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2023 (3) TMI 1480 - ORISSA HIGH COURT
Validity of Revision u/s 263 - ITAT has set aside the said order of the Principal CIT as noted “this is not a case of inadequacy of enquiry. It is a case of absence of enquiry” - HELD THAT:- The view taken by the ITAT appears to be a plausible one and not erroneous in law. Consequently, the Court is not satisfied that any substantial question of law arises. The appeal is dismissed.
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2023 (3) TMI 1472 - ITAT PUNE
Penalty u/s 270A - under-reporting of income - Mandation to mention clear charge - HELD THAT:- Order by AM - The penalty provisions of section 270A like provision of section 271(1)(c) are detrimental, albeit commercial consequences and being mandatory brooks no trifling or dilution therewith. Thus a contravention of a mandatory condition or requirement is fatal with no further proof and as a result in our considered view the ratio decidendi laid in context of section 271(1)(c) by the Hon’ble Supreme Court in Dilip N Shroff Vs JCIT [2007 (5) TMI 198 - SUPREME COURT] and Ashok Pai Vs CIT‛ [2007 (5) TMI 199 - SUPREME COURT] further by plethora judgements including Samson Pericherry‛[2017 (1) TMI 1292 - BOMBAY HIGH COURT], Goa Dorado [2020 (1) TMI 140 - BOMBAY HIGH COURT] and New Era Sova Mine [2019 (7) TMI 1002 - BOMBAY HIGH COURT] shall still hold good even in impugned penal proceedings of section 270A of the Act.
AO after having clearly analysed facts and circumstances of the case has dejectedly failed to identify or determined and then communicate either through reassessment order or through notice the specific circumstance or incidence i.e. specific clause (a) to clause (g) of s/s (2) of section 270 within which the case of the appellant falls so has to hold income as under-reported to trigger said penal provision. The failure continued further in identifying or determining and showcasing the specific action of the appellant in terms of clause (a) to clause (f) to s/s (9) of section 270 within which such action of the assessee falls so has to jacket or categorise such under-reported income is in consequence of mis-reporting. We note that without adhering to aforestated exercise, the Ld. AO precipitately culminated penal proceedings imposing a penalty @200% of the tax sought to be evaded.
Non identification or determination vis-à-vis communication of specific clause lineally from sub-section (2) and sub-section (9) would drastically obstruct an assessee from enforcing his right to dismantle the charge alleged against him, thus resulting into violation of principle of natural justice.
Non-application of mind by tax authorities while dealing with the penal provisions cannot at this stage be improved by remanding the matter back for denova consideration, hence prayer of the Ld. DR stands meritless.
We find force in the argument of the appellant that, the failure on the part of lower tax authorities to identify and communicate the specific circumstance or incidence from clause (a) to (g) of s/s (2) of section 270A by virtue of which the income of the appellant held as under-reported and further failure on the part of lower tax authorities to showcase which of the specific action of the appellant from clause (a) to (f) of s/s (9) was determinant before imposing the impugned penalty u/s 270A of the Act has rendered the entire proceedings invalid and thus untenable in the eyes of law.
CONCURRENT ORDER - BY J.M. - Find no merit in the Revenue’s arguments as made clear that the assessee’s case law indeed relates to the earlier penalty provision i.e., sec.271(1)(c) of the Act only wherein various hon’ble higher judicial forums had settled the law that the Assessing Officer ought to specify as to whether the concerned taxpayer had concealed or furnished inaccurate particulars of his taxable income during the course of assessment.
The very line of judicial precedents would squarely apply even for the amended penalty provision i.e., sec.270A of the Act as well wherein the legislature has not only prescribed twin limbs of “under reporting of income as well as misreporting of income”, but also, unlike the earlier provision u/sec.271, this time it has stipulated specific deeming illustrations under both the twin foregoing heads of the “under reported income” and “misreporting of income” in sub-sections (2) and (9) (a to f) respectively.
Once the instant twin appeals involve levy of penalty @ 200% of the taxes sought to be evaded and the learned lower authorities have held the assessee to have “under-reported his taxable income in consequence to misreporting”, the latter limb of misreporting containing six “sub-limbs” in clauses (a to f) under sub-section- (9) deserve to be read as an extension of sub-section (8) to section 270A only.
Going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. Dilipkumar And Co. & Ors.[2018 (7) TMI 1826 - SUPREME COURT] the above stated judicial precedents regarding the “limb theory” would squarely apply even in case of failure of the Assessing Officer to quote any of the six sub-limbs as well prescribed in sec.270A(9) (a) to (f) of the Act introduced by the legislature in order “to rationalize and bring objectivity, certainty and clarity in the penalty provisions”. And that his noncompliance to this clinching effect would not only defeat the legislative mandate but also it renders the amending provisions an otiose. Thus accordingly hold in these peculiar facts and circumstances that both the impugned penalties deserve to be quashed.
Assessee appeal allowed.
