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Income Tax - Case Laws
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2019 (3) TMI 1887 - ITAT DELHI
TP Adjustment - comparable selection - absence of segmental data - HELD THAT:- WIPRO Technology Limited disqualifies to become a comparable uncontrolled transaction for the purposes of inclusion in the final list of comparables under Rule 10B(1)(e)(ii).
Persistent Systems Limited - DR stated that more than 80% of the revenue is not from contribution of products and since the significant part of the revenue is from sale of software services, there is no need for any segmental accounts - Even if there is a miniscule element of some revenue from other segments, it would necessitate the segmental data because, in the absence of accuracy, result could be widely off the mark. In our understanding of the law, the transfer pricing exercise in the profit and loss filter to be adopted invariably is premised upon accuracy as opposed to approximation with respect to operating cost and operating profitsthe nature of the transaction and the appropriate filter determines the elements that are to be considered in TNMM. Therefore, the costs, sales and assets employed wherever relevant are to be applied. From this perspective, the revenue’s contention that segmental data was available, cannot be accepted. The mere availability of proportion of the turnover allocable for software product sales per se cannot lead to an assumption that segmental data for relevant facts was available to determine the profitability of the concerned comparable.
Persistent Systems and Solutions Ltd -For our detailed reasons given in the case of Persistent Systems and Solutions Ltd, this company is also directed to be excluded from the final list of comparables.
Zylog Systems Ltd.n the absence of segmental data, we direct for exclusion of this company from the list of comparables.
Addition towards Licence expenses - HELD THAT:- As the assessee raised invoices on certain customers in India including Idea Cellular Ltd. for upgradation of Aircom Tools. The invoice value has been shown as its income and the amount paid to its AE has been shown as Licence fee in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an `Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45% of the invoice value was the obligation of the assessee ab initio without which it could not have procured the licnence of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. We, therefore, overturn the impugned order on this score and direct the deletion of addition made by the Assessing Officer.
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2019 (3) TMI 1886 - DELHI HIGH COURT
Deduction u/s 80IB - income derived from the sale of reject coal and iron ore fine dust - HELD THAT:- Admit following question of law arises - “Did ITAT fall into error in holding that the income derived from the sale of reject coal and iron ore fine dust was entitled for deduction under Section 80-IB of the Income Tax Act having regard to the decision of the Supreme Court in Liberty India vs. Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] and Commissioner of Income Tax-II vs. Punjab Stainless Steel Industries [2001 (7) TMI 120 - SUPREME COURT]?
Write-off in respect of advances given - HELD THAT:- Additional question of law arises in this appeal:- Whether the ITAT erred in holding that the write-off in respect of advances given to M/s Bear Logistics LLC was justified having regard to the decision of the Supreme Court in Southern Technologies Ltd. [2010 (1) TMI 5 - SUPREME COURT]?
Inclusion of local taxes and duties in the turnover - Revenue urges on this aspect that the assessee produce powers for its captive unit and therefore the sale claimed by it was notional. Furthermore, it is stated that the local taxes collected were not in fact paid to the concerned State Governments - HELD THAT:- This Court is of the opinion that the orders of the lower appellate authorities including ITAT cannot be faulted. Although, the transaction involved a notional sales nevertheless they have commercial element in as much as they were deemed to be sales and consequently included in the return of the local tax turnovers, filed by the assessee. As a consequence, the decision of the lower appellate authorities and the ITAT are affirmed on this aspect.
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2019 (3) TMI 1883 - ITAT MUMBAI
TP Adjustment - comparable selection - comparability of ICRA Online Ltd. - HELD THAT:- The comparability of ICRA Online Ltd. was considered by the Tribunal in case of Temasek Holding Advisors India Pvt. Ltd.[2013 (9) TMI 48 - ITAT MUMBAI] . The Tribunal accepted this company as comparable. That being the case, we direct the Assessing Officer to include this company as a comparable.
IDC (India) Ltd. - Tribunal is in favour of including this company as a comparable in case of an investment advisory service provider. See M/S. GENERAL ATLANTIC PVT. LTD. VERSUS THE DCIT-3 (1) , AAYAKAR BHAVAN, MUMBAI [2015 (11) TMI 1506 - ITAT MUMBAI]
Informed Technologies India Ltd. - Hon'ble Jurisdictional High Court in CIT v/s Temasek Holdings Advisors India Pvt. Ltd [2013 (9) TMI 48 - ITAT MUMBAI] has upheld the decision of the Tribunal accepting this company as a comparable to an investment advisory service provider. There being no material difference in facts involved on the basis of which the Tribunal in Temasek Holdings Advisors India Pvt. Ltd. (supra), has accepted this company as a comparable, we hold that Informed Technologies India Ltd., should be treated as comparable.
Motilal Oswal Private Equity Advisors Pvt. Ltd.- As decided in BLACKSTONE ADVISORS INDIA PVT. LTD. AND VICE-VERSA [2018 (11) TMI 1732 - ITAT MUMBAI] upheld the decision of the learned Commissioner (Appeals) in rejecting this company as a comparable to an investment advisory service provider. Thus we direct the Assessing Officer to exclude this company from the list of comparables.
