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Income Tax - Case Laws
Showing 461 to 480 of 7776 Records
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2021 (12) TMI 585
TDS u/s 195 - payments made by to parent company, Bain & Company Inc. (Bain US) on account of payments made to third parties - technology was ‘made available’ to the appellant and hence tax was required to be deducted on these payments under Article 12 of India-USA Double Tax Avoidance Agreement (‘DTAA’) - whether there is no evidence that such expenses were reimbursement of expenses on a cost to cost basis? - whether services were not ‘technical’ services so as to fall within the ambit of FIS under the India- USA DTAA.? - HELD THAT:- CIT(A) has only held that technical services were made available to the assessee, but, he is silent on whether technology was made available to the assessee or not which, in our opinion, is a sine qua non for holding payment as FIS under the Indo-USA DTAA. Further, the submission of the ld. Counsel that services were rendered outside India and, therefore, payments for the services could not qualify as fee for technical services in view of the decision of the Hon’ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd. [2007 (1) TMI 91 - SUPREME COURT] which was applicable at the relevant time, could not be controverted by the ld. DR. We find, the Hon’ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) has held that for a nonresident to be taxed in India, two events need to be fulfilled i.e., not only should the services be utilized in India, but, the same should also be rendered in India. We find, the above proposition was amended retrospectively by the Finance Act, 2010 with retrospective effect from 1st June, 1976. Therefore, we find merit in the argument of the ld. Counsel that it was under a bona fide belief that the payments were not taxable in India.
We find, the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. [2021 (3) TMI 138 - SUPREME COURT] has thoroughly discussed the issue regarding royalty under the Income-tax Act and has held that a person ‘mentioned in section 195 of the Income-tax Act cannot be expected to do the impossible, namely to apply the expanded definition of ‘royalty’ inserted by Explanation 4 to section 9(1)(vi) of the Income-tax Act for the assessment years in question at a time when Explanation was not actually and factually in the statute.’
We are of the considered opinion that the assessee was not liable to withhold tax payment on account of the four items the details of which are given at para 12 of this order. Accordingly, the order of the CIT(A) is set aside and the grounds raised by the assessee are allowed.
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2021 (12) TMI 584
Unexplained cash credit - addition of cash deposit in bank account - non mentioning of relevant section to make addition - HELD THAT:- AO as well as that of the CIT(A) that they have not specifically mentioned as to under which section of the Act the additions have been made. As relying on SMT. SUDHA LOYALKA, C/O M/S RRA TAXINDIA VERSUS ITO, WARD 35 (2) , NEW DELHI [2018 (7) TMI 1892 - ITAT DELHI] sustaining of impugned addition is not justified as non-mentioning the precise provision of law makes the impugned addition bad in law.
CIT(Appeals) has not specifically mentioned as to under which section of the Act addition has been done. Also, assessee during the course of assessment proceedings has submitted that the cash deposits are not the income of the assessee. The cash deposits and other credits in the bank statement of the assessee comprises of cash received on behalf of the parties, home loan disbursement from bank and cash deposits out of own sources. In respect of invoices and receipts were submitted during the assessment proceedings. However, the AO ignoring the explanation given by the assessee on the basis of entries in the bank statement considered the cash deposits of the assessee as the income of the assessee.
It is important to mention here that the bank statements cannot be termed as books of accounts for the purposes of Sec. 68 - Also as found from perusal of the record that in the A.Y. 2007-08 & 2009-10 such cash deposits in the same bank account has been treated as sales executed through the assessee on which the assessee has earned commission income @ 7.5% on sale - A.O. as well as ld. CIT(A) have not specifically mentioned as to under which Section of the Act the additions have been made and also keeping in view the fact that Bank statement is constantly held to be not books of account for the purpose of Section 68 - we direct to delete the addition made U/s 68 - Decided in favour of assessee.
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2021 (12) TMI 583
TP Adjustment - adjustment pertaining to marketing cost and functional differences claimed by the assessee and rejected by the Transfer Pricing Officer (TPO) - adjustment of functional difference has been denied by Ld. TPO on the ground that there was no mention in the agreement that product license and lab test expenses were to be borne by the AE and reduction in profitability of AE would not be relevant for determining ALP - HELD THAT:- CIT(A) noted that these adjustments were found to be part of contract between the assessee and AE. We find that product license maintenance cost and lab analysis were borne by AE which in case of sales to non-AE was borne by the assessee. The assessee’s function in case of sales to AE is restricted to manufacturing only. The assessee performs the function of contract manufacturer. The product licenses were held by the AE who was also responsible for maintenance of the product licenses. The manufacturing was done in strict adherence to Product License and the labeling on products was of assessee’s AE. The same is evident from Technical agreement (page no. 342-356 of the Paper Book) between the assessee and FDC-UK (AE). In case of non-AE sales, these expenses are to be borne by the assessee, which fact remains undisputed before us. Therefore, the adjustment of this component has rightly been allowed by Ld. CIT(A).
Adjustment of Marketing Costs - The marketing costs differ with geographical conditions. Sales in local markets are prescription drugs and therefore, sale promotion forms major expenses. In exports, the marketing expenses are not as high as compared to local markets as the sale would be made to fixed distributors. Marketing costs may not vary with pack size but it would vary with selling price as marketing costs are calculated as percentage of selling price. Since Ld. TPO is comparing local sale price with that of export sale price, the adjustment of marketing expenses need to be allowed as the same are already incorporated in the selling price since expenses incurred in local markets would be high and therefore, selling price of products sold in local market would also be high. We concur with the aforesaid submissions made by Ld. AR since the marketing costs would vary with geographical locations and would impact the ultimate selling price. Therefore, this adjustment has rightly been allowed by Ld. CIT(A).
