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Income Tax - Case Laws
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2021 (10) TMI 1432 - ITAT RAIPUR
Assessment u/s 153A - Addition u/s 68 - receipt of share application/share capital - HELD THAT:- Scope of search assessments u/s 153A in respect of concluded and unabated assessments is narrower in its sweep and restricts the right of the AO to examine the issue emanating from some incriminating material.
In the absence of any connection with the incriminating material unearthed in search proceedings of assessee, additions/disallowances in respect of concluded assessment i.e. AYs. 2006-07 to 2009-10 in instant appeals, are not permissible in law. The burden of proof towards existence of undisclosed income discovered as a result of search is on the Revenue. No evidence has been referred to by AO or brought on record as claimed to be found at search of assessee to suggest existence of undisclosed income as perceived by the AO. Revenue has failed to rebut the factual assertions made on behalf of the assessee towards non-discovery of incriminating material at the time of drastic action of search on assessee and reference thereto in assessment order.
There is nothing on record that information contained in seized documents as per list of inventory, were not recorded or reflected in the books of accounts. Hence, the action of the AO towards making additions in respect of concluded assessments towards undisclosed income is contrary to the judicial dicta.
Accordingly, we are of the view that various additions/disallowances made by the AO are clearly beyond the scope of authority vested u/s 153A without discharging the burden to show presence of any incriminating material or evidence deduced as a result of search in so far as completed assessments are concerned. Additions/disallowances made in assessments framed u/s 153A of the Act in respect of captioned assessee pertaining to AYs. 2006-07 to 2009-10 are thus required to be struck down on this score itself. However, the assessments/re-assessments pending on the date of search i.e. AY 2010-11 to 2012-13 which stood abated by operation of law will continue to be governed by ordinary powers of assessment under s. 153A of the Act in accordance with law.
The legal ground of jurisdiction raised by the Assessee as per the cross objections, is thus allowed in respect of AY 2006-07 to 2009-10. The additions/disallowances made u/s 68 and towards low yields etc. without showing incriminating documents are bad in law and thus requires to be struck down for AY 2006-07 to 2009-10 in question.
Addition u/s 68 - CIT(A) found that primary onus placed upon the assessee u/s 68 was satisfactorily discharged by the assessee. CIT(A) has examined the factual matrix in relation to each and every subscriber individually, as extracted in para 9 of this order, and found that the subscribers were duly assessed and payments have come through banking channels. It was further found that the tangible net worth of the subscribers company is sufficiently enough to meet the criteria of creditworthiness envisaged in law. The bank statements, audited financial statement and confirmations were analyzed. The source of the investment was thus found to be explained satisfactorily in the facts of the case.
The assessments of the subscriber companies carried out u/s 143(3)/143(3) r.w.s. 147 were noted. It was further noted the same AO in the case of other group concern accepted the creditworthiness of these cos. for subscription of Pref. share capital. The adverse inference drawn by the AO was found to be unsubstantiated and in the realm of suspicion, surmises and conjectures. On legal position, the CIT(A) has referred to large number of judicial pronouncements. Without reiterating the different facets analyzed by the CIT(A), We find complete force in his view. After detailed examination, the CIT(A) eventually set aside the additions made by the AO under s. 68 in the unabated search assessment without any iota of incriminating material to support the allegation of accommodation entries. We completely endorse his action on merits without demur. - Decided in favour of assessee.
Additions on low yield - different amounts of suppression of yield and unaccounted productions/sales - CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material, books of accounts, bills/invoices and other evidences and found to be satisfactory - HELD THAT:- CIT(A), in our mind, has analysed the factual matrix threadbare and passed a very speaking order. Without repeating all the observations of the CIT(A), we find ourselves in complete agreement with the conclusion drawn by the CIT(A). The CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts, the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We are unable to discern any error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO. We, thus, decline to interfere with the order of the CIT(A) on this score.
In the result, grounds raised by the Revenue challenging the action of the CIT(A) for reversal of additions on the grounds of suppression of yield and unaccounted production and sales are dismissed for AYs. 2006-07 to A.Y. 2009-10 in appeal. Decided in favour of assessee.
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2021 (10) TMI 1428 - ITAT DELHI
Correct head of income - LTCG - Treating the capital asset as stock in trade - assessee is a real estate company and no addition in WIP was made during the yea - DR submitted that the Assessing Officer has rightly worked out the business profit on this transaction treating the same as stock in trade - CIT(A) deleted the addition - HELD THAT:- As continuous stand of the revenue was these are work in progress treated to be as capital asset and not as stock-in- trade. The transfer of the hotel on sale cannot be termed as short term capital gain or even business income and thus, the assessee has rightly computed the same as long term capital gain on sale which was reflected in profit and loss account and was subsequently also done. Thus, the deletion of the addition by the CIT(A) was right and there is no need to interfere with the findings of the CIT(A). Hence, Ground No. 1 of Revenue’s appeal is dismissed.