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2023 (3) TMI 1468 - DELHI HIGH COURT
Withholding tax certificate issued u/s 197 - deduction of lower withholding tax - petitioner has sought issuance of certificate u/s 197 at “nil” rate - concerned authority issued the impugned certificate stipulating withholding tax at the rate of 9.99% - Petitioner says that in this arrangement, there is no transfer of right in the copyright of the software programmes and therefore the payment made to the petitioner was not exigible to withholding tax - HELD THAT:- In case instructions are received to resist the writ petition, a counter-affidavit will be filed at least five days before the next date of hearing.
List the matter on 27.03.2023.
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2023 (3) TMI 1467 - ITAT AHMEDABAD
Denial of Foreign Tax Credit (FTC) claimed u/s. 90 - there was delay in furnishing Form 67 as per Rule 128 of the Income Tax Rules - HELD THAT:- It is pertinent to note that the assessee has paid the taxes on the income earned in United Kingdom in that country and assessee is asking for credit of the same while filing the return of income. The CIT(A) held that the assessee has not filed Form 67 before time allowed under Section 139(5) of the Act and therefore, Form 67 is non-est in law does not categorically discussed the assessee’s case as the assessee has already paid taxes in UK and as per Article 24(2) of the DTAA between India and UK the foreign income cannot be taxed twice. The decision of Bangalore Tribunal in case of Vinodkumar Lakshmipathi [2022 (10) TMI 87 - ITAT BANGALORE] is dealing on the identical situation and the Tribunal has taken cognizance of the same in light of the decision of Hon’ble Supreme Court in case of Mangalore Chemicals & Fertilizers Ltd. [1991 (8) TMI 83 - SUPREME COURT] and held that (i) rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No. 67; (ii) filing of Form No. 67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act.
Thus we direct the Assessing Officer to give credit for foreign tax as per Form 67 dated 05.04.2021 filed by the assessee prior to the filing of the appeal before the CIT(A) after due verification. Appeal of the assessee is partly allowed for statistical purpose.
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2023 (3) TMI 1466 - SC ORDER
TDS u/s 194H - tds on payments made to distributors towards price protection and special price clearance discounts - relationship between the assessee and the distributor is that of Principal to Principal OR Principal to Agent - as decided by HC [2023 (8) TMI 456 - KARNATAKA HIGH COURT] factual findings recorded by the CIT(A) that payment from the distributor to the assessee has no link with the further sale made by the distributor and same having been confirmed by the ITAT which is the last fact finding authority, decided against revenue.
HELD THAT:- As petitioner submits that the matter is covered by the decision of Bharti Cellular Limited [2024 (3) TMI 41 - SUPREME COURT] as held assessees would not be under a legal obligation to deduct tax at source on the income/profit component in the payments received by the distributors/franchisees from the third parties/customers, or while selling/transferring the pre-paid coupons or starter-kits to the distributors. Section 194-H of the Act is not applicable to the facts and circumstances of this case.
In view of the statement made, Special Petition is dismissed as being covered by the above-mentioned decision.
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2023 (3) TMI 1464 - MADRAS HIGH COURT
Violation of principles of natural justice - order of assessment had travelled beyond the scope of show-cause notice - as argued while the order rejects the petitioner's entitlement to carry-forward long term capital loss, such a proposal does not form part of pre-assessment show-cause notices - HELD THAT:- The Division Bench of this Court in the case K.S.Shivji [1965 (4) TMI 96 - MADRAS HIGH COURT] has, reiterated the position that when a statutory remedy is available to an assessee, he must first resort to it and in a case where appeal remedy was availed, Courts are normally reluctant to interfere with an order of assessment. The Court has, also observed that there might be cases where the aforesaid rule may not outweigh other considerations which may compel interference. In that case they were of the view that such interference was warranted.
In the present case, the revenue impact of the disallowance in the order of assessment is nil, though the assessee is aggrieved by the fact that the entitlement to carry forward losses has been rejected. That apart, the power of an appellate authority under the Act is co-terminus with that of an Assessing Officer and hence any lacunae in procedure can well be corrected even at that stage. There are thus, in our considered view, no extraordinary circumstances in the present case to persuade to intervene in the impugned order and thus leave it to the petitioner to pursue the statutory appeal that it has filed. WP dismissed.
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2023 (3) TMI 1463 - PUNJAB AND HARYANA HIGH COURT
Delay of 3270 days in re-filing the appeal - reasons given in the application is that there were certain objections and to remove those objections, sometime was taken to arrange relevant documents. The applicant had to consult various lawyers at Muktsar and after March 2020 on account of lock down, he was not able to consult the lawyers and in this backdrop, delay occured - Penalty u/s 271(1)(c) imposed as income surrender in the revised return of the income, after detection of concealment by the Department as a result of search of incriminating documents in the course of search and seizure operations
HELD THAT:- The Tribunal, while dismissing the appeal of the appellant, had taken into consideration the judgments in the case of G.C. Aggarwal Vs. CIT [1990 (9) TMI 2 - SUPREME COURT] and Allahabad High Court in Mool Chand Mahesh Chand vs. CIT [1978 (3) TMI 65 - ALLAHABAD HIGH COURT] on the proposition that disclosure was made by the assessee in the revised return in response to 148(A) of the Act after search operation and in the revised returns, the assessee disclosed much larger incomes without justification than those disclosed in the original returns. The revised returns had been filed with a view to avoid litigation and imposition of penalty was upheld.
