Estimation of income - estimating the profit @ 7.5% on sale of Imlo of old constructed building materials - assessee admitted that he has purchased old buildings on a due basis and he sold the imlo of demolished part of building to local ceramic manufacturer and scrapper in cash. Out of such cash, generated from the sale of imlo, cheque and demand draft were purchased from Angadiya to make payment - CIT(A) considering assessee has not maintained the books of account for the business carried by him and considering the deeming provision under section 44AD etc, estimated the profit of the assessee @ 7.5% only
HELD THAT:- The assessee has not discharged the onus imposed upon him for estimating the income based on comparable cases. Admittedly, the revenue has also estimated the income but without referring to the comparable cases. However, the revenue had to estimate the income in the absence of documentary evidence which was supposed to be provided by the assessee. Indeed, for estimating the income, the element of guesswork is always involved but the same should not be unrealistic.
Primary onus lies upon the assessee which he failed to fulfil and therefore we are of the view that the income estimated by the learned CIT-A in the given facts and circumstances is reasonable and commensurate if the other facts of the assessee are seen in aggregation. As such, the assessee in the later years has purchased expensive cars and has also shown borrowed money but the assessee failed to justify the source of money for the purchase of cars as well as justifying the source of deposits in the bank. Thus, we are of the view that the profit estimated by the learned CIT-A is reasonable and commensurate with the activities carried on by the assessee. Hence the ground of appeal of the assessee is hereby dismissed.
Estimating the household expenses from undisclosed sources - HELD THAT:- AO and the learned CIT(A) found that the assessee has earned income from the sale of demolished material of building (imlo). As such the assessee claimed that that he earned net profit at ₹ 25 lakh after making payment of 6.5 crores whereas AO and CIT(A) estimated the profit @ 10% and 7.5% of ₹ 6.5 crore respectively. In either case, the assessee had sufficient income from the sale of imlo to meet his household expenses.
Therefore, making separate addition on account of household expense in the given fact and circumstances will lead to double taxation which is not desirable under the provision of the Act. Thus, we hereby set-aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.
AO and the learned CIT(A) found that the assessee has earned income from the sale of demolished material of building (imlo). As such the assessee claimed that that he earned net profit at ₹ 25 lakh after making payment of 6.5 crores whereas AO and CIT(A) estimated the profit @ 10% and 7.5% of ₹ 6.5 crore respectively. In either case, the assessee had sufficient income from the sale of imlo to meet his household expenses. Therefore, making separate addition on account of household expense in the given fact and circumstances will lead to double taxation which is not desirable under the provision of the Act. Thus, we hereby set-aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is hereby allowed.
Unexplained credit in bank account - Assessee argued deposits in the bank represent brokerage income and loans from friends and therefore no addition in the given facts and circumstances is warranted - HELD THAT:- Admittedly, there were deposits in the bank account of the assessee and therefore the onus lies upon the assessee to justify the source of the same. But the assessee has not justified the same based on the documentary evidence. Accordingly in the absence of any explanation by the assessee about the source of money in the bank account, we have no other alternative except to confirm the order of the authorities below. Hence the ground of appeal of the assessee is hereby dismissed.
Purchase of a car from undisclosed sources - assessee has purchased a Ford Car making a payment of the same by purchasing cheque from Angadiya in lieu of cash - HELD THAT:- The revenue has not brought any iota of evidence suggesting that the earlier years income suffered to tax has been used for some other purposes either by way of making some investment or expenditure. Thus, in the absence of such information, it can be presumed that the amount of income which has suffered tax in the earlier year has been utilized for the purchase of the car. The earlier income after adjusting household expenses stands at ₹ 42.75 lakhs and the cost of the car purchased in the year comes at ₹ 21.25 lakhs only. Still the balance income available with the assessee stands at ₹ 21.50 Lakhs ( ₹ 42.75 lakhs - ₹ 21.25 lakhs). In view of the above, we hold that there was sufficient tax paid money available with the assessee which has been used for acquiring the car on hand. Therefore, no separate addition on account of purchase of car is required to be made. Hence, the ground of appeal of the assessee is hereby allowed.
Penalty u/s. 271D - receipt of cash in relation to transfer of immovable property - Violation of proviants of section 269SS - assessee sold an immovable property out of which the assessee received an advance partly through cheque and the remaining amount by cash - HELD THAT:- Any person is barred from receiving from any amount otherwise by cheque or through banking channels in relation to transfer of the immovable property. Section 269SS of the Act prohibits receipt of any amount by way of cash in relation to the transfer of any immovable property.
The objective of the amendment proposed in 269SS of the Act is to curb generation of black money. In the instant case the fact is that cash received by the assessee has been deposited by the assessee into the bank account, hence does not attract the provisions of section 269SS of the Act since there is no suppression of cash receipts by the assessee.
The assessee has also offered the capital gains to tax. Further, the explanation given by the assessee for receipt of sale consideration of Rs. 29,65,000/- constitutes a “reasonable cause” as contemplated in section 273B of the Act and the assessee has accepted the cash under inevitably unavoidable circumstances as explained by the Ld. AR in his arguments and immediately on receipt of the cash, the assessee deposited the same in the bank account which contemplates the genuineness of the transaction and moreover the assessee has paid the capital gain tax thereon.
We are of the considered view that the penalty levied by the Ld. AO-NFAC U/s. 271D and confirmed by Ld. CIT(A)-NFAC is unsustainable in law - Decided in favour of assessee.
Validity of Revision u/s 263 - two parallel proceedings for the same assessment year -validity of proceedings initiated by notice u/s. 148 and the consequential order u/s. 147 is bad in law notice issued u/s. 148 during the pendency of set aside assessment proceeding - as per CITAO has not examined the source of share capital and share premium properly and has failed to note that the share capital is introduced by rotating the money to dummy companies which have been created solely for this purpose - HELD THAT:- Second revision order passed u/s. 263 dated 12.03.2019 has been quashed by the Coordinate Bench making the second effect giving assessment order dated 06.12.2019 as non-est. Reference made by the Ld. AO in the impugned assessment order of this proceeding and basing it to arrive at the assessed total income is not justified.
