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Income Tax - Case Laws
Showing 301 to 320 of 8298 Records
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2023 (12) TMI 650
Reopening of assessment - notice has been received after expiry of four years - Reason to believe - capital gain of the sale of property - HELD THAT:- In our view, the notice impugned as well as the order of disposing objections have to be quashed and set aside. We are in agreement with the submissions made by assessee. Admittedly, assessment was completed under section 143(3) of the said Act and assessment order came to be passed assessing Petitioner’s income at Rs. 82,07,933/- against disclosed income at Rs. 81,23,993/-.
The entire basis for reason to believe is accessed from Petitioner’s record and there is nothing to indicate that there was any failure on the part of Petitioner to disclose fully and truly all material facts necessary for his assessment. Assessing Officer has made bald allegations that even though the assessee has produced books of account, profit and loss account balance sheet and other evidence, no requisite material facts, as noted in the reasons for reopening, were embedded in such a manner that material evidence could not be discovered. In our view, this has been made only to get over the fetters as held in Calcutta Discount Co. Ltd. V. Income-Tax Officer [1960 (11) TMI 8 - SUPREME COURT].
Moreover undisputedly query was raised during the assessment proceedings and Petitioner has provided the details vide letter dated 31.10.2014 on capital gain of the sale of property. Just because the same is not referred to in the assessment order, it does not mean that the query raised was not the subject matter of consideration while completing the assessment. As held by the Division Bench of this Court in Aroni Commercials Ltd. [2014 (2) TMI 659 - BOMBAY HIGH COURT] it is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of query raised.
This is a clear case where the reopening of the assessment is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Decided in favour of assessee.
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2023 (12) TMI 649
Validity of reassessment proceedings - Scope of new regime u/s 148A - non consideration of reply of petitioner before passing the order u/s. 148A(d) of the Amended IT Act and non compliance of order passed by the Apex Court in Union of India and Ors. Vs. Ashish Agarwal[2022 (5) TMI 240 - SUPREME COURT] - contention of petitioner that pursuant to receipt of legible copies on 07.06.2022, petitioner submitted reply on 18.06.2022 is denied by the Revenue by contending that neither soft nor hard copy of any reply to show-cause notice dated 19.05.2022 was received in the office of respondents, and therefore, the Assessing Officer was well within his rights to pass the impugned order u/s. 148A(d) and issue the consequential notice u/s. 148 of amended IT Act.
HELD THAT:- At first blush, this contention of petitioner appears to be tenable. However, looking from the angle of concept of affording reasonable opportunity which is the foundational object behind Sec. 148A, it is seen that presently proceedings u/s. 148 have commenced in which the petitioner is being afforded reasonable opportunity of being heard.
Pertinently, amendment to the IT Act w.e.f. 01.04.2021 introduced an additional opportunity for being heard by prescribing issuance of show-cause notice u/s. 148A before commencing proceedings u/s. 148 of amended IT Act. Thus, after introduction of Sec. 148A under the amended IT Act, the assessee is vested with statutory right of being heard by way of issuance of notice followed by affording of reasonable opportunity to submit reply and corresponding obligations on the part of Assessing Officer to consider reply and thereafter pass orders u/s. 148A(d).
What comes out loud and clear is that the Assessing Officer either did not receive the reply filed by petitioner to show-cause notice dated 19.05.2022 after receiving legible copies of documents from the Revenue, or the petitioner did not successfully upload the reply on the website of Revenue.
To resolve the aforesaid dispute, the traditional way out is to quash the impugned order and notice (Annexures P/12 and 13) and remand the matter to the Assessing Officer for considering the reply filed by petitioner to show-cause notice dated 19.05.2022 and thereafter pass fresh order. However, doing so would delay and prolong the proceedings which have commenced by issuance of show-cause notice u/s. 148 of IT Act.
This Court thus, deems it appropriate and in fitness of things to adopt middle path for the sake of expediency by directing the AO to consider the reply of petitioner to show-cause notice dated 19.05.2022 and only thereafter proceed with the case u/s. 148 of IT Act.
This petition stands disposed of in the following terms:-
(i) The Assessing Officer is directed to consider the reply of petitioner to show-cause notice dated 19.05.2022, submitted after receiving legible copies and on consideration if it is found that reply is satisfactory, then the Assessing Officer is directed to drop proceedings u/s. 148A and recall the order u/s. 148A(d).
(ii) In case, the reply to Sec. 148A is not found satisfactory, then the Assessing Officer will be well within his powers to proceed u/s. 148 of amended IT Act.
(iii) While complying with the aforesaid direction No.1, the Assessing Officer shall not be influenced or prejudiced by the impugned order u/s. 148A(d) and impugned notice issued u/s. 148 of amended IT Act.
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2023 (12) TMI 648
Order u/s 154 denying Exemption of income u/s. 10 - dividend received was claimed to be exempt from taxation - claim of the assessee was not allowed by the AO and an order / intimation u/s 143(1) was passed making addition / adjustment - In appeal, against the order u/s 154 assessee submitted that the aforesaid income is actually interest income instead of dividend income and the aforesaid interest income was received from investments made in Government Companies - HELD THAT:- We observe that in the case of DCIT vs. Justice Dilip Kumar Seth [2005 (9) TMI 239 - ITAT CALCUTTA-B] ITAT held that the AO is well competent to rectify any mistake in the intimation u/s.143(1) of the Act which was brought to his notice by the assessee.
Also in the case of Pawan Kumar Aggarwal vs. CIT [2014 (5) TMI 449 - DELHI HIGH COURT] has held that from bare reading of section 154 of the Act, it is apparent that the power of rectification extends to amendment of an intimation or deemed intimation u/s.143(1) of the Act. The Hon’ble High Court further held that this power of rectification enures even after the matter has been considered and decided in any proceedings by way of appeal or revision. It was held that necessarily this power extends even at the stage of the appeal and further appeal to the ITAT.
In the case of Zen Tobacco (P.) Ltd. v ACIT [2015 (7) TMI 729 - ITAT AHMEDABAD] assessee had filed its return of income declaring certain income and the same was processed under section 143(1). Subsequently, on verification of assessee's record, it was noticed that the provision of deferred tax assets of certain amount, which ought to have been deducted from total income, was not deducted but added back to amount of profit and, thus, taxable income was overstated. Therefore, the assessee filed an application under section 154 seeking for rectification of mistake along with the revised statement of income and claimed a refund.
AO rejected the application observing that the assessee should have filed a revised return rather than taking recourse to section 154, which was not permissible under the Act. On appeal, the Commissioner (Appeals) dismissed the appeal. On second appeal, the Ahmedabad ITAT held that from the provisions of sections 139(1), 139(5) and 143(1) it is evident that it is not the case that revenue authorities have to accept whatever has been stated in the return and compute the taxable income mechanically. As per provisions of section 143(1), the concerned revenue authority has to examine whether any claim as made by the assessee is correct or not. This includes understatement and overstatement of the income. If the revenue authority failed to take note of any incorrect claim with regard to total income of the assessee, such failure would necessarily mean mistake apparent from the record.
Thus the matter is being restored to the file of the Ld. CIT(A) to carry out necessary verifications and if the claim of the assessee is found to be correct, may be allowed relief to the assessee in accordance with law.
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2023 (12) TMI 647
Reopening of assessment - notice beyond period of four years - reason to believe - HELD THAT:- It is a well settled law that re-assessment proceedings cannot be initiated after beyond a period of four years unless the Department is able to demonstrate that such proceedings have been initiated on account of any failure on part of the assessee to truly and fully disclose all the material facts at the time of framing the assessment.
In the instant case re-assessment proceedings were initiated on the ground that remuneration and interest are not allowable to the assessee in view of the provisions of Section 184(5) of the Act. In the case of CIT vs. Bhanji Lavji [1971 (1) TMI 6 - SUPREME COURT] held that when primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for reassessment.
In the case of CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT] held that the concept of 'change of opinion' must be treated as an in-built test to check abuse of power by AO - The Hon’ble Supreme Court held that Assessing Officer has no power to review. In this case it was held that the AO can re-open the case only when there is “tangible material” would come to the conclusion that there is escapement of income from assessment.
