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Showing 261 to 280 of 1456 Records
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2024 (1) TMI 1196
Bogus sundry creditors - difference between the outstanding balance of the sundry creditors as on 31.03.2015 and 31.03.2014, which was the net increase in creditors by treating the same as bogus creditors - CIT(A) deleted addition admitting additional evidences - whether CIT(A) had clearly violated the provisions of Rule 46A of the Income-tax Rules, 1962, while admitting additional evidence? - as per revenue assessee has not furnished any sufficient cause for not submitting the evidence and had remained absent in the assessment proceedings though sufficient opportunity was given
HELD THAT:- CIT after considering the explanation of the assessee that the assessee was illiterate person and has studied upto fourth standard and he was not able to read English Language, we are of the opinion that the provision of Rule 46A(1) more particularly Sub-clause(b) thereof which reads as under is complied with as the assessee was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer.
In view of the above provisions of Rule 46A of the Rules, the assessee being an illiterate person could not appear before the Assessing Officer and the appellate proceedings being the continuation of the assessment proceedings, the CIT(A) has rightly permitted the assessee to produce the additional evidence in consonance with the Rule 46A of the Rules. Decided against revenue.
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2024 (1) TMI 1195
Validity of final assessment order u/s 144B - petitioner request for adjournment was ignored - HELD THAT: -The issue is squarely covered by the decision of this Court in case of Verichand Bawandas HUF Karta of HUF Pawankumar Virdhichand Agrawal vs. National E-Assessment Centre [2022 (8) TMI 91 - GUJARAT HIGH COURT] Assessee congenial approach should be reflected not only in the application of taxation laws but also in the procedural mechanism to be applied towards assessee in treating him for the purpose of tax. It hardly stood to reason that the department refused the request of the assessee for grant of time to file his response to the draft assessment order. There was sufficient time available for the final assessment to be made.
As it was pandemic time when the department should have adopted liberal approach in refusing the request for time for filing objection to the draft assessment order and finally passing the assessment order. The department acted thick skinned.Thus petitioner deserves to be granted a relief. The assessment order dated under Section 143(3) read with Section 144B are hereby set aside.
In view of the above dictum of law in the aforesaid case, the petition is required to be allowed and is accordingly allowed. Matter is remanded back to the Assessing Officer to decide the same afresh from the stage of the draft assessment order.
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2024 (1) TMI 1194
Reopening of assessment u/s 147 - applicability of the time frame provided in Section 149(1) - validity of order passed u/s. 148A(d) - Review of final order passed[2023 (10) TMI 1353 - MADHYA PRADESH HIGH COURT] challenging order passed u/s. 148A(d) - Review petitioner is before this Court with the assertion that liberty be extended to petitioner to raise all contentions admissible in law in appeal which has been preferred against the final assessment order
HELD THAT:- As evident from the reading of order under review that this Court had declined to enter into merits of the matter especially the legality and validity of the assessment order against which an appeal has now been preferred.
Accordingly, this Court is of the considered view that petitioner who is an appellant before the Appellate Authority cannot be denied to raise any ground admissible in law and which can otherwise be raised under the relevant statute permitting filing of appeal. Especially when the scope and nature of interference available u/Art.226 of Constitution is at variance to an appeal.
Review petition stands disposed of with liberty to the review petitioner to raise all possible, permissible contentions as per law u/s. 246A of the Income Tax Act while assailing the assessment order.
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2024 (1) TMI 1193
Validity of reassessment proceedings - Request adjournment date for submission of the response to the show cause notice - violation of the principles of natural justice - petitioner requested for adjournment to 17.3.2023 and the web portal of the Income Tax Department would suggest that the said request was considered, but no date was given for filing the response - petitioner was of the opinion that the petitioner had been granted time up to 17.3.2023 to give response to the notice , however, before 17.3.2023, the assessment order got finalised - HELD THAT:- As in agreement with the petitioner that in the absence of date mentioned for submission of the response to the show cause notice dated 23.2.2023, the petitioner had bona fide believed that the petitioner's request for adjournment to 17.3.2023 to give response to the show cause notice dated 23.2.2023 was accepted.
However, before 17.3.2023, the impugned order, Ext. P6, has been passed on 14.3.2023, and therefore, there was violation of the principles of natural justice. For that reason, the impugned order is bad in law and is liable to be set aside.
Present writ petition is allowed and the impugned order is set aside and the matter is remanded back to open the link provided to the petitioner for uploading the response to the show cause notice dated 23.2.2023. If the petitioner fails to upload the response within the time prescribed for the same, the assessing authority would be free to pass fresh order.
