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Income Tax - Case Laws
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2024 (4) TMI 740
LTCG u/s. 50C - leasehold right on land acquired - CIT(A) deleted addition by holding that leasehold right on land are not within the purview of section 50C - Ld. Counsel submitted that section 50C applies only in case of a transfer of capital asset being land or building or both and this section does not make a specific reference to “rights in lands or building” which otherwise is included in other provisions in the Act
Whether the transfer of leasehold rights in land falls within the purview of section 50C or not? - HELD THAT:- Coming to the facts of present case, where the transaction relates to transfer of a leasehold property whereby an industrial plot of land was allotted by MIDC under a lease agreement to the assessee and subsequently assessee transferred the said leasehold land to SMI for the remaining period of lease, the important point we need to consider is whether the leasehold rights which are restricted in nature are covered within the meaning of “capital assets being, land or building or both”, contained in section 50C(1).
We need to understand the nature of rights accruing on a property which is freehold and the one which is leasehold. In this respect, we do find force in the submission made by the Ld. Counsel exhaustively dealing with several parameters to distinguish between the features of leasehold property and a freehold property, already tabulated above. Accordingly, the capital asset being land or building or both referred to in sec. 50C(1) do not include leasehold rights in land or building or both.
Wherever legislature intended to include specific reference to “rights in land or building or part thereof” which is included in certain sections such as section 54D, section 54G, sec. 54GA, sec. 27(iiib), sec. 5(1) of Wealth Tax Act, 1957 and explanation to sec. 269UAD. Such a reference to “rights in land or building or part thereof” does not find place in sec. 50C(1) which sets it apart from the inference to be drawn that capital asset being, land or building or both would also include rights in land or building or part thereof, to cover leasehold rights which are limited in nature and cannot be equated with ownership of land or building or both. The Act has given separate treatment to land or building or both and the rights therein.
Thus we are in agreement with the submissions made by assessee to hold that leasehold rights in land are not within the purview of section 50C of the Act. Accordingly, we concur with the finding arrived at by CIT(A) in deleting the addition on account of long term capital gain for transfer of leasehold industrial plot u/s. 50C of the Act.
Alternate plea made by the Ld. Counsel as to application of first and second proviso to section 50C, we do find force in the same - assuming for a moment for the purpose dealing with this alternate plea that transfer of a leasehold right in land is covered by sec. 50C(1) then, on this alternative plea also, the assessee is adequately safeguarded by first and second proviso to sec. 50C whereby it had entered into agreement to sale with SMI to transfer the leasehold rights in land in the year 2011 itself for a consideration of Rs. 2 Cr. against which assessee had received Rs. 5 lacs in advance through banking channel, fact of which are undisputed and uncontroverted. Assessee had also placed on record the stamp duty value at that relevant time on record which is lesser than the actual consideration of Rs. 2 Cr. and thus, there cannot be any adverse bearing on the assessee by applying first and second proviso to sec. 50C in the instant case.
Appeal of the revenue is dismissed.
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2024 (4) TMI 739
Enhancement of assessment by CIT(A) u/s 251(2) - addition u/s 56(2)(vii) - HELD THAT:- As from the perusal of the provisions of section 251 of the Act, it is pertinent to note that though the statute has conferred the power of enhancement on the learned CIT(A) while disposing of an appeal against an order of assessment, however, as per the provisions of sub-section (2) the learned CIT(A) is required to grant reasonable opportunity of showing cause against such enhancement to the assessee prior to making any such enhancement. Ostensibly, in the present case, no such opportunity was granted by the learned CIT(A) to the assessee while making the aforesaid enhancement and directing the AO to tax Rs. 25 lakh in the hands of the assessee under section 56(2)(vii)(a) of the Act. Therefore, we are of the considered view that the learned CIT(A), while directing the impugned addition under section 56(2)(vii)(a) of the Act, did not comply with the provisions of section 251(2) of the Act.
Addition u/s 56(2)(vii)(a) - Whether such a contravention is an illegality or irregularity? - As u/s 56(2)(vii)(a) of the Act, one of the preconditions for the taxability of the money received by the assessee is that the same should have been received without consideration, which, in our considered view, is not fulfilled in the present case, as the amount was received by the assessee as a security deposit towards the development agreement entered into by the assessee with the developer for development of non-agriculture land. Since one of the conditions for applicability of section 56(2)(vii)(a) of the Act is not satisfied in the present case, we are of the considered view that the impugned enhancement directed by the learned CIT(A) under section 56(2)(vii)(a) of the Act is not sustainable.
Therefore, the impugned addition u/s 56(2)(vii)(a) is directed to be deleted. Since the relief has been granted to the assessee on merits, the course of action as noted above in case of non-compliance with the procedure prescribed under section 251(2) of the Act is now rendered to be merely an academic exercise and thus not required in the facts of the present case. Appeal by the assessee is allowed.