In the case of Jindal Photo Films Ltd. [1998 (5) TMI 20 - DELHI HIGH COURT] held that when between the date of orders of assessment sought to be reopened and the date of forming of opinion by the AO, nothing new had happened, there was no new material which had come on record or no new information had been received by the AO, it was held that this was a case of mere change of opinion which did not provide jurisdiction to the Assessing Officer to initiate proceedings under Section 147 of the Act.
In the case of CIT vs. Soh Kisan Cold Storage [1993 (4) TMI 20 - PATNA HIGH COURT] held that since the AO had initiated re-assessment proceedings on the same set of facts which were present before him while making the original assessment and therefore, it was not permissible for him to initiate re-assessment proceedings u/s 147 of the Act.
In the instant facts we observe that re-assessment proceedings have been initiated beyond the period of four years from the end of the relevant assessment year. Further, it has also not the case of the Department that any fresh or new material had been unearthed which would lead to the conclusion that income had escaped assessment in the original assessment proceedings on account of failure on part of the assessee to fully and truly disclose all material facts during the course of original assessment proceedings. In this case, it is observed that the Assessing Officer is only seeking to make a disallowance on account of re-appreciation of law with respect to the same set of facts which were present before him during the course of original assessment proceedings.
This is a case of mere change of opinion, which is not permissible in law. Accordingly, we are of the considered view that the 147 proceedings are liable to be set-aside, looking into the instant facts. Decided in favour of assessee.
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2023 (12) TMI 646
Bogus LTCG - capital gains arising on sale of shares cannot be regarded as sham profit - addition u/s 69A - unexplained transaction expense u/s 69C - HELD THAT:- As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of CCL Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act is fully corroborated by the documentary evidences. The shares have been credited in the demat account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares.
The prima facie bonafides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG. The case of revenue is that such transactions is an accommodation entry and thus sham. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature.
As decided in the case of Karuna Garg [2022 (12) TMI 858 - DELHI HIGH COURT] as well as Krishna Devi [2021 (1) TMI 1008 - DELHI HIGH COURT] has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry.
As pointed out on behalf of the assessee large number of decisions pronounced by Co-ordinate benches holds the field in favour of the assessee in respect of same scrip of ‘CCL International Ltd.’.
AO in another case namely ‘Parth Yadav’ has framed the reassessment order without making any additions on account of LTCG derived from sale of CCL Ltd. Shares despite reopening the assessment on such ground. Thus, the Revenue itself, in other case, broadly accepted the view point canvassed. On the substratum of the company financials, the assessee has also demonstrated that CCL Ltd. is engaged in substantial business with significant turnover and fixed assets base.
We are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could not dislodge the perception that apparent is not real.
We see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions u/s 69A of the Act is not justified. AO has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. Decided in favour of assessee.
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2023 (12) TMI 645
Addition u/s 56(2)(viib) - excess share premium recorded by the assessee - Revenue has controverted the action of the CIT(A) on the touchstone of Section 56(2)(viib) of the Act towards allotment of equity shares to the subscriber KV Aromatics Pvt. Ltd. which is the existing shareholder, holding 51% of the equity share of the assessee-company - CIT(A) deleted addition - HELD THAT:- The effect of issues of shares to holding company at a premium has been examined by the Co-ordinate Bench of Tribunal in the case of BLP Vayu (Projects-1) Pvt. Ltd. [2023 (6) TMI 209 - ITAT DELHI] essentially observed that where the allotment has been made to existing shareholders, the deeming provisions of Section 56(2)(viib) would not ordinarily be applicable. This apart, the assessee, in the instant case, has also dislodged the observation of the AO that the net worth at the time of issuance of shares were in negative by adducing valuation report. As per the valuation report, the FMV has been determined at Rs. 14.815 per share which is at par with the FMV at which shares have been issued to the holding company. Thus the premium charged is supportable by the valuation report and the premium charged is quite negligible and charged to existing shareholder. Thus effectively, the benefit if any arising to the company in turn benefits to the subscriber having pre-existing right in the company. Thus, in our view, the conclusion drawn by the CIT(A) cannot be faulted either on facts or in law. Revenue appeal dismissed.
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2023 (12) TMI 644
Rectification application u/s. 154 - Period of limitation - DR submitted that the assessee did not file rectification application before the AO as per section 154(7) of the Act which is within four years from the date of intimation u/s.143(1) - HELD THAT:- Relying on the judgment of the Hon’ble Supreme Court in the case of Hindware Industries Ltd. [1995 (1) TMI 415 - SUPREME COURT] we uphold the order of the CIT(Appeals) that the rectification application filed by the assessee is within time as per section 154(7) of the Act. For determining the limitation period u/s. 154(7), the AO has adopted the date of the order u/s. 143(1) as his starting point. He has however ignored the fact that the final response from the CPC is dated 04-12-2018 which was in turn in response to objection raised by the assessee against the demand.
We further note that the CIT(Appeals) has remitted the issue back to the AO for verifying the claim of assessee of brought forward losses and allow the same. We find no infirmity in the order of the CIT(Appeals). Appeal by the revenue is dismissed.
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2023 (12) TMI 643
Penalty u/s 271(1)(c) - sale of land was not disclosed in the original return of income - as per DR if case of the assessee not be selected for scrutiny, then the assessee would not have disclosed the capital gains on account of sale of assets - AO was of the view that the assessee had purchased the aforesaid property for a consideration which was less than the Fair Market Value for the purpose of stamp duty valuation, thus AO added the difference to the total income of the assessee u/s 56(vii)(b) - HELD THAT:- No penalty is leviable u/s 271(1)(c) looking into the facts of the instant case as at the time of sale of aforesaid immovable property the assessee had already made payment of taxes on 26.12.2014 (including tax deducted at source under Section 194 IA of the Act). Accordingly, it is evident that there was no intention of evading payment of taxes on short-term capital gain arising from sale of aforesaid property.
Secondly, it is observed that the additions have been made by the AO by adding the difference by invoking the deeming provisions of Section 56(2)(vii)(b) of the Act by holding that the purchase price of the property was lower than the FMV of the property for stamp duty valuation purposes. Therefore, the addition was made by invoking the “deeming provisions” under Section 56(2)(vii)(b) of the Act and nothing has been brought on record to demonstrate that the assessee had concealed the particulars of income or had deliberately furnished inaccurate particulars of income.
It would be useful to refer to the case of PCIT vs. Sun on Peak Hotel (P.) Ltd. [2018 (6) TMI 1055 - GUJARAT HIGH COURT] wherein the assessee had sold immovable property for a declared sale consideration of Rs. 2.75 crores. During the course of assessment proceedings, the Assessing Officer observed that for purpose of stamp duty valuation, the competent authority had valued the property at Rs. 3.40 crores. The assessee initially opposed the valuation adopted by the stamp valuation authorities but later on accepted liability to pay capital gains on the basis of stamp valuation and in fact filed a revised return of income.
AO passed order of assessment in which, besides making appropriate additions, he also levied penalty under Section 271(1)(c) of the Act. In appeal, the Ahmedabad Tribunal opined that merely because assessee agreed to addition on the basis of valuation made by the stamp valuation authority, this could not be a conclusive proof that sale consideration as per sale agreement was deemed to be incorrect. The Tribunal thus held that penalty cannot be levied on the basis of deeming provision. In further appeal, the Gujarat High Court held that application of sub-Section (1) of Section 50C cannot automatically give rise to penalty proceedings. The Gujarat High Court held that whether once the assessee initially disputed stamp valuation and later on gave up the challenge and offered additional “deemed income” to tax, the impugned order passed by Ahmedabad Tribunal deleting penalty was to be upheld. Accordingly, we are of the considered view that penalty under Section 271(1)(c) of the Act is liable to be deleted in the instant set of facts. - Decided in favour of assessee.