From the perusal of the reasons to believe recorded by the Ld. AO and as contended by the Ld. Counsel in respect of the contents mentioned therein, we are in agreement with the facts narrated by AO never disclosed the details of layers through which alleged money has been routed into the bank account of the assessee.
AO has also never shared the information in respect of documentary evidence for the alleged transactions of accommodation entry. We also do not find conduct of any examination of the allegd layering of the transaction to unearth sequencing of the flow of money alleged by the Ld. AO escaping assessment.
We also find ourselves in agreement with the contention of the Ld. Counsel that there is nothing specific stated in the reasons to believe as to the nature of the transaction of accommodation entry as alleged by the Ld. AO as to whether it is an income or an expense or an allowance or share capital or loan etc. Before the Ld. AO, assessee has evidently demonstrated by furnishing its books of account and bank statement that there is no such transaction or such amount of money which has routed into the books of the assessee or into the bank account from the alleged accommodation entry provider Mr. Sandeep Roy, proprietor of M/s. Sarika Trding Co.
AO has merely on a wrong belief made such an addition without conducting any verification of any sort of any material or examining the persons involved.
We also take note of the approach adopted by the incumbent Ld. AO, who was already seized with an assessment proceeding pursuant to the second revisionary order even though it has been subsequently quashed by the Coordinate Bench.
Until the outcome of the appeal before the Coordinate Bench, the Ld. AO had an assessment proceeding pending before him to give effect to the set aside revisionary order. However, with this pendency in hand, he initiated another proceeding by taking note of information received from the Investigation Wing to record the reasons to believe and issue notice u/s. 148.
It is important to note that within a period of ten days, the same incumbent AO has passed two assessment orders, first on 06.12.2019 pursuant to revisionary order u/s. 263 and the second one which is the impugned reassessment order u/s. 147/143(3) dated 16.12.2019. Certainly such an act by the Ld. AO of having two parallel proceedings for the same assessment year is contrary to the decision taken in the cases of S. M. Overseas Pvt. Ltd. [2022 (12) TMI 702 - SC ORDER] and Trustees of HEH Nizam Supplemental Family Trust [2000 (2) TMI 4 - SUPREME COURT] - Accordingly, notice issued u/s. 148 during the pendency of set aside assessment proceeding and subsequent reassessment order passed is bad in law.
On the merits as undisputed fact that there is no change in short term borrowings and the revenue from operations is a small/meagre amount of Rs. 1,23,960/-. Thus, the alleged amount of accommodation entry received by the assessee cannot in any way pertain to loan or revenue received by the assessee during the year. As far as share capital and share premium is concerned which has been raised during the year, elaborate detailed examination and verification exercise has already been conducted by the Ld. AO and has been accepted vide first effect giving assessment order u/s. 263/143(3). The Coordinate Bench has already taken note of factual findings given in this assessment order and remains uncontroverted. Thus, on the merits of the case also, we do not find any reason to sustain the addition made by the Ld. AO. Accordingly, the grounds taken by the assessee are allowed.
Revision u/s 263 - benefit of exemption under the order issued under the repealed Act -validity of order issued under the 1922 Act granting exemption to incomes earned in Part-B - as per CIT(A) AO had allowed the assessee’s claim of deduction u/s 80P(2)(c)/(d) of interest income and rental income without making proper verification/inquiry - whether the assessee was entitled to exemption of the aforestated two incomes in terms of order made under the provisions of the 1922 Income Tax Act, i.e Part-B States (Taxation Concessions) Order, 1950 amendment to Notification No.SRO 998 dated 2.12.1950?
As per assessee contention being that after repeal of the 1922 Act, the entitlement to the exemption of the assessee in view of the aforestated order passed under 1922 Act, still existed, since the said order was not rescinded subsequently, and therefore, by virtue of provisions of section 297 (2)(k)/(l) of the Income Tax Act, 1961, the benefit of exemption under the order issued under the repealed Act still persisted.
HELD THAT:- CIT found that an identical plea taken in Sri Gopal Gram Seva Sahakari Mandali Ltd. [2014 (12) TMI 766 - GUJARAT HIGH COURT] directed the AO to examine the allowability of assessee’s claim to deduction under section 80P of the Act, holding that the assessee did not continue to enjoy the exemption by virtue of order issued under the 1922 Act. Copy of the order was placed before us, and we have noted that identical plea of the assessee of continuing to enjoy the benefit of the order issued under the 1922 Act by virtue of section 297 (k)(l) of the 1961 Act was rejected by the Hon’ble High Court, and the Hon’ble Court had directed the AO to examine the assessee’s eligibility to claim deduction under section 80P(2) of the Act, 1961 Act. The ld.counsel for the assessee agreed with the same but at the same time has countered by stating that the Hon’ble Apex Court in the case of Maharao Bhim Singh of Kota Vs. CIT [2016 (12) TMI 418 - SUPREME COURT] had reversed this proposition of law laid down by the jurisdictional High Court holding that the exemption allowed under the order issued under 1922 Act persisted and applied even under 1961 Act.
But as gone through the order of the Hon’ble Apex Court in the said case, and we find that it is entirely distinguishable on facts, and the Hon’ble Apex Court has not laid down any such proposition that the order issued under the 1922 Act granting exemption to incomes earned in Part-B States would continue to subsist even under the 1961 Act.
In the case before the Hon’ble Apex Court, the Issue for consideration was the interpretation of section 10(19A) of the Act which provided for exemption of annual value of any one palace in the occupation of a Ruler. The dispute arose in the factual background that the palace was partly self occupied by the Ruler and partly let out earning rental income. The claim of the Revenue was that the entitlement to exemption u/s 10(19A) of the Act was to be confined only to the portion of the palace in the occupation of the Ruler.
The Hon’ble apex court interpreted the provisions of section 10(19A) of the Act to state that it granted exemption to the annual value of any one palace which fulfilled the following conditions, viz.