Accrual of income - addition of interest amount in the income of the assessee as share of the disputed parties in the interest will arise only - CIT(A) deleted the addition - HELD THAT:- The interest income on fixed deposit in respect of arbitration proceeding and the same cannot be taxable during the year under consideration as the year of taxability of the same was contingent upon the final decision of the arbitrary Tribunal. During the course of hearing, the Ld. AR submitted that in subsequent year the interest was offered to tax by the assessee. Therefore, the CIT(A) has rightly deleted the said addition and there is no need to interfere with the findings of the CIT(A). Hence, Ground No. 2 of the Revenue’s appeal is dismissed.
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2021 (10) TMI 1427 - MADRAS HIGH COURT
Validity of reassessment proceedings - infraction of NJP (Nature Justice Principle) - writ petitioner had barely 2 hours and 3 minutes to respond to said SCN - HELD THAT:- As reasonable time has not been given to the writ petitioner/Assessee to respond to said SCN much less ample or adequate time. Another facet of the matter is, the writ petitioner managed to respond (partially though) and sought for two weeks time to send the other documents, considering the nature of variation, this Court is of the considered view that it is only appropriate that the respondent should have waited for a fortnight for the writ petitioner to send in other documents which has been described as 'balance documents' under cover of letter of writ petitioner dated 27.09.2021.
This Court has not expressed any opinion or view at this juncture on the request for reason for reopening made by writ petitioner which is GKN Driveshafts principle/route [2002 (11) TMI 7 - SUPREME COURT] This is left to the wisdom and discretion of the respondent at this juncture.
This Court is of the considered view that this is a appropriate and a fit case for sending the matter back to respondent for redoing/doing de novo assessment from said SCN stage.
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2021 (10) TMI 1420 - ITAT DELHI
TP Adjustment - Foreign Exchange Fluctuation - international transaction or not? - HELD THAT:- Since the forex difference arises out of an international transaction, it is pertinent for the assessee to pass on the forex fluctuation to its AE. Hence, we hold that the assessee has correctly treated it under the operating income.
Interest on Receivables - TPO reclassified the outstanding receivables beyond the credit period of 30 days as deemed loans to the AE and treated them as separate international transaction - TPO by applying a markup of 400 basis points on LIBOR on the receivables made an addition - HELD THAT:- It is settled principle that there is no need to benchmark the interest on receivables wherein the interest has not been charged from either of the parties i.e. payables and receivables. In the instant case, period of 90 days has been allowed and the amounts have been received within the range of 90 to 95 days. In the absence of any fact to prove that the assessee is liable to payment of interest, no adjustment is warranted. There cannot be one straight jacketed formula to allege that the assessee has received interest or the delay was allowed to confer an undue advantage to the other party.
There can be a delay in the collection of monies for the supplies made, even beyond the agreed limit, due to various factors which would be investigated on a case to case basis and also the case of Gillette India Limited [2017 (7) TMI 1188 - RAJASTHAN HIGH COURT] wherein as affirmed the order of the Tribunal wherein it was held that the transaction of allowing credit period to the AE for realization of its sale proceeds is not an independent international transaction but is closely linked with the sale transactions of the AE. Decided in favour of assessee.
Deduction of Education Cess - Reading the provisions of Section 40(a)(ii), the assessee argued that education cess paid on Income Tax doesn’t come under the purview of the definition as it is levied on the amount of Income Tax but not on profits of business - HELD THAT:- keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon’ble High Court of Bombay [2020 (3) TMI 347 - BOMBAY HIGH COURT] and Hon’ble High Court of Rajasthan [2018 (10) TMI 589 - RAJASTHAN HIGH COURT], we hereby hold that the assessee is eligible to claim the deduction of the ‘Education Cess’ as per the provisions of Section 37 of the Income Tax Act.
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2021 (10) TMI 1419 - ITAT MUMBAI
Taxability of profits of life insurance business - transfer from Share Holders Account to Policy Holder’s Account and shown as part of ‘surplus’ in the actuarial valuation’ - Whether was only transfer asset and not taxable u/s 44 of the act read with Rule 2 of the First Schedule? - HELD THAT:- Said position qua the issue in question as decided by co-ordinate bench of Tribunal vide order [2017 (3) TMI 1696 - ITAT MUMBAI] has not been controverted by DR, we are of the considered view that when undisputedly, the assessee is carrying on life insurance business, its income is to be determined u/s 44 of the Act by taking into account total surplus as arrived at by actuarial valuation and further income from share holder account was also to be taxed as part of the life insurance business. So finding no illegality or perversity in the impugned findings returned by CIT(A), grounds 1 & 2 raised by the Revenue are dismissed.
