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2021 (10) TMI 1005 - ITAT DELHI
TDS u/s 195 - IT support services - Fee for technical services or not - TDS on Admin and Network Support service charges paid by Hitachi Metglass India Pvt. Ltd. to Metglass INC USA, Hitachi Asia Ltd. Singapore and Hitachi Ltd. Japan - payments made for network and administrative support charges are characterized as FTS under section 9(1)(vii) of the Act and therefore the appellant is liable to deduct tax at source - HELD THAT:- We find that the services provided by the non-resident AEs to the Assessee are standard automated services. These services, as specified above, are provided to enable the assessee to send and receive data through the broadband network over the intranet and internet. All companies of the Hitachi group are provided with network services to exchange information through intranet and regulate use of internet through its proxy servers or provide remote access to log on to the company's network. It is a settled law that standard/common services cannot partake the character of FTS under the IT Act.
Foreign AE (service provider) has neither employed any technical or skilled person to provide managerial or technical service nor there was direct interaction between the assessee and the foreign AE. Thus, where the entire process resulting in provisioning of service is fully automated process with no human intervention, charges paid for provision of such services cannot be classified as FTS for the purpose of the IT Act.
The invoices raised by Hitachi Limited, Japan and Hitachi Asia Limited, Singapore to the Assessee in lieu of the services received by the latter make it clear that services provided by foreign AEs were not technical in nature but were standard intranet, broadband and link services. Payment of network charges does not take the character of FTS due to absence of human intervention:
Hence, the services received by the assessee can be said to be not in the nature of FTS as defined under Explanation 2 to Section 9(1)(vii) of the IT Act. To treat any consideration as FTS, such consideration must be paid for rendering of managerial, technical or consultancy services.
Disallowance of amount includes amounts accrued towards link charges payable to Airtel and BSNL and misc. provision.
The revenue failed to consider the fact that the IT support services availed by the Assessee did not involve any human intervention. The Ld. CIT(A) reproduced extracts of the Master Service Agreement between the Assessee and Hitachi Asia Limited, Singapore and observed that human intervention is an integral part of the Master Service Agreement which is completely misconceived. In fact, no reasons were provided by the Ld. CIT(A) as to how human intervention was an integral part of the Master Service Agreement.
It is held that the IT support services availed by the Assessee from Hitachi Ltd., Japan, and Hitachi Asia Ltd., Singapore are standard connectivity and networking services cannot be termed as technical services within the meaning of Section 9(1)(vii) of the Act. Hence, we hold that the assessee was not liable to deduct TDS on such expenditures. Accordingly, the disallowance made by the AO and confirmed by the Ld. CIT(A) in the present case is liable to be deleted. - Decided in favour of assessee.
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2021 (10) TMI 1004 - ITAT DELHI
Income accrued in India - Business Connection and Permanent Establishment - Assessee is a company incorporated in The United Kingdom as providing electronic global distribution services in the 'rest of the world' territory (including the Indian region) for the travel industry, by utilizing a Computer Reservation System ('CRS'), which is an automated system which processes booking data - HELD THAT:- As relying on TRAVELPORT INTERNATIONAL OPERATIONS LTD. VERSUS ACIT, CIRCLE-3 (1) (1) , INTL. TAXATION, NEW DELHI [2021 (10) TMI 1023 - ITAT DELHI] the assessee has Business Connection and Permanent Establishment (PE) in India.
Attribution to the PE in India - The correct attribution rate be taken at 15% of the gross booking fee for the years in appeal before us.As per the table above, Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment of tax as no further income is taxable in India. The AO may check the correctness of the figures before giving effect to this order.
Allowability of distribution expenses - As duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their network of subscribers/travel agents and thus, an inseparable part of the business and thus it cannot be denied that the expenses have been incurred for the purpose of the business.
It is also an accepted fact that there is only one business of the Company i.e., the CRS business. Therefore, all expenses incurred by Company including distribution expenses can only be related to such business. Thus, the AO's argument that distribution fees is not related to its business since its nomenclature in invoices is specified as 'data processing charges' instead of distribution fees lacks basic fallacy.
As distribution commission has been made to resident of India and duly offered to tax. Hence, the provisions of Section 40(a)(ia) are not attracted in the instant case. Since, there is no change in the factual matrix and legal proposition, we hereby allow the claim of the assessee.
Allowability of other expenses - AO disallowed entire amount (100%) claimed by the assessee on account of other expenses such as royalty, vendor cost, license fee owing to non-deduction of withholding tax - As the position of the profit/loss of the assessee is evident. After deduction of the distribution expenses and 15% booking fee, the assessee is left with no taxable profit. Considering the disallowance @ 30% u/s. 40(a)(ia) in accordance with the law laid down by the Hon'ble Delhi High court in case of CIT Vs. Herbalife International India (P.) Ltd.[2016 (5) TMI 697 - DELHI HIGH COURT] wherein the High Court struck down discriminating treatment of disallowance u/s. 40(a)(i) and Section 40(a)(ia) of the Act by relying on Article 26(3) of the DTAA between India and US, we hereby direct the AO to re-compute the net losses computing the disallowance on other expenses @ 30%.
