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Income Tax - Case Laws
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2022 (6) TMI 1379
Accrual of income - Taxability of maintenance advance in the hands of assessee - assessee received advances from the customers at the time of handing over of the possession of apartments, which is accounted as current liabilities in its balance sheets - HELD THAT:- CIT(A) expressed categorical view that, advances do not partake the character of income and that the maintenance advances received by a sissy cannot be characterised as income unless the maintenance services are rendered. CIT(A) rightly directed the Ld.AO to compute the amount of expenditure incurred out of the search total advances received for the year under consideration which is based on percentage completion method.
Direction issued by the Ld.CIT(A) to the Ld.AO is in accordance with law and cannot be found fault with. Decision relied by the Ld.AO in case of Sundaram Finance Ltd [2012 (9) TMI 373 - SUPREME COURT] are rendered on different facts and are distinguishable with that of assessee in the present case.
We direct the Ld.AO to compute the maintenance attributable for the years under consideration based on the expenditure incurred and the services rendered by the assessee.
Unpaid service tax liability - AO made addition invoking section 43B - AR that the assessee collected amount from its customers, towards service tax liability, however the same was not remitted - HELD THAT:- Section 43B does not contemplate liability to pay the service tax before actual receipt of the funds in the account of the assessee. In our opinion, when the assessee collected the amount, it should not kept it with them and same should be deposited to the Government exchequer within the specified date and time.
Hon'ble jurisdictional High Court in the case of Essae Teraoka (P.) Ltd. [2014 (3) TMI 386 - KARNATAKA HIGH COURT] has categorically held that the assessee would be entitled to deduction of employees' contribution to PF and ESI provided the payment was made prior to the due date of filing of return of income u/s 139(1)
We note that in the event the liability stood discharged by the assessee before filing of the return of income, a liberal view can be adopted in view of the decision of Coordinate Bench of this Tribunal in case of The Continental Restaurant & Café Co [2021 (10) TMI 843 - ITAT BANGALORE].
We also note that Hon’ble jurisdictional High Court in case of Essae Taroka (P.) Ltd [2014 (3) TMI 386 - KARNATAKA HIGH COURT]and Spectrum Consultants India (P.) Ltd. [2013 (7) TMI 414 - KARNATAKA HIGH COURT] has affirmed the above view.
We therefore remand this issue to the Ld.AO, to verify and consider the claim in accordance with the principles laid down in case of Essae Taroka (P.) Ltd.(supra). Ground raised by the assessee stands allowed for statistical purpose.
Admission of additional ground - Disallowance made in respect of the sales tax liability discharged - AO disallowed the same holding that since the demand pertains to AY 2009-10, the same could not be allowed in AY 2010-11 - HELD THAT:- We note that no new documents needs to be verified for adjudicating this ground and respectfully following the decisions of National Thermal Power Co. Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME COURT] and Jute Corporation of India Ltd. [1990 (9) TMI 6 - SUPREME COURT] we are admitting the additional ground raised by the assessee.
We note that the demand notice was received by the assessee during financial year relevant to the assessment year 2011-12, and the assessee discharged the liability during assessment year 2011-12. We therefore agree with the submissions of the Ld.AR that the disallowance is to be deleted for AY 2011-12 as per the additional ground raised by the assessee in appeal filed for AY 2011-12.
Disallowance of interest u/s 201(1A) by treating it to be penal in nature - as submitted that the interest under section 201(1A) is not penal but is compensatory and does not represent tax of the assessee as it pertains to the tax liability of a third party - HELD THAT:- As decided in Resolve Salvage & Fire India (P.) Ltd [2022 (4) TMI 906 - ITAT MUMBAI] interest was paid for delayed payment of service tax & TDS. The interest for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand.
The issue of delay in the payment of service tax is directly covered by the judgment of Lachmandas Mathura v. CIT [1997 (12) TMI 16 - SUPREME COURT] in favour of assessee. Thus we hold that the interest paid on delayed payment of TDS u/s 201(1A) is an allowable deduction - grounds raised by the assessee stands allowed.
Disallowance of interest paid to the NBFC u/s 40(a)(i) - AR submitted that though the assessee did not deduct taxes at source on the interest paid to NBFCs, it is submitted that where the payee has paid the taxes directly, no disallowance under section 40(a) would be warranted - HELD THAT:- We remand to the Ld.AO to verify if the payee has paid the taxes on the interest component paid by the assessee. If the submission is found to be correct, the disallowance is directed to be deleted.
Disallowance of depreciation on computer software for non deduction of TDS under section 40(a)(ia) of the Act - HELD THAT:- This issue is covered in favour of assessee by the decision of Hon’ble Karnataka High Court in case of PCIT vs.Tally Solutions (P.) Ltd [2020 (12) TMI 1160 - KARNATAKA HIGH COURT] as held that the depreciation is not an outgoing expenditure and therefore, provisions of Section 40(a)(1) and (ia) of the Act are not applicable. In the absence of any requirement of law for making deduction of tax out of expenditure, which has been capitalized and no amount was claimed as revenue expenditure, no disallowance under section 40(a)(i) and (ia) would be made. Depreciation is a statutory deduction available to the assessee on a asset, which is wholly or partly owned by the assessee and used for business or profession. The depreciation is an allowance and not an expenditure, loss or trading liability.
