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Income Tax - Case Laws
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2019 (12) TMI 1678 - ITAT SURAT
Dismissal of appeal of the assessee for non-appearance on various dates - as alleged CIT(A) Passed non speaking order - HELD THAT:- It was the duty of the CIT(A) to pass a speaking order while disposing the appeal ex-parte. The principle audi alteram partem is the basic concept of the natural justice. The expression audi alteram partem implies that a person must be given an opportunity to defend himself which is sin qua non of every civilized society the right to notice, the right to present case and evidence, right to refer advert evidence, right to examine, right to legal representation, disclosure of evidence to party, report of enquiry be shown to the other party and reasoned decision or speaking order is must.
We find that in the instant case, though hearings were fixed on various dates but the assessee could not avail the proper hearing because of owing to the fact that an FIR was lodged against the assessee and he was taken into custody from 07.08.2018. The Hon'ble Gujarat High Court had granted bail to the assessee vide order dated 07.01.2019. And in this way the assessee was not aware regarding the passing the order of by the ld.CIT(A).
Therefore, we are of the view that the assessee must be given one more opportunity of being heard and to represent his case. Therefore, in exercise of the powers conferred under Rule 28 of Tribunal Rules, we restore back to the file of the learned ld.AO to provide one more opportunity and also thereby to consider all the points so raised by the assessee. The assessee will file necessary evidences on which he wants to rely upon. Appeal filed by the Assessee is allowed for statistical purposes.
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2019 (12) TMI 1677 - ITAT MUMBAI
Rectification u/s 154 - period of limitation - time limit for rectification of mistake under section 154(7) - dividend distribution tax paid u/s 115O for computing book profit u/s 115JB is not correct - HELD THAT:- The first rectification order was passed by the AO on 13.03.2012 at the instance of assessee. Admittedly no issue of book profit under section 115JB was the subject matter of the rectification order passed on 13.03.2012. AO issued show cause notice for rectifying the order on the issue of book profit only for the second proposed rectification.
From the above discussions, it is clear that the legal position is that the time limit for rectification of mistake under section 154(7) is to be considered from the date of the original order or in subsequent rectification order only if the said rectification order dealing with the same which is sought to be rectified.
Thus having noted that the first rectification order dealt with entirely different, it is clear that the time limit for passing the impugned order indeed expired on expiry of four years from the end of the financial year, in which, the original order sought to be rectified was passed i.e. on 31.3.2009. As relying on Ashu Engineers & Plastic Pvt Ltd [2011 (4) TMI 1519 - ITAT MUMBAI] we are of the view that the rectification order passed u/s 154 is clearly beyond the prescribed limitation of period provided u/s 154(7). Appeal of the assessee is allowed.
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2019 (12) TMI 1671 - ITAT BENGALURU
Deduction u/s. 80JJAA - workmen as employed for more than 300 days - AO disallowed deduction relating to the workmen who have not completed 300 days in the year under consideration - definition of “regular workman”[Excluding workman employed for a period of less than 300 days] - AO was of the view that the deduction u/s. 80JJAA is allowable from the profits and gains derived by the assessee to the extent of 30% of the additional employee cost incurred in the course of business during the previous year in respect of the additional wages paid to the new employees who are employed on regular basis and completed 300 days of employment - assessee submitted that deduction should not be restricted to the employees joined before 5th June but should be extended in respect of the employees completed 300 days on or before filing the return
HELD THAT:- The identical issue has been considered by the ITAT in the assessee’s own case for the assessment year 2013-14 [2019 (4) TMI 2120 - ITAT BANGALORE] and held that the assessee is eligible for deduction u/s 80JJAA on additional wages paid to the new regular workmen employed in the financial year relevant to the assessment year 2012-13 provided they continue to be qualified under the regulation of regular workmen.
Thus we consider it is deem it fit to remit the matter back to the file of AO to examine the issue in the light of the decision of this Tribunal and direct the AO to allow the deduction as per the direction given in the order supra. The assessee has to furnish the details of new workmen employed and the additional wages incurred before the AO. Accordingly, the order of the lower authorities are set aside and the issue is remitted back to the file of the AO to decide the issue afresh on merits. Assessee ground is allowed for statistical purpose.
Disallowance of commission - disallowance u/s. 40(a)(ia) as well as colourable device to inflate the expenses - HELD THAT:- With regard to the disallowance made u/s 37(1) of the Act, the AO issued the notice under section 142(1) of the Act directing the assessee to establish the marketing services rendered by the assessee and made the addition holding that the assessee did not establish the marketing services rendered by the holding company M/s. Aquarelle International Ltd. However in subsequent paragraphs though without prejudice, the AO made the addition under section 40(a)(ia) of the Act.
While making the disallowance under section 40(a)(ia) of the Act the AO made the observation that payment was genuine and the agents have rendered the services. Therefore, as rightly argued by the Ld. AR there was a contradictory finding in respect of the services rendered by the foreign agent to the assessee. CIT(A) rejected the application of the assessee for admission of additional evidence, however, the Ld. CIT(A) reached conclusions on the basis of additional evidence produced by the assessee, without even calling for the remand report.
Having rejected the application for admission of additional evidence the Ld. CIT(A) ought not to have placed reliance on the same additional evidence for concluding that the M/s. Aquarelle International Ltd., has not rendered the marketing services to the assessee. CIT(A) also ought to have called for the remand report and made verification of the facts submitted in the additional evidence before taking the additional evidence as basis for coming to conclusions - entire issue needs to be re-examined by the AO to establish whether the M/s. Aquarelle International Ltd. has rendered the services for receipt of commission or not and whether the payment is in the nature of technical services or not. Assessee ground allowed for statistical purposes.
