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Income Tax - Case Laws
Showing 221 to 240 of 8298 Records
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2023 (12) TMI 867
Addition u/s 68 - unexplained cash credit - unexplained cash sales proceeds/receipts received from the customers - addition based on the statement u/sec 131 - CIT(A) deleted addition - HELD THAT:- The assessee has submitted the details of cash sales/receipts and party wise details of sales above and below Rs. 2 lakhs was submitted. Further the Ld.AR demonstrated the sample Tax Invoice below Rs. 2 lakhs in the demonetization period and the invoice contains, name and address etc and the Ld.AR referred to the details of deposits made out of the cash sales and the assessee has been consistently maintaining the stock of Rs. 21.10 crs for the F.Y 2015-16 and for F.Y 2016-17 it was maintained at Rs. 17.69crs as per the audited financial statements, further the cash sales are part of the stocks maintained by the assessee which is not disputed.
Since the cash sales proceeds/receipts received from the customers are reflected in the Audited Profit & Loss account as income/ receipts and again if the cash deposits are added under section 68 of the Act, it will amount to double taxation once as sales and again as unexplained cash credit which is against the principles of taxation.
AO has not pointed out any specific adversity but made a generalize additions covering the demonization period, cash deposits and RTGS credits without considering the factual aspects and primary evidences. A.O has failed to make further enquiries on the information filed and the assessee has discharged the initial burden placed by submitting the information and details.
AO has not disputed on the quantity of stocks maintained in the register, and stock valuation in the Audited financial statements and also the turnover reflected by way of cash sales and bank credits. The assessing officer has accepted the sales and corresponding nexus with the purchases and closing stock of goods. We find the CIT(A) has dealt on the facts, provisions of law, submissions and judicial decisions and has passed a conclusive and reasoned order. Accordingly, we do not find any infirmity in the order of the CIT(A) on the disputed issues and uphold the same and dismiss the grounds of appeal of the revenue.
Estimation of profit on the sale value/ receipts - CIT(A) has granted relief to the assessee on the alleged additions made by the A.O, but estimated the profit element on sales/receipts - We find the books of accounts are Audited and the assessee has disclosed the sales under the heading revenue from operations in the Profit & Loss account, whereas the A,O has not accepted certain sales value transactions and rejected the books of accounts u/s 145(3) of the Act.
Whereas the CIT(A) having deleted the additions considering the submissions, provisions and evidences produced in support of cash sales deposits in the bank accounts, which are based on the invoices and stocks maintained and is not disputed. But the CIT(A) having granted the relief to the assessee on the sales which are already offered and credited to the Profit & Loss account and the profit embedded is part of sale value.
Again estimating the profit element @1.35% on the sale values is subjected to double taxation, which is not acceptable/permissible in law. We considering the facts, circumstances and material evidences substantiating the sale values are of the view that the estimation of income @1.35% on the sales value is not warranted. Accordingly, we direct AO to delete the addition of impugned estimation of income on percentage basis on sales values and allow the grounds of appeal filed by the assessee.
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2023 (12) TMI 866
Disallowance u/s 14A r.w.r 8D(2)(ii) - AO has disallowed the expenditure on account of expenditure incurred for earning tax-free income - HELD THAT:- There is no demonstrable evidence showing as to how expenditure has been worked out for making a disallowance u/s 14A. The assessee has raised only peripheral pleas that management had looked into all other incidental issues for the purpose of disallowing expenditure themselves u/s 14A, but this objective is not discernable either in the accounts or otherwise. The assessee has been earning huge dividend income on short-term funds, which are required to be reinvested.
It has not demonstrated that these were reinvested in the same Mutual Funds otherwise they will be converted to long-term investment. Faced with the above difficulties, AO has thought it fit to apply the formula and worked out the disallowances. After going through the finding of AO we do not find any error in it except in the total quantification of disallowance. Onc eAO has worked out the disallowance with the help of Rule 8D(2), then, he was not required to add the amount suo motu disallowed by the assessee.
Disallowance worked out by him will look all the considerations and there is no need to make separate addition of Rs. 9,134/- made by the assessee on its own estimate.
In the present case, there are expenditures, but the expenditures relatable to exempt income could not be demonstrable. Ld. Assessing Officer has to take help of the formula under Rule 8D and worked out the disallowance. Therefore, the assessee could not buttress its case on the strength of the above decisions. We do not find any merit in these grounds of appeal. They are rejected.
Computation of tax u/s 115BBE - as argued when no income was brought to tax under sections 68, 69, 69A, 69B, 69C or 69D, then no computation of tax under section 115BBE was required to be made - HELD THAT:- A specific reference is being made to serial nos. 10 and 25 of the computation sheet. If that be the situation, then ld. Assessing Officer could not compute the tax under section 115BBE out of the disallowance under section 14A of the Income Tax Act. The ld. CIT(A) has no power to relegate any issue to the Assessing Officer. In other words, ld. CIT(A) has no power to remand an issue to the Assessing Officer. It has to decide the issue himself. A reference to this effect is being made to Section 251 of the Income Tax Act. Sub-clause (1)(a) has been amended by Finance Act, 2001 w.e.f. 1st June, 2001 and the power of the ld. CIT(Appeals) to set aside any issue has been omitted. Therefore, he cannot set aside any issue to the file of ld. Assessing Officer for redetermination. A perusal of the assessment order would suggest that there is no addition under these sections mentioned above and there could not be any computation of tax under section 115BBE. This ground of the assessee is allowed.
Deduction of Education Cess u/s 37(1) - HELD THAT:-As decided in M/S. KANORIA CHEMICALS & INDUSTRIESITA [2021 (10) TMI 1153 - ITAT KOLKATA] that Education Cess is not an allowable expenditure. The ld. 1st Appellate Authority has mainly reproduced the decision of the Coordinate Bench in the above finding and we find that ITAT, Kolkata has based its finding on the basis of Hon’ble Supreme Court’s decision in the case of CIT –vs.- K. Srinivasan [1971 (11) TMI 2 - SUPREME COURT] After going through the above, we do not find any merit in it. Hence this ground of appeal is rejected.
