 1st April, 2019. And for the permissible variation of 10%, as against variation of 5% as per the originally enacted third proviso to section 50C, it was contended that the enhancement is effective only from 1st April, 2021. Reference was also made to the Explanatory Notes to the Finance Act, 2020 with regard to increase in the safe harbour limit of 5% under sections 43CA, 50C and 56 to 10%. According to the DR, the insertion of the third proviso to section 50C could not be treated as retrospective in nature.

In conclusion, the DR also submitted that in case the Tribunal was in favour of granting relief to the assessee, then the relief may be provided as a special case and it may be clarified that this decision should not be considered as a precedent.

HELD


According to the Tribunal if the rationale behind the insertion of the third proviso to section 50C(1) was to provide a remedy for unintended consequences of the main provision, then the insertion of the third proviso should be considered as effective from the same date on which the main provision, i.e., section 50C, was brought into effect.

The Tribunal noted that the CBDT itself, in Circular No. 8 of 2018, has accepted that there could be various bona fide reasons explaining the small variations between the sale consideration of immovable property as disclosed by the assessee vis-à-vis the SDV. Further, it also noted that the Tribunals as well as the High Courts in the following cases have held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically:
•    Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal vs. ACIT (45 taxmann.com 555);
•    Delhi High Court in CIT vs. Ansal Landmark Township Pvt. Ltd. (61 taxmann.com 45);
•    Ahmedabad Tribunal in the case of Dharmashibhai Sonani vs. ACIT (161 ITD 627); and
•    Madras High Court in CIT vs. Vummudi Amarendran (429 ITR 97).

According to the Tribunal, the insertion of the third proviso to section 50C(1) was in the nature of a remedial measure to address a bona fide situation, where there was little justification for invoking an anti-avoidance provision – a curative amendment to take care of unintended consequences of the scheme of section 50C.

As for the enhancement of the tolerance band to 10% by the Finance Act, 2020, the Tribunal noted that the CBDT Circular itself acknowledges that it was done in response to the representations of the stakeholders for enhancement in the tolerance band. According to the Tribunal, once the Government acknowledged this genuine hardship of the taxpayer and addressed the issue by a suitable amendment in law, there was no reason to justify any particular time frame for implementing this enhancement of the tolerance band or safe harbour provision.

Therefore, the Tribunal held that the insertion of the third proviso to section 50C and the enhancement of the tolerance band to 10% were curative in nature and, therefore, the same relate back to the date when the related statutory provision of section 50C, i.e., 1st April, 2003, was enacted.

The Tribunal did not agree with the DR’s submission to mention in the order that ‘relief is being provided as a special case and this decision may not be considered as a precedent’. According to the Tribunal, ‘Nothing can be farther from a judicious approach to the process of dispensation of justice, and such an approach, as is prayed for, is an antithesis of the principle of “equality before the law,” which is one of our most cherished constitutional values. Our judicial functioning has to be even-handed, transparent, and predictable, and what we decide for one litigant must hold good for all other similarly placed litigants as well. We, therefore, decline to entertain this plea…’

Section 56(2)(vii) – Prize money received in recognition of services to Indian Cricket from BCCI is exempt

12. Maninder Singh vs. ACIT (Delhi) N.K. Billaiya (A.M.) and Sudhanshu Srivastava (J.M.) ITA No. 6954/Del/2019 A.Y.: 2013-14 Date of order: 6th January, 2021 Counsel for Assessee / Revenue: G.S. Grewal and Simran Grewal / Rakhi Vimal

Section 56(2)(vii) – Prize money received in recognition of services to Indian Cricket from BCCI is exempt

 

FACTS

The assessee is a former Indian cricketer. During the year under appeal, he received an award of Rs. 75.09 lakhs from the BCCI in recognition of his services to Indian Cricket. Placing reliance on the CBDT Circular No. 447 dated 22nd January, 1986, the assessee did not include this amount in his return of income. But, according to the A.O., CBDT Circular No. 2 of 2014 supersedes Circular No. 447 relied upon by the assessee. Therefore, he added the amount of Rs. 75.09 lakhs to the total income of the assessee. The CIT(A), on appeal, confirmed the order of the A.O.

 

HELD

The Tribunal referred to the second proviso to section 56(2)(vii). As per the said provisions, section 56(2)(vii) does not apply to any sum of money or any property received from any trust or institution registered u/s 12AA. The Tribunal noted that the BCCI is registered u/s 12AA. Therefore, it did not find any merit in the impugned addition made by the A.O. Accordingly, the Tribunal directed the A.O. to delete the addition of Rs. 75.09 lakhs made by him.

Section 50 – Expenditure incurred on account of stamp duty, registration charges and society transfer fees, as per the contractual terms, is an allowable expenditure u/s 50(1)(i)

11. DCIT vs. B.E. Billimoria & Co. Ltd. Saktijit Dey (J.M.) and Manoj Kumar
Aggarwal (A.M.) ITA No.: 3019/Mum/2019 A.Y.: 2015-16 Date of order: 11th November,
2020 Counsel for Assessee / Revenue: Satish Modi / Oommen Tharian

 

Section
50 – Expenditure incurred on account of stamp duty, registration charges and
society transfer fees, as per the contractual terms, is an allowable
expenditure u/s 50(1)(i)

 

FACTS

For the assessment year under consideration, in the course
of assessment proceedings the A.O. noticed that the assessee sold an office
premises vide agreement dated 31st March, 2015 for a consideration of Rs.
19 crores and offered short-term capital gains of Rs. 11.49 crores. However,
since the stamp duty value of the premises was Rs. 20.59 crores, the A.O.,
invoking the provisions of section 50C, added the differential amount of Rs.
1.59 crores to the income of the assessee.

 

Aggrieved, the assessee preferred an appeal to the CIT(A)
where, in the course of the appellate proceedings, the assessee drew the
attention of the CIT(A) to the fact that it incurred aggregate expenditure of
Rs. 160.26 lakhs on account of stamp duty, registration charges and society
transfer fees as per the contractual terms which was an allowable expenditure
u/s 50(1)(i). The said claim was restricted to Rs. 159.23 lakhs, i.e., to the
extent of difference in stamp duty value and actual sale consideration.
Therefore,it was submitted that there was no justification for the addition of
Rs. 159.23 lakhs. The CIT(A), concurring with this, directed the A.O. to delete
this addition.

 

HELD

The
Tribunal upon due consideration of the issue found no reason to interfere in
the impugned order in any manner. It held that the expenditure incurred by the
assessee on transfer of property was an allowable expenditure while computing
short-term capital gains and the same has rightly been allowed by the CIT(A).
The appeal filed by the assessee was allowed.

 

Section 244A – Refund is to be adjusted against the correct amount of interest payable thereof to be computed as per the directions of the CIT(A) and only the balance amount is to be adjusted against tax paid. Accordingly, unpaid amount is the tax component and therefore the assessee would be entitled for claiming interest on the tax component remaining unpaid. This would not amount to granting interest on interest

10. Grasim Industries Ltd. vs. DCIT and DCIT
vs. Grasim Industries Ltd. C.N. Prasad (J.M.) and M. Balaganesh
(A.M.) ITA Nos.: 473/Mum/2016 and 474/Mum/2016;
1120/Mum/2016; and 1121/Mum/2016 A.Ys.: 2007-08 and 2008-09 Date of order: 11th November,
2020 Counsel for Assessee / Revenue: Yogesh Thar /  V. Vinodkumar

 

Section
244A – Refund is to be adjusted against the correct amount of interest payable
thereof to be computed as per the directions of the CIT(A) and only the balance
amount is to be adjusted against tax paid. Accordingly, unpaid amount is the
tax component and therefore the assessee would be entitled for claiming
interest on the tax component remaining unpaid. This would not amount to
granting interest on interest

 

FACTS

The
only issue to be decided in this set of cross-appeals filed by the assessee and
the Revenue was about calculation of interest u/s 244A. The Tribunal, vide its common order for the A.Ys. 2006-07,
2007-08 and 2008-09 dated 19th June, 2013, passed an order granting
relief to the assessee with a direction to reduce certain items from the value
of fringe benefits chargeable to tax.

 

Subsequently,
the A.O on 14th August, 2013 passed an order giving effect to the
Tribunal’s order for the A.Y. 2006-07 wherein he correctly allowed interest on
advance tax u/s 244A from the first day of the assessment year till the date of
payment of the refund as per law.

 

However,
the A.O. on 16th September, 2013 while passing the order giving
effect to the Tribunal’s order for the A.Ys. 2007-08 and 2008-09 did not grant
interest u/s 244A(1)(a) from the first day of the assessment year till the date
of receipt of the Tribunal order (i.e., 23rd July, 2013) but granted
interest on advance tax only from the date of receipt of the Tribunal order
till the passing of the refund order. In this order dated 6th
September, 2013, the A.O. did not even grant any interest on self-assessment
tax paid by the assessee u/s 244A(1)(b).

 

Aggrieved
by the action of the A.O. in granting interest on advance tax from the date of
the Tribunal order till the passing of the refund order, and also by non-grant
of interest on self-assessment tax paid, the assessee preferred an appeal to
the CIT(A) for the A.Ys. 2007-08 and 2008-09. The assessee also took the ground
that the amount of refund received be adjusted first towards the correct amount
of interest and the balance towards tax, and that on the amount of refund of
tax not received, the assessee be granted interest.

 

The CIT(A), vide his order dated 11th December, 2016, allowed
interest u/s 244A on advance tax and self-assessment tax paid by the assessee
from the first day of the assessment year and the date of payment of the
self-assessment tax, respectively, for both the years till the date of the
grant of refund. However, the CIT(A) dismissed the assessee’s ground for
allowing interest on the said amount for the period of delay on the alleged
ground that it amounts to compensation by way of interest on interest.

 

Aggrieved,
the assessee preferred an appeal to the Tribunal seeking correct allowance of
interest u/s 244A.

 

The
Revenue preferred an appeal challenging the order of the CIT(A) directing the
A.O. to grant interest on self-assessment tax u/s 244A(1)(b) on the ground that
the delay was attributable on the part of the assessee.

HELD

The
Tribunal observed that since the Revenue has not preferred any appeal
challenging the direction of the CIT(A) to grant interest on advance tax from
the first day of the assessment year u/s 244A(1)(a), hence this matter has
attained finality.

 

The
assessee had raised the ground stating that refund granted to the assessee is
to be first adjusted against the correct amount of interest due on that date
and, thereafter, the left over portion should be adjusted with the balance tax.
The Tribunal found that in the instant case refund was granted to the assessee vide a refund order in October, 2013 and it was
pleaded by the assessee that the said refund is to be adjusted against the
correct amount of interest payable thereof to be computed as per the directions
of the CIT(A) and only the balance amount is to be adjusted against tax paid.
Accordingly, unpaid amount is the tax component and, therefore, the assessee
would be entitled to claim interest on the tax component remaining unpaid. The
Tribunal held that in its considered opinion the same would not tantamount to
interest on interest as alleged by the CIT(A) in his order. The Tribunal
observed that this issue is already settled in favour of the assessee by the
following decisions of this Tribunal:

a.  Union
Bank of India vs. ACIT reported in 162 ITD 142 dated 11th August,
2016;

b.
Bank
of Baroda vs. DCIT in ITA No.646/Mum/2017 dated 20th December, 2018.

 

The
Tribunal directed the A.O. to compute the correct amount of interest allowable
to the assessee as directed by the CIT(A) as on the date of giving effect to
the Tribunal’s order, i.e., 6th September, 2013. It further held
that the refund granted on 6th September, 2013 be first appropriated
or adjusted against such correct amount of interest and, consequently, the
shortfall of refund is to be regarded as shortfall of tax and that shortfall
should then be considered for the purpose of computing further interest payable
to the assessee u/s 244A till the date of grant of such refund.

 

The
grounds raised by the assessee for both the years were allowed.

 

The Revenue was in appeal against the direction of the
CIT(A) granting interest on self- assessment tax paid u/s  244A(1)(b).The Revenue alleged that interest
on self-assessment tax is not payable as the delay is attributable to the
assessee because the assessee did not claim refund in the return of income. The
Tribunal found merit in the submission made on behalf of the assessee that the
delay was not attributable to the assessee as the assessee while filing its
return for A.Ys. 2007-08 and 2008-09 had indeed made a claim in the return of
income by way of notes to the return of income and had also clarified in the
said note that tax has been paid on certain fringe benefits only out of
abundant caution. The Tribunal held that the notes forming part of the return
should be read together with the return. Hence, it cannot be said that the
assessee never made such a claim of interest in the return of income for the
respective years. The Tribunal held that no delay could be attributable on the
part of the assessee in this regard.

 

Both the
appeals filed by the assessee were allowed and both the appeals filed by the
Revenue were dismissed.

 

Section 80JJAA – Assessee cannot be denied deduction u/s 80JJAA, provided that such employees fulfil the condition of being employed for 300 days for the year under consideration, even though such employees do not fulfil the condition of being employed for 300 days in the immediately preceding assessment year

9. Tata Elxsi Ltd. vs. JCIT B.R. Baskaran (A.M.) and Beena Pillai (J.M.) ITA
No.3445/Bang/2018 A.Y.: 2014-15 Date of order: 29th October, 2020
Counsel for Assessee / Revenue: Padamchand Khincha / Muzaffar Hussain

 

Section 80JJAA
– Assessee cannot be denied deduction u/s 80JJAA, provided that such employees
fulfil the condition of being employed for 300 days for the year under
consideration, even though such employees do not fulfil the condition of being
employed for 300 days in the immediately preceding assessment year

 

 

FACTS

The assessee, a
company engaged in the business of distributed systems, design and development
of hardware and software and digital content creation, filed its return of
income for the assessment year under consideration declaring total income of
Rs. 98,28,88,380. In the return of income, the assessee claimed deduction of
Rs. 10,51,99,796 u/s 80JJAA.

 

The A.O. rejected the claim of the assessee for non-fulfilment of the
following two conditions:

i)          that the assessee is
not engaged in the manufacture or production of an article or thing as per the
conditions laid down u/s 80JJAA; and

ii)         the condition of 300
days to be fulfilled by the regular workmen as per the provisions does not
stand fulfilled.

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

 

The aggrieved
assessee then preferred an appeal to the Tribunal where it was submitted that
this was the third year of such a claim by the assessee and that the employees
against whose wages the deduction has been claimed satisfy the necessary conditions.
Reliance was placed on the observations of the coordinate bench of the Tribunal
in Texas Instruments (India) Pvt. Ltd. vs. ACIT (2020) 115 Taxmann.com
154 regarding allowability of the claim to the assessee.

 

HELD

The Tribunal noted that the A.O. denied benefit to the assessee on the
reasoning that the assessee was denied benefit against the employees in the
first year of their employment and that the assessee being a software
development company was not eligible for deduction.

 

The Tribunal noted the view of the Tribunal in the case of Texas
Instruments (India) Pvt. Ltd. vs. ACIT (Supra)so far as the first
objection of the A.O. regarding non-satisfaction with respect to additional
wages paid to new employees in the first year of employment is concerned. The
Tribunal held that from the observations of the Tribunal in that case, there is
no doubt that the assessee cannot be denied deduction u/s 80JJAA provided that
such employees fulfil the condition of being employed for 300 days for the year
under consideration even though such employees do not fulfil the condition of
being employed for 300 days in the immediately preceding assessment year.

However, since
the details of fulfilment of the number of days of such employees, on whose salary
deduction has been claimed by the assessee, was not available on record, the
Tribunal was unable to verify whether the necessary condition of 300 days stood
fulfilled. It agreed with the DR that nothing on record placed before the bench
reveals that this is the third year of claim by the assessee as has been
submitted at page 223 of the paper book. The Tribunal, therefore, remanded the
issue to the A.O. to verify these details in terms of new employees having
satisfied the 300 days’ criterion during the year. It directed the assessee to
provide all details regarding number of regular workmen / employees, number of
new workmen / employees added for each of the immediately three preceding
assessment years to the A.O. who shall then analyse fulfilment of the condition
in respect of new employees / workmen against whom the claim has been made by
the assessee u/s 80JJAA and allow deduction under that section.

 

This ground of
appeal filed by the assessee was allowed.

 

Contributors’ comments: The Finance Act, 2018 has
added a second proviso to the definition of additional employee in
Explanation (ii) to section 80JJAA. So, the ratio of the above decision
would be relevant for the period prior to the amendment by the Finance Act,
2018.


Section 22 – Assessee is builder / developer – Rental income derived is taxable as Business Income and section 22 is not applicable – In respect of unsold flats held as stock-in-trade, Annual Lettable Value cannot be determined u/s 22 since rental income, if any, is taxable as Business Income

8. Osho Developers vs. ACIT (Mumbai) Shamim Yahya (A.M.) and Ravish Sood
(J.M.) ITA Nos. 2372 & 1860/Mum/2019 A.Ys.: 2014-15 & 2015-16 Date of order: 3rd November,
2020 Counsel for Assessee / Revenue: Dr. K.
Shivram and Neelam Jadhav / Uodal Raj Singh

 

Section
22 – Assessee is builder / developer – Rental income derived is taxable as
Business Income and section 22 is not applicable – In respect of unsold flats
held as stock-in-trade, Annual Lettable Value cannot be determined u/s 22 since
rental income, if any, is taxable as Business Income

 

FACTS

The
assessee firm was a builder / developer. It had filed its return of income
declaring Nil income. During the course of the assessment proceedings, the A.O.
noticed that the assessee had shown unsold flats in its closing stock.
Following the judgment of the Delhi High Court in the case of CIT vs.
Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180, the
A.O. assessed to tax the Annual Lettable Value (ALV) of the aforesaid flats u/s
22 as Income from House Property. The assessee tried to distinguish the facts
involved in the case of Ansal. It also contended that the income on the sale of
the unsold flats was liable to be assessed as its Business Income and not as
Income from House Property, therefore, the ALV of the said flats was not
exigible to tax.

 

Being
aggrieved, the assessee appealed before the CIT(A). Relying on the judgment of
the Bombay High Court in the case of CIT vs. Gundecha Builders (2019) 102
taxman.com 27, where the Court had held that the rental income derived
from the property held as stock-in-trade was taxable as Income from House
Property, the CIT(A) found no infirmity in the A.O.’s action of assessing the
ALV of the unsold flats as Income from House Property.

 

HELD

The
Tribunal noted that in the case before the Bombay High Court, the assessee had,
in fact, let out the flats. And the issue was as to under which head of rental
income was it to be taxed, as ‘business income’ or as ‘income from house
property’. But in the present appeal filed by the assessee the flats were not
let out and there was no rental income earned by the assessee. Therefore,
according to the Tribunal the decision in the case of Gundecha Builders
would not assist the Revenue.

 

Referring
to the decision of the Delhi High Court in the case of CIT vs. Ansal
Housing Finance and Leasing Company Ltd. relied on by the Revenue, the
Tribunal noted that the Delhi High Court was of the view that the levy of
income tax in the case of an assessee holding house property was premised not
on whether the assessee carries on business as landlord, but on the ownership.
And on that basis, the ALV of the flats held as stock-in-trade by the assessee
was brought to tax under the head ‘house property’ by the Delhi High Court.
However, the Tribunal noted the contrary decision of the Gujarat High Court in
the case of CIT vs. Neha Builders (2008) 296 ITR 661 where it was
held that rental income derived by an assessee from the property which was held
as stock-in-trade is assessable as Business Income and cannot be assessed under
the head ‘Income from House Property’. According to the Gujarat High Court, any
income derived from the stock would be income from the business and not income
from the property.

 

In view of the
conflicting decisions of the non-jurisdictional High Courts, the Tribunal
relied on the decision of the Bombay High Court in the case of K.
Subramanian and Anr. vs. Siemens India Ltd. and Anr. (1985) 156 ITR 11
where it was held that where there are conflicting decisions of the
non-jurisdictional High Courts, the view which is in favour of the assessee
should be followed. Accordingly, the Tribunal followed the view taken by the
Gujarat High Court in the case of Neha Builders and allowed the
appeal of the assessee. The Tribunal also noted that a similar view was taken
by the SMC bench of the Mumbai Tribunal in the case of Rajendra
Godshalwar vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31st
January, 2019]. Accordingly, the Tribunal held that the ALV of the
flats held by the assessee as part of the stock-in-trade of its business as
that of a builder and developer could not have been determined and thus brought
to tax under the head ‘Income from House Property’.

 

 

As per provisions of section 194C(6), the only requirement for non-deduction of tax at source is that the transport contractors have to furnish their PAN details – The Tribunal restored the issue to the file of the A.O. for de novo adjudication

7. M.S. Hipack v. ACIT (Mumbai) C.N. Prasad (J.M.) and Rajesh Kumar
(A.M.) ITA No.: 1032/Mum/2019 A.Y.: 2011-12 Date of order: 29th
September, 2020 Counsel for Assessee / Revenue: D.J.
Shukla / R. Bhoopathi

 

As per provisions
of section 194C(6), the only requirement for non-deduction of tax at source is
that the transport contractors have to furnish their PAN details – The Tribunal
restored the issue to the file of the A.O. for de novo adjudication

 

FACTS

The A.O. while completing the assessment noticed
that the assessee had incurred transportation charges and had not deducted tax
at source. The assessee having not complied with the requirement of filing
Form–26Q, accordingly, disallowance was made by the A.O.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A) who sustained the disallowance
as he was not convinced with the submissions made by the assessee.

 

Aggrieved,
the assessee preferred an appeal to the Tribunal where it was contended that
the assessee has complied with the provisions of section 194C(6) as it has
filed revised and corrected Form-26Q giving the details of PAN of transport
contractors and not deducted TDS complying with the provisions of section 194C(6).
It was submitted that as per the provisions of section 194C(6) the only
requirement for non-deduction of tax at source is that the transport
contractors have to furnish their PAN details. The assessee has duly obtained
PAN details of the contractors and incorporated the same in corrected Form-26Q.

 

HELD

In view of
the submissions of the assessee that it had corrected Form-26Q by furnishing
the PAN details of the transport contractors and complied with the provisions
of section 196C(6), the Tribunal held that this matter has to be examined by
the A.O. in the light of the submissions of the assessee and in the interest of
justice, it restored the issue to the file of the A.O. for de novo
adjudication with a direction that the A.O. shall take note of the fact of the
assessee filing the corrected Form-26Q and also that the assessee is at liberty
to file all necessary information before the A.O.

 

 

Section 153C – The date of initiation of search u/s 132 or requisition u/s 132A in the case of other person shall be the date of receiving the books of accounts or documents or assets seized or requisitioned by the A.O. having jurisdiction over such other person. Where the A.O. of the searched person and the other person (the assessee) was the same, the date on which satisfaction is recorded by the A.O. for invoking the provisions of section 153C would be deemed to be the date of receiving documents by the A.O. of the other person

6. Diwakar N. Shetty vs. DCIT (Mumbai) Vikas Awasthy (J.M.) and Rajesh Kumar
(A.M.) ITA No.: 5618/Mum/2016 A.Y.: 2010-11 Date of order: 30th
September, 2020 Counsel for Assessee / Revenue: Vasudev Ginde / Purushottam Tripure

 

Section 153C – The date of initiation of search
u/s 132 or requisition u/s 132A in the case of other person shall be the date
of receiving the books of accounts or documents or assets seized or
requisitioned by the A.O. having jurisdiction over such other person. Where the
A.O. of the searched person and the other person (the assessee) was the same,
the date on which satisfaction is recorded by the A.O. for invoking the
provisions of section 153C would be deemed to be the date of receiving documents by the A.O.
of the other person

 

FACTS

A search and
seizure action u/s 132 was carried out in the case of M/s Om Sai Motors Pvt.
Ltd., a company belonging to the Gangadhar Shetty group on 20th
August, 2009. In the search action certain documents pertaining to the assessee
were also seized.

 

The A.O. of
the person searched and the assessee was the same. The satisfaction for
initiating proceedings u/s 153C was recorded on 21st December, 2010,
i.e., in the financial year 2010-11, relevant to the assessment year 2011-12.

 

Notice u/s
153C was issued to the assessee on 21st December, 2010. The A.O.
made block assessment for A.Ys. 2004-05 to 2009-10 and for the impugned A.Y.,
i.e., 2010-11, the A.O. considered it as the year of search and made the assessment
under regular provisions.

 

The A.O.
completed the assessment of the impugned assessment year as a regular
assessment u/s 144.

 

Aggrieved by
the assessment made, the assessee preferred an appeal to the CIT(A).

 

Further
aggrieved by the order passed by the CIT(A), the assessee preferred an appeal
to the Tribunal where it raised an additional ground challenging the validity
of the assessment order passed u/s 144 by contending that the ‘relevant date’
for assuming jurisdiction u/s 153A r/w/s 153C in case of the person other than
the searched person (in this case the appellant / assessee) would not be the
date of search, but the date of handing over of the material, etc., belonging
to that other person to his A.O. by the A.O. having jurisdiction over the searched person.

 

In the
present case, the A.O. of the searched person and the other person (i.e., the
assessee) is the same. Since satisfaction for initiating proceedings u/s 153C
was recorded on 21st December, 2010, i.e., in financial year
2010-11, relevant to assessment year 2011-12, the year of search would be
assessment year 2011-12 and not 2010-11. Accordingly, the A.Y. 2010-11 under
consideration falls within the block of six assessment years referred to in
section 153C of the Act, therefore, assessment ought to have been made only u/s
153C and not as regular assessment u/s 143(3)/144.

 

HELD

The Tribunal
observed that the only issue for its consideration is whether the assessment
for A.Y. 2010-11 was required to be framed u/s 153C being part of block
assessment period or the assessment has been rightly made under regular
provisions considering impugned assessment year relevant to the year of search.
The assessment order for the aforesaid block period of six years was passed u/s
144 r/w/s 153C on 30th December, 2011.

 

The Tribunal
noted that the assessee challenged the invoking of section 153C jurisdiction
for A.Y. 2004-05 before the Tribunal in ITA No. 7309/Mum/2014 (Supra).
After examining the facts, the Tribunal held that A.Y. 2004-05 is outside the
purview of the block assessment period as the documents relatable to the
assessee found at the place of the searched person were handed over to the A.O.
of the assessee in financial year 2010-11 relevant to A.Y. 2011-12. If that be
so, the A.O. would have no jurisdiction for issuing notice u/s 153A r/w/s 153C
for A.Y. 2004-05. However, for the limited purpose of verification of facts,
the Tribunal restored the issue back to the A.O. Thereafter, the A.O. passed an
order giving effect to the order of the Tribunal wherein the A.O. admitted that
A.Y. 2004-05 does not fall within the block assessment period as the relevant
material was handed over in the period relevant to A.Y. 2011-12.

 

The Tribunal
observed that since the Revenue has itself admitted the fact that the year of
search would be financial year 2010-11 relevant to A.Y. 2011-12, the block
period of six years for search assessment u/s153C would comprise of assessment
years 2005-06 to 2010-11. Under these facts, the assessment for A.Y. 2010-11
being part of block assessment period should have been u/s 153A r/w/s 153C.

 

The Tribunal
having noted the ratio of the decision of the Delhi High Court in the
case of CIT vs. Jasjit Singh, Income Tax Appeal No. 337 of 2015 for A.Y.
2009-10, decided on 2nd January, 2018 by the Delhi High
Court has held that the date of initiation of search u/s 132 or requisition
u/s132A in the case of other person shall be the date of receiving the books of
accounts or documents or assets seized or requisitioned by the A.O. having
jurisdiction over such other person. In the instant case, although the A.O. of
the searched person and the other person (the assessee) was the same,
satisfaction was recorded by the A.O. for invoking the provisions of section
153C on 21st December, 2010, the said date would be deemed to be the
date of receiving documents by the A.O. Thus, the year of search would be F.Y.
2010-11 relevant to A.Y. 2011-12.

 

Taking note
of the decision of the Delhi Bench of the Tribunal in the case of EON
Auto Industries Pvt. Ltd. vs. DCIT, ITA No. 3179/Del/2013, A.Y. 2008-09, decided on 28th
November, 2017, the Tribunal held that for the purpose of determining six
assessment years prior to the date of search, the relevant date for the purpose
of invoking provisions of section 153C in the case of a person other than the
person searched would be the date of recording satisfaction u/s 153C.

 

The Tribunal
held that since the impugned assessment year forms part of the block of six
assessment years prior to the date of search, the assessment should have been
made u/s 153C and not under the regular provisions as has been done by the A.O.
Therefore, the assessment order for the impugned year suffers from legal
infirmity and hence is liable to be quashed.

 

The Tribunal
quashed the assessment order and allowed the additional ground of appeal filed
by the assessee.

 

Sections 14A, 253 – In cross-objections, assessee can raise a ground for the first time, which was not taken up by him even in an appeal before the CIT(A)

5. ITO vs. Centrum Capital Limited
(Mumbai) Shamim Yahya (A.M.) and Pavan Kumar
Gadale (J.M.) ITA No. 497/Mum/2019 and CO arising
out of ITA No. 497/Mum/2019 A.Y.: 2013-14 Date of order: 5th October,
2020 Counsel for Revenue / Assessee: Lalit Dehiya / Jitendra Jain

 

Sections
14A, 253 – In cross-objections, assessee can raise a ground for the first time,
which was not taken up by him even in an appeal before the CIT(A)

 

FACTS

The assessee
in his return of income considered a sum of Rs. 22,82,187 to be disallowable
u/s 14A. The amount of exempt income earned by the assessee was Rs. 44,250. The
A.O., while assessing the total income of the assessee, disallowed a sum of Rs.
10,91,61,614 u/s 14A.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A) who referred to the decision of
the Delhi High Court in the case of Joint Investment P. Ltd. vs. CIT (59
taxmann.com 295) for the proposition that disallowance u/s 14A cannot
exceed the exempt income. He held that the disallowance in this case will not
exceed the suo motu disallowance done by the assessee which was more
than the exempt income. He held that since the total exempt income earned by
the appellant was only Rs. 44,250, therefore, respectfully following the
judgment of the Mumbai Bench of the Tribunal in
the case of Future Corporate Resources Ltd. (Supra), the
disallowance u/s 14A r/w/r 8D is restricted to Rs. 44,250 only. He, however, held that because while filing the return of
income the appellant had itself disallowed a sum of Rs. 22,82,187 which is more
than the tax-free income earned by the appellant, therefore no further
disallowance can be made. Hence, disallowance of Rs. 10,91,61,614 made by the
A.O. u/s 14A r/w/r 8D is deleted and the appeal of the assessee on this ground
is allowed.

 

Aggrieved by
the decision of the CIT(A), Revenue preferred an appeal contending that the
CIT(A) erred in restricting the disallowance u/s 14A to Rs. 22,82,187 being the
amount suo motu disallowed by the assessee.

 

The assessee
filed a cross-objection contending that the CIT(A) ought to have restricted the
disallowance to the exempt income of Rs. 44,250 instead of observing that the
disallowance should be restricted to Rs. 22,82,187 being the suo motu
disallowance done by the assessee.

 

 

HELD

The Tribunal held
that there is no infirmity in the order of the CIT appeals which is duly
supported by the order of the Delhi High Court referred above. It observed that
the jurisdictional High Court in the case of CIT vs. Delight Enterprises
(in ITA No. 110/2009) has expounded a similar proposition. The Tribunal
dismissed the appeal filed by the Revenue.

 

As regards
the CO filed by the assessee, the DR by referring to order 9 rule 13 of the CPC
objected to the ground being taken in the cross-objection which was not even
before the CIT appeals. The Tribunal noted that order 9 rule 13 of the CPC
deals with setting aside decree ex parte and held that such a reference
does not help the case of the Revenue.

 

The Tribunal
noted that as rightly observed by the ITAT bench in the aforesaid case of Tata
Industries Ltd. vs. ITO (2016) 181 TTJ 600 (Mum.), no tax can be
collected except as per the mandate of the law. If the assessee has erroneously
offered more income for taxation, the same cannot be a bar to the assessee in
seeking remedy before the appellate forum.

 

The Tribunal
observed that the Supreme Court in the case of

i)    Goetze (India) Ltd. vs. CIT (2006) 284
ITR 323 (SC) has held that nothing in that order would prevent the ITAT
in admitting an additional claim which was raised for the first time without a
revised return;

ii)   CIT vs. V. MR. P. Firm [1965] 56 ITR
67(SC) has held that if a particular income is not taxable under the
Act, it cannot be taxed on the basis of estoppel or any other equitable
doctrine;

iii)  Shelly Products 129 taxman 271 (SC)
supports the proposition that if the assessee has erroneously paid more tax
than he was legally required to do, he is entitled to claim the refund, as
otherwise it would be violative of Article 265 of the Constitution.

 

The Tribunal
mentioned that the CBDT Circular 14 (XL-35) of 1953 dated 11th
April, 1955 states that officers of the Department must not take advantage of
the ignorance of the assessee as to his rights.

 

The Tribunal
held that

i)    in the background of the aforesaid Supreme
Court decisions, it does not find any merit whatsoever in the objection of CIT DR in accepting and adjudicating the ground raised by a
cross-objection by the assessee.

ii)   as regards the merits of the issue raised in
the cross-objection, the Tribunal held that the same stands covered by the very
decisions relied upon by the CIT (Appeals) himself as referred above, that the
disallowance u/s 14A cannot exceed the exempt income;

iii)  the disallowance in this case should not
exceed the exempt income earned as referred above;

iv)  in view of the CBDT Circular No. 14 as
referred above, the ground raised by the assessee is cogent.

 

The Tribunal
directed the A.O. to grant the necessary relief to the assessee and the
cross-objections filed by the assessee were allowed.

 

Section 144C inserted in the statute by the Finance (No. 2) Act, 2009 with retrospective effect from 1st April, 2009 is prospective in nature and would not apply to A.Y. 2009-10 or earlier assessment years

4. Truetzschler India Pvt. Ltd. vs.
DCIT (Mumbai) Members: Vikas Awasthy (J.M.) and
Manoj Kumar Aggarwal (A.M.) ITA No. 1949/Mum/2015 A.Y.: 2009-10 Date of order: 30th
September, 2020 Counsel for Assessee / Revenue: Nitesh Joshi / A. Mohan

 

Section 144C
inserted in the statute by the Finance (No. 2) Act, 2009 with retrospective
effect from 1st April, 2009 is prospective in nature and would not apply to
A.Y. 2009-10 or earlier assessment years

 

FACTS

In the
present appeal preferred against the order of the CIT(A), the assessee raised
an additional ground challenging the validity of the assessment order dated 13th
May, 2013 passed u/s 143(3) r/w/s 144C(13). In the additional ground, the assessee
contended that the assessment order ought to be quashed as it has been passed
after the expiry of the time limit prescribed u/s 153.

 

The Tribunal
noted that the Transfer Pricing Officer (TPO) passed the order u/s 92CA(3) on 9th
January, 2013. The A.O. passed the draft assessment order on 27th
March, 2013. Thereafter, the A.O. was required to pass the final assessment
order within the limitation period provided u/s 153(1), i.e., by 31st
March, 2013, whereas, actually the final assessment order was passed on 13th
May, 2013, i.e., after the expiry of the limitation period.

 

On behalf of
the assessee, and relying on the decision of the Madras High Court in the case
of Vedanta Limited vs. ACIT in Writ Petition No. 1729 of 2011 decided on
22nd October, 2019, it was contended that the time limit for
passing the assessment order in the impugned assessment year does not get
extended by application of section 144C mandating reference to the dispute
resolution panel as the provisions of the said section do not apply to the
impugned assessment year. On the other hand, the Departmental Representative placed reliance on CBDT Circular
No. 5 of 2010 dated 3rd June, 2010 to counter the argument made on
behalf of the assessee.

 

HELD

The
additional ground being purely legal in nature and requiring no fresh evidence
was admitted by the Tribunal.

 

The Tribunal
noted that the Madras High Court has held that where there is a change in the
form of assessment itself, such change is not a mere deviation in procedure but
a substantive shift in the manner of framing an assessment. A substantive right
has enured to the parties by virtue of the introduction of section 144C.
Bearing in mind the settled position that the law applicable on the first day
of the assessment year be reckoned as the applicable law for assessment for
that year, leads one to the inescapable conclusion that the provisions of
section 144C can be held to be applicable only prospectively, that is, from
A.Y. 2011-12. The High Court also made it clear that the Circular issued in
2013 to bring the assessment year 2009-10 in the fold of the newly-inserted
provisions of section 144C would have no application.

 

The Tribunal
held that

i)    the provisions of section 144C would not
apply in the impugned assessment year, and hence the time period for passing
the assessment order would not get enlarged;

ii)   the A.O. was under obligation to pass the
assessment order within the time specified under the third proviso to
section 153(1), i.e., on or before 31st March, 2013;

iii)  since the order has been passed beyond the
period of limitation, the same is null and void. The assessee succeeds on the
legal ground raised as additional ground of appeal;

iv)  the assessment order is quashed and the appeal
of the assessee is allowed.

Section 40(a)(ia) r/w section 195 – Payments to overseas group companies considered as reimbursement of expense incurred, not liable to deduction of tax at source

3. ACIT vs. APCO Worldwide (India) Pvt. Ltd. (Delhi) Members: Sushma Chowla (V.P.) and Anil Chaturvedi (A.M.) ITA No. 5614/Del./2017 A.Y.: 2013-14 Date of order: 9th September, 2020 Counsel for Revenue / Assessee: Rakhi Vimal / Ajay Vohra and Gaurav
Jain

 

Section
40(a)(ia) r/w section 195 – Payments to overseas group companies considered as
reimbursement of expense incurred, not liable to deduction of tax at source

 

FACTS


The issue was
with respect to disallowance of expenses u/s 40(a)(ia). The assessee had made
payments to its overseas group companies towards recoupment of actual cost
incurred by them on behalf of the assessee for corporate administration,
finance support, information technology support, etc., without deduction of tax
u/s 195. According to the assessee, the payments made cannot be considered as
income of the recipients, as no profit element was involved. However, according
to the A.O., the provisions of section 40(a)(ia) were attracted. He accordingly
disallowed the payment of Rs. 1.49 crores so made. On appeal, the CIT(A)
deleted the addition by holding that the assessee was not required to deduct
tax at source on the reimbursement of the expenses made to overseas entities.

 

HELD


The Tribunal
noted that the CIT(A) had found that the payments made were on cost-to-cost
basis. Further, the coordinate bench of the Tribunal while deciding an
identical issue in the assessee’s own case in A.Ys. 2010-11, 2011-12 and
2012-13, had held that the provisions of section 195 were not attracted on the
amounts paid by the assessee to its overseas group companies as it was mere
reimbursement. Accordingly, it was held that no disallowance u/s 40(a)(ia) was
required to be made.

