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Income Tax - Case Laws
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2022 (11) TMI 1363 - ITAT CHENNAI
Delayed Employees’ Contribution to PF / ESI u/s 43B r.w.s. 36(1)(va) as well as Sec.2(24)(x) - Adjustment u/s 143(1)(a)(iv) - CPC power of adjustment as Auditor had indicated the default in the Tax Audit Report - HELD THAT:- The amendment made w.e.f. 01.04.2021 by insertion of words ‘increase in income’ would have no impact on such disallowance since it is only a disallowance of expenditure and the revenue is very well entitled to make such an adjustment u/s 143(1)(a)(iv).
The impugned adjustment,would also fall u/s 143(1)(a)(ii) since it is an incorrect claim which is apparent from any information in the return. The adjustment made by CPC flows from reporting made by Tax Auditor in Tax Audit Report in Form 3CD.
As per statutory mandate, the assessee is required by law to get its accounts audited u/s 44AB if its turnover crosses threshold turnover. Purpose of the audit is to enable the revenue to make correct computation of assessee’s income.
A proper audit would, inter-alia, ensure that the claims for deduction are correctly made. Report is required to be furnished by the assessee along with return of income to enable revenue to make correct computation of income. The reporting made therein could certainly be available to CPC to make the adjustment of defaults reported therein since the same would be apparent from information contained in the return.
As contribution is first treated as income of the assessee and thereafter, the deduction of the same has to be claimed by the assessee. Therefore, the columns in the Profit & Loss Account in the return of income has to be filled in this manner only i.e., the contribution is to be first added to the income of the assessee and thereafter, the deduction of the same would be claimed by the assessee. In other words, the assessee would first add the same to its income and thereafter, it would claim deduction after crossing the hurdle of Sec.36(1)(va). Since the claim made by the assessee is inconsistent with the reporting made by Tax Auditor, it was an incorrect claim which CPC has rightly disallowed.
Another argument is that the debatable issues could not be subject matter of adjustment u/s 143(1). However, so far as the revenue is concerned, this issue is not debatable for the revenue. The revenue has always maintained a position that the claim is allowable to assessee only when the contribution is deposited as per the mandate of Sec.36(1)(va) otherwise not. Therefore, it is incorrect to say that the issue is debatable one. The CHECKMATE SERVICES PVT LTD VS CIT-1 [2022 (10) TMI 617 - SUPREME COURT] held that allowability/treatment of ‘delayed’ Employee PF Contribution payment to be taxable in hands of assessee under provisions of Income Tax Act. Decided against assessee.
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2022 (11) TMI 1362 - ITAT DELHI
Addition u/s 56(2)(viib) - determination of FMV of the shares - allotment of shares at premium - HELD THAT:- On a reading of Explanation to section 56(2)(viib) it is very much clear that the FMV of shares shall be either the value determined u/r 11UA or based on the value of its assets, including, intangible assets on the date of issue of shares, whichever is higher. Assessee can determine the FMV by adopting either of the two methods as provided under the Statute.
The expression “substantiated by the company to the satisfaction of the AO” as used in clause (a)(ii) of Explanation to section 52(b)(viib) does not speak of any subjective satisfaction but has to be considered objectively, keeping in view the value of the assets on the date of issue of shares. Assessee has proved that the value of the asset, i.e., the land at Delhi as per circle rate is more than Rs. 26.75 crores determined by the registered valuer. That being the factual position emerging on record, allotment of shares at Rs. 1,500/- per share must be considered to be the FMV on the date of sale and not high and excessive compared to the FMV.
Assessee had entered into similar transaction with its holding company in assessment year 2014-15 wherein, shares having face value of Rs. 100 per share were allotted to the holding company for a premium of Rs. 1799 per share. While considering the issue relating to similar addition made by the AO u/s 56(2)(viib) first appellate authority has deleted the addition taking note of the fact that the value of land held by the assessee as per the circle rate is Rs. 42 crores. - No reason to sustain the addition - Appeal of assessee allowed.
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2022 (11) TMI 1359 - ITAT LUCKNOW
Levy of fees u/s. 234E - Intimation u/s 200A - period of tax deduction prior to 01.06.2015 - HELD THAT:- We find that it is undisputed fact that the assessee has been charged late fee u/s. 234E for various returns filed in the Form-26Q for late filing of the statements. These cases relate to Assessment Year 2014-15. The various Hon'ble High Courts including the Hon'ble Karnataka High Court and Hon'ble Kerala High Court have held that the provisions of Section 234E are applicable w.e.f. 01.06.2015. See case of ‘Fatheraj Singhvi Vs. Union of India’ [2016 (9) TMI 964 - KARNATAKA HIGH COURT] as held since the impugned intimation given by the respondent-Department against all the appellants under Section 200A are so far as they are for the period prior to 1.6.2015 can be said as without any authority under law. Also see M/S. UNITED METALS [2021 (12) TMI 1349 - KERALA HIGH COURT] - Decided in favour of assessee.