Hence, order passed by the Tribunal does not require any interference as no substantial question of law arises in this appeal. The appeal is being dismissed on the ground of delay of 3270 days in refiling the appeal as well as on merits.
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2023 (3) TMI 1462 - DELHI HIGH COURT
Validity of assessment order passed u/s 143(3) - personal hearing to the petitioner not given - AO has added to the petitioner firm’s taxable income received towards compensation received, by treating it as revenue received and of variance in turnover in the Income Tax Return (ITR) and in the GST-1/GST-3B return of the petitioner/assessee - HELD THAT:- It is not in dispute that no personal hearing was granted to the authorized representative of the petitioner/assessee. The counter-affidavit filed on behalf of the respondent/revenue, inter alia, discloses that neither was any show cause notice issued nor was any hearing granted prior to framing of the assessment order. The reason furnished for non-issuance of the show cause notice, as articulated in the counter-affidavit, is that the petitioner/assessee was indulging in deliberate procrastination.
Admittedly, information in the form of documents, was sought by the AO which would shed light as to why cancellation of development agreement, was brought about.
Insofar as addition on account of variation in turnover was concerned; the petitioner sought to explain the variation by filing reconciliation statement. This was brushed aside by the AO by holding that an adjustment made while reconciling the turnover figure in the ITR with the turnover figure appearing under the GST-1/GST-3B return had not been clarified.
To our minds, had the AO granted personal hearing to the petitioner, some light may have been shone on this aspect of the matter. According to us, the best way forward would be to set aside the impugned assessment order.
It is ordered accordingly. Liberty is, however, given to the AO to pass a fresh assessment order.
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2023 (3) TMI 1461 - ITAT PUNE
Exemption u/s 11 - claim denied as return of income was not filed within the due date for filing the return of income - before assesee before the NFAC stated that the return of income could not be filed within the due date prescribed u/s 139(4A) for the reasons beyond the control of the appellant society - HELD THAT:- There is no dispute that the return of income for the year under consideration was filed by the appellant society beyond the due date for filing the return of income u/s 139(4A) of the Act i.e. on 31.10.2019. The provisions of Income Tax Act, 1961 had not conferred any discretion on the assessing authority or the appellant authority to condone the delay in filing the return of income.
The provisions of section 12A(ba) provides that the exemption u/s 11 can be availed only if the return of income was filed in the manner prescribed under the provisions of section 139(4A) of the Act which in turn requires that an assessee claiming exemption of income u/s 11 to file the return of income within the due date prescribed u/s 139(1) of the Act. In the absence of any discretionary power neither the assessing authority nor the appellate authority can relax the provisions of the Statute.
Therefore, this is a clearly inadmissible claim as defined under sub-clause (ii) of clause (a) of section 143(1), the CPC was justified in denying the claim for exemption u/s 11, while processing the return of income u/s 143(1) of the Act. Therefore, we do not find any merits in the appeal filed by the assessee.
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2023 (3) TMI 1457 - ITAT MUMBAI
Addition u/s 68 - bogus LTCG - sale of penny stocks - Onus to prove - exemption claimed u/s 10(38) denied - HELD THAT:- If there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuineness of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in section 68.
Assessee cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise.
It is incorrect to argue that the assessee have been called upon to prove the negative in fact, it is the assessee’s duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuineness and identity. The assessee cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assessee have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time.
As transaction of LTCG claimed exempt u/s. 10(38) by the assessee is colourable device in guise of investment in listed shares. Entire transactions were stage managed with object to plough back his unaccounted income in form of fictitious long term capital gain (LTCG) and claim bogus exemption, Assessing Officer was justified in denying exemption under section 10(38) and treating such bogus LTCG in penny stock under purview of unexplained cash under section 68. Decided against assessee.
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2023 (3) TMI 1455 - KARNATAKA HIGH COURT
Addition u/s 68 - credit worthiness of the investor questioned/doubted - whether Tribunal was right in holding that the Assessing Officer was not justified in holding investor to be not credit worthy? - Revenue’s case is that investor had suffered loss during 2003, 2004 and 2006 and therefore, assessee’s claim with regard to his investment in the Company was doubtful - HELD THAT:- Tribunal, which is the last fact finding authority has recorded that remittances were made on two dates namely 31.05.2007 and 05.06.2007 and both these dates are relevant for A.Y. 2008-09.