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2019 (12) TMI 1670 - ITAT MUMBAI
Deduction u/s 80IB - sale consideration of the FSI generated from its slum development project at Mayanagar, Worli - difference between actual sale value less the value at which the TDR is disclosed in the books of account - assessee had transferred FSI to the associated concerns for Rs. 13,672/- as against ready reckoner rate of Rs. 11,520/- - CIT(A) allowed deduction -
Objection of the Assessing Officer that since deduction u/s. 80IB(10) in A.Y. 2003-04 was rejected and as it was not assailed in appeal, the assessee could not repeat the same in the year under consideration - HELD THAT:- As noted that in A.Y. 2003-04 the claim was rejected on the ground that the whole of the project was not completed. Most importantly, the assessment order for that year was passed on 30.12.2008 whereas the CBDT issued the notification, exempting notified projects from the condition of completion of the project, on 05.01.2011. Therefore, the assessee has not contested the said order. As against the above, during the relevant previous year, the entire project was completed and the FSI granted by the Government in lieu of the cost factor was in fact sold. It is, therefore, the reference made by the AO to the proceedings of A.Y. 2003-04 was illogical and uncalled for as the claim made in the year under appeal was not dependent upon that of the earlier year; and the CIT (A) was perfectly justified in refuting such argument canvassed by the AO.
Since the Mayanagar project was approved on 26.11.1998, the benefit of the Notification No. 67/2010 dated 03.08.2010 and the corrigendum issued vide Notification No. 02/2011 Income Tax dated 05.01.2011 was not available - As it is noted that the inference drawn by the Assessing Officer is contrary to the statutory provisions set out under section 80IB(10) of the Act.
If, one go through the provisions of S.80-IB(10) and notifications issued by the CBDT, it is found AO clearly erred in disregarding the proviso which mandates that the limitations prescribed in causes (a) and (b) were inapplicable to housing projects completed as per the scheme of Central or State Government. Indisputably, the Mayanagar project was sanctioned under the scheme of the Government of Maharashtra under DCR 33(10) for rehabilitation of the slum dwellers, and it was covered by the Notifications. Therefore, in view of the unambiguous language of the proviso, the project completed by the assessee was excluded from the restrictions imposed by clauses (a) and (b) of sub-s. (10) of S. 80-IB - Hence, we are of the considered view that rejection of assessee's claim for deduction u/s, 80-IB(1O) was unjustified, and it was rightly so held by the CIT(A) in his order.
We, further noted that a similar interpretation as drawn by the Assessing Officer with respect to the notification dated 05.01.2011, that it was to extend the permissible period in respect of projects approved after 01.04.2004, was considered and adjudicated by the co-ordinate Bench of this Tribunal in the case of Ramesh Gunshi Dedhia [2014 (9) TMI 653 - ITAT MUMBAI] which was relied upon before the CIT (A). In the said case, it was held that as a consequence of the proviso, the conditions prescribed in clauses (a) and (b) are relaxed if the housing project was carried out in accordance with the scheme of the Central or State Government. Since, the CIT(A) has extracted in extenso the findings recorded by the Tribunal.
Since the consideration for construction of the rehabilitation building was received in kind and not in cash/cheque, the benefit of S. 80-IB(10) of the Act would not available to the assessee - As noted that this inference drawn by the Assessing Officer is also untenable as held in various decisions, cited before and considered by the CIT (A) in his order holding to the contrary. In the premises, we are of the considered view that the CIT (A) was justified in rejecting the argument of the Assessing Officer that since the consideration was received in kind and not in cash/cheque, the assessee was not entitled to the deduction in paragraph 4.19 of his order The order of the CIT (A), therefore, does not call for any interference on this count too.
Most importantly, in A.Y. 2015-16 also, a similar claim for deduction u/s. 80-IB(10) of the Act was preferred in respect of the FSI granted and sold in identical fact-situation. We find that after taking note of the entire scheme, statutory provisions and notifications cited hereinabove, the Assessing Officer himself had granted the deduction sought for vide his order dated 28.12.2017 passed u/s. 143(3) of the Act.
We further noted that in arriving at his decision to delete the disputed disallowance during the year under consideration, the CIT (A) has also taken note of the aforesaid order dated 28.12.2017 passed u/s. 143(3) of the Act for A.Y. 2015-16 in paragraph 4.21 of his order. For all the above reasons, we are of the view that the denial of deduction claimed u/s. 80-IB(10) of the Act was unwarranted and unjustified. The reasoned order of the CIT (A) deleting the disallowance is in order and it does not call for any interference.
Objection raised by the AO that the FSI granted was sold to a group entity at an inflated rate - As we find that the statute does not prohibit such sale to group concern. Further, the ready reckoner rate is not sacrosanct, and there might be innumerable reasons for demanding higher price. In any case, the transaction under consideration is supported by a valuation report submitted to A.O. in which the rate of FSI was supported with the help of three comparable instances. Further, the inference drawn by the Assessing Officer is based upon his own theory, and neither supported by any independent verification nor after discrediting the valuation submitted by the assessee for valid reasons. We, therefore, are of the considered view that the CIT(A) was justified in refuting the aforesaid stand taken by the AO.