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2022 (11) TMI 1357 - DELHI HIGH COURT
Reopening notice u/s 148A(b) - validity of order passed u/s 148A(d) and u/s 148 - petitioner states that there is no information on record which suggests that the income chargeable to tax has escaped assessment - allegation that income has escaped assessment is factually incorrect as petitioner has had no transaction with the said party and it is impossible for the petitioner to prove the negative. He also emphasises that the petitioner had not been furnished any documents/material along with the notice issued u/s 148A(b)
HELD THAT:- As on instructions, admits that the relevant documents/material has not been furnished to the petitioner along with the notice issued under Section 148A(b) - On instructions, states that the respondents have no objection if the present matter is remanded back for a fresh decision by the AO.
Keeping in view the aforesaid, the impugned order passed u/s 148A(d) of the Act and the notice issued under Section 148 of the Act both dated 26th July, 2022 are set aside and the AO is directed to furnish the documents/material to the petitioner in support of the notice issued u/s 148A(b) within two weeks. Petitioner shall be at liberty to file a response thereto within four weeks thereafter. AO is also directed to pass a fresh order u/s 148A(d) of the Act within six weeks thereafter.
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2022 (11) TMI 1356 - ITAT RAJKOT
Assessment u/s 153A - completed assessment/unabated assessment in absence of any incriminating material - contention raised by assessee that addition made in Assessment Order is not based upon incriminating material found during the course of search - HELD THAT:- AO has not made additions in the impugned assessment year based upon any incriminating material found during the course of search. Even before us the Ld. DR has not pointed out to any specific incriminating document unearthed during the course of search which formed the basis of additions made in the assessments for the years before us.
Therefore, in view of well settled proposition of law that completed / unabated assessment can be interfered by the AO while making assessment u/s. 153A / 153C of the Act only on the basis of some incriminating material unearthed during the course of search documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made in the course of original assessment, we are of the considered view that in the instant facts, the Ld. CIT(A) has not erred in facts and in law in deleting the additions Decided in favour of assessee.
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2022 (11) TMI 1355 - ITAT MUMBAI
Validity of assessment u/s 92CA - period of limitation as prescribed u/s 92CA(3A) r.w.s. 153 - HELD THAT:-The order passed by the Transfer Pricing Officer is barred by limitation and therefore, the transfer pricing adjustments made in the Final Assessment Order, dated 26.02.2015 are deleted.
As respectfully following the above decision of the Tribunal [2022 (10) TMI 255 - ITAT MUMBAI] preferred by the assessee for the Assessment Year 2011-12, in the case of the Appellant, Additional Ground No. 1 raised by the Assessee in the present appeal is allowed.
Disallowance u/s 14A r.w.r 8D - addition to suo-moto disallowance offered by the Assessee - HELD THAT:- The Assessing Officer is directed to verify the investment which yielded exempt income during the year and re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments which yielded exempt income during the previous year for the purpose of calculating Average Value of Investment.
Disallowance of deduction for foreign exchange loss on revaluation of shareholders deposits - HELD THAT:- Ground raised by the Assessee is dismissed since, admittedly, the very basis on which the Assessee had set up this alternative/without prejudice claim does not survive. Further, in our view the two pleas set up by the Assessee are not alternative but mutually destructive. While preparing return of income the Assessee has treated the exchange loss on revaluation of Shareholders‟ Deposits as capital in nature, during the assessment proceedings the Assessee has claimed the same to be Revenue in nature while retaining the stand that the exchange gain on revaluation of Shareholders‟ Deposits in earlier years is capital in nature. While there is no bar on taking any inconsistent or alternative pleas, mutually repugnant and contradictory pleas which are destructive of each other cannot be permitted to be urged simultaneously.
Computing the amount of MAT credit to be carried forward without including surcharge and cess - HELD THAT:- As considered the rival submissions. Assessing Officer is directed to re-computed the amount of MAT Credit to be carried forward, after including surcharge and cess as per law.
Disallowance of interest u/s 36(1)(iii) - Assessee was holding investment in overseas entities - HELD THAT:- As decided in assessee own case [2022 (10) TMI 255 - ITAT MUMBAI] loans and advances given by the assessee company to its subsidiary company was raised for the assessment year 1989 -90 and it was decided in favour of the assessee. In the present case, we are concerned with the assessment years 1998-99 to 2002-03. The Tribunal has consistently applied the ratio of its decision rendered for assessment years 1989-90 and assessment year 1997-98. We do not find that there is any change in the factual position. Decided in favour of assessee.
TDS u/s 194H - Disallowance being credit card commission paid without deducting tax at source - effect of amendment - HED THAT:- As decided in assessee own case [2022 (10) TMI 255 - ITAT MUMBAI] commission to bank on payments received from customers who had made purchases through credit cards is not liable to TDS under section 194H of the Act . Also the second proviso to Section 40(a)(ia) of the Act being beneficial to the assessee and declaratory/curative in nature, must be given retrospective effect. Decided against revenue.