(i) which in the occupation of the ruler, and
(ii) whose annual value was exempt from income tax before the commencement of the Constitution (Twenty-sixth Amendment) by virtue of the provisions of the Merged States (Taxation concessions) Order, 1949 or the Part B States (Taxation Concessions), Order 1950.
Noting so, the Hon’ble Apex Court found that the assessee fulfilled both the conditions in the case before it, and therefore was entitled to exemption of the entire annual value of the property.
It is abundantly clear, therefore, that the Hon’ble Apex Court in the said decision did not lay down any proposition, as canvassed by the ld.counsel for the assessee before us that the exemption granted under the order issued under section 60A of the Income Tax Act, 1922, subsisted since it was not repealed. Therefore, we do not find any merit in the arguments of the ld.counsel for the assessee that the decision relied upon by the ld.Pr.CIT of the jurisdictional High Court was reversed by the Hon’ble Apex Court.
The order of the ld.Pr.CIT is therefore confirmed, and the grounds of the appeal of the assessee are dismissed.
Short term Capital gain / long term capital gain - separation of value of land and building, since depreciation claimed on building - application of the provisions of section 50C - transfer of leasehold rights in the plot of land allotted to the appellant assessee - rejection of claim of cost of construction - whether the provision of section 50C of the Act per se could be applied for transfer of lease hold rate possessed by the assessee? - HELD THAT:- As decided in M/s. Green Hotels and Estate Pvt. Ltd [2016 (12) TMI 353 - BOMBAY HIGH COURT] Section 50C is not applicable while computing capital gains on transfer of leasehold rights in land and buildings.
Hence, we hold that the sale consideration of transfer of lease hold rate should be considered only Rs. 75 lakhs. Further, we find that the industrial plot of land has been allotted to the assessee on 30.03.2005. The assessee has been making super structure incurring cost of construction in FY 2006-07 onwards.
The entire property has been sold by the assessee on 08.10.2009. Hence, the land taken on lease is hold by the assessee for more than 3 years and consequentially eligible for benefit of indexation thereon. Hence, the resultant gain arising on its transfer would be long term capital gain. The building taken by the assessee been held less than three years and deprecation is also claimed by the assessee thereon.
Hence, the building taken would be determined based on dimming provision of section 50 of the Act. The facts of assessee incurring expenses towards cost of construction and claiming depreciation thereon is reflected in the financial statement of the assessee itself commencing from 2006-07, 2007-08 and 2008-09. Hence, there is no scope for rejection of claim of cost of construction.
Disallowance of business expenses - Addition made as assessee has not carried on any business activity which is also evident from the profit and loss account whether sale or gross receipts shows at Rs. Nil. - HELD THAT:- As decided in Mokul Finance Pvt. Ltd. [2007 (7) TMI 351 - ITAT DELHI-I] unless there is some material on record to show that the assessee has completely abandoned the share dealing business, merely because there are no business transactions in the relevant previous year cannot be reason enough to come to the conclusion the business has come to an end. Assessee appeal allowed.
Addition u/s 14A r.w.r. 8D - Addition on the entire average value of current and non-current investments - assessee pleaded before the CIT(A) that no disallowance can be made because the assessee had own funds more than the investments made and no administrative expenditure was incurred - HELD THAT:- We observe from the financial statements that the assessee has received dividend income only on current investments and the computation of disallowance submitted by the ld. AR comes to Rs. 7,65,072.
However, we note from the order of the AO that during the course of assessment proceedings the assessee itself submitted that dividend is earned on equity shares and mutual funds, but in the computation of disallowance submitted before us, only the average value of investments made in mutual funds has been considered. Disallowance under Rule 8D(2) (iii) should be made on the basis of average value of those investments in which the assessee has yielded exempt income. The Hon’ble High Court in the case of Cargo Motors (P.) Ltd. [2022 (10) TMI 571 - DELHI HIGH COURT] has settled this issue in favour of the assessee.
Thus we remit this issue to the file of the AO for fresh computation of disallowance under Rule 8D(2)(iii). The assessee is directed to provide necessary documents in support of its claim and avoid seeking unnecessary adjournment for early disposal of the case.
Disallowance of interest u/s 36(1)(iii) - Interest paid to IDFC has been capitalized by the AO by observing that the capital asset (land) purchased for which loan was taken, was not put to use in the business of the assessee and the assessee is not in the business of trading of land and this land has been purchased as investment, and therefore it should be capitalized u/s. 36(1)(iii) - HELD THAT:- As interest bearing funds have not been utilized for the purchase of land and the assessee had sufficient interest free funds and also observed by the coordinate bench in the assessee’s own case for earlier AYs 2013-14 & 2014-15 [2019 (4) TMI 512 - ITAT BANGALORE] The case law relied by the ld. AR of the assessee in his written synopsis supports the case of the assessee. After analysis of the above, we hold that the assessee has not utilized the borrowed fund for the purchase of land. The assessee has also sufficient opening cash balance as per Note No.17 and cash flow statement. Further, the assessee’s submission that no interest bearing funds have been utilized is supported by the case laws referred by the assessee. Considering the entire facts and submissions, we hold that the land purchase by the assessee is out of non-interest bearing funds. Therefore the disallowance of interest u/s 36(1)(iii) is not warranted and the same is deleted. We therefore allow ground No. 03 of the assessee.
Income taxable in India - Taxability of the receipts as “Royalty" - HELD THAT:- The Bangalore Bench of the Tribunal in the case of Telefonica De Espana S. A, [2023 (9) TMI 280 - ITAT BANGALORE] had decided all the issues raised on merits in favour of the assessee i.e., with regard to taxability as royalty/FTS and alternatively under section 5(2) of the Act. The Bangalore Bench of the Tribunal had followed its earlier order in the case of Telefonica De Espana S. A [2023 (8) TMI 1375 - ITAT BANGALORE] as well as the judgment of the Hon’ble jurisdictional High Court in the case of VSL, [2016 (8) TMI 422 - KARNATAKA HIGH COURT] wherein held Revenue authorities have erred in construing that the income has accrued or arisen in India. The situs of the source of income in respect of payment received by a non resident i.e. NTOs would be the place where the non resident carries on its business and perform the business activities pursuant to which it received income. Once the situs is outside India, then in order to determine whether the payments made by a resident of India to a non resident involves element of income is to be examined u/s 9 and in the present case, the Assessing Officer has examined the applicability of section 9(1) (vi) & 9(1)(vii) i.e. the payments involve royalty as well as fee for technical services. - Decided in favour of assessee.
