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2020 (4) TMI 913 - ITAT MUMBAI
TP Adjustment - comparable selection - functional dissimilarity - HELD THAT:- CG Vak Software & Exports Ltd. company excluded as it is consistent loss making company - We noted that before the DRP the assessee stated that this comparable is having profit in the current year at 7.14% and can be considered as a comparable. It was also stated that merely because a company is incurring losses, it would not lose its status as a comparable and that losses and incidental of business which is at par with the profit. However, the contention of assessee was not accepted by DRP by taking view that those companies with fluctuating margins are to be excluded.
As this comparable is not consistent loss making as it had made profit in the relevant assessment year, hence, we direct the TPO/AO to include this comparable in the final set of comparable.
Infosys Ltd. was excluded by tribunal from compatibility on the ground of that Infosys ltd is engaged in Software product and have huge turnover is not comparable to the assessee as a captive service provider to its associated enterprises, therefore, we direct the assessing officer to exclude this comparable from the final set of comparable.
Exclusion of Wipro Technology Services Ltd. as it had related party transaction. e Infochips Ltd has provided hardware maintenance and product, providing back officer services and have substantial inventory. Sasken Communication Technology Ltd is engaged in software product. And Persistent system Ltd has huge intangible, made investment in intellectual property right and huge turnover. Therefore, accepting the similar view we are also of the view that these comparable cannot be compared with captive service provider. Hence, we direct the AO/TPO to exclude these four comparable.
Zylog System Ltd. company is engaged in R&D activities, has a license fee and developed in house intangible. Thus, cannot be compared with captive service provider.
Thus we direct the TPO/AO to include CG Vak Software & Export Ltd and exclude Infosys Ltd, Wipro Technology Services Ltd., e Infochips Ltd, Sasken Communication Technology Ltd, Persistent system Ltd and Zylog System Ltd from final set of comparable and recompute the ALP afresh.
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2020 (4) TMI 911 - ITAT DELHI
Deduction of Capital Expenditure on R&D u/s 35(2AB) - whether the deduction is allowable only from 09.03.2009, the date on which the assessee received letter from DSIR or not? - HELD THAT:- A going concern basis basically means that an entity will remain in business in the near future. We find that the above provisions cannot be applied to the facts of the instant case as the approval u/s 35(2AB) in respect of the R&D unit has been granted by the DSIR w.e.f. 01.07.2008 as consequence to the approval granted to EML.
In conclusion, having gone through the entire facts of the instant case, we hold that the assessee is eligible for deduction u/s 35(2AB) from 01.07.2008, the date on which the EML divested the CV unit and the R&D facility.
Having said so, we also find that the ld. CIT (A) has given a categorical finding that the AO has disallowed total R&D expenses incurred by the assessee during the year including expenses that have incurred after the date of DSIR approval letter i.e. 09.03.2009.
We also find that the AO has observed that deduction u/s 35 has been claimed under the head “intangible assets”.
Core issue of examination of the expenditure has not been resorted as the revenue held that the assessee was not eligible for the deduction u/s 35(2AB) for expenses incurred prior to that date. Hence, in order to meet the ends of justice, a fair opportunity has to be allowed to both the parties, it is hereby directed to submit the details of capital expenditure and revenue expenditure for the entire period from 01.07.2008 to 31.03.2009 so as to avail the correct deduction as per the principle laid down in this order.
Addition u/s 14A r.w.r. 8D - assessee has earned exempt dividend income - HELD THAT:- Since no interest bearing funds have been utilized in investment and the revenue could not prove any expenses incurred, the addition made by the AO is hereby directed to be deleted.
Disallowance of Expenses - deduction denied on the grounds that the assessee did not furnish the copies of ITR of VIPL to prove that these expenses which were booked provisionally have not been claimed and also proof of payment against the aforesaid provision by the assessee during the year have not been submitted - CIT (A) after going through the ITRs gave a categorical finding that the deduction on account of the provisions has not been claimed by the assessee and also held that the assessee had discharged the liabilities against the provisions received from VIPL - HELD THAT:- CIT (A) has given this categorical finding after due verification of ledger and books of accounts. Since, the facts are not disputed by both the parties and the issue is purely based on the facts which have been verified by the ld. CIT (A) and since no legal issue is involved we decline to interfere with the well reasoned order of the Ld. CIT(A).
Disallowance of Bad Debts acquired from predecessor-in-interest - assessee has received the business from its predecessor EML by way of demerger - AO disallowed the amount on the ground that the said amount has not been offered to tax by the assessee - whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2)? - CIT(A) held that the corresponding amount of the debts was offered as income by the predecessor assessee - HELD THAT:- The assessee has received the business from its predecessor EML by way of demerger wherein the EML sold the vehicles on credit and the said amounts were offered to tax in the earlier years. The question here is not about the debt becoming bad but whether the amounts offered by the earlier company and duly offered to tax turned bad at a later date be allowed as per the provisions of Section 36(1)(vii) r.w.s. 36(2) of the Income Tax Act, 1961.
Reliance is placed on the judgment of CIT Vs T. V. Rao [1985 (7) TMI 2 - SUPREME COURT] - Owing to it we hereby hold that the bad debts written off as irrecoverable in the books of accounts of the assessee in relation to the debts acquired on purchase of business which has been offered as income by the predecessor company is allowable u/s 36(2).
Disallowance of Training Expenses - assessee has claimed expenses on account of “service training school” under the head “selling and distribution expenses” - HELD THAT:- We find that the assessee is in the business of selling commercial vehicles wherein training of the drivers and other technicians is a business expediency. Owing to the new recruitment as well as job rotation, offboarding and attrition of employees, the training is taken to be an ongoing process for any industry.
