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Income Tax - Case Laws
Showing 501 to 520 of 9304 Records
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2022 (12) TMI 580
Reopening of assessment u/s 147- unexplained cash deposits - Assessee filed the return but had not disclosed the deposit of cash in the return of income - assessee took the plea that the said amount was accumulated for the sale of land, but the assessee was unable to produce any instrument related to proof of sale of land.HELD THAT:- In the factual ground the grievance of the revenue that the acceptance of the instrument related to transfer of the property like agreement and power of attorney was in question. In the hearing before bench, the assessee also placed the registered power of attorney and the copy of the agreement as proof of the transaction. The revenue authority had not verified the purchaser of the property M/s R.K. Associates, Grain Market, Tanda, Distt., Hoshiarpur.
In our opinion, the primary evidence, and party who paid the cash to the assessee for purchasing the land before the Bench, was unable to submit any registered deed related to transfer of property. As per the ld. Sr. DR, the total transfer of the land is incomplete without a registered deed of the property. But the ld. Counsel argued that the source of the cash was proved on basis of this transaction. In any case, we are set aside the issue to ld. AO for verification to the purchaser of the property M/s R.K. Associates. The issue should be disposed off accordingly with the above direction. Appeal of the assessee is allowed for statistical purposes.
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2022 (12) TMI 579
Addition u/s 69 - Search & Seizure action u/s 132 - information as available in the seized records - Discharge of onus - unexplained investment was opening capital of assessee - HELD THAT:- Here in this case the revenue did not controvert the contention of the assessee from the same very evidence that the opening capital is in fact the income of the current year. We have also observed that the ld. AO has made the addition u/s. 69 of the Act. On careful perusal of the provision of the act the AO can make the addition if the assessee is found to have made investments which are not recorded in the books of accounts whereas when the assessee has accepted the content making the addition u/s. 69 is also not correct as the ld. AO has not established that the investments in fact really belonged to the assessee and thus even on this aspect the ld. AO has not discharged his onus casted upon him.
CIT(A) has dealt and made in detailed observation while dealing with the appeal of the assessee and we do not find any infirmity in the reasoned finding recorded by the CIT(A) and the revenue has not controverted any of the findings of the CIT(A) even though the bench has also granted proper opportunity to the revenue to place their contentions. Since, there is no refuting submission that the opening capital is in fact is income of the assessee when from the said tally data income for the current year is duly accepted.
Thus, we do not find any infirmity in the finding of the CIT(A) that the opening capital reflected in the same tally data cannot be considered as income for the year under consideration. In terms of these observations, we do not find any merit in the ground no. 2 & 3 raised by the revenue and thus, the same is dismissed.
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2022 (12) TMI 578
Reopening of assessment u/s 147 - income element on account of refund of empty bottles - HELD THAT:- It is an undisputed fact that assessee has duly reported the net amount as miscellaneous receipt in its P&L Account and offered the same for taxation in its return of income. It is also noted that the Excise Department of Govt. of West Bengal had issued an order wherein it is stated that “the refundable price of empty bottles in which country spirit of different quantities is supplied in capsule and labelled bottles shall be as follows throughout the State”.
Evidently, ld. Counsel has demonstrated from the ledger account of miscellaneous receipt that there is no suppression of reporting of any income element on account of refund of empty bottles which formed the basis for the reassessment. Considering the facts on record, and the statutory requirement under the order of Excise Department, Govt. of West Bengal referred above, we hold that the addition made by the Ld. AO is to be deleted. Accordingly, ground taken by the assessee is allowed.
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2022 (12) TMI 577
Delay in deposit of Employees’ Contribution of Provident Fund and Employees State Insurance (PF & ESI) - disallowance made u/s. 36(1)(va) - HELD THAT:- The issue relating to grounds taken by the assessee have come to rest by the recent verdict of the Hon’ble Supreme Court in Chekmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] wherein it has been held that “deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961. Appeal of the assessee is dismissed.
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2022 (12) TMI 576
Unexplained Cash credit u/s. 68 - AO treating the unsecured loans received from the depositors as unexplained - HELD THAT:- On perusal of ledger account of assessee, in the books of Madhav Infra Project Ltd. we found that the Madhav Infra as on 1st April 2012 has debited the ledger of the assessee by the account of one Shri Mahendra Solanki. The link in all these adjustment entry was not properly explained. The provision of section 68 requires the assessee to establish the identity of creditor, genuineness of transaction and credit worthiness of the parties. Merely the fact that the amount received through banking channel does not make the transaction as genuine. The assessee needs to explain the transaction properly based on the documents within the parameters of section 68.