Ladderup Corporate Advisory Pvt. Ltd. - This company has been rejected as a comparable to an investment advisory service provider. Though, these decisions of the Tribunal pertain to different assessment years, however, the basic facts on which the company has been rejected as a comparable remain same. In view of the aforesaid, we direct the Assessing Officer to exclude Ladderup Corporate Advisory Pvt. Ltd. from the list of comparable. Assessee’s appeal is partly allowed.
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2019 (3) TMI 1882 - ITAT MUMBAI
Late payment of Employees's Contribution to PF / ESIC u/s 36(l)(va) beyond the grace period - Addition u/s 36(1)(va) r.w.s. 2(24)(x) of the I.T Act on account of late deposit of employees contribution to PF/ESI - HELD THAT:- We find that though said payments were not made within the stipulated time period as envisaged in the respective acts, however, the same were admittedly deposited before the “due date” of filing of the return of income of the assessee for the year under consideration viz. A.Y 2011-12.
As deliberated on the issue before us and are of the considered view that as held by the Hon'ble High Court of Bombay in the case of Commissioner of Incometax (Central), Pune Vs. Ghatge Patil Transports Ltd. [2014 (10) TMI 402 - BOMBAY HIGH COURT] and CIT Vs. Hindustan Organics Chemicals Ltd. [2014 (7) TMI 477 - BOMBAY HIGH COURT], both the employer and the employees contributions to the various employees welfare funds are covered under Section 43B of the I.T Act. In our considered view, as the employees contribution towards the Provident Fund and Employees State Insurance as is discernible from the assessment order, were deposited by the assessee prior to the 'due date' of filing of its return of income for the year under consideration, therefore, the same was not liable to be disallowed. We thus in terms of our aforesaid observations vacate the disallowance sustained by the CIT(A). The Ground of appeal No. 1 raised by the assessee is allowed.
TDS u/s 194C - disallowance u/s 40(a)(ia) - payments of advertisement and sales promotion expenses - HELD THAT:- We find that though the supplier party i.e. M/s. Iktek Communication had provided the designed art-work and printed leaflets as per the specifications and requirements of the assessee, however, there is nothing borne from the records or had been averred before us, which would prove that the aforementioned party had supplied the product by using any material that was purchased from the assessee. Admittedly, the assessee had not provided any material to the said supplier party. Rather, the “Invoices‟ against which the aforesaid designed art-work was supplied on CD‟s to the assessee clearly reveals that the supplier had charged VAT on the full value of the aforesaid transactions. In our considered view as per the CBDT Circular No. 681, dated 08.03.1994 r.w Circular No. 715, dated 08.08.1995 and Circular No. 13 of 2006, dated 13.12.2006, it can safely be concluded that the aforesaid designed art-work and printed leaflets were supplied to the assessee pursuant to a contract for sale.
Thus assessee was not obligated to deduct any tax at source in respect of the aforesaid transaction under consideration, therefore, the same could not have been disallowed under Sec. 40(a)(ia).
TDS u/s 195 - sustainability of the disallowances made by the A.O/CIT(A) u/s. 40(a)(i) of the payments made by the assessee to various foreign concerns - HELD THAT:- We find that the assessee had admittedly made the payment to the aforementioned foreign entity for the services rendered by the latter for designing of seminar related material for an exhibition at Shanghai. In our considered view, the said payment clearly falls within sweep of FTS u/s. 9(i)(vii) of the I.T Act and Article 13 of the India-China DTAA. We thus are of the considered view that as the assessee who was liable for deduction of tax at source u/s. 195 on the aforementioned payment made to the foreign entity, had failed to do so, therefore, the said amount was rightly disallowed by the lower authorities u/s. 40(a)(i) of the I.T Act. We thus not finding any infirmity in the order of the CIT(A) who had sustained the disallowance made by the A.O u/s. 40(a)(i) of the I.T Act, uphold his order to the said extent.
Addition on account of interest income not accounted in the financials of the assessee on the basis of Form 26AS - HELD THAT:- It is the claim of the assessee that in case the interest income from Bank of India is to be considered, then the credit for the corresponding TDS short claimed by the assessee in its return of income may also be allowed. The ld. A.R in order to fortify her aforesaid contention had taken us through the relevant extracts of Form 26AS and the TDS certificates (hard copies) issued by the bank. After giving a thoughtful consideration to the issue before us, we are of the considered view that the matter in all fairness requires to be restored to the file of the A.O. We thus set aside the matter to the file of the A.O, who shall during the course of the set aside proceeding afford an opportunity to the assessee to reconcile the income and TDS shown in the its return of income, as against that reflected in its Form 26AS.
MAT computation u/s 115JB - working of the “book profit” by the A.O/CIT(A) for computing its tax liability under the MAT provisions envisaged u/s. 115JB - HELD THAT:- As per Explanation 1(i) to section 115JB, the “amount or amounts set aside as provision for diminution in the value of the any asset” if debited in the profit and loss account has to be added to the “net profit‟ shown in the profit & loss account for the year for the purposes of computing the “book profit” u/s. 115JB of the Act. As the provision for bad and doubtful debts debited by the assessee in its profit & loss account is in the nature of a provision leading to diminution in the value of an asset, therefore, the same has to be added to the “net profit‟ while computing the “book profit‟ u/s 115JB of the I.T Act.