TP Adjustment - comparable selection - HELD THAT:- Following the order of M/s. Sonus Networks India Pvt. Ltd. [2020 (10) TMI 663 - ITAT BANGALORE] we direct exclusion of (i) M/s Bodhtree Consulting Ltd, (ii) Tata Elxsi Ltd., (iii) Persistent Systems Ltd. and (iv) Infosys Ltd. from the list of comparables.
Sasken Communication Technologies Ltd.and L&T Infotech Ltd. are to be excludedfrom the comparables because this company fails the turnover filter.
Disallowance of provision for warranty - Appellant had debited a sum towards warranty expenses which included an amount of actual claim by the customers made during the year and amount of provision for warranty - AO disallowed the provision for warranty contending the same to be contingent liability/ created on estimate basis - HELD THAT:- In the present case the assessee is providing warranty for 24 months on automotive products sold by it on the basis of percentage on sales as fixed by the quality centre for each product. The assessee has not produced any credible evidence/calculation as to how the provision for warranty has been arrived relating to different products before the authorities below. A specific query was asked to the ld. AR regarding the unutilised provision for warranty in the books of accounts to which the ld. AR replied that in such case it represented increase in the closing balance of the year adjusted in future warranty claims and no separate entry is made for unutilized warranty provision and he referred to the details of provision for warranty in the table extracted above. Before us, the ld. AR produced the basis for calculation of provision for warranty extracted hereinabove and he also submitted that that in remand proceedings by the co-ordinate bench for the assessment year 2010-11, the AO has accepted the provision for warranty expenses debited into profit & loss account. Further in assessee’s own case the co-ordinate bench of the Tribunal has decided the issue [2022 (3) TMI 1522 - ITAT BANGALORE] as held provision for warranty created is based on past experience and historical trend of each product and at a percentage. The claim made by the Assessee that the method followed for creating provision for anticipated liability on account of warranty stands vindicated by the fact that the actual liability on account of warranty expenses is always on the higher side.
The reasons given by the DRP for not accepting the claim of the Assessee is that the provision is created as a percentage of sale, ignoring the fact that past experience is also the basis for creation of provision for warranty. We are therefore of the view that the provision for warranty has to be allowed as a deduction, as the provision created satisfies the requirements for claiming provision as a liability.
Nature of expenses - annual licence fee - AO did not allow the claim of assessee u/s. 37(1) as revenue expenditure and also the depreciation for want of genuineness of expenses - payments of annual license fees by entering into an agreement with its group company - AO disallowed the above contending it to be capital in nature and also that it is not a genuine expenditure while passing the draft order, on the basis that no evidences were submitted supporting the same - HELD THAT:- The agreement was made on 1st January, 2009 for one year and it was automatically renewable unless terminated. This is the second round of proceedings. There is nothing to show that there is termination of the agreement and hence the agreement is still in force. Further on perusal of the order of the ld. DRP assessee could produce only the copy of agreement with it AEs. It was the primary duty of the assessee to establish whether the expenditure incurred was not enduring benefit and it was recurring expenditure with credible evidence. But the assessee has failed to do so by merely submitting the copy of agreements, TDS certificate and benefit received. The assessee is also not eligible for claim of deduction u/s. 35(1)(iv) of the Act since it has not fulfilled the conditions as specified in the section. From the above, we are of the view that the ld. DRP has examined the issue in detail and we do not find any infirmity in the order of the ld. DRP. The AO is directed to grant depreciation as per the order of the ld. DRP.
Short grant of credit for Tax Deducted at Source and foreign tax credit - as submitted that the Appellant had filed an application for rectification before the AO along with the TDS certificates - HELD THAT:- DRP has given direction to the AO for giving TDS credit after verification. We direct accordingly.
Disallowance u/s 14A - non recording any satisfaction note the AO made disallowance u/s 14A - suo-moto addition made by assessee ignored - HELD THAT:- The tax authorities below have not at all taken into consideration the fact of suo moto disallowances and giving any reasons for not accepting the same.
As fresh investment have been made out of the own funds raised by issuance of fresh equity and that accumulated balance of reserve and surplus of the assessee company or the borrowed funds have not been utilized for the purpose of investment. Consequently the issue needs to be restored to the files of Ld. AO, to take into consideration the principles of law recognized in Maxopp Investments Ltd. Case [2018 (3) TMI 805 - SUPREME COURT] and assessee’s own case by Hon’ble Delhi High Court in [2018 (3) TMI 1718 - DELHI HIGH COURT] and pass a fresh order for claim of disallowance of assessee u/s 14A of the Act. These grounds are decided in favour for statistical purposes.
Allowability of deduction u/s 36(1)(vii) - interest free loans to subsidiary companies - Assessee contended that when there are funds available, both interest free or loan taken, then a presumption would arise that investments would be out of interest free funds generated or available with the company provided said funds are sufficient to meet investments - HELD THAT:- Primarily questioning the commercial expediency of interest free loans allowability of deduction u/s 36(1)(vii) of the Act was examined. However, it transpires from record and as discussed above the assessee had sufficient surplus funds and had raised capital during the year by issuance of shares. Thus, merely because the assessee had also raised loans or paid interest against loans that does not justify the disallowance.