Thus we are of the considered view that the limitations prescribed in clause (a) and (b) of proviso to section 80IB(10) of the Act, in respect of date of commencement and completion of the project has no application to projects undertaken under the scheme of Central or State Govt. Thus, in view of the fact that the project on which the benefit of deduction was claimed u/s 80IB(10) of the Act, was approved under DC regulation 33(10) of Govt. of Maharashtra, and also notified by the CBDT u/s 80IB(10) of the Act, we are of the considered view that the assessee is entitled for deduction towards sale of FSI/TDR. The CIT(A) after considering relevant facts, has rightly allowed the benefit and deleted addition made by the AO. Hence, we are inclined to uphold the order of the ld. CIT(A) and dismissed appeal filed by the revenue.
Disallowance u/s 14A r.w.r. 8D - AO has disallowed expenditure incurred in relation to exempt income u/s 14A of the Act, by invoking Rule 8D(2)(ii) and (iii) of I.T. Rules, 1962 - HELD THAT:- We find merit in the arguments of assessee for the reasons that the Hon’ble Supreme Court, in the case of CIT vs Reliance Industries Limited [2019 (1) TMI 757 - SUPREME COURT] had considered an identical issue and held that no interest disallowances can be made u/s 14A of the Act, if own funds are sufficient to coverup the value of the investments. Also in the case of CIT vs Reliance Utility and Power Limited [2009 (1) TMI 4 - BOMBAY HIGH COURT] held that when, mixed funds including own funds are more than the value of the investments, then a general presumption goes in favor of the assessee that investments made in shares is out of own funds, consequently no disallowance could be made towards interest expenditure. A similar ratio has been laid down in the case of CIT vs HDFC Bank Limited (2014 (8) TMI 119 - BOMBAY HIGH COURT]supra). Therefore, we are of the considered view that the Ld. AO was erred in disallowed interest expenditure u/s 14A, r.w. Rule 8D(2)(ii) of the I.T. Rules, 1962 and hence, we direct the AO to delete disallowance of interest expenditure u/s 14A of the I.T. Act, 1961.
Disallowance of expenditure under Rule 8D (2)(iii) - As facts with regard to exempt income earned for the year is not coming out from the orders of the lower authorities. Even, the assessee has not furnished any details with regard to exempt income earned for the year under consideration and hence, we are of the considered view that the issue needs to go back to the file of the AO. We, therefore, set aside the issue to the file of Ld.AO for the limited purpose of ascertaining the fact with regard to the exempt income earned for the year under consideration and restrict disallowance of expenditure u/s 14A to the extent of exempt income; if at all any exempt income is earned for the year under consideration. Insofar as, the arguments of the Ld. DR that if disallowances u/s.14A is restricted to the extent of exempt income, then the assessed income may go below the return income, which is not permissible under the law.
We find that in the case of M/s Sundaram Multipap [2018 (4) TMI 1204 - ITAT MUMBAI] had considered an identical issue and by following another decision of co-ordinate bench in the case of TATA Industries Limited (2016 (7) TMI 1011 - ITAT MUMBAI]upra) held the issue in favor of the assessee and accordingly, we reject the contention of the Ld. DR.
Disallowance made u/s 14A, while calculating the book profit u/s 115JB - We find that this issue has been squarely covered in favor of the assessee by the decision of Mrinalini Trading Company Ltd. [2017 (7) TMI 1365 - ITAT MUMBAI] where the Tribunal by following the order of Vireet Investments Pvt. Ltd(2017 (6) TMI 1124 - ITAT DELHI) held that computation of book profit in terms of clause (f) of Explanation (1) to Section 115JB (2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D. We direct the Ld. AO to delete adjustments made towards book profit computed u/s 115JB, in respect of disallowance of expenditure 14A.
Exclusion of DRR [denture Redemption Reserve] from book profit computed u/s 115JB - HELD THAT:- DRR was created by the assessee in the present case as per the mandate given under S. 117C of the Companies Act. It is also an ascertained liability and not a mere provision as has been held in the binding judgments of the Hon'ble Bombay High Court discussed hereinabove. It may also be stated that the aforesaid judgment, rendered by the non-jurisdictional High Court, was considered but still the issue was decided in favour of the assessee by the coordinate Benches of this Tribunal in Rachana Finance & Investment P. Ltd. and Repute Properties P. Ltd. [2017 (5) TMI 1819 - ITAT MUMBAI]. Similarly, in a subsequent order in the case of Housing Development and Infrastructure Ltd. [2019 (1) TMI 2039 - ITAT MUMBAI] also, the coordinate Bench of this Tribunal, even after considering the aforesaid judgment of the Hon'ble Delhi High Court had decided the issue in favour of the assessee. In the premises, the ratio laid down in the aforesaid judgment of the Hon'ble Delhi High Court would not be applicable to the case of the assessee.
In this view of the matter and consistent with view taken by the coordinate bench, we direct the AO to delete additions made towards provisions for DRR to book profit computed u/s 115JB of the I.T. Act, 1961.
