|
Advanced Search Options
Income Tax - Case Laws
Showing 61 to 80 of 640 Records
-
2021 (2) TMI 1186 - DELHI HIGH COURT
Assessment u/s 153A - incriminating material found during the course of search or not? - HELD THAT:- In the instant case both the CIT(A) as well as the ITAT have held that the addition is not based on any incriminating material found during the course of search and the assessment was not pending on the date of search. In the proceedings before the CIT(A) as well as the ITAT, the Revenue has not made any attempt as to disclose the incriminating material.
The view taken by the tax authorities based on the decision of CIT Vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT ]cannot be held to be perverse. The questions of law proposed by the Revenue are squarely covered by the aforesaid judgment.
-
2021 (2) TMI 1182 - DELHI HIGH COURT
Undisclosed interest income in HSBC Geneva - balance appearing in the undisclosed foreign bank account - HELD THAT:- As same amount is taxed once in assessment years 2006-07 and 2007-08 ITAT has rightly held that there could not be any dispute on the legal proposition that the very same amount cannot be taxed twice in the two assessment years.
We do not find any perversity in the aforesaid observations made by the learned ITAT in respect of additions made on quantum and interest. In view of the aforesaid, the question of law raised by the Appellant-Revenue in the present appeals in respect of quantum does not arise for our consideration. Since the addition on quantum cannot be sustained, the addition of interest cannot survive. Thus, no question of law arises in respect of deletion of addition of interest component
Discovery of undisclosed jewellery in search proceedings - HELD THAT:- We note that undisputedly the quantum of jewellery declared in the wealth tax returns of the assessee and his family members was much higher, than the jewellery found during the course of search. CBDT Instruction dated 11-5-1994 provides that no seizure should be made in the search for the jewellery held by the ladies at 500 gms, girls at 250 gms and males at 100 gms each. Though the Instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income-tax Act. This instruction came to be considered by several Benches all over India in which it has been held that it would be relevant for the purposes of making addition as well. When this instruction is applied to the facts of the case, we observe that the possession of gold jewellery of 38,748.28gms, which is far less than declared jewellery of 46,634.842 gms it cannot be held to be unexplained.
-
2021 (2) TMI 1180 - ITAT LUCKNOW
Bogus LTCG - denial of exemption u/s. 10(38) of the Act which the assessee had earned on the sale of equity shares after holding them for more than a year - HELD THAT:- Assessee had paid service tax and STT and shares were sold through screen based transactions wherein the exact time and order numbers are mentioned. From the Demat statement, we further observe that assessee was holding certain other scrips also. The assessee, therefore, had filed sufficient evidences to prove the genuineness of the transactions but authorities below has rejected the claim of the assessee on the basis of an investigation report of the Department whereby the scrip was held to be penny stock which was being used for providing bogus long term gains.
Hon'ble Delhi High Court [2021 (1) TMI 1008 - DELHI HIGH COURT] startling spike in the share price and other factors may be enough to show circumstances that might create suspicion but the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The Hon'ble court further distinguished the judgment in the case of Suman Podar which was in favour of Revenue. The Hon'ble court further held that case of Sumati Dayal u/s CIT was also not applicable to the assessee. The Hon'ble court further held that reliance placed by the Assessing Officer on the investigation report of Investigation Wing without further corroboration on the basis of cogent material does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. - Decided in favour of assessee.
-
2021 (2) TMI 1174 - ITAT HYDERABAD
Condonation of delay - 405 days delay in filing appeal - HELD THAT:- Assessee’s instant appeal suffers from 405 days delay in filing, he has filed condonation petition along with the affidavit averring therein, inter-alia, that due to covid-19 pandemic he could not consult his tax consultants which caused the impugned delay resulting in delay in filing of the instant appeal. Case law Collector Land Acquisition vs Mst. Katiji & Ors, [1987 (2) TMI 61 - SUPREME COURT] and University of Delhi Vs. Union of India [2019 (12) TMI 1293 - SUPREME COURT] hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. I accordingly hold that assessee’s impugned delay of 405 days is neither intentional nor deliberate but due to the circumstances beyond his control. Case is now taken up for adjudication on merits.
It transpires during the course of hearing that CIT(A)’s lower appellate order has been passed ex-parte. Learned DR fails to rebut the clinching fact that CIT(A) has dismissed the appeal of the assessee without discussing the issue(s) on merits as contemplated u/s 250(8) of the Act. I therefore deem it fit and proper to restore the file back to CIT(A) for his fresh adjudication as per law within three effective opportunities of hearing to the assessee.
-
2021 (2) TMI 1172 - ITAT MUMBAI
Viwad Se Vishwas Scheme, 2020 - HELD THAT:- In view of the fact that assessee has opted for ‘VSVS’ and the declaration filed by assessee has been accepted, the assessee’s request for withdrawal of appeal is allowed. Accordingly, the appeal by assessee is dismissed as withdrawn with the liberty as prayed. Appeal by assessee is dismissed as withdrawn.