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2023 (12) TMI 642
Set off of the assessee’s net loss against the addition made u/s 68 - NFAC/Ld.CIT(A) after setting off the net loss of the assessee, the balance amount addition sustained by ld CIT(A) - as submitted balance amount is a very small addition, which is covered by the exempted limit i.e., “maximum amount which is not chargeable to tax of Rs. 2.50 lakh”, as the assessee did not file the return of income - HELD THAT:- NFAC/Ld.CIT(A) has sustained the addition - further note that maximum amount which is not chargeable to tax is to the tune of Rs. 2.50 lakh and after deducting this amount of Rs. 2.50 lakh, there is hardly any addition remains.
Also find that assessee has submitted sufficient evidences to prove the genuineness of the transaction. The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration.
For this reliance is placed on the Judgment of Hon'ble Supreme Court in case of Sreelekha Bannerjee [1963 (3) TMI 47 - SUPREME COURT] wherein it was held that “ before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence, which it has in possession ” Therefore, considering the above facts and circumstances, we delete the balance addition - Decided in favour of assessee.
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2023 (12) TMI 641
Addition u/s 14A r.w.r. 8D - AO categorically noted that as assessee has investment in mutual funds such investment cannot be made without incurring any expenditure - HELD THAT:- Merely, the dividend income is received in the bank account of the assessee but the disallowance of investment also requires expenditure. In view of this, we find that the AO has recorded satisfaction before invoking the provisions of Rule 8D of the Rules about the correctness of claim of the assessee. However, we agree with the assessee that the disallowance cannot be exceeded the exempt income earned by the assessee.
In the present case, it is also claimed by the assessee that it has interest free funds available with it in the form of share capital and free reserve, which are far in excess of the amount of investment made in Mutual Fund. For A.Y. 2016-17, assessee has fund of ₹81 crores as share capital and free reserves whereas the investment in Mutual Funds is only ₹15.60 crores. Therefore, there cannot be any disallowance of interest expenditure under Rule 8D (2)(ii) of the Rules. Accordingly, interest disallowance made by the learned Assessing Officer for A.Y. 2016-17 of ₹21,92,534/- is not sustainable. Further, the administrative expenditure disallowed of ₹7,28,155/- is far more excess than the amount of exempt income earned by the assessee of ₹53,873/-. Therefore, we direct the learned Assessing Officer to restrict the disallowance u/s 14A of the Act for A.Y. 2016-17 to only ₹53,873/-.
Coming to the A.Y. 2017-18, it apparent that assessee has earned exempt income of ₹7,59,432/-. Assessee has also issued suo moto disallowance of Demat charges and security transaction tax. However, the learned Assessing Officer computed annual average of monthly averages of the investment made at ₹11,09,38,464/- and therefore, disallowed at 1% thereof at ₹11,09,300/-.We direct the ld AO to compute the disallowance u/r 8 D considering only the on the investment which yielded exempt income during the year. Further, the computational error stated by the Ld AR also needs to be verified. Further disallowances in total including demat charges and STT paid cannot exceed the exempt income. We direct the LD AO to recompute the disallowance accordingly.
Applicability of Amendment made by the Finance Act 2022 , we respectfully following the decision of Honourable Delhi high court in Era Infrastructure limited [2022 (7) TMI 1093 - DELHI HIGH COURT] hold that Amendment made by Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects.
We allow both the appeals of the assessee and direct the ld AO to recompute disallowance.
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2023 (12) TMI 640
Rectification intimation issued by CPC Bangalore u/s 154 denying exemption u/s. 11 - Audit Report in Form No.10B was not filed by the assessee along with return of income - HELD THAT:- The undisputed fact that emerges is that the assessee has filed Audit Report much before the processing of return of income by CPC u/s 143(1). Audit Report was very much available at the time of processing of return of income. The CPC have not taken the same into account while processing return of income u/s 143(1) as well as while dealing with 154 rectification application filed by the assessee.
CIT(A) merely upheld the rectification intimation on the ground the rectification application filed by the assessee would not fall within the ambit of Sec.154 of the Act overlooking the fact that the grievance of the assessee was not even looked into by CPC in the rectification application. Apparently, the applicable exemption has been denied due to the fact that the assessee did not furnish details of audit in the return of income and Form No.10B was uploaded after filing of return of income.
The facts of the present case are covered by the decision of Ahmadabad Tribunal in the case of Shree Charitable Trusts[2023 (7) TMI 282 - ITAT AHMEDABAD] as relying on ASSOCIATION OF INDIAN PANELBOARD MANUFACTURER [2023 (3) TMI 1374 - GUJARAT HIGH COURT] held that filing of Form No.10B would be directory in nature, as such the Assessing Officer are not powerless to allow an assessee to file Audit Report, it not filed along with return, at any time before completion of assessment. Aslo in SHRI CHANDRAPRABHUJI MAHARAJ JAIN JUNA MANDIR TRUST [2019 (8) TMI 363 - MADRAS HIGH COURT] filing of Form No.10 for accumulation of income u/s 11(2) which was filed beyond due date could not disentitle the trust from exemption claimed u/s 11.
Thus we direct jurisdictional AO to verify the Form 10B filed by the assessee and allow the claim of exemption uls.11 of the Act. Appeal stand allowed for statistical purposes.
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2023 (12) TMI 639
Undisclosed cash deposits in bank account - agricultural income declared in the ITR as submitted by assessee to support of source of cash deposits - HELD THAT:- It is not in dispute that the assessee along with his mother owns agriculture land measuring 38 bighas where apple orchards are grown and cultivated by the assessee. The land holdings records have been submitted before the lower authorities. Further, agriculture produce records have now been submitted which shows production of apples. The assessee has also availed cash credit limit from the bank based on joint land holding and the amount has been transferred in his bank account. It is the claim of the assessee that all expenditure and receipts from agriculture operations are undertaken through his bank account. Therefore, taking into consideration the land holding and apples production and the fact that all transactions are routed through the assessee’s bank account, the explanation so submitted by the assessee in support of source of cash deposit of Rs 4 lacs out of agriculture produce is accepted.
Also not in dispute that the assessee has worked as a contractor for HP Forest Corporation and has reported gross receipts u/s 44AD of the Act and which has been accepted by the AO. All the transactions in terms of receipts of money from HP Forest Corporation are credited in the assessee’s bank account and corresponding expenditure are undertaken by way of withdrawals from time to time by way of cash and cheque payments.
As submitted by the assessee that the work is being undertaken in remote far flung areas and given the nature of work, it is essential to keep certain cash in hand which is withdrawn from the bank from time to time and where certain cash so withdrawn is not required, the same is deposited back in the bank account. It has thus been submitted that source of cash deposit of Rs 3.20 lacs is out of earlier withdrawals and which has not been accepted by the AO merely for the reason that there is a time gap of two months in terms of withdrawal and subsequent deposits. In our view, the nature of assessee’s activities and the business exigency of keeping cash in hand has to be considered instead of just looking at the entries in the bank account on a standalone basis.
The entries in the bank account are reflection of the business activities so undertaken by the assessee and unless the nature of the business is considered, the entries on standalone basis won’t provide a realistic picture of the transactions so undertaken by the assessee. Further, where the revenues from contract activities and corresponding expenditure are not disputed and there are regular deposits and withdrawals from the same bank account, the explanation of the assessee is found to be reasonable and merely for the reason that there is time gap of two months, the explanation so furnished cannot be rejected.
The assessee has duly explained the nature and source of cash deposits in his bank account. Appeal of the assessee is allowed.
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2023 (12) TMI 638
Assumption of jurisdiction u/s. 154 by AO - denial of deduction on account of Sumptuary Allowance for computing the income from Salary - assessee is an individual and is an employee under the West Bengal Judicial Services - HELD THAT:- AO has referred to the CBDT instruction dated 24.09.1966 in order to treat sumptuary allowance as entertainment allowance and made the said adjustment. Since the facts relating to sumptuary allowance is appearing in the revised return itself and it was not any new information but for computing the correct income and also for rectifying the apparent mistake committed while framing the assessment, ld. AO has made the said adjustment u/s 154 of the Act. We are therefore, of the view that legal issue raised by ld. Counsel for the assessee has no merit and hence, ground nos. 1 & 2 are accordingly dismissed.