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2021 (10) TMI 1003 - ITAT DELHI
Unexplained trade receivable - CIT-A deleted the addition for want of proper enquiry by the AO - HELD THAT:- When no evidence has been given by the assessee company during the assessment proceedings and no remand report has been called, and accepting the contentions of the assessee as a gospel truth without conducting any enquiry is not sustainable in the eyes of law. Findings returned by the ld. CIT(A) are cryptic and without any reasons, hence set aside. So, this issue is remitted back to the ld. CIT(A) to decide afresh after examining all the evidences brought on record by the assessee during the first appellate proceedings by passing a reasoned order. Consequently, grounds no. 1 & 2 are determined in favour of the Revenue for statistical purposes.
Disallowance of depreciation - AO disallowed the depreciation on the ground that assets were not put to use during the year - HELD THAT:- We are of the considered view that when the financials of the assessee company are audited one u/s.44AB of the Act which has not been disputed by the AO and date of purchase of the assets has been brought on record which have not been purchased during the year under assessment as is evident from the table extracted in preceding para no. 10, we find no illegality or infirmity in the findings returned by the dl. CIT(A). However, deletion of addition is subject to the verification by the AO as to the date of purchase of the assets as claimed by the assessee. - Decided against Revenue.
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2021 (10) TMI 1002 - ITAT MUMBAI
Unexplained investments - unexplained investment being made in the shares of M/s. Gulmohar Towers Pvt. Ltd - incriminating material in the course of search or not? - cash payment over and above the investment recorded in the books - Whether CIT(A) erred in facts and law in not appreciating that there is no possibility that the appellant company could have generated unaccounted income in the year under consideration as it was just incorporated on 13-04-2010 and had not even commenced its business operations - HELD THAT:- We find that there is neither any incriminating material of any cash payment unearthed by the department during the course of survey/search conducted on the Patni group nor in this regard, any evidence has been brought on record even in the course of assessment proceedings. Even the reliance placed on statement of Shri Khimji Karamshi Patel recorded u/s. 131 during the course of survey u/s. 133A in the case of M/s. Trishul Developers, M/s.N.S. Enterprises, M/s. Novelty Stationery, M/s. Trishul Infra Pvt. Ltd., M/s. Patel & Associates, M/s. Real Trade Corporation and M/s. Om Trilok Realty & Infrastructures on 11.10.2014 cannot have any evidentiary value in eyes of law as well settled by the Hon’ble Apex Court in the case of CIT v. S. Khader Khan Son [2013 (6) TMI 305 - SC ORDER]
The CBDT has time and again vide its Instruction F. no. 286/2/2003-IT (Inv. II) dated 10.03.2003, F. No. 286/98/2013- IT (Inv. II) dated 09.01.2014 and F. No. dated 286/98/2013- IT (Inv. II) dated 18.12.2014 has directed the field officers on search to gather evidences and incriminating material in the course of search rather than merely recording statements and obtaining confessions
The retraction of Shri Khimji Karamshi Patel and Shri Gaurav Patel is immediate and backed with corroborative evidences, the same cannot be rejected. Further, it is also noted that Shri Khimji Karamshi Patel had no locus standi in the assessee company at all to disclose any undisclosed income in the hands of the assessee company. He is neither a director nor a shareholder of the assessee company
There is no positive and credible evidence brought on record by the revenue to establish the allegation of cash payment over and above the investment recorded in the books. Neither the search party has found any incriminating material in the course of search on Patel/Patni group nor the Assessing Officer has brought any material/evidence on record in the course of assessment proceedings. Even no adversities or defects have been found in the evidences in the form of Due Dilignence Report, MOU, share transfer forms, share certificates, etc. furnished by the appellant has been pointed out. There is no finding as to who paid the alleged cash to whom either promoter/director/shareholders of M/s. Gulmohar Towers Pvt. Ltd. The AO has not even examined the promoters/directors of M/s. Gulmohar Towers Pvt. Ltd.
None of the shareholders of M/s. Gulmohar Towers Pvt. Ltd. have been examined. Nowhere the name of the appellant company has been found to be purported in any of the statements of Shri Anand Sharma and Shri Vivek Agarwal to say that the appellant company had paid cash to M/s. Gulmohar Towers Pvt. Ltd. over and above the investment recorded in its books. On the contrary, the assessment made by the department on 22.04.2010 in the case of M/s.Gulmohar Towers Pvt. Ltd. does not refer to any adversities but in fact goes to suggest that the said company is not a shell or bogus company. The revenue has failed to discharge its burden to prove and conclusively establish by material the allegation made on the assessee. In the light of the above, we cannot uphold the addition merely on surmises and suspicion in absence of any credible and corroborative evidence brought on record. Assessing Officer has alleged the group as a whole but has not carried his investigation further to identify which of the entities/concerns were indulged either in on money sales or routing of investments in shell companies and brought into the regular books by way of unsecured loan or advance against booking.
If the version of the Assessing Officer is also taken to be correct, then the allegation which is drawn on the assessee company is that it is a mere conduit to the rotation of funds which were ultimately passed on to the group. Thus, it is clear that the assessee company is not the beneficiary of the alleged unexplained investments.
Assessee argued that the assessee company was incorporated on 13.04.2010 i.e. the year under consideration was the 1st year of the company and its business operations had not yet commenced. This is also an important facet to this case as being the 1st year of incorporation and that business has not been commenced by the assessee, there does not arise any generation of cash sales through on money from any of the real estate projects. In fact, the Ld. Counsel has argued that none of the real estate projects had commenced in the group at the time when the company was acquired. Therefore, applying the ratioM CIT v. Bharat Engineering & Construction Co. [1971 (9) TMI 14 - SUPREME COURT] assessee cannot be taxed as there is no possibility of generating undisclosed cash by the assessee in the year under consideration. It is a trite law that only the right person can be taxed under the law and the Assessing Officer cannot pick one person merely because some third party has made disclosure in the hands of the appellant company. Thus the addition of unexplained investment cannot be made in the hands of the Assessee company.