The investment in subsidiary and related entities has to be made for commercial purpose to earn future profits. It is not the case of revenue that investment were made in any entity not having any nexus with the principal object of assessee company. The judgment of South Indian Bank Ltd. vs. Commercial of Income Tax [2021 (9) TMI 566 - SUPREME COURT]also comes to the assistance of assessee where Hon’ble Supreme Court recognized the principle that if interest free own funds are available with the assessee or exceeds investment, investment would be presumed to be made out of assessee’s own fund. Thus, the Bench is convinced that the disallowance was not justified the same deserves to be deleted. The grounds are sustained.
Revision u/s 263 - as per CIT foreign payments made directly by the Indian Project Owners to Head Office, and the nature/scope of offshore services were not examined either by the TPO or by the AO during the assessment proceedings - HELD THAT:- The foreign payments made directly by the Indian Project Owners to Head Office, and the nature/scope of offshore services were not examined either by the TPO or by the AO during the assessment proceedings.
TPO, accepted the domestic payments made by the Indian Project Owners to Project Offices to be at arm’s length and thereafter, on 30/05/2021 the AO passed Assessment Order u/s 143(3) of the Act accepting the retuned income as assessed income. It is clear that after initial query, no further follow-up query or information was sought by the Assessing Officer. In our view, the AO should have enquired into both the payments made to Project Offices as well as the Head Office. On perusal of notice issued by the Assessing Officer and reply filed by the Appellant, it is clear that only the issue pertaining to domestic payments made by the Indian Project Owners to the Project Offices were examined by the Assessing Officer and by the TPO.
According to Explanation 2 to Section 263 of the Act assessment order is deemed to be erroneous in so far as prejudicial to the interest of the Revenue in case in the opinion of CIT such assessment order has been passed allowing any relief without enquiring into the claim.
When the material on record reflects that the assessment proceedings were concluded without enquiry/investigation into the scope of services provided by the Head Office, apportionment of payments between Project Office and Head Office as per contract, and the consequent payments made by the Indian Project Owners directly to the Head Office, the question of inferring with these issues would have been examined by the Assessing Officer/TPO during the assessment proceedings does not arise. Therefore, the judicial precedents relied by both the sides relating to computation/allowance/disallowance of deduction do not apply to the facts of the present case.
In the present case, the relief under the provisions of tax treaty has been granted to the Appellant without inquiring into the nature and scope of offshore services. AO has also failed to make necessary enquiry/verification regarding the income attributable to the Project offices in India. In our view, the CIT had jurisdiction to exercise power of revision u/s 263 of the Act since AO had failed to carry out necessary enquiry and verification warranted in the facts and circumstances of the present case triggering provisions of Explanation 2 to Section 263 - Thus, we concur with the CIT that the Assessment Order, dated 30/05/2021, passed under section 143(3) of the Act was erroneous insofar as prejudicial to the interest of Revenue, and therefore, we hold that the CIT was justified in setting aside the same. Assessee appeal dismissed.
Revision u/s 263 - as per CIT there is another possible view of the matter -as per CIT AO ought to have taxed deemed annual letting value @5% of the value of closing stock of unsold flats u/s 23(1)(a) of the Act - HELD THAT:- As decided in AMITABH BACHCHAN [2016 (5) TMI 493 - SUPREME COURT], M/S. FUTURE CORPORATE RESOURCES LTD. [2021 (10) TMI 175 - BOMBAY HIGH COURT] and MEPCO INDUSTRIES LIMITED. [2006 (11) TMI 164 - MADRAS HIGH COURT]when two views are legally possible and Assessing Officer adopts one view the Assessment Order cannot be said to be erroneous for the Ld.CIT to invoke jurisdiction u/s. 263 of the Act.
In the case under consideration the AO has adopted one of the legally possible views qua Unsold Flats shown as closing stock. Therefore, the Assessment Order is not erroneous qua unsold flats shown as Stock. Accordingly, the Ground Number 3 of the assessee is allowed.
TDS on payment made to Silk Route Communications - It is observed that the assessee during the assessment proceedings had filed details of TDS deducted on the payments made to Silk Route Communications. We have verified the fact that the assessee had deducted the TDS and the details were filed before the AO during the assessment proceedings. In the facts and circumstances, the assessment order is not erroneous qua TDS on payment made to Silk Route Communications. Therefore, the order u/s. 263 qua the issue of TDS on payment made to Silk Route Communications is set aside. Therefore, the Ground of the assessee is allowed.
Interest on TDS - AO had not carried out any inquiry. The AO had not called for any details on this issue. Thus, we agree with the Ld.CIT that the AO failed to carry out necessary inquiry. Hence, the assessment order is erroneous and prejudicial to the interest of revenue qua the issue of Interest on TDS. Accordingly, the order u/s 263 is upheld qua the issue of interest on TDS. Accordingly, the Ground of the assessee is dismissed.
Addition u/s 69B - difference in valuation of cost of construction as reported by the assessee and the estimate made by the DVO - non disposal of objections raised by the assessee on the Valuation Report of the DVO - Assessee counsel has taken objection that the DVO did not have jurisdiction over the case of the assessee, and hence the valuation report and the consequential assessment order passed by the Ld. AO and subsequently confirmed by the Ld. CIT(A) is bad in law and the same may be quashed - HELD THAT:- CIT(A) has not disposed of the objections raised by the assessee on the Valuation Report of the DVO without appreciating the facts, brought on record by the assessee and confirmed the addition made by the Ld. AO in respect of difference in Valuation of construction as computed by the assessee and as estimated by the DVO amounting to Rs. 7,37,200/- without appreciating the facts of the case.
CIT(A) has not addressed the objections raised by the assessee on the Valuation Report of the DVO with the support of documentary evidences brought on record by the assessee and without adjudicating on the merits of the case, the CIT(A) has proceeded to pass the order on the basis of legal principle, but while doing so, has not discussed the objections filed by the appellant and the relevant documents which they had brought on record in their defence, including the valuation report.