 

Section 199(3) and Rule 37BA – Credit for TDS allowed in the year of deduction even when related revenue was booked in subsequent year(s)

2. HCL Comnet Limited vs. DCIT (Delhi) Members: O.P. Kant (A.M.) and Kuldip Singh (J.M.) ITA No. 1113/Del./2017 A.Y.: 2012-13 Date of order: 4th September, 2020 Counsel for Assessee / Revenue: Ajay Vohra, Aditya Vohra and Arpit
Goyal / S.N. Meena

 

Section
199(3) and Rule 37BA – Credit for TDS allowed in the year of deduction even
when related revenue was booked in subsequent year(s)

 

FACTS


The assessee
was in the business of selling networking equipment and installation and
provision of after-sales services. In respect of after-sales services, the
customers would make payment which covered 
a period of three to four years. The assessee would recognise revenue
from such services on a year-to-year basis. However, the customer would deduct
TDS on the entire amount at the time of payment as per the provisions of the
Act. Relying on the decision of the Visakhapatnam bench of the Tribunal in the
case of Asstt. CIT vs. Peddu Srinivasa Rao (ITA No. 324/Vizag./2009, CO
No. 68/Vizag./2009, dated 3rd March, 2011), the assessee
claimed that it was eligible to claim the entire TDS in the year of deduction
(even when the related revenue was booked in subsequent financial years).
Reliance was also placed on the decision of the Mumbai Tribunal in the case of Toyo Engineering India Limited vs. JCIT (5 SOT 616)
and of the Delhi Tribunal in the case of HCL Comnet Systems and Services
Ltd. vs. DCIT (ITA No. 3221/Del./2017 order dated 31st December,
2019). However, the A.O. rejected the claim of the assessee.

 

HELD


The Tribunal,
following the order passed by the coordinate bench of the Tribunal in the case
of HCL
Comnet Systems and Services Ltd., held that the TDS credit is to be
granted irrespective of the fact that related revenue is booked in subsequent financial years. Accordingly, the assessee’s
claim for credit of the TDS in the year of deduction was allowed.

Section 80IC – Income arising from scrap sales is part of business income eligible for deduction u/s 80IC

1. Isolloyd Engineering Technologies Limited vs. DCIT (Delhi) Members: O.P. Kant (A.M.) and Kuldip Singh (J.M.) ITA No. 3936/Del./2017 A.Y.: 2012-13 Date of order: 4th September, 2020 Counsel for Assessee / Revenue: None / S.N. Meena and M. Barnwal

 

Section 80IC
– Income arising from scrap sales is part of business income eligible for
deduction u/s 80IC

 

FACTS


The assessee
had three manufacturing units. It was entitled to claim deduction u/s 80IC @30%
on the first two units and @100% on the third one. During the year under
appeal, the assessee’s claim for deduction u/s 80IC included the sum of Rs.
52.67 lakhs qua the amount of scrap sales aggregating to Rs. 80.13
lakhs. According to the A.O., the same was not related to manufacturing
activity, hence it was disallowed. On appeal, the CIT(A) restricted the
addition to Rs.7.08 lakhs by allowing the deduction to the extent of Rs. 45.59
lakhs claimed u/s 80IC.

 

HELD


The Tribunal
noted that the scrap consisted of empty drums, off-cuts, trims, coils,
leftovers, packing material, ‘gatta’, scrap rolls, etc., which were generated
in the course of the business. According to it, it was settled principle of law
that scrap generated in the business is part and parcel of the income derived
from the business and as such forms part of the business profit, as held by the
Delhi High Court in the case of CIT vs. Sadu Forgings Ltd. (336 ITR 444).
It further noted that the CIT(A) had duly obtained and analysed unit-wise
details of scrap sold in the year under appeal and found the claim of the
assessee prima facie plausible. However, without giving any reason, the
sum of Rs. 7.08 lakhs was disallowed. According to the Tribunal, the CIT(A) had
erred in disallowing the amount of Rs. 7.08 lakhs out of the total claim of Rs.
52.67 lakhs made u/s 80IC. Accordingly, it allowed the appeal of the assessee.

Section 28: Share of profits paid to co-developer based on oral understanding not disallowable as the recipient had offered it to tax and there was no revenue loss and the transaction was tax-neutral

14. HP Associates vs. ITO (Mumbai) Vikas Awasthy (J.M.) and G. Manjunatha (A.M.) ITA No. 5929/Mum/2018 A.Y.: 2011-12 Date of order: 12th June, 2020 Counsel for Assessee / Revenue: Haridas Bhatt / R. Kavitha

 

Section 28:
Share of profits paid to co-developer based on oral understanding not
disallowable as the recipient had offered it to tax and there was no revenue
loss and the transaction was tax-neutral

 

FACTS

The A.O.
disallowed a sum of Rs. 61,800 being share of profit transferred by the
assessee to Lakshmi Construction Co. The disallowance was made on the ground
that there was no formal written agreement to share profit in an equal ratio.

 

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

 

Aggrieved, the assessee preferred an appeal to the
Tribunal where it was contended that the assessee had jointly developed a
project with Lakshmi Construction Co. for which there was a joint development
agreement. Though there was no formal written agreement between the co-developers
for sharing profits in equal ratio, there was, however, an oral understanding
between the parties that the profits will be shared in equal ratio. The
transfer of share of profits by the assessee has not resulted in any loss of
revenue as the recipient has offered the same to tax and paid taxes thereon.

 

HELD

The Tribunal observed that the contention on
behalf of the assessee that there was no revenue loss has been substantiated by
placing on record the income-tax return of M/s Lakshmi Construction Co. It also
noted that both the firms are assessed at the same marginal rate of tax.
Therefore, the transaction is tax-neutral and no loss is caused to the
Government exchequer. The Tribunal deleted the addition of Rs. 61,800 made by
the A.O. and confirmed by the CIT(A).

Section 35(1)(ii): Deduction claimed by an assessee in respect of donation given by acting upon a valid registration / approval granted to an institution cannot be disallowed if at a later point of time such registration is cancelled with retrospective effect

13. Span Realtors vs. ITO (Mumbai) G. Manjunatha (A.M.) and Ravish Sood (J.M.) ITA No. 6399/Mum/2019 A.Y.: 2014-15 Date of order: 9th June, 2020 Counsel for Assessee / Revenue: Rashmikant Modi and Ketki Rajeshirke
/ V. Vinod Kumar

 

Section
35(1)(ii): Deduction claimed by an assessee in respect of donation given by
acting upon a valid registration / approval granted to an institution cannot be
disallowed if at a later point of time such registration is cancelled with
retrospective effect

 

FACTS

The assessee
firm, engaged in the business of real estate, had made a donation of Rs. 1
crore to a Kolkata-based institution, viz. ‘School of Human Genetics and
Population Health’ (SHG&PH) and claimed deduction of Rs. 1.75 crores u/s
35(1)(ii) @ 175% on Rs. 1 crore. The A.O. called upon the assessee to
substantiate the claim of such deduction. The assessee submitted all the
evidences which were required to substantiate the claim of deduction.

 

However, the A.O. was not persuaded to subscribe
to the genuineness of the aforesaid claim of deduction by the assessee. He
observed that a survey operation conducted u/s 133A of the Act on 27th
January, 2015 in the case of SHG&PH had revealed that the said research
institution had indulged in providing accommodation entries of bogus donations
to the donors through a network of brokers. The A.O. gathered that the
secretary had admitted in her statement that was recorded in the course of
survey proceedings u/s 131(1) of the Act that the said institution,  in lieu of commission, was
providing accommodation entries of bogus donations through a network of market
brokers. Besides, the accountant of SHG&PH, in the course of survey
proceedings, was found to be in possession of a number of messages from brokers
regarding bogus donations and bogus billings. He also observed that as per the
information shared by DDIT (Inv.), Kolkata, the said institution had filed a
petition before the Settlement Commission, Kolkata Bench, wherein it had
admitted that in consideration of service charge they had indulged in providing
accommodation entries of bogus donations.

 

Moreover, the
Ministry of Finance vide a Notification dated 15th September,
2016, had withdrawn its earlier Notification dated 28th January,
2010. Hence, the A.O. disallowed the claim of deduction of Rs. 1.75 crores.

 

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

 

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

 

HELD

The Tribunal observed that as on the date of
giving of donation, SHG&PH was having a valid approval granted under the
Act. Having regard to the language of the Explanation to section 35(1)(ii), the
Tribunal was of the view that it can safely be gathered that a subsequent
withdrawal of such approval cannot form a reason to deny the deduction claimed
by the donor. By way of analogy, the Tribunal observed that the Supreme Court in
the case of CIT vs. Chotatingrai Tea [(2003) 126 Taxman 399 (SC)]
while dealing with section 35CCA of the Act, had concluded that a retrospective
withdrawal of an approval granted by a prescribed authority would not
invalidate the assessee’s claim of deduction. The Tribunal also observed that
on a similar footing the Bombay High Court has in the case of National
Leather Cloth Mfg. Co. vs. Indian Council of Agricultural Research [(2000) 100
Taxman 511 (Bom.)] observed that such retrospective cancellation of
registration will have no effect upon the deduction claimed by the donor since
such donation was given acting upon the registration when it was valid and
operative.

 

The Tribunal
held that if the assessee acting upon a valid registration / approval granted
to an institution had donated the amount for which deduction is claimed, such
deduction cannot be disallowed if at a later point of time such registration is
cancelled with retrospective effect. It also observed that the co-ordinate
Mumbai bench of the Tribunal in Pooja Hardware Pvt. Ltd. vs. ACIT [ITA
No. 3712/Mum/2016 dated 28th October, 2019] has, after
relying on the earlier orders of the co-ordinate benches of the Tribunal on the
issue pertaining to the allowability of deduction u/s 35(1)(ii) of the Act in
respect of a donation given to SHG&PH by the assessee, vacated the
disallowance of the assessee’s claim for deduction u/s 35(1)(ii) of the Act.
The Tribunal observed that the issue is squarely covered by the orders of the
co-ordinate benches of the Tribunal, and therefore it has no justifiable reason
to take a different view. Following the same, the Tribunal set aside the order
of the CIT(A) and vacated the disallowance of the assessee’s claim for
deduction u/s 35(1)(ii) of Rs. 1.75 crores.

 

Section 254: Non-consideration of decision of jurisdictional High Court, though not cited before the Tribunal at the time of hearing of appeal, constitutes a mistake apparent on record

12. Tata Power Company vs. ACIT (Mumbai) Shamim Yahya (A.M.) and Saktijit Dey (J.M.) M.A. No. 596/Mum/2019 arising out of ITA No. 3036/Mum/2009 A.Y.: 2003-04 Date of order: 22nd May, 2020 Counsel for Assessee / Revenue: Nitesh Joshi / Micheal Jerald

 

Section 254:
Non-consideration of decision of jurisdictional High Court, though not cited
before the Tribunal at the time of hearing of appeal, constitutes a mistake
apparent on record

 

FACTS

In ground No.
3 of ITA No. 3036/Mum/2009, the Revenue challenged the decision of the CIT(A)
in deleting the surplus on buyback on Euro Notes issued by the assessee
earlier. It was the claim of the assessee that since Euro Notes were issued by
the assessee for capital expenditure, the income derived as a surplus on
buyback of Euro Notes would be capital receipt and hence not taxable. Although,
the A.O. treated it as the income of the assessee, the CIT(A), relying upon the
decision of the Tribunal in the assessee’s own case for the assessment year
2000-01, allowed the assessee’s claim and deleted the addition.

 

Before the
Tribunal, the assessee, apart from relying upon the decision of the Tribunal in
its own case, also relied upon the decision of the Hon’ble Supreme Court in CIT
vs. Mahindra & Mahindra Ltd. [(2018) 302 CTR 201 (SC)] to contend
that foreign exchange fluctuation gain on buyback of Euro Notes cannot be
treated as income chargeable to tax as Euro Notes were raised for incurring
capital expenditure. The Tribunal restored the issue to the A.O. for fresh
adjudication after applying the ratio laid down in Mahindra &
Mahindra Ltd. (Supra).

 

In the course
of hearing of the Miscellaneous Application, it was submitted that after taking
note of the decisions of the Supreme Court in Mahindra & Mahindra
Ltd. (Supra) and in CIT vs. T.V. Sundaram Iyengar & Sons
[(1996) 222 ITR 344 (SC)], the Jurisdictional High Court has reiterated
the view expressed by the Supreme Court in Mahindra & Mahindra Ltd.
(Supra) and consequently the issue stands settled in favour of the
assessee. Therefore, there is no need for restoring the issue to the A.O.

 

HELD

The Tribunal
observed that the Jurisdictional High Court in Reliance Industries Ltd.
(ITA No. 993 of 2016, dated 15th January, 2019), after
taking note of the decisions of the Supreme Court in Mahindra &
Mahindra Ltd. (Supra) and T.V. Sundaram Iyengar & Sons
(Supra) has upheld the decision of the Tribunal in holding that the
gain derived from buyback of foreign currency bonds issued by the assessee
cannot be treated as revenue receipt.

 

The Tribunal
held that though it may be a fact that the aforesaid decision was not cited
before the Tribunal at the time of hearing of appeal, however, as held by the
Supreme Court in Saurashtra Kutch Stock Exchange Ltd. [(2008) 305 ITR 227
(SC)], non-consideration of a decision of the Supreme Court or the
Jurisdictional High Court, even rendered post disposal of appeal, would
constitute a mistake apparent on the face of record. It held that since the
aforesaid decision of the Hon’ble Jurisdictional High Court will have a crucial
bearing on the disputed issue, non-consideration of the said decision certainly
constitutes a mistake apparent on the face of record as envisaged u/s 254(2) of
the Act.

 

The Tribunal
recalled the order dated 21st May, 2019 passed in ITA No.
3036/Mum/2009 and restored the appeal to its original position.

Section 115JB – Waiver of loan would not assume the character of income and hence, not part of book profit and adjustment in accumulated debit balance of profit & loss account through restructuring account to be disregarded for the purpose of computation of brought-forward losses

11. Windsor Machines Ltd. vs. DCIT (Mumbai) Manoj Kumar Aggarwal (A.M.) and Madhumita Roy (J.M.) ITA Nos. 2709, 2710 and 4697/Mum/2019 A.Ys.: 2013-14 and 2014-15 Date of order: 28th May, 2020 Counsel for Assessee
/ Revenue: Pradip N. Kapasi and Akhilesh Pevekar / Vinay Sinha

 

Section
115JB – Waiver of loan would not assume the character of income and hence, not
part of book profit and adjustment in accumulated debit balance of profit &
loss account through restructuring account to be disregarded for the purpose of
computation of brought-forward losses

 

FACTS

The assessee was
declared a sick company under the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA) and a rehabilitation Scheme was
sanctioned. The Scheme envisaged several reliefs and concessions from various
agencies, including certain tax concessions, viz., exemption from the
provisions of sections 41, 72, 43-B and 115JB for a period of eight years from
the cut-off date (i.e., 31st March, 2009 as per the Scheme).

The
assessee’s net worth turned positive on 31st March, 2011, hence the
BIFR discharged the assessee from the purview of SICA vide its order
dated 16th August, 2011. According to the DIT (Recovery), since the
assessee was discharged by SICA on 16th August, 2011 and its net
worth turned positive by virtue of implementation of the revival Scheme, the
assessee was precluded from relief u/s 115JB in view of Explanation 1(vii) to
section 115JB(2) and, therefore, no relief would be available to it from A.Y.
2011-12 onwards from applicability of the provisions of section 115JB. The
assessee prayed for
reconsideration of the order pleading before the DIT (Recovery) that in terms
of the BIFR Scheme, it was entitled to relief u/s 115JB for a period of eight
years, i.e., up to A.Y. 2017-18.

 

In the meantime, the A.O., referring to the
decision of the DIT (Recovery), held that the assessee would be entitled for
relief u/s 115JB only up to A.Y. 2011-12. Accordingly, he computed book profits
u/s 115JB at Rs. 1,076.27 lakhs which was nothing but profit shown by the
assessee in the financial statements (after excluding exempt dividend income).
The CIT(A), on appeal, upheld the order of the A.O.

 

HELD

According to
the Tribunal, since the assessee was discharged by SICA on 16th
August, 2011 and its net worth turned positive by virtue of implementation of
the revival Scheme, the assessee was precluded from relief u/s 115JB in view of
Explanation 1(vii) to section 115JB(2) and, therefore, no relief would be
available from A.Y. 2011-12 onwards.

 

The Tribunal
also found substance in the contention of the assessee that

(a) the
amount credited to profit & loss account on account of waiver of loan would
not assume the character of income and hence should not form part of book
profits u/s 115JB, and

(b)
adjustment in accumulated debit balance of profit & loss account through
restructuring account should be disregarded for the purpose of computation of
brought-forward losses in terms of Explanation 1(iii) to section 115JB(2),

 

However, the
Tribunal also noted that the issues had not been delved upon either by the A.O.
or by the CIT(A). Therefore, on the facts and circumstances of the case, the
Tribunal remitted the matter back to the file of the CIT(A).

 

 

 

Section 54 – Deduction in full is available to the assessee even when the new house property is purchased in the joint names of the assessee and others

6. 
Subbalakshmi Kurada vs. ACIT (Bangalore) N.V. Vasudevan (V.P.) and B.R. Baskaran
(A.M.) ITA No. 2493/Bang/2019 A.Y.: 2016-17 Date of order: 8th May, 2020 Counsel for Assessee / Revenue: V.
Srinivasan / Rajendra Chandekar

 

Section 54 –
Deduction in full is available to the assessee even when the new house property
is purchased in the joint names of the assessee and others

 

FACTS

The assessee had
sold a residential house property for a sum of Rs. 12.75 crores on 6th
November, 2015. She purchased another residential house property on 17th
February, 2016 for Rs. 11.02 crores.

 

The new house
property was purchased in the joint name of the assessee and her son. The
assessee claimed deduction of Rs. 8.47 crores u/s 54. Since the new residential
house property was purchased in the name of the assessee and her son, the A.O.
restricted the deduction u/s 54 to 50%, i.e., he allowed deduction to the extent
of Rs. 4.23 crores only. The CIT(A) also confirmed the same.

 

Before the
Tribunal, the Revenue supported the order passed by the CIT(A).

 

HELD

The Tribunal
observed that the entire consideration towards the purchase of the new
residential house had flown from the bank account of the assessee. It also
noted that the Karnataka High Court in the case of DIT (Intl.) vs. Mrs.
Jennifer Bhide (15 taxmann.com 82) had held that deduction u/s 54
should not be denied merely because the name of the assessee’s husband was
mentioned in the purchase document, when the entire purchase consideration had
flown from the assessee. Therefore, following the ratio laid down in the
said decision and the decision of the co-ordinate Bench in the case of Shri
Bhatkal Ramarao Prakash vs. ITO (ITA No. 2692/Bang/2018 dated 4th
January, 2019), the Tribunal held that the assessee was entitled to
full deduction of Rs. 8.47 crores u/s 54.

 

Sections 10(37) and 56(2)(viii) – Interest received u/s 28 of the Land Acquisition Act, 1894 treated as enhanced consideration not liable to tax

5.  Surender vs. Income-tax Officer (New Delhi) Sushma Chowla
(V.P.) and Dr. B.R.R. Kumar (A.M.) ITA No.
7589/Del/2018 A.Y.:
2013-14 Date of
order: 27th April, 2020 Counsel
for Assessee / Revenue: Sudhir Yadav / N.K. Choudhary

 

Sections 10(37) and 56(2)(viii) – Interest
received u/s 28 of the Land Acquisition Act, 1894 treated as enhanced
consideration not liable to tax

 

FACTS

The agricultural
land of the assessee was acquired by Haryana State Industrial and
Infrastructure Development Corporation Ltd. (‘HSIIDC’) u/s 4 of the Land
Acquisition Act, 1894 (‘the Acquisition Act’). The HSIIDC had not paid the
compensation at the prevailing market rate, therefore the assessee filed an
appeal before the High Court for increase in compensation. The Court enhanced
the compensation which included Rs. 1.84 crores in interest u/s 28 of the
Acquisition Act. The assessee claimed that the amount so received was enhanced
consideration, hence exempt u/s 10(37). However, according to the A.O. as well
as the CIT(A), the amount so received could not partake the character of
compensation for acquisition of agricultural land. Hence, both held that the
sum so received was interest taxable u/s 56(2)(viii).

The question before
the Tribunal was whether the amount received can be treated as enhanced
consideration u/s 28 of the Acquisition Act and hence exempt u/s 10(37) as
claimed by the assessee, or u/s 34 of the Acquisition Act and hence taxable u/s
56(2)(viii) as held by the CIT(A).

 

HELD

The Tribunal
referred to the decision of the Supreme Court in Commissioner of
Income-tax, Faridabad vs. Ghanshyam (HUF) (Civil Appeal No. 4401 of 2009
decided on 16th July, 2009). As per that decision, section
28 of the Acquisition Act empowers the Court in its discretion to award
interest on the excess amount of compensation over and above what is awarded by
the Collector. It depends upon the claim by the assessee, unlike interest u/s
34 which depends upon and is to be paid for undue delay in making the award /
payment. The Apex Court in the said decision further observed that interest
awarded could either be in the nature of an accretion in the value of the lands
acquired, or interest for undue delay in payment. According to the Court,
interest u/s 28 of the Acquisition Act is an accretion to the value of the land
and thus it forms part of the enhanced compensation or consideration. On the
other hand, interest awarded u/s 34 of the Acquisition Act is interest paid for
a delay in payment of compensation.

 

Therefore, relying
on the decision of the Apex Court referred to above, the Tribunal held that
since the compensation payable to the assessee was increased u/s 28 of the
Acquisition Act as per the order of the High Court, the amount received by the
assessee was exempt u/s 10(37).

 

Section 56(2)(viib) – When there was no case of unaccounted money being brought in the garb of share premium, the provisions not attracted

11. Clearview Healthcare Pvt. Ltd. vs. ITO
(Delhi) Member: H.S. Sidhu (J.M.) ITA No. 2222/Del/2019 A.Y.: 2014-15 Date of order: 3rd January, 2020 Counsel for Assessee / Revenue: Kapil Goel /
Pradeep Singh Gautam

 

Section 56(2)(viib) – When there was no
case of unaccounted money being brought in the garb of share premium, the
provisions not attracted

 

FACTS

The issue before the Tribunal was about taxability or otherwise of share
premium received on shares issued by the assessee company u/s 56(2)(viib). The
assessee was incorporated on 29th January, 2010. During the year
under appeal, the company had issued shares at premium. According to the AO,
the difference between the share premium received and the share valuation
determined under Rule 11UA amounting to Rs. 9.20 lakhs was the income of the
assessee as per the provisions of section 56(2)(viib). On appeal, the CIT(A)
confirmed the AO’s order.

 

Before the Tribunal, the assessee referred to the Explanatory Memorandum
to the Finance Act, 2012 and contended that the legislative intent was to apply
the said provisions only where, in the garb of share premium, money was
received which was not clean and was unaccounted. According to the assessee,
the lower authorities have applied the provisions of section 56(2)(viib)
without any finding that the money was not clean money. It was also pointed out
that in the subsequent year, on 1st December, 2014, the company’s
shares were sold by one of its shareholders to a non-resident at a price which
was higher than the price at which the shares were issued by the company. And
the said price was accepted by the tax authorities in the shareholder’s tax
assessment.

HELD

The Tribunal agreed with the assessee that the provisions of section
56(2)(viib) would apply only when money received was not clean and was
unaccounted money, received in the garb of share premium as mentioned in the
Explanatory Memorandum to the Finance Act, 2012.

 

According to the
Tribunal, a subsequent transaction with a foreign buyer which was at a higher
amount and on the basis of detailed due diligence, also justified that the
share premium received by the assessee was not excessive and was fair.

 

Keeping in view the facts and circumstances of the case and by applying
the principles from the decision of the Chennai Tribunal in the case of Lalithaa
Jewellery Mart Pvt. Ltd. (ITA Nos. 663, 664 and 665/Chennai/2019
decided on 14th June, 2019) and legislative intent behind
the insertion of section 56(2)(viib), the Tribunal held that the addition made
by the AO on account of alleged excess share premium was unjustified when those
very shares were sold in the next financial year at a much higher amount after
proper due diligence to a non-resident buyer; and further there was no case of
unaccounted money being brought in in the garb of the stated share premium,
hence the addition made u/s 56(2)(vii) was deleted.

Proviso to section 2(15) r/w/s 11 and 12 – As part of running an educational institution and imparting training to the students, the assessee had undertaken research projects for the industry and earned consultancy fees from them – Since the dominant object was to impart education, the proviso to section 2(15) does not apply

10. Institute of Chemical Technology vs. ITO
(Mum.) Members: Saktijit Dey (J.M.) and Rifaur Rahman
(A.M.) I.T.A. Nos. 6111 and 6922/Mum/2016 A.Ys: 2011-12 and 2012-13 Date of order: 15th January, 2020 Counsel for Revenue / Assessee: Nishant Thakkar
and Jasmine Amalsadwala / Kumar Padmapani Bora

 

Proviso to
section 2(15) r/w/s 11 and 12 – As part of running an educational institution
and imparting training to the students, the assessee had undertaken research
projects for the industry and earned consultancy fees from them – Since the
dominant object was to impart education, the proviso to section 2(15)
does not apply

 

FACTS

The assessee was
established as the Department of Chemical Technology by the University of
Bombay on 1st October, 1933. With the passage of time, the assessee
was granted autonomy and subsequently got converted into an independent
institution in January, 2002. In September, 2008 the assessee was granted
deemed university status. When the assessee was a part of Mumbai (earlier
Bombay) University, the income earned by it formed part of the income of Mumbai
University and was exempt u/s 10(23C). For the impugned assessment years, the
assessee in its return of income declared nil income after claiming exemption
u/s 11.

 

During the year
under consideration the assessee had received consultancy fees. Applying the
provisions of section 2(15) read with 
sections 11 and 12, the AO disallowed its claim of exemption with regard
to the consultancy fee received. The assessee’s claim of exemption u/s 11 in
respect of other income was allowed by the AO.

 

The assessee explained that as a part of the curriculum and with a view that the students / fellows of the Institution gain
actual working experience, the assessee had undertaken research projects for
the industry and earned consultancy fees from the industry clients. Out of the
fees received, only 1/3rd amount was retained by the assessee and
the balance amount was paid to the faculty who undertook the research projects.
The amount retained by the assessee was mainly to cover the cost of
infrastructure / laboratory facilities provided for undertaking the research
and administrative expenditure. Thus, it was submitted, the activities undertaken
by the assessee were not in the nature of business but only for research and
training purposes and therefore were part of its main activity of imparting
education on the latest technical developments in the field of chemical
technology. However, the AO didn’t agree with the explanation offered by the
assessee.

 

Relying on the
decision of the Tribunal in the assessee’s own case for the assessment year
2010-11, the Commissioner (Appeals) upheld the disallowance / addition made by
the AO.

 

Before the Tribunal,
the assessee submitted that in respect of the aforesaid decision of the
Tribunal relied on by the CIT(A), the Tribunal had no occasion to consider the
assessee’s argument that the proviso to section 2(15) was not
applicable. According to the assessee, the proviso to section 2(15)
would be applicable only when the activity was for ‘advancement of any other
object of general public utility’. The assessee contended that the
consultancy service provided was part of its educational activity, therefore ancillary
and incidental to its main object of providing education. Therefore, even
though the assessee had received consultancy fee, the same was received in
furtherance of its object of educational activity, hence it cannot be treated
as an activity in the nature of trade, commerce or business and thereby treat
the same as for a non-charitable purpose.

 

HELD

The Tribunal agreed
with the assessee that applicability or otherwise of the proviso to
section 2(15) in the case of the assessee was not examined or dealt with by the
Tribunal in A.Y. 2010–11. According to it, the contention of the assessee
regarding applicability of the proviso to section 2(15) does require
examination keeping in view the decision of the Bombay High Court in DIT(E.)
vs. Lala Lajpatrai [2016] 383 ITR 345, wherein the Court held that the
test to determine as to what would be a charitable purpose within the meaning
of section 2(15) was to ascertain what was the dominant object / activity.
According to the Court, if the dominant object was the activity of providing
education, it will be charitable purpose under section 2(15) even though some
profit arose from such activity. Since the aforesaid claim of the assessee was
not examined by the Departmental authorities, the Tribunal restored the matter
to the file of the AO for re-examination and directed him to adjudicate the
issue keeping in view the additional evidence filed by the assessee and the
decisions cited before him.

 

Note: Before the Tribunal, the assessee had also alternatively claimed
exemption under sections 10(23C)(iiiab) and / or 10(23C)(vi) and furnished
additional evidence. The Tribunal directed the AO to also consider the same.

Section 10AA – Profit of eligible unit u/s 10AA should be allowed without set-off of loss of other units

2.      
Genesys
International Corporation Limited vs. DCIT –-Mum.

Members: G. Manjunatha (A.M.) and Ravish Sood (J.M.)

ITA No. 7574/Mum/2019

A.Y.: 2011-12

Date of order: 4th March, 2020

Counsel for Assessee / Revenue:
V. Chandrasekhar & Harshad Shah / V. Vinod Kumar

 

Section 10AA – Profit of eligible unit u/s 10AA should be
allowed without set-off of loss of other units

 

FACTS

The assessee had filed its
return of income declaring total loss at Rs. 3.20 crores. The assessment was
completed u/s 143(3) determining the total loss at Rs. 1.68 crores. The case
was subsequently reopened u/s 147 and the assessment was completed u/s 143(3)
r.w.s. 147 determining the total income at Nil
after set-off of loss from business against profit of eligible unit
u/s 10AA.

 

Before the CIT(A) the assessee, relying on the decision of
the Supreme Court in the case of CIT vs. Yokogawa India Ltd. (2017) 77
taxmann.com 41, contended that the profit of the eligible unit u/s 10AA
should be allowed without set-off of loss of other units. The CIT(A) rejected
the arguments of the assessee on the ground that the findings of the Supreme
Court were based on the computation of deduction provided u/s 10A, not on
computation of deduction provided u/s 10AA.

 

Revenue submitted before the Tribunal that the CIT(A) had
clearly distinguished the decision of the Supreme Court and, hence, the
findings of the Supreme Court are not applicable.

 

HELD

Referring to the decisions
of the Supreme Court in the case of CIT vs. Yokogawa India Ltd. and
of the Bombay High Court in the case of Black & Veatch Consulting
Pvt. Ltd. (348 ITR 72), the Tribunal held that the sum and substance of
the ratio laid down by the Supreme Court and the Bombay High Court is
that the profit of eligible units claiming deduction u/s 10A / 10AA, shall be
allowed without setting off of losses of other units. Therefore, it was held
that the lower authorities erred in set-off of loss of business from the profit
of eligible units claiming deduction u/s 10AA before allowing deduction
provided u/s 10AA. Accordingly, the appeal filed by the assessee was allowed.

Section 54 / 54F – Exemption not denied when the property was purchased in the name of the spouse instead of the assessee Two conflicting High Court decisions – In case of transfer of case between two jurisdictions, the date of filing of appeal is the material point of time which determines jurisdictional High Court

1.       Ramphal
Hooda vs. Income Tax Officer (Delhi)

Members: Bhavnesh Saini
(J.M.) and
Dr. B.R.R. Kumar (A.M.)

ITA No. 8478/Del/2019

A.Y.: 2014-15

Date of order: 2nd
March, 2020

Counsel for Assessee /
Revenue: Ved Jain & Umung Luthra / Sanjay Tripathi

 

Section 54 / 54F – Exemption not denied when the property
was purchased in the name of the spouse instead of the assessee

Two conflicting High Court decisions – In case of transfer
of case between two jurisdictions, the date of filing of appeal is the material
point of time which determines jurisdictional High Court

 

FACTS

During the year the assessee had earned long-term capital
gain of Rs. 1.42 crores on the sale of property. This gain had been invested in
purchasing another property for Rs. 1.57 crores in the name of his wife. The
assessee claimed exemption of long-term capital gains u/s 54 / 54F. Relying on
the judgment of the jurisdictional High Court, i.e., the Punjab and Haryana
High Court, in the case of CIT Faridabad vs. Dinesh Verma (ITA No. 381 of
2014 dated 6th July, 2015) wherein it was held that ‘the
assessee is not entitled to the benefit conferred u/s 54B if the subsequent
property is purchased by a person other than the assessee…’ the A.O. had
denied the exemption.

 

It was submitted before the CIT(A) that the case of the
assessee is covered by the judgment of the Delhi High Court in the case of CIT
vs. Kamal Wahal (351 ITR 4) wherein, on identical facts, the issue had
been decided in favour of the assessee. The CIT(A), however, noted that the
assessee had filed the return with the ITO, Rohtak and the assessment was also
framed at Rohtak. Therefore, the judgment of the Punjab and Haryana High Court
was binding on the assessee and the A.O. Accordingly, the appeal of the
assessee was dismissed.

 

The assessee submitted before the Tribunal that his PAN was
transferred from Rohtak to Delhi because he was residing in Delhi. The case of
the assessee had also been transferred to Delhi, therefore the jurisdictional
High Court should be the Delhi High Court. He relied upon the judgment of the Delhi
High Court in the case of CIT vs. AAR BEE Industries [2013] 357 ITI 542
wherein it was held that ‘It is the date on which the appeal is filed which
would be the material point of time for considering as to in which court the
appeal is to be filed’. He further pointed out that the appeal of the
assessee had been decided by the CIT(A)-28, New Delhi and the address of the
assessee was also in Delhi. Therefore, it was submitted that the Delhi High
Court is the jurisdictional High Court and its decisions are binding on the
CIT(A).

 

HELD

The Tribunal noted that the jurisdiction and PAN
of the assessee had been transferred to Delhi and the appeal was also decided
by the CIT(A), New Delhi. Therefore, the Tribunal accepted the submission of
the assessee and held that the CIT(A) was bound to follow the judgments of the
Delhi High Court. Accordingly, relying on the judgments of the Delhi High Court
in the cases of CIT-XII vs. Shri Kamal Wahal (Supra) and of CIT
vs. Ravinder Kumar Arora [2012] 342 ITR 38, the Tribunal allowed the
appeal of the assessee.

Section 56(2)(vii)(b) dealing with receipt of immovable property for inadequate consideration will not apply to a case where the agreement for purchase was made before amendment of this section, substantial obligations discharged and rights accrued in favour of assessee but merely registration was on or after amendment of said section Interest under sections 234A and 234B is chargeable with reference to the returned income and not the assessed income

12. Bajrang Lal Naredi vs. ITO (Ranchi) Pradip Kumar Kedia (A.M.) and Madhumita Roy
(J.M.) ITA No. 327/Ran/2018 A.Y.: 2014-15 Date of order: 20th January, 2020

Counsel for Assessee / Revenue: Anand Pasari
with Nitin Pasari / Nisha Singhmarr

 

Section
56(2)(vii)(b) dealing with receipt of immovable property for inadequate
consideration will not apply to a case where the agreement for purchase was
made before amendment of this section, substantial obligations discharged and
rights accrued in favour of assessee but merely registration was on or after
amendment of said section

 

Interest under sections 234A and 234B is
chargeable with reference to the returned income and not the assessed income

 

FACTS I

The assessee, in the year under consideration, registered in his name an
immovable property on 17th June, 2013 against the actual purchase of
property done on 15th April, 2011 in financial year 2011-12. The
purchase consideration was determined at Rs. 9,10,000 at the time of agreement
for purchase in financial year 2011-12; accordingly, the payment was made at
the time of such agreement to the vendor. The registration was, however,
carried out at a belated stage on 17th June, 2013 on which date the
stamp duty valuation stood at a higher figure of Rs. 22,60,000. The A.O.
noticed the alleged under-valuation in the purchase price of the property qua
stamp duty valuation and applied provisions of section 56(2)(vii)(b) of the Act
and worked out the adjusted purchase consideration of Rs. 18,89,350. The A.O.,
accordingly, treated the difference of Rs. 9,79,350 as ‘deemed income’ having
regard to the provisions of section 56(2)(vii)(b) of the Act as amended by the
Finance Act, 2013 and applicable from assessment year 2014-15 onwards.

 

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

 

HELD I

The Tribunal noted
that it is the applicability of section 56(2)(vii)(b) of the Act as amended by
the Finance Act, 2013 and applicable to A.Y. 2014-15 which is in question. The
Tribunal observed that as per the pre-amended provisions of section
56(2)(vii)(b) of the Act, where an individual or HUF receives from any person
any immovable property without consideration, the provisions of amended section
56(2)(vii)(b) of the Act would apply. This position was, however, amended by
the Finance Act, 2013 and made applicable to A.Y. 2014-15 onwards. As per the
amended provisions, the scope of the substituted provision was expanded to
cover the purchase of immovable property for inadequate consideration as well.

 

It observed that there is no dispute that purchase transactions of
immovable property were carried out in financial year 2011-12 for which full
consideration was also parted with the seller. Mere registration at later date
would not cover a transaction already executed in the earlier years and
substantial obligations already been discharged and a substantive right accrued
to the assessee therefrom. The Tribunal held that pre-amended provisions will,
thus, apply and therefore the Revenue is debarred to cover the transactions
where inadequacy in purchase consideration is alleged. The Tribunal deleted the
addition made by the A.O. and confirmed by the CIT(A).

 

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

 

FACTS II

The second issue in
the appeal filed by the assessee was raised by filing an additional ground. The
issue for consideration of the Tribunal was whether interest u/s 234B of the
Act is chargeable on assessed income qua return income.

 

HELD II

The Tribunal noted that an identical issue had come up before the coordinate
bench of the ITAT in ITO vs. M/s Anand Vihar Construction Pvt. Ltd. ITA
No. 335/Ran/2017 order dated 28th November, 2018. Having
noted the ratio of the decision of the coordinate bench of the Tribunal,
it held that interest under sections 234A and 234B of the Act is chargeable
with reference to returned income only.

 

 

Section 199/205 – Assessee cannot be made to suffer because of non-deposit of tax deducted with the government by the deductor – Under section 205, the assessee / deductee cannot be called upon to pay the tax – Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether or not the same has been deposited by the deductor to the credit of the Central government

4. Aricent
Technologies Holdings Ltd. vs. Addl. CIT (Delhi)

Sushma
Chawla (J.M.) and Dr. B.R.R. Kumar (A.M.)

ITA. No.
5708/Del/2019

A.Y.:
2015-16

Date of
order: 23rd December, 2019

Counsel
for Assessee / Revenue: Ajay Vohra, Neeraj Jain and Anshul Sachar / Sanjay I.
Bara

 

Section 199/205 – Assessee cannot be
made to suffer because of non-deposit of tax deducted with the government by
the deductor – Under section 205, the assessee / deductee cannot be called upon
to pay the tax – Credit for the tax deducted at source has to be allowed in the
hands of the deductee irrespective of whether or not the same has been
deposited by the deductor to the credit of the Central government

 

FACTS

The assessee in its
return of income had claimed credit to the extent of Rs. 18,79,68,945. The
A.O., upon completion of the assessment u/s 144 r.w.s. 143(3), allowed the
credit of TDS of Rs. 16,57,18,029. Thus, credit for TDS was short-granted to
the extent of Rs. 2,22,50,916.

 

The assessee had, along with the
return of income, furnished complete details including the names of the
parties, the amount paid by them and the tax deducted at source in respect of
the TDS of Rs. 18.79 crores.

 

HELD

The Tribunal observed that the issue
which has arisen in the present ground of appeal is against the short credit of
tax deducted at source. It noted that the assessee had furnished the party-wise
details of the amounts aggregating to Rs. 18.79 crores deducted out of payments
due to the assessee, which are also furnished as part of the Paper Book.