Adjustment of Non-variable cost - TPO has denied the same on the ground that overheads would not vary with pack size - CIT(A) upheld the same in the absence of data based evidence - This adjustment would be available to the assessee since pack-size is not similar in case of Allercom eye-drops and Moisol eye-drops. While computing ALP, hypothetical selling price and costs have been considered in proportion to the pack size. In such a case, the adjustment arising out of hypothetical non-variable cost based on the same proportion should be allowed. In case of Timolol 0.5% eye-drops, overheads were more in case of domestic sale due to manufacturing from old machineries which consumed more labour hours for packaging and maintenance costs. This fact is undisputed before us. Therefore, the same is required to be factored-in while benchmarking the prices. Hence, we direct lower authorities to allow this adjustment.
Sales Return Adjustment - only reason of rejection of this adjustment is the observation of Ld. CIT(A) that the same was to be considered only in the year when the sales returns have actually taken place - As per the terms, once the products are released for sale by designated quality testing facility, the supplier’s liability towards cost, expenses and losses to the extent of any claims, returns, rejection, recall would cease and the same would be on AE only without any recourse to the supplier. In case of non-AE sales, the said liability would be on assessee. Therefore, this crucial factor would require adjustment in the selling price while benchmarking the transactions. We order so.
Adjustment of Competition - We are of the opinion that the competition in two geographical locations would vary due to market conditions and government regulations prevailing in the market. The assessee, vide letter dated 06/01/2014, has submitted detailed chart scientifically quantifying the competition effect. The assessee has also produced invoices raised by the AE to its customers to prove competition effect. In UK, National Health Service determines reimbursement price of each drug and reimburses the same to retailers. The assessee has also submitted its value chain of UK drug market and functions performed by each party in value chain to justify its margins and arm’s length price. In the absence of any adverse findings by lower authorities, we concur with these submissions and accordingly, the assessee’s plea is to be accepted. Accordingly, we direct Ld. AO / TPO to grant this adjustment.
Wrong claim of R & D Deduction u/s 35(2AB) for Jogeshwari Unit - expenditure has been accumulated as work-in-progress in earlier years and no deduction thereof has even been claimed by the assessee, in any manner - HELD THAT:-. The assessee has already furnished permission from Directorate General of Health Service in support of the fact that the technology became operative in this year only. We find that the Accounting Standard-26 (AS-26) on intangibles as issued by The Institute of Chartered Accountants of India mandate the assessee to recognize / capitalize intangibles only if it is probable that future economic benefits will flow to the enterprise, the asset is commercially viable and the cost of the asset can be measured reliably. Following the same, the assessee has capitalized the expenditure in this year and made the claim which is in line with the mandate Accounting Standard issued by ICAI. Therefore, in our opinion, the current year would be the correct year of claiming deduction u/s 35(2AB).
Non-availability of Form 3CM - once existence of R&D facility was not disputed and expenditure for that purpose was genuine in nature and recognition to facility was valid during relevant period, then merely for reason of non-issuance of approval for certain period in prescribed Form 3CM by competent authority, weighted deduction as claimed u/s 35(2AB) could not be denied. Similar is the view of Pune Tribunal in Minilec India (P.) Ltd. [2018 (4) TMI 1058 - ITAT PUNE] wherein it was observed by the bench that non-receipt of Form No. 3CM is at best a procedural lapse and is not fatal for denial of claim of deduction u/s 35(2AB). Therefore, considering the entirety of facts and circumstances, we reverse the adjudication of Ld. CIT(A) and direct Ld. AO to grant weighted deduction u/s 35(2AB) as claimed by the assessee.
Disallowance of R & D Exp. pertaining to Roha and Goa unit-III - Assessee, during the course of proceedings before lower authorities, furnished ample evidences to substantiate its claim - assessee has sufficiently demonstrated the carrying out of R & D Activities at Roha as well as Goa-III Unit. The Ld.AO, in the remand report, has accepted the affidavit of officials clarifying their statements and has not re-examined them. Therefore barring statements taken during survey proceedings, the revenue is unable to controvert the assessee’s documentary evidences and bring on record any cogent material to dislodge the same. Another undisputed fact is that Survey Team never visited Goa Unit and therefore, the conclusion that no R & D activity was being carried at this unit has no legs to stand.
Observation of lower authorities that Form 3CM was not available - We find that the aforesaid units had valid approvals from DSIR during the year and non-availability of Form 3CM would not be fatal to claim of deduction. Our adjudication as given in preceding para 3.6 shall mutatis-mutandis apply to the findings of lower authorities - direct Ld. AO to grant weighted deduction u/s 35(2AB) against both the units.
Disallowance of Publicity Expenses u/s 37(1) - promotional items were given to stockiest under an incentive scheme to promote the sale of products - HELD THAT:- We find that the assessee is a pharmaceutical company engaged in the manufacturing of formulation (final medicinal products) and API (Active Pharmaceutical Ingredients). The pharmaceutical industry is prohibited from advertising its products and the biggest customer for this industry is practicing doctors who in the course of professional practice prescribe medicines for consumption by patients. Due to existence of competition in the market because of availability of pharmaceuticals from different suppliers, it would be necessary for the assessee to ensure awareness and visibility of its products amongst doctors as against advertising its products - The nature and the type of items distributed amongst doctors are not the type which can be considered as intended to influence the decisions of the Doctors. It could be gathered that the value of items given to doctors is generally below ₹ 1000/- per article.
Assessee has incurred aggregate expenditure of ₹ 2922.18 Lacs during the year out of which expenditure of ₹ 1921.55 Lacs has been incurred between the period 01/04/2009 to 09/12/2009 whereas balance expenditure of ₹ 1000.63 Lacs has been incurred from 10/12/2009 to 31/03/2010. The expenditure incurred before 10/12/2009 has fully been allowed but expenditure incurred thereafter has been disallowed primarily in terms of CBDT Circular No. 5/2012 dated 01/08/2012 which provide that the medical freebies offered by the assessee in terms of violation of MCI guidelines would be inadmissible deduction.