Deduction u/s 80IA(4) - AO has rejected deduction claimed towards notified industrial park u/s 80IA(4), on the ground that the benefit of the Industrial Park scheme, 2008 was not available to the assessee, since it was received the requisite approval 05/06/2006 - HELD THAT:- In view of the unambiguous language of clause 4.1 and clause 5.6 of the Industrial Park Scheme, 2008 it is not understood as to how the Assessing Officer had inferred that the industrial parks of the assessee, for which approvals were granted under 2002 Scheme were covered by the 2008 Scheme. Therefore, we are of the considered view that the rejection of the claim of the assesses which was in accordance with the statutory provisions and supported by requisite approvals and notifications was rightly reversed by the CIT (A). Further, a similar claim was made in A,Y, 2005-06 for a sum of Rs. 10,59,66,901/-. During the course of scrutiny, the Assessing Officer observed that in respect of the same properties the assessee had offered rental income as 'income from house property' in A.Ys 2001-02 to 2004-05 in the returns filed u/s. 139(1) of the Act. Hence, the treatment of such income from Industrial Parks as 'business income’ was not accepted by the Assessing Officer and, the claim of deduction u/s. 80-lA(4)(iii) of the Act was rejected. On same lines, the claim made u/s. 80-IA(4)(iii) for A,Y. 2006-07 was also declined. Since the orders of the Assessing Officer for both the years were reversed by the CIT (A), the revenue carried the matter unsuccessfully in further appeals to Tribunal.
Tribunal order in M/s. Ackruti City Ltd., (Formerly known as Akruti Nirman Ltd.) DCIT Central Cir. 36, Mumbai [2011 (6) TMI 1038 - ITAT MUMBAI] carried in proceedings u/s. 260A of the Act by the revenue but in vain. The Hon’ble High Court vide their judgment dated in Commissioner of Income-tax, Central-III, Mumbai Versus Ackruti City Ltd. 2013 (4) TMI 488 - BOMBAY HIGH COURT had dismissed such appeals.
Considering the totality of the facts and circumstances of the case, more particularly in absence of any non-compliance of statutory requirements by the assessee, the rejection of its claim for deduction u/s. 80-IA(4)(iii) of the Act was uncalled for. The CIT (A) was, therefore, perfectly justified in correcting the error committed by the Assessing Officer by passing an exhaustive; elaborate and reasoned order. Hence, we are inclined to uphold order of the ld. CIT(A) and reject grounds raised by the revenue.
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2019 (12) TMI 1668 - ITAT BANGALORE
Bogus LTCG - scrip being a penny stock company - exemption u/s 10(38) towards sale of equity shares denied - HELD THAT:- Relevant factors to be considered are surrounding circumstances, objective facts, evidence adduced, presumption of facts based on common human experience in life and reasonable conclusions.
In present facts of the case it is further observed that Ld. AO has not examined/called for any evidences in respect of purchase/sale of alleged scripts. Assessee is therefore directed to provide all relevant documents to establish sound financial of alledged companies and that fluctuation in price was market driven. Ld.AO shall take all evidences into consideration and then decide the issue as per law.
In the event de hors statement, there are overwhelming evidences and assessee is unable to establish genuineness of sale and purchase of alledged scripts, adverse view would be taken by holding the transaction to be sham.
AO is directed to provide all statements recorded by investigation wing to assessee, referred to in assessment order. In the event, statements recorded are not of secondary and subordinate category, cross examination has to be granted to assessee. Ld.AO is directed to re-examine the case of assessee in the light of aforestated direction in accordance with law. Assessee’s appeal stands allowed for statistical purposes.
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2019 (12) TMI 1667 - ITAT DELHI
Income taxable in India - Alleged Permanent Establishment in India of the Appellant u/a 5(1) and 5(2)(i) of the India UAE Tax Treaty - as primarily argued that as per Article 5(1), the Permanent Establishment means a fixed place of business in which the business is carried out and in the case of assessee they did not have any fixed place of business, but were present intermittently for execution of the contracts and not stayed more than nine months in any particular year - whether "at the disposal” denotes an absolute legal right/control over a place /room/cabin/space or it connotes only the right to access and use such place? - HELD THAT:- The place of disposal should not be tested from the angle of 'exclusion of others' but from the perspective of type and duration of business carried on by the taxpayer from such place. The agreement not only provides the assessee with an unrestricted right to access the hotel premises but also the complete control over such premises. This clearly establishes the fact that the hotel premises were at the disposal of the assessee in view of the length and duration of their use by the assessee and the less invasive activities being carried on there from. It can't be denied that the assessee had certain amount of physical space at its disposal in the form of hotel premises.
"Temporal" aspect or the "Permanency Test" - The operating term of the lease is 20 years. It is not the contention of the assessee that the visits of its employees are "occasional". The visits are mandated by a written contract and have been historically going on at a regular basis year after year. Although the appellant claims that the visits are only for a limited period, the truth is that the employees of the assessee have been visiting the premises of AHL year after year. Thus, the visits of the employees are NOT sporadic or one off affairs and there is a continuity and repetitiveness to it.
To quote from Hon'ble Supreme Court in the case of Formula One World Championships [2017 (4) TMI 1109 - SUPREME COURT] the appellants are trying to trivialize the issue by harping on the fact that duration of the event was three days and, therefore, control, if at all, would be for that period only the presence is neither ephemeral or fleeting, or sporadic". The indicator is not the presence of the employees for short periods in one year, it's about the continuity and repetitiveness of such presence year after year. Considering the purpose for which such visits are necessitated, terms of contract as well as the period spent as per the statement enclosed to this submission, the visits are definitely not a "one-off"/ "temporary"/ "occasional"/ "ephemeral"/ "fleeting"/"sporadic" ones. Accordingly, considering the permanency, consistency and frequency of such visits, the temporal aspect of the disposal test is also satisfied.