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2023 (12) TMI 865
Rectification u/s 154 - AO is seeking to disallow the claim of deduction u/s 80P to the extent of interest income, earned from banks - HELD THAT:- It is admitted fact that interest income received from Corporation Bank. Interest income received from a Bank cannot be allowed as a deduction under sections 80P(2)(a)(i) or 80P(2)(d) of the Act in the light of the judgment of PCIT Vs. Totgars Co-operative Society Ltd [2017 (7) TMI 1049 - KARNATAKA HIGH COURT]
Limited prayer of the assessee in this appeal is to be provide deduction of cost of funds and proportionate administrative expenses as a deduction under section 57 of the Act for interest income assessed as “Income from Other Sources”. This prayer of the assessee has been accepted by the jurisdictional High Court in the case of Totgars Co-operative Society Ltd., Vs. ITO [2015 (4) TMI 829 - KARNATAKA HIGH COURT]
In light of the above AO is directed to allow cost of funds and proportionate administrative expenses for earning interest income as deduction under section 57 of the Act. It is ordered accordingly.
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2023 (12) TMI 864
Inflated cost of land - GAAP v/s Ind AS for financial statement recording - AO based on the financial statement prepared as per GAAP and also considering the cost of land as computed by the assessee based on West Bengal Consultancy Organization Ltd. (WEBCON)’s report and based on the accounting system, consistently adopted by the assessee i.e., percentage of completion method (PCM), came to a conclusion that the assessee had made over statement of cost of land in the profit and loss account - AO examined the financial statements based on GAAP and did not take note of the financial statements prepared as per Ind AS, which were filed by the assessee during the course of assessment proceedings - HELD THAT:- As per the guidelines given by the Government of India, the assessee was required to prepare the financial statements for FY 2017-18 and onwards as per Ind AS which is a new system of accounting West Bengal Housing Infrastructure Development Corporation Limited based on the concept of fair market value whereas the accounts under GAAP are prepared on Historical Cost Concept. The assessee prepared revised financial statement as per Ind AS and the same was approved by the Board of Directors
The financial statements prepared as per GAAP became non-est during the course of assessment proceedings itself. Under these facts and circumstances, where the case of the assessee was selected for scrutiny on various issues, the ld. AO ought to have carried out the scrutiny proceedings on the basis of revised financial statements as per Ind AS and should have accepted the revised computation of income filed by the assessee and all the other details as necessary should have been called for in order to complete the scrutiny proceedings.
Perusal of the impugned order indicates that the ld. CIT(A) had summarily dismissed the assessee’s grounds without giving any reasoning before confirming the impugned addition and the order of the ld. CIT(A) is purely a non-speaking one. Since time limit to file revised return lapsed before the preparation of financial statements as per Ind AS and AO has also not scrutinised the assessee’s case on the basis of the revised financial statements as per Ind AS furnished during the course of assessment proceedings, we are of the considered view that the issues raised in the instant appeals deserve to the restored to the Assessing Officer for de-novo adjudication based on the revised financial West Bengal Housing Infrastructure Development Corporation Limited statement as per the Ind AS and scrutiny shall be done in accordance with law. Appeal of the assessee is allowed for statistical purposes.
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2023 (12) TMI 863
TP Adjustment - margin of the Assessee computed in terms of the APA stands at 18% - methodology for preparation of segmental accounts as agreed upon in the APA - HELD THAT:- Considering the submissions and the APA agreement entered into by assessee with the CBDT for the subsequent assessment years, we direct the computation of the margin to be carried out as per the terms agreed in the APA in respect of the services rendered by assessee under ITeS segment.
We direct the Ld.AO/TPO to determine the arms length price of the international transaction under the ITeS segment that was the subject matter of order passed u/s. 92CA in accordance with the APA entered into by assessee for subsequent assessment years dated 22.03.2022.
Comparable selection - CRA Online Ltd. - The assessee before us is providing assistance to the AE while interacting with the client when the service module is being conceptualized, client interaction in the initial stages of the contract negotiations, client interaction when the service goes live and decisions regarding and in the interaction when the service goes live and decisions regarding general administration, accounting, legal, finance and personnel matters in the US etc. In our considered opinion, this company cannot be held to be a fit comparable with that of assessee. We accordingly, direct the Ld.AO/TPO to exclude this company from the final list.
Cosmic Global Ltd.company was not excluded by the Ld.TPO but has been excluded by the DRP suomoto on the ground that it has a different working model. Further it is noted that such kind of filter has never been applied by the Ld.TPO and that the Ld.TPO has held this company to be functionally similar with assessee. Under such circumstances, we do not find any reason for this company to be excluded as the functionality has been not disputed by the revenue.
Informed Technologies India Ltd. and Inhouse Production Ltd. - Details based on which these comparables were excluded by the Ld.TPO/DRP are verifiable from the annual reports. We direct the Ld.AO/TPO to verify the details and to consider this comparable as they have not disputed the functional dissimilarities.
Disallowance of depreciation claimed on the balance goodwill as made on the basis of case of CIT vs. Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] - HELD THAT:- This Tribunal has the power to direct the Ld.AO to claim verify the assessee. Accordingly, we direct the Ld.AO to consider the claim of assessee in the light of the directions by Hon’ble Supreme Court in case of CIT vs. Smifs Securities Ltd. (supra) and also in accordance with law.
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2023 (12) TMI 862
TP Adjustment - comparable selection - Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. fails in upper turnover filter which has not been applied by the Ld.TPO - HELD THAT:- Respectfully following the case of Mindteck (India) Ltd. [2022 (11) TMI 1367 - ITAT BANGALORE] we direct the Ld.TPO to exclude Tech Mahindra Business Services Ltd. and Infosys BPM Services Pvt. Ltd. from the final set. whose turnover in the current year is more than Rs. 200 Crores.