This is not the case of invoking provisions of section 68 of the Act as there is no cash credit involved nor it is a case of applying section 69 as investments are already recorded in books which is an undisputed fact - We have to accept this proposition as the relevant section under the factual matrix ought to have been invoked is section 69B of the Act which refers to “Investment not fully disclosed in books of account” - However, no such section 69B has either been invoked by the Assessing Officer or Ld.CIT(A) in confirming the alleged addition. Hence, even on this count, the addition made u/s. 68 is not tenable as per law.
Assessee appeal allowed.
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2021 (10) TMI 1001 - ITAT INDORE
Addition u/s 68 - unexplained cash credits - CIT-A deleted the addition - HELD THAT:- It is not the case that loan creditros refused to have advanced the amount of loan to the assessee rather the assessee through documentary evidences proved that the amount of loan was received through account payee cheques and income-tax returns of the loan creditors were also provided. Thus, source of loan was duly established by the assessee.
The assessee had properly discharged the onus lying on it by furnishing various supporting documents moreso when the loan as recieved by the assessee was only related to the directors of the assessee. Thus, the Assessing Officer was not justified in adding the said amount of loan to the total income of the assessee. Further, the Revenue could not bring any contrary material on record to rebut the findings of the ld. CIT(A). Accordingly, the addition on account of loan taken from directors was rightly deleted by the ld. CIT(A). Therefore, we confirm the action of the ld. CIT(A) on this point.
Addition on account of loans received - AO added the loan as received from the said society on the ground that directors of the assessee, their family members and friends are the office bearers/promoters of the society and further confirmation, ITR, Bank statement and PAN of the loan creditor was not provided - CIT-A deleted the addition - HELD THAT:- From the perusal of the copy of account of the society in the books of accounts of the assessee for the year under consideration and vice-versa and also for the subsequent year filed by the assessee reveals that the assessee had repaid entire amount of loan as taken from the society in the subsequent year. We find that the assessee had duly filed its copy of account in the books of the society which was also tallied with the copy of account of the society in the books of accounts of the assessee, therefore, the copy of account of the assessee in the books of the society is the confirmation itself which was filed by the assessee during the course of assessment proceedings
AO was not justified in observing that confirmation was not filed by the assessee during the course of assessment proceedings - CIT(A) rightly noted that the addition on account of overdraft loan as taken by the assessee made by the assessing officer was neither correct nor proper as the account balance of the loan account was duly confirmed and filed during the course of the assessment proceedings. Thus, it is clear that the onus required to be discharged with respect to identity, genuineness and creditworthiness was duly discharged by the assessee and moreso the transaction is part of the regular overdraft account maintained by the assessee with the society. Hence, we do not find any reason to interfere with the findings of the ld. CIT(A). We confirm the same on this point - Decided against revenue.
Rejection of books of accounts - estimation of income - Notional addition to the total income of the assessee by adopting a net profit rate of 8% on the amount of total construction expenses as incurred by the assessee - HELD THAT:- assessee had raised bills to the land owners from time to time on the basis of terms of its agreement and on the basis of stage of completion as agreed upon by the assessee with the land owners. Further, we are of the view that there was no law for maintaining project wise separate sets of books of account but what is necessary is to calculate seperate project-wise profit and the assessee had properly maintained details of expenses as incurred for particular project and the same was controlled through cost centre. Thus, the books of account as rejected by the Assessing Officer for this ground was not correct.
CIT(A) observed that remaining amount of expenses as incurred by the assessee on the project were shown by it as closing work-in-progress for which bills were subsequently raised in the next year and the same were also offered to tax and as such, the ld. CIT(A) deleted the addition made by the AO - CIT-DR could not controvert the findings of the ld. CIT(A) by bringing any contrary material on record. AO was not justified in estimating the income at 8% on the amount of total cost of project even when the said amount included as incurred for its own project in form of cost of land and development expenses as incurred. Thus, the addition made to the total income of the assessee was rightly deleted by the ld. CIT(A). We confirm the action of the ld. CIT(A) on this point - ground raised in the appeal of the Revenue is dismissed.
Disallowance of claim of loss by the assessee - AO after adjusting the other income disallowed the loss on the ground that the books of account have been rejected and profit has been estimated - CIT(A) deleted the addition - HELD THAT:- CIT(A) allowed the loss on the ground that the assessee had properly maintained its books of accounts and the same was also examined by the Assessing Officer himself as the assessing officer passed detailed order after considering the books of accounts produced before him. Hence, there was no justification for the Assessing Officer to further disallow loss as claimed by the assessee in its return of total income. Even before us, the Revenue could not controvert the finding of the ld. CIT(A) by bringing any contrary material on record. Therefore, we do not find any reason to interfere with the order of the ld. CIT(A).