Disallowance of contributions made towards superannuation fund by the assessee - AO disallowed the contribution made to superannuation fund on the ground that the approval for the same had not been received, while noting that as and when the CIT accords approval, the assessee could claim the deduction - HELD THAT:- We note that the assessee had applied for approval of the fund as on 27/02/2008. The Ld.AR prays for the issues to be remanded to the Ld.AO for due consideration of the approval dated 18.09.2017. The Ld.DR did not object for the submission made by the Ld.AR.
We are therefore remanding this issue back to the Ld.AO with a direction to consider the approval dated 18/09/2017, in accordance with law.
Disallowance u/s 14A - working disallowance u/s 14A by considering the investment which have yielded tax free income - HELD THAT:- We find force in the submission of Ld.AR. As decided in case of CIT vs. Holcim India Pvt. Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT], case of CIT vs. Corrtech Engineering Pvt. Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT] and decision of CIT v. Shivam Motors (P.) Ltd. [2014 (5) TMI 592 - ALLAHABAD HIGH COURT] has held that Section 14A of the Act, cannot be involved when no exempt income was earned. The contention of the assessee that, it received dividend only from certain investments has not been controverted by the revenue - we are of the view that disallowance u/s 14A needs to be re-worked on the basis of the investments which have yielded tax free income. We therefore direct the Ld.AO to work out disallowance u/s.14A r.w.r 8D on the basis of investments which had yielded dividend.
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2022 (6) TMI 1378
Assessment u/s 92CA(3A) r.w.s. 153 - time limit for passing the transfer pricing order - HELD THAT:- Since the order passed by the TPO u/s 92CA of the I.T.Act is beyond the period of limitation and bad in law, the addition in respect of international taxation (TP adjustments) stands quashed. Therefore, grounds on merits on TP adjustments, both in assessee’s and revenue’s appeals are not adjudicated.
Foreign tax credit claimed - HELD THAT:- We restore the matter to the A.O. for de novo consideration. A.O. is directed to compute foreign tax credit that is due to the assessee as per law after affording a reasonable opportunity of hearing to the assessee - Grounds allowed for statistical purposes.
Computation of deduction u/s 10A - CIT(A) had directed the A.O. to reduce the impugned expenses from both the export turnover as well as from the total turnover while computing the deduction u/s 10A - HELD THAT:- The directions of the CIT(A) is in accordance with the judgment of HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] - Therefore, we see no reason to interfere with the order of the CIT(A) on this issue. It is ordered accordingly.
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2022 (6) TMI 1376
Rectification of mistake - mistake apparent on record in the order on the issue of section 40(a)(ia) - Tribunal had decided the issue as been reversed by the Hon’ble Supreme Court - Tribunal had followed the decision of CIT vs. Victor Shipping Services Pvt Ltd. [2015 (12) TMI 1131 - SC ORDER] which had been reversed by the Hon’ble Supreme Court in the case of Palam Gas Services vs CIT [2017 (5) TMI 242 - SUPREME COURT] HELD THAT:- The judicial precedence provides that when there is a speaking order by the Hon’ble Supreme Court, that, takes the precedence over the simple rejection of SLP by the Hon’ble Supreme Court. The Hon’ble Supreme Court having reversed the proposition laid down in Victor Shipping Services Pvt Ltd (supra) in the case of Palam Gas Services Ltd (supra) that principles become the law of the land from beginning of time. In these circumstances, as clearly there is a mistake apparent on record in the order on the issue of section 40(a)(ia) decided by the Tribunal the same stands recalled and the issue is restored to the file of the Tribunal for readjudication. The date of hearing is fixed on 24.8.2022. As the date is pronounced in the open court, the notice of hearing is dispensed with.
M,.A. of the revenue is allowed.
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2022 (6) TMI 1374
Rejection of books of accounts - action of the AO in invoking the provisions of section 145(3) of the Act and rejecting the trading results of the assessee - HELD THAT:- In the present case, admittedly and undisputedly, there were no major defects pointed out by the AO warranting the rejection of books of account.
The entire case of the AO is built around the suspicion of the assessee making huge cash sales of jewellery during demonetization period wherein each cash sale was below Rs.2 lacs each, not requiring submission of Permanent Account Number of the buyer of such jewellery items. However, it remains beyond doubt that all the sales had been routed through regular books of account and there is no dispute regarding availability of stock also. Therefore, there appears no justifiable reason for the AO to reach a conclusion that the books of account had to be rejected.
No incriminating material had been unearthed during the course of search which would indicate that the assessee had either concealed sales in quantity or price-wise and, therefore, we do not agree with the action of the Ld.CIT(A) in upholding the rejection of books of account by the AO. Accordingly, ground No.3 of assessee’s appeal stands allowed.
Restricting gross profit percentage to 20% - CIT(A) did provide some relief to the assessee by restricting the addition on account of gross profit to 20% of sales instead of 38.63% as made by the AO. However, while doing so the Ld.CIT(A) also conveniently ignored that the assessee’ gross profit rate for financial year 2014-15 was 15.75% and for financial year 2016-17, it was 16.28%. At most, even if the profits had to be estimated, the Ld.CIT(A) could have proceeded to work out an average rate of profit for these three years rather than applying gross profit rate of 20% arbitrarily and without any justification. This adhoc confirmation of addition, in our view, is not sustainable as it lacks any reasoning and is not supported by any data/figures. Therefore, in such a situation, we have no option but to set aside the order of the Ld.CIT(A) on the issue and direct the AO to delete the addition.