Coming to the loan amount credited from other two parties namely Akshar Trading Co. and M.S. Carting Contractor - We note that the assessee before us filed a fresh evidences regarding repayment of loan to the above mentioned two parties. Evidences of the repayment of the loans by the assessee is very crucial for deciding the genuineness of the loan entries. These fresh evidences were not available before the lower authorities and therefore, the same needs to be verified at the level of the AO.
Considering the ambiguity in the evidences field by the assessee with regard to the addition of Rs. 36 lakh on account alleged loan from Shir Ashok Khurana and fresh material furnished with respect to other two parties, we hereby set aside the issue to file of the AO for de-novo assessment in the light of above discussion as per the provisions of law - AO is directed to provide proper opportunity to the assessee to represent her case and needless to say the assessee will furnish required details and explanation necessary for deciding the issue. Ground of appeal of the assessee is hereby allowed for statistical purposes.
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2022 (12) TMI 575
Nature of expenditure - expenses on repairs under renovation - capital expenditure or revenue expenditure - HELD THAT:- On perusal of the material and the facts is the case in Landmark Automobiles Pvt. Ltd. [2014 (12) TMI 753 - ITAT AHMEDABAD] are identical in nature. The Coordinate Bench followed jurisdictional High Court judgment in the case of Desai Bros.[1974 (9) TMI 9 - GUJARAT HIGH COURT] and other High Court judgments. In our considered view this issue is no more res integra.
Therefore, respectfully following the ratio of the judgment rendered by the Coordinate Bench in the case of Landmark Automobiles Pvt. Ltd.. [2014 (12) TMI 753 - ITAT AHMEDABAD] we have no hesitation in confirming the order passed by the CIT(A) holding that the expenditure incurred by the assessee for renovating its four business showrooms are revenue in nature. Appeal filed by the Revenue is dismissed.
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2022 (12) TMI 574
Disallowance u/s 40(a)(ia) - non-deduction of tax at source on the professional charges paid to three persons - non-submission of details regarding payment of the above mentioned amount to different professionals - Scope of amendment brought in by the Finance Act (No. 2) 2014 effective from 01/04/2015 made in the provisions of Section 40(a)(ia) for 100% disallowance of expenditure, the disallowance u/s 40(a)(ia) of the Act was limited to the extent of 30% of such expenditure - HELD THAT:- As similar issue came for adjudication and the Tribunal relying on various decision including the decision of Amruta Quarry Works [2016 (7) TMI 1246 - ITAT AHMEDABAD] and decision of Neena Kual [2019 (5) TMI 1697 - ITAT MUMBAI] held that the amendment brought in by Finance Act No. 2 of 2014 restricting the disallowance u/s 40(a)(ia) of the Act to the tune of 30% of the expenses was made effective from 01/04/2015. But thereafter, clause 14.3. of the explanatory memorandum to Finance Bill 14 was said to be brought to effect to remove hardships faced by the assessee and thus, the said amendment was held to be clarificatory in nature and applicable retrospectively.
Since the ld. D/R failed to bring any binding decision in its favour and the decision relied upon by the assessee is squarely applicable on the issue involved in the instant appeal, we are inclined to hold that 100% disallowance of Rs.2,85,500/- made u/s 40(a)(ia) of the Act be restricted to 30% i.e., Rs.85,650/-. Thus the assessee gets relief of Rs.1,99,850/-. Ground Nos. 1 & 2 raised by the assessee are partly allowed.
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2022 (12) TMI 573
Capital gain - Addition made with regard to sale of Madambakkam Land - Year of assessment - period of holding of asset - considering date of allotment or date of final sale deed executed for conveying the title - HELD THAT:- If you take sequence of events, it is undoubtedly clear that the assessee has acquired right over the above property in the year 1984 and is enjoying the title and interest. However, legal ownership has been finally came to the assessee through sale deed dated 06.01.2012. If you consider the date of allotment and subsequent documents, it can be clearly held that the assessee has acquired the property in the year 1984 and thus, if you consider said date, the period of holding of asset is more than 36 months and thus, profit from sale of asset is assessable under the head long term capital gains as claimed by the assessee. Therefore, we direct the AO to assess profit from sale of land under the head long term capital gains as claimed by the assessee, because various courts including case of CIT vs Ravindar Kumar Arora [2011 (9) TMI 343 - DELHI HIGH COURT] held that for the purpose of computing period of holding, date of allotment should be considered, but not the final sale deed executed for conveying the title and interest in the property. Hence, we direct the AO to compute long term capital gains as claimed by the assessee.