Determination of arms length price (ALP) - Asset received free of cost received by the assessee from its AE being capitalised by the Ld.AO u/s. 28(iv) and considering depreciation in operating cost under all segments proportionately - HELD THAT:- There is no doubt that the equipments received by the assessee are custom made which are used for the business of the assessee and are not available in the open market for purchase for commercial purposes. The AEs provided these equipments to the assessee in respect of the projects undertaken by assessee on their behalf. On a query being raised by the bench to the Ld.AR regarding the return policy of these assets, the Ld.AR very fairly admitted that the assets or goods or equipments received by it has never been returned in the past assessment years. Under such circumstances, it definitely amounts to enduring benefit in the hands of the assessee. In our view, the asset received free of cost has been rightly capitalised in the hands of the assessee.
It was also the correct approach by the TPO by granting depreciation in respect of the same. However, the double disallowance made in respect of the cost of asset received free from the assessee is not acceptable.
TPO increased the operating cost base by allocating the depreciation at 60% on the cost of the assets under the three segments based on the operating revenue to compute the markup. This approach by the Ld.TPO are not based on sound principles of transfer pricing adjustments. The assessee has been submitting that the assets received free of cost from its AE are utilised for the purposes of rendering services under software development segment.
Therefore we direct the Ld.TPO to consider the entire cost for the purposes of computing the margin of assessee under the software development segment as per the following directions. While computing the ALP of assessee, the depreciation as per schedule to Companies Act, is to be included as an element of operating cost. In the event, there is a difference in the rate of depreciation between the assessee vis-a-vis the comparables, suitable adjustments are to be granted in accordance with law. (Ref. Rule 10B(e) (i) to (iii)). We also direct the Ld.AO to delete the disallowance made u/s. 28(iv) as the same has been considered in the transfer pricing adjustment.
Comparability analysis - R&D filter applied by the Ld.TPO is without granting any opportunity to the assessee - We note that for applying the R&D filter, to select the comparables under SWD segment, assessee was issued one notice by the Ld.TPO on 09.01.2021. However on perusal of the said notices we note that the query raised was in respect of ITeS and MSS segment. There is no specific query raised by the Ld.TPO regarding application of R&D filter to the SWD segment for which assessee could have furnished any submissions. In the interest of justice, we remand the selection of comparables under SWD segment to the Ld.TPO for fresh consideration based on the filters that has been consistently applied in case of assessee in the preceding and subsequent assessment years.
Datamatics Business Solutions Ltd. - As the assessee has made significant investment which can be seen from the paper book at page Nos.1336 & 1359 and the assessee is engaged in diversified range of activities. In our opinion, these are to be relooked into by the AO/TPO while examining the functionality of the comparable. Accordingly, this issue is remitted to the file of AO/TPO for fresh consideration.
Manipal Digital Systems Pvt. Ltd be deselected from list of comparable.
Inteq BPO Services Pvt. Ltd is involved in business process management services and cannot be considered as a comparable to a company providing ITeS such as the assessee.
Informed Technologies Ltd. has been excluded by the Ld.TPO as there was no documentation and that this comparable was failing the service revenue filter of more than 75% - We note that the annual reports of the above comparables are to be verified before excluding them. The assessee is directed to furnish the annual reports before the Ld.TPO which shall be verified and the filters applied by the Ld.TPO shall be considered for its exclusion / inclusion as there is no dispute by the Ld.TPO regarding the functional dissimilarities the filters applied by the Ld.TPO are directed to be verified from the annual reports. All necessary data for such verification shall be provided by the assessee.
Pressman Advertising Ltd.is functionally not similar to that of assessee as it is engaged in the business of advertising services, selling of space for advertisement in print media and public relations and engaged in providing market research services, which is nothing but knowledge process outsourcing services.
Scarecrow Communications Ltd. is not functionally comparable with that of assessee as it is engaged in the business of advertising, communication, and public relations and lacks segmental information.
Majestic Research Services & Solutions Ltd.is not functionally similar with that of assessee as it is engaged in rendering knowledge process outsourcing services and it is a product company and also engaged in providing market research services which is knowledge process outsourcing services.
Interest on delayed receivables - Assessee contends the outstanding receivables could not be made subject matter of TP adjustment as the same is not covered under the provisions of Section 92B - Alternatively, as also argued that working capital adjustment subsumes sundry creditors and in such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation - HELD THAT:- This Bench referred to decision of Special Bench of this Tribunal in case Instrumentation Corpn. Ltd. [2016 (7) TMI 760 - ITAT KOLKATA] held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92 B of the Act.
Thus we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Ld.AO/TPO for deciding it in conformity with the above referred judgment. We also direct the Ld.TPO that in the event the WCA subsumes the outstanding receivables, no separate characterisation is to be made. However for those receivables that fall out of the WCA pertaining to year under consideration, then, the rate of interest to be charged must be LIBOR + 300 basis points which is in accordance with the principles laid down by Hon’ble Delhi High Court in case of CIT vs. Cotton Naturals (I) Pvt. Ltd., [2015 (3) TMI 1031 - DELHI HIGH COURT] by considering a credit of 90 days.
Disallowance of salaries paid and reimbursement of expenses made towards seconded employees - AR submitted that TDS has been deducted on the entire salary paid by assessee to the seconded employees and what is reimbursed is the payment which has been partly made by the AE to the families of such seconded employees and that though the 100% salary has been subjected to TDS assessee has paid only part of the salary to the seconded employees in India and balance of such salary has been reimbursed to the AE as the same has been paid by the AE to the employees - HELD THAT:- We note that the evidences filed by assessee has not been considered by the revenue authorities. We therefore remand this issue to the Ld.AO to consider the claim in accordance with the decision of M/s. Toyota Boshoku Automotive India Pvt. Ltd. [2022 (4) TMI 1443 - ITAT BANGALORE], Goldman Sachs Services Pvt. Ltd. [2022 (4) TMI 1444 - ITAT BANGALORE] having regard to the evidences filed by the assessee. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law.