Whether it can be said that the business of enterprise is being wholly or partly being carried on through such place? - The term "business" is not fully or exhaustively defined; accordingly, it has the meaning that it has under the domestic law of the state applying the tax treaty, plus professional and independent services, as explicitly provided for in article 3(l)(h) of the OECD Model. Coming to the nature of business of the assessee, it describes its role is "to increase the efficiency and effectiveness of the services provided by the Hyatt Group to the Hotel Owners in South Asia and Gulf Co-operation counsel region."
Assessee had a place of business at the premises of AHL from where it can ensure and control that not only the hotel is run and managed to its satisfaction, but also the other associated processes towards the maintenance of standards and quality as well as the exploitation of its commercial rights are being carried on. The AHL thus, afford a live connection amounting to business connection.
For the very same reason, AHL also constitute a permanent establishment of the assessee in India because the assessee virtually projects itself in India, through it. Coupled with this, the fact that the salaries of the employees were paid by the assessee and the employees also came and worked in the office of AHL in India; enjoyed perquisites from AHL establish that prima facie the office of AHL can be considered as a projection of the assessee in India. Conclusion drawn by the AO that the assessee carries on its business either wholly or partly through the fixed place and accordingly, the business premises of AHL constitute a PE of the assessee within the meaning of Art- 5(1) of DTAA should be confirmed.
As regards of existence of PE under Art-5(2)(i), the AO' has clearly proved that contention of the assessee is factually incorrect and the employees have stayed beyond the requisite period thereby establishing PE under Art-5(2)(i) as well.
SOA defines that the owner AHL consents to the ownership management, licensing and operation by HISWA (the assessee). The SOA also clearly mentions that the HISWA will have complete control and discretion with regard to all aspects of operations of the hotel. It also mentions that the right of the owner AHL to receive financial returns from the operation of the hotel shall not be deemed to give the owner any right or obligations with respect to the operation or management of the hotel. These clauses clearly prove that the HISWA, the assessee is totally involved in the maintenance and operations of running the hotel even allowing the owner a very minimal role. This also clearly establishes that the hotel premises were at the disposal of the assessee in view of the length and duration of the use of the premises. Even taking into consideration, the permanency test and the temporal aspects detailed by the Hon’ble Supreme Court in the case of Formula One World Championships prove that the assessee has got fixed place of business and can be considered having a permanent establishment in view of Article 5(1) of the DTAA.
Permanent establishment it has been examined whether the assessee has got PE in relation to Article 5(1) or Article 5(2) of the DTAA. Article 5(2)(i) stipulates a PE in case of the furnishing of services including consultancy services provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any 12 months period. Thus, the period of stay stipulated only in relation to invocation of Article 5(2) but not with regard to Article 5(1) of DTAA. Thus, we hold that based on the DTAA of Indo-UAE under Article 5(1), the assessee is having a permanent establishment in India.
Various clauses of SOA such as the AHL cannot unreasonably withheld or delay the appointment of GM and appointment of employees as full time members of executive staff goes to prove the extent of control and management of HISWA in the affairs of the running of the business. The agreement provides absolute control to the assessee over the day to day management administration, finance and all other sphere of the running of the hotel including opening and operating of the bank accounts. Thus, it cannot be held that the assessee is only giving consultancy services to the hotel.
The operations such as guest admission, charges for rooms, operating of bank account, overseeing, implementation and administration of the same on day to day account, recruiting, interviewing, hiring, establishing Hyatt operating standards, establishing purchasing policies with regard to selection of goods, supplies, food, beverages including vermin extermination, security, garbage removal are all managed and operated by the assessee. All these operations are controlled through the General Manager who in turn reports to the assessee in all aspects.
Based on the clauses of the Strategic Service Agreement and Strategic Oversight Agreements, we hold that the revenue’s earned by the assessee are taxable under Article 12 of the DTAA.
Determination of the profit, we hereby hold that the taxable profits may be computed in accordance with the provisions of Section 44DA of Indian Income Tax Act and Article 12 of Indo-UAE, DTAA. During the arguments, it was also submitted that the assessee has incurred losses in the assessment year 2008-09. The assessee be given an opportunity of submitting the working of apportionment of revenue, losses etc on financial year basis with respect to the work done in entirety by furnishing the global profits earned by the assesse, so that the profits attributable to the work done by the PE can be determined judiciously. The same may be considered while determining the taxable profits in India in accordance with the provisions of Section 90(2) of Indian Income Tax Act, 1961.
Assessee appeal dismissed.
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2019 (12) TMI 1662 - ITAT DELHI
Maintanaibility of appeals in ITAT - low tax effect - HELD THAT:- We find that the tax effect involves in the appeal of the Revenue is below Rs. 50 lakhs. There is no dispute that the Board’s instructions or directions issued to the Income-tax authorities are binding on those authorities, therefore, the Department should have withdrawn/not pressed the present appeal in view of the aforesaid instruction since the tax effect in the instant appeal is less than the amount of Rs. 50 lakhs.
The appeal is not maintainable in the instant case as the tax effect is less than Rs. 50 lakhs. Accordingly, it is held that appeal filed by the revenue is not maintainable.
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2019 (12) TMI 1653 - DELHI HIGH COURT
Fee payable to CA for Special Audits directed u/s 142(2A) - Nomination of the Special Auditor by the IT Department - Validity of order passed by the Micro and Small Enterprises Facilitation Council, New Delhi ( ‘MSME Council) whereby the matter has been referred to arbitration before the Delhi International Arbitration Centre (DIAC) - HELD THAT:- Respondent no. 1 submits that the jurisdiction of the MSME Council is de hors the provisions of the Income Tax Act as relied upon Section 24 of the MSMED Act, 2006 to argue that the provisions in Sections 15 to 23 shall have effect notwithstanding the provisions of the Income Tax Act. He also refers to the decision of M/s Bharat Heavy Electricals Ltd vs. Micro and Small Enterprises & Anr[2019 (2) TMI 2082 - DELHI HIGH COURT] This issue would require consideration.