As pursuant to the amendment to Explanation 1(i) to Sec. 115JB by the Finance (no. 2) Act, 2009 with w.r.e.f. 01.04.2001 any provision leading to diminution in the value of any asset, has to be added to the “book profit‟. We thus finding no infirmity in the order of the CIT(A) who has rightly concluded that the provision for doubtful debts was liable to be added for computing the “book profit” u/s. 115JB of the I.T Act, uphold the same. The Ground of appeal no. 5 is partly allowed in terms of our aforesaid observations.
TDS u/s 195 - payments towards legal and professional fees to foreign entities - HELD THAT:- We are persuaded to subscribe to the view taken by the CIT(A) that as the payments made by the assessee for the services rendered by the foreign entities for facilitating registration of the assesses products in their respective countries were in the nature independent personal services and not in the nature of FTS as contemplated in the various DTAA‟s, therefore, in the absence of any PE in India of the said foreign entities, the said respective amounts could not be taxed in India. We thus uphold the view taken by the CIT(A) and conclude that as no obligation was cast upon the assessee to deduct tax at source u/s. 195 while making the payments towards legal and professional fees to the aforementioned concerns, therefore, no disallowance of the said amount was called for u/s. 40(a)(i) of the I.T Act.
Disallowance u/s. 40(a)(i) of the license and registration expenses - HELD THAT:- As perused the order of the CIT(A) and find ourselves to be in agreement with him that as the payments made to the services providers were not in lieu of any technical services provided by them, but were for the normal services rendered, therefore, the same did not cast any obligation on the assessee to deduct tax at source in respect of the said amounts under Sec. 195 of the I.T Act. As the payments in the hands of the respective foreign payees were in the nature of their normal business income, which as per Article 7 could not be taxed in India in the absence of their PE in India, therefore, the assessee remained under no obligation to deduct tax a source on the said amounts under Sec. 195 of the IT Act. In our considered view as no infirmity emerges from the order of the CIT(A), therefore, we uphold the same.
Payments made by the assessee for the other services viz (i) miscellaneous export expenses and; (ii) advertisement and sales promotion expenses are concerned - HELD THAT:- We find that the CIT(A) had deleted the disallowance made by the A.O u/s. 40(a)(i) in respect of the said amounts by observing that as the said amounts were in the nature of business incomes in the hands of the foreign payees or in the nature of reimbursement of the expenses, therefore, no liability was cast upon the assessee to deduct tax at source in respect of the said amount. We are persuaded to subscribe to the aforesaid view taken by the CIT(A). As nothing has been canvassed before us by the Ld. D.R which could persuade us to conclude that the observations arrived at by the CIT(A) in context of the issue under consideration was either perverse or suffered from any infirmity, therefore, we uphold the view taken by him that no obligation was cast upon the assessee to deduct at source in the respect of aforementioned payments made to the foreign payees.
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2019 (3) TMI 1881 - ITAT CHENNAI
Inclusion of surcharge and education cess while computing MAT credit under Section 115JAA - HELD THAT:- For assessment year 2012-13, an identical issue came before this Tribunal in the assessee's own case [2018 (11) TMI 1640 - ITAT CHENNAI] wherein by placing reliance on the judgment of Apex Court in CIT v. K. Srinivasan [1971 (11) TMI 2 - SUPREME COURT] found that the surcharge and education cess are part of income-tax. This Tribunal has also found that the CIT(Appeals) has directed the Assessing Officer to verify the MAT credit.
Since the CIT(Appeals) has no power to direct the Assessing Officer to verify the claim of the assessee, this Tribunal in exercise of its jurisdictional power conferred under Section 254(1) of the Act, directed the Assessing Officer to verify the claim of the assessee and thereafter allow the claim with regard to MAT credit. In view of the order of this Tribunal for assessment year 2009-10, the Assessing Officer shall verify the claim of the assessee and thereafter allow the claim with regard to MAT credit as in the case of assessment year 2012-13. Appeal of the Revenue stands dismissed.
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2019 (3) TMI 1878 - ITAT KOLKATA
Revision u/s 263 by CIT - Depreciation on moulds - higher rate of 30% OR at rate of 15% - Allowance of a deduction claimed by the assessee company towards “excise duty not recovered from the sales” being debited directly to the profit and loss account - HELD THAT:- A perusal of the draft assessment order demonstrates that the Assessing Officer has passed the order without examination of the facts, without making the requisite enquiries and without application of mind, on the issues of “excise duty recovered from sales” and also on the issue of “excess depreciation claimed on moulds”. It is also not the case of the assessee that these two issues were considered by the Assessing Officer and, that an opinion was formed on these issues by the Assessing Officer. The assessee submitted that the claims were made in accordance with law and that annual accounts etc. were filed before the Assessing Officer and that the Assessing Officer had not disturbed its claim. This claim of the assessee should have been examined by the Assessing Officer. This was not done. Filing of details such as annual accounts etc. does not lead us to a conclusion that the Assessing Officer has taken a possible view. The undisputed fact is that the Assessing Officer has not raised any queries nor enquired and consequently has not applied his mind to these two issues. The claim made by the assessee may be legally and factually correct but the same has to be examined by the Assessing Officer.
In our considered opinion, as the Assessing Officer has passed this assessment order, without enquiry and application of mind on these two issues, the order is erroneous and prejudicial to the interest of the revenue.