Nature of expenses - bonding and debonding charges - HELD THAT:- We note that the bonding and debonding expenses have been incurred by assessee in respect of capital asset. Assessee is seeking depreciation on such charges as the same were disallowed u/s. 37 of the Act. The assessee has not filed any evidences in support of its claim however the Ld.AR has submitted that assessee may be provided an opportunity to substantiate the claim. We accordingly remand this issue to the Ld.AO to verify the evidences if any filed by the assessee and to consider the alternate claim of deprecation in accordance with law.
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2023 (12) TMI 861
Unexplained investments - cash payment from undisclosed sources for purchasing a shop - CIT(A) deleted addition - HELD THAT:- Gujarat High Court in the case of Krishna Textiles vs CIT [2008 (7) TMI 291 - GUJARAT HIGH COURT] has held that assessee cannot be called upon to explain the source of income, even if credited by the third party as assessee claimed that no such amount was invested or paid by it to third party. In this case addition was sought to be made on the basis of entries in the books of third party showing payment made by assessee to said party.
We have no hesitation in upholding the order passed by the Ld. CIT(A) who deleted the addition as unexplained investments in the hands of the assessee. Thus we do not find any merits in the grounds raised by the Revenue and the same is hereby dismissed.
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2023 (12) TMI 818
Validity of notice issued u/s 153C - writ direction or order to quash and set aside the impugned notices u/s 153C and the order disposing off the objections along with the show Cause Notices issued for A.Y. 2016- 17, A.Y. 2017-18 and A.Y. 2018-19 - HELD THAT:- As order speaks itself in as much as the writ petition was not entertained by the High Court for reasons to be followed which due to paucity of time was not dictated on 27.9.2021 on which the matter was disposed of. However, no reasons were dictated at all. It is also brought to our notice that the Presiding Judge of the Division Bench has also retired. In the circumstances, the writ petition will have to be re-heard. Consequently, the impugned order is set aside. The matter is remanded to the High Court. The writ petition is restored on the file of the High Court to be re-heard and an order to be passed in accordance with law along with reasons.
The appeal is disposed of in the aforesaid terms.
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2023 (12) TMI 817
Disallowance u/s 14A - As decided by HC [2022 (9) TMI 886 - DELHI HIGH COURT] in cases where shares are held by assessee as stock-in-trade, the dividend earned on the said shares is incidental and would not attract the provisions of Section 14A - HELD THAT:- As there is a huge delay of 350 days in filing this Special Leave Petition. The reasons seeking condonation of delay are not explained to the satisfaction of this Court.
Further we find that the High Court has applied a judgment of this Court in the case of Maxopp Investment Limited [2018 (3) TMI 805 - SUPREME COURT][and has granted relief to the respondent-M/S PNB Housing Finance Ltd.
We are, therefore, not inclined to condone the delay or/and interfere in the matter on merits. Special Leave Petition is dismissed.
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2023 (12) TMI 816
Appointment to the post of Income Tax Inspectors - Appointment against Sports Quota vacancy - HELD THAT:- Income Tax Department is willing to appoint the petitioner against the Sports Quota vacancy but, she has to produce an unconditional No Objection Certificate (for short ‘NOC’) from her present employer, i.e., The Central Railways. It is also clarified that the appointment to be given, will be on prospective basis.
The petitioner is represented by Mr. V. Chitambaresh, learned senior counsel submits that the petitioner would furnish the unconditional NOC from her current employer. She is also prepared to accept the appointment as an Income Tax Inspector, on prospective basis.
Taking note of the above submissions from the learned senior counsel representing both sides, we deem it appropriate to pass the following order:
(i) The petitioner is granted four weeks’ time to produce the NOC, from her current employer.
(ii) Immediately after the NOC is produced before the Principal Chief Commissioner of Income Tax(CCA), HQ Kochi, Kerala, the appointment order will be issued appointing the petitioner as an Income Tax Inspector under Sports Quota.
(iii) The appointment will be on prospective basis.
With the above order, the Special Leave Petitions are allowed. Pending application(s), if any, shall also stand disposed of.
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2023 (12) TMI 815
Reopening of assessment u/s 147 - notice after your years expiry - rejection of exemption u/s 11 - HELD THAT:- We would agree with Petitioner on the aspect of commercial activities alleged by the AO that AO has presupposed that assessee is indulged in commercial activity. Just because assessee has been earning a regular income from letting out its auditorium does not mean Petitioner was indulging in commercial activities. Mr. Agrawal submitted that the Income Tax Department initiated proceedings u/s 12AA(3) of the Act to withdraw the exemption granted to Petitioner u/s 11 of the Act which proceedings have been quashed and set aside.
Thus in view of the proviso to Section 147 of the Act, which squarely applies to the case at hand, re-opening of the assessment is permissible only if there was failure to disclose fully and truly material facts. Reason to believe itself indicates that amount of Rs. 2,84,19,039/- which the AO claims to have escaped assessment has been obtained from the return of income filed by Petitioner. Return of income, copy whereof is annexed to the Petition, itself indicates that income from hall charge, other charges recovered from auditorium users and compensation received for use of premises. Therefore, by no stretch of imagination being a failure to truly and fully disclose. When Petitioner’s case is they are not carrying out any commercial activity, Petitioner cannot be accused of not disclosing that they were carrying out commercial activity.
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2023 (12) TMI 814
Characterization of income - income arising from sub-licensing of shops and establishment along with the various services which are rendered to the sub-licensed shopkeepers - house property or business income - Whether it can be treated as income from house property liable to be assessed u/s 22 or composite income arising from part exploitation of shops and establishment which are sub-leased as commercial assets and the services which are rendered to the shopkeepers can be treated as income arising from business falling under Section 28 of the Act? - HELD THAT:- The appellant assessee has obtained 5665 sqft. of space under a leave and licence-agreement dated 25.04.1972 from EIH Limited and has sub-licensed the space to several persons under a sub-licence agreement, along with certain services as aforementioned and for that received a composite amount as consideration on monthly basis.