Merits of the case as observed that assessee has relied on the decision of Shri Ajay Godara vs. ITO [ 2018 (6) TMI 1845 - ITAT JAIPUR] wherein similar issue of sumptuary allowance was for consideration and this Tribunal held that sumptuary allowance is exempt from payment of tax - Thus we are inclined to hold in favour of the assessee and delete the addition.
Assessee appeal is partly allowed.
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2023 (12) TMI 637
Deduction u/s 80IA(4)(iii) - Correct head of income - lease rental earned from the leasing of units in industrial park qualifying for deduction u/s 80IA(4)(iii) - AO classified the rental income and treated the rental income from notified buildings under the head “Profits or gains from business and profession” as against “income from house property” thereby resulting in adjustment of claim of deduction u/s 80IA - AR submitted that the ld AO had accepted the taxation of lease income earned from non- SEZ buildings under the head “income from house property” and dispute is only with reference to lease income from SEZ buildings as notified u/s 80IA - HELD THAT:- As the rental income from the very same buildings having been assessed and accepted under the head “Income from House Property” in the past, the mere fact that in the year under consideration, the assessee has claimed deduction u/s 80IA in respect of notified buildings, there is absolutely no justification or basis for changing the head of income and same is self-contradictory and inconsistent. It is worthwhile to clarify that the observation of the ld. AO that the usage of terms 'profits and gains derived from such business' in section 80IA(1) means that eligible income must be assessable under the “Profits or gains of Business and Profession' is irrational and misconceived as deduction is in respect of income from notified project and not head specific.
It may be appreciated that that the benefit of deduction u/s 80IA of the Act is available in respect of income derived from industrial park which may be assessable under any head of income and as such the interpretation of the ld. AO is highly restrictive and contrary to the purpose and spirit of incentive provision. In fact, the bare language of the section 80IA of the Act does not even talk about any specific head of income and the entire emphasis is that the income must be derived from development, operation or maintenance of industrial park.
In any case, we find that the very same issue of claiming deduction u/s 80IA of the Act for the lease rental income assessable under the head “income from house property” came up for adjudication before the coordinate bench of this Tribunal in the group concern of the assessee in ACIT vs DLF Assets Ltd [2022 (5) TMI 676 - ITAT DELHI].
It is not in dispute that the assessee had furnished the Chartered Accountant Certificates in Form 10CCB for claiming deduction u/s 80IA of the Act and that these certificates are enclosed together with detailed workings.
Similarly, the claim of the assessee for AYs 2018-19 and 2020-21 were accepted by the ld AO in the scrutiny proceedings u/s 143(3) of the Act. For AY 2019-20, the case of the assessee was not selected for scrutiny. Hence, respectfully following the aforesaid decision of this tribunal and also the subsequent stand of the ld AO in the case of the assessee and also the decision of the ld AO in the immediately preceding year i.e. 2010-11, the ground No. 2 raised by the assessee is hereby allowed.
Excluding signage income from the eligible income qualifying for deduction u/s 80IA - assessee has derived income from the tenants occupying the notified industrial park and the same duly forms part of the income taxable under the head “Income from House property” - AO sought to treat the said signage income to be in the nature of “income from other sources” and as such not eligible for claim of deduction u/s 80IA of the Act, which action was upheld by the ld CIT(A) - HELD THAT:- The signage income is derived from tenants occupying the notified industrial park and thereby partake the same character of the lease rental income so as to make it taxable under the head “Income from house property”. We find that this issue is squarely covered by the decision of this tribunal in assessee’s own case for AY 2010-11 - It is not in dispute that the signage income is derived from the tenants occupying the building forming part of the notified industrial park. Hence, the same becomes inextricable connected with building connected with the notified industrial park and partakes the same character of lease rental income derived from the tenants thereon. In view of the aforesaid observations and respectfully following the judicial precedent relied upon herein above, the ground no. 3 raised by the assessee is hereby allowed.
Deduction u/s 80IA in respect of amount forfeited on properties, promotion income, Miscellaneous-sale of scrap by treating the aforesaid income as “Income from other sources” as against the assessee’s claim being eligible income eligible for deduction u/s 80IA of the Act under the head “facilities management services” - HELD THAT:- The aforesaid incomes have direct nexus with leasing and maintenance of the industrial park and must be construed as income derived from business and developing, operating or maintaining the industrial park which is notified by the Central Govt. We find that the lower authorities had sought to exclude the same on technical ground that such income are taxable under the head “Income from other sources” and as such not eligible for deduction u/s 80IA of the Act. This aspect has already been addressed above wherein, it has been held that for the purpose of claim of deduction u/s 80IA of the Act, the income must be derived from such notified industrial park irrespective of head of income under which it had been taxed. Accordingly, we have no hesitation in directing the ld AO to grant deduction u/s 80IA of the Act in respect of the aforesaid three items totaling to Rs. 2,08,66,023/-. Accordingly, ground raised by the assessee is allowed.
Denying deduction u/s 24(a) - Assessee company has derived the signage income from the tenants from the space owned by the assessee and not from the outsiders as it allowed tenants to use the space at the atrium/ different floors for putting signage, the signage income has to be treated as income from house property' and as such is eligible for deduction u/s 24(a) of the Act @ 30% of such income.
Allocation of expenses to eligible and non-eligible income without any cogent reason while computing the income eligible for deduction u/s 80IA - It is not in dispute that the assessee has placed on record the audit certificate in Form 10CCB for supporting the claim of deduction u/s 80IA of the Act together with the detailed workings thereon. The direct expenses incurred have been allocated between the eligible and non eligible units on actual basis and indirect expenses have been apportioned between these units in the ratio of turnover. The ld AO in his order had not given any rational basis for re-allocating the expenses and simply proceeded to reduce the claim of deduction u/s 80IA of the Act thereon.
This action of the ld AO was also upheld by the ld CIT(A) without any basis and by ignoring the fact that the audit certificate containing the detailed workings of claim of deduction u/s 80IA have already been filed by the assessee before the ld AO. In any case, we find that the issue would be consequential in nature pursuant to the decision given by us in the aforesaid grounds. Accordingly, we direct the ld AO to accept the basis of allocation and apportionment of expenses as given by the assessee. Accordingly, ground raised by the assessee is allowed.
TDS u/s 195 - Disallowance u/s 40(a)(i) - payments were made towards sponsorship renewal fee to Coronet Global Inc (USA Based company) and that the said party does not have Permanent Establishment in India - HELD THAT:- The lower authorities without considering this submission and without countering this fact stated by the assessee had summarily rejected the plea and proceeded to make disallowance u/s 40(a)(i) of the Act. We find that the assessee had duly placed on record the audit certificate in Form 15CB together with the invoices raised by the payee from where it has been categorically stated by the auditor that the payments made by the assessee constitutes business profits in terms of Article 7 of the Indo-US DTAA and in view of the fact that the payee does not have a PE in India, the assessee is not bound to deduct tax at source while making the said payment. Further, we find that the sponsorship fee paid by the assessee is related to the events carried out outside India.
The payment of membership fee to overseas organization and the sponsorship fee cannot be said to accrue or earned in India in the absence of business connection with PE in India. This fact has not been controverted by the revenue before us with cogent evidences. Accordingly, we hold that the payments made by the assessee are not liable for deduction of tax at source and consequentially, the disallowance made u/s 40(a)(i) of the Act is hereby directed to be deleted.
Workings of budgeted cost of construction on estimation basis for the construction project under Percentage Of Completion Method (POCM) - assessee contended before the ld CIT(A) that computation of percentage of completion and revenue recognition done by the ld AO is based on incorrect figures taken in the assessment order - HELD THAT:- CIT(A) concluded that the estimated budgeted cost of construction arrived by the ld AO is incorrect. The ld CIT(A) also observed that the assessee further revised budgeted cost of construction including project management consultancy and interest as on 31.03.2013 of Rs. 780.41 crores and as on 31.03.2014 to Rs. 784.64 crores which had been duly accepted by the ld AO and no disallowance on account of revised budgeted cost of construction has been made in those years. With these observations, CIT(A) deleted the addition made by the ld AO for the year under consideration. The factual findings given by the ld CIT(A) as stated herein above were not controverted by the revenue before us. Hence, we do not find any infirmity in the order of the ld CIT(A) granting relief to the assessee. Accordingly, the ground raised by the revenue is dismissed.