AO observation that it goes to improve the brand building, if at all, is collateral benefit. There is no provision in the Income Tax Act for apportioning this expenditure over a period of three years as invoked by the AO. Section 37(1) mandates that any expenditure has to be allowed in entirety if it is spent in connection with business of the assessee. There cannot be any formula basis, criteria adopted by the AO while disallowing 2/3rd of such expenditure. At the same time, this expenditure cannot be treated as capital expenditure too - disallowance made by the AO is legally not tenable.
Revenue appeal dismissed.
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2020 (4) TMI 909 - ITAT BANGALORE
TP Adjustment - Comparable selection - decision of TPO & DRP in adopting the threshold limit of 25% for “Related Party Transaction” filter as against the limit of 10% adopted by the assessee - HELD THAT:- We notice that the Ld DRP has given its decision of adoption of RPT filter, which is not the objection of the assessee.
With regard to the claim for Capacity Utilisation Adjustment, the Ld DRP, has expressed that the assessee has not raised this objection before the TPO and accordingly declined to adjudicate this ground. With regard to the substitution of PLI from OP/OR to OP/OC, the assessee had raised objection in ground 8.1 urged before Ld DRP. However, the Ld DRP has not adjudicated the same.
We notice that the assessee has furnished details of the companies, in its paper book. We notice that the Ld DRP has rejected the claim of the assessee by making general observations, i.e., without addressing specific grounds urged in respect of each of the companies. We have noticed that the assessee, in its Transfer Pricing study, has made adjustment towards under utilization of capacity. However, the said adjustment was not given by the TPO. Hence, we are of the view that the Ld DRP was not justified in declining to adjudicate this claim of the assessee. As noticed earlier, the Ld DRP has not adjudicated the issue relating to selection of PLI.
We are of the view that the Ld DRP has passed a non-speaking order. In this view of the matter, we are of the opinion that all the issues relating to Transfer pricing adjustment need to be restored to the file of Ld DRP/AO for adjudicating all the objections of the assessee by a speaking order. Accordingly, we set aside the Transfer pricing adjustment made in the final assessment order and restore all the issues relating there to the file of AO/DRP with the direction to the Ld DRP to pass a speaking order.
Disallowance made u/s 40(a)(ia) of the Act in respect of year end provisions made - HELD THAT:- Before us, the ld A.R argued that the yearend provisions are required to be made as per accounting principles on estimated basis. Assessee could not deduct tax therefrom, since the payees are not known. However, we notice that the assessee has stated before Ld DRP that the provisions have been made for payment to contractors, subcontractors, professional fees, royalty, rent and commission. Hence the payees should be known to the assessee. Accordingly, we are of the view that the assessee should have deducted tax at source, when the payees are known. Accordingly we confirm the addition made by the AO u/s 40(a)(ia) of the Act.
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2020 (4) TMI 906 - ITAT DELHI
Difference in receipts as per the bank account of the assessee and receipts as per its books of account - Addition on account of amount credited in bank account of the assessee in excess of receipts as per' books of account and also allowing the assessee appeal against the rejection of the books of accounts of the assessee -- As per CIT-A addition is not sustainable in view of documentary evidences already available on record to substantiate the said difference and AO has failed to make any sincere effort regarding the same and made addition only on the basis of doubt, suspicion, conjecture or surmises without affording proper opportunity of being heard to the appellant which is in violation of principles of natural justice - HELD THAT:- Revenue has failed to controvert the findings of CIT(A) in this regard. We find no merit in the issue raised vide ground of appeal no. 1. Before parting, we may also point out that no additional evidence was produced before the CIT(A) and hence there is no merit in the additional ground of appeal raised by the Revenue.
Difference in brokers’ accounts and party wise gross receipts - HELD THAT:- CIT(A) deleted the said addition made by the AO observing that the said difference in party wise detail and brokers’ account is due to Margin Money and STT. In view of the findings of the CIT(A) with regard to the aforesaid addition, we find no merit in the grounds of appeal no. 2 raised by the Revenue and the same is dismissed.
Non deduction of TDS on professional charges - HELD THAT:- CIT(A) noted that the assessee had not claimed the said professional expenses in its profit & loss account and had capitalized the same under work in progress i.e. “Building under Construction” in fixed assets schedule. The CIT(A) thus deleted the addition. We find merit in theorder of the CIT(A) and uphold that the provisions of section 40(a)(ia) of the Act are attracted only if expenses are claimed in the profit & loss account and not when the same are capitalized.
Disallowance u/s 14A r.w.r. 8D - HELD THAT:- CIT(A) noted that the assessee had made investment only in share application money as on 31.03.2011 and hence there was no merit in invoking the provisions of section 14A of the Act. We uphold the order of CIT(A) in this regard and dismiss the ground of appeal no. 3 raised by the Revenue.
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2020 (4) TMI 901 - ITAT MUMBAI
Revision u/s 263 by CIT - assessee company has not included the financials of Bhilai in the audited financial statements prepared for the AY 2013-14 - As submitted that the Bhilai unit of the assessee company was under control of Sh. Sunil Aggarwal, younger brother of Sh. Anil Aggarwal. Since, Sh. Sunil Aggarwal had obtained restrain order from CLB, the assessee company managed by Sh. Anil Aggrawal was not allowed to interfere with functioning of the Bhilai Unit. Therefore, the assessee company was not having financial details of the said unit - HELD THAT:- Admittedly, the assessee has its unit in Bhillai and the assessee has not included the financials of its Bhilai unit in the audit financial statements prepared by it for the AY 2013-14 due to alleged dispute between the promoters. As pointed out by the CIT, the AO issued notice u/s 133 (6) of the Act for obtaining financial statements of Bhilai unit from the other promoter of the assessee company. However, no details were received by the AO. We further notice that the AO has not mentioned any reason for not making any addition in respect of Bhilai unit.