The assessee claimed that the sum received by it for sub-licensing, is business income but the assessing officer has not accepted it and taxed the receipts as income from house property. CIT (Appeal) allowed the appeal of the assessee and held the income to be income from business. The ITAT, after referring to section 27 (iiib) of the Income Tax Act defining the term “deemed owner” and Section 269UA(f) of the Act defining the word “transfer”; held that the income derived by the assessee is “Income from House Property.”
While coming to the aforesaid conclusion, the ITAT has committed a manifest error of law to ignore the object and business activity of the appellant assessee company, and misunderstood the nature of transaction of sub-license..
Thus, as per Memorandum of Association the object of the assessee company ancillary to the main object is to acquire on licence premises suitable for housing, accommodating shops, boutiques, stores, offices, showrooms for the purpose of making available on the basis of lease or licence and sub-lisence. The Assessing Officer himself recorded a specific finding in the Assessment Order that during the previous year relevant to the assessment year in question the assessee was engaged in the business of real estate and its income mainly consisted from contribution from shops. Since the object of the assessee company and its activity is the business of renting/lisencing/sub-lisencing shops etc. and it derived income mainly from the aforesaid business activity, therefore, the income from contribution/sub-lisencing derived by the assessee is business income and not income from house property. The law laid down by Hon’ble Supreme Court in Chennai Properties and Investment Ltd. [2015 (5) TMI 46 - SUPREME COURT] and Royla Corporation Private Limited [2016 (8) TMI 522 - SUPREME COURT] are applicable on facts of the present case. Hence, we hold that the income in question of the appellant assessee is business income and not income from house property.
Except for the assessment order in question, the appellant assessee’s income from sub-letting/sub-licensing the space in question, has always been accepted by the respondent Income Tax Department as, income from business. Under the circumstances when the respondent Income Tax Department has always accepted the income of the appellant assessee from sub-licensing/sub-letting of the space in question, to be income from business, then the respondent cannot take a contrary stand in the present appeal. Assessee appeal allowed.
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2023 (12) TMI 813
Benefit of compounding of offences u/s 279(2) - denial of benefit on the ground of prior conviction of the petitioner cannot be countenanced in the light of the above mentioned decisions of this Court - assessee had committed not one but multiple grave offences - HELD THAT:- In the present case, the impugned order has been passed by the Chief Commissioner of Income Tax. A reading of the impugned order indicates that it has been passed by placing reliance on the opinion of the Regional Compounding Committee (RGC) dated 18.07.2022.
Facts and law are clear. U/s 279 (2) of the Income Tax Act the Principal Chief Commissioner or Chief Commissioner or the Principal Director General of Income Tax or Director General of Income Tax may compound any offence under Chapter XXII either before or after institution of proceedings. For the aforesaid purpose, the Central Board of Direct Taxes has issued circular u/s 119 of the Income Tax Act, 1961.
The power to compounding offences is vested with the Principal Chief Commissioner or Chief Commissioner or Principle Director General or Director General of Income Tax u/s 279 of the Income Tax Act, 1961
In The Chairman, Central Board of Direct Taxes and Others Versus Umayal Ramanathan, [2009 (4) TMI 36 - MADRAS HIGH COURT] Court allowed the case of the petitioner taking note of the fact that during the pendency of an appeal against the conviction order before the Principal Sessions Judge’s Court, an Application was filed on 09.04.2012 under Section 279(2) of the Income Tax Act, 1961 for compounding of the offence.
There also the application for compounding of offence was earlier rejected on the ground that the petitioner therein had been convicted of the offence. It was held that the rejection of the compounding application during the pendency of the appeal was not justified merely because the applicant/the writ petitioner therein was convicted by the Trial Court of the offence.
In Inbavalli Vs The Government of India, Ministry of Finance, Department of Revenue. [2016 (9) TMI 209 - MADRAS HIGH COURT] rendered reported in Manu/TN/ 1996/2016 followed the above mentioned decision and allowed the case of the petitioner therein.
There, the Court took note of the fact that the petitioner was a lady aged more than 70 years of age and had lost her husband and only son and was the sole proprietor of a small firm dealing in electrical and electronic appliances while allowing the writ petition.The Court in both the above mentioned cases did not take note of the aforementioned circular issued under Section 119 of the Income Tax Act, 1961 issued specifically in context of compounding of offences.
There is no merits in this writ petition as petitioner has shown no remorse. The petitioner has taken the chance all the way up to the Tribunal and waited for conviction order to be passed in the criminal case instituted against the petitioner for violation of the provisions of the Income Tax Act, 1961.
These decisions cited for the petitioner therefore do not come to his rescue. The circular of the Board also makes it clear that there is no scope for compounding of the offences, if there was a conviction of the person by a court of law under direct tax laws. Further, the application is belated.
Petitioner has taken a chance all the way up to the Income Tax Appellate Tribunal and waited for an order of conviction by the Economic Offences Court on 06.03.2019 in EOCC No.184 of 2007.The decision of the Delhi High Court in Vikram Singh versus Union of India [2017 (4) TMI 621 - DELHI HIGH COURT] also does not lay down any general principle of law to be followed by Courts. Para 9 of the said decision which has been highlighted is of no relevance.
The decision of the Court rendered in Ram Prakash Khemka Vs Commissioner of Income Tax [2007 (2) TMI 205 - MADRAS HIGH COURT] relied upon by the counsel for the respondent dealing with an identical situation also impels this Court to dismiss this writ petition.