Addition u/s 10(23AAB) - Loss from Pension Fund - HELD THAT:- As we are of the considered view that Ld.CIT(A) has rightly deleted the addition made by the Assessing Officer on account of loss from Pension Fund being exemption under section 10(23AAB) of the Act. So we find no scope to interfere into the finding by Ld.CIT(A).
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2021 (10) TMI 1417 - ITAT BANGALORE
Penalty levied u/s 271FA - non-filing of Annual Information Return as required u/r 114E of the I.T. Rules - Proof of reasonable cause in terms of sec.273B assessee is a co-operative bank - HELD THAT:- As decided in case of The Mandya Dist. Co-op. Central Bank Ltd. [2020 (3) TMI 1455 - ITAT BANGALORE] notice that the original provisions of Rule 114E of Income tax Rules did not include “co-operative bank” and it was inserted only in the amended provisions of Rule 114E, which came into effect from 1.4.2016.
Accordingly, there is merit in the submission of the ld A.R that there existed an ambiguity as to whether the co-operative banks are required to comply with the provisions of Rule 114E of the Act, meaning thereby, the bonafide belief of the assessee shall constitute reasonable cause in terms of sec.273B of the Act for the failure in furnishing the AIR for the year under consideration. In this view of the matter, the impugned penalty is liable to be deleted. Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned penalty levied u/s 271FA - Decided in favour of assessee.
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2021 (10) TMI 1413 - KARNATAKA HIGH COURT
Exemption u/s 80-P - claim denied as petitioner is not a Co-operative Society within the meaning of Section 2(19) - HELD THAT:- As decided in Swabhimani Souharda Credit Co-operative Ltd [2020 (1) TMI 831 - KARNATAKA HIGH COURT] all entities registered under the said Act of 1997 are Cooperative Societies within the meaning of Section 2(19) of the IT Act, 1961 and that they would be entitled to stake their claim for exemption under Section 80-P.
In view of the decision of M/s. Swabhimani Souharda Credit Cooperative Ltd.,(supra), we are of considered opinion that the impugned Assessment Order at Annexure-E is erroneous and illegal and therefore, deserves to be quashed and the matter be remitted back for re-consideration afresh in accordance with law, bearing in mind the observations and findings recorded in this order. Decided in favour of assessee.
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2021 (10) TMI 1412 - KARNATAKA HIGH COURT
Exemption u/s 11 - scope and amplitude of the definition “charitable purpose” - correct interpretation of the proviso to Section 2(15) for “charitable purpose” - scope of amendment to section 2[15] - HELD THAT:- As the issue involved herein is squarely covered by the Co-ordinate Bench ruling of this Court in the assessee’s own case in Karnataka Industrial Area Development Board [2020 (11) TMI 483 - KARNATAKA HIGH COURT]
As no reasons to differ from the findings of the Co-ordinate Bench on the issue involved herein. Hence, we answer the substantial questions of law in favour of the assessee
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2021 (10) TMI 1408 - KARNATAKA HIGH COURT
Computation of operating income/loss - Tribunal directing the assessing authority to include the foreign exchange fluctuation loss or gain as part of the operating income/loss - HELD THAT:- This issue is covered by the decision of this Court in Pr. Commissioner of Income Tax and Another V/s. M/s. NXP Semi Conductors India Pvt. Ltd. [2018 (7) TMI 2311 - KARNATAKA HIGH COURT] where one of us Hon’ble SSJ was the member, considering the identical question, placing reliance on the Principal Commissioner of Income Tax and Another V/s. M/s. Softbrands India Pvt. Ltd. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] has held that no substantial question of law arises for consideration. Accordingly, appeal filed by the Revenue has been dismissed.
TP Adjustment - Comparable selection - exclude both M/s. Bodhtree Consulting Ltd and Infosys Ltd., as comparables by holding that the said companies are functionally different from the assessee – company - HELD THAT:- This issue is covered by the decision of this Court in Principal Commissioner of Income-tax, Bangalore V/s. Softbrands India [P] Ltd. [2018 (6) TMI 1327 - KARNATAKA HIGH COURT] as held this Court cannot be expected to undertake the exercise of comparison of the comparables itself which is essentially a fact finding exercise. Neither the sufficient Data nor factual informations nor any technical expertise is available with this Court to undertake any such fact finding exercise in the said appeals under Section 260-A of the Act.