 

It also noted that the grievance of
the assessee is two-fold. First of all, it was pointed out that in case
subsequent to the processing of the assessment order, if changes are made in
the Form No. 26AS by the parties who had deducted tax at source out of the
payment made to the assessee, then the credit of the same should be allowed to
the assessee. The Tribunal held that it found merit in the plea of the assessee
though the AR for the assessee has not filed any evidence in this regard. But
in case necessary evidence is available, then it is the duty of the A.O. to
allow the claim as per Revised Form No. 26AS.

 

As regards the next stand of the
assessee, that in case the deductor deducts tax at source, i.e. withholds tax
out of payments due / paid to the assessee but does not deposit the tax
withheld by it, then why should the assessee suffer? The Tribunal held that

(i) Under
section 199(1) it is provided that if tax has been deducted at source in
accordance with the provisions of Chapter XVII and paid to the Central
government, the same shall be treated as payment of tax on behalf of the person
from whose income the deduction was made; and

(ii) Under
section 205 it is further provided that where the tax has been deducted at
source by the deductor out of the payments due to the deductee, then such
deductee cannot be held liable for payment of such tax which was deducted at
source by the deductor.

 

Once tax has been deducted then the
deductor is liable to deposit the same into the credit of the Central
government. Such amount which is withheld by the deductor out of the amount due
to the deductee, i.e., the person to whom the payments are made, then the said
deduction shall be treated as payment of tax on behalf of the person from whom
such deduction was made as per the provisions of section 199(1).

 

It also observed that there are
provisions under the Act dealing with the recovery of tax at source from the
person who has withheld the same. In terms of section 205 of the Act, the
assessee / deductee cannot be called upon to pay tax to the extent to which tax
had been deducted from the payments due.

 

Consequently, it follows that credit
for such tax deducted at source, which is deducted from the account of the
deductee by the deductor, is to be allowed as taxes paid in the hands of the
deductee irrespective of the fact whether or not the same has been deposited by
the deductor to the credit of the Central government.

 

The
deductee in such circumstances cannot be denied credit of tax deducted at
source on its behalf. It held that where the assessee is able to furnish the
necessary details with regard to tax deduction at source out of the amounts due
to it, then the action which follows is allowing the credit of such tax
deducted at source to the account of the deductee.

 

In
case where the deductor deposits the tax deducted at source to the credit of
the Central government and the deduction reflects in Form No. 26AS, may be on a
later date, then it is incumbent upon the assessee to produce the necessary
evidence in this regard and it is also the duty of the A.O. to allow such
credit of tax deducted at source as taxes paid in the hands of the deductee
assessee.

 

It observed that its view is
supported by the ratio laid down by the Bombay High Court in Yashpal
Sahani vs. Rekha Hajarnavis, Assistant Commissioner of Income-tax [(2007) 165
taxman 144 (Bom.)] and the Gujarat High Court in the case of Sumit
Devendra Rajani vs. Assistant Commissioner of Income-tax [(2014) 49 taxmann.com
31 (Gujarat)].

 

Applying the same parity of reasoning
in the decision of the Bombay High Court in Pushkar Prabhat Chandra Jain
vs. Union of India [(2019) 103 taxmann.com 106 (Bombay)], the Tribunal
directed the A.O. to allow the credit of tax deducted at source in the hands of
the assessee where the assessee produces the primary evidence of the same being
deducted tax at source out of the amount due to it.

 

This ground of appeal filed by the assessee was allowed.

Section 271(1)(c) – Disallowance u/s 43B in respect of service tax, not debited to P&L, does not attract penalty u/s 271(1)(c)

10. C.S.
Datamation Research Services Pvt. Ltd. vs. ITO (Delhi) R.K. Panda (A.M.) and Amit Shukla (J.M.) ITA No. 3915/Delhi/2016 A.Y.: 2011-12 Date of order: 15th June, 2020

Counsel
for Assessee / Revenue: Salil Kapoor / Jagdish Singh

 

Section 271(1)(c) – Disallowance u/s 43B in
respect of service tax, not debited to P&L, does not attract penalty u/s
271(1)(c)

 

FACTS

The assessee
company, engaged in the business of manpower supply and operational support,
filed its return of income on 24th March, 2012 declaring an income
of Rs. 33,89,810. On being asked by the A.O. to furnish complete details of
‘other liabilities’ of Rs. 4,61,10,276 under the head Current Liabilities, the
assessee filed a revised computation of income wherein it included an amount of
Rs. 1,45,61,540 being amount disallowable u/s 43B of the IT Act due to
non-payment of service tax. The A.O. noted from the tax audit report that there
is clear mention of this amount as having not been paid within the stipulated
time period and disallowable u/s 43B. Since the tax audit report was not
furnished along with the return of income, the A.O. held that it was a
deliberate attempt on the part of the assessee to suppress the amount. The A.O.
thereafter completed the assessment at a total income of Rs. 1,79,51,350
wherein he made an addition of Rs. 1,45,61,540 being the amount of service tax
disallowable u/s 43B.

 

The assessee
did not prefer any appeal against this order. Subsequently, the A.O. initiated
penalty proceedings u/s 271(1)(c). Rejecting various explanations given by the
assessee and observing that the assessee has concealed its particulars of
income and furnished inaccurate particulars, the A.O. levied penalty of Rs.
48,36,979 being 100% of the tax sought to be evaded u/s 271(1)(c).

 

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

 

Still
aggrieved, the assessee preferred an appeal to the Tribunal where it contended
that the notice was bad in law since the A.O. had not struck off the
inappropriate words and also that, on merits, the penalty is not leviable.

 

HELD

The Tribunal
held that the levy of penalty u/s 271(1)(c) is not valid in law in view of
non-striking off of the inappropriate words in the penalty notice.

 

On merits,
the Tribunal noted that the Hon’ble Delhi High Court in the case of Noble
& Hewitt (I) (P) Ltd. (305 ITR 324) has held that where the
assessee did not debit the amount to the P&L account as an expenditure nor
did the assessee claim any deduction in respect of the amount where the
assessee was following mercantile system of accounting, the question of
disallowing the deduction not claimed would not arise.

 

The CIT(A) in
the assessee’s own case for A.Y. 2012-13, deleted the addition of unpaid
service tax amounting to Rs. 94,68,278 which was added back by the assessee in
its revised computation of income, and Revenue had not preferred any appeal
against the order of the CIT(A) deleting the addition made by the A.O. on
account of the unpaid service tax liability, although the assessee in its
revised computation of income had added the same u/s 43B. Therefore, the issue
as to addition u/s 43B on account of non-payment of service tax liability when
the same has not been debited in the P&L account nor claimed as an expenditure,
has become a debatable issue. It has been held in various decisions that
penalty u/s 271(1)(c) is not leviable on account of additions which are
debatable issues.

 

The Tribunal
held that even on merits penalty u/s 271(1)(c) is not leviable

 

The appeal filed by the assessee was allowed.

Section 148 – Assessment completed pursuant to a notice u/s 148 of the Act issued mechanically without application of mind is void and bad in law

9. Omvir Singh vs. ITO (Delhi) N.K.
Billaiya (A.M.) and Ms Suchitra Kamble (J.M.) ITA No. 7347/Delhi/2018 A.Y.: 2009-10 Date of order: 11th June, 2020

Counsel
for Assessee / Revenue: Rohit Tiwari / R.K. Gupta

 

Section 148 – Assessment completed pursuant
to a notice u/s 148 of the Act issued mechanically without application of mind
is void and bad in law

 

FACTS

The A.O., based on AIR information that the
assessee has deposited a sum of Rs. 19.19 lakhs in his savings bank account
maintained with Bank of India, Mehroli, Ghaziabad, issued a notice u/s 148 of
the Act along with other statutory notices. No one attended the assessment
proceedings and no return was filed in response to the notice u/s 148. The A.O.
proceeded to complete the assessment ex parte. Cash deposit of Rs.
19,19,333 was treated as unexplained and added to the returned income of the
assessee.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A) and questioned the validity of
the notice u/s 148, and furnished some additional evidence invoking Rule 46A of
the I.T. Rules. The CIT(A) did not admit the additional evidence and confirmed
the addition made by the A.O.

Aggrieved,
the assessee preferred an appeal to the Tribunal raising two-fold grievances,
viz. the issuance of notice u/s 148 is not as per the provisions of law and the
addition of Rs. 19,19,333 made by the A.O. in respect of cash found to be
deposited in the savings bank account is incorrect.

 

HELD

The Tribunal
noted that the undisputed fact is that in the proforma for recording reasons
for initiating proceedings u/s 148, under Item No. 8A the question is ‘Whether
any voluntary return had been filed’ and the answer is mentioned as ‘No’.
Whereas Exhibit Nos. 6 and 7 show that the return of income was filed with Ward
2(1), Ghaziabad on 30th March. 2010 and the notice u/s 148 is dated
3rd February, 2016.

 

This clearly
shows that the A.O. issued the notice mechanically without applying his mind.
Such action by the A.O. did not find any favour with the Hon’ble High Court of
Delhi in the case of RMG Polyvinyl [I] Ltd. (396 ITR 5).

 

The Tribunal,
having noted that the facts of the instant case were identical to the facts of
the case before the Delhi High Court in RMG Polyvinyl (I) Ltd. (Supra)
followed the said decision and held that the A.O. wrongly assumed jurisdiction,
and accordingly it quashed the notice u/s 148 of the Act, thereby quashing the
assessment order.

 

The appeal
filed by the assessee was allowed.

 

Notional interest on security deposit received from lessee is not taxable even during the period when the property was sold, but the deposit continued with the lessee as the lease agreement had lock-in clause Only the incomes which fall under the deemed provisions which have been explicitly mentioned in the Act can be brought to tax under the deeming provisions but not any other notional or hypothetical income not envisaged by the Act

8. Harvansh
Chawla vs. ACIT (Delhi) Sushma Chowla (V.P.) and Dr. B.R.R. Kumar (A.M.) ITA No.
300/Delhi/2020 A.Y.: 2017-18 Date of
order: 3rd June, 2020

Counsel for Assessee / Revenue: Rohit Tiwari / Anupam Kant Garg

 

Notional interest on security deposit received
from lessee is not taxable even during the period when the property was sold,
but the deposit continued with the lessee as the lease agreement had lock-in
clause

 

Only the
incomes which fall under the deemed provisions which have been explicitly
mentioned in the Act can be brought to tax under the deeming provisions but not
any other notional or hypothetical income not envisaged by the Act

 

FACTS

The assessee
owned a property in DLF, Phase-II, Gurgaon against which he received a security
deposit of Rs. 5,29,55,200 for leasing the same. During the year, no rent was
offered to tax and on inquiry it was found that the said property had been sold
for Rs. 2.75 crores in the year 2013-14, hence no income from rentals was
offered. However, the assessee continued to hold the security deposit of Rs.
5.29 crores as the lease agreement had a lock-in period.

 

The A.O.
charged to tax a sum of Rs. 63,54,632 under the head ‘Income from Other
Sources’ being the amount deemed to have been derived from such security
deposit.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A) who confirmed the action of the
A.O. on the ground that the assessee is benefited by way of having the deposit
still lying with him.

 

The assessee
then preferred an appeal to the Tribunal.

 

HELD

The Tribunal
observed that –

(i)   the issue before it is whether notional
interest is taxable as per the provisions of the Act or not;

(ii)  the issue as to how to treat the security
deposit after the completion of the lock-in period is not the issue
before it;

(iii) the A.O. has not brought forth anything about
earning of interest by the assessee which has not been offered to tax;

(iv) the addition was on the sole premise that the
assessee having the security deposit must have earned the interest.

 

The Tribunal
held that in order to tax any amount, the Revenue has to prove that the amount
has indeed been earned by the assessee. Only the incomes which fall under the
deemed provisions which have been explicitly mentioned in the Act can be
brought to tax under the deeming provision but not any other notional or
hypothetical income not envisaged by the Act. The Tribunal directed that the
addition made by the A.O. on account of notional income on the security deposit
cannot be held to be legally valid.

 

Section 153C – Assessment u/s 153C which has been initiated without issuance of notice u/s 153C is bad in law

7. Krez Hotel
& Reality Ltd. (formerly Jaykaydee Industries Ltd.) vs. JCIT (Mumbai) Shamim Yahya
(A.M.) ITA No.
2588/Mum/2018 A.Y.: 2008-09 Date of
order: 16th June, 2020

Counsel for Assessee / Revenue: Mani Jani & Prateek Jain /
Chaitanya Anjaria

 

Section 153C
– Assessment u/s 153C which has been initiated without issuance of notice u/s
153C is bad in law

 

FACTS

In this case,
the assessee preferred an appeal against the order dated 30th
October, 2014 passed by the CIT(A). Although various grounds were taken in
appeal, one of the grounds pressed was that the A.O. did not have valid
jurisdiction to make the assessment.

 

Before the
CIT(A) also, the assessee raised an additional ground contending that the
assessment was bad in law since, for the impugned assessment year, the
proceedings were not initiated by issue of notice u/s 153C of the Act.

 

The CIT(A)
rejected the assessee’s claim referring to the decision of the Indore Bench of
the Tribunal in the case of .

 

Aggrieved,
the assessee preferred an appeal to the Tribunal contending that the issue is
squarely covered by the decision of the Delhi High Court mentioned in the
decision of the ITAT Delhi Bench in ITA No. 504/Del/2015 vide
order dated 27th June, 2018.

 

HELD

The Tribunal,
after noting the ratio of the decision of the Delhi High Court (Supra)
held that in a case where the assessment is to be framed u/s 153C of
the Act, the proceedings should be initiated by first issuing such a notice.
The issue of such notice is mandatory and a condition precedent for taking
action against the assessee u/s 153C. The assessment order passed without
issuance of notice u/s 153C was held by the Court to be void, illegal and bad
in law.

 

The Tribunal
examined the present case on the touchstone of the ratio of the decision
of the Delhi High Court and found that the A.O. had not issued notice u/s 153C.
This, the Tribunal held, is fatal. Following the above-stated precedent, the
Tribunal set aside the order of the authorities below and held that the
assessment was devoid of jurisdiction.

 

This ground
of appeal filed by the assessee was allowed.

Sections 2(47), 45 – A cancellation of shares consequent to reduction of capital constitutes a ‘transfer’ – Loss arising from the cancellation of shares is entitled to indexation and is allowable as a long-term capital loss – The fact that the percentage of shareholding remains unchanged even after the reduction is irrelevant

3. Carestream Health Inc. vs. DCIT (Mumbai)

M. Balaganesh (A.M.) and Amarjit Singh (J.M.)

ITA No.: 826/Mum/2016

A.Y.: 2011-12

Date of order: 6th February, 2020

Counsel for Assessee / Revenue: Nitesh Joshi / Padmapani Bora

 

Sections 2(47), 45 – A cancellation of shares consequent to
reduction of capital constitutes a ‘transfer’ – Loss arising from the
cancellation of shares is entitled to indexation and is allowable as a
long-term capital loss – The fact that the percentage of shareholding remains
unchanged even after the reduction is irrelevant

 

FACT

The assessee was a company
incorporated in and a tax resident of the United States of America. It made
investments to the extent of 6,47,69,142 equity shares of the face value of Rs.
10 each in Carestream Health India Private Limited (CHIPL), its wholly-owned
Indian subsidiary. During the previous year relevant to the assessment year
under consideration, viz. A.Y. 2011-12, CHIPL undertook a capital reduction of
its share capital pursuant to a scheme approved by the Bombay High Court. Under
the capital reduction scheme, 2,91,33,280 shares (out of the total holding of
6,47,69,142 shares) held by the assessee were cancelled and a total
consideration amounting to Rs. 39,99,99,934 was received by the assessee towards
such cancellation / capital reduction. This consideration sum of Rs.
39,99,99,934 worked out to Rs. 13.73 for every share cancelled by CHIPL. This
was also supported by an independent share valuation report.

 

As per the provisions of section
2(22)(d), out of the total consideration of Rs 39,99,99,934, the consideration
to the extent of accumulated profits of CHIPL, i.e., Rs. 10,33,11,000 was
considered as deemed dividend in the hands of the assessee. Accordingly,
Dividend Distribution Tax (DDT) on such deemed dividend @ 16.609% amounting to
Rs. 1,71,58,924 (10,33,11,000 * 16.609%) was paid by CHIPL. Since the aforesaid
sum of Rs. 10,33,11,000 suffered DDT u/s 115-O, the assessee claimed the same
as exempt u/s 10(34) in the return of income. The balance consideration of Rs.
29,66,88,934 was appropriated towards sale consideration of the shares and
capital loss was accordingly determined by the assessee as prescribed in Rule
115A to Rs. 3,64,84,092 and a return was filed claiming such long-term capital loss.
Thus, the assessee had claimed long-term capital loss of Rs. 3,64,84,092 upon
cancellation of the shares held by it in CHIPL pursuant to reduction of capital
in the return of income for the year under consideration.

 

The A.O. held that there was no transfer
within the meaning of section 2(47) in the instant case. He observed that the
assessee was holding 100% shares of its subsidiary company and during the year
it had reduced its capital. The assessee company had 100% shares in the
subsidiary company and after the scheme of reduction of capital also, the
assessee was holding 100% of the shares. According to the A.O., this clearly
establishes that by way of reduction of capital by cancellation of the shares,
the rights of the assessee do not get extinguished. The assessee, both before
and after the scheme, was having full control over its 100% subsidiary. The
conditions of transfer, therefore, were not satisfied. Further, the shares have
been cancelled and are not maintained by the recipient of the shares.

 

Before the A.O. the assessee also
made an alternative argument of treating the same as a buyback. The A.O.
observed in this regard that since the assessee had taken approval from the
High Court for reduction of capital, the same cannot be treated as a buyback.
He, therefore, disallowed the claim of long-term capital loss in the sum of Rs.
3,64,84,092 due to indexation and also did not allow it to be carried forward.

 

The assessee filed objections before
the DRP against this denial of capital loss. The DRP disposed of the objections
of the assessee by holding that the issue in dispute is covered by the decision
of the Special Bench of the Mumbai Tribunal in the case of Bennett
Coleman & Co. Ltd. reported in 133 ITD 1. Applying
the ratio laid down in the said decision, the DRP observed that the
share of the assessee in the total share capital of the company as well as the
net worth of the company would remain the same even after capital reduction /
cancellation of shares. Thus, there is no change in the intrinsic value of the
shares and the rights of the shareholder vis-a-vis the other
shareholders as well as the company. Thus, there is no loss that can be said to
have actually accrued to the shareholder as a result of the capital reduction.

 

Pursuant to this direction of the
DRP, the A.O. passed the final assessment order on 23rd December,
2015 disallowing the long-term capital loss of Rs. 3,64,84,092 claimed by the
assessee in the return of income.

 

Aggrieved, the assessee preferred an
appeal to the Tribunal.

 

HELD

At the outset, the Tribunal noted
that the assessee had incurred capital loss only due to claim of indexation
benefit and not otherwise. The benefit of indexation is provided by the statute
and hence there cannot be any mala fide intention that could be
attributed to the assessee in claiming the long-term capital loss in the said
transaction.

 

As regards the contention of the A.O.
that there is no transfer pursuant to reduction of capital, the Tribunal
observed that –

i) it
is a fact that the assessee had indeed received a sale consideration of Rs.
39.99 crores towards reduction of capital. This sale consideration was not
sought to be taxed by the A.O. under any other head of income. The Tribunal
held that this goes to prove that the A.O. had indeed accepted this to be the
sale consideration received on reduction of capital under the head ‘capital
gains’ only, as admittedly the same was received only for the capital asset,
i.e., the shares. The Tribunal held that the existence of a capital asset is proved
beyond doubt. The capital gains is also capable of getting computed in the
instant case as the cost of acquisition of the shares of CHIPL and the sale
consideration received thereon are available. The Tribunal held that the
dispute is, how is the A.O. justified in holding that the subject mentioned
transaction does not tantamount to ‘transfer’ u/s 2(47).

 

ii) there
is a lot of force in the argument advanced by the A.R. viz. that merely because
the transaction resulted in loss due to indexation, the A.O. had ignored the
same. Had it been profit or surplus even after indexation, the A.O. could have
very well taxed it as capital gains.

 

The ratio that could be
derived from the decision of the Hon’ble Supreme Court in CIT vs. G.
Narasimhan reported in [236 ITR 327 (SC)], is that
reduction of capital amounts to transfer u/s 2(47). Even though the shareholder
remains a shareholder after the capital reduction, the first right as a holder
of those shares stands reduced with the reduction in the share capital.

 

The Tribunal observed that it is not
in dispute that in the instant case the assessee had indeed received
consideration of Rs. 39.99 crores towards reduction of capital and whereas in
the facts of the case before the Mumbai Special Bench reported in 133 ITD
1 relied upon by the DR, there was no receipt of consideration at all.
Out of the total consideration of Rs. 39.99 crores arrived @ Rs. 13.73 per
share cancelled in accordance with the valuation report obtained separately, a
sum of Rs. 10.31 crores has been considered by the assessee as dividend to the
extent of accumulated profits possessed by CHIPL as per the provisions of
section 2(22)(d) and the same has been duly subjected to dividend distribution
tax. The remaining sum of Rs. 29.67 crores has been considered as sale
consideration for the purpose of computing capital gain / loss pursuant to
reduction of capital.

 

The most crucial point of distinction
between the facts of the assessee and the facts before the Special Bench of the
Mumbai Tribunal was that in the facts before the Special Bench, the Special
Bench was concerned with a case of substitution of one kind of share with
another kind of share, which has been received by the assessee because of its
rights to the original shares on the reduction of capital. The assessee got the
new shares on the strength of its rights with the old shares and, therefore,
the same would not amount to transfer. For this purpose reference has been made
to section 55(2)(v). According to the Special Bench, the assessee therein will
take the cost of acquisition of the original shares as the cost of substituted
shares when capital gains are to be computed for the new shares.

 

In the present case section 55(2)(v)
has no application. The cost of acquisition of 2,91,33,280 shares shall be of
no relevance in the assessee’s case at any later stage. In paragraph 23 at page
13 of the decision of the Special Bench, it has been observed that though under
the concept of joint stock company the joint stock company is having an
independent legal entity, but for all practical purposes the company is always
owned by the shareholders. The effective share of the assessee in the assets of
the company would remain the same immediately before and after reduction of
such capital. It has thus been observed that the loss suffered by the company
would belong to the company and that cannot be allowed to be set off in the
hands of the assessee.

 

The law is now well settled by the
decision of the Hon’ble Supreme Court in the case of Vodafone
International Holdings B.V [341 ITR 1] wherein it was held that the
company and its shareholders are two distinct legal persons and a holding
company does not own the assets of the subsidiary company. Hence, it could be
safely concluded that the decision relied upon by the DR on the Special Bench
of the Mumbai Tribunal in 133 ITD 1 is factually distinguishable
and does not come to the rescue of the Revenue.

 

The Tribunal held that the loss arising to the
assessee for cancellation of its shares in CHIPL pursuant to reduction of
capital in the sum of Rs. 3,64,84,092 should be allowed as long-term capital
loss eligible to be carried forward to subsequent years. The ground of appeal
filed by the assessee was allowed.

Section 56(2)(viib) – Fair market value determined on the basis of NAV method accepted since the assessee was able to substantiate the value

6

India Today
Online Pvt. Ltd. vs. ITO (New Delhi)

Members: Amit
Shukla (J.M.) and L. P. Sahu (A.M.)

ITA Nos. 6453
& 6454/Del/2018

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

Dated: 15th
March, 2019

Counsel for
Assessee / Revenue: Salil Aggarwal and Shailesh Gupta / A.K. Mishra

 

Section 56(2)(viib) – Fair market
value determined on the basis of NAV method accepted since the assessee was
able to substantiate the value

 

FACTS

The assessee company was engaged in
the business of development, design and maintenance of website and sale and
purchase of shares. While assessing income for A.Y. 2013-14, the A.O. noted
that the assessee company had received share application money from Living
Media India Ltd., an investor, as under:

Year of receipt

Rs. in crores

No. of shares issued /
(Year of issue)

FY 2010-11

21.35

 

FY 2011-12

50.90

 

Sub-total

72. 25

2,40,83,333 (08/09/2012)

FY 2012-13

135.42

5,07,94,056 (FY 2013-14)

 

The above shares were issued @ Rs.
30 per share, i.e., face value of Rs. 10 and premium of Rs. 20 based on the
valuation report of a chartered accountant. As per the said valuation report,
the fair market value (FMV) of the share of the assessee company was Rs. 77.06
which was determined on the basis of the NAV method. One of the major assets
held by the assessee was investment of Rs. 112.01 crores (book value) in a
subsidiary, viz., Mail Today News Paper Private Limited. As per the report of
the independent valuer, the FMV of the subsidiary’s share was Rs. 40. This
valuation was done applying DCF method. Based on this report, the chartered
accountant valued the investment held by the assessee in the subsidiary at Rs.
286.17 crores, as against the book value of Rs. 112.01 crores.

 

The A.O. did not tinker with the
valuation except for holding that the assessee had taken the percentage of
shareholding of the subsidiary at 67%, whereas it was 64% as per the audit
report of the subsidiary. Based on this, he valued the share at Rs. 27.75.
Thus, according to him, since the assessee company had issued 5,07,94,056
shares at a premium of Rs. 20, the excess amount of Rs. 11.43 crores,
calculated @ Rs. 2.25 per share, was taxable as income from other sources u/s.
56(2)(viib).

 

On appeal by
the assessee, the CIT(A) held that the addition u/s. 56(2)(viib) should be made
in the year of issue of shares irrespective of the year of receipt of the share
application money. Secondly, he noted that the net worth of the subsidiary
company was completely eroded as reported by its auditor. Therefore, according
to him, while computing the FMV of the shares of the assessee, the FMV of
shares of its subsidiary at the most can be taken at face value, i.e. Rs. 10
per share as against Rs. 40 per share considered by the assessee. After
substituting the FMV of the share of the subsidiary at Rs. 10, the FMV of the
share of the assessee company came to negative.

 

Therefore, he held that the
assessee received the sum of Rs. 48.17 crores in excess of the FMV of
2,40,83,333 shares issued during F.Y. 2012-13 corresponding to A.Y. 2013-14.
Accordingly, he held that the same was taxable as income from other sources
u/s. 56(2)(viib). According to him, since 5,07,94,056 shares were allotted in
the financial year pertaining to the next assessment year, he deleted the
addition of Rs. 11.43 crores made by the A.O.

 

HELD

As per the provisions of clause (a)
of Explanation to section 56(2)(viib), FMV is the value determined in
accordance with the method prescribed in the Rules 11U and 11UA [sub-clause
(i)] or the value which is substantiated by the company to the satisfaction of
the A.O. [sub-clause (ii)], whichever is higher. The tribunal further noted that
the assessee had exercised the option under sub-clause (ii), viz., to
substantiate the value. Secondly, it was also noted that there were no
prescribed methods under Rules 11U and 11UA for the purpose of determination of
FMV on the date of issue of shares on 8.09.2012 as the methods were notified
only on 29.11.2012.

 

Therefore, according to the
tribunal, it would not be fair to make any kind of enhancement or addition
based on the provision of Rule 11UA. The Tribunal further noted that the
assessee had been able to substantiate the FMV which was based on the valuation
report of a chartered accountant. Further, the assessee also gave following
instances to substantiate the value of its share:

 

  • the fair market value of the shares of the subsidiary from which
    the assessee company derives its value had been accepted by the A.O. in the
    assessment order of the subsidiary in the assessment years 2013-14 and 2014-15
    at Rs. 40;
  • the subsidiary company
    had also issued its shares to a non-resident entity at Rs. 43.29;
  • In the earlier
    assessment year, i.e., 2011-12, the assessee company had sold 40,302 shares
    held by it in the subsidiary company at Rs. 43.29 per share and the same was
    accepted by the Revenue in the order passed u/s. 143(3).

 

The tribunal
also noted that as per the valuation report, the value per share was determined
at Rs. 77.06, which was far more than the price at which the assessee had
issued shares, i.e. Rs. 30. Further, it noted that the A.O. had also accepted
the valuation of the share of the assessee, except for the factors stated
above. According to the tribunal, the report of the valuer of the assessee
company based on NAV method cannot be rejected on the ground that the Rules of 11U/11UA
do not recognise the said method, when the assessee has not exercised the
option under sub-clause (i) of Explanation (a) to section 56(2)(viib).

 

As regards the objection of the CIT(A) as to the
valuation of shares of the subsidiary company, the tribunal observed that the
DCF method is a recognised method of valuation. The same has to be accepted
unless specific discrepancies in the figures or the factors taken into account
are found. The tribunal also rejected the CIT(A)’s contention that the chartered
accountant who has given the valuation report was not a competent person in
terms of Rule 11U, as according to it, the same would only be relevant when the
valuer has done the valuation in the manner prescribed in 11U and 11UA, because
such condition is prescribed in Rule 11. If the assessee has not opted for 11U
& 11UA, then, according to the tribunal, all those guidelines and formulas
given therein would not apply.

Section 201 – Payments to non-residents without deduction of tax at source – Order passed u/s. 201 (1) beyond one year from the end of the financial year in which the proceedings u/s. 201 were initiated is void ab initio

5

Atlas Copco (India) Limited vs. DCIT (Pune)

Members:
R.S. Syal (V.P.) and Vikas Awasthy (J.M.)

ITA Nos. 1669, 1670 &
1671/PUN/2014, 1685 to 1688/PUN/2014 and CO No. 60/PUN/2018

A.Y.s: 2008-09 to 2011-12

Dated: 5th April,
2019

Counsel for Assessee /
Revenue: R. Murlidhar / Pankaj Garg

 

Section 201 – Payments to
non-residents without deduction of tax at source – Order passed u/s. 201 (1)
beyond one year from the end of the financial year in which the proceedings
u/s. 201 were initiated is void ab initio

 

FACTS

During the financial years 2007-08
to 2010-11, the assessee made payments to various foreign entities towards
procurement of software licence, software maintenance charges, testing charges,
website maintenance charges, personal management charges, software expenses,
reimbursement of internet charges, etc. The assessee did not deduct tax at
source from these payments. The A.O. issued show cause notice to the assessee
on 27.01.2012 u/s. 201(1) and 201(1A). After considering the submission of the
assessee, the A.O. vide order dated 06.02.2014 held that the aforesaid payments
were in the nature of royalty / fee for technical services (FTS) u/s. 9(1)(vi)
and 9(1)(vii), respectively. Hence, it was mandatory for the assessee to deduct
tax at source on such payments. For its failure, he deemed the assessee as
assessee in default and raised a demand of Rs. 1.81 crores.

 

Against this, the assessee filed an
appeal before the CIT(A). Except for demand raised in respect of payments for
software maintenance charges, testing charges and towards personal management
fees, the CIT(A) confirmed the A.O.’s order. Aggrieved by the order of the
CIT(A), the assessee filed appeals for assessment years 2008-09 to 2010-11 and
the Revenue filed cross appeals. On its part, Revenue filed appeal for the
assessment year 2011-12.

 

The assessee filed cross objections
for assessment year 2011-12. But the assessee’s cross objection was time barred
by 878 days. However, taking into consideration the facts of the case, the law
laid down by the Supreme Court in the case of Ram Nath Sao and Ram Nath
Sahu and Others vs. Gobardhan Sao and Others (2002 AIR 1201) and the
reasons furnished by the assessee, the delay of 878 days in filing of cross
objections was condoned by the Tribunal.

 

Before the Tribunal, the assessee
submitted that in the impugned assessment years, show cause notice u/s. 201(1)
and 201(1A) was issued on 27.01.2012. But the order u/s. 201(1) and 201(1A) for
all the impugned assessment years was passed by the A.O. on 6.02.2014. It was
contended that, as per the decision of the Special Bench of Tribunal in the
case of Mahindra & Mahindra Ltd. vs. DCIT (122 TTJ 577),
which was affirmed by the Bombay High Court (365 ITR 560), the
A.O. was required to pass the order within one year from the end of the
financial year in which the proceedings u/s. 201 were initiated, i.e., on or
before 31.03.2013. Since the order passed was beyond the period of limitation,
the same was void ab initio and the subsequent proceedings arising
therefrom were vitiated.

 

In reply, the Revenue contended
that as per the provisions of section 201(3), the order u/s. 201(1) could have
been passed at any time after the expiry of six years from the end of the
financial year in which payment was made or credited. According to the Revenue,
the case laws relied on by the assessee were distinguishable on facts. The
Special Bench decision was rendered in 2009, whereas the provisions of section
201(3) were inserted by the Finance Act, 2009 w.e.f. 01.04.2010.

 

HELD

According to the tribunal, a bare
perusal of sub-section (3) as referred to by the Revenue shows that reference
is to the payments made without deduction of tax at source to ‘person resident
in India’. The sub-section (3) is silent about the limitation period for
passing the order u/s. 201 where the payments are made without deduction of tax
at source to non-resident / overseas entities.

 

In the present
case, the tribunal noted that the assessee had made payments to non-residents.
Therefore, it held that the provisions of section 201(3) do not get attracted.
According to the tribunal, where the payments are made to entities / persons,
other than those specified in sub-section (3), the limitation period of one
year from the end of the financial year in which the proceedings u/s. 201 were
initiated, as laid down by the Special Bench of Tribunal and affirmed by the
Bombay High Court, would apply.

 

Since
the order u/s. 201 was passed much after the lapse of the one-year period from
the end of the financial year in which proceedings u/s. 201 were initiated, the
tribunal held that the order u/s. 201 in the impugned assessment years was void
ab initio. Accordingly, the appeals filed by the assessee were allowed.

Section 45(4) read with section 2(14) – Receipt of money equivalent to share in enhanced portion of the assets re-valued by the Retiring Partners do not give rise to capital gain u/s. 45(4) read with section 2(14)

4. D.S. Corporation vs. Income Tax Officer
(Mum) Members: P.M. Jagtap (V.P.) – Third Member I.T.A. Nos.: 3526 & 3527/MUM/2012 A.Y.s: 2006-2007 and 2007-2008 Dated: 10th January, 2019 Counsel for Assessee / Revenue: Dr. K.
Shivaram and Rahul Hakani / Ajay Kumar

 

Section 45(4) read with section 2(14) –
Receipt of money equivalent to share in enhanced portion of the assets
re-valued by the Retiring Partners do not give rise to capital gain u/s. 45(4)
read with section 2(14)

 

FACTS


The assessee, a partnership firm, was
originally constituted vide the deed of partnership entered into on 01.08.2005
with the object to carry on the business of real estate development and
construction. The firm was reconstituted from time to time. On 23.09.2005, the
assessee firm purchased a property at a suburb in Mumbai for a consideration of
Rs. 6.5 crore. After arriving at a settlement with most of the tenants
occupying the said property and obtaining permission of the competent authority
concerned for construction of a five-star hotel, the said property was revalued
at Rs. 193.91 crore as per the valuation report of the registered valuer. The
resultant revaluation surplus was credited to the capital accounts of the
partners in their profit sharing ratio. Two of the five partners retired from
the partnership firm, on 27.03.2006 and on 22.05.2006. On their retirement,
both these partners were paid the amounts standing to the credit of their
capital accounts in the partnership firm including the amount of Rs. 30.88 crore
credited on account of revaluation surplus.

 

According to the AO, there was transfer of
capital asset by way of distribution by the assessee firm to the retiring
partners in terms of section 45(4) of the Act and the assessee firm was liable
to tax on the capital gain arising from such transfer. According to the CIT(A)
there was no dissolution of partnership firm at the time of retirement, there
was only reconstitution of the partnership firm with change of partners.
Therefore, he held that the provisions of section 45 (4) were not attracted.

 

On appeal before the Tribunal, there was a
difference of opinion between the Accountant Member and the Judicial Member.
The Accountant Member relied on the decision of the Supreme Court in the case
of Tribhuvan G. Patel vs. CIT (236 ITR 515), wherein it was held that
even where a partner retires and some amount is paid to him towards his share
in the assets, it should be treated as falling under clause (ii) of section 47
of the Act. Accordingly, the Accountant Member held that payment of amount to
the retiring partner towards his share in the assets of the partnership firm
amounted to distribution of capital asset on retirement and the same falls
within the ambit of section 45(4). He held that use of the word “otherwise”
in section 45(4) takes within its ambit not only the case of transfer of
capital asset by way of distribution of capital asset on dissolution of the
firm, but also on retirement.

 

Further relying on the decision of the
Supreme Court in the case of CIT vs. Bankey Lal Vaidya (79 ITR 594) and
the decision of the Bombay High Court in the case of CIT vs. A.N. Naik
Associates (265 ITR 346), he upheld the addition made by the AO on account
of capital gain to the total income of the assessee firm by application of section
45(4), but only to the extent of surplus arising out of revaluation of property
which stood distributed by way of money equivalent to the retiring partners.
According to him, the balance addition made by the AO on account of capital
gain in the hands of the assessee firm on account of revaluation surplus
credited to the capital of the other partners, who continued and did not retire
during the years under consideration, could not be sustained as there was no
transfer or distribution of capital asset to those non-retiring partners.

 

According to the Judicial Member, however,
the cases relied upon by the Accountant Member were rendered on altogether
different facts and the ratio of the same, therefore, was not applicable to the
facts of the assessee. In the case of the assessee, except payment of money
standing to the credit of the partners’ capital account in the partnership,
there was no physical transfer of any asset by the partnership firm so as to
attract the provisions of section 45(4). He also relied on the decisions of the
Karnataka High Court in the case of CIT vs. Dynamic Enterprises [359 ITR 83]
and the Mumbai Tribunal in the cases of Keshav & Co. vs. ITO [161 lTD
798] and Mahul Construction Corporation vs. ITO (ITA No. 2784/MUM/2017
dated 24.11.2017).

 

On account of the difference in opinion
between the members, the matter was referred to the Third Member, i.e., in
these facts and circumstances of the case, whether the money equivalent to
enhanced portion of the assets revalued constitutes capital asset and whether
there was any transfer of such capital asset on dissolution of the firm or
otherwise within the meaning of section 45(4) read with section 2(14).

 

Before the Third Member, the Revenue
contended that the assessee’s case was a clear case of transfer of right in the
land by the retiring partners to the continuing / incoming partners giving rise
to the capital gain. According to it, the decision of the Bombay High Court in
the case of A.N. Naik Associates and the decision of the Supreme Court in the
case of Bankey Lal Vaidya relied upon by the Accountant Member are relevant and
the same squarely cover the issue in favour of the Revenue.

 

HELD


According to the Third Member, the
partnership firm in the present case continued to exist even after the
retirement of two partners from the partnership. There was only a
reconstitution of partnership firm on their retirement without there being any
dissolution and the land property acquired by the partnership firm continued to
be owned by the said firm even after reconstitution without any extinguishment
of rights in favour of the retiring partners. The retiring partners did not
acquire any right in the said property and what they got on retirement was only
the money equivalent to their share of revaluation surplus (enhanced portion of
the asset revalued) which was credited to their capital accounts. There was
thus no transfer of capital asset by way of distribution of capital asset
either on dissolution or otherwise within the meaning of section 45(4) read
with section 2(14) of the Act.