Net income of the investor was USD 33,12,256 whereas the remittances are only USD 10 Lakhs. There is no other material on record to draw any contrary inference. Therefore, on facts, the Tribunal having recorded as aforesaid, we find no ground to interfere in the Revenue’s appeal insofar as first and second questions are concerned.
Whether the Tribunal was right in setting aside the addition made? - The proper course for the AO as held in para 11(ii) of NRA Iron and Steel (P.) Ltd. [2019 (3) TMI 323 - SUPREME COURT] was to investigate the credit worthiness of the creditor and to ascertain whether the transaction was genuine. However, the Assessing Officer has chosen a reverse mode by calling upon the assessee to show that investor was credit worthy. We may record that the investor is none other than the son of the Director. Therefore, the Assessing Officer had all the material before him and power to cause proper investigation. Even otherwise, the factual matrix recorded by the ITAT that the remittances were through Bank and as against a net income of USD 3 Million, the remittances are only to the extent of USD 1 Million. In these facts, the third question also does not merit any consideration.
Decided in favour of assessee.
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2023 (3) TMI 1452 - DELHI HIGH COURT
Interconnection usage charges paid by assessee to Foreign Telecom Operators (FTOs) - Whether neither royalty nor Fees for Technical Services (FTS)? - As decided by ITAT [2016 (3) TMI 680 - ITAT DELHI] assessee was not liable to deduct tax at source - HELD THAT:- A perusal of the condonation of delay applications shows that the appellant/revenue has preferred the instant appeals, for the reason that the Bangalore Bench of the Tribunal had decided this very issue in its favour.
We are told that the aforementioned bench has held that the aforementioned payment would constitute royalty.
It is not in dispute that the Bangalore Bench rendered its decision on 30.12.2014 [2015 (1) TMI 1018 - ITAT BANGALORE] which is, as is obvious, prior to the date when the impugned order was passed by the Delhi Bench of the Tribunal.
Furthermore, in any case, in the impugned order, there is a reference to the decision of the Bangalore Bench, which the Delhi Bench has chosen not to follow because of the decision of the jurisdictional High Court i.e., this court.
According to us, the appellant/revenue would have to cross the hurdle of the delay, which is in excess of four (4) years.
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2023 (3) TMI 1451 - MADRAS HIGH COURT
Condonation of Delay of 380 days - The Tribunal rejected the condonation of delay petition, finding the reasons for the delay not to be bona fide - HELD THAT:- The court referred to several decisions, including N. Balakrishnan v. M. Krishnamurthy [1998 (9) TMI 602 - SUPREME COURT] and Esha Bhattacharjee v. Raghunathpur Nafar Academy [2015 (1) TMI 1053 - SUPREME COURT], emphasizing the importance of a liberal, justice-oriented approach in dealing with applications for condonation of delay.
The legal position discernible from the aforesaid decisions is that the question of limitation is not based on technical consideration, but is on the principles of public policy and equity; and the substantial justice is paramount consideration and pivotal.
The court set aside the order of the Income Tax Appellate Tribunal and condoned the delay in filing the appeal. The matter was remanded to the Tribunal for a decision on merits, in accordance with the law.
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2023 (3) TMI 1450 - DELHI HIGH COURT
Condonation of delay - present Appeal has been filed after delay of 4 years and 100 days as per the Appellant/Revenue [i.e.,1560 days] and 1589 days as per the Registry of this Court - Connection usage charges paid to Foreign Telecom Operator(s) - 'Royalty' OR 'Fees' for Technical Services - HELD THAT:- The law requisites that an applicant seeking condonation of delay is required to explain the delay in filing the Appeal. The reasons as cited in the Application for condonation of delay as filed by the Appellant/Revenue completely fails to explain the immense delay of over 4 years and a 100 days.
The record before this Court shows that even after the filing of the Appeal, the Appellant/Revenue has taken adjournments on almost each date of hearing over the last two years.
In any event, the Apex Court in Bherulal case [2020 (10) TMI 1231 - SUPREME COURT] while relying upon an earlier decision in Postmaster General And Others. Vs. Living Media India Limited and Another [2012 (4) TMI 341 - SUPREME COURT] has categorically held that the law of limitation binds everybody including the Government and there is no separate statute of limitation provided for governmental appeals.
As such, we find that the Appellant/Revenue has not been able to give any adequate or sufficient reasons, to explain the delay. We are therefore unable to condone the huge delay of more than 4 years and 100 days in filing of the present Appeal, which is dismissed as being time barred.
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2023 (3) TMI 1443 - DELHI HIGH COURT
Income taxable in India - PE in India - as per ITAT service charges received by the Appellant under the various SOSA Agreements were taxable as royalty -
Whether the Tribunal misdirected itself both in law and on facts in holding that service charges received by the Appellant under the various SOSA Agreements were taxable as royalty? - Whether the Appellant has Permanent Establishment in India within the meaning of the DTAA? - Whether the findings recorded by the Tribunal, in paragraphs 56, 57 and 59 are perverse and contrary to the terms of the Strategic Oversight Services Agreement (SOSA)? - Is Article 7(1) of the DTAA at all applicable to the Appellant, having regard to the fact that it has incurred losses in the relevant financial years?