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2024 (1) TMI 1192
Exemption u/s 11 - delayed submission of Form 10B - mandatory v/s discretionary requirements - requirement of furnishing declaration for claiming exemption - audit report in Form No. 10B was not e-filed along with the return of income - non reliance of Supreme court decision - as submitted assessee ought to have filed the audit report in Form 10B before the due date of filing of the return to claim the exemption - ITAT allowed exemption -
HELD THAT:- Reliance placed on the decision of M/s. Wipro Limited [2022 (7) TMI 560 - SUPREME COURT] would not be applicable as in the facts of the present case, the assessee has claimed the exemption u/s 11 read with Section 12A(1)(b) of the Act which required the assessee to file audit report in Form of 10B which has nothing to do with claiming 100% exemption of total income in respect of newly established 100% Export Oriented Undertakings under Section 10B. Section 10B(8) requires the assessee to file an undertaking before the due date of furnishing of return of income under sub-section (1) of Section 139 before the AO in writing that the provision of Section 10B may not be made applicable to him, otherwise the provision of this Section shall not apply to him for any of the relevant assessment year.
Considering the language of the provision of Section 10B(8) of the Act, the Hon’ble Supreme Court in M/s. Wipro Limited [supra] held that it was mandatory on part of the assessee to file declaration before the due date of filing of return under sub-section (1) of Section 139 of the Act, whereas in the facts of the said case the assessee filed such undertaking along with the revised return under sub-section (5) of Section 139 and in such facts the Hon’ble Supreme Court held that the twin conditions prescribed under Section 10B(8) of the Act was mandatory to be fulfilled and it cannot be said that though the declaration is mandatory, the filing of such declaration within the due date of filing of return under sub-section (1) of Section 139 would be directory.
Tribunal has rightly followed the decision of this Court in case of Sarvodaya Charitable Trust [2021 (1) TMI 214 - GUJARAT HIGH COURT] as well as Social Security Scheme of GICEA [2022 (12) TMI 1172 - GUJARAT HIGH COURT] to uphold the decision of the CIT (Appeals), wherein this Court has held that the approach of the authority in such type of cases should be equitable, balancing and judicious and respondent No. 2 might be justified in denying the exemption under Section 11 of the Act being a technical in nature by rejecting such application. But, in the facts of the case, when the assessee has already uploaded the audit report in Form 10B as required under Section 10(23)C r.w.s. 12A(1)(b) of the Act before the Assessing Officer prior to the original assessment order under Section 143(3) passed on 06th April, 2021. Decided in favour of assessee.
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2024 (1) TMI 1191
Revision u/s 263 - accrued interest income on deposit - addition on account of notional interest @10% on deposit - HELD THAT:- In view of the concurrent findings of the fact arrived at by both the authorities and in view of the fact that there was a stipulation in the loan agreement between the assessee and the M/s. Sanman Holdings Private Limited, which was placed on record by way of a paper book, Clause-f of the loan agreement reads as under Borrower shall pay interest at the end of the financial year to the Lender at the rate of 10% per annum, subject to its financial position and profitability, on the Loan from the date of disbursement of the Loan, after deduction of applicable Tax deduction at source. Any unpaid interest at the last business day of financial year shall be treated as loan to the borrower on first business day of next financial year. In event of amalgamation, merger or demerger or takeover of borrower or any other change in its management the liability to pay interest shall cease and lender shall not be entitled to any interest from the appointed date for such event.
As M/s.Sanman Holdings Private Limited to whom the assessee has advanced the loan was amalgamated with M/s. Tanti Holdings Private Limited, no interest was liable to be paid to the assessee as per the aforesaid clause. This fact is considered by both the authorities and accordingly it was held that the no interest accrued to the assessee from 01.04.2010. No substantial question of law.
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2024 (1) TMI 1190
Reopening of assessment u/s 147 - validity of order u/s 148A(d) without granting time to the petitioner to file reply to the notice under Section 148A(b) of the Act - HELD THAT:- Petitioner was not provided an opportunity of hearing and the matter may be remanded back to the respondent-AO so as to enable the petitioner to file a reply to the notice u/s 148A(b) because keeping this matter pending before Hon’ble Court would delay the assessment proceedings, if required to be re-opened after considering the reply of the petitioner and giving opportunity of hearing to the petitioner.
Considering the above submissions, the impugned notices issued u/s 148A(b) and 148 respectively of the Act as well as the order passed u/s 148A(d) of the Act are hereby quashed and set aside remanding the matter back to the respondent-Assessing Officer so as to grant an opportunity of hearing to the petitioner to file a reply as provided u/s 148A(b).