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2024 (4) TMI 738
Addition of commission expenses and franking charges - Allowable business expenditure or not? - HELD THAT:- From a perusal of it is noted that the assessee had furnished the details of the parties to whom the franking charge has been incurred by assessee (on behalf of the customers). However, no other evidences have been filed by assessee to prove that franking charges have been incurred wholly and exclusively for the purpose of business, CIT(A) confirmed the action of AO. On the same reason, the action of Ld. CIT(A) confirming the action of AO disallowing same is confirmed.
Therefore, issue regarding commission payment is restored back to the file of the AO for verification and the assessee to submit the relevant evidences as stated and the AO to pass order in accordance to law after hearing the assessee. Appeal of the assessee is allowed for statistical purposes.
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2024 (4) TMI 737
Expenditure incurred by the HO for salary paid to the expatriate employees for rendering services to PE - as per revenue these expenses being not recorded in books of assessee (PE) in India, were neither actually paid nor shown payable in books of Indian PE and as the assessee did receive the services of such value through its HO, simultaneously there was equivalent income also accruing to assessee u/s 28(iv) and once the AO having not made any separate addition u/s 28(iv), the disallowance of expenses claimed directly in computation of income was merely to bring tax neutrality - HELD THAT:- We observe from the record that identical issue is decided in favour of the assessee in the A.Y. 2001-02 [2023 (11) TMI 1250 - ITAT MUMBAI] wherein held that non-reimbursement of expenses incurred by HO for salary of employees of Indian PE did not result in taxable income in the hands of PE/HO under section 28(iv).
Taxability of interest income in the hands of Head Office - HELD THAT:- Identical issue is decided in favour of the assessee in the A.Y. 2001-02 [2023 (11) TMI 1250 - ITAT MUMBAI] interest paid by Branch to the Head office is not taxable under the domestic laws for the year under consideration.
Disallowance of interest paid to Head Office - assessee submitted that Assessing Officer held that interest income is taxable under DTAA at 10% in the hands of the HO and disallowed the claim of deduction on account of non-deduction of tax which is allegedly deductible at source - HELD THAT:- Identical issue is decided in favour of the assessee for the A.Y. 2001-02 [2023 (11) TMI 1250 - ITAT MUMBAI] to allow the deduction of interest paid to HO/OB in line with the decision of the Mumbai Special Bench in case of in case of Sumitomo Mitsui Banking Corporation [2012 (4) TMI 80 - ITAT MUMBAI] Further, the Appellant submit that Special Bench decision in case of Sumitomo (supra) is not only dealing with India-Japan Tax Treaty but also dealt with India-Netherland Tax Treaty. Your Honour will appreciate that the language of India-UK Tax Treaty (applicable in case of the Appellant) is in line with India-Netherland Tax Treaty. Revenue is not able to produce any argument to controvert the facts of the ground raised by the assessee and also not able to controvert the stand taken by the special bench in the case of Sumitomo Mitsui Banking Corporation (supra).
Nature of expenditure on Refurbishment - assessee submitted that these expenses incurred on refurbishment of various branch premises like electrical works, cabling and wiring, etc. Assessing Officer held that these expenses are capital in nature (and not revenue) disallowed the same - HELD THAT:- Identical issue is decided in favour of the assessee for the A.Y. 2001-02 [2023 (11) TMI 1250 - ITAT MUMBAI] as held looked upon expenditure which did bring about some kind of an enduring benefit to the company as revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, thus the expenditure should be looked upon as revenue expenditure.
TP Adjustment - Disallowance of expenses directly attributable to operation in India - Whether the allocation of cost by the Head Office are eligible and whether it is covered within the provisions of section 44C ? - HELD THAT:- These costs are allocated between the Head office and branches which are nothing but allocation of costs within the cost centers of same assessee, allocated the cost on the basis of allocation key, which are accepted principles without any profit element on it. The arrangements are within the organization and there cannot be any agreement, strictly speaking the agreement on allocation key is itself on an agreed terms between the branches.
It is not necessary that it should have a separate agreement between the branches and also there is no requirement of invoices between the branches it is enough that there are approved internal memo. It is agreed that it is an international transaction there has to be certain documents justifying the allocation with proper allocation key, which has to be documented with mutual agreement for demonstration of acceptance of such allocation key.
Once the branches and head office justifies the allocation key for allocation of various expenses, it justifies the purpose of sharing the internal costs. We observe that these costs are not just shared this year, it is a regular practice over the years by the head office or relevant branches which does services by submitting the various costs with proper allocation key. It is brought to our notice that various services are offered by the head office and relevant branches which also demonstrates the increase in the volume of business as well as services to Indian customers, this itself a benefit derived by the Indian branch. Therefore, in sum and substance, we observe that AO has intended to disallow the whole cost allocation made by the Head office to toe along with the findings in the earlier assessment years and not inclined to relook at the actual material or facts on record.
In our view, he has grossly rejected the documents and justification submitted by the assessee. We do not see any reason to differ from the findings of the Coordinate Bench in the earlier assessment years - AO himself partially accepted the findings of TPO and proceeded to disallow the whole allocation of costs, which demonstrates that he has no inclination to allow the costs incurred by the assessee.