-
2021 (2) TMI 1170 - ITAT MUMBAI
Taxability of on money receipts - Method of accounting - assessee is found to have received on money from the buyer of flats/properties on the basis of documents which have been found during the course of search and the on money received by the assessee - HELD THAT:- On money received by the assessee would only be taxable as per the regular method of accounting of the assessee. In the present case the assessee is following project completion method and therefore this income has to be assessed along with the regular income of the assessee in the year of completion of the project.
Addition equal to 25% of the on money received - At what rate of the on money should be brought to tax? - CIT(A) is not correct in not following the order of settlement commission wherein a rate of 12% has been applied on the on money to assess income embedded therein. Accordingly, we modify the finding of Ld. CIT(A) and direct the AO to assess the on money @ 12% as per the system of accounting followed by the assessee as has been decided by us in ground No.1.
-
2021 (2) TMI 1166 - ITAT HYDERABAD
Addition u/s 14A r.w.r. 8D - assessee had invested in equity shares in its sister concerns out of its non-interest bearing funds such as its equity share capital and reserves - CIT (A) deleted the addition by holding that since the assessee had made the entire investment out of its non-interest-bearing fund, no interest expenditure can be attributed for making the investment which is justifiable and appropriate.HELD THAT:- In the case of the assessee the assessee company has utilised only its non-interest-bearing funds for making investment in its own subsidiary company, no interest cost can be attributable to the same because, there is no interest cost to the assessee, as it can be treated that the assessee has withdrawn from its capital and reserves which are assessee’s interest free funds for making such investment.
For making investment in its own company there cannot be any cost attributable with respect to direct and indirect expenses towards the process of decision making, due diligence, managerial expenditure and portfolio management expenditure because no such cost can arise for making investment in one’s own entity. Only meagre expenses can be attributable with respect to clerical and stationary expenses which is negligible and that is deserved to be ignored.
Factually there cannot be any expenditure attributable to the investment made in sister company when the investment is out of its own interest free fund. When the above facts were pointed out to the Ld. DR, he could not controvert to the same however, he relied on the order of the Ld. AO. Order of the ld. CIT (A) deleting the disallowance of expenditure made by the Ld. AO invoking the provisions of section 14A of the Act read with Rule 8D of the Rules does not call for interference. Hence, we hereby confirm the order of the Ld. CIT (A) on this issue. - Decided against revenue.
-
2021 (2) TMI 1163 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI
Advance ruling application u/s 245N - eligibility of deduction under section 80IA - no notice under section 143(2) for the A. Y. 2019-20 issued - Revenue has submitted that the application may not be admitted for the reason that the issue raised in the application was already pending before the Income-tax Authority - HELD THAT:- In the present case, the notice under section 143(2) for AY 2018-19 was issued prior to the filing of the present application which had raised the very specific question of "Deduction Claimed for Industrial Undertaking u/s 80IA"which was subject matter of the present application.
As regards objection of the Applicant that no specific issue of pendency was raised in the report of the PCIT, the matter of pendency of the issue before any Income-tax Authority is required to be decided by the Authority while adjudicating the issue of admission of the application. Therefore, the issue of pendency can be brought to our notice even in the course of hearing and which has been done by Ld. DR in this case. Rather the conduct of the Applicant is not found transparent in this case as the fact regarding prior issue of notice under section 143(2) for A.Y. 2018-19 was not mentioned in the application filed before the Authority. As the said notice was received prior to filing of the application the Applicant should have disclosed this fact in the application and the left the issue of 'pendency' for our adjudication.
No notice under section 143(2) for the A. Y. 2019-20 - It is found that in the questions raised before us no assessment year is mentioned. Further, the eligibility of deduction under section 80IA has to be decided in the first year of claim. Once the claim is found eligible in the first year of claim the taxpayer is entitled for deduction in all the subsequent years and vice versa. Further, as per the provisions of the Act, it is not necessary that the issues raised in the application should be pending in all the years involved. Even if the issue is pending in a single year, it makes the application ineligible for admission under clause (i) of proviso to section 245R(2) of the Act.
Issue involved in the questions raised in the present application filed before us was already pending before the Income-Tax Authority and the bar in terms of clause (i) of Proviso to Section 245R (2) is found attracted in this case. Therefore, the application is not admitted and consequently rejected.
-
2021 (2) TMI 1162 - MADRAS HIGH COURT
Reopening of assessment u/s 147 - Disallowance of non - compete fees - Whether amount incurred towards a sum under two agreements to the two companies was towards non – compete fees for a short period and therefore were in the nature of a revenue expenditure? - HELD THAT:- As earlier a collaboration agreement dated 07.11.1977 was entered into between the petitioner and the Chicago Pneumatic Tool Company which had granted a license and know how to manufacture and sell the specified products which was being transferred permanently.
Clause 2.4 which has been extracted above also seems to indicate that the license granted by the Chicago Pneumatic Tool Company to the petitioner was perpetual and that the petitioner was free to license the right to manufacture and sell the specified products and to disclose, impart and supply the know how received by it under the Collaboration Agreement to any person.
Valuation in the Agreement has not been clearly explained by the petitioner. In the above background, it is to be noted that when the detailed questionnaire was issued by the Assessing Officer under Section 143(2) of the Income Tax Act, 1961 to the petitioner, in its reply dated 25.01.2005, the petitioner did not make true and full disclosure inasmuch as reference to Clause 2.4 of the II Agreement dated 17.08.2002 was not made.