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2024 (1) TMI 1189
Addition u/s 68 - accommodation entries receipts - onus to prove - notices u/s 133 (6) issued to the companies but assessee could not produce the Directors/Principal Officers of the said companies - information was received by AO from the Investigation Wing of the Department that the assessee is beneficiary of taking accommodation entries in the garb of share application money/share capital from entry providers - HELD THAT:- All the documentary evidences were duly provided to the AO. AO did not offer any examination of these documents and did not mention even a single adverse point in the financials of these companies. His whole exercise was based upon his claim that section 133 (6) notice was returned unserved.
It was not at all the case that these companies were not having PAN or they were not filing income-tax returns. CIT (A) has mentioned that AO has issued summons u/s 131 of the Act to the Directors of the company but no such mention was there in the order of the AO. From the examination of the financials, balance sheet and bank statement, it is noted that transactions were through banking channel and these companies have sufficient financial reserves to provide the credits/ loans to the assessee company.
Thus when all the details were provided and no adverse feature was noted therein, assessee has discharged the onus cast upon it. The authorities below have based these adverse orders only by making general observation and repeating that assessee did not produce the directors of these companies.
Thus as assessee has discharged its onus, hence orders of authorities below are set aside. Since addition under section 68 of the Act has been directed to be deleted, the addition for commission does not survive and the same is also directed to be deleted - Decided in favour of assessee.
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2024 (1) TMI 1188
Validity of Reopening of assessment u/s 147 - receipt of interest income - HELD THAT:- Admittedly, it is a matter of fact borne from record that the A.O while framing assessment vide his order passed u/s. 143(3)/147 had not made any addition qua the very reason for which the case of the assessee company was reopened u/s. 147. We find substance in the claim of the AR that in absence of any addition having been made by the A.O as regards the very reason based on which the case of the assessee company was reopened u/s. 147 then no valid jurisdiction could have there been assumed by him to frame assessment u/s. 147 of the Act. Our aforesaid view is fortified by the judgement of Jet Airways (I) Ltd. [2010 (4) TMI 431 - HIGH COURT OF BOMBAY].
At this stage, we may herein observe that the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Jet Airways (I) Ltd. (supra) had been followed in case MAJOR DEEPAK MEHTA [2011 (11) TMI 462 - CHATTISGARH HIGH COURT]
Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions vide his order passed u/s. 143(3)/147 we herein quash the same. Decided in favour of assessee.
Validity of scrutiny assessments - converting the “limited scrutiny” into “complete scrutiny” - additions on items not covered under scope of limited scrutiny - HELD THAT:- As is discernible from the assessment order the case of the assessee company was selected for “limited scrutiny” for the following reason:
“(i) Large share premium received during the year (verify applicability of Section 56(2)(viib)”
Admittedly, it is a matter of fact borne from record which has not been rebutted by the Ld. DR that the A.O at no stage of the assessment proceedings had obtained approval of the Pr. CIT for converting the “limited scrutiny” into “complete scrutiny” as provided by the CBDT Circular No. 20/2015 [F. No.225/269/2015-ITA-II], dated 29.12.2015.
Considering we find, that as stated by the AR, and rightly so, the scope of jurisdiction of the A.O while framing the “limited scrutiny” was circumscribed by the very purpose/reason, for which, the case of the assessee company was selected for scrutiny assessment. Accordingly, we find substance in the claim of the AR that the A.O had clearly exceeded his jurisdiction by making disallowances/additions which never formed the basis for selection of the case of the assessee company for “limited scrutiny”. Our aforesaid view is fortified by the order of the Co-ordinate Bench of the Tribunal, Raipur in the case of Aryadeep Complex (P) Ltd [2022 (8) TMI 383 - ITAT RAIPUR].
Considering the fact that the A.O in the present case before us, had wrongly assumed jurisdiction and made the impugned additions/disallowances vide his order passed u/s. 143(3) we herein vacate the same. Decided in favour of assessee.
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2024 (1) TMI 1187
Disallowance u/s 14A r.w.r. 8D - AO found that the assessee earned dividend income - mandation of recording satisfaction - assessee contended that the purpose of investment in equity shares is to have controlling interest in the respective investee companies and not to earn dividend income which has causally arisen; the expenditure incurred is not ‘ in relation to’ exempt dividend income and that the investments have been made out of surplus funds available with the company - CIT(A) confirmed the disallowance representing administrative expenses @0.5% u/R 8D(2)(iii) on the total average investment and allowed relief being indirect interest disallowed by the Ld. AO on account of investments made in earlier years and new investments made in the year - HELD THAT:- As factual finding of the CIT(A) could not be controverted by the Ld. CIT-DR by bringing on record any adverse material whereas the record reveals that as against available amount of share capital, reserve and surplus was more than investment in shares for AY 2011-12, 2012-13, 2013-14 and 2014-15 respectively. In such a scenario, the decision of the CIT(A) cannot be faulted on the ground that he erred in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income i.e dividend. We, therefore, reject the Revenue’s stand in this regard. Moreover, the decision of the Ld. CIT(A) is in consonance with the view expressed by the Hon’ble Supreme Court in the case of South Indian Bank Ltd. (2021 (9) TMI 566 - SUPREME COURT].