Even the TPO partially recognizes the allocation of costs and rejects the cost which according to him not supported by the sufficient documents. It is Transfer Pricing Officer's obligation to call for the whole documents before closing the Transfer Pricing assessments and also he cannot treat any TP adjustment without properly justifying the reasons for such rejection. In this case, we observe that he has merely considered the submissions made by the assessee and he partially accepted the allocation and other part, he has proceeded to treat them as nil with the observation that there is no proper documents submitted before him.
The revenue cannot reject the CPA certificate since the same are specific and authenticated. As per Rule 10D(2)(A), the document must be supported by authentic documents, which includes authentication by the CPA. Therefore, the certification of allocation key and the same was authenticated by the CPA is proper documents as per Reule 10(2)(A) of the I.T. Rules. Respectfully following the above decision, we observe that in the given case also, the assessee has provided informations under Rule 10D(2)(A) and the cost allocation was also certified by the statutory auditors (CPA) of the Head Office and the service branches are submitted before tax authorities. However, this was not taken cognizance by the tax authorities. Therefore, we direct the Assessing Officer to verify the CPA certificate and verify the allocation key and relevant allocation of the cost to the Indian entity.
Disallowance u/s 14A - HELD THAT:- As following the principle of consistency, the view taken by the Tribunal in A.Y. 2001-02 is respectfully followed, accordingly, Assessing Officer is directed to restrict the disallowance to 1% of exempt income and ground raised by the assessee is partly allowed.
Premium paid on acquisition of retail asset portfolio - HELD THAT:- We observe from the record that the assessee has acquired the retail loan portfolio from Standard Chartered Grindlays Bank Ltd, which is a separate legal entity on the proprietary basis, it is also relevant to note that it has acquired the running retail portfolio business. Therefore, it is only a trading assets acquired by it. In our view, the assessee will get the benefit based on the tenure of this trading assets. It was submitted by the Ld AR that the tenure of this retail loans are for the period 2 to 5 years. Therefore, cost verses benefit has to be recognized in this transaction. The assessee has benefitted and recognized the income in the next 5 years, hence, in our view, it should be treated as deferred revenue expenditure and allocated in 5 equal installments. Therefore, we direct the AO to allow 1/5th of the cost in this assessment year and balance can be carried forward to the subsequent years. Accordingly, the ground raised by the assessee is partly allowed.
Deduction of Head office expenditure - HELD THAT:- Head office expenditure is allowed in entirety under the provisions of Article 26 of the tax treaty without the applicability of restriction under section 44C of the Act, and as the submissions by assessee not controverted by the Revenue, In view of this, ground of appeal of the assessee is allowed.
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2024 (4) TMI 736
Revision u/s 263 - As per CIT, AO has not examined the issue of interest expenditure claimed against interest from third party - SCN was issued relating to advancing of borrowing funds to the third parties without utilizing the funds for assessee's own business - HELD THAT:- We find that the in the notice issued u/s 142(1) of the Act specific questions have been raised in point 6 with regard to the investments/loans appearing in the balance sheet and justification regarding interest paid to others has been asked for. The assessee had made detailed submissions and after considering the same, the assessment has been completed and in the body of the assessment order, this issue has been dealt by the AO.
Assessing Officer has extensively examined this issue and has taken a plausible view after proper application of mind. It is not the case of no enquiry or incomplete enquiry. AO has carried out a detailed enquiry and after considering the fact that the assessee being into real estate project has borrowed funds from SREIIFL for the business purpose and for short term when the funds were idle as a prudent business man and for commercial expediency, the funds were utilized for giving loan to another concern. AO fairly dealt with this issue and on observing that interest expenditure has been claimed in the interest of business has allowed the said claim.
Under these given facts and circumstances, we firstly find that the assessment order is not erroneous as a detailed enquiry has been conducted and secondly not prejudicial to the interest of the revenue as the assessee has set off the interest expenditure against the interest income earned from applying the short term loans and advances - Revisionary proceedings u/s 263 quashed - Decided in favour of assessee.
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2024 (4) TMI 735
Assessment u/s 153A - Addition u/s 68 - bogus unsecured loan - unexplained cash credit received from shell/paper companies under the garb of unsecured loan - CIT(A) deleted addition - HELD THAT:- As on the date of search i.e., 29/01/2021, Assessment Years 2014-15 and 2015-16 fall under the category of completed/unabated assessment years and addition for such assessment years could have been made only if any incriminating material has been found by the search team indicating that the assessee had any unaccounted income/investment/unaccounted money. Perusal of the assessment order shows that the ld. Assessing Officer has not referred to any incriminating material. He has merely acted upon the informations available in the audited balance sheet relating to unsecured loans taken and based on the post search enquiry/information from third parties have made the alleged additions
We find that the ratio laid down by the Hon’ble Apex Court in Abhisar Buildwell (2023 (4) TMI 1056 - SUPREME COURT] is squarely applicable on the facts of the instant case and, therefore, since the AY 2014-15 & 2015-16 are completed and unabated Assessment Years and no incriminating material was found for the alleged Assessment Years during the course of search and the ld. Assessing Officer has made the addition without referring to any incriminating material, the addition has been rightly deleted by the ld. CIT(A). We thus fail to find any infirmity in the finding of the ld. CIT(A). Accordingly, the grounds of appeal raised by the revenue for both the Assessment Years are dismissed.