Deduction claimed u/s. 54F - We find that the assessee has spent about Rs. 88,75,400/- towards construction of another residential house which includes purchase of land, payment for labour charges and payment to M/s. Raj Constructions for material supply. However, the contractors M/s. Chintu Constructions and M/s. Raj Constructions could not complete construction for various reasons. In the mean time, the assessee went out of India for official work and could not oversee construction work and only after she came back settled dispute with contractors and ultimately completed construction in the year 2009 and obtained necessary electricity connection to prove that the house property has been successfully completed. No doubt, the assessee could not complete construction of house within three years from the date of transfer of original asset. However, for any reason which is beyond control of the assessee, construction could not be completed and also assessee has spent entire amount of consideration received for transfer of original asset for acquiring new asset, then there is no reason for the AO to deny deduction u/s. 54F.
Provisions of section 54F should be construed liberally as per various High Court decisions including case of CIT vs Sardarmal Kothari [2008 (6) TMI 15 - MADRAS HIGH COURT] and also Ravindar Kumar Arora [2011 (9) TMI 343 - DELHI HIGH COURT].
Thus we are of the considered view that, the AO has erred in denying deduction u/s. 54F of the Act and thus, we direct the AO to allow deduction as claimed by the assessee. Appeal filed by the assessee is allowed.
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2022 (12) TMI 572
Disallowance pertaining to the interest credited to the account - disallowance u/s. 36(1)(iii) - direct link or nexus between the borrowed funds and investment in shares - AO was of the view that in terms of provisions of section 36(1)(iii) the deduction for interest was admissible only when the capital is borrowed directly for the purpose of business whereas, the investment in unquoted shares was not relating to the business of the assessee - HELD THAT:- As basic contention of the Ld. AR that interest free funds were not utilised for the purpose of investing in shares of the sister concern does not stand proved. Taking the logic further, the inference that if the assessee has sufficient surplus funds, then it is to be assumed that the investments were made from surplus funds would also hold not true.
Also that on one hand it is the assessee's contention that the borrowings were made for the purpose of investing in shares coupled with the arguments that these investments were strategic in nature and on the other hand, it has been contended that the inference should be that the investments were made out of surplus funds. Thus, there is an apparent contradiction in the stand taken by the assessee.
It is not clearly brought out either from the assessment order or from the Ld. CIT(A)'s order as to whether there is a direct nexus or link between the borrowed funds and the investments.
A clear and direct nexus has to be established between the loan funds and the investments before a disallowance u/s. 56(1)(iii) of the Act is made. If there is a direct nexus between the loan funds and such investments, then the proposition that if the assessee had surplus funds with it, then the investment would be presumed to have been made from such surplus funds would not hold good and then the disallowance u/s. 36(1)(iii) of the Act would be fully justified. However, if there is no direct link between the borrowed funds and the investments, then the presumption would were in favour of the assessee.
Restore this issue to the file of the AO with a direction to verify as to whether there is any direct link or nexus between the borrowed funds and investment in shares. If it is so found, then the impugned disallowance shall hold good. Appeal of the assessee stands allowed for statistical purposes.
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2022 (12) TMI 571
Set off of brought forward business loss of earlier years with the current year income received on account of Franchise Fees - HELD THAT:- We find that Section 72(1), as it stood at the relevant point of time, inter alia provided that, “Where for any assessment year, the net result of the computation under the head “Profits and gains of business or profession” is a loss to the assessee be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ”. Clearly, therefore, all that is necessary for the income to be set off must consist of the profits and gains of any business or profession carried by the assessee and assessable for that assessment year.
On the facts of the present case, there is not even a dispute that the franchise fee is earned by the assessee in the course of its business and is, therefore, assessable as such. The only issue, as raised by the Assessing Officer, is with respect to the rate at which this franchise fee is taxable, but then the rate of taxation is, in our considered view, not a relevant factor so far as eligibility of income for set-off is concerned.
We also see no conflict in an income being taxable under the head profits and gains from business or profession, and an income being in the nature of a franchise fee earned in the course of business - even if it is taxed at a rate different than the rate at which the normal business income is taxed. All that really matters is the income being in the nature of profits and gains from business or profession being carried on by the assessee, and that aspect is not even in dispute on the facts of the present case. The grievances raised by the Assessing Officer are thus devoid of legally sustainable merits.