Mandation of recording satisfaction - Non-recording of satisfaction as embedded in sub-section (2) of section 14A is a legal infirmity committed by the Ld. AO which cannot be ignored.
Computation of book profit u/s 115JB - The Hon’ble Karnataka High Court has held in its decision in Shobha Developer Ltd. (2021 (1) TMI 378 - KARNATAKA HIGH COURT] that once disallowance made u/s 14A r.w. Rule 8D is deleted, said disallowance cannot be made while computing book profit u/s 115JB of the Act. No contrary decision has been brought to our notice by the Ld. CIT-DR. We therefore, accept the contention of the Ld. AR in this regard.
Denial of reduction of refund claim of excise duty (CENVAT) being a capital receipt while computing book profit under section 115JB - HELD THAT:- As decided in Ankit Metal and Power Ltd. [2019 (7) TMI 878 - CALCUTTA HIGH COURT] as held the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J & K as Formulated by the Central Government is a capital receipt not liable to tax, accordingly the same cannot be part of book profit u/s 115JB also.
Deduction u/s 80IB on scrap sale generated out of manufacturing activity of the assessee - disallowance for the reason that income from sale of scrap generated during manufacturing cannot be said to have been derived from industrial activity as it does not flow directly from such activity - CIT(A) deleted addition - HELD THAT:- Since the issue is covered in favour of the assessee and against the Revenue by the decision of Sadhu Forging Ltd [2011 (6) TMI 9 - DELHI HIGH COURT] which has been followed by the Ld. CIT(A) as also by the Coordinate Bench of the Tribunal, we decline to interfere with the order of the Ld. CIT(A) on the point and reject this ground of the Revenue.
Deduction u/s 80IB “other income” comprising of freight, exchange rate fluctuation and insurance recovery - CIT(A) deleted addition - HELD THAT:- Nothing has been brought on record by the Ld. CIT-DR to interfere with the above findings of the Ld. CIT(A). AR has relied on the decision of the Hon’ble Supreme Court in CIT vs. Meghalaya Steels Ltd. [2016 (3) TMI 375 - SUPREME COURT] - Hence, we have no reason to interfere with the findings of the Ld. CIT(A). Accordingly, ground No. 3 of the Revenue is dismissed.
Deduction u/s 80IB export incentive receipt - as held by the Ld. CIT(A) as part of sale proceeds and hence an allowable - HELD THAT:- We find no infirmity in the order of the Ld. CIT(A). Interest, export incentive and other misc income as already been reduced from eligible profit which is evident from the computation of income itself. The nature of remaining amount of other income in Jammu Unit I, Unit II and Unit III has been explained by the CIT(A) along with cogent reasons for their inclusion in eligible profits in the respective units. We, therefore, decline to interfere.
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2024 (1) TMI 1186
Revision u/s 263 - Disallowance u/s 40(a)(ia) on non deduction of TDS - HELD THAT:- As assessee has demonstrated that invoices were indeed raised and payments were made to the mentioned parties during the subsequent financial year, i.e., Financial Year 2010-11, for which the TDS was duly deducted and remitted to the Government. In support of its claims, the assessee has furnished a copy of the work orders, Form No.16A, a comprehensive chart delineating the details of the invoices, payments, and TDS payments, along with ledger accounts pertaining to both parties.
Details furnished convincingly indicate that the work carried out by the two parties was quantified and crystalised during the subsequent year. Assessee's genuine admission of inadvertently including the names of the aforementioned parties in the list of entities with no TDS deduction, which was duly recognized by the AO during the framing of the assessment under section 143(3), it becomes evident that there is no justifiable ground for the Principal CIT to invoke power u/s 263 of the Act.
As important to note that there is no revenue implication, and no prejudice has been inflicted upon the Revenue, as the applicable tax rate for the invoice payment in the subsequent year, during which the invoice payment was properly accounted for, included the appropriate TDS deduction.
Considering the lack of substantial grounds for the CIT to exercise authority u/s 263 of the Act, and in light of the absence of justifiable reasons to alter the assessment framed by the AO u/s 143(3) we hereby quash and set aside the impugned order of the CIT passed u/s 263 and restore the original assessment order of the AO passed under section 143(3) of the Act. Assessee appeal allowed.