As pointed out by the Ld. counsel, addition of 5% of the turnover made from the AY 2004-05 to 2007-08 and 2010-11 to 2012-13, however in the assessment year under consideration, the AO has not made any addition whereas in the assessment year 2014-15 and 2015-16 the AO had made ad-hoc addition. AO has not given any reason in the assessment order or even not discussed about the financial statements of Bhilai unit which shows that the AO has failed to exercise due diligence to determine the income arising from the operations of assessee’s company at its Bhilai unit.
Since, the AO has passed the assessment order without conducting proper enquiry in respect of Bhilai Unit, the same is erroneous as well as prejudicial to the interest of the revenue. As has been laid down by the Hon’ble Supreme Court in the case of Malabar Industries Company Ltd. vs. Commissioner of Income Tax [2000 (2) TMI 10 - SUPREME COURT], if due to an erroneous order of the AO revenue is losing tax lawfully payable by the assessee, the order passed by the AO is prejudicial to the interest of the revenue. Therefore, in our considered view, since the order passed by the AO is erroneous as well as prejudicial to the interest of the revenue, the Ld. Pr. CIT has rightly revised the assessment order passed by the AO. - Decided against assessee.
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2020 (4) TMI 900 - ITAT MUMBAI
Addition u/s 69C - telescoping of the said addition out of the available of funds with assessee - assessee is developing a township known as Ensara Metropark at Nagpur. The project was in progress during the year and the entire cost incurred was shown as work in progress - HELD THAT:- In this case the cash generated during the year out of over invoicing was ₹ 5,46,20,000/- and it has been admitted by Shri Sanjay Kothari during the course of recording of statement under section 132(4) of the Act that the source of these expenses were out of the cash generated through over invoicing.
AO has failed to bring on record any evidence to the effect that these expenses of ₹ 2,19,96,000/- were incurred out of some other source or the cash generated of ₹ 5,46,20,000/- was invested or incurred on some other activity. Therefore, under these circumstances, the only possible presumption is that the expenditure was incurred out of the funds available with the assessee generated through over invoicing. This has been admitted by the CEO of the project Shri Sanjay Kothari in the statement recorded under section 132(4) and therefore we can reasonably held that assessee is entitled to benefit of telescoping of ₹ 2,19,96,000/-. The case of the assessee finds support from the several decisions referred to by the assessee during the course of hearing. In the case of CIT vs. K.SREEDHARAN [1992 (6) TMI 24 - KERALA HIGH COURT] has held that if a intangible addition made in the earlier year is as good as other disclosed income of the assessee and it would be treated as available for investment from the year in which such addition was made.
Thus the assessee has available source with it to incur the cash expenses which was not in any way controverted by the AO by bringing on record any cogent and substantive materials or evidences and accordingly we set aside the order of Ld. CIT(A) and direct the AO to allow the telescoping and delete the addition.
Disallowing the setting off the loss against the assessed deemed income under section 69C - HELD THAT:- We observe that the income assessed under section 68/69C is eligible to be adjusted against any brought forward loss or depreciation. The position is clarified by the board’s circular No.11/2019 dated 19.06.2019 which provides for setting off of loss/depreciation against the income assessed under section 69C of the Act provided it relates to any assessment years prior to A.Y. 2017-18 and the same ratio has been laid down in the various decisions relied upon by the assessee. Accordingly, we hold that whatever income is assessed after giving effect to ITAT order is subject to set off against the loss/depreciation of the current year and also brought forward loss/brought forward depreciation of the earlier year.
Addition made on account of On money - Whether transactions of receipt of on money as evidenced by the receipts issued to the buyers were duly recorded in the books of accounts? - HELD THAT:- After perusing the material on record, we observe that the assessee has duly accounted for all the receipts issued to the customers from whom the said cash was received and duly recorded in the books of accounts of the assessee. Since the project “Ensara Metropark” was at the development stage and whatever explained was incurred was shown as work in progress at the year end and also no revenue was offered to tax. We find that assessee has duly accounted for all these entries in the books of accounts and thus the mere fact that the money has been received in cash by the assessee would not justify the order of Ld. CIT(A) confirming the order of AO wherein it has been held that money received by issuing various receipts represent the on money. The stand of the authorities below appears to be contrary to the facts on record as the money which has been alleged to be on money is duly recorded in the books of accounts. In such a scenario we are not in agreement with the conclusion drawn by the Ld. CIT(A) and accordingly we direct the AO to delete the addition.
Assessee appeal allowed.
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2020 (4) TMI 894 - ITAT MUMBAI
Unexplained cash credit - bogus LTCG - addition u/s 68 - Penny stock purchases - as argued assessee was not provided the cross examination of those parties who gave statements against the assessee and also that materials used against the assessee in framing the assessment order were not provided to the assessee - HELD THAT:- Assessee held these shares for more than 12 months and all these transactions were routed through the banking channels. Thereafter, the investigation wing of the department conducted the investigation and searches on various operators in Kolkata and elsewhere and a racket of shares manipulation came to notice of the department. In the said racket the shares were purchased at a very minimal price and after certain period sold at a very astronomical price which is manifold the purchase price.
In the whole racket which was found that the various investors were indulged in these transactions in order to book the bogus long term capital gain/short term capital gain and routed their own money in order to convert the same into the long term capital gain - these penny stock companies were not having any financial strength or genuine business and the increase in the prices of the share was only through manipulation and connivance with the brokers. The assessee’s name was found to be in the list of beneficiary and accordingly the AO inquired upon these transactions by the assessee during the year.