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2022 (12) TMI 570
TP Adjustment - adjustment made towards international transactions of the assessee with its associated enterprises - Most appropriate method - benchmarking of transaction - adjustment towards few transactions by adopting CUP as most appropriate method and few as TNMM - TPO has never disputed TNMM method adopted by the assessee and has accepted the fact that the TNMM as most appropriate method in respect of 100% of transactions, except few transactions of export of threads - HELD THAT:- It is incorrect to adopt two methods for one class of transactions and bench mark such transactions by cherry picking few transactions out of a lot of transactions undertaken by the assessee with its AEs and this principle is supported by the decision of ITAT Pune Bench in the case of Amphenol Interconnect India Pvt. Ltd. [2014 (5) TMI 1066 - ITAT PUNE] where an identical issue has been decided by the Tribunal and after considering relevant facts held that when the TPO has accepted 90% of export to the AEs are at ALP, there is no reason to apply CUP method for remaining part of the exports.
Also held that when the TPO has accepted TNMM as most appropriate method for an overwhelming majority of exports to AEs, then there is no reason why for the balance of exports of goods, TNMM method should be not be applied. In this case, the TPO has accepted 99.95% of export of threads to AEs under TNMM method, but he had cherry picked 0.05% of transactions and applied CUP method without there being any valid reason. Therefore, we are of the considered view that the TPO is erred in adopting CUP method for few transactions when he has accepted overwhelming majority of transactions under TNMM method. The DRP without appreciating the above facts, simply sustained TP adjustment suggested by the TPO. Hence, we direct the AO/TPO to delete TP adjustment made towards few transactions by adopting CUP as most appropriate method. Appeal of assessee allowed.
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2022 (12) TMI 569
Addition on account of expenditure as paid/credited in F.Y. 2010-11, but was accrued/became due during F.Y. 2009-10 - HELD THAT:- It is emerges from the material on record that, the assessee was maintaining books of accounts which being duly audited by expert, i.e. Chartered Accountant. The report of the chartered accountant has been furnished before the A.O. At the time of assessment proceedings, AO has disallowed the expenditure only on the ground that, it has been claimed as prior period expenditure although the assessee was following the merchandise system of the accounting.
A.O has not of the opinion that the expenditure itself is bogus per se. The expenditure has been incurred for the business and it is not the case of the A.O that, it is not allowable u/s 37 (1) - Since, the assessee has already paid more tax in Financial Year 2009-10, which is in the tax bracket of 30% and the claim is revenue neutral, i.e. that is there is no loss of Revenue.
While deleting the addition made by the A.O, Ld.CIT(A) has also considered all the above facts. Therefore, we do not find any reason to interfere with the finding of the facts by the CIT(A) and also the conclusion arrived by the Ld.CIT(A). Therefore, the order of Ld. CIT(A) which requires no interference. Accordingly, we inclined to dismiss the Revenue’s Grounds of Appeal.
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2022 (12) TMI 557
Doctrine of constitutional priority - Certain transfers to be void u/s 281 - Supremecy of attachment passed by the Tax Recovery Officer / Income Tax Department or to the mortgage created in favour of the secured creditors Dues of the Income Tax Department precedence over the dues of the secured creditor - Scope and ambit of Section 281 of the Income Tax Act, 1961 and Section 26E of SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 - Tax recovery proceedings - priority in payment of debts due to a secured creditor over all other debts including revenues, taxes, cesses, etc. - attribute of sovereignty and a necessity for attaining the constitutional goals and objectives, tax dues would prevail and take precedence over the rights of the secured creditors - What is the nature of taxes and the right of the State to recover the same? - HELD THAT:- The power to tax is an inherent part and an attribute of sovereignty and is meant for being used for public welfare. Without taxes, the Government cannot run nor discharge its constitutional obligations set out in the form of Directive Principles of State Policy under Article 39 of the Constitution. In other words, taxes are collected in public interest and the taxes so collected cannot be used for any purpose other than common public good.
Having dealt with the status and purpose of tax under the Constitution, it may be relevant to examine the priority of collection of taxes.
Doctrine of priority of Crown Debts - The principle of priority of Government debts is founded on the rule of necessity and public policy. If the legislation provides for a charge or a priority, then, if the crown debt and the private secured creditor concurs in point of time, the crown debt would prevail. If the private secured creditor is prior in time that would prevail. If the State’s charge is prior in time, then the State’s charge would prevail.