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2021 (10) TMI 1000 - ITAT KOLKATA
Revision u/s 263 by CIT - Whether non-enquiry also renders a particular order passed by the lower authorities as erroneous and prejudicial to the interest of Revenue? - HELD THAT:- The order passed by the ld. Assessing Officer does not suggest that non-reflection of working progress of ₹ 20,20,000/- in assets side of the balance sheet as on 31.03.2010 has been considered by the ld. Assessing Officer in its proper perspective. The clarification given by the assessee in support of his case, on this issue, before the ld. PCIT neither seems to be enquired nor explained by the assessee before the AO; no such deliberation is seen in the order passed by the ld. Assessing Officer. The order passed by the ld. Assessing Officer while completing the reassessment u/s 143(3) r.w. section 147, neither suggests that any such enquiry on the proposed disallowance u/s 14A of the Act as raised by the ld. PCIT has been made. If the proof of such enquiry is not reflecting in the order passed by the ld. Assessing Officer which ought to have been done by him at the time of reassessment, requirement of further enquiries/verifications u/s 263 of the Act, in our considered view, cannot be brushed aside.
Thus the order passed by the ld. PCIT in setting aside the order of reassessment dated 18.12.2017 and in directing the ld. Assessing Officer to frame the assessment afresh, in our considered opinion, is without any ambiguity so as to warrant interference, hence we confirm the same. The assessee’s appeal is thus dismissed.
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2021 (10) TMI 978 - BOMBAY HIGH COURT
Reopening of assessment u/s 147 - Unexplained purchase of immovable property - HELD THAT:- Going through the above submission shows that it is nothing but a reiteration of earlier argument and nothing afresh has been submitted by the assessee. In her submission, assessee stated only was paid by her and payment was made by her son Gaurav Parkar - statement of the assessee is not supported by any documentary evidence such as bank account statement correlating the payments made to the builder etc. Therefore the sources of investment made for purchase of aforementioned immovable property apart from the loan amount remains unsubstantiated.
There is absolutely no whisper about petitioner’s request to grant time to get statement from ICICI Bank, Nariman Point Branch for the account of the son that has been close - we have no hesitation in setting aside the impugned order dated 20th September, 2021.
Though respondent have been served a copy of the petition on 12th October, 2021 no reply has been filed. We requested Mr. Suresh Kumar who was present in the court to assist the court. Mr. Suresh Kumar stated that Mr. Sham Walve was briefed in the matter, but Mr. Sham Walve is unwell. At the same time, Mr. Suresh Kumar in fairness stated that as the documents annexed to the petition speak for themselves, the court may set aside the impugned order and remand the matter for denovo consideration without making any observations on merits of the case.
Since we are also satisfied with the submissions made by Mr. Hakani, the order requires to be set aside and no purpose will be served in adjourning the matter. The order dated 20th September, 2021 is hereby quashed and set aside. The matter is remanded for denovo consideration but shall not be placed before the same Assessing Officer who passed the impugned order. But we also clarify that we have not made any observations on the merits of the case.
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2021 (10) TMI 977 - BOMBAY HIGH COURT
Deduction u/s 80HHE - Substantial question of law or fact - whether Hon’ble ITAT was correct in confirming order of CIT(A) allowing deduction u/s 80HHE without considering the facts brought on records which clearly established that the assessee did not conduct any software development and the assessee failed to establish the genuineness of the software development charges so paid as evidence from the replies to the summons issued to the persons to whom the assessee purportedly paid software development charge and the assessee even failed to produce the source code of the purported software developed and exported ? - HELD THAT:- ITAT has come to the factual finding that on the basis of material on record the claim of respondent under Section 80HHE of the Act was in order. ITAT has also come to the factual finding that the source code of softwares developed have been provided by respondent to the Assessing Officer. ITAT, therefore, concluded that when the export made by LNSEL has been accepted to be genuine by the Assessing Officer in LNSEL’s case, the objection of the Assessing Officer in the present case that the exporters Apkidukan.com, the ultimate purchasers of the softwares does not appear to be genuine, cannot be accepted.
Assessing Officer had relied upon statements of 5 persons who had denied having developed any software for respondent. ITAT rightly concluded that respondent should have been given an opportunity to cross-examine those 5 persons, which was not granted. ITAT has also observed that there were others, whose affidavits were filed by respondent confirming that they worked for respondent and those affidavits have not been considered by the Assessing Officer.
ITAT has made an observation on fact is that the Assessing Officer has also overlooked the fact that TDS for the payments made were duly recorded in the books of accounts and relevant vouchers found during the search only corroborate the genuineness of such payments and that TDS duly deducted was paid to the Government account. ITAT held that nothing has been brought on record by the Assessing Officer to suggest that all such facts borne from the books of account were bogus or incorrect as the books of account have not been rejected.
We find that no substantial questions of law arise and the entire dispute revolves around question of facts. ITAT has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that questions as pressed raises any substantial questions of law.
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2021 (10) TMI 976 - KARNATAKA HIGH COURT
Addition of bad debts and advances - no information was furnished by the assessee with regard to the bad debts for the purpose of claiming as expenditure in computation of profits - tribunal considering trade of the credit as claimed by the assessee being revenue in nature allowed the claim - HELD THAT:- Revenue has placed reliance on the judgment of Vijaya Bank [2010 (4) TMI 46 - SUPREME COURT] wherein it has been explained that after the explanation vide Finance Act, 2001, in Section 36(1)(vii) with effect from 01.04.1989, the assesee (s) is now required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as not of provisions for impugned bad debt.