Assessee has duly disclosed these long term capital gains in his return of income filed for the year. We note that the AO has not supplied any material to the assessee before finalizing the assessment and has merely relied upon the investigation report received by the assessee that assessee is a beneficiary of this racket. The AO merely reproduced the report of the investigation wing in the assessment order and discussed the financial of Premier Capital Services Ltd. However, it was never confronted to the assessee or any cross examination was allowed to find out the truth behind it. We note that assessee has purchased the shares and subsequently sold on the stock exchange through online trading portal and where it is very difficult to note about the subsequent buyer
Assessee has filed all the necessary evidences as stated above before the AO as well as before the Ld. CIT(A). However, no further enquiry was carried out by the AO or by Ld. CIT(A) but merely relied on the report of the investigation wing and statements of certain individuals recorded during the course of search who have stated that they were engaged in providing accommodation entries for LTCG/LTCL in various shares which are called penny stocks. However, these information were never provided to the assessee. Similarly, no cross examination was allowed by the AO to the assessee during the assessment proceedings - AO has merely relied on the investigation report and did not try to collect further evidences by conducting further investigation to prove that the assessee own funds have changed hands.. Under these circumstances, we are not in a position to subscribe to the conclusion by the authorities below - We direct the AO to delete the addition under section 68 - Decided in favour of assessee.
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2020 (4) TMI 889 - ITAT MUMBAI
Estimation of income - bogus purchases - CIT-A sustained 12.5% disallowance - HELD THAT:- In this case the sales have not been doubted 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 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, the facts of the present 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 - in the absence of any enquiry by the AO from the alleged bogus supplies in my considered opinion on the facts and circumstances of the case the 2% disallowance out of the bogus purchases meets the end of justice. Accordingly, direct that disallowance be restricted @ 2% of the bogus purchase - Appeal filed by the assessee stands partly allowed.
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2020 (4) TMI 883 - ITAT BENGALURU
TP Adjustment - comparable selection - HELD THAT:- Referring to software development service provided by assessee companies functionally dissimilar with that of assessee need to be deselected from final list of comparability.
TPO applied filter of more than ₹ 1 crore - We direct Ld. AO/TPO to exclude Tata Elxi Ltd (Seg.), Mindtree Ltd., Larsen and Toubro Infotech Ltd., RS Software (India) Ltd., Persistent Systems Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage software Pvt.Ltd. for having high turnover as compared to a captive service provider like assessee.
Rheal Software Pvt.Ltd. - No clear picture of activity performed by this company under software development service. Admittedly, there is a trend of diminishing revenue from financial year 2010-11 to financial year 2014-15 for which, reason is not known from details available and placed on record. In our view this diminishing revenue should have further triggered investigation by Ld. AO/TPO. set aside comparable back to Ld.AO/TPO to call for information is from this company under section 133 (6) to understand the reasoning behind the fall in revenue. In the event, diminishing revenue indicates the level of risk undertaken by this company which cannot be compared with absolutely no risk company like assessee, the same should be excluded.
Aspire Systems (India) Pvt.Ltd. - Authorities below has not verified the statistics advanced by Ld.AR in respect of the percentage of related party sales this company had, it would be just and proper to direct Ld.AO/TPO to examine submissions advanced in this regard. We also direct that if RPT is found to be more than 15% of the total revenues, then this comparable should be excluded from the finalist. Accordingly we set aside this comparable back to Ld.AO/TPO
Infobeans Technologies Ltd. - As the annual report of this company categorises the diversify services provided by this company under software development segment. We also note that this company is basically into application development for web and mobile and provides customised services to its offshore clients comprising. Entire revenue received by this comparable ease under one single segment of sale of software. This company also owns software licenses - this comparable cannot be considered to be functioning in 100% risk mitigated environment and is a full-fledged enterprise. Such a comparable cannot be compared with a captive service provider like assessee. Accordingly we direct this comparable to be excluded from finalist
Inteq Software Pvt. Ltd - As noted that DRP did not verified this aspect having regard to the annual report filed by assessee. In fact DRP notes that this company fulfils RPT filter adopted by Ld.TPO. We refer to our observations while deciding the comparability of aspire systems (India) private limited in preceding paragraphs. Applying the same observation mutatis mutandis in the present comparable, we direct Ld. AO/TPO to verify the RPT filter having regard to the annual report. We also direct that if RPT is found to be more than 15% of the total revenues, then this comparable should be excluded from the finalist. Accordingly we set aside this comparable back to Ld.AO/TPO.
Functional similarities test - Set aside this issue back to Ld.AO/TPO for reconsideration of Sankhya Infotech, Athena Global Technologies, Evoke Technologies Pvt.Ltd., Harbinger Systems Pvt.Ltd., Isummation Technologies Pvt.Ltd and Maveric Systems Ltd.
Sales and Marketing Support service segment - Ugam Solutions Pvt.Ltd is into managed analytical services and provides solutions to global market research firms, retailers, leading brands as has been observed by DRP in para 8.2.1. A fit comparable the functions rendered by assessee to the associated enterprise this company cannot be a fit comparable due to functional dissimilarities and risk assumed by this company. Accordingly we direct this comparable to be excluded from the final list.
Axience Consulting Pvt.Ltd. is in financial analysis and research, business intelligence, business and market research, strategic human capital services as recorded by DRP in para 8.3.1. Further we also note page 1428 that there is no segmental details available in respect of revenues earned under each segment. Annual report at page 1431 records that this company is knowledge solution business intelligence and consulting firm providing high-quality solutions. In our considered opinion functions performed by this company cannot be compared with Ltd back-office support provided by assessee to its associated enterprises under sales and marketing segment. Thus excluded from final list.
Platinum Advertising Pvt. Ltd. - As authorities below has summarily included this comparable without analysing the functional profile assets owned and risks assumed by this comparable having any similarity with assessee before us. We accordingly direct Ld.AO to carry out FAR analysis having regard to the annual report available on public domain. In the event further information is required Ld.AO/TPO shall call for it under section 133 (6) of the act. Needless to say that proper opportunity of being heard shall be granted to assessee as per law.Accordingly this comparable is set aside to Ld.AO/TPO for verification afresh.