If a “first charge” or a “priority” is provided/granted under the provisions of the Act or if it is expressly provided to override other claims including that of secured creditors, then it appears that it would be the State which would be entitled to preference even over secured creditors.
Whether fiscal/tax legislations provide for a charge in respect of the taxes/revenues that are due and if so, what are the kind/nature of charges created in fiscal/tax legislations and its status? - We find that the recovery mechanism under the Income Tax Act suffers from the above deficiency, in the absence of a provision creating a charge in respect of the property of the defaulter to enable recovery of their dues arising out of the above enactment. We say so, for in contrast to other tax enactments referred to above, we do not find any provision under the Income Tax Act, which creates a charge in respect of tax or any sums that may become payable under the same. This aspect ought to be borne in mind for we find that both the learned Judges have proceeded on the basis that they had to decide the “priority of charge” under the Income Tax Act vis-a-vis SARFAESI Act and Recovery of Debts and Bankruptcy Act, while the first view proceeds on the basis that priority must be granted to recovery of Government dues on the basis of “doctrine of constitutional priority”, the second view proceeds on the basis that attachment results in creation of charge and if the same is subsequent to mortgage, the right of the existing mortgagee would prevail.
Insofar as the first view is concerned, the law relating to the Government's right to recover dues commonly known as “Crown debt” stands resolved by a series of decisions, wherein, it has been consistently held that Crown/State would have preferential right to recover only over ordinary unsecured creditors but would not be entitled to precedence over a secured debt unless express provisions are incorporated. Therefore, reliance on “doctrine of constitutional priority” for which we do not find any basis, is in any view unsustainable as it is contrary to the settled legal position.
Coming to the second view, it has been held that a charge gets created only when the attachment is made. This view is again unsustainable since attachment would not constitute a charge.
The broad distinction between a mortgage and a charge is that a charge only gives a right to payment out of a particular fund or particular property without transferring that fund or property, whereas a mortgage is in essence a transfer of an interest in specific immovable property. A mortgage is a jus in rem, a charge is a jus ad rem and the practical distinction is that mortgage is good against subsequent transferees and a charge is only good against subsequent transferees with notice. A charge does not amount to a mortgage. In every mortgage, there is a charge, but every charge is not a mortgage.
Having examined the scope of “charge”, it may be relevant to note that the second view holding that an attachment creates a charge is unsustainable as ‘attachment’ and ‘charge’ are distinct and attachment does not by itself create a charge as stated supra. In any view, we find that the Income Tax Act does not create a charge towards recovery of dues. Section 281 only declares certain transactions to be void and cannot be understood as creating a charge in favour of the Income Tax Department in respect of dues arising under the same.
Certain transfers to be void - Whether Section 281 of the Income Tax Act only contains declaration of voidity in respect of transactions falling within its mischief or does it create a charge in respect of any sum payable under the Income Tax Act in favour of the Revenue and what is the scope of operation of Section 281 of the Income Tax Act vis-a-vis Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act and whether the priority of charge created in favour of the secured creditors under the SARFAESI Act and Recovery of Debts and Bankruptcy Act would prevail over the declaration of voidity contained in Section 281 of the Income Tax Act or any other recovery proceedings including attachment under the Income Tax Act? - Section 281 of the Income Tax Act declares certain transactions to be void, now can it be understood that the declaration of voidity would prevail despite Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act conferring primacy in very wide terms. There is no doubt that Parliament's intention was to give priority to secured creditors which is to prevail over revenue, taxes, cesses, etc, in view of the express provisions contained in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act. This is further reinforced by the Statement of Objects and Reasons (SOR) appended to the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 which introduced sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act. According to the SOR, priority was accorded to secured creditors in repayment of debts in order to augment economic growth and ease of doing business. This gives a glimpse of the position earlier and what the amendment sought to remedy.
Keeping the above background in mind, it does not seem that section 281 of the Income Tax Act and sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act can operate simultaneously without conflict.
As applying the Heydon’s Rule or Purposive construction, the non-obstante clause contained in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act, which was introduced to give primacy to the secured creditors and expressly provides that it would prevail over all taxes, cesses etc., ought to be construed/interpreted in a manner that would promote and not defeat the object of the Parliament to protect and safeguard the interest of the secured creditors, intended in larger public interest and as a matter of policy.