CIT has applied his mind to both these issues by considering, the facts and the law as well as the explanation of the assessee. He has indicated as to how the assessment order in his opinion was erroneous and prejudicial to the interest of the revenue, to the extent of these two issues. Hence this argument of the ld. Counsel for the assessee by relying on the judgement of the Hon’ble Delhi High Court in the case of D.G. Housing Projects (supra), is not applicable to the facts of this case. Hence we find no infirmity in the order of the ld. Pr. CIT, giving direction to the Assessing Officer to examine both these issues properly and adjudicate the issues afresh, after giving the assessee proper opportunity of being heard.
Assessee has placed evidences and made detailed submissions on merits on the two issue that where the subject matter of revision. In our view, to express a view on the merits of the claim of the assessee at this stage, is not proper. The facts have to be examined by the Assessing Officer. The ld. Pr. CIT has examined the explanation and facts submitted by the assessee and has come to a conclusion that the Assessing Officer has to examine the same. The Assessing Officer is directed to examine both these issues independently, without getting influenced by any of the observations of the ld. CIT on these issues afresh in his order u/s 263 of the Act and adjudicate both these issues in accordance with law. - Decided against assessee.
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2019 (3) TMI 1877 - ITAT HYDERABAD
Allowability of interest on loan as business expenditure - assessee is having commercial property which is rented and in order to provide the equipment and furniture, assessee has taken loan from bank and the relevant interest was charged to P&L A/c as business expenditure - AO has rejected the claim of the assessee and treated the consolidated receipt of rent and hire charges as income from house property - HELD THAT:- We have to see the intention of the assessee whether the letting was the doing of a business or to exploitation of his property by an owner. The assessee when exploited the property to derive rental income it has to be held that the income realized by him by way of rental income from a building if the property with other asset attached to the building to be assessed as 'income from house property' only. The only exceptions are cases where the letting of the building is inseparable from letting of the machinery, plant and furniture. In such cases, it has to be held that the rental would not have been realized but for the letting out of the machinery, plant or furniture along with such building and therefore, rental received for the building is to be assessed under the head 'income from other sources'.
In the present case, on the facts of the case, it is clear that the assessee as the owner of the building was only exploiting the property as owner by letting out the same and realizing income by way of rent. Such rental income was liable to be assessed under the head 'income from house property.' The various assets let out to the tenants are incidental to letting out the building being integral part of the letting. Accordingly, we reverse the order of the CIT(A) and restore that of the assessing officer. This ground of the revenue is allowed.
Assessee has availed loan to arrange the relevant fixed assets in the building and incurred interest expenditure - Since, the assessee was claiming them as business expenditure as the income was declared as business income. As the authorities have treated the business income as income from house property, the interest expenditure is connected to the earning of income and head of income was changed due to the facts of the case, the relevant expenditure is accordingly claimable u/s 24(b) of the Act. Merely accepting the income and excluding the related expenditure is not proper. Therefore, we direct the AO to allow the relevant expenditure, which assessee has incurred to earn the rental income. Accordingly, additional ground raised by the assessee is allowed.
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2019 (3) TMI 1874 - ITAT DELHI
Estimation of income - Bogus purchases - HELD THAT:- Assuming that the entire purchases from Rajasthan Metals was bogus, then it would be commercially impossible for the assessee to sell ₹ 5.54 crores of goods. Moreover, sales effected by the assessee has been accepted by the Sales Tax Department.
The assessee has given complete quantitative details in the form of stock register of raw material as S.S. Patti which is exhibited at page E-3/81 to E-3/109 of the paper book. A perusal of the same clearly reveals that the raw materials, in fact, entered the business of the assessee which were used for making final product and accordingly, sales were executed by the assessee.
It appears that the assessee must have purchased the raw material from the grey market and must have taken supporting purchase bills from the accommodation entry provider which means that raw material were, in fact, purchased and there was movement of the same which enables the assessee to produce its final product. In our considered opinion, over and above the additions sustained by the ld. CIT(A), the assessee must have incurred some expenditure in procuring accommodation bills which we estimate at 5% of the total purchases from Rajasthan metals which is ₹ 1.45 crores which means that the assessee must have incurred expenditure of ₹ 7 lakhs for procuring accommodation bills. Modifying the findings of the ld. CIT(A), we direct the Assessing Officer to restrict the addition to ₹ 13.43 lakhs. - Decided partly in favour of revenue allowed.
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2019 (3) TMI 1871 - ITAT MUMBAI
Income from House Property - CIT-A confirming the action of AO in charging notional income considering Annual Letting Value of one unsold flat which is closing stock of the appellant treated as “ Income from House Property” and made addition - HELD THAT:- The facts and the issue involved in the present case are similar to the facts of the case and the issue involved in the case of Ferani Hotels Pvt. Ltd. [2014 (11) TMI 985 - ITAT MUMBAI] wherein as deleted the addition confirmed by the CIT (A) on account of notional rent determined by the AO by holding that the ALV of the unsold unit of assessee project is assessable under the head ‘income from house property’. Since, the findings of the Ld.CIT (A) is not in accordance with the decision of the coordinate Bench rendered in the case of Ferani Hotels Pvt. Ltd. (supra), we respectfully following the decision of the coordinate Bench set aside the order of the Ld. CIT (A) and allow the appeal of the assessee and direct the AO to delete the addition made under the head ‘income from house property’.