Priya International Ltd (Seg) - As both sides submitted that DRP in its order has some really rejected the comparables without considering the submissions advanced by assessee. Thus we set aside this issue back to Ld.AO/TPO for reconsideration of Priya International Ltd (Seg.)
Adjustment of notional interest on outstanding receivables - HELD THAT:- This Bench referred to decision of Instrumentation Corpn. Ltd. [2016 (7) TMI 760 - ITAT KOLKATA] held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act. We also perused decision relied upon by Ld.AR. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld.AR.
Alternatively, argued that in TNMM, working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to associated enterprise would amount to double taxation - as relying on ORANGE BUSINESS SERVICES INDIA SOLUTIONS PVT. LTD. VERSUS DCIT, CIRCLE-3, GURGAON [2018 (2) TMI 1151 - ITAT DELHI] e deem it appropriate to set aside this issue to Ld.AO/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in accordance with law.
Disallowance towards service tax paid on expenses - HELD THAT:-We note that expenditure was incurred but could not be adjusted against input credit which was subsequently written off as part of business expenditure. It has been submitted that assessee has received refund in subsequent year and offered the same to tax in the relevant year. We direct Ld.AO to verify these details and consider the claim of assessee in accordance with law.
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2020 (4) TMI 878 - ITAT DELHI
Assessment u/s 153A - Validity of the assessment order in absence of proper approval necessary for assessment as per the provisions of section 153D - HELD THAT:- Approval was given in a mechanical manner by the Addl.CIT to the draft assessment orders passed by the AO. As mentioned earlier, the AO has submitted the draft assessment orders on 30th March, 2015 as per the order sheet entry which indicated that the AO was very much available in her office at Dehradun on 30th March, 2015.
The Office of the Addl.CIT is situated at Meerut which is about 250 Kms from Dehradun. There is no other record to suggest that the files containing the draft orders were, in fact, moved from the office of the AO at Dehradun to the office of the Addl.CIT at Meerut who went through the same and has given approval with certain amendments. It is not possible on the part of the Addl.CIT to go through the orders in about more than 100 cases on the very same day and give approval. Even if such approval has been given, it can be said that the same is nothing but a technical formality without application of mind. Further, as mentioned earlier, there is nothing on record to suggest that the files have in fact moved from Dehradun to Meerut for obtaining approval. Therefore, in our opinion, the mandatory provisions as required u/s 153D has not been complied with.
We hold that there is no proper approval given u/s 153D in the instant case for which the assessment orders passed by the AO are not in accordance with law. We, therefore, have no hesitation in holding that the assessments completed by the DCIT do not stand in the eyes of law and, therefore, these orders are treated as null and void. - Decided in favour of assessee.
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2020 (4) TMI 866 - ITAT DELHI
Bogus transaction relating to sale of the jewellery - addition made on account of accommodation entry - HELD THAT:- As decided in Anil Kumar Bansal and Nagar Mal Bansal [2018 (5) TMI 1991 - ITAT DELHI] for giving independent finding of the fact whether the sale of jewellery by the assessee is a genuine transaction or not , the matter need to be restored to the file of the Assessing Officer. We order accordingly and direct the Assessing Officer to decide the issue following the direction of the Tribunal given in order of the tribunal in the case of Gunvir Kumar Jain [2018 (4) TMI 398 - ITAT DELHI]. - Revenue appeal allowed for statistical purposes.
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2020 (4) TMI 862 - MADRAS HIGH COURT
Exemption u/s 11 - entitled to registration as Charitable Trust under Section 12AA read with Section 80G - HELD THAT:- The issue involved in this case is no longer res integra and has been decided by the Coordinate Bench of this Court in the case of “Director of Income Tax (Exemptions) -Vs- Seervi Samaj Tambaram Trust” [2014 (2) TMI 32 - MADRAS HIGH COURT] following the Supreme Court decision in the case of “Commissioner of Income Tax -Vs- Upper Ganges Sugar Mills Ltd. [1997 (8) TMI 4 - SUPREME COURT] and another case decided by the Honourable Supreme Court in “State of Kerala -Vs- MP.Shantiverma Jain” [1998 (5) TMI 24 - SUPREME COURT] in which the Honourable Supreme Court has held that the Income Tax Act, 1961 does not make any distinction with regard to the objectives of the Charitable and Religious purposes and the Trusts having both these objectives can also be registered under Section 11 or 12AA of the Act.
Tribunal was justified in allowing the appeal filed by the Assessee and upholding the registration of the Trust under Section 12AA read with Section 80G of the Act. The appeal filed by the Revenue is devoid of any merits - Decided in favour of assessee.
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2020 (4) TMI 861 - MADHYA PRADESH HIGH COURT
Exemption u/s 11 - CIT jurisdiction to cancel the registration certification granted in favour of a trust in exercise of power u/s 12-A - HELD THAT:- Such power could be exercised by the CIT only on and after 1.10.2004 as the amendment in question was not retrospective but is prospective in nature. Similar is the position in the present case also. On 15.10.2001, the assessee was granted registration by the CIT u/s 12A and the exemption under Section 80G on 18.3.2002. The order withdrawing the said registration with retrospective effect was passed by the CIT on 12.8.2003 i.e. much prior to coming into force of the aforesaid amendment enacting sub-section (3) in Section 12AA of the Act conferring the powers on the CIT to withdraw/cancel/recall the registration granted by him to any firm/trust/society. Indeed, the functions exercisable by the CIT u/s 12A are neither legislative nor executive but as mentioned above they are essentially quasi judicial in nature. It is for all these reasons the CIT had no jurisdiction to cancel the registration certificate once granted by him u/s 12A of the Act till the power was expressly conferred on the CIT by Section 12AA (3) of the Act w.e.f. 1.10.2004.