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2022 (11) TMI 1353 - DELHI HIGH COURT
Condonation of delay - Tribunal dismissing the application for condonation of delay in filing the appeal - HELD THAT:- It is not in dispute that accountant, was representing the Assessees before the AO and the CIT(A). His appearance on behalf of the Assessees is duly recorded in the order passed by the CIT(A). Assessees have also filed on record the affidavit owning up to the fact that the Assessees had instructed filing of the appeal and the non-filing happened due to a human error. It appears that there was a bonafide mistake on the part of the Assessees in pursuing the remedy.
AO, in addition to determining the demand has also referred the matter to prescribed authority for initiation of penalty proceedings against the Assessees.
As Collector, Land Acquisition, Anantnag [1987 (2) TMI 61 - SUPREME COURT] wherein it was opined that there is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. Therefore, initiation of penalty proceedings has been referred by the AO, it would be in interest of justice that the merits of the assessment orders are tested in the appeals before ITAT rather than the Assessees being deprived of remedy in appeal due to the aforesaid default of delay.
We set aside the common impugned order passed and condone the delay in filing of the appeals before the ITAT and restore the appeals to the file of the ITAT to hear the appeals on merits - Decided in favour of the Assessee.
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2022 (11) TMI 1352 - ITAT BANGALORE
TP adjustment - Adjustment determined by bifurcating the marketing and business support services segment into ITES segment and MSS segment - HELD THAT:- For assessment year 2013-2014 when the DRP had held that services rendered by the assessee are in the nature of marketing and support services and since no appeal preferred by the Revenue to the ITAT, the matter had attained finality. Therefore, we are of the view that the entire TP issue raised under marketing support services segment needs to be examined afresh by the AO / TPO in the light of the DRP’s directions for assessment year 2013-2014.
Thus respectfully following the decision of the coordinate bench of the Tribunal, we remit the issue back to the AO/TPO for fresh consideration in the light of the DRP’s directions for assessment year 2013-2014. It is ordered accordingly.
Adjustment determined in respect of warranty cost -TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services and the out of pocket warranty charges paid to third parties and the same was upheld by the DRP - AR submitted that the Assessee has in fact recovered the expenses incurred in respect of the warranty services, with a mark up of 5%. Therefore, no further adjustment is warranted - HELD THAT:- We notice that the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE] since the services related to warranty are being handled by a third party and the assessee is being used only as a medium, the TPO is not correct in charging a markup on this amount. Hence, the objection relating to markup on the warranty cost is upheld. The TPO cannot charge a markup on warranty amount as such services are not rendered by the assessee to its AE - Respectfully following the above decision we direct the TPO to re-examine the issue raised in ground no.5 afresh. It is ordered accordingly.
TDS u/s 194H - Disallowance u/s 40(a)(ia) of rebates given to customers - assessee submitted before the AO that taxes were not liable to be deducted at source on the rebate given to distributors - AO was of the view that the transaction was between principal and agent and not principal to principal basis and therefore the assessee was obliged to deduct tax at source u/s. 194H - HELD THAT:- Respectfully following assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] we remit this issue to the AO for verification of the agreements which the assessee has entered into with the distributors in relation to discount/rebate transactions and decide the allowability after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
Disallowance of deferred revenue - AO brought to tax the deferred revenue by holding that the Income-tax Act does not provide for the concept of deferred revenue - HELD THAT:- As relying on assessee own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] held that when the services are rendered in a particular year, the revenue deferred to such year is recognized as revenue during such year (amortised) and offered to tax and therefore it is clear that the Assessee has been recognizing the revenue periodically on the basis of accrual and offered them to tax - claim of the assessee deserves to be accepted and the addition made by the AO as confirmed by the DRP is hereby deleted. This ground accordingly is allowed in favour of the assessee.
Disallowance of fixtures and stores interiors expenses - expenditure was claimed as being revenue in nature and deductible under Section 37(1) of the Act for the reason that the said expenditure was incurred for maintaining uniformity in the franchisee stores and the Assessee neither owns nor derives any enduring benefit on such expenditure - HELD THAT:- We notice that the coordinate bench of the Tribunal in the case of M/s. NIKE India Pvt. Ltd. [2022 (7) TMI 1329 - ITAT BANGALORE] has considered a similar issue wherein AO has erroneously held that there was no termination clause in the agreement of lease and that the lease is permanent. We find that the lease is for a period of 4 years only and the assessee was to pay for lease rental as well interest-free security deposit for the lease and also that the assessee is required to incur the expenditure for interior and exterior works for carrying on the business as per 'brand' specifications - it cannot be said that the assessee is deriving an enduring benefit nor can it be said that any capital asset has been created in favour of the assessee. The quantum of expenditure cannot determine the nature of the expenditure. Therefore, we hold that this expenditure is revenue in nature.