 

According to him, the money equivalent to
enhanced portion of the assets re-valued does not constitute capital asset
within the meaning of section 2(14) and the payment of the said money by the
assessee firm to the retiring partners cannot give rise to capital gain u/s.
45(4) read with section 2(14). Accordingly, the Third Member agreed with the
view of the Judicial Member and answered both the questions referred to him in
favour of the assessee.

 

Section 271(1)(c), 271AAA – In a case where penalty is leviable u/s. 271AAA, penalty initiated and levied u/s. 271(1)(c) is unsustainable in law.

3.  ACIT
vs. Nitin M. Shah  (Mumbai) Members: G. S. Pannu, VP and Sandeep Gosain,
JM ITA No.: 2863/Mum./2017 A.Y.: 2012-13 Dated: 1st November, 2018 Counsel for revenue / assessee: B. S. Bist /
Dr. P. Daniel

 

Section 271(1)(c), 271AAA –  In
a case where penalty is leviable u/s. 271AAA, penalty initiated and levied u/s.
271(1)(c) is unsustainable in law.

 

FACTS

The assessee was a director and key person
of one company N. A search and seizure operation was carried out on the
assessee and his group concerns. During the course of assessment proceedings,
the Assessing Officer (AO) made addition of Rs. 5,81,07,680 and assessed his
income at Rs. 12,06,72,926. Subsequently, the AO initiated penalty proceedings
u/s. 271(1)(c) of the Act in respect of the additions made during the course of
assessment. Aggrieved the assessee preferred an appeal to CIT(A) who confirmed
the addition of Rs. 2,67,68,882. As regards, the balance additions for which
relief was allowed by the CIT(A), the department filed appeal before the
Tribunal. The Tribunal upheld the order of the CIT(A) and thereafter, the AO
initiated the action for levy of penalty.

 

Aggrieved, the assessee preferred an appeal
before the CIT(A). The CIT(A) allowed the appeal of the assessee.

 

Aggrieved, revenue preferred an appeal to
the Tribunal on the ground that explanation furnished by the assessee was not bonafide
and incriminating material was found and seized in search and that the assessee
had defrauded the revenue by not offering true and correct income in the return
of income filed by the assessee. The assessee was therefore liable for penalty
as per Explanation to section 271(1)(c) of the Act.

 

HELD

The Tribunal observed that the CIT(A) held
that assessee’s case for levy of penalty fell u/s. 271AAA of the Act and not
u/s. 271(1)(c) of the Act. Further, sub-clause (3) to sub-section (1) of
section 271 of the Act clearly prohibited imposition of penalty in respect of
undisclosed income referred to in sub-section (1) of section 271 of the Act.
Since the AO had initiated penalty u/s. 271(1)(c) of the Act, the same was
unsustainable in law and therefore was directed to be deleted. The Tribunal
concurred with the view of the CIT(A) and held that penalty initiated and
levied by the AO u/s. 271(1)(c) of the Act was unsustainable in the eyes of law
and was thus rightly held to be deleted by the CIT(A).

 

The Tribunal dismissed the appeal filed by
the revenue.    

Section 54F – Claim u/s. 54 is admissible in respect of flats allotted by the builder to the assessee under the terms of the Development Agreement as the same constitute consideration retained by the Developer and utilised for construction of flats on behalf of the assessee.

2.  Shilpa
Ajay Varde vs. Pr. CIT (Mumbai) Members: Joginder Singh, VP and Ramit Kochar, AM  ITA No.: 2627/Mum./2018 A.Y.: 2013-14. Dated: 14th November, 2018 Counsel for assessee / revenue: M.
Subramanian / L. K. S. Dehiya

 

Section 54F – Claim u/s. 54 is admissible in respect of flats allotted by the
builder to the assessee under the terms of the Development Agreement as the
same constitute consideration retained by the Developer and utilised for
construction of flats on behalf of the assessee.

 

FACTS

The assesse, an individual, in his return of
income declared Capital Gains at Rs. 15,982 after claiming deduction u/s. 54F
and 54EC of the Act. The Assessing Officer (AO) completed the assessment
accepting the returned income. Subsequently, the Pr. CIT issued notice u/s. 263
of the Act and held that the order passed by the AO u/s. 143(3) of the Act was
erroneous as the same was prejudicial to the interest of the revenue. The Pr.
CIT observed that during the year under consideration, the assessee along with her
relatives entered into development agreement for the development of property
owned by the assessee with her relatives. As per the terms of agreement with
the developer, consideration for the said transfer of development rights was a
sum of Rs. 40 lakhs and four residential flats and six car parking spaces. The
assessee computed the gains by adopting Rs. 1,32,62,500 to be full value of
consideration. This sum of Rs.1,32,62,500 comprised of Rs. 40,00,000 being the
monetary consideration and Rs. 92,62,500 being the value of residential flats
which the assessee was entitled to receive from the developer. From the full
value of consideration the assessee reduced indexed cost of acquisition and the
value of two new residential houses which were to be received by the assessee
u/s. 54F of the Act.

 

The Pr. CIT, however, held that the assessee
could not be allowed to claim exemption u/s. 54F of the Act in respect of the
said two residential flats as the said flats were yet to be constructed by the
developer and were future properties and hence the assessee was not entitled to
claim exemption u/s. 54F of the Act. 
Further, he also observed that the assessee claimed deduction of Rs.
71,50,000 u/s. 54EC of the Act which was restricted to Rs. 50,00,000 as per the
amended provisions of the Act and therefore directed the AO to revise the order
passed u/s. 143(3) of the Act.

 

Against the said order passed by the Pr.CIT,
the assessee preferred an appeal to the Tribunal challenging the Pr. CIT’s
action of directing the AO to revise the order passed u/s. 143(3) of the Act.

 

On appeal, the Tribunal held as follows:

 

HELD

The Tribunal observed that the assessee,
during the course of assessment, disclosed complete details of transaction with
the developer and furnished all the details of computation of long term capital
gains and exemption claimed u/s. 54F and 54EC of the Act.  The Tribunal also observed that the AO had,
after due application of mind and considering all the details and documents on
record allowed the assessee’s claim for exemption u/s. 54F and 54EC of the Act
and it would not be correct to say that the AO did not make any inquiry or did
not make proper inquiry before allowing the claim of the assessee. The Tribunal
thus held the action of Pr. CIT of initiating section 263 of the Act to be
bad-in-law.

 

On merits, the Tribunal observed that flats
were specifically allotted by the developer in favour of the assessee under the
development agreement and effectively it could be said that the share of
consideration in lieu of property for development given by the assessee to the
developer to the extent of four residential flats will be retained by the
builder and invested by the developer by utilising its own funds for
constructing the flats on behalf of the assessee. Effectively, therefore
consideration under development agreement which the assessee was otherwise
entitled to receive was withheld by the developer for constructing the flats on
behalf of the assessee which satisfied the requirement of making investment in
construction of new residential flat as provided u/s. 54F of the Act. The
Tribunal also observed that CBDT in circulars had held that allotment of flat under
self-financing scheme is held to be construction for the purposes of capital
gains. Thus the Tribunal allowed the assessee’s claim for exemption u/s. 54F of
the Act. As regards assessee’s claim for exemption u/s. 54EC of the Act of Rs.
71,50,000, following the decision of the Madras High Court in CIT vs.
Jaichander [2015] 370 ITR 579 (Madras) and co-ordinate bench of the
Tribunal in Tulika Devi Dayal vs. JCIT [2018] 89 taxmann.com 442 (Mum.)
held that the exemption claimed u/s. 54EC of the Act was in accordance with the
provisions of the Act.

 

The Tribunal allowed the appeal filed by the
assessee.

Section 54 – Purchase of residential property is said to have been substantially effected on the date of possession. Accordingly, where assessee had received possession of a residential house one year before the date of transfer of residential house, though the agreement to purchase was entered into much prior thereto, the assessee was held to be eligible to claim deduction u/s. 54.

1. Ranjana R. Deshmukh vs. ITO (Mumbai) Members : Shamim Yahya,  AM and Ravish Sood, JM ITA No.: 697/Mum./2017 A.Y.: 2013-14 Dated: 9th November, 2018. Counsel for assessee / revenue: Moti B.
Totlani / Chaitanya Anjaria

 

Section 54
–  Purchase of residential property is
said to have been substantially effected on the date of possession.  Accordingly, where assessee had received
possession of a residential house one year before the date of transfer of
residential house, though the agreement to purchase was entered into much prior
thereto, the assessee was held to be eligible to claim deduction u/s. 54.

 

FACTS

The assessee,
an individual, sold immovable property on 28th March, 2013 and
claimed exemption u/s. 54 on the resultant gains. During the course of
assessment, the Assessing Officer (AO) observed that the property in respect of
which exemption was claimed by the assessee was purchased on 29th
January, 2009 by entering into an agreement to purchase. The AO therefore
concluded that since the residential property purchased by the assessee was
beyond the stipulated period of one year before the transfer of property under consideration
and hence the assessee was not entitled to claim exemption u/s. 54 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

The Tribunal observed that possession of the
residential property purchased by the asssessee was handed over to the assessee
18th May, 2012 which was within the prescribed period of one year
prior to the date of transfer of property under consideration and therefore the
assessee was entitled to claim exemption u/s. 54 of the Act. The Tribunal held
that purchase of residential property is said to have been substantially
effected on the date of possession and for this view it relied on the decision
of the Bombay High Court in the case of CIT vs. Beena K. Jain [1994] 75
Taxman 145 (Bom.) wherein it was held that purchase was completed by
payment of full consideration and handing over of possession of the flat.

The Tribunal allowed the appeal of the
assessee.

Section 273B read with section 272A(2)(k) – Delay in filing TDS return for want of PAN considered as reasonable cause and penalty imposed was deleted

11.  Sai Satyam
Hospitals Private Ltd. vs. Addl. CIT-TDS Range

Members: Sandeep Gosain (J.M.) and Manoj Kumar Aggarwal
(A.M.)

I.T.A. No.: 3220/Mum./2018

A.Y.: 2011-12

Date of order: 15th July, 2019

Counsel for Assessee / Revenue: Dr. Prayag Jha / Chaudhury
Arun Kumar Singh

 

Section 273B read with
section 272A(2)(k) – Delay in filing TDS return for want of PAN considered as
reasonable cause and penalty imposed was deleted

 

FACTS

For a delay of 389 days in filing TDS return in Form No. 26Q,
a penalty of Rs. 38,900 u/s 272A(2)(k) was imposed by the AO. The CIT(A), on
appeal, confirmed the order.

 

Before the Tribunal, in order to make out a case of
reasonable cause, the assessee inter alia pleaded that the delay was due
to non-availability of the PAN of the deductees, without which the return could
not be uploaded; there was no evasion of tax or loss to the government since
the assessee had deducted and paid the taxes to the Government.

 

HELD

The Tribunal noted that the directors of the assessee company
were doctors who may not be well-versed with the technicalities of TDS
provisions; besides, in the TDS return filed, there were 30 deductees’ records
and the PAN was quoted in all the records; moreover, due TDS had been deducted
and deposited by the assessee in the Government treasury.

 

The Tribunal also noted the fact that many changes had been
brought about in the financial year 2010-11 by the Act in filing of e-TDS
returns wherein it was necessary to quote cent percent valid Permanent Account
Numbers of the payees in the e-TDS returns and only thereafter could the e-TDS
returns be validated and uploaded in the Income-tax System.

Therefore, for the reason that there was no loss
to the Revenue and the delay in filing of the e-TDS returns was unintentional
on the part of the assessee, and keeping in view the assessee’s background, the
penalty imposed by the AO was deleted.

Section 37(1) – Compensation received in lieu of extinction of right to sue is capital receipt not chargeable to tax

10.  Chheda Housing
Development Corporation vs. Addl. CIT (Mumbai)

Members: G.S. Pannu (V.P.) and Pawan Singh (J.M.)

ITA No.: 86/Mum./2017

A.Y.: 2012-13

Date of order: 29th May, 2019

Counsel for Assessee / Revenue: Dr. K. Shivaram and Rahul K.
Hakkani / H.N. Singh and Rajeev Gubgotra

 

Section 37(1) – Compensation received in lieu of extinction
of right to sue is capital receipt not chargeable to tax

 

FACTS

The assessee, a partnership firm, was engaged in the business
of construction and development of property. During FY 2004-05, the assessee
had entered into a memorandum of understanding (MOU) with one Mr. Merchant, the
landowner, for the development of his land and paid the sum of Rs. 2.5 crores.
In terms of the MOU, the parties had agreed to execute a joint development
agreement and the landowner was to obtain the commencement certificate from the
local authorities. However, the landowner did not provide the certificate.
Besides, the assessee came to know that the landowner had transferred the
development rights of the land to a company owned by his family.

 

The assessee filed a suit before the Bombay High Court
seeking specific Performance of the MOU and to execute the joint development
agreement. In the alternative, the assessee claimed damages for breach of
contract. A criminal complaint was also filed alleging fraud. Litigation in
various forums continued till 2011 when, through the intervention of a
well-wisher, the parties agreed to a settlement. As per the terms of the
settlement, the assessee agreed to withdraw the criminal complaint and the
civil suit. The assessee also agreed not to create any third party right, title
or interest in respect of the right created under the MOU. On execution of the cancellation deed in
September, 2011, the assessee was paid Rs. 20 crores.

 

For the year under appeal, the assessee had filed a Nil
return. The AO treated the receipt of Rs. 20 crores as income and taxed the
same as long-term capital gain. The CIT(A), on appeal, confirmed the AO’s
order.

 

Before the Tribunal, the Revenue justified the orders of the
lower authorities and contended that the right to execute the joint development
right of immovable property falls within the expression of ‘property of any
kind’ as used in section 2(24) and consequently was a capital asset. And giving
up a right of specific performance as claimed by the assessee, amounted to
relinquishment of capital asset. Therefore, there was a transfer of capital
asset.

 

HELD

The Tribunal noted that the assessee received a sum of Rs. 20
crores on execution of the cancellation deed in September, 2011. Referring to
the relevant clause in the deed, the Tribunal observed that as per the deed,
the assessee had not transferred any rights, which was sought to be confirmed
in the MOU. In fact, those rights were already transferred by the landowner in
favour of the company owned by his family before the date of the MOU. The
assessee received compensation which consisted of refund of the amount paid by
way of advance along with interest, towards loss of profit / liquidated damage,
for loss of opportunity to develop the property and sale of flats in the open
market, and towards the cost of litigation.

 

Therefore, relying on decisions of the Delhi High Court in CIT
vs. J. Dalmia (149 ITR215), the Bombay High Court in CIT vs.
Abbasbhoy A. Dehgamwalla (195 ITR 28), the Supreme Court in CIT
vs. Saurashtra Cement Ltd. (325 ITR 422) and of the
Mumbai Tribunal in ACIT vs. Jackie Shroff (194 TTJ 760), it was
held that the amount received by the assessee in excess of the advance was on
account of compensation for extinction of its right to sue the owner, and so
the receipt is a capital receipt not chargeable to tax. According to the
Tribunal, the case of K.R. Srinath vs. ACIT (268 ITR 436 Madras)
relied on by the Revenue was distinguishable on facts. In the said case the
amount was received as consideration for giving up the right of specific
performance which was acquired under an agreement for sale. However, in the
case of the assessee here, the owner of the land had already transferred such
right to a third party. Rather, the original agreement was cancelled.

 

Accordingly, the appeal of the assessee was
allowed.

Section 145 – The project completion method is one of the recognised methods of accounting and as the assessee has consistently been following such recognised method of accounting, in the absence of any prohibition or restriction under the Act for doing so, the CIT(A) is correct in holding that the AO’s assertion that the project completion method is not a legal method of computation of income is not supported by facts and judicial precedents

9 ITO vs. Shanti Constructions
(Agra) Members: Sudhanshu
Srivastava (JM) and Dr. Mitha Lal Meena (AM) ITA No. 289/Agra/2017 A.Y.: 2012-13 Date of order: 16thMay,
2019 Counsel for Revenue /
Assessee: Sunil Bajpai / Pradeep K. Sahgal and Utsav Sahgal

 

Section 145 – The
project completion method is one of the recognised methods of accounting and as
the assessee has consistently been following such recognised method of
accounting, in the absence of any prohibition or restriction under the Act for
doing so, the CIT(A) is correct in holding that the AO’s assertion that the
project completion method is not a legal method of computation of income is not
supported by facts and judicial precedents

 

FACTS

The
assessee, a partnership firm engaged in the business of real estate and
construction of buildings for the past several years, filed its return of
income declaring therein a total income of Rs. 1,12,120. The AO completed the
assessment u/s. 143(3) of the Act, assessing the total income of the assessee
to be Rs. 3,94,62,580. While assessing the total income of the assessee, the AO
rejected the books of accounts on the ground that the assessee did not produce
bills / vouchers before him for ascertaining the accuracy and correctness of
the books of accounts; that it did not furnish evidence regarding closing
stock; and that the assessee is following the project completion method and not
the percentage completion method. The AO observed that the project completion
method has no existence since 1st April, 2003 and laid emphasis on
revised AS-7 introduced by the ICAI in 2002.

 

Aggrieved, the assessee preferred an appeal to CIT(A) who
noted that in the assessee’s own case in the assessment proceedings for AY
2014-15, the AO has accepted the project completion method. The CIT(A) allowed
the appeal filed by the assessee.

 

But the Revenue preferred an appeal to the Tribunal where
it placed reliance on the decision of the Supreme Court in the case of CIT
vs. Realest Builders & Services Ltd. [(2008) 22 (I) ITCL 73 (SC)].

 

HELD

The Tribunal observed that the assessee’s business came
into existence on 11th March, 2003 and since then it has been
consistently following the project completion method of accounting. It is well
settled that the project completion method is one of the recognised methods of
accounting and as the assessee has consistently been following such recognised
method of accounting, in the absence of any prohibition or restriction under
the Act for doing so, it can’t be held that the decision of the CIT(A) was
erroneous or illegal in any manner. The judgement in the case of CIT vs.
Realest Builders & Services Ltd. (supra) relied on by the DR on the
method of accounting is rather in favour of the assessee and against the
Revenue in the peculiar facts of the case. As such, the appeal filed by the
Revenue was dismissed.

Section 54A – Acquisition of an apartment under a builder-buyer agreement wherein the builder gets construction done in a phased manner and the payments are linked to construction is a case of purchase and not construction of a new asset – Even in a case where construction of new asset commenced before the date of sale of original asset, the assessee is eligible for deduction of the amount of investment made in the new asset

8  Kapil Kumar Agarwal vs. DCIT (Delhi) Members: Amit Shukla (JM)
and Prashant Mahrishi (AM) ITA No. 2630/Del./2015 A.Y.: 2011-12 Date of order: 30th
April, 2019 Counsel for Assessee /
Revenue: Piyush Kaushik / Mrs. Sugandha Sharma

 

Section 54A –
Acquisition of an apartment under a builder-buyer agreement wherein the builder
gets construction done in a phased manner and the payments are linked to
construction is a case of purchase and not construction of a new asset – Even
in a case where construction of new asset commenced before the date of sale of
original asset, the assessee is eligible for deduction of the amount of
investment made in the new asset

 

FACTS

During
the previous year relevant to the assessment year under consideration, the
assessee, an individual, sold shares held by him as long-term capital asset.
The long-term capital gain arising from the sale of shares was claimed as
deduction u/s. 54F of the Act. In the course of assessment proceedings, the AO
noted that the shares were sold on 13th July, 2010 for a
consideration of Rs. 80,00,000 and a long-term capital gain of Rs. 79,85,761
arose to the assessee on such sale. The assessee claimed this gain of Rs.
79,85,761 to be deductible u/s. 54F by contending that it had purchased a
residential apartment by entering into an apartment buyer’s agreement and
having made a payment of Rs. 1,42,45,000.

 

The
AO was of the view that the assessee has not purchased the house but has made
payment of instalment to the builder for construction of the property. He also
noted that the assessee has started investing in the new asset with effect from
18th August, 2006, that is, three years and 11 months before the
date of sale. Further, around 90% of the total investment in the new asset has
been made before the date of sale of the original asset. The AO denied claim
for deduction of Rs. 79,85,761 made u/s. 54F of the Act. He observed that the
assessee would have been eligible for deduction u/s. 54F had the entire
investment in the construction of the new asset been made between 13th July,
2010 and 12th July, 2013.

 

Aggrieved,
the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Still not satisfied, the assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal held that the question as to whether the
acquisition of an apartment under a builders-buyers agreement wherein the
builder gets construction done in a phased manner and the payments are linked
to construction is a case of purchase of a new asset or construction of a new
asset has been answered by the Delhi High Court in the case of CIT vs.
Kuldeep Singh [(2014) 49 taxmann.com 167 (Delhi)]. Referring to the
observations of the Delhi High Court in the case,  the Tribunal held that acquisition of an
apartment under a builders-buyers agreement wherein the builder gets construction
done in a phased manner and the payments are linked to construction is a case
of purchase and not construction of a new asset.

 

The Tribunal observed that the second question, viz.,
whether the construction of new asset even if commenced before the date of sale
of the original asset, the assessee is eligible for deduction of the amount of
investment made in the property, has been examined in the case of CIT vs.
Bharti Mishra [(2014) 41 taxmann.com 50 (Delhi)]. The Tribunal observed
that the issue in the present case is squarely covered by this decision of the
Delhi High Court. It held that the assessee has purchased a house property,
i.e., a new asset, and is entitled to exemption u/s. 54F of the Act despite the
fact that construction activities of the purchase of the new house started
before the date of sale of the original asset which resulted into capital gain
chargeable to tax in the hands of the assessee. The Tribunal reversed the order
of the lower authorities and directed the AO to grant deduction u/s. 54F of Rs.
79,85,761 to the assessee. In the event, the appeal filed by the assessee was
allowed.

Section 50C(2) – By virtue of section 23A(1)(i) being incorporated with necessary modifications in section 50C, the correctness of a DVO’s report can indeed be challenged before CIT(A) in an appeal – In the event of the correctness of the DVO’s report being called into question in an appeal before Commissioner (Appeals), the DVO is required to be given an opportunity of a hearing

7 Lovy Ranka vs. DCIT (Ahmedabad) Members: Pramod Kumar (VP)
and Madhumita Roy (JM) ITA No. 2107/Ahd./2017 A.Y.: 2013-14 Date of order: 1stApril,
2019 Counsel for Assessee /
Revenue: Chitranjan Bhardia / S.K. Dev

 

Section 50C(2) – By
virtue of section 23A(1)(i) being incorporated with necessary modifications in
section 50C, the correctness of a DVO’s report can indeed be challenged before
CIT(A) in an appeal – In the event of the correctness of the DVO’s report being
called into question in an appeal before Commissioner (Appeals), the DVO is
required to be given an opportunity of a hearing

 

FACTS

The
assessee, an individual, sold a bungalow for Rs. 1,15,00,000; the stamp duty
value of the same was Rs. 1,40,00,000. The assessee contended that the fair
market value of the bungalow was lower than its stamp duty value. The AO made a
reference to the DVO u/s. 50C(2). The valuation as per the DVO was Rs.
1,27,12,402. The assessee made elaborate submissions on the incorrectness of
this valuation. But the AO completed the assessment by adopting the valuation
done by the DVO as he was of the view that the valuation done by the DVO binds
him and it is his duty to pass an order in conformity with the DVO’s report.
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 where the Revenue contended
that the AO is under a statutory obligation to adopt the valuation as done by
the DVO and as such no fault can be found in his action; therefore, the
appellate authorities cannot question that action either.

 

HELD

The Tribunal considered the question whether it can deal
with the correctness of the DVO’s report particularly when the AO apparently
has no say in this regard. Upon examining the provisions of section 50C(2) and
also the provisions of sections 23A(6) and 24(5) of the Wealth-tax Act, 1957
the Tribunal held that what follows from these provisions is that in the event
that the correctness of the DVO’s report is called in question in an appeal
before the Commissioner (Appeals), the DVO is required to be given an
opportunity of a hearing. The provisions of section 24(5) of the Wealth-tax
Act, 1957 make a reference to section 16A and the provisions of section 50C
specifically refer to the provisions of section 16A of the Wealth-tax Act,
1957.

 

The Tribunal held that the correctness of the DVO report
can indeed be challenged before it as well, as a corollary to the powers of the
CIT(A) which come up for examination before it, once again the rider being that
the Valuation Officer is to be given an opportunity of a hearing. This
opportunity of a hearing to the DVO is a mandatory requirement of law. This is
the unambiguous scheme of the law.

 

It also held that the CIT(A) ought to have examined the
matter on merits. Of course, before doing so the CIT(A) was under a statutory
obligation to serve notice of hearing to the DVO and thus afford him an
opportunity of a hearing. The Tribunal held that the correctness of the DVO’s
report is to be examined on merits and since there was no adjudication, on that
aspect, by the CIT(A), the Tribunal remitted the matter to the file of the
CIT(A) for adjudication on merits in accordance with the scheme of the law,
after giving a due and reasonable opportunity of hearing to the assessee, as
also to the DVO, and by way of a speaking order.

 

As
such, the Tribunal allowed the appeal filed by the assessee.

Section 271(1)(c) – AO initiated penalty proceedings on being satisfied that inaccurate particulars of income were furnished but levied penalty on the grounds of furnishing ‘inaccurate particulars’ as well as ‘concealment’ – Order passed by AO held void

7.  Fairdeal Tradelink Company vs. ITO Members:
Vikas Awasthy (J.M.) and G. Manjunatha (A.M.) ITA No.:
3445/Mum/2016 A.Y.:
2011-12 Date of
order: 5th November, 2019 Counsel
for Assessee / Revenue:  R.C. Jain and
Ajay D. Baga / Samatha Mullamudi

 

Section
271(1)(c) – AO initiated penalty proceedings on being satisfied that inaccurate
particulars of income were furnished but levied penalty on the grounds of
furnishing ‘inaccurate particulars’ as well as ‘concealment’ – Order passed by
AO held void

 

FACTS

In the assessment proceedings, STT on
speculative transactions was disallowed by the AO. Penalty proceedings u/s
271(1)(c) were initiated for filing inaccurate particulars of income.

 

However, while levying the penalty, the AO
mentioned both the charges of section 271(1)(c), i.e., furnishing of
‘inaccurate particulars of income’ as well as ‘concealment’. The assessee
challenged the penalty on the ground that a penalty can only be levied on the
grounds for which the proceedings were initiated.

 

HELD

On a perusal of
the records of the proceedings, the Tribunal noted that the AO, at the time of
recording satisfaction, had mentioned only about furnishing ‘inaccurate
particulars’ as the reason for initiation of penalty proceedings. However, at
the time of levy of penalty, he mentioned both the charges of section 271(1)(c)
of the Act, i.e., furnishing ‘inaccurate particulars’ and ‘concealment’.

 

According to the Tribunal, this reflected
the ambiguity in the mind of the AO with regard to levying penalty. Relying on
the decision of the Bombay High Court in the case of CIT vs. Samson
Perinchery (392 ITR 04), the Tribunal held that the order passed u/s
271(1)(c) suffered legal infirmity and hence was void.

 

Section 147 / 154 – AO cannot take recourse to explanation 3 to section 147 while invoking section 154 after the conclusion of proceedings u/s 147

6.  JDC Traders Pvt. Ltd. vs. Dy. Commissioner of
Income-tax Members: G.S.
Pannu (V.P.) and K. Narasimha Chary (J.M.) ITA No.:
5886/Del/2015 A.Y.: 2007-08 Date of order:
11th October, 2019 Counsel for
Assessee / Revenue: Sanat Kapoor / Sanjog Kapoor

Section 147 / 154 – AO cannot take recourse
to explanation 3 to section 147 while invoking section 154 after the conclusion
of proceedings u/s 147

 

FACTS

For the assessment year 2007-08, the
assessee filed his return of income declaring a total income of Rs. 65.33 lakhs
and the same was processed u/s 143(1). Subsequently, the AO reopened the
proceedings u/s 148 claiming escapement of income on account of purchase of
foreign exchange to the tune of Rs. 4.78 lakhs and made an addition thereof.
Later, on a perusal of the assessment records, he found that the assessee had
shown closing stock in the profit and loss account at Rs. 2.97 crores, whereas
in the schedule the same was shown as Rs. 3.32 crores, leaving a difference of
Rs. 34.54 lakhs. He, therefore, issued a notice u/s 154/155.

 

The assessee explained the reason for the
discrepancy and also submitted that the scope of section 154 does not permit
anything more than the rectification of the mistake that is apparent from the
record and that, insofar as the proceedings u/s 147 are concerned, there was no
mistake in the assessment order.

 

However, the AO as well as the CIT(A) did
not agree with the assessee’s contention. According to the CIT(A), explanation
3 to section 147 empowers the AO to assess or re-assess the income which had
escaped assessment and which comes to the notice of the AO subsequently in the
course of proceedings u/s 147.

 

The issue before
the Tribunal was whether the AO could take recourse to explanation 3 to section
147 to make the above addition after the conclusion of proceedings u/s 147.

 

HELD

According to the
Tribunal, had the AO re-assessed the issue relating to the closing stock in the
proceedings u/s 147, the assessee could not have objected to the AO’s action.
However, in the entire proceedings u/s 147 there was not even a whisper about
the closing stock. In such an event, the Tribunal found it difficult to accept
the argument of the Revenue that even after conclusion of the proceedings u/s
147, the AO can take recourse to explanation 3 to section 147 to make the
addition.

 

According to the Tribunal, if the argument
of the Revenue that u/s 154 the AO is empowered to deal with the escapement of
income in respect of which the reasons were not recorded even after the
assessment reopened u/s 147 is completed, then it would empower the AO to go on
making one addition after another by taking shelter of explanation 3 to section
147 endlessly. Such a course is not permissible. The power that is available to
the AO under explanation 3 to section 147 is not available to him u/s 154 after
the conclusion of the proceedings u/s 147.

Section 54F – Expenditure incurred by the assessee on remodelling, painting of the flat so that the same could be made habitable according to the standard of living of the assessee, forms part of cost of purchase and is admissible u/s 54F

3. Nayana Kirit
Parikh vs. ACIT (Mumbai) Members:
Sandeep Gosain (J.M.) and Rajesh Kumar (A.M.) ITA No.:
2832/Mum/2013 A.Y.: 2009-10 Date of order:
25th June, 2019 Counsel for
Assessee / Revenue: Rajen Damani / R.A. Dhyani

 

Section 54F –
Expenditure incurred by the assessee on remodelling, painting of the flat so
that the same could be made habitable according to the standard of living of
the assessee, forms part of cost of purchase and is admissible u/s 54F

 

FACTS

In the course
of assessment proceedings, the AO observed that the assessee had shown
long-term capital gain of Rs. 1,25,10,645 after claiming deduction of Rs.
1,54,50,250 u/s 54F of the Act. The assessee was asked to substantiate its
claim for deduction u/s 54F. The assessee submitted that she had acquired a new
residential property for Rs. 2,25,00,000 vide agreement dated 18th
March, 2009 jointly with her husband and incurred incidental expenditure of Rs.
15,00,500 thereon. Thus, the aggregate cost worked out to Rs. 2,40,00,500 of
which the assessee’s share was one–half, i.e., Rs. 1,20,00,250. The assessee
had also incurred an expenditure of Rs. 34,50,000 on the same flat to make it
habitable as per her standard of living and claimed deduction thereof u/s 54F
of the Act.

 

According to
the assessee, this sum of Rs. 34,50,000 formed part of the cost of the house as
it was incurred on electrification of the house, civil work, design planning,
plumbing, flooring, etc. According to the AO, the said expenditure was not
incurred on construction / improvement of the flat but on furniture,
fabrication and painting, etc. The AO held that the expenditure of Rs. 34,50,000
falls under the category of expenditure by way of renovation to make the flat
more comfortable and therefore is not liable to be allowable as part of the
cost of the flat. The AO denied benefit of section 54F to the extent of this
sum of Rs. 34,50,000.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who held that u/s 54F only amount
relating to agreement value, stamp duty, registration charges and professional
charges related to the purchase of the new flat could be claimed. The cost of
improvement and renovation are subsequent to the purchase and therefore cannot
be allowed as deduction u/s 54F of the Act. He upheld
the order of the AO on the ground that the expenditure of Rs. 34,50,000 has
been incurred to make the house more lavish.

 

HELD

The Tribunal
observed that the assessee incurred expenditure of Rs. 34,50,000 for
remodelling the flat, its painting and so on so that the same could be made
habitable according to her standard of living. The Tribunal held that the said
cost forms part of the cost of purchase and is admissible expenditure u/s 54F
of the Act. It noted that the case of the assessee is supported by various
judicial pronouncements and in particular the case of G. Siva Rama
Krishna, Hyderabad vs. ITO (ITA No. 755/Hyd./2013) A.Y. 2007-08; Ruskom Home
Vakil vs. ITO (ITA No. 4450/M/2014); and Mrs. Gulshabanoo R.
Mukhi vs. JCIT (2002) 83 ITR 649 (Mum.). The Hyderabad Bench in the
case of G. Siva Rama Krishna (Supra) has held that expenditure
incurred on remodelling the flat in the normal course after purchasing the
readymade flat is allowable u/s 54F of the Act. The Tribunal, following the decisions of the Co-ordinate Benches, set
aside the order of the CIT(A) and directed the AO to allow deduction of Rs.
34,50,000, being expenditure incurred by the assessee, also u/s 54F of the Act.

 

The appeal
filed by the assessee was allowed.

 

 

Section 234A – Interest u/s 234A can be charged only till the time tax is unpaid

2. Gulick Network Distribution vs. ITO (Mumbai) Members: Pawan Singh (J.M.) and M. Balaganesh (A.M.) ITA No. 2210/Mum/2019 A.Y.: 2010-11 Date of order: 21st June, 2019 Counsel for Assessee / Revenue: Gautam R. Mota / Satish Rajore

 

Section 234A –
Interest u/s 234A can be charged only till the time tax is unpaid

 

FACTS

The assessee, a
private limited company, engaged in the business of multi-level marketing, did
not file its return of income within the time prescribed u/s 139 or 139(5). The
assessee filed its return of income manually on 7th May, 2014
declaring total income of Rs. 16,49,960 under normal provisions and Rs.
1,39,326 u/s 115JB of the Act. The AO received information in Individual
Transaction Statement (ITS) that the assessee company was in receipt of credit
of Rs. 16,49,960 and that the assessee failed to disclose the said income for
the relevant assessment year.

 

The AO issued
and served notice u/s 148 dated 30th March, 2017 and selected the
case for scrutiny. In response to the notice u/s 148, the assessee filed return
on 23rd June, 2017. The assessment was completed on 13th
October, 2017 u/s 143(3) r/w/s 147 and no addition was made to the returned
income. The AO, while passing assessment order, raised a demand of Rs. 5,81,470
on account of interest u/s 234A and 234B.

 

The due date of
filing return of income for the assessment year under consideration, i.e., A.Y.
2010-11, was 15th October, 2010. From the calculation of interest
levied by the AO, the assessee noted that since the assessee paid tax on 24th
March, 2014 he was liable to pay interest for 42 months (from 15th
October, 2010 to 24th March, 2014) and not for the period of 81
months (from 15th October, 2010 to 30th June, 2017) as
charged by the AO.

 

On 22nd
December, 2017 the assessee applied for rectification u/s 154 seeking
rectification of the working of the interest. The AO partially rectified the
mistake vide order dated 9th January, 2018.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who confirmed the order passed by
the AO on an application u/s 154 of the Act.

 

Still
aggrieved, the assessee preferred an appeal to the Tribunal where he relied
upon the decision of the Mumbai Bench of the Tribunal in the case of Ms
Priti Prithwala vs. ITO [(2003) 129 Taxman 79 (Mum.)]. It was also
submitted that in the subsequent assessment year, on similar facts, no such
interest was charged from the assessee.

 

HELD

At the outset,
the Tribunal observed that, in principle, it is in agreement with the
calculation of interest as furnished by the assessee. It observed that in the
subsequent year, on similar facts, no such interest was charged by the Revenue.
It noted that the Co-ordinate Bench of the Tribunal had in the case of Priti
Prithwala (Supra) held that the words ‘regular assessment’ are used in
the context of computation. It does not show that the order passed u/s 143(3) /
144 shall be substituted by section 147. Considering the finding of the
Co-ordinate Bench and the fact that the assessee submitted that the assessee
could not be made liable to pay interest for the period during which it was not
possible on their part to file the return of income, the Tribunal directed the
AO to re-compute the interest up to the date of filing of the return.

 

The appeal
filed by the assessee was allowed.

 

Section 50C – In the course of assessment proceedings if the assessee objects to adoption of stamp duty value as deemed sale consideration, for whatever reason, it is the duty of the AO to make a reference to the DVO for determining the value of the property sold

1. Aavishkar
Film Pvt. Ltd. vs. ITO (Mumbai) Members:
Saktijit Dey (J.M.) and G. Manjunatha (A.M.) ITA No.
2256/Mum/2016 A.Y.: 2011-12 Date of order:
21st June, 2019 Counsel for
Assessee / Revenue: Deepak Tralshawala / Jothi Lakshmi Nayak

 

Section 50C –
In the course of assessment proceedings if the assessee objects to adoption of
stamp duty value as deemed sale consideration, for whatever reason, it is the
duty of the AO to make a reference to the DVO for determining the value of the
property sold

 

FACTS

During the previous year relevant to the assessment year under
consideration, the assessee sold a residential flat for Rs. 1,75,00,000. The AO
in the course of assessment proceedings called for stamp duty value of the flat
sold by the assessee from the office of the Registrar. The stamp duty value of
the flat was Rs. 2,51,45,500. The AO called upon the assessee to explain why
short-term capital gains should not be computed by adopting the stamp duty
valuation.

 

The assessee
vide his letters dated 7th March, 2014 and 25th March,
2014 objected to adoption of stamp duty valuation. The assessee had
specifically stated the reasons for which the sale consideration received by
the assessee is reasonable and said that since the property was encumbered it
could not have fetched the value as determined by the stamp valuation
authority.

 

The AO,
rejecting the arguments of the assessee, proceeded to compute the capital gains
by adopting the stamp duty value to be the full value of consideration.

 

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

The assessee
then preferred an appeal to the Tribunal where it was contended that on the
face of the objection raised by the assessee, the AO should have made a
reference to the DVO for determining the value of the property and the stamp
duty valuation could not be adopted as the deemed sale consideration
considering the fact that the property was encumbered.

 

HELD

The Tribunal
noted that the issue before it is whether as per section 50C(2) of the Act, it
is mandatory on the part of the AO to make a reference to the DVO to determine
the value of the property. The Tribunal held that since in the course of
assessment proceedings the assessee objected to adoption of stamp duty value as
the deemed sale consideration, for whatever reason, it was the duty of the AO
to make a reference to the DVO for determining the value of the property sold.

 

The Tribunal
found the contention of the Department, viz., that the reference to DVO was not
made because the assessee raised the objection before the AO purposely at the
fag end to see to it that the proceeding gets barred by limitation, to be
unacceptable. It observed that even the CIT(A) could have directed the AO to
get the valuation of the property done by the DVO and thereafter proceeded in
accordance with law.