Addition u/s 68 - unexplained cash credit (being alleged undisclosed money introduced by the assessee as sales) - HELD THAT:- CIT(A) has observed that there is merit in the arguments of the Ld. AR that once the revenue has been duly recorded in the books of account, the same cannot be treated or said to be unaccounted money or income and that there was no allegation against the assessee that these sales were not recorded in the books at all and the only allegation is that they were entered on a later date. The Ld.CIT(A) has also given a finding that on perusal of the day-to-day cash book, it is seen that there was sufficient cash in hand on those dates and even if the sales were taken out, the cash in hand did not become negative. No perversity has been pointed out by the CIT DR in this finding of the Ld.CIT(A) even during the course of arguments before us - Decided against revenue.
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2022 (6) TMI 1373
Disallowance of mark to market loss - whether loss arising out valuation of stock-in-trade (also termed as marked to market loss in this case) is allowable as deduction or not? - HELD THAT:- As relying on case of M/s. Edel Commodities Limited [2018 (4) TMI 562 - ITAT MUMBAI] we hold that the claim made by the assessee is allowable as deduction. Accordingly, we direct the AO to delete this disallowance.
MAT computation - AO has added the above said amount to the net profit while computing book profit u/s 115JB of the Act treating it as “contingent liability” - HELD THAT:- In the preceding paragraph, we have held that it is not a contingent liability and accordingly we direct the AO to delete addition of the above said amount made in computing book profit u/s115JB of the Act.
Disallowance made u/s 14A - HELD THAT:- There is no dispute with regard to the fact that the assessee did not earn any exempt income during the year under consideration. The Hon’ble Delhi High Court has held in the case of PCIT vs. IL & FS Energy Development Company Ltd (2017 (8) TMI 732 - DELHI HIGH COURT] has held that the no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee. Accordingly, we direct the AO to delete the disallowance made u/s 14A of the Act for computing total income under normal provisions of the Act.
AO has added the amount of disallowance computed as per Rule 8D r.w.s. 14A of the Act to the net profit while computing book profit u/s 115JB - In the instant case, the assessee has not earned any exempt income. Hence the question of making any addition under clause (f), referred above, does not arise. Accordingly, we direct the AO to delete the addition made to the net profit while computing book profit u/s 115JB.
Adjustment made in respect of specified domestic transactions - A.R submitted that the clause (i) of sec. 92BA has been omitted by the Finance Act, 2017 w.e.f. 1st July, 2017 without making any ‘saving clause’ and hence the said omission shall have retrospective effect as if the said clause was never in existence - HELD THAT:- As relying on TEXPORT OVERSEAS (P.) LTD. [2019 (12) TMI 1312 - KARNATAKA HIGH COURT], MAHINDRA TWO WHEELERS LTD [2022 (8) TMI 482 - ITAT MUMBAI] we hold that the reference made to TPO under clause (i) of sec.92BA is not valid and consequently, the transfer pricing adjustment made in respect of Specified Domestic Transaction is liable to be deleted. Accordingly, we direct the AO to delete the transfer pricing adjustment.
As issue is required to be examined afresh in terms of sec. 40A(2)(a) of the Act. Accordingly, we restore this issue to the file of the AO with the direction to examine the claim of expenditure mentioned above in terms of the provisions of section 40A(2) of the Act.
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2022 (6) TMI 1372
Capital gain - CIT(A) adopting the fair market value u/s 50C - difference in sale consideration and guidance value - HELD THAT:- AO considered the guideline value adopted for registration as sale consideration to determine the capital gain. There is a substantial difference between the value adopted for registration and valuation made by different valuers. The argument of the D.R. is that the assessee has not furnished copy of registered valuer report to AO at the time of assessment and only at the time of first appellate proceedings, he has produced it.
Hence, no credence has been given. In our opinion, an appropriate opportunity ought to have been given to the assessee to reconcile the value mentioned by DVO and registered valuer and also with regard to the method of valuation followed by the different valuers. As submitted by A.R. that DVO has considered the value of certain property, which was not in the impugned sale deed which has to be excluded while determining the FMV of the impugned property. We also direct the authorities to bring more comparable cases for deciding the issue. With this observation, we remit the entire issue to the file of AO for reconsideration in the light of above.
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2022 (6) TMI 1371
Income from other sources - compensation received by the appellant against compulsory acquisition of agricultural land along with interest - AO treated the interest u/s 56(2)(viii) r.w.s. 145A(b) and allowed deduction u/s 57(iv) - HELD THAT:- CIT(A) grossly ignored the judgment of Hon’ble Supreme Court in the case of CIT Vs. Ghanshyam (2009 (7) TMI 12 - SUPREME COURT] and difference between interest received u/s 28 and Section 34 and interest received u/s 37 of the Income Tax Act, 1961. The interest u/s 28 is a part of the amount of compensation whereas interest u/s 34 is only for delay in making payment after the compensation is determined. Interest u/s 28 is a part of enhanced value of the land.
The certificate from the DRO has been given to the AO during the assessment proceedings and could not have been treated as additional evidence. In any case, if a request has not been made under Rule 46A, the ld. CIT(A) being the senior functionary of the Department is expected to guide the assessee instead of summarily dismissing the appeal. In case the veracity of the certificate is suspected, the same could have been enquired from the DRO and in case of any falsification, prosecution provision could be invoked against the assessee/AR who has filed the certificate. Decided in favour of assessee.