Since the Supreme Court in Industrial Infrastructure Development Corporation [2018 (2) TMI 1220 - SUPREME COURT] had already held that the amendment in question was not retrospective but was prospective in nature, it would be deemed that in the present case also the CIT at the time of passing the aforesaid orders had no express power to recall/withdraw registration certificate granted to the assessee trust. The substantial question of law framed is thus, answered accordingly. - Decided against the revenue.
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2020 (4) TMI 860 - MADHYA PRADESH HIGH COURT
Reopening of assessment u/s 147 - reasons to suspect OR reasons to believe - HELD THAT:- As noticed that the AO had reopened the case without any evidence and that too after the block assessment was over and even the regular assessment u/s 143(3) was also completed. There was no evidence found during the course of search that there was undisclosed production - no information was available with the Revenue that there was unaccounted production. Tribunal concurred with the view of CIT(A) and in this view of the matter, dismissed the appeal of the Revenue holding that it was not a case for suppressed production as per the process of manufacturing which is applied in production of Beer.
As noticed that even the Kerala State Excise Mannual which was applied by the AO in the case of the assessee who was operating in State of Madhya Pradesh, was of no help to the reasoning given by the Assessing Officer, as it was a case of pretence and reasons to suspect only.
Power u/s 147 cannot be exercised merely on reason of suspicion but there should be reason to believe. Therefore, keeping in view the findings recorded by the CIT(A) which have been affirmed by the learned Tribunal and considering the same on the touchstone and anvil of the arguments advanced by the learned counsel for the appellant-Revenue, we find no reason to differ, as no illegality or perversity has been pointed out by learned counsel for the Revenue in the aforesaid findings of fact, which may warrant interference by this Court. - Decided in favour of assessee.
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2020 (4) TMI 859 - MADHYA PRADESH HIGH COURT
Contribution to National H.V..D.C. Project - Deduction u/s 37(1) - Allowable revenue expenditure - HELD THAT:- There was material before the AO to adjudge the admissibility of the said deduction in favour of the assessee particularly when the said step taken by the assessee was in accordance with Section 24 of the Electricity (Supply) Act, 1948 which was applicable to assessee. Section 24 of the said Act enabled the Electricity Board to subscribe to associations constituted for the purpose conducive to development of electricity and promotion of common interest of persons engaged in generation, distribution and supply of electricity.
The provision was also considered by the AO but without dealing with the same, he held the said subscription to be of capital nature and/or by way of donation - expenses/grant-in-aid was in conformity with Section 24 of the Electricity Act, as stated above which required the assessee to subscribe to the associations constituted for the purpose conducive to development of electricity. Thus expenditure in question was to be allowed u/s 37(1) as the same was incurred in ordinary course of the business of the assessee and as a part of obligation to its consumers to develop electricity - contribution was made as per the order of the Government of India and it was wholly, necessarily and exclusively for the purpose of business. It was not a voluntary contribution/donation but was given on specific directions of the Government of India. In this view of the matter, we do not find any error in the finding recorded by the learned Tribunal in this regard.
Addition of Provident Fund which was not paid on due date under section 36(1)(va) - HELD THAT:- Assessee had got exemption from depositing the money with the Provident Fund Commissioner and instead, was allowed to deposit the same with the P.F. Trust and as per Regulation 11 of the PF Regulations which are applicable to the respondent, there is no specific date for deposit of the provident fund by the Board. In M.P.E.B.’s case [2015 (7) TMI 1350 - ITAT JABALPUR]which has been relied upon by learned counsel for the assessee, similar question raised by the Revenue was answered against them on the basis of order dated 30.12.2010 passed by the Assessing Officer accepting the same principle in respect of assessment year 2003-2004. Thus, there is nothing to take any different view in the present case.
In view of the foregoing reasons in addition to the findings recorded by the learned Tribunal coupled with the view taken by the Division Bench of this Court in M.P.E.B.’s case [2015 (7) TMI 1350 - ITAT JABALPUR], we do not find any case is made out in favour of the Revenue.
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2020 (4) TMI 858 - ITAT MUMBAI
Reopening of assessment u/s 147 - addition of excess allowance of income from tonnage tax - computing the non taxable relevant shipping income u/s 115VI(1) - HELD THAT:- The notice u/s 148 has been issued by the AO in the instant case, within a period of four years from the end of the relevant assessment year. As the AO formed an opinion that the above income is not derived either from the core or from the incidental activities as envisaged u/s 115VI, he has rightly issued notice u/s 148 of the Act. Thus, we dismiss the grounds of appeal raised by the assessee against the reopening made by the AO.
Section 115VF provides that a tonnage tax company shall offer its tonnage income computed as per the Act for tax and it further gives exemption from tax to the relevant shipping income of such tonnage tax company. The relevant shipping income has been defined in section 115VI of the Act, as profit derived from core activities or incidental activities. While the incidental activities are exhaustive list provided in Rule 11R of the I.T. Rules, the core activities are inter alia activities from operating ships. We find that in the instant case the interest income on fixed deposits with the banks arises because of bank guarantee that the assessee has given to its clients, including Performance guarantees, bid bond guarantees etc.
If the assessee was not undertaking the business of operating ships, it would not have received the interest on fixed deposits kept as guarantees - fixed deposits made in pursuance of guarantee which lead to interest income is directly related to the activity of the assessee of operating ships - these bank guarantees pertain to qualifying as well as non qualifying ships and in the absence of clear bifurcation between the guarantees, the interest income has to be apportioned at 36.44% to determine the part of the relevant shipping income for the assessee.
The assessee has claimed 36.44% of the total receipt from insurance claim amounting to ₹ 29.74 lakhs as exempt income. In the instant case, the sums pertaining to insurance claim are amounts expended for the repair of the vessel parts and regular maintenance of the vessels. These vessels are deployed for the business of the assessee of operating ships. As the insurance claim are directly related to operation of ships, they have to be considered while arriving at the profits of the tonnage tax company under the Act.