 

The Tribunal noted the ratio of the decisions of the Madras High Court
in the case of S. Muthuraja vs. CIT [(2014) 369 ITR 483 (Mad.)]
and also observed that the Calcutta High Court in Sunil Kumar Agarwal vs.
CIT [(2015) 372 ITR 83 (Cal.)] has gone a step further to observe that
valuation by DVO is contemplated u/s 50C to avoid miscarriage of justice. The
Calcutta High Court has held that when the legislature has taken care to
provide adequate machinery to give a fair treatment to the taxpayer, there is
no reason why the machinery provided by the legislature should not be used and
the benefit thereof should be refused. The Court observed that even in a case
where no request is made by the assessee to make a reference to the DVO, the AO
while discharging a quasi judicial function is duty-bound to act fairly
by giving the assessee an option to follow the course provided by law to have
the valuation made by the DVO.

 

The Tribunal held that the AO should have followed the mandate of
section 50C(2) of the Act by making a reference to the DVO to determine the
value of the property sold. The AO having not done so and the CIT(A) also
failing to rectify the error committed by the AO, the Tribunal restored the
issue to the AO with a direction to make a reference to the DVO to determine
the value of the property sold in terms of section 50C(2) of the Act and
thereafter proceed to compute capital gain in accordance with law.

 

The Tribunal
did not delve into the issue relating to actual value of the property on
account of certain prevailing conditions like encumbrance, etc., as these
issues are available to the assessee for agitating in the course of proceedings
before the DVO.

 

The Tribunal
set aside the impugned order of the CIT(A) and restored the issue to the AO for
fresh adjudication in terms of its direction.

 

Section 271(1)(c) – Imposition of penalty on account of inadvertent and bona fide error on the part of the assessee would be unwarranted

15. 
Rasai Properties Pvt. Ltd. vs. DCITITAT Mumbai: ShamimYahya (AM) and
Ravish Sood (JM) ITA No. 770/Mum./2018 A.Y.: 2013-14 Date of order: 28th June, 2019; Counsel for Assessee / Revenue: Nilesh Kumar
Bavaliya / D.G. Pansari

 

Section 271(1)(c) – Imposition of penalty
on account of inadvertent and bona fide error on the part of the
assessee would be unwarranted

 

FACTS

For the assessment year under consideration,
the assessee filed its return of income declaring total income of Rs.
80,19,650. In the schedule of Block of Assets, there was a disclosure of a sum
of Rs. 67,00,000 against caption ‘Deductions’ under immovable properties.

 

On being queried about the nature of the
aforesaid deduction, the assessee submitted that the same pertained to certain
properties which were sold during the year under consideration. The AO called
upon the assessee to explain why it had not offered the income from the sale of
the aforementioned properties under the head income from ‘Long-Term Capital
Gain’ (LTCG). In response, the assessee offered long-term capital gain of Rs.
19,45,176 and also made a disallowance of Rs. 93,453 towards excess claim of
municipal taxes.

 

In the assessment order, the AO initiated
penalty proceedings u/s 271(1)(c) for furnishing of inaccurate particulars of
income and concealment of income in the context of the aforesaid addition /
disallowance. Subsequently, the AO being of the view that the assessee had
filed inaccurate particulars of income within the meaning of 271(1)(c) r.w.
Explanation 1, imposed a penalty of Rs. 6,29,936.

 

Aggrieved, the assessee preferred an appeal
to the CIT(A) who deleted the penalty with reference to the disallowance of Rs.
93,453 but confirmed it with reference to addition of long-term capital gain
which was offered for taxation in the course of the assessment proceedings.

 

Aggrieved, the assessee preferred an appeal
to the Tribunal where it was contended that the LTCG on the sale of three shops
had, on account of a bona fide mistake on the part of the assessee, had
not been shown in the return of income.

 

The fact that the assessee had never
intended to withhold sale of the property under consideration could safely be
gathered from a perusal of the chart of the tangible fixed assets that formed
part of its balance sheet for the year under consideration, wherein a deduction
of Rs. 67,00,000 was disclosed by the assessee.

 

Besides, on learning of his mistake, the
assessee had immediately worked out the LTCG on the sale of the aforementioned
properties and had offered the same for tax in the course of the assessment
proceedings.

 

HELD

The Tribunal noted that while the assessee
had admittedly failed to offer the LTCG on the sale of three shops for tax in
its return of income for the year under consideration, at the same time, the
‘chart’ of the ‘block of assets’ of tangible fixed assets, forming part of the
balance sheet of the assessee as ‘Note No. 6’ to the financial statements for
the year ended 31st March, 2013 clearly reveals that the assessee
had duly disclosed the deduction of Rs. 67,00,000 from the block of fixed
assets. The Tribunal also found that the assessee in the course of the
assessment proceedings on learning about its aforesaid inadvertent omission and
not offering the LTCG on the sale of the aforesaid shops, had worked out its
income under the said head and offered the same for tax.

 

The Tribunal held that:

(a) when the assessee had disclosed the
deduction of Rs. 67,00,000 pertaining to sale of the aforesaid three shops from
the ‘block of assets’ in its balance sheet for the year under consideration,
therefore, there is substantial force in its claim that the failure to offer
LTCG on the sale of the said shops had inadvertently been omitted to be shown
in the return of income for the year under consideration;

(b) imposition of penalty u/s 271(1)(c)
would be unwarranted in a case where the assessee had committed an inadvertent
and bona fide error and had not intended or attempted to either conceal
its income or furnish inaccurate particulars;

(c) its aforesaid view is fortified by the
judgement of the Supreme Court in the case of PriceWaterHouse Coopers
Pvt. Ltd. vs. CIT(2012) 348 ITR 306;

(d) imposition of penalty u/s 271(1)(c)
would be unwarranted on account of the aforesaid inadvertent and bona fide
error on the part of the assessee.

 

The Tribunal set aside the order of the
CIT(A) and deleted the penalty imposed by the AO u/s 271(1)(c). The appeal
filed by the assessee was allowed.

 

Section 254(2) – If the appeal against the order of the Tribunal has already been admitted and a substantial question of law has been framed by the Hon’ble High Court, the Tribunal cannot proceed with the Miscellaneous Application u/s 254(2) of the Act

14. 
Ratanlal C. Bafna vs. JCIT ITAT Pune; Members: Anil Chaturvedi (AM) and
Vikas Awasthy (JM) MA No. 97/Pune/2018 in ITA No. 204/Pune/2012 A.Y.: 2008-09 Date of order: 15th March, 2019; Counsel for Assessee / Revenue: Sunil Ganoo
/ Ashok Babu

 

Section 254(2)
– If the appeal against the order of the Tribunal has already been admitted and
a substantial question of law has been framed by the Hon’ble High Court, the
Tribunal cannot proceed with the Miscellaneous Application u/s 254(2) of the
Act

 

FACTS

For the captioned assessment year, the
assessee preferred an application u/s 254(2) against the order of the Tribunal
in ITA No. 204/Pune/2012 for A.Y. 2008-09 on the ground that while adjudicating
the said appeal the Tribunal had not adjudicated ground No. 12 of the appeal,
although the same was argued before the Bench.

 

Aggrieved by the order of the Tribunal in
ITA No. 204/Pune/2012 for A.Y. 2008-09, the assessee had preferred an appeal to
the Bombay High Court which was admitted by the Court vide order dated 26th
November, 2018 (in ITA No. 471 and 475 of 2016) for consideration of
substantial question of law.


Since the present M.A. was the second M.A.
against the impugned order of the Tribunal, the Bench raised a query as to
whether a second M.A. is maintainable since the first M.A. against the same
order has been dismissed by the Tribunal. In response, the assessee submitted
that the second M.A. is maintainable because it is on an issue which was not a
subject matter of the first M.A. For this proposition, reliance was placed on
the decision of the Kerala High Court in CIT vs. Aiswarya Trading Company
(2011) 323 ITR 521, the decision of the Allahabad High Court in Hiralal
Suratwala vs. CIT 56 ITR Page 339 (All.) and the decision
of the Gujarat High Court in CIT vs. Smt. Vasantben H. Sheth (2015) 372
ITR 536 (Guj.).

 

At the time of hearing, the assessee relied
on the decision of the Bombay High Court in R.W. Promotions Private
Limited (W.P. No. 2238/2014) decided on 8th April, 2015 to
support its contention that even though the assessee has filed an appeal
against the order of the Tribunal, the Tribunal can still entertain an
application u/s 254(2) of the Act seeking rectification of the order passed by
it. Relying on this decision, it was contended that since ground No. 12 of the
appeal has not been adjudicated, the Tribunal can recall the order to decide
the said ground.

 

HELD

The Tribunal observed that it is a settled
law that the judgement must be read as a whole and the observations made in a
judgement are to be read in the context in which they are made; for this
proposition it relied on the decision of the Bombay High Court in Goa
Carbon Ltd. vs. CIT (2011) 332 ITR 209 (Bom.).

 

It observed
that the slightest change in the facts changes the factual scenario and makes
one case distinguishable from the other. It observed that the Kolkata Bench of
the Tribunal in Subhlakshmi Vanijya (P) Ltd. vs. CIT (2015) 60
taxmann.com 60 (Kolkata – Trib.) has noted as under:

 

‘13.d It is a well settled legal position
that every case depends on its own facts. Even a slightest change in the
factual scenario alters the entire conspectus of the matter and makes one case
distinguishable from another. The crux of the matter is that the ratio of any
judgement cannot be seen divorced from its facts.’

 

The Tribunal noted that in the case of R.W.
Promotions Pvt. Ltd. (Supra), the assessee had filed an appeal u/s 260A
of the Act before the High Court but the appeal was yet to be admitted. It was
in such a fact pattern that the Court held that the Tribunal has power to
entertain an application u/s 254(2) of the Act for rectification of mistake. In
the present case, however, it is not a case where the assessee has merely filed
an appeal before the High Court but it is a case where the High Court has
admitted the appeal for consideration after framing substantial question of
law.  On account of this difference in
the facts, the Tribunal held that the facts in the case of R.W.
Promotions (Supra) and the present case are distinguishable.

 

The Tribunal noted that the Gujarat High
Court in the case of CIT vs. Muni Seva Ashram (2013) 38 taxmann.com 110
(Guj.) has held that when an appeal has been filed before the High Court,
the appeal is admitted and substantial question of law has been framed in the
said appeal, then the Tribunal cannot recall the order.

 

The Tribunal held that since the appeal
against the order of the Tribunal has already been admitted and a substantial
question of law has been framed by the High Court, the Tribunal cannot proceed
with the miscellaneous application u/s 254(2) of the Act.

 

Hence, the Tribunal dismissed the
miscellaneous application u/s 254(2) of the Act seeking rectification in the
order of the Tribunal as being not maintainable.

 

Section 50C – Third proviso to section 50C inserted w.e.f. 1st April, 2019 providing for a safe harbour of 5%, is retrospective in operation and will apply since date of introduction of section 50C, i.e., w.e.f. 1st April, 2003, since the proviso is curative and removes an incongruity and avoids undue hardship to assessees

13. 
Chandra Prakash Jhunjhunwala vs. DCIT (Kol.) Members: A.T. Varkey (JM) and Dr. A.L. Saini
(AM) ITA No. 2351/Kol./2017 A.Y.: 2014-15 Date of order: 9th August, 2019; Counsel for Assesssee / Revenue: Manoj
Kataruka / Robin Chowdhury

 

Section 50C – Third proviso to section 50C
inserted w.e.f. 1st April, 2019 providing for a safe harbour of 5%,
is retrospective in operation and will apply since date of introduction of
section 50C, i.e., w.e.f. 1st April, 2003, since the proviso is
curative and removes an incongruity and avoids undue hardship to assessees

 

FACTS

The assessee in his return of income
declared total income to be Nil and claimed current year’s loss to be Rs. 1,19,46,383. In the course of assessment proceedings, the AO noticed that
the assessee had on 14th December, 2013 transferred his property at
Pretoria Street, Kolkata for a consideration of Rs. 3,15,00,000 and had
declared long-term capital gain of Rs. 1,22,63,576 on transfer thereof. The
stamp duty value (SDV) of this property was Rs. 3,27,01,950. In response to the
show cause notice issued by the AO as to why the SDV should not be adopted as
full value of consideration, the assessee asked the AO to make a reference to
the DVO to ascertain the fair market value of the property. Accordingly, the
reference was made but the DVO did not submit his report within the specified
time and the AO completed the assessment by adopting SDV to be the full value
of consideration.

 

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

 

HELD

The Tribunal observed that:

(i) the fundamental purpose of introducing
section 50C was to counter suppression of sale consideration on sale of
immovable properties, and this section was introduced in the light of the
widespread belief that sale transactions of land and buildings are often
undervalued resulting in leakage of legitimate tax revenues;

(ii) the variation between SDV and the sale
consideration arises because of many factors;

(iii) Stamp duty value and the sale
consideration, these two values represent the values at two different points
of time;

(iv) in order to minimise hardship in case
of genuine transactions in the real estate sector, it was proposed by the
Finance Act, 2018 that no adjustments shall be made in a case where the
variation between the SDV and the sale consideration is not more than 5% of the
sale consideration. This amendment is with effect from 1st April,
2019 and applies to assessment year 2019-20 and subsequent years;

(v) the co-ordinate Bench of the ITAT
Mumbai, in the case of John Fowler (India) Ltd. in ITA No.
7545/Mum./2014, for AY 2010-11, order dated 25.1.2017 held that if the
difference between valuation adopted by the Stamp Valuation Authority and
declared by the assessee is less than 10%, the same should be ignored and no
adjustments shall be made.

 

The Tribunal noted that the amendment made
by the Finance Act, 2018 is introduced only with prospective effect from 1st
April, 2019. It noted that the observations in the memorandum explaining the
provisions of the Finance Bill, 2018 make it abundantly clear that the
amendment is made to remove an incongruity, resulting in undue hardship to the
assessee. Relying on the decision of the Delhi High Court in the case of CIT
vs. Ansal Landmark Township (P) Ltd., the Tribunal held that once it is
not in dispute that a statutory amendment is made to remove an apparent
incongruity, such an amendment has to be treated as effective from the date on
which the law containing such an undue hardship or incongruity was introduced.

 

The Tribunal held that the insertion of the
third proviso to section 50C of the Act is declaratory and curative in nature.
The third proviso relates to computation of value of property and hence is not
a substantive amendment, it is only a procedural amendment and therefore the
co-ordinate Benches of ITAT used to ignore the variation of up to 10%, and
hence the said amendment should be retrospective. The third proviso to section
50C should be treated as curative in nature with retrospective effect from 1st
April, 2003,. i.e., the date from which section 50C was introduced.

 

Since the difference between the SDV and the
consideration was less than 5%, the Tribunal deleted the addition made by the
AO and confirmed by the CIT(A).

 

This ground of
the appeal filed by the assessee was allowed.

Section 56(2)(vii) – The amount received by the assessee from the HUF, being its member, is a capital receipt in his hands and is not exigible to income tax If the decisions passed by the higher authorities are not followed by the lower authorities, there will be chaos resulting in never-ending litigation and multiplication of cases

12. 
Pankil Garg vs. PCIT ITAT Chandigarh; Members: Sanjay Garg (JM)
and Ms Annapurna Gupta (AM) ITA No.: 773/Chd./2018 A.Y.: 2011-12 Date of order: 3rd August, 2019; Counsel for Assessee / Revenue: K.R. Chhabra
/ G.S. Phani Kishore

 

Section 56(2)(vii) – The amount received by
the assessee from the HUF, being its member, is a capital receipt in his hands
and is not exigible to income tax

 

If the decisions passed by the higher
authorities are not followed by the lower authorities, there will be chaos
resulting in never-ending litigation and multiplication of cases

 

FACTS

For the assessment year under consideration,
the AO completed the assessment of total income of the assessee u/s 143(3) of
the Act by accepting returned income of Rs. 14,32,982. Subsequently, the AO
issued a notice u/s 147 on the ground that the assessee has received a gift of
Rs. 5,90,000 from his HUF and since the amount of gift was in excess of Rs.
50,000, the same was taxable u/s 56(2)(vii) of the Act.

 

In the course of reassessment proceedings,
the assessee contended that the amount received by him from his HUF was not
taxable and relied upon the decision of the Rajkot Bench of the Tribunal in Vineetkumar
Raghavjibhai Bhalodia vs. ITO [(2011) 46 SOT 97 (Rajkot)] which was
followed by the Hyderabad Bench (SMC) of the Tribunal in Biravel I.
Bhaskar vs. ITO [ITA No. 398/Hyd./2015; A.Y. 2008-09; order dated 17th
June, 2015] wherein it has been held that HUF being a group of
relatives, a gift by it to an individual is nothing but a gift from a group of
relatives; and further, as per the exclusions provided in clause 56(2)(vii) of
the Act, a gift from a relative is not exigible to taxation; hence, the gift
received by the assessee from the HUF is not taxable. The AO accepted the
contention of the assessee and accepted the returned income in an order passed
u/s 147 r.w.s. 143(3) of the Act.

 

Subsequently, the Ld. PCIT, invoking
jurisdiction u/s 263 of the Act, set aside the AO’s order and held that the HUF
does not fall in the definition of relative in case of an individual as provided
in Explanation to clause (vii) to section 56(2) as substituted by the Finance
Act, 2012 with retrospective effect from 1st October, 2009. Though
the definition of a ‘relative’ in case of an HUF has been extended to include
any member of the HUF, yet, in the said extended definition, the converse case
is not included. In the case of an individual, the HUF has not been mentioned
in the list of relatives.

 

The PCIT, thus, formed a view that though a
gift from a member to the HUF was not exigible to taxation as per the
provisions of section 56(2)(vii) of the Act, a gift by the HUF to a member
exceeding a sum of Rs. 50,000 was taxable.

The PCIT also held that the decisions of the
Rajkot and the Hyderabad Benches of the Tribunal relied upon by the assessee were
not in consonance with the statutory provisions of sections 56(2)(vii) and
10(2) of the Act and, thus, the AO had made a mistake in not taking recourse to
the clear and unambiguous provisions of section 56(2)(vii) of the Act and in
unduly placing reliance on judicial decisions which were not in accordance with
the provisions of law.

 

The order passed by the AO was held by the
PCIT to be erroneous and prejudicial to the interest of Revenue and was set aside. The AO was directed to make assessment afresh.

 

Aggrieved, the assessee preferred an appeal
to the Tribunal.

 

HELD

The Tribunal noted that the AO had duly
applied his mind to the issue and followed the decisions of the co-ordinate
Benches of the Tribunal; hence, the order of the AO cannot be held to be
erroneous and, therefore, the PCIT wrongly exercised jurisdiction u/s 263 of
the Act and the same cannot be held to be justified and is liable to be set
aside on this score alone.

 

The Tribunal held that the PCIT neither had
any power nor any justification to say that the AO should not have placed
reliance on the judicial decisions of the Tribunal. The Tribunal held that if
such a course is allowed to subsist, then there will be no certainty and
finality to the litigation. If the decisions passed by the higher authorities
are not followed by the lower authorities, there will be chaos resulting in
never-ending litigation and multiplication of cases. The Tribunal held that the
impugned order of the PCIT is not sustainable as per law.

 

On merits, the Tribunal, after discussing
the concept of HUF and the provisions of sections 56(2)(vii) and 10(2), held
that any amount received by a member of the HUF, even out of the capital or
estate of the HUF cannot be said to be income of the member exigible to
taxation. Since a member has a pre-existing right in the property of the HUF,
it cannot be said to be a gift without consideration by the HUF or by other
members of the HUF to the recipient member. The Tribunal observed that
provisions of section 56(2)(vii) are not attracted when an individual member
receives any sum either during the subsistence of the HUF for his needs or on
partition of the HUF in lieu of his share in the joint family property.
However, the converse is not true, that is, in case an individual member throws
his self-acquired property into the common pool of an HUF. The HUF or its
members do not have any pre-existing right in the self-acquired property of a
member. If an individual member throws his own / self-acquired property in the
common pool, it will be an income of the HUF; however, the same will be exempt
from taxation as the individual members of an HUF have been included in the
meaning of relative as provided in the Explanation to section 56(2)(vii) of the
Act. It is because of this salient feature of the HUF that in case of an
individual the HUF has not been included in the definition of relative in
Explanation to section 56(2)(vii), whereas in the case of an HUF, members of
the HUF find mention in the definition of relative for the purpose of the said
section.

 

In view of the above discussion, the amount
received by the assessee from the HUF, being its member, is a capital receipt
in his hands and is not exigible to income tax.

 

The Tribunal allowed the appeal of the
assessee.

 

Section 271(1)(c) – Assessee cannot be accused of either furnishing inaccurate particulars of income or concealing income in a case where facts are on record and all necessary information relating to expenditure has been fully disclosed in the financial statements and there is only a difference of opinion between the assessee and the AO with regard to the nature of the expenditure

9 DCIT vs. Akruti Kailash Construction (Mum.) Members: Saktijit Dey (J.M.) and Manoj Kumar
Aggarwal (A.M.) ITA No. 1978/Mum/2018 A.Y.: 2012-13 Date of order: 11th October, 2019

Counsel for Revenue / Assessee: Manoj Kumar
/ Pavan Ved

 

Section
271(1)(c) – Assessee cannot be accused of either furnishing inaccurate
particulars of income or concealing income in a case where facts are on record
and all necessary information relating to expenditure has been fully disclosed
in the financial statements and there is only a difference of opinion between
the assessee and the AO with regard to the nature of the expenditure

 

FACTS

The assessee firm, engaged in the business of property development,
filed its return of income for A.Y. 2012-13 on 31st July, 2012
declaring a loss of Rs. 3,36,32,538. The AO, in the course of assessment
proceedings, noted that the assessee has offered interest income of Rs. 70,492
under the head ‘Income from Other Sources’, whereas it has shown a loss of Rs.
3,43,45,900 under the head ‘Income from Business’. He noticed that the loss was
mainly due to various expenses such as administrative, employee costs, etc.,
which have been debited to the P&L account.

 

The AO held that
since the assessee has undertaken a single development project during the year,
the expenditure should have been capitalised and transferred to
work-in-progress and should not have been debited to the P&L account. The
AO, accordingly, disallowed the loss claimed which resulted in determination of
income at Rs. 5,70,840. The assessee did not contest the decision.

 

The AO initiated
proceedings for imposition of penalty u/s 271(1)(c) alleging furnishing of
inaccurate particulars of income and concealment of income. Rejecting the
explanation of the assessee, he imposed a penalty of Rs. 1,06,12,880 u/s
271(1)(c).

 

Aggrieved, the
assessee preferred an appeal to CIT(A) who allowed the appeal holding that
merely because the expenditure was required to be capitalised would not lead to
either concealment of income or furnishing of inaccurate particulars of income.
He observed that treating the expenditure as WIP is mere deferral of income and
that there was no taxable income and tax payable even after assessment and
thus, there cannot be a motive on the part of the assessee to evade tax. The
CIT(A) deleted the penalty levied by the AO.

 

Aggrieved, the
Revenue preferred an appeal to the Tribunal.

 

HELD

The Tribunal
observed that the AO has neither doubted nor disputed the genuineness of
expenditure incurred by the assessee. In the AO’s opinion, since the
development of the project undertaken by the assessee is in progress, instead
of debiting the expenditure to the P&L account the assessee should have
capitalised it by transferring it to WIP. Thus, it held that there is only a
difference of opinion between the assessee and the AO with regard to the nature
of expenditure. It observed that it is also a fact on record that all the
necessary information relating to the expenditure has been fully disclosed by
the assessee in the financial statements. In such circumstances, the assessee
cannot be accused of either furnishing inaccurate particulars of income or
concealing income. It held that the CIT(A) has rightly held that there is no
dispute with regard to the development of the project by the assessee and
treating the expenses as work-in-progress is merely deferral of expenses.

 

The Tribunal upheld the decision of the CIT(A) in deleting the penalty
and dismissed the appeal filed by the Revenue.

Section 80AC – The condition imposed u/s 80AC of the Act is mandatory – Accordingly, upon non-fulfilment of condition of section 80AC, the assessee would be ineligible to claim deduction u/s 80IB(10) of the Act

8 Uma Developers vs.
ITO (Mum.) Members: Saktijit
Dey (J.M.) and N.K. Pradhan (A.M.) ITA No.
2164/Mum/2016 A.Y.: 2012-13 Date of order: 11th
October, 2019

Counsel for Assessee
/ Revenue: Rajesh S. Shah / Chaudhary Arun Kumar Singh

 

Section 80AC – The condition imposed u/s 80AC of the Act is mandatory –
Accordingly, upon non-fulfilment of condition of section 80AC, the assessee would be ineligible to
claim deduction u/s 80IB(10) of the Act

 

FACTS

The assessee, a partnership firm, in its business as builders and
developers undertook construction of a housing project at Akash Ganga Complex,
Ghodbunder Road, Thane. For the assessment year under dispute (2012-13), the
assessee filed its return of income on 31st March, 2013 declaring
nil income after claiming deduction u/s 80IB(10) of the Act. In the course of
assessment proceedings, the AO while examining the assessee’s claim of
deduction u/s 80IB(10) found that conditions of section 80AC have been
violated, issued show-cause notice requiring the assessee to show cause as to
why the deduction claimed u/s 80IB(10) should not be disallowed. In the said
notice, the AO also alleged several violations of various other conditions prescribed
u/s 80IB(10). The AO also conducted independent inquiry with the Thane
Municipal Corporation. In response, the assessee filed its reply justifying the
claim of deduction u/s 80IB(10). As regards non-compliance with the provisions
of section 80AC, the assessee submitted that the said provision is directory
and not mandatory.

 

The AO was of the
view that as per section 80AC, for claiming deduction u/s 80IB(10) the assessee
must file its return of income within the due date of filing return of income u/s
139(1). He held that since the assessee had not filed its return within such
due date, as per section 80AC the assessee would not be eligible to claim
deduction u/s 80IB(10). The AO also held that certain conditions of section
80IB(10) have also not been fulfilled by the assessee. The AO rejected the
assessee’s claim of deduction u/s 80IB(10).

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who was of the view that due to
non-compliance with the provisions of section 80AC, the assessee is not eligible
to claim deduction u/s 80IB(10). Since he upheld the disallowance, he did not
venture into other issues relating to non-fulfilment of conditions of section
80IB(10) itself.

 

Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD

The Tribunal
observed that the issue before it lies in a very narrow compass, viz., whether
the condition imposed u/s 80AC is mandatory and, if so, whether on
non-fulfilment of the said condition, the assessee would be ineligible to claim
deduction u/s 80IB(10).

 

It held that on a
reading of section 80AC of the Act, the impression one gets is that the
language used is plain and simple and leaves no room for any doubt or
ambiguity. Therefore, the provision has to be interpreted on the touchstone of
the ratio laid down in the Constitution Bench decision of the Hon’ble
Supreme Court in the case of Commissioner of Customs (Import) vs. Dilip
Kumar & Co. & Ors., C.A. No. 3327/2007, dated 30th July,
2018.

 

Having discussed
the ratio of this decision (Supra), the Tribunal held that
applying the principle laid down in the aforesaid decision of the Supreme Court
to the facts of the present case, it is quite clear that as per the provision
of section 80AC, which is very clear and unambiguous in its expression, for
claiming deduction u/s 80IB(10) it is a mandatory requirement that the assessee
must file its return of income within the due date prescribed u/s 139(1),
notwithstanding the fact whether or not the assessee has actually claimed
deduction in the said return of income. Once the return of income is filed
within the due date prescribed u/s 139(1), even without claiming deduction
under the specified provisions, the assessee can claim it subsequently either
in a revised return filed u/s 139(5) or by filing a revised computation during
the assessment proceeding. In that situation, the condition of section 80AC
would stand complied. The words used in section 80AC of the Act being plain and
simple, leave no room for a different interpretation.

 

Therefore, as per
the ratio laid down by the Supreme Court in the decision cited (Supra),
the provision contained in section 80AC has to be construed strictly as per the
language used therein. Otherwise, the very purpose of enacting the provision
would be defeated and the provision would be rendered otiose.

 

The Tribunal noted
that –

(i)    The Pune Bench of the Tribunal in the case of
Anand Shelters and Developers supports the
condition of the AR that the provision of section 80AC is directory. It
observed that the foundation of this decision is the decision of the Andhra
Pradesh High Court in ITO vs. S. Venkataiah, ITA No. 114/2013, dated 26th
June, 2013, as well as some other decisions of the Tribunal;

(ii)    The Calcutta High Court in the case of CIT
vs. Shelcon Properties Private Limited [(2015) 370 ITR 305 (Cal.)] and
the Uttarakhand High Court in Umeshchandra Dalakot [ITA No. 07/2012,
dated 27th August, 2012 (Uttarakhand HC)] have clearly and
categorically held that the provision contained in section 80AC is mandatory;

(iii)   The Special Bench of the Tribunal in Saffire
Garments [(2013) 140 ITD 6] while considering pari material
provision contained under the proviso to section 10A(1A) of the Act, has
held that the condition imposed requiring furnishing of return of income within
the due date prescribed u/s 139(1) for availing deduction is mandatory.

 

The Tribunal
observed that the Delhi High Court in CIT vs. Unitech Ltd., ITA No.
236/2015, dated 5th October, 2015 while considering a
somewhat similar issue relating to the interpretation of section 80AC has
observed that while the decisions of the Calcutta High Court in Shelcon
Properties Pvt. Ltd. (Supra) and of Uttarakhand High Court in Umeshchandra
Dalakot (Supra) are directly on the issue and support the case of the
Revenue that section 80AC is mandatory, but the Court observed that the
decision of the Andhra Pradesh High Court in S. Venkataiah (Supra) was
one declining to frame a question of law thereby affirming the order of the
Tribunal. Thus, ultimately the Delhi High Court left open the issue whether the
provision of section 80AC is directory or mandatory.

 

The Tribunal also
held that:

(a)   after the decision of the Supreme Court in Dilip
Kumar & Co. & Ors. (Supra) the legal position has materially
changed and the provisions providing for exemption / deduction have to be
construed strictly in terms of the language used therein, and if there is any
doubt, the benefit should go in favour of the Revenue;

(b)   the Pune Bench of the Tribunal, while deciding
the issue on the basis that if there are two conflicting views on a particular
issue, the view favourable to the assessee has to be taken, did not have the
benefit of the aforesaid judgment of the Supreme Court while rendering its
decision;

(c)   the condition imposed u/s 80AC has to be
fulfilled for claiming deduction u/s 80IB(10). Since the assessee has not
fulfilled the aforesaid condition, the deduction claimed u/s 80IB(10) has been
rightly denied by the Department.

 

The Tribunal upheld
the order passed by the CIT(A) and dismissed the appeal filed by the assessee.

 

Section 74 – Long-term capital loss on sale of listed equity shares is allowed to be carried forward

5.  United Investments vs. ACIT (Kol.) Members: A.T.
Varkey (J.M.) and M. Balaganesh (A.M.) ITA No.:
511/Kol/2017 A.Y.: 2013-14 Date of order:
1st July, 2019

Counsel for
Assessee / Revenue: S. Jhajharia / Sankar Halder

 

Section 74 –
Long-term capital loss on sale of listed equity shares is allowed to be carried
forward

 

FACTS

The assessee
was engaged in the business of horse-racing and also as a commission agent. It
had deployed its surplus funds by way of investments in listed shares and
securities. During the year it had derived long-term capital gain of Rs. 0.77
lakh and suffered long-term capital loss of Rs. 6.05 lakhs on the sales of
listed shares. In the return of income, the assessee carried forward the
long-term capital loss. However, the CIT(A) rejected the same since, according
to him, the gain derived from the sales of listed shares was exempt.

 

Being
aggrieved, the assessee appealed before the Tribunal where the Revenue
supported the orders of the lower authorities and submitted that the term
‘income’ included negative income, i.e., loss as well. Thus, when the profit
from transfer of shares of listed companies was exempt u/s 10(38), then as a
corollary the loss arising from such source also cannot be set off against any
other income which is chargeable to tax.

 

HELD

The Tribunal
noted that the judicial authorities, including the Apex Court in the case of CIT
vs. J.H. Gotla (156 ITR 323), have held that the expression ‘income’
includes loss. The Tribunal further noted that the decision of the Apex Court
was in the context of clubbing of a minor’s income with that of the parents u/s
64, when the Court held that the loss legally assessable in the hands of the
minor was also required to be clubbed in the hands of the parent. In the said
case, according to the Tribunal, the Revenue had not proved that the source
from which the minor earned income or incurred loss was outside the purview of
the tax provisions. Although, admittedly, the source of income in the hands of
the minor was such that it was liable to tax and if there had been any income,
then the same would have been included in the hands of the parent. In the light
of this factual and legal position, the Tribunal noted that the Supreme Court
held that if the income was liable for clubbing in the hands of the parent,
then equally the same principle will apply with respect to loss which was negative
income.

 

According to
the Tribunal, the judicial concept that the term ‘income’ includes loss can be
applied only when the entire source of such income falls within the charging
provisions of the Act. Accordingly, in a case where the source of income is otherwise
chargeable to tax, but only a specific specie of income derived from such
source is granted exemption, then in such a case the proposition that the term
‘income’ includes loss will not be applicable. It is only when the source which
produces ‘income’ is outside the ambit of the taxing provisions of the Act, in
such a case alone the ‘income’ including negative income can be said to be
outside the ambit of taxing provisions, and therefore the negative income is
also required to be ignored for taxation purposes. Therefore, where only one of
the streams of income from the ‘source’ is granted exemption by the Legislature
upon fulfilment of specified conditions, then the concept of ‘income’ includes
‘loss’ will not apply.

 

According to
the Tribunal, on conjoint reading of the provisions of section 2(14) which
defines the term capital assets; section 45 which lays down the charge of tax
on gain arising on transfer of ‘capital asset’; section 48 which provides for
the manner and mode of computation of long-term capital gain; and section 74
providing for manner for claiming set-off of long-term capital loss / its carry
forward, nowhere had any exception been made with regard to long-term capital
gain / loss arising on sale of equity shares. The Tribunal further noted that
the same is liable to income tax like any other item of capital asset.
Therefore, it cannot be said that the source, viz., transfer of long-term
capital asset being equity shares, by itself is exempt from tax so as to say
that any ‘income’ from such source shall include ‘loss’ as well.

 

Therefore, relying on the decisions of the
Calcutta High Court in the case of Royal Calcutta Turf Club vs. CIT
[1983] 144 ITR 709/12 Taxman 133 and the Mumbai Tribunal in the case of
Raptakos Brett & Co. Ltd. vs. DCIT (69 SOT 383), the Tribunal
held that the claim of the assessee for carry forward of long-term capital loss
be allowed.

Section 154 – Denial of deduction u/s 80HHC on sale proceeds of DEPB license, which was contrary to the subsequent decision of the Supreme Court, can be termed as a ‘mistake’ apparent from record and can be rectified u/s 154

4. Anandkumar
Jain vs. ITO (Mum.) Members: G.S.
Pannu (V.P.) and Ravish Sood (J.M.) ITA No.:
4192/Mum/2012 A.Y.: 2003-04 Date of order:
20th August, 2019

Counsel for
Assessee / Revenue: Jitendra Sanghavi and Amit Khatiwala / Rajesh Kumar Yadav

 

Section 154 –
Denial of deduction u/s 80HHC on sale proceeds of DEPB license, which was
contrary to the subsequent decision of the Supreme Court, can be termed as a
‘mistake’ apparent from record and can be rectified u/s 154

 

FACTS

The assessee is
an individual engaged in the business of manufacturing and export of garments.
In his return of income for assessment year 2003-04 he had claimed deduction
u/s 80HHC. During the course of the assessment, the AO, amongst other
adjustments made, re-computed the deduction u/s 80HHC by reducing 90% of the
duty drawback, excise duty refund and sale proceeds of DEPB license from the
profits of the business of the assessee. On further appeals, both the CIT(A) as
well as the Tribunal upheld the order of the AO.

 

Thereafter, the
Special Bench of the Tribunal in the case of Topman Exports vs. ITO (OSD)
(33 SOT 337 dated 11th August, 2009) decided a similar issue
in favour of the appellant. In view thereof, the assessee filed a rectification
application u/s 154. The AO rejected the application holding that the issue was
debatable and the Department was in appeal against the order in the Topman
Exports case. According to the CIT(A) this cannot be termed as a
mistake apparent from record and hence the same cannot be rectified u/s 154. He
also agreed with the AO that the issue was debatable. On merits, the CIT(A)
held that the issue of allowance of deduction u/s 80HHC had been decided
against the assessee by the Bombay High Court in the case of Kalpataru
Colours, 192 taxman 435. Accordingly, the CIT(A) dismissed the appeal
of the assessee vide order dated 24th January, 2011. The assessee
did not prefer further appeal against the order of the CIT(A).

 

Subsequently,
the Supreme Court in the case of Topman Exports vs. CIT (342 ITR 49)
reversed the decision of the Bombay High Court in the Kalpataru Colours
case vide its order dated 8th February, 2012. Thereafter, the
assessee filed the instant appeal before the Tribunal against the order of the
CIT(A) on 15th June, 2012 which was after a delay of 420 days, with
a request for condonation of delay.

 

Before the
Tribunal, the Revenue objected to the assessee’s application for condonation of
delay and relied upon the decision in the case of Kunal Surana vs. ITO in
ITA No. 3297/Mum/2012 wherein the application filed by the assessee for
condonation of delay of four months was rejected. Further, it was contended
that since the issue was debatable at the relevant point of time, it cannot be
said to be a mistake apparent from record and hence cannot be rectified u/s
154.

 

HELD

The Tribunal
noted that the delay in filing the appeal was solely on the ground that the
CIT(A) had decided the issue against the assessee following the decision of the
jurisdictional High Court in the case of Kalpataru Colours; and,
as such, based on the advice of the consultant, the assessee did not prefer
further appeal before the Tribunal. Subsequently, when the Supreme Court passed
a favourable order in the case of Topman Exports, based on the
advice from his consultant the assessee filed the present appeal which was
after a delay of 420 days. According to the Tribunal, the assessee had a valid
reason for the delay and hence, relying on the decisions in the cases of Magnum
Exports vs. ACIT (ITA No. 1111/Kol/2012) and Pahilajal Jaikishan
vs. JCIT (ITA No. 1392/Mum/2012), it condoned the delay.

 

As regards the
issue whether it was a ‘mistake’ apparent from record in terms of section 154,
the Tribunal referred to the decision of the Supreme Court in the case of ACIT
vs. Saurashtra Kutch Stock Exchange Ltd. (173 Taxman 322) relied on by
the assessee. As per the said decision, according to the Tribunal, the Hon’ble
Courts do not make any new law when the order is pronounced; the Courts only
clarify the legal position, which was not correctly understood. Therefore, the
legal position so clarified by the Courts has an effect which is retrospective
in nature. Therefore, the Tribunal observed, any order passed in contravention
of such legal position would be considered as a mistake apparent from record
which can be rectified u/s 154. Accordingly, the contention of the assessee was
accepted and it held that the order passed by the AO and CIT(A) can be
rectified u/s 154.