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2019 (3) TMI 1870 - ITAT BANGALORE
Revision u/s 263 - AO, before completing the assessment, failed to make proper and adequate enquiry with regard to the TDS obligation on payments made to Ansys Inc., USA and disallowance u/s. 40(a)(ia) of the Act - HELD THAT:- It is clear from earlier paras the CIT has discussed the nature of payments as being in the nature of royalty, the conclusion of the CIT for invoking jurisdiction u/s. 263 of the Act are justified in the light of failure on the part of AO to make enquiries, which he ought to have made before completing assessment - mere reference of international transaction on purchase of software to the TPO for determination of ALP cannot be the basis to say that the AO made adequate and due enquiries before completing the assessment. The law is well settled that failure on the part of the AO to make proper and adequate enquiries renders his order erroneous and prejudicial to the interests of revenue. See GEE VEE ENTERPRISES VERSUS ADDITIONAL COMMISSIONER OF INCOME-TAX, DELHI I, AND OTHERS [1974 (10) TMI 29 - DELHI HIGH COURT]
There was a failure on the part of AO to make any enquiry with regard to payments made to Ansys Inc., USA in the light of provisions of section 40(a)(ia) of the Act. In that view of the matter, we are of the view that the jurisdiction u/s. 263 of the Act was rightly invoked by the CIT. We are also of the view that the CIT has remanded the matter to the AO for fresh consideration and has not concluded on the issue, as was sought to be canvassed by the ld. counsel for the assessee before us. Therefore, the Assessee is at liberty to agitate on the issue on merits without any fetters. - Decided against assessee.
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2019 (3) TMI 1869 - ITAT MUMBAI
Income from house property - ALV determination - ascertainment of ALV where the flat was vacant during the year - CIT(A) holding that ALV of the property as determined by municipal authority is the yardstick for determining annual value for the purpose of determining the income from house property as against the ALV computed by the AO at a sum at which the property is expected to let out from year to year - HELD THAT:- In the case of DCIT vs. Laxmi Jain in [2014 (11) TMI 1157 - ITAT MUMBAI] by following the decision of Hon’ble Jurisdictional High Court in the case of Smitaben N. Ambani vs. CWT [2009 (1) TMI 430 - BOMBAY HIGH COURT] High Court held that the ALV of the vacant flat has to be made on the basis of municipal ratable value and thus dismissed the appeal of the Revenue. The said decision of the Tribunal was affirmed by the Hon’ble Bombay High Court in the case of Pr. CIT vs. Laxmi Jain [2018 (4) TMI 1644 - BOMBAY HIGH COURT] on the ground that there is no substantial question of law arising from the Revenue’s appeal.
In the case of Harsh Jain vs. DCIT [2015 (7) TMI 1253 - ITAT MUMBAI] has held that the ALV of the property has to be computed as per municipal ratable value as deemed income from the house property. The said decision of the co-ordinate bench of the Tribunal was affirmed by the Hon’ble Bombay High Court in the case of Pr. CIT vs. Harsh Jain [2019 (2) TMI 537 - BOMBAY HIGH COURT] where the appeal of the Revenue was dismissed.
We are of the view that the ALV of the vacant flat has to be determined on the basis of municipal ratable value for the purpose of assessing the income under the head “house property”. Accordingly, we are inclined to allow the appeal filed by the assessee and dismiss the appeal of the Revenue
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2019 (3) TMI 1863 - DELHI HIGH COURT
Remand order - Calculation of average investments (confined to the income generating part thereof) - exclusion of tax exempt income derived from strategic investments - HELD THAT:- The observation of the ITAT on the latter aspect, i.e. exclusion of tax exempt income derived from a strategic investments, is not a correct view in the light of the decision of the Supreme Court in Maxopp Investment Ltd. Vs. Commissioner of Income Tax [2018 (3) TMI 805 - SUPREME COURT] . Accordingly, the observations of the ITAT on this aspect are set aside.
Observations with respect to the calculation of disallowance under Section 14A being confined to investments that derived tax exempt income are valid in the light of the Division Bench ruling in ACB India Ltd. v. ACIT [2015 (4) TMI 224 - DELHI HIGH COURT].
ITAT’s order, to the extent that it makes observations with respect to exclusion of income derived from strategic investments, is hereby set aside. Appeal partly allowed.
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2019 (3) TMI 1862 - ITAT DELHI
Disallowance of stock appreciation right - Disallowance on account of the difference between purchase price of Stock Appreciation Right (‘SAR’) and the sale price of such SAR at the time of its exercise by the employees of the appellant holding the same to be capital loss not allowable business deduction - HELD THAT:- As decided in own case [2017 (10) TMI 589 - ITAT DELHI] difference between the sale price of the share and the purchase price of the share was claimed by the assessee as deduction as employee compensation. In the identical circumstances. With respect to one of the group companies, Religare commodities Ltd for assessment year 2008-09 identical issue arose before the coordinate bench [2017 (1) TMI 783 - ITAT DELHI] claim of the assessee with respect to both the above items were allowed. The above expenditure on account of employee stock option scheme is an ascertained liability for deduction - the expenses debited is cost of employee stock option plan in the profit and loss account is an allowable expenditure. - Decided in favour of assessee.
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2019 (3) TMI 1861 - ITAT MUMBAL
Deduction u/s 10A - AO excluding the interest income earned while determining the profits eligible for the purpose of computation of deduction under Section 10A - HELD THAT:- The Tribunal in Assessment Year 2009-10 [2018 (5) TMI 130 - ITAT MUMBAI] by following the judgment of the Hon'ble Karnataka High Court in the case of M/s. Hewlett Packard Global Soft Ltd. [2017 (11) TMI 205 - KARNATAKA HIGH COURT] held that the interest income earned on funds placed in the bank was entitled to benefits of Sec. 10A.