There is some force in the said arguments advanced by the Revenue. None of the authorities have examined the issue in this angle in deciding the matter relating to substantial questions of law No.1. Hence, we remand the matter to the Tribunal to reconsider the matter in the light of the judgment of the Hon’ble Apex Court in the case of Vijaya Bank.
Foreign exchange fluctuation loss - AO disallowed the same holding that the assessee had not established the nexus for utilization of the funds raised in FNCR are used for the business purposes - HELD THAT:- The assessee has demonstrated before the Tribunal that increase in investments from ₹ 102.92 crores to ₹ 380.32 crores was on account of investment of ₹ 287 crores in 8% redeemable preference shares of Phipso Distillery Ltd., which was made on 31.03.2005 i.e., on the last day of the year and therefore the working capital obtained on various dates between 02.04.2004 and 31.03.2005 could not have been utilized from the same. It was also pointed out that the interest paid on the loans were allowed by the Assessing Officer himself as a deduction, however no loss in connection thereto was allowed. The action of the Assessing Officer accepting the Foreign Exchange but disallowing the loss appears to be erroneous.
It is apt to refer to the decision of the Hon’ble Apex Court in Commissioner of Income-tax, Delhi vs. Woodward Governor India (P.) Ltd.,[2009 (4) TMI 4 - SUPREME COURT] wherein it has been enunciated that the loss suffered by an assessee on account of foreign exchange difference as on the date of balance sheet is an item of expenditure under Section 37(1) of the Act. The view of the Assessing Officer and the CIT (A) that the investments were made on, from the FNCR loans is not based on any supporting material and is only a presumption. Hence, confirming the view of the Tribunal, we answer this question in favour of the assessee and against the revenue.
Disallowance of research and development expenses - whether it is expended by the assessee relates to the business activity in terms of Section 37[1] - AO disallowed the expenses of Research and Development expenses on the ground that the said expenditure was not connected to the business of the assessee as it was in the business of manufacture and trading of beer and the details of research and development had not been furnished - HELD THAT:- As could be seen from the material on record, the Assessing Officer as well as the CIT (A) has disallowed the R & D claim made by the assessee mainly for the reason that no documents were placed on record to establish the same. But the Tribunal has proceeded to allow the claims made by the assessee on the ground that the same is not double deduction or weighted deduction. We are not convinced with the reasoning of the Tribunal in allowing this deduction for want of material evidence and lack of proper reasoning. Hence, we remand the matter to the Tribunal to reconsider on this issue sans answering this substantial question of law.
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2021 (10) TMI 975 - KARNATAKA HIGH COURT
Assessment of income from life insurance business - surplus arising from “shareholder account” as separate income and not as income arising from life insurance business - Tribunal allowing claim of assessee made on account of surplus from shareholders account being treated as income from other business by holding that “surplus” available both in Policy Holders Account and Share Holders’ Account is to be consolidated and only “net surplus” is to be taxed as income from insurance business - HELD THAT:- This Court has dealt with this substantial question of law in extenso in M/S. PNB Metlife India) [2021 (10) TMI 928 - KARNATAKA HIGH COURT] and the same is applicable to the facts of the present case. Accordingly, substantial question of law No.1 is answered in favour of the assessee and against the revenue.
Disallowance in respect of claim of losses from pension fund not allowed to be carried forward - losses incurred from pension fund is exempt under section 10(23AAB) - taxability of income from life insurance business is governed by section 44 of the Act with the first schedule of the Act even though when section 10 of the Act is applicable and income is exempt from tax, it follows that losses are also not allowed to be set off nor can be carried forward - HELD THAT:- The insurance business has to be considered by the actuary valuation as per the valuation report allowable under Section 44 read with First Schedule to the Act. Merely for the reason that the income from pension fund is exempted under Section 10(23AAB) with effect from 01.04.1997, it cannot be held that the loss incurred under the fund cannot be carried forward or given a set-off.
The Clause 13.1 of the C.B.D.T. Circular No.762, dated 18.02.1998, provides that the Life Insurance Corporation of India (LIC) has started a new personal-cum-family pension scheme. The scheme offers attractive terms to its contributors and has a provision for payment of a life-time widow’s pension in the event of the death of the contributor during the contribution period. Clause 13.3 provides that in order to enable the LIC to offer attractive terms to the contributors, exemption from income-tax has been provided to the income of such funds which the LIC has set up on or after the August 1, 1996, under the scheme to which contributions are made by the contributors. Clause 13.5 contemplates that the amendment will take effect from April 1, 1997, and will, accordingly, apply in relation to the assessment year 1997-98 and subsequent years.
The object of inserting Section 10(23AAB) being made clear as per the said Circular, the same cannot be equated with the provisions of Section 10A of the Act.
Section 44 of the Act begins with a non-obstante clause and overrides the other provisions of the Act relating to computation of income under the various heads of income including income under the head profit and gains of business of insurance. Thus, the provisions under Sections 28 to 43 of the Act would not be applicable to the assessee coming within the ambit of Section 44, Judgment in Harprasad [1975 (2) TMI 2 - SUPREME COURT] is distinguishable. These aspects were considered by the Hon’ble High Court of Bombay in Life Insurance Corporation of India Ltd., [2011 (8) TMI 47 - BOMBAY HIGH COURT]and following the said decision, the Tribunal has dismissed the appeals filed by the revenue, which indeed was applied for the earlier assessment year. We do not find any perversity or irregularity in the finding of the Tribunal in answering these issues. Hence, we answer the second substantial question of law also in favour of the assessee and against the revenue.