 

On merit, the Tribunal relied on the Supreme
Court decision in the case of Topman Exports (Supra) and directed
the AO to re-compute the deduction u/s 80HHC on the sale proceeds of the DEPB
license in light of the said decision of the Supreme Court and allowed the
appeal filed by the assessee.

Sections 28(iv), 68 – The fact that premium is abnormally high as per test of human probabilities is not sufficient. The AO has to lift the corporate veil and determine whether any benefit is passed on to the shareholders/directors.

9. 
Bharathi Cement Corporation Pvt. Ltd. vs. ACIT (Hyderabad) Members: P. Madhavidevi, JM and S. Rifaur
Rahman, AM ITA Nos.: 696 & 697/Hyd./2014 A.Y.s: 2009-10 and 2010-11 Dated: 10th August, 2018 Counsel for assessee / revenue: Nageswar Rao
/ M. Kiranmayee

 

Sections 28(iv), 68 – The fact that premium
is abnormally high as per test of human probabilities is not sufficient.  The AO has to lift the corporate veil and
determine whether any benefit is passed on to the shareholders/directors. 

 

FACTS


During the previous
year relevant to the assessment year under consideration, the assessee company,
filed its return of income declaring total income of Rs. 2,91,01,250.  This income comprised of interest on fixed
deposits which was offered for taxation under the head `Income from Other
Sources’. The Company had not commenced its business activity of manufacture
and sale of cement at its manufacturing unit in Andhra Pradesh and did not have
any income chargeable under the head `Profits and Gains of Business or Profession’.  

 

The Assessing
Officer (AO) in the course of assessment proceedings observed that the share
capital of the assessee company was held by Y S Jagmohan Reddy (66.43%) and
Silicon Builders (P.) Ltd. (33.15%), a company was owned and controlled by Y S
Jagmohan Reddy.  The directors of the
Company were Y S Jagohan Reddy; Harish C. Kamarthy,  J Jagan Mohan Reddy, Ravinder Reddy and V. R.
Vasudevan. 

 

During the
previous year relevant to assessment year 2009-10 the assessee company issued
0% convertible preference shares with a face value of Rs. 10/- per share and a
premium of Rs. 1,440 per share on a private placement to 3 investors viz.
Dalmia Cements Ltd., India Cements Ltd., and Suguni Contructions Pvt. Ltd., a
company belonging to Sri Nimmagadda Prasad. 
The aggregate amount received by the company on account of issue of
share capital was Rs. 70.32 crore comprising of 
Rs. 48.50 lakh towards face value of shares issued and Rs. 69.84 crore
towards the amount of share premium. 

 

The AO observed
that the investments made by the investors are not technical investments but
are an arrangement between the investors and directors of the assessee company
to pass on the funds through the assessee. 
He held that this was a method adopted by the directors, who were influential
persons in the then State Govt. of A.P., to pass on contracts and other
facilities to the beneficiaries.  To
investigate the investments made by the subscribers, the AO issued summons u/s.
133(1) of the Act to the investors and senior officers attended but none of
them agreed that they had invested under any sort of influence. The AO brought
on record various incidences in which the investors (in the capital of the
company) were benefitted from the State Government policies and he treated the above
receipt of share premium by the assessee as income u/s. 28(iv) of the Act.

 

Aggrieved, the
assessee preferred an appeal to the CIT(A) who based on appraisal of evidence
on record as also further evidence held that the investments made by the
investors and the benefits and concessions received by them from Government of
A.P. were part and parcel of one integrated plan for quid pro-quo. He
also made comparison with the investments made in assessee company and shares
available in the market of same industry and not only upheld the action of the
AO but also enhanced the total income to make addition even for the face value
of the share capital issued.  However, he
held the amounts to be taxable under the head `Income from Other Sources’.

 

Aggrieved, the
assessee preferred an appeal to the Tribunal.

 

HELD


The Tribunal
observed that the assessee had allotted 0% convertible preference shares on
private placement basis to three investors. 
The investors were well known companies in the industry.  The shares were issued at a huge
premium.  While the premium was
determined without any basis, the issue and allotment was within the four
corners of law.  It noted that the AO /
CIT(A) have not brought on record any issues with the issue and allotment of
shares since the allotment was in accordance with the provisions of the
Companies Act and the Rules as they existed at the time of issue and
allotment.  It observed that while the
determination of premium may not be in accordance with the industry norms, it
was accepted by the investing parties. 

 

The Tribunal
also observed that the arrangement and the circumstances leading to the issue
and allotment of shares may draw some doubts that certain benefits may have
passed on to the directors but the question is whether the directors/shareholders
have really benefitted with this arrangement and the assessee company was used
as an arrangement to pass on the benefit. 
It held that the revenue has to prove that the investors have passed on the
benefit to the shareholders/directors through this arrangement by bringing
cogent material. The Tribunal held that since the assessee is artificial person
created by the statute, we cannot trespass the legal entity. It cannot (sic
can) be trespassed provided the authority has evidence to prove that this legal
person was used to pass on the benefit to the interested shareholders by
lifting the corporate veil. In this case, no such evidence was brought on
record rather circumstantial evidence and test of human probabilities were
applied to convert the capital transaction, as per Companies Act, into revenue
transaction under the Income-tax Act.

 

The Tribunal
held that it cannot presume or apply test of human probabilities, it observed
that it is dealing with the business transaction, it has to based on cogent
material.  Considering the whole
situation, the Tribunal observed that the AO/CIT(A) have restricted themselves
tby stopping the investigation based on circumstantial evidence and applying
test of human probabilities.  In order to
lift the corporate veil for the purpose of determining whether any benefit is
passed on to the shareholders/directors, they have to bring on record proper
evidence/cogent material. 

 

The Tribunal
directed the AO to redo the assessment keeping in mind that no doubt the
assessee has received this capital receipt and what circumstances which lead to
investment is not important but whether the assessee company was used as a
vehicle to pass on the benefit to shareholders/directors.

Section 254 – The ITAT is an adjudicator and not an investigator. It has to rely upon the investigation / enquiry conducted by the AO. The Department cannot fault the ITAT’s order and seek a recall on the ground that an order of SEBI, though available, was not produced before the ITAT at the hearing. The negligence or laches lies with the Department and for such negligence or laches, the order of the ITAT cannot be termed as erroneous u/s. 254(2). Section 254(2) of the Act is very limited in its scope and ambit and only applies to rectification of mistake apparent on the face of record, review of earlier decision of the Tribunal is not permissible under the provisions of section 254(2) of the Act

4.  ITO vs. Iraisaa Hotels Pvt. Ltd.

Members
: Saktijit Dey, JM and Rajesh Kumar, AM

MA No.
29/Mum/2017 arising out of ITA No.: 6165/Mum/2014

A. Y.:
2007-08  
Dated: 10th September, 2018.

Counsel
for revenue / assessee: Ram Tiwari / Pradeep Kapasi

 

Section 254 – The ITAT is an adjudicator and not an investigator.
It has to rely upon the investigation / enquiry conducted by the AO. The
Department cannot fault the ITAT’s order and seek a recall on the ground that
an order of SEBI, though available, was not produced before the ITAT at the
hearing. The negligence or laches lies with the Department and for such
negligence or laches, the order of the ITAT cannot be termed as erroneous u/s.
254(2). Section 254(2) of the Act is very limited in its scope and ambit and
only applies to rectification of mistake apparent on the face of record, review
of earlier decision of the Tribunal is not permissible under the provisions of
section 254(2) of the Act

 

FACTS

The Revenue filed an application
seeking recall of the order dated 29th April, 2016 passed in ITA No.
6165/Mum/2014.  It was contended that at
the time of disposal of the appeal by the Tribunal, though the final order
dated 31.3.2015, passed by SEBI was available it was not brought to the notice
of the Tribunal while deciding the issue relating to additions made u/s. 68 of
the Act by the Assessing Officer (AO) in respect of unsecured loan and share
capital amounting to Rs. 1,69,94,882.  It
was contended that had the observations of the SEBI in the final order been
considered, the issue relating to the disputed additions made by the AO could
have been decided in a different manner i.e., in favor of the Department.  It was submitted that the appeal order be
recalled and the appeal be heard and decided afresh after considering the final
report of the SEBI.

 

HELD

From the narration of facts in the
authorisation memo of the learned PCIT, the Tribunal noticed that he admits
that proper enquiry was not done by the learned CIT(A) and by the AO at the
stage of remand which resulted in not bringing certain facts to the notice of
the Tribunal.  It observed that it is
crystal clear that the Tribunal has proceeded on the basis of facts and
material on record and as were placed before it at the time of hearing by the
learned Counsels appearing for the parties. 
It observed that the role of the Tribunal as a second appellate
authority is of an adjudicator and not an investigator. 



The Tribunal under the provisions
of the Act has to decide the grounds raised in an appeal filed either by the
assessee or by the Department on the basis of the facts and materials available
on record or brought to its notice at the time of hearing of appeal.

 

The Tribunal observed that it is
after passing of the order of the Tribunal the Department has come forward with
the final order of the SEBI by stating that, though, it was available at the
time of hearing of appeal but it could not be brought to the notice of the
Tribunal.  It held that the negligence or
laches for not bringing the final order of SEBI to the notice of the Tribunal
lies with the Department and for such negligence or laches of the Department,
the appeal order passed by the Tribunal cannot be termed as erroneous to bring
it within the ambit of section 254(2) of the Act. 

 

After disposal of appeal by the
Tribunal, if the Department comes with fresh evidence certainly it cannot be
entertained, much less, by taking recourse to section 254(2) of the Act. 

 

The Tribunal observed that by
filing this application the Department wants a review of the earlier decision
of the Tribunal which is not permissible under provisions of section 254(2) of
the Act which is very limited in its scope and ambit and only applies to
rectification of mistake apparent on the face of record. 

 

The Tribunal held the application
filed by the Department to be not maintainable. 

Sections 143(2), 147 – A notice u/s. 143(2) issued by the AO before the assessee files a return of income has no meaning. If no fresh notice is issued after the assessee files a return, the AO has no jurisdiction to pass the reassessment order and the same has to be quashed

3.  Sudhir Menon vs. ACIT

Members
: Mahavir Singh, JM and N K
Pradhan, AM

ITA
No.: 1744/Mum/2016

A. Y.:
2010-11  
Dated: 3rd October, 2018.

Counsel for assessee / revenue: S E Dastur / R. Manjunatha Swamy

 

Sections 143(2), 147 – A notice u/s. 143(2)
issued by the AO before the assessee files a return of income has no meaning.
If no fresh notice is issued after the assessee files a return, the AO has no
jurisdiction to pass the reassessment order and the same has to be quashed

 

FACTS

The assessee filed his return of
income on 30.7.2010 declaring total income of Rs. 46,76,95,780 which return of
income was processed u/s. 143(1) of the Act on 21.3.2012.  Thereafter, the case was reopened by issuing
notice u/s. 148 of the Act dated 1.4.2013 which was served on the assessee on
8.4.2013. The ACIT, Central Circle – 45, Mumbai (AO) issued notice u/s. 143(2)
of the Act dated 3.5.2013 requiring assessee to attend his office on
13.5.2013.  The assessee in response to
notice issued u/s. 148 of the Act, filed a letter dated 23.5.2013 stating that
the return originally filed be treated as a return filed in response to notice
u/s. 148 of the Act.

 

Since no notice u/s. 143(2) was
issued after filing of return by the assessee, it was contended that the
assessment framed is invalid and bad in law. For this proposition, reliance was
placed on the following decisions –

 

i)    ACIT
vs. Geno Pharmaceuticals [(2013) 32 taxmann.com 162 (Bom.)]

ii)    CIT
vs. Ms. Malvika Arun Somaiya [(2010) 2 taxmann.com 144 (Bom)]

iii)   DIT vs. Society for Worldwide Inter Bank Financial,
Telecommunications [(2010) 323 ITR 249 (Delhi)]

iv)   Decision
of Delhi Tribunal in ITA Nos. 5163 & 5164/Del/2010, 5554/Del/2012 for AY
2004-05 and 2005-06 vide order dated 2.7.2018

 

HELD

The Tribunal noted the factual
position and observed that the question is can the AO issue notice u/s. 143(2)
of the Act in the absence of pending return of income.  It held that the provisions of section 143(2)
of the Act is clear that notice can be issued only when a valid return is
pending assessment.  It held that the
notice issued before 23.5.2013 had no meaning as the assessee filed return of
income u/s. 148 vide letter dated 23.5.2013 stating that the original return of
income can be treated as return filed in response to notice u/s. 148 of the
Act.  It observed that it means return
was filed only on 23.5.2013. 

 

The issue as to whether assessment
can be framed without issuing a notice u/s. 143(2) of the Act when the return
was filed by the assessee in response to notice u/s. 148 of the Act has been
considered by the Bombay High Court in the case of Geno Pharmaceuticals Ltd.
(supra).   Having noted the
observations of the Bombay High Court in the case of Geno Pharmaceuticals
Ltd. (supra), the Tribunal observed that similar is the position in the
case of Malvika Arun Somaiya (supra). 
The Tribunal also noted the observations of the Delhi High Court in the
case of Society for Worldwide Inter Bank Financial, Telecommunications
(supra) and held that in view of the consistent view of jurisdictional High
Court and Delhi High Court, in the absence of a pending return of income, the
provisions of section 143(2) of the Act is clear that notice can be issued only
when a valid return is pending for assessment. Accordingly, the notice issued
on 3.5.2013 has not meaning.  Since no
notice was issued by the Department after 23.5.2013 (date of filing of return
of income by the assessee) the Tribunal held that the assessment framed without
issuing a notice u/s. 143(2) of the Act when the return was filed by the
assessee in response to notice u/s. 148 of the Act is bad in law. The Tribunal
quashed the assessment framed by the AO.

 

The issue raised by the assessee by
way of additional ground was allowed. 
The appeal filed by the assessee was allowed.

13. ITO vs. Dilip Kumar Shaw (Kolkata)(SMC) Member : P. M. Jagtap (AM) ITA No.: 1517/Kol/2016 A.Y.: 2006-07. Dated: 4th June, 2018. Counsel for revenue / assessee: Nicholas Murmu/ Tapas Mondal Section 154 – The difference between contract receipts as stated in Form 16A and as assessed while assessing total income u/s. 143(3) of the Act, cannot be brought to tax by passing an order u/s. 154 of the Act.

FACTS


For assessment year 2006-07, the
assessee, an individual, filed his return of income declaring therein a total income
of Rs. 8,85,386.  The Assessing Officer
(AO) vide order dated 18.7.2008 passed u/s. 143(3) of the Act, assessed the
total income to be Rs. 9,25,390. 
Thereafter, it was noticed by the AO that the contractual receipts
credited in the Profit & Loss Account of the assessee were to the tune of
Rs.2,91,42,128/- whereas the contract receipts of the assessee as per TDS Form
16A were Rs.2,99,89,617/-. He, therefore, held that there was a mistake in the
assessment order passed u/s. 143(3) in taking the contract receipts short by
Rs.8,47,489/- and the same was rectified by him vide an order dated 08.12.2012
passed u/s. 154, wherein an addition of Rs.8,47,489/- was made by him to the
total income of the assessee.

 

Aggrieved, the assessee preferred
an appeal to the CIT(A) who after considering the submission made by the
assessee as well as the material available on record set aside the order passed
by the Assessing Officer u/s. 154 by holding the same as not maintainable.

 

Aggrieved, the revenue preferred an
appeal to the Tribunal where on behalf of the assessee it was stated that the
said difference was due to the mistake committed by the concerned party in
deducting tax at source from the contract receipts of the earlier years, which
was corrected by them by deducting more tax from the contract receipts of the
year under consideration.

 

HELD 


The Tribunal agreed with the
observations of the CIT(A) that there could be many reasons for the difference
noted by the AO in the contract receipts credited in the Profit & Loss
Account of the assessee and the contract receipts as shown in the relevant TDS
certificates. It observed that the difference in the contract receipts as
noticed by the AO, thus, required more investigation and enquiry to find out as
to whether there was any escapement of income of the assessee and as rightly
held by the CIT(A) it was not a case of obvious and patent mistake, which could
be rectified u/s. 154. This issue involved a debatable point which required
further enquiry and investigation and the same, therefore, was beyond the scope
of rectification permissible u/s. 154 as rightly held by the ld. CIT(A). The
Tribunal set aside the order passed by the AO u/s. 154 by treating the same as
not maintainable.

 

The appeal filed by the revenue was
dismissed.

12. Jessie Juliet Pereira vs. ITO (Mumbai) Members : R. C. Sharma (AM) and Amarjit Singh (JM) ITA No.: 6914/M/2017 A.Y.: 2009-10. Dated: 4th June, 2018 Counsel for assessee / revenue: Subhash Chhajed & S. Balasubramanian / Ms. N. Hemalatha Section 54 – Claim for exemption u/s. 54 needs to be considered in a case where assessee has surrendered his flat in exchange for corpus fund/hardship allowance and a new flat in a scheme of redevelopment.

FACTS  


In the course of assessment
proceedings of MIG Group III Co-operative Housing Society Ltd. (society), it is
noticed that the society has entered into a development agreement with Suyog
Happy Homes (developer) on 30.4.2008 and the members of the society have
received payments from the said developer. 
The details revealed that the assessee has received Rs. 40,75,302 and
had not filed return of income for assessment year 2009-2010.  Accordingly, reasons were recorded and a
notice u/s. 148 of the Act was issued and served upon the assessee.  In response to the notice, the assessee filed
return of income declaring total income of Rs. 1,94,290. 

 

The society, of which the assessee
was a member, was the owner of property consisting of 9 buildings with 80
members. The society, on 30.4.2008, entered into an agreement with the
developer for development of the property in such a manner that each member of
the society shall receive a new flat in exchange of surrender of old flat
depending upon the size of the old flat along with interest in the additional
FSI allotted by MHADA. The property and the additional FSI would be with the
name of the society. All the expenses, costs and charges for the proposed
project of redevelopment of the said property including for purchase of
additional FSI from MHADA etc., were to be borne by the Developers alone and
the society and members were not liable to pay or contribute any amount towards
the same.

 

As per the agreement, the developer
was to pay the society being lawful owner of the property and the members an
aggregate monetary consideration of Rs.39.10 crore which was to be distributed
among the members of the society being shareholders depending upon the size of
their old flat.

 

During the year under
consideration, the assessee, as a shareholder of the society, received an
amount of Rs.40,75,302/- being consideration for surrender of his old flat
along with his interest in the additional FSI allotted by MHADA etc. The
developer issued the cheques in the name of the individual members which were
handed over to the society and in turn, the society diverted the same at source
to the members/shareholders. Thus, the said amount of Rs.39.10 crore never
routed through the books of accounts of the society though these cheques were
in the custody of the society before handing over to the individual members
being shareholder.

 

The said activity was treated as
commercial activity and the receipt of the amount of Rs.40,75,302/- was
considered as revenue receipt by AO and accordingly taxed as Income from Other
Sources.

 

Aggrieved by the order, the
assessee filed an appeal before the CIT(A) contending that the amount of corpus
money/hardship allowance is a capital receipt not chargeable to tax.  The CIT(A) treated the said receipt as long
term capital gain.

 

Aggrieved, the assessee preferred
an appeal to the Tribunal on the ground that the amount of corpus
money/hardship allowance received by the assessee is a capital receipt not
chargeable to tax and without prejudice contending that the CIT(A) ought to
have appreciated that the Appellant has purchased a new house at Dahisar for
Rs.21,68,180/- out of the capital gains of Rs.31,68,313/- and hence the
proportionate deduction u/s. 54 ought to have been granted by the CIT (A).

 

HELD  


At the time of argument, the
assessee did not contest that the amount of corpus money/hardship allowance
constitutes capital receipt not chargeable to tax but only argued that the
CIT(A) has treated the receipt of Rs.40,75,302/- as capital gain and the
assessee has also acquired new flat, therefore, the benefit u/s. 54 of the Act
is required to be given. The Tribunal observed that the Assessing Officer
treated the receipt as income from other sources whereas the CIT(A) has treated
the said receipt as long term capital gain. It is not in dispute that the
assessee has also acquired a new flat in lieu of his old flat. The receipt to
the tune of Rs.40,75,302/- has been treated as long term capital gain.
Undoubtedly, the claim u/s. 54 of the Act was not raised earlier before the
revenue. Anyhow, since the receipt to the tune of Rs.40,75,302/- has been
treated as long term capital gain, therefore, in the said circumstances, the
claim u/s. 54 of the Act is also liable to be considered in accordance with
law.

 

The Tribunal remanded the alternate
ground raised (viz. claim for deduction u/s. 54) before the AO for consideration
in view of the provision u/s. 54 of the Act in accordance with law after giving
an opportunity of being heard to the assessee. This ground of appeal was
allowed.

 

The appeal filed by the assessee
was allowed.

 

Contributor’s Note:  The grounds of appeal state that the claim
u/s.54 ought to have been allowed in respect of flat purchased by the assessee
in Dahisar but the operative portion of the ITAT order refers to assessee
having acquired a new flat in lieu of old flat.

11. ITO vs. Jogesh Ghosh (Kolkata) Members : J. Sudhakar Reddy (AM) and Smt. Madhumita Roy (JM) ITA No.: 1532/Kol/2016 A.Y.: 2013-14. Dated: 1st June, 2018 Counsel for revenue / assessee: Sallong Yaden / Subash Agarwal Sections 69, 69A – Source of purchase of land held to be satisfactorily explained by the assessee if he has produced receipts confirming sale of land. Production of receipts issued by buyer, though not numbered, are sufficient discharge of burden.

FACTS 


The assessee derived income by way
of interest on fixed deposits.  During
the previous year under consideration, he had sold his land and also purchased
land.  In order to explain the source of
purchase of land, the assessee contended that it had received amounts in cash
from the purchaser to whom the assessee had sold his land.  To substantiate the contention, the assessee
produced receipts issued by the purchaser of land.  The Assessing Officer (AO) disbelieved the
receipts produced on the ground that (a) there was no agreement between the
assessee and the purchaser of land; (b) the receipts were not serially
numbered; (c) the letter issued by the AO to the purchaser of land Windstar
Realtors Pvt. Ltd., calling for information was returned unserved; and (d) the
conveyance deed mentioned that the amount had been received on execution of
sale deed by mentioning the word “today”.  
The AO did not accept the contention of the assessee that there was a
mistake in the conveyance deed which was rectified by a registered
rectification deed, which was produced by the assessee.

 

The AO added a sum of Rs. 76,05,701
to the income of the assessee on the ground that money was received from
undisclosed sources as well as on the ground that there was unexplained expenditure.

 

Aggrieved, the assessee preferred
an appeal to the CIT(A) who considered the set of money receipts produced by
the assessee and also affidavit signed by Mr. Dhar, authorised person of the
purchaser company.  The CIT(A) in his
order mentioned that the authorised person of the purchaser company appeared
before him and confirmed the cash payments as well as the dates mentioned in
the money receipts.  Mr. Dhar had also
confirmed that making cash payments were necessary and a common feature for
purchases of land in rural areas from the agriculturists and the company had
made the payments by withdrawing cash from its bank accounts. The Ld. CIT(A)
deleted the addition made  by the AO.

 

Aggrieved, the revenue preferred an
appeal to the Tribunal where, on behalf of the revenue, it was contended that
the order of CIT(A) be set aside as the CIT(A) had accepted additional evidence
in the form of affidavit of Mr. Dhar as well as his explanations and that the
AO was not provided an opportunity.  It
was also contended that the CIT(A) erred in accepting the rectification deed
produced by the assessee to correct the original conveyance deed. 

 

The assessee contended before the
Tribunal that all the details were filed before the AO and that filing of
affidavit was only supplementary and supporting evidence and additional
evidence.  Reliance was placed on the
following case laws –

 

i)   Shankar
Khandasari Sugar Mill vs. CIT reported in 193 ITR 669 (Kar);

ii)   DCIT vs. New Manas Tea Estate Pvt. Ltd. (Gau) reported in 73 ITD
157 (Gau)

 

HELD 


The Tribunal held that the assessee
has discharged the onus that lay on him to prove the sources for purchase of
land. It observed that the AO has only doubted the timing of receipts of cash
by the assessee, consequent to the sale of land to Windstar Realtors Pvt. Ltd.
Any money receipts issued by an individual would have a date but not a serial
number, as in the case with a business concern. When the company has confirmed
the payments in cash on the dates mentioned in the receipts, nothing else
survives. In view of the factual findings of the Ld. CIT(A), the Tribunal
upheld the order of the Ld. CIT(A). 

 

The appeal filed by the revenue was
dismissed.

7 Section 40A(3) – Cash payments made out of business expediency allowed as expenditure.

A. Daga Royal
Arts vs. ITO

Members:  Vijay Pal Rao (J. M.) & Vikram Singh
Yadav (A. M)

ITA No.:
1065/JP/2016

A.Y.:
2013-14.  Dated : 15th May,
2018

Counsel for
Assessee / Revenue:  Rajeev Sogani / J.
C. Kulhari



Facts

During the year
under consideration, the assessee firm, the real estate developer, had
purchased 26 pieces of plot of land from various persons for a total
consideration of Rs. 2.46 crore. Out of which, payment amounting to Rs. 1.72
crore was made in cash to various persons. 
Cash payments were justified by the assessee on the ground that the
sellers were new to the assessee and refused to accept payment by cheque. The
assessee could have lost the land deals if the assessee had insisted on cheque
payment. However, according to the AO, the case of the assessee did not fall in
any of the sub-clauses of Rule 6DD and hence, he disallowed the sum of Rs. 1.72
crore paid in cash u/s. 40A(3). On appeal, the CIT(A) confirmed the order of
the AO.

 

Before the
Tribunal, the revenue justified the orders of the lower authorities and
submitted that since the matter didn’t fall in any of the exceptions provided
in Rule 6DD, the disallowance had been rightly made u/s. 40A(3).

 

Held

The Tribunal
noted the following undisputed facts:

–   Identity of the persons from whom the
purchases had been made, genuineness of the transactions of purchase of various
plots of land and payment in cash were evidenced by the registered sale deeds
and there was no dispute raised by the Revenue either during the assessment
proceedings or before the Tribunal.

–   Only at the insistence of the specific
sellers, the assessee had made cash payment and in case of other sellers, the
payment had been made by cheque. This, according to the Tribunal, established
that the assessee had business expediency under which it had to make payment in
cash and in absence of which, the transactions could not had been completed.

–   The source of cash payments was clearly
identifiable in form of the withdrawals from the assessee’s bank accounts and
the said details were submitted before the lower authorities and have not been
disputed by them.

 

Further, the Tribunal referred to the following observations of the Apex
court in the case of Attar Singh Gurmukh Singh vs. ITO (59 taxmann.com 11):

 

“The terms of section 40A(3) are not absolute.
Consideration of business expediency and other relevant factors are not
excluded. The genuine and bona fide transactions are not taken out of the sweep
of the section. It is open to the assessee to furnish to the satisfaction of
the Assessing Officer the circumstances under which the payment in the manner
prescribed in section 40A(3) was not practicable or would have caused genuine
difficulty to the payee.”

 

Thus, according to the Tribunal, so far as consideration of business
expediency and other relevant factors were concerned, the same continue to be
relevant factors, which need to be considered and taken into account while
determining the exceptions to the disallowance as contemplated u/s. 40A(3), so
long as the intention of the legislature was not violated.

 

According to the Tribunal, the amendment to Rule 6DD(j) by notification
dated 10.10.2008, providing for an exception only in a scenario where the
payment was required to be made on a day on which banks were closed on account
of holiday or strike – also do not change the above legal proposition laid down
by the Supreme Court regarding consideration of business expediency and other
relevant factors. 

 

According to the Tribunal, the above view finds resonance in decisions
of various authorities discussed below:

 

–   In the case of Harshila Chordia vs. ITO
(298 ITR 349) the Rajasthan High Court observed that as per the Board
circular dated 31.05.1977 [108 ITR (St.) 8], rule 6DD(j) has to be liberally
construed and ordinarily where the genuineness of the transaction and the
payment and the identity of the receiver is established, the requirement of
rule 6DD(j) must be deemed to have been satisfied and the rigors of section
40A(3) cannot be invoked. 

–   In Anupam Tele Services (362 ITR 92),
the Gujarat High Court overruled the decision of the Tribunal disallowing cash
payments u/s. 40A(3) since according to it, the Tribunal erred in not
considering ‘business expediencies’ when the assessee was compelled to make
cash payments.

–   In Ajmer Food Products Pvt. Ltd. vs.JCIT
[ITA No. 625/JP/14] where the genuineness of the transaction as well as the
identity of the payee were not disputed and the assessee was able to establish
business expediency, the co-ordinate bench of the Tribunal, following the above
decisions of the Gujarat High Court and of the Rajasthan High Court deleted the
addition made by the lower authorities u/s. 40A(3).

–   In the case of Gurdas Garg vs. CIT(A) (63
taxmann.com 289) where the facts of the case were pari materia to the
assessee’s case, the Punjab and Haryana high court allowed the assessee’s
appeal.

 

Further, the decisions in the following cases were also relied on by the
Tribunal:

–  M/s. Dhuri Wine vs. DCIT (ITA No. 1155
/ Chd / 2013 & others dated 09.10.2015);

–  Rakesh Kumar vs. ACIT (ITA No. 102 /
Asr / 2014 dated 09.03.2016);

–  ACE India Abodes Limited (Appeal No. 45/2012
dated 11.09.2017);

 

Taking into
account the facts and circumstances of the case and following the legal proposition
laid down by the various Courts and Coordinate Benches discussed above, the
Tribunal held that the intent and the purpose for which section 40A(3) has been
brought on the statute books has been clearly satisfied in the instant case.
Therefore, being a case of genuine business transaction, no disallowance is
called for.

Section 56(2)(vii) – Provisions do not apply to rights shares offered on a proportionate basis even if the offer price is less than the FMV of the shares.


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!


10. 
Asst. CIT vs. Subhodh Menon (Mumbai) Members:  R. C. Sharma (A. M.) and Ram Lal Negi (J. M.)
ITA No.: 676/Mum/2015 A. Y.: 2010-11. Dated: 7th Decmber, 2018
Counsel for Revenue / Assessee:  Tejveer
Singh and Abhijeet Deshmukh / S.E. Dastur

 

Section 56(2)(vii) –
Provisions do not apply to rights shares offered on a proportionate basis even
if the offer price is less than the FMV of the shares.

 

FACTS


The assessee was an executive director of
Dorf Ketal Chemicals India Pvt. Ltd. (“Dorf Ketal”). He filed his return of
income showing total income of Rs. 25.04 crore (revised).  On 28.01.2010 the assessee acquired 20,94,032
shares in Dorf Ketal @ Rs.100/- per share i.e. @ face value for a consideration
of Rs.20.94 crore. According to the A.O., under Rule 11UA(c), the fair market
value of the share of Dorf Ketal was Rs.1,438.64. Therefore, the difference in
share value was brought to tax u/s. 56(2)(vii)(c) and the total income was
assessed at Rs. 326.32 crore. According to the AO, the assessee being a
salaried employee, the shares allotted to him could also be treated as
perquisite or profit in lieu of salary u/s. 17. Reliance was placed on the
ratio laid down by the Bombay High Court in the case of CIT vs D. R. Pathak (99
ITR 14).  The CIT(A) on appeal, relying
on the decision of the Mumbai tribunal in the case of Sudhir Menon HUF vs.
Asst. CIT (I.T.A. No. 4887/Mum/2013 dated 12.03.2014) held in favour of the
assessee.  Being aggrieved, the revenue
appealed before the Tribunal.

 

Before the Tribunal, the revenue justified
the order of the AO and contended that:

 

  •  The assessee has not disputed the valuation of
    the shares at Rs.1,538.64 per share as on 31,03.2009, which was in accordance
    with the Rules. As regards argument of the assessee that after the date of the
    issue of fresh shares, the valuation of the shares has been drastically reduced
    with inclusion of the new contribution of share capital,  according to the revenue, the share value of
    the company has to be valued as on date of issue or prior to the issue date to
    determine the fair market value;
  •  The assessee was offered 21,78,204 shares at
    face value of Rs. 100. However, he accepted only 20,94,032 shares. Thus,
    according to the revenue, there has been disproportionate allotment in the case
    of the assessee and thus the decision of the Mumbai Tribunal in the case of
    Sudhir Menon HUF, relied on by the CIT(A), was distinguishable;
  •  The provisions of section 56(2)(vii) are in the
    nature of anti-abuse provisions and therefore should be interpreted strictly.
    For the purpose, it relied on the Circular No. 1/2011 dated 6th
    April, 2011 and the decisions of the Hyderabad Tribunal in case of Rain Cement
    Limited vs. DC IT (2017 1 NYPTTJ 362) and Kolkata Tribunal in the case of
    Instrumentarium Corporation Ltd. (2016 (7) TMI 760 – ITAT Kolkata);

 

HELD


According to the Tribunal, the issue under
consideration was squarely covered by the order of the Mumbai Tribunal in the
case of Sudhir Menon HUF.  As held under
the said decision, the Tribunal held that the provisions of section
56(2)(vii)(c) is not applicable to the facts and circumstances of the
appellant’s case.

 

As regards contention of
“disproportionate allotment” raised by the revenue, according to the
Tribunal, it is only when a higher than the proportionate allotment is received
by a shareholder, the provisions of section 56(2)(vii) get attracted. In the
instant case, the assessee applied for and was allotted a lesser than the
proportionate shares offered to him and his shareholding reduced from 34.57% to
33.30%.

 

The Tribunal further noted that the
transaction of issue of shares was carried out to comply with a covenant in the
loan agreement with the bank to fund the acquisition of the business by the subsidiary
in USA. Thus, the shares were issued by Dorf Ketal for a bonafide reason and as
a matter of business exigency. As per Circular No.1/2011 explaining the
provision of section 56(2)(vii) and relied on by the revenue, “the
intention was not to tax transactions carried out in the normal course of
business or trade, the profit of which are taxable under the specific
head of income”. Thus, the Circular supports the assessee’s case.

 

As regards the
alternated contention of the AO that the same should be considered for
taxability as perquisite u/s. 17, the tribunal held that the provisions of
section 17 do not apply to the shares allotted by Dorf Ketal to the assessee,
as the shares were not allotted to the assessee in his capacity of being an
employee of the company. The shares were offered and allotted to the assessee
by virtue of the assessee being a shareholder of the company. Therefore the
provisions of section 17 were not applicable. For the purpose, the Tribunal
referred to the Board Circular No. 710 dated 24th July, 1995 which
provides that where shares are offered by a company to a shareholder, who
happens to be an employee of the company, at the same price as have been
offered to other shareholders or the general public, there will be no perquisite
in the shareholder’s hands. In the instant case, the Tribunal noted that the
shares were offered to the assessee and other shareholders at a uniform rate of
Rs. 100 and therefore, the difference between the fair market value and issue
price cannot be brought to tax as a perquisite u/s. 17. 

 

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

 

 

6 Section 28 – Two properties sold by a builder within a short span of time in an industrial park developed by it at different rates cannot be a ground for presuming that the assessee has received ‘on money’.

Shah Realtors
vs. ACIT

Members: B. R.
Baskaran (A M) and Pawan Singh (J M)

ITA No.:
2656/Mum/2016

A.Y.:
2012-13.  Dated: 25th May,
2018

Counsel for
Assessee / Revenue: Dr. K. Sivaram and Sashank Dandu / Suman Kumar

Facts

The assessee is
a partnership firm, carrying on business as 
builder and developer.  During the
previous year relevant to the assessment year, the assessee sold various
buildings/ galas in the industrial park developed by it.  The AO observed variations in the selling
rates of two buildings viz., Rs. 1,948 in building No. 10 and Rs. 5,025 in
building No.3. He concluded that the assesse had taken ‘on money’. Accordingly,
he made addition of Rs.2.52 crore. On appeal, the CIT(A) confirmed the order of
the AO. 

 

Before the
Tribunal, the revenue justified the orders of the lower authorities and
submitted that there was about 75% difference in the rates of building No. 3
and 10 and the assessee failed to substantiate the reason when both the
buildings were sold within a short span of time.  It also relied on the decision of CIT vs.
Diamond Investments & Properties in ITA No.5537/M/2009 dated 29.07.2010
and the decision of the Supreme Court in Diamond Investment & Properties
vs. ITO [2017] 81 Taxmann.com 40.

 

Held

The Tribunal
noted that building No. 3, which according to the AO was sold at a higher rate,
was already in possession of the buyer (on leave and licence basis) and plant
and machinery were already fastened to earth. Besides the assessee also handed
over possession of approximately 12,000 sq. ft. of adjoining  plot for exclusive use by the said buyer.
Therefore, taking the advantage of situation, the said building was sold to
buyer at a lump-sum price of Rs. 4.25 crore. 

 

The Tribunal
further noted that the assessee had sold the Building No.3 & 10 at a rate
higher than the stamp value rate.  The AO
on his suspicion about the “on money” made the addition on the basis of
variation of rates between two buyers. According to the Tribunal, the onus was
upon the AO to prove that the assessee had received “on money” on sale of
building. He made the addition without any evidence in his possession.  No enquiry was made of the purchaser of
building no. 10 which was sold at a lower rate, which according to the Tribunal,
was necessary. 

 

The tribunal further
observed that, when the AO had required the assessee to show-cause as to why
there was a difference between two transactions and when the assessee had
offered an explanation, no addition could be made simply discarding his
explanation. There must be evidence to show that the explanation given by the
assessee was not correct. It is settled law that no addition can be made on
hypothetical basis or presuming a higher sale price by simply rejecting the
contention without cogent reason. 
According to it, the case law relied by AO in ITO vs. Diamond
Investment and Properties was not applicable, since in that case the flats
were sold to the related parties at lower price than the price charged to the
other parties.  The Tribunal also
referred to a decision of the coordinate bench of Tribunal in Neelkamal
Realtor & Erectors India Pvt. Ltd. 38 taxmann.com 195 where where the
assessee had offered an explanation for charging lower price in respect of some
of the flats sold by it and AO without controverting such explanation had made
addition to income of assessee by applying the rate at which another flat was
sold by it.  It was held that the AO was
not justified in his action.  The Tribunal
also referred to a decision of the Supreme Court in the case of K.P. Varghese
vs. ITO [1981] 131 ITR 597 where it was emphasised that the burden of
proving an understatement or concealment was on the Revenue.  In the result, the appeal of the assessee was
allowed.

 

Section 194C – Value of by-products arising during the process of milling paddy into rice, which remained with the millers, not considered as part of the consideration for the purpose of TDS

6.  ITO (TDS) vs. Punjab State
Warehousing Corporation (Chandigarh)

Members: Sanjay Garg, JM and Annapurna Gupta, AMITA Nos.: 1309 /CHD/2016 A.Y.: 2012-13 Dated: 30th October, 2018 Counsel for Revenue / Assessee: Atul Goyal, B. M. Monga, Rohit Kaura and
Vibhor Garg / Manjit Singh


Section 194C – Value of by-products arising
during the process of milling paddy into rice, which remained with the millers,
not considered as part of the consideration for the purpose of TDS


Facts


The assessee is a procurement agency of
Punjab Government which procures paddy on behalf of Food Corporation of India
(FCI), get it milled and supply rice to FCI. The paddy was given to the millers
for milling at the rates as fixed by FCI. As per the terms of the agreement,
the millers were required to supply rice in the ratio of 67% of the paddy given
to them by the assessee in return the millers would get Rs. 15 per quintal as
milling charges. As per agreement, the by-products, if any, arising from the
process would remain with the millers and the assessee had no right in respect
thereof. The assessee deducted the tax at source u/s. 194C on the milling
charges of Rs. 15 per quintal so paid to the millers.