That’s being the position, we see no reason to reject the claim made by the petitioners, on the contrary, we are satisfied that the order passed is in gross violation of the principles of natural justice. Under the circumstances, we consider it deem fit to remand the matter back to the file of the CIT(A) to adjudicate the issue of determination of value of investment in construction afresh after considering the submissions of the appellant assessee and all other relevant documents that he may propose to file before the CIT(A) and on the same being filed, the CIT(A) shall proceed to decide the question in accordance with law at an earlier date. No doubt, the assessee shall cooperate in the fresh proceedings before the CIT(A). Thus, the matter is restored to the Ld. CIT(A) for adjudication as per law. Appeal is allowed for statistical purpose.
The Supreme Court of India dismissed special leave petitions due to delay and on merits, following a previous order. Pending applications were also disposed of.
Addition u/s 44BB(1) and 44BB(2) - whether the service tax collected by the assessees in the course of provision of services and facilities in connection with, or supply of plant and machinery on hire, in the prospecting for, or extraction or production of, mineral oils in India, was liable to be included in the amount paid or payable for the purpose of computation of the ‘presumptive taxable income’ of the assessee? - As decided by HC [2022 (11) TMI 385 - UTTARAKHAND HIGH COURT] amount reimbursed to the assessee (service provider) by the ONGC (service recipient), representing the service tax paid earlier by the assessee to the Government of India, would not form part of the aggregate amount referred to in Clauses (a) and (b) of sub-section (2) of Section 44 BB - HELD THAT:- Though, there is a delay of 272 days in filing the Special Leave Petition. Nevertheless, we have heard learned Additional Solicitor General on merits of the case.
Delay condoned.We are not inclined to interfere in the matter.
Validity of Reopening of assessment u/s 147 - Reasons to believe - method of determining the Fair Market Value of the rights shares issued - as decided by HC [2023 (3) TMI 619 - BOMBAY HIGH COURT] only reason and purpose for issuing the impugned notice u/s 148 appears to be that the Assessing Officer has come to a different opinion on the question of valuation from one adopted by the petitioner, which has been accepted in the earlier assessment order, thus the impugned notice u/s 148 of the Act is without jurisdiction and is barred by limitation
HELD THAT:- Although, there is a delay of 128 days in filing the Special Leave Petition, nevertheless, we have heard learned Additional Solicitor General on merits of the case.
Delay condoned. The Special Leave Petition is dismissed.
Reopening of assessment u/s 147 - reason to believe - petitioner had claimed deduction on account of notional foreign exchange loss on non payment of imports - as decided by HC [2022 (4) TMI 625 - BOMBAY HIGH COURT]As evident from the reasons for reopening that the Assessing Officer had all material facts before him when he made the original assessment. In the reasons for reopening there is not even a whisper as to what was not disclosed - This is a case wherein the assessment sought to be reopened on account of change of opinion - HELD THAT:- The present special leave petition is belated and filed after a delay of 344 days. Even otherwise, we are not inclined to interfere with the impugned judgment.
The application for condonation of delay and the special leave petition are accordingly dismissed.
Pending application(s), if any, shall stand disposed of.
Disallowance u/s 14A - connection between the subject expenditure and the exempt income - HELD THAT:- Assessing Officer proceeded on a mere assumption that interest bearing funds could also have been utilized for making the investment in question, because the respondent/assessee had failed to establish that source of investments was its own funds.
In view of the stand taken by assessee that the investments were made in the mutual funds in ICICI Liquidity Plan wherein the dividend was automatically reinvested with weekly frequency without any efforts for earning dividend income and that it did not have any borrowings, the Tribunal examined the balance sheets of the respondent/assessee from which it came to a definite conclusion that there were no borrowed funds in the books of the respondent/assessee pertaining to the relevant year, therefore there was no question of using borrowed funds for investments in mutual funds and consequently the impugned disallowance under Section 14A of the Act was unwarranted.
Adjustments on account of delay in realization of receivables - Tribunal accepted the claim of the respondent/assessee that it being a debt free company, no adjustment on account of notional interest on receivables was warranted in view of an earlier decision of a coordinate bench of the Tribunal - HELD THAT:- This issue stands clearly covered by the decision of a coordinate bench of this court in the case of PCIT vs Boeing India (P) Ltd [2022 (10) TMI 498 - DELHI HIGH COURT] in which after traversing through various judicial precedents, the court held that the assessee company being a debt free company the question of receiving any interest on receivables did not arise so the adjustment made by the Assessing Officer on account of interest on outstanding receivables was liable to be deleted.
TP Adjustment - comparable selection - rejection of Accentia Technologies Ltd and TCS E-Serve Ltd - HELD THAT:- The issue stands covered by earlier decisions of this court in the cases PCIT vs Inductis India (P) Ltd [2019 (2) TMI 1745 - DELHI HIGH COURT] AND B.C. MANAGEMENT SERVICES PVT. LTD. [2017 (12) TMI 255 - DELHI HIGH COURT] wherein Accentia Technologies Ltd., was excluded on the basis that the company was functionally dissimilar and that the segmental data for the assessment year with regard to the comparable segment was not available. The second comparable directed to be excluded i.e. TCS E-Serve Ltd., was on the ground that the concern provided high end online software solutions unlike the assessee, which provided internet based medical health related services. The real services, therefore, were entirely dissimilar.
No substantial questions of law arises for present purposes.
Rectification of intimation sent u/s 143(1) - According to the petitioner, while computing the amount in terms of Section 143(1) an error occurred with regard to the cost of the goods produced by the petitioner - HELD THAT:- It appears that there is an error apparent on face of the record to the extent of mentioning the wrong figures with regard to the cost of goods as (-)Rs. 5,69,68,434/- instead of Rs. 39,87,66,401/-. No doubt, the said error has to be rectified and hence, the petitioner had filed a rectification application before the 1st respondent. However, it was submitted by the learned counsel for the respondents that if there is any rectification in the intimation sent under Section 143(1) of the Act, only the 2nd respondent has to carry out the rectification and hence the first respondent had rightly rejected the application filed by the petitioner.
Thus the impugned order is set aside - While setting aside the impugned order, this Court remits the matter back to the 2nd respondent for the purpose of consideration of the rectification application, which has been filed by the petitioner - 2nd respondent is directed to enable the petitioner to file an appropriate application for rectification of intimation issued under Section 143 of the Act and pass order in accordance with law within a period of 30 days from the date of filing of the application.