Allowability of market loss - Whether Tribunal erroneously held the market loss is neither speculative nor contingent in nature when the said market loss is not allowable as per CBDT Instruction No.3/2010 dated 20.03.2010 as actual losses are allowable as non-speculative only if the transactions qualify as eligible derivative transactions under clause [d] of proviso to section 43 [5] ? - HELD THAT:- This issue is covered by the Co-ordinate Bench of this Court in the case of M/s. Quest Global Engineering Services Pvt. Ltd. [2021 (3) TMI 434 - KARNATAKA HIGH COURT] as held loss sustained by the assessee due to fluctuation in foreign exchange while implementing export contract is incidental to assessee's course of business, therefore, such a loss is not a speculative loss but a business loss. The aforesaid findings have not been demonstrated to be perverse. substantial questions answered against the revenue and in favour of the assessee.
Claim for loss on account of forward contracts in Forex derivatives - HELD THAT:- As substantial question of law No.3 being answered in favour of the assessee, this realized gain/loss requires to be answered in favour of the assessee and against the Revenue. Accordingly, this substantial question of law is answered in favour of the assessee and against the Revenue.
Exemption u/s 10A - whether is an exemption section although sections 10A and 10B as substituted by Finance ct, 2000, provide for ‘deduction’ of the profits and gains derived from the export of articles, even though it is placed in Chapter III, section 10A begins with sentence ‘subject to the provisions of this section, the deduction ’?” - HELD THAT:- This question is covered by the decision of Commissioner of Income-tax V/s. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] from a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee.
The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’.
Though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly. Decided in favour of the assessee.
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2021 (10) TMI 1407 - BOMBAY HIGH COURT
Validity of assessment u/s 144B - Assessment Order has been passed without following principles of natural justice and without even issuing a show-cause notice with a draft Assessment Order as mandatorily required u/s 144B - HELD THAT:- Respondents have filed an Affidavit of one Deputy Commissioner as affirmed that from the assessment order it appears that there was no show cause that was issued to the petitioner and unable to state as to why the faceless assessment centre has not issued a draft assessment order.
In view of this candid admission by Respondents, the impugned order dated 23/06/2021 is hereby quashed and set aside. The consequential notice of demand dated 23/06/2021 as well as show-cause notice dated 23/06/2021 issued under Section 274 read with 270A of the Income Tax Act, 1961 are also quashed and set aside. The Respondents may take such steps as advised in accordance with law.
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2021 (10) TMI 1403 - ITAT CHANDIGARH
Disallowance made of provision of stock obsolescence being charged to the profit and loss account - HELD THAT:- Since the issue already stands adjudicated as above in the preceding assessment year, A.Y. 2005-06 [2021 (7) TMI 1408 - ITAT CHANDIGARH] the decision rendered therein will apply to the issue in all the remaining years concerned wherein as held that claim of the assessee as fully justified vis a vis write off of vaccines since undoubtedly such vaccines were not capable of being used beyond expiry period and had no realizable value thereafter. The assessee has been able to establish documentarily the fact of write off of the said product and the Revenue has not proved anything to the contrary. For the reasons stated above in the context of write off of vaccines we see no reason to disallow the claim of the assessee. Moreover identical claim of the assessee, we have noted, was allowed by the ITAT in identical facts and circumstances in A.Y 2003-04. The claim of the assessee to write off of toothbrush also is therefore allowed
Accordingly, the issues of disallowance of provision of stock obsolescence stands decided in favour of the assessee.
Disallowance of 1/3rd of the expenditure on advertisement and promotion, holding that it results in promotion of brand name owned by the foreign company - HELD THAT:- Since the issue already stands adjudicated as above in the preceding assessment years, A.Y. 2005-06 & 2006-07 [2021 (7) TMI 1408 - ITAT CHANDIGARH]as held that it cannot simply be derived from the fact that assessee has incurred huge expenses on advertisement and sale promotion of products the brand of which belonged to another entity, considering the clear distinction in the end objective of the said expenses and the assessee consistently claiming that it had acquired the exclusive license to manufacture and sell the products in India and thus being the sole user of the brand name in India. These contentions of the assessee have remained uncontroverted. The entire benefit, in such circumstances, inured to the assessee alone as it alone was operating in the Indian market. Benefit if any to the AE was only incidental. And on account of such incidental benefit accruing to a third party it cannot be said that the expense was not wholly and exclusively for the benefit of the assessee. As long as the objective /purpose for incurring an expenditure is to benefit the assessee solely, the expenditure can be said to be incurred wholly and exclusively for the benefit of the assessee. Any incidental benefit accruing to a third party on account of the same, being beyond the control of the assessee, does not dilute the character of the expense.
No reason or basis therefore for holding a part of the expense as pertaining to brand building - Thus the decision rendered therein will apply to the issues in all the remaining years concerned. Accordingly, the issues of disallowance of 1/3rd of advertisement and promotion expenses stands decided in favour of the assessee.