Once Respondent no. 2 has been paid its statutory audit fees, in terms of the orders passed by this Court, the jurisdiction of MSME Council could not have been invoked.
Till the next date of hearing, the order dated 19.09.2019 and the proceedings emanating therefrom shall remain stayed.
List on 21st April, 2020.
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2019 (12) TMI 1651 - ITAT AHMEDABAD
Addition of other expenses u/s. 14A r.w.r. 8D - assessee has explained that it has not used borrowed fund for making investment in share however it has disallowed employee devoted towards the activity of M.F. - AO stated that top management was involved in taking decision and the decision making process was very complicated which required careful analysis from the top management - CIT(A) has dismissed the appeal of the assessee after considering the size of the investment stating that one employee cannot make investment decision - HELD THAT:- We observe that disallowance of only 10% of one employee as a cost of administrative expenditure to the amount is not sufficient and appropriate looking to the size of the investment and the quantum of exempt income earned from the investment which was claimed as exempt.
We are of the view that involvement of top executives and use of other business office equipment like computer etc. and office premises in respect of investment activities cannot be ruled out, therefore, we are of the view that it will be reasonable to restrict the disallowance under administrative expenditure to the amount of Rs. 4 lacs. Appeal of the assessee is partly allowed.
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2019 (12) TMI 1645 - ITAT KOLKATA
Depreciation on goodwill - goodwill in subject was acquired during merger of two companies - AO disallowed the depreciation on goodwill merely on the ground that the goodwill is not reflected in the post-merger audited financial statement and the tax audit report of the assessee - HELD THAT:- As decided in M/s Shristi Infrastructure Development Corporation Ltd. [2019 (9) TMI 1700 - ITAT KOLKATA] assessee has submitted that post approval of merger by the Hon’ble High Court of Delhi and Hon’ble Calcutta High court, the audited financial statement clearly reflected the amount of goodwill that arose pursuant to the merger.
The same was also filed with the A.O - Though in the tax audit report the tax auditor has not considered the depreciation on goodwill, but the same cannot be the basis of disallowance. We find that such disallowance made by the Assessing Officer is erroneous. On appeal by assessee, CIT(A) has appreciated the facts of the assessee company and deleted the addition. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order - Decided against revenue.
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2019 (12) TMI 1642 - ITAT MUMBAI
Withholding liability u/s 195 - Royalty payment as under India-Singapore DTAA - copyrighted material - CIT(A) held that the payment for software licence is royalty, is the access to “significant proprietary database” being allowed to the assessed by the software in question - HELD THAT:- We find that assessee to database, in the context of materially similar DTAA provision, has been held to be outside the ambit of "royalty". While holding so, the coordinate bench, in the case of ITO vs Cadila Healthcare Ltd. [2017 (1) TMI 554 - ITAT AHMEDABAD] as held that Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments.
When database access by itself does not result in taxation as royalty, such database access being coupled with software licence cannot bring the software hence consideration within the scope of royalty. Nothing, therefore, turns on the reasoning adopted by the learned CIT(A).
As per the taxation of payment for licencing of software, we find that the issue is covered in favour of the assessee by a coordinate bench decision in the case of ADIT vs TII Team Telecom International Ltd. [2011 (8) TMI 497 - ITAT MUMBAI]
Payment for licence fee of software is not taxable in nature. No contrary decision, which is binding in nature, has been cited before us.
We uphold the plea of the assessee and hold that no tax was deductible from remittance in question. Decided in favour of assessee.
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2019 (12) TMI 1641 - ITAT DELHI
TP Adjustment - Comparable selection - HELD THAT:- Rane TRW Steering Systems Ltd. - As the export sale of the assessee is 98.90% of the total sales whereas the export sale of Rane TRW Steering Systems Ltd., which primarily caters to the domestic market is 11.47% of the total sales. Apart from the above, Rane TRW Steering Systems Ltd., is engaged in the research and development activities in their product/process development and thereby has incurred huge Research & Development expenses during the year which is verifiable from the annual audit report placed - It also holds intangible assets which are verifiable from the notes on fixed assets - In view of all these i.e., diversified business, low export sale, non-availability of segmental data, incurring of expenditure on R&D activities and presence of intangibles, we are of the considered opinion that Rane TRW Steering Systems Ltd., cannot be considered as a comparable company. We, therefore, direct the A.O./TPO to exclude Rane TRW Steering Systems Ltd., from the list of comparables.
ZF Steering Gear (India) Ltd. - As relying on various decisions to the proposition that the comparables have to be excluded on account of carrying out research and development activities and considering the fact that the comparable company has very low export sales as compared to that of the assessee, we hold that ZF Steering Gear (India) Ltd., cannot be considered as a comparable.
Negative working capital adjustment for the differences between the working capital of comparable companies vis-à-vis the assessee - As in the instant case, majority of sales i.e., 94% of the total sales made by the assessee is to its related parties, therefore, the assessee, in our opinion, is running its business with no working capital risk. Therefore we are of the considered opinion that the TPO/DRP were not justified in making negative working capital adjustment. Therefore, the additional ground raised by the assessee is allowed.