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2024 (4) TMI 734
Addition u/s 69 - AO made addition merely on the reasoning that the payment of consideration was not disclosed - assessee before the CIT(A) contended that the lands purchased by it through sale deed was not disclosed in the books as the consideration was not paid due to dispute - CIT(A) after considering the facts in totality confirmed the addition made by the AO - HELD THAT:- There is no dispute that the land in question was purchased by the assessee much earlier through the sale deed and payment for the same was made subsequently. Generally, such transactions are against the prevailing market forces/ practices. Under standard conditions, the buyer needs to make the payment to the vendor on or before the registration of the sale deed. There can always be exceptions to such kind of prevailing market practices but the same can be accepted if there is some reasonable justification.
We note that in the case of CIT versus Lubtec India Ltd [2007 (7) TMI 281 - DELHI HIGH COURT] has observed that the provisions of section 69C of the Act are applicable with respect to the expenditures which have actually been incurred by the assessee and the assessee fails to offer any explanation about the source of such expenditure. From the judgement, it’s transpired that actual expenditure, the source of which has not been explained, should have been incurred for attracting the deeming provisions provided u/s 69 of the Act.
In the present case there were several justifiable factors for the delayed payment against the purchase of land. These justifiable factors have been elaborated in the preceding paragraph and the same has not been doubted by the revenue authorities. Thus, in such facts and circumstances, we are of the view that the addition cannot be made in the hands of the assessee merely on the reason that the assessee got the property transferred through registered sale without making the payment to the vendor.
There was no document brought on record by the Revenue suggesting that the assessee has incurred the expenses in connection with the purchase of land in cash so as to apply the provisions of section 69 of the Act. As such, the provisions of section 69 of the Act cannot be attracted in the light of the discussion held in the case of Lubtec India Limited. (supra). Thus addition directed to be deleted - Decided in favour of assessee.
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2024 (4) TMI 715
Validity of Faceless Assessment - demand notice was issued without furnishing a draft order to the Petitioners - violation of principles of natural justice in not furnishing a draft order to the assessee and affording the assessee an opportunity to file its objection to the same - HELD THAT:- An opportunity must be given to the Department to follow the correct procedure and proceed with the matter in accordance with the law. In short, the error on the part of the Department was corrected, but the Department was allowed to proceed after such correction, thereby affording the assessee sufficient opportunity consistent with the principles of natural justice and fair play.
Secondly, M/S CWT India Pvt. Ltd. (2023 (9) TMI 438 - BOMBAY HIGH COURT), though rendered after the decision of the Hon'ble Supreme Court in Mantra Industries Ltd. [2023 (5) TMI 498 - SC ORDER], does not appear to have taken cognisance of the decision (supra). Perhaps this decision may not have even been cited before the Bench.
Instead, the reference can usefully be made to the decision in Faqir Chand [2021 (8) TMI 488 - DELHI HIGH COURT], Kottex Industries Pvt. Ltd. (2022 (10) TMI 1134 - GUJARAT HIGH COURT], Piramal Enterprises Ltd. (2021 (8) TMI 48 - BOMBAY HIGH COURT] where the impugned assessment orders were quashed but liberty was granted to the Department to proceed further in accordance with law and after complying with principles of natural justice and fair play.
Thus, for all the above reasons, we quash and set aside the impugned assessment order and notice and remand the matter to the Assessing Officer/ Department to take corrective measures and pass a fresh order.
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2024 (4) TMI 714
Rectification of mistake - period of limitation - To give appeal effect of orders passed by the ITAT and issue a refund. - whether the limitation period for the remand by the ITAT would have to be strictly construed to begin from the date when the order of the ITAT is “received” by the concerned authority through an appropriate mechanism, particularly in light of the provisions of Section 254 r.w.s.153(3) of the Act and the judgment rendered by this Court in Odeon Buildwell [2017 (3) TMI 1266 - DELHI HIGH COURT]?
HELD THAT:- The legal landscape in the present lis relates to sub-Section 3 to Section 153 of the Act which stipulates that an order for fresh assessment pursuant to an order u/s 254 or Section 263 or Section 264 of the Act may be made at any time before the expiry of a period of nine months. The said provision further encapsulates that the aforesaid period has to be calculated from the end of the financial year in which the order u/s 254 is received by the authorities mentioned in the said Section.
Evidently, from the extract of the relevant portion of the judgment in Odeon Buildwell (supra) in the preceding paragraph, it is seen that the contextual interpretation of the phrase “received” postulates the time when are the parties notified about the pronouncement and are represented at that instant in the open court. As held that the solitary reason of non-receiving of the order by the concerned authority cannot consequently make the period of limitation cease to run.
Court further noted that once a responsible authority including the Department’s Representative is aware of the order, the communication of the order is purely an administrative arrangement which has to be carried out internally within the Department.
Recently, in the case of Lakhpatrai Agarwal [2023 (2) TMI 533 - BOMBAY HIGH COURT] has held that the legislative intent behind the enactment of Section 254(3) of the Act does not prescribe shifting of the onus of proving the receipt of the order under the said provision on the assessee.