AO denied relief u/s 80IA in the income in the form of “costing recovery” - We have already held that the income in the form of “facility management service” would be liable for deduction u/s 80IA of the Act irrespective of head of income in which it is offered to tax by the assessee. In simple terms, the income in the nature of “costing recovery” is nothing but recovery of charges towards maintenance and allied services which could be ascertained only at the end of the year and hence, they form intrinsic part of the “facility management services”.
Disallowance of interest expenses pertaining to non SEZ unit amalgamated with the assessee - HELD THAT:- It is not in dispute that borrowings reflected in the erstwhile balance-sheet of non SEZ unit of M/s. Caraf Builders and Construction Pvt. Ltd were utilized for the purpose of investment in property which had yielded rental income to the assessee. The nexus of borrowed funds and the investment in property are established beyond doubt and not disputed by the revenue before us, hence the interest expenditure paid on lease borrowings would become squarely allowable as deduction in full while computing the “Income from house property” as the assessee had duly offered rental income from the said property under the head “income from house property” and taxed as such by the ld AO.
Merely because the assessee itself had bifurcated the net interest component of Rs. 66.11 crores partly under house property and partly under the head income from business, the legal position for allowability of interest cannot be compromised. Since the borrowings have been utilized for investment in property; that the said property had yielded rental income to the assessee which had been offered to tax as income from house property and assessed as such by the ld AO, the interest paid on the aforesaid borrowings becomes fully allowable under the head “income from house property” itself. Hence, we direct the ld AO to allow the entire interest expenditure under the head “income from house property” and recompute the income accordingly. Hence, ground raised by the assessee is allowed.
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2023 (12) TMI 636
TP Adjustment - selection/rejection of certain comparables - assessee has to be treated as low end BPO service provider - HELD THAT:- Acropetal Technology Ltd. - As per the information available in the annual report, the foreign exchange earning activity involves export in software services. Further, in the Note to Accounts it is stated that the company is engaged in the development of computer software. The segmental break-up at page 109 of the paper-book, though, mentions three segments, however, there is no ITES segment. Thus, keeping in view the factual position, as discussed above, we are of the opinion that this company, being functionally different from the assessee, is not comparable. The decisions relied upon by learned counsel for the assessee support our view. Accordingly, we direct the Assessing Officer to exclude this company.
Infinity.com Financial Securities Ltd. - Undisputedly, in the fee income segment, the company has earned revenue from research services in relation to financial markets. Thus, in our view, the company is similar to the assessee, as the assessee is also involved in research services. As regards the other contentions of the assessee that forex filter of 75% should be applied and as far as lack of information regarding nature of foreign exchange earnings is concerned, we do not find merit in them. Accordingly, we uphold the selection of this comparable.
Eclerx Services Pvt. Ltd. - We are convinced that it is engaged in high end KPO services, hence, under no circumstances, can be comparable to the assessee. Having noticed material difference in the functional profile, the Tribunal in assessee’s own case in assessment year 2007-08 [2017 (12) TMI 1731 - ITAT DELHI], has held that it cannot be a comparable to the assessee. There being no difference in the factual position involved in the current assessment year, we hold that this company cannot be treated as comparable to the assessee. Accordingly, we direct the Assessing Office to exclude it.
Genesys International Corporation Ltd. is functionally different from the assessee as the nature of services provided are distinct and highly specialized. Considering this aspect, the Tribunal in assessee’s own case in assessment year 2008-09 passed in [2018 (6) TMI 1844 - ITAT DELHI] has excluded it as comparable.
ICRA Techno Analytics Ltd. - On going through the annual report of the company placed in the paper-book, we have observed that it provides wide spectrum of services including software development services and engineering design services. However, revenue has been reported without providing any segmental break-up. Thus, in our view, complete information relating to the service segment of the company is not available. That being the factual position on record, the company cannot be treated as a comparable. In this regard, we are supported by the decisions relied upon by learned counsel for the assessee. Accordingly, we direct the Assessing Officer to exclude this company.
R Systems International Ltd. (BPO Segment) - Departmental authorities have rejected this company primarily for the reasons that sufficient data relating to the company is not available in public domain and it is a loss making company. However, before us, the assessee has submitted that the annual report of the company for the assessment year under dispute is available in public domain and it has not incurred loss in the current year and in the previous two assessment years, hence, it cannot be considered to be a persistent loss making company. In our considered opinion, the aforesaid contention of learned counsel for the assessee requires factual verification. Accordingly, we restore the issue to the Assessing officer for examining assessee’s claim and decide it after providing reasonable opportunity of being heard to the assessee.
Working capital adjustment - assessee has submitted that in assessment years 2007-08, 2008-09, 2009-10 and 2012- 13, the TPO himself has allowed working capital adjustment - HELD THAT:- We direct the Assessing Officer to examine assessee’s claim, and in case, it is found that similar adjustment was allowed in assessment years 2007-08, 2008-09, 2009-10 and 2012-13, the same may be allowed to the assessee after examining the relevant facts. Needless to say, the assessee must be provided an opportunity of being heard before deciding the issue.
TDS u/s 195 - Disallowance u/s 40(a)(i) - assessee has paid the amount to its AE towards management fee - whether payments made, being in the nature of Fees for Technical Services (FTS)? - HELD THAT:- As decided in own case [2022 (10) TMI 159 - ITAT DELHI] the services received by the assessees are general managerial services, hence, do not qualify the test of technical/consultancy services to satisfy the definition of FIS under Article 12(4) of the Tax Treaty. Thus, while considering the nature and taxability of corresponding receipts at the hands of the payee, the Tribunal has held that the amount is not taxable in India, in our considered opinion, there is no legal obligation on the assessee to withhold tax at source under Section 195 of the Act while remitting the management fee to the AE. This is so, because, section 195 itself is quite explicit in its language while providing withholding of tax in respect of any payment, which is chargeable to tax in India. Since, the management fee paid by assessee is not chargeable to tax in India in terms with Article 12(4) of India-USA DTAA, as held by the Co-ordinate Bench in case of the payee, the assessee was not required to deduct tax at source while making such payment - disallowance made under Section 40(a)(i) unsustainable - Decided in favour of assessee.
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2023 (12) TMI 635
Challenging the authority of Additional Commissioner of Income-tax Act in passing the assessment order - DR has submitted that though the notices issued u/s 143(2) of the Act are available on the assessment record but the relevant notifications authorising the Additional Commissioner of Income tax as AO or the order of elevation of the Joint Commissioner to the post of Additional Commissioner of Income-tax are not available on assessment record because same were part of administrative procedure and therefore were not placed on the assessment record. He submitted that despite making thorough search of all record of the relevant authorities, those notifications / promotion orders could not be traced after a lapse of substantial period of more than 14 years.
HELD THAT:- We find that in the case of Stock Traders P Ltd case the assessee had placed reliance on the decision of the Tribunal in the case of Tata Sons Ltd [2017 (12) TMI 297 - ITAT MUMBAI] and Tata communication limited [2019 (8) TMI 1446 - ITAT MUMBAI] but the Tribunal after considering the submission of the parties, rejected the additional ground challenging the authority of the Additional Commissioner of income-tax, in passing the assessment order. Thus, we dismiss the additional ground raised by the assessee.
Deduction u/s 80IA - Taxability of renovation and modernization levy collected by the assessee from customers - HELD THAT:- We find that the issue in dispute is squarely covered by the decision of the Coordinate Bench of Tribunal in the case of the assessee in [2007 (4) TMI 396 - ITAT MUMBAI]. Since the issue of de-commissioning levy being different from the present levy of Renovation and modernization, which is covered against the assessee, thus, to maintain judicial discipline, we are not following the precedent in the case of decommissioning levy and prefer to follow the finding of the Tribunal (supra) on issue of renovation and modernization levy only.