Unexplained addition to the capital account - As we find that the amount of Rs.3.91 Cr. and Rs.3.80 Cr. has been reconciled and the capital account as on 31.03.2013 stands at Rs.6.31 Cr. which includes the compensation received. Hence, the addition is liable to be deleted.
Appeal of the assessee is allowed.
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2022 (6) TMI 1370
Income taxable in India u/s 44B with respect to its shipping income - freight collections derived from operation of ships in international traffic - HELD THAT:- As decided in own case [2021 (8) TMI 1355 - ITAT MUMBAI] after examining the facts and the decision rendered in the case of CIT vs. Balaji Shipping (UK) Ltd [2012 (8) TMI 681 - BOMBAY HIGH COURT] uphold the plea, of the assessee and direct that benefit of article 8 must be extended to entire freight receipts-irrespective of whether the earnings are relating to feeder] vessels or by the ships in international traffic. The assessee gets the relief accordingly
Benefit of Article 8 of the India - UAE Tax Treaty on Inland Haulage Charges - Denial of benefit and taxing the same at 10% as per Rule 10 of the Income-tax, Rules 1962 - HELD THAT:- Though Article-8 of India -UAE DTAA does not spell out explicitly that rental of containers include trailers and related equipment for the transport of container as has been mentioned in India-Belgium DTAA Article 8(2)(c) or India-Denmark DTAA , Article-9(4)(b), nevertheless, considering the nature of activity and the services provided by the assessee to its customers vide a composite Bill of Lading it can be safely inferred that the activity of Inland Haulage is directly connected with transportation of goods in international traffic. The leg of transportation of containers from Inland to Port for further transportation in International traffic is a composite activity for which single Bill of Lading is issued by the assessee.
No hesitation in holding that Inland Haulage Charges earned by the assessee are inextricably linked to shipping business in international traffic. The activity of shipping container from inland to the Port for further shipping it to international traffic is an integral part of operation of ships. Hence, ‘IHC’ cannot be disintegrated from profit derived from shipping business as envisaged under Article -8 of India-UAE DTAA. Ergo, ‘IHC’ are not taxable as business profit in India. The ground No.5 of appeal is allowed.
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2022 (6) TMI 1369
Capital gain - Transfer of right in asset - land was converted into stock in trade in earlier assessment year - agreement between the assessee and Unitech is not an agreement for sale and there is no consideration - HELD THAT:- Where assessee converted his land into stock in trade and thereafter a development agreement was entered into by the assessee with the developer, the capital gain arising from the conversion of land into stock in trade is assessable in the previous order in which the property is sold by the assessee and not in the year of development agreement.
We are of the firm belief that the assessee has not transferred his right to Unitech there is no transfer of any right in title or interest in stock in trade during the year under consideration and hence no income accrues to the assessee we, therefore, decline to interfere with the findings of the CIT(A). The appeal filed by the revenue is accordingly dismissed.
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2022 (6) TMI 1368
TP Adjustment - adjustments towards the difference in the working capital between the assessee and the companies selected as comparables - HELD THAT:- This issue was considered by the Tribunal in the case of Huawei Technologies India P. Ltd. [2018 (10) TMI 1796 - ITAT BANGALORE], thus we remit the issue to the file of AO/TPO to compute the working capital adjustment after necessary examination in the light of the above observation and after allowing an opportunity of hearing to the assessee. This ground is partly allowed for statistical purpose.
Comparable selection - exclusion of M/s. Tata Elxsi Limited from the list of comparables - In the present case, the TPO considered the software development & services segment of Tata Elxsi Ltd. to compare with the assessee company, wherein he found that, that company is functionally comparable to the assessee company and passes through all the filters adopted by the TPO. It was also noted by TPO that revenue streams from this segment is on account of rendition of services and not on account of product sales. As per the information in annual report, in the software development & services segment, this company helps its customer to create new path and experience to drive their growth and also the TPO/DRP rightly commented on the various objections made by the assessee before them. The Ld. A.R. was not able to controvert the above findings before us. In view of this, we do not find any infirmity in including this comparable in the list of comparables. This ground of appeal of the assessee is rejected.
Exclusion of Mind Tree Ltd. from the list of comparables - Admittedly, this comparable is considered as not comparable in the case of Yahoo Software Development India Pvt. Ltd. [2020 (2) TMI 1365 - ITAT BANGALORE].Thus we are inclined to direct the TPO/AO to exclude this company from the list of comparables.
Exclusion of Larsen & Toubro Infotech Ltd. - We have heard the rival submissions and perused the materials available on record. This company as not considered as comparable in the case of Global Logic India Ltd [2020 (6) TMI 712 - ITAT DELHI] because of trading in software and owned significant intangible assets, thus we direct the AO/TPO to exclude this company from the list of comparables.
Exclusion of R.S. Software (India) Ltd. - As rightly pointed out by Ld. A.R., this company is not comparable with the assessee company as held by Tribunal in the case of Yahoo Software Development India Pvt. Ltd. Cited [2020 (2) TMI 1365 - ITAT BANGALORE] wherein the overseas staff and office expenses constitutes significant portion of operating cost of the company i.e. 68.82% which is very exorbitant and hence we are inclined to direct the AO to exclude this company from the list of comparables.
Exclusion of Persistent Systems Ltd - This company is considered as not comparable in the case of Yahoo Software Development India Ltd. cited [2020 (2) TMI 1365 - ITAT BANGALORE] wherein it is held that when the controlled transactions of Persistent Systems Ltd. constitutes at 32% of sales, as such it cannot be comparable to the assessee’s case.