We find that the issue of applicability of CBDT circular to pharmaceutical companies has been examined in various decision of this Tribunal and it has finally been settled that the Circular do not apply to AY 2010-11 as it was issued on 01/08/2012 and the same is not applicable retrospectively - we would hold that CBDT circular was not applicable to the assessee during this year. Accordingly, the promotional / recall items being distributed to doctors for ₹ 633.13 Lacs would not be hit by cited CBDT circular and therefore, these expenses would be an allowable deduction. We order so.
Remaining items viz. books, journals, reference articles, prescription pad / chit block, calendars / new-year dairies & items given for use in dispensaries nature of these items is similar as incurred by the assessee before 10/12/2009 which has been fully allowed by Ld. AO himself. Therefore, there is no reason as to why these are not allowable thereafter. We find that the assessee, during assessment proceedings as well as during remand proceedings, has filed sufficient documentary evidences including sample confirmations from stockiest, copies of invoices etc. in support of the expenditure and no infirmity could be found in the same by Ld. AO except for the allegation that these documents were not sufficient. Therefore, we would hold that all such expenses were incurred for business purposes and allowable u/s 37(1).
Expenditure incurred on stockiest for the purpose of promoting the sale of one of the products i.e. ‘Electral’ (ORS) - AO, in the remand proceedings, simply reconfirmed the disallowance by holding that confirmations are in identical Performa and seem to have been given at the insistence of the appellant. However, no investigation or third party confirmations have been obtained whereas the assessee has well documented its claim. Therefore, the observations of Ld. AO are merely on the basis of presumption, surmises and conjectures. It could also be seen that similar claim has been allowed in subsequent AYs 2012-13 & 2013-14 in scrutiny assessment proceedings and therefore, there could be no occasion to doubt the same in this year. Hence, we delete the addition.
Bogus purchases - receipt of certain information from Sales Tax Department, Maharashtra, it transpired that the assessee made suspicious purchases - HELD THAT:- As relying on assessee own case [2018 (9) TMI 2066 - ITAT MUMBAI] we direct Ld. AO to restrict the additions to the extent of 12.5% of suspicious purchases.
Allocation of Corporate Expenses to 80-IB / 80-IC Units - reallocation of expenditure as paid to Vision Research foundation - assessee claimed deduction u/s 80-IB @ 30% on two units viz. Goa (ORS) and Goa (Unit-III) whereas it claimed deduction u/s 80-IC @100% on Baddi Unit - HELD THAT:- It is the submissions of Ld. AR that the same may not be reallocated since such contribution is in the form of contribution / donation and is not in any way related to any of the plants. Since it is in the nature of a corporate expense, no such allocation should be made. Concurring with the same, we direct Ld. AO consider the nature of receipt and if the same is in the form of donation, no allocation thereof should be made while computing the deduction.
Exclusion of other income while computing the deduction - only grievance of the assessee is exclusion of scrap sale - HELD THAT:- Issue decided in favour of assessee as relying on case HARJIVANDAS JUTHABHAI ZAVERI AND ANOTHER [1999 (12) TMI 5 - GUJARAT HIGH COURT] as held that it cannot be said that the learned Tribunal has committed any error in holding that the deduction under Section 80-IB of the Act is allowable for the income from sale of scrap. Under the circumstances, substantial question of law raised is answered against the revenue.
Disallowance u/s 14A - assessee earned exempt dividend income of ₹ 483.13 Lacs and offered suo-moto disallowance of ₹ 28.91 Lacs in the return of income - HELD THAT:- The assessee has sufficient opening and closing free funds in the shape of share capital and reserves to make the investments. The free funds are way more than the investments made by the assessee and therefore, as per cited decisions, the presumption would run in assessee’s favor that the investments were made out of free funds available with the assessee. Further, in terms of cited decision of special bench, no such disallowance could be made while computing Book-Profits u/s 115JB. Therefore, the additional disallowance as made by Ld. AO while computing income under normal provisions as well as while computing Book-Profits u/s 115JB is not sustainable in law. The Ld. AO is directed to delete the same. This ground stand allowed.
Claim of Education Cess - HELD THAT:- We find that this issue is covered in assessee’s favour - As in the case of Sesa Goa Ltd. [2020 (3) TMI 347 - BOMBAY HIGH COURT] has held that while the income tax is not allowable as deduction in view of Sec.40(a)(ii) of the Act, the expression ‘Cess’ cannot be read into the said provisions and hence the amount of education cess and higher and secondary education cess are allowable as deduction in computing the income of the assessee. Therefore, Ld. AO is directed to verify the claim of the assessee and allow the deduction in terms of the cited decision. This ground stand allowed for statistical purposes.
Erroneous levy of interest u/s 234C on tax liability determined under MAT provisions - HELD THAT:- We admit this ground of appeal. Accordingly, we direct Ld. AO to bring on record the relevant factual matrix for this issue and adjudicate the issue of levy of interest u/s 234C in the light of above judicial pronouncements. This ground stand allowed for statistical purposes.
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2021 (12) TMI 582
Exemption u/s 11 - registration u/s 12AA Cancelled - Denial of natural justice - assessee contended that the Ld. PCIT(C) without waiting the appraisal report of the A.O. and without giving opportunity of being heard, invoked and exercised the Jurisdiction under section 12AA(3) & 12AA(4) - assessee contended that the Ld. PCIT(C) without waiting the appraisal report of the A.O. and without giving opportunity of being heard, invoked and exercised the Jurisdiction under section 12AA(3) & 12AA(4) - HELD THAT:- In the present case it is not in dispute that the Ld. Pr. CIT passed the impugned order exparte on 22/03/2021 and cancelled the registration already granted to the assessee under section 12AA of the Act by invoking the provisions of section 12AA(3)/12AA(4)
From the provisions contained in proviso to sub section 3 of Section 12AA of the Act, it is crystal clear that no order under this sub section shall be passed unless such trust or institution has been given reasonable opportunity of being heard.