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2021 (10) TMI 974 - DELHI HIGH COURT
Glitches and shortcomings in the computer programme and software - Direct Tax Vivad se Vishwas Act, 2020 - petitioner challenging the subsequent Form-3 issued by the respondent/revenue after a full and final settlement of disputed taxes in Form-5 - modification of the software, the DGIT (Systems) is directed to join the proceedings - revenue issued a rerevised Form-3 treating the petitioner’s case as a non-search case - Revenue insists that the petitioner should once again file Form-4 on the basis of which they would issue a fresh certificate in Form-5 - revenue states that it is imperative that the petitioner should once again complete the process by filing Form-4 as the portal does not permit restoration of the previous Form-5 - as per revenue system functionality, as of now, does not permit the Assessing Officer to access the TDS and prepaid taxes data for the assessment year 2016-17 -
HELD THAT:- Since digitisation is being implemented at a rapid pace in the arena of Direct Taxes and a policy decision has been taken to reduce human interface, this Court is of the view that public at large should be asked to use the new software and programme only after the said programme/software has been tested prior in time on a sufficiently large sample base of assesses. The computer programme/software should be flexible enough to incorporate the implementation of Court’s orders. For this purpose, if any policy initiative is required, the DGIT (Systems) should take up the issue with CBDT.5. During the hearing, this Court also gave practical instances of glitches and shortcomings in the computer programme and software.
DGIT (Systems) states that in the event any Assessing Officer has an issue with the operation of the computer programme or software, the said officer raises a ticket which is then resolved by the concerned vertical in her department, and in the event, the issue cannot be resolved by the concerned vertical, the officer can raise a ticket with another vertical.
The Court has suggested to the DGIT (Systems) that in the event the ticket cannot be resolved by any of the verticals due to constraints/limitations in the system or software, then a mechanism should be put in place whereby the said issue can be flagged for a policy decision before her.
Ms.Pragya, DGIT (Systems) assures this Court that her direct orate would take steps to improve on both the fronts, namely, co-ordination and feedback. She states that wherever necessary, improvements in the process shall be carried out. She also states that she is confident that their directorate will be able to resolve the glitches in the system and shall revert back with solutions, if possible, within a fortnight. Keeping in view the aforesaid, the personal appearance of DGIT (Systems) and her officers are dispensed with.
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2021 (10) TMI 973 - CALCUTTA HIGH COURT
Refund withheld u/s 241A - Withholding the refund on the basis of statutory prescription - mandation of Application of mind by AO - HELD THAT:- The very essence of passing of the order under Section 241A is application of mind by the Assessing Officer to the issues which are germane for withholding the refund on the basis of statutory prescription contained in the said Section. The power of the AO under the provisions of the section 241A can be exercised not only after he forms an opinion that the refund is likely to adversely affect the revenue and thereafter with the prior approval of the Chief Commissioner or Commissioner as an order for refund after assessment under Section 143(3) of the said Act pursuant to a notice under Section 143(2) is subject to appeal or further proceeding. In the instant case, after notice for refund was issued the refund was withheld with no reasons given.
From the judgment reported in Maple Logistics Pvt. Ltd. [2019 (11) TMI 340 - DELHI HIGH COURT] Section 241A provides that where there is a refund payable on the returns furnished under Section 143 (1) of the Act, and the Assessing Officer is of the opinion that grant of refund is likely to adversely affect the revenue, he may withhold the refund up to the date on which the assessment is made, subject to reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be. On a combined reading of Section 143 with Section 241A, it can be discerned that by virtue of the new proviso, it is now mandatory to process the return under sub-section (1) of Section 143, and proceed with grant of the refund determined therein, unless, sufficient reasons exist under Section 241A prima facie demonstrating that the grant of refund is likely to adversely affect the revenue.
The scope of the power under Section 241A is narrow, making it clear that a speaking order is required to be passed culling out the reasons as to how the grant of refund is likely to affect the revenue. The recording of reasons to substantiate why such withholding is necessary and how the refund will adversely affect recovery of subsequent revenue is essential.
No reasons were assigned by the Officer concerned by referring to any materials that refund declared in case of the petitioner/assessee on being actually made will adversely affect the revenue. No demand as against the petitioner was pending on the date when refund was notified. The petitioner/assess became entitled to the refund immediately on completion of assessment and refund on being notified. The Assessing Officer could not have kept the refund withheld to link such refund with any demand against the petitioner for a subsequent period when such demand was not in existence on the date when the refund was notified.
The powers under this revenue friendly provision cannot be used in a mechanical manner without application of mind, wherein the Assessing Officer being of the opinion that the grant of refund may make recovery of pending demands. In that case refund can be withheld only after recording reasons and obtaining approval of Principal Commissioner or Commissioner as held in the judgment reported in Vodafone idea Ltd. vs. DCIT [2020 (2) TMI 1282 - BOMBAY HIGH COURT] -The assessee must also be given an opportunity of hearing before reasons are recorded for withholding the refund under this Section. In absence of these proceedings being followed the action of the Assessing Officer withholding refund is amenable to judicial review by way of writ petition under Article 226 of the Constitution of India.
The action on the part of the respondents in withholding of the refund for the assessment year 2017-18 is not sustainable in law and is set aside and quashed. The petitioner, is therefor, entitled to a mandatory order of refund.