Though it was submitted that the Indian Company, namely Atlas Copco India Limited had paid a sum of ₹ 15 Crores to the petitioner, it is noticed from the Annual Report filed for the financial year ending on 31.03.2005 that only a sum of ₹ 1,50,000/- was paid under the II Agreement dated 17.08.2002. Further, it is also not clear whether the tax was indeed paid in the returns filed for the previous year 2004-2005/for the Assessment Year 2005-2006 as the total income declared was about ₹ 9 Crores. Therefore, there are also disputed questions of facts involved in the present case as to whether the tax has been paid by the petitioner during the succeeding assessment years.
In our view, the decision of the Hon’ble Supreme Court in Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. Vs. Commissioner of Income Tax [1986 (3) TMI 342 - SUPREME COURT] cited by the learned counsel for the respondent squarely applies to the facts of the present case. I therefore conclude that the respondent had correctly invoked the jurisdiction under Section 148 for the purpose of Proviso 2 to Section 147 of the Income Tax Act, 1961.
-
2021 (2) TMI 1161 - MADRAS HIGH COURT
Reopening of assessment u/s 147 - it is the contention of the Income Tax Department that the method followed by the petitioner has not disallowed the correct income - HELD THAT:- The petitioner is engaged in supply and installation of paint booth for automobile companies. The petitioner has adopted mercantile method of accounting which is one of the recognized method for the purpose of recognition of income under the Income Tax Act, 1961.
The law on the subject is also clear. Every assessee is entitled to arrange its affair and follow the method of accounting which the department has earlier accepted. According to the petitioner, the method adopted by the petitioner has been accepted for the Assessment Years 2010-11, 2012-13, 2014-15 and thereafter.
As per outcome of a construction contract can be estimated reliably, contract revenue and contract cost associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.
Petitioner may have entered into several contracts with different clients with varied terms and conditions. These documents are required to be produced before the Assessing Officer at the time of assessments. The purpose of accounting under the Income Tax Act, 1961 is to ascertain the taxable income and to determine the tax payable by an assessee. Therefore, these documents and other ancillary documents are required to be produced before an AO or ITO during the assessment.
A Proper Certification whether by an In-House Department of the Assessee or by an Independent Chartered Engineer certifying the percentage of work completed under the contract was required to be produced by the assessee before the Income Tax Officer for the purpose of assessment.
What was the term of the contract under which the revenue was generated or the bill raised on a client or a customer cannot be certified in the Audited Profit and Loss Account and the Balance Sheet. At best, they can corroborate what is there in the contract. Therefore, unless those supporting documents are produced, it cannot be said that there was full disclosure.
The enclosures filed before the Assessing Officer at the time of Section 143(3) Assessment do not indicate the same. Therefore, it cannot be said that there was true and full disclosure of all materials that were required for assessment before the Assessing Officer by the petitioner. At the same time, it is to be noticed that the reasons given in the communications dated 05.11.2018 for reopening the respective assessment have merely questioned the method of accounting adopted by the petitioner and show it was issued in a mechanical manner.
As per Explanation 1 to Section 147 of the Income Tax Act, 1961, production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of Section 147 of the Act. In fact, Explanation incorporates the reasons given in the decision of the Hon'ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, [1960 (11) TMI 8 - SUPREME COURT]
Conclusions arrived in the impugned communications dated 26.11.2018 overruling the objections of the petitioner for the reopening of the assessments by the impugned notices are not conclusive. They are only prima facie views of the Assessing Officer. It is for the petitioner to establish that it has correctly followed the accounting method by producing the supporting documents to substantiate the percentage of work that was completed for the purpose of proper determination of taxable turnover for payment of income tax. Mere disclosure in the Profit and Loss Account and Balance Sheet is not sufficient.
No justifiable reasons to interfere at this stage of the re-assessment proceedings. Therefore, the first respondent is therefore directed to complete the re-assessment after examining the documents to be produced by the petitioner and pass reassessment orders on merits.
The petitioner is therefore directed to file documents to substantiate its cases before the first respondent within a period of thirty days from date of receipt of a copy of this order. The first respondent shall pass orders within a period of 60 days thereafter.
-
2021 (2) TMI 1158 - MADRAS HIGH COURT
Deduction u/s 80HHC - Tribunal reversing the order of the first appellate authority and restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC - HELD THAT:- Receipts constituting independent income had no nexus with exports were required to be reduced from business profits under Clause (baa). A bare reading of Clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges etc. formed part of gross total income being business profits. On a reading of all the variables, it becomes clear that every receipt may not constitute sale proceeds from exports and every receipt is not income under the Income Tax Act and every income may not be attributable to exports.
In the case on hand, the insurance claim and miscellaneous income have no nexus with the assessee's business. Since there is no nexus, the Tribunal rightly reversed the order of the appellate authority restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC. The insurance claim and miscellaneous income are not directly attributable to the business, hence, they are liable for 90% deduction.
The ratio laid down by the Hon'ble Supreme Court in the judgment [2007 (11) TMI 10 - SUPREME COURT] squarely applies to the facts and circumstances of the present case.