One more rule of construction is that when two competing Acts construed to further the purposes behind them produce a conflict; the court may resolve the conflict by taking into consideration as to which Act represents "the superior purpose”, as held in the case of Allahabad Bank v. Canara Bank[2000 (4) TMI 757 - SUPREME COURT]
Thus in view of the fact that the Parliament must be understood to have given priority to the secured creditors under Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, fully aware and conscious of the status and importance that taxes enjoy under the Constitution. Therefore, with regard to operation of section 281 of the Income Tax Act vis-a-vis the operation of sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act, sections 26E and 31B according priority to secured creditors shall prevail and thus, the attachment by the Tax Recovery Officer is impermissible in the facts and circumstances of the case.
We arrive at the following conclusion:
(i)Appellant is a secured creditor, who offered credit facilities to the Respondents 4 and 5, for which, mortgages were created in favour of appellant on 23.04.2013 vide document No.453 of 2013, on 18.08.2014 vide document No.2467 of 2014 and on 22.10.2015 vide document No.3168 of 2015. However, the Income Tax Department passed the order of attachment on 03.11.2015, for recovery of the tax dues, in respect of the properties over which mortgages were already created.
(ii)Appellant sought to quash the communication of the Respondent dated 27.12.2007 with respect to recovery of income tax arrears of M/s.NEPC Agro Foods Limited and its Directors, on the premise that mortgage in respect of the property, was executed in favour of the Bank on 31.03.1999 itself, i.e., prior to the recovery proceedings.
(iii)Writ petitioner / Bank challenged the attachment notice dated 27.03.2017 issued by the Income Tax Department, in respect of the properties which were offered to them as security by way of mortgage by deposit of title deeds for securing loans on 10.02.2014. The learned Judge allowed the writ petition on the ground that the mortgage preceded the attachment.
(iv)Appellant / Bank sought a direction to the first respondent – Tax Recovery Officer, Income Tax Department to remove the attachment made on 16.06.2017 and 23.07.2017 in respect of the properties, which were already mortgaged on 28.01.2016 and 07.02.2016, by the fourth and fifth Respondents to raise loan.
In all these cases, the orders of attachment passed by the Tax Recovery Officer / Income Tax Department were subsequent to the mortgage created in favour of the secured creditors and hence, the same will have no legs to stand, in view of the principles laid above by this court. Therefore, the orders impugned in the writ appeals are quashed.
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2022 (12) TMI 552
Disallowance u/s 14A read with rule 8D - assessee has made suo-moto disallowance which includes disallowances of 5% salary expenses paid to 3 employee - HELD THAT:- Percentage of exempted income in relation to the gross total income of the assessee stands at 1.73 % approx - the exempted income in relation to gross total income stands only at 1.73% whereas the proportion of the administrative expenses as calculator by the AO against the exempted income is much greater than the proportion of the income discussed above. Thus, in such facts and circumstances the disallowance cannot be made under the provisions of rule 8D(2) of the income tax rule which will provide absurd result.
The basis adopted by the assessee is certainly not proper. It is for the reason that though there was no change in the investment in equity shares but there were transactions in the mutual funds.
Admittedly, for the sale, purchase of the mutual funds, there must have been called board meetings, involvement of the supporting staff and likewise certain expenses in the form of stationary, refreshment, building repairs, Misc. expenses etc. must have been incurred by the assessee. However, the assessee has nowhere made any disallowance of such expenses.
AO rightly disagreed with the correctness of the claim made by the assessee. But the question arises, if the AO is not satisfied with the correctness of the claim made by the assessee, can he resort to the provisions of rule 8D(2) of income tax rule. The answer stands in affirmative but subject to one caveat, he has to refer the books of accounts of the assessee.
But in the given case the AO has certainly pointed out the defects in the claim made by the assessee for the expenses against the exempted income, but he did not consider the accounts of the assessee and directly jumped to the provisions of rule 8D of Income Tax Rule for the purpose of the disallowance which have given absurd amount of disallowance of the administrative expenses as discussed above. Accordingly, we are not convinced with the approach of the AO to make the disallowance as per the provisions of rule 8D of income tax rules in the given facts and circumstances.
Administrative expenses as discussed above cannot be allowed to the assessee as deduction in entirety against the taxable income. In our considered view, some part of such expenses should be allocated to the exempted income of the assessee. As we note that there was no infirmity pointed out by the revenue with respect to the basis of the disallowance of the salary expenses of Rs. 17,82,826/- being to the tune of 5% of the salary paid to 3 employees as discussed above, we are of the view that the justice will be served to the revenue and the assessee if 5% disallowances is made of the expenses as discussed above.Appeal of the assessee is partly allowed whereas the appeal of the revenue is dismissed.