We also note that the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed deduction on the same for the purpose of section 80IA of the Act. Once the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipts as not taxable.
Research & Development levy collected by the assessee - research and development levy has been discussed by the AO along with the renovation and modernization levy and added the same as income of the assessee - CIT(A) on the other hand, following the finding of his predecessor in assessment year 1997-98 upheld the order of the Ld. AO - HELD THAT:- We also note the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed deduction on the same for the purpose of section 80IA of the Act. Once, the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipt as not taxable
The issue in dispute in the year under consideration being identical to the issue in dispute raised in assessment year 1997-98, therefore, respectfully following finding of the Tribunal(supra), the ground Nos. 3 &4 of appeal of the assessee are accordingly dismissed.
De-commissioning levy collected by the assessee - HELD THAT:- We find that Hon’ble High Court and the Tribunal has given finding on the issue of claim of interest expenditure for utilisation of the funds out of the decommissioning fund on the ground that said interest was credited to the decommissioning fund and when said fund has been utilized for the purpose of the business of the assessee, interest in respect of use of fund was eligible for deduction. The Hon’ble High Court has observed that the situation is akin to the assessee borrowing fund from the market and utilising such borrowed funds for the purpose of the business and paying interest to the creditors. Thus, as far as the issue of disallowance of interest expenditure of ₹ 1836.71 lakhs is concerned, the issue is squarely covered in favour of the assessee and therefore the finding of the Ld. CIT(A) to that extent is set aside and matter is restored to the AO for following the decision of the Hon’ble Bombay High Court [2019 (1) TMI 868 - BOMBAY HIGH COURT] and verify whether interest income credited has already been taxed, then claim of interest expenditure has to be allowed to the assessee. But as far as the issue of receipt collected by way of decommissioning charges and credited separately to decommissioning fund is identical to collection of the levy of renovation and modernisation fund, which we have upheld following the decision of the Tribunal in earlier years in preceding Para, and therefore to have consistency in our view, we uphold the addition treating the receipt of decommissioning charges as income in the hands of the assessee. We also note that the assessee in assessment years i.e. 2004-05, 2005-06 and 2006-07 has admitted the collection of different levies as its income and claimed reduction on the same for the purpose of section 80IA of the Act. Once the assessee itself has admitted the receipt as income in subsequent years, we do not find any justification on the part of the assessee in contesting those receipts as not taxable. The ground No. 5 of the appeal of the assessee is accordingly dismissed, whereas the ground No. 6(six) of the appeal of the assessee is allowed for statistical purpose.
Considering the interest income, consultancy receipt and other income under the head “income from other sources” rather than adjusting the same against the “expenditure incurred on construction of plants” during the year under consideration - During the course of hearing, the learned counsel for the assessee was asked to justify as how the interest received from employees for mobilization advances was connected to the construction of project. Similarly, he was asked to justify as how the consultancy receipts were connected with the construction of plants. Similarly, regarding other receipts under the head ‘other income’ reported as premium received on bonds, the ld Counsel was asked to justify as how same was connected with the construction expenditure. However, the Ld. Counsel for the assessee failed to file any documentary evidence in support of claim that those incomes were having nexus with the construction of the plants and therefore the plea of the assessee is accordingly rejected. We do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same.
Disallowance of prior period expenses - assessee submitted that total turnover of the assessee was around Rs. 1447.72 crores, whereas the total prior period expenses are only ₹ 11.55 crores, which is approximately 0.80%, which being normal and a small percentage, considering the size of organization and the locations, it should be allowed to the assessee - HELD THAT:- Before us, also no such detail of the legal expenses amounting to Rs. 7 lakhs has been filed and therefore, we do not have any option other than to uphold the disallowance made by the Assessing Officer.
Disallowance of employee state insurance (ESI) and provident fund (PF) u/s 43B - HELD THAT:- Since, the issue in dispute of payment of employees contribution to ESI/PF after the due date under the relevant Act has been finally settled by the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] and therefore employee’s contribution ESI/PF paid after due date under the relevant is not allowable. Before us, the Ld. Counsel for the assessee claimed that said amount of disallowance include employee’s as well as employer’s contribution, however no such breakup of the amount has been given before us,, therefore, we remit this matter back to the Assessing Officer for verification and if this amount include any employer’s contribution to ESI/PF, then the same may be allowed subject to provisions of section 43B of the Act i.e. paid before the due date of filing of the return of income and employee’s contribution should be considered
Applicability of section 115JA over the assessee who is an entity incorporated by the Government of India - HELD THAT:- As decided in Kerela State Electricity Board Vs DCIT reported in [2010 (11) TMI 127 - KERALA HIGH COURT] has firstly, held that the assessee was required to maintain its books of accounts in a manner specified by the Central Government, but not in the manner specified in the Companies Act, 1956, which is the requirement of provisions of section 115JA of the Act, thus section 115JA should not be applicable over government companies. Secondly, referred to the CBDT Circular (supra) and observed that Companies engaged in business of electricity generation were stated to be exempted from the provision of section 115JA of the Act and such an understanding was binding on the Income-tax authorities. Further, held that assessee or body similar, who are totally owned by the Government, have no shareholders, thus profit would be for the benefit of the public at large and taxation being meant for the welfare of the people, the mischief sought to be remedied by way of amendment (i.e. introduction of section 115JA/115JB becomes irrelevant, therefore, the fiction of section 115JB( in our case section 115JA) cannot be pressed into service against the assessee.
The assessee before us being a company wholly owned by the Government of India, therefore, in view of the decision of the Hon’ble Kerala High Court (supra), as upheld by the Hon’ble Supreme Court [2022 (10) TMI 363 - SC ORDER] we hold that the assessee is not liable to be taxed under the provisions of section 115JA of the Act. Accordingly, the ground of appeal of the assessee is allowed.
Disallowance of provision for the loss/obsolete stock - HELD THAT:- If a wrong claim has been allowed in the earlier year same cannot be ground for allowing in the year under consideration also. The Hon’ble Supreme Court in the case of Distributor (baroda) Private Limited [1985 (7) TMI 1 - SUPREME COURT] held that there is no heroism in continuing the error and it should be corrected when pointed out. Though the learned counsel of the assessee has relied on various decisions cited, but the factual information of the list of such stock and how same became obsolete was not submitted before the lower authorities. Before us also no such evidences have been submitted to establish that relevant stock became obsolete. Unless properly identified the obsolete stock or a scientific way of making provision for such an obsolete stock is produced with documentary evidence, the claim of the assessee cannot be allowed. Therefore, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute, and accordingly, we uphold the same. The ground of the appeal of the assessee is dismissed.
Not allowing the deduction for expenditure incurred in respect of income which has held to be income assessable under the head “income from other sources”- HELD THAT:- We are of opinion that under the provisions for assessment of the income under the head ‘income from other sources’, the assessee is eligible for expenses incurred for earning such income. Accordingly, we restore this ground to the file of the Assessing Officer for verification of the claim of the assessee and decide in accordance with law.
Crystallisation of the expenses - HELD THAT:- CIT(A) has given detailed bifurcations of the such expenses claimed by the assessee. In case of TAPS and RAPS, the assessee failed to file any evidence to show that expenses crystallised during the year under consideration and therefore the CIT(A) has upheld the disallowance. Out of the expenses related to MAPS CIT(A), deleted the repayment of electricity charges recovered from the employees, but upheld the disallowance of repair and maintenance expenses and reconciliation adjustment entry for material received in earlier years due to to lack of documentary evidence to support crystallisation of expenses in the year under consideration.
Similarly in respect of KAPS, the Ld. CIT(A) has deleted the addition for trade tax and bonus, whereas in respect of repair and maintenance and leave salary and pension contribution, the assessee failed to justify crystallisation of expenses in the year under consideration. Similarly the Ld. CIT(A) has disallowed the miscellaneous expenses and corporate office expenses due to lack of evidence supporting crystallisation of expenses in the year under consideration. In our opinion, the finding of the Ld. CIT(A) on the issue in dispute is justified and we do not find any error in the same, accordingly we uphold the same.