As safely concluded that the expression “received” employed in Section 153(3) of the Act would not strictly mean that a certified copy of the order of the ITAT, in the given facts and circumstances, ought to have been necessarily supplied to the concerned authority through an appropriate mechanism devised by the respondents.
Further, sub-Section 3 to Section 254 of the Act casts a duty upon the ITAT to send the copy of the orders passed under Section 254 of the Act to the assessee as well as to the Principal Commissioner or Commissioner. A conspectus of Section 254 read with Section 153(3) of the Act would reveal that the said provisions cannot be made applicable to the detriment of the petitioner in the case at hand.
There is no force in the argument put forth by the respondents that the order was not received by the concerned authority through appropriate channel. In any case, as decided in Odeon Buildwell (supra), the ground raised by the respondents is only an internal arrangement of the Department and the same cannot be stretched to mean that it is a valid ground for the extension of the limitation period. The underlying rationale of the Legislature behind the enactment of Section 153(3) and setting the limitation therein, cannot be envisaged to expand the time limit for passing of a fresh assessment. Rather, the said provision entails a strict adherence to the time period within which the remand order in the present case should have been complied with by the respondents.
Taking into consideration the ITAT’s response that the concerned order was sent on 24 October, 2018, the Department ought to have passed the order to give the appeal effect within twelve months from then. However, the same has not been done by the Department till date.
Since the respondents have failed to comply with the order of the ITAT in passing a fresh assessment order within the stipulated time, the instant writ petition is allowed.
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2024 (4) TMI 713
Prosecution Proceedings - Offence u/s 276B and 278B - not depositing the TDS amount for the Financial Year 2019-20 within the statutory period prescribed under law and delay caused by them remained unexplained - petitioners have delayed in depositing the amount collected on behalf of the govt. ranging from 15 days to 394 days - HELD THAT:- The maximum delay of 394 days for depositing the TDS amount to the revenue account have been well explained by the petitioners, therefore, the authorities ought to have been taken into consideration same, particularly for the reasons that the petitioners-company has suffered the I.B. proceeding and the restriction imposed during the COVID-19 pandemic, the petitioners case is directly covered by the judgments cited in the case of Dev Multicom Pvt. Ltd. [2022 (3) TMI 1038 - JHARKHAND HIGH COURT] and M/s. D.N. Homes Pvt. Ltd. Khurda & another [2023 (11) TMI 447 - ORISSA HIGH COURT] because the prosecution indeed has been initiated by the opposite parties against the petitioners after having received the TDs amount along with the interest. Therefore, the entire proceeding arising qua the petitioners stands quashed.
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2024 (4) TMI 712
Income tax proceedings against company dissolved / insolvent - Jurisdiction or authority to reopen or assess income for any period prior to the approval of the Resolution Plan - Distinction between voluntary and involuntary corporate insolvency - respondents chose to commence proceedings referable to Section 144B
HELD THAT:- Resolution Plan once approved would bring the curtains down on any claims pertaining to a period prior to the approval of the RP is no longer res integra.
We note that while dealing with an identical issue, we had in Ireo Fiverriver Pvt. Ltd [2024 (4) TMI 665 - DELHI HIGH COURT] as held successful resolution applicant cannot be foisted with any liabilities other than those which are specified and factored in the Resolution Plan and which may pertain to a period prior to the resolution plan itself having been approved.
Section 144B power entails proceedings for assessment, reassessment or re-computation being initiated in terms of the faceless procedure of assessment as prescribed therein. Any effort to assess, reassess or re-compute could tend to lean towards a re-computation of liabilities which otherwise stands freezed by virtue of the Resolution Plan having been approved.
Such an action or recourse would clearly be barred by Section 31 of the IBC which binds all creditors of the corporate debtor, including the Central and State Governments or any other local authority to whom a debt is owed. A Section 144B action is what the Supreme Court frowned upon and chose to describe as the “hydra head” and thus being contrary to the clean slate principle which the IBC advocates. We, consequently, find ourselves unable to sustain the impugned action.
We find ourselves unable to sustain that line of reasoning bearing in mind the undisputable legal position which obtains in light of the scheme of the IBC and which fails to incorporate any distinction between voluntary and involuntary corporate insolvency. As we read the provisions of the Act, the IBC does not erect different levels of protection or insulation dependent upon whether corporate insolvency had been initiated voluntarily or on the basis of a petition referable to Section 7 of the IBC.
In our considered opinion, the purport of Section 31 of the IBC stands conclusively settled by the Supreme Court in terms of the judgments rendered in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta and Ghanashyam Mishra [2019 (11) TMI 731 - SUPREME COURT].
We also bear in mind that upon commencement of CIRP, the petition is duly advertised in terms of the provisions made in Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and which would thus constitute due public announcement. The respondents, therefore, cannot sustain the invocation of Section 144B based on their own failure to lodge a claim within the time stipulated.