Though there is no dispute with regard to the ratio laid down in the judgments relied upon by the learned counsel for the appellant, since the facts and circumstances of the present cases are different, the same are not applicable. No substantial question of law.
-
2021 (2) TMI 1153 - KARNATAKA HIGH COURT
Rectification u/s 254 - Tribunal had erred in disallowing the depreciation claimed by assessee in the revised return of income and therefore rectification of the error was required - HELD THAT:- There was no issue of depreciation involved in the Misc. Petition filed by the assessee and the Tribunal has stated that assessee has not claimed depreciation which is nobody's case. The above Order prima facie establishes that there is improper application of judicial mind in respect of the matters in issue and therefore, needs to be set aside and matter requires to be remanded to the Tribunal for fresh consideration in accordance with law. Appeal is allowed.
-
2021 (2) TMI 1152 - MADRAS HIGH COURT
Orders passed u/s 92CA(3) barred by limitation by one day - Assessments are to be completed within the limitation set out in Section 153 - HELD THAT:- The provisions of Section 144C prescribe mandatory time limits both pre and post the stage of passing of a transfer pricing order. Assessments involving transfer pricing issues are different and distinct from regular assessments and the intention of Legislature is to fast track such assessments. Bearing in mind the specialized nature of such assessments, a separate set of Officers attend to the framing of assessments and the DRP has been constituted for redressal of disputes involving TP issues, in a timely fashion. In this scheme of things, unable to accept the submission that the period of 60 days stipulated for passing of an order of transfer pricing, is only directory or a rough and ready guideline. This argument is rejected.
How the 60 day period is to be computed - whether the period of 60 days would be computed including the 31st of December or excluding it? - Section 153 states that no order of assessment shall be made at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 a m of 1-1-2020. However, this would mean that an order of assessment can be passed at 12 a m on 1-1-2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31-12-2019. The period of 21 months therefore, expires on 31-12-2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31-12-2019, the period of 60 days would expire on 1-11-2019 and the transfer pricing orders thus ought to have been passed on 31-10-2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the date by which the Transfer Pricing orders are to be passed as 31-10-2019. The impugned orders are thus, held to be barred by limitation.
-
2021 (2) TMI 1148 - ITAT MUMBAI
Disallowance of interest expenditure by applying provisions of section 40A(2)(b) - assessee submitted, the assessee has paid 15% interest on the unsecured loan availed from related parties because they are long term loans compared to short term loans availed from unrelated parties - whether the interest paid by the assessee to the related parties can be considered to be excessive or unreasonable having regard to the fair market value of interest in terms of section 40A(2)(b) ? - HELD THAT:- Rate of interest normally charged by commercial banks on loan varies between 12% to 20%. Further, it cannot be denied that if the assessee would have availed loan from banks and financial institutions, apart from paying higher rate of interest it would have paid additional cost by way of processing charges and would also have been required to furnish collaterals to secure the loan. Whereas, while availing loan from the related parties, which are stated to be long term loans, the assessee neither has to pay any additional cost nor has to furnish any collaterals.
Thus, the assessee is rather in an advantageous position as the related parties always run the risk of not being able to recover the loan in case of default. Considering the aforesaid factors, interest paid by the assessee @15% to the related parties cannot be said to be excessive or unreasonable having regard to the fair market value of the goods, services or facility for which the payment is made, in terms of section 40A(2)(b).
Difference between the interest paid by assessee at 15% and the reasonable rate of interest ultimately allowed by learned Commissioner (Appeals) at 13.73% works out to a negligible amount of 1.27%. That being the case, in my considered opinion, the provisions of section 40A(2)(b) would not be applicable in the present case. - Decided in favour of assessee.
-
2021 (2) TMI 1146 - ITAT PUNE
TP Adjustment in the ‘Manufacturing activities’ - Depreciation adjustment - first disputed item of operating costs is a claim for adjustment on account of depreciation - DRP ruled in this regard directing the AO/TPO that `depreciation adjustment should be worked out in the hands of the comparables and not for the assessee.’ Giving effect to such a direction, the TPO computed the mean PLI of comparables at 6.74% as against originally computed at 6.70% in the consequential order - HELD THAT:- Depreciation cost in the case of the assessee forming part of its operating costs base gets neutralized with the rent cost in the cost base of the comparables. Having taken the figure of operating profit as numerator, both in the case of the assessee and the comparables, one cannot again go back to the individual items of operating expenses/incomes culminating into the overall operating profit for claiming that adjustment on account of individual particular higher or lower expense/income should be granted. The same rationale of different items of expenses, such as depreciation and rent in the above illustration, not impacting the overall operating profits for comparison, applies to the composition of individual items of expenses also, such as depreciation in our case. Thus the contention of the ld. AR seeking depreciation adjustment on the ground that some of the items of assets possessed by the assessee did not appear in the schedule of assets of the comparables, is sans merit.