According to the AO, since as per the
agreement, the by-products i.e. remaining 33% part, out of the milled paddy,
was retained by the millers and the same had a marketable value, it was part of
the consideration paid by the assessee to the millers, whereon the assessee was
required to deduct tax at source u/s. 194C. Since the assessee failed to do so,
he held the assessee as assessee in default u/s. 201 (1) and 201 (1A) of the
Act.

 

The assessee appealed before the CIT(A) who
relying on the decisions of the Delhi Bench of the tribunal in the case ITO
vs. Aahar Consumer Products Pvt Ltd. (ITA No. 2910-1939-1654 &
1705/Delhi/2010) and of the Amritsar Bench of the Tribunal in the case of D.M.
Punjab Civil Supply Corporation Ltd, (ITA No. 158/Asr/2016) allowed the
appeal of the assessee and quashed the demand raised by the AO on account of
short deduction of tax.

 

Being aggrieved by the order of the CIT(A),
the revenue appealed before the Tribunal and made following submissions in
support of its contention that the tax at source should have been deducted
after taking into account the value of the by-products:

  • While fixing the milling
    charges by FCI, the value of by-product in the shape of broken rice, rice kani,
    rice bran and phuk and which had a reasonable market value, was duly taken into
    consideration and thereafter net milling charges of Rs. 15 was arrived at;

  • Reliance was placed on the
    correspondence / clarification from the Secretary, Food and Civil Supplies
    Department that milling charges were fixed taking into consideration the value
    of the by-product which was a part of the consideration paid by the assessee to
    the millers for paddy milling contract;

  • As per the press release
    issued by the Ministry of Consumer Affairs, Food & Public Distribution, the
    Union Food Ministry had clarified that the milling charges for paddy paid by
    the Central Government to the State Agencies were fixed, on the basis of the
    rates recommended by the Tariff Commission, who had taken into account value of
    the by-products derived from the paddy, while suggesting net rate of the
    milling price payable to the rice millers;

  • As per the report of the
    Comptroller and Auditor General of India (C&AG) on Procurement and Milling
    of Paddy for Central Pool, the milling charges were fixed after adjusting for
    by-products cost recovery;

  • It also relied on the
    decisions of the Andhra Pradesh High Court in the case of Kanchanganga Sea
    Foods Ltd. vs. CIT (2004) 265 ITR 644    , which was confirmed by the Supreme
    Court reported in (2010) 325 ITR 549.


Held


The Tribunal noted that the milling charges
were fixed by the Government and neither the assessee nor the millers had any
say on the milling charges fixed. Even the out-turn ratio was also fixed and
the miller had to return 67% of the manufactured rice, irrespective of the fact
whether the yield of rice manufactured was low or high from the paddy entrusted
to him.


Thus, the nature of the contact, according
to the Tribunal, was not purely a work contract, but it was something more than
that. Under the contract, the miller had no choice to return rice and
by-products as per the actual outcome and claim only the milling charges.


Further, it was noted that the agreement
contained specific term that ‘the by-product is the property of the miller’,
which meant that the property in the by-product passed immediately to the
miller on the very coming of it, into existence. Thus, moment the paddy was
milled, the assessee lost its ownership and control over the paddy and the
by-product, and acquired the right only on the ‘milled rice’.


Thus, as per the agreement, the by-product
never became the property of the procurement agencies. Therefore, according to
the Tribunal, it cannot be said that the said by-product had been handed over
as consideration in kind by the assessee to the millers. When one is not the
owner of the product and the property in the product had never passed on to
other person, he, under the circumstances, cannot pass the same to the others.


The property in the by-product from the very
inception remained with the miller and, hence, the Tribunal held that the same
cannot be said to be the consideration received by the miller. According to the
Tribunal, even though the consideration was fixed taking into consideration the
likely benefit that the miller will get out of milling process in the form of
by-products, such benefits cannot be said to be consideration for the
contract. 


As
regards the reliance placed by the revenue on the decision in the case of Kanchanganga
Sea Foods Ltd., the same was distinguished by the Tribunal and held that
the same was not applicable to the assessee’s case. In the result, the Tribunal
dismissed the appeals filed by the revenue and upheld the order of the CIT(A).

 

Section 2(47) – Conversion of compulsory convertible preference shares into equity shares does not amount to transfer

5.  Periar
Trading Company Private Limited vs. Income Tax Officer (Mumbai) Members: Mahavir Singh, JM and N.K. Pradhan, AMITA No.: 1944/Mum/2018 A.Y.: 2012-13. Dated: 9th November, 2018 Counsel for Assessee / Revenue: Percy Pardiwala
and Jeet Kandar / Somnath M. Wagale


Section 2(47) – Conversion of compulsory
convertible preference shares into equity shares does not amount to transfer


Facts


During the year
under appeal, the assessee company converted 51,634 number of cumulative and
compulsory convertible preference shares (CCPS) held by it in Trent Ltd., into
equity shares. According to AO, the conversion of CCPS into equity shares was
transfer within the meaning of the definition provided in section 2(47)(i) of
the Act. Accordingly, the sum of Rs. 2.85 crore, being difference of market
value of 51,634 number of equity shares of Trent Ltd. as on date of conversion
and the cost of the acquisition of CCPS was by him as taxable as capital gains.
On appeal, the CIT(A) confirmed the order of the AO.


Held


The Tribunal noted that the CBDT vide its
Circular F. No. 12/1/84-IT(AI) dated 12.05.1964 has clarified that where one
type of share is converted into another type of share, there is no transfer of
capital asset within the meaning of section 2(47). It also relied on the Mumbai
Tribunal’s decision in the case of ITO vs. Vijay M. Merchant, [1986] 19 ITD
510.


According to it, the decision of the Supreme
Court in the case of CIT vs. Motors & General Stores (P.) Ltd [1967] 66
ITR 692 and relied on by the CIT(A) in his order, was entirely
distinguishable on facts of the present case. It further observed that, the
contrary interpretation would lead to double taxation in as much as, having
taxed the capital gain upon such conversion, at the time of computing capital
gain upon sale of such converted shares, the assessee would still be taxed
again, as the cost of acquisition would still be adopted as the issue price of
the CCPS and not the consideration adopted while levying capital gain upon such
conversion. Accordingly, it was held that conversion of CCPS into equity shares
cannot be treated as ‘transfer’ within the meaning of section 2(47) of the Act.

 

2 Sections 2(47) and 54 – Condition regarding purchase of new property within one year of transfer of old property – Date of agreement to sale was considered as the date of transfer and not the date of conveyance deed.

Gautam Jhunjhunwala
vs. Income-tax Officer (Kolkata)

Members:  A. T. Varkey, (J. M.) and Dr A. L. Saini (A.
M.)

ITA No.:
1356/Kol/2017

A. Y: 
2012-13  Dated: 7th
September, 2018

Counsel for Assessee / Revenue:  P. R. Kothari / Rabin Choudhury

 


Sections 2(47) and 54 – Condition regarding
purchase of new property within one year of transfer of old property – Date of
agreement to sale  was considered as the
date of transfer and not the date of conveyance deed.

 

Facts

The assessee is an individual, who had sold
a flat vide deed of conveyance dated 26/27.12.2011. The sale deed was executed
in pursuance of an agreement to sale which was executed on 16.09.2011. The deed
of conveyance was registered while the agreement to sale was not
registered. 

 

The assessee had purchased a new residential
flat on 04.10.2010.  The AO took the date
of registration of the property sold as the date of transfer i.e. 26/27.12.2011
and since the new property was purchased on 04.10.2010, which, according to the
AO, was not within the period of one year from the date of transfer of the old
asset, he denied the benefit of section 54. 
On appeal, the CIT(A) confirmed the AO’s order.

 

Held

Relying on the Supreme Court decision in Sanjeev
Lal vs. CIT (Civil Appeal No. 5899-5900 of 2014 dated 01.07.2014)), the
Tribunal observed that by entering into an agreement to sale, some right which
the assessee had in respect of the capital asset in question had been
extinguished, because after execution of the agreement to sale, it would not be
open to the assessee to sell the property to others in accordance with the law.

 

The vendee gets a right to get the property
transferred in his favour by filing a suit under Specific Performance Act.
Thus, according to the Tribunal, a right in respect of the capital asset (old
residential property in question) had been transferred by the assessee in
favour of the vendee/transferee on 16.09.2011. 
And since purchase of the new property was on 04.10.2010, it was held
that the purchase of the property was well within one year from the date of
transfer as per section 2(47) of the Act.

 

As regards a question as to the
admissibility or otherwise of the agreement to sell as an evidence in a suit
for specific performance, relying on the decision of the Supreme Court in the
case of S. Kaladevi vs. V. R. Somasundaram & others (Civil Appeal No.
3192 of 2010 dated 12.04.2010), the Tribunal noted that  the agreement to sell can be a basis for a
suit for specific performance in view of section 49 of the Registration
Act.  Thus, though the agreement to sell
was not registered, the vendee can seek decree of specific performance on the
basis of unregistered agreement to sell.

 

1 Section 206C – Assessee defaulted in collection of tax at source for which AO took action after seven years – When no limitation is provided in the statute for initiation of action and passing the order, held that the same has to be done within a reasonable time which according to the Tribunal was four years.

Eid Mohammad Nizamuddin vs.
Income Tax Officer (Jaipur)

Members:
Vijay Pal Rao (J. M.) and
Vikram Singh Yadav (A. M.)

ITA NO.
248 and 316 /JP/2018

A. Y:
2009-10. Dated: 29th August, 2018

Counsel
for Assessee / revenue: Mahendra
Gargieya and Fazlur Rahman /  J.C.
Kulhari

 

Section 206C – Assessee defaulted in collection
of tax at source for which AO took action after seven years – When no
limitation is provided in the statute for initiation of action and passing the
order, held that the same has to be done within a reasonable time which
according to the Tribunal was four years.

 

Facts

The assessee is a partnership firm, engaged
in the business of manufacturing and trading of Bidi. During the course of
survey proceedings, it was detected that for the F.Y. 2008-09 relevant to
assessment year 2009-10, the assessee firm was liable to collect tax at source
(TCS) @ 5% on sale of tendu leaves as per provisions of section 206C(1) but it
defaulted for non-collecting of TCS. Accordingly, the Assessing Officer
proceeded to pass order u/s. 206C(6)/206C(7) on 30/03/2016 whereby the assessee
was held as “assessee in default” within the meaning of section 206C(6) read
with section 206C(7) for non-collection of tax of Rs. 98.84 lakhs, including
interest. The assessee challenged the order passed by the Assessing Officer
before the CIT(A) and also raised objection against the validity of the said
order on the ground of limitation. The CIT(A) rejected the ground of limitation
however, granted part relief to the assessee to the extent of return of income
filed by the purchaser of tendu leaves, for which they issued Form No. 27BA.
Hence, the assessee as well as the revenue, being aggrieved by the order of the
CIT(A), filed the appeal and the cross appeal. One of the grounds of appeal by
the assessee was about the validity of the order passed by the Assessing
Officer.  According to it, the order
passed by the Assessing Officer was barred by limitation. The Tribunal decided
to take the said ground first as it was the root of the matter.

 

The assessee’s contention was that the order
passed by the Assessing Officer on 30/3/2016 was barred by limitation even
though the provisions contained u/s 206C did not prescribe any time limit for
initiation of proceedings or for passing order. However, according to the
revenue, when no limitation is provided in the statute for initiation of action
and passing the order u/s. 206C, then there was no bar on the jurisdiction and
power of the Assessing Officer to pass the order.

 

Held

According to
the Tribunal, non-providing the limitation in the statute would not confer the
jurisdiction/powers to the Assessing Officer to pass order u/s. 206C at any
point of time. As otherwise, the Assessing Officer would get an unfettered
powers to take action at any point till an indefinite period which would defy
or defeat the very purpose and scheme of the statute. According to the
Tribunal, the analogy and reasoning given in the decisions of various High
Courts (listed below) in respect of the limitation for passing the order u/s.
201 was also applicable for considering the reasonable time period for passing
the order u/s. 206C. According to the Tribunal, the provisions of sections 201
and 206C have the same scheme and object, being the measures against the
avoidance of tax by the opposite parties with whom the assessee had the
transactions. Hence, applying the reasonable period of limitation as four years
within which the Assessing Officer should pass the order u/s. 206C(6)/206C(7),
the Tribunal held that the order passed by the Assessing Officer on 30/3/2016
was beyond the said reasonable period of limitation and consequently invalid,
being barred by limitation.

 

Cases relied on by the tribunal:

CIT vs. NHK Japan Broadcasting 305 ITR
137 (Delhi);

Vodafone Essar Mobile Services Ltd. vs.
Union of India & ors. (2016) 385 ITR 436 (Del);

Tata Teleservices vs. Union of India
& Anr. (2016) 385 ITR 497 (Guj);

CIT (TDS) vs. Anagram Wellington Assets
Management Co. Ltd. (2016) 389 ITR 654 (Guj);

CIT vs. U.B. Electronics Instruments Ltd.
(2015) 371 ITR 314 (AP);

CIT(TDS) & Anr. vs. Bharat Hotels
Limited (2016) 384 ITR 77 (Karn.).

10. ACIT vs. Sameer Sudhakar Dighe Members : Mahavir Singh, JM and G. Manjunatha, AM ITA No. 1327/Mum/2016 Assessment Year: 2011-12. Decided on: 13th April, 2018. Counsel for revenue / assessee: V. Rajguru / None Section 56(2)(vii), CBDT circular no. 477 [F. No. 199/86-IT(A-1)], dated 22.1.1986 – Award received by a non-professional sportsman will not be chargeable to tax in his hands.

Section 56(2)(vii), CBDT circular no. 477
[F. No. 199/86-IT(A-1)], dated 22.1.1986 – Award received by a non-professional
sportsman will not be chargeable to tax in his hands.

FACTS

The assessee, retired from international cricket in the year
2002, was appointed as a cricket coach by BCCI to train the players at national
level.  During the year under consideration,
a benefit match was arranged by BCCI for assessee. The assessee received net
proceeds of Rs. 50.44 lakh, which he treated as capital receipt. In the course
of assessment proceedings, the Assessing Officer (AO) asked the assessee to
explain why the amount under consideration should be treated as a capital
receipt.  The assessee explained that the
benefit match is a game played for retired sportsmen to appreciate personal
talent and skill in sports and accordingly funds collected on behalf of benefit
match is a capital receipt.  He placed
reliance on CBDT circular no. 477 [F. No. 199/86-IT(A-1)], dated
22.1.1986.  The AO, treated the amount
received from benefit match as a revenue receipt and taxed it u/s. 56(2)(vii)
of the Act.

 

Aggrieved, the assessee preferred an appeal to CIT(A) who
considering the submissions made by the assessee and also the Board Circular
No. 477 (supra) decided the appeal in favour of the assessee.

 

Aggrieved, the revenue preferred an appeal to the Tribunal.

 

HELD

The assessee is a full time employee of Air India.  The benefit match was conducted by BCCI,
which is a regulatory body for cricket in India to appreciate the personal
talent and skill in this sport because the assessee is a retired sportsman and
the proceeds arising out of this benefit match are in the nature of award.  The Tribunal relying on the decision of the
Bangalore Bench of Tribunal in the case of G. R. Viswanath vs. ITO [(1989)
29 ITD 142 (Bang.)] held that there is no direct nexus between the payment
and assessee’s profession and these receipts being capital in nature cannot be
brought to tax. 

 

The Tribunal also noted that the Delhi Bench of the Tribunal
has in the case of Abhinav Bindra vs. DCIT [(2013) 28 ITR (Trib.) 376 (Delhi)]
has considered the identical issue and also the provisions of section 56(2)(v)
and has held that if a sportsman who is not a professional sportsman has been
given awards/rewards/prizes then a liberal construction of Circular No. 447 is
required and amount of awards/rewards/prizes are held to be capital in nature.

 

The Tribunal held that the amount represents the gratitude
from the fans and followers by attending the benefit match conducted in honour
of the assessee who is a retired cricketer of international repute.  This type of receipts are specifically
exempted by CBDT Circular No. 477 which states that the amount paid to amateur
sportsman who is not a professional will not be liable to tax in his hands as
it would not be in the nature of income. 
The assessee was an amateur cricketer and his profession is employment
with Air India from where he is getting salary. 
He played the game of cricket for India as his passion and the receipts
of the net proceeds from the benefit match was only in the nature of
appreciation of his personal achievements and talent and thus, cannot be
brought to tax by invoking the provisions of section 56(2)(vii)(a) of the
Act.  These proceeds from the benefit
match received by the assessee are in appreciation of his past achievements in
International Cricket arena and such type of receipt cannot be taxed.  The Tribunal upheld the order of the CIT(A).

 

The appeal filed by the Revenue was dismissed

9. DCIT vs. Saleem Mohd. Nazir Sheikh Members : Shamim Yahya, AM and Ram Lal Negi, JM ITA No. 5576/Mum/2015 Assessment Year: 2009-10. Decided on: 13th April, 2018. Counsel for revenue / assessee: Pooja Swarup / None

Section 271AAA
– If the search party does not put any question to the assessee about the
source of income, any adverse inference for the levy of penalty u/s. 271AAA
cannot be drawn.

FACTS

The assessee, in the course of search and seizure action on
Hitcons & Pranay group of cases, voluntarily declared amounts aggregating
to Rs. 70,03,525 as his undisclosed income. 
In the return of income filed, he declared total income of Rs.
90,65,390.  The Assessing Officer (AO)
passed order u/s. 143(3) assessing the total income of the assessee to be Rs.
1,11,28,815.  Penalty proceedings under
section 271AAA were initiated for disclosure of Rs. 70,03,525.

 

The AO levied penalty under section 271AAA on the ground that
though the assessee had admitted undisclosed income of Rs. 70,03,525 in his
statement recorded u/s. 132(4) of the Act, he failed to specify as well as
substantiate the manner in which undisclosed income was derived.

 

Aggrieved, the assessee preferred an appeal to CIT(A) who
relying upon the judgment of the Allahabad High Court in the case of CIT vs.
Radha Kishan Goel [2005] 278 ITR 454 (Allahabad) and the decision of the
Gujarat High Court in the case of CIT vs. Mahendra C. Shah [2008] 299 ITR
305 (Guj.) as also the decision of the Nagpur Bench of the Tribunal in the
case of Concrete Developers v. ACIT [2013] 34 taxmann.com 62 (Nagpur-Trib.) allowed
the appeal filed by the assessee.

 

Aggrieved, revenue preferred an appeal to the Tribunal where it,
interalia, contended that the decision of Nagpur Bench of Tribunal,
relied upon by the CIT(A), has not been accepted by the Revenue and appeal has
been filed and admitted against the said decision of Nagpur Bench of Tribunal.

 

HELD

The Tribunal observed that the assessee has made a disclosure
of undisclosed income in the course of search and has shown such undisclosed
income in the return of income and has paid taxes thereon and the AO has
accepted the income returned and the source of the same.  However, the AO has levied penalty u/s.
271AAA of the Act.  The Tribunal observed
that CIT(A) relying on the ratio laid down in the decision of the Allahabad
High Court and the Gujarat High Court has elaborately considered the issue and
has passed an order deleting the levy of penalty.  It observed that the ratio emanating out of
these two High Court decisions is that if the search party doesn’t put any
question to the assessee about the source of income, any adverse inference for
levy of penalty u/s. 271AAA cannot be drawn. The Tribunal also noticed that the
revenue has in the grounds mentioned about a decision of Nagpur Bench of the
Tribunal in favor of the assessee which has not been accepted by the revenue
but the department is in appeal before the High Court.  The Tribunal observed that since no contrary
decision was pointed out by the Revenue, the Tribunal upheld the order passed
by CIT(A).

 

The appeal filed by the Revenue was dismissed.

Section 2(47) – Reduction of share capital, even where there is no change in the face value of the share or the shareholding pattern, results in extinguishment of right in the shares amounting to transfer of shares.

8.  Jupiter Capital Pvt. Ltd. vs. Assistant
Commissioner of Income Tax (Bangalore) Members:  Sunil Kumar Yadav (J. M.) and Arun Kumar
Garodia (A. M.) ITA
No.:445/Bang/2018 A.Y.: 2014-15. Dated: 29th
November, 2018 Counsel for
Assessee / Revenue:  S. Parthasarathi /
D. Sudhakara Rao

 

Section
2(47) – Reduction of share capital, even where there is no change in the face
value of the share or the shareholding pattern, 
results in extinguishment of right in the shares amounting to transfer
of shares.

 

FACTS

The
assessee had invested in 15,33,40,900 equity shares at face value of Rs. 10 on
different dates in its subsidiary company, Asianet News Network Private Limited
(‘ANNPL’). The total number of shares of ANNPL was 15,35,05,750 out of which
the assessee’s share was 99.89%. As a result of the Order of High Court of
Bombay, there was a reduction in share capital of ANNPL to 10,000 nos., and
consequently the share of the assessee was reduced proportionately to 9,988
nos. The Court also ordered for payment of Rs. 3.18 crore as a consideration
for reduction in share capital. The face value of the shares remained the same
at Rs. 10 after the reduction. 

 

The assessee claimed Rs. 164.49 crore as Long Term
Capital loss. According to the assesse, this loss had accrued on account of
reduction in share capital of ANNPL. According to the AO, the reduction in
shares of ANNPL did not result in transfer of capital asset as envisaged u/s.
2(47). The AO came to this conclusion, in light of the finding that, even though
the number of shares had reduced, the face value of Rs. 10 as well as the
percentage of assessee’s share at 99.89% remained at the same level as it was
before the reduction of share capital. He didn’t agree with the assessee that
there was real transfer of asset, as the scheme resulted in
extinguishment/relinquishment of part of the assessee’s rights in the shares of
ANNPL and therefore, the transaction fell within the purview of section
2(47).  The AO held that the decision of
the Supreme court in the case of Kartikeya V. Sarabhai vs. CIT  (228 ITR 163) relied on by the assessee
cannot be applied as the facts of the case are contrary to the case as there
was no reduction in the face value of the shares in the case of the
assessee.  On appeal, the CIT(A) agreed
with the AO and upheld her order.

 

HELD


The Tribunal noted
that in the case of the assessee, on account of reduction in number of shares
in ANNPL, the assessee extinguished its right of 15,33,40,900 shares and in
lieu thereof, it received 9,988 shares at Rs. 10/- each along with an amount of
Rs. 3.18 crore.  According to the
tribunal, the basis adopted by the CIT(A) to hold that the judgment of the
Supreme Court in the case of Kartikeya V. Sarabhai was not applicable in
the present case was not proper as the Supreme court had not made any reference
to the percentage of shareholding prior to reduction of share capital and after
reduction of share capital.  According to
the tribunal, the judgment of the Apex Court was squarely applicable to the
case of the assessee, therefore, following the same the Tribunal held that the
assessee’s claim for capital loss on account of reduction in share capital in
ANNPL was allowable.

Section 194-1A – Four persons who purchased immovable property of Rs. 1.5 crore jointly not liable to deduct tax at source since purchase consideration for each person was Rs. 37.5 lakh which was less than the threshold limit of Rs. 50 lakh prescribed in the provisions.

7.  Vinod Soni vs. ITO (Delhi) Members:  H.S. Sidhu (J. M.) Ando.P. Kant (A. M.) ITA
No. 2736/Del/2015 A.Y.:
2014-15.  Dated:
10th December, 2018 Counsel
for Assessee / Revenue:  Raj Kumar / B.S.
Rajpurohit

 

Section
194-1A – Four persons who purchased immovable property of Rs. 1.5 crore jointly
not liable to deduct tax at source since purchase consideration for each person
was Rs. 37.5 lakh which was less than the threshold limit of Rs. 50 lakh
prescribed in the provisions.

 

FACTS


The
assesse and three of his family members each purchased 1/4th
undivided equal shares in an immovable property vide single sale deed for Rs.
1.5 crore. The purchase consideration for each person was Rs. 37.5 lakh.
According to the AO, since the value of the property purchased under single
sale deed exceeded Rs. 50 lakh, as per section 194 IA(2), the assessee was
required to deduct tax at source @1%. For his failure, the AO held the assessee
as defaulter u/s. 201(1) and levied a penalty of Rs. 1.5 lakh. The levy was
confirmed by the CIT(A). 

 

HELD


The
Tribunal noted that as per the purchase deed each of the vendees had become the
absolute and undisputed owner of the said plot in equal share.  It also noted from details of party wise
payment furnished that each of the vendee had made payment from their own bank
account / loan account.  Further, the
tribunal also noted that the provisions of section 194-IA do not apply where
the consideration for transfer of immovable property was less than Rs. 50 lakh.
According to the Tribunal, since the said provisions apply to a person being a
transferee, the provision would apply only w.r.t. the amount related to each transferee
and not with reference to the amount as per a sale deed.  In the instant case, there were four separate
transferees and the sale consideration w.r.t. each transferee was Rs. 37.5
lakh, i.e. less than Rs. 50 lakh each. Each transferee was a separate income
tax entity therefore, it observed that the law has to be applied with reference
to each transferee as an individual transferee/person. Accordingly, it was held
that the provisions of section 194-IA were not applicable and allowed the
appeal of the assesse.

5 Section 133A – Returned income as against declared income during survey accepted.

5.  Amod Shivlal Shah vs. ACIT

Members:  G.S. Pannu (A. M.) and Pawan Singh (J. M.)

ITA No.: 795/MUM/2015  

A.Y.: 2006-07                                                                                               

Dated: 23rd  February, 2018

Counsel for Assessee /
Revenue:  Dr. K. Shivaram &  Rahul Hakani / Rajesh Kumar Yadav

 

Section
133A – Returned income as against declared income during survey accepted.

 

FACTS

The
assessee was engaged in carrying out business activity as a builder and
developer. On 12.03.2007, a survey action u/s. 133A was carried out at the
business premises of the assessee. At the time of survey, it was noted that the
return of income for the assessment year under consideration as well as for
Assessment Years 2004-05 and 2005-06 were not filed. It was found that the
development work of residential building situated at Bandra, Mumbai was
complete in view of the Occupancy Certificate issued by the Municipal
Corporation on 31.10.2005. In the statement recorded, the assessee declared the
income of Rs. 1 crore based on the work-in-progress declared for Assessment
Year 2003-04 and in the answer at the time of survey, the working thereof was
also enumerated. 

 

Subsequently,
the assessee filed a return of income for assessment year 2006-07 on 29.03.2007
declaring an income of Rs.25.36 lakh, which was accompanied by the audited
Balance-sheet and the Profit & Loss Account.  The response of the assessee was that
subsequent to the survey, it compiled its accounts, which were got audited
and   it  
 showed    that   
the    estimation     made      
at  Rs.1 crore was incorrect.
During the course of assessment, assessee also furnished the reconciliation
between income declared during survey and the returned income.  In sum and substance, the stand of the
assessee was that the income declared at the time of survey was a rough
estimate, whereas the return of income was on the basis of audited accounts
compiled with reference to the corresponding evidences, material, etc.

 

The
AO did not accept the explanation furnished as according to him, the
declaration made at the time of survey was binding on the assessee and the same
could not be retracted. The CIT(A) also affirmed the addition made by the
AO. 

 

Before
the Tribunal, the revenue supported the orders of the lower authorities and
relied upon the decision of the Mumbai Tribunal in the case of Hiralal
Maganlal and Co. vs. DCIT, (2005) 97 TTJ Mum 377.  

 

HELD

The
Tribunal noted that the income declared during the survey was entirely based on
the estimation of the value of the WIP as appearing on 31.03.2003 and the
expenses estimated for Assessment Years 2004-05 to 2006-07.  Thus, the income offered at the time of
survey was on an estimate basis.  The
Tribunal also noted that the assessee had explained the basis on which the
income was drawn-up at the time of filing of return and the reasons for the
difference between the income offered at the time of survey and that declared
in the return of income. 

 

To
a question, whether the AO was justified in making the addition merely for the
reason that assessee had offered a higher amount of income at the time of
survey – the Tribunal relied to the decision of the Supreme Court in the case
of Pullangode Rubber Produce Co. Ltd. vs. State of Kerala & Anr. (91 ITR
18) where the court had observed that the admission made on an anterior
date, which was not based on correct state of facts, was not conclusive to hold
the issue against the assessee. 

 

According
to the Tribunal, the stand of the assessee was much more convincing since the
original declaration itself was not based on any books of account or supporting
documents, but was merely an estimate, whereas the return of income had been
filed on the basis of audited accounts and the principal areas of differences,
namely, the amount of sale proceeds and the expenditure were duly supported by
relevant documents.

 

As
regards reliance placed by the revenue on the decision of the Tribunal in the
case of Hiralal Maganlal and Co., the Tribunal noted that the said decision was
dealing with a statement recorded u/s. 132(4) of the Act at the time of search,
whereas the present case was dealing with a statement recorded u/s. 133A of the
Act at the time of survey.  The Tribunal
pointed out that the Supreme Court in the case of CIT vs. S. Khader Khan
Sons, 352 ITR 480 had upheld the judgment of the Madras High Court in the
case reported in 300 ITR 157, wherein the difference between sections 133A and
132(4) of the Act was noted and it was held that the statement u/s. 133A of the
Act would not have any evidentiary value. The Tribunal also referred to the
CBDT Circular no. 286/2/2003 (Inv.) II dated 10.03.2003, wherein it has been
observed that the assessments ought not to be based merely on the confession
obtained at the time of search and seizure and survey operations, but should be
based on the evidences/material gathered during the course of search/survey
operations or thereafter, while framing the relevant assessments. 

 

Accordingly,
the Tribunal set-aside the order of the CIT(A) and directed the AO to delete
the addition.

Counsel for Assessee/Revenue: Lalchand Choudhary/Vijay Kumar Soni Section 24(a) – Rental income earned by a co-operative society for letting out the building terrace is assessable under the head ‘Income from House Property’ and is entitled to deduction u/s. 24(a).


11. 
Citi Centre Premises Co-Op. Society Ltd. 
vs. Income Tax Officer (Mumbai) Member: 
A.K. Garodia (A. M.) ITA No.: 3029 and 3030 / Mum / 18 A.Y.: 
2013-14 and 2014-15 Dated: 1st February, 2019

 

Counsel for Assessee/Revenue: Lalchand
Choudhary/Vijay Kumar Soni Section 24(a) – Rental income earned by a
co-operative society for letting out the building terrace is
assessable under the head ‘Income from House Property’ and is entitled to
deduction u/s. 24(a).

 

FACTS


The contention of the assessee before the
Tribunal was that rental income earned by a co-operative society, the assessee,
for letting out the building terrace and permitting erection and installing of
cell phone towers thereon in the building owned by it was assessable under the
head ‘Income from House Property’ and not as ‘Income from other sources’ as
assessed by the AO. Therefore, the assesse claimed, it was entitled to
deduction u/s. 24(a). 

 

According to the AO, for assessing an income
earned in respect of a property as an income from house property, the property
in question should be fit for habitation. 
According to him an open plot/ terrace cannot be termed as house
property as it is the common amenity for use of members of the assessee society
and cannot be used for habitation. 

 

HELD


According to
the Tribunal, the facts in the case of the assessee were identical with the
facts in the case of Matru Ashish Co-operative Housing Society Ltd., vs. ITO
[27 taxmann.com 169] before the Mumbai Tribunal.  As held in the said case, the tribunal held
that income from letting out of the terrace was to be assessed under the head
‘income from house property’ subject to deduction u/s. 24, as against income
from other sources, as assessed by the AO.  

 

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

 

8. ACIT vs. Jatin P. Mistry Members : C. N. Prasad, JM and Ramit Kochar, AM ITA No. 3404/Mum/2016 Assessment Year: 2008-09. Decided on: 13th April, 2018. Counsel for revenue / assessee: Abhijit Patankar / Fenil A. Bhatt

Section 40(a)(ia) – Amendment to section
40(a)(ia) made by the Finance Act, 2010 w.e.f. 1.4.2010 is retrospective in
operation  and consequently disallowance
u/s. 40(a)(ia) is not called for in a case where there is late deposit of TDS
in Government Account when such delayed deposit is within the due date of
filing return of income.

FACTS 

The Assessing Officer (AO) while passing order u/s. 143(3)
r.w.s. 263 of the Act noticed that amounts deducted by the assessee towards TDS
during the period from August 2007 to February 2008 were deposited in
Government Treasury after 30.4.2008 when these amounts should have been
deposited between 7.9.2007 to 7.3.2008. 
Accordingly, the AO disallowed the payments by invoking provisions of
section 40(a)(ia) of the Act.  He
rejected the contention of the assessee that the amounts were deposited before
due date of filing return of income and since the amendment of section
40(a)(ia) is retrospective, the disallowance should not be made.

 

Aggrieved, the assessee preferred an appeal to CIT(A) who
following the decision of the co-ordinate Bench in assessee’s own case and also
the decision of Delhi High Court in the case of CIT vs. Naresh Kumar
[262 CTR 389] and co-ordinate Bench of Mumbai Tribunal in Huda Construction
vs. ITO [ITA No. 816/Mum/2011 dated 15.4.2015] allowed the appeal.

 

Aggrieved, the revenue preferred an appeal to the Tribunal.

 

HELD:

The Tribunal noticed that the issue to be addressed is
whether there should be any disallowance u/s. 40(a)(ia) on account of late
remittance of TDS into government account when the assessee deposited such TDS
within due date for filing the return of income.  Admittedly, there was a delay in deposit of
TDS by the assessee but the deposit was made before due date of filing return
of income. 

 

The Tribunal noted that the issue is covered in favor of the
assessee, in its own case, by the decision of the co-ordinate Bench of the
Tribunal for assessment year 2009-2010. 
The Tribunal also noted that the jurisdictional High Court has in the
case of CIT-II vs. Shraddha & S. S. Kale [ITA No. 1712 of 2014 dated
27.3.2017] decided the similar issue in favor of the assessee holding that the
amendment to section 40(a)(ia) by the Finance Act, 2010 w.e.f. 1.4.2010 is
retrospective. Following the decision of the jurisdictional High Court, the
Tribunal upheld the order of CIT(A) and rejected the ground of revenue.

 

The appeal filed by the revenue was dismissed.

Mohamed Taslim Shaikh v. Addl. CIT ITAT Mumbai `B’ Bench Before Shailendra Kumar Yadav (JM) and Rajesh Kumar (AM) ITA No. 7259/Mum/2012 A.Y.: 2009-10. Dated: 04.08.2016. Counsel for assessee / revenue: Dr. K. Shivram, Ms. Nilam Jadav / Randhir Gupta

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S. 271D – Penalty under section 271D cannot be levied in a case where assessee was prevented by reasonable cause to accept money from his close relative like father for making payment for immovable property.

FACTS:  

The assessee filed his return of income declaring total income of Rs.1,87,750.  In the course of assessment proceedings it was noticed that the assessee’s father made a payment of Rs.10,69,000 on behalf of the assessee for purchase of property which amount was treated as a loan in the books of account of the assessee.  The Assessing Officer initiated proceedings for levy of penalty under section 269SS read with section 271D of the Act.  After considering the reply of the assessee, the AO levied a penalty of Rs. 10,69,000.

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, upon going through the material on record, observed that a similar addition was deleted by ITAT, Ahmedabad `A’ Bench in the case of ITO v. Dattuprasad Manharlal Dave in ITA No. 1816/Ahd/2013, wherein on a similar issue, relief was granted to the assessee.  It also observed that similar view has been taken by Allahabad High Court in the case of CIT v. Smt. Dimpal Yadav & Akhilesh Kumar Yadav (2015) 379 ITR 177 (All.)(HC) wherein the Hon’ble High Court upheld the order of the Tribunal interalia holding that loan transaction was genuine and there was reasonable cause for cash loan in similar situation.  The Tribunal directed the AO to delete the penalty levied under section 271D because assessee was prevented by reasonable cause to accept the money from his close relative like father for making payment for immovable property.

The appeal filed by the assessee was allowed.

ACIT v. K. S. Constructions ITAT Mumbai `A’ Bench Before Shailendra Kumar Yadav (JM) and Rajesh Kumar (AM) ITA No. 7660/Mum/2014 A.Y.: 2010-11. Dated: 12.08.2016. Counsel for revenue / assessee: Vijay Kumar Bora / Ms. Aarti Vissanji

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S. 28 – Addition for suppressed sale cannot be made on the ground that the flat was sold at a rate lower than the rate at which other flats in the building were sold specially when the sale was at a price above the stamp duty value.

FACTS:  

The assessee firm carried on business as builders and developers.  During the year under consideration it had declared income from business and income under the head other sources.  In the course of assessment proceedings the Assessing Officer (AO) noticed that the assessee had offered profits in respect of 6 commercial units sold during the year.  Of the six units sold the sale deeds in respect of the 5 units were registered in the financial year 2009-10.

The relevant details in respect of units sold can be tabulated as under –

 

 

Unit

Rate /
sq. mt

Rupees

Date of
registration of sale agt

Date of

First

payment

303

33,333

3.3.2006

30.12.2005

301

34,871

18.12.2009

7.2.2006

101

2,94,485

18.12.2009

19.8.2009

302

78,327

4.10.2009

24.11.2009

4th
floor

2,38,576

18.11.2009

13.7.2009

5th
floor

2,38,576

18.11.2009

13.7.2009

The AO asked the assessee to explain the difference in rate charged for unit no. 302 as compared to that charged for unit no. 101.  The assessee explained that the unit no. 302 suffered from design disadvantages and therefore it could not get customers to purchase unit no. 302 whereas the unit no. 101 commanded a price higher than the other units because it had a locational advantage of entire floor suitable for car show room as compared to unit no. 302.

The AO considering the date of first payment as well as date by which total payment was received by the assessee in respect of unit no. 101 and 302 held that the two transactions are comparable. He observed that it is a prevalent practice in real estate dealings; underhand transactions of on money cannot be denied specially in view of the fact that the difference in rate was more than three times.  He applied the rate at which the first floor premises were sold for the purposes of determining the actual sale rate for unit no. 302.  He, accordingly, added Rs. 4,16,70,874 to the total income of the assessee as unaccounted income from sale of unit no. 302.

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

Aggrieved, the revenue preferred an appeal to the Tribunal.