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2024 (4) TMI 711
Validity of Reopening of assessment - “tangible material” as may ever give rise to a “reason to believe" - Justice M.B. Shah Commission submitted its Report and only suggested possibility of under invoicing of Iron Ore extracted from mines and exported from the State of Goa - HELD THAT:- Undisputed between the parties that the present re-assessment proceeding has arisen under the unamended law i.e. the law that was in force upto 31.03.2021. Under the law as it then existed, no re-assessment proceedings could ever be initiated except against a valid “reason to believe” recorded by the assessing authority.
Second, even in a no assessment case, re-assessment could rise only after such “reason to believe” had been recorded in writing before issuance of notice u/s 148. Thus, recording of “reasons to believe” in writing was a sine qua non for valid assumption of jurisdiction to re-assess an assesse.
As to what amounts to a “reason to believe,” the law has remained settled over long decades. In S Ganga Saran and Sons (P) Ltd. [1981 (4) TMI 5 - SUPREME COURT] in the context of the then existing Section 147(a) of the Act, yet, in the context of initiation of reassessment proceedings upon recording of “reasons to believe”, it was established in law that those words were stronger than “is satisfied”; the “belief” must be based on “reasons” that are “relevant and material”.
For initiation of reassessment proceedings, there must exist “tangible material” indicating some income had arisen either on accrual or actual/ cash basis and that it has escaped assessment. Merely because the invoices issued by the petitioner were below the international price, it could never be alleged that there was any income on accrual basis as the petitioner earned no legal right to receive any higher amount. Therefore, we have to examine if there exists any material indicating receipt of any income on actual/ cash basis, over and above the invoice price.
The entire opinion of the Commission and the recital made in the “reasons to believe” recorded by the petitioner as also reasons recorded by that authority while rejecting the objections raised by the petitioner are directed and confined solely to the observations made by the Commission. The Report is not before us in entirety. To the extent it has been relied by the assessing authority, it only admits of a possibility of higher realizations having been made. Even that possibility exists not on the strength of any material discovered by the commission of higher realizations made by exporters (including the petitioner) but on a presumptuous basis solely by comparing the invoice price with the prevailing international price. Hence, that presumption/ opinion howsoever considered is not based on any hard evidence (either oral or documentary) of any higher price realized. Rather, it is conjectural and in any case on suspicion. Report remains a pure subjective opinion and nothing more.
The vital fact of value/ price realized by the petitioner against the invoice issued, was neither gone into nor any definite opinion was expressed thereto. In any case, no material was discovered by the Commission, as may support that “belief”.
Thus we find reassessment proceedings initiated against the petitioner for the AY 2011-12 were wholly without jurisdiction. It also being beyond the pale of doubt- unless jurisdiction is first clearly established, the reassessment- proceedings may not survive and an assessee may not be forced to participate in the same. Decided in favour of assessee.
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2024 (4) TMI 710
Disallowance of ESIC contribution - delayed remittance - HELD THAT:- It an admitted fact that due ESIC contribution is remitted beyond the due date prescribed under the relevant law. As rightly submitted by the Ld. AR that, this issue of disallowance has been settled by the Hon’ble Apex Court in ‘Checkmate Services’ [2022 (10) TMI 617 - SUPREME COURT] wherein their Hon’ble Lordship have held that the due date for depositing/remittance of PF/ESIC contribution etc., shall be governed by the respective PF/ESIC Act and assessee shall not be eligible for deduction if such contribution to respective fund is remitted beyond the due date prescribed therein.
Consequently such delayed remittance shall not be eligible to shelter under the extended period as prescribed by section 43B of the Act. In view thereof, the disallowance towards delayed remittance of ESIC made in the assessment and confirmed in appellate proceedings stands errorless. The ground raised challenging the disallowance thus stands meritless, hence dismissed.
Ad-hoc disallowances - ingenuine sale incentive/expenditure - HELD THAT:- On careful consideration of records it transpired that, neither of the lower tax authorities had pin-pointed any voucher where genuineness of sale incentive/expenditure claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business did not inspire any confidence, nor it was the case of the revenue that any part of the expenditure in question was either found bogus or fictitious, nor was found to have not been incurred by the appellant wholly and exclusively for the purpose of its business. Indeed, it showcased an exercise of running around the circle. Further we neither could come across any provision in Income Tax Statute nor it has been brought to our notice by either parties any provision which subscribes vis-à-vis empower the tax authorities to arrive at this logic of subscribing ad-hoc disallowances.
Evidently, there have been no clear findings as to number of vouchers requiring denial of allowances with the amount of expenditure and nature of defects therein or therewith. If the Ld. AO had any doubt with regard to the genuinity of any one of the vouchers produced he could have drawn sample vouchers and called upon the assessee to establish its genuineness. Moreover department could not bring out any deprecative material on record to substantiate its conclusion as logical.
We couldn’t even remotely see there is any mention of rationale in arriving at the percentile of disallowance in the present case. For the reasons we find force in the claim of the assessee that, devoid of any specific infirmity in the claim for deduction for sales incentives debited to profit & loss account, the ad-hoc disallowance is arbitrary and could by no means be held to be justified in given situation where books of accounts are subjected to audits.