Depreciation claim includes depreciation on certain Intangible assets - Claim of the assessee is that depreciation on the Intangible Assets, listed on page 372 of the paper book, should be ignored, as it is alien to the Manufacturing activity and hence do not qualify under sub-clause (i) of Rule 10B(1)(e). A list of six Intangible assets has been given, out of which the dispute is only w.r.t. five items, viz., Goodwill, Computer software, Noncompete fees, Technical knowhow and Customer relationships. It is evident and also admitted on behalf of the assessee that the first three intangible assets, namely, Goodwill Computer software and Non-compete fees are common to both the Manufacturing and Trading activities of the assessee. As such, depreciation on these three items of intangible assets is liable to be considered under sub-clause (i) of Rule 10B(1)(e). The fourth item of Intangible assets is Technical knowhow. There cannot be any dispute that Technical know-how can be used only for manufacturing and not trading activity. When we are determining the ALP of the international transactions of the `Manufacturing activity’, the same is also liable to be considered even if some of the goods manufactured are sold in domestic market to unrelated enterprises. It is another matter that the transfer pricing addition will have to be restricted only to the international transactions.
Intangible asset is `Customer relationships’ - AR could not precisely provide us the nature of this intangible asset or its manner of user. If it was utilized only for Trading segment, then depreciation on the same will require exclusion under rule 10B(1)(e)(i). In case, it was used either exclusively or jointly for the Manufacturing activity, which international transaction has been benchmarked by the TPO, then depreciation on the same will warrant inclusion in the operating costs. The impugned order on this issue is set aside. The AO/TPO is directed to verify this aspect and then decide accordingly.
Prior period expenses - AR stated that the assessee incurred Administrative expenses of earlier years amounting to ₹ 4.18 crore which were booked in the year under consideration and hence, the same should be excluded from the determination of the operating cost base of the international transaction under the ‘Manufacturing activity’ - We are confronted with a situation in which the TPO as well as the DRP categorically required the assessee to prove that ₹ 4.18 crore related to prior years. However, no such evidence could be filed. Unfortunately, the situation continues to remain the same before the Tribunal as well. In such a scenario, it is difficult to accept the assessee’s contention for the exclusion of ₹ 4.18 crore from the operating cost base since the very foundation for such a claim, being, the expenditure pertaining to earlier years, could not be proved. We, therefore, uphold the impugned order on this score.
Tooling provision reversal, Testing provision reversal and Sales tax refund - assessee computed its PLI by including Tooling provision reversal, Testing provision reversal and Sales tax refund as part of operating revenue - TPO held that these three items were not liable to be considered as operating income by relying on Rule 10TA, giving mechanism for the determination of the operating profit under clause (k) - what is relevant in this context is to find out the treatment given to them at the time of the creation of provision for Tooling expenses or Testing expenses on one hand or the payment of Sales tax on the other. In case these three items, at the time of their creation/payment - whether in this year or in any preceding year - were taken as part of operating costs, then the sequitur is that their reversal in the year under consideration would also draw the same colour, namely, that of operating nature and would constitute operating income and vice versa. The ld. AR did not readily have the relevant data to demonstrate their nature at the time of their creation/payment. Under these circumstances, we set aside the impugned order and remit the matter to the file of AO/TPO for seeing if the provisions of Tooling and Testing, at the time of their creation, were taken as part of the operating cost.
In case, the answer is found to be in affirmative, then naturally, their reversal in the year under consideration would also lead to operating revenue. Similarly, if the amount of sales tax was taken as operating cost at the time of payment, then receipt of its refund in the year in question would also give rise of the operating revenue and vice-versa.
Foreign exchange fluctuation gain - assessee treated this amount as operating revenue - TPO, again relying on the definition of operating revenue under Rule 10TA, did not accept the assessee’s contention - HELD THAT:- We have held above that Rule 10TA is not applicable and as such the determination of the character of foreign exchange gain will have to be guided by the normal business understanding and commercial principles. It is fairly settled that foreign exchange gain/loss arising from business transactions is operating revenue/cost. Several benches of the Tribunal including a recent decision of the Pune Benches in Delval Flow Controls Pvt. Ltd. Vs. DCIT [2021 (2) TMI 938 - ITAT PUNE] have laid down to this extent. We, therefore, direct to take foreign exchange gain as part of operating revenue.
Whether transfer pricing adjustment should have been confined only to the international transactions and not the entity level transaction? - Section 92 is the first section of the Chapter-X containing special provisions relating to avoidance of tax. Sub-section (1) of section 92 provides that: `Any income arising from an international transaction shall be computed having regard to the arm’s length price’. Thus it is graphically clear that the ALP and the consequential transfer pricing adjustment is contemplated only in respect of the international transactions and not the entity level transactions. It is seen from the TPO’s order that he computed the transfer pricing adjustment under the `Manufacturing activity’ in respect of entity level transactions. It is, therefore, directed that the transfer pricing adjustment should be restricted to the international transaction alone. The impugned order is set-aside pro tanto for giving effect to this direction.
Working capital adjustment - As fairly submitted that no such issue was taken up before the TPO. It was only before the DRP for the first time that the assessee sought such an adjustment. Relevant discussion has been made in para 5.2 of the direction in which the claim of the assessee has been rejected only on the ground that the data of comparables for this purpose was not available. This was countered by the ld. AR, who submitted that the relevant data was produced. In such circumstances, we set-aside the impugned order to this extent and remit the matter to the file of AO/TPO for allowing the working capital adjustment afresh as per law after giving reasonable opportunity of hearing to the assessee.