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2022 (12) TMI 551
Assessment u/s 153A - unexplained jewellery - whether no search warrant or Panchnama drawn in the case of the assessee? - HELD THAT:- As admitted fact that the bill has also been found & seized from the same locker no. 144, in the name of Sh. Roop Sachdeva and on the same analogy, it is for Shri Roop Sachdeva to explain the source of purchase of such jewellery and in absence of any satisfactory explanation, the addition, if any is required to be made in the hands of Shri Roop Sachdeva and not in the hands of the assessee.
Merely because the name of the assessee is mentioned on the said bill, the same doesn't automatically result in discharge of burden on part of Shri Roop Sachdeva as the bill has been found and seized from the locker in name of Shri Roop Sachdeva and it is quite likely that he had purchased the jewellery in the name of his wife out of his own sources of income.
Therefore, the presumption is that he has made the purchases out of his own sources of income and it is for him to explain the same and in absence thereof, the action, if any as per law can be taken in his hands. In light of the same, we find that there is no basis for making the addition in hands of the assessee and the same is directed to be deleted.
Addition u/s. 115BBE - Unexplained investment in the jewellery - jewellery was found from the residence owned by Sh. Krishan Lai Sachdeva, head of the family and part of the jewellery was found from the locker in the name of Sh. Roop Sachdeva - HELD THAT:- Case of the Revenue is that the jewellery has been found from the locker of the assessee and the onus is therefore on the assessee to explain the source of investment in the jewellery so found and seized. As we have seen in A.Y 2013-14 wherein similar addition was made in hands of the assessee basis certain bills found in the same locker no. 144 no. which was in the name of Sh. Roop Sachdeva and not in the name of the assessee, the ld. CIT(A) has returned a finding that the bill amounting to Rs. 1,52,390/- have been found & seized from the locker no. 144, in the name of Sh. Roop Sachdeva and cognizance of the same should have been taken in his hands and addition, if any, was required to be made in the case of Sh. Roop Sachdeva. We failed to understand why the same reasoning doesn't apply or has not been applied in the instant case. It is an admitted and undisputed fact that locker no. 144 is not in the name of the assessee but in the name of Sh. Roop Sachdeva and therefore, very basis of making the additions in the hands of the assessee doesn't survive. As we have held above, it is for Shri Roop Sachdeva to explain the source of purchase of such jewellery and in absence of any satisfactory explanation, the addition, if any is required to be made in the hands of Shri Roop Sachdeva and not in the hands of the assessee. Any inaction on part of the Revenue in case of Shri Roop Sachdeva doesn't bestow the right on the Revenue to take action in hands of the assessee. In the result, the addition so made is directed to be deleted.
Appeal of the assessee is allowed.
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2022 (12) TMI 550
Delay in making the payment towards the employees’ contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) - intimation u/s 143(1) - HELD THAT:- As decided in KALPESH SYNTHETICS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CPC BENGALURU. [2022 (5) TMI 461 - ITAT MUMBAI] when the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is “indicative” of the disallowance of expenditure in question.Tax audit report can not be reason enough to make the impugned disallowance.
While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon’ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well.
In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Assessee appeal allowed.
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2022 (12) TMI 549
TP Adjustment - MAM selection - brokerage service income - CUP v/s TNMM - rejection of transactional net margin method adopted by the assessee and adoption of cup method as the most appropriate method by the learned transfer-pricing officer - HELD THAT:- As relying on assessee own case [2020 (3) TMI 1133 - ITAT MUMBAI] no hesitation in holding that the transactional net margin method is the most appropriate method for determination of the arm’s-length price of the brokerage service income earned by the assessee. Accordingly the adjustment made by the learned transfer pricing officer and confirmed by the learned CIT – A is not sustainable. Hence deleted. - Decided in favour of assessee.
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2022 (12) TMI 547
Exemption claimed u/s.10(A)/10B - Failure to furnish audit report in form 56G - Assessee had been claiming 100% deduction u/s 10B since AY 2004-05 - Whether the Assessee was entitled to exemption under Section 10B of the Act as claimed by it? - Tribunal reject the Tax Exemption claimed u/s.10(A) of the Act stating the reason that the appellant is not a unit under Special Economic Zone - HELD THAT:- As far as the above question is concerned, there can be no doubt that with the Assessee not having satisfied the mandatory requirement under Section 10B(5) of the Act of filing Form-56G, the exemption under Section 10B of the Act cannot be allowed. The question is accordingly answered in the negative, i.e., in favour of the Revenue and against the Assessee.