Reasonable opportunity of being heard is to be given and the fact that in the past, adjournments had been sought for would not be of any materiality. In the present case, the Hon'ble Jurisdictional High Court directed the Ld. Pr. CIT vide order dt. 17/03/2021 to dispose off the objections raised by the assessee and the letters furnished in the response to the show cause notice. However, the Ld. Pr. CIT, without providing any opportunity of being heard to the assessee passed the impugned order on 22/03/2021 exparte which is against the provisions contained in proviso to sub section 3 of section 12AA of the Act.
No assessment was framed by the A.O. therefore it is not clear that how and in what manner the Ld. Pr. CIT considered the details examined by the A.O. when the assessment had not been completed by the A.O - Pr. CIT while cancelling the registration of the assessee trust considered the provisions contained in section 11, 12 and 13 of the Act and also mentioned that to decide the eligibility of section 12AA of the Act subsequently after having been granted earlier, the tests to be applied are as to whether the activity of the Trust are being carried out as per the stated object and income was derived only from the property held under the Trust (Source Trust)and as to whether the Trust was applying entire receipt / income solely for the charitable purpose of the Trust as required under section 11, 12 and 13 (application test).
Application test under section 11, 12 and 13 of the Act, could have been applied only after the outcome of the examination by the A.O. from the record. In our opinion, the A.O only after proper examination of the assessee’s record may be in a position to come to the conclusion as to whether the benefit directly or indirectly from the property or the income has been derived by the person mentioned under section 13(3) of the Act or as to whether the assessee Trust record entire receipt or expenses in the books of accounts. In the present case nothing is brought on record to substantiate that the A.O. had undertaken aforesaid exercise as regards to the provisions contained in Section 11, 12 and 13 of the Act.
Pr. CIT without waiting the outcome of the assessment framed by the A.O. cancelled the registration already granted under section 12AA of the Act vide order dt. 22/02/2011, the said action of the Pr. CIT in the present case was a premature one particularly when no submissions were made dt. 04/01/2021 & 01/02/2021 by the assessee on merits of the case and this fact has been pointed out by the Ld. Pr. CIT of the impugned order wherein it has been mentioned that the submissions contained mostly the legal issues.
Reasonable opportunity of being heard was not provided by the Ld. Pr. CIT to the assessee after the direction given by the Hon'ble Jurisdictional High Court on 17/03/2021 and the impugned order passed by the Ld. Pr. CIT on 22/03/2021 exparte, against the provisions as contained in the proviso of sub section 3 of section 12AA of the Act which provides that the reasonable opportunity of being heard is to be provided before cancellation the registration.
Pr. CIT (Central) is set aside and the issue is remanded back to his file to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee and also by keeping in view the findings given by the A.O. as regards to the violation of the provisions contained in Section 13(1)(c) - Appeals of the assessee are allowed for statistical purposes.
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2021 (12) TMI 574
Deposit of employees’ contributions qua ESI & PF after the due date - non-applicability of the provisions of Section 43B of the Act to the employee’s share qua PF & ESI and applicability of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 - HELD THAT:- The Hon’ble jurisdictional High Court in the case of CIT Vs. M/s Hemla Embroidery Mills (P) Ltd. [2013 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT] and M/s Mark Auto Industries Ltd. [2013 (1) TMI 448 - PUNJAB AND HARYANA HIGH COURT] clearly held that the assessee is entitled to claim deduction of employee’s share of ESI & PF u/s.43B of the Act, if the same has been deposited prior to the filing of return of income u/s.139(1) of the Act.
It is clear that the Hon’ble Court has not drawn any distinction between the employee’s and employer’s share qua PF & ESI contributions. Admittedly there are no contrary judgements of the jurisdictional High Court against the assessee on the aspect under consideration hence, first determination of the Ld. CIT(A) qua non-applicability of the provisions of Section 43B of the Act to the employee’s share qua PF & ESI, is unsustainable.
Determination to the effect that the amendment made in Section 36(1)(va) and 43B of the Act by Finance Act 2021 has to be considered as clarificatory in nature and having retrospective effects, therefore would be applicable to the previous assessment years as well - We may observe in the case of Value Momentum Software Services Pvt. Ltd.[2021 (5) TMI 989 - ITAT HYDERABAD] have taken into consideration the identical issue qua applicability of the amendment to Section 36(1)(va) and Section 43B of the Act, by inserting Explanations by the Finance Act, 2021 and clearly held that the amendment shall be applicable from 1st April, 2021 onwards . It is also relevant to note that the CBDT has also issued Memorandum of Explanation qua applicability of the amended provisions of Section 36(1)(va) & 43B of the Act w.e.f. 1st April, 2021, and Assessment Year 2021-21 onwards, hence there is no doubt qua applicability of the amended provisions referred above, prospectively.
On the aforesaid discussion, the second aspect as considered/determined by the ld. CIT(A) qua retrospective application of the amended provisions of Section 36(1)(va) and 43B of the Act wherein Explanations have been inserted by Finance Act, 2021 qua employees’ share in respect of PF & ESI Act, is also unsustainable - Decided in favour of assessee.
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2021 (12) TMI 571
Income accrued in India - royalty receipts - transfer of copyright in the software - India-UK DTAA - payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India payment received by EYGSL (UK) from EYGBS (India) to be taxed as “royalty”- HELD THAT:- As it is essential to show a transfer of copyright in the software to do any of the acts mentioned in Section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as “royalty”.
In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as “royalty” as held by the Supreme Court in Engineering Analysis Centre [2021 (3) TMI 138 - SUPREME COURT] In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term “royalty” as held by the Supreme Court in Engineering Analysis Centre
The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four categories of cases that arose in the appeals before it, it has laid down the law for general application. The law, as laid down by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners.