The Tribunal further noticed that the interest income earned had a nexus with the borrowing raised from the bank which was, in turn, utilised for carrying on the eligible business. Similarly, on the issue of interest earned on the security deposit placed for obtaining electricity connection is concerned, the same was also held eligible for the benefits of Sec. 10A of the Act following the decision of the Tribunal in the case of M/s. Dania Oro Jewellery Pvt. Ltd. [2018 (1) TMI 240 - ITAT MUMBAI]
Thus claim of assessee for inclusion of interest income for the purposes of Sec. 10A of the Act is accepted. Assessing Officer is directed to compute deduction under Section 10A of the Act by considering the aforesaid interest income. Appeal of the assessee is allowed,
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2019 (3) TMI 1860 - ITAT DELHI
Revision u/s 263 - Option money received - whether the option price received by the assessee is income or it is capital receipt? - As per CIT JV agreement was never examined by the Assessing Officer - HELD THAT:- The initial year of transaction was 2001 when the Government opened the field for private parties also in the Insurance business. This is not the first year of transaction. The assessee has been receiving option money after the year in which it entered into a JV agreement with CUIH to co-promote a JV company. The first year of scrutiny assessment was 2005-06 and the Assessing Officer raised specific query in relation to the option money received from CUIH. The Assessing Officer examined the balance sheet and notes of accounts and was convinced that the option money received is not taxable during the year.
Once again, assessment order for assessment year 2006-07 was also completed u/s 143(3) of the Act and once again a query was raised in relation to the option money, which was duly replied by the assessee and explained the nature of transaction with notes of account, which also contains capitalisation on interest paid on borrowed funds.
Assessment year 2008-09 was also taken up for scrutiny assessment. Once again queries were raised by the Assessing Officer in relation to the JV agreement and option money. Once again, the assessee explained the transaction in the light of details given in the balance sheet and notes to accounts. The order was framed u/s 143(3) of the Act.
In assessment year 2011-12 also, the return of income was taken up for scrutiny assessment. The balance sheet and notes of account were examined wherein all the details about the capitalization of interest was properly disclosed and receipt of option money was explained to be adjusted against reduction in the share holding in the year of transfer of shares.
It is incorrect to say that the JV agreement was never examined by the Assessing Officer. Right from the first year of scrutiny assessment, after the impugned transaction of option money, JV agreement has been scrutinised by the Assessing Officer alongwith the balance sheet and notes to accounts. It cannot be said that right from assessment years 2005-06 to 2011-12, the Assessing Officers continuously ignored the taxability of option money. A reading of the order of the PCIT framed u/s 263 of the Act clearly shows that the PCIT assumed jurisdiction on the strength of the assessment order for assessment year 2015-16, when the Assessing Officer took a different view on the same set of transactions which the assessee continued to follow since the year 2001.
PCIT has not understood the JV agreement and has been carried away by drawing adverse inference from certain clauses of the JV agreement. It is incorrect to hold that the assessee has purchased shares as the same is business of the assessee. Investment in AVIVA Life Insurance was a capital contribution in the form of shares for the purpose of acquiring controlling interest to the extent of 74% in the company and is definitely a capital asset in the hands of the assessee. There is a specific restriction in the JV agreement that neither of the parties i.e. the assessee and CUIH, will sell its shares to outsiders and right to purchase shares of the assessee was granted to CUIH at a later date as and when FIPB increases the permissible limit of investment for foreign partners in JV agreement.
PCIT completely missed the point that in the case of shares of a company, which is a movable property, the transfer completes when the duly completed transfer deeds, along with share certificates, are delivered to the transferee. Thus, the transfer of shares giving rise to capital gain, if any, is completed in the year in which the shares are delivered to the transferee. This aspect was considered and accepted by the Assessing Officers in the past assessment years and, therefore, no adverse view was taken as there was no sale of shares in those years.
Capitalization of interest - It is a settled proposition of law that any expenditure incurred in acquiring a capital asset has to be capitalised.
Whether the option price received by the assessee is income or it is capital receipt ? - As per the facts explained elsewhere, the assessee entered into a JV agreement with CUIH to co-promote a company in the field of insurance sector. Since CUIH is a prominent player in the European Market it was interested in holding major stake in the JV company but on account of restrictions imposed by FIPB meant for insurance sector CUIH was contended with a stake of 26% and rest of 74% was taken by the assessee.
Both the parties agreed that as and when the government eases the norms, the first right of refusal shall be with CUIH and if it refuses to purchase shares of the assessee, the same can be sold to third parties. Same restriction applied to the assessee also. This resulted into sterilisation of the assessee’s holding and CUIH agreed to pay option price as described in the JV agreement and it was further agreed that the said option price shall be refundable at the time of transfer of shares by the assessee to CUIH and the manner and mode as well as quantum of refundable option price has been described in Article 16A r.w.s Schedule IX of JV agreement.
The sale/transfer of 23% stake by the assessee to CUIH took place in F.Y. 2016-17 relevant to assessment year 2017-18. All the allegations made by the PCIT may be relevant for assessment year 2017-18 when the actual transfer took place. We do not find any merit in applying those allegations in assessment year 2013-14 and 2014-15 to make the assessment orders framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue.