Whether under the facts and circumstances there exists any issues to be decided by the Appellant Tribunal when the respondent himself settles the issue revising the Original assessment and original demand (U/s.156 of I.T. Act) ? - As regards the second question framed by this Court, Mr. Ray submitted that the Revenue had in fact given appeal effect to the order of the CIT(A) but failed to bring this to the notice to the ITAT when the appeal was argued. According to Mr. Ray, having accepted the verdict of the CIT(A), the Revenue could not have gone in appeal to the ITAT.
The Court is unable to accept the above submission. The mere fact that the computation giving appeal effect to the order of the CIT(A) may have been prepared by the Revenue does not mean that it is precluded from challenging that order before the ITAT. Such computation by way of giving appeal effect would obviously be subject to the result of the Revenue’s appeal before the ITAT. Consequently, the second question is answered in the negative, i.e., in favour of the Revenue and against the Appellant/Assessee.
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2022 (12) TMI 546
Reopening of assessment u/s 147 - notice issued u/s 148A(b) of the Act are on distinct and separate grounds and party name - HELD THAT:- This Court is of the view that the Kingsway Camp property was mentioned in the notice issued u/s 148A(b) and the petitioner was never asked to explain the transaction with regard to the sale of the Rohini property. This Court finds that not only is the description of the property different in the notice issued u/s 148A(b) of the Act and the order passed u/s 148A(d) of the Act, but also the sale consideration and circle rate in both the documents are different.
It seems to this Court that though the AO prior to passing the impugned order under Section 148A(d) realised that he had committed a mistake while issuing the notice u/s 148A(b) yet he proceeded with the same and even went to the extent of wrongly stating in the Section 148A(d) order that he had issued the notice under Section 148A(b) of the Act with regard to the Rohini property instead of Kingsway Camp property.
A perusal of the file also reveals that the information with the Assessing Officer received from the ITO, Ward 35(1), Delhi was with regard to violation of Section 269SS and not with regard to non-declaration of long term capital gain, for which the notice had been issued. Consequently, the impugned show cause notice is contrary to the record.
As settled law that the intent behind issuing the notice u/s 148A(b) is to inform the assessee of the allegations against him/her with sufficient particulars so that he/she can put forward his/her defence. In the present instance, the assessee specifically replied to the allegation that was mentioned in the notice issued under Section 148A(b) and for this, she cannot be faulted with. AO has been negligent in incorporating the incorrect information and in not admitting the fact that he had committed a mistake while issuing a notice under Section 148A(b) of the Act even at the time of passing the order u/s 148A(d) of the Act.
Present writ petition is allowed and the show cause notice issued under Section 148A(b) of the Act as well as the order passed u/s 148A(d) and the notice issued under Section 148 for the Assessment Year 2017-18 are set aside.
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2022 (12) TMI 545
Levy of penalty u/s 271(1)(b) - Best judgment assessment - Scope of the term used "shall" - email notices sent to old ITP’s email address - genuineness and reasonable cause in the case of the assessee - Non-compliance of such notices - assessee could not attend the assessment proceedings as well as penalty proceedings which result in best judgment assessments - assessee was duly served upon a notice u/s 153C on the registered email, requiring the assessee to file a Return of Income in response to the notice - HELD THAT:- As clearly demonstrated that the hearing notices were been sent to the email “[email protected]” which was belong to the former Tax Consultant of the assessee. Further, no physical notices were been served upon the assessee, thereby even to comply to the 153C notices itself by the assessee.
Further perusal of the ex-parte assessment orders make it clear that the assessee has never filed Return of Income in response to 153C notices, however, the Assessing Officer concluded the 153C assessments based on the original returns filed u/s 139(1) by the assessee for five Assessment Years and made additions only two Assessment Years 2016-17 and 2017-18 based on some seized materials. In our considered opinion, the assessee could not said to be in default, when the assessee was not served with the notices.
The assessee also pleaded that he is not aware of the faceless assessment proceedings and the ITBA portal of the Income Tax Department which has resulted in filing statutory appeals before the CIT(A) with a delay of 96 days. Thus, without proper service of notices to the assessee, the assessee cannot be levied with penalty under Section 271(1)(b) for non-compliance of such notices. For the above reasons we hold that the levy of penalty under Section 271(1)(b) is unjustified and therefore, the same are deleted. Appeal filled by assessee allowed.
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