The submission made by the learned counsel for the revenue relying upon the amendment to Section 9(1)(vi) of the Income Tax Act, 1961 has also been specifically considered and rejected by the Supreme Court.
The Impugned Rulings passed by the learned AAR are set aside and it is held that the payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India, that is, EYGBS (India), does not amount to “royalty” liable to be taxed in India under the provisions of the Income Tax Act, 1961 and the India-UK DTAA. - Decided in favour of assessee.
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2021 (12) TMI 570
Reopening of assessment u/s 148 - scope of section u/s 148A - period of limitation in respect of issuance of notice under section 148 - HELD THAT:- As the prima facie opinion of the Court, for the purpose of interim order, is that by virtue of notifications dated 27.02.2021 and 31.03.2021 issued by the Central Board of Direct Taxes, as referred herein before, though extends the period of limitation in respect of issuance of notice under section 148 of the Income Tax, Act, but the said notification is not found to empower the Central Board of Direct Taxes to put into oblivion the provision of section 148A of the Income Tax Act, which was inserted by virtue of the Finance Act, 2021 and was notified w.e.f. 01.04.2021, as if the said section 148A would not apply till limitation prescribed under section 148 does not lapse or expire.
The implementation of the effective date of section 148A which is notified to be 01.04.2021, was certainly not extended by virtue of notification dated 27.02.2021 and 31.03.2021 and therefore, the Court finds that the decision rendered by the Allahabad High Court [2021 (10) TMI 517 - ALLAHABAD HIGH COURT]as well as Rajasthan High Court [2021 (12) TMI 207 - RAJASTHAN HIGH COURT] to have more persuasive value in respect of the issue raised by the petitioner with all respect to the decision rendered by the Chhattisgarh High Court[2021 (9) TMI 199 - CHHATTISGARH HIGH COURT]. The opinion expressed herein before is only for the purpose of granting interim relief to the petitioner and is not a conclusive opinion of the Court on the merit of the writ petition.
Accordingly, the Court is inclined to stay the operation of the impugned notice issued under section 148 of the Income Tax Act bearing DIN & Notice issued by the ACIT/DCIT CIR1 DIB dated 30.06.2021 (Annexure XV).
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2021 (12) TMI 569
Stay on recovery proceedings - outstanding demand for second quarter of Financial Year 2021-22 - HELD THAT:- Revenue accepts notice. He admits that there has been an error on the part of the Assessing Officer in not deciding the petitioner’s request/application dated 22nd November, 2021.
He assures this Court that the jurisdictional Assessing Officer shall decide the petitioner’s request/application in accordance with the judgment passed by this Court in Concentrix Services Netherlands B V [2021 (4) TMI 1051 - DELHI HIGH COURT] as well as petitioner’s own case [2021 (6) TMI 379 - DELHI HIGH COURT] within four weeks.
The assurance/undertaking given by learned counsel for Revenue/Respondents is accepted by this Court and the Revenue/Respondents are held bound by the same. Till the order is passed by the Assessing Officer, the impugned demand shall not be given effect to.
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2021 (12) TMI 568
Reopening of assessment u/s 147 - Period of limitation - scope of procedure prescribed under Section 148A - according to the petitioners notice is barred by limitation and that the respondent before issuing the notice under Section 148 of the Act has not followed the mandatory procedure prescribed under Section 148A of the Act as prescribed by the Finance Act, 2021 and applicable w.e.f. 01.04.2021 before issuance of notice under Section 148 - HELD THAT:- The issue involved in the present writ petitions is squarely covered by the decision of the Allahabad High Court in the matter of Ashok Kumar [2021 (10) TMI 517 - ALLAHABAD HIGH COURT]which in my view is a correct view and has been taken after considering the judgment passed by the Single Bench of Chhatisgarh High Court in the matter of Palak Khatuja [2021 (9) TMI 199 - CHHATTISGARH HIGH COURT] which has been relied upon by respondents’ counsel and therefore the present petitions deserve to succeed.
Accordingly, the writ petitions are allowed. The reassessment notice issued to the petitioners under Section 148 of the Income Tax Act is quashed.
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2021 (12) TMI 567
Reopening of assessment u/s 147 - re-assessment notice issued under the erstwhile section147/148 after 1.4.2001 without following the mandate of new section 148A - petitioners are aggrieved of issuance of the re-assessment notice u/s.148 which according to the petitioners is barred by limitation and that the respondent before issuing the notice under Section 148 of the Act has not followed the mandatory procedure prescribed u/s 148A of the Act as prescribed by the Finance Act, 2021 and applicable w.e.f. 01.04.2021 - HELD THAT:- The issue involved in these writ petitions has been considered and decided in ASHOK KUMAR AGARWAL VERSUS UNION OF INDIA THROUGH ITS REVENUE SECRETARY NORTH BLOCK AND 2 OTHERS [2021 (10) TMI 517 - ALLAHABAD HIGH COURT] considering case of PALAK KHATUJA [2021 (9) TMI 199 - CHHATTISGARH HIGH COURT] decided in favour of assessee.
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2021 (12) TMI 566
Levy of penalty u/s 269T read with 271E - Tribunal deleted the penalty levy - HELD THAT:- In the case on hand, the Joint Commissioner and the Commissioner of Income Tax (Appeals) have referred to a few reasons as cogent reasons warranting levy of penalty on the assessee - Tribunal, in our considered view, has recorded a finding in favour of the assessee which is not impugnable. In normal course, the findings recorded by the Tribunal would have been examined by this Court to the extent permissible in law and answered the questions. The additional documents now brought on record, it is possible, may invite fresh examination of bona fide belief or reasonable cause relied on by the assessee. We refrain from undertaking the responsibility of examining the case of assessee that the assessee had reasonable cause for not following the requirement of law. But we are of the view that the matter, if remitted to the Tribunal, the parties would have reasonable opportunity and thereupon the claim/explanation of the assessee considered by the Tribunal.