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2019 (12) TMI 1639 - ITAT KOLKATA
Revision u/s 263 - opportunity of being heard should be given to the assessee - HELD THAT:- As per the provision of sub-section (1) of section 263, an opportunity of being heard should be given to the assessee which in the assessee’s case is absent.
We note that legal maxims, “Audi alteram partem” literally means “hear the other party”. This maxim is based on the principle of natural justice. It means that a person deciding on issue should hear both sides and give each an opportunity of hearing what is being alleged against him. A decision taken without affording both the parties an opportunity to be heard violates the principles of natural justice. An award made in violation of the above said rule may be set aside. On laying of charges, an opportunity to answer it must be given to an individual alleged to have committed an offence. Sufficient notice also should be given to the person against whom the charge is laid. This rule has a universal acceptance and is founded upon the plainest principles of justice.
Therefore keeping in mind the principle of natural justice, we are of the view that one more opportunity should be given to the assessee to plead his case before the ld PCIT. Hence, we think it fit and appropriate to remit this issue back to the file of ld. PCIT for de novo adjudication after giving sufficient opportunity of being heard to the assessee. Appeal of the assessee is allowed for statistical purposes.
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2019 (12) TMI 1637 - ITAT BANGALORE
TDS u/s 195 - payment to non residents - exception to Section 9(1)(vi)(b) and 9(1)(vii)(b) - assessee has made payments to non-residents after grossing up the invoice amount and deducted tax at source as per provisions of Section 195A - Assessee submitted that the CIT (Appeals) has erred in treating the payment to non-resident as royalty and further CIT (Appeals) has not considered the exception to Section 9(1)(vi)(b) and 9(1)(vii)(b) - as payments are made to non-residents and the assessee seeks declaration under Section 248 of the Act under the provisions of Section 206AA of the Act, the rate of 25% is not applicable to assessee for the purpose of grossing up u/s 195A - HELD THAT:- We found strength in the submissions of the learned Authorised Representative. On perusal of the order of CIT (Appeals), we find the CIT (Appeals) has dealt on the other grounds of appeal raised before him but there was no specific observation in particular to provisions and Section as envisaged by the learned Authorised Representative.
We are of the substantive opinion that there is no finding on this disputed issue as submitted by the learned Authorised Representative by appellate authority. Therefore we considering the submissions of the learned Authorised Representative and findings of the CIT (Appeals) order, consider it appropriate to restore all the disputed issues raised by the assessee in the grounds of appeal to the file of CIT (Appeals) and decided against the assessee, to adjudicate afresh and the assessee should be provided adequate opportunity of hearing to substantiate the case with evidence and shall co-operate in submitting the information for early disposal of appeal and allow the grounds of appeal of assessee for statistical purposes.
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2019 (12) TMI 1636 - ITAT MUMBAI
Estimation of income - Bogus purchases - income tax officer in this case has made 12.5% addition on account of bogus purchase - HELD THAT:- It is settled law that when sales are not doubted, hundred percent disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from honourable jurisdictional High Court decision in the case of Nikunj Eximp Enterprises [2014 (7) TMI 559 - BOMBAY HIGH COURT] In this case the honourable High Court has upheld hundred percent allowance for the purchases said to be bogus when sales are not doubted.
However in that case all the supplies were to government agency. In the present case the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer.
As regards the quantification of the profit element embedded in making of such bogus/unsubstantiated purchases by the assessee, we find that as held by honourable High Court of Bombay in its recent judgement in the case of M. Haji Adam & Co [2019 (2) TMI 1632 - BOMBAY HIGH COURT] the addition in respect of bogus purchases is to be limited to the extent of bringing the gross profit rate on such purchases at the same rate as of other genuine purchases.
We set aside the matter to the file of the assessing officer with the direction to restrict the addition as regards the bogus purchases by bringing the gross profit rate on such bogus purchases at the same rate as that of the other genuine purchases. Assessee's appeal is partly allowed.
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2019 (12) TMI 1635 - ITAT DELHI
TP Adjustment - Arm’s Length Price (ALP) of the transaction of the interest on loan - DRP directed the TPO to apply LIBOR plus 500 basis points given by the taxpayer’s company to its AE - HELD THAT:- We are of the considered view that transfer pricing adjustment qua the transaction of advancing loan by the taxpayer to its AE is to be determined at US LIBOR plus 170 basis points. Consequently, the TPO is directed to recompute the interest at US LIBOR plus 170 basis points to benchmark the international transactions qua interest on loan by the taxpayer to its AE. Consequently, the appeal filed by the taxpayer is allowed.
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2019 (12) TMI 1633 - ITAT KOLKATA
Unexplained cash credits u/s 68 - undisclosed loan taken - creditworthiness of share applicants not proved - HELD THAT:- As come on record that the learned coordinate bench has already applied its mind in assessee’s appeal [2019 (9) TMI 146 - ITAT KOLKATA] whilst deleting the impugned addition in case of the very parties by holding that it had proved identity, creditworthiness and genuineness of all four related parties (supra). We therefore adopt the above detailed reasoning mutatis mutandis and affirm the CIT(A)’s findings under challenge deleting the balance addition in issue. Revenue’s appeal is dismissed.