HELD THAT:- In so far as the fourth question is concerned, this Court had, on 16.01.2023, expressed its view that the said question is required to be considered by a larger Bench, considering this Court’s reservation regarding the decision of the coordinate Bench of this Court in the case of Commissioner of Income Tax (International Taxation)-2 v. M/s Nokia Solutions and Networks OY [2022 (12) TMI 700 - DELHI HIGH COURT]
Appellant states that, at this stage, the appellant does not wish to press the fourth question as stated above because the appellant’s appeals can be decided on the basis of the first three questions. He, however, reserves the right for pressing the said question at an appropriate stage if the need so arises.
This Court considers it apposite to examine the first three questions as set out above in the first instance.
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2023 (3) TMI 1442 - MADRAS HIGH COURT
Assessment of private discretionary trusts- prayer is for a mandamus seeking directions to modify Form ITR-2 in a manner so as to enable the petitioners to file returns of income electronically under the status of individual - specific case of the petitioners, that a private discretionary trust acquires the status of an individual, and that the trustees of a discretionary trust must be assessed under that status - respondents proceeds on the basis that the petitioner is liable to be taxed in terms of Section 160(1)(iv) read with Section 164(1)(i) of the Income Tax Act, 1961, at maximum marginal rate.
HELD THAT:- Mandamus as sought for by the petitioner is not liable to be granted. It does not fall within the domain of the Court to structure the Forms and contents thereof, as applicable to specific categories of assessees.
Rule 112 of the Income Tax Rules, 1962 provides for the prescription of Forms by the Board, and hence it is Board, which is the appropriate authority to take note of the grievances of the petitioners and do the needful, if found appropriate. Learned counsel for the petitioner is unsure as to whether such representation has already been filed before the Board.
Hence, the petitioners are hence permitted to file representations afresh before the Board, if not already filed, and pursue the same in order to obtain remedy, as appropriate. Let the representations/remainders be disposed within a period of twelve (12) weeks from date of receipt of the same by the Central Board of Direct Taxes, in accordance with law. These writ petitions are disposed in terms of the aforesaid order. No costs. Connected miscellaneous petitions are closed.
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2023 (3) TMI 1440 - ITAT BANGALORE
TP Adjustment - Provision for Bad and Doubtful Debts as operating expenditure - HELD THAT:- This Tribunal in the case of ACI Worldwide Solutions Pvt. Ltd [2019 (9) TMI 1595 - ITAT BANGALORE] as held that provision for bad and doubtful debts should be treated as operating expense while computing the PLI OP/OC of the comparable companies which ultimately remains for comparison. In view of the above order of the Tribunal, we direct the AO/TPO that provisions for doubtful debts to be considered as operating expenses.
Grant of Working Capital Adjustment - Tribunal in the case of Altimetrix India Pvt. Ltd. [2022 (7) TMI 1400 - ITAT BANGALORE] there would remain no comparable uncontrolled transactions for the purpose of comparison. Transfer pricing exercise would therefore fail. Therefore in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the Assessee should be allowed.
Comparable selection - Deselection of companies of Manipal Digital Systems Pvt. Ltd., Datamatics Business Solutions Ltd. and Infosys BPO Limited as functionally dissimilar.
CES Limited is doing both BPO and KPO services - segregation of ITes services has to be categorically conducted before classifying as functionally comparable with another. In this case Revenue Authorities have only looked into the revenue earning from ITes segment and included this company as comparable. The facts remains both these companies are functionally different. We therefore, direct the AO/TPO to exclude CES Limited from the final set of comparables with that of the assessee company.
Ultramine Pigments Ltd - We are of the opinion that this is the initial filter on the basis of which the comparables are selected. So if a company falls this filter, then it will not be selected as a comparable at the first place. Service income has to be seen at the entity level in all the cases. Hence, the TPO is directed to exclude the company as comparable. As it fails the service income filter adopted by the TPO, we do not find it contingent to discuss on the other allegation of the assessee on exclusion of this filter. The intangibles referred in the Asset Schedule represent the computer software.
For any software company, it is essential to have rights of software for coding purposes. Therefore, such intangibles cannot be equated with the intangibles acquired/created by the assessee to provide specific enduring benefit. We also note that intellectual property referred to, as per the annual report, is amortized over its estimated useful life of 2 years. The fixed asset schedule for the year ended 31.3.2017 does not show any intellectual property. Also, the assessee has failed to establish that such differences have material effect on the margin of the above company, in terms of clause (i) of sub--rule (3) of Rule 10B, which provides that an uncontrolled transaction shall be comparable to an international transaction if none of the differences, if any, between enterprises entering into business transactions or likely to materially affect the profit arising from such transactions in the open market. Hence, these pleas were rejected by the ld. DRP.