Since the transfer of shares took place in F.Y. 2016-17 relevant to assessment year 2017-18, the Assessing Officers in the earlier assessment years rightly took a view that capital gains, if any, would arise in F.Y. 2016-17 and, therefore, did not take any adverse view on the transactions done by the assessee since the option price received is totally linked with investment made by the assessee as a capital contribution in the company promoted by it and has direct nexus/link with divestment of such holding in favour of CUIH but this happened in F.Y. 2016-17.
The allegation of the PCIT that the investment in shares of AVIVA life insurance India Ltd is business of the assessee is ill founded as this is only a presumption and surmise of the PCIT contrary to the facts of the case in hand.
It cannot be said that the JV agreement was a colorable device to enter into a sham transaction for evading tax. The JV agreement has been accepted by various government authorities as discussed elsewhere. It is not the case of the PCIT that money invested by DABUR, i.e., the appellant, in AVIVA has come from CUIH. Therefore, the same cannot be held as sham transaction. Moreover, the option money paid by CUIH has come through banking channel with the approval of RBI as explained elsewhere.
23% stake sold by DABUR was in F.Y. 2016-17 relevant to assessment year 2017-18 when the actual transfer of shares took place. Therefore, in our considered opinion, liability towards I.T., if any, would arise in F.Y. 2016-17 relevant to A.Y 2017-18.
Assessing Officers, right from A.Ys 2005-06 to 2011-12, after going through the JV agreement and balance sheet and notes of accounts, filed by the assessee has taken a possible view. It has been held in various decisions that where the A.O has taken a possible view, the assessment order cannot be held as erroneous and prejudicial to the interest of revenue.. We find the Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar [2010 (2) TMI 75 - DELHI HIGH COURT] has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion.
It cannot be said that the JV agreement was a colorable device to enter into a sham transaction for evading tax. The JV agreement has been accepted by various government authorities as discussed elsewhere. It is not the case of the PCIT that money invested by DABUR, i.e., the appellant, in AVIVA has come from CUIH. Therefore, the same cannot be held as sham transaction
Considering the facts of the case in hand in totality, from all possible angles, we are of the considered view that the assessment orders framed u/s 143(3) are neither erroneous nor prejudicial to the interest of the Revenue. The orders of the PCIT are, accordingly, set aside and that of the Assessing Officer are restored. - Decided in favour of assessee.
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2019 (3) TMI 1859 - ITAT CHENNAI
Deduction u/s. 80IA - whether the toll fee so collected during the construction period should go to reduce the project cost or is eligible for deduction u/s. 80IA? - nexus between the development of infrastructure facilities and the toll fee collected - HELD THAT:- In the present case, admittedly, the assessee-company had not derived any profits from the activities of developing or operating and maintaining any infrastructure facilities. It is only in the process of developing infrastructure facilities. There is no nexus between the toll fee collected and the development of infrastructure facilities and therefore, the assessee company is not entitled to deduction u/s. 80IA(4) of the Act in respect of the toll fee collected during the concession period. The ld. CIT(A) had misdirected himself in directing the AO to allow the deduction u/s. 80IA of the Act. Therefore, we reverse the findings of ld. CIT(A) on this issue - Decided in favour of revenue.
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2019 (3) TMI 1857 - ITAT AHMEDABAD
Disallowance u/s 14A r.w.r. 8D - assessee submitted before us that the disallowance u/s. 14A cannot be made more than the tax free income - HELD THAT:- We have also perused the relevant materials available on record and the order passed by the Hon’ble ITAT Surat Bench [2014 (9) TMI 131 - ITAT AHMEDABAD] as relied upon by the Ld. Advocate appearing for the assessee.
We have also carefully considered the order passed by the Ld. CIT(A). It appears that relying upon the ratio as laid down by different High Court followed by the Coordinate Bench in several matters including the order passed by the Surat Bench the Ld. CIT(A) has restricted the disallowance to the exempt dividend income of ₹ 19,311/- since disallowance exceeding such exempt income is not permissible in law which does not call for any interference. We, therefore, uphold the same. Hence, Revenue’s appeal is thus devoid of any merit and thus dismissed.
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2019 (3) TMI 1856 - ITAT DELHI
Reopening of assessment - legality and validity of the notice u/s 148 - addition on the ground that Section 28(iv) of the Act cannot be invoked in this case - Allotment of Sweat Equity shares to the assessee - CIT(A) upheld the legality and validity of the reopening but deleted the addition on the ground that there is no relationship of employer-employee before the company and the assessee, which allotted the Sweat Equity shares to the assessee; that the equity allotted was not specified security and from such an angle it does not answer the description of perquisites u/s 17(2) of the Act; that the valuation of the equity at artificially jacked up prices without any economic basis would not help to sustain the addition - HELD THAT:- As rightly contended by the assessee, even before the issuance of the notice u/s 148, it was clear that the assessee did not receive any benefit whatsoever under the sweat Equity share Agreement. We find force in the submissions made on behalf of the assessee that the reversal of the share premium account pursuant to the orders of the Hon’ble High Court would relate back to the date of allotment.