Substantial questions accordingly are answered in favour of the Revenue and against the assessee. The order of Tribunal is set aside. Matter remitted to the Tribunal for disposal in accordance with law.
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2021 (12) TMI 565
Exemption u/s 80P(2)(a)(vi) - whether the assessee was engaged in the collective disposal labour of its members? - HELD THAT:- Society’s functions are based upon its bye laws. The bye laws itself would have thrown light upon the question that arises for consideration in the instant case. On an examination of the bye laws, the Tribunal could have easily come to a conclusion whether the income derived by the society was through collective disposal of the labour of its members. Materials like the bye laws were already on record for the Tribunal to appreciate the claim of the assessee. We find on a consideration of the order of the Tribunal that the remand to the assessing officer was not necessary in the peculiar facts of the case and on the other hand, as a final fact finding authority Tribunal itself could have appreciated the facts by itself. The assessment relates to the assessment year 2008-09 and at this distance of time, it is not in the interests of all to remand it to the assessing officer.
We set aside the order of the Tribunal and remand the same for fresh consideration by the Tribunal itself. The Tribunal shall examine the issue arising under Section 80P(2)(6)(a) of the Act, as expeditiously as possible, preferably within six months.
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2021 (12) TMI 564
Eligibility of profits and deductibility of profits arising under Section 115JB - whether the assessee is entitled to claim deduction under Section 80HHC - HELD THAT:- As per reported judgments in Ajanta Pharma Ltd. v. Commissioner of Income-Tax [2010 (9) TMI 8 - SUPREME COURT] order of the Supreme Court in Kerala Chemicals and Proteins Ltd v. Commissioner of Income Tax [2012 (9) TMI 1214 - SUPREME COURT] AND BHARI INFORMATION TECH SYSTEMS (P) LTD. [2011 (10) TMI 19 - SUPREME COURT]to state that the issue is concluded by these judgments in favour of assessee.
Depreciation at 40% on commercial vehicles used for assessee's own business - whether the percentage of depreciation accepted by the CIT (Appeals) and Tribunal at 40% is correct or not? - HELD THAT:- Old appendix I applicable for the Assessment Year 2003-04 deals with different slabs of depreciation applicable to vehicles used for different purposes. After juxtaposing the schedule with the nature of activity carried on by the assessee, we are of the view that the finding of fact recorded by the Tribunal is in accordance with the said schedule and the substantial question of law in the facts and circumstances of this case does not arise for consideration under Section 260A of the Act.
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2021 (12) TMI 563
Deduction u/s 80P(2)(a)(i) and 80P(2)(d) - AO denied the benefit of deduction u/s 80P(2)(a)(i) for the reason that the assessee was also dealing with associate / nominal members - CIT(A) upheld the view taken by the A.O. that the assessee has violated the principle of mutuality, and hence, it was concluded that assessee was not entitled to deduction u/s 80P(2)a)(i) and 80P(2)(d) - HELD THAT:- The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors [2021 (1) TMI 488 - SUPREME COURT] had held that the expression “members” is not defined under the Income-tax Act. Hence, it is necessary to construe the term “members” in section 80P(2)(a)(i) of the I.T.Act as it is contained in the respective State Co-operative Act. The Hon’ble Apex Court had held that providing credit facilities to associate or nominal members would be entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act unless they are not considered as “members” of the co-operative societies under the respective State Act.
The Hon’ble Apex Court has also considered the judgment in case of Citizen Co-operative Society Ltd. [2017 (8) TMI 536 - SUPREME COURT] - A.O. has merely denied the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act for the reason that the assessee was also dealing with associate / nominal members, which is against the dictum laid down by the Hon’ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. & Ors. (supra). The Hon’ble Apex Court has settled many issues
We are of the view that the issue of deduction u/s 80P(2)(a)(i) of the Act, needs to be examined by the A.O., in the light of the principles enunciated by the Hon’ble Apex Court in case of Mavilayi Service Co-operative Bank Ltd. & Ors. (supra). Accordingly, the CIT(A) order on this issue is set aside and the same is restored to the files of the A.O. for examination of the case in the light of the principles laid down.
Rejection of claim of deduction u/s 80P(2)(a)(i) of the Act with regard to interest income earned from fixed deposits kept with co-operative banks - Insofar as deduction u/s 80P(2)(d) we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction.
Deduction u/s 57 - Assessee’s claim that if interest income is to be assessed income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act, we find an identical issue was considered by the Hon’ble jurisdictional High Court in the case of Totgars Co-operative Sales Society Ltd [2017 (7) TMI 1049 - KARNATAKA HIGH COURT]
The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e., gross receipt minus allowable expenditure), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of in the case of Totagars Sale Co-operative Society Limited [supra] - Accordingly, the issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources’. If so, the same shall be allowed as deduction u/s 57 - Appeal filed by the assessee is allowed for statistical purposes.
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2021 (12) TMI 562
Benefit of deduction u/s 80P(2)(a)(i) - AO held that the assessee is primarily engaged in the business of banking and in view of the insertion of sub- section (4) to section 80P of the Act with effect from 001.04.2007, the assessee is not entitled to the benefit of deduction u/s 80P(2)(a)(i) - HELD THAT:- The recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd. [2021 (8) TMI 706 - ITAT BANGALORE] by following the judgment of Totagars Co-operative Sale Society v.ITO [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] held that interest income earned out of investments made from surplus funds would be taxable under the head `income from other sources’ and would not be eligible for deduction u/s 80P(2)(a)(i) of the Act. It was further held by the Tribunal insofar as the deduction u/s 80P(2)(d) of the Act is concerned, only those interest received from investment with co-operative societies alone would be entitled to deduction.