Certain expenditure incurred towards repairs and maintenance of vessels and other core activities relating to operation of ships was no longer required to be paid which lead to writing back of the creditors. As it pertains to qualifying as well as non-qualifying ships, the portion pertaining to relevant shipping income had to be appropriated on 36.44% basis. The writing back of sundry creditors or debtors give rise to income arising due to the activity of operating ships and, therefore, the receipts due to writing back has to be considered when determining profits arrived from core activities u/s 115VI.
As mentioned earlier, the assessee had obtained loan in the foreign currency, the repayment of which lead to accrual of gain due to fluctuation in foreign exchange rate and the loan had been taken by the assessee for acquiring vessels which are its business asset. Hence, the gain being a capital receipt is not chargeable to tax.
We set aside the order of the Ld. CIT(A) and delete the addition of excess allowance of income from tonnage tax made by the AO - assessee is entitled to claim of refund, which is subject to its contentions as stated in the ‘ Statement of Facts’ dated 13.05.2016 filed before the Tribunal that “however, during appellate proceedings before the learned CIT(A), it was submitted that even though the return filed in response to notice u/s 148 shows a lower income than the originally returned income, the learned CIT(A) may give directions to the effect that the assessed income after giving effect to his order can in no case go below the originally returned income, to which proposition the appellant is fully agreeable to” and direct the AO to work it out. - Appeal is partly allowed.
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2020 (4) TMI 857 - ITAT VISAKHAPATNAM
Addition under the head ‘sundry creditors’ - AO treated 20% of the unproved credits - HELD THAT:- Assessee himself has stated before the AO as well as the Ld.CIT(A) that the difference was due to unaccounted sales. The assessee has taken different argument before the ITAT stating there were mistakes in the order of Ld.CIT(A) with regard to unaccounted sales, which is nothing but an afterthought and argued that the assessee is taking inconsistent stand before the CIT(A) and ITAT, hence no credence to be given to the argument of the Ld.AR with regard to submission of factual mistakes. The assessee thought that estimation of gross income would be beneficial to him on unaccounted sales, therefore, submitted before the Ld.CIT(A) that the difference was due to unrecorded sales or the inflation of purchases and stock for bank loan purposes.
When the Ld.CIT(A) has given a clear finding that the assessee failed to produce the purchases book, stock register etc to verify the purchases or the unaccounted sales, the assessee has taken a different stand before the ITAT and argued that the difference was not related to purchase and sales and it was due to the amounts received and the supplies made to the creditor. In any case there was a difference in creditors account which was shown excess credit balance and in the absence of proper reconciliation and the source the entire difference of credit balance required to be brought to tax. Hence argued that no interference is called for in the order of the Ld.CIT(A).
Enhancement of income by the CIT(A) - objection of the assessee that the CIT(A) has enhanced the assessment without giving the enhancement notice - HELD THAT:- AO made the addition of ₹ 47,64,594/- under the head ‘unproved sundry creditors’ and the Ld.CIT(A) confirmed the addition of ₹ 25,50,000/-, thus given part relief to the assessee. Since there was no enhancement of addition made by the AO, there is no case for giving enhancement notice, hence the order passed by the Ld.CIT(A) is within the law. In addition to the above, the Ld.CIT(A) has accepted the written submissions and forwarded the same to the AO. The remand report was furnished to the assessee, calling his objections. As per the remand report, there was a difference of ₹ 25,50,000/- in respect of sundry creditor, M/s Sri Venkateswara Iron Corporation, for which the assessee was given opportunity to explain difference, thus the Ld.CIT(A) has followed all formalities adhering to the principles of natural justice, thus, there is no violation of law. Therefore, we dismiss the ground of the assessee on this issue.
Unaccounted sales - as per assessee certain sale transactions might not have been reflected in the books of accounts as such transactions might have been included in the closing stock itself - HELD THAT:- Before us, the Ld.AR advanced argument stating that there was a factual mistake in the order of the Ld.CIT(A) and the difference was due to payments received. The argument of the assessee is inconsistent and not acceptable without proper reconciliation. The assessee has furnished the account copy for the period 15.06.2013 to 30.10.2013 with brought forward balance, but has not furnished the complete account. However, it is undisputed fact there was a difference of ₹ 25,50,000/- which the assessee has over stated as at the end of the year under consideration and it is the obligation of the assessee to reconcile the difference and explain the reasons for difference with documentary proof. During the appeal hearing, the assessee was asked to explain the difference and reconcile the difference for which the Ld.AR could not offer any explanation. Therefore, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld.
Assessment of gross profits @5.58% on the difference amount - In the absence of proper reconciliation and evidence for purchase and sales and sources thereof, estimation of gross profit on the unreconciled difference is correct, hence, we dismiss the grounds raised by the assessee for estimation of gross profit. Assessee appeal dismissed.
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2020 (4) TMI 856 - ITAT KOLKATA
Disallowance of bad debts written off - assessee is in the business of advertising and had written off against “irrecoverable debts” - HELD THAT:- As per section 36(2)(i) in order to claim deduction under section 36(1)(vii) of the Act, the precondition is that the debt or part thereof should have been taken into account in computing the income of the Assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous years - Assessee has already provided the details of the year in which the revenue pertaining to bad debts were offered to tax before the authorities below. We also note that the Central Board of Direct Taxes ('the CBDT') vide Circular No. 551 dated 23 January 1990 has provided that bad debt written off is allowed as deduction in the year in which it is written off as irrecoverable in the account.
Assessee would be entitled to deduction of the impugned dad debt written off during the year under consideration. Further, we note that the issue as to whether the assessee is required to justify the writing off the debts in the books of accounts as bad in the year has now been settled and decided in the case of TRF limited v. CIT [2010 (2) TMI 211 - SUPREME COURT] wherein it has been held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the accounting entry for write off is sufficient to claim the deduction for bad debts - Claim of bad debt actually written off in the books of the assessee should be allowed as deduction and, therefore, we allow the appeal of the assessee.