We are unable to consider the analogy drawn by the Ld. AO and the Ld. DR to say that subsequent/future event cannot affect the taxability in the year of its accrual, because in this matter certain factors which are stipulating constraints on the availment of benefit under the agreement. Firstly, there is a condition of 10 years’ association, which has failed; that secondly, the Hon’ble High Court directed the cancellation of the allotment and to reverse the entries which shall relate back to the date of agreement itself; that thirdly, there is no economic basis for the valuation of the shares to assess the income of the assessee. For these reasons, we are of the considered opinion that the learned CIT(A) rightly reached a conclusion that this is a case of hypothetical income of the nature of perquisite and more so, the very basis of the valuation is not scientific without any financial back up data to justify the valuation.
We are in agreement with the submission on behalf of the assessee that the decision in the case of CIT vs Infosys Technology Ltd.[2008 (1) TMI 17 - SUPREME COURT] wherein the issue involved was that whether allotment of Sweat Equity Shares to an employee is a perquisite or not and it was held that where the lock in period was involved, the perquisite would be treated only in the year in which the lock in period ends. Since in this case the agreement came to an end, shares were surrendered and the entries were reversed long prior to the lock in period, no case of taxing the allotment as perquisite in the hands of the assessee in the AY 2007-08.
In view of the conflict of opinion expressed by the Hon’ble Gujarat and Madras High Court, the view favourable to the assessee had to be accepted and while respectfully following the decision of the Hon’ble Apex court in the case of Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT ] we find that the composite order cannot be sustained.
We are of the considered opinion that either on facts or on law, there is no need to interfere with the findings of the learned CIT(A) in deleting the addition made by the learned AO on the premise that the allotment of shares to the assessee are to be taxed as perquisites or profession income.
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2019 (3) TMI 1855 - ITAT DELHI
Addition u/s 69A - addition has been made on account of disbelieving the cash-in-hand recorded in books of accounts - genuine sources of income OR not? - HELD THAT:- The deeming fiction u/s 69A can be invoked, where in any financial year assessee is found to be the owner of any money, bullion, jewellery or other valuable articles and such money, bullion, jewellery or valuable articles is not recorded in the books of accounts and the source is not explained by the assessee. Here in this case, there is no dispute with regard to the fact that the assessee has been filing the income tax return along with the balance sheets, wherein source of income and cash has been disclosed and recorded. Hence in such a situation it is unfathomable as how provision of 69A can be invoked.
The sole reason for disbelieving the assessee’s explanation is that, firstly, no prudent person after withdrawing the cash will keep at home; and secondly, if there was an OD account having negative balance on which interest is being charged, then there was no need to keep such huge cash in hand at home. Such reasoning dehors any contrary material on record that the cash disclosed in the books of accounts has been invested somewhere else, then on mere surmise assessee’s explanation cannot be discarded.
If assessees have genuine sources of income which are received through banking channels, out of which cash has been withdrawn and have been disclosed in the income tax return and in the balance sheet as cash-in-hand, then I am unable to apprehend how the provision of section 69A is applicable. Because the section can only be invoked where in any financial year the assessee is found to be the owner of any money, etc., which has not been recorded in the books of accounts and assessee offers no explanation.
Here in these cases, Assessee’s cash in hand duly stands recorded and source has been explained from the income deposited in the bank account and withdrawal, then in my opinion deeming provision of section 69A cannot be invoked. The reasoning given by the AO and Ld. CIT (A) is vague and based on surmise as to what a prudent person should have done. Once assessee has explained that being of senior citizen they have maintained such liquidity of cash out of their own disclosed income with them for certain contingencies, then without any material to controvert such an explanation, addition cannot be sustained.
Simply because after the period of demonetization, that is, 08.11.2016, certain amount of cash has been deposited in the bank account, it does not mean that the cash-in-hand as on 31.3.2015 and 31.03.2016, duly shown in the balance sheet and disclosed to the department in the respective income tax return filed much earlier, is unexplained. - Decided in favour of assessee.
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2019 (3) TMI 1853 - ITAT COCHIN
Revision u/s 263 - Deduction u/s 43D admissibility - entitlement for deduction of interest on sticky loans - as this deduction is available only from 01.04.2018 as per the amendment, the CIT held that the Assessing Officer's action in allowing deduction was both erroneous and prejudicial to the interest of revenue, hence the assessment was set aside with a direction to the Assessing Officer to consider this allowability of the deduction afresh, affording sufficient opportunity to the assessee to offer submissions - HELD THAT:- The provisions of section 43D(g) was inserted by Finance Act, 2017 which is clarificatory and should be applied. As such, it was submitted that the assessee cannot be denied the applicability of provisions of section 43D(g) of the Act. An identical issue was considered by Ahmedabad Bench of the Tribunal in the case of Karnavati Co-op. Bank Ltd. vs. DCIT [2011 (11) TMI 367 - ITAT AHMEDABAD] wherein it was held that interest on sticky advances/NPA advances cannot be brought to tax. The provisions of section 43D are applicable to Co-operative Banks also.
We are of the view that there are judgments in favour of the assessee on the issue of applicability of section 43D(g) of the Act to the Co-operative Banks. In view of this, we are of the opinion that the order passed by the Assessing Officer is not erroneous and prejudicial to the interests of the Revenue for the purpose of invoking jurisdiction u/s. 263 of the Act. Accordingly, we quash the order passed by the CIT u/s. 263 of the I.T. Act. - Decided in favour of assessee.
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