Disallowance of purchase of vaccine of GlaxoSmithkline Biological S.A. u/s 40(a)i) - HELD THAT:- Since the issue already stands adjudicated as above in the preceding assessment years, A.Y. 2005-06 & 2006-07 [2021 (7) TMI 1408 - ITAT CHANDIGARH] the decision rendered therein will apply to the issues in all the remaining years concerned. Accordingly, the issues of Disallowance of purchase of vaccine of GlaxoSmithkline Biological S.A. u/s 40(a)i) of the Act stands allowed for statistical purposes.
Nature of expenditure - Disallowance of Product Development Expenses in relation to pre-launch of product being capital in nature - HELD THAT:- Since the issue already stands adjudicated as above in the preceding assessment year, A.Y. 2006-07, the decision rendered therein will apply to the issues in all the remaining years concerned. Accordingly, the issue of Disallowance of Product Development Expenses in relation to pre-launch of product, being capital in nature stands allowed for statistical purposes.
Disallowance of market research expenses incurred on market surveys, market research being capital in nature - HELD THAT:- The expenditure incurred by the assessee on market research is merely for maintaining its profit earning ability and does not enhance the same. It is an expenditure which is incurred by the industry segment to which the assessee belongs so as to remain relevant and competitive in the said segment. By no stretch of imagination, the impugned expenditure, therefore, can be said to be capital in nature. The benefit, though made may be derived for a few years but is definitely not on capital account but on the contrary is on a revenue account to maintain its profitability only and not by way of enhancing it.
The decision of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd. cited before us strengthens the case of the assessee wherein product development expenses which were found to have been incurred not on capital account but on revenue account, though giving enduring benefit in future, were held to be revenue in nature and hence allowable. Disallowance of market research expense is directed to be deleted and we hold that the assessee is entitled to claim the same as revenue in nature. The assessee has alternately pleaded for allowance of depreciation which is of no relevance since the entire claim of expenses has been allowed treating it as revenue in nature - Decided in favour of assessee.
Disallowance of post retirement medical benefit holding this expenditure as being in the nature of contingent liability - HELD THAT:- As gone through the orders of the ITAT in the case of GlaxoSmithKline Consumer Healthcare Ltd.(supra) and have noted that the issue of allowability of provision created for meeting medical expenses of the employees post retirement had been adjudicated in the said case wherein the ITAT had allowed the said provision on noting that it had been created on scientific basis by actuary in terms of and recognizing the scheme of employment and also the Accounting Standard-15 issued by the ICAI in this regard. Considering the same, the ITAT had held that the said provision could not be, therefore, said to be contingent in nature and was duly allowable, being recognized method of accounting. In the impugned case also, we find, that the assessee had claimed the provision, valued by an actuary, created in terms of the scheme of employment and the Accounting Standard-15 of the ICAI, which facts have not been controverted by the revenue before us. - Decided in favour of assessee.
Disallowance of claiming CENVAT recoverable holding that expenditure to be not in the nature of trading expenditure - assessee had written off service tax recoverable which was not allowed by the Revenue holding that it pertained to earlier years and could not also be treated as bad debt - HELD THAT:- CENVAT Credits represented cost of services availed, which was not claimed in the relevant years since they were eligible to be set off against output service tax to be paid by the assessee. On this claim of set off being judicially held to be not allowable, we agree with the assessee, the impugned CENVAT Credits partook the character of cost of services and did so in the year in which the order holding them as not eligible for setoff against output tax, was passed. Till then they merely represented asset by way of service tax credit available on account of the same. In view of the same, we find merit in the claim of the assessee that the write off of cenvat credit recoverable was allowable as revenue expenditure in the year written off and the disallowance so made by the revenue authorities, holding them to be non trading in nature, we hold is not in accordance with law and is directed to be deleted. Decided in favour of the assessee.
Disallowance of provision of Market Claims on account of the assessee having failed to establish the nature of liability - HELD THAT:- Assessee has contended that it has incurred liability on account of VAT claims to be made by dealers which is to be discharged in the subsequent years, but, we find, no documentary evidence in this regard has been filed to substantiate its claim. In the absence of the same, we fail to understand how the liability arose in the impugned year or could be said to be present obligation of the assessee even though it was required to be discharged in future years. The facts regarding the claim itself are not clear and therefore, we are not inclined to agree with the contention of the assessee. However, the alternate claim of the assessee of reducing the said provision reversed in subsequent years from its taxable income is justifiable and the revenue authorities are directed to allow the same in accordance with law. Decided against assessee.