In assessee’s case, the expenses are incurred for the purpose of refurbishing the showroom which provides the customers an environment where these products are sold in Dell exclusive stores We hold the expenses incurred by the assessee towards fixture and stores interiors expenses is an allowable expenses and the claim made by the assessee is directed to be accepted. This ground is allowed in favour of the assessee.
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2022 (11) TMI 1351 - ITAT BANGALORE
TP adjustment - Bifurcation of marketing and business support services segment into ITES and MSS segments - HELD THAT:- Merely because services are rendered using IT medium, they cannot be termed as ITES. As entire TP issue raised under marketing support services segment needs to be examined afresh by the AO / TPO in the light of the DRP’s directions for assessment year 2013-2014 [2023 (1) TMI 1248 - ITAT BANGALORE] - Thus we remit the issue back to the AO/TPO for fresh consideration in the light of the DRP’s directions for assessment year 2013-2014.
Adjustment determined in respect of warranty cost - Assessee provides telephonic support services for standard problems to the customers who purchase the products sold by DGBV in India - TPO made an adjustment on the basis that the Assessee had not made any recovery towards the warranty services and the out of pocket warranty charges paid to third parties and the same was upheld by the DRP - HELD THAT:- Assessee’s own case for the assessment year 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE] direct the TPO to re-examine the issue raised . It is ordered accordingly. This ground is allowed for statistical purposes.
Provision for warranty and warranty expenses - As per AO appellant has failed to substantiate the basis of creation of provision for warranty - DRP confirmed the disallowance of provision for warranty on the ground that the scientific basis of the creating the provision was not established - HELD THAT:- We notice that issue of allowability of warranty expenses was considered by the Tribunal in assessee’s own case for AY 2009-10 [2022 (3) TMI 1511 - ITAT BANGALORE]
We notice that the method of creation of warranty provision has not undergone change and is consistent with what is described in above order. Respectfully following the decision of the coordinate bench in assessee’s own case we direct the AO to allow the provision made towards warranty.
Disallowance u/s 40(a)(ia) of rebates given to customers - HELD THAT:- As per assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] we remit this issue to the AO for verification of the agreements which the assessee has entered into with the distributors in relation to discount/rebate transactions and decide the allowability based on the ratio laid down by the Hon’ble High Court after giving reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
Addition of deferred revenue - HELD THAT:- As in assessee’s own case for AY 2010-11 [2023 (3) TMI 809 - ITAT BANGALORE] claim of the assessee deserves to be accepted and the addition made by the AO as confirmed by the DRP is hereby deleted. This ground accordingly is allowed in favour of the assessee.
Disallowance of Marked to Market (MTM) Losses - as argued such losses are incurred to mitigate foreign exchange fluctuation risk in relation to imports and the same is revenue in nature - HELD THAT:- MTM loss is related to the revenue assets, the same is allowable as deduction. Accordingly, we direct the AO to delete the disallowance of loss.
Disallowance of expenditure u/s 40(a)(ia) - details of TDS were not furnished for the same - HELD THAT:- We notice that with respect to the various expenses verified by the AO the assessee has submitted substantial portion of the evidences and also with respect to expenses claimed u/s.40(a)(ia) the assessee has submitted evidenced to a major extent. It is also noticed that the AO has not disallowed these expenses on the ground that tax was not deducted at source but on the basis that the assessee has not produced the evidences.
For a company of assessee’s size and the volume of business, assessee has managed to submit more than 95% of the supporting documents with respect to the expenses claimed. It is also to be noticed that the AO has not found any discrepancy with respect to TDS compliance in the bills/evidences submitted and has fully allowed to the extend the supporting documents are submitted. Considering the above fact of the case and the decision of Hon’ble Tribunal in the case of M/s Infinity Retail Limited [2022 (11) TMI 681 - ITAT MUMBAI] we of the considered view that the assessee should be allowed full deduction of these expenses basis that more than 95% of the details are submitted and no discrepancy is found on the same. We therefore direct the AO to delete the additions. This ground is allowed in favour of the assessee.
TDS credit - As submitted that in the final assessment order, the AO has given credit of TDS less as against reflected in Form 26AS - HELD THAT:- We direct the AO verify and grant credit of TDS as appearing in Form 26AS in accordance with law after giving a reasonable opportunity of being heard.
Forex loss addition - AO proposed a disallowance on the ground that no evidence was provided to substantiate the same - DRP deleted the addition - HELD THAT:- AO completely ignored the detailed workings on forex loss. Having mentioned in the order that sample invoice copies were submitted, the AO erred in contending that no evidences were provided by the assessee. DRP rightly appreciated that evidences demonstrating foreign exchange loss had been submitted and that the same cannot be said to be contingent liability. Decided against assessee.