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2024 (1) TMI 1185
Rejection of books of accounts - estimation of income of the assessee by applying 10% to the gross turnover of the assessee - disallowance of staff welfare expenses, interest expenses and on the disallowance of travelling expenses by CIT - HELD THAT:- On travelling expenses, the assessee had time and again reiterated that the AO had examined only 0.6% of the total expenses, and found them to be unverifiable. But that the ld.CIT(A) without giving any reason for not agreeing with the assessee’s contention, went on to summarily hold that 20% of the expenses are to be disallowed, that too without giving any opportunity of hearing to the assessee before doing so.
Similarly, the staff welfare expenses were also disallowed to the tune of 10% of the same, without even giving an opportunity to the assessee or confronting the same to the assessee. In the same manner, CIT(A) has made disallowance of interest expenses on WIP without confronting the same to the assessee.
Clearly, the order passed by the CIT(A) is in gross violation of the principles of natural justice and the additions made by him are not sustainable for this reason alone.
Powers of CIT(A) - Whether disallowance of staff welfare expenses and interest expenses was beyond the power of the CIT(A)? - Though section 251 of the Act gives power to the ld.CIT(A) to expand scope of the assessment made, but the Hon’ble Supreme Court in various decisions has held that the scope cannot be expanded to discover new source of income.
Once an assessment comes before the first appellate authority, his competence is not restricted to examining those aspects of the assessment which are complained of by the assessee, but ranges over the whole assessment and it is open to him to correct the Assessing Officer not only with regard to matter raised in appeal but also with regard to all matters considered by the AO . He can revise every process which led to the ultimate computation or assessment. But this power cannot extend to the Ld.CIT(A) discovering new sources of income. The Hon’ble apex court laid down this law in CIT vs Shapoorji Pallonji Mistry [1962 (2) TMI 12 - SUPREME COURT] which was followed in the case of Union Tyres [1999 (9) TMI 81 - DELHI HIGH COURT] and Scindia Steam Navigation Co. Ltd. [1970 (3) TMI 34 - BOMBAY HIGH COURT]
We hold, that the disallowance made with respect to the staff welfare expenses and interest expenses, is not sustainable in law being beyond power of the CIT(A). The same is directed to be deleted. Decided in favour of assessee.
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2024 (1) TMI 1184
Adjustment done by the CPC u/s 143 (1)(a)(v) - Deduction u/s 80P disallowed treating the return filed by the assessee as ‘belated return’ - As argued accounts of the assessee are required to be audited u/s 64 of the U.P. Cooperative Societies Act, 1965 and as such the ‘due date’ of the return fails within Explanation 2(1)(ii) to section 139 (1) and the return filed on 01.10.2018 by the assessee was not a ‘belated return’ - whether the adjustment done by the CPC u/s 143 (1)(a)(v) of the Act is correct or not?
HELD THAT:- As noted that prior to amendment in deduction u/s 143(1)(a)(v) by Finance Act on 01.04.2021, the disallowance of deduction was limited to sections 10AA, 80IA, 80IAB, 80IB, 80IC, 80ID and 80IE. Thus, the deduction claimed u/s 80P was not mentioned there. Hence, we are of the opinion that ld. CIT (A) has erred in interpreting the amendment. We are of the opinion that assessee is correct in saying that the impugned adjustment by the CPC was not permissible u/s 143(1)(a)(v) of the Act at the extant time. Accordingly, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
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2024 (1) TMI 1183
Revision u/s 263 - large share premium received during the year under consideration - valuation of shares and the applicability of Section 56(2)(viib) - PCIT held that the assessment records reflect complete lack of enquiry on the issue of ‘fair market value of the shares issued during the year’, as the order revolves only around the transaction of EPF/ESI Contribution and the assessment order is cryptic and non-speaking - HELD THAT:- For the purpose of determination of fair value, the Assessee produced Valuation Report prepared under Rule 11UA of Income Tax Rule 1962. The said valuation has been prepared by the Chartered Accountant based on the books of account, financial statements and other records of the Company drawn up to 26/02/2015.
Assessee produced audited balance sheet before the A.O. as on 31/03/2015 and furnished balance sheet as on 02/03/2015, but the audited balance sheet has been disbelieved by the PCIT on the ground that the balance sheet as on 02/03/2015 has not been approved by the Annual General Meeting the same cannot be considered for the purpose of Rule 11UA of the Rules. The said observation of the Ld. PCIT is not supported by any of the provisions of law.