Education cess falls within the scope of amounts not allowed as deduction u/s 40(a)(ii)
Adjustment made on account of interest on receivable allegedly recharacterizing as on secured loans - treatment of the delayed payment of receivables as international transactions as defined u/s 92B - Determination of arms’ length price adjustment be made to the income of the assessee in relation to the said transaction - HELD THAT:- As noted from the order of Kusum Healthcare Pvt. Ltd. [2015 (4) TMI 180 - ITAT DELHI] that it has been held that the delay in recovery of receivables would have an impact on the working capital of the assessee which also needs to be studied. In the decision of the ITAT in the case of Kusum Healthcare Pvt. Ltd relied upon by assessee before us, we have noted that the adjustment on account of outstanding receivables was deleted holding that the working capital adjustment would take into account the impact of delayed recovery of debtors as also any account payable mechanism adopted by the assessee to balance the delayed realization. It was, therefore, held that if the operating profit margin of the assessee are higher than the operating profit margin of comparable cases after working capital adjustment, then no adjustment on account of realization of trade receipts is required.
We restore the issue of treating the accounts receivables as international transactions and bench marking the same for the purpose of adjustment to be made to the income of the assessee, to the TPO to determine the same afresh in accordance with law.
Transfer Pricing Adjustment in relation to export of goods - assessee’s contention of no adjustment to be made on account of the end purpose of the transaction of sale of goods to its AE being philanthropic - HELD THAT:- No merit in the same for the reason that the commercial intention in the transaction between the assessee and its AE is an admitted fact, the assessee having charged a margin of 9% approximately on the cost incurred by it. When there is an admitted commercial intent in the transaction, it should ideally be, therefore, then at arms’ length only. The subsequent action of the AE of using the product/goods for philanthropic purpose cannot have any effect considering the admitted commercial transaction between the assessee and its AE.
Comparable selection - We consider it fit to restore the issue back to the TPO for reconsideration of the contention of the assessee regarding exclusion of certain comparables from the list of comparables selected by the TPO. The TPO is directed to pass a speaking order detailing the reasons for rejecting the above comparables as pointed out by the assessee and thereafter adjudicate the issue in accordance with law. Needless to add the assessee be granted due opportunity of hearing in this regard. This issue therefore, is partly allowed for statistical purposes.
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2021 (10) TMI 1402 - ITAT AHMEDABAD
Expansion of Scope of limited scrutiny to complete scrutiny - CIT(A) held that the limited scrutiny can be converted into full scrutiny with the approval of higher authorities and the assessee could not produce any evidences to show that approval from concerned authority was not taken - HELD THAT:- As perused the material on record and it is noticed that nowhere in the assessment record, AO has made any reference that any approval of the higher authority was taken for converting the case of the assessee from limited scrutiny to the detailed scrutiny.
We opined that the decision of CIT(A) is unjustified since the CIT(A) has neither called any remand report from the AO on the objection of the assessee regarding taking of approval from higher authority for converting limited scrutiny to the detailed scrutiny nor the CIT(A) has given detailed reason along with the points for determination of his decision as prescribed in section 250(6) - it would be appropriate to restore this case of the assessee to the file of the ld. CIT(A) for adjudicating afresh - Appeal of the assessee is allowed for statistical purposes.
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2021 (10) TMI 1401 - ITAT MUMBAI
Income taxable in India - Amounts received for leasing of alloys taxed as royalty - India US DTAA - assessee being a non-resident company incorporated in accordance with the corporate laws of United States of America and a tax resident of that County - HELD THAT:- Royalty for design of bushing is not paid by OCIPL to OCNLIC and payment to assessee is only towards lease rentals i.e. bushings made of alloys comprising Platinum and Rhodium. We note that the assessee has not provided any services to OCIPL and OCIIPL inconnection with intellectual property related to bushing and, since, the intellectual property right with regard to the bushings is with OCNLIC and assessee is merely providing alloys of Platinum and Rhodium, consideration for alloys cannot be treated as royalty.
The case is covered by the decision of Neyveli Lignite Corpn. Ltd. [1999 (10) TMI 40 - MADRAS HIGH COURT] wherein it has been held that payment to be constituted as royalty should be the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing.
Similarly, the case is also covered by the decision of the Delhi Bench of the Tribunal in the case of Bharti Airtel Ltd. [2016 (3) TMI 680 - ITAT DELHI] wherein it has been held that in order to receive a royalty in respect of allowing the usage or right to use any property including an intellectual property, the owner thereof must have an exclusive right over such property.
Technology for manufacture of glass fibre including the use of bushing has been provided by OCNLIC a Dutch Company and royalty has been paid to that Dutch Company and, therefore, the amount of lease rental on alloy which are used to refurbish the bushing cannot be again treated and taxed as royalty in the hands of the assessee by invoking the India US DTAA and provisions of section 9(1)(vii) read with Explanation 5 of the Income-tax Act. Addition deleted - Decided in favour of assessee.