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2022 (11) TMI 1348 - ITAT KOLKATA
Validity of Revision order u/s 263 - issuance of manual communication - no Document Identification Number (DIN) has been mentioned in the body of the impugned order which was in violation of Circular No.19 of 2019 of CBDT - DR has submitted that mere non mentioning of DIN does not invalidate the order and further that the Circular of the CBDT is directory in nature and not binding on this Tribunal - HELD THAT:- We find that the issue is squarely covered by the decision of the Coordinate Bench of the Tribunal in the case of Tata Medical Centre Trust vs. CIT [2022 (7) TMI 1334 - ITAT KOLKATA] adjudicate on the additional ground in favour of the assessee by holding that the order passed by the Ld. CIT(E) is invalid and deemed to have never been issued as it fails to mention DIN in its body by adhering to the CBDT circular no. 19 of 2019. Accordingly, additional ground taken by the assessee is allowed.
In its recent judgment in the case of “Pradeep Goyel vs. UOI” [2022 (8) TMI 216 - SUPREME COURT] taking note of the aforesaid CBDT Circular of 2019 to implement the DIN system and also in view of the larger interest and to bring transparency and accountability in the indirect tax administration also, has directed Union of India and GST council to issue advisory/instruction/recommendations regarding implementation of digital generation of DIN for all communications sent by SGST officers to taxpayers and further directed that concerned States to consider implementing system of e-generation of DIN - impugned order of the ld. PCIT is hereby quashed - Decided in favour of assessee.
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2022 (11) TMI 1347 - ITAT HYDERABAD
Assessment u/s 153A - estimating income from business @15% of the gross receipts, income from insurance commission, addition u/s 68 and interest income - assessee could not produce the books of account and furnish other details as called for by the Assessing Officer since the Directors were under custody and there was nobody available to produce the record/details before the Assessing Office - HELD THAT:- As considering assessee submission that since the Directors are now free and the books of account are available with the assessee therefore, given an opportunity, the assessee is in a position to substantiate his case, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh after giving due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee and the Revenue are accordingly allowed for statistical purposes.
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2022 (11) TMI 1346 - DELHI HIGH COURT
Income taxable in India - PE in India - Liaison Office in India - whether no income is liable to attributable in India even MIPL is taken as Dependent Agency PE to the assessee in India? - HELD THAT:- Admittedly, the learned predecessor Division Bench of this Court in the case of the respondent-assessee itself [2018 (3) TMI 434 - DELHI HIGH COURT] after considering the survey report held that the Liaison office of the assessee did not constitute a Permanent Establishment (for short ‘PE’). Consequently, the first two substantial questions of law do not arise for consideration in the present appeal.
Dependent agency PE to the assessee liable to tax in India - As this Court finds that both CIT(A) and ITAT have given concurrent findings of fact that MIPL is not performing additional function and in absence of material, it cannot be taken as dependent agency PE to the assessee liable to tax in India. Since the said finding has not been challenged on the ground of perversity, even the third substantial question of law does not arise for consideration.
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2022 (11) TMI 1345 - ITAT DELHI
Fee for Technical Services (FTS) - PE in India - Applicability of Force of Attraction Rule - amount received from contract with Andhra Pradesh Transmission Corporation (AP Transco) atxed applying the rate of 20% - HELD THAT:- Undisputedly, the projects from which the assessee has earned revenue in the year under consideration were continuing from preceding assessment year. We have noted, while considering identical nature of dispute arising between the parties, the Coordinate Bench [2019 (12) TMI 812 - ITAT DELHI] relating to assessment years 2001-02 to 2005-06, has not only held that there is no PE of the assessee in India, insofar as, the AP Transco project is concerned, but also held that Force of Attraction Rule will not apply
As duration of services rendered for AP Transco project in terms with the agreement is for a period of less than 6 months. The aforesaid factual position has not been controverted by the Revenue. That being the case, there is no PE in terms with Article 5(1) read with Article 5(2)(i) of the Tax Treaty. Therefore, the decision of the Coordinate Bench (supra) will squarely apply to the facts of the present appeal. That being the case, respectfully following the decision of the Coordinate Bench, we direct the Assessing Officer to delete the addition. Ground nos. 1 and 2 are allowed.
Taxability of revenue earned from contract with Jaiprakash Industries Ltd. by applying the provisions of section 44DA of the Act - As on going through the decision of the Tribunal in preceding assessment years, we find that the Tribunal did not accept assessee’s claim that the revenue earned from the contract with the Jaipraksh Industries Ltd. is covered under section 44BBB of the Act, however, the Tribunal held that the assessee has no PE in India and in absence of PE, the revenue earned from Jaiprakash Industries Ltd., being in the nature of FTS will be taxable at the rate of 10%. Thus we direct the Assessing Officer to tax the revenue earned from the Jaiprakash Industries Ltd by applying the rate of 10% as provided under Article 12 of India – Germany Tax Treaty. This ground is partly allowed.
Applicability of Force of Attraction Rules to the revenue earned from contracts with AP Transco and Jaiprakash Industries Ltd. - As relying on assessee own case Force of Attraction Rule is not applicable to the revenue earned from the AP Transco and Jaiprakash Industries Ltd.