The above findings of the ld. DRP are self-contradictory. This should be re-examined at the end of AO/TPO. Accordingly, this issue is set aside to the file of AO/TPO for reconsideration.
SPI Technologies Ltd. be excluded as functionally dissmilar.
BNR Udyog Ltd. assessee has passed through the foreign exchange filter and it should be considered as a comparable.
Crystal Voxx Ltd. - We accede to the request of the assessee’s counsel and remit it back to the file of AO/TPO for fresh consideration to examine whether assessee passed through all the filters adopted by the TPO or not. The issue is remitted to the file of AO/TPO for fresh consideration.
R System International Ltd. and Bhilwara Technology Ltd. issue is remitted to the file of AO/TPO for fresh consideration.
ISN Global Ltd - As per the information in the annual report, the company is into ITES services and functionally comparable to the assessee. Hence, the ld. DRP directed the TPO to verify the financials and consider the company for inclusion if satisfies all the filters. DRP is not justified in excluding this comparable from the list of comparable. Accordingly, we direct the AO/TPO to include this company ISN Global Solutions Ltd. in the list of comparables.
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2023 (3) TMI 1437 - ITAT DELHI
Assessment u/s 153A - unexplained investment being cash payment - seized document being “Receipt in full discharge of claim against Farm House at Gadaipur” and receipt against payment of Farm House - first receipt was found from the business premises of the partnership firm and present assessee is a partner of the said firm - bone of contention is that the alleged payment of Rs. 6.50 crores in cash, with the two payments made by cheques were found to be reflected in the bank statement and the Assessing Officer/ld. CIT(A) presumed that the payment of Rs. 6.50 crores in cash was also made by the assessee for effecting the relinquishment of 50% of shares in the Farm House
HELD THAT:- It would be imperative to understand the legal status of a ‘partnership firm’ and a ‘partner’ - it is clear that in so far as Income tax assessments are concerned, a ‘partnership firm’ and a ‘partner’ are distinct entities, which means that any document found from the business premises of a partnership firm cannot, ipso facto, mean that the same was found from the possession of a partner.
There is no dispute that the impugned document, around which the quarrel revolves, was found from the business premises of the partnership firm.The above document is unsigned and it can be seen that there are four legal heirs of the deceased Late assessee. Most surprisingly, none of the legal heirs have been examined by the Assessing Officer in respect of the alleged receipt of Rs. 6.50 crores by them for the alleged relinquishment of shares in the said Farm House.
We have given thoughtful consideration to the assessment order but fail to find any reference to any partnership deed of the firm in which the deceased Late Shri Kulbir Singh Punihani was a partner alongwith his brothers. We do not know what the relevant clauses of the partnership deed are relating to the demise of any working partner. Therefore, we are not in a position to understand what would be the fate of a partnership firm on the demise of a partner.
It is clear that capital account of Late Shri Kulbir Singh Punihani was transferred to loan account of Smt. Saloni Punihani and which was subsequently paid by the firm over a period of time. It is also clear from the afore-stated affidavit that cheque payments found in the alleged receipt was loan amount given by Shri Tarlok Singh and Shri Narinder Singh to Smt. Saloni Punihani in their individual capacity. There is a categorical mention that neither Shri Tarlok Singh nor Shri Narinder Singh advanced any sum in cash.
There is not even a whisper about these affirmations made by Smt Saloni Punihani in the assessment order. We are of the considered view that the entire assessment and order of the first appellate authority have been made only on presumptions, surmises and conjectures, there being no supportive/conclusive evidence to justify the impugned addition.
As per the balance sheet which is drawn after the death of Shri Kulbir Singh Punihani has capital account in the name of Shri Tarlok Singh Punihani, Narinder Singh Punihani and Shri Amarjeet Singh Punihani and capital account of Shri Kulbir Singh Punihani was transferred to Smt. Saloni Punihani, wife of the assessee, and is reflected under the head “unsecured loan”, which means that all that the firm owes to the erstwhile partner is the unsecured loan which was repaid subsequently by the partnership firm.
In light of these facts, the impugned additions do not have any legs to stand on.
The undisputed fact is that the alleged documents were found from the business premises of the partnership firm M/s Punihani International. Assessments of the assessee are unabated assessments on the date of search, which means that the ratio laid down by the Hon'ble Delhi High Court in the case of Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] and Meeta Gutgutia Prop. M/s. Ferns N Petals [2017 (5) TMI 1224 - DELHI HIGH COURT]squarely apply - Thus we do not find any merit in the impugned additions and, therefore, we direct the Assessing Officer to delete the impugned additions from the hands of both the appellants under consideration.
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2023 (3) TMI 1434 - ITAT KOLKATA
Disallowance u/s 14A - expenditure incurred on earning exempt income - HELD THAT:- There is no specific finding of the lower authorities indicating that the interest bearing funds have been applied for investment purposes on the basis of entries appearing in the books of accounts.