Further, same view has been taken by Tribunal in the case of Goldman Sachs Services Ltd. [2020 (11) TMI 464 - ITAT BANGALORE] In view of the above, we remit this issue to the file of AO to consider the comparability of the company in the light of above observation of the Tribunal. The issue is remitted back to the AO/TPO for fresh consideration.
Exclusion of Nihilent Technologies Ltd. - In view of the high percentage of on site revenue compared to the assessee company, Nihilent Technologies Ltd. cannot be compared to the assessee and cannot be considered as a comparable. However, these facts were not verified or the assessee not raised these arguments before lower authorities. Hence, this issue is remitted back to the file of AO/TPO for fresh consideration to examine this issue afresh.
Aspire Systems (India) (P) Ltd. for exclusion - A.R. placed reliance on the order of Yahoo Software Development India Pvt. Ltd. [2020 (2) TMI 1365 - ITAT BANGALORE] for the proposition that on site revenue is very high to the total sales and to be excluded. However, we find that these facts are not examined by AO/TPO at their end. Hence, it is remitted to the file of AO/TPO for fresh consideration after giving opportunity of hearing to the assessee.
Exclusion of Infosys Ltd.cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue.
Inclusion of I2T2 India Pvt. Ltd. - We direct the AO/TPO to include this company as comparable in the list of comparables.
Direction to AO/TPO to include comparables in the list of comparables while passing giving effect order to the DRP’s direction arbitrarily when the above comparable did not form part of the final list of comparables as per TPO order for SWD segment - Bhilwara Infotechnology Ltd., Nucleus Software Expots Ltd., Cybercom Datamatics Information Solotions Ltd. AND Consilient Technologies Pvt. Ltd. - After hearing both the parties, we direct the AO/TPO to pass the consequent orders in conformity with the direction to the Ld. DRP order. Ordered accordingly.
Excluding Infomile Technologies Ltd.- Admittedly, the assessee raised additional ground on this issue. As such in our opinion, lower authority have no occasion to examine it. Being so, in the interest of justice, we remit this issue to AO/TPO for fresh consideration.
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2022 (6) TMI 1367
TP Adjustment - MAM selection - contradicting observations about the MAM followed by the assessee for determination of ALP - TPO has stated that the assessee has followed TNMM as MAM, whereas again he has noted that assessee has followed internal CUP method for arriving at the ALP - HELD THAT:- The basis on which the TPO has proceeded with the comparability analysis is on the wrong fact that the assessee followed CUP method as the MAM. DRP has also not taken note of this contradicting findings of the TPO in his order and has proceeded to confirm the TP adjustment made by the TPO. The assessee in its TP study has clearly stated that the MAM followed in arriving at the ALP by the assessee is TNMM.
Application of internal TNMM and other external comparables followed by the assessee - As we notice that the coordinate Bench of the Tribunal in assessee’s own case for the AYs 2011-12 & 2012-13 has upheld the internal TNMM used by the assessee for determination of the ALP for international transactions.
Since the TPO in the present year under consideration has proceeded to make the TP adjustment on the mistaken fact that assessee has followed CUP method, we deem it fit and appropriate to remit this issue back to the TPO for fresh analysis considering the actual method followed by the assessee i.e., TNMM as the MAM. The TPO is also directed to consider the principles laid down by the coordinate Bench of the Tribunal in the earlier years in assessee’s own case in terms of considering the internal comparables for TNMM and also the stand taken by the TPO for the AY 2016-17 where the internal comparables has been accepted. Appeal by the assessee is allowed for statistical purposes.
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2022 (6) TMI 1366
Exemption u/s 10(23C)(v) - denial of exemption as funds of the trust were not properly utilized/supervised, assessee failed to furnish Audit report in Form No. 10BB u/s 10(23C)(v) r.w.r. 16CC and assessee trust does no enjoy the registration under the provisions of section 12AA - Whether CIT(A), has erred in granting exemption u/s 11 by accepting Form No. 10 filed during the course of assessment proceedings, even though the Trust is not registered u/s 12A? - HELD THAT:- As gone through the provisions of section 10(23C)(v) which does not prescribe any stipulation, which makes the registration u/s 12AA as a condition precedent for availing the exemption u/s 10(23C)(v) of the Act. In fact, the provisions of section 11 and section 10(23C)(v) are two parallel regimes and operate independently in their respective realms. This position was clarified by CBDT Circular No.14 of 2015 dated 17.08.2015 - it is well-known canon of construction of the Statute, no words can be added to in Act or a new stipulation which is not prescribed in the statute can be read into the Act as held by the Hon’ble Supreme Court in the case of CIT vs. Vadilal Lallubhai [1972 (8) TMI 1 - SUPREME COURT]
As regards to the delay in filing the audit report in the prescribed form, the Courts have taken a consistent view that filing of audit report in the prescribed form before completion of the assessment proceedings would constitute a sufficient compliance under the provisions of the Act as held in the case of Nagpur Hotel Owner’s Association [2000 (12) TMI 99 - SUPREME COURT], also by the Hon’ble Punjab & Haryana High Court in the case of National Horticulture Board [2008 (8) TMI 476 - PUNJAB AND HARYANA HIGH COURT] and in the case of Association of Corporation & Apex Societies of Handlooms [2013 (1) TMI 317 - DELHI HIGH COURT] Even the CBDT Circular No.19 of 2020 w.e.f. 03.11.2020 as amended by the CBDT Circular No.6 of 2021 dated 26.03.2021 had authorized the Commissioner of Income Tax to entertain the application belatedly upto the assessment year 2018-19. No illegality and unreasonableness in the order of the CIT(A) in reversing the findings of the AO denying the exemption u/s 10(23C)(v) - none of reasons assigned by AO while denying the claim of exemption u/s 10(23C)(v) can be sustained in the eyes of law - No merits in the grounds of appeal filed by the Revenue.