Comparable selection - non-inclusion of two companies, namely, G.K.N. Driveline (India) Private Limited and Exedy India Limited - These two companies were directed to be not considered as these “were not part of the assessee’s TP study report”. By now, it is fairly settled through several precedents that an assessee can make out a fresh case before the higher authorities for inclusion or otherwise of a company in the list of comparables, even though it was not before the authorities below. In view of the fact that the DRP has brushed aside the assessee’s claim for inclusion of the above referred two companies only on the ground that these were not part of the assessee’s TP study report, we cannot countenance the same. The impugned order is set-aside and the matter is restored to the file of AO/TPO for examining the assessee’s contention and then decide their inclusion or otherwise as per law after allowing an opportunity of hearing to the assessee.
Transfer pricing addition made by the AO in the international transaction of `Intra group Sales, General and Administration services’ - TPO determined Nil ALP primarily on the ground that the assessee could not adduce any evidence for receipt of services and also that no benefit was derived from such services - HELD THAT:- There is no rationale in applying the `benefit test’ while determining the ALP of intra-group services. Once a particular expenditure is incurred for which services are received, it does not matter whether or not such services resulted into any benefit to the assessee. This reasoning of the authorities below is jettisoned.
Assessee could not lead any evidence to support the receipt of services - Considering the difference in the figures of revenue on one hand and inter-group services on the other for the current year vis-a-vis the preceding year, ex facie, the transaction cannot be declared at ALP, unless a detailed examination is carried out. As the TPO has determined Nil ALP on the preliminary premise that there was no evidence of receipt of services and we have noticed above the fact of receipt of services, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for determining the ALP of the international transaction of Intra-group Sales, General and Administrative services afresh as per law after allowing reasonable opportunity of hearing to the assessee.
Disallowance on account of late deposit of the employees’ contribution to Provident Fund - AO invoked the provisions of section 36(1)(va) and made the disallowance u/s.43B - HELD THAT:- The Hon’ble Delhi High Court in the case of CIT v. Aimil Limited [2009 (12) TMI 38 - DELHI HIGH COURT] has allowed deduction in respect of employees’ share when the amount was paid before the due date. When we consider these two judgments, it is manifested that both the employer’s and employees’ contribution are allowable as deduction if these are deposited albeit belatedly under the respective Acts, but before the due date of filing of return u/s 139(1) of the Act. Similar view has been taken by the Hon’ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. [2014 (10) TMI 402 - BOMBAY HIGH COURT]. It is seen as an admitted position that the assessee deposited the employees’ contribution towards EPF and ESIC before the due date u/s 139(1) of the Act. Respectfully following the aforenoted precedents, we order for the deletion of the addition.
Disallowance towards contribution to the employees’ gratuity fund and contribution to superannuation fund - AO invoked the provisions of section 40A(7) for disallowing the claim made by the assessee on the premise of non-approval of the funds from the Commissioner of Income-tax - HELD THAT:- Considering the provisions of section 40A(7) of the Act, it is apparent that the deduction can be allowed only if the Gratuity and Superannuation Funds are duly approved by the Commissioner of Income-tax. As the requisite funds are still pending approval from the ld. Commissioner of Income-tax, we are constrained to directly grant any deduction in this regard. It is expected that the ld. CIT will shortly pass an order on the assessee’s applications. The matter is sent back to the AO, who will decide the matter in conformity with such order of the ld. CIT.
-
2021 (2) TMI 1145 - ITAT BANGALORE
Deduction u/s 37(1) - addition of amount representing 15% of sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon’ble Supreme Court - HELD THAT:- It cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd [2018 (10) TMI 1120 - ITAT AHMEDABAD] came to the same conclusion by following the decision rendered by Hon'ble Kolkatta High Court in the case of Shyam Sel Ltd [2016 (8) TMI 511 - CALCUTTA HIGH COURT] wherein identical types of payments made to remedy the river pollution caused by the parties were held to be compensatory in nature. Hence the provisions of Explanation 1 to sec.37 will not apply to these payments. Hence, as held by Hyderabad bench of Tribunal in the case of NMDC Ltd [2018 (10) TMI 1120 - ITAT AHMEDABAD] these expenses are allowable as deduction u/s 37(1) of the Act.
Another important point we notice is that the recommendations made by CEC for making these payments have been made for the purpose of resuming the mining operations. Hence there is merit in the submission of the ld A.R that, without making these payments, the assessee could not have resumed the mining operations. Hence, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act.
We hold that the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the assessee, but at the same time it is allowable as deduction u/s 37(1) of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to delete the impugned addition in both the years. Appeals of the assessee are allowed.