Assessee has claimed for setting off of prior period expenditure against prior period Income. In our opinion, when the items of the prior period income are different than the nature of the expenditure, same cannot be allowed to be set off against the prior period income, which has been declared by the assessee on accrual basis. As far as claim of the assessee for allowing the said prior period Expenses in respective financial years, we are of the opinion that it is open for the assessee to avail remedy provided under statutory provisions of the Act for claim of such expenses in relevant financial /assessment years.
Disallowance of extraordinary items written off - HELD THAT:- We find that Ld. CIT(A) has observed that no explanation or documentary evidence in respect of the claim of the expenditure was filed before the lower authorities. The Ld. CIT(A) has also observed that any amount incurred on account of current repairs to the premises can be allowed as revenue expenditure whereas the amount incurred has been claimed by the assessee for construction of a capital asset. In our opinion, the finding of the Ld. CIT(A) on the issue in dispute is well reasoned, and therefore we uphold the same. The ground of the appeal of the assessee is accordingly dismissed.
Disallowance of provision for loss /obsolete stock - We note that neither itemised detail of obsolete stock was filed nor any evidence was filed to show that any of those items had been disposed off being below cost in succeeding years. In absence of any documentary evidence filed by the assessee before the lower authorities, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly uphold the same. The ground of the appeal of the assessee is accordingly dismissed.
Denial of deduction u/s 80IA in respect of the interest income and miscellaneous income - deduction on interest income earned from giving loans to staff working at undertaking namely KAPS u/s 80IA - HELD THAT:- The activity of providing loans or advances to the employees working at the eligible unit, is not part of the business activity of the undertaking. It might be a welfare activity on the part of the assessee but interest earned on such loans and advances to a staff cannot be any income derived from the operation of the power plant. In our opinion finding of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same, accordingly we uphold the finding of the Ld. CIT(A) on the issue in dispute.
Regarding the deduction in respect of the miscellaneous income, no details have been submitted by the assessee before the lower authorities, therefore Ld. CIT(A) is justified in rejecting the claim of deduction under section 80IA in respect of miscellaneous income. The ground No. nine of the appeal of the assessee is accordingly dismissed.
Exclusion of net interest income from the profit of the business for the purpose of section 80IA instead of gross interest income excluded by the lower authorities - HELD THAT:- The interest income earned from loans and advances to the staff has been excluded by the lower authorities for the purpose of deduction under section 80IA of the Act. In this ground, the assessee is claiming that interest expenditure should be adjusted against the interest income earned. The assessee has not given the details of the interest expenditure incurred in respect of the borrowing. If the borrowings were made for the purpose of extending loans and advances to the staff, then same could be netted off against the gross interest income, but in absence of any such nexus of the interest expenditure with the interest income earned, claim of netting off cannot be allowed.
Disallowance of prior period expenses - CIT(A) has analysed all the expenses under the prior period Expenses and consider the expenses on the basis whether the same were crystallised in the year under consideration or not. Wherever the assessee failed to file any evidence in support of crystallisation of the expenses in the year under consideration, he upheld the disallowance. Before us no documentary evidence supporting crystallisation of those expenses in the year under consideration has been filed. Therefore, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the finding of the Ld. CIT(A).
Disallowance of expenditure of research and development levy fund - HELD THAT:- The fact that expenditure was incurred for capital asset, which was installed at BARC, has not been disputed by the assessee. Evidently said expenditure is in the nature of the capital expenditure and not allowable as revenue expenditure u/s 37 of the Act. Accordingly, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and we uphold the same. The ground of the appeal of the assessee is accordingly dismissed.
Apportionment of research and development expenditure to the units which were eligible for deduction u/s 80IA - CIT(A) has observed that research and development expenses have been incurred by the office. Before us the assessee has not provided details of specific R&D activity carried out by the head office and whether same was not related to the electricity production activity of the plant eligible for deduction under section 80IA of the Act. In absence of any such information, the action of the lower authorities in allocating the said R & D expenditure towards the profit from the undertaking eligible for deduction under section 80IA is justified and we do not find any error in the order of the Ld. CIT(A) in upholding the allocation of the R&D expenditure to the eligible units.
Disallowance u/s 14A - HELD THAT:- Prior to assessment year 2008-09, rule 8D of Income-tax Rules, 1962 (in short the rules) was not in operation and it was discretion of the AO to disallow expenses corresponding to earning of exempted on a reasonable basis. In the case, the AO has disallowed the administrative expenses in proportion to the ratio of exempted income to the total turnover of the assessee. But as per the submission of the assessee, assessee is receiving tax-free interest income on bonds invested in state electricity board, and no efforts except depositing the cheques of the interest were deposited in the bank.
In such circumstances, we are of the opinion that disallowance proportional to the receipt of interest is too excessive. At maximum, some percentage of administrative expenses on salary, office establishment expenses etc would be sufficient to cover expenses corresponding to earning of exempted income. Accordingly, we set aside the finding of the CIT(A) on the issue in dispute and restore the matter to the file of the Assessing Officer for making disallowance on some reasonable basis . The assessee is directed to provide details of expenses including office establishment expenses related to employees engaged in work related to earning of exempted income so that Assessing Officer after verification of the same may be in position to decide the quantum of disallowance on reasonable basis.
Depreciation on a reactor building at higher rate being classified as plant and machinery - CIT(A) has not given a specific finding on the issue of classification of the building under the category of plant and machinery by the assessee. But as far as facts related to the issue in dispute as whether the building which is part of the reactor could be termed as ‘plant and machinery’, available on record, therefore, both parties argued before us to decide the issue on merit. In our opinion, the ld. Assessing Officer has followed the ratio of the Hon’ble Supreme Court in the case of M/s Anand theatre [2000 (5) TMI 4 - SUPREME COURT] and referred to the relevant provisions of the Act, we do not find any error on the part of the Assessing Officer in restricting the depreciation at the rate of the 10% of written down value of the building under reference. No other decision contrary to the decision cited by the Assessing Officer has been brought to our knowledge; therefore, we uphold the finding of the Assessing Officer. The ground of the appeal of the assessee is accordingly dismissed.
Direction given by the Ld. CIT(A) for verification of the supplementary tax audit report in respect of the claim of the additional depreciation - HELD THAT:- The reason for difference was explained as misclassification of the asset and arithmetical error while computing the written down value. Before the Ld. CIT(A) the assessee filed ‘engineer’s certificate’ for valuation of plant and machinery eligible for depreciation at the rate of the 80% and 100 % (hundred percentile). It was submitted by the assessee that the above errors were identified during the tax audit for assessment year 2008-09. A copy of the relevant annexure to tax audit report for assessment year 2008-09 was also submitted during the course of the appeal before ld CIT(A).
As further submitted that assessee obtained supplementary tax audit report from the tax auditor in which revised claim of the depreciation was certified by the auditor and reason for the claim of additional depreciation were stated. In view of the additional supplementary tax audit report, the Ld. CIT(A) directed the AO to verify and allow the ground of the appeal. In our opinion, there is no error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. The ground No. 30 of the appeal of the assessee is accordingly dismissed.
Reduce of expenses from business profits for the purpose of 80-IA deduction - HELD THAT:- We find that Ld. CIT(A) considered the submission of the assessee that each unit of the assessee is a profit centre and all the expenses relating to the unit are captured at the respective unit and only unidentifiable head office expenses are allocated to power stations and projects in the ratio of annual net sale of electrical energy and annual capacity outlay. In our opinion, the assessee has allocated head office expenses not identified to particular unit on the basis of a reasonable allocation key. Accordingly the Ld. CIT(A) has held that no portion of said administrative expenses ought to be directed in the computation of the deduction under section 80IA of the Act. In our opinion, there is nowhere in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same.