Hon'ble High Court of Madras in ‘V.C. Arunai Vadivelan [2021 (2) TMI 501 - MADRAS HIGH COURT] wherein if the AO had any doubt with regard to the genuinity of any one of the vouchers produced he could have drawn sample vouchers and called upon the assessee to establish its genuineness. Without doing so, making an adhoc disallowance by not specifically assigning any reason to a voucher or bunch of vouchers is not legally tenable.’
Thus in the absence of clear finding about non-genuineness or fictitiousness of portion of expenditure disallowed, we find no favour with the arbitrary view of the tax authorities below. For the reason we vacate the ad-hoc disallowance in its entirety and thereby allow this ground.
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2024 (4) TMI 709
Deduction u/s 80P(2)(a)(i) - denial of deduction as no return had been filed within the time stipulated by the Assessing Officer in furtherance to his sec. 142(1) notice - HELD THAT:- As the amended provision herein i.e., sec. 80AC of the Act imposing such a stipulation of filing of sec. 139(1) return within the “due” date, has been substituted by the Finance Act, 2018 w.e.f. 01.04.2018 whereas the impugned assessment year herein is 2017-2018 only. There is no indication in the statute that this substituted sec. 80AC carries any retrospective effect. Thus find no merit in Revenue’s instant preliminary argument going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. M/s. Dilip Kumar And Co. & Ors. [2018 (7) TMI 1826 - SUPREME COURT]
As per sec. 80A(5) of the Act that the assessee had not made the impugned claim even in it’s alleged belated return - DR failed to rebut the clinching fact emerging from the assessee’s pleadings in Form-35 that the assessee had indeed raised the impugned claim in it’s return filed on 11.12.2019. It is reiterated that sec. 80AC of the Act has already been held as not applicable in light of the detailed discussion in preceding paragraph(s). Faced with this situation,we reject the Revenue’s instant second substantive argument while placing reliance on sec. 80A(5) of the Act.
Assessee has derived it’s impugned interest income from both nominal as well as regular members - This last issue is found to be no more res integra once hon’ble apex court’s recent landmark decision in Mavilayi Service Co-operative Bank Ltd., [2021 (1) TMI 488 - SUPREME COURT] has rejected the Revenue’s very stand. Faced with this situation, thus accept the assessee’s impugned sec. 80P(2)(a)(i) deduction claim in very terms. Necessary computation shall follow as per law. Ordered accordingly.
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2024 (4) TMI 708
Levy of penalty - Penal proceedings for misreporting of income u/s 270A - Excess exemption claimed on Gratuity u/s 10(10)(i) and Leave Encashment receipts u/s 10(10AA)(ii) - HELD THAT:- Levy of penalty in this case in our considered view was not warranted for the reasons that; (i) admittedly for part of the service the appellant was State Government employee whose employment by enforcement of electricity Act, 2003 and MSEGCL employee Service Regulation 2005 was converted into non-governmental service/employment. Therefore, the belief under which full/extended exemption of retirement benefit claimed in the ITR filed was in first not incorrect in its entirety and certainly it was bonafied and not synthetic one (ii) secondly, the explanation offered by the appellant in support of his mistaken but bonafied belief and disclosed all material facts of his service & the circumstance which swayed to claim full exemption in his ITR in our considered view squarely falls within clause (a) of s/s (6) of section 270A, therefore pardonable (iii) and finally, the imposition of penalty is at the discretion of Ld. AO, since s/s (1) of section 270A of the Act, refers to the word 'may' and not as ‘shall’.
The tax authorities below in our considered view were failed to appreciate the facts and circumstance of the present case holistically and further in right spirit of law, but dealt therewith without application of mind and perfunctory imposed / confirmed the penalty @ accelerated rate of 200% u/s 270A of the Act in unwarranted case like this.
In respect of penalty in fiscal laws the principle followed is more like the principle in criminal cases. That is to say the benefit of doubt is more easily given to the assessee, and this finds expounded in VV. IYER VERSUS COLLECTOR OF CUSTOMS [1972 (9) TMI 52 - SUPREME COURT].
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2024 (4) TMI 707
Fees levied u/s 234E - delay in filing TDS statement for various quarters - HELD THAT:- Following the judicial precedents laid in ‘Fatheraj Singhvi Vs UOI’ [2016 (9) TMI 964 - KARNATAKA HIGH COURT] NFAC has rightly allowed the appeal of the assessee and deleted the fees levied by the respondent u/s 234E of the Act wherein as held when the amendment made under Section 200A of the Act which has come into effect on 1.6.2015 is held to be having prospective effect, no computation of fee for the demand or the intimation for the fee under Section 234E could be made for the TDS deducted for the respective assessment year prior to 1.6.2015.
In the event, the present appeal filed against the impugned order seeking reversal in our considered view calls for no adjudication, hence deserves to be dismissed as infructuous. Thus, ordered accordingly.