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2021 (10) TMI 972 - ORISSA HIGH COURT
Condonation of delay of 2554 days in filing the appeal - Eligible reasons of delay - HELD THAT:- There is lack of sufficient justification shown by the present Petitioner for the inordinate delay in filing the appeal.
Petitioner is unable to offer any better explanation for the delay except to say that since the question whether the employees in the NCERT were to be treated at par with the Central Government employees was pending consideration and was decided by the CIT (Appeals), Mysore only on 31st August 2017, the Petitioner could not have preferred an appeal earlier. The extraordinary delay of 2554 days cannot be condoned on such a weak explanation given by the Petitioner.
The Court is unable to find any error committed by the ITAT in declining to condone the delay of 2554 days in the Petitioner filing an appeal before it against the order of the CIT (A).
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2021 (10) TMI 971 - KERALA HIGH COURT
Deduction u/s 80P(2)(i)(a) - Additions u/s 68 - whether the CIT(Appeals) and the Tribunal are correct in extending the deduction availed under Chapter VI A to the 5% disallowed by the Income Tax Officer on interest paid to the depositors? - HELD THAT:- The Society is entitled to claim deduction u/s 80P(2)(i)(a) - The exclusion of 5% from the expenditure disallowed is treated as a deduction permissible under 80P(2)(a)(i) of the Act. The argument of the Department is that the said disallowed portion will have to be treated as 'income earned from other sources'. The foundation for such argument is that the Circular relied by the Tribunal is inapplicable, and secondly the dis-allowance forms part of a situation contemplated by Section 68 of the Act.
Applicability of the Circular to the case on hand. Circular Dated 02.11.2016 refers to Section 32, 40(a)(ia), 40A(3), 43B, etc. The appreciation of Revenue that it is applicable only to the sections stated therein, is unacceptable and stated so without noticing the word 'etc' used in the Circular. Therefore, the objection now raised against the Tribunal that the Tribunal relied on an inapplicable Circular is incorrect and accordingly rejected. The Circular comprehensively sets out the procedure for treating such items of expenditure.
The assessee/Society, in view of the recent Supreme Court judgment in Mavilayi Service Co-operative Bank Ltd. Case [2021 (1) TMI 488 - SUPREME COURT] is entitled to be treated as a Society satisfying the definition of Section 2(19) of Income Tax Act read with Kerala Societies Registration Act, 1860.
The primary business of assessee/Society is accepting deposits and providing benefits to the members of the Society. The income, therefore, received by the Society is from the interest it earns on the amount lent to the members. The Society, likewise, is paying interest on the deposits it has accepted. For a reason recorded and accepted by all the authorities, the 5% of the expenditure booked against interest paid to depositors is disallowed and once disallowed portion is accepted by all the authorities, the said disallowed portion forms part of the interest earned by the Society on the amount lent by the Society to its members, vis-a-vis in other words, income earned from business carried on by the Society. Therefore, the Society is entitled to deduction u/s 80P(2)(i)(a) of the Income Tax Act. Section 68 of the Act in terms is not applicable to an entry warranted consequent to the disallowed expenditure by the Assessing Authority. - Decided in favour of assessee.
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2021 (10) TMI 970 - KERALA HIGH COURT
Deduction u/s 80P - assessee failed to produce the books of account and income earned from non-members, therefore, the assessee is not entitled to exemption under Section 80P(2) of total income - whether the assessee is a Primary Agricultural Credit Society or not, for, admittedly, the Society is registered under Kerala Societies Registration Act? - HELD THAT:- In the case on hand, the observation of the Assessing Officer that books are not produced has not been expressly considered by the Appellate Authority and the Tribunal.
The paragraphs excerpted from the judgment of the Supreme Court in Mavilayi Service Co-operative Bank Ltd case (supra) leaves no doubt that a Society registered under Kerala Co-operative Societies Act is entitled to claim deduction and the assessing authority determines the other incomes earned or derived by the assessee after according to assessee all the eligible deductions in this behalf. We are of the view that, in the case on hand, the matter requires reconsideration by the primary authority, for, the return filed by the assessee is examined in the light of decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd case [2021 (1) TMI 488 - SUPREME COURT] and fresh assessment orders are made. Hence, the orders in Annexures A, B, and C are set aside, case remitted to the Income Tax Officer for examination of books of accounts and verification of the return filed by the assessee for the subject year, strictly within the four corners of the dictum laid down by the Supreme Court in Mavilayi Service Co-operative Bank Ltd case and make a fresh assessment order. The assessee is entitled to file a fresh reply, if so advised, and the assessee is afforded an opportunity in accordance with law.
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2021 (10) TMI 969 - ITAT DELHI
Rectification of mistake u/s 154 - Adjustment of current year losses with income under section 115BBD - claim of the assessee was dismissed by AO who was of the opinion that since the assessee has declared income u/s 115BBD of the Act and calculated the tax at special rate of 15%, therefore, the same cannot be set off against losses - CIT-A was of the opinion that whether current year loss can be set off from the income declared under section 115BD of the Act is a highly debatable issue and a debatable issue cannot be rectified u/s 154 -HELD THAT:- It is true that in the intimation u/s 143(1) of the Act, loss of the current year has been mentioned at ₹ 22,53,768/–. It is equally true that the assessee has returned income in respect of dividend received from a foreign company u/s 115BBD.