CIT(A) had allowed the deduction u/s 80P(2)(a)(i) of the Act by holding that interest arising from investments made in compliance with the statutory provisions is exempt u/s 80P(2)(a)(i) of the Act. From the records, we noticed that the assessee has received interest income even from other Scheduled Banks, such as, IDBI Bank, Yes Bank etc. Therefore, the reasoning of the CIT(A) that the investments are made in compliance with the statutory provision of the Karnataka State Co-operative Societies Act, 1959, may not be fully correct. Therefore, we are of the view that the matter has to be examined by the Assessing Officer.
Deduction u/s 80P(2)(d) - We make it clear that the interest income received out of investments with co-operative societies alone is to be allowed as deduction.
Deduction u/s 57 - alternate contention of the assessee that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 - The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e., gross receipt minus allowable expenditure), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of Totagars Sale Co-operative Society Limited [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] - Accordingly, the issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources’. If so, the same shall be allowed as deduction u/s 57 of the I.T.Act.
In the recent judgment of The Mavilayi Service Co-operative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT] had held that the expression “members” is not defined under the Income-tax Act. Hence, it is necessary to construe the term “members” in section 80P(2)(a)(i) of the I.T.Act as it is contained in the respective State Co-operative Act. The Hon’ble Apex Court had held that providing credit facilities to associate or nominal members would be entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act unless they are not considered as “members” of the co-operative societies under the respective State Act. The Hon’ble Apex Court has also considered the judgment in case of Citizen Co-operative Society Ltd.
Thus we are of the view that the matter needs to be considered afresh by the Assessing Officer. Accordingly, we set aside the order of the CIT(A) and direct the A.O. to verify the claim made by the assessee u/s 80P(2)(a)(i) and 80P(2)(d) of the Act, keeping in view the dictum laid down in the judicial pronouncements referred supra.
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2021 (12) TMI 561
Rectification of mistake u/s 154 - deduction on account of depreciation separately while computing its income by applying the net profit rate - HELD THAT:- We find merit in the contention of assessee that there was a mistake in the order passed by the Assessing Officer under section 143(3) of the Act on 04.03.2015 in not allowing depreciation allowance separately when the income of the assessee from the business of contracting was computed by the AO by applying the net profit rate. Since the said mistake was apparent from record, it was correctly rectified by the AO in the first order passed under section 154 of the Act since the said order passed by the Assessing Officer under section 154 in allowing deduction on account of depreciation allowance separately when the income of the assessee was computed by applying the net profit rate was duly supported by the decision of Shyam Bihari [2012 (8) TMI 420 - PATNA HIGH COURT] as well as the CBDT Circular dated August 31, 1965 - We also find merit in the contention raised by the ld. Counsel for the assessee that there was no mistake in the said order much less the mistake apparent from record, which could be rectified under section 154 as done by the Assessing Officer vide his second order dated 26.11.2015 passed under section 154. The ld. CIT(Appeals), in our opinion, therefore, was not justified in upholding the order of the Assessing Officer passed under section 154 dated 26.11.2015 on the issue of disallowance of depreciation.
Addition made on account of interest on FDR - We are of the view that there being nothing on record to establish that the investment in the FDR made by the assessee was for the purpose of its business, the interest earned on the said FDR was liable to be added separately while computing the total income of the assessee by applying the net profit rate. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) confirming the addition made by the Assessing Officer on this issue vide his order dated 26.11.2015 passed under section 154 of the Act.
Rate of net profit to be adopted for estimating the income of the assessee - As observed that the net profit rate of 6% adopted in the assessment originally completed under section 143(3) of the Act was increased by the Assessing Officer vide the first order dated 27.04.2015 passed under section 154 of the Act while allowing the depreciation allowance separately and since the said order was accepted by the Assessing Officer and no appeal against the same was filed by the assessee before the ld. CIT(Appeals), we are of the view that the net profit rate of 6.5% applied by the Assessing Officer had become final and the same having been not disturbed by the Assessing Officer even in the second order dated 26.11.2015 passed under section 154, we are of the view that this issue was not arising from the second order passed by the Assessing Officer under section 154 and the ld. CIT(Appeals) was not justified in disturbing the same while disposing of the appeal of the assessee against the second order passed by the Assessing Officer under section 154. We accordingly modify the impugned order of the ld. CIT(Appeals) and allow this appeal of the assessee partly.
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2021 (12) TMI 560
Correct head of income - income from infrastructure support services - taxable under the head ‘profits and gains from business or profession’ or under the head ‘income from house property’ - HELD THAT:- Existence of two agreements is concerned, absolutely, there is no dispute. It is also not in dispute that for the assessment year 2011-12, 2012-13 and 2015-16 also, the assessee offered the receipts under the two streams, namely, rental income earned from leasing out the space within the mall to the tenants and offering the same under the head ‘income from house property’ and the other is income from business activities of maintaining, operating and providing equipments essential for operation of mall, i.e., infrastructure support services under the head ‘ profit and gain from business or profession’. It is also not in dispute that for the assessment year 2011-12 and 2012-13, by order dated 16.12.2015 and 18.02.2015, the Assessing Officer accepted the same; whereas for the assessment year 2015-16, ld. CIT(A) in first appeal granted relief to the assessee by holding that the income from infrastructure support services is taxable under the head ‘profits and gains from business or profession’ and not under the head ‘income from house property’.
As decided in CHANDER NAGAR CHEMICALS AND MINERAL PRIVATE LIMITED VERSUS ITO, WARD-3 (3) , NEW DELHI. [2020 (9) TMI 342 - ITAT DELHI] When the assessee had chosen to bifurcate the transaction and to charge separately towards the rent of the demised premises and for the services provided and hire charges, in our considered opinion the Revenue cannot prevent the same on the ground that such process would result in loss to the Revenue. In the circumstances, we hold that the action of the authorities below not to permit the assessee to arrange their business in the way which is beneficial to them, within the permissible limits of law, is impermissible. Then it goes without saying that the assessee is entitled to claim the business expenses in respect of the income from the services provided and hiring of equipment, and statutory deductions under section 24 (a) of the Act insofar as the income from the house property is concerned. With this view of the matter, we direct the learned Assessing Officer to allow the statutory deduction under section 24 (a) of the Act also and the interest incurred in respect of the house property - Appeal of the Revenue is dismissed.