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2024 (4) TMI 706
Levy of late fee u/s 234E for the delay in filing E-TDS return - contention of the assessee before the CIT (A) was that no late fee could be levied on the belated filing of the E-TDS return for the period prior to 01.06.2015, since the amendment to section 200A of the Act was made w.e.f. 01.06.2015 - HELD THAT:- With due respect to the judgement of Conceria International Ltd. Cited [2023 (12) TMI 281 - MADRAS HIGH COURT] the issue has been considered by the jurisdictional High Court in the judgement reported in Fatehraj Singhvi Vs. UOI [2016 (9) TMI 964 - KARNATAKA HIGH COURT], which was followed in the judgement reported [2022 (3) TMI 303 - KARNATAKA HIGH COURT], wherein the jurisdictional High Court has held that the levy of late fee for the belated filing of the e-TDS return for the assessment year prior to 01.06.2015 is not warranted.
When there is a judgement of the jurisdictional High Court, we have to follow the same and therefore, we hold that the levy of late fee could not be imposed for the disputed assessment year 2013-14 as held by the Hon’ble Karnataka High Court in the case of Fatehraj Singhvi Vs. UOI cited (supra). Accordingly, we delete the late fee levied under section 234E of the Act and allow the appeal of the assessee.
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2024 (4) TMI 705
Delay in filling appeal before the Tribunal - appeal is time-barred by 24 days - The assessee failed to respond to notices issued u/s 143(2)/142(1) for scrutiny assessment, leading to the ld. Assessing Officer passing the assessment order ex-parte u/s 144(1) based on best judgment - HELD THAT:- Punishment in the shape of taxes and penalty could be disproportionate to the negligence of assessee for not appearing before the AO or before the ld. 1st and 2nd Appellate Authority, but failure of the assessee to plead its case on merit do exhibit that it is a Company which is on papers only. The shadow prosecutor of the proceeding do ensure procedural compliance of filing appeals before the Appellate Authority in time.
Our experience of more than twenty years in adjudicating such type of litigation do suggest that this type of stand is being taken intentionally so that the time limit to take action in the case of those share applicants could be expired and a plea be raised before the Higher Appellate Forum that matter be remitted back for deciding afresh on merit. After expiry of six years earlier prior to 2021 and now ten years, action in the case of share applicant would not be taken up by the Income Tax Authorities. When we examine these facts and try to strike a balance between the adjudicatory process, then sometime it gives us pain and disappointment. But nevertheless, we have to resolve this dispute according to the material available on record.
A perusal of the application filed for condonation of delay, we are of the view that neither an affidavit of the Director is being filed nor exact details are submitted as to how this delay has happened. The assessee has not filed any confirmation from Ms. Devuani Dutta showing that appeal papers were submitted to her within time and she was busy in other tax matters and, therefore, could not file the appeal. Appeal of the assessee is dismissed.
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2024 (4) TMI 666
Levy of penalty - Penal proceedings for misreporting of income u/s 270A - Excess exemption claimed on Gratuity u/s 10(10)(i) and Leave Encashment receipts u/s 10(10AA)(ii) - HELD THAT:- Levy of penalty in this case in our considered view was not warranted for the reasons that; (i) admittedly for part of the service the appellant was State Government employee whose employment by enforcement of electricity Act, 2003 and MSEDCL employee Service Regulation 2005 was converted into nongovernmental service/employment. Therefore, the belief under which full exemption of retirement benefit claimed in the ITR filed was in first not incorrect in its entirety and certainly it was bonafied and not synthetic one (ii) secondly, the explanation offered by the appellant in support of his mistaken but bonafied belief and disclosed all material facts of his service & the circumstance which swayed to claim full exemption in his ITR in our considered view squarely falls within clause (a) of s/s (6) of section 270A of the Act, therefore pardonable (iii) and finally, the imposition of penalty is at the discretion of Ld. AO, since s/s (1) of section 270A of the Act, refers to the word 'may' and not as ‘shall’.
However, the tax authorities below in our considered view were failed to appreciate the facts and circumstance of the present case holistically and further in right spirit of law, but dealt therewith without application of mind and perfunctory imposed / confirmed the penalty @ accelerated rate of 200% u/s 270A of the Act in unwarranted case like this.
As in respect of penalty in fiscal laws the principle followed is more like the principle in criminal cases. That is to say the benefit of doubt is more easily given to the assessee, and this finds expounded in VV. IYER VERSUS COLLECTOR OF CUSTOMS [1972 (9) TMI 52 - SUPREME COURT]. In view of this, we set-aside the impugned order of Ld. NFAC and quashed the order of penalty. Appeal of assessee allowed.
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2024 (4) TMI 665
Reassessment proceedings against company dissolved / insolvent - Jurisdiction or authority to reopen or assess income for any period prior to the approval of the Resolution Plan - petitioner is the corporate debtor and the Resolution Plan in respect of which came to be approved by NCLT - HELD THAT:- The successful resolution applicant cannot be foisted with any liabilities other than those which are specified and factored in the Resolution Plan and which may pertain to a period prior to the resolution plan itself having been approved. See GHANASHYAM MISHRA AND SONS PRIVATE LIMITED [2021 (4) TMI 613 - SUPREME COURT] and COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT]
We allow the instant writ petition and set aside the impugned order under Section 148A(d). Decided in favour of assessee.
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