Interest u/s 234B and 234C is not chargeable where tax is deductible at source - The reliance placed on GE Packages Power Inc. [2015 (1) TMI 1168 - DELHI HIGH COURT] is apt.
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2022 (11) TMI 1344 - ITAT PUNE
Exemption u/s 11 - eligibility to get registration u/s 12AA - HELD THAT:- Pune Bench of the Tribunal in [2021 (6) TMI 811 - ITAT PUNE] has remanded the matter back to the file of the ld. CIT (Exemption). Therefore, it has to be seen what exactly is the status determined by the CIT(Exemption) as regards to the assessee and whether the ld. CIT(Exemption) would grant registration u/s 12AA of the Act to the assessee or not.
This decision thus certainly has a bearing on all these appeals placed before us. Therefore, we remand all these matters to the file of the ld. A.O to re-adjudicate the issue as per law on the basis of the findings of the ld. CIT (Exemption) determining the issue of grant of registration u/s 12AA of the Act vis-à-vis the assessee. The ld. A.O shall comply with the provisions of natural justice. Accordingly all the grounds of appeal in respect of these appeals are allowed for statistical purposes.
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2022 (11) TMI 1343 - ITAT MUMBAI
Disallowance of STCL u/s. 68 - script is penny stock - AR contended that the impugned purchase was made through BSE and that the assessee has held the shares for about six months and the assessee has furnished all the relevant details of payment made for purchase of the impugned share from bank account to the broker and the details of the broker, etc - HELD THAT:- As decided in Smt. Shikha Dhawan [2018 (6) TMI 1451 - ITAT DELHI] wherein it was held that the assessee was able to prove the genuinely of the transaction of purchase and sale of shares and that the same has been routed through recognized stock exchange and when the Revenue has got no other material on record to rebut the claim of the assessee of exemption claimed u/s.10(38) of the Act, the addition is to be deleted
Assessee has proved the genuity of the transaction by furnishing all the required documentary evidence. It is also pertinent to point out that the lower authorities have not rebutted the claim of the assessee, other than the information received from DDIT that M/s. Vas Infrastructure Ltd. is a penny stock. CIT(A) has not dealt with the issue in details except for relying on the order of the A.O. No independent enquiries have been carried out by the lower authorities as to the impugned transaction - we set aside the order of the ld. CIT(A) and delete the addition made u/s. 68 - Decided in favour of assessee.
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2022 (11) TMI 1342 - ITAT PUNE
Income taxable in India - Royalty receipts - receipts on account of I.T. support services and management services - HELD THAT:- As decided in assessee own case [2022 (6) TMI 1382 - ITAT PUNE] extant payment received by the assessee can neither be considered as royalty u/s 9(1)(vi) of the Act nor as fees for technical services and therefore, the same cannot be included in the total income of the assessee.
As in assessee’s own case, Pune Tribunal has given relief to the assessee on this very issue in A.Y. 2011-12 as well as in A.Y. 2017-18. The ld. CIT DR could not produce any materials/evidences on record to suggest any deviance from the facts situation. Therefore, following our order in assessee’s own case (supra) on the same parity of reasoning these grounds of the assessee are allowed.
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2022 (11) TMI 1341 - ITAT MUMBAI
TP Adjustment - recovery of expenses made by the Appellant from its AEs during the relevant previous year - HELD THAT:- Both, TPO and DRP have simply cited non-submission of third party invoices as the reason for making the transfer pricing adjustment treating the same at par with the reimbursement of out-of-pocket expenditure incurred despite the Appellant taking a position that deduction was never claimed in the return of income which fact has not been challenged/controverted by the Revenue during appellate proceedings before us.
The third party invoices submitted during the assessment proceedings were accepted. It was not the case of the Revenue that some mark-up was been charged by the Appellant while making recoveries from AEs. Accordingly, transfer pricing adjustment made by the Assessing Officer is deleted.
Reimbursement of Out-of-Pocket expenses - AO had vide Remand Report conveyed his consent for admission of additional evidence in the form of third-party invoices and requested the DRP to decide the issue on merits - HELD THAT:- Remand this issue back to DRP for fresh adjudication as per law after giving Appellant a reasonable opportunity of being heard. While doing so the DRP shall take into consideration the thirdparty-invoices already filed by the Appellant and the Remand Report, dated 21.10.2013, submitted by Assessing Officer in respect of the same as well as any further invoices/documents that may be filed by the Appellant before DRP to support the claim. Accordingly, addition on account of the transfer pricing adjustment is set aside.
Nature of expenditure - Disallowance of Software Expenses - Appellant appearing before us submitted that the aforesaid expenses were disallowed on the ground that the same were capital in nature and depreciation @ 60% was allowed in respect of the same - HELD THAT:- Ground No. 5 raised in the appeal is dismissed as not pressed. The Assessing Officer is directed to allow depreciation in respect of the aforesaid amount at the rate of 60% as per law.