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2022 (6) TMI 1365
Penalty proceedings u/s.271B - belated filing of tax audit report as prescribed u/s.44AB - reasonable cause within the meaning of Sec.273B - HELD THAT:- Although the assessee has filed tax audit report beyond the stipulated period, but such tax audit report was made available to the AO before he completes assessment proceedings. The assessee has given reasons for delay in filing tax audit report. As per which, the audit of accounts of society done by the Dept. of Cooperative Audit, could not be completed on or before 31.10.2015 and said delay was not in the hands of the assessee. Therefore, there is a reasonable cause for not filing the tax audit report within prescribed time limit ad thus, penalty cannot be levied.
We find merits in the submission of the assessee for the simple reason that non-filing of audit report within the due date is a venial technical breach without any mala fide intention on the part of the assessee. Because, completion of audit of books of accounts of the society is under the control of Dept. of Cooperative Audit and thus, unless the Dept. of Cooperative Audit completes audit, the assessee cannot file return of income along with tax audit report. Therefore, reasons given by the assessee for not filing tax audit report prescribed u/s.44AB of the Act, is neither intention nor any mala fide intention, but it is venial technical breach and for this reason, penalty u/s.271B of the Act, cannot be levied. Decided in favour of assessee.
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2022 (6) TMI 1363
TP Adjustment - referring the case to the transfer pricing officer to determine the arm’s length margin - AR S international transaction of ‘guarantee’ between assessee and its AE, does not fall under the transfer pricing risk parameter and therefore the reference to the TPO was bad in law - HELD THAT:- The case of assessee satisfies the requirement as stipulated therefore no fault can be found with the Ld.AO in referring the case to the transfer pricing officer to determine the arm’s length margin, as observed by the DRP while adjudicating the issue of the DRP direction.
From the record it is evident that the assessee's case was selected for scrutiny for issues which also involve large international transaction (Form 3 CEB) which fall under the transfer pricing risk parameters. Thus, it is simply clear that the case was selected for scrutiny on transfer pricing risk parameters as well as non transfer pricing risk parameters. By no stretch of imagination, it can be said that the case was selected for scrutiny on non transfer pricing risk parameters only. Once it was evident that assessee's case was selected for scrutiny on the transfer pricing risk parameter, same fell under para 3.2 of circular dated 10-3-2016 which required reference to the TPO by the Assessing Officer mandatorily. There is no exception in this regard.
Disallowance u/s. 40(a)(ia) - Scope of amendment inserted by Finance Act No. 2 to section 40(a)(ia) - HELD THAT:- In the present facts of the case, there is no dispute that assessee did not receive the invoice in respect of the total payment that was payable to its parent company. However, in the computation of income, assessee disallowed 30% of the provision which is in consonance with the amendment inserted by Finance Act No. 2 to section 40(a)(ia) w.e.f. 01.04.2015. We note that various benches of this Tribunal has held that this amendment is curative in nature and disallowance u/s. 40(a)(ia) of the Act is to be restricted to 30% as against 100%. The assessment years under consideration is 2016-17 and therefore the disallowance made by the assessee suo moto is in accordance with the provisions that are applicable at the relevant period of time.
Addition of provision for bad and doubtful debts to the income computed under normal provisions of the Act and the book profits computed u/s. 115JB - HELD THAT:- It is a claim of the assessee that the effect of bad debts written off has been taken into consideration in the books of account whereas revenue contends that assessee did not credit the amount in relation to bad debts in the profit and loss account in any of the years preceding to the year under consideration. We are of the view that the issue needs verification by the Ld.AO of the books of account and the financial statements. The Ld.AO is directed to verify the amount of provision for doubtful debts in the books of account and the book profit as be computed as per explanation 1 to section 115JB of the Act.
Disallowance of interest expenditure claimed u/s. 57(iii) - assessee received external commission borrowing loan from its parent company for setting up a new manufacturing facility - Same was kept in short term fixed deposit against which interest was received - HELD THAT:- Adverting to the facts of the present case, the ECB that was kept as fixed deposit against which interest was earned by assessee was set off against the interest paid by assessee on the ECB loan. Admittedly, it is not the case of the revenue that the ECB loan obtained by the assessee was not for the purpose of business. In fact, the loan was taken by assessee for setting up a new manufacturing facility in Gujarat. Thus the nexus in respect of the interest earned and interest paid stands automatically established with the business of the assessee.
We note that assessee has raised an alternate plea wherein a prayer is made to consider the interest expenditure u/s. 37 of the Act. We are of the considered opinion that as the interest paid by the assessee is directly connected with the business activity, assessee succeeds on this ground. We therefore allow this claim of assessee as an allowable deduction u/s. 37 of the Act.