Credit of TDS short granted - HELD THAT:- We are of the considered opinion that this factual issue needs to be verified by AO and if the credit of TDS has not been given to the assessee then it should be given in accordance to law.
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2020 (4) TMI 855 - ITAT MUMBAI
Rectification of mistake - mistake apparent on record - reliance placed by the Tribunal on the decision in the matter of Bovis Lend Lease (I) Pvt. Ltd. v. ITO [2009 (8) TMI 853 - ITAT BANGALORE] which was not cited or discussed by either the applicant or the respondent at any stage nor mentioned by the Hon’ble Members during the original hearing AND even when the appeal was re-fixed for clarifications by the Tribunal amounts to violation of principles of natural justice and therefore, suffers from patent mistakes apparent from record - HELD THAT:- There is merit in the submission of the Ld. counsel that the reliance placed by the Tribunal on the decision in the matter of Bovis Lend Lease (I) Pvt. Ltd. (supra), which was not cited or discussed by either the applicant or the respondent at any stage nor mentioned by the Hon’ble Members during the original hearing before the Tribunal or even when the appeal was re-fixed for clarifications by the Tribunal amounts to violation of principles of natural justice and therefore, the impugned order suffers from patent mistake apparent on record.
As per the ratio laid down by the Hon’ble Bombay High Court in Inventure Growth & Securities Ltd. v. ITAT [2010 (5) TMI 99 - BOMBAY HIGH COURT], the finding arrived at in the impugned order on the basis of the decision in Bovis Lend Lease (I) Pvt. Ltd. (supra) should have been brought to the notice of the concerned parties. Inadvertently, the Bench failed to bring to the notice of the parties the above decision. MAs are allowed.
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2020 (4) TMI 854 - ITAT MUMBAI
Characterization of income - One time membership entrance fees as one time membership fees for life time membership of club (15 years) - AO treated the said receipt as revenue receipt against the assessee’s treatment for treating it as a capital receipt - HELD THAT:- Considering the decision in the case of E.D. Sasoon, [1954 (5) TMI 2 - SUPREME COURT], Madras Industrial Corporation Ltd. [1997 (4) TMI 5 - SUPREME COURT], Calcutta Co. Ltd. [1959 (5) TMI 3 - SUPREME COURT] and in the case of Rotork Controls India Pvt. Ltd. [2009 (5) TMI 16 - SUPREME COURT] it was held that membership fee received for 33/25 years was liable to spread over the period of time for which such fee is received. Respectfully following the same, we direct the AO to tax following the earlier orders of ITAT i.e [2015 (11) TMI 1810 - ITAT MUMBAI]
Disallowance on account of amortization of additional premium paid on lease hold land - HELD THAT:- As in Associated Cement Co. Ltd. [1988 (5) TMI 2 - SUPREME COURT] held that it is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future.
In the instant case, the advantage which was secured by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of 15 years. If the liability had to be paid, the payments would have been on revenue account and, hence, the advantage secured was in the field of revenue and not capital. And as a result of the expenditure incurred, there was no addition to the capital assets of the assessee and no change in its capital structure.
With utmost regard to the decision of Hon’ble Supreme Court, in our humble view, the ratio of the decisions are not helpful to the assessee. In the present case, there is no obligation under lease agreement to pay amortization of lease premium by assessee to the super lesser. There is no evidence on record that the land which was released by UDA was under the occupation of assessee or is part of business asset, in other word it was a part and partial of the plot of land leased to assessee. Thus, the ratio of the decision of Hon’ble Apex Court is not applicable on the present case. In the result, ground of appeal raised by assessee is dismissed.
Disallowance under section 14A r.w.r. 8D - HELD THAT:- On appeal before the ld. CIT(A), directed not to consider the investment made in Lift and Shift India Pvt. Ltd., being made in group companies. And rest of the disallowance under Rule 8D(2)(iii) was affirmed. Assessing Officer wrongly deducted ₹ 1739/- from disallowance of Rule 8D(2)(iii) which was directed to be rectified. Before us, the ld. AR of the assessee vehemently argued that only those investment which yielded the exempt income should be considered for considering the average value of investment for disallowance under Rule 8D(2)(iii).
Considering the decision of Special Bench of Delhi Tribunal in Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] we direct the AO to re-compute the disallowance under Rule 8D(2)(iii) by considering only those investment which yielded exempt income. Needless to direct that before computing the disallowance, the Assessing Officer shall grant opportunity to the assessee.
This ground of appeal is party allowed. However, we may make it clear that in case any other investment made in group concern and generated exempt income be also considered for taking average value of investment, if those investment yielded exempt income as per the decision of Special Bench of Vireet Investment (supra).
Professional Fees Payment - disallowance of professional fees paid to Bhagwan Madhav on the ground that no projects were undertaken by assessee during the Assessment Year under consideration - CIT(A) affirmed the action of Assessing Officer that professional charges paid for housing developed project in the past cannot be accepted for reasons that assessee failed to establish against which professional charges were incurred and that assessee failed to establish the nexus - HELD THAT:- Assessee is engaged in construction activities. The services of Civil Engineer are integral part of civil project construction activities. The Assessing Officer has not made any investigation about the genuineness of payment and services rendered by the Civil Engineer. The Assessing Officer simply disallowed the charges paid to Civil Engineer by taking view that project is yet to start. Similarly, the ld. CIT(A) the action of Assessing Officer holding that assessee failed to establish the nexus between the expenses and corresponding income without disputing the fact that services of Civil Engineer are integral part of civil construction activities. Considering the fact that professional charges paid to Civil Engineer are disallowed without bringing any adverse evidence on record and business of assessee is not in dispute, we direct the Assessing officer to delete the addition. In the result, this ground of appeal is allowed.
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