TP adjustment - reimbursement of software maintenance expenses (connectivity charges) - HELD THAT:- On closure scrutiny we note that the amount of USD 5,440/- is the sum total of amount reflected in column with heading Supply and Installation –"Total Monthly Cost" and the column with heading 'Manage and Maintain (per Month)'. On perusal of "Tesla Scope Statement" it becomes clear that project is for obtaining Global IP VPN connection to help in connectivity between Chullora, Sydney, Australia and Mumbai, India. Thus, the connectivity expenses are separate from Software Maintenance Expenses - Further, as per the Project Closure Report and the monthly intra-group account statements, the same are being reimbursed at cost. TP addition is deleted. Ground No.3 is allowed.
Allowability of lease payment - addition u/s 37(1) - HELD THAT:- we note that in cash flow statement lease rent paid on finance lease has been shown under the head "cash flow from the financing activity" . Under Schedule 15 – "Operating and Administrative Expenses" forming part of financial statement for the previous year relevant to the Assessment Year 2009-10, rent is shown as INR 5,50,82,263/-, and warehouse and facility charges are shown at INR 3,45,86,682/-. Further, Schedule 17 – Notes to Accounts mentioned the maturity profile of finance lease obligations. Thus, it is not clear whether the payment of INR 1,00,59,111/- pertain to operating or finance lease obligations of the Appellant. Further, before the Assessing Officer as well as before the DRP the Appellant has maintained the position that the payments pertain to finance lease. In view of the aforesaid facts, we hold that the issue requires verification by the Assessing Officer.
Deduction as bad debt written off - HELD THAT:- In our view, the amount is in the nature of advance for purchases in respect of which goods were never received resulting in loss from business operations. Accordingly, the issue is remanded back to the file of AO to examine the allowability of deduction representing negative balance of creditors written off during the relevant previous year in terms of Section 37 of the Act after giving appellant an opportunity of being heard. Ground raised by the Appellant is allowed for statistical purposes.
Granting of tax credit - HELD THAT:- As the issue is remanded to the file of Assessing Officer with the directions to verify amount of tax credit available and grant the benefit of the same to the Appellant as per law. In case, on verification the Assessing Officer is of the view that credit is not available, the Appellant would be granted reasonable opportunity of being heard to justify its claim. Ground No. 10 is allowed for statistical purposes.
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2022 (11) TMI 1340 - ITAT BANGALORE
TP Adjustment - addition of corporate guarantee fees - TPO has made TP adjustment at 2% without considering any comparable unrelated transaction and on a notional basis - DRP directed the AO to adopt the rate at 0.92% as determined by the TPO in the first round of proceedings - HELD THAT:- We notice that this issue is covered by the orders of the Tribunal in Medrich Ltd [2021 (4) TMI 1321 - ITAT BANGALORE] in the case of Manipal Global Education Services (P.) Ltd [2019 (5) TMI 1942 - ITAT BANGALORE] in the case of Xchanging Solutions Ltd [2016 (10) TMI 1211 - ITAT BANGALORE] and in the case of ACIT v Tejas Networks Ltd [2022 (2) TMI 1326 - ITAT BANGALORE] wherein it was directed to AO/TPO to make TP adjustments in respect of corporate guarantee at 0.50% for the assessment years under consideration.
With respect to the balance on which the TP adjustment needs to be made, we see merit in the contention of the ld AR that the TPO himself has applied the rate on the closing balance of the outstanding guarantee in assessee’s own case for AY 2012-13 and we therefore direct the AO to apply the rate @ 0.50% on the closing balance the of the corporate guarantee as of 31.03.2011 for the purpose of TP adjustment. It is ordered accordingly.
Exclusion of royalty income while computing deduction under section 10A/10AA - We notice that the Hon’ble Karnataka High Court in assessee’s own case for the AY 2009-10 (2021 (11) TMI 1146 - KARNATAKA HIGH COURT] held that royalty income constitutes profits and gains of business and eligible for deduction under section 10A.
Thus we hold that the royalty income from licensing of software products should be considered as profits of business of eligible units for the purposes of providing deduction under section 10A and 10AA of the Act.
Exclusion of expenses incurred in foreign currency while computing deduction u/s 10A - HELD THAT:- Section 10A does not warrant exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with development of computer software. Section 10AA specifically warrants exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with computer software. Similar prescription is absent in section 10A.
The exclusion from ‘Export turnover’ under section 10A is of expenses incurred in foreign currency in providing technical services outside India. “Technical services” would mean making available specialized knowledge or information to a third person. The recipient of such knowledge or information is then enabled to apply and use such knowledge and information for the purpose of carrying out any work. Technical services would therefore mean and refer to the usage or deployment of specialized skills in rendering any services of a consultancy nature.