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2021 (10) TMI 1400 - ITAT MUMBAI
Revision u/s 263 - scope of limited scrutiny or expanded the scope of limited scrutiny - assessee’s case was selected under limited scrutiny category on Low income in comparison to high loan / advances / investments in shares appearing in balance-sheet and Minimum alternate tax (MAT) liability mismatch - HELD THAT:- Perusal of the notices issued u/s 142(1) as well as 143(2) make it clear that in course of assessment proceedings, AO did examine both the issues for which assessee’s case was selected for scrutiny - in response to query raised by the AO from time to time, the assessee had furnished all relevant and necessary details relating to loans and advances given and investment made in shares as appearing in balance sheet. AO has conducted necessary enquiry on the issues for which case was selected for scrutiny and after applying his mind to the materials on record, has completed the assessment.
As per CBDT instruction No.20/2015 dated 29-12-2015, in limited scrutiny cases the reasons / issues shall be verified as communicated to the assessee concerned and the questions u/s 142(1) of the Act shall remain confined only to a specific reasons / issues for which the case has been taken up for scrutiny - the scope of enquiry by the assessing officer shall be restricted to the limited scrutiny issue. The aforesaid position stands reiterated in CBDT Instrn. No.5 of 2016 dated 14-07-2016. Thus, the assessing officer being bound by instructions issued by CBDT from time to time, could not have gone beyond the scope and ambit of limited scrutiny for which the case was selected. AO was required to strictly confine himself to conduct necessary enquiry relating to issues for which limited scrutiny was required.
AO while completing the assessment has restricted himself and, rightly so, to the scope and ambit of the limited scrutiny. Thus, unless the scope of scrutiny is expanded by converting it to a complete scrutiny with the approval of the higher authority, the assessing officer could not have travelled beyond his mandate.
That being the case, the assessment order cannot be considered to be erroneous and prejudicial to the interest of revenue for not examining the loans taken by the assessee and their utilization as well as capitalization of interest. The material on record clearly establishes that the assessing officer adhering to the scope of limited scrutiny has enquired into and examined the specific issues. When the assessing officer is not empowered to do certain acts directly, the revisionary authority certainly cannot direct the assessing officer to do so indirectly by exercising power u/s 263 of the Act. While coming to such conclusion, we get support from the decision of M/s Su-Raj Diamond Dealers Pvt Ltd vs PCIT [2019 (12) TMI 26 - ITAT MUMBAI] - The assessment order cannot be considered to be erroneous and prejudicial to the interest of revenue. In view of the aforesaid, we set aside the impugned order of PCIT passed u/s 263 of the Act and restore the order of assessment. Appeal of assessee allowed.
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2021 (10) TMI 1399 - ITAT DELHI
Rectification of mistake u/s 254 - Incorrect and incomplete recording of the fact that the responsibility for installation and commissioning alongwith supply of equipment is with the appellant/applicant - HELD THAT:- The issue has been decided by this Tribunal [2020 (12) TMI 857 - ITAT DELHI] wherein the Tribunal has taken a view that the dominant purpose of the appellant/applicant is not to sell telecommunication equipment but to commission it after due customisation of hardware and software in accordance with the requirement of telecommunication service provider.
After carefully perusing the contents of the Miscellaneous Applications, we are of the considered view that this Tribunal has taken a view after due appreciation of facts. It may be an error of judgment but not an error as contemplated in section 254(2) of the Act. We, therefore, do not find any reason to hold that there is a mistake apparent from record in the view taken by this Tribunal. This issue is, accordingly, dismissed.
Incorrect adjudication of Ground of appeal No. 6 – Attribution of profits - Non-adjudication of Ground of Appeal No. 7 – Taxation of software as royalty - HELD THAT:- We have given thoughtful consideration to the orders of this Tribunal. We are of the considered view that for the limited purpose of adjudication of Ground No. 6 with its sub-grounds and Ground No. 7, needs to be re-adjudicated as there is a mistake apparent from record in not adjudicating the captioned grounds. Therefore, for this limited purpose, the captioned order of this Tribunal is recalled for the captioned A.Ys for the adjudication of Ground Nos. 6 and 7 in their true perspective.
Registry is directed to list the appeals for hearing of Ground Nos. 6 and 7 on 08th February, 2022 and inform the parties accordingly.
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2021 (10) TMI 1396 - ITAT LUCKNOW
Assessment u/s 153A - necessity of valid approval u/s 153D - HELD THAT:- As in cases Navin Jain & Others [2021 (9) TMI 1068 - ITAT LUCKNOW] and SHRI NARESH KUMAR JAIN [2021 (9) TMI 1080 - ITAT LUCKNOW]has been followed, the Tribunal has held to the effect that granting of a mechanical approval u/s 153D of the Act vitiates the entire proceedings. It is on this basis that the issue was decided in favour of the assessee in both these cases, under facts and circumstances exactly similar to those present herein.