As per clause (2), no deduction in respect of any expenditure or allowance should be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in subsection (1). Now, the interpretation of ‘expenditure’ or ‘allowance’ to cover current year loss is, in my considered opinion, a highly debatable issue and no precedences have been made available to me. Therefore, in these circumstances, I have no hesitation in upholding the findings of the ld. CIT(A). Ground raised by the assessee is dismissed.
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2021 (10) TMI 968 - ITAT DELHI
Addition u/s 68 - Unexplained unsecured loans - assessee challenged the addition claiming that these were business loans - assessee argued as no adequate opportunity provided to prove the claim - HELD THAT:- It is seen that as per record more than adequate opportunity had been made available to the assessee before the Assessing Officer and similarly even before the Ld. CIT(A) there was adequate opportunity and now even before the ITAT the assessee has been given more than adequate opportunity and still no evidence has been placed by the assessee to assail let alone effectively assail the findings arrived at. Accordingly, considering the facts as available and the position of law no interference in the impugned order is warranted. - Decided against assessee.
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2021 (10) TMI 967 - ITAT JAIPUR
Levy of penalty u/s 271D - violation of the provisions of section 269SS - payment of construction expenses incurred in cash towards the purchase of construction material and payment to labourers - HELD THAT:- On persual of the registered sale deed, we find that there is payment of consideration by way of demand draft for ₹ 6 lacs which has been paid in advance and remaining amount of ₹ 1 lacs which has been paid in cash at the time of registry and handing over of the possession. As stated at the Bar by the ld AR that the assessee had no option but to discharge the remaining consideration in cash at the time of registry as so insisted by the seller of the property and in absence thereof, the deal might have not fructified.
The explanation so furnished as reasonable and plausible and donot find any malafide in the explanation so submitted as everything is flowing from the registered sale deed where transactions have been duly documented including the payment through demand draft and cash which is from the known sources of funds contributed by the assessee’s husband - assessee has explained the payment of construction expenses which are also required to be incurred in cash towards the purchase of construction material and payment to labourers.
We therefore find that the assessee has offered reasonable explanation justifying the cash transactions and thus, in the entirety of facts and circumstances of the case and considering various decisions cited at the Bar which also support the case of the assessee especially the decision of the Coordinate Bench in case of Tuhinara Begum [2017 (10) TMI 1321 - ITAT KOLKATA] where there was a reverse situation where the wife gave money to husband for construction of house which was held not exigible for levy of penalty u/s 271D, we are of the considered view that the assessee doesn’t deserve to be punished by way of levy of penalty u/s 271D for receiving money from her husband for purchase of family property and hence, the same is directed to be deleted. - Decided in favour of assessee.
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2021 (10) TMI 966 - ITAT JAIPUR
Rejection of books of accounts - Estimation of income - bogus purchases - addition by declaring purchases as bogus purchases and applying 25% profit thereon - HELD THAT:- We find that the Assessing officer has rejected the books of accounts by invoking the provisions of section 145(3) and the same are not under dispute before us - where the books of accounts have been rejected, the appropriate course of action for the AO is to estimate the gross profit in the hands of the assessee on some reasonable basis and in this regard, the past history has been stated to provide reliable and reasonable basis for estimating gross profit in the hands of the assessee. In this regard, reference can be drawn to the decision of the Coordinate Bench in case of ACIT vs. M/s Allied Gems Corporation [2017 (12) TMI 1252 - ITAT JAIPUR] wherein it was held that where the books of accounts have been rejected, the ld. CIT(A) was correct in restricting the addition to the average G.P rate based on the past history.
In the instant case, the average gross profit for the past two assessment years as available on record comes to 25.18% as against 24.80% declared by the assessee. Therefore, the addition to the extent of differential of 0.38% is sustained and the remaining addition sustained by the ld CIT(A) is hereby directed to be deleted. In the result, the ground of appeal is partly allowed.
Disallowance of certain expenses claimed in its profit/loss account - During the course of hearing, the ld. AR submitted that these expenses relates to telephone, mobile, vehicle running & maintenance and depreciation on car - HELD THAT:- AO has disallowed an amount of ₹ 20,000/- only out of total expenditure of ₹ 1,82,510/- on account of personal and non business used. It was accordingly submitted that considering the above facts and circumstances of the case, the nature and involvement of the assessee’s business, the ld. CIT(A) has rightly upheld the disallowances of ₹ 20,000/- to cover possible leakage on account of personal expenses. It was accordingly submitted that there is no infirmity in the order so passed by the ld. CIT(A) and the same may be confirmed.
We have heard the rival contentions and perused the material available on record. We find that the expenses have been disallowed purely on an adhoc basis and the same is directed to be deleted. In the result, the ground of appeal is allowed.
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2021 (10) TMI 965 - ITAT DELHI
Penalty u/s 271(1)(c) - Unexplained household expenses - Addition based on entries found recorded in the seized diary - HELD THAT:- Considering the fact that the quantum has been set aside by the Tribunal in assessee’s own case in [2019 (10) TMI 1468 - ITAT DELHI] pertaining to Assessment Years 2005-06, 2008-09, 2010-11.
We therefore, set aside the impugned penalty orders. However, it is clarified that if the additions are sustained, the Assessing Officer would be at liberty to decide the question of levy of penalty in accordance with law. Thus, grounds raised by the assessee in this appeal are partly allowed for statistical purposes only.
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