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2022 (6) TMI 1362
Proceeding initiated or continued till the completion of liquidation proceedings - parallel proceedings under Income-tax Act, 1961 and IBC, 2016 - HELD THAT:- We observe that the liquidation proceedings has commenced as per the order of the Hon’ble NCLT, Mumbai, in assessee’s case thereby appointing Official Liquidator. We are aware that from the time of appointment of Official Liquidator, the assessee company became defunct and the Official Liquidator steps into the shoes of the assessee. In the present case, it is seen that the Official Liquidator has not appeared before us so far to present the case of the assessee. Even during the moratorium period specified under section 14(1)(a) of the IBC Code, the Ld.representative for the AR made no representation on several hearings and the case was adjourned on various hearings.
Therefore, we are of the considered opinion that no suit or other legal proceedings shall be initiated by or against the corporate debtor which is also applicable for pending proceedings and the Proviso to section 33(5) also provides prior approval of the Adjudicating Authority to be obtained by the Official Liquidator.
It is also to be observed that in case of parallel proceedings under Income-tax Act, 1961 and IBC, 2016, the IBC has an overriding effect over the provisions of the Income-tax Act which has been decided by Hon’ble Apex Court in Principal Commissioner of Income-tax Vs Monnet Ispat & Energy Ltd [2018 (8) TMI 1775 - SC ORDER] wherein the Hon’ble Apex Court had observed that as per section 238 of IBC, the IBC Code will override anything inconsistent contained in any other enactment, including the Income-tax Act. We hereby dismiss the cross appeals filed by the Revenue and the Assessee with the liberty to the appellants / Official Liquidator to recall the present order when the occasion warrants.
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2022 (6) TMI 1361
TP Adjustment - calculation of interest on delayed receivables - separate international transaction - TPO has held that the outstanding receivables from the AE is in the nature of loans and calculated the interest on receivables from AE by following CUP method - TPO added 100 basis points towards currency risk and arrived at the applicable rate of LIBOR + 400 points which worked to 4.836% - Whether interest on receivables is separate international transaction and requires benchmarking separately? - credit period considered by the DRP at 30 days - HELD THAT:- As relying on case of Applied Materials India Pvt. Ltd. v. ITO [2022 (6) TMI 1357 - ITAT BANGALORE] interest on receivable is a separate international transaction which has been rightly considered by the TPO/DRP.
Determination of ALP in respect of interest on receivables - We notice that the coordinate Bench of the Tribunal in the case of Barracuda Networks India Pvt. Ltd. [2022 (5) TMI 322 - ITAT BANGALORE] the issue with regard to determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid.
Thus we are of the view that the issue has to be restored back to the AO/TPO for determination of ALP afresh with appropriate benchmarking. Assessee has entered into a service agreement with its AE with regard to providing ITeS on 1.10.2009 and later entered into amendment agreement on 26.12.2003 whereby clause 2.3 of the original agreement was amended to increase the credit period to 90 days. This fact has not been taken into consideration by the DRP - Thus direct the TPO to consider the credit period of 90 days while determining the ALP afresh, after providing reasonable opportunity of being heard to the assessee. The assessee is directed to provide the relevant details for fresh benchmarking of the ALP with regard to interest on receivables. With these observations, we set aside the order of the DRP on this issue and remit it back to the AO/TPO for fresh decision.
Appeal by the assessee is partly allowed.
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2022 (6) TMI 1359
Penalty levied u/s 271(1)(c) - bogus purchases - AO made estimated addition of 12.5% of bogus purchases - HELD THAT:- Undisputedly, the additions made on account of bogus purchases were partially confirmed by the Tribunal. The assessee failed to discharge its onus in proving genuineness of the purchases and dealers. During assessment proceedings, the addition was made on estimation @ 12.5%. In first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%. The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment of income. It is an accepted legal position that penalty u/s 271(1)(c) of the Act levied on additions made merely on estimations is unsustainable.
As in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries [2014 (2) TMI 21 - RAJASTHAN HIGH COURT] has held that where addition is made purely on estimate basis, no penalty u/s. 271(1)(c) of the Act is leviable. Thus penalty levied u/s. 271(1)(c) of the Act on estimated addition has been held to be unsustainable. - Decided against revenue.
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2022 (6) TMI 1358
Revision u/s 263 - CIT setting aside the 2nd assessment orders - question of limitation - whether principle of merger of original assessment with the reassessment order, does not apply, when the issues settled in the original assessment order remain untouched in the reassessment order? - HELD THAT:- Limitation to invoke jurisdiction under Section 263 of the Act in respect of the issues that stood resolved in the original assessment, ought to be reckoned from the date of original assessment. Tribunal correctly allowed the appeals, holding that the assessments are barred by limitation.
We find that the order of the Tribunal holding that the exercise of power under Section 263 of the Act by the Commissioner of Income Tax is barred by limitation in terms of the judgment of Alagendran Finance Ltd. [2007 (7) TMI 304 - SUPREME COURT] does not warrant any interference.
The substantial question of law relating to limitation is answered against the Revenue. Accordingly, the appeals stand dismissed. Substantial question of law pertaining to deduction of 10% of cumulative advances under section 36(1)(viia) raised herein, is left open for adjudication in appropriate cases.