To allow compounding of the offences at this stage merely because the petitioner has paid the tax, penalty and interest would not mean that the petitioner is in return entitled to compound of the offence particularly having taken a chance for an acquittal before the Trial Court. By paying the tax, penalty and interest, the petitioner has done no favour for the revenue. What he had to do earlier, he has done later.
To interfere with the impugned order and to allow compounding of the offence would also send wrong signal in the society. There has to be deterrent effect not only on the petitioner from committing similar offence in future but also on others from committing such offence by taking the tax laws casually.
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2023 (12) TMI 812
Reopening of assessment - shorter period granted to file reply to SCN - grievance of the petitioner is that when he logged on at the income tax portal for filing the reply to SCN he found that the e-reply was already closed and finally an order u/s 148A(d) was passed by the respondent No.2 - HELD THAT:- From bare perusal of Section 148A(b) it appears that minimum 7 days is required to be given to the Assessee for filing reply. This 7 day is to be calculated by ignoring the date of issue and the last date of submission. In other words, minimum 7 clear days has to be provided to the Assessee for filing reply.
Thus, we see that the law is no more res-integra; inasmuch as, the words ‘not be less than 7 days’ implies that clear seven days is obligatory to be given to the Assessee. Thus, on the one hand the notice which was given to the petitioner u/s 148A(b) was not in accordance with the provision of the Act, inasmuch as, only 6 clear days was given to him. So, on this score alone the notice u/s 148A(b) deserves to be quashed and set aside.
From bare perusal of Annexure-3 which is the screenshot of e-proceeding clearly indicates that on 26.03.2023 itself, e-submission was closed, thus the petitioner was prevented from submitting his reply online.
The argument of revenue that it was the duty of the petitioner to approach the concerned authority is misconceived and without any basis and is fit to be rejected inlimine in view of the specific provision made under the Act itself. Thus, the impugned orders requires interference. Reopening order and notices set aside.
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2023 (12) TMI 811
Validity of search proceedings u/s 132 - mandation of recording satisfaction - incriminating material found or not? - whether the exercise of the power u/s 132 (1) (b) was illegal on the grounds alleged that the Respondent Authorities had no reasons to believe the existence of the circumstances for going ahead with the searches, which was a condition precedent for exercise of the power of search and seizure? - HELD THAT:- For the purpose of exercising the powers u/s 132(1) the satisfaction ought to be satisfaction of the Authorised Official on the basis of the facts and materials available before it. Such materials must not be arbitrary, irrational, vague, distinct or irrelevant. The standard of reason for formation of the opinion has to be tested as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion.
Reasons to believe cannot be said to be the subjective satisfaction of the Authority concerned but would be the objective view on the basis of information/materials in possession of the Authority and must be based on firm and concrete facts as regards the existence of undisclosed income.
As upon search and seizure conducted, such information/materials in possession of the Authorised Official which led to the formation of the opinion may or may not lead to the discovery of incriminating materials. But in the opinion of this Court, merely because incriminating materials were not seized/found would not affect the opinion/belief formation for the purpose of exercise of powers under subclauses (i) to (v) of Section 132(1) of the Act of 1961
As in a recent judgment in the case of Principal Commissioner of Income Tax, Central 3 Vs. Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] categorically held that in case no incriminating materials is/are is unearthed during the search, AO cannot assess or reassess taking into consideration the other materials in respect of completed assessment/unabated assessment or in other words in respect of completed/unabated assessments, no addition can be made by the AO in absence of incriminating material found during search under Section 132 or requisition un/s 132A - having not found incriminating material would not effect the formation of the opinion for going ahead with exercise of powers under Section 132 of the Act of 1961. On the other hand, the consequence of not unearthing incriminating material has to be dealt with as declared by the Supreme Court in paragraph 23(iv) of the judgment in Abhisar Buildwell P. Ltd.(supra).
If the Authorised Official is in possession of information and materials for which he has reasons to believe that even if the steps contemplated under Clauses (a), (b) & (c) of Section 132(1) are taken, there is no likelihood of unearthing the total income, unless the powers under sub-clauses (i) to (v) of Section 132(1) of the Act of 1961 is exercised, the mere fact that it causes harassment would not render the search and seizure illegal. The statute in question i.e. the Act of 1961 mandates tax on total income from whatever source derived in the case of a resident assessee and the Authorities in terms with the Act of 1961 have been empowered subject to fulfillment of the conditions to exercise such powers seeking compliance to payment of tax on total income.
The fulfillment of the condition precedent as held by the Supreme Court in District Registrar and Collector, Hyderabad Vs. Canara Bank & Ors.[2004 (11) TMI 569 - SUPREME COURT] are adequate safeguards to exercise the powers of search and seizure. Therefore, if the condition for invoking the powers under Section 132 of the Act of 1961 are fulfilled, the exercise of powers to make search and seizure cannot be nullified on the ground of harassment.
From all discussions, it cannot be said that the Respondent Authorities did not have materials and/or information for the formation of belief/opinion, more so, when this Court in exercise of powers under Article 226 of the Constitution cannot decide the sufficiency as well as the adequacy of the materials/information for the formation of belief/opinion.
This Court does not find any merit in the writ petitions for which the writ petitions stand dismissed.
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2023 (12) TMI 810
Penalty u/s. 271(1)(c) - income was taxable as FTS and not u/s. 44BBB - as per AO Assessee had incorrectly returned its income as taxable u/s. 44BBB while the Assessing Officer had held the same taxable as Fee for Technical Services (FTS) - assessee is a foreign company registered under the laws of Republic of Korea as engaged in the business of development of electric power resources, generation and other related business activities, Research and Development of technology related to development and generation of electric power and also doing overseas business in relation to above, as its main objects - HELD THAT:- As rightly noted by the CIT(A), the assessee being a non resident was guided by consultants . The fact that it returned incomes under different heads in the original and revised returns filed shows that even the consultants were unable to guide the assessee with certainty in determining the head/ section under which it was taxable. Therefore merely because the AO assessed the income of the assessee as FTS u/s 115A of the Act, the assessee cannot be charged with having concealed or furnished inaccurate particulars of income for returning it as income u/s 44BBB of the Act.