Disallowance made by ld. AO is merely based on the average investments of the assessee. Hon'ble Supreme Court of India in the case of Reliance Industries Ltd. [2019 (1) TMI 757 - SUPREME COURT] affirmed the view taken by the Tribunal that if interest free funds available with the assessee are sufficient to meet its investment then it could be presumed that investments were made from the interest free funds available to the assessee. Applying this ratio on the issue in the instant appeal we find that the assessee had interest free funds in the form of share capital and reserve and surplus as on 31.03.2012 at Rs. 73.79 Cr approx. which is much more than investments in shares and mutual funds at Rs. 39.91 Cr. Therefore, it can be safely presumed that interest free funds have been applied for the purpose of making investments in shares and therefore, interest disallowance of Rs. 14,74,087/- is uncalled for and the same is deleted.
Disallowance at the rate of 0.5% of the average investment made under Rule 8D(2)(iii) of the Rules the contention of the assessee taking shelter of the judgment of REI Agro Ltd. [2022 (3) TMI 1549 - CALCUTTA HIGH COURT] is that such disallowance should be made only in relation to income which does not form part of total income and this can be done only taking into consideration the investment which has given rise to such income which does not form part of total income.
In the instant case we notice that the exempt income is not only from dividend but also from long term capital gain from sale of equity shares. No specific details have been filed by the assessee in support of its contention and prayer is made to restore the issue to ld. AO which will keep the issue live. We, on perusal of the audited balance sheet noticed that the investments constitute investment in equity shares at Rs. 10.10 Cr, investment in mutual funds and venture capital funds at approx. 6 Cr and other investments in quoted and unquoted investments. So far as the investments in mutual funds are concerned the assessee is charged by such mutual fund companies for maintaining the investments.
So, no additional expenditure needs to be incurred to keep the investments in the mutual funds. We, therefore, in order to end the litigation and taking into consideration the investments of the assessee company, sustain the disallowance at Rs. 6 lakh under Rule 8D(2)(iii) of the Act. Therefore, the grounds raised by the assessee against the disallowance made u/s 14A are partly allowed and disallowance is sustained at Rs. 6 lakh, and thus, the assessee gets a relief of Rs. 27,86,993/-.
Disallowance u/s 14A added to the book profit for the purpose of computing the income u/s 115JB - HELD THAT:- We are inclined to hold that so far as the disallowance u/s 14A of the Act which is to be considered for computing total income under the normal provision of Income Tax Act and it cannot be considered for the purpose of computing book profit u/s 115JB of the Act, however, taking note of Clause ‘f’ to Explanation ‘1’ of Section u/s 115JB of the Act which provides that for purpose of computing book profit the same should be increased by the amount or amounts of expenditure relatable to any income to which Section 10 (other than the provisions contained in clause (38) thereof) or Section 11 or Section 12 apply and therefore, for the purpose of Clause ‘f’ to Explanation ‘1’ of Section 115JB of the Act an ad-hoc disallowance is made at Rs. 3 lakh and the same should be added to the book profit for the purpose of Section 115JB of the Act. Therefore, ground raised by the assessee is partly allowed.
Addition u/s 68 for unexplained share capital and share premium - HELD THAT:- Considering the financial details referred of the alleged share subscribers as well as the assessee company and the mode of making investment and written compliance by the share subscribers directly to ld. AO and the assessee having discharged the initial onus casted upon it and ld. AO having failed to point out any defect thereto, we are inclined to hold that ld. CIT(A) erred in sustaining the addition u/s 68 of the Act and thus, reverse the finding of ld. CIT(A) and delete the additio and allow ground raised by the assessee.
Unreconciled duty drawback - HELD THAT:- As on perusal of the details filed by the assessee in the form of the paperbook as well as details of duty drawback on examining the complete details of the duty drawback found that the alleged sum was sanctioned by the appropriate authority in the subsequent year and has been offered to tax in the return of income for AY 2019-20. The details of income for AY 2019-20 have been filed before us and we, on perusal of the same find merit in the statement made by the assessee and are inclined to hold that the alleged sum of Rs. 2,03,823/- though was applied for duty drawback during AY 2018-19 but it was finally received by the assessee during AY 2019-20 after being sanctioned by the appropriate authority and the same has been duly offered to tax in the income for AY 2019-20. Therefore, no addition is called for unaccounted duty drawback. Therefore, ground raised by the assessee is allowed.
Disallowance of bad debts claimed for alleged non-submission of the proof - HELD THAT:- Since the sales have been duly accounted for and certain portions of the sundry debtors which could not be recovered have been claimed to be bad debts and this claim of the assessee is allowable in view of the ratio laid down in the case of TRF Limited[2010 (2) TMI 211 - SUPREME COURT] - We are inclined to hold that the assessee has made a justified claim of bad debts u/s 36(1)(vii) of the Act and the same deserves to be allowed.