Validity of attachment orders u/s 281B - power of the Department to issue fresh attachment order again and again, i.e. for the fourth time - as argued impugned orders u/s 281B have been issued in a mechanical manner for the fourth time and in a routine fashion stating that 'For the purpose of protecting the interest of the Revenue, it is necessary to attach the immovable properties of the petitioners'' - HELD THAT:- First charge holders of the properties are the Bankers and the respondent-Income Tax Department are only the second charge holders of the petitioners properties. Therefore, the first charge holders of the petitioner's properties, being the Bankers, the petitioner has to first satisfy the Bankers, for availing loan facility and only the Bankers are satisfied they would come forward to lend loan facility to the petitioners.
This Court would like to point out that, if it had been the real intention of the the respondent-Department to protect the interest of the revenue, they would acted in a way, as pointed out by this Court in the preceding para, however, the way the respondent-Department has acted, i.e. issuing attachment orders again and again, that too, without assigning any valid reason, in respect of similar properties of the petitioners, would only go to show that the respondent with a view to put a spoke to the petitioner's business activities, has passed such impugned orders, since, by means of the impugned orders of attachments, the properties that were mortgaged with the Bankers were attached, due to which, the Bankers would obviously, deprive themselves from extending the working capital loan to the petitioners and the petitioners, owing to non-extension of working capital loan, would find it difficult to run their business, resulting in financial crisis and consequently, the petitioner would be not in a position either to continue the business or repay the loan, ultimately, resulting in closure of business and 5000 workers employed in the petitioner-Company would loose their job, which would automatically affect the welfare of the State.
Therefore, this Court is of the view that the respondent-Department under the guise of impugned attachment orders, shall not cause any unnecessary hardships to the Bankers in getting back their loans, which were lent by them to the petitioners.
Section 281B(1) of I.T. Act grants power AO to provisionally attach the property of an assessee during the pendency of any proceedings for assessment or reassessment of any income or for imposition of penalty, and in terms of Sub-section 2 of Section 281B, every such provisional attachment shall cease to have effect after the expiry of six months, however, the total period shall not exceed 2 years or 60 days after the order of assessment, whichever is later and such power of extension is subject to the condition that the Principal Commissioner should record his reasons in writing for granting such extension.
In the present case, whenever, the attachment orders were passed, the respondent-Department has mentioned the reason for issuance of such attachment order, by stating that ''To protect the interest of the Revenue.'' instead of stating so, the respondent- Department ought to have formed an opinion and pass orders not affecting the business activities of the petitioner in any way.
In the present case, attachment orders, which are under challenge in these Writ Petitions are only provisional attachment orders and the same have been passed before quantification of final assessment of tax. Thus, the respondent-Department, while passing such provisional attachment order shall bear in mind the following aspects:-
1) Running Business Activities of an Assessee should not come to stand still by virtue of the provisional attachment.
2) The interest of the Bankers, who are the first charge holders, should not get affected.
3) The welfare of the workers should not be get affected.
Thus, for all aforesaid reasons, this Court is inclined to pass the following orders:-
i) The petitioners are directed to file a modification application within a period of one week from the date of receipt of a copy of this order to modify the order of provisional attachment issued by the respondent dated 16.08.2023.
ii)Thereafter, the concerned respondent is directed to consider the modification applications and directed to pass orders to the extent of lifting the provisional attachment orders dated 16.08.2023 to enable the petitioners to avail the working capital facilities as per the business plan/plan of action, etc., submitted to the bank or to the extent of additional working capital facilities as sanctioned by the Banks to the petitioners, as requested from time to time.
iii) The petitioners are directed to file an affidavit/undertaking/status report as required by the respondent-Department, so as to ensure that the fund allotted to the petitioners by the Banks are utilized by the petitioners/has been utilized only for the purpose of working capital facilities.
Revision u/s 263 - unexplained cash deposits - as per CIT AO had omitted to conduct basic enquiries with regard to abnormal cash deposits during the demonetization period as compared to pre- demonetization period as well as the various claims made by the assessee - HELD THAT:- PCIT has referred to the assessee’s return of income wherein it was disclosed that an amount of Rs 4 lacs was deposited during the demonetization period in a bank account maintained with SBI.
We find that the matter was duly enquired into by the AO during the course of assessment proceedings and it was explained by the assessee that the said bank account doesn’t belong to him but belong to Mr Raj Kumar and a copy of the bank state ment was submitted. Where the AO on review of the bank statement, was satisfied that the said bank account doesn’t belong to the assessee but belong to Mr Raj Kumar and accepted the explanation of the assessee regarding the ownership of the said bank account and the transactions reflected therein, we find that no further cause of action lies and if any action is warranted, the same is warranted in hands of Mr Raj Kumar and not in the hands of the assessee. In any case, what further enquiries or verification is warranted is not specified by the ld PCIT. Therefore, on this account, the order so passed by the AO cannot be held as erroneous in so far as prejudicial to the interest of the Revenue.
Coming to transactions with M/s A.K. Minerals and M/s G.K Laxmi where the assessee has show cash receipts of Rs 5 lacs each against sales made to them and in respect of which, ledger account and a confirmation from these two parties has been filed during the course of assessment proceedings, where the assessee has filed certain confirmations from the aforesaid two parties during the course of assessment proceedings in support of sale transactions and receipt of consideration in cash and the authencity of the said confirmations stood falsified by subsequent confirmations received directly from the same parties even though after the close of the assessment proceedings, the ld PCIT is well within his jurisdiction to hold the assessment order so passed as erroneous in so far as prejudicial to the interest of the Revenue.