Respectfully following the view taken in the above appeals, we allow additional ground of appeal and quash the assessment order. As the assessment order has been quashed, the consequent order of learned CIT(A) is also quashed. Rest of the grounds do not survive for adjudication. Appeal of assessee allowed.
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2021 (10) TMI 1395 - ITAT MUMBAI
TP Adjustment - rate the interest-free loans granted by the assessee to its associated enterprise in Mauritius should be benchmarked as at an arm’s length - HELD THAT:- This issue is no longer res integra. The issue in the appeal is squarely covered, in favour of the assessee, by a coordinate bench decision in assessee’s own case for the assessment years 2009-10 and 2010-11 [2019 (6) TMI 1691 - ITAT MUMBAI]
It is indeed disappointing that even after taking note of the above fidnings of the coordinate bench, the authorioties below have justified a higher ALP on the basis of some new arguments. Given the findings of the coordinate bench-as extracted above, the reference to the fixed rate of interest and swap variable, with reference to the LIBOR, as has been done by the authorities below to go beyond LIBOR plus 300 bps, is irrelevant. There is no point in making these efforts to circumvent the conclusions arrived at by the coordinate bench, and justifying the same on the basis of a new set of arguments.
We direct the Assessing Officer to delete any arm’s length price adjustment beyond the difference, if any, between 4.01% interest charged by the assessee and LIBOR plus 300 bps. If suo motu adjustment by the assessee, i.e. adopting an interest rate of 4.01%, is below this rate, obviously no further ALP adjustment is called for. With these specific directions, the matter is restored to the file of the Assessing Officer for giving such relief as may be admissible in the terms indicated above. Appeals are allowed, in principle, and in the terms indicated above.
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2021 (10) TMI 1392 - ITAT BANGALORE
TP Adjustment - Comparable selection - HELD THAT:- Assessee is engaged in providing Business support services, thus companies functionally dissimilar with that of assessee need to be deselected.
Cedit of advance tax - We restore this issue to the file of AO to examine the claim of the assessee.
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2021 (10) TMI 1391 - ITAT DELHI
TP Adjustment - comparable selection - inclusion of E-clerx Services Ltd and TCS E-Serve Ltd. - HELD THAT:- This Tribunal has excluded E-clerx Services Ltd and TCS E-Serve Ltd. from the final set of comparables. Respectfully following the decision of this Tribunal in own case [2021 (2) TMI 575 - ITAT DELHI], we direct the Assessing Officer/TPO to exclude E-clerx Services Ltd and TCS E-Serve Ltd. from the final set of comparables. Ground with its sub grounds is, accordingly, allowed.
Addition on account of alleged interest on delay in collection of receivables from the AEs - invoices pertain to the year under consideration only and in most of the cases, the delay is NIL or less than 45 days. It is true that in some of the cases, the delay is more than the stipulated period of 45 days - HELD THAT:- We have been told that in the subsequent year, no addition has been made on this account and in earlier Assessment Year small additions were made which were not contested on the smallness of the amount. In light of the aforementioned observations of the Hon'ble High Court of Delhi KUSUM HEALTH CARE PVT. LTD. [2017 (4) TMI 1254 - DELHI HIGH COURT] we are of the considered view that the figure of receivables mentioned elsewhere do not reflect a pattern and, as held the assessee has already fettered the impact of receivable on the working capital which has been accepted by the DRP - we direct the Assessing Officer/TPO to delete the addition.
Assessee appeal allowed.
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2021 (10) TMI 1389 - ITAT DELHI
Royalty receipt - Explanation 2 to section 9(i)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-USA Double Taxation Avoidance Agreement (“DTAA”) - appellant being a resident of USA is covered by the beneficial provisions of DTAA between India and USA and accordingly, could not be taxed under the provisions of the Act - HELD THAT:- After going through the decisions of the Hon'ble High Court of Delhi in the case of the appellant, we find that the quarrel has now been well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble High Court of Delhi [2012 (9) TMI 1081 - DELHI HIGH COURT]
Similar view was taken in Assessment Year 2013-14 by this Tribunal [2019 (6) TMI 1689 - ITAT DELHI] wherein the Tribunal has placed strong reliance on the decision of the Hon'ble High Court of Delhi in the case of Asia Satellite Telecommunications Co. Ltd [2011 (1) TMI 47 - DELHI HIGH COURT] and New Sky Satellite [2016 (2) TMI 415 - DELHI HIGH COURT] and since the order of the Tribunal was based on these decisions of the Hon'ble Jurisdictional High Court of Delhi, the Hon'ble High Court dismissed the appeal of the Revenue holding that no question of law arises.
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