Whether the services rendered by the assessee in terms of software development is to be regarded as technical services? - AO while reducing the expenses incurred in foreign currency has done it for the SEZ units also. In view of the fact that the expenses incurred in foreign currency being already reduced, in our considered view reducing the expenses based on the breakup in notes to accounts would amount to double reduction and not warranted. It is further noticed that the AO has made the similar reduction from the total turnover also while computing the deduction u/s.10A and 10AA. We therefore direct the AO to delete the deduction of Rs.7329.94 lakhs made in the export turnover and total turnover. It is ordered accordingly.
Addition of withholding taxes and income tax - HELD THAT:- From the perusal of records it is noticed that the taxable income is computed by the assessee by making additions and deletions to profit after tax and a sum of Rs. 3,72,68,820 is disallowed by the Assessee under the head ‘Expenses debited to P&L account’ and ‘Withholding taxes and income taxes, net’ to profit after tax to arrive at profit before tax. Therefore we see merit in the argument that the addition made by the AO is not correct. We remit the issue back to the AO to verify and delete the addition.
Disallowance u/s 14A - HELD THAT:- We direct the AO to verify whether the investment in joint ventures which had not yielded any dividend income for the year under consideration and exclude the same for the purpose of computation of average value of investments under section 14A and for computation of disallowance under section 14A read with rule 8D in accordance with the decision of the Special bench of ITAT in the case of ACIT v Vireet Investment P Ltd [2017 (6) TMI 1124 - ITAT DELHI] It is ordered accordingly.
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2022 (11) TMI 1339 - ITAT MUMBAI
TP Adjustment - validity of order passed by TPO u/s. 92CA(3) as barred by limitation - HELD THAT:- A conjoint reading of the relevant provisions of section 92CA(3A) and 153(1) of the Act would show that the TPO is required to pass order u/s. 92CA(3) of the Act at any time before sixty days prior to the date on which the period of limitation referred to in section 153 of the Act for making assessment order expires.
The period of limitation for passing the assessment order in the instant case expires on 31/03/2014. The time limit for passing the order u/s. 92CA(3A) is sixty days prior to the date on which the limitation referred in section 153 of the Act expires. Thus, the limitation in the present case for passing the order u/s. 92CA(3) of the Act expires on 29/01/2014. The TPO passed the order u/s. 92CA(3) of the Act on 30/01/2014. Ergo, the order u/s. 92CA(3) of the Act is surely time barred by one day.
Reference to DRP can only be made by “eligible assessee"- Eligible assessee mean any person in whose case variation arises as a consequence of the order of the TPO passed u/s. 92CA(3) of the Act. The order has to be a valid order. In the instant case since, the order of TPO was beyond the period of limitation it is not a valid order. Therefore, there is no “eligible assessee” in terms of the definition provided in sub-section (15) to section 144C of the Act . If there is no eligible assessee, no reference to DRP could have been made. Once the substratum for making the assessment under transfer pricing mechanism erodes the subsequent proceedings emanating from flawed foundation is without jurisdiction.
We find merit in the additional grounds of appeal - The assessee succeeds on the aforesaid legal grounds.
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2022 (11) TMI 1338 - ITAT BANGALORE
TP Adjustment - appropriate adjustments towards working capital differential existing between the Appellant vis-a-vis independent comparable companies - HELD THAT:- Tribunal consistently granting working capital adjustment to the assessee while computing ALP of international transactions and this view was fortified by the order of the Tribunal in the case of Huawei Technologies India Pvt. Ltd. [2021 (8) TMI 1334 - ITAT BANGALORE] - Thus we direct the AO/TPO to grant working capital adjustment.
Comparable companies – Information Technology Enabled Services (“ITES”) - Microland Limited - As seen from its annual report total ITES revenue is 60%. The AO/TPO included 17% of selling services revenue as part of the revenue from ITES, which is not correct. In our opinion, it does not satisfy the 75% of sales as filter and the income from ITES services is only 60%. Hence, it is directed that Microland Limited is to be excluded from the list of comparables.
Manipal Digital Systems Private Limited is directed to be excluded from the list of comparables.
Datamatics Business Solutions Limited - As contented segmental financials are not available and also TPO has not considered the correct percentage of export revenue in the earlier 3 assessment years and also margin of last 2 assessment years cannot be considered in view of the export revenue filter. In our opinion, these facts are required to be examined by the AO/TPO. Accordingly, we remit this issue to the file of AO/TPO for reconsideration of this comparable and include this comparable i.e. Datamatics Business Solutions Limited in the list of comparables if it satisfies the export revenue filter.
Infosys BPO Limited company is functionally dissimilar and use robotics automation and diversified activities. Therefore, we direct the AO/TPO to exclude this company as comparable for determining ALP.
Incorrect disallowance with respect to expenditure on ESOP under section 37 - HELD THAT:- In assessee’s group case, namely, EIT Services India Pvt. Ltd. v. DCIT (2022 (8) TMI 1309 - ITAT BANGALORE), had held that the ESOP expenditure is to be allowed as a deduction u/s 37 of the I.T.Act. The Tribunal had followed the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Biocon Limited (2013 (8) TMI 629 - ITAT BANGALORE] - Decided in favour of the assessee
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