The fact that in similar circumstances in succeeding years the AO did not find it fit to levy penalty streghthens the case for no penalty to be levied in the impugned year.
CIT(A)’s , we find, has adequately dealt with the AO’s basis of levying penalty noting that it rests on Form 15C disclosing income of the assessee as fts and the assessee therefore being fully aware of the nature. The Ld.CIT(A) has brushed aside this logic noting that Form 15C is required to be filed by the payer of income and the assessee is therefore not bound by any disclosure made in it since it is not responsible for the same.
DR was unable to point any infirmity in this finding of the Ld.CIT(A). We see no reason therefore to interfere in the order of the Ld.CIT(A) holding that with no infirmity found in the books of the assessee and only the nature of income being in dispute it tantamounted to mere disallowance of claim which would not attract levy of penalty u/s. 271(1)(c) of the Act . The issue we agree with the Ld.CIT(A) is squarely covered by the decision of Reliance Petroproducts (P.) Ltd.[2010 (3) TMI 80 - SUPREME COURT] - CIT(A) has taken a holistic view and we are in complete agreement with the Ld.CIT(A) that there is no case made out by the Revenue Authorities for charging the assessee with having furnished inaccurate particulars of income so as to attract the levy of penalty u/s. 271(1)(c) of the Act. Decided against revenue.
CIT(A) deleting penalty holding that taxing the receipts as FTS by Assessing Officer as opposed to that returned by the assessee u/s. 44BBB was a mere change of opinion? - HELD THAT:- The fact remains that the AO assessed the income of the assessee treating the income returned by the assessee as profits and gains of business of civil construction in turnkey power projects , u/s 44BBB of the Act, to be in the nature of Fees for Technical Services taxable u/s 115A of the Act and it is for this reason alone that penalty was levied charging the assessee with furnishing inaccurate particulars of income. There are no adverse findings with respect to the Books of accounts maintained by the assessee. All facts and figures disclosed therein have been accepted. It all therefore boils down to interpreting the nature of activities carried out by the assessee whether qualifying u/s 44BBB of the Act or being FTS. All particulars relating to the nature of income remaining unchallenged, the Ld.CIT(A)s finding that the determination of its income by AO only tantamounted to change of head is we hold correct. That the ITAT confirmed the findings of the AO makes no difference to the aforesaid fact. Therefore, the plea raised by the Revenue dismissed.
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2023 (12) TMI 809
Undisclosed incomes - investment in Purchase/sale of immovable property - difference between circle rates made for payment of stamp duty charges to State Government and market rate of the property - assumptions made by AO to calculate FMV - purchase or sale consideration recorded in the registered conveyance deed and in books or accounts are not reflecting the fair market value thereof - HELD THAT:- In this case, search action took place in these groups u/s 132 - AO compared the value mentioned in the sale deed of these properties with the fair market value of these properties calculated by him making strange assumptions and brought the difference between these two as undisclosed incomes of the assessee. These additions are not based on any corroborative materials to suggest that there was payment or receipt of money over and above the sale deed.
Assessees have registered properties with the registration authorities as applicable valuations for the purpose of registration. In order to make addition as undisclosed income in these cases, the burden is on the revenue to prove that the Assessees herein have invested in any property or sold the property over and above what is in the sale deeds. There is nothing on record to show that the Assessees herein had made any investment or recieved consideration in addition to what has been disclosed in the sale deeds. In our opinion, no addition could be made in the hands of present Assessees on the basis of presumption when the valuation mentioned in the sale deed has been accepted by the registration authorities.
No allegation by the ld. AO that there is any stamp duty valuation higher than the value mentioned in the sale deed. Details of buyers or sellers of these immovable properties, as the case may be, were already on record before the ld. AO and the ld. AO had all the powers to make enquiry under the Act from such sellers and buyers, the AO for the reasons best known to him did not make any such enquiry.
Thus, the onus on the department to prove that investment was made by Assessees or sale consideration received by the Assessee, as the case may be was in fact more than that depicted in the sale deed did not get discharged at all. CIT (A) has rightly held that ld. AO cannot substitute the apparent consideration mentioned in the sale deed so as to adopt the market value without bringing any material on record to show that consideration disclosed in the sale deed is in excess of the value adopted by the assessee - AO cannot simply make additions on the basis of fair market value of the property. The grounds raised by revenue dismissed.
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2023 (12) TMI 808
Addition u/s 68 - Bogus share capital - addition made as identity of source was not established - onus to prove - CIT(A) confirming the addition made by the AO as Identity, creditworthiness and genuineness of transaction not proved - HELD THAT:- CIT(A) has correctly held that the assessee has not been able to establish the genuineness of the transaction and the identity and the creditworthiness of the share applicant company. We observe that the assessee was incorporated on 22.09.2012 and during the year, the total revenue of the company was Rs. 43,700/- as against this, the assessee company had received share capital of Rs. 40.34 crores for 40,340 shares issued at a premium of Rs. 9,990/- per share. Accordingly, we are of the view that the assessee has not been able to give any basis as to why the assessee company would command such a huge premium for issuance of share capital given the negligible operations carried out by the company.
As creditworthiness of the share applicant company M/s. Attentive Share Trading Pvt. Ltd. has also not been established by the assessee. Further, so far as the genuineness of the transaction is concerned, no justifiable reason has been furnished as to how and on what basis the valuation of share premium of Rs. 9,990/- per share was arrived at.
Therefore, looking into the instant facts we find no infirmity in the order of Ld. CIT(A) in holding that the genuineness of the transaction and identity and creditworthiness of the parties has not been established in the instant facts and accordingly, we uphold the order passed by Ld. CIT(A). We need to further mention that simply because a transaction has been carried out through banking channels or confirmation of the parties has been furnished would not make a non-genuine transaction into genuine one, and all the concerning facts of the case to be looked into in totality.