-
2021 (2) TMI 1144 - ITAT BANGALORE
Capital gains adopted on the basis of guideline value as per Stamp Duty Authorities - JDA entered into by the assessee - Year of assessment - assessee submitted that the capital gains should have been taxed in the year of commencement of construction after registering the Joint Development Agreement - HELD THAT:- In the present case, only for the purpose of loan required from the Bank, the Developer registered a Sale Deed on 18.07.2011, wherein it is also clearly mentioned that the property is already in Developer's possession as per the Registered Development Agreement dated 24.10.2007 and the present Sale Deed made was only for confirming the right already held by the Joint Developer by executing the Sale Deed. The Sub-Registrar while registering the Sale Deed adopted the Guideline value to determine stamp duty and Registration charges. However, since tax on capital gain on the same property transaction would be for assessment year 2008-09 as per provisions of Income Tax Act, no capital gain arises out of the impugned JDA/GPA during Asst. Year 2012-13.
Grant of deduction 54G - since the investment is required to be done within 3 years from the date of deemed sale of factory and shifting the factory and since as per the AO, the capital gains has arisen due to registration of Sale Deed on 18.07.2011 i.e. FY 2011-12, and hence, according to the AO, the assessee is not eligible for any deduction - HELD THAT:- This ground is only academic in view of our findings with regard to nontaxability of capital gain in this assessment year i.e. AY 2012-13, however, for the purpose of completeness, we make it clear that assessee could claim deduction u/s. 54G in the appropriate assessment year when the capital gain is subject to tax. It is ordered accordingly.
Applicability of section 50C - assessee objected for adopting value of 50C as per guidance value - HELD THAT:- Since while adjudicating ground No.1, we have already held that capital gain is to be taxed not in this assessment year 2012-13, being so, there is no question of application of section 50C of the Act and the registration of Sale Deed was only for the limited purpose of formalizing the bank request, who financed the assessee as discussed in para 28 of this order. In our opinion, there is no applicability of section 50C of the Act in the assessment year 2012-13 since transfer took place not in this assessment year. Thus, this issue is only academic as there was no incidence and chargeability of capital gain in AY 2012-13. Therefore, this ground by the assessee is allowed.
-
2021 (2) TMI 1143 - ITAT DELHI
Disallowance of interest paid - interest charged by banks for late payment of credit card dues - Allowable business expenses or not? - HELD THAT:- Assessee, before the AO as well as CIT(A), has explained that credit cards were used for business related expenses and therefore such interest on late payment of credit card dues has to be allowed as business purposes - we find merit in the above argument of the ld. Counsel for the assessee. The various expenses so incurred for which payments made through credit card were claimed as business expenses and no such disallowance has been made by the AO. Therefore, merely because there is delay in payment of credit card for which interest has been charged by the bank for late payment of credit cards, the same in my opinion, cannot be disallowed. We find merit in the arguments of the ld. Counsel that the amount used through credit cards are just like temporary loans and therefore interest charged by banks for late payment of credit card dues partakes the character of business expenses.
Disallowance of wastage and shrinkage expenses - assessee failed to furnish the details or documents in support of the claim nor produced books of accounts - HELD THAT:- While the Assessing Officer in his remand report has given his comment that shrinkage is possible to the extent of 3%, however, he is silent in his comments on wastage. As earlier mentioned, there is bound to be some wastage while cutting the cloths for making of dresses in a garment factory. The lower authorities have completely closed their eyes on this issue. The assessee also filed various articles showing that there is wastage of cloths to the extent of ranging from 16 to 20% in garments industry. Since, the assessee in the instant case has shown about 10% of the wastage and shrinkage, therefore, in considered opinion that the same is reasonable under the facts and circumstances of the case and no disallowance is called for on this issue. The order of the CIT(A) is accordingly set-aside and the Assessing Officer is directed to delete the addition.
Ad-hoc disallowance on account of household withdrawing - HELD THAT:- It is submission of the Ld. Counsel for the assessee that the family of the assessee consists of the assessee, his wife and daughter. The wife and daughter are tax payers and are also contributing towards the house hold expenses. However, on a pointed query by the Bench as to what is the amount shown by the wife and the daughter of the assessee for household expenses, the learned counsel for the assessee was not in a position to substantiate the same. Therefore, the contention of the assessee that the amount of ₹ 93,632/- shown by the assessee as withdrawals for household expenses is sufficient to run the family along with the withdrawals shown by the wife and the daughter of the assessee cannot be accepted in full. At the same time, the estimation made by the Assessing Officer at ₹ 2,50,000/- in absence of any material in his hand to show any lavish life style of the assessee appears to be on the higher side.
Disallowance of ₹ 1 lakh lump sum on ad-hoc basis on the facts and circumstances of the case will meet the ends of the justice. I hold and direct accordingly. The order of the CIT(A) is accordingly modified and the Assessing Officer is directed to restrict the disallowance at ₹ 1 lakh.
Addition being 10% of all the Direct & Indirect expenditure - HELD THAT:- Admittedly, the accounts of the assessee are audited and no discrepancies have been pointed out by the auditors. Assessing Officer has not invoked the provisions of section 145 of the Act and has straightway applied the rate of 10% for making ad-hoc disallowance. He has not pointed out any mistake in any of the bills/vouchers. Since, the accounts of the assessee are audited and the auditors have not pointed out any discrepancy and since the books of accounts were also produced before the CIT(A) and no discrepancy was found by him and considering the fact that books were also not rejected by the Assessing Officer by invoking the provisions of section 145 of the Act, therefore, no ad-hoc disallowance is called for. Thus direct the AO to delete the disallowance.