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2021 (12) TMI 559
Condonation of delay - delay of nine months on the part of the assessee in filing the appeal before the CIT(A) against the order passed by the AO u/s 143(1) - Short Term Capital Loss set off disallowed against the Short Term Capital Gain - HELD THAT:- It is well settled that the term “sufficient cause” is to be construed liberally in order to advance the substantial cause of justice and not to shut the door on the assessee to avail the remedial measure provided under the statute. When the claim of the assessee for set of off for brought forward Short Term Capital Loss of the earlier years against the Short Term Capital Gain of the year under consideration was disallowed by the AO vide an order u/s 143(1), two remedies were available to the assessee i.e. to move the application u/s 154 for rectification before the AO or to file an appeal before the Ld. CIT(A).
In the present case, the assessee availed the first remedy by filing an application u/s 154 before the AO and since no relief was forthcoming by availing the said remedy in as much as the application filed u/s 154 remained to be disposed of by the AO, the assessee after waiting for a reasonable time availed the second remedy which was available by filing the appeal before the Ld. CIT(A) - assessee cannot be said to have not acted diligently and is guilty of negligence.
Delay of nine months in filing the appeal before the Ld. CIT(A) was a result of the fair and reasonable attempt made by the assessee to avail one remedy available to him by filing an application u/s 154 for rectification before the AO and the same, in my opinion, constituted a reasonable cause. We therefore, condone the delay of nine months on the part of the assessee in filing an appeal before the Ld. CIT(A) and setting aside the impugned order passed by the Ld. CIT(A), we remit the matter back to him for disposing of the appeal of the assessee afresh on merit in accordance with law after giving a proper and sufficient opportunity of being heard to the assessee.
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2021 (12) TMI 558
Disallowance of deduction claimed on account of Employees’ contribution to PF & ESI by invoking the amended provisions of Section 36(1)(va) r.w.s. 43B - Whether the payment to employees contribution to PF & ESI is well within the due date of filing of return of income by the assessee u/s.139(1) ? - HELD THAT:- There are series of decisions of various High Courts on this issue and even Hon’ble Jurisdictional High Court in the case of M/s. Industrial Security & Intelligence India P Ltd. [2015 (7) TMI 1063 - MADRAS HIGH COURT] held that the payment of employees contribution in regard to PF & ESI if made before the due date of filing of return of income u/s.139(1) of the Act, the same is allowable as deduction as per the provisions of Section 2(24)(x) r.w.s. 36(1)(va) r.w.s. 43B.
Scope of amendment - Whether by the Finance Act, 2021, the provisions of Section 36(1)(va) by inserting the Explanation 2 r.w.s. 43B of the Act have been amended, whereby it is clarified that the provisions of Section 43B of the Act shall not apply and shall be deemed ought to have been applied for the purpose of determining the due date under this clause? - As before insertion of Explanation 2 to Section 36(1)(va) of the Act, there is ambiguity regarding due date of payment of employees’ contribution on account of provident fund and ESI, whether the due date is as per the respective acts or up to the due date of filing of return of income of the assessee. As noted by Hon’ble Supreme Court an amendment made to a taxing statute can be said to be intended to remove hardship only of the assessee and not of the Department. Imposing of a retrospective levy on the assessee would be caused undue hardship and for that reason Parliament specifically chose to make the proviso affective from a particular date. In the present case also, the amendment brought out by Finance Act, 2021 w.e.f. 01.04.2021 i.e. for and from assessment year 2021-22 of Explanation-2 to s. 36(1)(va) of the Act and not retrospectively.
Thus, from the above, it is clear that the amendment brought in the statute i.e., by Finance Act, 2021, the provisions of Section 36(1)(va) r.w.s. 43B of the Act amended by inserting Explanation 2 is prospective and not retrospective. Hence, the amended provisions of Section 43B r.w.s. 36(1)(va) of the Act are not applicable for the assessment year 2018-19 but will apply from assessment year 2021-22 and subsequent assessment years. Hence, this issue of assessee’s appeal is allowed.
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2021 (12) TMI 557
Additions towards excess share premium u/s.56(2)(viib) - issue of shares over and above fair market value of such shares - share price determined by the assessee by adopting discounted cash flow method - HELD THAT:- If at all, the Assessing Officer is not satisfied with price determined by the assessee in any method, then he can verify methodology followed by the assessee for arriving at share price, but he cannot change different method altogether without any valid reasons. In this case, although the assessee has followed discounted free cash flow method, but the AO has changed to net asset method contrary to position of law.
At the same time, although, the assessee claims that it has justified issue of shares at ₹ 430/- per equity share, but on perusal of details filed by the assessee before the learned CIT(A), we find that learned CIT(A) has deleted additions made by the Assessing Officer by following his predecessor CIT(A) order for assessment year 2014-15, where the assessee has issued share at premium of ₹ 90/- per equity share.Since there is abnormal increase in premium charged by the assessee when compared to previous assessment year, we are of the considered view that the learned CIT(A) has completely erred by following his predecessor CIT(A) order, without examining share price arrived at by the assessee at ₹ 430/- per equity share. The issue needs to go back to the file of the Assessing Officer to verify share price determined by the assessee by adopting discounted cash flow method. Hence, we set aside the appeal to file of the Assessing Officer and direct him to reconsider the issue de-novo in accordance with law - Appeal filed by the Revenue is treated as allowed for statistical purposes.
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