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2023 (12) TMI 634
TP Adjustment - Global Corporate Client Management Fees by the assessee to its associate enterprise - Partial adjustment in respect of international transaction upheld by TPO-DRP - TPO commented that the services received by the assessee towards GCC charges were not specific in nature for which any separate charge need to be paid by the assessee to its associate enterprise - DRP has restricted the disallowance to the extent of 50% of the amount received by the AE - HELD THAT:- Since, during the year under consideration also the TPO/DRP has not followed any method u/s 92(1) of the Act for making adjustment in respect of international transaction pertaining to payment of Global Client Management Fees and similar to the earlier year [2022 (4) TMI 1574 - ITAT MUMBAI] the same was done merely on adhoc basis, therefore, following the decision of coordinate bench as referred above the TPO is directed to delete the impugned transfer pricing adjustment in respect of payment Global Client Management Fees. Therefore, these ground of appeal of the assessee are allowed.
Disallowance of Travelling and conveyance expenses - AO on analysis of excel format of ledger A/c of travelling and conveyance observed duplication in the claim of expenses under the head transportation, thus disallowed 20% of expenses - HELD THAT:- In the profit and loss account both the items have been separately debited and assessee claimed that it had not claimed same expenditure twice and both the expenditure were claimed under the respective head with different nature and purpose.
After considering the material placed on record we consider that the assessing officer has only mentioned in respect of duplication of expenses under the head transportation without giving any reference of such expenses already claimed by the assessee under the head travelling expenses. Therefore, we direct the AO to decide this issue afresh after verification/examination of the specific supporting detail maintained by the assessee in respect of claim of expenditure separately made in travelling and transportation head. Therefore, this ground of appeal of the assessee is allowed for statistical purposes.
Disallowance of miscellaneous expenses - AO after analyses of the material submitted by the assessee observed that assessee has claimed expenses of capital nature under the head miscellaneous expenses, thus disallowed 20% of expenses - HELD THAT:- We find that assessing officer has made adhoc disallowance without specifically referring the exact amount of capital expenditure debited to the profit and loss account. Therefore, we restore this issue to the file of the assessing officer for deciding afresh to determine the exact amount of expenditure of the nature of capital expenditure, after verification of relevant documentary evidences maintained by the assessee. Therefore, this ground of appeal is allowed for statistical purposes.
Short grant of TDS credit tax - This ground of appeal of the assessee is restored to the file of the assessing officer for deciding after verification of the relevant supporting material to be furnished by the assessee. Therefore, this ground of appeal is allowed for statistical purpose
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2023 (12) TMI 633
TP Adjustment - Comparable selection - whether huge profit or a huge turnover, ipso facto lead to company's exclusion? - HELD THAT:- As following the foot prints of Obopay Mobile Technology India Private Ltd [2018 (7) TMI 2129 - KARNATAKA HIGH COURT], Avaya India (P.) Ltd [2019 (7) TMI 1279 - DELHI HIGH COURT] and in the case of Cadence Design Systems (I.) (P.) Ltd [2018 (4) TMI 1574 - ITAT NEW DELHI] we hold that the turnover and brand name are relevant criteria for choosing companies as comparables in determining the ALP in Transfer Pricing cases. We, therefore, direct the learned Assessing Officer/learned TPO to exclude the entities[Infosys BPM Services Pvt. Ltd., and eClerx Services Ltd] from the list of comparables as per above criteria.
Denial of working capital adjustment - As in view of the fact that for the assessment years 2009-10 and 2011-12, working capital adjustment is said to have been granted to the assessee apart from in sister concern’s case of Parexel International Clinical Research Private Limited [2023 (3) TMI 1429 - ITAT BANGALORE] we set aside this issue to the file of the learned Assessing Officer/learned TPO to decide the issue afresh in the light of the above, after obtaining necessary information from the assessee. Grounds are accordingly treated as allowed for statistical purposes.
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2023 (12) TMI 632
Appeal of the assessee ex-parte decided by CIT(A) - non compliance of the notices issued and not furnishing the documentary evidences - Addition of unexplained credits u/s 68 - HELD THAT:- Since the impugned order of the ld. CIT (A) was passed ex parte for non compliance of the notices issued and not furnishing the documentary evidences, by upholding the assessment order passed under section 143(3) read with section 147 of the IT Act, whereby the AO made addition on account of unexplained credits under section 68, therefore, in the totality of facts and circumstances of the case and in the interest of justice, we are of the view that it will be reasonable to provide one more opportunity to the assessee.
We, thus, set aside the ex-parte order of the ld. CIT (A) and restore the matter back to the file of the ld. CIT (A) for fresh adjudication after providing a reasonable opportunity of being heard to the assessee. The assessee is granted one more opportunity to represent his case before the ld. CIT (A) and directed to file necessary documents/evidences as required by the ld. CIT (A). In case the assessee fails to appear before the ld. CIT (A), he may decide the appeal on the basis of the material available on record.Appeal of the assessee is allowed for statistical purposes.
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2023 (12) TMI 631
Depreciation on goodwill claimed on acquisition of its subsidiary - claim of depreciation u/s 32(1)(ii) thereon @25% was made in return of income filed by the assessee was disallowed by the Ld. AO while framing regular scrutiny assessment u/s 143(3) - in view of AO, since under approved scheme of arrangement the subsidiary company had no intangible assets to be transferred to the assessee company, therefore the question of accounting for cost of goodwill in terms of explanation 7 to section 43(1) no longer arise - HELD THAT:- Basically, goodwill comes into existence in two scenarios i.e., either acquired or purchased and more specifically (1) Acquisition: when a company (acquirer/transferee) acquires any other company (transferor) which has goodwill in its books prior to its acquisition by acquirer, and (2) Purchased: when a company (acquirer/transferee) acquires any other company (transferor) at a payment consideration in excess of net assets value of transferor. Under Income tax laws it is a settled proposition that, acquirer/transferee company subject to provisions of section 43 r.w.s 32 of the Act is entitled to claim depreciation u/s 32(1)(ii) of the Act on goodwill which is either acquired or purchased by an excess payment of consideration over net asset value taken over or by former combined modes.
In the instant case, we note that, the assessee company was holding 95% of total equity share capital of its subsidiary RMIPL prior to execution of scheme of arrangement. It remained an undisputed fact that, the subsidiary company RMIPL had no goodwill in its books of accounts as on the date of its acquisition by its holding company, the appellant. Therefore, the question of transfer of any such amount of goodwill while recording assets of subsidiary company into its books in first place uncloudly failed.
That is to say there was no acquisition of goodwill by the assessee while acquiring its subsidiary RMIPL. Consequently, on this issue, both the tax authorities came to a rightful conclusion that, when RMIPL had no goodwill in its books of account, then the question of recording the same in its books doesn’t arise and resultant claim of depreciation thereagainst was baseless. This being the factual position, we see no reasons to hold otherwise in the absence of any deprecative material placed and brought to our notice by the appellant company.
Whether the assessee company purchased any goodwill by an excess payment consideration over and above the value of net asset of its subsidiary company RMIPL acquired under approved scheme? - total value of purchase consideration under the approved scheme of arrangement payable was to be worked out with reference to 3,125 equity share @ price of ₹142.08/per share. The resultant consideration paid/payable by the appellant under approved scheme, as rightly submitted by the Ld. AR that, was even much less than the value of net assets acquired by it. This being the factual admitted position, there was no scope of purchase of goodwill by excess payment of purchase consideration. The wholesome findings Ld. CIT(A) remained flawless to the effect that, the amount of goodwill supposedly claimed by the assessee can be traced into accounting entries passed by the assessee, which reveals that the appellant company has simply recognised the balancing figure i.e., excess of its cost of investment in RMIPL over Net Assets taken over by it as goodwill purchased. This treatment however, in our considered view is neither in accordance with the approved scheme of arrangement nor in consonance with the mandatory AS-14 issued by the Institute of Chartered Accountant of India. In nutshell, the material placed on records and the argument advanced beyond an iota of doubt establishes that, the appellant did neither acquired any goodwill from its subsidiary RMIPL nor it has made any excess payment towards purchase consideration over and above value of net asset acquired under the scheme. Therefore, it gave rise to no goodwill in the hands of the appellant assessee, resultantly no claim of depreciation thereagainst could arise. In these facts and circumstances, we countenanced the disallowance for foregoing reasons. All the grounds of appeal stand adjudicated accordingly. Decided against assessee.
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