On the contrary, the Rule 11UA of the Rules does not mentions the pre-condition of approval of the balance sheet by the Annual General Meeting. Therefore, the above finding of the Ld. PCIT is found to be perverse. As assessee has already produced all the details in respect of the issue of ‘large share premium received during the year under consideration’ at the time of original assessment proceedings itself which has been already dealt by the A.O. and decided in favour of the Assessee CIT(A) has committed error in exercising the power conferred u/s 263 - Decided in favour of assessee.
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2024 (1) TMI 1182
Validity of assessment order passed u/s 143(3) - Notice issued u/s 143(2) as time barred - HELD THAT:- We have perused the assessment record. We find that there is no notice dated 29.03.2010, is available on record. This fact is fairly admitted by Ld. Sr. DR for the Revenue. Therefore, it can be safely inferred that the only notice u/s 143(2) of the Act was issued on 21.10.2010. However, as per record, in response to the notice u/s 142(1) of the Act, the assessee had filed return of income on 30.09.2009, declaring NIL income.
Therefore, we find merit into the contention of the assessee that notice u/s 143(2) dated 21.10.2010 is barred by time. The assessment order in consequence of time barred notice u/s 143(2) of the Act, is thus bad in law. Decided in favour of assessee.
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2024 (1) TMI 1181
Clubbing of income of Non-resident and Permanent Establishment (PE) - Levy of surcharge at 5% as against assessee’s claim of 2% as clubbing the total amount exceeded the threshold limit of Rs. 10 lakhs - whether the royalty and FTS income can be subjected to levy of surcharge, as provided under the domestic law?
HELD THAT:- Taxability of royalty and FTS has been dealt under Article 12 of India – Germany DTAA. As per Article 12(2) of the treaty, royalty and FTS can be taxed in the source state at a rate not exceeding 10% of the gross amount, if the recipient is the beneficial owner of such royalty and FTS.
Undoubtedly, the assessee, being a beneficial owner of royalty and FTS, has offered to tax the royalty and FTS on gross basis by applying rate of 10%. This, in our view, is in compliance with the treaty provisions. Therefore, further levy on account of surcharge exceeds the rate of 10%, hence, cannot be levied on royalty/FTS income, as, it would be in violation of Article 12(2) read with Article 2 of India – Germany DTAA.
To get over the mandatory condition of Article 12(2) of the Act, learned first appellate authority has made an attempt to link royalty/FTS income to the Supervisory PE. Neither it is the case of the assessee that such income is linked to the PE, nor the department has brought any material on record to demonstrate that royalty and FTS income is effectively connected to the PE.
Therefore, in our view, the royalty and FTS income offered by the assessee has to be essentially governed under the treaty provisions and not under the domestic law. Thus, in our view, the Departmental Authorities have erroneously clubbed the royalty and FTS income with the income of the PE for the purpose of surcharge at the rate of 5%.
Direct the AO to accept assessee’s computation and delete the extra demand raised on the assessee, both on account of surcharge as well as consequential demand relating to cess and interest. Decided in favour of assessee.
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2024 (1) TMI 1180
Exemption u/s 11 - assessment of trust - accumulation of income as per section 11(2) of IT Act r.w.r.17 of the Income Tax Rules - Charitable activity u/s 2(15) - According to the assessee merely because assessee has stated the purpose for which the income is being accumulated as “Basic Education, Health Care and Nutrition to Underprivileged children”, the Ld. CIT(A) could not have upheld the action of the AO - Whether Section 11(2) of the Act makes it necessary for the assessed to make specific mention of any purpose or purposes to enable it to accumulate the income?"
HELD THAT:- We note that the assessee is a public charitable trust registered u/s 12A of the Act with the main objective to do philanthropic acts and to take care/education of street-children/under-privileged children. The objective for the Trust were to do philanthropic acts and to take care of street-children/under-privileged children and especially their (i) Health Care (ii) Nutrition (iii) Literacy and basic education (iv) Self-esteem (v) Group skill, support services and associated support services (vi) Income generating schemes and (vii) Advancement of any other, social welfare objective.
According to AO, the assessee had not applied 85% of the income but has accumulated income u/s 11(2) for the purpose of “Basic Education, Health Care and Nutrition to Underprivileged children” which reason for accumulation, according to him, was not for a specific purpose, and instead was only a reiteration of the broad objectives of the trust - We note that assessee Trust while making a claim for accumulating income as per sub-section (2) of section 11 of the Act, has fulfilled the conditions prescribed therein by filing the Form 10 wherein the assessee has spelled out the purpose for accumulation as “Basic Education, Health Care and Nutrition to Underprivileged children” which we find is in consonance with the purpose/object of the trust itself. Therefore, according to us, the claim for accumulation u/s 11(2) of the Act cannot be denied to assessee.