Appeal of the assessee is partly allowed.
-
2021 (2) TMI 1141 - ITAT BANGALORE
Determining the “undisclosed income” - Search proceedings - A.R. submitted that the addition has been made on the basis of a balance sheet found during the course of search proceedings - HELD THAT:- There are no corroborative evidences to show that the Balance sheet found during the course of search represents true nature of transactions. On the contrary, the assessee, being a limited company, has filed annual reports containing Balance sheets with Registrar of companies, which is based on books of accounts. Hence the balance sheet found during the course of search has to be considered as a “dumb document” only. In that view of the matter, the quantum of investment made as share application money in the above said company should be taken as ₹ 131 lakhs only. The assessee has claimed that he has invested ₹ 130 lakhs. Since the claim of the assessee is supported by the books of accounts, the same is required to be accepted.
Assessee has explained the sources, major portion of which represents agricultural income and it has been declared to the revenue in the returns of income filed prior to the date of search. The revenue has not found any material to show that the agricultural income and other income declared by the assessee in the returns of income are false. Hence, we are of the view that the AO, in the block assessment proceedings, cannot tinker with the income/agricultural income already declared by the assessee in the returns of income filed prior to the date of search. Hence the sources for ₹ 130 lakhs also require to be accepted. Accordingly, in effect, there is no incriminating material available with the AO in support of the undisclosed income determined by him. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of undisclosed income determined by him.
Surcharge levied u/s 113 - HELD THAT:- Since we have deleted the entire undisclosed income in the earlier paragraphs, the question of levying of surcharge has become academic. In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta [2008 (1) TMI 396 - SUPREME COURT] has since been modified by Hon’ble Supreme Court in the case of Vatika Township ([2014 (9) TMI 576 - SUPREME COURT]Accordingly, in case if any need arise for levying of surcharge in the instant case, the law laid down by Hon’ble Supreme Court in the case of Vatika Township (supra) needs to be followed.
Interest u/s 158BFA(1) of the Act upto the date of original assessment order and not upto the date of assessment order passed in the set aside proceedings - HELD THAT:- As rightly pointed out by Ld A.R, the order passed by the Tribunal earlier and the order passed by the AO in the set aside proceedings are continuation of original assessment proceedings. It is not a case of quashing of original assessment order and initiation of altogether new proceedings. Hence, we agree with the view expressed the Ld CIT(A) that the interest u/s 158BFA(1) should be charged upto the date of original assessment order, i.e., the expression “date of completion of assessment under clause (c) of sec. 158BC” should mean the original assessment order only. We further notice that there is no provision under the Act to extend charging of interest beyond the date of completion of the original assessment proceedings. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.
-
2021 (2) TMI 1140 - ITAT DELHI
‘Limited Finality’ - Proper and reasonable opportunity at the first stage (at the stage of Assessing Officer) - Disallowance being reimbursement of expenses by the appellant to its wholly owned subsidiary in United states for development of its business in United States of America - addition made by assessing officer for claiming double deduction of expenses as well as non deduction of tax at source on payment made to non residents - assessee was unable to produce evidences to show that the expenditure has been incurred by the assessee wholly and exclusively for the purpose of business; and further that no evidence was adduced to show that the EII made concerted effects to locate any business arrangements in USA - grounds for making the disallowance was not adjudicated by the Ld. CIT(A); and instead the Ld. CIT(A) followed a entirely different reasoning, as aforesaid, for confirming the disallowance - HELD THAT:- Assessee has the right to explain his case first to the Assessing Officer; before he is forced to explain his case to appellate authorities. If an assessee explains his case at the first stage, i.e. at the stage of the Assessing Officer to the satisfaction of the Assessing Officer; the matter, in a way, attains ‘Limited Finality’ because Revenue has no right of appeal against the order of the Assessing Officer. Though the matter can be revisited by Revenue under exceptional circumstances, such as, for example, in the circumstances prescribed under sections 147, 263, 264, 154, 153A 153C, etc. of I.T.Act; the fact that Revenue has no right of appeal against the order of Assessing Officer implies that the matter attains ‘Limited Finality’, barring the exceptional circumstances as aforementioned, if the assessee is able to satisfactorily explain the matter to the Assessing Officer.
That is why it is of utmost importance that the assessee gets proper and reasonable opportunity at the first stage (i.e. at the stage of Assessing Officer), so that the assessee has a chance to avail of ‘Limited Finality’ which is an assessee’s statutory right.
In the present case reasoning adopted by the Ld. CIT(A) for dismissing the assessee’s appeal was not considered at the stage of assessment proceedings before the Assessing Officer; which has resulted in violation of the assessee’s right of ‘Limited Finality’. In view of the foregoing, and as both sides have agreed to this, we set aside the issue of disallowance of the aforesaid ₹ 86,41,053/- to the file of the Assessing Officer for fresh order as per law after providing reasonable opportunity to the assessee to produce relevant materials and to make necessary submissions. All the grounds in the present appeal are disposed of in accordance with aforesaid directions and are treated as partly allowed for statistical purposes
........
|