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2022 (6) TMI 1357
TP adjustments - determination of Net Cost Margin - Determining effective NCP margin for provision of the software development services - TPO was of the view that the sub-contracting charges formed part of the operating cost of the Assessee for provision of SWD services and thus cannot be excluded from either its cost base or operating revenues as it would not give a correct picture of the profit margin earned by it - HELD THAT:- Determination of net cost margin excluding the sub-contract charges is decided against the assessee by the Tribunal in assessee’s own case for the AY 2011-12 [2016 (9) TMI 1458 - ITAT BANGALORE] as held outsourcing cost in software development services activity is part and parcel of cost of providing the service to the AE and cannot be separated from the operating cost and operating revenue of the said segment of services. Accordingly, the cost of software development services cannot be treated in this fashion as claimed by the assessee. Hence we do not find any merit in the contention raised by the assessee on this issue.we see no reason to interfere with the decision of the lower authorities and hence these grounds of the assessee are dismissed.
Comparability analysis adopted by TPO for determination of ALP - HELD THAT:- We direct the AO/TPO to apply 15% RPT filter in respect of all the comparables.
Interest on the average outstanding trade receivables - TPO Rejected the contentions of the Assessee and computed the TP adjustment on the basis of average receivables and considered the interest rate at LIBOR+400 basis points - HELD THAT:- As relying on judgment of AMD (India) Pvt. Ltd [2018 (8) TMI 2094 - KARNATAKA HIGH COURT] we hold that the treatment of interest on deferred receivables is rightly considered as an independent international transaction and benchmarked separately by the revenue authorities.
Calculation of interest - Considering the fact that the average receivable days is 83 and that the TPO in assessment year 2018-19 has allowed 90 days credit for the assessee, we are of the view that it is reasonable to allow 90 days credit for the purpose of calculating interest on receivables. We are also of the opinion that the interest rate to be adopted is LIBOR rate + 2%, taking a consistent view as held in the aforesaid order of the Tribunal, following the judgment of Aurionpro Solutions Ltd [2017 (6) TMI 1087 - BOMBAY HIGH COURT] We direct the AO to recompute the interest on delayed payments accordingly.
Reduction in amount of income-tax depreciation claimed on computer peripherals - HELD THAT:- In the year under consideration, the assessee has produced the list of assets with the details of date of purchase. We notice that the AO while computing the disallowance had not taken into consideration the date of put to use of the asset. We also notice that in assessee’s own case [2020 (5) TMI 407 - ITAT BANGALORE] the coordinate bench of the Tribunal has allowed the rate of depreciation based on the nature of assets. Given this, we remit the issue back to the AO to verify the nature of asset and allow depreciation considering the principle laid down by the coordinate bench of the Tribunal in assessee’s own case (supra) and the date of asset being put to use. This ground is allowed in favour of the assessee for statistical purposes.
Depreciation on leasehold improvements included in the block of 'furniture and fixtures' - Denial of depreciation as assessee had not furnished the invoices & bills supporting the expenditure and that the assessee had not provided evidence for completion of the work - HELD THAT:- We notice that the AO has considered the entire WDV while computing disallowance and not the current year additions to the assets which is not the right way to compute the disallowance. In our considered view, the computation of disallowance should be restricted to the additions made during the year. We therefore set aside the issue and restore it to the AO with a direction for proper verification of additions made to assets in the year under consideration based on the evidences submitted by the assessee for the purpose determination of disallowance in accordance with law. Accordingly this issue is remitted to the AO for fresh decision, after giving opportunity of being heard to the assessee.
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2022 (6) TMI 1355
Stay on recovery of outstanding demand - proposing the draft assessment order National Faceless Assessment Centre (NFAC) has not followed the mandatory procedure of section 144B - HELD THAT:- The case of the assessee qua the violation of section 144B is, without issuing a show-cause notice and providing the assessee an opportunity of hearing, AO has proposed the draft assessment order. As observed, while disposing of assessee’s objection in this regard, DRP has directed the AO to pass a speaking order on assessee’s allegation of violation of provisions of section 144B - In the final assessment order, AO has remained completely silent on the issue.
As observed, the major addition resulting in the present demand being share capital received from non-resident shareholders treated as unexplained investment u/s 68 - While disposing of assessee’s objection on this issue, learned DRP, while observing that the AO has not considered the evidences filed by the assessee, directed him to consider the evidences and pass a speaking order.
We find, AO, while passing the final assessment order on the issue has simply repeated the observations made in the draft assessment order. The aforesaid facts clearly reveal that while passing the final assessment order the AO has failed to implement the directions of DRP in letter and spirit.
AO, as it appears, has not followed the mandatory provisions of sub-section (10) and (13) of section 144C of the Act. Though, at this stage, we are not required to dwell upon the merits of the disputed issues, however, on appreciation of facts and materials placed before us and keeping in view the relevant statutory provisions and ratio laid down in the judicial precedents cited before us, we are convinced that the assessee has made out a strong prima facie case in its favour.
Considering the prima facie case and balance of convenience, we are inclined to grant stay on recovery of outstanding demand for a period of 180 days from the date of this order or till the disposal of the corresponding appeal, whichever is earlier.
Further, accepting assessee’s prayer for early hearing of appeal, which was not opposed by learned Departmental Representative, we direct the Registry to fix the appeal for hearing on 29.08.2022 on an out of turn basis. Paper-books, if any, must be filed by the parties sufficiently ahead of the date of hearing of appeal. Since, the date of hearing of appeal was announced in open court, in presence of both the parties, there is no need for issuance of separate notice of hearing to the parties. It is made clear, in case, the assessee seeks unnecessary adjournment, the stay granted will be vacated.
We make it clear, the observations made by us in this order are purely in the context of grant of stay on recovery of outstanding demand and will have no bearing on the decision to be taken in deciding the appeal.
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