Addition u/s 68 - unexplained unsecured loan taken from 7 body corporates and also disallowing the interest paid on such loans - HELD THAT:- Assessee has successfully discharged its onus of proving the identity of the loan creditors which are body corporates in the instant case duly registered with Ministry of Corporate Affairs, having PAN and regularly filing the returns, further creditworthiness of the transaction is proved with the fact that they have been carried out through banking channel and sufficient funds in the form of share capital and reserve and surplus available with the loan creditors to explain the amount of loan given and the genuineness of the transaction is proved with the fact that the assessee company is carrying out regular business activity and huge turnover is achieved year by year and for business needs the said loan has been taken and the major portion of the unsecured loan has been repaid in the year itself and only a minor sum was paid in the subsequent year and all transactions were carried out through banking channel, interest paid on the loans and tax at source has been deducted and duly reflected by the alleged loan creditors in their income tax return and therefore, we fail to find any justification in the action of ld. AO invoking the provisions of Section 68 of the Act.
We, thus, set aside the finding of ld. CIT(A) and delete the addition made u/s 68 and further hold that invoking the provisions of Section 115BBE of the Act was not justified and further, since provisions of Section 68 of the Act are held to be wrongly invoked and the alleged transaction is held to be genuine, the interest expenditure incurred on alleged loans is also allowable to the assessee. Thus, ground of the assessee’s appeal are allowed.
Deduction u/s 80G - CSR expenses incurred by the assessee already stands disallowed in the computation of income - HELD THAT:- Tribunal in the case of M/s. JMS Mining Pvt. Ltd. [2021 (7) TMI 907 - ITAT KOLKATA] has allowed the deduction u/s 80G of the Act on CSR expenses - Assessee appeal allowed.
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2023 (3) TMI 1433 - ITAT DELHI
TP adjustment - Advertisement, Marketing and Promotion (AMP) expenses, alleged to have been incurred on behalf of the Associated Enterprises (AEs) - international transaction or not? - HELD THAT:- As we find, the TPO has made the adjustment to AMP expenses by treating it as international transaction coming within the definition of section 92B of the Act and has computed the adjustment applying Bright Line Test (BLT) method. It is observed, while deciding identical issue in assessee’s own case for assessment year 2008-09, the Tribunal in order [2022 (1) TMI 1082 - ITAT DELHI] has held that the transaction relating to AMP expenses will not fall in the category of international transaction. Thus we restore the issue to the Assessing Officer with similar direction.
Adjustment made to ALP of Information Technology (IT) support services provided by the assessee to its AEs - assessee is a resident corporate entity engaged in the business of manufacturing, marketing and selling of wrist watches and after selling services - HELD THAT:- Assessee provided services in ITES segment. In fact, in the order passed under section 92CA(3) of the Act, the TPO himself has stated that the assessee provides limited IT help desk and support services to the AEs. In spite of such factual position established on record, the TPO has gone forward to re-characterize the assessee as a software development service provider and selected fresh comparables in the software development segment. Unfortunately, Commissioner (Appeals) has also completely misconceived the facts by approving the re-characterization of the assessee.
As observed, similar erroneous approach was adopted by the TPO while proposing adjustment to similar transaction with the AEs in assessment year 2011-12. While deciding assessee’s objections on the issue, learned DRP accepted assessee’s business profile as an IT service provider and directed the AO/TPO to select comparables in ITES segment. However, the TPO again selected comparables providing Knowledge Process Outsourcing (KPO) services. While deciding the issue in appeal, the Tribunal in [2018 (12) TMI 1852 - ITAT DELHI] rejected the comparables selected by the TPO. It is relevant to observe, while dismissing Revenue’s appeal against the decision of the Tribunal in assessment year 2011-12, the Hon’ble Jurisdictional High Court upheld the decision of the Tribunal holding the assessee as an ITES segment company.
Addition on account of advance written off - assessee has debited certain amounts on account of advances written off - as deduction claimed by the assessee does not satisfy the condition of section 36(2) of the Act, the Assessing Officer disallowed the deduction - HELD THAT:- As could be seen from the facts on record, certain trade advances in relation to the business operations could not be recovered even after long lapse of time. Therefore, the assessee has written them off in its books of account. In our view, the Assessing Officer made a fundamental error by holding that the deduction claimed comes under section 36(2) of the Act. Undisputedly, the trade advances were in course of business. Therefore, if the assessee was unable to recover such advances, it can be treated as business loss, hence, allowable. Accordingly, we uphold the decision of Commissioner (Appeals) on the issue.
Spreading over of expenditure - Payment for stamp duty and brokerage for office lease - as per AO since, the period of lease is for five years, the brokerage expenditure has to be spread over the period of lease - HELD THAT:- It is a fact on record that the assessee has incurred the brokerage expenditure in the year under consideration. Therefore, the expenditure has to be allowed in the year under consideration. Merely because the lease of office premises is for particular period, the expenditure actually incurred on brokerage cannot be spread over the period of lease. Accordingly, we uphold the decision of learned Commissioner (Appeals) on the issue.
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