Courts have taken a consistent position that the assessee is expected to establish proof of identity of creditors, capacity of creditors and genuineness of creditors in order to discharge onus cast on assessee. Mere production of party or confirmation from party will not suffice, unless the assessee is also able to substantiate their creditworthiness i.e. ability to advance the sum to the assessee.
The Hon'ble Supreme Court in the case of Pr. CIT v NRA Iron & Steel (P.) [2019 (3) TMI 323 - SUPREME COURT] held that that where assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company.
The High Court of Allahabad in the case of Sagittraious Builders & Colonisers [2011 (12) TMI 240 - ALLAHABAD HIGH COURT] held that not only the identity of parties, but their creditworthiness also needs to be established by the assessee.
In the case of Sanjay Waman & Co.[2001 (11) TMI 273 - ITAT PUNE] held that it is part of the duty of the assessee to furnish evidence regarding the creditworthiness of the creditors. Appeal of the assessee is dismissed.
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2023 (12) TMI 807
Revision u/s 263 - as per CIT assessment order has been passed by AO without making inquiries or verification with respect to the donation to political party claimed as deduction u/s 80GG - HELD THAT:- An inquiry made by the AO considered inadequate by the Commissioner of Income Tax, cannot make the order of the AO erroneous. In our view, the order can be erroneous if the AO fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the AO. It is AO's prerogative to make inquiry to the extent he feels proper. CIT by invoking revisionary powers u/s 263 of the Act cannot impose his own understanding of the extent of inquiry. There were number of judgments by various Hon’ble High Courts in this regard.
Delhi High Court in the case of CIT Vs. Sunbeam Auto [2009 (9) TMI 633 - DELHI HIGH COURT] made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry.
The Hon’ble Supreme Court in recent case of Shree Gayatri Associates [2019 (6) TMI 888 - SC ORDER] held that where Pr. CIT passed a revised order after making addition to assessee's income u/s 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed.
The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. AO completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 of the Act on ground that AO had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner.
Revealed it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings u/s 263 on the ground that the AO has not made enquiries or verification which should have been made in respect of donation to the political party. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of material placed on record accepted the genuineness of the claim of the assessee.
As also important to note that the learned PCIT referred the search proceeding carried out at the premises of the political party where it was discovered that said party involved in donation scam. We note that the search proceeding was carried out as on 2nd February 2021 whereas the assessment order in case of the assessee was passed as before the search proceeding. Therefore, in the given facts it was not possible for the AO to consider the finding of search. The fact of the party being involved in any scam was not before the AO. Hence, the formed his opinion based on the material available before him which in our considered opinion cannot be said as erroneous insofar prejudicial to the interest of the revenue.
We hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Appeal filed by the assessee is allowed.
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2023 (12) TMI 806
Assessee in default u/s 201 - TDS u/s 194LBC - Income in respect of investment in securitisation trust - assessee trust has paid sum under the head ‘Excess Interest Spread’ (EIS) to originator without deducting TDS thereon - as per AO assessee trust was liable to deduct TDS on the payment of yield to PTC holders (pass through certificates) u/s. 194LBC of the Act. - HELD THAT:- Once the originator, (AMPL) is not holding any PTC / SDI, it cannot be regarded as ‘investor’ as per the terms defined in the aforesaid provisions elaborated above. It is only in a situation where the originator has subscribed to the PTCs of the securitization trust and then only it can be regarded as an investor.
In case where minimum retention requirement commitment has met via any other permissible alternator, the originator does not have hold in instrument in the securitization trust and therefore, cannot be reckoned as investor. Once the originator has not subscribed in PTCs, but the MRR is maintained via cash collateral and in the form of ccollateralizing of excess receivables, then the first condition provided in Section 194LBC is not fulfilled and therefore, in our opinion there cannot be any obligation to deduct tax in terms of said Section.
Cash flow received was to be utilized in the manner provided in the water flow mechanism of the trustee, the Excess Interest Spread (EIS) is the residual amount that flows to the originator and is not pursuant to any investment in the securitization trust or return of investment so made. Even assuming AMPL is to be treated as an investor, then also no tax was required to be deducted u/s. 194LBC on the EIS as the said payment was not in respect of investment made by AMPL in the PTCs issued by the assessee.
The surplus here especially represents a reward earned by AMPL that its effort of creating pool of loan receivables which is capable of assigning. The MRR requirement was introduced by RBI for the first time in the year 2012 and prior to such there was no requirement for the originator to comply with MRR and even for such bills prior to 2012 EIS was paid to the originator. This further corroborates that EIS cannot be regarded as income in respect of investment. Thus, here in this case second condition is also not fulfilled and accordingly we hold that the TDS liability u/s. 194LBC is not applicable on EIS.
The ‘investor’ has been defined to mean a person who is a holder of any securitised debt instrument or securities or security receipts issued by the securitization trust. Once AMPL is not an investor and the conditions mentioned in Section 194LBC has not met, then the liability to deduct TDS does not trigger.
As assessee had furnished form 26A however, it has been stated that when the process to generate form 26A was initiated there was technical glitches on the income tax portal and when income tax portal was migrated to new format in June 2021 and form 26A functionally was enable on the portal only in April / May 2022, therefore, the assessee was not able to file form 26A before the lower authorities, therefore, the same is being filed before the Tribunal in the form of additional evidences.
Once, the form 26A has been filed and AMPL has discharged its liability for tax in respect of EIS, ostensibly in terms of proviso to section 201(1), assessee cannot be treated as ‘assessee in default’. As already held that there is no liability to deduct TDS in the present case, then whether form 26A was filed before the AO or not or has been filed before us due to the reasons as stated above is purely academic. Accordingly, we hold that assessee is not ‘assessee in default’ and therefore, the entire payment and interest levied by AO is deleted. Assessee appeal allowed.
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