As decided in the case of Hotel and Restaurant Association (2003 (3) TMI 92 - DELHI HIGH COURT), held that even though it is true that specification of certain purpose or purposes is needed for accumulation of trust’s income u/s 11(2) of the Act, but at the same time, the purpose or purposes to be specified cannot be beyond the objects of the Trust. Their Lordships observed “Plurality of the purposes for accumulation is not precluded, but it depends on the precise purpose for which the accumulation is intended”.
Thus, we find that in the present case that income sought to be accumulated by the assessee was to achieve the object for which the assessee was incorporated. We find that it is not the case of AO/Ld. CIT(A) that any of the objects of the assessee trust were not for the purpose beyond the object of the trust or not charitable purpose.
Statement of financials of the trust that assessee has applied its income for the education, feeding and clothing of the street children of Mumbai. We note that the income sought to accumulated by assessee was to achieve the three objects for which the assessee was formed. Before us, the Ld. DR could not point out that purpose shown in Form 10 for accumulating Rs. 30 Lakhs was not for object of the trust. In such a scenario, since assessee has satisfied the conditions laid down in section 11(2) of the Act for accumulation of the income, the same has to be allowed. Appeal of the assessee is allowed.
CIT(A) not allowing the credit for TDS - At the time of hearing no arguments was advanced on this issue. However, we note that the Ld. CIT(A) has remanded this issue back to the file of the AO for verification and pass order. We confirm the action of the Ld. CIT(A) to the extent of remand back to the AO, and direct the AO to adjudicate the issue afresh.
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2024 (1) TMI 1179
Addition of income based on Disclosure made by assessee during survey - whether any incriminating material found during survey? - HELD THAT:- CIT(A) rightly held that having accepted the disclosure of the assessee as representing profits of the year in the preceding year, AO could not have taken a different stand in the impugned year for treating the disclosure as an independent disclosure of income and not relating to the profits of the assessee for the year.
In the absence of any incriminating material found during survey to form the basis for the surrender made by the assessee and the assessee duly explaining the basis of its surrender and the reason for not disclosing the same in the return filed, duly backed with evidence, we do not find any infirmity in the order of the CIT(A) deleting the addition made on account of the disclosure made by the assessee during survey of Rs. 7 crores.
The contention of the DR that the assessee had retracted its disclosure which was possible only if the retraction was supported with evidence and explanation, we find that, in the present case, there was in fact no retraction made by the assessee. As noted above, what the assessee had disclosed was the profits that it estimated to earn during the year and what it had returned was its actual profits and the reasons for the fall in profits had been duly explained by the assessee, in which explanation there was no infirmity pointed out by the AO.
Therefore, it is not a case of retraction of disclosure or surrender made by the assessee and even if found so the assessee has given basis for retracting the surrender. It is relevant to note that the disclosure was not based on any incriminating material found during survey which the AO had admitted. It is only when the disclosure is based on some incriminating material found with the assessee that it is required to substantiate its retraction with evidences. It is only when the Revenue has found the assessee to have not disclosed particular income supported with evidence and which the assessee surrenders, the retraction of such surrender then has to be duly supported with evidence and cannot be based on a blanket retraction without any evidence. The case law relied upon by the ld. DR has not pointed out how the decision relied upon by it, is applicable to the facts of the present case. Ground of appeal Nos. [i] to [iv] raised by the Revenue, therefore, are dismissed.
Estimation of net profits - addition on account of enhancement of net profit as the assessee has shown drastically low net profit as compared to preceding previous years without furnishing any cogent reason - CIT(A) deleted addition - HELD THAT:- AO has made some general comments without bringing on record any specific instance of what books of accounts are incorrect and incomplete. He noted that these are audited books of accounts and merely on account of claiming certain expenditures in cash, the same cannot be rejected. As observed that AO has brought no material to justify the rejection of books of accounts. With respect to the fall in net profits which the AO had noted from the preceding year, CIT(A) noted that the assessee had justified the fall with a reasonable expenditure evidenced by its audited books of accounts of the assessee. He noted that the gross profit of the assessee in fact had increased in the impugned year as compared to the preceding year but there was a fall in net profit on account of unprecedented circumstances resulting in huge interest expenditure and foreign exchange loss incurred by the assessee.
DR was unable to controvert the above findings of the ld. CIT(A). A perusal of the assessment order also reveals that the ld. CIT(A) has rightly noted the AO to have rejected the books of accounts of the assessee in a very casual manner, without pointing out any specific major discrepancy in its books to lead to such a conclusion.