The subsequent confirmations are very much part of the record which is available at the time of examination of the ld PCIT and the confirmations so received raises a question mark on the authenticity and correctness of the information and documentation available at the time of passing of the assessment order thus leading to a situation where certain incorrect information which goes to the root of entering into the transaction and challenges the very existence of the transaction has been considered by the AO leading to a wrong conclusion and passing of an erroneous order. It is therefore a case where the matter though enquired into by the AO but the transaction itself stood falsified by the subsequent confirmation received directly from the concerned parties and where the PCIT is ceased of the matter and the necessary information is available on record at the time of his examination, we find that he was well within his jurisdiction u/s 263 to set-aside the assessment order on this count and order a de-novo assessment.
Contention advanced by the ld AR that remedial action u/s 147 can be taken in this regard and no basis for exercise of jurisdiction u/s 263 - In the instant case, it is an admitted position that the matter was enquired into by the AO during the assessment proceedings and answered by the assessee by way of providing the ledger account and the confirmations from the two parties and thereafter the Assessing Officer does not make any addition in the assessment order. In such situation, it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee.
Admittedly, assessment order was passed u/s 143(3) on 29.05.2019 and even though the confirmations have been received by the AO on 19.07.2019 and available on record, the AO has not taken any action u/s 147 knowing full well the scope of his reassessment jurisdiction, in such a situation, the ld PCIT is not precluded in exercise of his jurisdiction u/s 263 of the Act and issuance of show- cause u/s 263 dated 2.03.2022. In any case, at the time of issuance of show-cause by the ld PCIT, no reassessment proceedings u/s 147 were either initiated or pending for completion by the AO. Where the ld PCIT is ceased of information/documentation which has direct nexus with passing of an erroneous assessment order by the AO and if we were to go by the argument of the ld AR, the ld PCIT cannot be expected to wait indefinitely for the AO to initiate proceedings u/s 147 and where the AO sleeps over the matter, allow the expiry of limitation to pass the order u/s 263, thus failing in his supervisory and revisionary duty under Section 263 of the Act. Therefore, the contention advanced by the ld AR that remedial action u/s 147 can be taken in this regard and no basis for exercise of jurisdiction u/s 263 cannot be accepted.
Assessee's claim of receipt of cash from various persons was false and was not investigated by the AO and the assessee’s claim to have received cash from unnamed persons where no documents are available on assessment records to show that the AO has not made any enquiry or verification - The fact that the sales were effected in initial period during the same financial year and the cash has been received in the subsequent period even though during the demonetization period cannot be a basis strong enough to hold the order so passed by the AO is erroneous in so far as prejudicial to the interest of Revenue in absence of any adverse findings regarding availability of requisite stock and the sales so effected by the assessee which are both reported to tax. Where the AO felt satisfied with the documentation and explanation so submitted by the assessee, basis review of the same documentation, the ld PCIT may arrive at a different opinion, however, the same cannot lead to a situation of holding the order so passed as erroneous in so far as prejudicial to the interest of the Revenue. The only caveat here is that the documentation so submitted during the course of assessment proceedings shouldn’t stand falsified by subsequent information/documentation as we have seen in case of M/s A.K Minerals and M/s G.K. Minerals and which is not a case as far as these transactions are concerned. Therefore, the findings of the ld PCIT in para 5.2 of the impugned order as regards transactions with Shri Bhupinder Singh, Shri Bindri, Shri Ajmer Singh and M/s Gurleen Traders are hereby set-aside.
For retail cash sales - Where the AO felt satisfied with the documentation and explanation so submitted by the assessee, we find that the matter has been duly enquired into by the AO and the findings of the ld PCIT that no enquiry has been conducted by the AO is not borne out of the records and the same thus deserve to be set-aside. Further, there is no adverse finding recorded by the ld PCIT regarding availability of stock of petroleum products and corresponding sales reported by the assessee and where the stock and sales have been accepted, realization of sale proceeds in cash which is permissible under law cannot be held against the assessee or to hold that the assessment order is erroneous in so far as prejudicial to the interest of Revenue. Therefore, the findings of the ld PCIT regarding cash receipts from retail sale is hereby set- aside.
Board’s Instruction dated 09.08.2019 vide which verification checklist for assistance of AO’s for OCM cases and framing of assessment in demonetization related cases was provided and which has not been followed by the AO - We agree with the contention of the ld AR that where the CBDT instructions were issued after passing of the assessment order, the AO cannot be expected to follow the same and on this count, the order so passed by the AO cannot be held as erroneous in not following the CBDT instruction and the findings of the ld PCIT in this regard in para 5.4 are thus set-aside.
Gift received by the assessee from his mother - where the ld PCIT examines the matter and comes to a conclusion that the confirmation so filed is half-baked and incomplete and further, there is no explanation regarding the source of cash gift to the assessee and the AO didn’t mount further examination and accepted the said incomplete confirmation on face value, we find that the ld PCIT has rightly exercised his discretion in setting aside the assessment order to examine the matter a fresh after providing reasonable opportunity to the assessee. The findings of the ld PCIT in thus upheld.
Unsecured loans - We don’t find that the ld PCIT has referred to any tangible piece of information or documentation which warrant examination and investigation across all transactions of unsecured loans which are undertaken by the assessee. Further, where the relevant confirmations from the creditors have been called for and examined by the AO, the latter being satisfied with the same and explanation so furnished by the assessee, merely the fact that the AO has not carried out independent enquiries of these confirmations from the creditors cannot be a basis to hold the order as erroneous in so far as prejudicial to the interest of Revenue. The ld PCIT has not pointed out any deficiency or inaccuracy in the confirmations so filed by the creditors unlike some of the other cases as we have noted above and in absence thereof, the order so passed by the AO in this regard cannot be held as erroneous in so far as prejudicial to the interest of Revenue and the findings of the ld PCIT in this regard at para 5.8 and 5.9 of the impugned order are hereby set-aside.
Findings of the ld. PCIT that the AO did not even bother to get the copy of the Audit Report alongwith the audited accounts and the assessment has been completed without even examining the Audit Report - Where the AO chooses not to download and keep a copy of the audit report on assessment file, the same cannot take away the factual position that audit report was available for examination by the AO, therefore, the findings of the ld PCIT at para 5.10 are not borne out of record and the same are hereby set-aside.
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