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2019 (12) TMI 1631 - ITAT AHMEDABAD
Depreciation on goodwill arising on demerger - whether additional ground could be raised in a cross objection filed by the assessee u/s 253(4)? - HELD THAT:- The issue is squarely covered by the judgment passed by the Co-ordinate Bench [2019 (7) TMI 1547 - ITAT AHMEDABAD] AO has simply disputed the quantification of eligible depreciation spanning over various financial years on the ground that depreciation is eligible from the appointed date as sanctioned by the Hon’ble Gujarat High Court . Thus, on account of such reworking, the assessee has presented a new claim towards depreciation on goodwill in the impugned AY 2009-10 on the ground that al l the relevant facts are available on record which are duly admitted by the Revenue. Therefore, the assessee cannot be deprived of the eligible depreciation as computed by the AO himself concerning AY 2009-10.
Additional ground could be raised in a cross objection filed by the assessee u/s 253(4) - We find ourselves in agreement with the propositions made on behalf of the assessee that in a cross objection, there is no bar to raise legal issues for the first time before ITAT. A cross object ion is like an appeal. It has al l the trappings of an appeal It is filed in the form of memorandum and it is required to be disposed in same manner as an appeal. Even where the appeal is withdrawn or dismissed for default, cross object ion may nevertheless be heard and determined. Cross object ion is nothing but an appeal, a cross appeal at that. This apart, raising of additional ground would only enable the authority concern to correctly assess the tax liability of the assessee. Simi lar view has been expressed in the case of ITO vs. Jasjit Singh [2014 (9) TMI 1166 - ITAT DELHI]. We thus do not see any impediment in entertaining the additional grounds. The relevant facts are available on
Additional ground is concerned, we observe that where the AO has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in AY 2009-10 as per the figures worked by the AO himself . We do not see any perceptible reason for not admitting such claim of the assessee. We also find bonafides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage.
The order for the AY 2012-13 was passed on 29.03.2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciat ion concerning AY 2012- 13. By that time, the order of the CIT(A) dated 13.12.2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwill amounting for which relevant facts are duly available on record in the light of the decision of Hon’ble Supreme court in the case of Goetze ( India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] & NTPC [1996 (12) TMI 7 - SUPREME COURT]
Disallowance under section 14A Rule 8D - HELD THAT:- Disallowance made u/s. 14A r.w.r 8D is pertained to disallowance of administrative expenditure incurred towards earning exempt income. CIT(A) has restricted the disallowance - After perusal of the material on record we observe that it is not possible to earn huge volume of exempt income without incurring administrative expenses, therefore, we do not find any unreasonableness and infirmity in the decision of Ld. CIT(A). Accordingly, the appeal of the assessee on this issue is dismissed
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2019 (12) TMI 1630 - PUNJAB AND HARYANA HIGH COURT
TP Adjustment - MAM selection - TNMM Method OR CUP Method - HELD THAT:- The conclusion of the ITAT could not be faulted as the same was inconsonance with the provisions of the Act and the Rules. The contention of the Counsel for the revenue cannot be accepted as the Tribunal while upholding the TNMM Method has observed that the other methods prescribed under the Act namely the CUP or Cost Plus Method being not applicable in the facts and circumstances of the case, the Respondent Assessee could only resort to TNMM as the most appropriate method to show that its profit margin from international transactions was at arm’s length.
Tribunal has concluded that the expenses paid to the employees of the A.E. were in the nature of reimbursement of their salaries without any mark up. Thus, the payment per se was to third party employees and not to any related party for services rendered. In light of the findings of the fact arrived at by the ITAT, the questions of law raised are answered against the revenue and in favour of the assessee.
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2019 (12) TMI 1628 - ITAT MUMBAI
TP Adjustment - Addition in respect of technical know-how fees - international transaction was benchmarked by using TNMM as the most appropriate method - HELD THAT:- We noted that the above issue has already been considered by Tribunal in assessee’s own case [2019 (11) TMI 705 - ITAT MUMBAI] and there is no distinguishable facts rather facts are exactly identical and the same agreement i.e. consultancy agreement dated 16.03.2008 was under consideration by virtue of which the assessee has made payment of technical know-how fee to its AE or group concerns Merck KGAA. In view of the above, we direct the AO to delete this addition. This issue of assessee’s appeal is allowed.
Disallowance of expenses relatable to exempt income u/s 14A read with Rule 8D(2)(ii) and under Rule 8D(2)(iii) - HELD THAT:- Assessee stated that the assessee has earned dividend income of ₹86,979/- and disallowance more than this cannot be made in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. [2015 (3) TMI 155 - DELHI HIGH COURT] wherein it is held that the window for disallowance was indicated in section 14A of the Act and was only to the extent of disallowing expenditure incurred by the assessee in relation to the exempt income. This proportion or portion of the exempt income surely cannot swallow the entire amount. In view of the above Delhi High Court decision, the learned Counsel for the assessee fairly conceded that the disallowance under Rule 8D(2) can be retained only to ₹ 86,979/- to the extent of dividend income.
As the issue is covered by Hon’ble Delhi High Court (supra), respectfully following the said decision, we direct the AO to restrict the disallowance of expenses qua the exempt income at ₹86,979/-. We direct the AO accordingly. This issue of assessee’s appeal is partly allowed.
Disallowing depreciation in respect of intangible assets purchased by the assessee - HELD THAT:- This issue is also covered by Tribunals decision in assessee’s own case, wherein the same set off of intangible assets purchased was under consideration and Tribunal [2017 (1) TMI 1692 - ITAT MUMBAI] opined that in the interest of justice matter should be restored back to the file of the FAA for fresh adjudication. He is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee.
AO disallowing the merger expenses and allowing only 20% of the total amount - HELD THAT:- We remit this issue to the file of the AO/ DRP for re-adjudication the same. This issue of assessee’s appeal allowed for statistical purposes.
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