We have noted of the assessment order that he has made a general statement of various expenses viz. communication, travelling and conveyance, printing and stationery, postage and courier, office expenses, vehicle running and hiring expenses, legal and professional, freight and forwarding, and so on and so forth, having not been properly vouched and not fully verifiable, and expenses having been incurred in cash. He has also noted the fall in net profit of the assessee from 6.24% in the AY 2010-11, 4.87% in AY 2011-12, 0.51% in the impugned year.
We concur with the ld. CIT(A) that for rejecting the books of accounts, there has to be a specific finding by the Assessing Officer that the books are not reliable for arriving at a true and correct profits earned by the assessee. Merely making a general statement that some vouchers were unsupported or there were expenses incurred in cash by the assessee, cannot justify such adverse action of the Assessing Officer in rejecting the otherwise audited books of accounts of the assessee. Also we find that the assessee had explained reasons for fall in net profit, pointing out that while its gross profits had increased during the year, the net profit had fallen on account of increase in financial cost and huge foreign exchange losses incurred by it which were pointed out even by the auditors of the assessee-company. No anomaly in these accounts or claims of the assessee has been found by the Assessing Officer. Therefore, we completely agree with the ld. CIT(A) that the rejection of books of accounts of the assessee was totally unjustified. The addition, therefore, made by estimation of the net profits, we hold, has been rightly deleted by the ld. CIT(A).
Disallowance of expenses incurred for the purpose of earning exempt income u/s 14A - CIHELD THAT:- DR was unable to controvert the factual findings of the ld. CIT(A) with respect to the sufficiency of own funds available with the assessee for the purposes of making investment for earning exempt income, nor was he able to distinguish the decision of the Hon’ble Apex Court relied upon by the ld. CIT(A) in the case of South Indian Bank Limtied [2021 (9) TMI 566 - SUPREME COURT] for applying the proposition that where sufficient own funds are available, no disallowance of interest was warranted. In view of the same, we do not find any merit in the ground raised by the Revenue in this behalf and the same is thus dismissed.
Disallowance of interest expenditure u/s 36(1)(iii) - failure of the assessee to provide one to one nexus between the interest free fund vis-a-vis its interest free advances - HELD THAT:- CIT(A) had deleted this disallowance noting that sufficient owned interest free funds are available with the assessee and the fact that similar disallowance made in AY 2014-15 was deleted by the ITAT in its order passed [2020 (6) TMI 831 - ITAT AHMEDABAD]
Since the issue is covered by the decision of the ITAT in the case of the assessee for A.Y 2014-15, with no distinguishing facts being pointed out by the DR, we see no reason to interfere in the order of the CIT(A) deleting the disallowance made of interest expenses u/s 36(1)(iii) - Decided against revenue.
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2024 (1) TMI 1178
Penalty levied u/s. 271 (1)(c) - addition was on account of valuation of stock - HELD THAT:- Since this Tribunal has set aside the issue for fresh consideration. We deem it fit to restore the issue relating to the levy of penalty to the files of the AO with a direction to decide the levy or otherwise of the penalty after deciding the quantum as per the directions of this Tribunal in [2019 (3) TMI 1597 - ITAT DELHI]
Disallowance u/s. 14A - As assessee made suo motu disallowance under section 14A, but, assessing officer did not record any satisfaction as to how the disallowance made by the assessee was unreasonable or unsatisfactory. In the absence of any satisfaction recorded u/s 14A of the Income Tax Act, no disallowance could be made against assessee. Further, assessee has own sufficient funds to make investment, therefore, there is a presumption in favour of the assessee that assessee has used own funds to make investment in shares. Therefore, no addition under section 14A of the nature could be made against the assessee -. Since the addition has been deleted the penalty has no legs to stand. To this extent no penalty is leviable.
Appeal of the revenue is partly allowed for statistical purpose.
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2024 (1) TMI 1177
Addition u/s 69A - unexplained jewellery - search and seizure operation u/s 132 - jewellery as received on occasions and family functions - status of the family - appellant submits that the aforesaid jewellery was gifted to her on various occasions such as marriage, birth of children, etc.; such gifts are very common in Indian culture and society - HELD THAT:- As issues exactly similar to the case of Preeti Singh [2023 (11) TMI 1215 - ITAT DELHI] which was adjudicated by this Tribunal as held since assessee belonged to a wealthy family and jewellery was received on occasions from relatives, excess jewellery was very much reasonable and, thus, no addition under section 69A was called for.
Since the assessee has got sufficient return income, in the absence any change in the factual matrix and the legal preposition, the appeal of the assessee is hereby allowed.
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