HELD: 

The Tribunal observed that

(i)    apart from Unit No. 302, date of agreement of unit no. 301 and that of units on 4th & 5th floors also fell in the same financial year;
(i)    the sale price of unit no. 302 is higher than its stamp duty valuation;
(ii)    the AO had accepted the variation in rates for sale of unit nos. 301, 302 and 4th & 5th floor vis-à-vis the rates for sale of unit no. 101.
(iii)    the AO has not brought any evidence on record  to show as to how the explanation of the assessee that there are locational disadvantages in case of Unit no. 302 is not correct;
(iv)    the AO has not brought any evidence to establish that there has been on money transaction for sale of said Unit no. 302;
(v)    it is not the case of the AO that the transaction is between related parties.
In the light of the above factual position, it observed that the addition made by the AO was simply on the basis of difference in booking of unit no. 101. It noted that CIT(A) had relied on the decision of Mumbai Bench of ITAT in the case of Neelkamal Realtors & Erectors India(P.) Ltd (2013) 38 taxman.com 195 (Mum-Trib) and held that AO had not controverted the explanation furnished by the assessee during the course of assessment proceedings to explain the reasons for charging lower price in respect of unit no. 302 sold vis-à-vis rate / price for unit no. 101.

The Tribunal held that the CIT(A) had rightly deleted the addition of Rs. 4,16,70,874.

The appeal filed by the revenue was dismissed.

Lintas India Pvt. Ltd. v. ACIT(TDS) ITAT Mumbai `A’ Bench Before R. C. Sharma (AM) and Ram Lal Negi (JM) ITA No. 3504/Mum/2014 A.Y.: 2010-11. Dated: 02.08.2016. Counsel for assessee / revenue: Prakash Jotwani / Morya Pratap

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S. 194J – Internet charges for use of internet connectivity are not covered by section 194J.

S. 194J – Payment for computer software development does not qualify for deduction under section 194J.

FACTS-I:  

The assessee, during the year, paid internet charges for use of internet connectivity and deducted tax thereon under section 194C of the Act.  The Assessing Officer (AO) held that the payment so made qualifies for deduction of tax under section 194J as “fees for technical services”.  He, accordingly, held the assessee to be an assessee-in-default under section 201(1) / 201(1A) of the Act.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO and held that as per the amendment, the domestic payments are now covered under section 194J and therefore the ratio of the decision relied on by the assessee in the case of Skycell Communications Ltd. (251 ITR 53)(Mad HC) is not applicable in the instant case.

Aggrieved, the assessee preferred an appeal to Tribunal.

HELD:  

The Tribunal held that the issue under consideration is squarely covered by various decisions of High Court and Tribunal.  It noted that –
(i)    the Delhi High Court had an occasion to examine a similar issue in the case of CIT v. Estel Communications (P.) Ltd. (217 CTR 102)(Del) wherein the Court held that mere payment by assessee for an internet bandwidth to a US company did not mean that technical services were rendered by the US company to the assessee and, therefore, provisions of section 9(1)(vii) did not apply so as to warrant any deduction of tax from payment made by the assessee to the US company;
(ii)    the Madras High Court in Skycell Communications Ltd and another v. DCIT & Others (2011) 251 ITR has considered the provisions fo section 9(1)(vii);
(iii)    Chandigarh Bench of ITAT in the case of HFCL Infotel Ltd. v. ITO (99 TTJ 440)(Chand. ITAT) referred to the decision of Madras High Court in Skycell Communications Ltd.;
(iv)    Mumbai Bench of ITAT has in the case of Pacific Internet (India) Pvt. Ltd. v ITO 318 ITR 179 (Mum)(AT) has relied upon the observations rendered in Estel Communications Pvt. Ltd. (supra) and Communications Ltd. (supra) and held that payment for use of internet is not covered by the provisions of section 194J;
(v)    Hyderabad Bench of the Tribunal has in the case of Ushodaya Enterprises P. Ltd. v. ACIT (2012) 53 SOT 193 (Hyd.) has held that payment made towards internet charges are similar in nature to bandwidth charges and are similar to the use of telephone lines, payments made for circuit charges to VSNL, bandwidth charges do not come under TDS provision and therefore no deduction is required under section 194J.
Relying on the ratio of the above, the Tribunal held that the assessee cannot be held to be in default for non-deduction of tax on internet charges under section 194J of the Act.

This ground of appeal filed by the assessee was allowed.

FACTS-II:

The AO held the assessee to be in default for not having deducted tax on payment of Rs. 14,96,240 towards purchase of computer software development. The AO was of the view that payment for purchase of software qualifies as a “technical service” and requires deduction of tax under section 194J of the Act.  He, accordingly, held the assessee to be an assessee-in-default under section 201(1) and levied interest under section 201(1A).

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD – II:

Explanation 2 of section 9(1)(vii) defines the words “Fees for technical services” as any consideration (including any lumpsum consideration) for rendering any managerial, technical or consultancy services.  It noted that the perusal of the aforesaid definition clarifies that the term FTS would include service of the following three types : Managerial, Technical and Consultancy.  Therefore, in order to decide whether the service will fall within FTS or not, it is necessary to determine the scope of these three terms.  Considering the scope of these terms as defined by the Mumbai Bench of the Tribunal in the case of TUV Bayren (India) Ltd. dated 6.7.2012 in ITA No. 4994/Mum/2002 it held that the computer software purchased would not fall within the definition of “Fees for technical services” and therefore the provisions of section 194J are not applicable.

The Tribunal held that tax is not required to be deducted at source in respect of payment made for purchase of computer software development.

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

ITO v. Uma Developers ITAT Mumbai `F’ Bench Before Jason P. Boaz (AM) and Sandeep Gosain (JM) ITA Nos.: 7718/Mum/2014 A.Y.: 2012-13. Dated: 10.08.2016. Counsel for revenue / assessee: A K Dhondial / Vijay Mehta

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Ss. 80AC, 80IB(10), 139(1), 139(4), 143(1) – In a case where the return of income is filed beyond the period stipulated under section 139(1) but within the period stipulated in section 139(4), it is beyond the scope of section 143(1) to disallow the assessee’s claim for deduction under section 80IB(10) of the Act.

FACTS:  

For assessment year 2012-13, the assessee firm filed its return of income on 31.3.2013 claiming deduction of Rs. 3,53,17,770 under section 80IB(10) of the Income-tax Act, 1961 (“the Act”). The Assessing Officer (AO) while processing the return on 10.5.2013, in view of the provisions of section 80AC of the Act disallowed the claim of deduction under section 80IB(10) for the reason that the assessee had filed its return of income beyond the time limit specified under section 139(1) of the Act.

Aggrieved with the order dated 10.5.2013, the assessee preferred a rectification appeal under section 154 of the Act contending that the disallowance of assessee’s claim for deduction under section 80IB(10) was beyond the scope of provisions of section 143(1) of the Act.  ACIT(CPC) vide order dated 16.3.2013 passed under section 154 of the Act rejected the application of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who observed that the Bombay High Court and Benches of ITAT at Mumbai, Bangalore and Ahmedabad have even in cases where return of income was filed beyond due date specified under section 139(1) of the Act, either allowed the deduction under section 80IB(10) or have set aside the issue to the file of the authorities below for consideration of the eligibility of the claim with the direction that the claim for deduction should not be denied merely on the ground that the return of income was filed beyond the time specified under section 139(1) of the Act. He also observed that the provisions of section 80AC of the Act were subject matter of discussion and interpretation in various judgments.  He, accordingly, held that the disallowance made by the AO is beyond the scope of the provisions of section 143(1) of the Act.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

HELD:  

Considering the ratio of the decisions of the Bombay High Court in the case of Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (207 ITR 368)(Bom) and of the co-ordinate Bench in the case of Yash Developers (ITA No. 809/Mum/2011) even in cases where the return of income is filed beyond the due date stipulated under section 139(1) of the Act, the deduction should not be disallowed under section 143(1) merely in view of the provisions of section 80AC of the Act.  It held that the action of the AO in disallowing the assessee’s claim for deduction under section 80IB(10) of the Act, since the return of income was filed beyond the period stipulated under section 139(1) of the Act in view of the provisions of section 80AC is beyond the scope of section 143(1) of the Act since there is neither an arithmetical error nor an incorrect claim apparent from the record.

The Tribunal upheld the order of the CIT(A) and directed the AO to delete the disallowance made under section 143(1)(a) / 143(1) of the Act.

The Tribunal dismissed the appeal filed by the Revenue.

Bastimal K Jain vs. ITO ITAT “B” Bench, Mumbai Before Mahavir Singh (J. M.) and Rajesh Kumar (A. M) ITA No.: 2896/Mum/2014 A.Y.: 2010-11. Date of order: 8th June, 2016 Counsel for Assessee / Revenue: Dr. K. Shivaram / Sachidanand Dube

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Section 54 – Date of purchase of a new flat is the date of possession and not the date of agreement.

FACTS
During the year under consideration, the assessee had sold his flat for a consideration of Rs.55 lakh on 24.02.2010 resulting into long term capital gain of Rs.50.95 lakh. The assessee claimed deduction u/s. 54 contending that he had purchased a new flat in earlier year, the possession of which was received on 11.09.2009. The AO noted that the agreement for purchase of the new flat was entered into on 28.12.2007 and registered on 28.02.2008. Thus, according to him, the purchase of new flat by the assessee was made one year before the date of the sale of the property. Hence, he denied the deduction claimed u/s 54. The CIT(A) on appeal, relying on the Madras High Court decision in the case of Late R Krishnaswamy (ITA No.697 & 698 of 2013 dated 26.11.2013), held that the date of registration of sale deed was material for the purpose of determining the date of purchase of a flat. Accordingly, the CIT(A) concurred with the views of the AO and held that the assessee had not acquired the new flat within one year before the sale of the Long Term Capital Asset and thus denied the benefit u/s 54 claimed by the assessee.

Before the Tribunal in support of the orders of the lower authorities, the revenue relied on the decision of the Gujarat High Court in the case of CIV s. Jindas Panachand Gandhi [2005] 279 ITR 552.

HELD
The Tribunal noted that the flat intended to be purchased by the assessee was not at all constructed on 28.12.2007 when the agreement for purchase was entered into. Eventually property’s possession was given to the assessee by the builder only on 11.09.2009. According to the Tribunal, the agreement for purchase was just a right for purchase of a flat in the proposed construction. The Tribunal also agreed with the assessee that the acquisition of the property is to be considered only when the possession of the flat was given to the assessee by the builder and that date was on 11.09.2009. Thus, the vital conditions of section 54 of the Act were fulfilled when the property’s possession was handed over to the assessee by the builder on 11.09.2009 i.e. within the time limit prescribed u/s. 54 of the Act for claiming deduction u/s 54 of the Act. In arriving at the above conclusion, the Tribunal also relied on the decision of the Mumbai tribunal in the case of V M Dujodwala vs. ITO (36 ITD 130) and of the Bombay High Court in the case of CIT vs. Smt. Beena K Jain (217 ITR 363).

Shivam Steel & Tubes Pvt. Ltd. vs. ACIT Income Tax Appellate Tribunal “E” Bench, Mumbai Before Rajendra (A. M.) and C. N. Prasad (J. M) ITA No.: 4691/Mum/2014 A.Y.: 2009-10. Date of order: 5th August, 2016 Counsel for Assessee / Revenue: Sanjeev Kashyap / Jayesh Dadia

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Section 271(1)(c) – Non-filing of appeal against the additions made cannot be a ground for justifying levy of penalty.

FACTS
During the assessment proceedings the AO made two disallowances viz., Rs. 0.17 lakh u/s. 14A and Rs. 10.71 lakh u/s.80IB. Penalty proceedings u/s.27l(1)(c) were also initiated at the time of assessment. In its reply to penalty notice, the assessee submitted that it had furnished all details of expenditure. However, according to the AO, the assessee by not filing any appeal against the additions has admitted its fault and hence, he levied a penalty of Rs. 3.7 lakh. On appeal, the first appellate authority confirmed the order of the AO.

Before the Tribunal the revenue justified the orders of the lower authorities on the ground that the assessee filed the revised computation after the AO made enquiries. Assessee is a corporate entity, that it had made a patently wrong claim. It relied upon the cases of Mak Data (350 ITR 593) and Zoom communications (327 ITR 590).

HELD
According to the Tribunal, penalty cannot be levied just because additions are made during assessment proceedings and the assessee did not agitate the additions before the Appellate Authorities. As per the settled principles of taxation jurisprudence penalty proceeding and assessment proceedings are totally separate and distinct. Addition made during assessment cannot and should not result in automatic levy of penalty. Penalty has to be levied considering the explanation of assessee filed during penalty proceedings. According to the Tribunal, disallowance u/s 14A does not prove filing of inaccurate particulars of income. As regards the claim u/s 80IB, according to the Tribunal, the assessee had reasonable cause in as much as the claims – original as well as revised, both were made as per the advice of the chartered accountant. Further, relying on the Bombay high court decision in the case of CIT vs. Somany Evergreen Knits Ltd. (352 ITR 592) and considering the peculiar facts and circumstances of the case, the Tribunal was of the opinion that the assesse had not furnished inaccurate particulars of income and reversed the order of the lower authorities.

Krupa D. Doshi vs. ACIT ITAT Mumbai `A’ Bench Before R. C. Sharma (AM) and Amarjit Singh (JM) ITA No. 2983/Mum/2013 A.Y.: 2009-10. Date of order: 10 May, 2016. Counsel for assessee / revenue: Vijay Mehta / Ms. Arju Goradia

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Section 22 – Charges for amenities which flow from the rental rent agreement itself and which amenities are an integral part of the property rented are to be charged under the head `Income from House Property’ and not `Income from Other Sources’.

FACTS
The assessee had let out office premises. He had entered into two separate agreements i.e. one for license fee and other for amenities. Rent was Rs. 50,25,000 and amenities charges as per amenities agreement dated 5.6.2006 were Rs. 36,00,000.

The amenities provided as per Annexure `A’ to the amenities agreement were – (1) to help in obtaining all the necessary licenses and the premises from BMC and other Government authorities; (2) liaison with local government authorities, BMC for smooth running of business of user; (3) liaison with electrical and water authorities for uninterrupted and smooth supply of water and electricity; (4) perform and carry out all the above listed work in a good workmanlike manner and to the best of amenities provider’s abilities; (5) separate entrance gate; and (6) open parking provision”.

The total of rent plus amenities charges i.e. Rs. 86,25,000 was offered by the assessee for taxation under the head `Income from House Property.

The Assessing Officer (AO) asked the assessee to show cause why receipts as per the amenities agreement should not be charged to tax under the head `Income from Other Sources’. The assessee submitted that since the premises could not be let without the amenities and therefore, the receipts under amenities agreement also are chargeable to tax under the head `income from house property’. The AO held that since the receipts under the amenities agreement were for specifically providing certain services to the tenant but not for letting out the premises, the same were taxable under the head `Income from Other Sources’. The AO taxed the sum of Rs. 36,00,000 under the head `Income from Other Sources’. Aggrieved, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD
The Tribunal found that the nature of amenities provided flew out of the rent agreement itself. All the amenities were integral part of the property rented. It is not uncommon to provide these amenities along with the rented premises and it is not the case that these are provided as per the specific requirements of the tenants business. The Tribunal observed that keeping in view the nature of the rent agreement, the amenities provided by the assessee were to exploit the property in most profitable manner, and as the agreement itself states that they were provided for smooth running of the business of the user. The amenities provided were very basic and without which it would be impossible to use the premises, which are, supply of continuous water and electrical supply, parking, entrance and liasoning of the same. The fact that amenities were provided under a separate agreement would not make a difference. The Tribunal noted the ratio of the decision of co-ordinate Bench in the case of Narendra Gupta (ITA No. 3269/Mum/2013, order dated 3.2.2016). It also noted that the Bombay High Court has in the case of J K Investors (Bom) Ltd., 25 taxmann.com 12 held that where service charges are found to be profit under service agreement in respect of staircase of building, lift, common entrance and where these services were not separately provided but went along with occupation of the property, the amount received as service charges was a part of rent received and subjected to tax under the head `Income from House Property’. Since the amenities, in the present case, were an integral part of the rent, the Tribunal following the order of the co-ordinate bench and the Hon’ble jurisdictional High Court, held that the receipts under the amenities agreement are to be charged under the head `Income from House Property’.

The Tribunal allowed the appeal filed by the assessee.

Subhi Construction Pvt. Ltd. vs. ACIT ITAT Mumbai `E’ Bench Before B. R. Baskaran (AM) and Amit Shukla (JM) ITA No. 2318/Mum/2014 A.Y.: 2010-11. Date of order: 4 May, 2016. Counsel for assessee / revenue: Vimal Punmiya / A. K. Nayak

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Section 23 – While computing annual value of the property, municipal taxes of the property are to be deducted even though a part of the property has been let out.

FACTS
The assessee was owner of a commercial tower known as “Blue Wave”. The said property consisted of 8 floors of which 3 were let out to three different persons under different leave and license agreements. The assessee had shown rental income of Rs. 3,22,73,900 on letting of these floors. The municipal tax levied by the local authority in respect of the building was Rs. 1,10,30,098 which was paid by the assessee during the previous year. The assessee had recovered from tenants Rs. 55,77,635 towards municipal taxes. While computing the annual value the assessee deducted Rs. 54,22,365 (Rs. 1,10,30,098 minus Rs. 55,77,635 recovered from tenants and Rs. 30,098 being municipal tax not paid during the year).

The Assessing Officer (AO) observed that while only 3 floors were let out, property tax in respect of the entire building was claimed as a deduction. The AO asked the assessee to show cause why proportionate property tax attributable to the portion not let out should not be disallowed. The assessee submitted that all the floors of the building collectively constituted one single building and hence theory of slicing or proportion is not at all warranted and requested that the deduction claimed be allowed. The assessee, without prejudice to its contention that property tax of the entire building is allowable, submitted working showing property tax attributable to each floor in the building.

The AO noted that the assessee has entered into 3 different agreements with 3 different parties and the license fees is different in respect of each of the floors let out and also because assessee has rented the office premises by slicing it into different floors to different parties, property tax in respect of floors lying vacant cannot be claimed against floors let out. He held that the working filed by the assessee was not proper. Therefore, he held property tax allowable to be 3/8th of the property tax of the entire building. He disallowed the claim of property tax to the extent of Rs. 33,88,879.

Aggrieved, the assessee preferred an appeal to the CIT(A) who held that the proportionate disallowance has to be worked out as per details of municipal tax actually levied in respect of each of the floors. He directed the AO to restrict the disallowance to Rs. 10,12,604 in place of Rs. 33,88,979.

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

HELD
The Tribunal observed that a perusal of provisions of section 23 show that while determining the annual letting value of the property, the fact as to whether it is wholly let or partially let is to be considered. However, proviso to section 23 of the Act provides for deduction of taxes levied by any local authority “in respect of the property” shall be deducted in determining the annual value of the property of that previous year in which taxes are “actually paid”. It noted that the reference is to “the property” and not to “whole or any part of the property”. It also noticed that the municipal taxes have to be deducted in the year of payment, even though, it may relate to any of the years. Thus, the importance is given to the “year of payment”, whether or not it pertains to the year in which the property income is assessed.It observed that even though the provisions of section 23(b) and 23(c) make a reference to “any part of property”, yet what is relevant is whether the amount of actual rent received or receivable by the owner is in excess of the sum referred to in section 23(a) of the Act.

The Tribunal held that the question of apportionment of rent / municipal taxes may arise only if it is shown that each floor of the property is a distinct and separate property which it observed was not the case in the facts before it. The copies of municipal tax receipts showed that BMC had given a single number to the impugned property and hence BMC also was considering the entire building as a single property. The Tribunal found merit in the contention of the assessee and held that the authorities were not justified in making proportionate disallowance of municipal taxes actually paid by the assessee.

The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue.

Shyam Mandir Committee, Khatushyamji vs. ACIT ITAT Jaipur Bench Before T. R. Meena (AM) and Lalit Kumar (JM) ITA No. 651/Jp/2013 A.Y.: 2007-08. Date of order: 2 June, 2016. Counsel for assessee / revenue: Mahendra Gargieya / S. K. Jain

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Section 12A – The proviso to section 12A(2) has retrospective application and has been inserted in the Act to remove the hardship of the charitable trusts / institutions.

FACTS
On 4.3.1986, the assessee trust was registered and started doing its activities. The primary activity of the trust was to look after, manage and admister the affairs of the famous temple of Lord Shyamji at Khatushyamji. Various gulaks/hundies were kept in the temple for collecting the donations, etc. The Trust applied for exemption under section 12AA vide its application dated 16.3.2009. Vide order dated 28.1.2010, the Tribunal in ITA No. 789/ Jp/2009 directed grant of registration to the assessee trust w.e.f. 1.4.2008.

For AY 2007-08, the assessee filed its return of income on 28.1.2008, in response to notice u/s. 148. The return was processed on 12.3.2010 and assessment was completed under section 143(3) r.w.s. 147 on 26.12.2011. The AO taxed a sum of Rs. 2,08,00,000 and rejected the contention of the assessee that it was a capital receipt not chargeable to tax since it was an unregistered trust.

Aggrieved, the assessee preferred an appeal to CIT(A) who held that the receipts of Rs. 2,08,00,000 represented income of the assessee trust u/s. 2(24) and 115BBC of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal where it took an additional ground viz. that the action taken under section 147/148 is bad in law and without jurisdiction and being void ab-initio the assessment be quashed which was admitted by the Tribunal.

HELD
The Tribunal noted that the Finance Act No. 2 of 2014 has inserted the proviso to sub-section (2) of section 12A w.e.f. 1.10.2014. A reading of the said proviso provides that if at the time of grant of registration u/s. 12A, the assessment proceedings are pending before the AO and the object and activities of the trust remain the same for such preceding years, then the benefit of registration for sections 11 & 12 are required to be given to the trust on the income derived from the property held in the trust.

The Tribunal noted that the assessee had filed application for grant of registration on 16.3.2009 and registration was directed to be granted by the order of the Tribunal w.e.f. 1.4.2008. The return of income was processed u/s. 143(1) on 13.3.2010 and the assessment order was passed on 26.12.2011 u/s. 143(3) read with section 147 of the Act. Thus, when the order was passed by the Tribunal on 28.1.2010 the assessment proceedings were pending before the AO. Therefore, it held that the benefit of registration is required to be given for the preceding assessment year i.e. AY 2007-08.

The Tribunal held that the proviso to sub-section (2) of section 12A has retrospective application and has been inserted in the Act to remove the hardship of charitable trusts / institutions. It held that in the present case when registration was granted on 5.3.2010 w.e.f. 1.4.2008, the assessment proceedings for AY 2007-08 were pending before the AO. Therefore, the assessee cannot be treated as an AOP and was required to be treated as a registered trust under section 12A of the Act. The Tribunal concurred with the decision of the co-ordinate bench in the case of SNDP Yogam vs. ADIT(Exemption) in ITO NO. 503 to 506 & 569/Coch/2014 where the co-ordinate Bench had given benefit of registration of trust for AY 2006-07 though the application for registration was granted on 29.7.2013. Following the said judgment it held that the assessee was to be treated as a registered trust for AY 2007-08 dehors the direction issued by the Tribunal to grant the registration w.e.f. 1.4.2008, in the light of the new amendment.

The Tribunal observed that since it has held that the assessee is required to be treated as registered trust w.e.f. 1.4.2007, the second proviso to section 12A(2) applies and the reopening u/s. 147/148 is not permissible. The Tribunal held that reopening made was ill founded and not in accordance with law. It decided the ground in favor of the assessee.

The appeal filed by the assessee was allowed.

J M Financial & Investment Consultants Pvt. Ltd. vs. DCIT ITAT Mumbai `J’ Bench Before R. C. Sharma (AM) and Sanjay Garg (JM) ITA No.: 92/Mum/2012 A.Y.: 2008-09. Date of order: 11 May, 2016. Counsel for assessee / revenue : Dr. K. Shivram / Shabana Parveen

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Section 14A, Rule 8D – While computing amount of
average investment as per rule 8D, strategic investment is not to be
taken into account.

Section 48 – Interest on borrowings
utilized for application of shares is allowable as deduction while
computing capital gains if the same has not been claimed as revenue
expenditure.

FACTS I
The assessee in its return
of income had offered a sum of Rs. 40,000 as disallowance in respect of
expenditure incurred for earning tax free income. In the course of
assessment proceedings, on being asked by the Assessing Officer (AO) to
furnish a computation, the assessee furnished working of disallowance as
per rule 8D. The AO did not reject the amount of disallowance offered
by the assessee. The AO while computing the amount of disallowance under
section 14A did not exclude investment of Rs. 46,86,46,983 in the group
concerns being strategic investments since the said concerns were
subsidiaries or group concerns of the assessee.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD I
The
Tribunal noted that while computing the disallowance under Rule 8D, the
AO has not excluded amount of strategic investment while computing
average investment as per Rule 8D. It observed that as per the ratio of
the decision of Delhi Bench of ITAT in the case of Interglobe
Enterprises Ltd. (ITA NO. 1362 & 1032/Del/2013, order dated
4.4.2014) and the decision of Mumbai Bench of the Tribunal in the case
of Garware Wall Ropes Ltd., strategic investment is not to be taken into
account. Following the ratio of these decisions, the Tribunal restored
the matter to the file of the AO and directed the AO to recompute the
disallowance under rule 8D after excluding strategic investment out of
average investment so made by the assessee.

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

FACTS II
The
assessee applied for allotment of shares of Cairn India Ltd by
utilizing monies raised by way of borrowings from DSP Mutual Fund. It
paid interest of Rs. 2,57,97,463 on the borrowings utilized for the
purpose of allotment of shares of Cairn India Ltd. Upon allotment, the
shares were sold and short term capital gain was computed. While
computing the short term capital gain the assessee claimed interest as
part of cost of shares sold and therefore, reduced it from sale
consideration to arrive at capital gains. In the tax audit report, the
auditor had classified this expenditure as capital expenditure. This
expenditure was not claimed by the assessee either as business
expenditure or u/s. 57 but was added to the cost of shares allotted.

The
AO rejected the claim of the assessee by holding that the said
expenditure can be claimed only u/s. 57 but it is disallowable since
dividend income is exempt. He held that the said expenditure is not
allowable while computing short term capital gain.

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

Aggrieved,
the assessee preferred an appeal to the Tribunal. Before the Tribunal,
the assessee relied upon the ratio of the following decisions –

a) DCIT vs. Finav Securities Pvt. Ltd. (ITA No. 1010/ Mum/2011; Bench `F’, Order dated 3rd April, 2013);

b) ITO vs. Global Assets Holding Corporation Ltd. (ITA No. 4738/Mum/2010; Bench `G’, order dated 27th July, 2011);

c) Pratibha Paliwal vs. ACIT 11 ITR (Trib) 586 (Del);

d) S. Balan alias Shanmugam vs. DCIT (2009) 120 ITD 469 (Pune);

e)
DCIT vs. KRA Holding & Trading (P.) Ltd. 54 SOT 493 (Pune) –
Portfolio management fees paid by the assessee was to be allowed as
deduction while computing capital gains arising from sale of shares;

f) CIT vs. Sri Hariram Hotels P. Ltd. (2010) 325 ITR 136 (Karn);

g) Smt. Neera Jain vs. ACIT (ITA No. 1861/Mum/2009; decided on 22.2.2010).

HELD II
The
Tribunal upon consideration of the facts and having deliberated on the
judicial pronouncements relied upon by the assessee found that the
assessee has not claimed interest as revenue expenditure but the same
has been capitalized. It held that in view of the judicial
pronouncements relied upon by the assessee, interest expenditure is to
be considered as cost of acquisition of shares / cost of improvement,
therefore, allowable while computing capital gain under section 48 of
the Act. The Tribunal directed the AO to allow assessee’s claim of
interest u/s. 48 of the Act.

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

Asst. CIT vs. Majmudar & Co. ITAT “B” Bench, Mumbai Before Mahavir Singh (J. M.) and Rajesh Kumar (A. M.) ITA No. 3063 to 3067 and 6604 /Mum/2012 A.Ys.: 2004-05 to 2009-10. Date of order: 19th August, 2016 Counsel for Revenue / Assessee: N.P. Singh / Arvind Sonde

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Section 10B – Export  of legal data base eligible for deduction.

Facts

The assessee, a firm of  Advocate & Solicitors, is engaged in production and export of customised electronic data or legal database.  The unit of the firm was recognised as a 100% EOU by the development Commissioner SEZ, SEEPZ and its entire sale proceeds from export of such legal services was brought in india in convertible foreign exchange. according to the assessee, it has transferred the customised electronic data to its client therefore it forms part of computer software as per explanation 2 to section 10B of the act. accordingly, it claimed deduction u/s 10B of the act. However, the claim of the assessee was rejected by the AO on the grounds amongst others that, the assessee was engaged in providing legal services to its foreign clients and not engaged in exporting legal database which was one of the items notified by the CBDT for the purpose of “Computer Software” on which deduction u/s. 10B was admissible. Rendering of legal services by the assessee firm to the foreign clients cannot be termed as export of legal database from india.

Held

The tribunal noted that the services provided by the assessee i.e. legal services, are recognised by the Government of India for the various benefits under the scheme of EOU as per EXIM Policy 2002-2007.  Section 10B of the Act was introduced to give benefit to such EOU under the Income-tax Act, reflecting the intention of law to provide encouragement to the exporters of services to enhance their capacity for provision of services and in turn earn valuable foreign exchange for our country. According to the Tribunal, the assessee has fulfilled the specific requirements of Section 10B by providing legal  Services using  legal   database.  legal database  is  recognised by the Board vide its notification No. S.O.890(E) dated September 26, 2000 as one of the eligible information technology enabled services. Explanation 2(i) (b) defines computer software to include, inter alia, a “Customised Electronic Service as notified by the Board”. As legal database is notified by the Board for this purpose and the assessee has provided services by using such legal database via electronic media i.e. via emails and internet facilities, the claim of the assessee for deduction u/s. 10B of the Act in the light of Explanation 2(i) (b) is fully justified.

Rajeev B. Shah vs. ITO ITAT “SMC” Bench, Mumbai Before Mahavir Singh, Judicial Member ITA No.: 262/Mum/2015. A.Y.: 2010-11. Date of Order: 8th July, 2016 Counsel for Assessee / Revenue: Subhash Shetty & R. N. Vasani / Somanath S. Ukkali

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Section 54F – due to fault of the builder project not
completed on time. assessee  entitled to relief.

Facts
The assessee sold a plot of land for a consideration of Rs.19.35 lakh and
earned long term  Capital Gains of Rs.14.81 lakh. The assessee invested a
sum of Rs. 18.60 lakhs for buying a residential flat under construction. The
Developer allotted flat no.602 in the project for a sum of Rs.143.96 lakh on
the terms and conditions given in the letter of allotment issued to him by the
Builder dated 16­03-2010. The AO rejected the claim of deduction u/s. 54F of
the act on the ground that the property is incomplete and registered document
was not filed by the assessee to claim deduction u/s. 54F of the act.

Before the Tribunal, the assessee explained that the builder was avoiding the
customers due to disputes and the project was also stalled and there was no
further progress in construction of the project. the  assessee also
filed civil suit before the Hon’ble Bombay High Court for an order and direction
calling upon the developer to commence construction of the project as per the
agreement evidenced by the allotment letter.

Held
According to the Tribunal,  it was not in the assessee’s hands to get the
flat completed or to get the flat registered in his name. The intention of the
assessee was very clear and he has invested almost the entire sale
consideration of land in purchase of this residential flat. It was impossible
for the assessee to complete the formalities i.e. taking over possession for
getting the flat registered in his name and this cannot be the reason for
denying the claim of the assessee for deduction u/s. 54 of the act. in view of
the above, the Tribunal held that the assessee is entitled for deduction u/s.
54F  of the Act.

Mangal Singh Palsania vs. ACIT ITAT Jaipur Bench Before Vikram Singh Yadav (AM) and Laliet Kumar (JM) ITA No. 53/JP/14 A.Y.: 2008-09. Date of order: 31.03.2016 Counsel for Assessee / Revenue: M. Gargieya / Ajay Malik

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Section 32(1) – In order to claim depreciation on vehicles, registration of vehicles under the Motor Vehicle Act is not essential requirement.

FACTS
The assessee derives income from transport business. The tankers used in the business were not registered in the name of the assessee. Hence, the depreciation claimed Rs. 21.02 lacs was denied by the AO. On appeal, the CIT(A) confirmed the order of the AO.

Being aggrieved the assessee appealed before the Tribunal. Before the Tribunal, the revenue submitted that the test of ownership is governed by the registration under the Motor Vehicle Act and since the tankers were not registered in the name of the assessee, the AO was justified in denying the depreciation claim.

HELD
The Tribunal referred to the observations of the Supreme Court in the case of I.C.D.S vs. CIT (29 Taxman 129) that the repository of a general statement of law on ownership may be the Sale of Goods Act. The Motor Vehicle Act was not a statement of law on ownership. Further, it also noted the observation of the Apex Court in the case of Mysore Minerals Ltd. vs. CIT (239 ITR 779) that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property in his own right would be considered as the owner of the property for the purpose of section 32(1) though a formal deed of title may not have been executed and registered. According to the Tribunal, the above proposition of law was fully satisfied by the assessee. The assessee was having possession and dominion over the income and control over the operation of the tankers. Accordingly, the Tribunal held that the assessee was eligible to claim depreciation.

Income Tax Officer vs. Rajeshwaree Shipping & Logistics ITAT “D” Bench, Mumbai

Before Saktijit Dey (J. M.) and Ramit Kochar (A. M.) ITA no.7297/Mum./2013 A.Y.: 2010–11. Date of order: 27.05.2016 Counsel for Revenue / Assessee: K. Mohan Das / Jignesh R. Shah

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Section 40(a)(ia) – Assessee not liable to deduct tax at source when the payment made is on behalf of the client.

FACTS
The assessee, a partnership firm, is engaged in the business of providing logistic services relating to export/ import viz. transportation, warehousing, packaging, custom clearance, organizing of container with the shipping lines, arrangement of labour for unloading cargo, etc. During the assessment proceedings the AO noticed that during the year, the assessee had paid an amount of Rs. 3.29 crore to Container Freight Station (CFS) and Inland Container depots (ICD) for/on behalf of importer/ exporter. The AO was of the view that as the assessee was dealing with the CFS for and on behalf of its client, it was the liability of the assessee to deduct tax u/s 194C while making payments to CFS. On account of its failure to deduct tax at source, the AO disallowed the sum of Rs. 3.29 crore by invoking the provisions of section 40(a)(ia).

On appeal, the CIT(A) deleted the addition as the assessee had made payments on behalf of the importer/ exporter. According to him, the payments so made were deemed to be the expenditure of the importer/exporter and not an expenditure by the assessee. Since the assessee had never claimed these payments as expenditure in the Profit & Loss account, the provisions of section 40(a)(ia) cannot be invoked to disallow the same.

HELD
According to the Tribunal, when the AO himself admitted the fact that the assessee had made payments to CFS/ ICD on behalf of importer as a custom house agent and the documentary evidence produced by the assessee also proved such fact, the AO cannot disallow the payments under section 40(a)(ia) alleging non–deduction of tax by the assessee, especially when the expenditure / payment does not relate to the assessee. Merely because the assessee made payments on behalf of its client the liability of deduction of tax on the assessee would not get attracted. More so, when the assessee has not claimed such payments as expenditure by debiting to its Profit & Loss account. In coming to the conclusion, the Tribunal also found support from the Mumbai Tribunal decisions in the case of DCIT v/s Rank Shipping Agency Pvt. Ltd. (ITA no. 5946/Mum./2008 dated 21.11.2012) and in the case of ITO v/s M/s. Universal Traffic Co. (ITA no.1426 to 1429/Mum./2013 dated 17.12.2014). With the result, the Tribunal dismissed the appeal filed by the revenue.

9 Sections 32, 43(3) – The benefit of additional depreciation is available to the assessees who are manufacturers and is not restricted to plant and machinery used for manufacture or which has first degree nexus with manufacture of article or thing.

9. [2017] 87 taxmann.com 103 (Kolkata)

DCIT vs. Bengal
Beverages (P.) Ltd.

ITA No. :
1218/KOL/2015

A.Y.: 2010-11                                                                     

Date of
Order:  6th October, 2017

Sections 32,
43(3) – The benefit of additional depreciation is available to the assessees
who are manufacturers and is not restricted to plant and machinery used for
manufacture or which has first degree nexus with manufacture of article or
thing.

A manufacturer of soft drinks is entitled to claim additional
depreciation on `Visicooler’ installed at the distributor’s or retailer’s
premises so as to ensure that the cold drink is served chilled to the ultimate
customer.  Such installation at the
premises of the distributor or the retailer would tantamount to use of the
`visicooler’ for the purpose of business.

 FACTS 

During the
previous year under consideration, 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
claimed additional depreciation on Visicooler amounting to Rs. 90,56,200 (Rs.
41,67,159 + Rs. 48,89,004). The Visicoolers were kept at the premises of the
distributors/retailers and not at the factory premises of the assessee. The
assessee submitted to the Assessing Officer (AO) that the Visicoolers were
required to be installed at the delivery point to deliver the product to the
ultimate consumer in the chilled form, therefore these Visicoolers are part of
assessee’s plant entitling the assessee to claim additional depreciation.

The AO was of
the view that the assessee is not carrying out manufacturing activity on the
product of the retailer at the retailer’s premises and merely chilling of
aerated water cannot be termed as manufacturing activity and even that chilling
job is the activity of the retailer and not of the assessee. The AO, disallowed
the assessees claim of additional depreciation of Rs. 90,56,200.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who observed that the twin reasons
for which the AO disallowed claim for additional depreciation on visi coolers
was –

(i)   visi cooler
was not used by the assessee at its own premises but at the premises of the
distributor; and

(ii)  the
visi cooler cannot be said to be used for manufacture of cold drinks.

The CIT(A) held
that depreciation is allowed to an assessee if he owns the asset and the asset
is used for the purposes of his business. 
Save and except these two conditions, no further or additional conditions
are required to be fulfilled by an assessee to claim depreciation. In order to
prove that an asset is used “for the purpose of business”, it is not necessary
to prove the first degree nexus between the “use of asset” and its use by the
assessee himself.  So long as the use of
the asset, directly or indirectly, benefits or enables an assessee to carry on
its business, it will be sufficient to satisfy the criteria of “use for the
purpose of business”.  The Apex Court has
in the case of ICDS Ltd. vs. CIT [2013] 29 taxmann.com 129, while
interpreting this condition held that language of section 32 did not mandate
usage of the asset by the assessee itself. 
So long as the asset is used or utilised for the purposes of business,
the requirement of section 32 stands satisfied notwithstanding non usage of the
asset itself by the assessee. The contention of the assessee that the usage of
visicooler at the distributor’s premises so as to ensure that the “cold drink”
is served “cold” to the ultimate consumer tantamount to usage in the course and
for the purpose of business.  The CIT(A)
deleted the addition made by the AO.

HELD 

The Tribunal
noted that the Apex Court has in the case of Scientifc Eng. House (P.) Ltd.
vs. CIT [1986] 1257 ITR 86 (SC) laid down a test viz. Did the article
fulfill the function of a plant in the assessee’s trading activity? Was it a
tool of his trade with which he carried on his business? If the answer was in
the affirmative it would be a plant. 

The Tribunal
held that applying the said test to the Visicooler came to a conclusion that
the answer is in the affirmative.  It
held that visicooler is a tool which is necessary for carrying out, the
business of the assessee. The Tribunal upheld the order passed by CIT(A).

The appeal filed by the Revenue was dismissed.